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Annual Report 2010
Our performance in 2010
Contents
2
5
Letter to shareholders
Information sources
1. Strategy, performance
and responsibility
Financial performance
10 Strategy and structure
18 The making of UBS
20 Current market climate and industry drivers
22 Regulatory developments
25 Risk factors
31
32 Measurement and analysis of performance
35 Accounting and reporting structure changes
37 UBS results
44 Balance sheet
48 Off-balance sheet
53 Cash flows
54 Our employees
59 Corporate responsibility
2. UBS business divisions and
Corporate Center
74 Wealth Management & Swiss Bank
85 Wealth Management Americas
92 Global Asset Management
Investment Bank
102
109 Corporate Center
3. Risk and treasury
management
116 Risk management and control
120 Credit risk
134 Market risk
141 Operational risk
143 Risk concentrations
146 Treasury management
147
153
155 Capital management
160 Shares and capital instruments
163 UBS shares in 2010
166 Basel II Pillar 3
Liquidity and funding management
Interest rate and currency management
4. Corporate governance
and compensation
190 Corporate governance
191 Group structure and shareholders
193 Capital structure
196 Shareholders’ participation rights
198 Board of Directors
205 Group Executive Board
210 Change of control and defense measures
211 Auditors
213
215 Regulation and supervision
218 Compliance with NYSE listing standards on corporate
Information policy
governance
220 Compensation
222 Compensation governance
224 Total Reward Principles
227 Overview of our compensation model
232 Deferred variable compensation plans
237 Compensation funding and expenses
240 2010 compensation for the Group Executive Board and
Board of Directors
5. Financial
information
Introduction and accounting principles
254
255 Critical accounting policies
259 Consolidated financial statements
273 Notes to the consolidated financial statements
379 UBS AG (Parent Bank)
379 Parent Bank review
380 Parent Bank financial statements
383 Notes to the Parent Bank financial statements
405 Additional disclosure required under SEC regulations
405 A – Introduction
406 B – Selected financial data
410 C – Information on the company
411 D – Information required by industry guide 3
1
Annual Report 2010
Letter to shareholders
Dear Shareholders,
2010 was a year of substantial improvement for us. We
achieved a net profit attributable to UBS shareholders of CHF 7.5
billion1, compared with a loss of CHF 2.7 billion in 2009. Our re-
turn on equity for 2010 improved to 16.7% from negative 7.8%
at the end of 2009. We believe that providing outstanding levels
of execution and delivering sustainable profitability are the cor-
nerstones on which we can build a successful future, and that the
progress we made during 2010 has enhanced our reputation with
stakeholders.
Sustaining this progress will require us to continue to act
with discipline and integrity, and to maintain a sharp focus
on achieving our targets. During the year we increased reve-
nues by CHF 9 billion compared with 2009, while at the same
time reducing overall risk levels. We maintained discipline over
our cost base, achieving our targeted fixed costs of less than CHF
20 billion. Our clients have once again entrusted us with net new
money, with net inflows stabilizing in the second half of the year.
Profits for 2010 were a key driver of the increase in our Basel II tier
1 capital ratio, which stood at an industry-leading 17.8% at the
year-end. While our results for 2010 showed a marked improve-
ment, we have far greater ambitions. In 2011 we will continue to
build further on our achievements.
Most of our business divisions showed an improvement
compared with 2009. In Wealth Management, client confi-
dence remained subdued in volatile markets, affecting overall
transaction volumes. Market rates of interest also remained low
during the year. Against this backdrop, Wealth Management‘s pre-
tax profit increased to CHF 2,308 million compared with CHF 2,280
million in 2009, mainly as a result of reduced operating expenses.
Total operating income declined marginally on lower interest in-
come reflecting the interest rate environment as well as the effects
of foreign exchange on our results, particularly the decrease in the
value of the euro and US dollar against the Swiss franc. Fee income
decreased on a lower average asset base, but trading income in-
creased reflecting the work we have done to further strengthen
our advisory relationship with clients. Invested assets declined by
7% as foreign exchange movements and outflows more than off-
set positive investment performance. Operating expenses declined
by 3% mainly reflecting reduced personnel and restructuring costs.
In Retail & Corporate, pre-tax profit increased by 9% to CHF
1,772 million compared with 2009. Total operating income re-
mained broadly stable, with net interest income impacted by low
market interest rates. Operating expenses were reduced by 8%,
reflecting cost-cutting measures initiated in 2009.
Wealth Management Americas reported a pre-tax loss of CHF
130 million compared with a pre-tax profit of CHF 32 million in
2009. The result belies the considerable operational progress made
during the year, the benefits of which were more than offset by a
significant increase in litigation provisions. We believe the restruc-
turing of this business over the past year will allow us to leverage
our strong competitive positioning going forward. Retaining talent
within the business is key, and we are encouraged that financial
advisors with us for more than one year delivered a strong perfor-
mance, especially in the fourth quarter. Operating income was flat,
with improved managed account fees and higher mutual fund rev-
enues offset by a decrease in municipal trading income. Net new
money trends in the business are encouraging, with the business
delivering positive net new money in the second half of the year.
In 2010, Global Asset Management continued to build on its
already sound investment track record with a pre-tax profit of
CHF 516 million, an increase of 18% compared with 2009. This
was achieved despite a decrease in invested assets as positive
investment performance and net new money inflows were more
than offset by negative currency effects. Operating income was
down by 4% due to lower performance fees and lower revenues
also reflecting the sale of UBS Pactual. Operating expenses de-
creased by 9%.
Our Investment Bank contributed most to the improvement in
our 2010 results, recording a pre-tax profit of CHF 2,197 million
compared with a pre-tax loss of CHF 6,081 million in 2009. This
was primarily due to a reversal of losses in our fixed income, cur-
rencies and commodities business and reflects the rebuild of our
credit business where revenues rose significantly. In 2010 we re-
corded considerably lower net credit loss expenses and lower own
credit losses, partly offset by an increase in operating expenses.
We continued to maintain tight control over our risks and
balance sheet alongside improvements in profitability over
the year. Risk-weighted assets were reduced by 4% during the
year to CHF 199 billion, and, on 31 December 2010, our balance
sheet stood at CHF 1,317 billion, down 2% compared with the
prior year. The increase in our regulatory capital, together with a
reduction in risk-weighted assets, led to an improvement of our
BIS tier 1 capital ratio to 17.8% compared with 15.4% at the end
of 2009.
During 2010 the regulatory landscape shifted substantial-
ly with the expectation of more stringent regulatory re-
quirements becoming a reality. New global regulatory pro-
1 Our 2010 results were adjusted after the issuance of our fourth quarter 2010 report. The adjustment, which increased the net profit attributable to UBS shareholders by CHF 373 million, is explained in Note 33 to
the financial statements included in our Annual Report 2010.
2
Kaspar Villiger Chairman of the Board of Directors Oswald J. Grübel Group Chief Executive Officer
posals were finalized by the Basel Committee on Banking
Supervision early this year, and the Swiss Federal Council pub-
lished draft legislation for Swiss banks based on the recommen-
dations of the Swiss Expert Commission and designed to address
the “too big to fail” issue. These proposals are due to be de-
bated in the Swiss Parliament later this year. We will continue to
evaluate the impacts of these changes, especially the effect that
they may have on the profitability of our businesses, and, where
necessary, we will take appropriate action. As previously stated,
we will retain earnings in order to meet the recommended fu-
ture capital requirements.
Recent quarters have demonstrated that our results for cer-
tain divisions, and for the Group as a whole, are highly sensi-
tive to regulatory, legal and tax developments. In 2011, we
believe that we may have opportunities to recognize further deferred
tax assets in our results. We also expect that provisions for litigation
and other contingencies will continue to affect us, although the tim-
ing and magnitude of these developments are not predictable.
In the current environment it is more important than ever
that we focus on our clients’ needs. During the year we con-
tinued to implement our global and integrated bank strategy. We
3
Annual Report 2010
Letter to shareholders
improved the way in which we deliver our products and services
to clients, which in turn should help us achieve further revenue
growth. As part of this strategy we established our Investment
Products and Services unit. We believe that this unit will play a
crucial role, ensuring that our clients receive fast and efficient ac-
cess to products and services tailored to their individual needs.
Alongside this we set up our Global Family Office Group, catering
to the often complex needs of many of the world‘s wealthiest
families.
We continued our tradition of supporting the local commu-
nities in which we live and work. We believe that our success
stems not only from our employees’ skills and resources and from
our relationships with our clients, but also from a healthy social
environment. All over the world, our regional Community Affairs
teams organize a wide variety of charitable activities in addition to
direct donations made by the firm. Across all of our business re-
gions, our employees continue to play a very active role in our
community investment efforts, in particular through their volun-
teering activities. In 2010, our employees spent nearly 81,000
hours volunteering. 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 2010 we also
announced our support of the UBS Kids Cup, an athletics compe-
tition in Switzerland involving up to 70,000 children aged 7 to 15,
helping to promote health and well-being.
During the year there were signs of improved client confi-
dence in UBS. Building on this momentum, in August we launched
our new brand campaign, our first global campaign for two years.
The “We will not rest” campaign conveys our commitment to and
focus on our clients at every level of the organization.
The ultimate responsibility for the firm’s strategy and the
supervision of its executive management rests with the
Board of Directors. We welcome the announcement that Joseph
Yam, founder and former Chief Executive of the Hong Kong Mon-
etary Authority, has been nominated for election to the Board. His
expected appointment following the 2011 Annual General Meet-
ing should further strengthen UBS’s Board of Directors, allowing us
to benefit from his considerable experience. We recently an-
nounced that Sally Bott has resigned from the Board. We would
like to express our gratitude to Sally for her outstanding contribu-
tions and great commitment during the past two and a half years.
2010 was a year of substantial improvement in our financial
performance and our financial condition, and we would
like to take this opportunity to thank you, our sharehold-
ers, for your continued support, and all of our employees
for their hard work and commitment. In 2011, we are confi-
dent that we can consolidate the progress already made through-
out the firm, helping to deliver our goal of long-term sustainable
profitability for our shareholders.
15 March 2011
Yours sincerely,
UBS
Kaspar Villiger
Chairman of the
Board of Directors
Oswald J. Grübel
Group Chief
Executive Officer
4
Information sources
Reporting publications
Annual publications: Annual report (SAP no. 80531): Published
in both English and German, this single volume report provides a
description of: our UBS Group strategy, performance and respon-
sibility; the strategy and performance of the business divisions
and the Corporate Center; risk and treasury management; corpo-
rate governance and senior management and Board of Directors
compensation; and financial information, including the financial
statements. Review (SAP no. 80530): The booklet contains key
information on our strategy and financials. It is published in Eng-
lish, German, French and Italian. Compensation Report (SAP no.
82307): The report discusses compensation for senior manage-
ment and the Board of Directors (executive and non-executive
members). It is published in English and German.
Quarterly publications: Letter to shareholders: The letter pro-
vides a quarterly update from executive management on our
strategy and performance. The letter is published in English, Ger-
man, French and Italian. Financial report (SAP no. 80834): The
quarterly financial report provides an update on our strategy and
performance for the respective quarter. It is published in English.
How to order reports
The annual and quarterly publications are available in PDF format on
the internet at www.ubs.com/investors/topics in the “Financial in-
formation” 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 preference where applicable, from
UBS AG, F2AL-AUL, P.O. Box, CH-8098 Zurich, Switzerland.
Other information
Website: The “Analysts & Investors” section at www.ubs.com/
investors provides the following information on UBS: financial in-
formation (including SEC results-related filings); corporate infor-
mation, including UBS share price charts and data and dividend
information; the UBS event calendar; and presentations by man-
agement for investors 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 presentations are
webcast live. A playback of most presentations 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 prefer-
ences 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 re-
port 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 pre-
sented 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 refer-
ence room at 100 F Street, N.E., Room 1580, Washington, DC,
20549. Please call the SEC by dialing +1-800-SEC-0330 for fur-
ther 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 results-re-
lated filings with the SEC may be obtained from our Investor Rela-
tions team at www.ubs.com/investors.
5
Annual Report 2010
Corporate information
The legal and commercial name of the company is
UBS AG. The company was formed on 29 June
1998, when Union Bank of Switzerland (founded
1862) and Swiss Bank Corporation (founded
1872) merged to form UBS.
UBS AG is incorporated and domiciled in
Switzerland and operates under Swiss Company
Law and Swiss Federal Banking Law as an
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 and the New York Stock Exchange.
Contacts
Switchboards
For all general queries.
Zurich +41-44-234 1111
London +44-20-7568 0000
New York +1-212-821 3000
Hong Kong +852-2971 8888
Investor Relations
UBS’s Investor Relations team supports institu-
tional, professional and retail investors from our
offices in Zurich and New York.
UBS AG, Investor Relations
P.O. Box, CH-8098 Zurich, Switzerland
sh-investorrelations@ubs.com
www.ubs.com/investors
Hotline +41-44-234 4100
New York +1-212-882 5734
Fax (Zurich) +41-44-234 3415
Media Relations
UBS’s Media Relations team supports global media
and journalists from offices in Zurich, London,
New York and Hong Kong.
Shareholder Services
UBS’s Shareholder Services team, a unit of the
Company Secretary office, is responsible for
the registration of the global registered shares.
www.ubs.com/media
Zurich +41-44-234 8500
mediarelations@ubs.com
London +44-20-7567 4714
ubs-media-relations@ubs.com
New York +1-212-882 5857
mediarelations-ny@ubs.com
Hong Kong +852-2971 8200
sh-mediarelations-ap@ubs.com
Office of the Company Secretary
The Company Secretary receives queries on
compensation and related issues addressed to
members of the Board of Directors.
UBS AG, Office of the Company Secretary
P.O. Box, CH-8098 Zurich, Switzerland
sh-company-secretary@ubs.com
Hotline +41-44-234 3628
Fax +41-44-234 6603
UBS AG, Shareholder Services
P.O. Box, CH-8098 Zurich, Switzerland
sh-shareholder-services@ubs.com
Hotline +41-44-235 6202
Fax +41-44-235 3154
US Transfer Agent
For all global registered share-related queries
in the US.
BNY Mellon Shareowner Services
480 Washington Boulevard
Jersey City, NJ 07310, USA
sh-relations@melloninvestor.com
www.melloninvestor.com
Calls from the US +866-541 9689
Calls outside the US +1-201-680 6578
Fax +1-201-680 4675
Corporate calendar
Imprint
Publication of first quarter 2011 results
Tuesday, 26 April 2011
Annual General Meeting
Thursday, 28 April 2011
Publication of second quarter 2011 results
Tuesday, 26 July 2011
Publication of third quarter 2011 results
Tuesday, 25 October 2011
Publisher: UBS AG, Zurich and Basel, Switzerland | www.ubs.com
Languages: English / German | SAP-No. 80531E
© UBS 2011. The key symbol and UBS are among the registered
and unregistered trademarks of UBS. All rights reserved.
6
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 GRI Sustainability Reporting Guidelines, as evidenced in the SGS Assurance Statement on page 70. The assurance
by SGS also covered text and data on the website of UBS. Both the relevant text in the Annual Report 2010 and on the website are
referenced in the GRI Index (www.ubs.com/gri), which defines the scope of the assurance. SGS has confirmed the level of assurance
as GRI A+.
Strategy and performance
– We are 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.
– We aim to generate sustainable earnings and create value for our shareholders.
Our strategic priorities
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 our leadership across all client segments in
Switzerland;
– attaining a top-tier position in the growth regions in which
we choose to operate; and
– remaining a leading investment bank with a client-centric
business model, focusing on flow trading and advice,
leveraging our traditional strengths and maximizing our scope
by working in close conjunction with our wealth manage-
ment and asset management businesses.
Re-focusing the business portfolio
We will further foster collaboration between our wealth
management, asset management and investment banking
businesses, reflecting our commitment to serve our clients
comprehensively across all segments. We believe this will
improve our operating and financial results and will generate
more shareholder value. From a geographic perspective, we
want to leverage our strong existing global footprint. We are
continuously investing in our Asia Pacific businesses as well as
other growth markets such as the Middle East and Latin
America.
Transforming the way we operate
Our transformation is geared towards exploiting the full
potential of our strengths based on our three strategic guidelines
of reputation, integration and execution.
Our reputation is our most valuable asset. It is ultimately defined
by the actions and decisions we take every day. In order to
restore and safeguard our reputation, we have introduced more
disciplined and effective governance processes.
Integration is a key factor in serving our clients and driving
efficiencies across our businesses, and is essential to our ability
to achieve our financial targets. Integration is being achieved
through a series of measures, including several dedicated
client-related initiatives around the globe, and related improve-
ments in client coverage and management processes.
We are committed to execution at the highest standards,
ensuring consistent high-quality delivery to clients as well as
within the firm. Furthermore, we are further developing our
performance-oriented culture to help us to attract, develop and
retain top industry talent.
UBS key figures
CHF million, except where indicated
Group results
Operating income
Operating expenses
Operating profit from continuing operations before tax
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
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As of or for the year ended
31.12.10
31.12.09
31.12.08
31,994
24,539
7,455
7,534
1.96
16.7
15.5
2.3
N/A
(14.3)
76.5
17.8
4.45
22,601
25,162
(2,561)
(2,736)
(0.75)
(7.8)
9.9
1.5
N/A
(147.3)
796
28,555
(27,758)
(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
1,317,247
1,340,538
2,014,815
46,820
20.4
198,875
35,323
2,152
64,617
58,803
41,013
19.8
206,525
31,798
2,233
65,233
57,108
32,531
15.0
302,273
33,154
2,174
77,783
43,519
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 “Measurement and analy-
sis 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 2010” section of this report.
The 2010 results and the balance sheet in this report differ from those presented in our fourth quarter 2010 report issued on 8 Feb-
ruary 2011. The net impact of adjustments made subsequent to the publication of the unaudited fourth quarter 2010 financial
report on net profit attributable to UBS shareholders was a gain of CHF 373 million, which increased basic and diluted earnings per
share by CHF 0.10.
➔ Refer to “Note 33 Events after the reporting period” in the “Financial information” section of this report for more information
Strategy, performance and responsibility
Strategy and structure
Strategy and structure
UBS draws on its 150-year heritage to serve private, institutional and corporate clients worldwide, as well as retail
clients in Switzerland. We combine our wealth management, investment banking and asset management businesses
with our Swiss operations to deliver superior financial solutions. Headquartered in Zurich and Basel, Switzerland, UBS
has offices in more than 50 countries, including all major financial centers, and employs approximately 65,000 people.
Under Swiss company law, UBS is organized as an Aktiengesellschaft, a corporation that has issued shares of common
stock to investors.
UBS business model and aspiration
UBS AG is the parent company of the UBS Group (Group). The
operational structure of the Group comprises the Corporate Cen-
ter and four business divisions: Wealth Management & Swiss
Bank, Wealth Management Americas, Global Asset Management
and the Investment Bank.
In aspiring to be a leading client-focused financial services firm,
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 our leadership across all client segments in Switzer-
land;
– attaining a top-tier position in the growth regions in which we
choose to operate; and
– remaining a leading investment bank with a client-centric busi-
ness model, focusing on flow trading and advice, leveraging
our traditional strengths and maximizing our scope by working
in close conjunction with our wealth management and asset
management businesses.
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank focuses on delivering compre-
hensive 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. Our Wealth Management business unit pro-
vides clients in over 40 countries, including Switzerland, with fi-
nancial advice, products and tools to fit their individual needs. Our
Retail & Corporate business unit provides individual and business
clients with an array of banking services, such as deposits and
lending, and maintains a leading position across its client seg-
ments in Switzerland.
Wealth Management Americas
Wealth Management Americas provides advice-based solutions
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 affluent individu-
als and families. It includes the domestic United States business
(Wealth Management US), the domestic Canadian business and
international business booked in the United States.
Global Asset Management
Global Asset Management is a large-scale asset manager with
businesses diversified across regions, capabilities and distribution
channels. It offers investment capabilities and styles across all ma-
jor traditional and alternative asset classes including equities,
fixed income, currency, hedge fund, real estate and infrastructure
that can also be combined into multi-asset strategies. The fund
10
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services unit provides legal fund set-up and accounting and re-
porting for retail and institutional funds.
Investment Bank
The Investment Bank provides securities and other financial prod-
ucts and research in equities, fixed income, rates, foreign ex-
change and commodities. It also provides advisory services and
access to the world’s capital markets for corporate and institu-
tional clients, sovereign and governmental bodies, financial inter-
mediaries, alternative asset managers and private investors.
Corporate Center
The Corporate Center provides and manages support and control
functions for the Group in such areas as risk control, finance, legal
and compliance, funding, capital and balance sheet manage-
ment, management of non-trading risk, communication and
branding, human resources, information technology, real estate,
procurement, corporate development and service centres. Most
costs and personnel of the Corporate Center are allocated to the
business divisions.
➔ Refer to the “Accounting and reporting structure changes” and
“UBS business divisions and Corporate Center” sections of this
report for more information on our businesses
UBS‘s competitive profile
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 maintains a strong pres-
ence among global corporate and institutional clients, and holds
leading positions in equities, foreign exchange, money markets,
mergers and acquisitions and financial advisory services. In the
Asia Pacific region, we operate leading investment banking,
wealth management and asset management businesses.
UBS‘s strategy
At the end of 2009, we established strategic objectives to improve
our financial performance and reposition the firm in order to gen-
erate sustainable profitability and increased shareholder value.
These strategic objectives and the related medium-term financial
targets were reiterated at our Investor Day in November 2010.
Our strategy is built on two primary pillars: re-focusing our busi-
ness portfolio to fully capitalize on our strengths, and transform-
ing the way we operate, exploiting the full potential of our
strengths based on our three strategic guidelines of reputation,
integration and execution. We are delivering against this strategy
and have made progress in improving our financial performance
during 2010.
Our business mix reflects decades of continuous development,
organic growth and acquisitions. As a leader in the wealth man-
agement industry in terms of total invested assets, we offer a
combination of wealth management, investment banking and
asset management and services in local and regional markets.
Specifically, we are a leading wealth manager in Switzerland,
Europe, and the Asia Pacific region and are well positioned in
Re-focusing the business portfolio
We will further foster collaboration between our wealth man-
agement, asset management and investment banking business-
es, reflecting our commitment to serve our clients comprehen-
sively across all segments. We believe this will improve our
operating and financial results and will generate more share-
holder value.
11
Strategy, performance and responsibility
Strategy and structure
The Investment Bank’s strategy is centered on an aligned and
integrated client-centric business model, built around flow trading
and advice, and is supported by a disciplined risk control frame-
work. The existing capabilities in equities and fixed income, cur-
rencies and commodities have been unified into one integrated
securities platform to better serve our clients. We will continue to
review the Investment Bank’s business mix to take into account
changes in law affecting certain businesses, increased capital re-
quirements and market developments.
In Wealth Management, we are focusing on capturing growth
opportunities in Asia, the emerging markets and the ultra high net
worth segment, while transforming our cross-border business and
building on our onshore presence in key markets. Our Retail & Cor-
porate business unit aims to further strengthen our leading position
in Switzerland, working together with our other businesses.
The geographic and stylistic diversification of Global Asset
Management is at the core of our efforts to deliver superior in-
vestment performance for clients and capture growth opportuni-
ties. Additionally, we are working to expand on our strong third-
party institutional business.
In Wealth Management Americas, we have shifted from a
scale-driven model to one based on advice, led by our financial
advisors and focused on high net worth and ultra high net worth
clients. We believe this shift in strategy will lead to sustainable
profitability.
From a geographic perspective, we want to leverage our strong
existing global footprint. We are continuously investing in our
Asia Pacific businesses as well as other growth markets such as
the Middle East and Latin America. For example, in April 2010, we
announced that we would acquire the Brazilian brokerage firm,
Link Investimentos (subject to regulatory approval), a key mile-
stone in our efforts to re-build our presence in Brazil and expand
our footprint in Latin America.
➔ Refer to the “UBS business divisions and Corporate Center”
section of this report for more information on the business
division strategies
Transforming the way we operate
Our transformation is geared towards exploiting the full potential
of our strengths based on our three strategic guidelines of reputa-
tion, integration and execution.
Our reputation is our most valuable asset. It is ultimately de-
fined by the actions and decisions we take every day. In order to
restore and safeguard our reputation, we have introduced more
disciplined and effective governance processes. The resolution of
the US-cross-border issue in November 2010 was one important
UBS Switzerland
We are committed to our Swiss home
market. Switzerland is the only country in
which retail, corporate and institutional
banking, wealth and asset management
as well as investment banking are present.
We strive to be the leading bank with
regard to client satisfaction, employee
engagement and sustainable profitability.
Within the Swiss market, we maintain a
leading position in all of our businesses.
Through our network of over 300
branches including around 4,700
client-facing staff, we reach approximately
80% of Swiss wealth. We serve every
third household, every third wealthy
individual and almost half of all Swiss
companies.
Our strategy leverages our strengths and
leading position in Switzerland and our
integrated bank model allows us to offer
a very broad range of products and
services to our clients. For example, we
can offer our private clients banking
products and services needed throughout
their lives, ensuring the stability and
continuity of the relationship. The same
holds true for our corporate and institu-
tional clients. We also offer our clients in
Switzerland access to our global asset
gathering and investment banking
expertise.
UBS Switzerland operates with an
integrated management team consisting
of the heads of all Swiss business
segments and support functions.
12
step in this process. Also, we launched a new corporate identity
program in 2010, including the world-wide brand campaign “We
will not rest”, and a corresponding sponsorship strategy to raise
our brand awareness.
Integration is a key factor in serving our clients and driving effi-
ciencies across our businesses and is essential to our ability to achieve
our financial targets. Integration is being achieved through a series
of measures, including several dedicated client-related initiatives
around the globe, and related improvements in client coverage and
management processes. For example, we have established our In-
vestment Products and Services (IPS) unit, bringing together experts
from Wealth Management & Swiss Bank, Global Asset Management
and the Investment Bank under one roof. IPS efficiently delivers high
quality investment content and channels market and product ideas
to our client advisors and clients in a prompt and efficient way, rais-
ing the quality of service for our Wealth Management clients.
We are committed to execution at the highest standards, en-
suring consistent high-quality delivery to clients as well as within
the firm. Furthermore, we are further developing our perfor-
mance-oriented culture to help us to attract, develop and retain
top industry talent. As part of this effort, we have introduced new
performance review tools and processes that allow us to identify
problem areas and to initiate corrective measures.
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Strategy, performance and responsibility
Strategy and structure
Board of Directors
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1 Kaspar Villiger Chairman of the Board of Directors, Chairperson of the Corporate Responsibility Committee and Governance and Nominating Committee
2 Michel Demaré Independent Vice Chairman, member of the Audit Committee and Governance and Nominating Committee 3 Axel P. Lehmann Member
of the Risk Committee 4 Rainer-Marc Frey Member of the Audit Committee and Risk Committee 5 Bruno Gehrig Member of the Governance and
Nominating Committee and Human Resources and Compensation Committee 6 Ann F. Godbehere Member of the Audit Committee and Corporate
Responsibility Committee 7 William G. Parrett Chairperson of the Audit Committee 8 Helmut Panke Ad-interim Chairperson of the Human Resources and
Compensation Committee and member of the Risk Committee 9 Wolfgang Mayrhuber Member of the Corporate Responsibility Committee and Human
Resources and Compensation Committee 10 David Sidwell Senior Independent Director, Chairperson of the Risk Committee
14
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The Board of Directors (BoD) is our most senior body. Under
the leadership of the Chairman, it determines the strategy of
the Group based upon the recommendations of the Group
Chief Executive Officer (Group CEO). It exercises ultimate
supervision of management and is responsible for the appoint-
ment and dismissal of all Group Executive Board (GEB)
members, the Company Secretary and the head of Group
Internal Audit as well as supervising and setting 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
15
Strategy, performance and responsibility
Strategy and structure
Group Executive Board
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1 Oswald J. Grübel Group Chief Executive Officer 2 John Cryan Group Chief Financial Officer and ad-interim Chairman and CEO of UBS Group Europe, Middle
East & Africa 3 Markus U. Diethelm Group General Counsel 4 John A. Fraser Chairman and CEO of Global Asset Management 5 Maureen Miskovic
Group Chief Risk Officer 6 Chi-Won Yoon co-Chairman and co-CEO of UBS Group Asia Pacific 7 Ulrich Körner Group Chief Operating Officer and CEO of
Corporate Center 8 Robert J. McCann CEO of Wealth Management Americas 9 Lukas Gähwiler CEO of UBS Switzerland and co-CEO of Wealth Management
& Swiss Bank 10 Carsten Kengeter Chairman and CEO of the Investment Bank 11 Alexander Wilmot-Sitwell co-Chairman and co-CEO of UBS Group Asia
Pacific 12 Jürg Zeltner CEO of UBS Wealth Management and co-CEO of Wealth Management & Swiss Bank 13 Philip J. Lofts CEO of UBS Group Americas
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Management of the firm is delegated by the BoD to the GEB.
Under the leadership of the Group CEO, the GEB has executive
management responsibility for the Group and its businesses. It
assumes overall responsibility for the development of the
Group and business division strategies and the implementation
of approved strategies.
➔ Refer to the “Corporate governance” section of this report for
more information about the GEB
17
Strategy, performance and responsibility
The making of UBS
The making of UBS
When, in 1998, the Union Bank of Switzerland and the Swiss Bank
Corporation (SBC) merged to form UBS, they could look back on a
long and illustrious history. By 1962, the Union Bank of Switzer-
land had already celebrated its 100th anniversary, as Bank in Win-
terthur, its first forebear, was founded in 1862. SBC passed its
centenary in 1972, tracing its origins back to the Basler Bankverein
founded in 1872. The historical roots of PaineWebber, acquired by
UBS in 2000, go back to 1879, while S. G. Warburg, one of the
major pillars upon which today’s Investment Bank was built, com-
menced operations in 1946, with its roots going back to 1934.
In the early 1990s, SBC and Union Bank of Switzerland were
both commercial banks operating mainly out of Switzerland. The
two banks shared a similar vision: to become a world leader in
wealth management and a global bulge-bracket investment bank
with a strong position in global asset management, while remain-
ing an important commercial and retail bank in Switzerland.
Union Bank of Switzerland, the largest and best-capitalized
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-
oriented approach. 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 manage-
ment 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 SBC fill a
strategic gap 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 combination of SBC and Union Bank of Switzerland
into the firm we know today created a leading global wealth
manager and improved the new firm’s prospects of becoming a
global bulge-bracket investment bank and a leading global insti-
tutional asset manager.
Still, in order to become a truly global player in investment
banking and wealth management, UBS needed to establish a sig-
nificant presence in the United States. UBS advanced 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, but smaller acquisitions
have helped to accelerate and complement the firm’s growth. To-
day, 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
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19
Strategy, performance and responsibility
Current market climate and industry drivers
Current market climate and industry drivers
The quest for greater systemic stability continues and its resilience has been tested once again by the euro crisis.
Emergence from the financial crisis amid continued
uncertainties
Global growth accelerated in the first half of 2010, as companies
restocked their inventories and improved consumer confidence
kick-started spending. Monetary policies remained expansionary
in nature given the continuing fragility of the economic recovery.
Emerging economies exited the crisis relatively unscathed and
with improved economic, financial and fiscal positions in com-
parison with developed economies. Re-leveraging started across
emerging markets at a time when de-leveraging was the norm in
most developed markets, and China overtook Japan as the big-
gest Asian economy.
Following turbulence in some emerging market bond markets
earlier in the year, renewed macro concerns in the second half of
2010 largely revolved around European sovereign credit risks. At
their November meeting in Seoul, G20 leaders failed to reconcile
their differences with respect to exchange rate policy and the fis-
cal route map going forward, limiting their agreement to “indica-
tive guidelines” on how to rein in current account imbalances.
Although re-regulation aimed at increasing the stability of the
global financial system remained a major topic of discussion
throughout the year, the G20 moved more slowly and cautiously
than expected, mainly due to the differing views among mem-
bers. The main achievement was the agreement on Basel III rules
and the endorsement of the Financial Stability Board’s route map
for the regulation of systemically important financial institutions.
Macro uncertainties continued to overshadow the guardedly
optimistic banking sector fundamentals that appeared to be re-
covering faster than anticipated in the first half of 2010. Market
conditions in the second half of 2010 deteriorated, particularly
with respect to client activity levels and fixed income businesses.
As the global economy readjusted to tempered growth, financial
markets continued their rollercoaster ride. During 2010, the
hoarding of cash, which resulted in record highs at the end of the
crisis, had somewhat reversed.
ment and subsequent development of the common currency itself
as in the effects of the financial market crisis. When the global
recession struck in 2008, much of the debt accumulated mostly
(but not exclusively) in the private sectors of some European Mon-
etary Union (EMU) countries became unsustainable. The govern-
ments faced falling tax revenues, rising social outlays and costs for
supporting their economies and their failing financial institutions.
Public debt-to-gross domestic product (GDP) ratios in the EMU
rose by around 20 percentage points on average. The weaker and
most severely affected countries saw their annual public deficits
swell to double-digit levels as a percentage of GDP. Holders of
government bonds grew increasingly nervous about their invest-
ments, triggering today’s sovereign debt crisis in Europe.
The response to the Greek crisis included a EUR 110 billion
rescue loan package to prevent a debt default, fiscal austerity
measures to regain investors’ confidence and structural reforms
to improve competitiveness. Defaulting and restructuring debt
was not seriously considered for fear of spreading Greece’s prob-
lems to other high-debt / high-deficit countries and the western
European banking sector.
The crisis flared up again in November – in Ireland. In contrast
to Greece, Ireland’s fiscal profile had been among the soundest in
the Eurozone. But low interest rates sparked a veritable credit
binge and one of the world’s biggest housing bubbles, financed in
large part by Irish banks. Since this bubble burst in 2008, the Irish
banking system has been in serious disarray. Holders of Irish debt
became increasingly nervous about the situation, and the country
agreed to a loan program totaling EUR 85 billion.
The immediate market reaction to the Irish rescue package was
anything but reassuring. In fact, the markets’ concern spread not
only to the more obvious candidates like Portugal and Spain, but
also to Italy, Belgium and even France. Only at the start of 2011
did a closing of ranks among the EU political leaders allow the
containment of the immediate euro crisis, although the underly-
ing fundamental issues remain.
Macroeconomic perspectives
Euro crisis
Europe’s sovereign debt crisis resulted in a major dip in confidence
in the euro. The situation had its origins as much in the establish-
The global recovery, while weak, appears to be increasingly self-
sustaining. We believe that the global economy has the potential
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to grow at between 3% and 4% in the medium term, a moderate
rate of growth compared with previous recovery years. However,
this global figure masks distinct regional discrepancies. The US is
likely to show slower growth than during the period 1982–2007.
Among the factors responsible for this are the de-leveraging of
the private sector, re-regulation of financial intermediaries, the
surge of public debt and the subsequent need to repair the public
sector balance sheet. A subdued recovery remains the most likely
US scenario as the stimulus-induced boom has come to a definite
end. Generally, spare capacity in the western world will only be
slowly re- absorbed, keeping inflation rates in most countries sub-
dued (with the notable exception of the UK), while requiring fur-
ther monetary easing, including via asset purchases (i.e. quantita-
tive easing).
In Europe, we are seeing decoupling between regions as well
as fragmentation within them. Germany and other northern Eu-
ropean countries have benefited most from the global recovery
and the euro’s depreciation, while the south is lagging behind and
is under austerity pressure. This major divergence will likely con-
tinue to challenge the euro.
In Asia, some developments seem to flag potential risks, such
as incipient asset bubbles in specific market segments and an ac-
celeration of inflation in some countries. Most Asian countries
have started to tighten their monetary and credit policies. Other
large emerging markets (e.g. Brazil) can rely on robust domestic
demand in order to maintain stable growth, though some risk of
overheating exists as a result.
Industry drivers
A number of drivers have a significant impact on banks’ earnings
as well as the structure of the financial services industry. The most
relevant factor over the coming years will be the new business
environment arising out of regulatory reform. This is likely to have
far reaching and transformational consequences for markets, firm
structures and business models.
➔ Refer to the “Regulatory developments” section for
more information
Increasing role of emerging market banks
Emerging market banks came out of the global financial crisis in
much better shape than their peers in developed markets, given
their limited exposure to the US sub-prime market. As such, their
capital position, on average, is already well above the Basel mini-
mal requirement for 2019. Global emerging market banks are also
strongly funded with deposits, which, together with a mostly sup-
portive macro outlook, make them well positioned to capture fu-
ture growth. In 2010, a number of emerging market countries
enacted additional regulations for local banks. These include high-
er reserve requirements (China, India, Indonesia, and Turkey), more
stringent provisioning (India, Indonesia and Mexico), compulsory
lending (Korea), banking taxes (Hungary) and mortgage restric-
tions (China, Hong Kong, India, Malaysia, Poland and Thailand).
Demographics
The demographic dividend brought by a fall in child dependency
and a rise in the share of the working population has been ex-
hausted in western countries, and will soon be exhausted in a few
developing countries (e.g. China). For most of the developing
world this point lies 20–30 years ahead. Countries that have lost
the demographic dividend will confront fiscal and social stresses
from increases in the old age dependency ratio. In Japan, today
there are 3.4 people working for every person over 65. By 2050,
it is estimated the ratio will be 1.3. In Western Europe the ratio
would fall from nearly four to two. Many pension funds – particu-
larly pay-as-you-go public pensions – are underfunded, leaving
many with insufficient retirement income. As baby-boomers re-
tire, they will roll over trillions of assets from defined contribution
plans and individual retirement accounts to other accounts. The
need for stable income will increase the demand for fixed income
investments and target date funds.
(cid:38)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:79)(cid:67)(cid:76)(cid:81)(cid:84)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:69)(cid:75)(cid:71)(cid:85)(cid:2)(cid:88)(cid:71)(cid:84)(cid:85)(cid:87)(cid:85)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:72)(cid:84)(cid:67)(cid:80)(cid:69)
(cid:43)(cid:80)(cid:2)(cid:7)
Changing business models
Changes in regulation are expected to have a profound effect on
banks’ business models. In view of the pressure that the new cap-
ital requirements and other regulatory principles, as stipulated by
the Basel Committee and other bodies, will put on asset invento-
ry-based future returns, the industry is currently reassessing its
business portfolios and models. This is particularly true in the case
of fixed income. However, structural changes are unlikely to hap-
pen in the short term.
(cid:19)(cid:20)(cid:18)
(cid:19)(cid:19)(cid:18)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:27)(cid:18)
(cid:2)(cid:26)(cid:18)
(cid:19)(cid:51)(cid:19)(cid:18)
(cid:20)(cid:51)(cid:19)(cid:18)
(cid:21)(cid:51)(cid:19)(cid:18)
(cid:22)(cid:51)(cid:19)(cid:18)
(cid:55)(cid:53)(cid:38)
(cid:39)(cid:55)(cid:52)
(cid:41)(cid:36)(cid:50)
21
Strategy, performance and responsibility
Regulatory developments
Regulatory developments
Banking sector re-regulation remained high on the agenda throughout 2010. The pace of regulatory reform often varies
among countries, raising the prospect of an uneven playing field among banks. Regulatory reforms will have a signifi-
cant impact on capital levels, future revenue and earnings, and ultimately investment returns for the banking sector as
a whole. In particular, the impact will be felt in certain business areas, such as fixed income.
Global capital and liquidity standard – Basel III
The enhanced Basel II framework (increased weighting of market
risks) and Basel III capital requirements mandate that banking
businesses will have to be underpinned by a higher quantity and
quality of capital going forward. The definition of core tier 1 cap-
ital (common equity) will be more restrictive. Risk-weighted assets
(RWA) will rise significantly, notably at banks with large trading
portfolios, due to the introduction of additional charges as well as
increased calibration percentages. It will take some time to imple-
ment fully the Basel reforms and global standards, and, as a re-
sult, the focus is on local regulations and their comparison. It is
apparent that the pace of regulatory change varies considerably
from country to country, and it is likely that there will be different
rules in different jurisdictions.
On 26 July 2010, the Group of Governors and Heads of Su-
pervision, the oversight body of the Basel Committee on Bank-
ing Supervision (BCBS), reached a broad agreement on the
overall design of the capital and liquidity reform package pro-
posed by the Basel Committee. On 12 September 2010, pro-
posed strengthened capital requirements as well as the intro-
duction of a global liquidity standard were announced.
On 16 December, the BCBS followed up with the publication
of four comprehensive documents. The new proposed rules
seek to strengthen the banking sector’s resilience under finan-
cial and economic stress, improve risk management and gover-
nance and enhance transparency.. Also, guidance on the coun-
tercyclical capital buffer was provided for national authorities
(up to 2.5% in the form of common equity), which aims to
protect the banking sector from periods of excess aggregate
credit growth. On 13 January 2011, the BCBS followed up with
additional criteria for tier 1 and tier 2 capital to ensure that all
classes of capital absorb losses at the point of non-viability.
The minimum common equity tier 1 ratio will be 4.5%, the
minimum tier 1 capital ratio 6% and the minimum total capital
ratio 8%. In addition, banks will be required to hold a capital
conservation buffer of 2.5% and a countercyclical buffer of up
to 2.5% in the form of common equity to withstand future
periods of stress. Therefore the total capital requirement includ-
ing buffers amounts 10.5–13%.These requirements will be
phased-in from 2013 to the end of 2018. The risk-based capital
requirements are supplemented by a tier 1 leverage ratio of 3%
that will be tested from 2013 to 2016, with a view to perform
a final calibration and implementation as of 1 January 2018.
Regarding liquidity, the BCBS proposes two metrics: the li-
quidity coverage ratio (LCR) and the net stable funding ratio
(NSFR). Both the LCR and the NSFR will be subject to an obser-
vation period and will include a review clause to address any
unintended consequences. Observation periods for the LCR and
NSFR will start in 2011 and 2012, with minimum standards to
be introduced in 2015 and 2018, respectively. The two ratios
are conceptually in line with our internal frameworks. The LCR
is broadly consistent with the metric in the liquidity regime as
introduced by the Swiss Financial Market Supervisory Authority
(FINMA) and the Swiss National Bank (SNB) as of mid 2010.
Basel II market risk framework
Further to the publication of the enhanced Basel II market risk
framework in July 2009, the BCBS has issued certain adjustments
to the revision in June 2010. For a transition period of two years,
the capital charges for non-correlation trading securitization posi-
tions may be based on the larger of the capital charges for net
long and net short positions instead of the sum of net long and
net short positions. Also, for correlation trading securitization po-
sitions, banks applying an internally developed model are subject
to a floor of at least 8% of the capital charge for specific risk ac-
cording to the standardized measurement method. Finally, the
BCBS agreed to a coordinated start-date of not later than 31 De-
cember 2011.
➔ Refer to the “Treasury management” section of our 2009 Annual
Report for the 2009 developments of the Basel II market risk
framework
Systemically important financial institutions
Regulatory attention is clearly focused on the question of system-
ically important financial institutions. However, at present, an in-
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ternationally agreed framework does not exist. The Financial
Stability Board, in cooperation with the BCBS and national au-
thorities, is expected to provide more detail over the course of
2011 according to the roadmap submitted to the G20 leaders in
November 2010. Examples of measures include more demanding
capital and liquidity rules and resolution frameworks to ensure
that all financial institutions can be dissolved without destabilizing
the system and without exposing taxpayers to the risk of loss.
They also include a cross-border coordination framework and
more intense supervisory oversight.
Swiss Commission of Experts on “Too big to fail” and
public consultation
Of special relevance for UBS is the “too big to fail” discussion in
Switzerland. On 4 October 2010, the Commission of Experts ap-
pointed by the Swiss Federal Council presented its final report,
proposing measures to be applied to systemically relevant banks,
with recommendations for increased capital requirements (includ-
ing a leverage ratio) and organizational measures aimed at safe-
guarding the continuation of important Swiss banking services at
the point of a bank’s non-viability. These measures are supple-
mented by strict liquidity requirements and a limitation of inter-
dependencies and concentration risks in the financial sector. The
proposals include:
1. Capital: Common equity of at least 10% of RWA and addi-
tional capital equivalent instruments (contingent convert-
ibles [CoCos]) of 9% of RWA. The CoCos would automati-
cally convert into common equity in the event that the
capital ratios of the issuing bank fall below certain pre-
defined thresholds (trigger levels). Of the 9% capital equiva-
lent instruments, the Commission of Experts recommended
that 3% consist of CoCos with a trigger at a 7% common
equity capital ratio. Alternatively, this 3% may also be held
in the form of common equity. The remaining 6% would be
issued as CoCos with a lower trigger, set at a 5% common
equity capital ratio. This progressive component would be
variable, based on the bank’s degree of systemic impor-
tance, and depend on market share in Swiss systemic func-
tions and total balance sheet size of the bank. These pro-
posed capital requirements exceed the proposed Basel III
minimum standards. The calibration of the three compo-
nents was based on the assumption that RWA would in-
crease to approximately CHF 400 billion under Basel III. The
6% progressive component, calibrated as at the end of
2009, is based on a balance sheet total of approximately
CHF 1,500 billion and a market share of around 20%. Fur-
thermore, the Commission recommended a leverage ratio
(minimum capital level as a proportion of the balance sheet)
as an additional capital rule. The timeframe for the imple-
mentation of the Swiss capital requirements is the same as it
is for the Basel III standards.
2. Liquidity: Proposals concerning liquidity requirements largely
correspond to the FINMA principles that were effective as of
30 June 2010. It has been proposed that the agreed-upon
FINMA principles should be given legal form. The FINMA liquid-
ity regulations require banks to hold a balance of highly liquid
assets sufficient to offset the projected outflows under the
stress scenario for a period of 30 days. Similar to the FINMA
liquidity regime, our established internal liquidity stress tests
consider a severe stress scenario. We believe that our internal
model enables us to sustain our business in stress conditions for
a period substantially beyond the minimum regulatory horizon.
3. Risk diversification: The measures presented by the Commis-
sion to improve risk diversification are similar to the adjust-
ments envisaged in other jurisdictions, notably the European
Union. One objective of these measures is to reduce the degree
of interconnectedness within the banking sector, and thus
limit the dependence of other banks on systemically important
banks.
4. Organization: The Commission stressed that it is the responsi-
bility of a systemically important bank to organize itself in such
a way that maintenance of the Swiss systemically important
functions would be guaranteed in the event of a crisis. No spe-
cific structural measures were recommended by the Commis-
sion for systemically important banks.
On 22 December 2010, the Swiss Federal Council launched
a consultation on the “too big to fail” legislative proposals.
The draft contains the measures recommended by the Com-
mission of Experts which form the heart of the proposals.
There were two additional elements compared with the Com-
mission’s final report: (i) proposed legal changes to grant tax
relief for the Swiss capital market, and (ii) a paragraph that
empowers the Federal Council to rule on variable compensa-
tion for bank employees in case of future government support
for a bank. The consultation is scheduled to end on 23 March
2011 and, after consolidation, the papers will enter the parlia-
mentary process with a view to conclude the debate in 2011.
The Swiss administration took strides to further clarify the
measures stipulated by the Commission, while the abovemen-
tioned four main pillars remained in place.
The revised legislation would require each systemically rele-
vant institution such as UBS to develop a plan to ensure the
continuation of systemically relevant functions within Switzer-
land in the event that the institution approaches insolvency. It
would empower FINMA to impose far-reaching structural
changes, including among other things the separation of lines
of business into separate legal entities and restrictions on intra-
group funding and guarantees, should any such institution be
deemed to have failed to develop an adequate plan.
23
Strategy, performance and responsibility
Regulatory developments
Regulatory developments in other jurisdictions
Other notable regulatory initiatives include the Dodd-Frank Wall
Street Reform and Consumer Protection Act in the US, which im-
pacts the financial services industry by addressing, among other
issues, systemic risk oversight, bank capital standards, the liquida-
tion of failing systemically significant financial institutions, over-
the-counter derivatives, the ability of deposit-taking banks to en-
gage in proprietary trading activities and invest in hedge funds
and private equity (the so-called Volcker rule), consumer and in-
vestor protection, hedge fund registration, securitization, invest-
ment advisors, shareholder “say on pay,” the role of credit-rating
agencies, and more. The details of these regulations will depend
on the final regulations ultimately adopted by various agencies
and oversight boards in 2011.
The European Commission ran a consultation on technical de-
tails of a possible EU framework for bank recovery and resolution
until 3 March 2011. The Commission intends to proceed gradu-
ally towards a comprehensive EU framework for troubled and fail-
ing banks in the following phases: legislative proposal for a har-
monized EU regime for crisis prevention and bank recovery and
resolution; further harmonization of bank insolvency regimes; and
creation of an integrated resolution regime. The consultation pa-
per runs through the lifecycle of a financial institution, detailing
conditions for prevention, early intervention and resolution.
The landscape for banking in the UK will be shaped by the find-
ings of the Independent Commission on Banking (ICB), which was
tasked with finding ways to promote financial stability and compe-
tition, and is expected to publish an interim report in spring before
submitting its final report in September 2011. The UK re-empha-
sized its “living will” instrument and, after having assessed docu-
ments established by six pilot banks, rolled out a comprehensive list
of required items in phase two. The regulations include a bridge
bank tool for deposit-taking banks and a special administration re-
gime that focuses on the recovery or wind-down of the whole
group in the case of investment banks. The UK government’s pro-
posed bank levy is intended to encourage banks to move to less
risky forms of funding. The levy will not become law until later in
2011 but it is proposed to take effect from 1 January 2011. Having
applied the draft legislation to UBS’s 31 December 2010 balance
sheet position, we estimate that the levy would result in a charge
of approximately CHF 75 million to 100 million per annum.
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Risk factors
Certain risks, including those described below, may impact our
ability to execute our strategy and directly affect our business ac-
tivities, financial condition, results of operations and prospects.
Because the business of a broad-based international financial ser-
vices firm such as UBS is inherently exposed to risks that only be-
come apparent with the benefit of hindsight, risks of which we
are not presently aware could also materially affect our business
activities, financial 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 magni-
tude of their financial consequences.
Regulatory changes may adversely affect our business and
ability to execute our strategic plans
In the wake of the recent financial crisis, regulators and legislators
have proposed and adopted, or continue to actively consider, 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. These measures include:
– significantly higher regulatory capital requirements
– changes in the definition and calculation of regulatory capital,
including in the capital treatment of certain capital instruments
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 juris-
dictions where activities are conducted
– limitations on principal trading activities
– limitations on risk concentrations and maximum levels of risk
– taxes and government levies that would effectively limit bal-
ance sheet growth
– a variety of measures constraining, taxing or imposing addi-
tional requirements relating to compensation
– requirements to adopt structural and other changes designed
to reduce systemic risk and to make major financial institutions
easier to wind down or disassemble
– outright size limitations
A number of measures have been adopted (or in the case of
Basel III, the framework established) and will be implemented in
the next several years, or in some cases are subject to legislative
action or to further rulemaking by regulatory authorities before
final implementation. As a result, there is a high level of uncer-
tainty regarding a number of the measures described above. The
timing and implementation of changes could have a material and
adverse effect on our business.
Notwithstanding attempts by regulators to coordinate their ef-
forts, the proposals differ by jurisdiction and therefore enhanced
regulation may be imposed in a manner that makes it more diffi-
cult to manage a global institution. The absence of a coordinated
approach is also likely to disadvantage certain banks, such as UBS,
as they attempt to compete with less strictly regulated peers
based in other jurisdictions.
Swiss authorities have expressed concern about the systemic
risks posed by the two largest Swiss banks, particularly in rela-
tion to the size of the Swiss economy and governmental resourc-
es. Swiss regulatory change efforts are generally proceeding
more quickly than those in other major jurisdictions, and the
Swiss Financial Market Supervisory Authority (FINMA), the Swiss
National Bank (SNB) and the Swiss Federal Council have pro-
posed requirements that would be more onerous and restrictive
for major Swiss banks, such as UBS, than those adopted, pro-
posed or publicly espoused by regulatory authorities in other
major global banking centers. Following the July 2010 an-
nouncement of the broad agreement reached by the Basel Com-
mittee on Banking Supervision on total risk-based capital re-
quirements amounting to 10.5%, the Commission of Experts
appointed by the Swiss Federal Council issued a report in Octo-
ber 2010 recommending total risk-based capital of 19% for the
two big Swiss banks. The measures recommended by the Com-
mission of Experts, which also included requirements designed
to reduce interconnectedness in the banking sector and organi-
zational requirements, have now been incorporated into legisla-
tive proposals that are scheduled to be considered in 2011 by
the Swiss Parliament. The organizational measures included in
the draft legislation would require each systemically relevant in-
stitution to develop a plan to ensure the continuation of sys-
temically relevant functions within Switzerland, in the event that
the institution approaches insolvency. It would empower FINMA
to impose more far-reaching structural changes, such as the
separation of lines of business into dedicated legal entities and
restrictions on intra-group funding and guarantees, should any
institution be deemed to have failed to develop an adequate
plan. Senior Swiss regulatory officials have made public state-
ments suggesting that broader structural changes of this kind
should be adopted or at least seriously considered by the two
big Swiss banks in any event.
This may lead to more burdensome regulations applicable to
major banks headquartered in Switzerland in comparison with
those based elsewhere. The potential regulatory and legislative
developments 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 via-
bility 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.
25
Strategy, performance and responsibility
Risk factors
Our reputation is critical to the success of our business
Damage to our reputation can have fundamental negative ef-
fects on our business and prospects. As the events of the past
few years have demonstrated, our reputation 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 mea-
sure. This was demonstrated in recent years as our very large
losses during the financial crisis, the US cross-border matter and
other matters seriously damaged our reputation. This was an im-
portant factor in our loss of clients and client assets across our
asset-gathering businesses, and to a lesser extent in our loss of
and difficulty in attracting staff. These developments had short-
term and also more lasting adverse effects on our financial per-
formance. We recognized that restoring our reputation would be
essential to maintaining our relationships with clients, investors,
regulators and the general public, as well as with our employees.
Although there is evidence that the steps we have taken in the
past couple of years to restore our reputation have been effec-
tive, our reputation has not been fully restored, and we remain
vulnerable to the risk of further reputational damage. Any fur-
ther reputational damage could have a material adverse effect on
our operational results and financial condition and on our ability
to achieve our strategic goals and financial targets.
Our capital strength is important in supporting our
client franchise; changes in capital requirements are
likely to constrain certain business activities in our
Investment Bank
Our capital position, as measured by the BIS tier 1 and total capital
ratios, is determined by (i) risk-weighted assets (RWA) (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 RWA and eligible capital are
subject to change. Eligible capital would be reduced if we experi-
ence net losses, as determined for the purpose of the regulatory
capital calculation. Eligible capital can also be reduced for a num-
ber of other reasons, including certain reductions in the ratings of
securitization exposures, adverse currency movements directly af-
fecting the value of equity and prudential adjustments that may
be required due to the valuation uncertainty associated with cer-
tain types of positions. RWA, on the other hand, are driven by our
business activities and by changes in the risk profile of our expo-
sures. For instance, substantial market volatility, a widening of
credit spreads (the major driver of our value-at-risk), a change in
regulatory treatment of certain positions, adverse currency move-
ments, increased counterparty risk or a deterioration in the eco-
nomic environment could result in a rise in RWA. Any such reduc-
tion in eligible capital or increase in RWA could potentially reduce
our capital ratios, and such reductions could be material.
The required levels and calculation of our regulatory capital
and the calculation of our RWA are also subject to changes in
regulatory requirements or the interpretation thereof.
We are subject to regulatory capital requirements imposed by
FINMA, under which we have higher RWA than would be the case
under BIS guidelines. Forthcoming changes in the calculation of
RWA under Basel III and FINMA requirements will significantly in-
crease the level of our RWA and therefore have an adverse effect
on our capital ratios. We have identified steps that we can take to
mitigate the effects of the changes in the RWA calculation, but
there is a risk that we will not be successful in doing so, either be-
cause we are unable to carry out fully the actions we have planned
or because other business or regulatory developments counteract
the benefit of these mitigating steps. We have also announced that
we intend to build our capital base by retaining earnings and by
not paying dividends either in 2010 or for some time to come, but
there is a risk that we will not have sufficient earnings to increase
the level of our capital as quickly as we have planned or as may be
necessary to satisfy new capital requirements.
In addition to the risk-based capital requirements, FINMA has
introduced a minimum leverage ratio, which must be achieved by
1 January 2013 at the latest. The leverage ratio operates sepa-
rately from the risk-based capital requirements, and accordingly
under certain circumstances could constrain our business activities
even if we are able to satisfy the risk-based capital requirements.
Changes in the Swiss requirements for risk-based capital or le-
verage ratios, whether pertaining to the minimum levels required
for large Swiss banks or to the calculation thereof (including
changes made to implement the recent recommendations of the
Swiss Commission of Experts), could have a material adverse effect
on our business and ability to execute our strategic plans or pay
dividends in the future. This is particularly the case if our plans to
take mitigating actions to reduce risk-weighted assets and to sat-
isfy future capital requirements through retained earnings are not
successful. Moreover, changes in the calculation and level of capi-
tal requirements, coupled in some cases with other regulatory
changes, are likely to render uneconomic certain capital-intensive
businesses conducted in our Investment Bank, or to make their
effective returns so low that they might no longer be viable. If
some business activities of the Investment Bank are significantly
reduced or discontinued, this could adversely affect our competi-
tive position, particularly if competitors are subject to different re-
quirements under which those activities would remain sustainable.
We hold risk positions that may be adversely affected
by conditions in the financial markets
UBS, like other financial market participants, was severely affected
by the financial crisis that began in 2007. The deterioration of finan-
cial markets since the beginning of the crisis was extremely severe
by historical standards, and we recorded substantial losses on fixed
income trading positions, particularly in 2008 and to a lesser extent
in 2009. We have drastically reduced our risk exposures from 2008
through 2010, in part through transfers in 2008 and 2009 to a fund
controlled by the Swiss National Bank. We do, however, continue to
hold legacy risk positions that are exposed to the general systemic
and counterparty risks that were exacerbated by the financial crisis.
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The continued illiquidity of most of these legacy risk positions makes
it increasingly difficult to reduce our legacy risk exposures.
During the financial 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 from 2008 through 2010, we
remain exposed to a smaller degree to such losses, most notably
through monoline-insured positions.
The financial crisis also caused market dislocations that affected,
and to a degree still affect, 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, com-
mercial mortgages in the US and non-US mortgage-backed and as-
set-backed securities (ABS). We have a very large inventory of ARS
which is subject to changes in market values. The portion of our ARS
inventory that has been reclassified as loans and receivables is sub-
ject to possible impairment due to changes in market interest rates
and other factors. We hold positions related to real estate in coun-
tries other than the US, including a very substantial Swiss mortgage
portfolio, and we could suffer losses on these positions. In addition,
we are 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 economic
growth, stable geopolitical conditions, transparent, liquid and
buoyant capital markets and positive investor sentiment. An eco-
nomic downturn, inflation or a severe financial crisis (as seen in
the last few years) can negatively affect our revenues and ulti-
mately 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, pandemics, civil unrest, war or
terrorism. Because financial markets are global and highly intercon-
nected, even local and regional events can have widespread im-
pacts well beyond the countries in which they occur. A crisis could
develop, regionally or globally, as a result of disruptions in emerg-
ing markets which are susceptible to macroeconomic and political
developments, or as a result of the failure of a major market par-
ticipant. We have material exposures to certain emerging market
economies, both as a wealth manager and as an investment bank.
As our presence and business in emerging markets increases, and
as our strategic plans depend more heavily upon our ability to gen-
erate growth and revenue in the emerging markets, we become
more exposed to these risks. The bond market dislocations affect-
ing the sovereign debt of certain European countries, particularly in
2010, demonstrate that such developments even in more devel-
oped markets can have similarly unpredictable and destabilizing
effects. Adverse developments of these kinds 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 volumes
would affect fees, commissions and margins from market-
making and client-driven transactions and activities;
– a market downturn is likely to reduce the volume and valua-
tions of assets we manage on behalf of clients, reducing our
asset- and performance-based fees;
– reduced market liquidity limits trading and arbitrage opportu-
nities and impedes our ability to manage risks, impacting
both trading income and performance-based fees;
– assets we own and account for as investments or trading po-
sitions could fall in value;
– impairments and defaults on credit exposures and on trading
and investment positions could increase, and losses 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 un-
able to access our own assets, or be impeded in – or pre-
vented from – managing our risks.
Because UBS has very substantial exposures to other major fi-
nancial institutions, the failure of any such institution could have
a material effect on UBS.
The developments mentioned above can materially affect the
performance of our business units and of UBS as a whole. There
is also a related risk that the carrying value of goodwill of a busi-
ness unit might suffer impairments and deferred tax assets levels
may need to be adjusted.
Our global presence subjects us to risk from
currency fluctuations
We prepare our consolidated financial statements in Swiss francs.
However, a substantial portion of our assets, liabilities, invested
assets, revenues and expenses are denominated in other curren-
cies, particularly the US dollar, the euro and the British pound.
Accordingly, changes in foreign exchange rates, particularly be-
tween the Swiss franc and the US dollar (US dollar revenue repre-
sents the major part of our non-Swiss franc revenue) have an ef-
fect on our reported income and invested asset levels. During
2010, a strengthening of the Swiss franc, especially against the
US dollar and euro, had an adverse effect on our revenues and
invested assets. Since exchange rates are subject to constant
change, sometimes from completely unpredictable reasons, our
results are subject to risks associated with changes in the relative
values of currencies.
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 financial
services firm. Credit is an integral part of many of our retail,
wealth management and Investment Bank activities. This includes
27
Strategy, performance and responsibility
Risk factors
lending, underwriting and derivatives businesses and positions.
Changes in interest rates, credit spreads, equity prices, foreign
exchange levels and other market fluctuations can adversely af-
fect our earnings. Some losses from risk-taking activities are in-
evitable, but to be successful over time, we must balance the risks
we take against the returns we generate. We must therefore dili-
gently 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 ex-
posures 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, 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 dur-
ing the financial crisis. Moreover, stress loss and concentration
controls and the dimensions in which we aggregate risk to iden-
tify potentially highly correlated exposures proved to be inade-
quate. Notwithstanding the steps we have taken to strengthen
our risk management and control framework, we could suffer
further losses in the future if, for example:
– we do not fully identify the risks in our portfolio, in particular
risk concentrations and correlated risks;
– our assessment of the risks identified or our response to nega-
tive trends proves to be inadequate or incorrect;
– markets move in ways that we do not expect – in terms of their
speed, direction, severity or correlation – and our ability to man-
age risks in the resultant environment is therefore affected;
– third parties to whom we have credit exposure or whose secu-
rities we hold for our own account are severely affected by
events not anticipated by our models, and we accordingly suf-
fer 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 activi-
ties could be harmed by the same factors. If clients suffer losses or
the performance of their assets held with us is not in line with
relevant benchmarks against which clients assess investment per-
formance, we may suffer reduced fee income and a decline in
assets under management 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 material levels.
Investment positions, such as equity holdings made as a part of
strategic initiatives and seed investments made at the inception of
funds that we manage, may also be affected by market risk factors.
These investments are often not liquid and are generally intended or
required to be held beyond a normal trading horizon. They are sub-
ject 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. Such price information may not
be available for certain instruments and we therefore apply valua-
tion techniques to measure such instruments. Valuation tech-
niques 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. In the case of positions for which some or all of the
reference data are not observable or have limited observability, we
use valuation models with non-market observable inputs. There is
no single market standard for valuation models of this type. Such
models have inherent limitations; different assumptions and in-
puts 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, includ-
ing factoring in current market conditions. Judgment is an impor-
tant component of this process. Changes in model inputs or in the
models themselves, or failure to make the changes necessary to
reflect evolving market conditions, could have a material adverse
effect on our financial results.
We are exposed to possible further reduction in client
assets in our wealth management and asset management
businesses
In 2008 and 2009, we experienced substantial net outflows of
client assets in our wealth management and asset management
businesses. Our wealth management businesses continued to ex-
perience net outflows in the first half of 2010, albeit at signifi-
cantly reduced levels. The net outflows resulted from a number of
different factors, including our substantial losses, the damage to
our reputation, the loss of client advisors, difficulty in recruiting
qualified client advisors and developments concerning our cross-
border private banking business. Some of these factors have been
successfully addressed, but others, such as the long-term changes
affecting the cross-border private banking business model, will
continue to affect client flows for an extended period of time. If
we again experience material net outflows of client assets, the
results of our wealth management and asset management busi-
nesses are likely to be adversely affected.
Liquidity and funding management are critical to our
ongoing performance
Reductions in our credit ratings can increase our funding costs, in
particular with regard to funding from wholesale unsecured
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sources, and can affect the availability of certain kinds of funding.
In addition, as we experienced in 2008 and 2009, ratings down-
grades can require us to post additional collateral or make addi-
tional cash payments under master trading agreements relating to
our derivatives businesses. Our credit ratings also contribute, to-
gether with our capital strength and reputation, to maintaining
client and counterparty confidence.
A substantial part of our liquidity and funding requirements
is met using short-term unsecured funding sources, including
wholesale and retail deposits and the regular issuance of money
market securities. The volume of these funding sources has gener-
ally been stable, but could change in the future due, among other
things, to general market disruptions. Any such change could oc-
cur quickly.
Due to recent changes in Swiss regulatory requirements, and
due to liquidity requirements imposed by certain jurisdictions in
which we operate, we have been required to maintain substan-
tially higher levels of liquidity overall than had been our usual
practice in the past. Like increased capital requirements, higher
liquidity requirements make certain lines of business, particularly
in the Investment Bank, less attractive 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
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 diverse
markets in different currencies, and to comply with the require-
ments of the many different legal and regulatory regimes to which
we are subject. Our operational risk management and control sys-
tems and processes are designed to help ensure that the risks as-
sociated with our activities, including those arising from process
error, failed execution, unauthorized trading, fraud, system fail-
ures and failure of security and physical protection, are appropri-
ately controlled. If our internal controls fail or prove ineffective in
identifying and remedying such risks, we could suffer operational
failures that might result in material losses.
Legal claims and regulatory risks and restrictions arise in
the conduct of our business
Due to the nature of our business, we are subject to regulatory
oversight and liability risk. We are involved in a variety of claims,
disputes, legal proceedings and government investigations in ju-
risdictions where we are active. These types of proceedings ex-
pose us to substantial monetary damages and legal defense costs,
injunctive relief and criminal and civil penalties, in addition to po-
tential regulatory 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 government
inquiries and investigations, and are involved in a number of liti-
gations and disputes, many of which arose out of the financial
crisis. These matters concern, among other things, our valuations,
accounting classifications, disclosures, writedowns and contrac-
tual obligations. We are also subject to potentially material expo-
sure in connection with claims relating to US RMBS and mortgage
loan sales, the Madoff investment fraud, Lehman principal protec-
tion notes and other matters.
We have been in active dialogue with our regulators concern-
ing the remedial actions that we are taking to address deficiencies
in our risk management and control, funding and certain other
processes and systems. We continue to be subject to increased
scrutiny by FINMA and our other major regulators, and accord-
ingly are subject to regulatory measures that might affect the im-
plementation of our strategic plans.
➔ Refer to “Note 21 Provisions and contingent liabilities” in the
“Financial information” section of this report for more informa-
tion on legal proceedings and regulatory matters
We might be unable to identify or capture revenue or
competitive opportunities, or retain and attract qualified
employees
The financial services industry is characterized by intense competi-
tion, continuous innovation, detailed (and sometimes fragment-
ed) regulation and ongoing consolidation. We face competition at
the level of local markets and individual business lines, and from
global financial institutions that are comparable to UBS in their
size and breadth. Barriers to entry in individual markets are being
eroded by new technology. We expect these trends to continue
and competition to increase in the future.
Our competitive strength and market position could be eroded
if we are unable to identify market trends and developments, do
not respond to them by devising and implementing adequate
business strategies or are unable to attract or retain the qualified
people needed to carry them out. The changes recently intro-
duced in our balance sheet management, funding framework
and risk management and control, as well as possible new or en-
hanced regulatory requirements, may constrain the revenue con-
tribution of certain lines of business. For example, parts of the
Investment Bank’s fixed income, currencies and commodities busi-
ness may be affected as they require substantial funding and are
capital-intensive.
The amount and structure of our employee compensation are
affected not only by our business results but also by competitive
factors and regulatory guidance. Constraints on the amount of
employee compensation, higher levels of deferral and claw-backs
and performance conditions may adversely affect our ability to
retain and attract key employees, and may in turn negatively af-
fect our business performance. For the performance years 2009
and 2010, the portion of variable 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
many of our competitors. We continue to be subject to the risk
that key employees will be attracted by competitors and decide to
29
Strategy, performance and responsibility
Risk factors
leave UBS, or that we may be less successful than our competitors
in attracting qualified employees. Although changes in regulatory
requirements and pressure from regulators and other stakehold-
ers affect not only UBS but also the other major international
banks, the constraints and pressures differ by jurisdiction, and this
may give some of our peers a competitive advantage.
stantially deviate from the current outlook, the amount of de-
ferred tax assets may need to be adjusted in the future. This could
include write-offs of deferred tax assets through the income
statement if actual results come in substantially below the busi-
ness plan forecasts and / or if future business plan forecasts are
substantially revised downwards.
We are exposed to risks arising from the different
regulatory, legal and tax regimes applicable to our
global businesses
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 regimes. Our ability to
execute our global strategy depends on obtaining and maintain-
ing local regulatory approvals. This includes the approval of ac-
quisitions or other transactions and the ability to obtain and
maintain the necessary licenses to operate in local markets.
Changes in local tax laws or regulations and their enforcement
may affect the ability or the willingness of our clients to do busi-
ness with the bank, or the viability of our strategies and business
model.
The effects of taxes on our financial results are signifi-
cantly influenced by changes in our deferred tax assets
and final determinations on audits by tax authorities
The deferred tax assets we have recognized on our balance sheet
as of 31 December 2010 in respect of prior years’ tax losses are
based on profitability assumptions over a five-year horizon. If the
business plan earnings and assumptions in future periods sub-
In the coming years, our effective tax rate will be highly sensi-
tive both to our performance and to the development of new
business plan forecasts. Currently unrecognized deferred tax as-
sets in the UK and especially the US could be recognized if our
actual and forecasted performance in those countries is strong
enough to justify further recognition of deferred tax assets under
the governing accounting standard. Our results in recent periods
have demonstrated that changes in the recognition of deferred
tax assets can have a very significant effect on our reported re-
sults. If, for example, the Group’s performance in the UK and es-
pecially in the US is strong, we could be expected to write up ad-
ditional US and / or UK deferred tax assets in the coming years.
The effect of doing so would reduce the Group’s effective tax rate,
possibly to zero or below. Conversely, if our performance in those
countries does not justify additional deferred tax recognition, but
nevertheless supports our maintaining current deferred tax levels,
we expect the Group’s effective tax rate to be in the range of 20%
or slightly higher.
Additionally, the final effect of income taxes we accrue in the
accounts is often only determined after the completion of tax au-
dits (which generally takes a number of years) or the expiry of
statutes of limitations. In addition, changes to, and judicial inter-
pretation of, tax laws or policies and practices of tax authorities
could cause the amount of taxes ultimately paid by UBS to materi-
ally differ from the amount accrued.
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Financial performance
Our performance is reported in accordance with International Financial Reporting Standards as issued by the Interna-
tional Accounting Standards Board. This section provides a discussion and analysis of our results for 2010, 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 from continuing operations before tax
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
As of or for the year ended
31.12.10
31.12.09
31.12.08
31,994
24,539
7,455
7,534
1.96
16.7
15.5
2.3
N/A
(14.3)
76.5
17.8
4.45
22,601
25,162
(2,561)
(2,736)
(0.75)
(7.8)
9.9
1.5
N/A
(147.3)
796
28,555
(27,758)
(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
1,317,247
1,340,538
2,014,815
46,820
20.4
198,875
35,323
2,152
64,617
58,803
41,013
19.8
206,525
31,798
2,233
65,233
57,108
32,531
15.0
302,273
33,154
2,174
77,783
43,519
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 “Measurement and analy-
sis 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 2010” section of this report.
31
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Financial performance
Measurement and analysis of performance
Key factors affecting our financial position and results
of operations in 2010
– In 2010, we generated a net profit attributable to UBS share-
holders of CHF 7.5 billion, a significant improvement over the
net loss of CHF 2.7 billion in 2009. This increase was primarily
due to a significant improvement in fixed income, currencies
and commodities revenues from a loss in 2009. In addition, a
reduction in credit loss expense, as well as significantly lower
own credit losses on financial liabilities designated at fair value
supported the result. Operating expenses were slightly lower
than in 2009, when we recorded higher restructuring costs
and a goodwill impairment charge related to the sale of UBS
Pactual. Further, we reduced fixed costs excluding bonus and
significant non-recurring items to CHF 19.9 billion in 2010, in
line with our communicated target of below CHF 20 billion,
despite increased costs for litigation provisions compared with
2009. Diluted earnings per share were CHF 1.96 in 2010, com-
pared with negative CHF 0.75 in 2009.
– We recognized a net income tax benefit of CHF 381 million for
2010. This mainly reflects the recognition of additional de-
ferred tax assets in respect of losses and temporary differences
in a number of foreign locations, taking into account updated
forecast taxable profit assumptions over the five-year horizon
used for recognition purposes. This was partly offset by a Swiss
net deferred tax expense as Swiss tax losses for which deferred
tax assets have previously been recognized were used against
profits for the year, which was itself partly offset by an upward
revaluation of Swiss deferred tax assets taking into account
revised forecast profit assumptions. In 2009, the net income
tax benefit was CHF 443 million.
➔ Refer to “Note 22 Income taxes” in the “Financial information”
section of this report for more information
– As our credit spreads continued to tighten in 2010, the Invest-
ment Bank incurred an own credit charge on financial liabilities
designated at fair value of CHF 548 million compared with a
charge of CHF 2,023 million recognized in 2009.
➔ Refer to “Note 27 Fair value of financial instruments” in the “Finan-
cial information” section of this report for more information
– In 2010, we recorded a gain on our option to acquire the equity
of the SNB StabFund of CHF 745 million compared with CHF
117 million in 2009, following higher asset valuations support-
ing a higher valuation of the SNB StabFund.
– In January 2010, UBS closed the sale of its investments in sev-
eral associated entities owning office space in New York. A
significant portion of the office space is leased by the Group
until 2018. The sales price was CHF 187 million with a resulting
gain on sale of CHF 180 million recorded in the first quarter. In
the fourth quarter, we recognized a gain of CHF 158 million
from the sale of a property in Zurich.
– In 2010, we incurred a credit loss expense of CHF 66 million, of
which CHF 64 million occurred in Wealth Management & Swiss
Bank. The net credit loss expense in the Investment Bank was
nil. In 2009, we recorded an overall credit loss expense of CHF
1,832 million, mainly in the Investment Bank.
➔ Refer to the “Risk and treasury management” section of this
report for more information
– During 2010, we incurred net restructuring charges of CHF
113 million compared with CHF 791 million in 2009.
➔ Refer to “Note 38 Reorganizations and disposals” in the “Financial
information” section of this report for more information
– Charges related to the UK Bank Payroll Tax in 2010 amounted
to CHF 200 million.
– Other comprehensive income attributable to UBS shareholders
was negative CHF 1,659 million in 2010 due to: (1) losses in
the currency translation account of CHF 909 million (net of tax)
mainly related to the Swiss franc carrying value of investments
in US, Eurozone and British subsidiaries; (2) fair value losses on
financial investments available-for-sale of CHF 607 million (net
of tax) predominantly relating to our fixed-interest bearing
long-term bond portfolio, which consists of US and UK gov-
ernment bonds; and (3) changes in the replacement values of
interest rate swaps designated as hedging instruments of neg-
ative CHF 143 million (net of tax).
➔ Refer to the “Statement of comprehensive income” in the
“Financial information” section of this report for more information
– At the end of 2010, our invested asset base was CHF 2,152
billion, down from CHF 2,233 billion at year-end 2009. This
decline was mainly due to unfavorable currency effects, as
both the US dollar and the euro fell sharply in value against the
Swiss franc. In local currencies, the overall market performance
was positive. During 2010, net new money stabilized, and over
the last two quarters we achieved net inflows for the overall
Group. Wealth Management & Swiss Bank recorded net new
money outflows of CHF 10.0 billion in full-year 2010, com-
pared with net outflows of CHF 89.8 billion in 2009; Wealth
Management Americas’ net new money outflows declined to
CHF 6.1 billion in 2010 from CHF 11.6 billion in 2009; Global
Asset Management full year net new money flows turned pos-
itive to CHF 1.8 billion, compared with net outflows of CHF
45.8 billion in 2009.
– We ended 2010 with an industry-leading Basel II tier 1 capital
ratio of 17.8%, up from 15.4% at the end of 2009. Our BIS
tier 1 capital increased by CHF 3.5 billion during 2010 to CHF
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35.3 billion, due to the CHF 7.5 billion net profit attributable to
UBS shareholders and the reversals of own credit losses of CHF
0.5 billion. These effects were partially offset by a redemption
of hybrid tier 1 capital of CHF 1.5 billion, increased tier 1 de-
ductions of CHF 1.0 billion, negative effects relating to share-
based compensation net of tax of CHF 0.9 billion, as well as
currency effects of CHF 0.6 billion and other effects of CHF 0.5
billion. Risk-weighted assets decreased by CHF 7.7 billion dur-
ing 2010 to CHF 198.9 billion as of 31 December 2010.
determining variable compensation of executives and personnel.
➔ Refer to the “Compensation” section of this report for more
information on total shareholder return
The Group and business division KPI are explained in the
“Group / business division key performance indicators” table.
Retail & Corporate no longer reports “Net new money” as a
key performance indicator. As net new money does not assist the
assessment of the performance of this business, our senior man-
agement does not consider it to be a meaningful KPI.
– Our total balance sheet assets stood at CHF 1,317 billion on
31 December 2010, down CHF 23 billion compared with year-
end 2009. Our funded asset volume, which excludes positive
replacement values, remained relatively unchanged, declining
by CHF 3 billion in 2010.
➔ Refer to the “Risk and treasury management” section of this
report for more information
– On 5 March 2010, the mandatory convertible notes with a
notional value of CHF 13 billion issued in March 2008 to the
Government of Singapore Investment Corporation Pte. Ltd.
and an investor from the Middle East were converted into
UBS shares. The notes were converted at a price of CHF 47.68
per share. As a result, UBS issued 272,651,005 new shares
with a nominal value of CHF 0.10 each from existing condi-
tional capital.
➔ Refer to “Note 26 Capital increase and mandatory convertible
notes” in the “Financial information” section of this report for
more information
Seasonal characteristics
Our main businesses do not generally show significant seasonal
patterns, although the Investment Bank’s revenues have been af-
fected in some years by the seasonal characteristics of general fi-
nancial market activity and deal flows in investment banking.
Other business divisions are only slightly impacted by seasonal
components, such as asset withdrawals that tend to occur in the
fourth quarter and by lower client activity levels related to the
summer and end-of-year holiday seasons.
Performance measures
Key performance indicators
Our key performance indicators (KPI) framework 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. The KPI framework is reviewed
by our senior management on a regular basis to ensure that it is
always aligned to the changing business conditions.
Client / invested assets reporting
We report two distinct metrics for client funds:
– The measure “client assets” encompasses all client assets man-
aged 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 port-
folios, managed institutional assets, managed fund assets and
wealth management securities or brokerage accounts. It excludes
all assets held for purely transactional 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 exam-
ple, art collections) and deposits from third-party banks for fund-
ing or trading purposes are excluded from both measures.
Net new money in a reported period is the amount of in-
vested assets that are entrusted to us by new or existing clients
less those withdrawn by existing clients or clients who termi-
nated 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. However, in Wealth Management Americas we
show net new money including interest and dividend income
only from the Wealth Management US business for purposes of
comparison with US peers. Market and currency movements, as
well as fees, commissions and interest on loans charged, are
excluded from net new money as are the effects of any acquisi-
tion or divestment of a UBS subsidiary or business. Reclassifica-
tions between invested assets and client assets as a result of a
change in the service level delivered are treated as net new
money inflows or outflows. The Investment Bank does not track
invested assets and net new money. However, when a client is
transferred from the Investment Bank to another business divi-
sion, this produces net new money even though client assets
were already with UBS.
The Group and business divisions are managed based on this KPI
framework, which emphasizes risk awareness, effective risk and
capital management, sustainable profitability, and client focus.
Both Group and business division KPI are taken into account in
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 indepen-
33
Strategy, performance and responsibility
Financial performance
dent service to their respective client, add value and generate
revenues. Most double counting arises when mutual funds
are managed by Global Asset Management and sold by Wealth
Management & Swiss Bank and Wealth Management Americas.
The business divisions involved count these funds as invested as-
sets. 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
225 billion of invested assets were double counted in 2010 (CHF
254 billion in 2009).
➔ Refer to “Note 35 Invested assets and net new money” in the
“Financial information” section of this report for more information
Group / business division key performance indicators
Wealth Management &
Swiss Bank
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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 (%)
Return on risk-weighted assets,
gross (%)
FINMA leverage ratio (%)
BIS tier 1 ratio (%)
Net new money (CHF billion) 1
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)
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)
BIS tier 1 capital / average adjusted assets as per
definition by FINMA
BIS tier 1 capital / BIS risk-weighted assets
Inflow of invested assets from new and existing clients less
outflows from existing clients or due to client defection
Gross margin on invested
assets
Operating income before credit loss (expense) or recovery
(annualized as applicable) / average invested assets
Impaired lending portfolio as a %
of total lending portfolio, gross
Impaired lending portfolio, gross / total lending portfolio, gross
Average management VaR
(1-day, 95% confidence, five
years of historical data)
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 Retail & Corporate no longer reports “Net new money” as a KPI.
34
y
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S
Accounting and reporting structure changes
Wealth Management & Swiss Bank reorganization
From 2010 onwards, the internal reporting of Wealth Manage-
ment & Swiss Bank to the Group Executive Board was revised in
order to better reflect the management structure and responsi-
bilities. Segregated financial information is now reported for:
– “Wealth Management”, encompassing all wealth manage-
ment business conducted out of Switzerland and in our Asian
and European booking centers;
– “Retail & Corporate”, including services provided to Swiss re-
tail private clients, small and medium enterprises and corpo-
rate and institutional clients.
In line with this revised internal reporting structure and IFRS 8
Operating Segments, Wealth Management and Retail & Corporate
are now presented in our external financial reports as separate
business units and reportable segments. Prior periods presented
have been restated to conform to the new presentation format.
Allocation of additional Corporate Center costs to
reportable segments
From 2010 onwards, almost all costs incurred by the Corporate
Center related to shared services and control functions are allo-
cated to the reportable segments, which directly and indirectly
receive the value of the services, either based on a full cost recov-
ery or on a periodically agreed flat fee. The allocated costs are
shown in the respective expense lines of the reportable segments
in “Note 2a Segment reporting” in the “Financial information”
section, and in the “UBS business divisions and Corporate Cen-
ter” section of this report.
Up to and including 2009, certain costs incurred by the Corpo-
rate Center were presented as Corporate Center expenses and
not charged to the business divisions. This change in allocation
policy has been applied prospectively and prior year numbers have
not been restated.
The incremental charges to the business divisions made in
2010 mainly relate to control functions. If figures for each quarter
of 2009 had been presented on the basis of the allocation meth-
odology applied for 2010, the estimated impact on operating ex-
Corporate Center cost allocation impact on 2009 figures
penses and performance before tax would have been as shown in
the table below.
The “Corporate Center” column of the table in “Note 2a Seg-
ment reporting” has been renamed “Treasury activities and other
corporate items”.
➔ Refer to “Note 1a) 33) Segment reporting” in the “Financial
information” section of this report for more details
Cash collateral from derivative transactions and prime
brokerage receivables and payables
From 2010 onwards, we have changed the presentation of cash
collateral from derivative transactions and prime brokerage re-
ceivables and payables to improve transparency.
Cash collateral receivables and payables on derivatives are pre-
sented in the new balance sheet lines Cash collateral receivables
on derivative instruments and Cash collateral payables on deriva-
tive instruments by transferring the amounts out of Due from
banks and Loans, and Due to banks and Due to customers, respec-
tively. Prime brokerage receivables and prime brokerage payables
have been transferred out of Due from banks and Loans to Other
assets, and out of Due to banks and Due to customers to Other
liabilities, respectively. These changes in presentation impacted
neither our income statement nor total assets and liabilities. The
respective tables, notes and other information in the “Financial
information” section of this report were adjusted accordingly.
The table on the next page shows the reclassifications for 2009
and 2008.
Personnel expenses
In 2010, we reclassified certain elements of Other personnel
expenses to Variable compensation – other in order to align the
presentation with the new FINMA definition of variable com-
pensation.
In addition, amounts previously reported under Salaries and
variable compensation are presented for the first time on the fol-
lowing separate lines: Salaries, Variable compensation – discre-
tionary bonus, Variable compensation – other and Wealth Man-
agement Americas: financial advisor compensation.
CHF million
Estimated increase in 2009 operating expenses and decrease in
performance before tax
Wealth Management &
Swiss Bank
Wealth
Management
Retail &
Corporate
Wealth
Management
Americas
Global Asset
Management
Investment
Bank
Total
business
divisions
Corporate
Center
128
96
84
44
288
640
(640)
35
Strategy, performance and responsibility
Financial performance
Cash collateral from derivative transactions and prime brokerage receivables and payables
CHF million
Due from banks
Cash collateral receivables on derivatives instruments
Loans
Other assets
Due to banks
Cash collateral payables on derivatives instruments
Due to customers
Other liabilities
31.12.09
31.12.08
Before
reclassification
Reclassification
After
reclassification
Before
reclassification
Reclassification
After
reclassification
46,574
0
306,828
7,336
65,166
0
410,475
33,986
(29,770)
53,774
(40,351)
16,347
(33,244)
66,097
(71,212)
38,359
16,804
53,774
266,477
23,682
31,922
66,097
339,263
72,344
64,451
0
340,308
9,931
125,628
0
465,741
42,998
(46,757)
85,703
(48,852)
9,906
(48,806)
92,937
(103,102)
58,971
17,694
85,703
291,456
19,837
76,822
92,937
362,639
101,969
Furthermore, we reclassified the pension costs related to
bonus to Pension and other post-employment benefit plans. Pre-
viously, those amounts were reported under Social security. Prior
period amounts have been adjusted accordingly. The change in
the presentation did not impact our personnel expenses. The
related amounts are disclosed in the footnotes to “Note 6 Per-
sonnel expenses” in the “Financial information” section of this
report.
IFRS 9 Financial Instruments
In November 2009, the International Accounting Standards Board
(IASB) issued IFRS 9 Financial Instruments, which includes revised
guidance on the classification and measurement of financial as-
sets. In October 2010, the IASB updated IFRS 9 Financial Instru-
ments to include guidance on financial liabilities and derecogni-
tion of financial instruments and amended IFRS 7 Financial
Instruments: Disclosure to include disclosures about transferred
financial assets. The publication of IFRS 9 Financial Instruments
represents the completion of the first part of a multi-stage project
to replace IAS 39 Financial Instruments: Recognition and Mea-
surement.
The standard requires all financial assets to be classified on the
basis of the entity’s business model for managing the financial
assets, and the contractual cash flow characteristics of the finan-
cial asset. A financial asset is to be accounted for at amortized
cost only if the following criteria are met: (i) the objective of the
business model is to hold the financial asset for the collection of
the contractual cash flows; and (ii) the contractual cash flows
under the instrument solely represent payments of principal and
interest. If a financial asset meets the criteria to be measured at
amortized cost, it can be designated at fair value through profit or
loss under the fair value option, if doing so would significantly
reduce or eliminate an accounting mismatch. Non-traded equity
instruments may be accounted for at fair value through other
comprehensive income (OCI). Such a designation is available on
initial recognition on an instrument-by-instrument basis and is
irrevocable. There is no subsequent recycling of realized gains or
losses from OCI to profit or loss. All other financial assets are mea-
sured at fair value through profit or loss.
The accounting for and presentation of financial liabilities
and for derecognition of financial instruments have been trans-
ferred from IAS 39 Financial Instruments: Recognition and
Measurement to IFRS 9 Financial Instruments. The guidance is
unchanged with one exception: the accounting for financial
liabilities designated at fair value through profit or loss. The re-
quirements stipulated in IAS 39 Financial Instruments: Recogni-
tion and Measurement regarding the classification and mea-
surement of financial liabilities have been retained, including the
related application and implementation guidance. The two ex-
isting measurement categories for financial liabilities remain un-
changed. The criteria for designating a financial liability at fair
value through profit or loss also remain unchanged. For financial
liabilities designated at fair value through profit or loss, changes
in fair value due to changes in an entity’s own credit risk are di-
rectly recognized in OCI instead of in profit or loss. There is no
subsequent recycling of realized gains or losses from OCI to
profit or loss. For financial liabilities that are required to be mea-
sured at fair value through profit or loss, i.e. all derivatives and
trading portfolio liabilities, all fair value movements will contin-
ue to be recognized in profit or loss.
We are currently assessing the impact of the new standard on
our financial statements. The effective date for mandatory adop-
tion is 1 January 2013, with early adoption permitted. The IFRS 7
Financial Instruments: Disclosure amendments are applicable for
annual accounting periods beginning on or after 1 July 2011. We
did not adopt IFRS 9 Financial Instruments for the year ended
31 December 2010.
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 / (benefit)
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 non-controlling 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
Retail & Corporate
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Investment Bank
Treasury activities and other corporate items
Operating profit from continuing operations before tax
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For the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
18,872
(12,657)
6,215
(66)
6,149
17,160
7,471
1,214
31,994
16,920
6,585
918
0
117
24,539
7,455
(381)
7,836
2
0
2
7,838
304
303
1
7,534
7,533
1
2,308
1,772
4,080
(130)
516
2,197
793
7,455
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
(2,125)
(20,724)
610
600
10
(2,736)
(2,719)
(17)
2,280
1,629
3,910
32
438
(6,081)
(860)
(2,561)
568
520
48
(21,292)
(21,442)
150
3,631
2,382
6,013
(823)
1,333
(34,300)
19
(27,758)
(20)
26
(4)
96
33
(3)
103
42
2
5
(12)
(100)
(42)
(2)
14
(50)
(50)
(90)
1
9
4
18
37
Strategy, performance and responsibility
Financial performance
2010
Results
In 2010, we reported a Group net profit attributable to sharehold-
ers of CHF 7,534 million, a profit before tax from continuing op-
erations of CHF 7,455 million and a profit before tax from discon-
tinued operations of CHF 2 million. In 2009, we recorded a net
loss attributable to shareholders of CHF 2,736 million.
Operating income
Total operating income was CHF 31,994 million in 2010, up from
CHF 22,601 million in 2009. Net interest income was CHF 6,215
million compared with CHF 6,446 million in the prior year. Net
trading income was positive CHF 7,471 million compared with
negative CHF 324 million in 2009.
Net interest income includes income from interest margin-
based activities (loans and deposits) as well as income earned as a
result of trading activities (for example, coupon and dividend
income). The dividend income component of interest income is
volatile, depending on the composition of the trading portfolio.
Net interest and trading income is analyzed below under the rel-
evant business activities in order to provide a more comprehensive
explanation of the movements.
Net income from trading businesses
Net income from trading businesses, including lending activities
of the Investment Bank, was CHF 7,508 million for full-year 2010
compared with CHF 382 million in the prior year.
The Investment Bank’s fixed income, currencies and commodi-
ties’ (FICC) trading revenues improved due to an increase in cred-
it trading revenues, which was partially offset by decreases in
trading revenues in our macro and emerging markets businesses.
A major part of the improvement was due to de-risking and re-
duction of the residual positions portfolio. Equities trading reve-
nues, excluding own credit, decreased compared with the previ-
ous year, primarily in the derivatives and equity-linked business.
An own credit loss on financial liabilities designated at fair value
of CHF 548 million was recorded in 2010, compared with a CHF
2,023 million loss in 2009. This was due to continuing but com-
paratively less tightening of our credit spreads in 2010. Debit valu-
ation adjustments on derivatives in the Investment Bank’s FICC
business were positive CHF 155 million compared with negative
CHF 1,882 million in 2009. This resulted from the widening of
overall credit spreads in the second quarter, partially offset by a
tightening of the credit spreads in the third and fourth quarters.
➔ Refer to “Note 27 Fair value of financial instruments” in
the “Financial information” section of this report for more
information on own credit
Net income from interest margin businesses
Net income from interest margin businesses was CHF 4,624 mil-
lion compared with CHF 5,053 million in the prior year. This de-
38
crease was primarily attributable to lower margins and negative
currency effects.
Net income from treasury activities and other
Net income from treasury activities and other was CHF 1,554 mil-
lion compared with CHF 687 million in 2009. Income from trea-
sury activities was nearly unchanged from last year. A CHF 745
million gain on the valuation of our option to acquire the SNB
StabFund’s equity was recorded in 2010, compared with a CHF
117 million gain in the prior year. Additionally, 2009 included a
net gain of CHF 297 million (including interest expenses) on the
valuation of the mandatory convertible notes (MCN) issued in De-
cember 2008 and converted in August 2009.
Credit loss expenses
In 2010, we reported net credit loss expenses of CHF 66 million.
This included CHF 172 million of impairment charges taken on
reclassified and acquired securities, partially offset by recoveries
on certain loan positions. The net credit loss expenses in 2009
amounted to CHF 1,832 million.
The net credit loss expenses of the Investment Bank were nil in
2010, compared with net credit loss expenses of CHF 1,698 mil-
lion in 2009. Credit loss expenses of CHF 172 million in relation to
reclassified and acquired securities were primarily related to im-
pairments on our student loan auction rate securities inventory,
offset by recoveries on certain loan positions.
Wealth Management & Swiss Bank reported net credit loss ex-
penses of CHF 64 million for 2010, compared with CHF 133 mil-
lion in 2009.
➔ 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 17,160 million, com-
pared with CHF 17,712 million in the previous year. Income de-
clined slightly in all major fee categories except for portfolio man-
agement and advisory fees, as outlined below:
– Underwriting fees were CHF 1,912 million compared with
CHF 2,386 million in the prior year, due to a decline in both
equity and debt underwriting fees. The decrease in equity un-
derwriting fees resulted from an overall market slowdown.
Debt underwriting fees declined due to lower revenues in the
Investment Bank’s debt capital market business.
– Mergers and acquisitions and corporate finance fees were
CHF 857 million, a decrease from CHF 881 million in the prior
year. This was due to reduced market activity as deal appetite
remained subdued in the first half of 2010.
– Net brokerage fees fell 8% to CHF 3,837 million mainly due
to low transaction volumes and margin compression in
2010.
– Investment fund fees were CHF 3,898 million, a 3% decrease
compared with the prior year. Lower asset based commission
y
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i
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For the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
6,215
7,471
13,686
7,508
4,624
1,554
13,686
6,446
(324)
6,122
382
5,053
687
6,122
5,992
(25,820)
(19,828)
(27,203)
6,160
1,214
(19,828)
(4)
124
(8)
126
124
For the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
11
(76)
(64)
(1)
0 1
(133)
(39)
0
(66)
45
(178)
(133)
3
(1,698)
(425)
(18)
(5)
(1,832)
(388)
(4)
(392)
(29)
(2,575)
(125)
0
0
(2,996)
(76)
(57)
(52)
(100)
(69)
117
(100)
(96)
Net interest and trading income
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
1 Includes lending activities of the Investment Bank.
Credit loss (expense) / recovery
CHF million
Wealth Management
Retail & Corporate
Wealth Management & Swiss Bank
Wealth Management Americas
Investment Bank
of which: related to reclassified securities 2
of which: related to acquired securities
Treasury activities and other corporate items
UBS
1 Credit loss expenses related to reclassified and acquired securities were offset by recoveries on certain loan positions. 2 Refer to “Note 29b Reclassification of financial assets” in the “Financial information” section of this report.
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
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 1
Total fee and commission expense
Net fee and commission income
of which: net brokerage fees 1
For the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
1,157
755
1,912
857
4,930
3,898
5,959
361
17,918
448
850
19,216
1,093
964
2,057
17,160
3,837
1,590
796
2,386
881
5,400
4,000
5,863
264
18,794
339
878
20,010
1,231
1,068
2,299
17,712
4,169
1,138
818
1,957
1,662
7,150
5,583
7,667
317
24,335
273
1,010
25,618
1,164
1,524
2,689
22,929
5,985
(27)
(5)
(20)
(3)
(9)
(3)
2
37
(5)
32
(3)
(4)
(11)
(10)
(11)
(3)
(8)
1 In 2010, we corrected the amounts presented in previous periods on the lines Brokerage fees, Brokerage fees paid, Other and Net brokerage fees. Amounts previously disclosed have been decreased as follows: Brokerage
fees by CHF 817 million and CHF 1,059 million for the years ended 31 December 2009 and 31 December 2008, respectively; Brokerage fees paid by CHF 517 million and CHF 599 million for the years ended 31 Decem-
ber 2009 and 31 December 2008, respectively; Other and Net brokerage fees by CHF 300 million and CHF 460 million for the years ended 31 December 2009 and 31 December 2008, respectively. The total of Net fee
and commission income and consequently Net profit attributable to UBS shareholders are not affected by this correction.
39
Strategy, performance and responsibility
Financial performance
fees on UBS funds were partly offset by higher fees on third-
party funds and sales-based commission income.
– Portfolio management and advisory fees increased 2% to CHF
5,959 million, mainly due to higher portfolio management fees
in our Wealth Management Americas business division. This was
partly offset by lower portfolio management fees in Global As-
set Management, primarily resulting from lower performance
fees in its alternative and quantitative investments business, and
by lower portfolio management and advisory fees in Wealth
Management & Swiss Bank and the Investment Bank.
– Other commission expense fell 10% to CHF 964 million, main-
ly due to lower commissions paid for payment transactions,
other services and management advisory.
Other income
Other income was CHF 1,214 million in 2010, compared with
CHF 599 million in the previous year. Other income in 2010 in-
cluded a CHF 180 million gain from the sale of investments in
associates owning real estate in New York, a gain of CHF 158
million from the sale of a property in Zurich, CHF 324 million gains
from the disposal of loans and receivables (including sales and is-
suer redemptions of auction rate securities), a CHF 69 million de-
mutualization gain from our stake in the Chicago Board Options
Exchange, and a negative CHF 45 million valuation adjustment on
a property fund held by Wealth Management & Swiss Bank.
➔ Refer to “Note 5 Other income” in the “Financial information”
section of this report for more information
Operating expenses
Total operating expenses were CHF 24,539 million in 2010, com-
pared with CHF 25,162 million in 2009. Operating expenses in
2010 included CHF 113 million of net restructuring charges, while
operating expenses in 2009 included goodwill impairment charg-
es of CHF 1,123 million and restructuring charges of CHF 791
million.
Personnel expenses
Personnel expenses were CHF 16,920 million, up from CHF
16,543 million in the prior year. Personnel expenses recorded in
2010 included discretionary variable compensation expenses of
CHF 4.1 billion, of which CHF 1.5 billion relates to variable com-
pensation brought forward from prior years. The discretionary
bonus pool granted to employees for the performance year 2010
was CHF 4.2 billion, 11% lower than in the previous year. Of this
amount, CHF 2.6 billion is recognized in the income statement in
2010, and CHF 1.6 billion will be deferred to future periods. Other
personnel expenses in 2010 included a charge of CHF 0.2 billion
for the UK Bank Payroll Tax.
Other variable compensation was CHF 310 million in 2010 com-
pared with CHF 830 million in 2009. The decrease was mainly due
to restructuring-related severance costs recognized in 2009.
➔ Refer to the “Compensation” section of this report for more
information
40
➔ Refer to the “Accounting and reporting structure changes”
section and to “Note 6 Personnel expenses” in the “Financial
information” section of this report for more information on the
changes in presentation of certain personnel expenses in 2010
and related adjustment of prior periods’ amounts
General and administrative expenses
General and administrative expenses were CHF 6,585 million in
2010 compared with CHF 6,248 million in 2009. Marketing and
public relations expenses increased primarily due to the costs as-
sociated with sponsoring and branding campaigns related to the
global re-launch of the UBS brand. Other general and administra-
tive expenses increased due to higher litigation provisions, par-
tially offset by lower restructuring provisions. Costs of outsourcing
IT and other services as well as travel and entertainment were
higher compared with the prior year. These increases were partly
offset by reduced spending on occupancy, rent and maintenance
of IT and other equipment, telecommunications and postage, ad-
ministration and professional fees.
➔ Refer to “Note 7 General and administrative expenses” in the
“Financial information” section of this report for more information
Depreciation, amortization and impairment of goodwill
Depreciation was CHF 918 million in 2010, compared with CHF
1,048 million in 2009. Amortization of intangible assets was CHF
117 million compared with CHF 200 million in the prior year. No
goodwill impairment charges were recorded in 2010. A goodwill
impairment charge of CHF 1,123 million relating to the sale of
UBS Pactual was recorded in 2009.
Income tax
We recognized a net income tax benefit in our income statement
of CHF 381 million for 2010. This included a deferred tax benefit
of CHF 605 million and current tax expenses of CHF 224 million.
The deferred tax benefit reflects the recognition of additional
deferred tax assets in respect of tax losses and temporary differ-
ences in a number of foreign locations including the US (tax benefit
of CHF 1,161 million) and Japan (tax benefit of CHF 98 million),
taking into account updated taxable profit forecast assumptions
over the five-year time horizon used for recognition purposes. This
was partly offset by a Swiss net deferred tax expense. Swiss tax
losses, for which deferred tax assets have previously been recog-
nized, were used against profits for the year (tax expenses of CHF
1,409 million). This was partly offset by an upward revaluation of
Swiss deferred tax assets taking into account revised profit forecast
assumptions (tax benefit of CHF 741 million).
The current tax expenses relate to tax expenses in respect of
taxable profits of Group entities, partially offset by tax benefits
arising from the agreement on prior year positions with tax au-
thorities in various locations.
The tax benefit for the year in the income statement is CHF
320 million higher than that in our fourth quarter 2010 report is-
sued on 8 February 2011.
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➔ Refer to “Note 33 Events after the reporting period” in the
“Financial information” section of this report for more information
During 2009, we recognized a net income tax benefit in our
income statement of CHF 443 million. This reflected a deferred
tax benefit mainly relating to the recognition of additional de-
ferred tax assets in respect of tax losses, partly offset by current
tax expenses relating to taxable profits of Group entities.
Net profit attributable to non-controlling interests
Net profit attributable to non-controlling interests for 2010 was
CHF 304 million, compared with CHF 610 million for 2009. This
decrease was primarily the consequence of the attribution in
2009, rather than in 2010, of CHF 132 million of net profit to
non-controlling interests in connection with certain dividends
payable in 2010 on hybrid capital instruments classified as non-
owner equity. This attribution was made out of 2009’s net profit
following a determination that a triggering event had occurred
that caused the 2010 dividend payments to become obligatory
under the terms of these hybrid capital instruments. The trigger-
ing event was the cash payment made by UBS in 2009 to the
Swiss Confederation in consideration of the Confederation’s
waiver of its right to receive future coupon payments on the man-
datory convertible notes due in 2011.
Had the 2010 dividend payments been applied to net profit in
2010 rather than in 2009, the net profit attributed to non-con-
trolling interests would have been CHF 478 million in 2009 and
CHF 436 million in 2010.
Comprehensive income attributable to UBS shareholders
Comprehensive income attributable to UBS shareholders in-
cludes all changes in equity (including net profit) attributed to
UBS shareholders during a period, except those resulting from
investments by and distributions to shareholders as well as eq-
uity settled share-based payments. Items included in compre-
hensive income, but not in net profit, are reported under other
comprehensive income (OCI). Most of those items will be recog-
nized in net profit when the underlying item is sold or realized.
Comprehensive income attributable to UBS shareholders in 2010
was CHF 5,875 million, including net profit attributable to UBS
shareholders of CHF 7,534 million, partially offset by other com-
prehensive income attributable to UBS shareholders of negative
CHF 1,659 million.
OCI attributable to UBS shareholders was negative in 2010
due to: (1) losses in the currency translation account of CHF 909
million (net of tax) related to the Swiss franc carrying value of
investments in subsidiaries whose reporting currencies are other
than Swiss francs; (2) fair value losses on financial investments
available-for-sale of CHF 607 million (net of tax); and (3) changes
in the replacement values of interest rate swaps designated as
hedging instruments of negative CHF 143 million (net of tax).
Foreign currency translation-related OCI losses attributable to
UBS shareholders of CHF 1,501 million (net of tax) in 2010 large-
ly resulted from the strengthening of the Swiss franc against the
US dollar, British pound and euro. We have foreign operations
conducted through entities with these functional currencies.
These losses in foreign currency translation were partially offset
by an out-of- period credit of CHF 592 million resulting from the
correction of prior period misstatements. Fair value losses on fi-
nancial investments available-for-sale predominantly relate to
our fixed-interest bearing long-term bond portfolio, which con-
sists of US and UK government bonds. During the fourth quar-
ter, the fair value of this portfolio decreased, mostly due to rising
market interest rates. On a net basis, the fair value movement of
US dollar, euro and British pound fix-receiver and fixed-payer in-
terest rate swaps designated in cash flow hedges was slightly
negative during the year.
➔ Refer to the “Statement of comprehensive income” section and
“Note 1 Summary of significant accounting policies” in the
“Financial information” section of this report for more information
Invested assets
Total invested assets were CHF 2,152 billion on 31 December
2010, a decrease of 4% from CHF 2,233 billion on 31 December
2009. Positive market developments were more than offset by
negative currency effects and net new money outflows.
Invested assets
CHF billion
Wealth Management
Retail & Corporate
Wealth Management & Swiss Bank
Wealth Management Americas
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure
Global Asset Management
Total
31.12.10
As of
31.12.09
% change from
31.12.08
31.12.09
768
136
904
689
487
34
36
1
559
2,152
825
135
960
690
502
41
39
1
583
2,233
833
122
955
644
493
41
40
1
575
2,174
(7)
1
(6)
0
(3)
(17)
(8)
0
(4)
(4)
41
Strategy, performance and responsibility
Financial performance
2009
Results
In 2009, we reported a Group net loss attributable to sharehold-
ers 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 operations. In 2008, we recorded a net loss
attributable to shareholders 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 million compared with
negative CHF 25,820 million in 2008.
In 2009, we reviewed our approach to calculating and booking
of own credit on derivative liabilities and financial liabilities desig-
nated at fair value. As of the transition date of 1 January 2009,
changes resulting from this review led to an increase in our 2009
net trading income of CHF 143 million, made up of a CHF 365 mil-
lion credit to net income from trading businesses 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 activities
of the Investment Bank, was positive CHF 382 million for the full-
year 2009, compared with negative CHF 27,203 million in 2008.
The improvement was mainly due to lower losses on residual risk
positions in the Investment Bank’s fixed income, currencies and
commodities (FICC) business in 2009.
Trading revenues from the FICC business improved from 2008,
due to lower losses on residual risk positions as mentioned above.
Equities trading revenues (excluding own credit) improved
from 2008. Equity-linked revenues increased significantly as all
regions benefitted from improvements in valuations 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, compared with a gain of CHF 2,032
million in 2008. This was partially affected by the abovementioned
change in the approach to calculating and booking of own credit.
➔ Refer to “Note 27 Fair value of financial instruments” in the
“Financial information” section of our Annual Report 2009 for
more information on own credit
decrease was primarily attributable to lower margins on loans
and liabilities.
Net income from treasury activities and other
Net income from treasury activities and other was CHF 687 million
in 2009 compared with CHF 1,214 million in 2008 due to a net
gain of CHF 297 million (including interest expenses) on the valu-
ation of the mandatory convertible notes (MCN) issued in Decem-
ber 2008 and converted in August 2009, and a gain of CHF 117
million on the revaluation of our option to acquire the SNB Stab-
Fund’s equity. In comparison, 2008 included an accounting gain
of CHF 3,860 million related to the MCN issued in March 2008,
which was offset by the CHF 3.4 billion negative impact of the
transaction with the Swiss National Bank and the abovemen-
tioned MCN 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 impairment charg-
es taken on reclassified securities in the Investment Bank. In com-
parison, we recorded net credit loss expenses of CHF 2,996 mil-
lion in 2008.
The Investment Bank recorded net credit loss expenses of CHF
1,698 million in 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 net credit loss
expenses amounted to CHF 1,273 million in 2009.
Wealth Management & Swiss Bank reported net credit loss ex-
penses 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.
➔ Refer to the “Risk management and control” section of our
Annual Report 2009 for more information on our risk manage-
ment approach, method of credit risk measurement and the
development of credit risk exposures in 2009
Net fee and commission income
Net fee and commission income was CHF 17,712 million in 2009,
down 23% from CHF 22,929 million in 2008. Income declined in all
major fee categories except for underwriting fees, as outlined below:
– Underwriting fees increased 22% to CHF 2,386 million, due to
a 40% increase in equity underwriting fees, offset 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 ap-
petite remained subdued.
– Net brokerage fees fell 30% to CHF 4,169 million mainly due
Net income from interest margin businesses
Net income from interest margin businesses decreased 18% to
CHF 5,053 million in 2009 from CHF 6,160 million in 2008. This
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.
42
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– 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.
– Other commission expense fell 30% to CHF 1,068 million,
mainly due to lower commissions paid to distribution partners.
Other income
Other income was CHF 599 million in 2009 compared with CHF
692 million in 2008. Other income in 2009 included 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 investments available-for-sale of
CHF 349 million.
➔ Refer to “Note 5 Other income” in the “Financial information”
section of our Annual Report 2009 for more information
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 incurred in
2009, including CHF 491 million in personnel expenses, mainly
for severance payments, CHF 256 million in general and adminis-
trative 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 in 2009 compared
with CHF 16,262 million in 2008. Headcount reductions were par-
tially offset by salary increases. Discretionary variable compensa-
tion recognized in the income statement in 2009 was CHF 2.8
billion. Discretionary variable compensation of CHF 3.0 billion for
2009 and brought forward from prior years was partially recog-
nized in the income statement in 2010 and the remaining part will
be recognized in future periods, subject to the vesting conditions
of the respective awards granted. It included a charge for perfor-
mance (and retention) awards that were to be granted, or were
expected to be granted, in 2010 in relation to the 2009 perfor-
mance year but which, as of the balance sheet date, had in fact
not been granted. The 2009 results did not include a provision for
bank payroll tax in the UK.
Contractors’ expenses, at CHF 275 million, were down 35%
from 2008. This was due to a substantial reduction of employed
contractors and a favorable foreign exchange impact. Social security
increased 22% to CHF 804 million in 2009, due to our equity com-
pensation plan. Pension and other post-employment benefit plans
increased CHF 16 million to CHF 988 million. Other personnel ex-
penses decreased 21%, mainly due to headcount reduction and
lower training, recruitment and travelling costs.
General and administrative expenses
General and administrative expenses declined 40% to CHF
6,248 million in 2009. All general and administrative expense
categories decreased in 2009 primarily as a result of our cost
reduction programs. Furthermore, 2008 included provisions for
auction rate securities of CHF 1,464 million and provisions in
relation to the US cross-border matter of CHF 917 million. The
largest reductions in absolute terms were in travel and entertain-
ment expenses, and in professional fees.
➔ Refer to “Note 21 Provisions and litigation” in the “Financial
information” section of our Annual Report 2009 for more
information about provisions
Depreciation, amortization and impairment of goodwill
Depreciation of property and equipment declined 16% to CHF
1,048 million in 2009. Amortization of intangible assets was
CHF 200 million compared with CHF 213 million in 2008.
A goodwill impairment charge of CHF 1,123 million was re-
corded in 2009, relating to the sale of UBS Pactual. In 2008 a
goodwill impairment charge of CHF 341 million was recorded
relating to the Investment Bank’s exit from the municipal securi-
ties business.
Income tax
We recognized a net income tax benefit in our income state-
ment of CHF 443 million for the full-year 2009. This included
a deferred tax benefit of CHF 960 million, which reflected the
recognition of additional deferred tax assets in respect of tax
losses and temporary differences in certain locations, includ-
ing the US (CHF 373 million) and Japan (CHF 127 million),
taking into account updated profit forecast assumptions over
the five-year time horizon used for recognition purposes. In
addition, it reflected the release of a deferred tax liability of
CHF 243 million relating to UBS Pactual prior to its sale during
2009. This deferred tax benefit was partially offset by a tax
charge of CHF 517 million, which mainly related to entities
with taxable profits.
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.
Invested assets
Total invested assets were CHF 2,233 billion on 31 December
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, a reduction of invested assets related to
divestments, and negative currency translation effects.
43
Strategy, performance and responsibility
Financial performance
Balance sheet
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
Cash collateral receivables on derivative instruments
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
Cash collateral payables on derivative instruments
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
Cumulative net income recognized directly in equity, net of tax
Retained earnings
Equity classified as obligation to purchase own shares
Treasury shares
Equity attributable to UBS shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
44
31.12.10
31.12.09
% change from
31.12.09
26,939
17,133
62,454
142,790
167,463
61,352
401,146
38,071
8,504
262,877
74,768
5,466
790
5,467
9,822
9,522
22,681
1,317,247
41,490
6,651
74,796
54,975
393,762
58,924
100,756
332,301
7,738
130,271
63,719
20,899
16,804
63,507
116,689
188,037
44,221
421,694
53,774
10,223
266,477
81,757
5,816
870
6,212
11,008
8,868
23,682
1,340,538
31,922
7,995
64,175
47,469
409,943
66,097
112,653
339,263
8,689
131,352
72,344
1,265,384
1,291,905
383
34,393
(6,534)
19,285
(54)
(654)
46,820
5,043
51,863
356
34,824
(4,875)
11,751
(2)
(1,040)
41,013
7,620
48,633
1,317,247
1,340,538
29
2
(2)
22
(11)
39
(5)
(29)
(17)
(1)
(9)
(6)
(9)
(12)
(11)
7
(4)
(2)
30
(17)
17
16
(4)
(11)
(11)
(2)
(11)
(1)
(12)
(2)
8
(1)
(34)
64
37
14
(34)
7
(2)
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(cid:10)(cid:19)(cid:24)(cid:11)
(cid:10)(cid:19)(cid:22)(cid:11)
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Balance sheet development
31.12.10 vs. 31.12.09
Our total assets stood at CHF 1,317 billion on 31 December 2010,
down CHF 23 billion (2%) from CHF 1,341 billion on 31 Decem-
ber 2009. The reduction occurred mainly in replacement values
(RV), which decreased to a similar extent on both sides of the
balance sheet, as market and currency movements drove down
positive RV 5% to CHF 401 billion, and negative RV by 4% to CHF
394 billion. Our funded asset volume, which excludes positive RV,
remained relatively unchanged, declining by CHF 3 billion in 2010.
Nevertheless, our asset composition changed as cash collateral
receivables on derivative instruments dropped by CHF 16 billion to
CHF 38 billion, financial investments available-for-sale fell by CHF
7 billion to CHF 75 billion, and trading port folio assets declined by
CHF 3 billion to CHF 229 billion. These declines were partially
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offset by increases in collateral trading assets, which rose by CHF
25 billion to CHF 205 billion, while lending assets remained stable
around CHF 315 billion.
Currency effects for 2010 included the strengthening of the
Swiss franc against the euro, British pound, and the US dollar, and
weakening of the Swiss franc against the Japanese yen. These ef-
fects deflated our balance sheet, excluding positive RV, by rough-
ly CHF 70 billion.
To a large extent, the total asset reduction occurred in the
Investment Bank, as the abovementioned change in positive re-
placement values and lower balances in current accounts arising
from collateralized derivative over-the-counter (OTC) transactions
(variation margins) contributed significantly to the business divi-
sion’s CHF 25 billion decline to CHF 967 billion. Wealth Manage-
ment’s balance sheet assets fell by CHF 16 billion to CHF 94 billion.
Global Asset Management’s balance sheet assets decreased by
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(cid:19)(cid:2)(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:85)(cid:74)(cid:71)(cid:71)(cid:86)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:80)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:50)(cid:71)(cid:84)(cid:69)(cid:71)(cid:80)(cid:86)(cid:67)(cid:73)(cid:71)(cid:85)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)
(cid:85)(cid:74)(cid:71)(cid:71)(cid:86)(cid:2)(cid:85)(cid:75)(cid:92)(cid:71)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:80)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:82)(cid:67)(cid:91)(cid:67)(cid:68)(cid:78)(cid:71)(cid:85)(cid:2)(cid:81)(cid:80)(cid:2)(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)
(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:22)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:70)(cid:71)(cid:85)(cid:75)(cid:73)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:72)(cid:67)(cid:75)(cid:84)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:16)(cid:2)
45
(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:19)(cid:22)(cid:18)(cid:18)
(cid:19)(cid:21)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:18)(cid:18)
(cid:19)(cid:19)(cid:18)(cid:18)
(cid:19)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:22)(cid:18)(cid:18)
(cid:19)(cid:21)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:18)(cid:18)
(cid:19)(cid:19)(cid:18)(cid:18)
(cid:19)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:26)(cid:25)(cid:23)
(cid:19)(cid:20)(cid:23)(cid:18)
(cid:24)(cid:20)(cid:23)
(cid:18)
(cid:20)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:26)(cid:25)(cid:23)
(cid:19)(cid:20)(cid:23)(cid:18)
(cid:24)(cid:20)(cid:23)
(cid:18)
Strategy, performance and responsibility
Financial performance
CHF 4 billion to CHF 16 billion, and Wealth Management Ameri-
cas’ balance sheet assets decreased by CHF 3 billion to CHF 50
billion. The balance sheet asset size of Retail & Corporate increased
by CHF 15 billion to CHF 153 billion. Treasury activities and other
corporate items rose by CHF 10 billion to CHF 37 billion.
Balance sheet positions disclosed in this section represent
year-end positions. Intra-quarter balance sheet positions may be
different.
➔ Refer to the table “FINMA leverage ratio calculation” in the
“Capital management” section of this report for our average
month-end balance sheet size for the fourth quarter 2010 and 2009
Lending and borrowing
Lending
Cash and balances with central banks was CHF 27 billion on
31 December 2010, an increase of CHF 6 billion from the prior
year-end, related to an increase in overnight deposits with central
banks. Loans to customers decreased CHF 4 billion to CHF 263
billion due to currency effects, which lowered our loan portfolio
by CHF 10 billion. On a currency adjusted basis, loans to custom-
ers increased CHF 6 billion, predominantly in our wealth manage-
ment businesses, where they grew by CHF 12 billion. Volume
growth occurred across all major products, including lombard
lending, fixed-term loans, and current accounts. This was partly
offset by a reduction of student loan auction rate securities and
our loan to the RMBS Opportunities Master Fund, LP (BlackRock).
➔ Refer to the “Risk and treasury management” section for more
2010, an increase of CHF 4 billion from the prior year-end, while
long-term debt declined by CHF 6 billion to CHF 74 billion, main-
ly related to currency effects, which contributed to a reduction of
CHF 8 billion.
➔ Refer to the “Liquidity and funding management” section for
more information on long-term debt issuance
Repurchase / reverse repurchase agreements and securities
borrowing / lending
Cash collateral on securities borrowed and reverse repurchase
agreements increased year-on-year by CHF 25 billion to CHF 205
billion on 31 December 2010. This increase was partly due to in-
creased trading balances in the matched book and to higher
short-coverings via reverse repurchase agreements and securities
borrowing transactions. In a matched book, the dealer reverses
collateral from one customer and repos it to another customer at
a different rate generating additional profit from mismatching
maturities.
A significant amount of trading assets is funded via repurchase
agreements. Therefore, in addition to the increase in the matched
book, the increase in the Investment Bank’s trading assets also
contributed to the rise in repurchase agreements. These increases
are reflected on the liability side of the balance sheet, where re-
purchase agreements and securities lent against cash collateral
grew by CHF 9 billion in 2010 and stood at CHF 81 billion on
31 December 2010.
information
Trading portfolio
Borrowing
Overall, our unsecured borrowing declined by CHF 10 billion to
CHF 605 billion. Financial liabilities designated at fair value stood
at CHF 101 billion on 31 December 2010, a drop of CHF 12 bil-
lion from 31 December 2009, mainly due to currency effects,
which reduced the outstanding balance of equity-linked and
credit-linked notes. Customer deposits (due to customers)
amounted to CHF 332 billion, a decrease of CHF 7 billion com-
pared with 2009, however, grew by CHF 17 billion on a currency-
adjusted basis, mainly related to an increase in our wholesale
deposits. Our wealth management businesses cash deposits
grew by CHF 3 billion on a currency-adjusted basis, with in-
flows / shifts into current accounts, savings and personal ac-
counts, and pension fund investment accounts from fiduciary
investments and fixed-term deposits. Interbank borrowing (due
to banks) was CHF 41 billion on 31 December 2010, up CHF 10
billion from 31 December 2009, to an almost equal extent due to
our short-term wholesale and our Retail & Corporate business.
Money market paper issuance was CHF 56 billion at year-end
Trading portfolio assets declined by CHF 3 billion to stand at CHF
229 billion on 31 December 2010. The majority of this decrease is
related to currency effects and trading inventory held for regula-
tory requirements within our wealth management business. The
Investment Bank’s trading portfolio grew by CHF 9 billion, primar-
ily as a result of an increase in holdings of money market papers
(mainly treasury bills) of CHF 11 billion and precious metals (main-
ly silver and palladium) of CHF 2 billion, partially offset by debt
instruments, which declined by CHF 5 billion (mainly US govern-
ment paper and corporate debt).
Replacement values
The positive and the negative replacement values (RV) of deriva-
tive instruments developed roughly in parallel, decreasing by CHF
21 billion (5%) and CHF 16 billion (4%), respectively, and ending
2010 at CHF 401 billion and CHF 394 billion, respectively. De-
creases in positive RV occurred in credit derivative contracts,
which declined by CHF 23 billion due to a tightening of credit
46
spreads. Interest rate contracts dropped by CHF 11 billon due to
a steepening in interest rate yield curves, specifically those de-
nominated in euro and British pound. These declines were par-
tially offset by foreign exchange contracts, which grew by CHF
16 billion, related to the strengthening of the Swiss franc against
major currencies.
Financial investments available-for-sale
Financial investments available-for-sale declined by CHF 7 billion
to CHF 75 billion in 2010, reflecting currency effects. The majority
of these instruments include highly liquid short-term securities is-
sued by governments and government-controlled institutions in
various currencies, mainly US dollars, euro and British pound. It
also includes a portfolio of US and UK government bonds with a
face amount of CHF 15 billion and a weighted average maturity
of approximately eight years.
Other assets / other liabilities
Commencing in the fourth quarter of 2010, UBS has changed the
presentation of prime brokerage receivables and payables and
cash collateral from derivative transactions to improve transpar-
ency. Prime brokerage receivables and prime brokerage payables
have been transferred out of Due from banks and Loans to Other
assets, and out of Due to banks and Due to customers to Other
liabilities, respectively. Cash collateral receivables and payables on
derivatives are presented in the new balance sheet lines Cash col-
lateral receivables on derivative instruments and Cash collateral
payables on derivative instruments by transferring the amounts
out of Due from banks and Loans, and Due to banks and Due to
customers, respectively. In the aforementioned waterfall graphs,
Cash collateral receivable and payable on derivative instruments
are shown in Other assets and Other liabilities. Comparative peri-
ods have been adjusted accordingly.
➔ Refer to the “Note 1 Summary of significant accounting policies”
in the “Financial information” section of this report for more
information
Shareholders’ equity
On 31 December 2010, equity attributable to UBS shareholders
was CHF 46.8 billion, representing an increase of CHF 5.8 billion
compared with 31 December 2009. The increase in 2010 reflects
a net profit of CHF 7.5 billion, partially offset by negative effects
recognized in equity (including currency translation effects) of
CHF 1.7 billion.
➔ Refer to the “Shares and capital instruments” section of this
report for more information
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47
Strategy, performance and responsibility
Financial performance
Off-balance sheet
Off-balance sheet arrangements
Off-balance sheet arrangements include purchased and retained
interests and derivatives, as well as other involvements in non-
consolidated entities and structures originated by us or set up by
third parties. Generally, these arrangements either meet the fi-
nancial needs of clients or offer investment opportunities through
entities that are not controlled by us.
In the normal course of business, we enter into arrangements
that, under IFRS, lead to de-recognition of financial assets and li-
abilities for which we have transferred substantially all risks and
rewards (financial assets), or for which the financial liabilities are
extinguished.
In addition, we enter into arrangements where the financial as-
sets (and liabilities) received are not recognized on the balance sheet
because we have not assumed the related risks and rewards (finan-
cial assets) and / or because we did not become party to the contrac-
tual provisions of the financial instruments. We recognize these
types of arrangements on the balance sheet only to the extent of
their involvement, which, for example, may be in the form of de-
rivatives, guarantees, financing commitments or servicing rights.
When we, through these arrangements, incur an obligation or
become entitled to an asset, we recognize them on the balance
sheet. It should be noted that in many instances the amount rec-
ognized on the balance sheet does not represent the full gain or
loss potential inherent in such arrangements.
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 table below.
Off-balance sheet arrangements, risks,
consolidation and fair value measurements
Disclosure in the annual report
Contractual obligations
Strategy, performance and responsibility, section “Off-balance sheet”
Credit guarantees, performance guarantees, loan commitments, underwriting
commitments, forward starting transactions and similar instruments
Strategy, performance and responsibility, section “Off-balance sheet”
Guarantees issued by UBS AG to subsidiaries
Other contingent liabilities
Derivative financial instruments
Credit derivatives
Leases
Financial information, “Note 41 Supplemental guarantor information
required under SEC rules”
Financial information, “Note 21 Provisions and contingent liabilities”
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
Strategy, performance and responsibility, section “Off-balance sheet”
Securitizations (banking book only)
Risk and treasury management, section “Basel II Pillar 3 disclosures”
Risk concentrations
Credit risk information
Market risk information
Liquidity risk information
Consolidation
Fair value measurements
48
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”
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Risk positions
Our risk concentrations and other relevant risk positions are dis-
closed in detail in the audited parts of the “Risk management and
control” section of this report. As of 31 December 2010 these
positions included exposures to monoline insurers and student
loan auction rate securities.
The importance and the potential impact of such risk positions
(with respect to liquidity, capital resources or market and credit
risk support), including off-balance sheet structures, are also de-
scribed in the “Risk and treasury management” section of this
report.
Liquidity facilities and similar obligations
On 31 December 2010 and 2009, we had no significant exposure
through liquidity facilities and guarantees to structured invest-
ment vehicles, conduits and other similar types of special purpose
entities (SPE). Losses resulting from such obligations were not sig-
nificant in 2010 and 2009.
Non-consolidated securitization vehicles and collateralized
debt obligations
Up to and including 2008, we sponsored the creation of SPE that
facilitate the securitization of acquired residential and commercial
mortgage loans, other financial assets and related securities. We
also securitized clients’ debt obligations in transactions involving
SPE which issued collateralized debt obligations (CDO), which typi-
cally refer to a security that is collateralized by a pool of bonds,
loans, equity, derivatives or other assets. A securitization transac-
tion of this kind generally involves the transfer of assets into a trust
or corporation in return for the receipt of beneficial interests in the
form of securities. Financial assets held by such trusts and corpora-
tions are no longer reported in our consolidated financial state-
ments once their risks and rewards are transferred to a third-party.
➔ Refer to “Note 1 Summary of significant accounting policies” in
the “Financial information” section of this report for more
information on accounting policies regarding securitization
activities
Non-consolidated securitization vehicles and collateralized debt obligations – non-agency transactions 1
CHF billion
Total SPE assets
Involvements in non-consolidated SPE held by UBS
As of 31 December 2010
Originated by UBS
CDOs
Residential mortgage
Commercial mortgage
Other ABS
Securitizations
Residential mortgage
Commercial mortgage
Other ABS
Total
Not originated by UBS
CDOs
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
Carrying value
Derivatives held by UBS
Fair value
Nominal value
5.3
0.0
0.0
2.9
22.1
0.9
31.2
43.7
13.4
78.9
625.1
608.4
946.0
3.9
0.0
0.0
1.7
19.3
1.0
25.9
20.1
8.8
64.7
212.6
515.5
607.7
2,315.5
1,429.4
0.0
0.0
0.0
0.1
2.1
0.0
2.2
0.1
0.0
0.0
38.4
63.7
20.1
122.3
0.7
0.0
0.0
0.1
0.1
0.0
0.9
0.4
0.8
5.5
1.3
2.3
3.5
13.8
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.3
(1.1)
0.0
0.0
(0.7)
0.9
1.3
0.1
2.4
0.0
0.0
4.6
0.1
0.0
2.3
4.1
0.0
0.0
6.4
1 The total pool assets held by non-consolidated investment vehicles where UBS is involved are reflected under “Total SPE assets”. The involvement of UBS in these vehicles is disclosed under the column “Involvements
in non-consolidated SPE held by UBS”. UBS involvement may be in the form of purchased and retained interests or derivatives. “Total SPE assets” include information which UBS could gather after making exhaustive
efforts but excludes data which UBS was unable to obtain (in sufficient quality), especially for structures originated by third parties. 2 Includes loans and receivables measured at amortized cost in the amount of CHF
0.8 billion originated by UBS and CHF 7.8 billion for structures not originated by UBS and trading assets measured at fair value in the amount of CHF 6.0 billion for structures not originated by UBS.
49
Strategy, performance and responsibility
Financial performance
We did not sponsor the creation of any abovementioned SPE,
and did not issue or sponsor the issue of new CDO in transactions
involving SPE in 2009 and 2010. Certain retained interests relat-
ing to 2008 and earlier issuances (mainly instruments linked to
the mortgage market) could not be sold and continued to be re-
tained in 2010. However, the volume and size of retained interests
were further reduced as of 31 December 2010, compared with
the prior year.
Our involvements in non-consolidated securitization vehicles
and CDO disclosed in this section are typically managed on a port-
folio basis alongside hedges and other offsetting financial instru-
ments. The “Non-consolidated securitization vehicles and collat-
eralized debt obligations – non-agency transactions” table does
not include these offsetting factors, and does not represent a
measure of risk.
Our involvement in vehicles whose residential and commercial
mortgage securities are backed by an agency of the US govern-
ment – for example the Government National Mortgage Associa-
tion, the Federal National Mortgage Association, or the Federal
Home Loan Mortgage Corporation – is not included in the above-
mentioned table, due to the comprehensive involvement of the
US government in these organizations and their significantly low-
er risk profile.
The numbers in the table are different from the numbers dis-
closed on securitizations in the “Basel II Pillar 3” section of this
report, predominantly due to different scopes (for example Pillar 3
disclosures are on banking book positions only, and the consolida-
tion status is different for several vehicles), and to some extent,
due to a different measurement basis.
Consolidation of securitization vehicles and collateralized debt
obligations
We continually evaluate whether triggering events require recon-
sideration of the consolidation conclusions made at the inception
of our involvement with securitization vehicles and CDO.
As of 31 December 2010 there were no holdings which re-
quired reconsideration of the consolidation assessment.
➔ 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 collateralized debt obligations
The “Risk management and control” section of this report pro-
vides detailed disclosure of our risk concentrations, as well as risks
associated with our involvement in consolidated and non-consol-
idated mortgage securitization vehicles and CDO.
Support to non-consolidated investment funds
In the ordinary course of business, we issue investment certificates
to third parties that are linked to the performance of non-consol-
idated investment funds. Such investment funds are originated
either by us or by third parties. For hedging purposes, we gener-
ally invest in the funds to which our obligations from the certifi-
50
cates are linked. Risks resulting from these contracts are consid-
ered minimal, as the full performance of the funds is passed on to
third parties.
In 2009 and 2008, as a result of the financial markets crisis
which caused declining asset values, market illiquidity and de-le-
veraging by investors, we supported several non-consolidated in-
vestment funds that we manage in our wealth and asset manage-
ment businesses. We provided this support primarily to facilitate
redemption requests of fund investments by clients. Material sup-
port 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.
Acquired fund units and fund assets are generally accounted
for as financial investments available-for-sale, and are included in
the respective risk disclosures in the “Risk management and con-
trol” section of this report.
As a result of the recovery in financial markets, direct acquisi-
tions of fund units were immaterial in 2010. Purchases of assets
from the funds that we manage and guarantees granted to third
parties in the context of such non-consolidated funds were also
immaterial. Collateralized financing provided to such funds
was CHF 0.8 billion as of 31 December 2010. Losses incurred on
fund units accounted as financial investments available-for-sale
amounted to CHF 73 million in 2010.
In addition, in the ordinary course of business, our wealth and
asset management businesses provide short-term funding facili-
ties to investment funds that we manage. This bridges time lags
in fund unit redemptions and subscriptions. These bridge financ-
ings did not incur in 2010 and are not expected to incur material
losses in the future.
It is possible that we may decide in future to provide financial
support to one or more of our investment funds. Such a decision
would be taken on a case-by-case basis and would be based on
legal or regulatory requirements or extraordinary circumstances
prevailing at the time. The risks incurred by providing such sup-
port will depend on the type of support and the riskiness of the
assets held by the fund(s) in question. If we were to provide exten-
sive financial support to some of our investment funds, losses in-
curred as a result of such support could become material.
Guarantees and similar obligations
In the normal course of business we issue: various forms of guaran-
tees; commitments to extend credit; standby and other letters of
credit to support our clients; commitments to enter into forward
starting transactions; note issuance facilities; and revolving under-
writing facilities. With the exception of related premiums, generally
these guarantees and similar obligations are kept as off-balance
sheet items unless a provision to cover probable losses is required.
On 31 December 2010, the exposure to credit risk (gross values
less sub-participations) for credit guarantees and similar instruments
was CHF 15.4 billion compared with CHF 16.0 billion one year earlier.
Fee income from issuing guarantees is not material to total revenues.
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Guarantees represent irrevocable assurances, subject to the
satisfaction of certain conditions, that we will make payment
in the event that clients fail to fulfill their obligations to third
parties. We also enter into commitments to extend credit in
the form of credit lines that are available to secure the liquidity
needs of clients. The majority of these unutilized credit lines
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 2010, we recognized net credit loss-
es of CHF 43 million (CHF 4 million for the year ended 31 De-
cember 2009) related to obligations incurred for contingencies
and commitments. Provisions recognized for guarantees, doc-
umentary credits and similar instruments were CHF 130 million
as of 31 December 2010 and CHF 90 million as of 31 Decem-
ber 2009.
We enter into partial sub-participations to mitigate the risks
from commitments and contingencies. A sub-participation 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 con-
tractual relationship with the obligor, and the sub-participant has
only an indirect relationship. We will only enter into sub-participa-
tion 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 in-
demnifications to third parties in connection with numerous
transactions, such as asset securitizations.
Clearinghouse and future exchange memberships
We are a member of numerous securities and futures exchanges
and clearinghouses. In connection with some of those member-
ships, we may be required to pay a share of the financial obliga-
tions of another member who defaults, or otherwise be exposed
to additional financial obligations as a result. While the member-
ship rules vary, obligations generally would arise only if the ex-
change or clearinghouse had exhausted its resources. We con-
sider the probability of a material loss due to such obligations to
be remote.
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 2010 to 30 June 2011, 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 Measurement categories of financial assets and finan-
cial liabilities” in the “Financial information” section of this re-
port. As of 31 December 2010, we consider the probability of a
material loss from our obligation to be remote.
Private equity funding commitments, equity and debt
underwriting commitments
We enter into commitments to fund external private equity
funds and investments, which typically expire within one to five
years. The commitments generally require us to fund external
Financial liabilities not recognized on balance sheet
The table below shows the maximum irrevocable amount of guarantees, commitments and forward starting transactions.
CHF million
Guarantees
Credit guarantees and similar instruments
Performance guarantees and similar instruments
Documentary credits
Total guarantees
Commitments
Loan commitments
Underwriting commitments
Total Commitments
Forward starting transactions 1
Reverse repurchase agreements
Securities borrowing agreements
Repurchase agreements
Securities lending agreements
31.12.10
Gross
Sub-
participations
Net
Gross
31.12.09
Sub-
participations
(401)
(506)
(255)
(1,162)
(1,475)
(196)
(1,671)
8,212
2,856
4,306
15,374
55,376
208
55,584
8,612
3,362
4,561
16,535
56,851
404
57,255
39,036
454
22,468
783
(222)
(582)
(288)
(1,092)
(1,793)
(556)
(2,349)
11,180
3,484
2,406
17,070
59,328
2,251
61,579
43,020
904
18,044
47
Net
10,958
2,902
2,117
15,977
57,534
1,695
59,229
1 From 2010 onwards, collateralized forward starting transactions (cash to be paid in the future by either UBS or the counterparty) are presented in this table; the comparative period has been adjusted accordingly.
51
Strategy, performance and responsibility
Financial performance
private equity funds and investments at market value at the time
the commitments are drawn. The amount committed to fund
these investments on 31 December 2010 and 31 December
2009 was CHF 0.1 billion and CHF 0.3 billion, respectively. Equity
underwriting commitments in the Investment Bank on 31 De-
cember 2010 and 31 December 2009 amounted to CHF 0.2 bil-
lion and CHF 1.7 billion, respectively. Debt underwriting commit-
ments entered into by Wealth Management Americas were not
material.
Contractual obligations
The table below includes contractual obligations as of 31 Decem-
ber 2010.
All contracts included in this table, with the exception of pur-
chase 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 leas-
es, disclosed in “Note 25 Operating lease commitments” in the
“Financial information” section 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 contingent liabilities” in the “Financial informa-
tion” 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 employ-
ees for equity participation plans, settlement and clearing ac-
counts and amounts due to banks and customers.
Within purchase obligations, the obligation to employees un-
der the mandatory notice period is excluded (this is the period in
which we must pay to employees leaving the firm contractually-
agreed salaries).
Contractual obligations
CHF million
Long-term debt obligations
Finance lease obligations
Operating lease obligations
Purchase obligations
Other liabilities
Total
< 1 year
36,742
46
862
438
484
38,572
Payment due by period
1–3 years
47,582
55
1,387
376
1
49,401
3–5 years
32,387
1,018
191
> 5 years
58,279
1,818
36
33,596
60,133
52
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Cash flows
2010
2009
As of 31 December 2010, the level of cash and cash equivalents
declined to CHF 140.8 billion, down CHF 24.2 billion from CHF
165.0 billion at the end of 2009.
As of 31 December 2009, the level of cash and cash equivalents
declined to CHF 165.0 billion, down CHF 14.7 billion from CHF
179.7 billion at the end of 2008.
Operating activities
Operating activities
Operating activities generated a cash inflow of CHF 12.0 billion in
2010 compared with a cash inflow of CHF 54.5 billion in 2009.
Operating cash inflows (before changes in operating assets and
liabilities and income taxes paid, net of refunds) totaled CHF 8.8
billion in 2010, a decrease of CHF 1.0 billion from 2009. Net prof-
it improved CHF 10.0 billion compared with 2009.
Operating activities generated a cash inflow of CHF 54.5 billion in
2009 compared with a cash inflow of CHF 77.0 billion in 2008.
Operating cash inflows (before changes in operating assets and
liabilities and income taxes paid, net of refunds) totaled CHF 9.9
billion in 2009, an increase of CHF 81.5 billion from 2008. Net
profit improved CHF 18.6 billion compared with 2008.
Cash inflow of CHF 2.4 billion was generated by the net de-
crease in operating assets; a cash inflow of CHF 1.2 billion was
reflected in the operating liabilities. Net payments to tax authori-
ties related to income taxes were CHF 0.5 billion in 2010, almost
unchanged from the previous year.
Cash inflow of CHF 127.7 billion was generated by the net
decrease in operating assets, while a cash outflow of CHF 82.5
billion was reflected in the operating liabilities. Net payments to
tax authorities related to income taxes were CHF 0.5 billion in
2009, down CHF 0.4 billion from the previous year.
Investing activities
Investing activities
Net cash flow used in investing activities was CHF 25.7 billion
compared with cash flow used in investing activities of CHF 20.6
billion in 2009.
Net cash flow used in investing activities was CHF 20.6 billion
compared with cash flow used in investing activities of CHF 1.7
billion in 2008.
The net cash outflow for the purchase and disposal of property
and equipment was CHF 0.3 billion. The net investment in finan-
cial investments available-for-sale was CHF 25.6 billion. Disposals
of subsidiaries and associates in 2010 generated a cash inflow of
CHF 0.3 billion.
➔ 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
The net cash outflow for the purchase and disposal of property
and equipment was CHF 0.7 billion. The net investment in finan-
cial investments available-for-sale was CHF 20.1 billion, an in-
crease due to our strategic decision to rebalance our liquidity re-
serve which led to a shift from reverse repurchase 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.
activities
Financing activities
In 2010, financing activities generated net cash inflows of CHF
1.8 billion. This reflected the cash outflow for redemptions and
dividends paid for preferred securities reflected in non-controlling
interests of CHF 2.1 billion, the issuance of CHF 78.4 billion of
long-term debt and the long-term debt repayments, which to-
taled CHF 77.5 billion. The money market papers issued generat-
ed a net cash inflow of CHF 4.5 billion. In 2009, UBS had a net
cash outflow of CHF 54.2 billion from financing activities.
Financing activities
In 2009, financing activities generated net 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 of long-
term debt and the long-term debt repayments, which totaled CHF
65.0 billion. That outflow was partly offset by inflows attributable
to capital issuances of CHF 3.7 billion. In 2008, UBS had a net cash
outflow of CHF 5.6 billion from financing activities.
53
Strategy, performance and responsibility
Our employees
Our employees
The excellence, inspiration and commitment of our employees are critical to implementing our business strategy
and to meeting the needs of our clients. Our commitment to our employees is reflected in the investment we make
in managing talent, and in the development of our performance-oriented culture and our leadership.
Our workforce
In 2010, we focused on enhancing integration across the firm and
investing in our workforce by making a number of improvements
to the way we managed our employees. For example, we insti-
tuted measures to further develop our performance-oriented cul-
ture and revised our Code of Business Conduct and Ethics (the
Code) to clearly set out the principles and practices we expect all
our employees to follow. Additionally, we launched a corporate
university to provide more training opportunities and promote
continuous development.
During 2010, our employees were responsible for helping to
rebuild our businesses and were fully engaged in regaining client
trust. We judiciously invested in recruiting, managing, training
and retaining talented employees who have the skills, experience
and drive to meet our clients’ needs and grow our businesses.
Internal mobility encourages integration, collaboration and
business innovation, and supports individual career development.
We continue to support employee mobility across regions and
business divisions. In 2010, 489 employees moved to roles in a
different region, compared with 910 in 2009. During the course
of the year, 1,290 employees transferred between business divi-
sions, compared with 993 in 2009.
Employee turnover, or terminations as a percentage of average
overall headcount, was 14.6% in 2010. Employee-initiated turn-
over was 8.9%, down 0.8% from 2009. In general, employee
levels stabilized over the course of the year, with the number of
people employed on 31 December 2010 at 64,617, down 616 or
1% from year-end 2009. In 2010, our employees worked in 57
countries, with approximately 36% of our staff employed in the
Americas, 36% in Switzerland, 17% in Europe, the Middle East
and Africa and 11% in Asia Pacific.
Personnel by region
Full-time equivalents
Switzerland
UK
Rest of Europe
Middle East / Africa
USA
Rest of Americas
Asia Pacific
Total
Personnel by business division
Full-time equivalents
Wealth Management
Retail & Corporate
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Investment Bank
Treasury activities and other corporate items
Total
of which: personnel managed centrally
54
31.12.10
23,284
6,634
4,122
137
22,031
1,147
7,263
64,617
31.12.10
15,663
12,089
27,752
16,330
3,481
16,860
194
64,617
19,406
As of
31.12.09
24,050
6,204
4,145
134
22,702
1,132
6,865
65,233
31.12.08
26,406
7,071
4,817
145
27,362
1,984
9,998
77,783
% change from
31.12.09
(3)
7
(1)
2
(3)
1
6
(1)
As of
31.12.09
% change from
31.12.08
31.12.09
15,408
12,140
27,548
16,925
3,471
15,666
1,624
65,233
19,993
17,910
13,105
31,016
20,623
3,914
19,132
3,098
77,783
23,997
2
0
1
(4)
0
8
(88)
(1)
(3)
Recruiting new employees
We are committed to retaining and developing highly qualified
employees and to actively recruiting new talent to build our busi-
nesses. In 2010, our recruiting efforts focused on meeting the
growing demand for staff while continuing to reduce the cost of
hiring through increased emphasis on internal hiring, greater ef-
ficiency in recruiting operations and reductions in external recruit-
ing costs. Positions we desire to fill increased 145% from 2009,
with 136% growth in the number of positions that were actually
filled in 2010.
We strive to create a timely, professional and positive experi-
ence for candidates. In 2010, we filled 9,101 positions across the
firm. Hiring was most visible in the Investment Bank, with 2,360
positions filled in 2010. A top priority for 2010 was to hire expe-
rienced client and financial advisors across our strategic growth
areas. In 2010, Wealth Management & Swiss Bank hired around
300 client advisors globally, while 278 experienced financial advi-
sors were hired in Wealth Management Americas.
In 2010, 773 university graduates joined UBS as part of our
undergraduate and MBA graduate training programs. An addi-
tional 988 interns were hired globally over the course of the year,
while our apprenticeship program in Switzerland hired 287 ap-
prentices.
Several new recruiting initiatives were launched in 2010 to en-
sure there is a continuous and visible presence on our target cam-
puses, consistent with our commitment to graduate hiring. We
continue to provide unique educational opportunities for gradu-
ates that include business-specific activities.
Strengthening and sustaining our diverse workforce
A workforce of individuals from widely different backgrounds,
cultures and life experiences is essential in today’s global business
environment. This is in part because having a diverse employee
base and inclusive work environment increases the performance
and engagement of our employees. In 2010, our workforce was
comprised of citizens from 147 countries; the average age of our
employees was 38 years; and the average length of employment
with the firm was 8.6 years. Diversity in gender, ethnicity, age and
other factors supports first-hand understanding of regional mar-
kets, sensitivity to local customs and awareness of other personal
preferences. We believe that we also gain a competitive advan-
tage from more subtle differences in background, experience and
thought. These elements provide the perspective from which our
employees can anticipate needs and generate solutions for our
increasingly diverse client base worldwide. In the end, our long-
term success depends on equal employment opportunity and
having the best people in the right roles.
Building and maintaining a workforce of highly talented indi-
viduals demands an open-minded, inclusive and respectful work-
y
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ing culture, merit-based career advancement and a sense of indi-
vidual contribution. In recent years, we have promoted diversity in
three stages: (i) raising basic awareness; (ii) integrating diversity
into the employee experience through recruiting, performance
management and retention; and (iii) working to ensure that diver-
sity ultimately becomes a self-sustaining part of our culture.
The scope of our diversity strategy and initiatives is both global
and regional. As part of our global top-down accountability strat-
egy in 2010, senior management and Human Resources (HR)
jointly developed divisional diversity goals relating to representa-
tion, retention and work environment / culture. While it is prema-
ture to quantify accomplishments, particularly in the first year af-
ter the firm’s restructuring, quantitative and qualitative methods
will be used to monitor progress in 2011.
Regional diversity teams translate our global commitment into
action by working with local business and HR leaders on business-
aligned plans linked to regional talent strategies. In 2010, initia-
tives that were previously launched in Europe, the US and several
other regions made progress in creating a culture in which men
and women thrive equally in their careers, where gender differ-
ences are an asset, and where different working styles and prac-
tices enable us to improve our service to clients. In one initiative
piloted in the UK, France and Germany, we focused on hiring and
developing talented professional women, working with them to
create individual development plans, assigning sponsors and pro-
viding educational opportunities. Other regional diversity initia-
tives included a US Women’s Leadership Conference, where ap-
proximately 300 women employees participated in an all-day
workshop focusing primarily on individual career development.
(cid:41)(cid:71)(cid:80)(cid:70)(cid:71)(cid:84)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:73)(cid:71)(cid:81)(cid:73)(cid:84)(cid:67)(cid:82)(cid:74)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:19)(cid:124)(cid:2)
(cid:49)(cid:80)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)
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(cid:20)(cid:21)(cid:14)(cid:25)(cid:20)(cid:20)(cid:2)
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(cid:20)(cid:22)(cid:14)(cid:20)(cid:27)(cid:21)(cid:2)
(cid:24)(cid:14)(cid:26)(cid:20)(cid:18)
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(cid:27)(cid:14)(cid:18)(cid:20)(cid:22)
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(cid:21)(cid:14)(cid:21)(cid:21)(cid:19)
(cid:22)(cid:14)(cid:18)(cid:24)(cid:25)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
(cid:35)(cid:85)(cid:75)(cid:67)(cid:2)(cid:50)(cid:67)(cid:69)(cid:75)(cid:386)(cid:69)
(cid:47)(cid:67)(cid:78)(cid:71)
(cid:40)(cid:71)(cid:79)(cid:67)(cid:78)(cid:71)
(cid:19)(cid:14)(cid:27)(cid:18)(cid:18)
(cid:20)(cid:14)(cid:24)(cid:22)(cid:27)
(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)(cid:14)
(cid:47)(cid:75)(cid:70)(cid:70)(cid:78)(cid:71)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:72)(cid:84)(cid:75)(cid:69)(cid:67)
(cid:26)(cid:14)(cid:24)(cid:27)(cid:19)
(cid:19)(cid:23)(cid:14)(cid:24)(cid:18)(cid:20)
(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:20)(cid:14)(cid:18)(cid:26)(cid:26)
(cid:22)(cid:14)(cid:25)(cid:21)(cid:20)
(cid:55)(cid:80)(cid:75)(cid:86)(cid:71)(cid:70)
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55
(cid:20)(cid:26)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:19)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:22)(cid:18)(cid:18)(cid:18)
(cid:25)(cid:18)(cid:18)(cid:18)
(cid:18)
Strategy, performance and responsibility
Our employees
Gender distribution by employee category 1
As of 31.12.10
Male
Female
Total
Officers
Non-officers
Total
Number
32,068
12,474
44,542
%
72.0
28.0
100.0
Number
9,680
12,560
22,240
%
43.5
56.5
100.0
Number
41,748
25,034
66,782
%
62.5
37.5
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 the total UBS end-2010 employee number of 66,782 in this table, which excludes
staff from UBS card center, Hotel Seepark Thun, Wolfsberg and Hotel Widder.
Global network guidelines enable employees to set up or join em-
ployee networks / affinity groups in any of our operating regions.
We have more than 20 employee networks to help build cross-
business relationships and strengthen our inclusive culture.
Regarding the role of equal employment opportunity, our HR
policies and processes have global coverage and outline our com-
mitment to non-discrimination and equal opportunity for all em-
ployees.
In 2010, we received a 100% rating in the Human Rights Cam-
paign Foundation’s 2010 Corporate Equality Index (US), Top 25
Most LGBT Friendly Corporations in the World in the International
Gay & Lesbian Chamber of Commerce (IGLCC) Index 2010, the
National Black MBA-WGC “Corporate Sponsor” award (US), the
Equal Opportunity for Women in the Workplace Agency (EOWA)
Employer of Choice For Women citation (Australia), and UBS Ja-
pan was awarded “Qualified Employer who Supports the Growth
of the Future Generations” (through 2012).
Managing performance
Helping employees perform at their highest level is a year-round
process that plays a key role in strengthening our performance-
oriented culture. We believe employees are better motivated,
more committed and more productive if they participate in effec-
tive performance management processes. Since 1996, we have
employed a process that assesses demonstrated results and be-
haviors and is supported by ongoing employee-manager dia-
logue.
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In 2010, we made a number of critical changes to our perfor-
mance management process. There are two fundamentally new
elements: an evaluation process that clearly differentiates an em-
ployee’s performance relative to peers and allocates compensation
accordingly, and significantly more transparent communication to
employees about all of our performance management processes.
Notably, an employee’s overall compensation will now be more
transparently linked with the value of their individual contribu-
tions. These changes are expected to drive even stronger perfor-
mance at all levels, enable better delivery of our strategy and ulti-
mately contribute to our long-term sustainable profitability. In
2010, 97% of eligible employees participated in this process.
Performance management for our most senior executives is
even more rigorous than for other employees. Input from peers is
required, and a more comprehensive evaluation is completed
based on key achievements, business performance, risk manage-
ment, leadership skill and specific financial targets. In 2010, we
enhanced our performance management procedures for key risk
takers / controllers. By the nature of their role, these individuals
have been determined to be able to materially commit, deliver or
control the firm’s resources and / or exert significant influence over
UBS’s risk profile. We now ensure that a holistic evaluation is con-
ducted by relevant control functions on an annual basis. A sample
of senior management and key risk-taker performance objectives
are also reviewed annually.
We have Group-wide ranks (Non-Officer, Authorized Officer,
Associate Director, Director, Executive Director and Managing Di-
rector) and salary ranges that are applicable to all employees. In
2010, we standardized our rank and role classification model,
with all business divisions and the Corporate Center following the
same model. Global role profiles now form the basis for all of our
HR processes and enable us to create and implement more clearly
defined career paths for all employees.
Compensation
We strive to provide our employees with market-competitive pay
and incentives. Our approach recognizes the need to compensate
individuals for their business performance within the context of
increasingly competitive market conditions, a fast-changing com-
mercial environment and evolving regulatory oversight. At the
same time, ensuring the long-term success of the firm is our fore-
most priority.
Our compensation structure is designed to be appropriately
balanced between fixed and variable elements. Emphasis is
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placed on the variable component as an incentive to excel and to
foster a performance-driven culture, while supporting appropri-
ate and controlled risk taking. Our Total Reward Principles are
the foundation of our compensation programs. We always take
a holistic view of employee compensation within a total reward
framework that takes into account base salary, discretionary in-
centives and benefits.
➔ Refer to the “Compensation” section for more information
Employee share ownership
We support employee share ownership in principle because we
believe that personal accountability for business actions and deci-
sions can be encouraged through equity-based awards that vest
and / or become unrestricted over time. In 2010, we changed
some terms of Equity Plus, our voluntary equity-based program.
Under the new program terms, employees are able to purchase
shares at market price and receive one free share for every three
shares purchased. These free shares vest within three years, sub-
ject to continued employment at UBS.
On 31 December 2010, current employees held an estimated
6% of UBS shares outstanding (including approximately 4% in
unvested / blocked shares), based on all known share holdings
from employee participation plans, personal holdings and indi-
vidual retirement plans. At the end of 2010, an estimated 55% of
all employees held UBS shares, while an estimated 50% held UBS
stock options.
Education and talent development
We take a structured approach to both leadership development
and business education to ensure our employees have the knowl-
edge and skills required to meet our business needs and support
our strategic goals. In January 2010, we launched the UBS Busi-
ness University, a global and largely virtual corporate university
that integrates our learning activities under one umbrella. The
Business University effectively aligns all training and education el-
ements across the firm and promotes a culture of continuous de-
velopment. Having one Group-wide learning organization also
leverages the expertise within our various former learning organi-
zations, increases efficiency, eliminates duplication and signifi-
cantly reduces training costs, while focusing on positively impact-
ing business results.
One of the Business University’s primary goals is to enhance the
ability of our senior leaders and key talent to build a unique and
effective leadership culture and put our strategy into practice. A
series of leadership development offerings, executive coaching
and new hire programs equip our current and future leaders to
deliver results to clients and colleagues.
A comprehensive business education offering is provided
through more than 70 role-specific learning pathways. These
learning pathways consist of a structured sequence of activities
that help ensure consistent training across similar job roles world-
wide. Client-facing staff participate in specialized advisory and
sales training that enables them to more effectively meet clients’
needs. They also engage in training that fosters cross-divisional
collaboration so that clients can benefit from solutions reflecting
all our business divisions. Programs like these help drive our one-
firm approach and leverage our unique product offerings.
All of our employees can access a broad range of professional
development training, including learning modules on understand-
ing, managing and controlling risk, general finance and manda-
tory legal and compliance topics.
In 2010, our employees participated in a total of 453,000
training experiences across all of the Business University’s offer-
ings, averaging almost seven training experiences per employee.
We also invest in talent development and succession planning
for the most critical roles across the firm. An annual firm-wide
talent review helps to identify and build the skills and competen-
cies of employees who are recognized to have leadership poten-
tial. In addition, potential successors for senior leadership roles are
identified and tracked on a firm-wide basis.
Building a leadership culture
In 2010, the UBS Business University worked closely with the
Group Executive Board (GEB) and the business divisions to put our
new strategy into practice, and to further develop our leadership
culture. The Business University also supported the design, devel-
opment and roll out of our GEB-sponsored “Leading UBS for-
ward” employee training program (which will continue into
2011). The program raises awareness and understanding of our
strategy and identity, our values and our strategic principles. Face-
to-face workshops open to all employees are led by “ambassa-
dors” who are nominated senior employees from across the firm.
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
57
Strategy, performance and responsibility
Our employees
These sessions provide an opportunity for everyone to better un-
derstand key components of our strategy, commit to changing
our culture, and embed our values in their daily work.
Commitment
Meeting the needs of clients is a core objective for UBS, and rela-
tionships based on respect, trust and mutual understanding are the
foundation for our success. The Code sets out the principles and
practices that all employees are expected to follow. It also under-
scores the critical importance of responsible corporate behavior. In
2010, we put in place a process to affirm the Code and provided
training to all employees. We are committed to upholding our cor-
porate values of truth, clarity and performance. They are integrated
into our corporate decision making and people management pro-
cesses, and are aimed at shaping the daily actions of our employees.
Employee assistance
We are dedicated to being an attractive and supportive employer.
Employee benefits such as insurance, pension, retirement and
time off are competitive in our local markets. We also offer addi-
tional, innovative benefits to employees where practical. One ex-
ample is that we encourage and support our employees’ efforts to
volunteer in the many communities in which we operate.
To help employees better manage life and work issues, we offer
employee assistance programs (EAP) in a number of locations. In
the UK, the EAP provides access to specialist support on topics
such as finances, family, bereavement and legal / consumer rights.
A health and well-being program provides an on-site general prac-
titioner, physiotherapist and dentist as well as occupational health
services and an emergency back-up childcare and eldercare facility.
In the US, the EAP, known as the Work / Life Assistance Pro-
gram, provides around-the-clock counseling and referral services
to employees and their families to assist them in resolving issues
that may affect their health, personal life, or job performance.
The program also provides information about work-life effective-
ness and offers referral services for child care, prenatal care, sum-
mer care, adoption, academic services and adult care. We also
provide on-site childcare at our Stamford, Connecticut site and
emergency / back-up child care in most other US locations.
Employee assistance initiatives in Asia Pacific are generally con-
ducted on a country-by-country basis. In Hong Kong, for exam-
ple, consultants from an external EAP provider work with employ-
ees and their immediate family members on issues of work and
life stress, family, mental health, personal development or other
personal or work-related challenges.
In Switzerland, assistance for current and retired employees, as
well as family members, is provided through our HR Social Coun-
seling and HR Retiree Services functions. Services include counsel-
ing for personal issues, difficulties in the workplace, sickness,
financial difficulties and retirement. As an additional, complemen-
tary service for employees, an internal Ombudsman’s Office was
opened in July 2010. HR Health Care considers local health and
safety matters and coordinates the UBS Care Team. Work days
lost to accident or illness are tracked, with 18,915 and 103,635
days respectively accounted for in 2010.
In Switzerland, we have a long-standing initiative called COACH
to help redeploy employees within UBS, or help them find jobs
outside the firm in the event of a restructuring. Advisors in the
COACH transfer and severance process provide support and assis-
tance in finding a new job by working closely with our internal re-
cruitment center and outside employment services. During the
COACH process, employees retain full salary and benefits, and fi-
nancial assistance is available for job-related training, if needed.
Staff below the Director level are eligible for the Social Partner-
ship Agreement for employees in Switzerland (SOVIA CH). SOVIA
CH lays out the terms and conditions for implementing redundan-
cies among employees whose jobs are subject to the Agreement
on Conditions of Employment for Bank Staff. SOVIA CH governs
the requirements and procedures for internal hiring, job transfers,
and, when needed, severance. The aim is to implement necessary
job cuts and operational changes in a responsible manner, making
full use of our internal labor market, and to offer targeted, rele-
vant support and career advice to these employees.
Employee representation
As part of our commitment to being a responsible employer, we
partner with all of our employee representation bodies to create
an active dialogue between employees and management. In
2010, we worked with the European works councils to implement
changes in our performance management processes, entering
into local consultations where appropriate.
The UBS Employee Forum (UBSEF) was established in 2002, and
has representation from 18 countries across Europe, notably
Austria, France, Germany, Luxembourg, Switzerland and the UK.
The UBSEF facilitates the open exchange of views and information
on pan-European issues that have the potential to impact our re-
gional performance, prospects and operations, and fulfills EU Direc-
tive 94 / 45 on the establishment of a European Works Council. Lo-
cal forums exist across Europe to address issues such as health and
safety, changes to workplace conditions, pension arrangements
and consultation on collective redundancies and business transfers.
In Switzerland, for example, the Employee Representation
Committee (ERC) partners with UBS management in annual salary
negotiations, and represents employee interests on specific topics
outlined in the collaboration and co-determination clauses of per-
sonnel regulations. It also fosters an open dialogue between em-
ployees and management through a variety of channels and ac-
tivities. ERC representatives are elected to represent employees
whose work contracts are governed by Swiss law and the Agree-
ment on Conditions of Employment for Bank Staff. The UK Em-
ployee Forum (UKEF), which is formed from elected representa-
tives from all of our UK businesses and appointed management
representatives, focuses on local economic, financial and social
activities of concern to UK employees. It may also be used for
defining workforce agreements affecting UK employees.
Collectively, the UBSEF, including the ERC and UKEF, represents
over 40% of our global workforce.
58
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Corporate responsibility
In 2010, we took strides to enhance our performance in all areas of corporate responsibility. An important foundation
for this progress was the revision of our Code of Business Conduct and Ethics. It underscores the critical importance of
responsible corporate behavior, and defines how we are to behave when dealing with our stakeholders.
In 2010, we made major steps in delivering on our commitment
to our key principles, including our values of truth, clarity, and
performance; our strategic principles of reputation, integration,
and performance; and our financial objectives. We continued to
address our societal commitments and responsibilities by contrib-
uting to the fight against money laundering, corruption and ter-
rorist financing (AML), executing our environmental management
program, implementing our human rights statement and by un-
dertaking community investment activities. Under the guidance
of the UBS Cor porate Responsibility Committee (CRC), a Board of
Directors (BoD) committee, various initiatives were initiated per-
taining to the implementation of our Code of Business Conduct
and Ethics (the Code). The CRC, which directed revisions to the
Code in 2009, monitored its subsequent introduction and imple-
mentation across the firm, including mandatory employee certifi-
cation and web-based training processes.
➔ Refer to www.ubs.com/responsibility for more information on
the contents of this section
Governance, strategy, and commitments
Corporate responsibility governance
The CRC continually reviews stakeholders’ expectations of our
firm with regard to corporate responsibility. Having assessed the
potential consequences for the Group, the Committee recom-
mends the appropriate actions to take in order to meet those ex-
pectations. The CRC thus supports the BoD’s efforts to ensure and
advance our reputation for responsible corporate conduct. Head-
ed by the Chairman of the BoD, the committee included three
other BoD members. It is advised by a panel consisting of mem-
bers of the Group Executive Board (GEB) and other senior manag-
ers. The members of the advisory panel participate in committee
meetings and implement its recommendations.
As a key element of its mandate, the CRC reviews and oversees
our corporate responsibility policies and guidelines, as well as the
implementation of our corporate responsibility activities and com-
mitments. The GEB is responsible for the development of our
Group and business division strategies, as well as implementing
approved new strategies. These include strategies pertaining to
corporate responsibility, while various committees or boards are
concerned with tasks and activities pertaining to particular as-
pects of corporate responsibility.
One example is the Environmental & Human Rights Commit-
tee, which is made up of, among others, both Group and divi-
sional environmental representatives. They oversee the adoption
of our environmental policy and provide guidance to our business
divisions in supporting the “UBS Statement on Human Rights”. In
2010, this committee reviewed a number of significant environ-
mental and social issues, and oversaw the development of our
position on certain controversial activities (see below).
➔ Refer to www.ubs.com/environment for more information on
our environmental and human rights governance
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59
Strategy, performance and responsibility
Corporate responsibility
Led by the Head of Global AML Compliance, our efforts to fight
money laundering, corruption and terrorist financing are supported
by a network of expert global business teams. We are streamlining
our policies and processes to enhance consistency between business
divisions, as well as to assess threats and risks within the business.
We have developed 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 be intending to use UBS to legitimize illicit assets.
➔ Refer to the discussion on combating financial crime below for
more information on our AML activities
The global diversity team supports senior management and HR
business partners in developing diversity-related strategies and
goals for each business division. The implementation of these
strategies and goals is monitored by the GEB. The global diversity
team also coordinates regional efforts and integration into the HR
process. Regional diversity heads, along with senior business man-
agers, consider and design diversity and business-aligned plans
that are linked to regional and divisional business and talent strate-
gies. They also provide regional support for divisional management
in assessing the progress made on relevant diversity objectives. Ad-
ditionally, regional diversity heads support our numerous employ-
ee networks, including the development and coordination of di-
versity-related events which support regional diversity initiatives.
➔ Refer to the “Our employees” section of this report for more
information on labor standards and diversity programs
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 by a central framework and re-
gional guidelines and embedded in UBS’s regional structures. Ev-
ery region has a dedicated community affairs team which coordi-
nates charitable commitments by our firm and our employees.
The Corporate Center ensures global coordination of these activi-
ties and also provides a central reporting structure to collate com-
munity investment data from across UBS as a whole.
➔ Refer to the discussion on community investment below for
more information on our charitable and related activities
External commitments and initiatives
In implementing environmental and social standards and conven-
tions 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 (UNEP FI); the UN Principles for Responsible In-
vestment (UNPRI); and the VfU (Association for Environmental
Management and Sustainability in Financial Institutes). In Novem-
ber 2010, we hosted the annual UNEP FI / VfU Roundtable, which
took place in Switzerland for the first time. At the event, key sus-
tainability topics such as climate change and human rights as well
as related topics, ranging from environmental, social and gover-
nance (ESG) ratings to sustainability education at universities,
were considered and discussed among representatives from fi-
nancial institutions and various stakeholders.
In June 2010, UBS participated in the triennial UN Global Com-
pact Leaders Summit which, chaired by the UN Secretary-General,
brought together 1,200 representatives from companies and civil
society, government and the United Nations to explore the role of
responsible business in achieving more sustainable and inclusive
markets.
As part of expanding our external commitments, we conclud-
ed a three-year partnership with the Smith School of Enterprise
and the Environment at Oxford University. The partnership sup-
ports our work towards achieving our own environmental com-
mitments, as well as enhances our focus on the client-related
aspects of climate change and other global environmental chal-
lenges we face. In particular, we will continue to fund and par-
ticipate in the Smith School’s multi-year research project on low-
carbon mobility.
External ratings, assurance and awards
Our performance and efforts were reflected in key external rat-
ings and rankings, which take into account sustainability issues.
We were named an index component for the Dow Jones Sustain-
ability Index (DJSI) World, and are a member of the FTSE4Good
index series. We have been a continuous member of both indices
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since their inception. In 2010, we increased our total score for the
DJSI World, mainly due to substantially improved performance in
the economic dimension and an increased performance in the en-
vironmental dimension.
We also featured in the Carbon Disclosure Project’s Carbon
Performance Leadership Index (CPLI) for 2010. The CPLI compris-
es 48 companies within the FTSE Global Equity Index Series (Glob-
al 500) that have demonstrated commitment to strategy, gover-
nance, stakeholder communications, and, above all, emissions
reduction in their disclosures to the Carbon Disclosure Project. The
companies featured in the CPLI have the distinction of having the
leading carbon performance scores among all Global 500 compa-
nies, indicating both high degrees of maturity in their climate
change initiatives and achievement of their objectives. Our inclu-
sion in the CPLI reflects the success of our climate change strate-
gy, which was launched in 2006.
In 1999, we were the first bank to obtain ISO 14001 certifica-
tion for our worldwide environmental management system. The
management system covers the entire scope of our products, ser-
vices and in-house operations, which may give rise to an environ-
mental impact. It is audited annually and re-certified every three
years by SGS, a leading inspection, verification, testing and certi-
fication company. These comprehensive audits verify that appro-
priate policies and processes are in place to manage environmen-
tal issues, and that they are executed in day-to-day practice. In
2010, SGS confirmed that a well-performing environmental man-
agement system, integrated in the organization and suitable for
managing environmental risks and improving environmental per-
formance on a continual basis, is in place.
We earned top-three places in each of the key rankings for
brokerage firms in the 2010 Thomson Reuters Extel and UKSIF
Socially Responsible Investing & Sustainability Survey: “Socially
Responsible Investment (SRI) Research”, “Long-Term Thematic
Research”, “Corporate Governance Research”, “Renewable En-
ergy Research”, and “Integrated Research on Climate Change”.
In January 2010, our UK operations were awarded the Carbon
Trust Standard for “reducing CO2 emissions year-on-year”. In the
US, our building at 1285 Avenue of the Americas in New York
City was awarded Leadership in Energy and Environmental Design
for Existing Buildings CI Gold certification for their fit-out of the
12th floor. In Chicago, we improved our standard at 1 North
Wacker to Silver certification.
Finally, in late 2010, we ranked fourth globally and second in
Switzerland in the annual CSR Online Awards. The global survey
examines the websites of 91 DJSI member companies, to see how
they are used as platforms for communicating corporate social
responsibility. According to the survey results, our adoption of
web-based reporting, where our corporate responsibility website
serves as our sustainability report, allows us to present vast and
detailed corporate social responsibility information to stakehold-
ers who wish to gain a comprehensive understanding of our cor-
porate responsibility efforts.
➔ Refer to the “Our employees” section of this report for informa-
tion on diversity awards
Stakeholder dialogue and capacity building
Dialogue with external parties is an important contributor in our
understanding and approach to corporate responsibility. In 2010,
communications with experts and stakeholders covered a series of
topics ranging from broad (e.g. implementation of the Code) to
more specific issues, including, for instance, discussions with non-
governmental organizations on the topic of human rights.
Input on the corporate responsibility strategy and activities we
pursue is also regularly sought from employees. An internal,
cross-divisional network of experts plays a particularly important
role, with its members providing critical input on stakeholder
expectations and concerns. These contributions are provided to
the CRC and add valuable features to the information gathered
through other established monitoring channels.
Training and awareness-raising
Through education offerings and broader awareness-raising activities
we ensure that our employees are aware of the importance of UBS’s
social commitments. General information is published on our in-
tranet and on the corporate responsibility website. In 2010, training
and awareness-raising activities focused on the Code (notably a man-
datory web-based training), and ensured that all employees were
made aware of the firm’s corporate responsibility strategy and activi-
ties. Furthermore, some 10,000 employees participated in training on
environmental issues, with over 8,600 receiving general education on
our environmental policy and programs, and nearly 1,400 employees
receiving specialist training targeted within their area of expertise and
impact. Employee speaker sessions, exhibitions and lunchtime train-
ing sessions have been delivered in all regions alongside specific tech-
nical training for the environmental team. Employees are also required
to undergo regular training in AML-related issues, which includes
online training, awareness campaigns and seminars.
Responsible banking
We are focused on earning the trust of our stakeholders, aiming
for sustainable earnings and creating long-term shareholder val-
ue. In ensuring that banking activities are undertaken in a respon-
sible manner, and that products and services are suited to the
needs and requirements of our clients, we aim to fulfill the height-
ened expectations of clients and stakeholders.
Combating financial crime
We believe it is of utmost importance to actively prevent poten-
tially irresponsible or harmful actions. First and foremost, this
means that our employees must uphold the law, adhere to rele-
vant regulations, and behave in a responsible and principled
manner.
In 2010, we continued to strengthen our efforts to both pre-
vent and combat financial crime. By taking responsibility to pre-
serve the integrity of the financial system, and our own opera-
tions, we are committed to assisting in the fight against money
laundering, corruption and terrorist financing. We employ a rigor-
ous risk-based approach to ensure our policies and procedures
61
Strategy, performance and responsibility
Corporate responsibility
correspond with those risks, and that relationships which are clas-
sified as higher risk are dealt with appropriately. We adhere to
strict know-your-clients regulations, which do not, however, seek
to undermine clients’ legitimate right to privacy. Ongoing due
diligence and monitoring is undertaken to assist in the identifica-
tion of suspicious activities, including using advanced technology
to assist in the identification of transaction patterns or unusual
dealings which, if discovered, are promptly escalated to manage-
ment or control functions. As part of our extensive and ongoing
efforts to prevent money laundering, corruption and terrorist fi-
nancing, enhancements to address more specific risks in relation
to corruption and terrorist financing were implemented globally
in 2010.
We are a founding member of the Wolfsberg Group, an asso-
ciation of 11 global banks established in 2000, which aims to
develop financial services industry standards and related products
for Know-Your-Customer, Anti-Money Laundering and Counter
Terrorist Financing policies. The Group continues to update exist-
ing publications it has produced over the last nine years, and a
revised version of the Trade Finance Principles will be published in
2011. Together with the other members of the Group, we con-
tinue to engage actively with the Financial Action Task Force
(FATF), an inter-governmental body that develops and promotes
national and international policies to combat money laundering
and terrorist financing in the context of its consultation processes
with the private sector. At the end of 2010, the FATF announced
that it is reviewing the 40+9 FATF Recommendations, and the
Wolfsberg Group will provide comments and feedback within the
consultation process, which will extend into early 2011.
Managing environmental and social risks
Environmental and social risk is broadly defined as the potential
reputational or financial damage resulting from transactions,
products, services or investments that involve a party associated
with environmentally or socially sensitive activities, or potential
exposure to risks relating to environmental liabilities, human
rights infringements, or changes in regulations.
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62
We identify, manage and control these environmental and so-
cial risks in our business transactions. However, not all products
and services we provide have the same risk potential. Therefore,
we take a risk-based ap proach to environmental and social risk
management, and regularly analyze our portfolio of products and
services to assess their respective environmental and social risk
potential. With our current business profile and operating envi-
ronment, our potential for material risk is greater within the con-
text of our lending, capital markets and mergers businesses, as
well as our direct real estate and infrastructure investments. For
these products 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 inte-
grated in the business divisions’ standard risk management pro-
cesses, such as due diligence on transactions or investments, and
ensuring that material environmental and social risks are identi-
fied, assessed and escalated in a timely fashion.
In terms of approval processes, the business divisions are re-
sponsible for the identification and assessment of risk, and for
determining whether the identified risks are acceptable (in 2010,
the business divisions referred 194 transactions to their environ-
mental risk functions for a detailed environmental assessment). In
the event that any such identified risks are also determined to
create potential firm-wide reputational risk, they are escalated to
the Group environmental representative for approval. We believe
that our commitment 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 business
and decrease financial and reputational risk. However, where en-
gagement is not possible or successful, we may decline the trans-
action altogether.
Some of our clients operate in sectors characterized by ongo-
ing environmental and social challenges. To support the consis-
tent identification and assessment of such risks, we developed
internal industry sector guidelines in 2009. The guidelines cur-
rently cover six sectors: chemicals, forestry products and biofuels,
infrastructure, metals and mining, oil and gas, and utilities. These
guidelines have been adopted by each of our business divisions in
transactional and client due diligence processes.
In 2010, we decided to further strengthen our environmental
and social risk management (including human rights) by identify-
ing controversial activities where we will not do business, or only
do business under stringent pre-established guidelines. Therefore
we will not knowingly provide financial services to corporate cli-
ents, nor will we purchase goods or services from suppliers, where
the use of proceeds, primary business activity, or acquisition tar-
get involves the following environmental and social risks:
Extractive industries, heavy infrastructure, forestry and planta-
tions operations that risk severe environmental damage to or
through:
– Endangered species of wild flora and fauna listed in Appendix
1 of the Convention on International Trade in Endangered Spe-
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– High conservation value forests as defined by the six categories
of the Forestry Stewardship Council (FSC);
– Illegal use of fire: uncontrolled and / or illegal use of fire for
land clearance;
– Illegal logging including purchase of illegal harvested timber
(logs or roundwood);
– Palm oil production unless a member in good standing of the
Roundtable on Sustainable Palm Oil and actively seeking to en-
hance certification of its production;
– Wetlands: on the RAMSAR list; and
– World heritage sites as classified by UNESCO.
All commercial activities that engage in, or threaten:
– Child labor: according to ILO-conventions 138 (minimum age)
and 182 (worst forms);
– Forced labor: according to ILO-convention 29;
– Indigenous peoples’ rights in accordance with IFC Performance
Standard 7; and
– Diamond mining and trading of rough diamonds unless Kim-
berly Process certified.
We also require enhanced due diligence and approval process-
es in certain other areas, such as coal mining practices that use
mountain top removal (MTR) in the US Appalachian Mountains as
an extraction method. As part of this review, we assess to what
extent companies rely on MTR mining for their revenue genera-
tion, and we need to be satisfied that the client is committed to
reducing its exposure to this form of mining over time.
Finally, Global Asset Management decided not to invest in
companies involved in the production of weapons banned under
the 2010 Convention on Cluster Munitions and the 2008 Con-
vention on Anti-Personnel Mines. The policy applies and has been
implemented for its actively managed Switzerland and Luxem-
burg domiciled retail and institutional funds.
Products and services
Equally important to managing environmental and social issues is
providing financial products and services, which help clients man-
age their environmentally and socially-related business opportuni-
ties and risks. We seek to help investors benefit from related mar-
ket opportunities, and by integrating environmental and social
considerations, where relevant, in research and investment analy-
sis. This offering currently stretches across our businesses in
wealth management, investment banking, asset management,
retail, and commercial banking. It includes SRI funds, research and
advisory services provided to private and institutional clients, ac-
cess to the world’s capital markets for renewable energy firms
and, in Switzerland, “eco” mortgages.
Taking ESG issues into account in investment processes is of
increasing interest to clients and consultants across all of our in-
vestment areas. Since 2009, Global Asset Management has dem-
onstrated commitment to ESG as a signatory to the UN Principles
for Responsible Investment (UNPRI). The Principles provide a vol-
untary framework by which all investors can incorporate ESG is-
sues into their decision-making and ownership practices to better
align their objectives with those of society at large.
As part of a holistic service offering, our Wealth Management
& Swiss Bank and Wealth Management Americas business divi-
sions have established combined teams for philanthropy and val-
ues-based investing / SRI. The teams provide thought leadership,
advice, products and solutions to assist our clients and prospects
in delivering positive change through their philanthropy and in-
vestments.
Building on our existing SRI practice, we experienced in-
creased client demand and have expanded our SRI offering by
providing investment management and screening services.
These services include sustainability-focused alternatives to con-
ventional products, mission-related investing for donor-advised
funds and private foundations, values-based portfolio manage-
ment, such as mandate solutions for private clients with a strong
focus on sustainability across all asset classes, portfolio review
and proposals for the integration of sustainability into stock or
bond selection.
Finally, our senior scientific advisor, Sir David King, continued
to advise on all scientific matters with particular emphasis 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 2010,
these bulletins included briefs on climate change and air travel.
Investment products and advisory
In 2010, we continued to offer SRI funds and segregated man-
dates in response to sustained demand from a number of markets
globally. The offering is diverse and includes products managed
according to ESG criteria and theme-based approaches, which are
focused on innovative companies providing solutions to the
challenges of climate change, water scarcity and demographic
change. We offer a 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 “nega-
tive” screening, which exclude certain controversial stocks or sec-
tors based on their negative social or environmental impact, as
perceived by the client. Our global platform and investment re-
search capabilities 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, this offering includes SRI-managed accounts in the US,
where ESG criteria are embedded into the fundamental invest-
ment process, or where clients have the ability to identify and
exclude securities from ownership based on issue-oriented
screens. This allows private clients to customize mandates to their
particular social policy criteria. In addition, our open architecture
approach also allows clients to invest in SRI bond, equity and
microfinance products from leading third-party providers.
63
Strategy, performance and responsibility
Corporate responsibility
In past years, we experienced increasing client demand for SRI
and expanded our SRI product offering. As per 31 December
2010, SRI invested assets were CHF 25.7 billion, representing
1.2% of our total invested assets.
Engagement and voting rights
The Global Asset Management SRI team in Switzerland engages in
dialogue with companies represented in the SRI funds they man-
age. The analysts and portfolio managers provide positive and
negative feedback on relevant ESG issues that may impact invest-
ment 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 possible. These engagement activities are, in addition
to the positive screening processes, applied to the SRI funds.
We believe that voting rights have economic value and should
be treated accordingly. Global Asset Management, wherever pos-
sible, seeks to influence the corporate responsibility and corporate
governance practices of the companies it invests 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 favorably impact the value of their
investments. Good corporate governance should, in the long
term, lead towards both better corporate performance and im-
proved shareholder value. As such, we expect board members of
companies in which we have invested to act in the service of their
shareholders, view themselves as stewards of the company, exer-
cise appropriate judgment and practice diligent oversight of the
management of the company.
In 2010, Global Asset Management in Switzerland launched
UBS Voice, a free service enabling holders of Swiss institutional
funds to express voting preferences ahead of the shareholders’
assembly of major Swiss corporations, to be used as additional
input in the voting decision of the funds management company.
Research
Our SRI research teams focus on a range of ESG issues, with a
view to understanding what impact developing secular trends
such as demographics, resource constraints, and other potential
environmental and social constraints might have upon the sectors
and companies covered by our analysts.
Our SRI research teams were established in each of our busi-
ness divisions to serve their respective clients. In the Investment
Bank, the equity research team launched major UBS publications
on water in 2006, climate change in 2007, and corporate gover-
nance in 2008. In 2010, the team launched the ESG Analyzer, a
publication that helps clients take ESG issues into consideration at
every stage of the investment process. In the asset management
business, an internal SRI research team manages portfolios around
themes such as climate change / energy efficiency, water and de-
mographics. The SRI research team in our wealth management
business conducts SRI research and provides advice to private cli-
ents on SRI investment solutions.
Client interest in some aspects of SRI – for instance cli mate
change, demographics and water – has grown, and so has re-
search 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
In 2010, we announced the formation of the Renewable Energy
and Cleantech Group (RECG) within the investment banking de-
partment and the environmental markets group (EMG) within
global capital markets to further focus our efforts and build upon
our successes in this important sector. RECG provides capital rais-
ing and strategic advisory services to renewable energy and clean-
tech companies around the world, including those in the solar,
wind and biofuels sectors. EMG will work with cleantech, utility,
and industrial clients on the application of environmental policy
analytics to financial decision making.
Since 2006, we have led over 35 financing transactions, raising
more than USD 20 billion, and advised on over a dozen strategic
Socially responsible investments invested assets 1
For the year ended
% change
from
CHF billion, except where indicated
GRI 2
31.12.10
31.12.09
31.12.08
31.12.09
UBS
UBS SRI products and mandates
positive criteria
exclusion criteria
Third-party 3
Total SRI invested assets
Proportion of total invested assets (%) 5
FS11
FS11
FS11
FS11
2,152
2,233
2,174
2.00
21.27
2.40
25.67 4
1.19
2.72
22.44
1.69
26.85
1.20
2.12
14.05
1.85
18.03
0.83
(4)
(36)
(6)
30
(5)
1 The terms Socially Responsible Investing and Values-Based Investing are used interchangeably. All figures are based on the level of know-
ledge as of January 2011. 2 Global Reporting Initiative (see also www.globalreporting.org). FS stands for the Performance Indicators defined
in the GRI Financial Services Sector Supplement. 3 SRI products from third-party providers apply either positive or exclusion criteria or a
combination thereof. 4 2.4% of reported assets have newly been included in 2010 due to adjustments in the reporting boundaries. 5 Total
SRI / UBS’s invested assets.
Socially responsible investments: are products that
consider environmental, social or ethical criteria alongside
financial returns. SRI can take various forms, including
positive screening, exclusion or engagement.
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: one or several 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.
64
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– offsetting CO2 emissions that cannot be reduced by other
means (i.e. business air travel).
As a result, we further reduced our 2010 CO2 emissions, with
an overall global reduction now reaching 33.5% below 2004 lev-
els, another step toward achieving our 2012 target.
Energy consumption and efficiency
Energy consumption represents an important environmental im-
pact area, and is the biggest contributor to our overall green-
house gas emissions. In line with our wider business strategy, im-
provements in energy efficiency have helped to reduce both
emissions and costs. Energy consumption is down year-on-year
through a combination of building portfolio management, more
dynamic building controls, data center efficiency and improved
employee housekeeping. Our IT-driven initiatives contributed sig-
nificantly to these energy savings, most notably through a server
consolidation program, and the early phase of our Desktop Trans-
formation Program that is deploying the latest in business PC
hardware and software.
Renewable energy
In addition to our energy efficiency programs, we are reducing
our use of carbon-intensive energy by including a high proportion
of renewable energy. The percentage of renew able energy and
district heating purchases was 43% in 2010.
Business travel and offsetting CO2 emissions
Having experienced a significant reduction (approximately 40%) in
business-related travel in 2009 due to difficult market conditions
and focus on reducing costs, it is encouraging to see that, despite
an improving business landscape, employee air travel in 2010 has
remained low and not returned to 2008 levels. We continue to
actively promote audio and video conferencing, investing in the
latest ‘telepresence’ technology to further improve quality and user
experience. Recognizing the benefits of face-to-face meetings in a
sector where building lasting client relationships is essential, we
(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)
(cid:53)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:71)(cid:80)(cid:71)(cid:89)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:71)(cid:80)(cid:71)(cid:84)(cid:73)(cid:91)(cid:2)(cid:10)(cid:75)(cid:80)(cid:2)(cid:7)(cid:11)
(cid:22)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:21)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:2)
(cid:21)(cid:24)(cid:18)(cid:14)(cid:23)(cid:18)(cid:20)
(cid:21)(cid:25)(cid:20)(cid:14)(cid:19)(cid:26)(cid:22)
(cid:20)(cid:27)(cid:21)(cid:14)(cid:19)(cid:24)(cid:27)
(cid:20)(cid:26)(cid:19)(cid:14)(cid:25)(cid:18)(cid:23)
(cid:20)(cid:24)(cid:22)(cid:14)(cid:19)(cid:27)(cid:25)
(cid:20)(cid:22)(cid:27)(cid:14)(cid:19)(cid:18)(cid:19)
(cid:2)(cid:20)(cid:21)(cid:27)(cid:14)(cid:24)(cid:20)(cid:22)(cid:2)
(cid:22)(cid:26)
(cid:23)(cid:19)
(cid:22)(cid:23)
(cid:22)(cid:21)
(cid:21)(cid:22)
(cid:20)(cid:22)
(cid:20)(cid:21)
(cid:20)(cid:18)(cid:18)(cid:22)(cid:2)
(cid:20)(cid:18)(cid:18)(cid:23)(cid:2)
(cid:20)(cid:18)(cid:18)(cid:24)(cid:2)
(cid:20)(cid:18)(cid:18)(cid:25)(cid:2)
(cid:20)(cid:18)(cid:18)(cid:26)(cid:2)
(cid:20)(cid:18)(cid:18)(cid:27)(cid:2)
(cid:20)(cid:18)(cid:19)(cid:18)
(cid:38)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:2)(cid:41)(cid:42)(cid:41)(cid:2)(cid:71)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:10)(cid:81)(cid:75)(cid:78)(cid:14)(cid:2)(cid:73)(cid:67)(cid:85)(cid:14)(cid:2)(cid:72)(cid:87)(cid:71)(cid:78)(cid:85)(cid:11)
(cid:43)(cid:80)(cid:70)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:2)(cid:41)(cid:42)(cid:41)(cid:2)(cid:71)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:10)(cid:71)(cid:78)(cid:71)(cid:69)(cid:86)(cid:84)(cid:75)(cid:69)(cid:75)(cid:86)(cid:91)(cid:14)(cid:2)(cid:74)(cid:71)(cid:67)(cid:86)(cid:11)
transactions for renewable energy and cleantech companies. During
2010, we led the USD 644 million initial public offering of China
Datang Renewable Power Company, China’s second largest wind
power generation company; advised Hanwha Chemical Corpora-
tion on their USD 370 million acquisition of a 49.9% stake in Solar-
fun, one of the world’s leading manufacturers of solar modules; and
led equity financings totaling USD 355 million for GT Solar, a major
provider of manufacturing equipment to the solar sector.
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 produce. Com-
panies that are able to reduce their emissions below their cap
have the ability to sell their unused quota to other entities, there-
by creating an emissions market. Through the use of financial in-
struments, we are able to help clients manage their exposure to
the emissions markets. UBS Exchange Traded Derivatives is an ac-
tive 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, UN Certified Emissions Reduc-
tions, Regional Greenhouse Gas Initiative allowances, and permits
for nitrogen oxide and sulfur dioxide.
Corporate responsibility in operations
We continue to build on a long heritage of managing our internal
environmental impact, which, since the 1970s, has focused on
increasing energy efficiency, reducing consumption of paper and
other resources, actively managing waste volumes and encourag-
ing our employees to replace air travel with more sustainable
options. Now delivering the program through a network of
global, regional and local environmental specialists, we manage
an environmental management system accredited to ISO 14001
and have greenhouse gas emissions data externally verified to
ISO 14064.
Environmental and CO2 footprints
We directly impact the environment in a number of ways: our
businesses consume electricity and fossil fuels; employees travel
for busi ness purposes, use paper and generate waste in the
course of their work; and offices require heating and cooling sys-
tems. Improving the use of these resources can reduce costs and
enhance environmental performance; therefore, we have a series
of measures to efficiently manage our environmental impact.
CO2 strategy and emission reduction
In February 2006, the GEB decided to set a Group-wide CO2 emis-
sion reduction target of 40% below 2004 levels by 2012. We seek
to achieve this target by:
– adopting in-house energy efficiency measures that reduce en-
ergy consumption in the buildings we operate;
– increasing the proportion of renewable energy used limiting
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:2)(cid:41)(cid:42)(cid:41)(cid:2)(cid:71)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:10)(cid:86)(cid:84)(cid:67)(cid:88)(cid:71)(cid:78)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:16)(cid:2)(cid:81)(cid:72)(cid:72)(cid:85)(cid:71)(cid:86)(cid:86)(cid:75)(cid:80)(cid:73)(cid:14)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:14)(cid:2)(cid:89)(cid:67)(cid:85)(cid:86)(cid:71)(cid:11)
emissions at source; and
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(cid:2)(cid:2)(cid:2)(cid:19)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:25)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
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(cid:27)(cid:26)(cid:14)(cid:27)(cid:19)(cid:26)
(cid:19)(cid:19)(cid:19)(cid:14)(cid:25)(cid:25)(cid:21)
(cid:21)(cid:19)(cid:14)(cid:24)(cid:21)(cid:23)
(cid:21)(cid:24)(cid:14)(cid:21)(cid:20)(cid:21)
(cid:20)(cid:19)(cid:27)(cid:14)(cid:25)(cid:20)(cid:25)
(cid:20)(cid:20)(cid:23)(cid:14)(cid:26)(cid:23)(cid:22)
(cid:20)(cid:21)(cid:18)(cid:14)(cid:18)(cid:19)(cid:23)
(cid:20)(cid:19)(cid:26)(cid:14)(cid:24)(cid:26)(cid:19)
(cid:22)(cid:19)(cid:14)(cid:26)(cid:23)(cid:26)
(cid:21)(cid:22)(cid:14)(cid:23)(cid:23)(cid:24)
(cid:21)(cid:19)(cid:14)(cid:23)(cid:19)(cid:27)
(cid:20)(cid:24)(cid:14)(cid:25)(cid:18)(cid:19)
(cid:19)(cid:37)(cid:52)(cid:18)(cid:18)(cid:24)(cid:65)(cid:71)
500000
437500
375000
312500
250000
187500
125000
62500
0
Strategy, performance and responsibility
Corporate responsibility
Environmental indicators per full-time employee
Direct and intermediate energy
Business travel
Paper consumption
Waste
Water consumption
Unit
kWh / FTE
Pkm / FTE
kg / FTE
kg / FTE
m3 / FTE
t / FTE
2010
12,633
8,743
119
251
33.3
Trend
➚
➘
➘
➙
2009
11,986
7,016
130
265
31.9
3.12
2008
11,792
10,281
167
298
28.1
3.07
CO2 footprint
3.66
Legend: FTE = full-time employee; kWh = kilowatt hour; Pkm = person kilometer; kg = kilogram; m3 = cubic meter; t = ton
continue to encourage employees to blend travel and technology
to optimize work-life balance and environmental impact.
For travel within Europe, we see a continued shift towards high
speed rail travel in preference to air. The marketing and events
team have adopted the environmental guidelines for client con-
ferences and now consider the impact of delegate travel, hotels,
venue features and catering as part of their logistics and planning.
Once again in 2010, we have offset CO2 emissions resulting
from business travel. Working with reputable intermediaries and
a panel of internal specialists, we select projects which meet our
carbon volume requirements while providing positive community
benefits. Schemes selected include a gold standard wind power
project in Turkey and a hydro power project in Brazil.
Paper and waste
We are making a conscious effort to continuously reduce our pa-
per consumption and waste generation. Double sided printing
and copying is now default in many of our offices and, combined
with an ongoing shift towards the distribution of electronic docu-
ments, has resulted in a reduction in paper used per employee of
37% since 2006. The share of office paper from Forest Steward-
ship Council or recycled sources has increased to 43%, with a
new target for this to exceed 50% by the end of 2012. The waste
recycling ratio remained flat at 54%. The implementation of bin-
less offices in many larger locations will contribute to achieving
our ambitious 2012 target of 70%.
Supply chain management
In 2010, we spent over CHF 7.3 billion purchasing products and
services ranging from office maintenance across IT infrastructure
to components such as stationery. Responsible supply chain man-
agement (RSCM) principles continue to embed UBS ethics and
values with our suppliers, contractors, service partners and project
teams. As part of this commitment we are continuing to improve
our ability to identify, assess and monitor supplier practices in the
areas of human and labor rights, the environment and corruption.
In 2010, 265 suppliers were screened according to social and en-
vironmental criteria, 114 procurement and sourcing officers were
trained, and responsible supply chain requirements were included
in the arrangement with relevant suppliers who were awarded
contracts. Also in 2010, we integrated RSCM principles into our
global supply chain policy and into the centralized Supply & De-
mand Management organization.
Community investment
We are continuing the well-established tradition of supporting
the advancement and empowerment of organizations and indi-
viduals within the communities we do business in. From an early
focus on direct cash donations, we have progressed to a position
where our community investment program encompasses employ-
ee volunteering, matched-giving schemes, in-kind donations, di-
saster relief efforts and / or partnerships with community groups,
educational institutions and cultural organizations in all of our
business regions.
Community affairs
In 2010, direct cash donations by UBS and our affiliated founda-
tions to carefully selected non-profit partner organizations and
charities totaled CHF 27.6 million. These donations were as-
signed, primarily, to our continuing Community Affairs key
themes, “Empowerment through Education” and “Building
Stronger Communities”, with some contributions to other activi-
ties, in particular disaster relief. In response to the devastating
earthquake in Haiti, UBS and its employees donated over CHF 3
million to a number of organizations providing disaster relief. The
funds have been used to rebuild schools and hospitals, as well as
provide basic needs to many Haitians. These donations combined
with other significant activities, notably the volunteering activities
of employees, have continued to provide substantial benefit to
projects and people around the world (as highlighted in the ex-
amples below).
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 2010, over 11,300 em-
ployees spent nearly 81,000 hours volunteering. We support their
commitment by offering up to two working days a year for volun-
teering efforts, and also match employee donations to selected
charities.
In Switzerland, our community investment efforts are also ad-
vanced by the UBS Culture Foundation, the UBS Foundation for
Social Issues and Education, and the association A Helping Hand
from UBS Employees. In 2010, these organizations have again
made valuable contributions to important social causes, includ-
ing fostering humanities and the creative arts, supporting
communities in need, and helping disabled and disadvantaged
people.
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2009 2
Absolute
normalized 4
957 GWh
132 GWh
84.6%
10.9%
4.5%
0.05%
2008 2
Absolute
normalized 4
1,016 GWh
127 GWh
83.3%
12.2%
4.5%
0.03%
825 GWh
890 GWh
10.6%
2.9%
17.5%
9.5%
28.0%
23.6%
7.8%
51%
11.7%
3.7%
18.4%
11.1%
25.8%
23.1%
6.2%
48%
560 m Pkm
886 m Pkm
3.7%
1.0%
95.3%
258,396
10,349 t
16.7%
17.1%
65.9%
0.4%
3.5%
0.6%
96.0%
398,369
14,403 t
16.2%
16.6%
66.8%
0.4%
21,183 t
25,644 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
249,101 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
Environmental indicators 1
Total direct and intermediate energy consumption 7
Total direct energy consumption 8
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
Total business travel
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
GRI 3
Absolute
normalized 4
859 GWh
EN3
137 GWh
82.6%
15.0%
2.3%
0.02%
EN4
722 GWh
16.3%
4.1%
17.1%
11.5%
29.1%
13.5%
8.5%
43%
EN29
595 m Pkm
EN1
EN2
EN22
EN8
EN16
EN16
EN17
1.9%
0.5%
97.6%
258,766
8,076 t
21.9%
20.9%
57.0%
0.3%
17,053 t
53.7%
18.1%
28.2%
2.27 m m3
27,153 t
253,556 t
89,957 t
370,666 t
61,889 t
69,152 t
2010 2
Data
quality 5
***
Trend 6
**
**
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**
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**
**
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**
***
***
***
***
***
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**
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***
***
**
**
**
***
***
***
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***
➙
➙
➙
➙
➚
➚
➙
➙
➙
➘
➘
➙
➙
➚
➙
Total Net GHG Emissions (GHG Footprint) 15
Legend: GWh = gigawatt hour; Pkm = person kilometer; t = ton; m3 = cubic meter; m = million; CO2e = CO2 equivalents
239,624 t
1 All figures are based on the level of knowledge as of January 2011. 2 Reporting period: 2010 (1 July 2009–30 June 2010), 2009 (1 July 2008–30 June 2009), 2008 (1 July 2007–30 June 2008). 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 operational 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 converting 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 as-
sociated with the generation of imported / purchased 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 business air travel. 15 GHG footprint equals gross GHG emissions minus GHG reductions from renewable energy and CO2e offsets.
67
Strategy, performance and responsibility
Corporate responsibility
Client foundation
Charitable organizations and projects across the globe – usually in
regions where UBS does not maintain a business presence – also
benefit from the support of the UBS Optimus Foundation, a non-
profit charitable organization which offers UBS clients a broad
range of options for engaging in humanitarian activities. In 2010,
the Foundation’s tenth anniversary year, Optimus can look back
with justifiable pride on a success story of growth and continuous
development. Now one of Switzerland’s largest charitable foun-
dations, it has contributed over CHF 80 million to more than 170
projects in over 60 countries. All of the projects which it supports
are dedicated to improving the lives of children around the world.
Employing a sophisticated funding strategy, it plays a key role in
bringing about positive social change in the areas which it targets:
“global health” and “education and protection”. As UBS bears all
the administrative costs related to Optimus, clients can be sure
that 100% of every donation they make goes directly to the proj-
ects themselves.
68
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Examples of UBS’s community investment activities across the globe
Americas – In 2010, we launched two
unique programs. UBS brought the Big
Apple Circus to Stamford, Connecticut.
The non-profit circus is committed to
invigorating the communities it serves by
sharing the joys of a classical circus,
and providing a range of community and
educational outreach programs to local
hospitals and schools. UBS clients,
employees and their friends and families,
as well as local residents, enjoyed 25
performances over the summer. Leverag-
ing our long-standing Art Basel Miami
Beach (ABMB) sponsorship, we launched
miART, an art education program created
to support the local Miami community
year-round. MiART engaged more than
150 middle school students in ABMB
through interactive activities, and will
bring art education to underserved youth
artists through a year-long mentoring
program. The creation of a fundraising
website to benefit miART and art supply
drives in local UBS branches provided
employees with the opportunity to
support this program.
One of our signature volunteer efforts is
the annual Building Brighter Futures’
Community Engagement Month in
October in the US. More than 25 commu-
nities participated in 2010, with the goal
of supporting community needs in the
areas of education, the economy and the
environment. Over 1,300 UBS employees
participated in locally-driven volunteer
activities. Additionally, we have long-
standing volunteer partnerships with the
Special Olympics and the Power Lunch
reading program, which operates in four
US cities. According to Maryellen Frank,
an eleven-year veteran Power Lunch
volunteer, “there are some days when it
doesn’t feel possible to break away from
the office and change your focus, but
when you walk into the room and your
young reading partner’s face lights up, it’s
all worthwhile. Spending that hour truly
giving yourself has its own benefits. I
usually return to the desk refreshed and
ready for action.”
Asia Pacific – Building upon our ground-
breaking Community Leadership Experi-
ence, developed in partnership with
Charities Aid Foundation India in 2008,
UBS subsequently developed and
launched a program for Singapore
non-profit sector leaders in partnership
with the Centre for Non-Profit Leadership
in 2009. Now in its second year, the
Experience program combines a two-day
residential retreat workshop with
one-to-one partnering between UBS
senior executives and executives of
non-governmental organizations. The
opportunity for both sets of leaders to
interact and share experiences has proven
to be highly successful, resulting in a
deeper understanding of the challenges
faced by the community in Singapore.
Additional workshops focusing on
common human resource issues, such as
talent recruitment and retention, have
also been organized as part of the
Experience program.
Europe, Middle East and Africa –
Throughout the region, we continue to
support education and regeneration
efforts, particularly in areas close to
where we conduct our business. In
Poland, over 75% of staff were engaged
in support for low income and disadvan-
taged communities, and entered into
an innovative arrangement with col-
leagues in Luxembourg to increase our
contribution. In the UK, this year the firm
was amongst a very small number of
firms to receive three Business in the
Community National Big Tick Awards for
our Community Affairs program; our
flagship EMEA partnership with the
Bridge Academy – a local secondary
school sponsored by UBS; and our
employee volunteering regeneration
partnership through Project Shoreditch
(in Hackney, East London). In addition,
a long-standing community partnership
dating back to 1992 was awarded the
prestigious Dragon Award by the Lord
Mayor of London. The partnership
reflects UBS’s overall commitment to
corporate responsibility, encompassing
financial contributions, employee
expertise, capacity building and creating
links to other community initiatives. It has
led to a significant impact on the
economy of a disadvantaged area of the
UK, encouraging inward investment of
GBP 1.5 million.
Switzerland – In October, more than
180 employees participated in the tradi-
tional Finance Forum sponsored walk on
the shores of Lake Zurich. They were joined
by 1,100 colleagues from other Swiss
financial and IT firms. With CHF 50,000
raised in just two hours, our employees
achieved the highest amount of all
participating companies. The total amount
raised by the walk (CHF 187,000) was
donated to the Swiss Multiple Sclerosis
Society which supports research into this
disease and advises and helps families of
afflicted children free of charge.
➔ Refer to www.ubs.com/community for
more information on our community
investment activities
69
Strategy, performance and responsibility
Corporate responsibility
ASSURANCE STATEMENT
SGS STATEMENT ON ASSURANCE OF UBS GRI Sustainability Disclosure 2010
SCOPE
SGS was commissioned by UBS to conduct an independent assurance of the GRI based Sustainability Disclosure for
2010. The scope of our engagement was limited to the GRI disclosure requirements and indicators as contained in the GRI
index published at www.ubs.com/gri. The scope of the assurance, based on the SGS Sustainability Report Assurance
methodology, included all text and 2010 data in accompanying tables, contained in the printed Annual Report 2010 and
referenced information on the webpage of UBS as quoted in the GRI index. Earlier data were not included in this
assurance process.
CONTENT
The information in the report and on the webpage and its presentation are the responsibility of the directors or governing
body and the management of the organization. SGS has not been involved in the preparation of any of the material
included in the GRI index and acted as an independent assuror of the data and text using the Global Reporting Initiative
Sustainability Reporting Guidelines 2006 as a standard. The content of this Assuror’s Statement and the opinion(s) it gives
is the sole responsibility of SGS.
ASSUROR INDEPENDENCE AND COMPETENCIES
The SGS Group of companies is the world leader in inspection, testing and verification, operating in more than 140
countries and providing services including management systems and service certification; quality, environmental, social
and ethical auditing and training; environmental, social and sustainability report assurance. SGS affirm our independence
from UBS, being free from bias and conflicts of interest with the organization, its subsidiaries and stakeholders. The
assurance team was assembled based on their knowledge, experience and qualifications for this assignment.
METHODOLOGY
The SGS Group has developed a set of protocols for the Assurance of Sustainability Reports based on current best
practice guidance provided in the Global Reporting Initiative Sustainability Reporting Guidelines (2006). In a separate
engagement, SGS has certified the environmental management system in accordance with ISO 14001:2004 and verified
the greenhouse gas emissions in accordance with ISO 14064. The assurance comprised a combination of pre-assurance
research; interviews with relevant employees; documentation and record review and validation with external bodies and/or
stakeholders where relevant. Financial data drawn directly from independently audited financial accounts has not been
checked back to its source as part of this assurance process.
OPINION
On the basis of the methodology described, we are satisfied that nothing has come to our attention that causes us not to
believe that the information and data contained within the Disclosure referenced in the GRI index 2010 is accurate, reliable
and provides a fair and balanced representation of UBS’s sustainability activities in 2010. We are satisfied that the
Sustainability Disclosure as referenced in the GRI index meets the requirements of level A+ of the GRI (2006), as
declared. At the same time it fulfills the requirements for Communication on Progress (COP) under the UN Global
Compact. Recommendations regarding the further development of the sustainability disclosure and management system
at UBS were communicated to the firm in an internal report.
SIGNED FOR AND ON BEHALF OF SGS
Dr. Christine Jasch
Lead auditor, SGS
Elvira Bieri
Lead auditor, SGS
Zurich, 18 February 2011
WWW.SGS.COM
GP5008 Issue 1
70
UBS business
divisions and
Corporate Center
UBS business divisions and
Corporate Center
– Starting from 2010, external reporting of Wealth Management & Swiss Bank was
revised to better reflect management structure and responsibilities, and was split into
two business units: Wealth Management and Retail & Corporate.
– The Investment Products and Services (IPS) unit was created to provide comprehensive
service to Wealth Management clients with complex needs using the capabilities and
expertise of the entire firm.
– In the Investment Bank, the implementation of the securities platform to unify our
capabilities in equities and fixed income, currencies and commodities combined
previously distinct trading and sales activities into a holistic business with the goal of
improving our market position and overall client service.
– In the first half of the year, we took an important step to expand our presence into
emerging markets by agreeing to acquire Link Investimentos, one of the largest inde-
pendent broker-dealers in Brazil.
– The Global Family Office unit was established as a joint venture between Wealth
Management and the Investment Bank to provide a cross-divisional platform for the
delivery of integrated products and services.
Performance from continuing operations before tax
CHF million
Wealth Management
Retail & Corporate
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Investment Bank
Treasury activities and other corporate items
Operating profit from continuing operations before tax
For the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
2,308
1,772
4,080
(130)
516
2,197
793
7,455
2,280
1,629
3,910
32
438
(6,081)
(860)
(2,561)
3,631
2,382
6,013
(823)
1,333
(34,300)
19
(27,758)
1
9
4
18
Wealth Management & Swiss Bank
Global Asset Management
Wealth Management – In 2010, pre-tax profit increased 1% to
CHF 2,308 million from CHF 2,280 million in 2009, mainly due
to a 3% decrease in operating expenses. Total operating income
in 2010 was CHF 7,356 million, down 2% from CHF 7,471
million a year earlier. Operating expenses declined 3% to CHF
5,049 million from CHF 5,191 million.
During 2010, net new money outflows declined to CHF 12.1
billion from CHF 87.1 billion in 2009. International wealth
management net new money outflows declined significantly to
CHF 12.9 billion from CHF 79.9 billion. While Europe saw
ongoing net outflows, net inflows were recorded in the Asia
Pacific region as well as globally from ultra high net worth
clients. Swiss wealth management reported net inflows of CHF
0.8 billion in 2010 compared with CHF 7.2 billion net outflows
the year before.
Retail & Corporate – In 2010, pre-tax profit increased 9% to
CHF 1,772 million compared with CHF 1,629 million in 2009,
mainly due to a decrease in operating expenses. Total operating
income in 2010 was CHF 3,870 million, down 1% from CHF
3,918 million a year earlier. Operating expenses declined 8% to
CHF 2,098 million from CHF 2,289 million as a result of cost-
cutting measures initiated in 2009.
Wealth Management Americas
Wealth Management Americas reported a pre-tax loss of CHF
130 million in 2010 compared with a pre-tax profit of CHF
32 million in 2009, due to higher litigation provisions. Operating
income of CHF 5,564 million was essentially flat compared
with CHF 5,550 million in 2009, but increased 4% in US dollar
terms. In 2010, operating expenses increased 3% to CHF 5,694
million from CHF 5,518 million, and included CHF 162 million
in restructuring charges compared with CHF 152 million in
restructuring charges in 2009.
Net new money outflows for Wealth Management Americas
were CHF 6.1 billion in 2010 compared with CHF 11.6 billion in
the prior year. The Wealth Management US business saw net
new money outflows of CHF 5.5 billion in 2010 compared with
CHF 9.8 billion in 2009. We experienced net new money
outflows during the first half of 2010, but reported net new
money inflows in the second half of 2010 due to improved
financial advisor retention and improved net new money
inflows from financial advisors employed with UBS for more
than one year.
Pre-tax profit for 2010 was CHF 516 million compared with CHF
438 million in 2009. Excluding a net goodwill impairment charge
of CHF 191 million related to the sale of UBS Pactual in 2009,
the pre-tax profit for 2010 would have decreased by CHF 113
million compared with 2009. Total operating income was CHF
2,058 million in 2010, compared with CHF 2,137 million in
2009. Total operating expenses were CHF 1,542 million in 2010,
compared with CHF 1,698 million in 2009.
Net new money inflows were CHF 1.8 billion in 2010 com-
pared with net outflows of CHF 45.8 billion in 2009. Net
inflows from third parties were CHF 18.2 billion in 2010
compared with net outflows of CHF 5.1 billion in 2009. Net
outflows from clients of our wealth management businesses
were CHF 16.4 billion in 2010 compared with net outflows
of CHF 40.7 billion in 2009.
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Investment Bank
In 2010, we recorded a pre-tax profit of CHF 2,197 million
compared with a pre-tax loss of CHF 6,081 million in 2009,
primarily as a result of increased revenues in fixed income,
currency and commodities, a significant reduction in net credit
loss expenses and lower own credit losses. Total operating
income in 2010 was CHF 12,010 million compared with CHF
3,135 million in the prior year. Net credit loss expense in 2010
was nil compared with net credit loss expense of CHF 1,698
million in 2009. Total operating expenses were CHF 9,813
million in 2010, compared with CHF 9,216 million in 2009.
Investment banking revenues were CHF 2,414 million in 2010,
marginally down from CHF 2,466 million in the previous year.
Revenues in equities were CHF 4,469 million, down 9% from
CHF 4,937 million in 2009. Revenues in the fixed income,
currencies and commodities business were positive CHF 5,675
million in 2010 compared with negative CHF 547 million in
2009, when the business was materially affected by losses on
residual risk positions.
Corporate Center
The Corporate Center allocates operating expenses to the
business divisions according to service consumption. In 2010, the
Corporate Center had a cost base excluding variable compensa-
tion of just below CHF 7.5 billion. The Corporate Center has
improved Group-wide cost management, and has implemented
simple service delivery models with clear responsibilities. At the
end of 2010, across all shared services functions, the Corporate
Center had approximately 19,400 employees.
UBS business divisions and Corporate Center
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank
Business division reporting
CHF million, except where indicated
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
Additional information
Average attributed equity (CHF billion) 3
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (CHF billion)
Return on BIS risk-weighted assets, gross (%)
Goodwill and intangible assets (CHF billion)
Invested assets (CHF billion)
Client assets (CHF billion)
Personnel (full-time equivalents)
As of or for the year ended
31.12.10
11,291
(64)
11,226
4,778
2,101
(61)
309
19
7,147
4,080
4,080
4.3
63.3
(10.0)
9.0
45.3
43.4
24.3
1.5
904
1,799
27,752
31.12.09
11,523
(133)
11,390
5,197
2,017
(90)
289
67
7,480
3,910
3,910
(35.0)
64.9
(89.8)
9.0
43.4
48.6
21.7
1.6
960
1,844
27,548
31.12.08
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)
9.5
63.3
62.3
22.3
1.7
955
1,711
31,016
% change from
31.12.09
(2)
(52)
(1)
(8)
4
32
7
(72)
(4)
4
4
0
(11)
(6)
(6)
(2)
1
1 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section of this report. 2 Excludes interest and dividend income. 3 Refer to the “Capital management”
section of this report for more information about the equity attribution framework.
74
Wealth Management
Business description
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With a presence in over 40 countries and headquartered in Switzerland, Wealth Management provides clients with
financial advice, products and tools to fit their individual needs.
Business
Wealth Management delivers comprehensive financial services to
wealthy private clients around the world – except those served by
Wealth Management Americas. Our clients benefit from the en-
tire spectrum of UBS resources, ranging from asset management
to estate planning and corporate finance advice, in addition to
the specific wealth management products and services outlined
below. An open product platform provides clients with access to
a wide array of products from third-party providers that comple-
ment our product lines.
With CHF 768 billion of invested assets at the end of 2010, we
are one of the largest wealth managers in the world.
Strategy and clients
Our goal is to be the bank of choice for wealthy individuals world-
wide. We offer sophisticated products and services to private cli-
ents, focusing in particular on the ultra high net worth and high
net worth client segments. In addition, we also provide wealth
management solutions, products and services to financial inter-
mediaries.
We believe we are well positioned to capture growth opportu-
nities in all markets, particularly in Asia, emerging markets and
the global ultra high net worth segment, all areas where we ex-
pect to see the fastest market growth. Due to our strong local
presence in leading global financial centers, we are in an excellent
position to respond to increasing client demand for providing ser-
vices in more than one jurisdiction (multi-shoring). Given our posi-
tion as one of the largest banks for ultra high net worth and high
net worth clients, we aim to grow faster than the average global
wealth market, while increasing our profitability through en-
hanced gross margins and targeted investments.
We continue to build on our integrated client service model to
identify investment opportunities that are tailored to individual
client needs, and we intend to continue growing our client advi-
sor base as we target 4,700 advisors in the medium term, espe-
cially in growth regions. In an increasingly complex regulatory
environment, we will pursue the highest levels of compliance
through extensive employee training and investment in risk man-
agement processes and standards.
In our cross-border business, we are concentrating on areas
with the greatest market potential. In Asia Pacific, we continue to
focus on Hong Kong and Singapore, the leading financial centers
in the region. In emerging markets, we are focusing on the Mid-
dle East, Latin America and Central and Eastern Europe. To cap-
ture the full opportunity these markets present, we have orga-
nized emerging markets as a dedicated business and enhanced
our local presence with several new Wealth Management offices.
In Europe, we continue to support our cross-border business by
focusing on the quality of our client service delivery and country-
specific product offerings.
In our onshore business, we continue to enhance our already
strong domestic presence in the key European and Asian mar-
kets. In Switzerland we are strengthening our position by consis-
tently implementing our structured advisory process. We under-
stand the distinct needs of our clients and aim to deliver superior
service.
Invested assets by client domicile(cid:15)
In %, except where indicated
Total: CHF 768 billion
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:124)(cid:2)
(cid:43)(cid:80)(cid:2)(cid:7)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:24)(cid:26)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
On 31.12.10
22
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48
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Europe, Middle East and Africa
Switzerland
The Americas
Asia Pacific
(cid:49)(cid:80)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)
(cid:19)(cid:24)
(cid:22)(cid:27)
(cid:20)(cid:22)
(cid:19)(cid:19)
2BD006_e
(cid:30)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:115)(cid:23)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:115)(cid:19)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:32)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:20)(cid:36)(cid:38)(cid:18)(cid:18)(cid:25)(cid:65)(cid:71)
75
UBS business divisions and Corporate Center
Wealth Management & Swiss Bank
We have made substantial progress towards managing our
non-Swiss European locations for profitability. In the Asia Pacific
region, we will further invest in our well-established presences in
Hong Kong, Singapore, Taiwan, Australia and Japan. In addition,
we are focusing on long-term growth opportunities in locations
such as China, where we are making use of UBS’s distinct market
presence, which includes a stake in the fully licensed brokerage
house, UBS Securities Co. Limited.
Our overall long-term industry outlook for growth within the
global wealth market is positive. From a regional perspective,
Asia, Latin America, Central and Eastern Europe and the Middle
East are expected to grow the fastest, based on economic devel-
opment and entrepreneurial wealth creation, depending how-
ever on political stability. In the established European markets,
we expect the onshore business to grow faster than the cross-
border business. Finally, the ultra high net worth market segment
shows the potential for the strongest growth rate of all client seg-
ments.
Organizational structure
Wealth Management is headquartered in Switzerland with a
presence in 44 countries and approximately 200 wealth man-
agement and representative offices, half of which are outside
Switzerland, mostly in Europe, Asia Pacific, Latin America and
the Middle East. As of the end of 2010, Wealth Management
employed more than 15,500 personnel worldwide, including
approximately 4,200 client advisors. The Wealth Management
business unit is governed by an executive committee, and is pri-
marily organized along regional lines with the business areas Asia
Pacific, Europe, Global Emerging Markets, Global Established
Markets, Switzerland and Global Ultra High Net Worth Clients –
supported by a global Investment Products and Services unit and
central functions.
Competitors
Our major global competitors include Credit Suisse, Julius Baer,
HSBC, BNP / Fortis, Barclays and Citigroup. In domestic markets,
we compete primarily with the private banking operations of
large local banks such as Coutts in the UK, Deutsche Bank in Ger-
many and Unicredit in Italy.
Products and services
As a global integrated firm, UBS has the necessary expertise to
identify appropriate investment opportunities for clients and the
local presence to provide them. We have brought together experts
from our Investment Bank, Global Asset Management and Wealth
Management & Swiss Bank business divisions to create a new unit
called Investment Products and Services (IPS), with approximately
2,150 employees at the end of 2010. IPS provides access to UBS’s
services and expertise for clients and client advisors through an
integrated and efficient organization. In addition, IPS develops in-
vestment products and services, based on the capabilities of the
entire firm, to satisfy our clients’ needs. Wealth Management thus
leverages the knowledge and product and service offerings from
Global Asset Management and the Investment Bank to provide
expert financial advice that supports clients throughout the differ-
ent stages of their lives. By aggregating private investment flows
into institutional-size flows, we are in a position to offer our
Wealth Management clients access to investments that would oth-
erwise only be available to institutional clients. Expertise is sourced
either from within UBS or from approved third-party providers.
The recent financial crisis fundamentally altered financial market
dynamics and client expectations. As a result, clients are demanding
a more active relationship with their client advisor, and investment
performance has significantly gained importance. To accommodate
the needs of our clients, we are able to offer services across a full
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76
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investment spectrum from execution only to discretionary man-
dates. Clients who opt for a discretionary mandate delegate the
management of their assets to a team of professional portfolio man-
agers. Clients who prefer to be actively involved in the management
of their assets can choose an advisory mandate, in which investment
professionals provide analysis and monitoring of portfolios, together
with tailor-made proposals to support investment decisions. Our cli-
ents can trade the full range of financial instruments from single
securities, such as equities and bonds, to various investment funds,
structured products and alternative investments. Additionally, we
offer structured lending, corporate finance and wealth planning
advice on client needs such as funding for education, gift giving,
inheritance and succession. For our ultra high net worth clients,
we are able to offer institutional-like servicing with special access to
our Investment Bank and Global Asset Management offerings.
Our integrated client service model allows client advisors to
analyze their client’s financial situation, and develop and imple-
ment systematic tailored investment strategies. These strategies
are regularly reviewed and based on individual client profiles,
which comprise all important investment criteria such as the cli-
ent’s life cycle needs, risk appetite and performance expectations.
To ensure that the best solutions are presented to our clients, we
continuously train our client advisors and provide them with on-
going support.
With the objective to further optimize our clients’ financial re-
turns the new function of a Chief Investment Officer (CIO) has
been established as of 1 March 2011. The CIO reports directly to
the Wealth Management CEO and is mandated to oversee our
global investment strategy and policy in close collaboration with
IPS as well as Global Asset Management and the Investment Bank.
The CIO function will be responsible for defining and proposing
appropriate investment allocations and strategies and for commu-
nicating them across the global Wealth Management organiza-
tion, especially to our client advisors and product managers.
77
UBS business divisions and Corporate Center
Wealth Management & Swiss Bank
Business performance
Business unit reporting
CHF million, except where indicated
Recurring income
Non-recurring 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 unit performance before tax
of which: impact from US cross-border case
of which: business unit 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
Gross margin on invested assets (bps) 3
Swiss wealth management
Income
Net new money (CHF billion) 2
Invested assets (CHF billion)
Gross margin on invested assets (bps)
International wealth management
Income
Net new money (CHF billion) 2
Invested assets (CHF billion)
Gross margin on invested assets (bps) 3
Additional information
Average attributed equity (CHF billion) 4
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (CHF billion)
Return on BIS risk-weighted assets, gross (%)
Goodwill and intangible assets (CHF billion)
Invested assets (CHF billion)
Client assets (CHF billion)
Client advisors (full-time equivalents)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
5,411
1,934
7,345
11
7,356
3,153
1,264
449
163
19
5,049
2,308
2,308
1.2
68.7
(12.1)
92
1,543
0.8
137
112
5,802
(12.9)
631
88
4.4
52.5
16.9
41.4
1.5
768
920
4,172
15,663
5,696
1,731
7,427
45
7,471
3,360
1,182
428
154
67
5,191
2,280
2,280
(37.2)
69.9
(87.1)
91
1,488
(7.2)
140
110
5,939
(79.9)
685
88
4.4
51.8
17.9
37.4
1.6
825
1,005
4,286
15,408
8,061
2,440
10,502
(388)
10,114
3,503
2,357
917
409
181
33
6,483
3,631
(917)
4,548
(40.5)
61.7
(96.0)
99
2,081
(23.0)
137
120
8,420
(73.0)
697
95
5.1
71.5
25.1
35.0
1.7
833
1,010
5,435
17,910
(5)
12
(1)
(76)
(2)
(6)
7
5
6
(72)
(3)
1
1
1
4
(2)
2
(2)
(8)
0
0
(6)
(6)
(7)
(8)
(3)
2
1 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section of this report. 2 Excludes interest and dividend income. 3 Excludes negative valuation adjust-
ments on a property fund (2010: CHF 45 million, 2009: CHF 155 million, 2008: CHF 9 million). 4 Refer to the “Capital management” section of this report for more information about the equity attribution framework.
78
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2010
Results
In 2010, pre-tax profit increased 1% to CHF 2,308 million from
CHF 2,280 million in 2009, mainly due to a 3% decrease in oper-
ating expenses. Operating income was down 2% as the result
was negatively affected by low market interest rates and the
strengthening of the Swiss franc against major currencies.
Operating income
Total operating income in 2010 was CHF 7,356 million, down 2%
from CHF 7,471 million a year earlier. Recurring income decreased
5% on lower asset-based fees, reflecting a 4% lower average as-
set base. Interest income was down due to pressure from the low
interest rate environment and the decrease in value of the euro
and US dollar against the Swiss franc in 2010. This was partly
offset by a shift of treasury-related revenues from Retail & Corpo-
rate to Wealth Management from second quarter 2010 onwards,
impacting interest and trading income.
Non-recurring income increased 12% to CHF 1,934 million
from CHF 1,731 million as trading income increased and as 2009
included higher revaluation adjustments on a property fund.
Credit loss recoveries were CHF 11 million in 2010, down from
CHF 45 million in 2009.
Operating expenses
Operating expenses declined 3% to CHF 5,049 million from CHF
5,191 million. Personnel expenses decreased 6% reflecting a re-
duction of average personnel levels by 9% and restructuring ex-
penses of CHF 190 million in 2009. General and administrative
expenses, at CHF 1,264 million, were up CHF 82 million from CHF
1,182 million a year earlier, mainly due to a CHF 40 million charge
to reimburse the Swiss government for costs incurred in connec-
tion with the US cross-border matter, increased litigation provi-
sions, and higher sponsoring and branding costs related to the
global re-launch of the UBS brand. Charges for services from
other business divisions, at CHF 449 million in 2010, were slightly
up from CHF 428 million in the previous year. Depreciation was
CHF 163 million in 2010, compared with CHF 154 million a year
earlier. Amortization of intangible assets was CHF 19 million,
down from CHF 67 million in 2009, mainly reflecting the impair-
ment of intangible assets related to invested asset outflows in UBS
(Bahamas) Ltd. in 2009.
➔ Refer to “Note 1 Summary of significant accounting policies” in
the “Financial information” section of this report for more
information on allocation of additional Corporate Center costs
to the business divisions in 2010
Development of invested assets
Net new money
During 2010, all regions and client segments saw an improvement of
their net new money situation and net outflows declined to CHF 12.1
billion compared with CHF 87.1 billion in 2009. Inter national wealth
management net new money outflows declined significantly to CHF
12.9 billion from CHF 79.9 billion. While Europe saw ongoing net
outflows, partially due to discussions regarding tax treaties, net in-
flows were recorded in the Asia Pacific region as well as globally from
ultra high net worth clients. Swiss wealth management reported net
inflows of CHF 0.8 billion in 2010 compared with CHF 7.2 billion net
outflows the year before. Net new money for 2010 includes inflows
of CHF 3.7 billion resulting from transfers of Investment Bank clients
to Wealth Management, as part of the Global Family Office initiative.
Invested assets
Invested assets were CHF 768 billion on 31 December 2010, a
decrease of CHF 57 billion from 31 December 2009, as positive
equity market performance was more than offset by adverse cur-
rency effects with a 16% decline in value of the euro and an 11%
decline in value of the US dollar against the Swiss franc, and net
new money outflows in 2010. In Wealth Management, 31% of
invested assets were denominated in euros and 31% in US dollars
at the end of 2010.
Gross margin on invested assets
The gross margin on invested assets increased 1 basis point to 92
basis points. The computation of the gross margin excludes the
negative valuation adjustments on a property fund. The recurring
income margin was down 1 basis point to 68 basis points, due to
lower interest income reflecting ongoing pressure from the low
interest rate environment. The non-recurring income margin was
up 2 basis points to 24 basis points, mainly due to higher broker-
age fees following higher client activity.
79
UBS business divisions and Corporate Center
Wealth Management & Swiss Bank
2009
Results
In 2009, pre-tax profit fell 37% to CHF 2,280 million, compared
with CHF 3,631 million in 2008. The decline in profit was due to
a 26% reduction in operating income, which was only partially
compensated by a 20% cut in operating expenses resulting
from cost-cutting measures. A provision of CHF 917 million in
relation to the US cross-border case was included in the results
for 2008.
Operating income
Total operating income in 2009 was CHF 7,471 million, down
26% from CHF 10,114 million a year earlier. Recurring income
decreased 29% on lower asset-based fees, reflecting a 22% low-
er average asset base. Interest income was down due to pressure
from the low interest rate environment.
Non-recurring income fell 29% due to lower brokerage fees,
reflecting reduced client activity. Income was also impacted by
higher internal funding-related interest charges and revaluation
adjustments of CHF 155 million on a property fund. Credit loss
expenses improved significantly to net recoveries of CHF 45 mil-
lion from CHF 388 million net credit losses in 2008, which in-
cluded provisions made for lombard loans.
Operating expenses
In 2009, operating expenses declined 20% to CHF 5,191 from
CHF 6,483 million one year earlier, as a result of cost-cutting
measures. Excluding the restructuring charges of CHF 254 mil-
lion booked in 2009, and the abovementioned provision in
2008 relating to the US cross-border case, operating expenses
declined 11%. Personnel expenses decreased 10% excluding
restructuring charges, due to a 14% reduction of overall per-
sonnel, which mostly took place towards the end of 2009.
General and administrative expenses, at CHF 1,182 million,
were down significantly from CHF 2,357 million a year earlier,
mainly due to the abovementioned 2008 provision related to
the US cross-border case. Charges for services from other busi-
ness divisions, at CHF 428 million in 2009, were slightly up
from CHF 409 million in the previous year. Depreciation was
CHF 154 million in 2009, compared with CHF 181 million a
year earlier. Amortization of intangible assets was CHF 67 mil-
lion, up from CHF 33 million in 2008, mainly reflecting the im-
pairment of intangible assets related to invested asset outflows
in UBS (Bahamas) Ltd.
Development of invested assets
Net new money
Net new money outflows in 2009 were CHF 87.1 billion compared
with CHF 96.0 billion in the previous year. Aside from the effects of
the financial market turbulence, these outflows mainly reflected
reputational issues, client advisor attrition and proposed tax treaties.
Outflows from Swiss wealth management declined significant-
ly in 2009 to CHF 7.2 billion from CHF 23.0 billion in 2008. Out-
flows from international clients were CHF 79.9 billion compared
with CHF 73.0 billion in 2008.
Invested assets
Invested assets were CHF 825 billion on 31 December 2009, a de-
crease of CHF 8 billion from 31 December 2008, as positive market
performance was more than offset by net new money outflows, and
a 3% decrease of the US dollar against the Swiss franc in the course
of 2009. In Wealth Management, 36% of invested assets were de-
nominated in euros and 31% in US dollars at the end of 2009.
Gross margin on invested assets
The gross margin on invested assets declined 8 basis points to
91 basis points. The computation of the gross margin excludes
negative valuation adjustments on a property fund. The recurring
income margin was down 7 basis points to 69 basis points, as
deposit margins and volumes as well as lombard loan volume de-
creased. The non-recurring income margin was also down, de-
creasing 1 basis point to 22 basis points, mainly due to lower bro-
kerage fees reflecting decreased client transaction activity levels.
80
Retail & Corporate
Business description
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Through our network of 300 branches in Switzerland, we deliver comprehensive financial services to retail,
corporate and institutional clients.
Business
Retail & Corporate delivers comprehensive financial services to
retail, corporate and institutional clients in Switzerland. With
CHF 879 billion in client assets at the end of 2010, we are the
leading bank in Switzerland for retail, corporate and institutional
clients. We are market leaders in the retail and corporate loan
market in Switzerland, with a highly collateralized loan book of
CHF 135 billion on 31 December 2010 as shown in the “Loan
port folio, gross” chart.
The Retail & Corporate business is closely embedded within the
integrated bank delivery model of UBS Switzerland, covering also
Wealth Management, Asset Management and Investment Bank-
ing in Switzerland.
➔ Refer to the “Strategy and structure” section of this report
for more information on UBS Switzerland
cal branch network. We are refurbishing our branches by intro-
ducing new concepts to welcome and serve customers as well as
to reflect our new brand identity.
In Switzerland, our corporate and institutional clients (CIC)
are comprised of multinationals, corporations, institutional cli-
ents and financial institutions, as well as small and medium en-
terprises (SME). We strive to be their preferred partner for all of
their complex needs and contribute to their long-term success.
As a leading CIC business, we serve almost one of two Swiss
companies, more than 85% of the 1000 largest corporates as
well as one out of every three pension funds in Switzerland, in-
cluding 75 of the largest 100. Combining the integrated bank
approach with our local market expertise across all Swiss re-
gions, we are able to serve our clients best by offering the exper-
tise of the entire bank while generating opportunities to cross-
sell and increase referrals.
Strategy and clients
Organizational structure
Our goal is to be the bank of choice for retail clients in Switzerland
by delivering value-added services. We serve one out of three
households in Switzerland with over 300 branches, 1,250 auto-
mated teller machines and self-service terminals, e-banking ser-
vices and customer service centers. We are continuously refining
our suite of life-cycle based offerings, which offer our clients
dedicated products and services to fulfill their evolving require-
ments. We will continue to invest in our physical and electronic
channels in order to improve the client experience – we use tech-
nology to complement, rather than replace, the traditional physi-
Retail & Corporate is a core element of UBS Switzerland’s inte-
grated bank delivery model which allows us to extend the exper-
tise of the entire bank to our Swiss retail, corporate and institu-
tional clients.
To ensure consistent delivery throughout Switzerland, we have
aligned the regional organization structures of our different busi-
ness segments. In July 2010, the Swiss network was organized
into ten geographical regions. Each region is aligned across the
different business segments, and is led by management teams
who are also responsible for delivering the integrated bank locally.
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(cid:22)
(cid:19)(cid:22)
(cid:53)(cid:71)(cid:69)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:84)(cid:71)(cid:85)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:82)(cid:84)(cid:81)(cid:82)(cid:71)(cid:84)(cid:86)(cid:91)
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UBS business divisions and Corporate Center
Wealth Management & Swiss Bank
Competitors
In the Swiss retail banking business, our competitors are Credit
Suisse, Raiffeisen, the cantonal banks, PostFinance, as well as
other regional and local Swiss banks.
In the Swiss corporate and institutional business, our main
competitors are Credit Suisse, the cantonal banks, and foreign
banks in Switzerland.
Products and services
Our retail clients have access to services such as a comprehen-
sive selection of cash accounts, payments, savings and retire-
ment products, investment fund solutions, residential mortgag-
es, life insurance and advisory services. These services can be
tailored to clients’ individual life-cycle solutions in combination
with financial advice. We offer our Swiss corporate and institu-
tional clients a comprehensive set of products and services. In
Switzerland, we are a leading provider of financing solutions,
as we offer access to capital markets (equity and debt capital),
syndicated and structured credit, private placements, trade
finance, factoring, leasing and traditional financing solutions.
By providing access to global sector specialists within the
Investment Bank, we can provide strategic advice in the field
of mergers and acquisitions. Additionally, we advise company
owners on succession planning, and provide professional sup-
port in liquidity and cash management. Finally, we offer global
custody services for institutional clients who want to consoli-
date multiple-agent bank custodies into a single, cost-efficient
global custodial relationship.
82
Business performance
Business unit reporting
CHF million, except where indicated
Net interest income
Non-interest income
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
Business unit performance before tax
Key performance indicators 1
Pre-tax profit growth (%)
Cost / income ratio (%)
Impaired lending portfolio as a % of total lending portfolio, gross (%)
Additional information
Average attributed equity (CHF billion) 2
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (CHF billion)
Return on BIS risk-weighted assets, gross (%)
Goodwill and intangible assets (CHF billion)
Net new money (CHF billion) 3
Invested assets (CHF billion)
Client assets (CHF billion)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
2,422
1,524
3,946
(76)
3,870
1,625
836
(509)
146
0
2,098
1,772
8.8
53.2
0.9
4.6
38.5
26.5
13.7
0.0
2.0
136
879
2,681
1,415
4,096
(178)
3,918
1,836
835
(518)
136
0
2,289
1,629
(31.6)
55.9
1.1
4.6
35.4
30.8
12.3
0.0
(2.7)
135
840
12,089
12,140
3,207
1,704
4,911
(4)
4,907
1,927
938
(482)
142
0
2,524
2,382
(2.5)
51.4
1.2
4.4
53.8
37.1
12.5
0.0
(11.1)
122
701
13,105
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(4)
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(1)
(11)
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(8)
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(14)
1
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0
1 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section of this report. 2 Refer to the “Capital management” section of this report for more information
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83
UBS business divisions and Corporate Center
Wealth Management & Swiss Bank
2010
Results
2009
Results
In 2010, pre-tax profit increased 9% to CHF 1,772 million com-
pared with CHF 1,629 million in 2009, mainly due to an 8% de-
crease in operating expenses. Operating income was slightly low-
er compared with the previous year as reduced interest income
was only partly offset by lower credit loss expenses.
In 2009, pre-tax profit fell 32% to CHF 1,629 million compared
with CHF 2,382 million in 2008. The decline in profit was due to
a 17% decline in revenues and higher credit loss expenses. This
was only partly compensated by a 9% reduction in operating ex-
penses from cost-cutting measures.
Operating income
Total operating income in 2010 was CHF 3,870 million, down 1%
from CHF 3,918 million a year earlier. Interest income was down
10%, mainly as low market interest rates continued to exert
downward pressure on interest margins. In addition, interest in-
come decreased as approximately 30% of treasury related reve-
nues were allocated from Retail & Corporate to Wealth Manage-
ment from second quarter 2010 onwards. These effects were only
partially compensated by higher volumes in certain products and
improved margins on new mortgage loans.
Non-interest income went up 8% as higher client activity in-
creased brokerage fees and commission income as well as broker-
age-related foreign exchange trading income. Net credit loss ex-
penses were CHF 76 million in 2010, a decline of CHF 102 million
compared with 2009.
Operating expenses
Operating expenses declined 8% to CHF 2,098 million from CHF
2,289 million, a result of cost-cutting measures initiated in 2009.
Personnel expenses decreased 11%, reflecting a 4% reduction in
average personnel levels and related restructuring expenses in
2009. General and administrative expenses were stable at CHF
836 million. Net charges to other business divisions, at CHF 509
million in 2010, were down 2% from CHF 518 million the previ-
ous year, largely due to business realignments between Wealth
Management and Retail & Corporate. Depreciation was CHF 146
million in 2010 compared with CHF 136 million in 2009.
➔ Refer to “Note 1 Summary of significant accounting policies” in
the “Financial information” section of this report for more
information on allocation of additional Corporate Center costs
to the business divisions in 2010
Operating income
Total operating income in 2009 was CHF 3,918 million, down
20% from CHF 4,907 million a year earlier. Interest income de-
creased 16% as low market interest rates exerted downward
pressure on deposit interest margins.
Non-interest income fell 17%, partly as a result of lower client
activity affecting brokerage fees and commission income as well
as brokerage related foreign exchange trading income. Net credit
loss expenses increased to CHF 178 million from CHF 4 million in
the previous year, mainly reflecting credit losses with a small num-
ber of corporate clients.
Operating expenses
At CHF 2,289 million, operating expenses in 2009 declined 9%
from CHF 2,524 million one year earlier as a result of cost-cut-
ting measures. Personnel expenses decreased 5%, reflecting a
7% reduction in average personnel levels, which mostly took
place towards the end of the year. General and administrative
expenses, at CHF 835 million, were down 11% from CHF
938 million one year earlier due to cost-cutting measures. Net
charges to other business divisions, at CHF 518 million in 2009,
were up 7% from CHF 482 million the previous year. Deprecia-
tion was CHF 136 million in 2009, down CHF 6 million from CHF
142 million a year earlier.
Development of invested assets
Invested assets
Invested assets were CHF 135 billion on 31 December 2009, an
increase of CHF 13 billion from 31 December 2008, reflecting
higher equity markets.
Development of invested assets
Invested assets
Invested assets were CHF 136 billion on 31 December 2010, an
increase of CHF 1 billion from 31 December 2009, reflecting high-
er equity markets and net new money inflows, partly offset by
adverse currency effects.
84
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 high net worth and ultra high net
worth individuals and families.
Business
Wealth Management Americas is among the leading wealth man-
agers in the Americas based on invested assets, and includes the
Wealth Management US business, the domestic Canadian busi-
ness and the international business booked in the United States.
On 31 December 2010, the business division had CHF 689 billion
in invested assets.
Strategy and clients
Our vision is to be the best wealth management business in the
Americas. In order to achieve this goal, we must be both client-
focused and advisor-centric. Due to our competitive positioning,
we believe we are large enough to be relevant and small enough
to be nimble, enabling us to combine the advantages of both
large and boutique players. By partnering with financial advisors
serving high net worth and ultra high net worth clients, our goal
is to become a trusted, differentiated and superior provider of
financial solutions.
We deliver a fully-integrated set of advice-based wealth man-
agement solutions through our financial advisors to meet the
needs of our target client segments: high net worth clients (USD
1 million to USD 10 million in investable assets) and ultra high net
worth clients (more than USD 10 million in investable assets),
while also serving the needs of the core-affluent (USD 250,000 to
USD 1 million in investable assets) where appropriate. We are
committed to providing advice to our clients by employing the
best professionals in the industry, delivering the highest standard
of execution and running a streamlined and efficient business.
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(cid:35)(cid:46)(cid:35)(cid:53)(cid:45)(cid:35)
(cid:57)(cid:35)(cid:53)(cid:42)(cid:43)(cid:48)(cid:41)(cid:54)(cid:49)(cid:48)
(cid:47)(cid:49)(cid:48)(cid:54)(cid:35)(cid:48)(cid:35)
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(cid:47)(cid:35)(cid:43)(cid:48)(cid:39)
(cid:49)(cid:52)(cid:39)(cid:41)(cid:49)(cid:48)
(cid:43)(cid:38)(cid:35)(cid:42)(cid:49)
(cid:57)(cid:59)(cid:49)(cid:47)(cid:43)(cid:48)(cid:41)
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(cid:53)(cid:49)(cid:55)(cid:54)(cid:42)(cid:2)(cid:38)(cid:35)(cid:45)(cid:49)(cid:54)(cid:35)
(cid:57)(cid:43)(cid:53)(cid:37)(cid:49)(cid:48)(cid:53)(cid:43)(cid:48)
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(cid:48)(cid:39)(cid:36)(cid:52)(cid:35)(cid:53)(cid:45)(cid:35)
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(cid:53)(cid:49)(cid:55)(cid:54)(cid:42)(cid:2)
(cid:37)(cid:35)(cid:52)(cid:49)(cid:46)(cid:43)(cid:48)(cid:35)
(cid:47)(cid:43)(cid:53)(cid:53)(cid:43)(cid:53)(cid:53)(cid:43)(cid:50)(cid:50)(cid:43)
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(cid:42)(cid:35)(cid:57)(cid:35)(cid:43)(cid:43)
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(cid:30)(cid:2)(cid:23)(cid:2)
(cid:23)(cid:115)(cid:19)(cid:23)
(cid:32)(cid:2)(cid:19)(cid:23)
(cid:40)(cid:46)(cid:49)(cid:52)(cid:43)(cid:38)(cid:35)
(cid:50)(cid:55)(cid:39)(cid:52)(cid:54)(cid:49)(cid:2)(cid:52)(cid:43)(cid:37)(cid:49)
(cid:20)(cid:36)(cid:38)(cid:18)(cid:19)(cid:18)(cid:65)(cid:71)
85
UBS business divisions and Corporate Center
Wealth Management Americas
Organizational structure
Competitors
Wealth Management Americas consists of branch networks in
the US, Puerto Rico and Canada, with 6,796 financial advisors
as of 31 December 2010. Most corporate and operational func-
tions of the business division are located in the home office in
Weehawken, New Jersey.
In the US and Puerto Rico, Wealth Management Americas op-
erates through direct and indirect subsidiaries of UBS AG. Securi-
ties and operations activities are conducted primarily through two
registered broker-dealers, UBS Financial Services Inc. and UBS
Financial Services Incorporated of Puerto Rico. Our banking ser-
vices in the US include those conducted through the UBS AG
branches and UBS Bank USA, a federally-regulated Utah bank,
which provides Federal Deposit Insurance Corporation (FDIC)-
insured deposit accounts, enhanced collateralized lending services
and mortgages.
The business division’s Canadian wealth management and
banking operations are conducted through UBS Bank (Canada).
Significant recent acquisitions and business transfers include:
– March 2009: 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 finan-
cial services business, UBS Pactual, to BTG Investments, LP.
– October 2010: transfer of investment management responsi-
bility for the US hedge funds business from Wealth Manage-
ment Americas to Global Asset Management’s alternative and
quantitative investments business. This formed part of a new
joint venture between the two business divisions, which aims
to deliver attractive hedge fund and fund of hedge funds solu-
tions to Wealth Management Americas’ clients.
Wealth Management Americas competes with national full-ser-
vice brokerage firms, domestic and global private banks, regional
broker-dealers, independent broker-dealers, registered invest-
ment advisors, trust companies and other financial services firms
offering wealth management services to US and Canadian private
clients, as well as foreign non-resident clients seeking wealth
management services within the US. Our main competitors in-
clude the wealth management businesses of Bank of America,
Morgan Stanley, and Wells Fargo.
Products and services
Wealth Management Americas offers clients a full array of solu-
tions that focus on the individual financial needs of each client.
Comprehensive planning supports clients through the various
stages of their lives, including education funding, charitable giv-
ing, tax management strategies, estate strategies, insurance, re-
tirement, and trusts and foundations with corresponding product
offerings for each stage. Our advisors work closely with internal
consultants in areas such as wealth planning, portfolio strategy,
retirement and annuities, alternative investments, managed ac-
counts, structured products, banking and lending, equities, and
fixed income. Clients also benefit from our dedicated Wealth
Management Research team, which provides research guidance
to help support the clients’ investment decisions.
Our offerings are designed to meet a wide variety of invest-
ment objectives, including wealth accumulation and preservation,
income generation and portfolio diversification. To address the
full range of our clients’ investment needs, we also offer com-
petitive lending and cash management services such as the Re-
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(cid:43)(cid:80)(cid:2)(cid:7)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:124)(cid:2)
(cid:43)(cid:80)(cid:2)(cid:7)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:24)(cid:26)(cid:27)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:49)(cid:80)(cid:2)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:18)(cid:26)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:18)(cid:27)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)
(cid:49)(cid:80)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)
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(cid:37)(cid:42)(cid:40)(cid:2)(cid:24)(cid:27)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
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(cid:19)(cid:19)
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(cid:21)(cid:20)
(cid:35)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:85)(cid:17)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:79)(cid:87)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:39)(cid:90)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:79)(cid:87)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:19)
(cid:19)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:82)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)
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86
(cid:30)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:115)(cid:23)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:115)(cid:19)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:32)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:20)(cid:36)(cid:38)(cid:18)(cid:19)(cid:20)(cid:65)(cid:71)
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
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(cid:18)(cid:16)(cid:18)(cid:18)
source Management Account (RMA), FDIC-insured deposits, se-
curities-backed lending, mortgages and credit cards.
Additionally, Corporate Employee Financial Services provides
comprehensive, personalized stock benefit plan and related ser-
vices to many of the largest US corporations and their executives.
For corporate and institutional clients, we offer a robust suite of
solutions, including equity compensation, administration, invest-
ment consulting, defined benefit and contribution programs and
cash management services.
Our clients can choose the type of relationship they prefer to
have with us via asset-based pricing, transaction-based pricing or
a combination of both. Asset-based accounts have access to both
discretionary and non-discretionary investment advisory pro-
grams. Non-discretionary advisory programs enable the client to
maintain control over all account transactions, while clients with
discretionary advisory programs direct investment professionals to
manage a portfolio on their behalf. Depending on the type of
discretionary program, the client can give investment discretion to
a qualified financial advisor, a team of our investment profession-
als or a third-party investment manager. Separately, mutual fund
advisory programs are also offered, whereby a financial advisor
works with the client to create a diversified portfolio of mutual
funds guided by a research-driven asset allocation framework.
For clients who favor individual securities, we offer a broad
range of equity and fixed income instruments. In addition, qualified
clients may take advantage of structured products and alternative
investment offerings to complement their portfolio strategies.
All of these solutions are supported by a dedicated markets
execution group. This group partners with the Investment Bank
and Global Asset Management in order to access the resources of
the entire firm as well as third-party investment banks and asset
management firms.
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87
UBS business divisions and Corporate Center
Wealth Management Americas
Business performance
Business division reporting
CHF million, except where indicated
Recurring income
Non-recurring income
Income
of which: ARS settlement impact
Credit loss (expense) / recovery
Total operating income
Personnel expenses
Financial advisor compensation 1
Compensation commitments and advances related to recruited FAs 2
Salaries and other personnel costs
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 3
Pre-tax profit growth (%) 4
Cost / income ratio (%)
Net new money (CHF billion) 5
Gross margin on invested assets (bps)
Additional information
Average attributed equity (CHF billion) 6
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (CHF billion)
Return on BIS risk-weighted assets, gross (%)
Goodwill and intangible assets (CHF billion)
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) 5
Net new money including interest and dividend income (CHF billion) 7
Business division reporting excluding PaineWebber acquisition costs 8
Business division performance before tax
Cost / income ratio (%)
Average attributed equity (CHF billion)
31.12.10
3,472
2,093
5,565
As of or for the year ended
31.12.09
3,256
2,290
5,546
(1)
5,564
4,225
2,068
599
1,558
1,223
(6)
198
0
55
5,694
(130)
(130)
N/A
102.3
(6.1)
80
8.0
(1.6)
23.8
23.8
3.7
689
738
16,330
6,796
(5.5)
13.1
(21)
100.4
4.6
3
5,550
4,231
1,828
599
1,804
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
690
737
16,925
7,084
(9.8)
10.0
155
97.3
5.2
31.12.08
4,076
2,201
6,278
(172)
(29)
6,249
4,271
2,130
305
1,836
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
644
682
20,623
8,607
(11.4)
11.9
(689)
110.4
4.2
% change from
31.12.09
7
(9)
0
0
0
13
0
(14)
20
16
(100)
(11)
3
(1)
(9)
4
(12)
0
0
(4)
(4)
(12)
1 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor
productivity, firm tenure, assets and other variables. 2 Compensation commitments and advances related to recruited financial advisors (FAs) represents costs related to compensation commitments and advances
granted to financial advisors at the time of recruitment, which are subject to vesting requirements. 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 Excludes interest and dividend income. 6 Refer to the “Capital management” section of this report
for more information about the equity attribution framework. 7 For purposes of comparison with US peers. 8 Acquisition costs represent goodwill and intangible assets funding costs and intangible asset amortization
costs related to UBS’s 2000 acquisition of the PaineWebber retail brokerage business.
88
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2010
Results
Wealth Management Americas reported a pre-tax loss of CHF 130
million in 2010 compared with a pre-tax profit of CHF 32 million
in 2009. In 2010, Wealth Management Americas incurred restruc-
turing charges of CHF 162 million, while 2009 included restruc-
turing charges of CHF 152 million and net goodwill impairment
charges of CHF 19 million related to the sale of UBS Pactual. Ex-
cluding these items, pre-tax performance would have declined to
a profit of CHF 32 million in 2010 from CHF 203 million in 2009,
primarily resulting from a significant increase in litigation provi-
sions in 2010 to CHF 320 million from CHF 54 million in 2009.
Operating income
Operating income of CHF 5,564 million was essentially flat com-
pared with CHF 5,550 million in 2009, but increased 4% in US
dollar terms. Recurring income increased 7% to CHF 3,472 mil-
lion due to higher revenues from managed accounts and mutual
funds related to higher average invested assets. Recurring income
increased to 62% of operating income from 59% in 2009. Non-
recurring income decreased 9% to CHF 2,093 million due to low-
er municipal trading income, partly offset by higher commission
income and a demutualization gain from Wealth Management
Americas’ stake in the Chicago Board Options Exchange.
Operating expenses
Operating expenses increased 3% to CHF 5,694 million from CHF
5,518 million. In 2010, operating expenses included CHF 162 mil-
lion in restructuring charges compared with CHF 152 million in
restructuring charges in 2009. Additionally, 2009 included CHF
34 million in goodwill impairment charges related to the sale of
UBS Pactual (of which CHF 15 million was charged to the Corpo-
rate Center, as this was related to foreign exchange exposures
managed by Group Treasury).
Personnel expenses were CHF 4,225 million in 2010, down
slightly from CHF 4,231 million in the previous year. In US dollar
terms, personnel expenses increased 4%. Excluding CHF 35 million
in restructuring charges in 2010 and CHF 71 million in restructuring
charges in 2009, personnel expenses would have increased 1%
from the previous year. This increase was due primarily to higher
financial advisor compensation related to higher revenue produc-
tion and the introduction of the GrowthPlus incentive compensa-
tion program in 2010, partly offset by lower salaries and other per-
sonnel costs, resulting from restructuring initiatives in 2010 and
2009. Expenses for compensation commitments and advances re-
lated to recruited financial advisors were flat from 2009, but in-
creased 4% in US dollar terms. Compensation advance balances
were CHF 3,112 million as of 31 December 2010, down 4% from
31 December 2009, but increased 7% in US dollar terms.
Non-personnel expenses increased 14% to CHF 1,470 million
from CHF 1,287 million in 2009, principally due to higher litiga-
tion provisions, which increased to CHF 320 million in 2010 from
CHF 54 million in 2009. Non-personnel expenses included CHF
127 million in restructuring charges in 2010 related to real estate
writedowns, while 2009 included restructuring charges of CHF 82
million and the abovementioned goodwill impairment charges. In
addition, non-personnel costs included a shift of expenses from
the Corporate Center to the business divisions in 2010.
➔ Refer to “Note 1 Summary of significant accounting policies” in
the “Financial information” section of this report for more
information on allocation of additional Corporate Center costs
to the business divisions in 2010
Development of invested assets
Net new money
Net new money outflows for Wealth Management Americas were
CHF 6.1 billion in 2010 compared with CHF 11.6 billion in the
prior year.
The Wealth Management US business saw net new money
outflows of CHF 5.5 billion in 2010 compared with CHF 9.8 billion
in 2009. We experienced net new money outflows during the first
half of 2010, mainly due to financial advisor attrition and limited
recruiting of experienced financial advisors. Net new money
turned positive in the second half of 2010 due to improved finan-
cial advisor retention and improved net new money inflows from
financial advisors employed with UBS for more than one year. In-
cluding interest and dividend income, net new money inflows for
the Wealth Management US business improved to CHF 13.1 bil-
lion from CHF 10.0 billion in 2009. Including interest and dividend
income only from Wealth Management US, Wealth Management
Americas had net new money inflows of CHF 12.5 billion in 2010,
compared with CHF 8.2 billion in 2009.
In 2010, Wealth Management Americas recorded CHF 2.2 bil-
lion of net new money inflows related to the inclusion of invested
assets of certain retirement plan assets not custodied at UBS, as
discussed below in the “Invested assets” section.
89
UBS business divisions and Corporate Center
Wealth Management Americas
Invested assets
Invested assets were CHF 689 billion on 31 December 2010, es-
sentially flat from CHF 690 billion on 31 December 2009. In US
dollar terms, invested assets increased 12% primarily due to posi-
tive market performance in the second half of 2010. During the
course of the year, Wealth Management Americas conducted a
review of its invested assets reporting and determined that, going
forward, certain retirement plan assets custodied away from UBS
should be included in invested assets. As a result, invested assets
increased by CHF 22 billion at year end and net new money in-
flows increased by CHF 2.2 billion.
Gross margin on invested assets
The gross margin on invested assets was 80 basis points in 2010,
down from 81 basis points in 2009, the result of a slight increase
in income compared with a 2% increase in average invested as-
sets. The recurring income margin increased 2 basis points to 50
basis points due to higher fees from managed accounts and mu-
tual funds. The non-recurring margin decreased 3 basis points to
30 basis points due to a decrease in municipal trading income.
90
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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 mil-
lion in 2008. The 2009 results included 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 included 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-related trading
losses of CHF 172 million in 2008, operating income would have
declined 14%. Recurring income decreased 20% to CHF 3,256
million, due to lower managed account fees related to an 11%
decrease in average invested assets, while interest income de-
clined resulting from lower interest spreads. Recurring income
declined to 59% of operating income from 65% in 2008. Non-
recurring 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 commission revenue relat-
ed to reduced transactional activity. In addition, 2008 included
the abovementioned 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 good-
will impairment charges related to the sale of UBS Pactual (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 mil-
lion in charges related to the ARS settlement. Excluding these
charges, operating expenses would have decreased 5%. Person-
nel 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 previous year. This was a result of
reduced salaries related to a decrease in headcount and lower
financial advisor compensation related to lower revenue. This
decrease was partly offset by an increase in costs for compensa-
tion commitments and advances related to recruited financial
advisors, as a result of increased financial advisor recruiting in
the second half of 2008 through the first quarter of 2009. Ac-
cordingly, compensation advance balances related to recruited
financial advisors increased 61% to CHF 3,253 million at 31 De-
cember 2009 from 31 December 2008. 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 expenses.
Development of invested assets
Net new money
In 2009, net new money outflows for Wealth Management
Americas were CHF 11.6 billion compared with CHF 15.9 billion
in the prior year. The Wealth Management US business’ net new
money outflows were CHF 9.8 billion in 2009, compared with
CHF 11.4 billion in 2008. Following strong net new money in-
flows in first quarter 2009 due to recruitment of experienced fi-
nancial advisors, Wealth Management US experienced net new
money outflows during the remainder of the year due to financial
advisor attrition and limited recruiting of experienced financial ad-
visors as a result of reputational issues. Including interest and
dividends, net new money inflows for the Wealth Management
US business in 2009 were CHF 10.0 billion, compared with CHF
11.9 billion in 2008. Including interest and dividend income only
from Wealth Management US, Wealth Management Americas
had net new money inflows of CHF 8.2 billion in 2009, compared
with CHF 7.4 billion in 2008.
Invested assets
Invested assets were CHF 690 billion on 31 December 2009, up
7% from CHF 644 billion on 31 December 2008. This increase
was principally due to positive market performance, and was
partly offset by a reduction of CHF 24 billion related to the sale of
branches 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 transla-
tion 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 was a result of
a 12% decline in income compared with an 11% decrease in av-
erage invested assets. The recurring income margin declined 5
basis points to 48 basis points, corresponding to a 20% decrease
in recurring income. The non-recurring margin increased 4 basis
points to 33 basis points, due to an increase in municipal trading
income and a CHF 35 million interest credit from the Investment
Bank (attributed to a change in the UBS Bank USA investment
portfolio strategy), while 2008 included the abovementioned
trading losses related to ARS.
91
UBS business divisions and Corporate Center
Global Asset Management
Global Asset Management
Business description
Global Asset Management is a large-scale asset manager with businesses well-diversified across regions, capabilities
and distribution channels. We offer investment capabilities and styles across all major traditional and alternative asset
classes. These include equities, fixed income, currency, hedge fund, real estate and infrastructure investment capabilities
which can be combined into multi-asset strategies. The fund services unit provides professional services including legal
fund set-up, accounting and reporting for traditional investment funds and alternative funds.
Business
Strategy
Global Asset Management offers a diverse range of investment
capabilities and services from a boutique-like structure, encom-
passing all major asset classes, including equities, fixed income,
currency, hedge funds, real estate and infrastructure as well as
asset allocation, risk management and fund administration ser-
vices. Invested assets totaled CHF 559 billion on 31 December
2010, making Global Asset Management one of the larger global
asset managers. We are among the largest hedge fund of funds
and real estate investment managers in the world, one of the big-
gest mutual fund managers in Europe and the largest in Switzer-
land. The “Business structure” chart shows the investment, distri-
bution and support structure of the business division.
Revenues and key performance indicators are reported accord-
ing to Global Asset Management’s business lines: traditional in-
vestments (equities, fixed income and multi-asset (global invest-
ment solutions)), alternative and quantitative investments, global
real estate, infrastructure and fund services. The bar charts on the
following pages show the breakdown of invested assets across
these segments, as well as by regions and channels.
Global Asset Management is focused on delivering consistent
long-term investment performance and capitalizing on the ex-
pected growth opportunities within the asset management indus-
try. The industry outlook remains strong with three main drivers:
the financial crisis has reduced the assets of both the retired and
the working population, creating a pressing need for increased
savings rates; emerging markets will continue to drive the growth
of the mutual funds industry and retirement schemes in these
markets; and as governments focus on reducing deficits, they will
need to reduce support for benefits and pensions and will face
increased pressure for privatizing infrastructure assets.
The diversification of our business places us in a good position
to benefit from shifting market dynamics and provides a solid
foundation for capturing these growth opportunities.
Our key strategic objective is to monetize our good long-term
investment performance, both through gaining new client assets
and improving our retention of existing client assets.
We are working to build on our strong third party institu-
tional business, while launching intensified third party wholesale
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92
initiatives in the Americas and in Europe. Through increased
collaboration with UBS’s wealth management businesses, we
expect to benefit from their return to growth. We continue to
capitalize on our established positions in emerging markets, no-
tably in China, South Korea and the Middle East and will build
our presence in Brazil following the completion of the acquisi-
tion of Link Investimentos.
Organizational structure
Our business division has main offices in London, Chicago, Hart-
ford, Hong Kong, New York, Paris, Singapore, Sydney, Tokyo and
Zurich, and employs around 3,500 personnel in 24 countries.
Global Asset Management operates through UBS AG, or through
its subsidiaries.
Significant recent acquisitions and business transfers
– 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
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Partners to its remaining shareholders.
Competitors
– In September 2009, UBS completed the sale of its Brazilian
financial services business, UBS Pactual, including its asset
management business, UBS Pactual Asset Management.
– In December 2009, the real estate investment management
business of Wealth Management & Swiss Bank was transferred
to Global Asset Management.
– In April 2010, UBS announced that it had agreed to acquire
Link Investimentos, one of the largest independent broker-
dealers in Brazil.
– In October 2010, UBS increased its holding from 51.0% to
94.9% in UBS Real Estate Kapitalanlagegesellschaft mbH
(KAG), a Global Asset Management joint venture with Siemens
in Munich, Germany. We purchased our original stake in
Siemens’ real estate business in January 2005.
– In October 2010, investment management responsibility for
the US hedge fund business was transferred from Wealth Man-
agement Americas to Global Asset Management’s alternative
and quantitative investments business. This formed part of a
new joint venture between the two business divisions, which
aims to deliver attractive hedge fund and fund of hedge funds
solutions to Wealth Management Americas’ clients.
Our competitors include global firms with wide-ranging capabili-
ties, such as Fidelity Investments, AllianceBernstein Investments,
BlackRock, JP Morgan Asset Management, Deutsche Asset Man-
agement and Goldman Sachs Asset Management. Many of our
other competitors are regional or local specialist niche players
who focus mainly on one asset class, particularly in the real estate,
hedge fund or infrastructure investment areas.
The asset management industry is becoming increasingly po-
larized into either large-scale firms or niche specialists. Large-scale
firms, like Global Asset Management, offer well-diversified invest-
ment capabilities across all major asset classes and have a global
presence as well as a broad distribution network.
Products and services
The “Investment capabilities and services” chart illustrates our of-
fering, 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.
93
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UBS business divisions and Corporate Center
Global Asset Management
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– 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 (portfolios managed
according to a price to intrinsic value philosophy), growth
(portfolios of quality growing companies that we believe to be
undervalued in the market) and structured equities (strategies
that employ proprietary analytics and quantitative methods,
including passive).
– 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” govern-
ment and corporate bond strategies, complemented by ex-
tended strategies such as high-yield and emerging market
debt.
– Alternative and quantitative investments has two primary
business lines – multi-manager (or fund of funds) and single
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 investments in
Asia, Europe and the US, as well as across the major real estate
sectors. Its capabilities are focused on core and value-added
strategies but also include other strategies across the risk / re-
turn spectrum. It offers direct investment, fund of funds and
real estate securities strategies.
– Global investment solutions offers asset allocation, currency,
manager research and risk management services. It manag-
es a wide array of domestic, regional and global balanced
portfolios, currency mandates, structured portfolios, multi-
manager and absolute return strategies. Through its strate-
gic investment advisory services, it supports clients in a wide
range of investment-related functions, including investment
policy setting, integrated asset liability solutions, multi-man-
ager approaches, investment outsourcing and fiduciary
management.
– Infrastructure originates and manages specialist strategies that
invest directly in infrastructure assets globally.
– Fund services, the global fund administration business, pro-
vides professional services, including legal setup, reporting and
accounting for retail and institutional investment funds, hedge
funds and other alternative funds.
94
Clients
Global Asset Management has a client base located throughout
the world. As of 31 December 2010, approximately 60% of in-
vested assets originated from institutional clients (for example,
corporate and public pension plans, governments and their central
banks), with the remainder from wholesale clients (financial inter-
mediaries, including UBS’s wealth management businesses, and
third parties).
Distribution of our capabilities and services to both client seg-
ments relies upon our regional business structure, as detailed in
the “Business structure” chart (Americas, Asia Pacific, Switzerland
and Europe). Through regional distribution, we are able to lever-
age the full resources of our global investment platforms and func-
tions to provide clients with relevant investment management
products and services, client servicing and reporting at a local level.
In October 2010, a Global Sovereign Markets group was estab-
lished to deliver an integrated global approach to this client seg-
ment and ensure that sovereign institutions receive the dedicated
advisory, investment and training solutions they require.
Investment performance 2010
Investment markets were volatile in 2010 yet two-thirds of our
key actively-managed traditional strategies delivered strong re-
sults, further improving their long-term records. By contrast, some
of our actively managed equity strategies faced the greatest head-
winds as many equity markets, notably the US, became highly
sentiment-driven. This created a difficult environment for our
active managers focusing on fundamental analysis to seek to gen-
erate outperformance.
After performing well in 2009, core / value large cap equity
strategies struggled to match their gains in 2010, a year when
the best returning stocks were typically less responsive to com-
pany fundamentals than to broad economic factors. As a result,
core / value large cap strategies such as US, pan-European,
emerging markets, Asia (ex-Japan) and Australia underper-
formed their benchmarks and peers, although the margin of
underperformance was much smaller than the margin of out-
performance in 2009. Both UK value and Canadian large cap
equity strategies also underperformed in 2010. Some large cap
core / value strategies did extend their favorable performance
into 2010, including global, global ex-US, a high alpha emerging
markets strategy and global and European concentrated alpha
strategies. Swiss large cap equities performed positively as well.
Small cap strategies in the core / value pillar tended to perform
extremely well, especially European, US and Swiss small cap
strategies. Still, on a three-year basis, well over half of key core /
value strategies were ahead of their benchmarks – most of them
by a notable margin.
The majority of growth equities strategies extended their solid
2009 performance by exceeding their benchmarks in 2010. Nota-
ble leaders versus peers were European and small cap (both US
and ex-US) growth strategies. After a very strong 2009, US large
cap select growth trailed modestly by comparison in 2010, but not
nearly to the extent of its outperformance in 2009. Outperfor-
mance on a since-inception basis remains across the entire range
of growth strategies with long-term (three-year plus) records.
In structured equities, strategies relying strongly on input
from fundamental stock analysis, which performed extremely
well in 2009, underperformed benchmarks in 2010. While US
fundamental equity market neutral had a disappointing year, it
remained ahead of peers on a since-inception basis. Converse-
ly, strategies relying specifically on quantitatively-derived in-
sights performed ahead of benchmarks in 2010, and many
also outperformed on a three-year or since-inception basis.
Passive / exchange traded funds (ETF) strategies met their ob-
jectives in 2010.
d
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(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:78)(cid:75)(cid:80)(cid:71)
(cid:43)(cid:80)(cid:2)(cid:7)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:74)(cid:67)(cid:80)(cid:80)(cid:71)(cid:78)
(cid:43)(cid:80)(cid:2)(cid:7)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:18)(cid:26)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:18)(cid:27)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:25)(cid:23)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:23)(cid:27)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:25)
(cid:25)
(cid:25)
(cid:25)
(cid:25)
(cid:24)
(cid:26)(cid:24)
(cid:26)(cid:24)
(cid:26)(cid:25)
(cid:49)(cid:80)(cid:2)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:49)(cid:80)(cid:2)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:18)(cid:26)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:18)(cid:27)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:25)(cid:23)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:23)(cid:27)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:23)(cid:23)
(cid:22)(cid:23)
(cid:24)(cid:18)
(cid:22)(cid:18)
(cid:24)(cid:22)
(cid:21)(cid:24)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:35)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:83)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:20)(cid:36)(cid:38)(cid:18)(cid:20)(cid:20)(cid:65)(cid:71)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:57)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:54)(cid:74)(cid:75)(cid:84)(cid:70)(cid:2)(cid:82)(cid:67)(cid:84)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:20)(cid:36)(cid:38)(cid:18)(cid:20)(cid:22)(cid:65)(cid:71)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:67)(cid:78)(cid:2)(cid:71)(cid:85)(cid:86)(cid:67)(cid:86)(cid:71)
(cid:43)(cid:80)(cid:72)(cid:84)(cid:67)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)
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(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
UBS business divisions and Corporate Center
Global Asset Management
In global fixed income markets, yields generally fell over the
year, leading to high total returns for most bond markets. Our
fixed income strategies performed very well, and a large majority
of key strategies outperformed their benchmark indices for the
year and improved their longer-term records. This outperformance
for the year was consistent across regions and strategies, and was
evident in the traditional strategies (such as global sovereign), in
local bond strategies (such as Australian, Canadian, Euro, Japa-
nese, Swiss, UK and US), in higher alpha and newer strategies
(such as emerging markets and Asian bonds) and in absolute re-
turn strategies (such as currency alpha and fixed income opportu-
nities). Two thirds of our key strategies were also ahead of or in
line with peers for the year. Money market funds continued to
achieve their capital preservation objectives.
The performance of multi-asset strategies was positive in
2010, building on a strong 2009 and improving longer-term
records. Benchmarked strategies finished the year in line with or
above their reference indices overall, comparing favorably with
peers’ performance. Dynamic alpha absolute return strategies
turned positive towards the end of the year. Multi-asset strate-
gies had been positioned for a recovery in risky assets such as
equities, leading to a strong result in the final quarter following
a period of more volatile markets. These strategies benefited
from strong currency and asset allocation, while stock selection
results were mixed overall. The stand-alone active currency
strategy posted strong returns throughout the year. Similarly
strong performance came from global and regional convertible
bond strategies, which ended the year well ahead of bench-
marks. The majority of multi-manager investment solutions also
delivered positive returns relative to benchmark over the year.
Strategic investment advisory services, including investment
outsourcing, asset liability investment solutions and strategic
alternatives advisory gained further traction and brought in new
clients during the year.
In alternative and quantitative investments, hedge funds
continued to produce attractive absolute and risk adjusted re-
turns, building on the strong performance rebound seen in
2009. The O’Connor single manager funds posted positive re-
turns across its core strategies, outperforming most peers on a
risk adjusted basis. In the multi-manager business, positive re-
turns were posted across virtually all strategies, with particu-
larly strong performance versus peers from the funds man-
aged by the alternative investment solutions team.
Performance of the direct real estate funds generally im-
proved in 2010. The flagship UK strategy achieved strong ab-
solute returns and markedly improved performance relative to
benchmark. Returns of the European core flagship strategies
remained positive. The Swiss composite (consisting of five UBS
Swiss listed real estate funds) outperformed its benchmark.
The US core fund delivered very strong absolute returns for
2010 and outperformed its benchmark for the year. The flag-
ship J-REIT (managed in partnership with Mitsubishi Corpora-
tion) also produced positive absolute returns and outper-
formed versus benchmark by a wide margin. The performance
of real estate securities strategies was mixed versus bench-
marks. The fund of funds strategies continued to gather mo-
mentum, delivering positive returns for the year.
The flagship UBS International Infrastructure Fund made
significant progress investing its capital during the year. In
March 2010, the fund acquired the right to develop Collgar
Wind Farm Pty Ltd, a greenfield renewable energy project in
Australia. The project is under construction and was ahead of
schedule at the end of the year. An additional transaction
announced in April 2010 – Njord Gas Infrastructure, that was
formed to hold a stake in Gassled, which owns the Norwegian
gas transport infrastructure, the world’s largest offshore gas
transmission system – has received government approval and
is expected to reach financial close in 2011.
96
Business performance
Business division reporting
CHF million, except where indicated
Net management fees 1
Performance fees
Total operating income 2
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 (%)
Cost / income ratio (%)
Information by business line
Income
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure
Fund services
Total operating income
Gross margin on invested assets (bps)
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure
Total gross margin
Net new money (CHF billion) 4
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure
Total net new money
Invested assets (CHF billion)
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure
Total invested assets
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As of or for the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
1,918
141
2,058
1,096
400
(5)
43
0
8
1,542
516
17.8
74.9
1,259
325
258
14
202
2,058
25
88
68
130
36
4.2
(3.2)
0.6
0.1
1.8
487
34
36
1
559
1,904
233
2,137
996
387
(74)
36
340
13
1,698
438
(67.1)
79.5
1,319
405
185
13
214
2,137
26
102
47
114
37
(40.6)
(6.7)
1.4
0.1
(45.8)
502
41
39
1
583
2,756
149
2,904
946
462
88
44
0
33
1,572
1,333
(8.3)
54.1
1,859
430
277
15
322
2,904
29
69
63
218
39
(88.9)
(14.8)
(0.3)
1.0
(103.0)
493
41
40
1
575
1
(39)
(4)
10
3
93
19
(100)
(38)
(9)
18
(5)
(20)
39
8
(6)
(4)
(4)
(14)
45
14
(3)
(3)
(17)
(8)
0
(4)
1 Net management fees include transaction fees, fund administration revenues (including interest and trading income from lending business and foreign exchange hedging as part of the fund services offering), gains or
losses from seed money and co-investments, funding costs and other items that are not performance fees. 2 Includes a gain of CHF 168 million on the sale of a non-controlling interest in Adams Street Partners in
2008. 3 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section of this report. 4 Excludes interest and dividend income.
97
UBS business divisions and Corporate Center
Global Asset Management
Business division reporting (continued)
CHF million, except where indicated
Assets under administration by fund services
Assets under administration (CHF billion) 1
Net new assets under administration (CHF billion) 2
Gross margin on assets under administration (bps)
Additional information
Average attributed equity (CHF billion) 3
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (CHF billion)
Return on BIS risk-weighted assets, gross (%)
Goodwill and intangible assets (CHF billion)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
390
(0.8)
5
2.5
20.6
3.5
56.8
1.5
3,481
406
(59.7)
5
2.8
15.9
4.1
37.7
1.7
3,471
425
(61.1)
6
3.0
44.4
8.5
41.2
2.2
3,914
(4)
0
(11)
(15)
(12)
0
1 This includes UBS and third-party fund assets, for which the fund services unit provides legal fund set-up and registration services, valuation, accounting and reporting and shareholder services. 2 Inflows of assets under
administration from new and existing funds less outflows from existing funds or fund defection. 3 Refer to the “Capital management” section of this report for more information about the equity attribution framework.
2010
Results
Pre-tax profit for 2010 was CHF 516 million compared with CHF
438 million in 2009. Excluding a net goodwill impairment charge
of CHF 191 million related to the sale of UBS Pactual in 2009, the
pre-tax profit for 2010 would have decreased by CHF 113 million
compared with 2009.
Operating income
Total operating income was CHF 2,058 million in 2010, compared
with CHF 2,137 million in 2009. Lower performance fees and reve-
nues following the sale of UBS Pactual were partly offset by reduced
co-investment losses in real estate and lower operational losses.
Operating expenses
Total operating expenses were CHF 1,542 million in 2010, com-
pared with CHF 1,698 million in 2009. Excluding the abovemen-
tioned goodwill impairment and restructuring charges of CHF 48
million during the year 2009, operating expenses would have in-
creased by CHF 83 million in 2010, mainly due to increased per-
sonnel expenses. The increase was partly offset by reduced non-
personnel expenses as a result of cost-saving initiatives in 2009
and lower expenses following the sale of UBS Pactual. In addition,
non-personnel costs included an additional allocation of expenses
to the business divisions from the Corporate Center in 2010.
Personnel expenses were CHF 1,096 million in 2010 compared
with CHF 996 million in 2009, mainly due to increased expenses for
prior years’ deferred variable compensation, partly offset by lower
fixed compensation costs as a result of headcount reductions in
2009 and reduced expenses following the sale of UBS Pactual.
98
General and administrative expenses were CHF 400 million in
2010, compared with CHF 387 million in 2009, mainly due to
higher sponsoring and branding costs related to the global re-
launch of the UBS brand. The increase was partly offset by lower
expenses following the sale of UBS Pactual.
Net charges to other business divisions were CHF 5 million in
2010, compared with CHF 74 million in 2009. Excluding a charge
to the Corporate Center of CHF 149 million in 2009, we would
have recorded net charges from other business divisions of CHF
75 million. The total 2009 goodwill impairment charge related to
the sale of UBS Pactual was CHF 340 million, of which CHF 149
million was charged to the Corporate Center, as this was related
to foreign exchange exposures managed by Group Treasury.
➔ Refer to “Note 1 Summary of significant accounting policies” in
the “Financial information” section of this report for more
information on allocation of additional Corporate Center costs
to the business divisions in 2010
Development of invested assets
Net new money
Net new money inflows were CHF 1.8 billion in 2010 compared
with net outflows of CHF 45.8 billion in 2009. Net inflows from
third parties were CHF 18.2 billion in 2010 compared with net
outflows of CHF 5.1 billion in 2009. Net outflows from clients of
our wealth management businesses were CHF 16.4 billion in
2010 compared with net outflows of CHF 40.7 billion in 2009.
Net new money in 2010 included CHF 2.5 billion resulting from a
transfer of investment management responsibility for the US
hedge fund business from Wealth Management Americas to
Global Asset Management’s alternative and quantitative invest-
ments business.
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Excluding money market flows, net new money inflows were
CHF 8.2 billion in 2010 compared with net outflows of CHF 33.6
billion in 2009. Net inflows from third parties were CHF 16.2 bil-
lion in 2010 compared with net outflows of CHF 6.8 billion in
2009. Net outflows from clients of our wealth management busi-
nesses were CHF 8.1 billion in 2010 compared with net outflows
of CHF 26.9 billion in 2009.
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 Management Americas business divisions.
Invested assets
Total invested assets were CHF 559 billion on 31 December 2010,
compared with CHF 583 billion on 31 December 2009. Negative
currency effects were only partly offset by positive market move-
ments and net new money inflows.
Gross margin on invested assets
The gross margin was 36 basis points in 2010 compared with
37 basis points in 2009, reflecting lower performance fees primar-
ily in alternative and quantitative investments, partly offset by
lower co-investment losses in real estate and lower operational
losses.
Results by business line
Traditional investments
Revenues were CHF 1,259 million compared with CHF 1,319 mil-
lion, as lower operational losses were more than offset by de-
creased revenues following the sale of UBS Pactual in 2009.
The gross margin was 25 basis points compared with 26 basis
points in the prior year, mainly due to lower performance fees and
decreased revenues following the sale of UBS Pactual.
Net new money inflows were CHF 4.2 billion compared with
net outflows of CHF 40.6 billion in the prior year. Excluding mon-
ey market flows, net new money inflows were CHF 10.6 billion
compared with net outflows of CHF 28.4 billion in the prior year.
Equities saw net inflows of CHF 7.5 billion compared with net
outflows of CHF 8.2 billion. Fixed income saw net inflows of CHF
9.7 billion compared with net outflows of CHF 5.6 billion. Multi-
asset saw net outflows of CHF 6.3 billion compared with net out-
flows of CHF 14.5 billion.
Invested assets were CHF 487 billion on 31 December 2010,
compared with CHF 502 billion on 31 December 2009. The net
decrease reflects negative currency effects, partly offset by posi-
tive market movements and net new money inflows.
Alternative and quantitative investments
Revenues were CHF 325 million compared with CHF 405 million
due to lower performance fees, which also resulted in a gross
margin of 88 basis points compared with 102 basis points.
Net new money outflows were CHF 3.2 billion compared with
net outflows of CHF 6.7 billion. Net new money in 2010 included
CHF 2.5 billion related to the transfer of investment management
responsibility for US hedge fund business from Wealth Manage-
ment Americas to alternative and quantitative investments. Note
that these are reported as invested assets in both business divi-
sions as Wealth Management Americas continues to advise the
clients of these funds.
Invested assets were CHF 34 billion on 31 December 2010,
compared with CHF 41 billion on 31 December 2009 due to neg-
ative currency effects and net new money outflows, partly offset
by positive market movements.
Global real estate
Revenues were CHF 258 million compared with CHF 185 million,
mainly due to lower co-investment losses and higher performance
fees.
Consequently, the gross margin was 68 basis points compared
with 47 basis points.
Net new money inflows were CHF 0.6 billion compared with
net inflows of CHF 1.4 billion.
Invested assets were CHF 36 billion on 31 December 2010, a
decrease of CHF 3 billion from 31 December 2009, due to nega-
tive currency effects and market movements, partly offset by net
new money inflows.
Infrastructure
Revenues were CHF 14 million compared with CHF 13 million.
Net new money inflows were CHF 0.1 billion, unchanged from
the prior year.
Invested assets were CHF 1 billion on 31 December 2010,
mostly unchanged from 31 December 2009.
Fund services
Revenues were CHF 202 million compared with CHF 214 million,
mainly due to lower administrative fees due to lower average as-
sets under administration and lower interest income.
The gross margin on assets under administration was 5 basis
points, unchanged from the prior year.
Net new assets under administration outflows were CHF 0.8
billion compared with net outflows of CHF 59.7 billion in 2009.
Total assets under administration were CHF 390 billion compared
with CHF 406 billion, due to negative currency effects and net new
assets outflows, partly offset by positive market movements.
99
UBS business divisions and Corporate Center
Global Asset Management
2009
Results
Pre-tax profit for full year 2009 was CHF 438 million compared
with CHF 1,333 million in 2008. Excluding a net goodwill impair-
ment 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 non-controlling interest in
Adams Street Partners in 2008, pre-tax profit would have de-
creased 42% to CHF 677 million.
Operating income
Total operating income was CHF 2,137 million in 2009 compared
with CHF 2,904 million in 2008 due to lower management fees
associated with a lower average invested assets base and reduced
income following the sale of UBS Pactual in 2009. This was partly
offset by higher performance fees in alternative and quantitative
investments as well as lower operational losses. Additionally,
2008 revenues included a gain of CHF 168 million from the sale
of our non-controlling interest in Adams Street Partners.
Operating expenses
Total operating expenses were CHF 1,698 million in 2009 com-
pared 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 adminis-
trative expenses, partly offset by higher accruals for performance-
related compensation due to higher performance fees in alterna-
tive and quantitative investments. 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 pro-
fessional fees as a result of ongoing cost-saving measures 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 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.
Development of invested assets
Net new money
Net new money outflows were CHF 45.8 billion for 2009 com-
pared with outflows of CHF 103.0 billion for 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 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 Management Americas business divisions.
Invested assets
Total invested assets were CHF 583 billion on 31 December 2009
compared with CHF 575 billion on 31 December 2008. The net
increase reflected the positive impact of financial market develop-
ments, positive currency fluctuations and CHF 4.2 billion related
to the transfer of the real estate investment management busi-
ness from Wealth Management & Swiss Bank and was partly off-
set by the exclusion of UBS Pactual assets coupled with net new
money outflows.
Gross margin on invested assets
The gross margin was 37 basis points in 2009, compared with 39
basis points in 2008. The calculation of 2008 gross margin included
a CHF 168 million gain from the sale of our non-controlling interest
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, partly off-
set by reduced income following the sale of UBS Pactual.
Results by business line
Traditional investments
Revenues were CHF 1,319 million in 2009 compared with CHF
1,859 million in 2008 due to lower management fees associated
with a lower average invested assets base and reduced income
following the sale of UBS Pactual in 2009, partly offset by lower
operational losses in 2009. Revenues in 2008 also included a gain
of CHF 168 million from the sale of our non-controlling interest in
Adams Street Partners.
The gross margin was 26 basis points compared with 29 basis
points in the prior year. The 2008 gross margin included the
abovementioned gain from the sale of our non-controlling interest
in Adams Street Partners. The 2009 gross margin was also favor-
ably impacted by lower operational losses.
Depreciation of property and equipment was CHF 36 million in
2009, down by CHF 8 million as a result of lower depreciation
charges on premises, IT and software.
Net new money outflows were CHF 40.6 billion compared
with net outflows of CHF 88.9 billion in the prior year. Excluding
money market flows, net new money outflows were CHF 28.4
100
billion compared with net outflows of CHF 110.1 billion in the
prior year. Equities saw net outflows of CHF 8.2 billion compared
with net outflows of CHF 31.5 billion. Fixed income saw net out-
flows of CHF 5.6 billion compared with net outflows of CHF 30.9
billion. Multi-asset saw net outflows of CHF 14.5 billion compared
with net outflows of CHF 48.6 billion.
Invested assets were CHF 502 billion on 31 December 2009,
compared with CHF 493 billion on 31 December 2008. The net
increase reflects the positive impact of financial market develop-
ments and positive currency fluctuations, partly offset by the exclu-
sion of UBS Pactual assets coupled with net new money outflows.
Alternative and quantitative investments
Revenues were CHF 405 million compared with CHF 430 million
due to lower net management fees associated with a lower aver-
age invested assets base. Performance fees were up by CHF 87
million.
The gross margin was 102 basis points compared with 69 basis
points primarily due to higher performance fees.
Net new money outflows were CHF 6.7 billion compared with
net outflows of CHF 14.8 billion.
Invested assets were CHF 41 billion on 31 December 2009,
unchanged from 31 December 2008. The positive impact of fi-
nancial market developments was offset by net new money out-
flows and negative currency fluctuations.
This also resulted in a lower gross margin of 47 basis points
compared with 63 basis points.
Net new money inflows were CHF 1.4 billion compared with
net outflows of CHF 0.3 billion.
Invested assets were CHF 39 billion, a decrease of CHF 1 billion
from 31 December 2008 due to the negative impact of market de-
velopments, mostly offset by CHF 4.2 billion related to the transfer
of the real estate investment management business from Wealth
Management & Swiss Bank and net new money inflows.
Infrastructure
Revenues were CHF 13 million, down by CHF 2 million from the
prior year, predominantly a result of swings in exchange rates.
Net new money inflows were CHF 0.1 billion compared with
net inflows of CHF 1.0 billion.
Invested assets were CHF 1 billion on 31 December 2009, un-
changed from 31 December 2008.
Fund services
Revenues were CHF 214 million compared with CHF 322 million,
mainly due to a lower average base of assets under administration
and lower interest income.
The gross margin on assets under administration was 5 basis
points compared with 6 basis points.
Net new assets under administration outflows were CHF 59.7
billion compared with net outflows of CHF 61.1 billion.
Global real estate
Revenues were CHF 185 million compared with CHF 277 million
due to losses from co-investments and lower management fees
associated with a lower average invested assets base.
Total assets under administration were CHF 406 billion com-
pared with CHF 425 billion due to net new assets outflows and
negative currency fluctuations, partly offset by positive impact of
financial market developments.
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101
UBS business divisions and Corporate Center
UBS business divisions and Corporate Center
Investment Bank
Investment Bank
Investment Bank
Business description
The Investment Bank provides a broad range of products and services to corporate and institutional clients, sovereign
and governmental bodies, financial intermediaries, alternative asset managers and private investors. Products and
services offered include securities sales, trading and execution, capital raising, advisory services and investment research
across all major capital markets.
Business
Organizational structure
The Investment Bank has three distinct and aligned business areas:
– equities
– fixed income, currencies and commodities (FICC)
– the investment banking department (IBD)
The equities and FICC businesses are organized under the se-
curities business area to foster a higher degree of alignment and
co-operation across our sales and trading businesses. Together,
equities and FICC offer access to the primary and secondary se-
curities markets, foreign exchange and prime brokerage services
as well as research on equities, fixed income, commodities, and
economic, strategic and quantitative research. IBD provides ad-
vice on mergers and acquisitions and restructurings, and raises
capital for corporate, institutional and sovereign clients in the
debt and equity markets. Additionally, IBD plays a lead role in
marketing the Group to corporates, leveraging its senior client
relationships.
Strategy
Our strategy is centered on an aligned and integrated client-cen-
tric business model built around flow and advice, and is supported
by a disciplined risk control framework. Our business involves risk-
taking to facilitate and intermediate client transactions. However,
our trading strategies are subject to tight balance sheet and risk
limits, which are controlled by our risk framework.
In supporting our strategy, we have created a securities plat-
form to unify our capabilities in equities and FICC. Our securities
strategy is focused on delivering performance across asset classes,
giving clients easier access to the entire firm and creating value in
the process. We continued to grow our credit, rates and emerging
markets businesses, leveraging both existing and new talent as
part of our rebuild in FICC. On a selective basis, and marked
against hurdle rates and strict criteria, we have re-entered certain
businesses relevant to our strategy. We also developed further ca-
pabilities in the commodities business. In equities, in addition to
enhancing our position in cash equities, we are targeting growth
in equity derivatives, exchange-traded derivatives and prime bro-
kerage.
In IBD, we are focused on strengthening our market position in
the Americas, while we continue to be among the leaders in
Europe, the Middle East and Africa, and Asia Pacific regions.
The Investment Bank is comprised of the three business areas de-
scribed above. Additionally, the global capital markets business is
a joint venture between securities and IBD, which consists of two
separate areas: equity capital markets and debt capital markets.
Global leveraged finance is a joint venture between IBD and FICC
and includes the global syndicated finance business. We employ
approximately 17,000 personnel in over 30 countries.
We operate through branches and subsidiaries of UBS AG. Se-
curities activities in the US are conducted through UBS Securities
LLC, a registered broker-dealer.
Significant recent acquisitions, disposals and business transfers
Key acquisitions and business transfers over the past three years
include:
– the sale of our Brazilian financial services business, UBS Pactual
in 2009; and
– the agreement to acquire Link Investimentos, a Brazilian finan-
cial services firm, announced in 2010.
Competitors
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 Mor-
gan Chase and Morgan Stanley.
Products and services
Securities
The implementation of the securities organizational structure
combined previously distinct trading and sales activities into a ho-
listic business with the goal of improving our market position and
overall client service. We aligned certain sales functions across
equities and FICC products, resulting in a coordinated securities
distribution platform with enhanced cross-asset delivery and spe-
cialist skills. Across securities, we also aligned some of our key
capabilities, including global capital markets, quantitative analysis
and prime services activity as well as a central treasury and trading
function for the securities business. Securities research provides
in-depth investment analysis across various asset classes on more
than 3,000 companies worldwide, or about 80% of the global
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market capitalization across 55 markets. In addition, we have a
specialist research function offering quantitative analysis, socially
responsible investing, alternative research, valuation and account-
ing, and special situations analysis.
Equities
We are a leading participant in the world’s primary and secondary
markets for equity, equity-linked and equity derivative products. We
distribute, trade, finance and clear cash equity and equity-linked
products. We also distribute new equity and equity-linked issues,
and provide research on companies, sectors, geographic markets
and macroeconomic trends as part of securities research. Equities has
the technology required to support multi-instrument electronic exe-
cution for direct market access trading. We have aligned the prime
brokerage, exchange-traded derivatives and fixed income clearing
businesses within an integrated prime services organization, to pro-
vide a more seamless client relationship experience, improve service
efficiency and position our business for increased transparency and
regulatory changes in over-the-counter (OTC) derivative products.
Equities has global product and functional management,
multi-regional operations and strongly embedded local expertise
in all major developed and developing markets. The main busi-
ness lines of the equities business area are:
– Cash equities provides clients with investment advisory, trade
execution offerings and related consultancy services, together
with comprehensive access to the primary markets, corporate
management and subject matter expertise. We provide full-
service trade execution for single stocks and portfolios, deliver
capital commitment, block trading, small cap execution services,
commission management services, and a full suite of advanced
electronic trading strategies, platforms and analytical tools.
– Derivatives and equity-linked provide exchange-traded and
structured or customized solutions to our clients. In addition to
products with returns linked to equities or indices, we offer prod-
ucts linked to hedge funds, mutual funds, and real estate and
commodity indices in a variety of formats such as over-the-coun-
ter, securitized, fund-wrapped and exchange-traded. We also of-
fer a full range of convertible products, synthetic and structured
products, and global access to primary and secondary markets.
– Prime services offers an integrated global prime brokerage busi-
ness, including multi-asset class clearing and custody, capital
consultancy, securities lending and equity swaps execution. The
exchange-traded derivatives business is part of this product
suite, including execution and clearing services and access to 70
global exchanges. These services are provided through a client-
centric service model to hedge funds, banks, asset management
and other financial services clients, including corporations, com-
modity traders, wealth management firms and aggregators.
Fixed income, currencies and commodities
The FICC business area delivers products and solutions to corpo-
rate, institutional and public sector clients in all major markets, as
well as to private clients via targeted intermediaries. In 2010, to
add product diversity and better service clients across the entire
fixed income product suite, we selectively re-entered the market in
certain (previously exited) products, including several commodities
products. The main business lines of the FICC business area are:
– Macro consists of the foreign exchange, money market and
interest rate sales and trading businesses, as well as cash and
collateral trading. We provide a range of foreign exchange,
precious metals, treasury, and liquidity management solutions
to institutional and private clients via targeted intermediaries.
Interest rate activities include standardized rate-driven prod-
ucts and services such as interest rate derivatives trading, un-
derwriting and trading of government and agency securities.
– Credit sales and trading encompasses the origination, under-
writing, trading and distribution of cash and synthetic products
across the credit spectrum – bonds, derivatives, notes and
loans. We are active across all major markets in secondary trad-
ing and market-making of flow and structured credit instru-
ments, securitized products and loans, and are focused on
providing tailored solutions for our clients. In partnership with
IBD, we also provide capital markets debt financing and liabil-
ity risk management solutions to corporates and institutions.
– The emerging markets business offers investors in Central and
Eastern Europe, the Middle East, Latin America and selected
Asian countries access to international markets, and provides
international investors with an opportunity to add exposure via
our onshore presence in key locations. We also provide liquid-
ity in the local markets across foreign exchange, credit, rates
and structured products.
Investment banking department
IBD provides strategic advice and a range of capital markets exe-
cution services to corporate clients, financial institutions, financial
sponsors, sovereign clients, wealth funds and hedge funds. With
a presence in all major financial markets, investment banking cov-
erage is based on a wide ranging matrix of country, sector and
product banking professionals.
The main business lines of the IBD business area are:
– The advisory group assists in acquisitions and sale processes,
and also advises on strategic reviews and corporate restructur-
ing solutions.
– Global capital markets is a joint venture with the securities
business. It offers financing and advisory services that cover all
forms of capital raising as well as risk management solutions.
It comprises the equity capital markets business, aligned with
equities, whose products include initial public offerings, sec-
ondary offerings and equity-linked transactions; and the debt
capital markets business, aligned with FICC, whose products
include commercial paper, medium-term notes, senior debt,
high-yield debt, subordinated debt and hybrid capital. All our
financing products are provided alongside risk management
solutions, which include derivatives, structured finance, ratings
advisory services and liability management.
– Global leveraged finance provides event-driven (acquisition,
leveraged buyout) loans, and bond and mezzanine leveraged
finance to corporate customers and financial sponsors.
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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 revenues
Capital market revenues
Equities
Fixed income, currencies and commodities
Other fee income and risk management
Securities
Equities
Fixed income, currencies and commodities
Total income
Credit loss (expense) / recovery 1
Total operating income excluding own credit
Own credit 2
Total 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)
Additional information
Total assets (CHF billion) 6
Average attributed equity (CHF billion) 7
BIS risk-weighted assets, gross (CHF billion)
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
31.12.10
31.12.09
31.12.08
31.12.09
2,414
846
1,994
1,020
974
(426)
10,144
4,469
5,675
12,558
0
12,558
(548)
12,010
6,743
2,693
64
278
0
34
9,813
2,197
N/A
81.7
8.7
1.2
56
966.9
25.3
119.3
9.7
3.2
56.1
5.5
16,860
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
8.0
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
1 680.3
26.8
195.8
(10.0)
4.6
N/A
6.0
19,132
(2)
(1)
(21)
(37)
8
53
131
(9)
83
(100)
143
73
283
21
2
(23)
(100)
(42)
6
2
(3)
0
(3)
(9)
8
1 Includes CHF 172 million in credit losses related to reclassified and acquired securities in 2010. 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 2010 amounts to CHF 0.2 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 statements 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 Based on third-party view, i.e. without intercompany balances. 7 Refer to the “Capital management” section of this report for more information about the equity attribution
framework.
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2010
Results
In 2010, we recorded a pre-tax profit of CHF 2,197 million com-
pared with a pre-tax loss of CHF 6,081 million in 2009, primarily
as a result of increased revenues in FICC, a significant reduction in
net credit loss expenses and lower own credit losses on financial
liabilities designated at fair value.
Operating income
Total operating income in 2010 was CHF 12,010 million com-
pared with CHF 3,135 million in the prior year. This was mainly a
result of increased revenues in the FICC business, a significant re-
duction in net credit loss expense and lower own credit losses on
financial liabilities designated at fair value, and was partly offset
by lower revenues in the equities business.
Credit loss expense / recovery
The net credit loss expense in 2010 was nil compared with net
credit loss expense of CHF 1,698 million in 2009. In 2010, we re-
corded CHF 172 million credit loss expenses related to reclassified
and acquired securities which were offset by recoveries on certain
legacy leveraged finance and asset backed loan positions.
➔ 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
Own credit
The own credit on financial liabilities designated at fair value
reduced significantly to a loss of CHF 548 million from a loss
of CHF 2,023 million. While our credit spreads tightened in
both years, the effect in 2010 was less pronounced than 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
Operating income by business segment
Investment banking
Investment banking revenues were CHF 2,414 million in 2010,
marginally down from CHF 2,466 million in the previous year.
Advisory revenues decreased slightly to CHF 846 million from
CHF 858 million. While the overall market fee pool increased year
on year, our market share declined.
Capital markets revenues were down 21% to CHF 1,994 mil-
lion from CHF 2,514 million. Equity capital markets revenues were
CHF 1,020 million, down 37% from CHF 1,609 million due to
reduced market activity in the first half of 2010 following uncer-
tainty over sovereign risk in Europe, and lower revenues in Asia
Pacific as domestic Chinese banks took a greater share of fees
than in 2009. Fixed income capital market revenues were CHF
974 million, up 8% from CHF 904 million, mainly due to a strong
leverage capital market fees pool and market share gain.
Other fee income and risk management revenues were neg-
ative CHF 426 million compared with negative CHF 906 mil-
lion, primarily due to the absence in 2010 of large losses as
recorded in 2009, due to an overall stabilization of the credit
markets.
Securities
Securities revenues were CHF 10,144 million, compared with CHF
4,390 million in 2009. Revenues of Equities and FICC are analyzed
in the respective sections below.
Equities
Revenues in equities were CHF 4,469 million, down 9% from CHF
4,937 million in 2009.
Cash revenues were CHF 1,776 million, compared with CHF
1,959 million due to lower commission income as a result of de-
creased client activity in the US, offsetting stronger performance
in EMEA.
Derivatives and equity-linked revenues were CHF 1,580 mil-
lion, in line with last year. Derivatives revenues were up as a result
of improved client flows and structured products performance in
Asia Pacific, partly offset by lower revenues in EMEA due to the
sovereign debt crisis, creating a lack of both liquidity and client
flow. Equity-linked revenues were down after a strong perfor-
mance in 2009.
Within the prime services business, revenues were CHF 1,036
million compared with CHF 1,058 million. Prime brokerage reve-
nues declined due to lower average spreads whilst exchange-trad-
ed derivatives revenues marginally improved.
Other equities revenues were CHF 77 million compared with
CHF 341 million, largely due to lower proprietary trading revenues
partially offset by reduced funding and hedging costs.
Fixed income, currencies and commodities
Revenues were positive CHF 5,675 million in 2010 compared with
negative CHF 547 million in 2009, when the FICC business was
materially affected by losses on residual risk positions.
In credit, revenues rose significantly to positive CHF 2,304 mil-
lion, up from negative CHF 1,932 million. The turnaround was
largely due to the rebuild across the trading and sales businesses,
particularly in structured credit and client solutions, as well as low-
ering of negative revenues from the legacy risk portfolio (the ex-
posure to which was also reduced during this period), and the
selective re-entry into previously exited products.
In macro, revenues of CHF 2,249 million were down from CHF
2,933 million in 2009. The decrease mainly stemmed from lower
revenues in the rates and foreign exchange businesses, which
were affected by a significant decline in market spreads, low inter-
est rate volatility, reduced client activity and general de-risking,
particularly in the second half of 2010.
Emerging markets revenues decreased to CHF 521 million from
CHF 1,162 million as divesture of UBS Pactual, spread compres-
105
UBS business divisions and Corporate Center
Investment Bank
sion experienced across foreign exchange and credit markets, and
uncertainties over European sovereign debt impacted liquidity
and overall client volumes.
Other FICC revenues were positive CHF 601 million compared
with negative CHF 2,710 million. The 2010 revenues included
CHF 737 million from residual risk positions due to a reduced
credit valuation adjustment requirement and net gains on sale.
brand. These costs were partially offset by a reduction in profes-
sional fees.
Net charges from other business divisions were CHF 64 million,
compared with a net charge to other business divisions of CHF
147 million.
Depreciation reduced 23% to CHF 278 million in 2010 from
CHF 360 million in 2009. Depreciation in 2009 included costs as-
sociated with a restructuring charge.
Operating expenses
Operating expenses increased 6% to CHF 9,813 million in 2010
from CHF 9,216 million in the previous year.
Goodwill impairment charges were nil in 2010 compared with
a charge of CHF 749 million in 2009, related to the sale of UBS
Pactual.
Personnel expenses increased 21% to CHF 6,743 million from
CHF 5,568 million, mainly due to increased variable compensation
as a result of amortization of prior years’ awards, increased num-
ber of employees and a UK Bank Payroll Tax charge of CHF 190
million.
General and administrative expenses increased to CHF 2,693
million in 2010 from CHF 2,628 million in 2009. This was largely
due to an increase in legal provisions as well as higher sponsoring
and branding costs related to the global re-launch of the UBS
Amortization of intangible assets was CHF 34 million com-
pared with CHF 59 million in 2009.
In addition, non-personnel costs included an additional alloca-
tion of expenses from the Corporate Center to the business divi-
sions in 2010.
➔ Refer to “Note 1 Summary of significant accounting policies” in
the “Financial information” section of this report for more
information on allocation of additional Corporate Center costs
to the business divisions in 2010
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2009
Results
In 2009, we recorded a pre-tax loss of CHF 6,081 million com-
pared with a pre-tax loss of CHF 34,300 million in 2008, primarily
due to a reduction in losses on residual risk positions.
Operating income
Total operating income in 2009 was positive CHF 3,135 million, up
from negative CHF 24,375 million in 2008, mainly due to substan-
tially reduced losses on risk positions within the FICC business.
Credit loss expense / recovery
We recorded net credit loss expenses of CHF 1,698 million for
2009, compared with net credit loss expenses of CHF 2,575 mil-
lion in 2008. Excluding the credit loss expenses from reclassified
securities of CHF 425 million, our net credit loss expenses amount-
ed to CHF 1,273 million in 2009.
➔ 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
Own credit
The own credit loss on financial liabilities designated at fair value
was CHF 2,023 million as our credit spreads narrowed in 2009,
compared with a CHF 2,032 million gain in 2008.
➔ Refer to “Note 27 Fair value of financial instruments” in
the “Financial information” section of this report for more
information on own credit
Operating income by business segment
Investment banking
Revenues of the investment banking department were CHF 2,466
million in 2009, down 14% from CHF 2,880 million in the previ-
ous year primarily due to reduced advisory revenues partially off-
set by increases in capital market revenues.
Mergers and acquisitions activity remained subdued during the
year with global volumes reaching their lowest annual total since
2004, according to Thomson Reuters. As a result, advisory reve-
nues decreased 47% to CHF 858 million across all regions.
Capital market revenues improved 36% in 2009. Equity capital
markets revenues were up 65% to CHF 1,609 million with Eu-
rope, the Middle East, Africa and the Asia Pacific region perform-
ing 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 in-
creased 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.
Securities
Securities revenues were CHF 4,390 million compared with nega-
tive CHF 26,712 million in 2008. Revenues of Equities and FICC
are analyzed in the respective sections below.
Equities
Revenues in equities were CHF 4,937 million in 2009, down 5%
from CHF 5,184 million in 2008. Equity market conditions were
difficult in 2009, impacting our overall business performance, as
did the loss of some key personnel in the first part of the year.
We made a number of strategic hires during the second half of
the year.
Cash equity revenues were impacted by lower market volumes
and a loss in market share.
Derivatives and equity-linked revenues were up compared with
2008. Equity-linked revenues increased significantly as all regions
benefited from improvements in valuations and liquidity, partly
offset by lower derivatives revenues.
Within the prime services business, revenues in both prime
brokerage and exchange-traded derivatives declined. Reductions
in prime brokerage revenues were due to a weaker dividend sea-
son and lower client balances in the first half of 2009. Declines in
exchange-traded derivatives were due to weaker volumes and less
favorable interest and margin balances.
Other equities revenues, including proprietary trading, im-
proved with a strong performance recorded across all geographi-
cal regions.
Fixed income, currencies and commodities
Revenues were negative CHF 547 million in 2009, up from nega-
tive 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 half of 2009, but decreased
significantly in the second half of the year. Despite the overall loss,
the core FICC businesses contributed positive revenues in 2009 as
the businesses were rebuilt, funding costs were normalized, and
liquidity improved.
Credit revenues improved in 2009 as key hires were engaged
and residual risk positions were steadily reduced.
In macro, rates business was impacted by movements in our
credit spreads on the valuation of our derivative positions. Foreign
exchange and money markets revenues were in line with 2008.
Emerging markets revenues increased despite the sale of UBS
Pactual, as all regions continued to perform well, most notably in
Eastern Europe, the Middle East and Africa.
As we continued to reduce our residual risk positions, we in-
curred losses related to the liquidation of these positions. Losses
on credit valuation adjustments for exposure to monoline insurers
arising from purchased credit default protection totaled CHF 0.8
billion in 2009. 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
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UBS business divisions and Corporate Center
Investment Bank
trades in the second and third quarters. Other areas which in-
curred losses in first quarter 2009 had a less material impact on
the remainder of the year.
Net charges to other business divisions were CHF 147 million
in 2009, compared with a net charge from other business divi-
sions in 2008 of CHF 41 million.
Operating expenses
Operating expenses declined to CHF 9,216 million in 2009, from
CHF 9,925 million in 2008.
Personnel expenses were CHF 5,568 million in 2009, a 7% in-
crease from the previous year primarily due to higher 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 was largely
due to reduced legal provisions and real estate restructuring provi-
sions, along with continuing reductions in professional fees, travel
and entertaining and market data services resulting from head-
count reductions and cost-cutting measures.
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 assets was CHF 59 mil-
lion in 2009 compared with CHF 83 million in the prior year. 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 Corporate Center as this was related to for-
eign exchange exposures managed by Group Treasury), compared
with a CHF 341 million goodwill impairment charge relating to
the exit of the municipal securities business in 2008.
Included in the 2009 operating expenses is a restructuring
charge of CHF 226 million, consisting of CHF 102 million of per-
sonnel expenses and CHF 123 million of costs related to real
estate.
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UBS business divisions and Corporate Center
Corporate Center
Corporate Center
Business description
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The Corporate Center seeks to ensure that UBS operates as a coherent and effective whole, by providing and managing
support and control functions for the business divisions and the Group, in the areas of risk, finance (including funding,
capital and balance sheet management and management of non-trading risk), legal and compliance, information
technology, human resources, real estate, procurement, communication and branding, corporate development, security
and service centers.
Aims and objectives
The Corporate Center assists our business divisions through provi-
sion of Group-level control in the areas of finance, risk and legal
and compliance, as well as through a global corporate shared ser-
vices organization comprising support and logistics functions. We
strive to maintain an appropriate balance between risk and re-
turn, and control our corporate governance processes, including
compliance with relevant regulations. Each functional head in the
Corporate Center has authority over all businesses in their area of
responsibility, including the authority to issue Group-wide policies
for that area.
The integration of Group-wide shared service functions (infor-
mation technology, human resources, real estate, procurement,
communication and branding, corporate development, security
and offshoring) into the Corporate Center was successfully com-
pleted in 2009. The focus in 2010 was on centralization, gover-
nance and the set-up of business-aligned shared services. The
result was a new global corporate shared services organization
supporting the business divisions under the leadership of the
Group Chief Operating Officer (COO). In parallel, the control
functions were centralized under the Group Chief Financial Offi-
cer (CFO), the Group Chief Risk Officer (CRO), and the Group
General Counsel (GC).
As a result, we have moved further towards sustainable efficiency
improvements, effective execution and increased service quality. We
have improved our cost management for global and Group-wide
cost responsibilities, and have implemented simple service delivery
models with clear responsibilities. A new investment governance
process is in place to provide oversight, review and approval of pro-
grams in the investment portfolio, and those in the pipeline. This is
part of a global service level agreement framework, ensuring align-
ment of investments with the Group’s strategic priorities.
At the end of 2010, across all shared services functions, the
Corporate Center had approximately 19,400 employees. Almost
all headcount and costs of the centralized functions are re-allocat-
ed to the business divisions for which the respective services are
performed. The new governance process ensures cost transpar-
ency and consistency across service providers and consumers (the
business divisions).
The integration of the control and support functions into the
Corporate Center creates the foundation for superior Group-wide
effectiveness and efficiency, as the operating models of individual
functions and cross-functional synergies are optimized. Overall,
the integrated structure helps us to maintain a strong, indepen-
dent control function and provides a strong platform from which
we can increase efficiency, create synergies for revenue growth
and enhance shareholder value.
109
UBS business divisions and Corporate Center
Corporate Center
Organizational structure
The Corporate Center consists of the control functions Group
Finance, Group Risk, and Group General Counsel, in addition to
the shared services functions.
Group Chief Financial Officer (Group CFO)
The Group CFO is responsible for transparency in, and appraisal
of, the financial performance of the UBS Group (Group) and busi-
ness divisions, the Group’s financial reporting, forecasting, plan-
ning and controlling processes, and for providing advice on finan-
cial aspects of strategic projects and transactions in collaboration
with Corporate Development. The Group CFO manages the
divisional and Group financial control functions. The Group CFO
manages and controls our tax affairs and treasury and capital
management, including management and control of funding and
liquidity risk as well as regulatory capital ratios. After consultation
with the Audit Committee, the Group CFO makes proposals to
the Board of Directors (BoD) regarding the standards for account-
ing we have adopted, and defines the standards for financial re-
porting and disclosure. Together with the Group Chief Executive
Officer (CEO), the Group CFO provides external certifications un-
der sections 302 and 404 of the Sarbanes-Oxley Act 2002, and in
coordination with the Group CEO, manages relations with ana-
lysts, investors and the rating agencies.
Group Chief Operating Officer (Group COO)
The Group COO is responsible for the management and perfor-
mance of the shared service functions of the Group, including the
management and control of Group-wide information technology,
procurement, real estate and corporate administrative services,
human resources, strategy, communications and branding as well
as for physical and information security and offshoring services of
UBS. In addition, the Group COO supports the Group CEO in
strategy development and key strategic issues. The Group COO
also acts as the CEO of the Corporate Center, and oversees the
business and strategic planning of the shared services.
Group Chief Risk Officer (Group CRO)
The Group CRO is responsible for developing and implementing
principles and appropriate independent control frameworks for
credit, market, country and operational risks within the Group. In
particular, the Group CRO formulates and implements the frame-
works for risk capacity / appetite, risk measurement, portfolio con-
trols and risk reporting; and has management responsibility over
the divisional and firm-wide risk control functions. The Group
CRO implements the risk control mechanisms as determined by
the BoD, the BoD Risk Committee or the Group CEO. In addition,
the Group CRO approves transactions, positions, exposures, port-
folio limits and provisions in accordance with the delegated risk
control authorities, and monitors and challenges the firm’s risk-
taking activities.
Group General Counsel (Group GC)
The Group GC has Group-wide responsibility for legal and compli-
ance matters, policies and processes and for managing the legal
and compliance function. The Group GC is responsible for estab-
lishing 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 matters. The Group GC is further responsible for re-
porting 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.
Corporate Center cost savings
The Corporate Center allocates operating
expenses to the business divisions
according to service consumption.
Group items which cannot be allocated to
specific business divisions.
In 2010, the Corporate Center had a cost
base excluding variable compensation of
just below CHF 7.5 billion which includes
personnel costs of CHF 3.2 billion.
The retained total operating expenses
relate to Group governance functions and
As mentioned in the text describing the
Corporate Center, the integration of the
control and support functions has created
a superior foundation for Group-wide
efficiencies. In 2010, the Corporate
Center was able to reduce its cost base
excluding variable compensation before
allocation by CHF 605 million from the
previous year, primarily as a result of lower
personnel costs in IT and lower real
estate-related costs.
The business divisions fully benefited from
the reduced cost base through lower
allocations.
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Results
Treasury activities and other corporate items reporting
From 2010 onwards, almost all costs incurred by the Corporate
Center related to shared services and control functions are allo-
cated to the reportable segments, which directly and indirectly
receive the value of the services, either based on a full cost recov-
ery or on a periodically agreed flat fee.
➔ Refer to “Note 1a 33) Segment reporting” and “Note 1b
Allocation of additional Corporate Center costs to reportable
segments” in the “Financial information” section of this report
for more information
The allocated costs are shown in the respective expense lines
of the reportable segments in “Note 2a Segment reporting” in
the “Financial information” section, and in the “UBS business di-
visions and Corporate Center” section of this report.
The Corporate Center reporting table was renamed to “Trea-
sury activities and other corporate items” to reflect the changes
in presentation of the Corporate Center information. It predom-
inantly includes the results of treasury activities, e.g. from the
management of structural foreign exchange risks and interest
rate risks, residual operating expenses such as those associated
with the functioning of the Group Executive Board and the
Board of Directors, other costs related to organizational man-
agement, as well as a limited number of specifically defined
items. These items include the valuation of UBS’s option to ac-
quire the SNB StabFund’s equity and expenses such as capital
taxes, as well as the difference between actually incurred Cor-
porate Center costs and periodically agreed flat fees charged to
the business divisions.
➔ Refer to the discussion of “Net income from treasury activities
and other” in the “UBS results” section of this report for more
information on significant items and treasury-related income
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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
Performance from continuing operations before tax
Performance from discontinued operations before tax
Performance before tax
Additional information
BIS risk-weighted assets (CHF billion)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
1,135
0
1,135
78
168
8
89
0
343
793
2
795
8.9
194
394
(5)
389
551
199
306
193
0
1,250
(860)
(7)
(867)
8.5
1,624
188
(100)
192
(86)
(16)
(97)
(54)
(73)
998
0
998
433
353
(73)
265
0
979
19
198
217
8.8
3,097
5
(88)
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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 Instru-
ments: 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 our 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 and control
– Disciplined risk management and control are essential to our success. In 2010, we
continued to make significant investments in our infrastructure, processes, methodolo-
gies and people to ensure that our risk frameworks are sufficiently robust to support
our risk appetite and business aspirations.
– Our risk appetite is established within our risk capacity as determined by a complemen-
tary set of firm-wide risk metrics, and is approved under Board of Directors (BoD)
authority. It is administered and enforced by a detailed limit framework of portfolio
and position limits at both UBS Group (Group) and business division levels.
In 2010, increased risk taking was authorized for incremental
trading activity, particularly to support client flow activity, and
also for loan underwriting. Outside of these two areas, the core
risk profile of the firm remained largely unchanged.
Reduction of our residual risk positions remained a priority in 2010.
We further reduced our exposures to monoline insurers, student
loan auction rate securities and certain restructured legacy leveraged
finance positions, thereby decreasing our impaired loan portfolio.
Treasury management
– We continued to maintain focus on asset quality and building up capital by increasing
our tier 1 capital by CHF 3.5 billion and to further strengthen and safeguard our liquid-
ity position by raising over CHF 15 billion equivalent of public benchmark bonds.
– We have re-defined treasury interactions between business divisions and desks, improved
tools and reporting, and introduced a new Group-wide funds transfer pricing process.
Our total assets stood at CHF 1,317 billion on 31 December 2010,
down CHF 23 billion (2%) from CHF 1,341 billion on 31 Decem-
ber 2009. The reduction occurred mainly in replacement values as
market and currency movements drove down positive replace-
ment values by CHF 21 billion (to CHF 401 billion). Our funded
asset volume, which excludes positive replacement values,
remained relatively unchanged, declining by CHF 3 billion in 2010.
In 2010, we continued to maintain a sound liquidity position
and a diversified portfolio of funding sources, despite the
potential uncertain impact of developments in financial regula-
tory reforms and the significant market volatility caused by
uncertainties regarding the global macroeconomic environment,
including certain European fiscal and sovereign debt concerns.
Over the course of 2010, as investors became gradually more
risk tolerant, credit spreads and incremental funding costs
for most global financial Institutions, including UBS, generally
narrowed throughout the yield curve. We raised over CHF 15
billion equivalent of public benchmark bonds with an average
maturity of 5.5 years. This exceeded the combined amount
of public benchmark bonds and other long-term straight debt
which matured, or was redeemed, during 2010. Our customer
cash deposits in our wealth and asset management business
divisions at year-end 2010 were stable compared with the prior
year-end when adjusted for currency effects.
In response to the prolonged low yields, treasury supported and
implemented measures to improve Wealth Management & Swiss
Bank’s margin income through income-generating fixed receiver
swap and bond portfolios.
Group Treasury continued to earn interest income on equity
through its portfolio of interest rate products and managed the
currency effects on equity and key ratios. Profits and losses
in foreign currencies were hedged to protect shareholder value.
At year-end 2010, our BIS tier 1 ratio was 17.8%, and the BIS
total capital ratio was 20.4%. While overall BIS risk-weighted
assets declined by CHF 7.7 billion to CHF 198.9 billion, our
BIS tier 1 capital increased by CHF 3.5 billion to CHF 35.3 billion.
Our financial stability allowed us to call and redeem tier 1 and
tier 2 instruments in 2010. Nevertheless, the BoD has decided to
further bolster capital and has therefore not proposed any
dividend for the financial year 2010.
We continued to use the equity attribution framework to guide
our businesses in the allocation of resources to opportunities
that are expected to provide the best risk-adjusted profitability
contributions.
As of 31 December 2010, we had a total of 3.8 billion shares
issued, an increase of 273 million shares compared with
31 December 2009. The conversion of CHF 13 billion in manda-
tory convertible notes on 5 March 2010 led to an issuance of
273 million shares from conditional capital.
Risk and treasury management
Risk management and control
Risk management and control
Disciplined risk management and control are essential to our success. In 2010 we continued to make significant invest-
ments in our infrastructure, processes, methodologies and people to ensure that our risk frameworks are sufficiently
robust to support our risk appetite and business aspirations. Our risk appetite is established within our risk capacity as
determined by a complementary set of firm-wide risk metrics, and is approved under Board of Directors authority. It is
administered and enforced by a detailed limit framework of portfolio and position limits at both Group and business
division levels. Each element of our risk control framework plays a key role in the decision-making processes within the
firm. All material risks are reported to the respective authority holders at least monthly. In 2010, increased risk-taking
was authorized for incremental trading activity, particularly to support client flow activity, and also for loan underwriting.
Outside of these two areas, the core risk profile of the firm remained largely unchanged. Reduction of our residual risk
positions remained a priority in 2010. We further reduced our exposures to monoline insurers, student loan auction rate
securities and certain restructured legacy leveraged finance positions, thereby decreasing our impaired loan portfolio.
Summary of key developments in 2010
The most important developments that took place in 2010 with
regard to risk management and control include:
– On a net basis (new credit loss expenses minus recoveries),
credit losses at the Group level were CHF 66 million, signifi-
cantly down from CHF 1,832 million in 2009. Our Swiss and
international loan portfolios were materially unchanged.
– Our impaired loan portfolio decreased by CHF 2.7 billion, pri-
marily due to sales of certain restructured legacy leveraged
finance positions, without the incurrence of any meaningful
incremental costs to the firm.
– During the second half of the year, our market risk profile in-
creased moderately from previously low levels (on both an ab-
solute basis and a relative basis to our peers) in line with our
previously communicated growth plans in the Investment
Bank. This is reflected in the development of our value-at-risk
(VaR) and market risk related risk-weighted assets (RWA).
– After repurchasing USD 7.6 billion at par value of outstanding
client holdings of student loan auction rate securities (ARS) in
2010, our remaining purchase commitment at the end of the
year was immaterial with a par value of USD 63 million. De-
spite the material buy-backs, our inventory of student loan
ARS decreased by net USD 0.6 billion to USD 9.8 billion, as a
result of significant redemptions and sales in the secondary
market.
– We commuted several trades with monoline insurers, which
along with an increase in the fair values or the remaining in-
sured assets resulted in a reduction of our net exposure to
monoline insurers after credit valuation adjustments (CVA) to
USD 1.6 billion. Based on fair values, only 2% of our remaining
portfolio of assets hedged with monoline insurers related to US
residential mortgage-backed securities collateralized debt obli-
gations (RMBS CDO). Approximately 73% of the remaining as-
sets were collateralized loan obligations (CLO), the vast major-
ity of which were rated AA and above.
– Our sovereign exposures are subject to limits and are actively
managed under an established country risk control framework.
As a result, sovereign exposures are commensurate with the
rating of each country and the size of each economy. Sover-
eign exposures of industrialized European countries rated AA
and below were materially reduced on a gross and net basis
during the year. In addition, we do not have material sovereign
risk exposures in the Middle East and North African region.
– We have made further significant enhancements to our firm-
wide risk measures and tools. Our stress testing framework has
continued to evolve, including the development of new sce-
narios to capture our risk exposure to extreme market events
and macroeconomic developments.
– Since the start of 2009, the Swiss Financial Market Supervisory
Authority (FINMA) has conducted regular stress tests on the
two large Swiss banks. In July 2010, FINMA carried out a stress
test which assumed a severe global recession and very sharp,
specific shocks for certain European countries. FINMA’s analysis
showed that UBS “would have a tier 1 ratio of at least 8%
under the stress events tested.”
– In anticipation of the enhanced Basel II framework, we further
enhanced our risk appetite framework by making it more com-
prehensive and relevant to the current financial environment.
New measures supplementing the current market risk capital
have been introduced, enabling compliance with the enhanced
Basel II requirements.
– Over the last two years, we took comprehensive steps to help
ensure that our compensation plans and processes were re-
designed and implemented in such a way to ensure appro-
priate risk-taking. Risk awareness, assessment and manage-
ment were integrated into our compensation framework.
They now form a basis for designing our compensation plans,
determining the overall bonus pool, allocating individual
bonuses, and identifying and monitoring performance and
compensation of key risk takers and controllers across the
organization.
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– We made significant investments in our risk IT platforms during
2010, particularly in the Investment Bank, where we are design-
ing and building a new platform for risk aggregation. Key im-
provements being introduced include enhanced data quality and
detail, automated reporting with ad-hoc analysis and drilldown
capability, and re-engineered analytics for more accurate VaR cal-
culations. Work in this area is ongoing.
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– In order to standardize methodology, processes and tools for
credit monitoring across our wealth management locations,
we began global deployment of a new monitoring solution for
this business. Additionally, in our Global Asset Management
business, we commenced deployment of a third-party risk
measurement application, which will facilitate improved re-
porting and provide our portfolio managers with enhanced risk
management models.
➔ Refer to the “Credit risk“, “Market risk“, “Operational risk“,
“Risk concentrations” and “Liquidity and funding management“
sections of this report for more information
➔ Refer to the “Compensation” section of this report for more
information on our compensation practices
Risk management and control principles
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We have five key principles that support the firm in achieving an
appropriate balance between risk and return:
– Protection of financial strength by controlling our overall risk
exposures and assessing potential risk concentrations at posi-
tion and portfolio levels, as well as across all risk types and
business divisions.
– Reputation protection, which depends on a sound risk culture
characterized by a holistic and integrated view of risk, perfor-
mance and reward, including effectively managing and con-
trolling risks. Our risk culture demands that all employees make
protecting the firm’s reputation a priority.
– Management is accountable for all risks in their business, and
is responsible for the continuous and active management of
their respective risk exposures to ensure that risk and return
are balanced.
– Independent control functions oversee the risk-taking activities
of the business, the effectiveness of risk management in the
business and the mitigation of operational risks.
– Disclosure of risk to provide comprehensive and transparent re-
porting to senior management, the Board of Directors (BoD),
shareholders, regulators, rating agencies and other stakeholders.
Risk management and control responsibilities
Key roles and responsibilities for risk management and control are:
– The BoD is responsible for determining the firm’s risk princi-
ples, risk appetite and major portfolio limits, including their
allocation to the business divisions. The BoD is supported by
a BoD Risk Committee (RC), which monitors and oversees the
firm’s risk profile and the implementation of the risk frame-
work as established by the BoD. The BoD RC also assesses
and approves the firm’s key risk measurement methodolo-
gies.
– The Group Executive Board (GEB) implements the risk frame-
work, controls the firm’s risk profile and approves all major risk
policies.
– The Group Chief Executive Officer (Group CEO) is responsible
for the results of the firm, has risk authority over transactions,
positions and exposures, and also allocates portfolio limits ap-
proved by the BoD within the business divisions.
– The divisional CEOs are accountable for the results of their
business divisions including actively managing their risk expo-
sures, and ensuring that risks and returns are balanced.
– The Group Chief Risk Officer (Group CRO) reports directly to
the Group CEO and has functional and management authority
over risk control throughout the firm. Risk Control provides
independent oversight of risk and is responsible for imple-
menting the risk control processes for credit, country, market,
investment and operational risks. This includes establishing
methodologies to measure and assess risk, setting risk limits
and developing and operating an appropriate risk control in-
frastructure. The risk control process is supported by a frame-
work of policies and authorities, which are delegated to Risk
Control Officers, corresponding to their experience and scope
of responsibilities.
– The Group Chief Financial Officer (Group CFO) is responsible
for ensuring that disclosure of our financial performance is clear
and transparent and meets regulatory requirements and corpo-
rate governance standards. The Group CFO is also responsible
for implementing the risk management and control frame-
works for capital management, liquidity, funding and tax.
– The Group General Counsel (Group GC) is responsible for im-
plementing the firm’s risk management and control principles
for legal and compliance matters.
Risk categories
Our risk management and control principles are implemented
through a risk management and control framework. This frame-
work comprises qualitative elements such as policies and authori-
ties, and quantitative components including risk measurement
methodologies and risk limits.
In addition, the framework is dynamic and continuously adapt-
ed as our businesses and the market environment evolve. It in-
cludes clearly defined processes to deal with new business initia-
tives as well as large and complex transactions.
The risks faced by our businesses can be broken down into three
different categories: primary risks, consequential risks and busi-
ness risks. Primary and consequential risks result from our busi-
ness activities and are subject to independent risk control. Primary
risks consist of credit risk, country risk, market risk (including is-
suer risk) and investment risk. Consequential risks consist of op-
erational risk, which includes legal, compliance and tax risks, and
liquidity and funding risks. Definitions of primary and consequen-
tial risks are provided below:
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Risk management and control
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– 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 developments.
– Market risk and investment risks: the risk of loss resulting from
changes in market variables, whether to our trading positions
or financial investments.
– Operational risk: the risk of loss resulting from inadequate or
failed internal processes, people and systems, or from external
causes, whether deliberate, accidental or natural. This includes
risks related to legal, compliance and tax matters.
– Liquidity and funding risks: the risk that we might be unable to
either meet our payment obligations when due or to borrow
funds in the market at an acceptable price to fund actual or
proposed commitments.
Finally, business risks arise from the commercial, strategic and
economic risks inherent in our business activities. 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
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A variety of methodologies and measurements are applied to
quantify the risks of our portfolios and risk concentrations. Risks
that are not properly reflected by standard measures are subject
to additional controls, which may include pre-approval of trans-
actions and specific restrictions. Models to quantify risk are gen-
erally developed by dedicated units within the firm-wide and
business division-facing control functions. We require that valua-
tions 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 orga-
nizations.
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 earn-
ings-at-risk (EaR). VaR estimates the losses which could poten-
tially be realized over a set time period at an established level of
confidence. EL is used to measure the average annual costs that
are expected to arise from our credit portfolios and from opera-
tional risks. EaR is comprised of core statistical measures overlaid
with management judgment, and measures the potential shortfall
118
in our earnings, which could potentially be realized over a set time
period at an established level of confidence.
➔ Refer to the “Credit risk”, “Market risk” and “Operational risk”
sections of this report for a description of our key statistical loss
measures
Stress loss
To complement our statistical loss measures and better under-
stand our risk capacity and appetite, we also perform stress
testing. Stress loss is the loss that could result from extreme
events under specified scenarios. We use stress testing to quan-
tify our exposures to plausible yet extreme and unusual market
movements, and to enable us to identify, understand and
manage our potential vulnerabilities and risk concentrations.
Our stress testing framework 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. The stress scenarios
for trading risks capture the liquidity characteristics of different
markets and positions. Our stress frameworks include a sce-
nario which reflects the extreme market conditions that were
experienced at the height of the financial crisis in the fourth
quarter of 2008.
Combined stress testing (CST) captures firm-wide exposure
to a number of global systemic events, including a severe global
recession. These stress tests are based on forward-looking mac-
roeconomic and market event scenarios calibrated to different
levels of severity. The evolution of economic variables and mar-
ket indicators under these scenarios is defined and applied to
our entire risk portfolio. The impact of primary, consequential
and business risks is assessed with the aim of calculating the
loss and capital implications should these stress scenarios be
realized.
Stress test results are included in risk reporting and are impor-
tant inputs for the risk control, risk appetite and business plan-
ning 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 senior management, the
BoD and regulators with regard to our risk profile. We continue
to provide detailed stress analyses to FINMA in accordance with
their requirements.
The stress scenarios are reviewed, updated and expanded reg-
ularly in the context of the macroeconomic and geopolitical envi-
ronment by a committee comprised of representatives 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 real stress events may
differ from moves envisaged in our scenario specifications.
Most major financial firms employ stress tests, but their ap-
proaches vary significantly, and there are no industry standards
defining stress scenarios or the way they are applied to a firm’s
positions. Consequently, comparisons of stress results between
firms can be misleading and, therefore, like most of our peers, we
do not publish quantitative stress test results.
➔ Refer to the “Credit risk” and “Market risk” sections of this
report for a description of our key stress loss measures
Group risk appetite framework
Our risk appetite framework establishes 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 complementary firm-wide risk measurement frameworks:
EaR (together with its extension, capital-at–risk (CaR)) and CST.
Both frameworks capture risks across all of our business divisions
and from all major risk categories, including primary risks, conse-
quential risks and business risks. These measures are significant
components of our risk control, capital management and business
planning processes, which are described in more detail below.
– EaR is measured as the potential shortfall in earnings at a 95%
confidence level and is evaluated over both three-month and
one-year periods.
– CaR extends EaR to consider the impact on BIS tier 1 capital of
a more severe earnings shortfall and is measured at confidence
levels from 95% to 99.9%.
– CST supplements EaR and CaR. As described in the “Stress loss”
section above, our firm-wide stress tests evaluate the impact
across our risk portfolios, and thereby on our earnings and cap-
ital, based on specified macroeconomic stress scenarios.
Our risk appetite is approved by the BoD. Risk appetite is
based on our risk capacity, which is in turn based on our capital
and forecasted 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 limitations
in the precision of risk exposure measures that focus on extreme
market and economic events. Comparison of the firm’s risk ex-
posure with our risk capacity under prevailing operating condi-
tions 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 adjustments to the
risk profile of our firm.
➔ 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 depending
on the purposes for which exposures are calculated: financial ac-
counting under International Financial Reporting Standards (IFRS),
determination of our required regulatory capital or our internal
management. The exposures detailed in the “Credit risk” and
“Market risk” sections are typically based on our internal man-
agement 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
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, which cause failures in the
settlement process, for example, in foreign exchange transactions
where we have fulfilled our obligation but the counterparty fails
to deliver the counter-value (settlement risk). Alternatively, 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
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In the Investment Bank, a distinction is made between expo-
sures 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, for example, if their
ability to meet contractual obligations would be similarly affected
by changes in economic, political or other conditions. To avoid
credit risk concentrations, we establish limits and/or operational
controls to constrain risk concentrations at portfolio and sub-port-
folio levels with regard to sector exposures, country risk and spe-
cific product exposures.
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Credit risk arises from traditional banking products such as loans,
loan commitments and guarantees (for example, letters of credit).
Credit risk also arises from traded products including over-the-
counter (OTC) derivative transactions, exchange-traded deriva-
tives, as well as securities financing transactions such as repur-
chase agreements (repos and reverse repos) and securities
borrowing and lending transactions. The risk control processes
applied to these products are generally the same, although the
accounting treatment may vary as products can be carried at am-
ortized cost (loans and receivables), at fair value through profit
and loss (instruments held for trading, instruments designated at
fair value) or at fair value through other comprehensive income
(available-for-sale instruments) 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 val-
ues are affected by changing expectations regarding the probabil-
ity of issuers failing to meet these obligations or when actual fail-
ures occur. Where these securities and obligations are held in
connection with a trading activity, we view the risk as a market
risk. Debt securities not held in connection with a trading activity
are reported as debt investments at the end of this section. 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 Americas and Global Asset
Management are less material.
Credit risk control
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Limits and controls
Limits are established for individual counterparties and their coun-
terparty groups covering banking and traded products, as well as
settlement amounts. These limits apply not only to the current
outstanding amount, but also to contingent commitments and
the potential future exposure of traded products. Credit engage-
ments may not be entered into without the appropriate approvals
and adherence to limits.
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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 mort-
gage 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 assess-
ment of income cover.
Lombard loans are made against the pledge of eligible market-
able securities or cash. The Investment Bank also takes collateral
in the form of marketable securities and cash in its OTC deriva-
tives and securities financing businesses. Discounts (haircuts) are
generally applied to the market value of the collateral reflecting
the quality, liquidity and value volatility of the underlying collat-
eral. Exposure 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 hair-
cut applied to a specific collateral pool.
Our OTC derivatives trading is generally conducted under bilat-
eral 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 agreements with major market
participants under which either party can be required to provide
collateral in the form of cash or marketable securities when the
exposure exceeds a predefined level. Our OTC derivatives activity
with lower-rated counterparties is typically conducted under one-
way collateral 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 agreements. We have
clearly defined processes for entering into netting and collateral
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agreements, including the requirement to have a legal opinion on
the enforceability of contracts in relevant jurisdictions in the case
of insolvency.
qualitative factors, for the rating tools on the basis of various
statistical analyses, externally available information and expert
judgment.
Primarily in the Investment Bank, we actively manage the cred-
it risk of our portfolios with the aim of reducing its concentrations
toward 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 recognizing credit hedges; for example, we
usually do not recognize credit risk mitigants such as proxy hedg-
es (credit protection on a correlated but different name) or index
CDS for the purposes of monitoring exposures against limits. Buy-
ing credit protection creates credit exposure against the hedge
provider. 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 signifi-
cant correlation between a counterparty and the hedge provider
(so-called wrong-way risk), our policy is to discourage such activ-
ity, 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. Ex-
posures 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 credit risk, and are
key inputs for the regulatory capital calculation under the ad-
vanced internal ratings-based (advanced IRB) approach of the
framework governing international convergence of capital mea-
surement known as Basel II. We also use models to derive the
portfolio credit risk measures of expected loss, statistical loss and
stress loss.
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Probability of default
The probability of default (PD) is an estimate of the likelihood of a
counterparty defaulting on its contractual obligations. This prob-
ability is assessed using rating tools tailored to the various catego-
ries of counterparties. These categories are also calibrated to our
internal credit rating scale (masterscale) designed to ensure a con-
sistent assessment of default probabilities across counterparties.
We regularly assess the performance of our rating tools and ad-
just our model parameters as necessary. In addition to using rat-
ings 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 to broad
segments including banks, sovereigns, corporates, funds, hedge
funds and commercial real estate. We determine our choice of
the relevant assessment criteria, for example, financial ratios and
Within our retail and corporate banking business in Switzer-
land, we rate our business and corporate clients in the small-to-
medium enterprise (SME) segment using statistically developed
scorecards. The underlying data used in our scorecards is predom-
inantly based on a combination of clients’ financial information,
qualitative criteria and credit loss history over several years. To rate
our large corporate clients domiciled in Switzerland, Wealth Man-
agement & Swiss Bank uses templates established for this seg-
ment by our Investment Bank. We assess the probability of default
from loans secured on owner-occupied or investment properties
with a model that takes loan-to-value ratios and debt service ca-
pacity of the obligor into account. We rate lombard loan expo-
sures by means of a model simulating potential changes in the
value of the collateral, and the probability that it may become
lower than the loan amount.
Our masterscale expresses default probabilities that we deter-
mine 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
equivalents on our masterscale, are shown in the “UBS internal
rating scale and mapping of external ratings” table. The mapping
is based on the long-term average of one-year default rates that
we observed for each external rating grade. Observed defaults by
rating agencies may vary through economic cycles, and we do
not necessarily expect the actual number of defaults in our equiv-
alent rating band to equal the rating agencies average in any
given period. We periodically assess the long-term average de-
fault rates of credit rating agencies’ grades, and we adjust their
mapping to our masterscale as necessary to reflect any material
changes.
UBS internal rating scale and mapping of external ratings
UBS
internal
rating
Description
Moody’s Investor
Services equivalent
Standard & Poor’s
equivalent
0 and 1
Investment grade
Aaa
2
3
4
5
6
7
8
9
10
11
12
13
14
Aa1 to Aa3
A1 to A3
Baa1 to Baa2
Baa3
Ba1
Ba2
Ba2
Ba3
B1
B2
B3
Caa to C
Sub-investment grade
Defaulted
AAA
AA+ to AA–
A+ to A–
BBB+ to BBB
BBB–
BB+
BB
BB
BB–
B+
B
B–
CCC to C
D
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Risk management and control
Exposure at default
Exposure at default (EaD) represents the amount that we expect
to be owed by a counterparty at the time of default. We derive
EaD from our current exposure to the counterparty and the pos-
sible future development of that exposure.
The EaD of a loan is the drawn or face value of the loan. For
loan commitments and guarantees, 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 counterparty de-
faults. 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 poten-
tial time it takes to close out all our positions. For exchange-trad-
ed derivatives, our calculation of EaD accounts for daily cash mar-
gining. We derive the EaD for OTC derivatives by modeling the
potential development of replacement values of the portfolio of
trades by counterparty (potential credit exposure) less the values
of legally enforceable netting agreements. For collateralized OTC
derivatives, our potential credit exposure is based on the develop-
ment of collateral values and the price correlation between the
various instruments.
When measuring individual counterparty exposure against
credit limits, we consider the maximum likely exposure measured
to a high confidence level of outstanding obligations. However,
when aggregating exposures to different counterparties for port-
folio 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 back-
testing and benchmarking them, whereby model outcomes are
compared against actual results based on our internal experience
as well as externally observed results.
We assess our exposures where there is a material correlation
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 con-
trols to address these risks.
Loss given default
We determine loss given default (LGD) based on the likely re-
covery rate of claims against defaulted counterparties, which is
a function of the type of counterparty and any credit mitigation
or support by way of security interest or guarantees. LGD esti-
mates include loss of principal and interest and other amounts,
such as workout costs, including the cost of carrying an im-
paired position during the workout process. In our Investment
Bank, LGD estimates are based on an assessment of key risk
drivers such as industry segment, collateral and seniority of a
claim as well as a country’s legal environment and bankruptcy
procedures, supported by our internal loss data and external
information where available. In our other lending portfolios,
the LGD differs by counterparty and collateral type and is statis-
tically 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 factor in deter-
mining LGD.
Expected loss
Credit losses are an inherent cost of doing business, but the oc-
currence and amount of credit losses can be erratic. In order 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 used to estimate the average annual
costs that we expect to experience from positions in our current
credit portfolio that become impaired. The EL for a given credit
facility is a function of the three components described above: PD,
EaD and LGD. We aggregate the EL for individual counterparties
to derive our expected portfolio credit losses.
EL is the basis for quantifying credit risk in all our portfolios. It
is also the starting point for the measurement of our portfolio
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 EL,
with the variation around due to systematic default relationships
among counterparties within, and between, segments and which
is sensitive to concentration risks on individual counterparties and
groups of counterparties. 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 complements
our statistical modeling approach. We use it to assess our poten-
tial loss in various stress scenarios based on the assumption that
one or more of the three key credit risk parameters will deterio-
rate substantially. We run stress tests on a regular basis and use
them to monitor our portfolios and identify potential risk concen-
trations. For certain of our portfolios and segments, stress loss
may also be subject to limits.
➔ Refer to the discussion on stress loss in this section for more
information
Composition of credit risk – UBS Group
The exposures detailed in the tables in this section are based on
our management view of credit risk.
The “Credit exposure by business division” table shows a
breakdown of our banking and traded product exposures before
and after allowances and provisions, CVA and specific hedges.
Portfolio hedges, such as index CDS, are not included in this anal-
ysis. Banking product exposures are shown on a nominal basis,
without applying credit conversion factors. Exposures to OTC de-
122
rivatives are shown in the table as net positive replacement values
after the application of legally enforceable netting agreements
and the deduction of cash collateral. Exchange-traded derivatives
(ETD) exposures take into account initial and variation margins.
Securities financing exposures are shown net of the collateral we
received. Comparative figures for 2009 are also shown on this
basis.
Our total credit exposure before deductions amounted to
CHF 445 billion on 31 December 2010, compared with CHF 451
billion at the end of 2009. Our banking product exposures re-
mained materially unchanged at CHF 356 billion as of 31 De-
cember 2010. Our traded products exposures, which arise
largely in our Investment Bank, declined by CHF 7 billion to CHF
89 billion as of 31 December 2010, due to the decrease of CHF
11 billion in the replacement values of OTC derivatives. The
largest component of our credit exposure before deductions as
of 31 December 2010 was our loan portfolio, accounting for
CHF 242 billion or 54% of our total credit exposure. Of this,
CHF 202 billion was attributable to Wealth Management &
Swiss Bank.
Further information on the composition and credit quality of
Wealth Management & Swiss Bank’s loan portfolio and the Invest-
ment Bank’s banking products and OTC derivatives portfolios is
provided in this section. Analysis of our Investment Bank and
Wealth Management & Swiss Bank portfolios is based on net ex-
posure (i.e. after deduction of hedges) because we actively utilize
credit hedging to manage our risks in these portfolios.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” for more information on the reclassifica-
tion of cash collateral from derivative transactions and prime
brokerage receivables and payables
➔ 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 information” section of this report
for further information on IFRS required disclosures on deriva-
tives and credit risk
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Credit exposure by business division
CHF million
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Banking products 3
OTC derivatives
Exchange-traded derivatives
Securities financing transactions
Traded products
Total credit exposure
Total credit exposure, net 5
Wealth Management &
Swiss Bank
Wealth Management
Americas
Investment Bank
Other 1
UBS
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
10,727
2,678
8,589
2,679
201,942
197,178
10,505
7,276
11,908
7,236
233,128
227,590
4,048
978
3,583
1,059
5,026
238,155
236,488
4,642
232,232
230,169
2,157
22,472
370
1,066
26,065
56
1,114
156
1,326
27,391
27,389
1,074
21,496
385
498
23,453
44
611
185
840
13,732
13,924
17,679 2
4,820
46,216
96,371 4
47,452
14,599
20,279
82,330
24,293
24,289
178,701
143,364
9,525
13,959
25,351 2
4,881
49,356
103,072 4
58,121
14,933
16,939
89,993
193,065
141,838
315
158
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596
284
284
880
876
24,459
19,075
242,250 2
15,819
54,558
356,161
51,840
16,691
20,435
88,966
445,127
408,117
18,114
17,993
244,111 2
17,315
57,090
354,624
62,695
16,603
17,124
96,422
451,046
397,747
282
86
141
509
947
947
1,456
1,451
1 Includes Global Asset Management, treasury activities and other corporate items. 2 Does not include reclassified and acquired securities. 3 Excludes loans designated at fair value. 4 IFRS Banking products includ-
ing securities and internal risk adjustments were CHF 119,177 million (31.12.09: CHF 128,919 million). 5 Net of allowances, provisions, CVA and hedges.
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Risk and treasury management
Risk management and control
Composition of credit risk – business divisions
Wealth Management & Swiss Bank
The total gross banking products exposure of Wealth Manage-
ment & Swiss Bank was CHF 233 billion on 31 December 2010,
compared with CHF 228 billion on 31 December 2009. The
high quality of this portfolio is illustrated by the rating and loss
given default distributions shown in the “Wealth Management
& Swiss Bank: distribution of net 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,
with over 80% of it categorized in the lowest LGD bucket of
0–25%.
As of 31 December 2010, Wealth Management & Swiss Bank’s
gross loan portfolio had increased slightly to CHF 202 billion,
compared with CHF 197 billion on 31 December 2009, mainly in
our Asia Pacific region, with exposure increases in local currencies
cushioned by the strengthening of the Swiss franc. Of Wealth
Management & Swiss Bank’s loan portfolio, 92% was secured by
collateral, of which CHF 144 billion was secured by real estate and
CHF 43 billion by marketable securities. The majority of the real
estate exposure is secured by a portfolio of Swiss residential prop-
erty (single and multi-family homes), which have typically exhib-
ited a low risk profile.
Wealth Management & Swiss Bank’s gross unsecured loan
portfolio amounted to CHF 15.4 billion on 31 December 2010,
with half of this portfolio rated as investment grade. Approxi-
mately 55% of the unsecured portfolio related to cash-flow-
based lending to corporate counterparties, and 32% of the unse-
cured loans related to public authorities, mainly in Switzerland, as
of 31 December 2010.
Wealth Management & Swiss Bank: distribution of net banking products exposure across UBS internal rating and
loss given default buckets
CHF million, except where indicated
UBS internal rating
Investment grade
Sub-investment grade
of which: 6–9
of which: 10–12
of which: 13
Total non-defaulted
Defaulted 1
Net banking products exposure 2
Moody’s
Investor
Services
equivalent
Aaa to
Baa3
Standard &
Poor’s
equivalent
AAA to
BBB–
Ba1 to Ba3
BB+ to BB–
B1 to B3
B+ to B–
Caa & lower CCC & lower
31.12.10
LGD buckets
31.12.09
Exposure
0–25%
26–50%
51–75% 76–100%
Weighted
average
LGD (%)
140,194
113,509
25,961
89,888
86,867
2,967
55
80,398
78,027
2,333
38
7,378
6,761
601
16
712
1,118
1,084
33
1
11
995
995
230,082
193,907
33,339
1,830
1,006
16
12
11
17
20
14
1,379
231,461
Weighted
average
LGD (%)
18
15
15
20
21
17
Exposure
134,626
89,434
85,864
3,494
76
224,061
1,465
225,526
1 Includes CHF 83 million of off-balance sheet items (31.12.09: CHF 4 million). Due to the applied risk calculation approach for default positions, no LGD is assigned. 2 Gross exposure before deduction of allowances
and provisions for credit losses of CHF 817 million (31.12.09: CHF 1,053 million) and credit hedges of CHF 849 million (31.12.09: CHF 1,010 million) is CHF 233,128 million (31.12.09: CHF 227,590 million).
Wealth Management & Swiss Bank: composition of loan portfolio, gross
CHF million
Secured by residential property
Secured by commercial / industrial property
Secured by securities
Unsecured loans
Total loans, gross
Total loans, net of allowances and credit hedges
124
31.12.10
31.12.09
122,815
20,766
42,993
15,367
201,942
201,012
60.8%
10.3%
21.3%
7.6%
100.0%
122,106
20,378
39,136
15,558
197,178
196,064
61.9%
10.3%
19.8%
7.9%
100.0%
Wealth Management Americas
The total gross banking products exposure of Wealth Manage-
ment Americas increased to CHF 26 billion on 31 December 2010,
compared with CHF 23 billion on 31 December 2009. This portfo-
lio consists mainly of loans secured by marketable securities.
These loans are of high quality, with 93% (88% in 2009) rated as
investment grade.
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Wealth Management & Swiss Bank: unsecured loans 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
31.12.10
31.12.09
252
642
59
2,172
1,842
4,895
889
1,551
2,776
288
263
895
74
2,599
1,984
4,176
778
1,778
2,768
243
15,367
15,558
125
Risk and treasury management
Risk management and control
Investment Bank
The “Investment Bank: banking products and OTC derivatives ex-
posure” table shows the Investment Bank’s credit exposures to
banking products and OTC derivatives before and after allow-
ances and provisions, CVA and specific hedges based on our in-
ternal risk view. Portfolio hedges, such as index CDS, are not in-
cluded in this analysis. The gross banking product exposures
shown in this table exclude nostro accounts and money market
balances, which are included in the “Credit exposure by business
division” table.
Approximately 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 financial institu-
tions with which trading was conducted on a collateralized basis.
Approxima tely 60% of the Investment Bank’s net banking products
portfolio was rated investment grade, with the majority of exposures
related to its lending activities with corporates and other non-banks.
The subsequent tables provide additional analysis of the portfo-
lio by our internal rating and LGD, industry sector and geographical
region.
The Investment Bank’s net banking products exposure to
corporates and other non-banks remained stable at CHF 41.6 bil-
lion as of 31 December 2010. The Investment Bank continued to
actively manage the credit risk on this portfolio and as of 31 De-
cember 2010 it held CHF 29 billion of single-name CDS hedges
against its exposures to corporates and other non-banks.
The Investment Bank’s net banking products exposure to cor-
porates and other non-banks continued to be diversified across
Investment Bank: banking products and OTC derivatives exposure 1
CHF million
Total exposure, before deduction of allowances and provisions, CVA and hedges
less: allowances, provisions and CVA
less: credit protection bought (credit default swaps, notional)
Net exposure after allowances and provisions, CVA and hedges
Banking products
OTC derivatives
31.12.10
70,885 2
(124)
(29,154)
41,608
31.12.09
82,084 2
(1,520)
(39,314)
41,250
31.12.10
31.12.09
47,452
(2,224)
(3,683)
41,546
58,121
(4,475)
(5,741)
47,905
1 Banking products: risk view, excludes central banks, due from banks, securities and internal risk adjustments. 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. 2 Banking products including money market and nostro accounts amounted to CHF 96,371 million (31.12.09: CHF
103,072 million).
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, except where indicated
UBS internal rating
Investment grade
Sub-investment grade
of which: 6 – 9
of which: 10 – 12
Moody’s Investor
Services equivalent
Standard & Poor’s
equivalent
Aaa to Baa3
AAA to BBB–
Ba1 to Ba3
B1 to B3
BB+ to BB–
B+ to B–
CCC & lower
of which: 13 & defaulted
Caa & lower
Net banking products exposure to corporates and
other non-banks, after application of credit hedges
31.12.10
LGD buckets
Exposure
0 – 25% 26 – 50% 51 – 75% 76 – 100%
25,603
16,005
6,812
8,285
908
7,755
6,690
2,322
3,880
488
11,417
6,619
3,555
2,826
238
2,636
2,181
824
1,258
100
3,795
515
111
321
83
41,608
14,444
18,036
4,817
4,310
Weighted
average
LGD (%)
43
33
36
31
35
39
31.12.09
Weighted
average
LGD (%)
39
34
36
27
42
37
Exposure
26,273
14,977
6,896
5,338
2,743
41,250
Investment Bank: distribution of net OTC derivatives exposure, across UBS internal rating and loss given default buckets
CHF million, except where indicated
31.12.10
LGD buckets
UBS internal rating
Investment grade
Sub-investment grade
of which: 6 – 9
of which: 10 –12
Moody’s Investor
Services equivalent
Standard & Poor’s
equivalent
Exposure
0 – 25% 26 – 50% 51 – 75% 76 – 100%
Aaa to Baa3
AAA to BBB–
37,552
8,877
24,640
2,591
Ba1 to Ba3
B1 to B3
BB+ to BB–
B+ to B–
CCC & lower
3,994
2,302
889
803
607
386
41
180
1,709
1,005
673
31
133
120
9
4
of which: 13 & defaulted
Caa & lower
Net OTC derivatives exposure, after application of credit hedges
41,546
9,484
26,349
2,724
2,989
126
Weighted
average
LGD (%)
36
54
55
53
70
39
31.12.09
Weighted
average
LGD (%)
34
48
62
22
60
37
Exposure
42,883
5,022
2,382
1,066
1,574
47,905
1,444
1,545
791
166
588
industry sectors. Based on our assessment, the vast majority of
the sub-investment grade exposures in this portfolio had an LGD
of 0–50% on 31 December 2010.
specified declines in the aggregate notional balance of the portfo-
lio, and we may assume control of the underlying assets in the
event of a specified further decline in the notional balance.
➔ 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
Loan to BlackRock fund
In the second quarter of 2008, we sold a portfolio of US residen-
tial mortgage-backed securities (RMBS) for USD 15 billion to the
RMBS Opportunities Master Fund, LP (RMBS fund), a special pur-
pose entity managed by BlackRock Financial Management, Inc.
The RMBS fund was capitalized with approximately USD 3.75 bil-
lion 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 from the underlying assets. These
collections 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. Allocations
to equity holders may be reduced or suspended in the event of
As of 31 December 2010, the loan had a balance outstanding
of USD 5.7 billion (USD 7.1 billion on 31 December 2009), 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 the previous pages. The aggregate notional balance of
the RMBS fund’s assets collateralizing the loan on 31 December
2010 was USD 13.4 billion. By notional balance, the portfolio was
comprised primarily of Alt-A (53%) and sub-prime (33%) credit
grades. In terms of priority, the portfolio was dominated by senior
positions (95%).
The RMBS fund is not consolidated in our financial state-
ments. We continue to monitor the RMBS fund and its perfor-
mance and will reassess the consolidation status if events war-
rant 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
2010 have not altered our conclusion that the loan is not im-
paired and that consolidation is not required.
Investment Bank: net banking products and OTC derivatives exposure by industry sector 1
CHF million
Banks
Chemicals
Electricity, gas, water supply
Non-bank financial institutions
Manufacturing
Mining
Public authorities
Retail and wholesale
Transport, storage and communication
Other
Total
Banking products
OTC derivatives
31.12.10
31.12.09
2,608
1,046
2,380
13,054
8,021
3,707
1,921
2,722
4,537
1,611
3,655
1,347
2,120
12,661
6,695
2,284
2,657
1,530
4,057
4,243
41,608
41,250
31.12.10
13,409
179
155
20,778
524
94
49
861
581
4,916
41,546
31.12.09
9,982
267
150
29,171
710
562
51
982
642
5,389
47,905
1 Banking products: exposure to corporates and other non-banks after risk-transfer, and after application of credit hedges. OTC derivatives: net replacement values include the impact of netting agreements (incl. cash
collateral) in accordance with Swiss Federal Banking law, based on the IFRS scope of consolidation.
Investment Bank: net banking products and OTC derivatives exposure by geographical region
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Switzerland
Rest of Europe
North America
Latin America
Asia Pacific
Middle East and Africa
Total
Banking products
OTC derivatives
31.12.10
31.12.09
31.12.10
31.12.09
348
5,291
32,721
34
2,658
556
41,608
543
6,759
29,222
152
4,014
559
41,250
1,804
19,874
15,764
185
3,338
580
41,546
1,759
22,286
19,907
123
3,236
594
47,905
127
Risk and treasury management
Risk management and control
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 those that
are “impaired”. We consider a loan to be past due when a con-
tractual payment has been missed. We consider a loan as im-
paired if it is probable that we will not fully recover all contractual
payments due under the loan as a result of the borrower’s inabil-
ity, or unwillingness, to meet its obligations after realization of
available collateral. Past due but not impaired loans are those that
have suffered missed payments, but are not considered impaired
because we expect to collect all amounts due under the contrac-
tual terms of the loans or the equivalent value. We also assess
claims from securities financing transactions for default and im-
pairment using the same principles and processes as we use for
banking products.
We have established processes to ensure that the carrying val-
ues of impaired claims are determined in compliance with IFRS
requirements. Our credit controls applied to valuation and work-
out are the same for both amortized cost and fair-valued credit
products. With exception of a part of the mortgage portfolio and
small unsecured retail account overdrafts, we assess each identi-
fied case individually. Our workout strategy and estimation of re-
coverable amounts are independently approved.
None of the portfolios with collective loan loss provisions are
included in the totals of impaired loans in the tables shown in the
composition of credit risk for business divisions in the “Credit
risk” section of this report.
We also assess our portfolios of claims carried at amortized
cost with similar credit risk characteristics for collective impair-
ment in order to consider if these portfolios contain impaired ob-
ligations where the individual impaired items cannot yet be identi-
fied. In our retail and corporate banking business in Switzerland,
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 identifica-
tion, we establish collective loan loss allowances based on the
expected loss for the portfolio over the average period between
trigger events and the identification of individual impairment.
Collective loan loss allowances of this kind are typically not re-
quired for our investment banking businesses because we con-
tinuously monitor individual counterparties and exposures to
identify impairment events at an early stage.
Additionally, for all of our portfolios we assess whether there
have been any unforeseen developments which might result in
impairments but that are not immediately observable. 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 eco-
nomic drivers to regularly assess the most vulnerable countries
and review the impact of any potential impairment event.
The recognition of impairment in our financial statements de-
pends on the accounting treatment of the claim. For products
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carried at amortized cost, impairment is recognized through the
creation of an allowance or provision charged to the income
statement as a credit loss expense. For products recorded at fair
value, such as derivatives, a deterioration of the credit quality is
recognized through a CVA 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 CVA
Impaired loans, allowances and provisions
The credit risk exposures reported in the table “Allowances and
provisions for credit losses” represent the IFRS balance sheet view
of our gross banking products portfolio. This comprises the bal-
ance sheet line items Balances with central banks, Due from banks
and Loans as well as the off-balance sheet items Guarantees and
Loan commitments. The table also shows the IFRS reported allow-
ances and provisions for credit losses and impairments.
The table shows that our allowances and provisions for credit
losses, excluding collective loan loss provisions (CLLP) of CHF 47
million, decreased 56% to CHF 1,193 million on 31 December
2010 from CHF 2,720 million (excluding CLLP of CHF 49 million)
at the end of 2009.
We consider a reclassified security an impaired loan if the car-
rying value at the balance sheet date is, on a cumulative basis, 5%
or more below the carrying value at the reclassification date ad-
justed for redemptions.
Our gross impaired loan portfolio decreased to CHF 4,172 mil-
lion on 31 December 2010 from CHF 6,829 million on 31 Decem-
ber 2009.
The ratio of the impaired loan portfolio to the total loan port-
folio (both measured gross) was 1.6% on 31 December 2010
compared with 2.5% on 31 December 2009. For loans excluding
securities the ratio was 0.9% on 31 December 2010 compared
with 2.3% on 31 December 2009.
We reclassified loans and receivables with carrying amounts of
CHF 39 million and CHF 58 million from impaired to performing
during 2010 and 2009 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 improved, enabling it to repay any past due amounts
such that we deemed future principal and interest to be fully col-
lectible in accordance with the original contractual terms.
Collateral held against our impaired loan portfolio mainly con-
sisted of real estate and multi-asset-backed securities. It is our
policy to dispose of foreclosed real estate as soon as practicable.
The carrying amount of foreclosed property recorded in our bal-
ance sheet under Other assets at the end of 2010 and 2009
amounted to CHF 90 million and CHF 245 million, respectively.
We seek to liquidate collateral held in the form of financial as-
sets expeditiously and at prices considered fair. This may require
us to purchase assets for our own account, where permitted by
law, pending orderly liquidation.
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128
Allowances and provisions for credit losses
CHF million, except where indicated
IFRS exposure, gross
Impaired exposure 1
Allowances and provisions
for credit losses 2
Estimated liquidation
proceeds of collateral
Impairment ratio (%)
As of
UBS Group
Balances with central banks
Due from banks
Loans
of which: related to reclassified securities 3
of which: related to acquired securities
of which: related to other loans
Guarantees
Loan commitments
Banking products
Investment Bank
Balances with central banks
Due from banks
Loans
of which: related to reclassified securities 3
of which: related to acquired securities
of which: related to other loans
Guarantees
Loan commitments
Banking products
Wealth Management & Swiss Bank
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Banking products
Wealth Management
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Banking products
Retail & Corporate
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Banking products
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
24,459
17,158
18,114
16,836
263,964
269,124
11,719
9,673
19,255
7,982
242,572
241,887
16,535
56,851
17,070
59,328
21
4,172
1,574
351
2,247
160
142
36
6,829
1,090
119
5,620
141
209
24
1,039
221
52
766
96
34
32
2,598
162
17
2,419
78
12
2,286
1,376
313
597
7
5
2,200
958
105
1,137
378,967
380,472
4,495
7,215
1,193
2,720
2,298
2,200
13,732
12,007
39,392
11,719
9,673
18,000
5,536
48,509
9,525
12,802
50,364
19,255
7,982
23,127
4,635
51,593
2,838
1,574
351
913
67
95
5,056
1,090
119
3,847
117
209
348
221
52
76
43
26
1,642
162
17
1,463
66
1
1,926
1,376
313
237
1,670
958
105
607
119,177
128,919
3,000
5,382
417
1,708
1,926
1,670
10,727
2,678
8,589
2,678
201,942
197,178
10,505
7,276
11,908
7,236
21
1,333
93
47
36
1,769
24
233,128
227,589
1,494
1,829
24
689
49
8
770
32
952
9
11
530
360
7
5
1,004
372
530
463
456
5,614
419
67,104
61,935
166
295
126
165
45
141
2,391
983
3,554
1,107
71,397
72,629
166
295
126
165
45
141
10,265
2,222
2,975
2,260
134,838
135,244
8,114
6,293
8,354
6,129
21
1,167
93
47
36
1,474
24
161,732
154,961
1,328
1,534
24
563
49
8
644
32
788
8
11
839
315
7
5
327
390
390
0.0
0.1
1.6
13.4
3.6
0.9
1.0
0.2
1.2
0.0
0.0
7.2
13.4
3.6
5.1
1.2
0.2
2.5
0.0
0.8
0.7
0.9
0.6
0.6
0.0
0.0
0.2
0.0
0.0
0.2
0.0
0.9
0.9
1.1
0.7
0.8
0.0
0.2
2.5
5.7
1.5
2.3
0.8
0.4
1.9
0.0
0.0
10.0
5.7
1.5
16.6
2.5
0.4
4.2
0.0
1.3
0.9
0.2
0.0
0.8
0.0
0.0
0.5
0.0
0.0
0.4
0.0
1.6
1.1
0.3
0.0
1.0
1 Excludes reclassified securities with adverse cash flow estimate revisions cumulatively below 5% of the carrying value at reclassification date, adjusted for redemptions. 2 Excludes CHF 47 million collective loan loss
allowances (31.12.09: CHF 49 million). 3 Refer to “Note 29b Reclassification of financial assets” in the “Financial information” section of this report.
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Risk management and control
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Impaired assets by type of financial instrument 1
CHF million
Impaired loans (incl. due from banks)
Impaired guarantees and loan commitments
Defaulted derivatives transactions
Defaulted securities financing transactions
Total
Impaired exposure
Specific allowances,
pro visions and CVA
Estimated liquidation
proceeds of collateral
Net impaired exposure
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
4,193
301
1,915
59
6,468
6,865
350
4,607
98
11,920
(1,064) 2
(130)
(1,130)
(46)
(2,370)
(2,630) 2
(90)
(3,061)
(51)
(5,831)
(2,286)
(12)
(13)
(2,310)
(2,200)
(47)
(2,247)
844
159
785
0
1,788
2,035
260
1,546
0
3,841
1 Includes impaired Due from banks, Loans, Guarantees, Loan commitments, Securities financing transactions and OTC derivatives with specific CVA. 2 Excludes CHF 47 million collective loan loss allowances (31.12.09:
CHF 49 million).
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The table “Impaired assets by type of financial instrument” in-
cludes impaired loans, impaired loan commitments, guarantees
and defaulted derivative and securities financing transactions,
which are subject to the same workout and recovery processes.
Our impaired assets decreased significantly by CHF 5.5 billion to
CHF 6.5 billion on 31 December 2010, mainly due to sales of
legacy loan positions.
After deducting allocated specific allowances, provisions and
CVA of CHF 2.4 billion and the estimated liquidation proceeds of
collateral of CHF 2.3 billion, net impaired assets amounted to CHF
1.8 billion as of 31 December 2010.
➔ Refer to “Note 1 Summary of significant accounting policies”
in the “Financial information” section of this report for more
information on the reclassification of the cash collateral from
derivative transactions as well as prime brokerage receivables
and payables
➔ 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 balances
where payments have been missed but which we do not consider
impaired because we expect to collect the full amounts due. The
loan balances in the table relate to our Wealth Management &
Swiss Bank division, where delayed payments are routinely ob-
served. We currently have no past due but not impaired loans in
the Investment Bank.
Compared with 31 December 2009, our past due but not im-
paired loan exposures decreased 9% to CHF 0.8 billion on 31 De-
cember 2010. This reduction resulted primarily from decreases in
the category 1-60 days that were only partially compensated by
higher past due exposures in the greater-than-60 day categories in
2010, especially in the last quarter of the year. Our past due but
not impaired loans in the greater-than-90-day category related pri-
marily to mortgage loans. Half of the mortgage exposure is moni-
tored and closely supervised by our recovery unit. However, our
overall past due but not impaired levels on mortgage loans were
not significant compared with the size of the mortgage portfolio.
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Past due but not impaired loans
CHF million
1 – 10 days
11 – 30 days
31 – 60 days
61 – 90 days
> 90 days
of which: mortgage loans
Total
Past due but not impaired mortgage loans
CHF million
Total
130
31.12.10
31.12.09
62
59
30
20
678
468
849
138
62
78
17
635
511
930
31.12.10
31.12.09
Total
mortgage
exposure
133,343
of which:
past due > 90 days
but not impaired
468
Total
mortgage
exposure
130,348
of which:
past due > 90 days
but not impaired
511
Settlement risk
Settlement risk arises in transactions involving exchange of value
where we must fulfill our obligation to deliver without first being
able to determine with certainty that we will receive the counter-
value. We use multilateral and bilateral agreements with counter-
parties to reduce our actual settlement volumes.
Our most significant source of settlement risk is foreign ex-
change transactions. UBS is a member of Continuous Linked Set-
tlement (CLS), a foreign exchange clearing house which allows
transactions to be settled on a delivery-versus-payment basis,
thereby significantly reducing foreign exchange-related settle-
ment risk relative to the volume of business.
The mitigation of settlement risk through CLS membership and
other means, such as payment netting, does not eliminate our
credit risk in foreign exchange transactions resulting from chang-
es in exchange rates prior to settlement. We measure and control
such counterparty risk in forward foreign exchange transactions
as part of our overall credit risk management of OTC derivatives.
Country risk
Country risk is the risk of loss arising from country-specific events.
We have a well established country risk control framework to ac-
tively manage and limit, as necessary, our trading, lending, issuer
and investment risk. This framework is intended to ensure that
our exposure to a certain country is commensurate with the cred-
it rating we assign to it, and that it is not disproportionate to our
overall country risk profile.
We assign ratings to all countries where we have exposure.
Sovereign ratings express the probability of a country risk event
that would lead to impairment of our claims. The default prob-
abilities we use, and our mapping of external ratings of the ma-
jor rating agencies, are based on our counterparty rating classes
as described in the “Probability of default” section above. In our
country rating scale, the rating classes 10 to 13 are designated
“very high risk”, i.e. countries in default with regard to selective
obligations, or with heightened political, macroeconomic and /
or systemic risks. The lowest rating class contains countries in
outright default and a state of economic collapse. For all coun-
tries rated 3 and below, we set country risk ceilings approved
either by the BoD or under delegated authority by the Group
CEO or Group CRO. A country risk ceiling applies to all our expo-
sures to counterparties or issuers of securities and financial in-
vestments 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, transac-
tions in traded products or positions in securities based on a
country ceiling, even if our exposure to a counterparty is other-
wise acceptable.
Losses due to counterparty or issuer defaults resulting from
multiple insolvencies (systemic risk) or general prevention or re-
striction of payments by authorities (transfer risk) are the most
significant effects of a country crisis. For internal measurement
and control of country risk, we also consider the financial 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.
Additional information on our exposures to countries that we
categorize as emerging markets is provided in the “Emerging
markets net exposure by UBS internal country rating category”
and “Emerging markets net exposure by major geographical area
and product type” tables.
We use stress testing to assess the potential financial impact of
a severe emerging markets crisis. This involves identifying coun-
tries that may potentially be subject to a crisis event, determining
potential losses and making assumptions about recovery rates de-
pending on the types of transactions involved and their economic
importance to the affected countries.
Country risk exposure
Exposures to sovereign of industrialized European countries
rated AA and below
The table “Largest five exposures to sovereign of industrialized
European countries rated AA and below” shows our five largest
gross exposures and the respective net amounts to the sovereign
of those countries.
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Largest five exposures to sovereign 1 of industrialized European countries rated AA and below 2
CHF million
As of
Italy, sovereign
Belgium, sovereign
Iceland, sovereign
Greece, sovereign
Portugal, sovereign
1 Includes central governments, agencies and central banks. 2 Traded products exposures are measured on a net replacement value basis. 3 Net of credit hedges.
Gross exposure
Net exposure 3
31.12.09
31.12.10
31.12.09
31.12.10
2,812
473
123
38
29
7,872
2,889
0
317
91
395
473
123
31
25
3,534
2,863
0
290
0
131
Risk and treasury management
Risk management and control
Emerging market countries
Our net exposures to emerging market countries amounted to
CHF 20.1 billion on 31 December 2010, compared with CHF 17.8
billion on 31 December 2009.
Based on the main country rating categories, 87% of our
emerging market country exposures on 31 December 2010 were
rated investment grade, compared with 82% on 31 December
2009. The table “Emerging markets net exposure by major geo-
graphical area and product type” shows the five largest emerg-
ing market country exposures in each major geographical area
by product type on 31 December 2010 compared with 31 De-
cember 2009.
The overall credit and market risk exposure in the Middle East
and the North African region was relatively modest. Of the
CHF 2.6 billion shown for the entire region Middle East and Africa
in the table below, CHF 2 billion relate specifically to Middle East-
ern and North African countries, which includes the larger posi-
tions in Saudi Arabia and the United Arab Emirates. Our expo-
sures in the countries that have been directly affected by political
turmoil since the beginning of 2011 are immaterial.
Emerging markets net 1 exposure by UBS internal country rating category 2
CHF million
Investment grade
Sub-investment grade
Total
31.12.10
31.12.09
17,567
2,521
20,088
14,659
3,132
17,791
1 Net of credit hedges. 2 As of 31.12.10 OTC derivatives exposures are measured on a net replacement value basis instead of the previously applied close-out period measurement. Exposures as of 31.12.09 show
restated replacement value numbers (31.12.09 disclosed total exposure was CHF 22,418 million).
Emerging markets net 1 exposure by major geographical area and product type 2
Total
Banking products
Traded products
Financial investments
Tradable assets
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
25
1,318
CHF million
As of
Emerging Europe
Russia
Hungary
Turkey
Poland
Ukraine
Other
Emerging Asia
Hong Kong
India
China
South Korea
Taiwan
Other
Emerging America
Brazil
Mexico
Venezuela
Chile
Argentina
Other
Middle East and Africa
United Arab Emirates
Saudi Arabia
South Africa
Israel
Kuwait
Other
Total
2,177
1,090
318
249
156
87
277
1,608
951
45
157
95
74
286
11,937
10,969
2,597
2,519
2,267
1,495
1,433
1,626
3,387
1,699
951
218
155
134
230
2,587
608
606
589
214
130
440
1,791
1,468
2,714
2,111
1,399
1,486
2,729
1,142
913
102
64
55
453
2,485
444
576
514
326
116
509
651
212
20
156
17
32
214
4,784
950
919
1,007
592
451
865
263
119
36
0
42
24
42
969
223
110
163
125
32
316
575
254
17
104
8
37
155
4,119
602
648
1,362
452
659
396
308
150
39
1
32
20
66
1,129
202
168
269
145
58
287
178
178
29
39
42
62
0
6
57
14
31
43
0
33
2,443
2,652
565
32
605
588
343
310
620
471
95
0
38
0
16
819
130
488
39
40
98
24
784
45
442
1,021
202
158
203
117
77
0
0
0
9
826
140
395
172
17
51
51
30
0
0
2
0
27
1
121
0
0
120
0
0
1
30
0
23
0
0
7
0
0
0
0
0
0
0
0
0
0
0
0
25
0
166
0
0
166
0
0
0
35
0
11
0
0
23
1
1
1
0
0
0
0
0
849
259
49
77
28
56
4,589
1,082
1,568
535
315
639
450
2,474
1,109
797
218
75
103
172
799
255
8
387
49
0
100
9,180
830
640
14
22
44
12
98
4,032
405
775
744
638
538
932
2,183
875
786
101
32
12
377
529
101
13
73
164
7
171
7,574
20,088
17,791
6,667
6,131
4,060
3,859
181
227
1 Net of credit hedges. 2 As of 31.12.10, OTC derivatives exposures are measured on a net replacement value basis instead of the previously applied close-out period measurement. Exposures as of 31.12.09 show
restated replacement value numbers (31.12.09 disclosed exposure was CHF 22,418 million).
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Debt investments
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Debt investments classified according to IFRS as Financial invest-
ments available-for-sale are measured at fair value through equity,
and can be broadly categorized as money market instruments and
debt securities primarily held for statutory, regulatory or liquidity
reasons. Debt investments may also include non-performing loans
purchased in the secondary market by the Investment Bank.
The risk control framework applied to debt instruments classi-
fied as Financial investments available-for-sale depends on the
nature of the instruments and the purpose for which we hold
them. Our exposures may be included in market risk limits or be
subject to specific monitoring such as interest rate sensitivity
analysis, firm-wide earnings-at-risk, capital-at-risk and combined
stress test metrics.
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Composition of debt investments
Debt financial instruments classified as Financial investments
available-for-sale decreased to CHF 73.4 billion on 31 December
2010 compared with CHF 80.4 billion on 31 December 2009.
These instruments primarily comprised highly liquid short-term
securities issued by governments and government-controlled
institutions. This position includes our strategic investment port-
folio, managed by Group Treasury.
➔ Refer to “Note 13 Financial investments available-for-sale”
in the “Financial information” section of this report for more
information
➔ Refer to the “Non-trading portfolios” section of this report for
more information
➔ Refer to the “Treasury management” section of this report for
more information on Group Treasury’s risk management activities
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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 resulting from changes in market
variables. There are two broad categories of market variables:
general market risk factors and specific components. General
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 correlations 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.
Sources of market risk
We take general and specific market risks both in our trading ac-
tivities and in some non-trading businesses.
Trading portfolios
Most of our market risk arises from our trading activities in the
Investment Bank, including market-making, facilitation of client
business and associated position taking in cash and derivative
markets for equities, fixed income, interest rates, foreign ex-
change 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 mitigation strategies. These
strategies can expose the firm to additional risks as the hedge in-
strument and the position being hedged may not always move in
parallel (often referred to as basis risk). We also actively manage
such basis risks. Management and Risk Control may also give in-
structions to reduce the risk, even when limits are not exceeded.
Our asset management and wealth management businesses
carry small trading positions, principally to support client activity.
The market risk from these positions is not material to UBS as a
whole.
Non-trading portfolios
Non-trading books may arise in any business division of the firm.
Market risk exposures – primarily general interest rate and foreign
exchange risks – may arise from non-trading activities such as re-
tail banking and lending in our wealth management businesses,
retail and corporate banking business in Switzerland, the Invest-
ment Bank’s lending businesses and our treasury activities, pri-
marily from funding, balance sheet, liquidity and capital
management needs. Equity and certain debt investments, includ-
ing our strategic investment portfolio, can also give rise to spe-
cific market risks.
Non-trading foreign exchange risks are managed under market
risk limits, with the exception of Group Treasury management of
consolidated capital activity. Non-trading interest rate risk is either
134
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managed under market risk limits, or subject to specific monitor-
ing and is reported in firm-wide EaR, CaR and CST metrics.
➔ Refer to the “Non-trading portfolios” section of this report for
more information
➔ Refer to the “Treasury management” section of this report for
more information on Group Treasury’s risk management activities
Market risk limits
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We established a limit framework to control our market risks. We
have two major portfolio measures of market risk: VaR and stress
loss. Both are common to all our business divisions and subject to
limits that are approved by the BoD.
In the Investment Bank, these portfolio measures are comple-
mented by concentration and other supplementary limits on portfo-
lios, asset classes and products, and also cover exposures to general
market risk factors and single-name risk. Single-name risk (or issuer
risk) is a measure of our exposure to the tradable instruments (debt,
equity and derivatives) of a single issuer (or issuer group) were that
issuer to be subject to a credit event including default. Our concen-
tration 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 exchange 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 exposures, the credit quality of issuers.
Our exposures from security underwriting commitments are
subject to the same concentration measures and controls as sec-
ondary market positions. Underwriting commitments are also
generally reviewed by our Commitment Committee, which in-
cludes representatives from both business and control functions.
Underwriting commitments are approved under delegated risk
management and risk control authorities.
Market risk limits are set for each of the business divisions and
Group Treasury. The limit framework in the Investment Bank is
more detailed than in the other business divisions, reflecting the
nature and magnitude of the risks it takes.
Trading portfolios
For the purposes of our disclosure, VaR is used to quantify market
risk exposures in our trading portfolios.
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Value-at-risk definition and limitations
As a statistical measure of market risk, VaR represents the market
risk losses that potentially could be realized over a set time hori-
zon at an established level of confidence. This assumes no change
in our trading positions over the relevant time horizon. We use a
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single VaR model for both internal management purposes and for
determining market risk regulatory capital requirements, although
the confidence levels and time horizons differ.
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– The VaR measure is calibrated to a specified level of confidence
and may not indicate potential losses beyond this confidence
level.
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Our VaR model is approved by FINMA and ongoing significant
revisions of our VaR methodology and model are also subject to
regulatory approval.
The model uses historical data covering a five-year period and
is calibrated to a 1-day 95% measure for our internal manage-
ment purposes. However, in accordance with Basel 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 directly to our current positions – a method
known as historical simulation.
Actual realized losses may differ from those implied by our VaR.
All VaR measures are subject to limitations and must be interpret-
ed accordingly. The limitations of VaR include the following:
– The five-year historical period used in creating our VaR mea-
sure will include fluctuations in market rates and prices that
differ from those that will occur in future periods. In particular,
the use of a five-year window means that sudden 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 1-day time horizon in the VaR measure, or 10-day in the
case of regulatory VaR, may not fully capture the market risk of
positions that cannot be closed out or hedged within the spec-
ified period.
– In certain cases, VaR calculations approximate the impact of
changes in risk factors on the values of positions and portfoli-
os. This may happen because the number of risk factors in-
cluded 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 movements is subject to esti-
mation errors which may result from non-linear interaction
effects, as well as the potential for actual volatility and cor-
relation levels to differ from assumptions implicit in the VaR
calculations.
We continue to review the performance of our VaR implemen-
tation, including 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 on particular trading positions.
Group: value-at-risk (1-day, 95% confidence, 5 years of historical data)
CHF million, except where indicated
Min.
Max.
Average
31.12.10
Min.
Max.
Average
31.12.09
For the year ended 31.12.10
For the year ended 31.12.09
Business divisions
Investment Bank
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Treasury activities and other corporate items
Diversification effect
Total management VaR, Group 2
Diversification effect (%)
42
0
1
0
2
1
42
78
0
3
0
22
1
76
56
0
2
0
8
(10)
57
(15)
68
0
1
0
5
(7)
68
(9)
43
0
2
0
2
1
44
75
0
3
1
16
1
78
55
0
3
0
5
(8)
55
(13)
54
0
3
0
4
(7)
54
(11)
1 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a portfolio diversification effect. 2 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, except where indicated
Min.
Max.
Average
31.12.10
Min.
Max.
Average
31.12.09
For the year ended 31.12.10
For the year ended 31.12.09
Risk type
Equities
Interest rates
Credit spreads
Foreign exchange
Energy, metals & commodities
Diversification effect
Total management VaR, Investment Bank 2
Diversification effect (%)
11
13
42
2
2
1
42
37
44
70
15
8
1
78
19
24
55
7
3
(51)
56
(48)
17
23
59
6
7
(43)
68
(39)
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)
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.
135
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Risk and treasury management
Risk management and control
Value-at-risk developments in 2010
The tables in this section show our 1-day 95% management VaR
for the Group and the Investment Bank.
The Investment Bank’s average management VaR (1-day 95%)
increased slightly to CHF 56 million in 2010 compared with CHF
55 million in 2009. Period-end VaR was higher at CHF 68 million
on 31 December 2010 compared with CHF 54 million on 31 De-
cember 2009. This increase was a result of the execution of the
growth plans in the Investment Bank as the market risk profile
increased from previously low levels. Credit spread VaR remained
the dominant component of the Investment Bank’s VaR. VaR for
the Group followed a similar pattern as the Investment Bank’s
VaR.
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 intra-
day trading. A backtesting exception occurs when backtesting
revenues are negative and the absolute value of those revenues is
greater than the previous day’s VaR.
We experienced one backtesting exception in 2010 compared
with four backtesting exceptions in 2009. This exception was due
to extreme market moves which followed the announcement of
the European Central Bank’s financial aid package for certain Eu-
ropean countries in May 2010.
The chart on the right-hand side shows the 12-month develop-
ment of 1-day 99% VaR against backtesting revenues in the In-
vestment Bank for the whole of 2010. The histogram on the
right-hand side shows the Investment Bank’s full trading revenues
distribution in 2010.
We investigate all backtesting exceptions and any exceptional
revenues on the profit side of the VaR distribution. In addition, we
report all backtesting results to senior business management, the
Group Chief Risk Officer (Group CRO) and business division CROs.
Backtesting exceptions are also reported to internal and exter-
nal auditors and to the relevant regulators.
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(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:28)(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:2)(cid:81)(cid:72)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:19)(cid:2)
(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:44)
(cid:40)
(cid:47)
(cid:35)(cid:47)
(cid:44)
(cid:44)
(cid:35)
(cid:53)
(cid:49)
(cid:48)
(cid:38)
(cid:19)(cid:18)(cid:18)
(cid:23)(cid:18)
(cid:18)
(cid:10)(cid:23)(cid:18)(cid:11)
(cid:10)(cid:19)(cid:18)(cid:18)(cid:11)
(cid:10)(cid:19)(cid:23)(cid:18)(cid:11)
(cid:10)(cid:20)(cid:18)(cid:18)(cid:11)
(cid:19)(cid:53)(cid:53)(cid:18)(cid:19)(cid:19)(cid:65)(cid:71)
(cid:36)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)
(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:10)(cid:19)(cid:15)(cid:70)(cid:67)(cid:91)(cid:14)(cid:2)(cid:27)(cid:27)(cid:7)(cid:2)(cid:69)(cid:81)(cid:80)(cid:386)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:14)(cid:2)(cid:23)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:74)(cid:75)(cid:85)(cid:86)(cid:81)(cid:84)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:70)(cid:67)(cid:86)(cid:67)(cid:11)
(cid:19)(cid:2)(cid:39)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:14)(cid:2)(cid:85)(cid:87)(cid:69)(cid:74)(cid:2)(cid:67)(cid:85)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:72)(cid:71)(cid:71)(cid:85)(cid:14)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:75)(cid:80)(cid:86)(cid:84)(cid:67)(cid:70)(cid:67)(cid:91)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:16)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:28)(cid:2)(cid:67)(cid:78)(cid:78)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:149)
(cid:40)(cid:84)(cid:71)(cid:83)(cid:87)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:75)(cid:80)(cid:2)(cid:80)(cid:87)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)
(cid:19)(cid:2)(cid:44)(cid:67)(cid:80)(cid:87)(cid:67)(cid:84)(cid:91)(cid:2)(cid:20)(cid:18)(cid:19)(cid:18) (cid:115) (cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:18)
(cid:24)(cid:18)
(cid:22)(cid:23)
(cid:21)(cid:18)
(cid:19)(cid:23)
(cid:2)(cid:2)(cid:18)
(cid:11)
(cid:18)
(cid:18)
(cid:20)
(cid:10)
(cid:30)
(cid:11)
(cid:18)
(cid:26)
(cid:19)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:18)
(cid:20)
(cid:10)
(cid:11)
(cid:18)
(cid:24)
(cid:19)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:26)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:22)
(cid:19)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:24)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:20)
(cid:19)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:22)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:18)
(cid:19)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:20)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:26)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:18)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:24)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:26)
(cid:10)
(cid:11)
(cid:18)
(cid:22)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:24)
(cid:10)
(cid:11)
(cid:18)
(cid:20)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:22)
(cid:10)
(cid:18)
(cid:115)
(cid:11)
(cid:18)
(cid:20)
(cid:10)
(cid:18)
(cid:20)
(cid:115)
(cid:18)
(cid:18)
(cid:22)
(cid:115)
(cid:18)
(cid:20)
(cid:18)
(cid:24)
(cid:115)
(cid:18)
(cid:22)
(cid:18)
(cid:26)
(cid:115)
(cid:18)
(cid:24)
(cid:18)
(cid:18)
(cid:19)
(cid:115)
(cid:18)
(cid:26)
(cid:18)
(cid:20)
(cid:19)
(cid:115)
(cid:18)
(cid:18)
(cid:19)
(cid:18)
(cid:22)
(cid:19)
(cid:115)
(cid:18)
(cid:20)
(cid:19)
(cid:18)
(cid:24)
(cid:19)
(cid:115)
(cid:18)
(cid:22)
(cid:19)
(cid:18)
(cid:26)
(cid:19)
(cid:115)
(cid:18)
(cid:24)
(cid:19)
(cid:18)
(cid:18)
(cid:20)
(cid:115)
(cid:18)
(cid:26)
(cid:19)
(cid:18)
(cid:18)
(cid:20)
(cid:32)
(cid:19)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:67)(cid:78)(cid:78)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:67)(cid:85)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:88)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:16)
(cid:52)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:21)(cid:52)(cid:47)(cid:19)(cid:20)(cid:23)(cid:65)(cid:71)
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(cid:21)(cid:18)
(cid:22)(cid:23)
(cid:19)(cid:23)
(cid:24)(cid:18)
(cid:18)
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-50
-125
-200
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Non-trading portfolios
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For the purposes of our disclosure, the market risks associated
with our non-trading portfolios are quantified using sensitivity
analysis. This includes an aggregate measure of our exposures to
interest rate risk in the banking book and specific sensitivity infor-
mation for certain significant portfolios and positions that are not
included in our management VaR.
Interest rate risk in the banking book
The banking book consists of Available-for-sale instruments,
Loans and receivables, certain Instruments designated at fair val-
ue through profit or loss, derivatives measured at fair value
through profit or loss and derivatives employed for cash flow
hedge accounting purposes, as well as related funding transac-
tions. These positions may impact other comprehensive income or
profit or loss, due to differences in accounting treatment.
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, EaR, CaR and CST metrics. Interest rate risk sensitivity
figures are provided for the impact of a 1-basis-point parallel in-
crease in yield curves on present values of future cash flows, irre-
spective of accounting treatment.
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Our largest banking book 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 trea-
sury activities, which are mainly hedged.
The interest rate risks arising in the Wealth Management &
Swiss Bank are transferred either by means of back-to-back trans-
actions or, in the case of products with no contractual maturity
date or direct market-linked rate, via “replicating” portfolios from
the originating business into one of two centralized interest rate
risk management units: Group Treasury or the Investment Bank’s
fixed income, currencies and commodities (FICC) unit. These units
manage the risks as part of their risk portfolios within their allo-
cated market risk limits and controls, on an integrated basis, ex-
ploiting the netting potential across interest rate risks from differ-
ent sources.
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securities held as Loans and receivables, also give rise to non-
trading interest rate risk.
Interest rate risk within Wealth Management Americas arises
from the business division’s investment portfolio in addition to its
lending and deposit products offered to clients.
Interest rate risk is closely measured, monitored and managed
within approved risk limits and controls. Interest rate risk manage-
ment incorporates the effects of natural risk offsets inherent with-
in the balance sheet of Wealth Management Americas.
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The interest sensitivity of non-contractual maturity products is
modeled using historical behavior patterns from a complete inter-
est rate cycle.
Group Treasury manages two main types of interest rate risk
positions. One type is the risk transferred from Wealth Manage-
ment & Swiss Bank’s banking operations (mentioned above). The
other type arises from investing or funding non-monetary corpo-
rate balance sheet items that have indefinite lives such as equity
and goodwill. For these items we have defined specific target du-
rations based on which we fund and invest as applicable. These
targets are defined by replication portfolios, which establish roll-
ing benchmarks to execute against. The table below captures any
residual risk in the Group Treasury books against these bench-
marks. This activity and associated sensitivities of these replication
portfolios are further discussed in the Group Treasury section.
In addition to its regular risk management activities, Group
Treasury has been executing transactions that aim to economi-
cally hedge negative effects on the firm’s net interest income
stemming from the extraordinarily low yield environment. These
positions are the cause of the significant increase of our interest
rate risk in the banking book compared to 2009.
➔ Refer to “Group Treasury” section for more information on
investment of equity
The impact of an adverse parallel shift in interest rates of 200
basis points on our banking book interest rate risk exposures is
significantly below the threshold of 20% of eligible regulatory
capital specified by regulators. This is designed to identify banks
that may be required to hold additional regulatory capital against
this risk.
The Investment Bank’s portfolio of assets that were reclassified
to Loans and receivables from Held-for-trading in the fourth quar-
ter of 2008 and the first quarter of 2009, and certain other debt
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Interest rate sensitivity of available-for-sale bond investments
In addition to the above economic risk view which also considers
off-setting positions, we provide below the accounting view of
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Impact of a 1-basis-point parallel increase in yield curves on present value of future cash flows 1
CHF million
CHF
EUR
GBP
USD
Other
Total impact on interest rate-sensitive banking book positions
31.12.10
31.12.09
(0.7)
(2.1)
(2.9)
(10.7)
(0.3)
(16.6)
(0.3)
(0.2)
(0.3)
(0.8)
(0.1)
(1.8)
1 Does not include interest rate sensitivities in respect of our inventory of student loan ARS or our commitment to purchase client holdings of student loan ARS. From an economic perspective these exposures are not
materially affected by parallel shifts in USD interest rates, holding other factors constant.
137
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Risk management and control
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debt investments classified according to IFRS as Financial invest-
ments available-for-sale, which are measured at fair value through
other comprehensive income. Debt financial instruments classified
as Financial investments available-for-sale amounted to CHF 73.4
billion on 31 December 2010. A 1-basis-point increase in the re-
spective yields of the IFRS debt instruments available-for-sale port-
folio would have decreased equity by approximately CHF 15 mil-
lion from fair value changes posted to OCI. This estimation excludes
economic off-setting positions and is included in the above table
on interest rate-sensitivities in the banking book, together with
partially offsetting hedge and funding effects, or in disclosed VaR.
➔ Refer to “Note 13 Financial investments available-for-sale” in the
“Financial information” section of this report for more information
➔ Refer to “Debt investments” in the “Credit risk” section of this
report for more information
Interest rate sensitivity of interest rate swaps designated in
cash flow hedges
To the extent effective, interest rate swaps designated in cash
flow hedges are accounted for at fair value through equity under
IFRS. Amounts deferred in equity are released to the income state-
ment according to the occurrence of the underlying hedged inter-
est cash flows. Interest rate swaps designated in cash flow hedges
are denominated in USD, EUR, GBP, CHF and CAD. At 31 Decem-
ber 2010, fair values of interest rate swaps amounted to CHF 5.4
billion (positive replacement values) and CHF 3.4 billion (negative
replacement values). The impact on other comprehensive income
under IFRS of a 1-basis-point increase of underlying LIBOR curves
would have decreased equity by approximately CHF 21 million.
This estimation excludes economic offsetting positions and is in-
cluded in the above table on interest rate sensitivities in the bank-
ing book, together with partially offsetting hedge and funding
effects.
Non-trading portfolios – valuation and sensitivity informa-
tion by instrument category
This section includes a description of the valuation of certain sig-
nificant product categories and related valuation techniques and
models. In addition, sensitivity information is provided for certain
significant instrument categories that are excluded from manage-
ment VaR as disclosed in the “Risk and treasury management”
section of this report.
Credit valuation adjustments on monoline credit protection
UBS previously entered into negative basis trades with monolines,
whereby they provided CDS protection against UBS-held underly-
ings, including residential and commercial mortgage-backed securi-
ties collateralized debt obligations (RMBS and CMBS CDO), trans -
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actions with CLO, and asset-backed securities collateralized debt
obligations (ABS CDO). Since the start of the financial crisis, the CVA
relating to these monoline exposures have been a source of valua-
tion uncertainty, given market illiquidity and the contractual terms
of these exposures relative to other monoline-related instruments.
CVA amounts related to monoline credit protection are based
on a methodology that uses CDS spreads on the monolines as a
key input in determining an implied level of expected loss. Where
a monoline has no observable CDS spread, a judgment is made on
the most comparable monoline or combination of monolines, and
the corresponding 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 as-
sets to provide estimates of expected future exposure levels. For
other asset categories, future exposure is derived from current
exposure levels.
To assess the sensitivity of the monoline CVA calculation to al-
ternative assumptions, the impact of a 10% increase in monoline
CDS spreads (e.g. from 1,000 basis points to 1,100 basis points
for a specific monoline) was examined. On 31 December 2010,
such an increase would have resulted in an increase in the mono-
line credit valuation adjustment of approximately USD 45 million
(CHF 42 million) compared with USD 77 million or CHF 80 million
on 31 December 2009.
The sensitivity of the monoline CVA to a decrease of one per-
centage point in the monoline recovery rate assumptions (e.g.
from 35% to 34% for a specific monoline, conditional on default
occurring) is estimated to result in an increase of approximately
USD 9 million (CHF 8 million) in the CVA, compared with USD 26
million or CHF 27 million on 31 December 2009. The sensitivity to
credit spreads and recovery rates is substantially linear.
US reference-linked notes
The US reference-linked notes (RLN) consist of a series of transac-
tions whereby UBS purchased credit protection, predominantly in
note form, on a notional portfolio of fixed income assets. The
referenced assets are comprised of USD asset-backed securities
(ABS). These are primarily commercial mortgage-backed securities
and subprime residential mortgage-backed securities and / or
corporate bonds and loans across all rating categories. While the
assets in the portfolio are marked-to-market, the credit protection
embodied in the RLN is fairly valued using a market standard ap-
proach to the valuation of portfolio credit protection (Gaussian
copula). This approach is intended to effectively simulate corre-
lated defaults within the portfolio, where the expected losses and
defaults of the individual assets are closely linked to the observed
market prices (spread levels) of those assets. Key assumptions of
the model include correlations and recovery rates. UBS applies fair
value adjustments related to potential uncertainty in each of these
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parameters, which are only partly 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 rele-
vant parameters and revaluing the credit protection. These shocks
for correlation, recovery and spreads are set to various levels de-
pending 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 generally
in the reasonably possible range of 5 to 15 percentage points.
Spread shocks vary more widely and depend on whether the un-
derlying protection is funded or unfunded to reflect cash or syn-
thetic basis effects.
On 31 December 2010, the fair value of the US RLN credit
protection was approximately USD 629 million (CHF 588 million)
compared with USD 1,431 million (CHF 1,481 million) on 31 De-
cember 2009. This fair value includes fair value adjustments which
were calculated by applying the shocks described above of
approximately USD 31 million (CHF 29 million). This compares
with USD 71 million (CHF 74 million) on 31 December 2009. The
fair value adjustments may also be considered a measurement of
sensitivity.
Non-US reference-linked notes
The same valuation model and approach to the calculation of fair
value adjustments are applied to the non-US RLN credit protection
and the US RLN credit protection as described above, except that
the spread is shocked by 10% for European corporate names.
On 31 December 2010, the fair value of the non-US RLN cred-
it protection was approximately USD 660 million (CHF 616 mil-
lion) compared with USD 1,050 million (CHF 1,087 million) on
31 December 2009. This fair value includes fair value adjust-
ments which were calculated by applying the shocks described
above of approximately USD 72 million (CHF 67 million) com-
pared with USD 105 million (CHF 109 million) on 31 December
2009. This adjustment may also be considered a measurement
of sensitivity.
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to discount future cash flows such that the model-generated 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.
On 31 December 2010, this adjustment was USD 250 million
(CHF 234 million) compared with USD 262 million (CHF 271 mil-
lion) on 31 December 2009.
On 31 December 2010, a 100-basis-point increase in the dis-
count rate would have decreased the option value by approxi-
mately USD 167 million (CHF 156 million), and a 100-basis-point
decrease would have increased the option value by approximately
USD 188 million (CHF 176 million).
Stress loss
To complement VaR and other measures of market risk, we also
run macro stress scenarios, combining various market moves to
reflect the most common types of potential stress events, as well
as more targeted stress tests for our concentrated exposures and
vulnerable portfolios. Targeted stress tests are typically applied to
specific asset classes or to specific markets and products. We con-
tinued to enhance our market risk stress framework in 2010, in
order to increase the scope and granularity of the analysis. Our
scenarios capture the liquidity characteristics of different markets,
asset classes and positions.
Our market risk stress testing framework is designed to provide
a control framework that is forward-looking and responsive to
changing market conditions. Our stress scenarios are therefore
reviewed regularly in the context of the macroeconomic and geo-
political environment by a committee comprised of representa-
tives from the business divisions, Risk Control and Economic Re-
search. In response to changing market conditions and new
developments around the world, we develop and run ad hoc
stress scenarios to assess the potential impact on our portfolio.
➔ Refer to the discussion on stress loss in this section for more
information
Equity investments
Option to acquire equity of the SNB StabFund
UBS’s option to purchase the SNB StabFund’s equity is recognized
on the balance sheet as a derivative at fair value (positive replace-
ment values) with changes to fair value recognized in profit or
loss. On 31 December 2010, the fair value (after adjustments) of
the call option held by UBS was approximately USD 1,906 million
(CHF 1,781 million) compared with USD 1,174 million (CHF 1,216
million) on 31 December 2009.
The model incorporates cash flow projections for all assets
within the fund across various scenarios. It is calibrated to market
levels by setting the spread above the one-month Libor rates used
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Under IFRS, equity investments not in the trading book may be
classified as Financial investments available-for-sale, Financial as-
sets designated at fair value through profit or loss or Investments
in associates.
We make investments for a variety of purposes, including reve-
nue generation or as part of strategic initiatives. Other investments,
such as exchange and clearing house memberships, are held to
support our business activities. We may also make investments in
funds that we manage, in order to fund or “seed” them at incep-
tion, or to demonstrate alignment of our interests with those of
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Risk management and control
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investors. We also buy, and are sometimes required by agreement
to buy, securities and units from funds that we have sold to clients.
These may include purchases of illiquid assets such as interests in
hedge funds.
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We can make direct investments in a variety of entities or buy
equity holdings in both listed and unlisted companies, if such
investments are illiquid. The fair value of equity investments
tends to be dominated by factors specific to the individual
stocks, and our equity investments are generally intended to
be held for the medium or long term and may be subject to
lock-up agreements. For these reasons, we generally do not con-
trol these exposures using the market risk measures applied to
trading activities. Such equity investments are, however, subject
to risk 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 EaR, CaR
and CST metrics.
Investments made as part of an ongoing business are also
subject to our standard controls, including portfolio and concen-
tration limits. Seed money and co-investments in UBS-managed
funds made by Global Asset Management are, for example, sub-
ject to a portfolio limit. All investments must be approved by del-
egated authorities and are monitored and reported to senior
management.
Composition of equity investments
On 31 December 2010, we held equity investments totaling CHF 3.0
billion, of which CHF 1.4 billion were classified as Financial invest-
ments available-for-sale, CHF 0.9 billion as Financial assets desig-
nated at fair value and CHF 0.8 billion as Investments in associates.
As of 31 December 2009, we held equity investments totaling
CHF 3.1 billion, of which CHF 1.4 billion were classified as Finan-
cial investments available-for-sale, CHF 0.8 billion as Financial as-
sets designated at fair value and CHF 0.9 billion as Investments in
associates.
The vast majority of the CHF 0.9 billion of Financial assets des-
ignated at fair value represented the assets of trust entities asso-
ciated with employee compensation schemes. They are broadly
offset by liabilities to plan participants included in Other liabilities.
The equivalent positions on 31 December 2009 amounted to CHF
0.8 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 Investments in associates” in the “Financial
information” section of this report for further informations
140
Operational risk
Operational risk is the risk resulting from inadequate or failed in-
ternal processes, human error and systems failure, or from exter-
nal causes (deliberate, accidental or natural). Events may be man-
ifested as direct financial losses or indirectly in the form of revenue
forgone as a result of business suspension. They may also result in
damage to our reputation and to our franchise causing longer
term financial consequences. Managing risk is a core element of
our business activities, and operational risk is an inevitable conse-
quence of being in business. Our aim is not to eliminate every
source of operational risk, but to provide a framework that sup-
ports the identification and assessment of all material operational
risks and their potential concentrations in order to achieve an ap-
propriate balance between risk and return.
Management and risk committees are the governing bodies
responsible for oversight and active discussion of risk manage-
ment activities, including the question of whether or not the
cost of mitigating actions is adequately balanced against the
acceptable level of operational risk. Management, in all func-
tions, is responsible for establishing an appropriate operational
risk management environment, including the establishment
and maintenance of robust internal controls and a strong risk
culture.
The Group Head of Operational Risk Control (ORC) is respon-
sible for the operational risk framework (ORF) and monitors its
implementation in the business divisions and the Corporate Cen-
ter. The Group Head of ORC reports to the Group Risk Chief Op-
erating Officer, who is a member of the Risk Executive Commit-
tee, and chairs the ORC Management Committee, composed of
the Heads of Operational Risk Control from each business division
including the Corporate Center. The ORC Management Commit-
tee is the main decision-making committee for all operational risk
framework matters.
Operational risk framework
The operational risk framework sets general requirements for
managing and controlling operational risk, including implemen-
tation by divisional and functional management. The framework
requires that all material operational risks be identified, appropri-
ately measured, monitored, controlled and reported.
A comprehensive operational risk classification taxonomy ex-
ists, which defines all operational risks arising from business ac-
tivities. It enables a common understanding, and provides a stan-
dard and consistent categorization of operational risks across all
business divisions and the Corporate Center. The operational risk
taxonomy forms the backbone of operational risk assessment and
reporting. Critically, it provides a transparent link to the health of
the internal control environment. Relevant operational risk indi-
cator data, for example internal and external loss events, are as-
signed to taxonomy categories, which are:
– theft, fraud and unauthorized activity
– employment-related risks
– business practices
– operating and legal entity governance
– client selection and monitoring
– investment suitability, maintenance and servicing
– data confidentiality and protection
– product risks and business due diligence
– transaction processing and operational reliability
– technology risks
– vendors and offshoring
– valuation and reporting
– primary risk management and control
As a consequence of the legal and regulatory environment we
operate in, many of the above categories include significant litiga-
tion and regulatory exposures.
The operational risk appetite applied to our business activities
is expressed through the establishment of quantitative constraints,
such as operating limits and an internal control environment with
associated performance thresholds, and / or qualitative constraints
such as standards and requirements as set by policy.
Senior management is required to maintain a robust and com-
prehensive set of internal controls, and must continuously assess
both their design and operational adequacy. The operational risk
framework assesses both the aggregated impact of recorded de-
ficiencies on the firm’s operational risk profile and the adequacy
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Risk and treasury management
Risk management and control
of remediation efforts undertaken. Senior management considers
whether the current level of operational risk is acceptable, and, if
not, must adapt their business activities or adjust the internal con-
trol environment accordingly.
Material operational risks and significant internal control defi-
ciencies are identified and reported at least quarterly to stake-
holders, including the BoD, GEB, divisional/regional/local manage-
ment, Group Internal Audit, external auditors and regulators.
Operational risk measurement
We have developed a model for the quantification of our opera-
tional 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 experi-
ences (collected since 2002), and is used primarily to determine
the expected loss portion of our capital requirement. The unex-
pected loss component is based on a set of generic scenarios
representing categories of operational risks that are relevant to
the firm. The scenarios are reviewed extensively on an annual
basis by internal experts, using internal and external event infor-
mation, information about 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.
The ORC owns and manages the AMA process that determines
operational risk regulatory capital and the allocation of capital to
the business divisions and the Corporate Center.
We calculate our operational risk regulatory capital require-
ment using the AMA model for the consolidated Group and the
parent bank in accordance with FINMA requirements. For regu-
lated subsidiaries, the basic indicator or standardized approaches
are adopted as agreed with local regulators.
Currently, we do not reflect mitigation through insurance or
any other risk transfer mechanism in our AMA model.
➔ Refer to the “Capital management” section of this report
for more information on the development of RWA for
operational risk
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Risk concentrations
Risk concentrations
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A risk concentration exists where: (i) a position in financial instru-
ments is affected by changes in a group of correlated factors, or a
group of positions are 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 sig-
nificant losses.
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 individu-
ally and collectively. These elements include: the shared character-
istics of the instruments and counterparties; the size of the posi-
tion or group of positions; the sensitivity of the position or group
of positions to changes in risk factors; and the volatility and cor-
relations of those factors. Also important in our assessment is the
liquidity of the markets where the instruments are traded, and the
availability and effectiveness of hedges or other potential risk
mitigating factors. The value of a hedge instrument may not al-
ways move in line with the position being hedged, and this mis-
match is referred to as basis risk.
If we identify a risk concentration, we assess it to determine
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 cur-
rent environment, we believe that our exposures to monoline in-
surers and student loan auction rate securities shown below can
be considered as risk concentrations as of 31 December 2010, in
accordance with the abovementioned definition.
It is possible that material losses could occur on asset classes,
positions and hedges other than those disclosed in this section of
the report, particularly if the correlations that emerge in a stressed
environment differ markedly from those we anticipated. We are
exposed to price risk, basis risk, credit spread risk and default risk
as well as 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 result in significant losses if economic condi-
tions 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
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Exposure to monoline insurers
The vast majority of our direct exposures to monoline insurers
arise from OTC derivative transactions, mainly CDS purchased to
hedge specific positions. The “Exposure to monoline insurers by
rating” table shows the CDS protection purchased from monoline
insurers to hedge specific positions. It illustrates the notional
amounts of the protection held, the fair value of the underlying
instruments and the fair value of the CDS 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 accounting purposes,
the change in CVA reported in the table does not equal the profit
or loss associated with this portfolio during the year ended 31 De-
cember 2010.
Exposure under CDS contracts with monoline insurers is calcu-
lated as the sum of the fair values of individual CDS after CVA.
Changes in CVA result from changes in CDS fair value. This, in
turn, arises from changes in the fair value of the instruments
against which protection has been purchased, and also from
movements in monoline credit spreads.
UBS actively reduced exposures to monoline insurers in 2010
by commuting trades. The trade commutations related primarily
to US RMBS CDO that we had substantially written down on a fair
value basis. Combined with the improved performance and com-
position of the portfolio, the fair values of our remaining assets
hedged with monoline insurers increased over the period, with a
corresponding decrease in the fair values of the related CDS. On
31 December 2010, based on fair values, approximately 73% of
the remaining assets were collateralized loan obligations (CLO),
25% were collateralized CMBS and other asset-backed securities,
and only 2% related to US RMBS CDO. The vast majority of the
CLO positions were rated AA and above.
On 31 December 2010, the total fair value of CDS protection
purchased from monoline insurers decreased to USD 1.6 billion
(USD 2.3 billion on 31 December 2009) after cumulative CVA of
USD 1.1 billion (USD 2.8 billion on 31 December 2009). These
exposures do not take into account any hedging benefits.
In addition to credit protection purchased on the positions de-
tailed in the table, on 31 December 2010 UBS held direct deriva-
tive exposure to monoline insurers of USD 240 million after CVA
of USD 143 million.
➔ Refer to the discussion on credit valuation adjustments on
monoline credit protection in this section of the report for more
information on CVA valuation and sensitivities
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Risk management and control
Exposure to monoline insurers, by rating 1
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USD million
Credit protection on US sub-prime residential mortgage-
backed securities (RMBS) CDO, all from monolines rated
sub-investment grade (BB and below) 2
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 31.12.10
Total 31.12.09
Notional
amount 3
Fair value
of underlying
assets
Column 1
Column 2
750
11,156
2,288
8,868
11,906
14,187
204
9,002 4
1,935
7,067
9,206
9,083
31.12.10
Fair value of
CDS prior to
credit valuation
adjustment
Column 3
(=1–2)
Credit
valuation
adjustment
Column 4
Fair value of
CDS after
credit valuation
adjustment
Column 5
(=3–4)
546
2,153
353
1,800
2,699
5,103
385
702
68
634
1,087
2,795
161
1,451
285
1,166
1,612
2,308
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 CDS purchased as credit protection. 4 Includes USD 5.8 billion (CHF 5.4 billion) at fair value / USD 5.6 billion (CHF 5.3 billion) at carrying value of assets that were reclassified to Loans and receivables
from Held for trading in the fourth quarter of 2008. Refer to ”Note 29b Reclassification of financial assets“ in the ”Financial information“ section of this report.
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Exposure to student loan auction rate securities
Approximately USD 8.6 billion at par value of student loan ARS
were redeemed by issuers, or sold by us in the secondary market,
in 2010.
We have committed to restore liquidity to certain client hold-
ings of ARS. This commitment is in line with previously announced
agreements in principle with various US state agencies, as well as
the final settlements entered into with the Massachusetts Securi-
ties Division, the US Securities and Exchange Commission and the
New York State Attorney General. We repurchased USD 7.6 billion
at par value of student loan ARS in 2010, including approximately
USD 4 billion of student loan ARS where we accelerated the repur-
chase from our clients in order to facilitate redemptions with issu-
ers or resales. Combined with other redemptions directly with cli-
ents and amortizations, this resulted in an overall decrease of USD
7,754 million in the maximum repurchase amount at par of stu-
dent loan ARS required by the regul tory settlements (as shown in
the table “Client holdings: student loan ARS”) compared with a
reduction of USD 3,958 million in 2009. On 31 December 2010,
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our outstanding repurchase commitment was USD 63 million. This
concerns institutional client holdings of student loan ARS, and the
relevant buy-back window will close on 2 July 2012.
Our inventory of student loan ARS decreased by USD 563 mil-
lion to USD 9,784 million as of 31 December 2010 as a result of
the abovementioned redemptions, resales and amortizations.
These were largely offset by student loan ARS repurchased in the
period. On 31 December 2010, approximately 77% of the col-
lateral underlying our inventory of student loan ARS was backed
by Federal Family Education Loan Program (FFELP), which was
reinsured by the US Department of Education for not less than
97% of principal and interest. All of our student loan ARS posi-
tions are held as Loans and receivables and are subject to an im-
pairment test that includes a detailed review of the quality of the
underlying collateral. Impairment charges incurred on our inven-
tory of student loan ARS in 2010 were USD 145 million (CHF 148
million). Approximately 62% of the USD 63 million student loan
ARS that we committed to purchase from clients were backed by
FFELP guaranteed collateral.
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Student loan ARS inventory
USD million
US student loan ARS
Carrying value
31.12.10
9,784 1
31.12.09
10,347
1 Includes USD 4.5 billion net of allowances of USD 0.2 billion (CHF 4.2 billion, net of allowances of CHF 0.2 billion) at carrying value of student loan ARS that were reclassified to Loans and receivables from Held for
trading in fourth quarter 2008. Refer to “Note 29b Reclassification of financial assets” in the “Financial information” section of this report for more information.
Client holdings: student loan ARS
USD million
US student loan ARS
Par value of maximum required purchase
31.12.10
63
31.12.09
7,817
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Risk and treasury management
Treasury management
Treasury management
Group Treasury oversees the balance sheet and the usage of our critical financial resources including capital, liquidity
and funding. Treasury manages key portions of these resources including the interest rate and currency risks arising
from balance sheet and capital management activities.
Liquidity management
In 2010, we continued to maintain a sound liquidity position and
a diversified portfolio of funding sources, despite the potential
uncertain impact of developments in financial regulatory reforms
and the significant market volatility caused by uncertainties
regarding the global macroeconomic environment, including
certain European fiscal and sovereign debt concerns.
Funding management
Over the course of 2010, as investors became gradually more risk
tolerant, credit spreads and incremental funding costs for most
global financial institutions, including UBS, generally narrowed
throughout the yield curve. We raised over CHF 15 billion equiva-
lent of public benchmark bonds with an average maturity of 5.5
years. This exceeded the combined amount of public benchmark
bonds and other long-term straight debt which matured, or was
redeemed, during 2010. Adjusting for currency effects, our custom-
er cash deposits in our wealth and asset management business divi-
sions at year-end 2010 were stable compared with year-end 2009.
Interest rate and currency management
The interest rate risk management responsibility for Wealth Man-
agement & Swiss Bank transactions executed in Switzerland was
transferred to Group Treasury. The interest rate risk arising from
this is managed by Group Treasury to optimize risk capture, man-
agement and netting potential. In response to the prolonged low
yields, treasury supported and implemented measures to improve
Wealth Management & Swiss Bank’s margin income through in-
come-generating fixed receiver swap and bond portfolios. Group
Treasury continued to earn interest income on equity through its
portfolio of interest rate products and managed the currency ef-
fects on equity and key ratios. Profits and losses in foreign curren-
cies were hedged to protect shareholder value.
Capital ratios, risk-weighted assets and eligible capital
On 31 December 2010, our BIS tier 1 ratio was 17.8% and the
total capital ratio was 20.4%, up from 15.4% and 19.8%, re-
spectively, on 31 December 2009. BIS risk-weighted assets de-
clined from CHF 206.5 billion at the end of December 2009 to
CHF 198.9 billion at the end of December 2010, while eligible tier
1 capital increased from CHF 31.8 billion to CHF 35.3 billion over
the same period.
Equity attribution
Group Treasury uses our equity attribution framework to guide
our businesses in the allocation of resources to opportunities that
are expected to provide the best risk-adjusted profitability contri-
butions.
Shares
As of 31 December 2010, we had a total of 3,830,840,513 shares
issued. In 2010, the issued shares were increased by a total of
272,727,760 shares. This was mainly due to our capital raising as
CHF 13 billion in convertible notes (MCN) issued in 2008 expired
on 5 March 2010. The notes were mandatorily converted into
272,651,005 newly issued shares, which represented 7.7% of our
issued share capital at the time. Additionally there were a small
number of exercises of conditional capital due to exercises of em-
ployee options (76,755 shares).
Financial resource governance
Our Group Asset and Liability Management Committee (Group
ALCO) promotes the usage of our assets and liabilities in line with
our overall UBS Group (Group) strategy as defined by the Board of
Directors (BoD) and the Group Executive Board (GEB), our regula-
tory commitments and the interests of our shareholders and other
stakeholders. The Group ALCO manages the balance sheet of the
business divisions through allocation and monitoring of targets. In
addition, the Group ALCO manages our liquidity, funding and
capital by taking into account their business performance, overall
risk profile as well as market conditions.
Group Treasury provides Group ALCO with monthly reporting
of our financial resources (e.g. balance sheet, capital, liquidity and
funding) in order for them to oversee and monitor our asset and
liability management policies and processes to ensure their effec-
tiveness under prevailing and prospective conditions.
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Liquidity and funding management
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We define liquidity risk as the risk of being unable to generate suf-
ficient funds from assets 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 en-
sure that we can successfully adjust to sudden adverse changes in
market conditions or our operating environment, whether such
changes consist of a general market crisis, a localized difficulty
affecting a smaller number of institutions, or a problem unique to
an individual firm. An institution that is unable to meet its liabili-
ties when they fall due may fail, even though it is not insolvent,
because it is unable to borrow sufficient funds on an unsecured
basis, or does not have sufficient high quality assets to borrow
against or liquid assets to sell to raise immediate cash.
Market liquidity overview: 2010
Relative to the latter part of 2009, the beginning of 2010 was char-
acterized by much more favorable market conditions, with a surge
in public long-term debt issuance by financial institutions. Howev-
er, markets subsequently became more volatile and issuance condi-
tions deteriorated into and during the second quarter as increasing
concerns regarding sovereign debt in several European countries
led to heightened risk aversion and fears of contagion, driving up
banks’ credit risk premia and funding spreads. Risk aversion per-
sisted into the early summer amid concerns about the global econ-
omy, the pending release of the EU banks’ stress test results, the
debate on central bank support and the uncertain impact of global
financial regulatory reform. Market liquidity and funding condi-
tions for banks began to improve again following the release of the
EU banks’ stress test results in July, and continued to remain rela-
tively favorable throughout the third quarter and into the early part
of the fourth quarter, albeit with reduced activity in debt issuance.
Certain financial institutions’ funding spreads widened noticeably
late in the year due to renewed European sovereign credit concerns
and uncertainty around the potential success of continued quanti-
tative easing efforts by major central banks.
We saw continued signs of stabilization during 2010, with over-
all quarterly net new money inflows in the second half of the year,
while customer cash deposits in our wealth and asset management
business divisions at year-end 2010 were stable compared with the
prior year-end when adjusted for currency effects. This is a notable
change from the declines in customer cash deposits and net new
money outflows that these businesses experienced in 2009.
➔ Refer to the “Balance sheet“ section of this report for more
information
Continuing implementation of the liquidity and
funding risk management framework
Following the approval of our funding model by the Group
ALCO, a new internal funds transfer pricing curve has been im-
plemented. We further developed the architecture of the strate-
gic models that focus on the stressed liquidity and the opera-
tional cash ladders that are used to monitor the liquidity profile
of the firm. In 2011 we will begin regional implementation of
the new funding model.
➔ Refer to “Note 27 Fair value of financial instruments” in the
“Financial information” section of this report for more
information
Liquidity approach
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Our approach to liquidity management, which covers all UBS
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 unacceptable 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. This involves monitoring the balance sheet
contractual and behavioral maturity profiles and projecting and
modeling the liquidity exposures of the firm under a variety of
potential scenarios – encompassing both normal and stressed
market conditions. Limits are set at Group and business division
level by the BoD, the Group ALCO, the Group Chief Financial
Officer (Group CFO) and the Group Treasurer. 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.
Our major sources of liquidity are channeled through entities
that are fully consolidated. The liquidity position and asset and li-
ability profile are continuously tracked. 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 fac-
tored into our overall contingency plans. Contingency plans for a
liquidity crisis are then incorporated into our wider crisis manage-
ment process.
Liquidity management
We manage our liquidity position in order to be able to survive 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 optimal liability structure
to finance our businesses reliably and cost-efficiently.
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Treasury management
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Our business activities generate asset and liability portfolios
that 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.
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Our funding diversification and global scope help protect our
liquidity position in the event of a crisis. 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 commodities (FICC) business
area. Group Treasury establishes a control framework, while FICC
undertakes operational cash and collateral management within
the established limits.
This permits close control of both our global cash position and
our stock of high-quality liquid securities. Our treasury processes
also ensure that the firm’s general access to wholesale cash mar-
kets is concentrated in FICC. Funds raised externally are largely
channeled into FICC, including the proceeds of debt securities is-
sued by UBS, an activity for which Group Treasury is responsible.
FICC in turn meets internal demands for funding by channeling
funds from units generating surplus cash to those in need of fi-
nancing.
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Liquidity modeling, controls and contingency planning
For the purpose of monitoring our liquidity situation, we employ
the following main measures:
– A cash ladder which is used to manage our funding require-
ments on a daily basis within limits that are set by the Group
ALCO, the Group CFO and the Group Treasurer. This cumula-
tive cash ladder shows the daily liquidity position – the net cu-
mulative 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 li-
quidity crisis combined with a generally stressed market envi-
ronment. This stress scenario is run daily and used to project
potential outflows over a one-month time horizon.
– A contractual maturity gap analysis of our assets and liabilities
over a one-year time horizon.
– A behavioral maturity gap analysis under an assumed UBS-
specific liquidity crisis combined with a generally stressed mar-
ket environment over a one-year time horizon.
– A cash capital model which measures the amount of stable fund-
ing in relation to the amount and composition of our assets.
All of these tools and models are reviewed and enhanced regu-
larly to ensure that latest business developments are incorporated.
The breakdown of the contractual maturities of our assets and
liabilities serves as a starting point for stress testing analyses. This
contractual view does not fully represent a liquidity risk manage-
ment perspective, and is thus adjusted to include behavioral com-
ponents 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 extending up to
one year. This UBS-specific scenario envisages large drawdowns
on otherwise stable client deposits which are predominantly due
contractually on demand, an inability to renew or replace matur-
ing unsecured wholesale funding and the reduced capacity to
generate liquidity from trading assets. Liquidity crisis scenario
analysis and contingency planning supports the liquidity manage-
ment process so that im mediate corrective measures, such as the
use of a liquidity buffer to absorb potential sudden liquidity short-
falls, can be put into effect.
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 se-
cured basis against available collateral, which includes securi-
ties eligible for pledging at the major central banks, or by sell-
ing inven tory. 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, includ-
ing all our maturing money market paper (CHF 56 billion out-
standing on 31 December 2010). Since liquidity needs may
also result from commitments and contingencies, including
credit lines extended to secure the liquidity needs of clients,
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 ratings were to be downgraded, “rating trigger”
clauses, especially in derivative transactions, could result in an
immediate cash outflow due to the unwinding of derivative
positions or the need to deliver additional collateral. Based on our
credit ratings as of 31 December 2010, additional collateral or
termination payments pursuant to agreements with certain coun-
terparties of approximately CHF 0.7 billion and CHF 1.9 billion
would have been required in the event of a one-notch and two-
notch reduction, respectively, in our long-term credit ratings. At
year-end 2010 our long-term senior debt ratings were as follows:
Moody’s Aa3 (outlook: negative); Standard and Poor’s A+ (out-
look: stable); and Fitch Ratings A+ (outlook: stable).
We also take into account the potential impact on our net liquid-
ity position of adverse movements in the replacement value of our
over-the-counter (OTC) derivative transactions, which are subject to
collateral arrangements. Given the diversity of our derivatives busi-
ness and that of our counterparties, there is not necessarily a direct
correlation between the factors influencing net replacement values
with each counterparty and a UBS-specific crisis scenario.
➔ Refer to “Note 23 Derivative instruments and hedge accounting”
in the “Financial information” section of this report for more
information
148
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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 un-
derlying our limit and target framework aim to maximize and sus-
tain the value of our business franchise and maintain an appropri-
ate balance in the asset/liability structure. Structural limits and
targets focus on the structure and composition 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 periods
out to one year, including stress testing, and on the liability mix,
including diversification by source, counterparty, currency and
tenor. Group Treasury is responsible for the oversight of the liquid-
ity and funding limits and targets. Performance versus limits and
targets is monitored and regularly communicated to senior man-
agement. On an annual basis these limits and targets are reviewed
and reconfirmed by the respective authorities.
To complement and support the limit framework, Group Trea-
sury and members of our regional and divisional treasuries moni-
tor the markets in which we operate for potential threats.
d
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We have contingency plans for liquidity crisis management, a
cornerstone of which are our substantial liquidity reserves, includ-
ing a large multi-currency portfolio of unencumbered high-quality
short-term assets and available and unutilized liquidity facilities at
several major central banks.
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 special crisis
team with representatives from Group Treasury, FICC and related
areas, including the functions responsible for payments and set-
tlements, market and credit risk control, collateral and margin
management, and information technology and infrastructure.
Our global management model lends itself naturally to efficient
liquidity crisis management. Should a crisis require contingency
funding measures to be invoked, Group Treasury is responsible for
coordinating liquidity generation with representatives from FICC
and the relevant business areas.
New Swiss regulatory liquidity regime
During 2010, the Swiss Financial Market Supervisory Authority
(FINMA) and the Swiss National Bank (SNB) introduced a revised
liquidity regime for big banks which came into effect on 30 June
2010, designed to ensure stability within the Swiss financial in-
dustry. The new regime is broadly consistent with international
proposals for liquidity regulations, particularly the principles writ-
ten by the Basel Committee for Banking Supervision. The core ele-
ment of the new liquidity regime is a severe stress scenario that
combines a general financial market crisis with creditors’ loss of
trust in the bank. The new liquidity regulations require the banks
to hold liquid assets sufficient to offset the projected outflows
under the stress scenario for a period of 30 days. Our established
internal liquidity stress tests consider a stress scenario similar in
nature to that used by the new FINMA liquidity regime. We be-
lieve this will enable us to sustain our business for a period sub-
stantially beyond the minimum regulatory horizon.
➔ Refer to the “Regulatory developments“ section of this report
for more information
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(cid:55)(cid:36)(cid:53)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)
(cid:22)(cid:22)
(cid:25)(cid:23)
(cid:20)(cid:18)(cid:23)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:14)(cid:2)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:69)(cid:71)(cid:80)(cid:86)(cid:84)(cid:67)(cid:78)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:88)(cid:67)(cid:75)(cid:78)(cid:67)(cid:68)(cid:78)(cid:71)(cid:15)(cid:72)(cid:81)(cid:84)(cid:15)(cid:85)(cid:67)(cid:78)(cid:71)
(cid:38)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)
(cid:47)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:81)(cid:80)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:71)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:84)(cid:71)(cid:88)(cid:71)(cid:84)(cid:85)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:20)(cid:22)
(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:85)(cid:87)(cid:84)(cid:82)(cid:78)(cid:87)(cid:85)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:81)(cid:80)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:38)(cid:71)(cid:79)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:20)(cid:20)(cid:27)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)
(cid:20)(cid:24)(cid:21)
(cid:46)(cid:81)(cid:67)(cid:80)(cid:85)
(cid:19)(cid:20)(cid:24)(cid:7)(cid:2)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:24)(cid:27)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:85)(cid:87)(cid:84)(cid:82)(cid:78)(cid:87)(cid:85)
(cid:85)
(cid:86)
(cid:75)
(cid:85)
(cid:81)
(cid:82)
(cid:71)
(cid:70)
(cid:2)
(cid:84)
(cid:71)
(cid:79)
(cid:81)
(cid:86)
(cid:85)
(cid:87)
(cid:37)
(cid:70)
(cid:71)
(cid:87)
(cid:85)
(cid:85)
(cid:75)
(cid:2)
(cid:85)
(cid:71)
(cid:86)
(cid:81)
(cid:80)
(cid:70)
(cid:80)
(cid:67)
(cid:2)
(cid:85)
(cid:70)
(cid:80)
(cid:81)
(cid:36)
(cid:54)(cid:75)(cid:79)(cid:71)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:40)(cid:75)(cid:70)(cid:87)(cid:69)(cid:75)(cid:67)(cid:84)(cid:91)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:52)(cid:71)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:85)(cid:67)(cid:88)(cid:75)(cid:80)(cid:73)(cid:85) (cid:17)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:42)(cid:71)(cid:78)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:67)(cid:79)(cid:81)(cid:84)(cid:86)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:69)(cid:81)(cid:85)(cid:86)
(cid:19)(cid:18)(cid:26)
(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:2)(cid:10)(cid:75)(cid:80)(cid:69)(cid:78)(cid:16)(cid:2)(cid:80)(cid:71)(cid:86)(cid:2)(cid:52)(cid:56)(cid:85)(cid:11)(cid:20)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:20)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:19)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:81)(cid:87)(cid:80)(cid:70)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:115)(cid:2)(cid:49)(cid:54)(cid:37)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:81)(cid:80)(cid:2)(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:86)(cid:84)(cid:67)(cid:80)(cid:85)(cid:67)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:16)
(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)
(cid:46)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:22)(cid:19)
(cid:23)(cid:24)
(cid:26)(cid:19)
(cid:23)(cid:23)
(cid:19)(cid:20)(cid:20)
(cid:21)(cid:21)(cid:20)
(cid:25)(cid:23)
(cid:21)(cid:18)
(cid:19)(cid:18)(cid:23)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:70)(cid:71)(cid:85)(cid:75)(cid:73)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:72)(cid:67)(cid:75)(cid:84)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:149)
(cid:19)(cid:18)(cid:19)
(cid:19)(cid:25)(cid:23)
(cid:25)(cid:22)
(cid:19)(cid:21)(cid:18)
(cid:23)(cid:20)
149
(cid:19)(cid:19)(cid:18)(cid:18)
(cid:26)(cid:20)(cid:23)
(cid:23)(cid:23)(cid:18)
(cid:20)(cid:25)(cid:23)
(cid:18)
(cid:19)(cid:19)(cid:18)(cid:18)
(cid:23)(cid:23)(cid:18)
(cid:26)(cid:20)(cid:23)
(cid:20)(cid:25)(cid:23)
(cid:18)
Risk and treasury management
Treasury management
Funding
d
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i
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u
A
Our wealth management businesses represent valuable and cost-
efficient sources of funding. At year-end 2010, these businesses
contributed CHF 304 billion, or 92%, of the CHF 332 billion total
customer deposits shown in the “UBS asset funding” graph.
Compared with the CHF 263 billion of net loans as of 31 Decem-
ber 2010, customer deposits provided 126% coverage compared
with an adjusted 127% on 31 December 2009. In the fourth
quarter of 2010, we changed the presentation of cash collateral
from derivative transactions and prime brokerage receivables and
payables. These positions are no longer included in customer and
interbank deposits, but are now shown as part of “other liabili-
ties” in the “UBS asset funding” graph.
In terms of secured funding (i.e. repurchase agreements and
securities lent against cash collateral received), we borrowed less
cash on a collateralized basis than we lent, leading to a surplus of
net securities sourced – shown as the CHF 124 billion cash-equiv-
alent surplus in the “UBS asset funding” graph.
Funding is also provided through numerous short-, medium-
and long-term funding programs, which offer customized invest-
ment opportunities to institutional and private clients. These pro-
grams can efficiently raise funds globally, further reducing our
dependence on any particular source.
Through broad diversification of our funding sources by mar-
ket, product and currency, we maintain a well-balanced portfo-
lio of liabilities, which provide protection in the event of market
disruptions. This enables us to efficiently fund our business ac-
tivities.
Funding approach
Funding activities are planned by assessing the overall liquidity
and funding profile of the balance sheet, taking account of stable
funding needed to support ongoing business activities through
periods of difficult market conditions.
During 2010, we raised over CHF 15 billion equivalent of
public benchmark bonds with an average maturity of 5.5 years,
including nearly CHF 3 billion equivalent of covered bond
issuance. The amount of public bond issuance exceeded the
CHF 11 billion equivalent of long-term straight debt (CHF 6 bil-
lion of which was from public benchmark bonds) that matured
during 2010, plus CHF 3 billion equivalent of subordinated
and hybrid tier 1 debt that was redeemed during 2010. Addi-
tionally, we continued to raise medium- and long-term funds
through medium-term notes and private placements through-
out the year.
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 as-
sessment of our “cash capital” position; this concept is designed
to ensure that illiquid assets can be financed by stable 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 “behavior-
al“ maturity of at least one year. Cash capital consumption
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 haircut) between the
carrying value of an asset on the balance sheet and its effec-
tive cash value when used as collateral in a secured funding
transaction.
We also regularly monitor our main funding portfolios for con-
centration risks.
UBS: funding by product and currency
In % 1
Securities lending
Repurchase agreements
Interbank
Money market paper
Retail savings / deposits
Demand deposits
Fiduciary
Time deposits
Long-term debt
Cash collateral payables on derivative transactions 2
Prime brokerage payables 2
Total
All currencies
CHF
EUR
USD
Other
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
0.9
9.6
5.3
7.2
13.4
15.6
3.9
9.6
22.4
7.5
4.7
1.0
8.1
4.0
6.5
12.8
14.7
5.4
9.9
24.3
8.3
4.8
0.0
1.0
1.1
0.2
9.3
5.9
0.2
0.5
3.2
0.2
0.1
0.0
1.0
0.7
0.2
8.4
4.7
0.3
0.8
3.2
0.2
0.0
0.2
1.4
0.6
0.7
0.8
3.1
1.1
1.2
8.0
3.2
0.5
0.2
1.4
0.5
0.6
0.8
3.7
1.5
1.3
9.7
3.0
0.5
0.6
6.4
1.3
5.7
3.3
4.5
2.1
5.3
8.0
3.2
3.4
0.5
4.5
1.1
5.0
3.6
4.4
2.9
4.8
7.8
3.6
3.8
0.1
0.8
2.3
0.6
0.0
2.1
0.6
2.6
3.2
0.9
0.7
0.3
1.2
1.7
0.7
0.0
2.0
0.6
3.0
3.6
1.5
0.5
100.0
100.0
21.5
19.4
20.7
23.4
43.9
42.0
13.9
15.2
1 As a percent of total funding sources defined as the CHF 782 billion on the balance sheet comprising Repurchase agreements, Securities lending against cash collateral received, Due to banks, Money market paper
issued, Due to customers, Long-term debt (including financial liabilities at fair value) and Cash collateral on derivative transactions and Prime brokerage payables. 2 UBS has changed presentation of cash collateral for
derivative transactions and prime brokerage receivables and payables. These positions are no longer included in interbank and demand deposits, but are shown on separate lines in the table above.
150
(cid:55)(cid:36)(cid:53)(cid:28)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:68)(cid:91)(cid:2)(cid:82)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:2)(cid:86)(cid:91)(cid:82)(cid:71)(cid:149)(cid:124)(cid:2)
(cid:43)(cid:80)(cid:2)(cid:7)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)(cid:2)
(cid:23)
(cid:19)
(cid:19)(cid:18)
(cid:26)
(cid:23)
(cid:25)
(cid:19)(cid:21)
(cid:20)(cid:20)
(cid:19)(cid:18)
(cid:22)
(cid:19)(cid:24)
(cid:53)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:52)(cid:71)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:47)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)
(cid:52)(cid:71)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:85)(cid:67)(cid:88)(cid:75)(cid:80)(cid:73)(cid:85)(cid:17)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:38)(cid:71)(cid:79)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:40)(cid:75)(cid:70)(cid:87)(cid:69)(cid:75)(cid:67)(cid:84)(cid:91)
(cid:54)(cid:75)(cid:79)(cid:71)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:46)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:82)(cid:67)(cid:91)(cid:67)(cid:68)(cid:78)(cid:71)(cid:85)(cid:2)(cid:81)(cid:80)(cid:2)
(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:50)(cid:84)(cid:75)(cid:79)(cid:71)(cid:2)(cid:68)(cid:84)(cid:81)(cid:77)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:82)(cid:67)(cid:91)(cid:67)(cid:68)(cid:78)(cid:71)(cid:85)
(cid:19)(cid:2)(cid:39)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:14)(cid:2)(cid:80)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)(cid:14)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:16)
Funding position and diversification
We continued 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 our financial flexibility. Funding is provided
through numerous short-, medium- and long-term funding pro-
grams in Europe, the US and Asia, which provide specialized in-
vestments to institutional and private clients. Our domestic retail
and global wealth management businesses are also a valuable
source of funding.
The overall composition of our funding sources at the end of
2010 is shown in the “UBS: funding by product and currency”
table and the pie-charts above. These funding sources amounted
to CHF 782 billion on the balance sheet, down from CHF 792 bil-
lion a year before, and comprise repurchase agreements, securi-
ties lending against cash collateral received, due to banks, money
market paper issued, due to customers and long-term debt in-
cluding financial liabilities at fair value, cash collateral payables on
derivative instruments and prime brokerage payables. The overall
composition remained broadly similar to the prior year-end, with
around 22% of our funding sources stemming from long-term
debt (including fi nancial liabilities designated at fair value) and a
further 39% from customer time deposits, retail savings / deposits
and cus tomer demand deposits. Of the remainder, around 10%
was from secured funding, approximately 12% was from inter-
bank borrowing and money-market paper issuance, 12% from
cash margin on derivatives and prime brokerage, and around 4%
from fiduciary deposits.
Credit ratings
Credit ratings generally affect the cost and availability of funding,
especially funding from wholesale unsecured sources. Our credit
ratings can also influence the performance of some of our busi-
nesses as well as contributing to maintaining levels of client and
counterparty confidence. Important factors used by rating agen-
(cid:55)(cid:36)(cid:53)(cid:28)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:69)(cid:91)(cid:149)(cid:124)(cid:2)
(cid:43)(cid:80)(cid:2)(cid:7)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)(cid:2)
(cid:19)(cid:22)
(cid:22)(cid:22)
(cid:20)(cid:20)
(cid:20)(cid:19)
(cid:37)(cid:42)(cid:40)
(cid:39)(cid:55)(cid:52)
(cid:55)(cid:53)(cid:38)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)
(cid:21)(cid:37)(cid:47)(cid:18)(cid:18)(cid:21)(cid:65)(cid:71)
(cid:19)(cid:2)(cid:39)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:14)(cid:2)(cid:80)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)(cid:14)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:16)
(cid:21)(cid:37)(cid:47)(cid:18)(cid:18)(cid:21)(cid:65)(cid:71)
cies to assess a firm’s creditworthiness and determine its credit
ratings include stability and quality of earnings, capital adequacy,
risk profile and management, liquidity management, diversifica-
tion of funding sources, asset quality and corporate governance.
Credit ratings reflect the opinions of the rating agencies and can
therefore be changed at any time.
Maturity breakdown of long-term straight debt portfolio
The “Long-term straight debt – contractual maturities” graph
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 70
billion on 31 December 2010, up by CHF 6 billion from a year
earlier. It is composed of CHF 61 billion of senior debt including
both publicly and privately placed notes and bonds as well as
Swiss cash bonds, and CHF 9 billion of subordinated debt. Of the
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(cid:46)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:75)(cid:73)(cid:74)(cid:86)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:115)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:67)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:79)(cid:67)(cid:86)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)
(cid:20)(cid:22)
(cid:19)(cid:26)
(cid:19)(cid:20)
(cid:2)(cid:24)
(cid:2)(cid:2)(cid:2)
(cid:2)(cid:18)
(cid:20)(cid:18)(cid:19)(cid:19)
(cid:20)(cid:18)(cid:19)(cid:20)
(cid:20)(cid:18)(cid:19)(cid:21)
(cid:20)(cid:18)(cid:19)(cid:22)(cid:115)(cid:19)(cid:23)
(cid:20)(cid:18)(cid:19)(cid:24)(cid:115)(cid:20)(cid:18)
(cid:20)(cid:18)(cid:20)(cid:19)(cid:115)(cid:21)(cid:18)
(cid:67)(cid:72)(cid:86)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:21)(cid:18)
(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:21)(cid:37)(cid:47)(cid:18)(cid:18)(cid:22)(cid:69)(cid:65)(cid:71)
(cid:53)(cid:71)(cid:80)(cid:75)(cid:81)(cid:84)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)
(cid:53)(cid:87)(cid:68)(cid:81)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)
151
(cid:19)(cid:27)(cid:16)(cid:20)(cid:18)(cid:18)(cid:18)(cid:18)(cid:19)
(cid:19)(cid:22)(cid:16)(cid:22)(cid:18)(cid:18)(cid:18)(cid:18)(cid:19)
(cid:27)(cid:16)(cid:24)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)
(cid:22)(cid:16)(cid:26)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)
Risk and treasury management
Treasury management
positions shown in the graph, CHF 10 billion, or 14%, will mature
within one year, down from 17% a year earlier. The equivalent of
CHF 1.5 billion of subordinated debt with a contractual maturity
date in 2016 has an early call date during 2011.
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earlier. Our liquidity risk management framework includes a be-
havioral stress analysis, which involves a more detailed assessment
of asset and liability cash flows as well as outflows from off-bal-
ance sheet exposures.
The abovementioned CHF 70 billion long-term straight debt
forms part of the CHF 130 billion shown on the Debt issued line
on the balance sheet.
➔ Refer to “Note 19 Financial liabilities designated at fair value and
debt issued” in the “Financial information” section of this report
for more information
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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 described
The contractual maturities of our non-derivative and non-trad-
ing financial liabilities as of 31 December 2010 presented in the
table below are based on the earliest date on which we could be
required to pay. The total amounts that contractually mature in
each time-band are also shown for 31 December 2009. Derivative
positions and trading liabilities, predominantly made up of short
sale transactions, are assigned to the column “On demand” as
management believes that this provides the most accurate reflec-
tion of 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
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
Financial liabilities recognized on balance sheet
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities 4, 5
Negative replacement values 4
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total 31.12.10
Total 31.12.09
Financial liabilities not recognized on balance sheet 6
Commitments
Loan commitments
Underwriting commitments
Total commitments
Guarantees
Forward starting transactions
Reverse repurchase agreements
Securities borrowing agreements
Total 31.12.10
Total 31.12.09
22.4
6.6
7.0
55.0
393.8
58.9
200.2
18.1
762.1
806.3
54.2
0.0
54.2
14.9
11.3
0.0
80.4
87.6
14.4
0.0
51.4
2.0
113.0
7.6
20.1
41.6
250.2
213.5
1.5
0.2
1.7
0.3
26.8
0.4
29.2
32.0
2.2
11.4
4.2
8.7
21.4
47.9
43.4
0.5
0.0
0.5
0.2
0.2
0.0
0.9
1.3
1.0
4.9
20.1
9.7
28.4
64.1
69.4
0.5
0.0
0.5
0.7
0.7
0.0
1.9
1.0
1.5
0.0
45.7
0.5
34.5
82.2
83.8
0.2
0.2
0.4
0.4
0.0
0.0
0.8
0.5
Due after
5 years 3
0.1
28.7
0.1
25.9
54.8
70.6
0.0
0.0
0.0
0.1
0.0
0.0
0.1
0.1
Total
41.5
6.7
74.8
55.0
393.8
58.9
100.8
332.3
7.6
130.3
59.7
1,261.3
1,286.9
56.9
0.4
57.3
16.5
39.0
0.5
113.3
122.6
1 Only financial instruments (as disclosed in “Note 29a Measurement categories of financial assets and financial liabilities” in the “Financial information” section of this report) are required to be disclosed in the matu-
rity 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 liabili-
ties, 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 liabil-
ities 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 relationships. 5 Contractual maturities of trading portfolio liabilities are: CHF 53.7 billion due within one month (2009: CHF 45.9 billion); and CHF 1.2 billion due more than one month (2009: CHF
1.6 billion). 6 The table below shows the maximum irrevocable amount of Guarantees, Commitments and Forward starting transactions.
152
Interest rate and currency management
Management of non-trading interest rate risk
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Our largest non-trading interest rate exposures arise within our
wealth management business divisions. With the exception of the
Wealth Management Americas business, the inherent interest
rate risk exposures are transferred from the originating 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, maximizing the netting
potential across risks from different sources.
The interest rate risk management responsibility for Wealth
Management & Swiss Bank transactions executed in Switzerland
was transferred to Group Treasury. The fixed-rate products do not
contain embedded options, such as early prepayment, which
would allow clients to prepay at par. All prepayments are there-
fore subject to market-based unwinding costs. Transactions exe-
cuted outside of Switzerland continue to be transferred predomi-
nantly to FICC.
Current and savings accounts and many other retail products of
Wealth Management & Swiss Bank have no contractual maturity
date or direct market-linked rate, and therefore their interest rate
risk cannot be transferred by simple back-to-back transactions. In-
stead, they are managed on a pooled basis via “replicating” port-
folios. A replicating portfolio is a series of loans or deposits at mar-
ket rates and fixed terms between the originating business unit
and Group Treasury, structured to approximate, on average, the
implied behavioral interest rate cash flow and repricing behavior of
the transactions. The portfolios are rebalanced monthly. Their
structure and parameters are based on long-term market observa-
tions and client behavior, and are regularly reviewed and adjusted
as necessary. The originating business units are thus immunized as
much as possible against market interest rate movements, but re-
tain and manage their own product margin.
A significant amount of interest rate risk also arises from the fi-
nancing of non-monetary-related balance sheet items, such as the
financing of bank property and equity investments 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.
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Group Treasury manages its residual open interest rate expo-
sures, taking advantage of any offsets that arise between posi-
tions from different sources, within its approved market risk limits
which include value-at-risk (VaR) and stress loss. The preferred risk
management instruments are interest rate swaps, for which there
is a liquid and flexible market. All transactions are executed via the
Investment Bank. Group Treasury does not directly access the ex-
ternal market for swap transactions.
In addition to its regular risk management activities, Group
Treasury executes transactions that aim to hedge negative effects
on the Bank’s net interest income stemming from the prolonged
period of extraordinarily low yields. As part of this strategy, UBS
acquired in October and November 2010 approximately CHF 10
billion face amount of US Treasury securities and approximately
CHF 5 billion face amount of UK Government bonds, with a
weighted average maturity of approximately 8 years at the end of
2010. The portfolio is held on the balance sheet and is classified
for accounting purposes as available-for-sale. The difference be-
tween the market value of these securities and their amortized
cost does not affect net profit, but is included in the calculation
of comprehensive income and accordingly affects our sharehold-
ers’ equity and our regulatory capital. In the fourth quarter of
2010, we charged CHF 545 million (pre-tax) against other com-
prehensive income as a result of reductions in the market value
of this portfolio. Assuming that we continue to hold these secu-
rities, future changes in their market value will affect our other
comprehensive income and capital. If we hold the securities un-
til their maturity, the effect of market value changes would re-
verse over time back to amortized cost plus accrued interest at
maturity.
➔ Refer to the “Market risk“ section of this report for more
information on our market risk measures and controls
Market risk arising from management of
consolidated capital
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Key ratios on capital and risk-weighted assets (RWA) are moni-
tored by regulators and analysts and are key indicators of our fi-
nancial strength.
Group Treasury: value-at-risk (1-day, 95% confidence, 5 years of historical data)
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CHF million
Interest rates
Foreign exchange
Diversification effect
Total management VaR
Year ended 31.12.10
Year ended 31.12.09
Min.
Max.
Average
31.12.10
Min.
Max.
Average
31.12.09
2
0
1
2
18
18
1
22
6
5
(2)
8
4
2
(1)
5
1
0
1
2
7
15
1
16
3
3
(1)
5
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
3
2
(1)
4
153
Risk and treasury management
Treasury management
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The majority of our capital and many of our assets are denomi-
nated in Swiss francs, but we also hold RWA and some eligible cap-
ital in other currencies, primarily US dollars, euros and British pounds.
Any significant depreciation of the Swiss franc against these curren-
cies would adversely impact our key ratios. Group Treasury’s man-
date is to minimize adverse currency impacts on these ratios.
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Group Treasury’s target to hedge the key ratios is based on a
currency mix of capital that broadly reflects the currency distribu-
tion of our consolidated RWA. As the Swiss franc depreciates or
appreciates against these currencies, the consolidated RWA in-
creases or decreases relative to our capital. These currency fluc-
tuations also lead to foreign currency translation gains or losses
on consolidation, which are recorded through equity. Thus, our
consolidated equity rises or falls in line with the fluctuations in the
RWA. The capital of the parent bank itself is held predominantly
in Swiss francs in order to avoid any significant effects of currency
fluctuations on its standalone financial results.
Furthermore, Group Treasury has the mandate to generate a
stable interest income flow from capital. The capital of the parent
bank and its subsidiaries is placed via interest-bearing cash depos-
its internally within our entity network. Group Treasury further
maintains a portfolio of interest rate swaps to achieve a target
tenor profile and return on invested equity.
To provide a benchmark for investments of equity, Group Treasury
defines a replicating portfolio of target tenors and currencies. The
effective investment positions created by both internal cash deposits
and interest rate swaps are then measured against this benchmark
tenor replication portfolio. Mismatches between the two are mea-
sured, together with other non-trading interest rate risk positions,
against Group Treasury’s market risk limits (VaR and stress loss).
Non-trading foreign exchange risks are managed under mar-
ket risk limits, with the exception of Group Treasury management
of consolidated capital activity.
On 31 December 2010, our consolidated equity was invested,
according to target, as follows: in Swiss francs (including most of
the capital of the Parent Bank) with an average duration of ap-
proximately three years and fair value sensitivity of CHF 9.5 million
per basis point; in US dollars with an average duration 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 0.9 million per basis point; and
in British pounds with a duration of approximately three years and
a sensitivity of CHF 0.4 million per basis point. The sensitivities
directly relate to the chosen durations. Targeting significantly
shorter tenors reduces fair value sensitivities, but leads to greater
volatility in the interest income.
Corporate currency management
Our corporate currency management activities are designed to
reduce the impact of adverse currency fluctuations on our report-
ed financial results in Swiss francs, given regulatory constraints.
We specifically focus on three principal areas of currency risk man-
agement: Currency matched funding of investments in non-Swiss
franc assets and liabilities; sell-down of non-Swiss franc profits
and losses; and selective hedging of anticipated non-Swiss franc
profits and losses.
Currency matched 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 assets with
the same currency of the liabilities from which they are funded, at
least as far as it is practical and efficient to do so. A US dollar asset
is thus typically funded in US dollars, while a euro liability is typi-
cally 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 currencies into Swiss
francs at exchange rates fixed at the prevailing month-end. In or-
der to eliminate earnings volatility on the retranslation of previ-
ously 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 report-
ing currencies. Retained earnings in operating entities with a re-
porting currency 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 future profit
and losses in foreign currencies against possible adverse trends of
foreign exchange rates from one reporting period to the next. At
any point in time, Group Treasury may hedge part or all of the
anticipated next three months’ earnings. Although intended to
hedge future earnings, these transactions are accounted for as
open currency positions and are subject to internal market risk
VaR and stress loss limits.
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Capital management
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Eligible capital must be available to support business activities,
in accordance with both our own internal assessment 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 project-
ed business and regulatory developments. The main tools we em-
ploy to manage our capital ratios are: the active management of
own shares, capital instruments, dividends and RWA.
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Capital adequacy management
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Ongoing compliance with regulatory capital requirements and tar-
get capital ratios is central to our capital adequacy management.
In this process, we manage towards tier 1 and total capital target
ratios. In the target setting process we take into account the cur-
rent and future minimum requirements set by regulators as well as
their “buffer” expectations. Furthermore, we consider our own
internal assessment of aggregate risk exposure in terms of capital-
at-risk, the views of rating agencies and comparisons with peer
institutions.
➔ 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 determined in
accordance with the BIS guidelines. For the determination of the
eligible capital, there were no differences between BIS guidelines
and FINMA regulations as of 31 December 2010.
Capital ratios and RWA
CHF billion
Ratio in %
8
0
.
3
.
1
3
8
0
.
6
.
0
3
8
0
.
9
.
0
3
335
325
332
16.2
12.2
15.0
11.0
8
0
.
2
1
.
1
3
302
15.0
11.0
9
0
.
3
.
1
3
9
0
.
6
.
0
3
9
0
.
9
.
0
3
9
0
.
2
1
.
1
3
0
1
.
3
.
1
3
0
1
.
6
.
0
3
0
1
.
9
.
0
3
19.8
20.0
20.4
20.2
15.4
207
16.0
209
16.4
16.7
205
208
199
19.4
15.0
211
17.7
248
13.2
278
14.7
10.5
2.5
2.7
3.5
3.5
3.9
4.1
4.1
4.4
4.4
0
1
.
2
1
.
1
3
20.4
17.8
25
20
15
10
5
0
160
11.1
7.4
80
0
Credit risk
Non-counterparty related risk
Market risk
Operational risk
BIS total capital ratio
BIS tier 1 ratio
FINMA leverage ratio
BIS capital ratios
The BIS capital ratios compare eligible capital (tier 1 and total
capital) with total RWA.
On 31 December 2010, our BIS tier 1 capital ratio stood at
17.8% (up from 15.4% on 31 December 2009), our BIS core tier
1 capital ratio stood at 15.3% (up from 11.9% on 31 December
2009), while our BIS total capital ratio was 20.4% (up from
19.8% on 31 December 2009). Our BIS tier 1 capital increased by
CHF 3.5 billion to CHF 35.3 billion, while RWA decreased to CHF
198.9 billion from CHF 206.5 billion.
➔ Refer to the discussions on “Capital adequacy management”
and “Eligible capital” in this section for more information
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During 2010, we complied with all externally imposed capital
Capital requirements
requirements.
The Basel III revisions will have a negative impact on capital
(mainly due to the exclusion of deferred tax assets, pension assets
and hybrid tier 1 capital instruments for the calculation of com-
mon equity) and also mean significantly higher RWA. As a result,
our common equity ratio would be materially lower than our cur-
rent BIS tier 1 ratio, if Basel III requirements were effective imme-
diately. It is therefore important to also consider the Basel III tran-
sitional arrangements, which effectively phase in the impacts on
capital over several years.
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➔ Refer to the “Regulatory developments“ section of this report
for more information
20
25
15
Our capital requirements are based on our consolidated financial
statements in accordance with International Financial Reporting
Standards (IFRS), adjusted for regulatory differences. Under IFRS,
subsidiaries and special purpose entities that are directly or indi-
rectly controlled by UBS must be consolidated, whereas for regu-
latory capital purposes, different consolidation principles apply.
For example, subsidiaries that are not active in the banking and
finance business are not consolidated.
10
➔ Refer to the additional capital management disclosure in the
5
“Basel II Pillar 3” section of this report for more information
On 31 December 2010, BIS RWA were CHF 198.9 billion, com-
0
pared with CHF 206.5 billion at year-end 2009. The analysis by
component is as follows:
155
400
300
200
100
0
Risk and treasury management
Treasury management
Credit risk
RWA for credit risk amounted to CHF 119.9 billion on 31 Decem-
ber 2010, compared with CHF 140.5 billion on 31 December
2009. The reduction was primarily related to lower derivatives
RWA of CHF 7.9 billion and reduced drawn exposure RWA of CHF
8.7 billion, as well as a reduction in residential mortgage RWA of
CHF 2.6 billion. These decreases occurred mainly in the Invest-
ment Bank and Wealth Management & Swiss Bank. The weaken-
ing of several major currencies against the Swiss franc has been a
significant contributor to most of these RWA reductions.
➔ Refer to the “Credit risk” section of this report for more
information
Non-counterparty related assets
RWA for non-counterparty related assets amounted to CHF 6.2
billion on 31 December 2010, compared with CHF 7.0 billion on
31 December 2009.
Market risk
In 2010, RWA for market risk increased by CHF 7.9 billion to
CHF 20.8 billion on 31 December 2010. This was due to an in-
crease in average regulatory VaR exposures, primarily resulting
from increased credit spread risk.
➔ Refer to the “Market risk” section of this report for more
information
Operational risk
RWA for operational risk increased to CHF 51.9 billion on 31 De-
cember 2010 from CHF 46.1 billion on 31 December 2009, as
agreed with FINMA.
➔ Refer to the “Operational risk” section of this report for more
information
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 cap-
ital, specific adjustments must be made to equity attributable
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to our shareholders as defined by IFRS and as shown on our bal-
ance sheet. The most notable adjustments are the deductions for
goodwill, intangible assets, investments in unconsolidated entities
engaged in banking and financial activities and own credit effects
on liabilities designated at fair value.
Tier 1 capital
Tier 1 capital amounted to CHF 35.3 billion on 31 December
2010, compared with CHF 31.8 billion on 31 December 2009, an
increase of CHF 3.5 billion. The positive contributors to this in-
crease were the CHF 7.5 billion net profit attributable to UBS
shareholders and the reversals of own credit losses of CHF 0.5
billion. These effects were partially offset by a redemption of hy-
brid tier 1 capital of CHF 1.5 billion, increased tier 1 deductions of
CHF 1.0 billion (securitization exposures and other deduction
items), negative effects relating to share-based compensation net
of tax of CHF 0.9 billion, as well as currency effects of CHF 0.6
billion and other effects of CHF 0.5 billion.
Hybrid tier 1 capital
These instruments are perpetual and can only be redeemed if they
are called by the issuer after having received regulatory approval.
The payment of interest is subject to compliance with minimum
capital ratios and other requirements. Any missed payment is
non-cumulative. As of 31 December 2010, our hybrid tier 1 in-
struments amounted to CHF 4.9 billion, down from CHF 7.2 bil-
lion as of 31 December 2009. Under IFRS, these instruments are
accounted for as equity attributable to non-controlling 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 instru-
ments but is subordinated to all our senior obligations. Tier 2
capital net of tier 2 deductions accounted for CHF 5.2 billion in
total capital as of year-end 2010. In 2010, we redeemed a floating
rate EUR 1.2 billion subordinated bond.
➔ Refer to the “Shares and capital instruments“ section of this
report for more information
Capital adequacy
CHF million, except where indicated
BIS core tier 1 capital
BIS tier 1 capital
BIS total capital
BIS core tier 1 capital ratio (%)
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).
156
31.12.10
31.12.09
30,420
35,323
40,542
15.3
17.8
20.4
198,875
119,919
6,195
20,813
51,948
24,574
31,798
40,941
11.9
15.4
19.8
206,525
140,494
7,026
12,861
46,144
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Capital components
CHF million
BIS core tier 1 capital prior to deductions 1
of which: paid-in share capital
of which: share premium, retained earnings, currency translation differences and other elements
Less: treasury shares / deduction for own shares 2
Less: goodwill & intangible assets
Less: securitization exposures 3
Less: other deduction items 4
BIS core tier 1 capital
Hybrid tier 1 capital
of which: non-innovative capital instruments
of which: innovative capital instruments
BIS tier 1 capital
Upper tier 2 capital
Lower tier 2 capital
Less: securitization exposures 3
Less: other deduction items 4
BIS total capital
31.12.10
46,365
31.12.09
40,144
383
45,982
(2,993)
(9,822)
(2,385)
(744)
30,420
4,903
1,523
3,380
35,323
110
8,239
(2,385)
(744)
40,542
356
39,788
(2,424)
(11,008)
(1,506)
(632)
24,574
7,224
1,785
5,438
31,798
50
11,231
(1,506)
(632)
40,941
1 “BIS core tier 1 capital prior to deductions” plus “Hybrid tier 1 capital” less “treasury shares / deduction for own shares” equals “Total equity / gross tier 1 including hybrid tier 1 instruments” in the “Reconciliation of
IFRS equity to BIS tier 1 capital” table. 2 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) accruals built for upcoming share
awards. 3 Includes a 50% deduction of the fair value of UBS’s option to acquire the SNB StabFund’s equity (CHF 1,781 million on 31.12.10 and CHF 1,216 million on 31.12.09). 4 Positions to be deducted as 50%
from tier 1 and 50% from total capital mainly consist of: i) net long position of non-consolidated participations in the finance sector; ii) expected loss on advanced internal ratings-based portfolio less general provisions
(if difference is positive); and iii) expected loss for equities (simple risk weight method).
Transfer of capital within UBS Group
Under Swiss company law, UBS is organized as an “Aktiengesell-
schaft”, a corporation that has issued shares of common stock to
investors. UBS AG is the parent company of the Group. The legal
entity structure of the Group is designed to support our busi-
nesses within an efficient legal, tax, regulatory and funding
framework. We enter into intragroup transactions in order to pro-
vide funding and capital to individual UBS entities. As of 31 De-
cember 2010, we were not aware of any material restrictions, or
other major impediments, concerning the transfer of funds or
regulatory capital within the Group apart from those which apply
to these entities by way of local laws and regulations.
IFRS equity to BIS tier 1 capital
The main differences between IFRS equity attributable to share-
holders and tier 1 capital result from:
– The difference of CHF 0.4 billion in Net income recognized
directly in equity, net of tax was due to cash flow hedge ef-
fects, which are reversed for BIS purposes and thereby re-
duced the amount by CHF 1.1 billion. This was partly offset
by CHF 0.4 billion of net positive foreign currency translation
effects and the reclassification for BIS purpose of fair value
changes relating to Available-for-sale securities of CHF 0.3
billion.
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Reconciliation of IFRS equity to BIS tier 1 capital
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CHF million
Share capital
Share premium
Net income recognized directly in equity, net of tax
Retained earnings
Equity classified as obligation to purchase own shares
Equity attributable to non-controlling interests
Treasury shares / deduction for own shares 2
Total equity / gross tier 1 including hybrid tier 1 instruments
Less: goodwill, intangible assets and other deduction items
Less: accrual for expected future dividend payments
Eligible tier 1 capital
31.12.10
IFRS view 1 Reconciliation items
0
383
34,393
(6,534)
19,285
(54)
5,043
(654)
51,863
(8)
(406)
(857)
54
(33)
(2,339)
(3,588)
BIS view
383
34,386
(6,940)
18,428
0
5,010
(2,993)
48,274
(12,952) 3
0
35,323
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) accruals built for upcoming share awards. 3 “Other deduction items” include primarily 50% of the deduc-
tions for net long position of non-consolidated participations in the finance sector; expected loss on advanced internal ratings-based approach portfolio less general provisions (if difference is positive): expected loss for
equities (simple risk weight method); and first loss positions from securitization exposures.
157
Risk and treasury management
Treasury management
– Retained earnings were lower under the BIS view than under
IFRS by CHF 0.9 billion, primarily due to CHF 0.2 billion of life-
to-date IFRS gains on own credit net of tax which are reversed
for BIS purposes and CHF 0.3 billion attributable to differences
in the scope of consolidation. The remainder is due to multiple
factors, e.g. differences in measurement and recognition prin-
ciples between IFRS and BIS, including a deduction for unreal-
ized losses on available-for-sale securities.
– A negative adjustment in Treasury shares / deduction for own
shares of CHF 2.3 billion, mainly due to the different calcula-
tion of the capital deduction relating to share-based compen-
sation.
FINMA leverage ratio
FINMA requires a minimum leverage ratio of 3% at a Group
level and expects that, in normal times, the ratio will be well
above this. This target is to be achieved by 1 January 2013 at
the latest.
On 31 December 2010, our Group FINMA leverage ratio im-
proved to 4.45%, compared with the 31 December 2009 ratio of
3.93%. During the year, average total assets prior to deductions
decreased by CHF 27.7 billion to CHF 1,398.5 billion. The average
total adjusted assets fell by CHF 15.2 billion to CHF 794.2 billion.
The table below shows the FINMA leverage ratio calculation for
the Group.
Equity attribution framework
The equity attribution framework reflects our overarching objec-
tives of maintaining a strong capital base and guiding businesses
toward activities with the best balance of profit potential, risk and
capital usage. In June 2010, the key principles underlying the eq-
uity attribution framework received BoD approval.
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Within this framework, the BoD attributes equity to the busi-
nesses after considering their risk exposure, RWA usage, asset
size, goodwill and intangible assets.
The design of the equity attribution framework enables us to:
– Calculate and assess return on attributed equity (RoE) in each
of our business divisions. RoE is disclosed for all business divi-
sions and units.
– Integrate Group-wide capital management activities with those
at business division and business unit levels.
– Measure current period and historical performance in a consis-
tent manner across business divisions and business units.
– Make better comparisons between our businesses and those
of our competitors.
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The framework operates as follows: First, each business is at-
tributed an amount of equity equal to the average book value of
goodwill and intangible assets, as reported for that business divi-
sion or business unit according to IFRS. Second, the BoD considers
a number of factors that drive required capital, including:
– Equity requirements based on aggregated risk exposure, includ-
ing the potential for losses exceeding earnings capacity as de-
fined by the firm’s risk-based capital. At certain other institu-
tions, this factor is sometimes referred to as “economic capital”.
– RWA usage and a target capital ratio for each business.
– Asset size and a target leverage ratio for each business.
After reviewing the results of this formulaic approach, the
Group ALCO recommends and the BoD makes adjustments to the
final tangible equity attribution to reflect the amount of equity it
believes is appropriate for each business. This assessment is based
on the expectations of the business’s clients and the business en-
vironment, including allowing for sufficient capital to support the
business’s underlying risks and sustain extreme stress scenarios.
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 differs from the Group’s actual
equity during a given period, the surplus or deficit is reflected in
Treasury activities and other corporate items. The BoD currently
makes equity attribution decisions on a quarterly basis.
FINMA leverage ratio calculation
CHF billion, except where indicated
Total assets (IFRS) 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 4Q10
Average 4Q09
1,398.5
(410.1)
(161.6)
(20.1)
(12.4)
794.2
35.3
4.45
1,426.2
(420.9)
(161.4)
(22.1)
(12.4)
809.4
31.8
3.93
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 for more information
on deductions of assets from BIS tier 1 capital.
158
The amount of equity attributed to each division is an impor-
tant input into the calculation of economic profit for that division.
Broadly speaking, economic profit equals profits minus the prod-
uct of attributed equity and the cost of equity.
As outlined in the table “Average attributed equity”, the
amount of average equity attributed to the Investment Bank and
Treasury activities and other corporate items increased by CHF 3.0
billion and CHF 2.0 billion respectively from the fourth quarter of
2009 to the fourth quarter of 2010. The Investment Bank increase
was influenced by an expected moderate increase in the size of its
assets and RWA over time.
In addition, the increases in both the Investment Bank and in
Treasury activities and other corporate items were due to a refine-
ment of our methodology. Previously, we had not explicitly taken
account of the equity burden related to tier 1 deductions in the
equity attribution framework. In the calculation of the RWA driver,
we now convert these tier 1 deductions to the equivalent amount
of tangible equity and add that to the amount of tangible equity
needed to support reported RWA for each division. Similarly, in the
calculation of the asset driver, we now convert these tier 1 deduc-
tions to the equivalent amount of tangible equity and add that
to the amount of tangible equity needed to support the reported
leverage ratio denominator for each division.
We continue to use both internal assessments of risk (as re-
flected in the UBS Risk-Based Capital framework) and regulatory
measures of risk as drivers, as we believe that both play a role in
the amount of equity needed to strongly support each division
and UBS as a whole. In addition, we believe it is useful for top
management and the BoD to compare equity requirements de-
rived from internal risk measures with equity requirements de-
rived from regulatory capital requirements and standards.
Further, the equity attribution framework continues to be for-
ward-looking. Therefore, with regard to the RWA and asset drivers,
we will be taking into account during 2011 the impacts of the
enhanced Basel II framework and Basel III requirements.
Average attributed equity
CHF billion
Wealth Management
Retail & Corporate
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Investment Bank
Treasury activities and other corporate items
Average equity attributed to the business divisions
Surplus / (deficit)
Average equity attributable to UBS shareholders
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4Q10
4.4
4.6
9.0
8.0
2.5
27.0
3.0
49.5
(2.2)
47.3
4Q09
4.4
4.6
9.0
8.0
2.5
24.0
1.0
44.5
(4.2)
40.3
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Risk and treasury management
Treasury management
Shares and capital instruments
Shares
Holding of UBS shares
UBS shares and tier 1 capital
The majority of our tier 1 capital comprises share premium and re-
tained earnings attributed to UBS shareholders. As of 31 December
2010, total IFRS equity attributable to our shareholders amounted to
CHF 46,820 million, and was represented by a total of 3,830,840,513
shares issued, of which 38,892,031 (1.0%) were held by UBS.
In 2010, the shares issued were increased by a total of
272,727,760 shares due to the conversion of CHF 13 billion man-
datory convertible notes (MCN) on 5 March 2010, leading to an
issuance of 272,651,005 shares from conditional capital. In addi-
tion, the exercise of employee options led to the issuance of
76,755 shares.
Each share has a par value of CHF 0.10, and generally entitles
the holder to one vote at the shareholders’ meeting and to a pro-
portionate share of distributed dividends. There are no preferen-
tial rights for shareholders and no other classes of shares are is-
sued by the Parent Bank directly.
➔ Refer to the “Shareholders’ participation rights” section of this
UBS holds own shares for two main purposes: in Group Treasury to
cover employee share and option programs and in the Investment
Bank, to a limited extent, for trading purposes where the Invest-
ment Bank engages in market-making activities in UBS shares and
related derivative products. The holding of treasury shares on
31 December 2010 increased to 38,892,031 or 1.0% of shares
issued, from 37,553,872 or 1.1% on the same date one year prior.
As of 31 December 2010, employee options and stock appre-
ciation rights to receive 5.2 million shares were exercisable. Shares
held in treasury or newly shares issued are delivered to the em-
ployee at exercise. On 31 December 2010, 25.8 million shares
were available for this purpose, and an additional 149.9 million
unissued shares in conditional share capital were assigned to cov-
er future employee option exercises. At year-end 2010, the shares
available covered all exercisable employee obligations.
The presentation in the table “Treasury share activities” shows
the purchase of our shares by Group Treasury and does not in-
clude the activities of the Investment Bank.
report for more information
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. The table be-
low lists all shareholder-approved issuances of shares at year-end
2010. It is our objective not to dilute shares by the issuance of
additional shares unless it is warranted by stressed financial mar-
ket conditions or by regulators.
Treasury shares held by the Investment Bank
The Investment Bank, acting as liquidity provider to the equity in-
dex futures market and as a market-maker in our shares and de-
rivatives, has issued derivatives linked to UBS stock. Most of these
instruments are classified as cash-settled derivatives and are pri-
marily issued to meet client demand and for trading purposes. To
hedge the economic exposure, a limited number of our shares are
held by the Investment Bank.
Shares
Number of shares
Balance at the beginning of the year
Issue of shares for capital increase (conversion of MCN in March 2010)
Issue of shares for employee options
Balance at the end of the year
Shareholder-approved issuance of shares
Conditional capital
SNB warrants
Employee equity participation plans of UBS AG
Conversion rights / warrants granted in connection with bonds
Total
160
For the year ended
31.12.10
3,558,112,753
272,651,005
76,755
3,830,840,513
Maximum number of
shares to be issued
Year approved by
shareholder general
meeting
% of shares issued
31.12.10
100,000,000
149,920,712
380,000,000
629,920,712
2009
2006
2010
2.61
3.91
9.92
16.44
Capital instruments
In order to improve the quality of capital, regulators are proposing
new requirements for capital instruments and creating a new
category of capital instruments: contingent convertible bonds
(CoCo). The changes proposed are designed to increase the resil-
ience against a financial crisis and are expected to maintain the
banks in crisis as going concerns. Regulators view these instru-
ments as additional protection against systemic risks of large
banks.
➔ Refer to the “Regulatory developments“ section of this report
for more information
Mandatory convertible notes
As part of the measures taken to strengthen our capital base in
2008, we issued two MCN. The first had a principal amount of
CHF 13 billion and consisted of private placements with two fi-
nancial investors. The second was placed with the Swiss Confed-
eration and had a principal amount of CHF 6 billion. The CHF 6
billion MCN was converted on 25 August 2009. The CHF 13 bil-
lion MCN expired on 5 March 2010, and was mandatorily con-
verted into 273 million of newly issued shares, representing 7.7%
of our then issued share capital.
Hybrid tier 1 capital
Hybrid tier 1 instruments represent innovative and non-innova-
tive perpetual instruments. They are accounted for under non-
controlling interests in the IFRS equity. Hybrid tier 1 instru-
ments are perpetual instruments which can only be redeemed
if they are called by the issuer after having received regulatory
approval. If such a call is not exercised at the 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 interest rate. Non-innovative instru-
ments do not have a step-up of the interest rate and are there-
fore viewed as having a higher equity characteristic for regu-
latory 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 and other require-
ments. Any missed payment is non-cumulative. We did not is-
sue hybrid tier 1 instruments in 2010 but redeemed USD 1.5
billion of trust preferred securities. As of 31 December 2010,
we had CHF 4,903 million of such instruments in various cur-
rencies outstanding.
Treasury share activities
Month of purchase
January 2010
February 2010
March 2010
April 2010
May 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
Treasury shares purchased for employee share and
option participation plans and acquisitions 1
Total number of shares
Number of shares
Average price in CHF
Number of shares (cumulative)
Average price in CHF
0
45,000,000
33,580,113
0
0
0
0
900,000
0
0
3,110,000
670,000
0.00
14.20
15.13
0.00
0.00
0.00
0.00
16.93
0.00
0.00
15.72
15.70
0
45,000,000
78,580,113
78,580,113
78,580,113
78,580,113
78,580,113
79,480,113
79,480,113
79,480,113
82,590,113
83,260,113
0.00
14.20
14.60
14.60
14.60
14.60
14.60
14.63
14.63
14.63
14.67
14.68
1 This table excludes market-making and related hedging purchases by UBS. The table also excludes UBS shares purchased by investment funds managed by UBS 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 UBS 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 53,000 UBS shares during the year and held 1,638,000 UBS shares as
of 31 December 2010.
Conversion price and number of shares
MCN
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 of the capital increase.
161
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Risk and treasury management
Treasury management
Tier 2 capital
The major element in tier 2 capital consists of subordinated long-
term debt. Tier 2 instruments have been issued in various curren-
cies and with a range of maturities across capital markets globally.
They accounted for CHF 8,239 million in total eligible capital as of
year-end 2010. Tier 2 instruments rank senior to both our shares
and to hybrid tier 1 instruments but are subordinated to all our
senior obligations. In 2010, we redeemed EUR 1.2 billion floating
rate subordinated notes.
Distributions to shareholders
The decision whether to pay a dividend, and the level of the divi-
dend, are dependent on our targeted capital ratios and cash flow
generation. The decision on dividend payments is proposed by
the BoD to the shareholders and is subject to their approval at
the Annual General Meeting. The BoD has decided to further bol-
ster capital and has therefore not proposed any dividend for the
financial year 2010.
162
UBS shares in 2010
(cid:55)(cid:36)(cid:53)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:82)(cid:84)(cid:75)(cid:69)(cid:71)(cid:2)(cid:69)(cid:74)(cid:67)(cid:84)(cid:86)(cid:2)(cid:88)(cid:85)(cid:2)(cid:38)(cid:81)(cid:89)(cid:2)(cid:44)(cid:81)(cid:80)(cid:71)(cid:85)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:85)(cid:2)(cid:54)(cid:75)(cid:86)(cid:67)(cid:80)(cid:85)(cid:2)(cid:21)(cid:18)(cid:2)(cid:43)(cid:80)(cid:70)(cid:71)(cid:90)
(cid:75)(cid:80)(cid:2)(cid:7)(cid:2)
(cid:19)(cid:2)(cid:44)(cid:67)(cid:80)(cid:87)(cid:67)(cid:84)(cid:91)(cid:2)(cid:20)(cid:18)(cid:18)(cid:26)(cid:124)(cid:115)(cid:124)(cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:18)
(cid:19)(cid:20)(cid:23)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:25)(cid:23)
(cid:2)(cid:2)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:19)(cid:51)(cid:18)(cid:26)
(cid:20)(cid:51)(cid:18)(cid:26)
(cid:21)(cid:51)(cid:18)(cid:26)
(cid:22)(cid:51)(cid:18)(cid:26)
(cid:19)(cid:51)(cid:18)(cid:27)
(cid:20)(cid:51)(cid:18)(cid:27)
(cid:21)(cid:51)(cid:18)(cid:27)
(cid:22)(cid:51)(cid:18)(cid:27)
(cid:19)(cid:51)(cid:19)(cid:18)
(cid:20)(cid:51)(cid:19)(cid:18)
(cid:21)(cid:51)(cid:19)(cid:18)
(cid:22)(cid:51)(cid:19)(cid:18)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:85)(cid:86)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:37)(cid:42)(cid:40)
(cid:38)(cid:81)(cid:89)(cid:2)(cid:44)(cid:81)(cid:80)(cid:71)(cid:85)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:85)(cid:2)(cid:54)(cid:75)(cid:86)(cid:67)(cid:80)(cid:85)(cid:2)(cid:21)(cid:18)(cid:2)(cid:43)(cid:80)(cid:70)(cid:71)(cid:90)(cid:2)(cid:37)(cid:42)(cid:40)
(cid:40)(cid:81)(cid:84)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:86)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:82)(cid:84)(cid:75)(cid:69)(cid:71)(cid:2)(cid:84)(cid:71)(cid:72)(cid:71)(cid:84)(cid:2)(cid:86)(cid:81)(cid:28)(cid:2)(cid:89)(cid:89)(cid:89)(cid:16)(cid:87)(cid:68)(cid:85)(cid:16)(cid:69)(cid:81)(cid:79)(cid:17)(cid:83)(cid:87)(cid:81)(cid:86)(cid:71)(cid:85)
UBS shares are listed on the SIX Swiss Exchange (SIX) and the New
York Stock Exchange (NYSE). As of 16 April 2010, UBS shares
have been delisted from the Tokyo Stock Exchange.
Ticker symbols
Trading exchange
➔ Refer to the “Capital structure” section of this report for more
information on our shares, including par value, type and rights
SIX
NYSE
of security
Over the course of 2010, UBS shares declined 4% on the SIX
but rose 6% in US dollar terms on the NYSE, outperforming the
global banking sector as measured by the Dow Jones Banks Titans
30 Index which declined 4%.
Security identification codes
ISIN
Valoren
Cusip
Bloomberg
UBSN VX
UBS UN
Reuters
UBSN.VX
UBS.N
CH0024899483
2.489.948
CINS H89231 33 8
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Share liquidity
During 2010, the daily average volume in UBS shares on the SIX
was 16.4 million shares. On the NYSE, it was 1.2 million shares.
The SIX trades a higher volume of UBS shares, and as such, it is
expected to remain the main factor determining the movement in
our share price.
During the hours in which both the SIX and NYSE are simulta-
neously open for trading (currently 3:30 p.m. to 5:30 p.m. Central
European Time), price differences are likely to be arbitraged away
by professional market-makers. The NYSE price will therefore typ-
ically be expected to depend on both the SIX price and the prevail-
ing US dollar / Swiss franc exchange rate. When the SIX is closed
for trading, traded volumes will typically be lower. However, the
specialist firm making a market in UBS shares on the NYSE is re-
quired to facilitate sufficient liquidity and maintain an orderly
market in UBS shares.
163
(cid:19)(cid:20)(cid:23)(cid:16)(cid:18)(cid:18)
(cid:27)(cid:21)(cid:16)(cid:25)(cid:23)
(cid:24)(cid:20)(cid:16)(cid:23)(cid:18)
(cid:21)(cid:19)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
Risk and treasury management
Treasury management
UBS share data
Registered shares
Total ordinary shares issued
Treasury shares
Weighted average shares (for basic EPS calculations) 1
Weighted average shares (for diluted EPS calculations)
CHF
EPS
Basic EPS
Basic EPS from continuing operations
Diluted EPS
Diluted EPS from continuing operations
1 Earnings per share.
UBS shares and market capitalization
Share price (CHF)
Market capitalization (CHF million) 1
31.12.10
As of
31.12.09
31.12.08
3,830,840,513
3,558,112,753
2,932,580,549
38,892,031
3,789,732,938
3,838,332,049
37,553,872
3,661,086,266
3,661,841,214
61,903,121
2,792,023,098
2,793,174,654
For the year ended
31.12.10
31.12.09
31.12.08
1.99
1.99
1.96
1.96
(0.75)
(0.74)
(0.75)
(0.74)
(7.63)
(7.68)
(7.63)
(7.69)
31.12.10
15.35
58,803
As of
31.12.09
16.05
57,108
31.12.08
14.84
43,519
% change from
31.12.09
(4)
3
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 do not reflect the
272.7 million UBS shares issued through the conversion of MCN placed with two investors in March 2008, and converted in March 2010. 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 MCN 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.
31.12.10
4,166,417
16,403
296,517
1,177
For the year ended
31.12.09
5,105,358
20,340
222,052
881
31.12.08
7,174,486
28,584
539,856
2,134
Source: Thomson Reuters
Trading volumes
1,000 shares
SIX total
SIX daily average
NYSE total
NYSE daily average
164
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)
2010
Fourth quarter 2010
December
November
October
Third quarter 2010
September
August
July
Second quarter 2010
June
May
April
First quarter 2010
March
February
January
2009
Fourth quarter 2009
Third quarter 2009
Second quarter 2009
First quarter 2009
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
1 Historical share price adjusted for the rights issue and stock dividend 2008.
18.60
17.83
16.27
17.46
17.83
18.53
18.53
18.34
18.00
18.60
16.25
17.32
18.60
17.50
17.47
14.94
17.50
19.65
19.34
19.65
17.51
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
13.31
14.92
15.12
14.92
16.43
13.94
16.59
16.51
13.94
14.15
14.15
14.56
16.31
13.31
14.78
13.31
14.01
8.20
14.76
12.50
10.56
8.20
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
15.35
15.35
15.35
15.03
16.66
16.68
16.68
17.18
17.80
14.46
14.46
15.53
16.87
17.14
17.14
14.81
14.03
16.05
16.05
18.97
13.29
10.70
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
18.48
18.48
16.87
18.15
18.48
18.47
18.47
17.64
17.19
17.75
14.53
15.77
17.75
16.84
16.41
13.98
16.84
19.31
19.18
19.31
15.82
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
12.26
14.99
15.42
14.99
16.78
13.04
16.94
16.08
13.04
12.26
12.26
12.58
15.13
12.40
13.65
12.40
12.85
7.06
15.03
11.25
9.40
7.06
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
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16.47
16.47
16.47
15.07
17.02
17.03
17.03
16.83
16.97
13.22
13.22
13.33
15.42
16.28
16.28
13.86
13.01
15.51
15.51
18.31
12.21
9.43
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
165
Risk and treasury management
Basel II Pillar 3
Basel II Pillar 3
Introduction
The Basel II capital adequacy framework consists of three pillars,
each of which focuses on a different aspect of capital adequacy.
Pillar 1 provides a framework for measuring minimum capital re-
quirements for the credit, market and operational risks faced by
banks. Pillar 2 addresses the principles of the supervisory review
process, emphasizing the need for a qualitative approach to super-
vising 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) re-
quires us to publish comprehensive quantitative and qualitative
Pillar 3 disclosures at least annually, as well as an update of quan-
titative disclosures and any significant changes to qualitative in-
formation at least semi-annually.
This section presents our Basel II Pillar 3 disclosures as of 31 De-
cember 2010 and consists mainly of quantitative disclosures com-
plemented with explanatory texts where needed.
➔ Refer to the “Risk management and control” and “Treasury
management” sections of this report for more information on
qualitative disclosures related to our risk management and
control, definitions and risk exposures as well as to capital
management
Overview of disclosures
This table provides an overview of our Basel II Pillar 3 disclosures in our Annual Report 2010.
Basel II Pillar 3 requirement
Disclosure in the Annual Report 2010
Capital structure
Capital adequacy
Risk management objectives, policies and methodologies
(qualitative disclosure)
Credit risk
Investment positions
Market risk
Securitization
Operational risk
Interest rate risk in the banking book
“Capital management” section
“Capital management” and “Basel II Pillar 3” sections
“Risk management and control” section
“Risk management and control” and “Basel II Pillar 3” sections
“Basel II Pillar 3” section
“Risk management and control” and “Basel II Pillar 3” sections
“Basel II Pillar 3” section
“Risk management and control” section
“Risk management and control” section
166
Risk exposure measures and capital requirements
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 report.
Measures of risk exposure may differ depending on the pur-
pose for which exposures are calculated: financial accounting un-
der International Financial Reporting Standards (IFRS), determina-
tion of our required regulatory capital or our internal management
of the firm. Our Basel II Pillar 3 disclosures are generally based on
the measures of risk exposure that are used to calculate the regu-
latory capital that is required to underpin those risks.
The table below provides a more detailed summary of the ap-
proaches we use for the main risk categories for the determina-
tion of required regulatory capital.
The naming conventions for the “Exposure segments” used in
the following tables are based on the Bank for International Set-
tlements (BIS) rules and differ from those under Swiss and EU
regulations. For example, “Sovereigns” under the BIS naming
convention equates to “Central governments and central banks”
as used under the Swiss and EU regulations. Similarly, “Banks”
equates to “Institutions” and “Residential mortgages” equates to
“Claims secured on residential real estate.”
Although we determine published risk-weighted assets (RWA)
according to the Basel II Capital Accord (BIS guidelines), our calcu-
lation of the regulatory capital requirement is based on the regu-
lations of FINMA, which are more conservative and therefore re-
sult in higher RWA.
Generally, the scope of consolidation for regulatory capital pur-
poses 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 UBS Group
(Group) consolidated for IFRS purposes are listed in “Note 34
Significant subsidiaries and associates” in the “Financial informa-
tion” section of this report. More specifically, the main differences
in the basis of consolidation for IFRS and regulatory capital pur-
poses relate to the following entity types and apply regardless of
our level of control:
– Real estate and commercial companies as well as collective in-
vestment schemes are not consolidated for regulatory capital
purposes but are risk-weighted.
– Insurance companies are not consolidated for regulatory capi-
tal purposes but are deducted from capital.
– Securitization vehicles are not consolidated for regulatory cap-
ital purposes but are treated under the securitization frame-
work.
– Joint ventures that are controlled by two ventures are fully con-
solidated for regulatory capital purposes, whereas they are val-
ued under equity method accounting for IFRS.
Category
Credit risk
Our 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 esti-
mates. 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 under-
pinning 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 advanced IRB approach.
Market risk
Operational risk
Regulatory capital requirement is derived from our value-at-risk (VaR) model, which is approved by FINMA.
We have developed a model to quantify operational risk which meets the regulatory capital standard under the
Basel II advanced measurement approach (AMA).
Securitization exposures
Securitization exposures in the banking book are assessed using the advanced IRB approach, applying risk
weights based on external ratings.
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167
Risk and treasury management
Basel II Pillar 3
Capital
The “Detailed segmentation of BIS risk-weighted assets” table
provides a granular breakdown of our RWA. The table also
shows the net exposure at default (EaD) per category for the cur-
rent disclosure period, which forms the basis for the calcu lation
of the RWA.
➔ Refer to the “Capital management” section of this report for
more information on risk-weighted assets and the determination
of eligible capital
Credit risk
The tables in this section provide details on the exposures used to
determine the firm’s credit risk regulatory capital. The parameters
applied under the advanced IRB approach are generally 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 ex-
ample, the application of regulatory prescribed floors and multi-
pliers, and differences with respect to eligibility criteria and ex-
posure definitions. The exposure information presented in this
section differs therefore from that disclosed in the “Risk manage-
ment 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 deter-
mining our required regulatory capital, we apply the effective ex-
pected positive exposure as defined in Annex 4 to the Basel II frame-
work. For a minor part of the derivatives portfolio, we also apply the
current exposure method (based on the replacement value of deriva-
tives in combination with a regulatory-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, net-
ting and other eligible risk mitigants permitted by the relevant
regulations. This section also presents information on impaired
and defaulted assets in a segmentation which is consistent with
the regulatory capital calculation.
➔ Refer to the “Financial information” section of this report for
more information
Detailed segmentation of BIS risk-weighted assets
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 RWA
Additional RWA according to FINMA regulations
Total FINMA RWA
31.12.10
Net EaD
Basel II RWA
Advanced
Standardized
IRB approach
approach
541,565
112,036
75,469
167,718
120,298
62,355
3,688
21,211
19,704
65
1,061
583,606
84,419
6,190
12,979
51,689
10,090
3,074
397
7,085 1
18
3,691 2
20,813 3
51,948 4
167,975
24,677
386
1,548
19,853
782
0
2,107
6,195
29
30,900
31.12.09
Total
127,218
7,060
18,305
83,179
Total
109,096
6,577
14,528
71,542
10,871
13,498
3,074
2,504
7,085
6,195
47
3,691
20,813
51,948
198,875
16,135 5
215,010 6
2,682
2,496
8,515
7,026
103
4,657
12,861
46,144
206,525
19,103
225,628
1 On 31 December 2010, approximately CHF 3 billion of the securitization exposures were deducted from capital and therefore do not generate RWA. 2 Simple risk weight method. 3 VaR approach. 4 Advanced
measurement approach. 5 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 requirements for market risk. 6 As of 31 December 2010, the FINMA tier 1 ratio amounts to 16.4% and the FINMA total capital ratio to 18.9%. Taking into account the effects from the transi-
tional provisions of the capital floor, which require 5% of the total FINMA RWA, FINMA RWA would increase by CHF 10.8 billion, resulting in a FINMA tier 1 ratio of 15.6% and a FINMA total capital ratio of 18.0%.
168
Credit risk exposures and risk-weighted assets
This table shows the average exposure and the derivation of RWA from the regulatory gross credit exposure.
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
Cash collateral receivables on derivative instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 4
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.10
Total 31.12.09
Exposure
Average regulatory
risk weighting 2
RWA
Average regulatory
gross credit
exposure
Regulatory gross
credit exposure
Less: regulatory
credit risk offsets
and adjustments 1
Regulatory net
credit exposure
35,509
16,359
250,093
8,484
41,252
351,697
86,680
14,906
53,402
24,446
15,472
247,086
7,576
38,724
333,305
73,879
9,549
48,735
154,988
132,162
7,785
72,911
5,544
12,462
98,701
605,386
630,562
6,772
72,961
5,152
22,822
107,707
573,174
610,036
(5,343)
(5,431)
(3,711)
(263)
(14,748)
12
(51)
(16,820)
(16,860)
(31,608)
(24,487)
24,446
10,130
241,655
3,865
38,460
318,557
73,879
9,549
48,735
132,162
6,783
72,961
5,101
6,002
90,847
541,565
585,549
5%
27%
16%
45%
31%
17%
41%
21%
8%
28%
84%
2%
83%
100%
19%
20%
22%
1,323
2,715
37,861
1,721
11,763
55,383
30,554
1,960
4,078
36,592
5,682
1,202
4,252
5,985
17,120
109,096
127,218
1 Regulatory credit risk offsets and adjustments mainly include margin accounts for derivatives. 2 The derivation of RWA is based on the various credit risk parameters of the advanced IRB approach and the standard-
ized approach, respectively. 3 Includes guarantees and loan commitments. 4 Excludes equity positions.
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 instruments and also
by geographical regions. The latter distribution is based on the legal domicile of the customer.
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CHF million
Switzerland
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Off-balance sheet
Banking products
Derivatives
Cash collateral receivables on derivative instruments
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 31.12.10
Total regulatory gross credit exposure 31.12.09
1 Includes the Caribbean. 2 Excludes equity positions.
10,255
1,127
159,359
2
6,702
177,445
6,296
90
8,737
15,124
3,205
320
3,392
6,917
Rest of
Europe
4,200
6,127
19,132
1,358
7,032
37,850
33,083
6,294
16,189
55,565
2,716
21,721
807
8,456
North
America 1
477
3,068
49,071
5,771
22,892
81,279
26,015
2,597
15,815
44,427
2,736
41,208
3,849
8,840
33,700
56,633
199,486
187,283
127,115
154,601
182,340
204,709
Latin
America
Asia
Pacific
Middle East
and Africa
Total regulatory
gross credit
exposure
Total regulatory
net credit
exposure
88
4,420
48
386
4,942
491
13
510
1,014
172
2
16
2
192
6,149
5,344
9,514
4,865
11,430
374
1,225
27,408
7,151
527
6,963
197
3,673
23
487
4,380
842
27
520
14,642
1,390
1,133
6,722
150
1,819
9,824
51,874
52,550
14
102
10
313
440
6,209
5,548
24,446
15,472
247,086
7,576
38,724
333,305
73,879
9,549
48,735
132,162
6,772
72,961
5,152
22,822
107,707
573,174
610,036
24,446
10,130
241,655
3,865
38,460
318,557
73,879
9,549
48,735
132,162
6,783
72,961
5,101
6,002
90,847
541,565
585,549
169
Risk and treasury management
Basel II Pillar 3
Regulatory gross credit exposure by counterparty type
This table provides a breakdown of our portfolio by major types of credit exposure according to classes of financial instruments and
also by counterparty type. The classification of counterparty type applied here is also used for the grouping of the balance sheet. The
counterparty type is different from the Basel II defined exposure segments used in certain other tables in this section.
CHF million
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Off-balance sheet
Banking products
Derivatives
Cash collateral receivables on derivative financial instruments
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 31.12.10
Total regulatory gross credit exposure 31.12.09
1 Also includes non-bank financial institutions. 2 Excludes equity positions.
Private
individuals
Corporates 1
2
158,067
2,666
160,733
1,409
104
1,513
1
3,638
1,266
4,905
167,150
165,012
81,826
4,323
34,363
120,513
36,680
4,210
28,054
68,944
6,372
3,246
1,123
21,008
31,749
221,206
227,330
Public entities
(including
sovereigns and
central banks)
Banks and
multilateral
institutions
Total
regulatory
gross credit
exposure
Total
regulatory
net credit
exposure
24,133
141
7,194
22
459
31,950
14,052
267
7,099
21,418
312
64,446
227
204
65,189
118,556
138,717
311
15,331
3,231
1,236
20,110
21,738
5,072
13,478
40,288
87
5,268
163
345
5,864
66,261
78,977
24,446
15,472
247,086
7,576
38,724
333,305
73,879
9,549
48,735
24,446
10,130
241,655
3,865
38,460
318,557
73,879
9,549
48,735
132,162
132,162
6,772
72,961
5,152
22,822
107,707
573,174
610,036
6,783
72,961
5,101
6,002
90,847
541,565
585,549
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 instruments 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
Cash collateral receivables on derivative financial instruments
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 31.12.10
Total regulatory gross credit exposure 31.12.09
Due in
1 year or less
Due over
1 year to 5 years
Due over
5 years
3,036
102,183
846
9,318
115,383
27,148
10,084
37,232
1,072
47,486
48,559
201,173
249,047
215
73,551
4,944
27,657
106,367
17,009
11
17,020
2,440
8,208
10,649
134,036
151,651
75
38,921
1,761
1,635
42,393
29,722
6
29,728
2,185
17,236
19,421
91,542
83,350
Total
regulatory
gross credit
exposure
Total
regulatory
net credit
exposure
24,446
15,472
247,086
7,576
38,724
333,305
73,879
9,549
48,735
24,446
10,130
241,655
3,865
38,460
318,557
73,879
9,549
48,735
132,162
132,162
6,772
72,961
5,152
22,822
107,707
573,174
610,036
6,783
72,961
5,101
6,002
90,847
541,565
585,549
Other 1
24,446
12,146
32,431
25
114
69,162
9,549
38,634
48,183
1,074
30
5,152
22,822
29,078
146,423
125,988
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 Excludes equity positions.
170
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 defined exposure
segments.
CHF million
Total regulatory gross credit exposure
Less: regulatory credit risk offsets and adjustments 1
Total regulatory net credit exposure
Total 31.12.09
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 31.12.09
1 Regulatory credit risk offsets and adjustments mainly include margin accounts for derivatives.
Advanced IRB
approach
Standardized
approach
Total 31.12.10
Total 31.12.09
462,221
(26,008)
436,214
445,526
140,979
43,562
69,809
118,604
62,355
905
436,214
445,526
110,953
(5,601)
105,352
140,024
26,739
68,475
5,660
1,694
2,784
105,352
140,024
573,174
(31,608)
541,565
167,718
112,036
75,469
120,298
62,355
3,688
541,565
610,036
(24,487)
585,549
165,246
128,957
109,049
119,859
58,723
3,714
585,549
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171
Risk and treasury management
Basel II Pillar 3
Regulatory gross credit exposure covered by guarantees and credit derivatives
This table provides a breakdown of collateral information, show-
ing exposures covered by guarantees as well as those covered by
credit derivatives, according to Basel II defined exposure seg-
ments. 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 com-
mercial entities such as corporations, partnerships or propri-
etorships, insurance companies, funds, exchanges 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 Interna-
tional Settlement (BIS), the International Monetary Fund (IMF),
the European Union including the European Central Bank and
eligible multilateral development banks.
– 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 arrangements comparable to those
applied to banks according to the Basel II revised framework,
including, in particular, risk-based capital requirements. Basel II
also defines this regulatory exposure segment such that it con-
tains exposures 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 mort-
gages, regardless of exposure size, if the obligor owns and oc-
cupies 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, private
clients and other retail customers without mortgage financing.
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 31.12.10
Total regulatory gross credit exposure 31.12.09
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
3,621
127
401
9
496
44
4,697
4,746
19,821
282
20,103
24,978
172
Advanced IRB approach: regulatory net credit exposure by UBS-internal rating
This table provides a breakdown of the regulatory net credit exposure of our credit portfolio (including loan commitments) using the
advanced IRB approach according to our internal rating classes.
UBS-internal rating
Investment
grade
Sub-investment grade
Defaulted 1
Total
regulatory
net credit
exposure
of which:
loan
commitments
Total
regulatory
net credit
exposure
of which:
loan
commitments
0 / 1
2 / 3
4 / 5
6–8
9–13
31.12.10
31.12.09
0.008%
0.057%
0.272%
0.926%
5.255%
0.542%
0.548%
5,915
21,811
5,422
57,873
20,523
52,374
4,615
54,392
142
30,056
680
10,123
55,609
5,378
46
33,148
189,919
101,893
388
27,748
512
18,293
205,085
20,239
3,901
101,119
4,597
28,503
255
1,635
52,785
1,564
694
85,436
2,294
84,659
2,004
15,583
3,048
140,979
284
207
5,121
984
12
22,192
3,659
20,805
2,657
9
49
473
37
11
43,562
69,809
118,604
62,355
905
3,626
436,214
98
6,109
171
12,034
135
15,407
890
167
28,633
128,146
36,163
103,280
118,213
58,723
1,000
445,526
11,706
187
17,292
858
133
4
30,179
CHF million, except
where indicated
Regulatory net credit
exposure-weighted average
probability of default
Exposure segment
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.10
of which: loan commitments
Total 31.12.09
of which: loan commitments
1 Values of defaulted derivative transactions are based on replacement values, including “add-ons” used in the calculation of regulatory capital.
Advanced IRB approach: exposure-weighted average loss given default by UBS-internal rating
This table provides a breakdown of the net exposure-weighted average loss given default (LGD) for our credit portfolio exposures
calculated using the advanced IRB approach, according to our internal rating classes.
in %
0 / 1
2 / 3
4 / 5
6–8
9–13
31.12.10
31.12.09
Regulatory net credit exposure-weighted average LGD
UBS-internal rating
Investment
grade
Sub-investment
grade
Regulatory net credit
exposure-weighted
average LGD
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Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Average 31.12.10
Average 31.12.09
38
38
18
10
35
35
29
46
30
10
20
20
28
29
32
45
39
10
20
10
20
20
27
40
44
10
20
40
17
18
26
91
58
10
20
15
23
21
30
42
31
10
20
35
24
31
44
29
10
20
35
25
173
Risk and treasury management
Basel II Pillar 3
Advanced IRB 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 calculated using
the advanced IRB approach according to our internal rating classes.
in %
0 / 1
2 / 3
4 / 5
6–8
9–13
31.12.10
31.12.09
Regulatory net credit exposure-weighted average risk weight
UBS-internal rating
Investment
grade
Sub-investment
grade
Regulatory net credit
exposure-weighted
average risk weight
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Average 31.12.10
Average 31.12.09
9
2
6
1
4
5
12
20
12
2
3
3
10
12
35
40
38
5
11
5
17
19
49
61
82
10
20
51
25
28
87
310
208
23
31
24
74
68
35
13
18
8
5
41
18
42
17
15
10
4
42
20
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 approach has been granted
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 weight-
ings applied to rated counterparties. We use ECAI risk assess-
ments 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
– 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 mapping
of external ratings to the standardized approach risk weights is
determined by FINMA and published on its website.
174
Regulatory gross and net credit exposure by risk weight under the standardized approach
This table provides a breakdown of the regulatory gross and net credit exposure by risk weight for our credit portfolio exposures treat-
ed under the standardized approach, according to Basel II defined exposure segments.
CHF million
0%
>0–35%
36–75%
76–100%
150%
31.12.10
31.12.09
Total exposure
Total exposure
Regulatory gross credit exposure
Corporates
Sovereigns 1
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.10
Total 31.12.09
Regulatory net credit exposure 2
Corporates
Sovereigns 1
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.10
Total 31.12.09
163
68,036
2
8,134
65
4,413
463
68,201
92,176
13,075
17,444
163
68,036
2
8,134
65
4,306
463
68,201
92,176
12,968
17,428
799
22,066
380
1,331
1,217
2,758
6,104
7,209
399
22
675
23,161
28,256
1,331
1,227
2,756
6,113
6,157
373
22
17,673
23,148
4
2,359
28
411
1,115
31,541
68,500
5,767
2,785
110,953
26,739
68,475
5,660
4
1,694
28
397
1,115
2,784
105,352
799
17,278
365
1 Includes high-quality liquid short-term securities issued by governments and government-controlled institutions. 2 For traded products, the regulatory gross credit exposure is equal to the regulatory net credit exposure.
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 calculation under
the standardized approach, according to Basel II defined exposure segments.
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CHF million
Exposure segment
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total
Regulatory net credit exposure
under standardized approach
Eligible financial collateral recognized in
capital calculation1
31.12.10
31.12.09
31.12.10
31.12.09
26,739
68,475
5,660
37,100
92,794
5,769
1,694
1,646
2,784
105,352
2,715
140,024
7,252
26
1,948
664
2
9,891
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.
42,159
92,843
6,821
1,646
2,731
146,200
37,100
92,794
5,769
1,646
2,715
140,024
20,852
60
4,916
18
25,847
175
Risk and treasury management
Basel II Pillar 3
Impairment, default and credit loss
As illustrated in the tables below, our impaired assets decreased 46% on 31 December 2010 compared with 31 December 2009,
mainly due to sales of legacy loan positions and reductions in our impaired derivative exposures.
Impaired assets by region
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 transactions, and derivative
transactions.
Regulatory gross
credit exposure
199,486
127,115
182,340
6,149
51,874
6,209
573,174
610,036
Impaired assets 1
1,178
738
4,125
31
359
37
6,468
11,920
Specific allowances,
provisions and
credit valuation
adjustments
Impaired assets
net of specific
allowances,
provisions and
credit valuation
adjustments
(561)
(267)
(1,444)
(25)
(41)
(32)
(2,370)
(5,831)
617
471
2,681
6
318
5
4,097
6,090
Total allowances,
provisions and
specific credit
valuation
adjustments 2
(609)
Collective
allowances and
provisions 2
(47)
(267)
(1,444)
(25)
(41)
(32)
(2,418)
(47)
(49)
Total allowances,
provisions and
specific credit
valuation
adjustments
31.12.09
(885)
(1,185)
(3,584)
(25)
(121)
(80)
(5,881)
CHF million
Switzerland
Rest of Europe
North America 3
Latin America
Asia Pacific
Middle East and Africa
Total 31.12.10
Total 31.12.09
1 Values of defaulted derivative transactions (CHF 1,915 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 723 million are partially included in the upper tier 2 capital and are therefore not included in this table. 3 Includes the Caribbean.
Impaired assets by exposure segment
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.
CHF million
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Not allocated segment 3
Total 31.12.10
Total 31.12.09
Regulatory gross
credit exposure
190,504
112,172
83,491
120,962
62,355
3,690
573,174
610,036
Impaired assets 1
5,912
14
32
252
159
99
6,468
11,920
Specific allowances,
provisions and
credit valuation
adjustments
Collective
allowances and
provisions 2
(2,083)
(10)
(30)
(68)
(120)
(59)
(2,370)
(5,831)
(47)
(47)
(49)
Total allowances,
provisions and
specific credit
valuation
adjustments 2
(2,083)
(10)
(30)
(68)
(120)
(59)
(47)
(2,418)
(5,881)
Total allowances,
provisions and
specific credit
valuation
adjustments
31.12.09
(5,470)
(10)
(42)
(92)
(147)
(71)
(49)
(5,881)
Write offs for the
year ended
31.12.10
(1,470)
(1)
(1)
(33)
(1,505)
(2,046)
1 Values of defaulted derivative transactions (CHF 1,915 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 723 million are partially included in the upper tier 2 capital and therefore not included in this table. 3 Collective loan loss allowances and provisions are not allocated to individual counterparties and thus also
not to exposure segments.
176
Changes in allowances, provisions and specific credit valuation adjustments for defaulted derivatives
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 defaulted derivatives.
Specific allowances
and provisions for
banking products and
securities financing
Specific credit
valuation
adjustments for
defaulted
derivatives
Total specific
allowances,
provisions and
credit valuation
adjustments
Collective
allowances and
provisions 1
For the year
ended 31.12.10
2,771
(1,505)
79
68
3,060
5,831
(1,505)
79
49
5,881
(1,505)
79
Opening balance
as of 1.1.09
(1,681)
(1,613)
(2)
(1,615)
(173)
(249)
(421)
(421)
CHF million
Opening balance as of 1.1.10
Write-offs
Recoveries (on written-off positions)
Increase / (decrease) in allowances,
provisions and specific credit
valuation adjustments 2
Foreign currency translations and
other adjustments
Transfers
Closing balance as of 31.12.10
1,240
1,130
2,370
47
2,418
Closing balance
as of 31.12.09
For the
year ended
31.12.09
7,275
(2,046)
52
1,110
(460)
(51)
5,881
1 Collective credit valuation adjustments of CHF 723 million 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).
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, derivative
and securities financing portfolios) calculated as of 31 Decem-
ber 2009, and the actual IFRS credit loss amount (including
credit valuation adjustments on derivatives) charged against our
income statement in 2010, according to Basel II defined expo-
sure segments of the advanced IRB approach. Comparison
between our expected and actual losses has certain limitations
as the two measures are not directly comparable. In particular
our expected loss estimate is an annualized average expected
loss measure which takes into account our historical loss experi-
ence, whereas actual loss represents our credit loss expense
charged to the income statement incurred in the financial year.
The difference in our expected and actual loss amounts resulted
primarily from credit recoveries affecting the net actual losses
in 2010.
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Corporates 1
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Not allocated 2
Total
Expected loss
Actual credit (loss) / recovery and credit valuation adjustments
31.12.09
For the year ended
31.12.10
Actual credit
Specific credit
valuation adjust-
ments for de-
Total expected loss
(loss) / recovery
faulted derivatives
Total actual credit
(loss) / recovery and
credit valuation
adjustments
For the year ended
31.12.09
Total actual credit
(loss) / recovery
and credit valuation
adjustments
(359)
(8)
(37)
(84)
(19)
(5)
(512)
(83)
5
1
5
(2)
7
(66)
1,660
21
1,577
(1,093)
26
1
5
(2)
7
1
(22)
(1)
52
(30)
(17)
1,681
1,615
(1,110)
1 Includes actual credit losses from securities, which amounted to CHF 172 million. 2 Includes changes in collective loan loss allowances and provisions.
177
Risk and treasury management
Basel II Pillar 3
Other credit risk tables
Our credit derivative trading is predominately on a collateralized
basis. This means that our credit exposures arising from our de-
rivatives activities with collateralized counterparties are typically
closed out in full or reduced to nominal levels on a regular basis
by the use of collateral.
Derivatives trading with counterparties with higher credit rat-
ings (for example a large bank or broker-dealer) is typically under
an International Swaps and Derivatives Association (ISDA) master
trading agreement (MTA) and credit exposures to those counter-
parties from credit default swaps (CDS), together with exposures
from other OTC derivatives, are netted and included in the calcu-
lation of the collateral required to be posted. Trading with lower
rated counterparties (for example, hedge funds) would also gen-
erally require an initial margin 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 generally takes the form of
cash or highly liquid fixed income securities) is available to cover
any amounts due under those derivative transactions.
Settlement risk (including payment risk) of CDS has been miti-
gated to some extent by the development of a market-wide cred-
it event auction process which has resulted in a widespread shift
to the cash settlement of CDS following a credit event on a refer-
ence entity. During 2009 and 2008, we participated in various
industry-wide compression and “tear up” initiatives which re-
duced notional values and operational risks by terminating exist-
ing 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 2010 and 2009.
The vast majority of our CDS trading activity is conducted by
the Investment Bank. The “Credit derivatives portfolio (split by
counterparty)” 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 counterparties are market
professionals. Based on the same notional measure, approxi-
mately 97% of these counterparties were rated investment
grade and approximately 99% of the CDS activity was traded on
a collateralized basis.
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 regula-
tory net credit exposures because of differences in valuation methods and the netting and collateral deductions 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
31.12.10
401,146
(301,515)
(41,592)
58,039
73,879
60,843
13,036
36,520
4,837
120
115
41,592
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
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 counter-
party. 2 Derivatives exposure is defined as regulatory net credit risk exposure.
178
Credit derivatives 1, 2
This table provides an overview of our credit derivative portfolio by product group using notional values. The table also provides a
breakdown of credit derivative positions used to manage our own credit portfolio (banking book for regulatory purposes) risks and
those arising through intermediation activities (trading book for regulatory capital purposes).
Notional amounts, CHF million
Credit default swaps
Total return swaps
Total 31.12.10
Total 31.12.09 3
Regulatory banking book
Regulatory trading book
Total
Protection
bought
28,650
0
28,650
36,353
Protection
sold
Total
Protection
bought
Protection
sold
Total
31.12.10
31.12.09
2,602
0
2,602
31,252
1,162,631
1,110,666
2,273,297
2,304,549
2,466,954
0
4,597
4,334
8,931
8,931
11,123
31,252
1,167,228
1,115,000
2,282,228
2,313,480
36,353
1,254,586
1,187,139
2,441,725
2,478,077
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 exposure according to current exposure method) is taken. 2 Notional amounts are reported based on regulatory scope of consolidation and do not include options and warrants. 3 The reporting
of notional amounts split between banking book and regulatory trading book have been aligned to reflect the allocation used for capital calculation under Pillar 1. As of 31 December 2009, total regulatory banking
book notional amounts were previously reported as CHF 22,633 million, of which CHF 22,043 million was protection bought and CHF 589 million was protection sold. At the same date, total regulatory trading book
notional amounts as of 31 December 2009 were previously reported as CHF 2,455,445 million, of which CHF 1,268,895 million was protection bought and CHF 1,186,550 million was protection sold.
Credit derivatives portfolio (split by counterparty) 1
Portfolio segment
Developed markets commercial banks
Broker-dealers, investment and merchant banks
Hedge funds
All other
% of total notional
% of buy notional
% of sell notional
31.12.10
31.12.09
31.12.10
31.12.09
31.12.10
31.12.09
59
25
2
15
64
28
1
7
58
25
1
17
63
28
1
8
60
25
3
12
66
28
2
4
1 Counterparty analysis based on notional CDS exposures of the Investment Bank sourced from credit risk systems.
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179
Risk and treasury management
Basel II Pillar 3
Investment positions
The IFRS view differs from the regulatory capital view primarily 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 frame-
work 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 con-
solidated for IFRS but not for regulatory capital purposes.
Also shown in the table “Equities disclosure for banking book
positions” are net realized gains and losses and latent revaluation
gains. The firm had no latent revaluation losses that were not
recognized in the statement of income relating to available-for-
sale investments. In addition, there was no significant disparity
between the share prices of investment positions held in publicly
quoted entities and their fair value.
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 calculation 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.
Book value
31.12.10
31.12.09
1,359
856
790
3,006
281
3,287
390
1,513
1,384
3,691
295
1,679
270
68
31
1,351
840
870
3,062
713
3,774
1,452
1,110
1,212
4,657
373
1,585
70
111
50
CHF million
Equity investments
Financial investments available-for-sale
Financial assets designated at fair value
Investments in associates
Total equity investments under IFRS
Regulatory capital adjustment
Total equity exposure under BIS
of which: to be risk weighted
publicly traded
privately held
of which: deducted from equity
RWA according to simple risk weight method
Capital requirement according to simple risk weight method
Total capital charge
Net realized gains / (losses) and latent gains from equities
Net realized gains / (losses) from disposals
Latent revaluation gains
of which: included in tier 2 capital
180
Market risk
Risk-weighted assets attributable to market risk increased to CHF
20.8 billion as of 31 December 2010, compared with CHF 12.9 bil-
lion as of 31 December 2009. We increased our trading risk expo-
sure, as we took on more trading risk in line with the execution of
our already communicated growth plans in the second half of 2010.
The market risk regulatory capital requirement is 8% of the respec-
tive RWA. Market risk regulatory capital and RWA are derived from
our VaR model and subject to regulatory determined multipliers.
Group: value-at-risk (10-day, 99% confidence, 5 years of historical data)
This table provides a breakdown of the Group’s minimum, maximum, average and period-end regulatory VaR by business division.
CHF million
Business divisions
Investment Bank
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Treasury activities and other corporate items
Diversification effect
Total regulatory VaR, Group
Diversification effect (%)
For the year ended 31.12.10
For the year ended 31.12.09
Min.
Max.
Average
31.12.10
Min.
Max.
Average
31.12.09
132
0
13
0
5
1
546
1
30
1
71
1
140
561
306
1
21
1
22
(27)
323
(8)
389
1
14
1
13
(17)
401
(4)
179
0
15
0
2
1
187
541
1
32
7
67
1
545
315
0
21
2
14
(37)
315
(11)
286
0
30
1
7
(23)
301
(7)
1 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a portfolio diversification effect.
Investment Bank: value-at-risk (10-day, 99% confidence, 5 years of historical data)
This table provides a breakdown of the Investment Bank’s minimum, maximum, average and period-end regulatory VaR by risk type.
CHF million
Risk type
Equities
Interest rates
Credit spreads
Foreign exchange
Energy, metals and commodities
Diversification effect
Total regulatory VaR, Investment Bank
Diversification effect (%)
For the year ended 31.12.10
For the year ended 31.12.09
Min.
Max.
Average
31.12.10
Min.
Max.
Average
31.12.09
47
54
225
8
5
1
132
133
138
635
88
44
1
546
68
95
422
28
12
(319)
306
(51)
64
96
386
41
43
(242)
389
(38)
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)
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
Group: value-at-risk (1-day, 99% confidence, 5 years of historical data) 1
This table provides a breakdown of the Group’s minimum, maximum, average and period-end regulatory backtesting VaR by business
division.
CHF million
Investment Bank
Group
Regulatory VaR 2
Regulatory VaR 2
Min.
57
58
Max.
Average
31.12.10
110
114
82
84
93
94
Min.
63
64
Max.
167
170
Average
31.12.09
103
104
78
79
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.
For the year ended 31.12.10
For the year ended 31.12.09
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181
Risk and treasury management
Basel II Pillar 3
Securitization
Objectives, roles and involvement
The majority of our positions that are categorized as securitiza-
tions (according to the regulatory definition of such exposures)
were held by the Investment Bank in the portfolio of assets re-
classified to Loans and receivables from Held for trading in the
fourth quarter of 2008 and the first quarter of 2009. As of
31 December 2010, this portfolio included CDO and CLO with
CDS protection purchased from monoline insurers, US commer-
cial mortgage-backed securities, the US reference-linked note
program and student loan ARS. We also continued to repur-
chase student loan ARS from our clients in 2010 as a result of
our 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 in-
clusion in firm-wide earnings-at-risk, capital-at-risk and com-
bined stress test metrics.
We intend to exit residual risk positions where appropriate. As
part of our hedging strategy, in 2010 we completed the securiti-
zation of a portfolio of counterparty credit risk resulting from OTC
derivatives.
➔ Refer to the discussion on exposure to student loan auction rate
securities 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 managed under
the market risk framework at 31 December 2010. A market risk
treatment was applied to these positions for determining regula-
tory capital.
We generally applied the ratings-based approach to securitiza-
tion positions 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 capital requirement that would
be assessed against the underlying assets had they not been secu-
ritized. This treatment has been applied mainly to the US and
European reference-linked note program and for the purposes of
determining regulatory capital and Pillar 3 disclosure the under-
lying exposures are reported under the standardized approaches.
The related positions are therefore not included in the tables
below.
UBS applied the supervisory formula to the securitization of a
portfolio of counterparty credit risk resulting from OTC derivatives
where an external rating was not sought.
The counterparty risk of interest rate or foreign currency de-
rivatives with securitization vehicles are treated under the ad-
vanced IRB 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 derecognition criteria are met and we do not con-
solidate the transferee (as described in “Note 1 Summary of sig-
nificant accounting policies” in the “Financial information” sec-
tion of this report). A gain or loss on sale is recognized when
exposures are derecognized. Derivatives used for synthetic securi-
tizations are accounted for in line with the abovementioned note.
Securitization positions that are classified as trading assets for
IFRS purposes are valued at fair value as described in “Note 27 Fair
value of financial instruments” in the “Financial information” sec-
tion of this report. Securitization positions that have been redes-
ignated from Trading assets to Loans and receivables are valued at
amortized cost less impairment as described in “Note 1 Summary
of significant accounting policies” in the “Financial information”
section of this report.
Regulatory treatment of securitization structures
The disclosures in this section mainly include exposures related to
student loan ARS, CDO and CLO with CDS protection purchased
from monoline insurers, US commercial mortgage-backed securi-
ties and the global reference-linked note programs and counter-
party credit risk exposures resulting from OTC derivatives, as these
exposures were treated under the secu ritization approach for de-
termining regulatory capital on 31 December 2010.
Good practice guidelines
On 18 December 2008, the European Banking Federation, the
Association for Financial Markets in Europe, the European Savings
Banks Group and the European Association of Public Banks and
Funding Agencies published the “Industry good practice guide-
lines on Pillar 3 disclosure requirement for securitization”, which
was slightly revised in 2009 / 2010. UBS is in compliance with all
material aspects of these guidelines.
182
Securitization activity during the year
The table below shows exposures which we have securitized during the year. It also shows any gains or losses recognized on sales into
these traditional securitization structures for regulatory capital purposes. The exposure values disclosed are based on the transaction
date and were accounted for at fair value pre-securitization (the resulting gain or loss is not significant).
Originator
Sponsor
Traditional
Synthetic
Securitization
positions retained
No securitization
positions retained
Securitization
positions retained
No securitization
positions retained
Realized
gains / losses
on traditional
securitizations
Traditional
Synthetic
0
0
0
0
1,715
1,715
0
0
0
0
0
0
0
0
0
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SMEs
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.10
Total 31.12.09
Total outstanding securitized exposures – securitization position retained / ongoing involvement
The table below provides a breakdown of the inventory of the total outstanding exposures which we have securitized. The exposure
values disclosed are based on the amounts referenced in the transaction.
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Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SMEs
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.10
Total 31.12.09
Originator
Sponsor
Traditional
Synthetic
Traditional
Synthetic
1,677
1,715
3,392
1,677
0
0
0
0
0
0
183
Risk and treasury management
Basel II Pillar 3
Impaired or past due securitized exposures
The table below provides a breakdown of the inventory of outstanding impaired or past due exposures which we have securitized. The
exposure values are based on the amounts referenced in the transaction.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SMEs
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.10
Total 31.12.09
Originator
Sponsor
Securitization
positions retained
No securitization
positions retained
165
165
102
0
0
0
0
Losses recognized from retained or purchased securitization positions
The table below provides a breakdown of losses we have recognized on securitization positions purchased or retained, after taking into
account the offsetting effects of any credit protection that is an eligible risk mitigation instrument for the retained or repurchased po-
sition. We partially report such positions on a fair value and partially on a cost less impairment basis.
Originator
Sponsor
23
3
29
11
66
34
0
0
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SMEs
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.10
Total 31.12.09
184
Securitization positions retained or purchased
The table below provides a breakdown of securitization positions we have purchased or retained, irrespective of our role in the secu-
ritization transaction. The table shows securitized exposures used to determine regulatory capital, which generally equals the IFRS
book value.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SMEs
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.10
Total 31.12.09
1,045
2,100
53
130
0
4
9,475
0
6,679
4,715
24,201
33,074
Capital charge for securitization positions retained or purchased
The table below provides a breakdown of securitization positions we have purchased or retained, irrespective of our role in the securi-
tization transaction.
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%
Total 31.12.10
Total 31.12.09
43
69
47
49
8
17
43
185
106
567
681
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Basel II Pillar 3
Deductions from eligible capital related to securitization positions retained or purchased
The table below provides a breakdown of securitization positions we have purchased or retained, irrespective of our role in the securi-
tization transaction, by securitization position type.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SMEs
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.10
Total 31.12.09
Early amortization treatment
We do not have securitization structures that are subject to the early amortization treatment.
238
266
0
57
0
1
1,489
0
808
131
2,990
1,797
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Corporate
governance and
compensation
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
Operational Group 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 responsibilities. The BoD is
responsible for the UBS Group’s (Group) direction as well as
monitoring and supervising the business. All BoD members 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, which members are appointed
by the BoD, 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 2010 that strengthened
our leadership capacity
The Organization Regulations of UBS AG and its annexes were
revised to implement all applicable regulatory requirements and
further enhance the authority of the executive management. In
addition, they simultaneously accentuate the supervisory role of
the BoD and its various Committees and reflect the newly
separated roles of the Vice Chairman and the Senior Indepen-
dent Director.
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 our annual report and quarterly
financial statements as reviewed and proposed by the Audit
Committee together with executive management, Group
Internal Audit and external auditors. Furthermore, the BoD is
responsible for approving our risk capacity and appetite, taking
into account the proposals and alternatives suggested by the
Risk Committee.
The operational structure of the Group is comprised of the
Corporate Center and four business divisions: Wealth Manage-
ment & Swiss Bank, Wealth Management Americas, Global
Asset Management and the Investment Bank.
Shareholder participation
We are committed to shareholder participation in our decision-
making process. Our directly registered shareholders, as well as
US shareholders registered via nominee companies, regularly
receive written information about our activities and performance
and are personally invited to shareholder meetings. We fully
subscribe to the principle of equal treatment of all shareholders,
who range from large investment institutions to individual
investors, and regularly inform them about the development of
the company of which they are co-owners.
In addition, the Annual General Meeting offers shareholders the
opportunity to raise any questions regarding our development
and the events of the respective year under review. BoD and GEB
members, as well as the internal and external auditors, are
present to answer these questions.
Transparency report
In October 2010, we published the “Transparency report to the
shareholders of UBS”, which is a comprehensive review of the
events that took place during the financial crisis. In publishing
this report, the BoD responded to the report publicized by the
control committee of the Swiss parliament in May 2010. The
transparency report is supported by two reports from indepen-
dent experts who assessed the events from a legal and historic
perspective.
2010 compensation at a glance
– Our foremost priority is to encourage and reward behavior that contributes to
sustainable profitability and therefore the long-term success of our firm.
– In order to align employee incentives with the interests of our shareholders, we pay
a significant part of our employees’ variable compensation in the form of deferred
awards, mostly in UBS shares, which are subject to strict forfeiture rules.
Bonuses granted for 2010
In making UBS’s compensation decisions for 2010, the BoD
and the GEB have carefully balanced all the relevant factors
such as our improved business performance, industry
compensation trends and regulatory requirements. From a
shareholder’s perspective, it is essential to weigh the short-
term potential for raising profitability against the long-term
requirement to retain and attract key staff. Although our
financial performance in 2010 was markedly better than in
2009, with an increase in profitability of CHF 10 billion,
given the considerations outlined above, the bonus pool for
2010 was set at CHF 4,245 million, 11% lower than it was
last year.
High levels of deferred bonuses for Group Executive Board members
At least 76% of a GEB member’s bonus, including 60% in equity
(under the Performance Equity Plan [PEP] and the Senior
Executive Equity Ownership Plan [SEEOP]), is deferred and at risk
of forfeiture for periods of up to five years. Moreover, the vest-
ing of these awards is subject to the fulfillment of specific
performance conditions. A maximum of 24% in cash (under the
Cash Balance Plan [CBP]) is paid out immediately, subject to a
cap of CHF / USD 2 million.
CHF, except where indicated
Base salary
Variable cash compensation
under CBP
Immediate
cash
Deferred
cash
Annual bonus
in equity under
SEEOP & PEP
Effective
deferrals
in % of bonus
for 2010
Benefits
in kind
Contributions
to retirement
benefits plans
3,000,000
0
0
0
N/A
25,600
874,626
1,002,496
2,339,158
5,012,481
88%
92,547
0
0
Total
compensation
3,025,600
9,321,308
14,705,894
15,588,145
14,451,756
45,059,852
79%
381,851
843,402
91,030,900
Group CEO
Oswald J. Grübel
Highest paid GEB-member:
Carsten Kengeter
GEB
aggregate pay
– As in 2009, the Group CEO has decided to waive the bonus.
– The highest paid GEB member in 2010 was Carsten Kengeter,
with a total compensation of CHF 9.3 million: 88% of his
bonus was deferred, with 28% in deferred cash and 60% in
deferred equity vesting over three to five years.
– In total, the compensation for GEB members in office on
31 December 2010 was CHF 91.0 million, compared with a
total of CHF 68.7 million in 2009.
– The Chairman of the BoD, Kaspar Villiger, chose to waive a
substantial part of the share award and instead to accept a
limited number of 26,940 UBS shares with a fair value of CHF
500,000. In addition, he decided to maintain the voluntary
reduction in his annual base salary from CHF 2 million to CHF
850,000. Kaspar Villiger is the highest paid member of the
BoD, with total compensation of CHF 1,491,308.
– Fees for the independent BoD members remained unchanged
in 2010.
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Corporate governance
Corporate governance
Our corporate governance principles are designed to support our objective of sustainable profitability, as well as to
create value and protect the interests of our shareholders and stakeholders. We use the term “corporate governance”
when referring to the organizational structure of UBS and operational practices of our management.
We are subject to, and fully comply with, the following regulatory
requirements regarding corporate governance: the Swiss Code of
Obligations (CO) articles 663bbis and 663c (paragraph three) re-
garding transparency of compensation paid to members of the
Board of Directors (BoD) and senior management; the SIX Swiss
Exchange’s (SIX) “Directive on Information Relating to Corporate
Governance”; the Swiss Financial Market Supervisory Authority’s
(FINMA) “Circular 2010 / 1 Remuneration schemes” (FINMA Cir-
cular 2010 / 1); 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 provides the information required as set forth by
the following regulatory requirements:
– The SIX “Directive on Information Relating to Corporate Gov-
ernance”, with regard to: Group structure and shareholders;
capital structure; BoD; Group Executive Board (GEB); compen-
sation, 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, “Sup-
plementary disclosures for companies whose shares are listed
on a stock exchange: compensations and participations”, with
regard to remuneration, share and option ownership and
loans. These disclosures are also included in the audited finan-
cial statements of this report. This information is marked by a
bar on the left-hand side throughout this section.
– The FINMA Circular 2010 / 1, with regard to the BoD’s duty to
annually report on the implementation of the remuneration
policy.
– The NYSE “Corporate Governance Listing Standards” with re-
gard to foreign listed companies: independence of directors,
BoD Committees and differences from the NYSE standards ap-
plicable to US domestic issuers.
In addition to the regulatory requirements mentioned above,
this section summarizes the regulatory and supervisory environ-
ment of UBS in our principal locations, and provides a list of all
members of our BoD and GEB. Updates have been made to the
sections discussing the BoD, GEB, and compensation and share-
holdings. These updates follow a revision of the Organization Reg-
ulations of UBS AG and its annexes (Organization Regulations),
which was conducted by the BoD throughout the summer of 2010.
On 1 August 2010, the revised Organization Regulations came
into effect. They implement the FINMA Circular 2010 / 1, stating
that the total compensation for GEB members is subject to ap-
proval by the BoD, upon recommendation by the BoD’s Human
Resources and Compensation Committee (HRCC), and any sever-
ance payments exceeding CHF 2 million must also be approved by
the BoD. In addition, they further align the responsibilities and
authorities between the BoD and the Group Asset and Liability
Management Committee (Group ALCO), by allocating the ap-
proval authority to the BoD for determination of cost of equity for
the UBS Group (Group) and its business divisions, and for the at-
tribution of equity to the Group and its business divisions. Further-
more, they reflect the newly separated roles of the Vice Chairman
and the Senior Independent Director (SID).
➔ Refer to www.ubs.com/governance for more details on the
Organization Regulations
190
Group structure and shareholders
UBS Group legal entity structure
Significant shareholders
Under Swiss company law, UBS AG is organized as a limited com-
pany: a corporation that has issued shares of common stock to
investors. UBS AG is the Parent Bank of the Group.
Our legal entity structure is designed to support our businesses
within an efficient legal, regulatory, tax and funding framework.
Neither our business divisions nor the Corporate Center are sepa-
rate legal entities: they primarily operate out of the Parent Bank,
UBS AG, through its branches worldwide. This structure is de-
signed 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 nei-
ther possible nor efficient to operate out of the Parent Bank, busi-
nesses operate through local subsidiaries. This can be the case
when required for legal, tax or regulatory purposes, or as addi-
tional legal entities join the Group through acquisition.
Operational Group structure
On 31 December 2010, the operational structure of the Group
comprised the Corporate Center and four business divisions:
Wealth Management & Swiss Bank, Wealth Management Ameri-
cas, Global Asset Management and the Investment Bank. In this
report, performance is reported according to this structure.
➔ Refer to the “UBS business divisions and Corporate Center”
section of this report for more information
Listed and non-listed companies belonging to the Group
The Group includes a number of consolidated entities, none of
which, however, are listed companies other than UBS AG.
➔ 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
Under the Federal Act on Stock Exchanges and Securities Trading
of 24 March 1995, as amended (the Swiss Stock Exchange Act),
anyone holding shares in a company listed in Switzerland, or hold-
ing derivative rights related to shares of such a company, has to
notify the company and the SIX if the holding attains, falls below
or exceeds one of the following thresholds: 3, 5, 10, 15, 20, 25,
331⁄3, 50, or 662⁄3% of the voting rights, whether they are exercis-
able or not. The detailed disclosure requirements and the method-
ology for calculating the thresholds are defined in the Ordinance
of the Swiss Financial Market Super visory Authority on Stock Ex-
changes and Securities Trading (the Ordinance). In particular, the
Ordinance takes into account all future potential share obligations
irrespective of their possible contingent nature, and prohibits the
netting of so-called acquisition positions (in particular shares, con-
version rights and acquisition rights or obligations) with disposal
positions (i.e. rights or obligations to sell). It further requires that
each such position be calculated separately, and be reported as
soon as it reaches one of the abovementioned thresholds. Nomi-
nee companies which cannot autonomously decide how voting
rights are exercised, are not obligated to notify UBS and the SIX in
case they reach, exceed or fall below the threshold percentages.
In addition, pursuant to the CO, UBS must disclose in its notes
to the financial statements the identity of any shareholder with a
holding of more than 5% of the total share capital of UBS AG.
According to disclosure notifications filed with UBS AG and
the SIX, on 8 June 2010, The Capital Group Companies, Inc., Los
Angeles, disclosed a holding of 4.90% of the total share capital
of UBS AG. On 12 March 2010, the Government of Singapore,
Singapore, as beneficial owner, disclosed under the Swiss Stock
Exchange Act, a holding by the Government of Singapore Invest-
ment Corp. of 6.45% of the total share capital of UBS AG. On
17 December 2009, BlackRock Inc., New York, disclosed accord-
ing to the Swiss Stock Exchange Act, a holding of 3.45% of the
total share capital of UBS AG. In accordance with the Swiss Stock
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Significant shareholders
Shareholders registered in the UBS shares register with 3% or more of shares issued
In % of shares issued
Chase Nominees Ltd., London
DTC (Cede & Co.), New York 1
Government of Singapore Investment Corp., Singapore
Nortrust Nominees Ltd., London
1 DTC (Cede & Co.), New York, “The Depository Trust Company”, is a US securities clearing organization.
31.12.10
10.70
7.32
6.41
3.79
31.12.09
31.12.08
11.63
8.42
less than 3
3.07
7.19
9.89
less than 3
less than 3
191
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Corporate governance
Exchange Act, the percentages indicated above were calculated in
relation to the share capital reflected in the Articles of Association
of UBS AG (Articles of Association) at the time of the respective
disclosure notification. Information on disclosures under the Swiss
Stock Exchange Act can be found on the following website of the
SIX: http://www.six-exchange-regulation.com/obligations/disclo-
sure/major_shareholders_en.html.
According to our share register, the shareholders (acting in
their own name or in their capacity as nominees for other inves-
tors or beneficial owners) listed in the “Significant shareholders”
table below, were registered with 3% or more of the total share
capital on 31 December 2010, 2009 and 2008.
Cross shareholdings
We have no cross shareholdings in excess of a reciprocal 5% of
capital or voting rights with any other company.
192
Capital structure
Capital
Under Swiss company law, shareholders must approve in a share-
holders’ 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
2010, 3,830,840,513 shares were issued with a par value of CHF
0.10 each, leading to ordinary share capital of CHF 383,084,051.30.
This includes 272,651,005 shares issued in 2010 out of condi-
tional share capital upon conversion of CHF 13 billion in manda-
tory convertible notes (MCN) on 5 March 2010; and 76,755 (of
which 3,171 under former PaineWebber employee option plans)
shares issued for employee option exercises out of conditional
capital, all of which took effect in 2010.
Conditional share capital
At year-end 2010, the following conditional share capital was
available to the BoD:
– At the Annual General Meeting (AGM) held in 2006, share-
holders approved conditional capital in the maximum amount
of 150,000,000 shares to be used for employee option grants.
Options are exercisable at any time between their vesting and
expi ration dates. Shareholders have no pre-emptive rights. In
2010, options on 73,584 shares were exercised under the op-
tion plans with a total of 149,920,712 conditional capital
shares being available to satisfy further exercises of options.
– At the AGM held in 2010, shareholders approved conditional
capital in the amount of up to 380,000,000 fully paid regis-
tered shares, with a nominal value of CHF 0.10 each, through
the exercise of conversion rights and / or warrants granted in
connection with the issuance of bonds or similar financial in-
struments by UBS. Shareholders have no pre-emptive rights.
The owners of conversion rights and / or warrants shall be en-
titled to subscribe to the new shares. At year-end 2010, the
BoD had not made use of the allowance to issue bonds or
warrants with conversion rights covered by conditional share
capital.
– At the AGM held on 15 April 2009, our shareholders approved
the creation of conditional capital for the potential issuance of
100,000,000 shares in the event of exercise of warrants grant-
ed to the Swiss National Bank (SNB) in connection with the
loan granted by the SNB to the SNB StabFund.
➔ Refer to the “Shares and capital instruments” section of this
report for more information on conditional share capital
Authorized share capital
The BoD has no authorized share capital available.
Changes of shareholders’ equity and shares
According to International Financial Reporting Standards (IFRS),
equity attributable to UBS shareholders amounted to CHF 46.8
billion on 31 December 2010 (CHF 41.0 billion in 2009, and CHF
32.5 billion in 2008). The UBS Group shareholders’ equity was
represented by 3,830,840,513 issued shares on 31 December
2010 (2009: 3,558,112,753; 2008: 2,932,580,549).
➔ Refer to the “Statement of changes in equity” in the “Financial
information (consolidated financial statements)” section of this
report for more information on changes in shareholders’ equity
over the last three years
Shares and participation certificates
We have only one unified class of shares issued. 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 subject to the restrictions set out under
“Transferability, voting rights and nominee registration”. Global
registered shares provide direct and equal ownership for all share-
holders, irrespective of the country and stock exchange on which
they are traded.
Ownership of UBS shares is widely spread. The additional ta-
bles on the following page provide information about the distri-
bution of our shareholders by category and geographical location.
This information relates only to registered shareholders and can-
not be assumed to be representative of our entire investor base
nor the actual beneficial ownership. Only shareholders registered
in the share register as “shareholders with voting rights” are en-
titled to exercise voting rights.
➔ Refer to the “Shareholders’ participation rights” section of
this report for more information
On 31 December 2010, 2,208,919,126 shares carried voting
rights, 395,870,008 shares were entered in the share register
without voting rights, and 1,226,051,379 shares were not regis-
tered. All 3,830,840,513 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.
At year-end 2010, we owned UBS registered shares corre-
sponding to less than 3% of the total share capital of UBS. At the
same time, we had disposal positions relating to 508,052,477
voting rights of UBS, corresponding to 13.26% of the total voting
rights of UBS. They consisted mainly of 9.66% of voting rights on
shares deliverable in respect of employee awards. The calculation
methodology for the disposal position is based on the Ordinance
of the Swiss Financial Market Supervisory Authority on Stock
Exchanges and Securities Trading, which takes into account all
future potential share delivery obligations irrespective of the con-
tingent nature of the delivery.
We have no participation certificates outstanding.
193
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Corporate governance
Distribution of UBS shares
On 31 December 2010
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
5,000,001–38,308,405 (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
40,896
200,705
104,236
9,856
725
95
26
1
2
1
0
3 1
356,546
%
11.5
56.3
29.2
2.8
0.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2,401,727
91,565,192
286,103,960
242,026,391
191,357,995
223,378,963
245,584,542
63,760,200
177,912,038
145,038,407
0
935,659,719
100.0
2,604,789,134
1,226,051,379
3,830,840,513 3
0.1
2.4
7.5
6.3
5.0
5.8
6.4
1.7
4.6
3.8
0.0
24.4
68.0
32.0
100.0
1 On 31 December 2010, Chase Nominees Ltd., London, was entered as a trustee / nominee holding 10.70% of all shares issued. DTC (Cede & Co.), New York, the US securities clearing organization, was registered with
7.32% of all shares issued. 2 Shares not entered in the share register as of 31 December 2010. 3 Of the total shares issued, 395,870,008 registered shares do not carry voting rights.
Shareholders: type and geographical distribution
On 31 December 2010
Individual shareholders
Legal entities
Nominees, fiduciaries
Unregistered
Total
Switzerland
Europe
North America
Other countries
Unregistered
Total
Ordinary share capital
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
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 2010
194
Shareholders
Shares
Number
347,790
8,194
562
%
97.5
2.3
0.2
Number
634,936,250
716,304,953
1,253,547,931
1,226,051,379
%
16.6
18.7
32.7
32.0
356,546
100.0
3,830,840,513
100.0
319,928
20,130
8,574
7,914
89.7
5.7
2.4
2.2
840,192,284
948,210,958
486,694,537
329,691,355
1,226,051,379
21.9
24.8
12.7
8.6
32.0
356,546
100.0
3,830,840,513
100.0
Share capital in CHF
Number of shares
Par value in CHF
293,258,055
2,932,580,549
33,222,591
29,325,805
4,824
332,225,913
293,258,050
48,241
355,811,275
3,558,112,753
27,265,100
272,651,005
0
7,676
0
76,755
383,084,051
3,830,840,513
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
0.10
Transferability, voting rights and nominee registration
We do not apply any restrictions or limitations on the transfer-
ability of shares. Voting rights may be exercised without any re-
strictions by shareholders entered into the share register, if they
expressly render a declaration of beneficial ownership according
to the provisions of the Articles of Association.
We have special provisions for the registration of fiduciaries
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, beneficial owners hold-
ing 0.3% or more of all UBS shares. An exception to the 5% vot-
ing limit rule exists for securities clearing organizations such as
The Depository Trust Company in New York.
➔ Refer to the “Shareholders’ participation rights” section of
this report for more information
Capital instruments
On 31 December 2010, there were no contingent capital securities
or convertible bonds outstanding requiring the issuance of new
shares. We had CHF 4,903 million principal amount of deeply sub-
ordinated capital instruments outstanding, which count as hybrid
tier 1 capital under Swiss regulatory rules, and CHF 8,239 million
principal amount of outstanding tier 2 capital securities (mainly sub-
ordinated bonds). We did not issue any capital instruments in 2010.
Options
In connection with the loan granted by the SNB to the SNB Stab-
Fund, we have issued warrants granted to the SNB sourced by
conditional capital for which 100,000,000 shares were approved
by our shareholders. The warrants are exercisable only if the SNB
incurs a loss on its loan to the fund.
On 31 December 2010, there were 263,561,259 employee op-
tions and stock appreciation rights outstanding. Delivery obliga-
tions equivalent to 5,235,741 shares were exercisable. We source
our option-based compensation plans either by purchasing UBS
shares in the market, or through the issuance of new shares out
of conditional capital. On 31 December 2010, 25,842,908 trea-
sury shares were available for this purpose, and an additional
149,920,712 unissued shares in conditional share capital were
assigned to future employee option exercises. At year-end 2010,
the shares available covered all exercisable employee obligations.
➔ Refer to the “Shares and capital instruments” section of this
report for more information on options
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Corporate governance and compensation
Corporate governance
Shareholders’ participation rights
We are committed to shareholder participation in our decision-
making process. More than 350,000 directly registered shareholders,
as well as some 90,000 US shareholders registered via nominee com-
panies, regularly receive written information about our activities and
performance and are personally invited to shareholder meetings.
➔ Refer to the “Information policy” section of this report for
more information
Relationships with shareholders
We fully subscribe to the principle of equal treatment of all share-
holders, who range from large investment institutions 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 is under review. BoD and GEB members, as well as the inter-
nal and external auditors, are present to answer these questions.
Voting rights, restrictions and representation
We place no restrictions on share ownership and voting rights.
Nominee companies and trustees, who normally represent a large
number of individual shareholders, may hold an unlimited num-
ber of shares, but we have provisions according to which voting
rights are limited to a maximum of 5% of outstanding UBS shares
in order to avoid the risk of unknown shareholders with large
stakes being entered in the share register. Securities clearing orga-
nizations, 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. Nominee companies and
trustees are required to sign an agreement confirming their will-
ingness to disclose, upon our request, 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 at-
tend 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 designated by
UBS, as required under Swiss company law, or by appointing
UBS, another bank or another registered shareholder of their
choice to vote on their behalf. Nominee companies 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 BoD mem-
bers and the appointment of the Group and statutory auditors are
decided at the AGM by an absolute majority of the votes cast,
excluding blank and invalid ballots. Swiss company law requires
that, for certain specific issues, a majority of two-thirds of the
votes represented at the AGM, and the absolute majority of the
par value of shares represented at the AGM, must vote in favor of
the resolution. These issues include, among others, the creation
of shares with privileged voting rights, the introduction of restric-
tions on the transferability of registered shares, conditional and
authorized capital increases, and restrictions or exclusion of share-
holders’ pre-emptive rights.
The Articles of Association also requires a two-thirds majority
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 BoD members.
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 allow shareholders to clearly ex-
press their views on all individual topics, each item on the agen-
196
da is put to vote separately 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 invi-
tation including a detailed agenda and explanation of each motion
is sent to every registered shareholder at least 20 days ahead of the
scheduled AGM. The meeting agenda is also published in the Swiss
Official Gazette of Commerce and in selected Swiss newspapers as
well as on the internet at www.ubs.com/agm.
Extraordinary General Meetings (EGM) may be convened
whenever the BoD or the statutory 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 with a specific issue put forward by them. Such
a request may also be brought forward during the AGM.
Placing of items on the agenda
Shareholders individually or jointly representing shares with an ag-
gregate par value of CHF 62,500 may submit proposals for mat-
ters to be placed on the agenda for consideration at the share-
holders’ 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, to-
gether with a short explanation, if necessary. The BoD formulates
opinions on the proposals, which are published together with the
motions.
Registrations in the share register
The general rules for being entered with voting rights in our Swiss
or US share registers also apply before general meetings of share-
holders. There is no “closing of the share register” 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.
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197
Corporate governance and compensation
Corporate governance
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 ultimate supervision
over senior management, and appoints all GEB members. The
BoD also approves all financial statements for issue. Shareholders
elect each member of the BoD, which in turn appoints its Chair-
man, Vice Chairman, SID, the members of the BoD Committees
and their respective Chairpersons.
Members of the Board of Directors
At the AGM held on 14 April 2010, Kaspar Villiger, Michel
Demaré, David Sidwell, Sally Bott, Rainer-Marc Frey, Bruno Gehrig,
Ann F. Godbehere, Axel P. Lehmann, Helmut Panke and William
G. Parrett were reelected as their terms of office expired. Sergio
Marchionne and Peter R. Voser tendered their resignation.
Wolfgang Mayrhuber was elected to his first term on the BoD.
Following their election, the BoD appointed Michel Demaré as
Vice Chairman and David Sidwell as SID. On 22 July 2010, UBS
nominated Joseph Yam, former Chief Executive of the Hong
Kong Monetary Authority, for election to the BoD at the 2011
AGM. On 31 December 2010, with the exception of the non-
independent Chairman, Kaspar Villiger, all BoD members were
considered independent by the BoD. Sally Bott resigned from the
BoD effective on 11 February 2011.
The following biographies provide information on the BoD
members on 31 December 2010.
Professional history and education
Kaspar Villiger was elected to the Board of Directors (BoD) at the 2009 Annual General Meeting (AGM) and was thereafter
appointed Chairman of the BoD. He chairs the Corporate Responsibility Committee and the Governance and Nominating
Committee. Mr. Villiger was elected Federal Councilor in 1989, and served as the Minister of Defense and Head of the
Federal Military Department until 1995. Subsequently, he served as Finance Minister and Head of the Federal Department
of Finance until he stepped down at the end of 2003. In addition to Federal Councilor, 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 until 1989, 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
Michel Demaré was elected to the BoD at the 2009 AGM, and in April 2010 appointed independent Vice Chairman. He is a
member of the Audit Committee and the Governance and Nominating Committee. Mr. Demaré joined ABB in 2005 as Chief
Financial Officer (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., 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 began
his career as an officer in the multinational banking division of Continental Illinois National Bank of Chicago, and was 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 in Lausanne.
Kaspar Villiger
Swiss, born 5 February 1941
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Chairman of the Board of Directors / Chairperson of
the Corporate Responsibility Committee / Chairperson
of the Governance and Nominating Committee
Year of initial appointment: 2009
Michel Demaré
Belgian, born 31 August 1956
ABB Ltd., Affolternstrasse 44, P.O. Box 5009,
CH-8050 Zurich
Functions in UBS
Independent Vice Chairman / member of the
Audit Committee / member of the Governance and
Nominating Committee
Year of initial appointment: 2009
198
Professional history and education
David Sidwell was elected to the BoD at the 2008 AGM. In April 2010, he was appointed Senior Independent Director, and
chairs the Risk Committee. Mr. Sidwell was Executive Vice President and CFO of Morgan Stanley between 2004 and 2007.
Before joining Morgan Stanley, he was with JPMorgan Chase & Co., where in his 20 years of service, he held a number of
different positions including Controller, and from 2000 to 2004 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 and Chairperson of the Risk Policy and Capital Committee of Fannie Mae, Washington D.C., and a
Senior Advisor at Oliver Wyman, New York. He is a trustee of the International Accounting Standards Committee Foundation,
London, the Chairman of the board of Village Care, New York, and is a Director of the National Council on Aging, Washington
D.C.
Professional history and education
Sally Bott was elected to the BoD at the October 2008 Extraordinary General Meeting (EGM). Until her resignation with
effect on 11 February 2011, she chaired the Human Resources and Compensation Committee. Furthermore, she was a
member of the Corporate Responsibility Committee and the Governance and Nominating Committee. Ms. Bott served as the
Group Human Resources (HR) Director of BP plc, from 2005 until 2011, and was member of BP’s Group Executive Committee.
As of April 2011, Ms. Bott will be the Head of Human Resources at Barclays plc. Ms. Bott has spent most of her career in
financial services. Between 2000 and 2005, she was a Managing Director at Marsh & McLennan Companies 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 where 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, 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 Carter Burden Center for the Aging in New York City.
Professional history and education
Rainer-Marc Frey was elected to the BoD at the October 2008 EGM and is a member of the Audit Committee and the Risk
Committee. Mr. Frey is the founder of the investment management company Horizon21. He is the Chairman of Horizon21
as well as of its related entities and subsidiaries. In 1992, he founded and was appointed CEO of RMF Investment Group.
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 board of DKSH Group, Zurich, as well as of the Frey Charitable Foundation, Freienbach.
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David Sidwell
American (US) and British, born 28 March 1953
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Senior Independent Director / Chairperson of the
Risk Committee
Year of initial appointment: 2008
Sally Bott
American (US), born 11 November 1949
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Chairperson of the Human Resources and
Compensation Committee / member of the
Corporate Responsibility Committee / member of the
Governance and Nominating Committee, resigned
with effect on 11 February 2011
Year of initial appointment: 2008
Rainer-Marc Frey
Swiss, born 10 January 1963
Office of Rainer-Marc Frey, Seeweg 39,
CH-8807 Freienbach
Functions in UBS
Member of the Audit Committee / member of the
Risk Committee
Year of initial appointment: 2008
199
Corporate governance and compensation
Corporate governance
Bruno Gehrig
Swiss, born 26 December 1946
Swiss International Air Lines AG,
Obstgartenstrasse 25, CH-8302 Kloten
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
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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 Bank Cantrade AG. 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
trading. 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 Chairman of the board of Swiss International Air Lines and the Vice Chairman and Chairperson of the
Remuneration Committee of Roche Holding Ltd., Basel.
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 in 2003, was made a fellow of the Certified General
Accountants Association of Canada.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Ms. Godbehere is a board member and Chairperson of the Audit Committees of Prudential plc, Rio Tinto plc and Rio Tinto
Limited in London. She is on the board of Atrium Underwriters Ltd. and Atrium Underwriting Group Ltd., London. She is also
a member of the board and Chairperson of the Audit Committee of Ariel Holdings Ltd., Bermuda.
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, and was responsible for Group IT until 2010. In
September 2004, Mr. Lehmann was appointed CEO of Zurich American Insurance Company and the North America
Commercial business division in Schaumburg, Illinois. He became a member of Zurich’s Group Executive Committee and CEO
of its Continental Europe business division in 2002, and subsequently was in charge, in 2004, of integrating UK, Ireland and
South Africa in the newly created Europe General insurance business division. In 2001, he took over the responsibility for
Northern, Central and Eastern Europe and was appointed CEO of the Zurich Group Germany. In 2000, Mr. Lehmann became
a member of the Group Management Board where he was responsible for Group-wide business development functions.
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, and was responsible for consulting and management 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 is Chairman
of the Chief Risk Officer Forum.
Professional history and education
Wolfgang Mayrhuber was elected to the BoD at the 2010 AGM and is a member of the Corporate Responsibility Committee
and the Human Resources and Compensation Committee. He was Chairman of the Executive Board and CEO of Deutsche
Lufthansa AG from 2003 to 2010. In 2002, he was elected Deputy Chairman of the Executive Board, and in 2001, he was
appointed to the Executive Board with responsibility for the passenger airline business. From 1994 to the end of 2000, he
was Chairman of the Executive Board of the newly founded Lufthansa Technik AG. After holding a variety of management
positions in the maintenance, repair and overhaul division, he was appointed Executive Vice President and Chief Operating
Officer Technical in 1992. In 1970, he joined Lufthansa as an engineer at the engine overhaul facility in Hamburg.
Mr. Mayrhuber studied mechanical engineering at the Technical College in Steyr, Austria, and at the Bloor Collegiate Institute
in Canada, until 1965. In 1990, he completed an Executive Management Training course at the Massachusetts Institute of
Technology.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Mayrhuber is Chairman of the supervisory board and Chairperson of the Mediation Committee, the Nomination
Committee and the Executive Committee of Infineon Technologies AG, as well as a member of the supervisory boards of
Munich Re Group, BMW Group, Lufthansa Technik AG and Austrian Airlines AG. Furthermore, he serves on the board of SN
Airholding SA / NV, Brussels, and HEICO Corporation, Hollywood, FL.
Professional history and education
Helmut Panke was elected to the BoD at the 2004 AGM. He is a member of the Risk Committee and, as of 11 February 2011,
ad-interim Chairperson of the Human Resources and Compensation Committee. Between 2002 and 2006, Mr. Panke was
Chairman of the Board of Management at BMW. 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 corpo-
rate 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 board of Microsoft Corporation (Chairperson of the Antitrust Compliance Committee) and
Singapore Airlines Ltd. He is a member of the supervisory board of Bayer AG.
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. 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. 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., in all of which he chairs the Audit Committee. He is also the Immediate Past Chairman of the board of the United States
Council for International Business and United Way Worldwide. He is a Carnegie Hall Board of Trustees member.
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Wolfgang Mayrhuber
Austrian, born 22 March 1947
Deutsche Lufthansa AG,
Flughafen Frankfurt am Main 302,
D-60549 Frankfurt am Main
Functions in UBS
Member of the Corporate Responsibility Committee /
member of the Human Resources and Compensation
Committee
Year of initial appointment: 2010
Helmut Panke
German, born 31 August 1946
BMW AG, Petuelring 130, D-80788 Munich
Functions in UBS
Member of the Risk Committee and as of
11 February 2011 ad-interim Chairperson of the
Human Resources and Compensation 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
Chairperson of the Audit Committee
Year of initial appointment: 2008
201
Corporate governance and compensation
Corporate governance
Elections and terms of office
In accordance with article 19 (paragraph one) of the 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
confirm the entire membership of the BoD on a yearly basis at the
next AGM, which will take place on 28 April 2011.
BoD members are normally expected to serve for a minimum
of three years. No BoD member should continue to serve beyond
the AGM held in the calendar year following his or her 65th birth-
day; however, the BoD can extend this age limit.
Organizational principles and structure
The Organization Regulations were revised and are valid as of
1 August 2010. Major changes consisted of separating the roles
of the Vice Chairman and the SID, integrating the requirements of
the FINMA Circular 2010 / 1, and enhancing the approval author-
ity of the BoD with regard to the cost of equity for UBS and its
business divisions.
Following each AGM, the BoD meets to appoint its Chairman,
Vice Chairman, SID, the BoD Committees members and their re-
spective Chairpersons. At the same meeting, the BoD appoints a
Company Secretary, who acts as secretary to the BoD and its
Committees.
According to the Articles of Association, the BoD meets as of-
ten as business requires, but must meet at least six times a year.
A total of 16 meetings were held in 2010, of which eight included
GEB members and eight were without GEB participation. On aver-
age, 92% of BoD members were present at BoD meetings with-
out GEB participation, and 96% at meetings with GEB participa-
tion. The duration of each meeting was four hours on average. In
addition, the BoD met for a one-day BoD seminar.
At each BoD meeting, each Committee Chairperson provides
the full BoD with regular updates on current activities of his or her
Committee as well as important Committee issues.
At least once per year, the BoD reviews its own performance as
well as the performance of each of its Committees. This review is
based on an assessment of the BoD as conducted by the Gover-
nance and Nominating Committee (GNC), as well as a self-assess-
ment of the BoD Committees, and seeks to determine whether the
BoD and its Committees are functioning effectively and efficiently.
The following Committees assist the BoD in the performance
of its responsibilities. These Committees and their charters are de-
scribed in the Organization Regulations, which are published on
www.ubs.com/governance.
Audit Committee
The Audit Committee (AC) comprises at least three independent
BoD members, with all members having been determined by the
BoD to be fully independent and financially literate. On 31 De-
cember 2010, the AC consisted of William G. Parrett, the Chair-
man, as well as Michel Demaré, Rainer-Marc Frey and Ann F. God-
behere. All members have accounting and financial management
expertise and are considered to be “financial experts” according
to the rules established by the US Sarbanes-Oxley Act of 2002.
The AC itself does not perform audits, but monitors 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 in-
dependent and objective body with oversight of: (i) the Group’s
accounting policies, financial reporting and disclosure controls
and procedures, (ii) the quality, adequacy and scope of external
audit, (iii) UBS’s compliance with financial reporting requirements,
(iv) management’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 performance
of Group Internal Audit in conjunction with the Chairman and the
Risk Committee (RC). For these purposes, the AC has the author-
ity to meet with regulators and external bodies in consultation
with the Group CEO.
The AC, together with the external auditors and Group Inter-
nal Audit reviews the annual and quarterly financial statements of
UBS and the Group as proposed by management in order to rec-
ommend their approval, including any adjustments considered to
be appropriate to the BoD.
Periodically, and at least annually, the AC assesses the qualifi-
cations, expertise, effectiveness, independence and performance
of the external auditors and their lead audit partner, in order to
support the BoD in reaching a decision on the appointment or
removal of the external auditors and the rotation of the lead audit
partner. The BoD then submits these proposals at the AGM.
During 2010, the AC held a total of six meetings and ten calls.
The meetings had an average duration of three and a half hours
and the calls lasted approximately 45 minutes. Participation at
these events averaged 97%. Also present at the meetings were
the Group CEO, the Group Chief Financial Officer (Group CFO),
the Head of Group Internal Audit, the Head of Group Tax & Ac-
counting Policy, the Head of Group Controlling & Accounting and
Ernst & Young Ltd., Basel, (Ernst & Young), our external auditors.
The calls were conducted in the presence of the AC members and
a combination of the Group CFO, the Head of Group Tax & Ac-
counting Policy and the Head of Group Controlling & Accounting.
Joint AC / RC sessions are held every quarter. In addition, the AC
held one session with FINMA.
The AC reports back to the BoD about its discussions with our
external auditors. Once per year, the lead represen tatives of our
external auditors present their long-form report to the BoD, as
required by FINMA.
Corporate Responsibility Committee
The Corporate Responsibility Committee (CRC) supports the BoD
in fulfilling its duty to safeguard and advance the Group’s reputa-
tion for responsible corporate conduct. It reviews and assesses
stakeholder concerns and expectations for responsible corporate
conduct and their possible consequences for UBS, and recom-
mends appropriate actions to the BoD. The CRC comprises at least
three independent BoD members and, on 31 December 2010,
202
Kaspar Villiger chaired the Committee with Sally Bott, Ann F. God-
behere and Wolfgang Mayrhuber as additional members. The CRC
is advised and supported by a number of senior business represen-
tatives. It met twice for 70 minutes in 2010, and 88% of CRC
members were present.
quidity, and (iii) balance sheet management, including in each
case any consequential reputational risk. For these purposes, the
RC receives all relevant information from the GEB and has the
authority to meet with regulators and external bodies in consulta-
tion with the Group CEO.
In 2010, the UBS Code of Business Conduct and Ethics (the
Code) was revised and approved by the BoD and GEB. All employ-
ees were required to participate in a comprehensive online train-
ing session covering the content of the Code.
➔ Refer to the “Corporate responsibility” section of this report for
more information
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 a
BoD annual self- assessment; to establish and maintain a process
for appointing new BoD members; and to manage the succession
of the Chairman and the Group CEO. The GNC comprises three
independent BoD members and, on 31 December 2010, Kaspar
Villiger chaired the GNC with Sally Bott, Michel Demaré and Bruno
Gehrig as additional members. In 2010, seven meetings were held
with an average participation of 93% of members and a duration
averaging one hour. No meeting was held with external advisors.
Human Resources and Compensation Committee
The HRCC is responsible for the following functions: (i) supporting
the BoD in its duties to set guidelines on compensation and ben-
efits, (ii) approving the total compensation for the Chairman and
the non-independent BoD members, (iii) proposing, together with
the Chairman, total individual compensation for the independent
BoD members and Group CEO for approval by the BoD, (iv) pro-
posing to the BoD for approval, upon the recommendation from
the Group CEO, the total individual compensation for GEB mem-
bers. The HRCC also reviews the compensation disclosure includ-
ed in this report.
The HRCC comprises four independent BoD members and, on
31 December 2010, Sally Bott chaired the HRCC with Bruno
Gehrig, Wolfgang Mayrhuber and Helmut Panke as additional
members. In 2010, 10 meetings were held with an average par-
ticipation of 88% of members and a duration of over 100 min-
utes. Of those meetings, nine were held with external advisors,
the Chairman and the CEO. After Sally Bott’s resignation, effective
as of 11 February 2011, Helmut Panke assumed responsibility as
ad-interim Chairperson of the HRCC.
➔ Refer to the “Compensation governance” section of this report
for more information on the Human Resources and Compensa-
tion Committee’s decision-making procedures
The RC comprises four independent BoD members and, on
31 December 2010, David Sidwell chaired the RC with Rainer-
Marc Frey, Axel P. Lehmann and Helmut Panke as additional mem-
bers. During 2010, the RC held a total of nine meetings and three
calls, with an average participation rate of 97% of members. The
average meeting duration was over five and a half hours and the
calls lasted over 50 minutes. The AC Chairperson regularly at-
tends part or all of the meetings. Also present were the Chairman,
the Group CEO, the Group CFO, the Group Chief Risk Officer
(Group CRO), the Group General Counsel (Group GC), the co-
CEOs of the Investment Bank, the Head of Group Internal Audit
and Ernst & Young. In addition, two joint meetings between the
RC and the HRCC were held to discuss factoring risk into the
compensation framework. Annually, one session is held with the
Governing Board of the SNB and one with FINMA. The RC Chair-
person additionally met one time with the Financial Services Au-
thority (FSA).
Roles and responsibilities of the Chairman of the
Board of Directors
Kaspar Villiger, the Chairman, has entered into a full-time employ-
ment contract with UBS in connection with his service 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 Group upon
recommendation of the Group CEO, exercises the ultimate super-
vision over management and appoints all GEB members.
The Chairman presides over all AGMs and EGMs, and works
with the Committee Chairpersons to coordinate the work of all
Committees. Together with the Group CEO, the Chairman is re-
sponsible for ensuring effective communication with shareholders
and other stakeholders, including government officials, regulators
and public organizations. This is in addition to establishing and
maintaining a close working relationship with the Group CEO and
the other GEB members, providing advice and support while re-
specting the fact that day-to-day management responsibility is
delegated to the GEB.
Roles and responsibilities of the Vice Chairman and the
Senior Independent Director
Risk Committee
The RC is responsible for overseeing and supporting the BoD in
fulfilling its duty to supervise and set appropriate risk manage-
ment and control principles in the area of (i) risk management and
control, including credit, market, country and operational risks,
(ii) treasury and capital management, including funding and li-
The BoD appoints a Vice Chairman and an SID. Both the Vice
Chairman and the SID must be independent. The Vice Chairman
is required to lead the BoD in the absence of the Chairman as well
as provide support and advice to the Chairman. At least twice a
year, the SID organizes and leads a meeting of the independent
BoD members without the presence of the Chairman. In 2010,
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Corporate governance and compensation
Corporate governance
one independent BoD meeting was held for a duration of 60 min-
utes. A second meeting was scheduled to take place in December
2010, but was postponed until February 2011. The SID reports to
the Chairman on the evaluation of the Chairman’s performance,
and acts as a contact point for shareholders wishing to engage in
discussions 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 Swit-
zerland, we have business relationships with many large compa-
nies, including those in which our BoD members assume manage-
ment or independent board responsibilities. The nature of the
relationships between UBS and com panies whose chair, chief ex-
ecutive or other officer is a member of our BoD is not considered
to compromise the BoD members’ capacity for independent judg-
ment. Furthermore, no independent 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 prevailing 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 between
the BoD and the GEB is clearly defined in the Organization Regu-
lations. The BoD decides on the strategy of the Group upon rec-
ommendation 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 ensuring a separation of power. This structure establishes
checks and balances and preserves the institutional indepen-
dence 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 the GEB remains with the BoD. The
authorities and responsibilities of the two bodies are governed by
the Articles of Association and the Organization Regulations, in-
cluding the latter document’s “Annex B – Responsibilities and au-
thorities”.
➔ Refer to www.ubs.com/governance for more details on
checks and balances for the BoD and GEB
Transparency report
On 14 October 2010, we published the “Transparency report to
the shareholders of UBS”, which is a comprehensive review of the
crisis we have faced in recent years. In publishing this report, the
BoD was responding to the report published by the control Com-
mittee of the Swiss parliament in May 2010.
The report explains why UBS incurred losses during the finan-
cial crisis, particularly in connection with positions in the US real
estate market. The report gives shareholders and interested
members of the public an opportunity to gain a detailed picture
of the events that took place. In addition, it sheds light on the
problems in the cross-border wealth management business with
US clients. The analysis is based on numerous internal and exter-
nal investigations, the results of which are summarized in the
report. The report further describes the wide ranging and sig-
nificant changes made in order to prevent similar mistakes from
recurring. Finally, the BoD presents the reasons for its decision to
refrain from taking legal action against the former management.
The transparency report is supported by two reports from inde-
pendent experts: the first by Prof. em. Dr. iur. Peter Forstmoser,
LL.M., Attorney-at-law titled, “Statement of Opinion on the UBS
AG Transparency Report of October 2010 and the Resolution by
the UBS AG Board of Directors to Refrain from the Initiation of
Liability Litigation” and the second by Dr. Tobias Straumann,
University of Zurich titled, “The UBS Crisis in Historical Perspec-
tive”. The reports assess the events of recent years from, on the
one hand, a legal perspective, and on the other hand, an eco-
nomic and historic one.
➔ Refer to www.ubs.com/transparencyreport for more information
Information and control instruments vis-à-vis the
Group Executive Board
The BoD is kept informed of the activities of the GEB in various
ways. The minutes of the GEB meetings are made available to the
BoD members. At BoD meetings, the Group CEO and GEB mem-
bers 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 mem-
bers may request information from other BoD and GEB members,
in which case such requests must be approved by the Chairman.
Group Internal Audit independently, objectively and systemati-
cally assesses the adherence to our strategy, effectiveness of gov-
ernance, risk management and control processes at Group, divi-
sional and regional levels, and monitors compliance with legal,
regulatory and statutory requirements, as well as with internal
policies and contracts. This internal audit organization, which is
independent from management, reports significant findings to
the Chairman and the RC. The AC must be informed of the results
of internal audits.
In February 2010, our internal compliance function provided
an annual compliance report to the BoD. This report is required by
sections 109 and 112 of the FINMA Circular 08 / 24 on the super-
vision and internal controls at banks.
➔ Refer to the “Risk management and control” section of
this report for more information
204
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 and
changes in 2010
Lukas Gähwiler was named CEO of UBS Switzerland on 1 April
2010, replacing Francesco Morra who stepped down on that date.
As of 1 November 2010, Carsten Kengeter became sole Head
of the Investment Bank. At the same time, Alexander Wilmot-
Sitwell was appointed co-Chairman and co-CEO of Asia Pacific
(APAC). Together with Chi-Won Yoon, he leads the APAC region.
John Cryan was appointed Chairman and CEO of UBS AG London
Branch and UBS Limited in November 2010, as well as Chairman
and CEO of UBS Group Europe, Middle East and Africa (EMEA) on
an interim basis. Mr. Cryan took on these responsibilities in addi-
tion to his existing role as Group CFO.
On 22 October 2010, the BoD appointed Philip Lofts as CEO,
UBS Group Americas, and Maureen Miskovic as Group CRO and
GEB member. Robert Wolf asked to step down from the GEB at the
end of 2010, but will remain in his role as Chairman of UBS Group
Americas and President of the Investment Bank. He will focus full-
time on client relationships and business transactions in the Ameri-
cas. All three changes were effective as of 1 January 2011.
John Cryan will step down from his Group CFO position and from
the GEB on 1 June 2011. On 3 December 2010, the BoD appointed
Sergio Ermotti as Chairman and CEO of UBS Group EMEA and GEB
member as of 1 April 2011, and Tom Naratil as Group CFO and GEB
member as of 1 June 2011.
The following biographies provide information on the GEB
members on 31 December 2010.
Professional history and education
Oswald J. Grübel was named Group Chief Executive Officer (Group CEO) and a member of the Group Executive Board (GEB)
in February 2009. Before joining UBS, he was the CEO of Credit Suisse Group and Credit Suisse and 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 Group Executive Board of Credit Suisse 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 and was
responsible for equities, 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 1975. 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 Swiss-American Chamber of Commerce, the Institute of International Finance and the
Financial Services Forum. He is member of the International Monetary Conference.
Professional history and education
John Cryan was appointed CEO of UBS AG London Branch and UBS Limited in November 2010 as well as Chairman and
CEO of UBS Group Europe, Middle East and Africa (EMEA) on an interim basis. Mr. Cryan took on these responsibilities in
addition to his existing role as Group Chief Financial Officer (Group CFO). He was appointed Group CFO and became a GEB
member in September 2008. In 2002, he became the European Head of the Financial Institutions Group of the 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.
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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
Functions in UBS
Group CFO
CEO UBS AG London Branch and UBS Limited
Chairman and CEO UBS Group Europe Middle East
and Africa (EMEA) ad interim
Year of initial appointment: 2008
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Professional history and education
Markus U. Diethelm was appointed Group General Counsel of UBS and a GEB member in September 2008. From 1998
until 2008, he served as Group Chief Legal Officer at Swiss Re, 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, and focused on corporate matters, securi-
ties transactions, litigation and regulatory investigations while working out of the firm’s Brussels and Paris offices. From
1989 until 1992, he practiced at Shearman & Sterling law firm in New York, specializing in mergers and acquisitions. In
1988, he worked at Paul, Weiss, Rifkind, Wharton & Garrison in New York, after starting 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 admitted to the Zurich and New York State Bar Associations.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Diethelm is the Chairman of the Swiss-American Chamber of Commerce’s Legal Committee and member of the Swiss
Advisory Council of the American Swiss Foundation.
Professional history and education
John A. Fraser was appointed Chairman and CEO of the Global Asset Management business division in December 2001, and
became a GEB member in July 2002. Since 2008, he has been the Chairman of UBS Saudi Arabia. Before 2001, he was
President and Chief Operating Officer (COO) of UBS Asset Management and Head of Asia Pacific (APAC). 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 D.C.,
first, at the International Monetary Fund and second, as Economic Minister at the Australian Embassy. He was the Deputy
Secretary (Economic) of the Australian Treasury from 1990 to 1993. Mr. Fraser graduated from Monash University, Melbourne,
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 member of the President’s Advisory Council of the European Fund and Asset Management Association, a
member of the Board of Governors of the Marymount International School at Kingston-upon-Thames in the UK and
Chairman of the Victorian Funds Management Corporation, Melbourne.
Professional history and education
Lukas Gähwiler became a GEB member in April 2010, and was appointed CEO of UBS Switzerland and co-CEO of Wealth
Management & Swiss Bank. In his role as CEO of UBS Switzerland he is responsible for all businesses including retail and
wealth management, corporate and institutional banking, investment banking and asset management in UBS’s home mar-
ket. Before joining UBS, he held the position of Chief Credit Officer with Credit Suisse since 2003, and was accountable for
the worldwide credit business of Private Banking, including Commercial Banking in Switzerland. In 1998, Mr. Gähwiler was
appointed Chief of Staff to the CEO of the Credit Suisse Private and Corporate Business Unit. Previously, he held various
front-office positions in Switzerland and North America. Mr. Gähwiler earned a bachelor’s degree in business administration
from the University of Applied Sciences in St. Gallen. He completed an MBA program in corporate finance at the International
Bankers School in New York, as well as 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. Gähwiler is a member of the boards of the Zurich Chamber of Commerce and the Opernhaus AG as well as Vice
Chairman of the Swiss Finance Institute.
Corporate governance and compensation
Corporate governance
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 and British, born 8 August 1951
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Chairman and CEO Global Asset Management
Chairman UBS Saudi Arabia
Year of initial appointment: 2002
Lukas Gähwiler
Swiss, born 4 May 1965
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
CEO UBS Switzerland and co-CEO
Wealth Management & Swiss Bank
Year of initial appointment: 2010
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Professional history and education
Carsten Kengeter was appointed Chairman and CEO of the Investment Bank in November 2010, after having been ap-
pointed its co-CEO in April 2009, when he became a GEB member. He joined UBS in December 2008, and served as the joint
Global Head of Fixed Income, Currencies & Commodities (FICC) of the Investment Bank until January 2010. He has been on
the Governing Board of UBS Limited since March 2009. Mr. Kengeter worked for Goldman Sachs as the co-Head of Asia
(ex-Japan) Securities division in Hong Kong since 2006. 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 Collateralized Debt Obligation business in London, and before that he was in de-
rivatives marketing in Frankfurt. From 1992 to 1997, Mr. Kengeter worked for Barclays de Zoete Wedd, and was responsible
for setting up the credit derivatives trading desk. He graduated as Diplom-Betriebswirt from Fachhochschule Reutlingen,
holds a bachelor’s in business administration from Middlesex University and a finance and accounting MSc from the London
School of Economics.
Professional history and education
Ulrich Körner was appointed Group Chief Operating Officer (Group COO) and CEO Corporate Center, and was made a GEB
member in April 2009. Mr. Körner was previously with Credit Suisse from 1998, and served as a member of the Credit Suisse
Group Executive Board from 2003 to 2008, holding various management positions including CFO and COO. From 2006 to
2008 and before joining UBS, 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 audi-
tor for Price Waterhouse and as a management consultant for McKinsey & Company.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Körner is Vice Chairman of the Committee of the Governing Board of the Swiss Bankers Association, Chairman of the
Widder Hotel, Zurich, and Vice President of the board of Lyceum Alpinum Zuoz. He is Deputy Chairman of the Supervisory
Board of UBS Deutschland AG, 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 advisory board of the Department of
Banking and Finance at the University of Zurich.
Professional history and education
Philip J. Lofts was appointed CEO of UBS Group Americas in January 2011. He became a GEB member in November 2008.
From 2008 until 2010, he was Group Chief Risk Officer (Group CRO). 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, APAC and the US. He success-
fully completed his A-levels at Cranbrook School. From 1981 to 1984, he was a trainee at Charterhouse Japhet plc, a mer-
chant 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.
Carsten Kengeter
German, born 31 March 1967
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Chairman and 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 and
CEO Corporate Center
Year of initial appointment: 2009
Philip Lofts
British, born 9 April 1962
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Group CRO until 31 December 2010
CEO UBS Group Americas as of 1 January 2011
Year of initial appointment: 2008
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Professional history and education
Robert J. McCann was appointed CEO of Wealth Management Americas and became a GEB member in October 2009.
Before joining UBS, he worked for Merrill Lynch & Co. 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.
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, Washington D.C.
Professional history and education
Alexander Wilmot-Sitwell was appointed co-Chairman and co-CEO of UBS Group APAC in November 2010. He became a
GEB member in February 2008. From 2009 to 2010, he served as co-CEO of the Investment Bank, and from 2005 to 2009
as the joint Global Head of Investment Banking. From 2008 to 2010, he was Chairman and CEO of UBS Group EMEA. 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 his-
tory.
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 Investment Bank in 2007. He was Chairman and CEO of UBS Group Americas
and was a GEB member from March 2008 until the end of 2010. Since January 2011 he has been the Chairman of UBS
Group Americas. He was COO of the Investment Bank from 2004 to 2008. Prior to that, Mr. Wolf served as the Global Head
of Fixed Income from 2002 to 2004, and previously 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.
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 on the board and in the Leadership Council of the Multiple Myeloma Research Foundation. He
serves on the board of the Children’s Aid Society, New York, the Partnership New York City, and the Robert F. Kennedy Center
for Justice & Human Rights Leadership Council.
Corporate governance and compensation
Corporate governance
Robert J. McCann
American (US) and Irish, born 15 March 1958
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
CEO Wealth Management Americas
Year of initial appointment: 2009
Alexander Wilmot-Sitwell
British, born 16 March 1961
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Co-Chairman and co-CEO UBS Group APAC
Year of initial appointment: 2008
Robert Wolf
American (US), born 8 March 1962
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Chairman and CEO UBS Group Americas,
CEO until 31 December 2010
President Investment Bank
Year of initial appointment: 2008
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Professional history and education
Chi-Won Yoon is co-Chairman and co-CEO of UBS Group APAC. From June 2009 to November 2010, he served as sole
Chairman and CEO of UBS AG, APAC and is a GEB member since June 2009. Prior to his current role, Mr. Yoon served as
Head of UBS’s securities business in APAC: Asia Equities which he oversaw since 2004, and APAC FICC which he was
brought in to lead in 2009. In 1997, when he first joined the firm, he served as Head of Equity Derivatives. Mr. Yoon began
his career in financial services in 1986, working 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 communica-
tions. 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 management from MIT’s Sloan School of Management.
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 UBS Wealth Management and co-CEO of Wealth Management & Swiss Bank, and became
a GEB member in February 2009. In November 2007, he was appointed Head of Wealth Management North, East & Central
Europe. From 2005 to 2007, he was CEO of UBS Deutschland, Frankfurt, and prior to that, he held various management
positions in the former 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
Korean, born 2 June 1959
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Co-Chairman and co-CEO UBS Group APAC
Year of initial appointment: 2009
Jürg Zeltner
Swiss, born 4 May 1967
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
CEO UBS Wealth Management and
co-CEO Wealth Management & Swiss Bank
Year of initial appointment: 2009
Responsibilities, authorities and organizational principles
of the Group Executive Board
Responsibilities and authorities of the Group Asset and
Liability Management Committee
Under the leadership of the Group CEO, the GEB has executive
management responsibility for the Group and its business. It as-
sumes overall responsibility for the development of the Group and
business division strategies and the implementation of approved
strategies. The GEB constitutes itself as the risk council of the
Group. In this function, the GEB has overall responsibility for es-
tablishing and supervising the implementation of risk manage-
ment and control principles, for approving the core risk policies as
proposed by the Group CRO, the Group CFO and the Group GC,
as well as for controlling the risk profile of the Group as a whole
as determined by the BoD and the RC. In 2010, the GEB held in
total 20 meetings.
➔ Refer to the Organization Regulations, which are available at
www.ubs.com/governance, for more information on the
authorities of the GEB
The Group ALCO, established by the GEB in 2009, is responsible
for setting strategies to maximize the financial performance of
the Group, and is subject to the guidelines, constraints and risk
tolerances set by the BoD. The Group ALCO is also responsible for
managing the balance sheet of the business divisions through
allocation and monitoring of limits as well as managing liquidity,
funding and capital; and promoting a one-firm financial manage-
ment culture. The Organization Regulations additionally specify
which powers of the GEB are delegated to the Group ALCO. In
2010, the Group ALCO held 10 meetings.
Management contracts
We have not entered into management contracts with any third
parties.
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Corporate governance and compensation
Corporate governance
Change of control and defense measures
We refrain from restrictions that would hinder developments initi-
ated 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 331⁄3% 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
Neither the service agreement with the Chairman of the BoD, nor
the employment contracts with the GEB members, contain change
of control clauses.
All employment agreements with GEB members contain a
notice period of six months, except for one which contains a
12-month notice period. During the notice period, GEB mem-
bers are entitled to their salary and continuation of existing em-
ployment benefits.
In case of a change of control, the HRCC may, however, ac-
celerate 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
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.
210
Auditors
Audit is an integral part of corporate governance. While safe-
guarding their independence, the external auditors closely coordi-
nate their work with Group Internal Audit. The AC, and ultimate-
ly the BoD, supervises the effectiveness of audit work.
External, independent auditors
At the 2010 AGM, Ernst & Young were re-elected 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. The Ernst &
Young lead partner in charge of the UBS audit has been Jonathan
Bourne since 2010 and his incumbency is limited to five years.
Andreas Blumer has acted as the global engagement partner
since 2004. He will be replaced in 2011 by Andreas Loetscher due
to a seven-year rotation requirement. Ernst & Young will be pro-
posed for reelection at the AGM in 2011.
At the 2009 AGM, 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.
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 accepted audit-
ing standards, as well as other assurance services that convention-
ally only the principal auditor can provide. These include statutory
and regulatory audits, attest services, and the review of docu-
ments to be filed with regulatory bodies.
Audit-related work comprises assurance and related services
that traditionally are performed by the principal auditor, such as
attest services related to financial reporting, internal control re-
views, performance standard reviews, consultation concerning fi-
nancial accounting and reporting standards and due diligence in-
vestigations 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 compliance, tax con-
sultation and tax planning in respect to our own affairs.
“Other” services are approved on an exceptional basis only.
They mainly comprise on-call advisory services; in addition, 2010
included non-recurring expenses.
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 33,206,000 in 2010 (CHF
37,030,000 in 2009) for services performed on behalf of our
Pre-approval procedures and policies
To ensure Ernst & Young’s independence, all services provided by
them have to be pre-approved by the AC. A pre-approval 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.
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
For the year ended
31.12.10
31.12.09
46,939
11,604
58,543
7,225
3,073
4,058
94
521
1,152
8,898
45,276
8,856
54,132
7,405
3,142
4,023
240
509
279
8,193
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Corporate governance and compensation
Corporate governance
The AC has delegated pre-approval authority to its Chairper-
son; hence the Group CFO submits all proposals for services by
Ernst & Young to the Chairperson of the AC for approval, unless
there is a bucket pre-approval in place. At each quarterly meeting,
the AC is informed of the approvals granted by its Chairperson
and of services authorized under bucket pre-approvals.
Group CEO, the GEB members responsible for the business divi-
sions and other responsible management. In addition, the Chair-
man of the BoD, the RC and the AC are regularly informed about
important issues. Group Internal Audit closely cooperates with
internal and external legal advisors and risk control units on inves-
tigations into major control issues.
Group Internal Audit
Group Internal Audit, with 313 personnel worldwide on 31 De-
cember 2010, performs the internal auditing function for the
entire Group. Group Internal Audit supports the BoD and its
Committees in discharging their governance responsibilities by
independently assessing the effectiveness of our system of inter-
nal controls and our compliance with statutory, legal and regula-
tory requirements. All reports with key issues are provided to the
To maximize its independence from management, the Head of
Group Internal Audit, James P. Oates, reports directly to the Chair-
man of the BoD and to the RC. Group Internal Audit has unre-
stricted access to all accounts, books, records, systems, property
and personnel, and must be provided with all information 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 external auditors
enhance the efficiency of Group Internal Audit’s work.
212
Information policy
We provide regular information to our shareholders and to the
financial community.
Financial results will be published as follows
First quarter 2011
Second quarter 2011
Third quarter 2011
26 April 2011
26 July 2011
25 October 2011
The Annual General Meeting of shareholders will take
place as follows
2011
2012
28 April 2011
3 May 2012
We meet with institutional investors worldwide throughout the
year, and regularly hold results presentations, special investor
seminars, road shows, and individual and group meetings. Where
possible, meetings involve senior management as well as mem-
bers of the investor relations team. We make use of diverse tech-
nologies such as webcasting, audio 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, registered
shareholders receive a summary of our annual report in the form
of a review booklet. It provides an overview of the firm, our strat-
egy as well as our activities during the year and some key financial
information. Each quarter, shareholders are mailed a brief update
on our quarterly financial performance. Shareholders can also re-
quest our complete financial reports, produced on a quarterly and
annual basis, free of charge.
To ensure fair access to and dissemination of our financial in-
formation, we make our publications available to all shareholders
at the same time.
➔ Refer to www.ubs.com/investors for a complete set of published
reporting documents, the corporate calendar, access to webcasts
and a selection of senior management industry conference
presentations
➔ Refer to www.ubs.com/investors for future financial report
publication dates
Financial disclosure principles
Based on discussions with analysts and investors, we believe that
the market rewards companies that provide clear, consistent 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 continually assessed and, where we consider appropri-
ate, reflected in our quarterly and annual reports. To continue to
achieve these goals, we apply the following principles in our fi-
nancial reporting and disclosure:
– Transparency in disclosure enhances understanding of the eco-
nomic drivers and builds trust and credibility.
– Consistency in disclosure within each reporting period and be-
tween reporting periods.
– Simplicity in disclosure allows readers to gain an understanding
of the performance of our businesses.
– Relevance in disclosure avoids information overload by focus-
ing 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, including a
breakdown of results by business division and extensive disclo-
sures relating to credit and market risk.
Our financial statements are prepared according to IFRS as is-
sued 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 applicable accounting
standards, to show how they would have been reported accord-
ing to the new basis and provide clear explanations of all rele-
vant changes.
US regulatory disclosure requirements
As a “foreign private issuer”, we must file reports and other infor-
mation, 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 quar-
terly financial reports and other material information, including
materials sent to shareholders in connection with AGMs and
EGMs, under cover of Form 6-K to the SEC. These reports are all
available at www.ubs.com/investors and also on the SEC’s website
at www.sec.gov.
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Corporate governance and compensation
Corporate governance
An evaluation was carried out under the supervision of man-
agement including the Group CEO and Group CFO, of the effec-
tiveness 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 con-
cluded that our disclosure controls and procedures were effective
as of 31 December 2010. 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 reporting.
The financial statements of this report contain management’s as-
sessment of the effectiveness of internal control over financial
reporting, as of 31 December 2010. The external auditors’ report
on this assessment is also included in this report.
214
Regulation and supervision
As a Swiss-registered company, our home country regulator and
consolidated supervisor is FINMA. However, our operations are
global and are therefore regulated and supervised by the relevant
authorities in each of the jurisdictions in which we conduct busi-
ness. The next sections describe the regulation and supervision of
our business in Switzerland, our home market, and the regulatory
and supervisory environments 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 Banking 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, investment 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 ad-
equacy rules of the Basel Capital Accord (Basel II) by means of the
Capital Adequacy Ordinance of 29 September 2006, and subse-
quent FINMA circulars. Switzerland imposes a more differentiated
and tighter regime than the internationally agreed rules, including
more stringent risk weights. The revised decree on capital require-
ments 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 balance sheet assets. On 1 January
2010, the FINMA Circular 2010 / 1 entered into force. In drawing
up the FINMA Circular 2010 / 1, FINMA took into account the re-
sults of the consultation process and international developments,
in particular the latest standards issued by the Financial Stability
Board. In the course of 2010, the Swiss Federal Council and
FINMA incorporated the Basel II enhancements issued by the
Basel Committee on Banking Supervision on 13 July 2009 in the
Capital Adequacy Ordinance and related circulars. The enhance-
ments strengthen the Basel II rules governing trading book capi-
tal, and enhance the three pillars of the Basel II framework. The
revised Capital Adequacy Ordinance, together with the FINMA
circulars, entered into force on 1 January 2011.
➔ Refer to the “Capital management” section of this report for
more details about capital requirements, and to the “Regulatory
developments” section of this report for more information on
Basel III
The Federal Act of 10 October 1997 on the Prevention of Mon-
ey Laundering in the Financial Sector lays down a common stan-
dard for due diligence obligations for the whole financial sector,
which must be met to prevent money laundering.
In our capacity as a securities broker, we are governed by the
Swiss Stock Exchange Act. FINMA is the competent supervisory
authority.
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 mecha-
nisms:
– FINMA has substantial influence on the drafting of Swiss fed-
eral acts and ordinances from the Federal Council or the parlia-
ment.
– On a more technical level, FINMA is empowered to issue its
own ordinances and circulars.
➔ Refer to the “Regulatory developments” section of this report
for more information on the legislative framework
Self-regulation by the SIX 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, under
the overall supervision of FINMA. Furthermore, we are also an is-
suer of listed shares subject to self-regulation by the SIX.
FINMA also officially endorses self-regulatory guidelines issued
by the banking industry (through the Swiss Bankers Association),
making them an integral part of banking regulation.
Two-tier system of supervision and direct supervision of UBS
Generally, supervision in Switzerland is based on a division of
tasks between FINMA and a number of authorized audit firms.
Under this two-tier supervisory system, FINMA has the responsibil-
ity for overall supervision and enforcement measures while the
authorized audit firms carry out official duties on behalf of FIN-
MA. 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 its importance to the Swiss financial system, UBS is
directly supervised by dedicated teams at FINMA. The regime of
direct supervision is regulated by the FINMA Circular 08 / 9 on the
Supervision of Large Banking Groups. Supervisory tools include
schedules of meetings with management and information ex-
change encompassing all control and business areas, independent
assessments through review activities, and a regular exchange of
views with internal audit functions, external auditors and impor-
tant host supervisors.
We are directly supervised by the FINMA team “Supervision of
UBS”, which is supported by teams specifically monitoring invest-
ment banking activities, risk management, and solvency and cap-
ital aspects.
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Corporate governance and compensation
Corporate governance
Disclosures to the Swiss National Bank
While Switzerland’s banks are primarily supervised by FINMA,
compliance with liquidity rules is also monitored by the SNB. A
substantially revised liquidity regime for the Large Banking Groups
entered into force on 30 June 2010. Furthermore, FINMA is enti-
tled to share information with the SNB to enable the SNB to fulfill
its obligations, namely with respect to financial stability. The SNB
also takes a direct interest in the stress testing practice of UBS.
➔ Refer to the “Liquidity and funding management” section of
this report for more information on liquidity requirements
Regulation and supervision in the US
Banking regulation
Our operations in the US are subject to a variety of regulatory re-
gimes. We maintain branches in several states including Connecticut,
Illinois and New York. These branches are licensed either by the Of-
fice of the Comptroller of the Currency or the state banking author-
ity of the state in which the branch is located. Each US branch is
subject to regulation and examination 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 exercises exami-
nation 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 activities of those branches and subsidiaries, as well as pru-
dential restrictions, such as limits on extensions of credit to a single
borrower, including UBS subsidiaries and affiliates.
The licensing authority of each US branch of UBS AG has the
authority, in certain circumstances, to take possession of the busi-
ness and property of UBS located in the state of the office it li-
censes. 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 under generally similar circumstances, as well
as in the event that a judgment against a federally licensed branch
remains unsatisfied, 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 Comp-
troller of the Currency exercised its authority over the US branches
of UBS, pursuant to federal law in the event of a UBS insolvency,
all US assets of UBS would generally be applied first to satisfy
creditors of these US branches as a group, and then made avail-
able 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 reg-
ulation 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 was designated a “financial holding company” under
the Bank Holding Company Act of 1956. Financial holding compa-
nies 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 company 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 branches, our US subsidiary federally char-
tered trust company, and our US subsidiary bank located in Utah
are required to meet certain examination ratings, and (iii) our sub-
sidiary bank in Utah is required to maintain a rating of at least
“satisfactory” under the Community Reinvestment Act of 1997.
A major focus of US governmental policy relating to financial
institutions in recent years has been aimed at fighting money
laundering and terrorist financing. Regulations applicable to UBS
and our subsidiaries impose obligations to maintain effective poli-
cies, 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 institution to maintain and im-
plement adequate programs to combat money laundering and
terrorist financing could have serious consequences for the firm,
both in legal terms and in terms of our reputation.
A notable recent regulatory initiative is the Dodd-Frank Wall
Street Reform and Consumer Protection Act, which impacts the
financial services industry by addressing, among other issues, sys-
temic risk oversight, bank capital standards, the liquidation of fail-
ing systemically significant financial institutions, OTC derivatives,
the ability of deposit-taking banks to engage in proprietary trad-
ing activities and invest in hedge funds and private equity (the
so-called Volcker rule), consumer and investor protection, hedge
fund registration, securitization, investment advisors, shareholder
“say on pay,” the role of credit-rating agencies, and more. The
details of these regulations and their impact on UBS’s operations
will depend on the final regulations ultimately adopted by various
agencies and oversight boards in 2011.
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, in-
cluding: 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 con-
duct of directors, officers and employees.
These entities are regulated by a number of different govern-
ment agencies and self-regulatory organizations, including the
SEC and the Financial Industry Regulatory Authority (FINRA). Each
such entity also is regulated by some or all of the NYSE, the Mu-
nicipal Securities Rulemaking Board, the US Department of the
Treasury, the Commodities Futures Trading Commission and other
exchanges of which it may be a member, depending on the spe-
cific nature of the respective broker-dealer’s business. In addition,
the US states, provinces and territories have local securities com-
missions that regulate and monitor activities in the interest of in-
216
vestor protection. These regulators have a variety of sanctions
available, including the authority to conduct administrative pro-
ceedings that can result in censure, fines, the issuance of cease-
and-desist orders or the suspension or expulsion of the broker-
dealer or its directors, officers or employees.
FINRA is dedicated to investor protection and market integrity
through effective and efficient regulation and complementary
compliance and technology-based services. FINRA covers a broad
spectrum of securities businesses, including: registering and edu-
cating industry participants; examining securities firms; writing
rules; enforcing those rules and the federal securities laws; inform-
ing and educating the investing public; providing trade reporting
and other industry utilities; and administering a dispute resolution
forum for investors and registered firms. It also performs market
regulation under contract for the NASDAQ Stock Market, the
American Stock Exchange and the Chicago Climate Exchange.
Many of the provisions of the Dodd-Frank Act discussed above
will affect the operation of these non-banking entities, as well as
UBS’s US banking operations. Again, the impact of this statute on
UBS’s operations will depend on the final regulations ultimately
adopted by various agencies and oversight boards in 2011.
Regulation and supervision in the UK
Our operations in the UK are regulated by the FSA, which estab-
lishes a regime of rules and guidance governing all relevant as-
pects of financial services businesses.
The FSA has established a risk-based approach to supervision
and has a wide variety of supervisory tools available to it, includ-
ing regular risk assessments, on-site inspections (which may relate
to an industry-wide theme or be firm-specific) and the ability to
commission reports by skilled persons (who may be the firm’s au-
ditors, IT specialists, lawyers or other consultants as appropriate).
The FSA also has an extremely 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 Takeovers and Mergers, where
relevant.
Financial services regulation in the UK is conducted in accor-
dance with European Union directives which require, among oth-
er things, compliance with certain capital adequacy standards,
client protection requirements and conduct of business rules (such
as the Markets in Financial Instruments Directive). These directives
apply throughout the European Union and are reflected in the
regulatory regimes of the various member states. The standards,
rules and requirements established under these directives are
broadly comparable in scope and purpose to the regulatory capi-
tal and client protection requirements imposed under applicable
US law.
The UK government has committed to changing the current
regulatory structures, including splitting responsibility for pruden-
tial regulation and conduct of business regulation and the re-
placement of the FSA with new regulatory bodies reporting to the
Bank of England. Her Majesty’s Treasury has published a Consulta-
tion Paper and draft legislation is expected in early 2011.
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Corporate governance and compensation
Corporate governance
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.
Independence of directors
Based on the listing standards of the NYSE, our BoD has estab-
lished specific criteria for defining the independence of our exter-
nal members. Each external director has to personally 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 BoD members 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 four members of our AC are
external BoD members who, in addition to satisfying the above
criteria, do not receive, directly or indirectly, any consulting, advi-
sory or other compensatory fees from UBS other than in their
capacity as directors; do not hold, directly or indirectly, UBS shares
in excess of 5% of the outstanding ca pital; and (except as noted
below) do not serve on the audit com mittees of more than
two other public companies. These members are Michel Demaré,
Rainer-Marc Frey, Ann F. Godbehere and William G. Parrett. The
NYSE guidelines allow for an exemption for AC members to sit on
more than three audit committees of public companies, provided
that all BoD members determine that the candidate has the time
and the availability 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 GEB member may also be a BoD mem-
ber and vice versa. This structure ensures the institutional inde-
pendence of the entire BoD from the day-to-day management.
UBS has established Committees for the following BoD man-
dates: audit; human resources and compensation; governance
and nominating; risk and corporate responsibility.
➔ 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
activities during 2010
In addition, the BoD appoints a Vice Chairman and an SID.
Both the Vice Chairman and the SID must be independent. Michel
Demaré is the Vice Chairman and David Sidwell is the SID. Both
assumed their role in April 2010. More details about the responsi-
bilities and authorities of the Vice Chairman and the SID can be
found in the Organization Regulations, which are published at
www.ubs.com/governance.
The BoD has adopted Organization Regulations that constitute
our corporate governance guidelines, which include all matters
required by the NYSE rules. The BoD has also adopted the UBS
Code of Business Conduct and Ethics (the Code). Both the Orga-
nization Regulations and the Code 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 Protec-
tion 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 governance,
foreign private issuers are required 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
The AC has been assigned all the abovementioned responsibili-
ties, except for appointment of the independent auditors, which
are elected by the shareholders as per Swiss company law. The AC
assesses the performance and qua lification of the external audi-
218
tors and submits its proposal for appointment, re-appointment or
removal to the full BoD, which brings its proposal to the share-
holders for vote at the AGM.
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 capacity. 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 management and control
of risks.
Assistance by the 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, comprising
the Group CEO and the GEB members, are completed by the
Chairman and the HRCC and reported to the full BoD. All BoD
Committees perform a self-assessment of their activities and re-
port 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 shareholders
are provided and signed by the full BoD, which has ultimate re-
sponsibility vis-à-vis shareholders. The Committees submit their
reports to the full BoD.
Shareholders’ votes on Equity Compensation Plans
Swiss company law authorizes the BoD to approve compensation
plans. Though Swiss law does not allocate such authority to the
AGM, it requires that Swiss companies determine capital in their
articles of association and each increase of capital is required to
be submitted for shareholders’ approval. This means that, if equi-
ty-based compensation plans result in a need for a capital in-
crease, AGM approval is mandatory. If, however, shares for such
plans are purchased in the market, shareholders do not have the
authority to vote on their approval.
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Corporate governance and compensation
Compensation
Compensation
Our foremost priority is to encourage and reward behavior that contributes to sustainable profitability and therefore
the long-term success of our firm. In order to align employee incentives with the interests of our shareholders, we
pay a significant part of our employees’ variable compensation in the form of deferred awards, mostly in UBS shares,
which are subject to strict forfeiture rules.
Letter from the Human Resources and Compensation Committee of the Board of Directors
Dear shareholders,
In recent years, UBS has fundamentally
reshaped its approach to compensation.
Our priority remains to attract and retain
talented professionals to enable us to
further develop our business. At the same
time, it is critical to encourage and reward
behavior that contributes to sustainable
profits. This is a fundamental prerequisite
for the long-term success of our firm,
which is in the best interests of our
shareholders and other stakeholders.
During 2010, in collaboration with our
regulators, we introduced measures to
meet our main compensation objectives
of better integrating risk within the
compensation process and further
aligning financial incentives with the
long-term profitability of the firm. These
measures include identifying our key
risk-takers and controllers, individuals in
our organization, who by the nature of
their role, can materially commit or
control the firm’s resources, and/or exert
influence over the firm’s risk profile, and
adopting appropriate measures regarding
their compensation. We also made
refinements to deferred compensation for
certain other categories of employees.
Furthermore, in response to your concerns
last year, we not only made a number of
adjustments to our compensation model,
outlined in detail below, but also worked
to improve the related disclosure. This
year’s report provides greater transpar-
ency, especially with regard to our
compensation structure and plans.
Focus on long-term profitability
To align employee incentives with the
long-term profitability of the firm, we pay
a significant part of compensation in the
form of deferred equity that can be
forfeited or reduced if employees violate
internal and external regulations or
guidelines or behave in a way that causes
financial and reputational harm. This is a
central pillar of our compensation system.
For 2010, we raised the proportion of a
Group Executive Board (GEB) member’s
bonus paid in deferred equity from 50%
to 60%, while at the same time reducing
the portion of cash paid out immediately
to a GEB member from 30% to 24%. As
a result, at least 76% of a GEB member’s
bonus, including part of the cash bonus,
is deferred and at risk of forfeiture for up
to five years. Apart from GEB members,
approximately 8,000 employees across all
of UBS’s business divisions receive
bonuses in the form of deferred equity
under the Equity Ownership Plan (EOP).
Under this plan, 60% of their bonus is
deferred as UBS shares over three years.
For 2010, the vesting of EOP awards for
very senior and high-earning employees
was made dependent on the profitability
of the employee’s business division over
the vesting period, or, in the case of
Corporate Center employees, on the
profitability of the UBS Group (Group) as
a whole. We also introduced cash
deferrals (for periods of up to three years)
for Investment Bank employees whose
total compensation exceeds CHF 1 mil-
lion. Furthermore, we have reduced the
use of leverage in our compensation
plans.
Addressing risk in compensation
decisions
While acknowledging that risk is a
necessary and inherent part of our
business, we are committed to ensuring
that inappropriate risk-taking is not
rewarded. The risks we take, along with
those that emerge during the course of
business, must be promptly recognized,
measured, and effectively managed. Risk
is a crucial consideration at every stage in
the compensation process. Risk aware-
ness, assessment and management are an
important basis both for determining the
overall bonus pool and for allocating
individual bonuses. To fully consider all
risk-related issues with regard to compen-
sation, the Human Resources and
Compensation Committee (HRCC) has
220
Advisory vote
Letter from the Human Resources and Compensation Committee of the Board of Directors
held two joint meetings over the last year
with the Board of Directors’ (BoD) Risk
Committee.
In a significant step toward strengthening
our risk culture, and in line with regulatory
guidance, we adopted stringent measures
with regard to the performance assess-
ment and compensation for risk-takers
and controllers. Risk-takers are subject to
an additional performance evaluation by
the control functions, 60% of their bonus
is deferred over three years and the
vesting of their equity awards is subject to
financial performance conditions.
While we believe that our current
compensation system strikes the balance
we seek, and are confident that the
approach we have established is the right
one, going forward we will continue
adapting it to meet our requirements and
those of our stakeholders, including
ensuring that it complies with all appli-
cable rules and regulations. By maintain-
ing a focus on risk management through-
out our business and encouraging
sustainable business conduct, we are
convinced that we are well-placed to
execute our business strategy and achieve
our goals.
Striking the right balance
In making UBS’s compensation decisions
for 2010, the BoD and the GEB have
carefully balanced all the relevant factors
such as our improved business perfor-
mance, industry compensation trends and
regulatory requirements. From a share-
holder’s perspective, it is essential to
weigh the short-term potential for raising
profitability against the long-term
requirement to retain and attract key
staff. Although our financial performance
in 2010 was markedly better than in
2009, with an increase in profitability of
CHF 10 billion, given the considerations
outlined above, the bonus pool for 2010
was set at CHF 4,245 million, 11% lower
than it was last year.
Helmut Panke
Ad-interim Chairman of the Human
Resources and Compensation Committee
of the Board of Directors
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Advisory vote
Corporate governance and compensation
Compensation
Compensation governance
Our compensation governance principles include appropriate
checks and balances and are designed to support long-term value
creation. They have great strategic importance in shaping the di-
rection and success of the firm, supporting its ability to attract and
retain the best talent.
UBS’s corporate governance model complies with the applicable
laws, rules and regulations, including the FINMA Circular 2010 / 1
that sets minimum standards for the design, implementation and dis-
closure of remuneration schemes at financial firms.
The BoD has the ultimate responsibility for approving the com-
pensation strategy proposed by the HRCC, including compensa-
tion for GEB members. The HRCC is a separate BoD committee
that determines the appropriate level of resources for compensa-
tion matters.
Human Resources and Compensation Committee
The HRCC is composed of four independent BoD members. On 31
December 2010, the members were Sally Bott, who chaired the
committee, Bruno Gehrig, Wolfgang Mayrhuber and Helmut Pan-
ke. The committee held 10 meetings in 2010. Upon Sally Bott’s
resignation from the BoD, effective 11 February 2011, Helmut
Panke was appointed ad-interim Chairperson of the HRCC.
During the year, the HRCC received independent external
advice from Hostettler, Kramarsch & Partner AG. Furthermore,
market data was considered from Towers Watson and, in relation
to the Performance Equity Plan, from PricewaterhouseCoopers.
Responsibilities and authorities of the HRCC
The HRCC reviews the Total Reward Principles annually and sub-
mits any amendments to the BoD for final approval. In addition,
the HRCC:
– reviews and approves the design of the total compensation
framework, including compensation strategy, programs and
plans on behalf of the BoD;
– reviews variable compensation funding throughout the year
on behalf of the BoD and proposes the final bonus pool to the
BoD for approval; and
– together with the Group CEO, proposes base salaries and an-
nual bonuses for GEB members to the BoD, which approves
the total compensation of the GEB.
Compensation authorities
The BoD has the ultimate responsibility for approving the compensation strategy proposed by the HRCC, a separate committee that
Compensation authorities
determines the appropriate level of resources for compensation matters.
Recipients
Compensation recommendations
developed by
Chairman of the BoD
Chairperson of the HRCC
Approved by
HRCC
Group CEO
Chairman of the BoD / HRCC
GEB members
HRCC and Group CEO
BoD
BoD
Risk-takers and controllers
(excl. GEB) 1
Responsible GEB member together with
functional management team
Divisional pools: HRCC
Overall: BoD
Communicated by
HRCC
Chairman of the BoD
Group CEO
Line manager
Independent BoD members
(remuneration system and fees)
Chairman of the BoD / HRCC
BoD
Chairman of the BoD
Recipients
Variable compensation
recommendations developed by
Approved by
Employees
(excluding GEB members)
Responsible GEB member together with
functional management team
Divisional pools: HRCC
Overall: BoD
Communicated by
Line manager
1 Additional performance condition applies.
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The responsibilities and authorities for compensation-related
decisions, illustrated in the table, are set out in “Annex B – Re-
sponsibilities and authorities,” and “Annex C – Charter of the
Committees of the Board of Directors of UBS AG” of the Organi-
zation Regulations of UBS AG (Organizational Regulations).
Inclusion of the Risk Committee
Compensation plans can have considerable influence in ensuring
prudent and controlled risk-taking at financial institutions. In rec-
ognition of this fact, a key principle in the FINMA Circular 2010 / 1
is that a firm’s risk control functions and experts must be involved
in designing and implementing compensation plans.
In line with this principle, the RC assumes an essential role in
supporting the BoD to ensure that compensation plans are aligned
with UBS’s business strategy, and that policies are designed to
enhance risk awareness. The RC supervises and sets appropriate
risk management and control principles, including those relating
to credit, market, country and operational risk; treasury and capi-
tal management; and balance sheet management. In doing so, it
also examines the possibility of reputational risk.
The RC held two meetings with the HRCC in 2010. Helmut
Panke also sits on the RC, thereby providing a valuable risk per-
spective in considering compensation-related issues.
Further changes to the Organizational Regulations have been
approved regarding the RC mandate. This will expand the commit-
tee’s involvement with compensation issues to include receiving
briefings from management regarding how risk has been factored
into the compensation process and reviewing whether the risk-
related aspects of the compensation process have been adhered to.
Decision-making process for Group Executive Board
member compensation
One of the HRCC’s main responsibilities is to make recommenda-
tions for the actual amount of variable cash and equity compen-
sation awarded to each GEB member for the 2010 performance
year. These recommendations are submitted to the BoD for ap-
proval. This process relies on a detailed and balanced review, not
only of the performance of the Group, but of the relevant busi-
ness division and the impact of specific individuals. It considers
Group and divisional performance information, including risk-
adjusted profitability and other financial and non-financial factors
such as leadership effectiveness, strategy execution and reputa-
tional impact. It also takes into account performance information
from the businesses, initial compensation recommendations from
the Group CEO, employment contract terms, and relevant laws
and regulations, together with relevant market data, such as that
relating to industry compensation trends.
Shareholders’ advisory vote
We value the opinions of our shareholders. As such, we will pro-
vide, as we have done the past two years, an opportunity for
shareholders to express their views through an advisory vote on
this compensation report at the AGM in April 2011. While such a
vote is advisory in nature and not legally binding, we encourage
our shareholders to participate in the vote as we regard it as a
meaningful way of involving them in the compensation discussion
and take its outcome seriously. Shareholders also have the oppor-
tunity to raise questions at the AGM, and can address their ques-
tions about compensation or related issues at any time to BoD
members by contacting the Company Secretary. Contact details
are provided at the beginning of this report.
In addition to the advisory vote held at our AGM, UBS also
holds separate meetings with key investors and proxy advisors on
a regular basis to respond to questions that they might have, in-
cluding those relating to compensation issues.
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Advisory vote
Corporate governance and compensation
Compensation
Total Reward Principles
Our approach to compensation is underpinned by what we call
our “Total Reward Principles.” They establish a framework for in-
tegrating risk control and managing performance. At the same
time, they specify how we structure compensation and the neces-
sary bonus pool funding, that is, the amount of funds available in
a given year for the payment of bonuses. They reflect our long-
standing focus on pay for performance, sustained profitability,
sound governance and strong risk awareness, and build on the
UBS strategy of enhancing the firm’s reputation, increasing client
focus and teamwork, and improving integration and execution.
At the same time, they give full effect to the relevant regulatory
requirements.
The Total Reward Principles were broadly revised in September
2009 to support our new business strategy and to reflect new
regulatory developments. We remain fully committed to these
principles. As such, they were reaffirmed by the HRCC in Septem-
ber 2010. Over the course of the year, we took further measures
to implement these principles to ensure that our main perfor-
mance and compensation objectives are achieved and that the
governance and processes with respect to compensation are firm-
ly in place.
Total Reward Principles
The four Total Reward Principles establish a framework that integrates risk control and performance.
They also specify how we structure compensation and provide necessary funding.
Align reward
with sustainable
performance
Support
appropriate
and controlled
risk-taking
Total
Reward
Principles
Attract and engage
a diverse, talented
workforce
Foster effective
individual performance
management
and communication
Sustainable
funding based on
profitability
Allocation of
bonus based on
performance
At least 60% of bonus
deferred and at risk of for-
feiture for senior employees
Align reward with sustainable performance
Throughout UBS, sustainable performance is a key factor in deter-
mining compensation. Our assessment of performance goes be-
yond whether financial objectives have been achieved and takes
into account the long-term risk impact of employee actions.
Variable compensation funding is primarily based on risk-ad-
justed profitability, that is, a measure of profitability adjusted to
consider risk associated with particular transactions. This perfor-
mance metric, which takes into account the cost of capital, not
only supports our own internal objectives and business strategy,
but also meets regulatory standards.
Our framework is flexible and enables members of manage-
ment to apply their individual judgment and discretion. Adjust-
ments may be made based on considerations relating to risk,
quality and reliability of earnings, relative industry performance,
future strategic plans, and market competitiveness. Progress
against business performance targets and the foregoing consider-
ations that affect annual variable compensation funding is regu-
larly reviewed and monitored by the divisional Chief Executive
Officers, the Group CEO and the HRCC. The proposed bonus pool
is approved by the BoD. Risk control functions are also involved in
the reviews of certain senior employees to ensure that any
related-risk issues are fully considered.
➔ Refer to the “Compensation Governance” section for more
information about responsibilities and authorities for compen
sationrelated decisions
Support appropriate and controlled risktaking
Our compensation system provides incentives that take specific
account of risk. Our performance reviews recognize that different
businesses have different risk profiles, and that additional factors
should be considered, including the fact that earnings may vary in
quality over time. All employees are expected to demonstrate an
appropriate understanding of the nature of their business and its
associated risks, to consider their actions in light of UBS’s reputa-
tion and risk appetite, and to accept responsibility for all risks that
arise, which includes taking steps to manage and mitigate them.
To keep our employees focused on the long-term profitability of
the firm, we require that a significant part of an employee’s bonus
be deferred for up to three years if his or her total compensation
exceeds a certain threshold. In the case of GEB members, we re-
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Advisory vote
quire deferral of up to five years. The deferred portion will be for-
feited in certain cases, including if an employee acts contrary to
the firm’s interests during the deferral period by contributing to
significant financial losses or restatements, causing reputational
harm, or breaching risk policy, legal or regulatory requirements, all
of which constitute “harmful acts”.
To monitor risk effectively, control functions, primarily Legal &
Compliance, Risk Control, Finance and Operational Risk, must be
able to carry out their work independently. As such, compensa-
tion for these functions is determined independently from the
revenue producers that they oversee, supervise or support.
As previously mentioned, in 2010 we took a significant step for-
ward in strengthening our risk culture by identifying the risk-takers
and controllers (risk-takers) in our organization, based on specific
regulatory guidance, and adopting specific measures regarding their
compensation. Risk-takers are the most senior members of manage-
ment, together with selected individuals who, by the nature of their
role, have been determined to be able to materially commit or con-
trol the firm’s resources and/or exert significant influence over its risk
profile, whether they are in front office, control or logistics functions
(e.g. Supply and Demand Management, IT and Human Resources).
The deferral rate of 60% under the Equity Ownership Plan is applied
to their annual bonus, with this portion being deferred over three
years. Moreover, the vesting of this deferred portion of their bonus
is contingent on the profitability of the business division in which
they work, or, in the case of Corporate Center employees, on the
profitability of the Group as a whole. Due to the significant influ-
ence they exert, risk-takers are subject to an additional evaluation by
the relevant control functions.
Foster effective individual performance management and
communication
We evaluate performance rigorously to ensure that compensation
is fairly and appropriately allocated. We base it not only on the
contribution employees make to UBS’s business results, but also
on whether they:
– observe our corporate values and principles;
– implement our strategy of enhancing reputation and improv-
ing integration and execution;
– demonstrate leadership when it comes to our clients, business,
people and change;
– lead or support effective collaboration and teamwork;
– operate with a high level of integrity and in compliance with
UBS policies;
– actively manage risk and strike an appropriate balance be-
tween risk and reward; and
– exhibit professional and ethical behavior.
To further reinforce the link between performance and pay, we
adjusted how we assess and compensate our employees for
2010. They are now assessed not just absolutely against defined
objectives, but also on a relative basis against their peers within
UBS. This enables us to further differentiate performance, and
consequently compensation, in a more objective, transparent and
disciplined manner.
Attract and engage a diverse, talented workforce
Our need to attract and retain talented, competent employees
underpins our compensation policies. We offer market-competi-
tive compensation that strikes an appropriate balance between
fixed and variable elements. Base salaries must be high enough to
allow for a flexible policy when it comes to variable compensa-
tion. Our variable compensation encourages employees to per-
form and to be entrepreneurial, while at the same time placing an
emphasis on strong risk awareness and measured risk-taking.
➔ Refer to the “Overview of our compensation model” section of this
report for more information about our compensation system
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Corporate governance and compensation
Compensation
Benchmarking against peers
We benchmark our compensation and
benefit levels against those of our peers.
With respect to compensation for GEB
members, we refer to a peer group of
companies that are selected based on the
comparability of their size, geographic
and product and services scope, and
staffing and pay strategy, among other
factors. These companies, which are
large European and US banks operating
internationally, are our main competitors
when it comes to hiring. They are: Bank
of America, Barclays, Citigroup, Credit
Suisse, Deutsche Bank, HSBC, JP Morgan
Chase and Morgan Stanley.
In the view of the HRCC, our executive
compensation structure is appropriate
relative to our peer group. We review the
peer group regularly to ensure that the
firms that constitute it remain relevant
benchmarks for our purposes.
As for compensation for other employ-
ees, given the diversity of our businesses,
the companies we use as benchmarks
vary with and are dependent on the
relevant business divisions and locations,
as well as the nature of the positions
involved. For certain businesses or
positions, we may take into account
other major international banks, the
large Swiss private banks, private equity
firms, hedge funds and non-financial
firms. Furthermore, we also benchmark
employee compensation internally for
comparable roles within and across
business divisions and locations.
Comparability assessment against main peers1
Benchmarking ensures that our executive compensation is appropriate relative to our peer group. The key benchmarking criteria are
summarized in the following table.
Size2
Product and
services scope3
Geographic
scope4
Headquarters
location5
Competitors
for talent6
Regulatory /
political
environment7
Staffing and
pay strategy8
Bank of America
Barclays
Citigroup
Credit Suisse
Deutsche Bank
HSBC
JP Morgan Chase
Morgan Stanley
Comparable
Moderately comparable
Less comparable
1 Source: Towers Watson. 2 Size: impacts management complexity regardless of product and geographic scope. Expressed in terms of revenue, profitability, assets and employee base. 3 Product and
services scope: impacts pay strategy, pay levels / approach and importantly, risk profile. 4 Geographic scope: impacts the definition of executive roles and management complexity. 5 Headquarters location: is a key
factor in determining peer group choices. 6 Competitors for talent: influences decisions relating to competitive requirements for pay structure and levels. 7 Regulatory environment: increasingly impacts pay structures
(including deferral requirements) for executives. 8 Staffing and pay strategy: to identify peers with similar pay and staffing strategies.
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Overview of our compensation model
Our compensation model is consistent with and supports our To-
tal Reward Principles. It rewards appropriate risk-taking and be-
havior that produces sustainable results. To encourage employees
to act with the long-term interests of the firm in mind, which also
serves the best interests of our shareholders, we pay a significant
part of our variable compensation in the form of equity that is
deferred over several years.
All UBS employees
The total compensation employees receive has two elements: a
fixed element, which is generally the base salary, and a discretion-
ary variable element, which is the bonus. In determining employ-
ees’ pay, and in benchmarking pay both internally and externally,
we focus on total compensation, rather than its individual ele-
ments, as it presents a more comprehensive picture of an em-
ployee’s pay.
The amount of bonus that an employee receives depends on
various factors, including our overall performance, the perfor-
mance of the employee’s business division, and his or her indi-
vidual performance both in absolute terms as well as relative to
his or her peers.
We do not impose an absolute cap on total compensation or
set a maximum multiple between the lowest and highest total
compensation levels in our organization. To do so would under-
mine our commitment to providing market-competitive compen-
sation. By not capping total compensation, we have the flexibility
required to respond to different circumstances, such as changing
business and market conditions or retention needs.
Base salary
The base salary reflects an employee’s particular skill set, role and
experience while taking market practices into consideration. Base
salaries are fixed amounts of cash, typically paid monthly or semi-
monthly. We review base salaries annually to ensure they remain
competitive, comparing them with the relevant internal and ex-
ternal benchmarks.
Adjustments are made when there is a significant change in
job responsibility. Furthermore, we make annual adjustments to
base salaries that reflect performance and respond to movements
in the marketplace.
Following our annual salary review, we have decided to in-
crease base salaries for 2011, with effect from March 2011, by a
total of CHF 350 million or 5% over the previous year. This com-
pares with a base salary increase made for 2010 of approximately
4%. The increases for 2011 apply to employees whose responsi-
bilities increased, who demonstrated strong performance and
whose base salary fell short of the market standard. The increase
also reflects a regulatory trend favoring a change in the industry
compensation mix.
Compensation overview
A balanced mix of base and variable compensation rewards appropriate risk-taking and behavior that produces sustainable business
results. A significant part of our compensation is paid in the form of deferred equity.
Chairman of
the BoD1
Board
of Directors
Group
Executive Board
Risk-takers
and controllers²
Other
employees
Base salary
Cash bonus
Performance Equity Plan
Cash Balance Plan (CBP)
Senior Executive Equity Ownership Plan
Performance Equity Plan (PEP)
Equity Ownership Plan
Senior Executive Equity Ownership Plan (SEEOP)
Equity Ownership Plan (EOP)
Base fee and Committee retainer(s)
Deferred Cash Plan (DCP)
Base fee and committee retainer(s)
6
4
5
3, 4
5
1 The base salary of the Chairman of the BoD consists of cash and the right to receive a fixed number of shares. 2 Bonuses granted to risk-takers and controllers are also based on an additional evaluation of these
employees’ performance, in which their risk-taking activities are specifically considered. 3 All employees with a total compensation of CHF /USD 250,000 or more are eligible. 4 Additional profitability performance
condition for risk-takers and controllers, Group Managing Directors and other employees with total bonus > CHF / USD 2 million. 5 DCP replaces a part of the cash bonus for certain Investment Bank employees with
additional cash deferrals. 6 At least 50% of their base fee is paid in blocked UBS shares.
227
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Corporate governance and compensation
Compensation
Bonus
At UBS, bonuses are strongly tied to performance. We have rein-
forced the principle of “pay for performance” by introducing key
changes in 2010 to our Core Cycle process, through which we
manage performance and reward our employees. In principle, the
majority of permanent employees may be considered for an an-
nual discretionary bonus. The amount of bonus awarded depends
on an individual’s performance and role, as well as the perfor-
mance of the Group and the relevant business division. Hence,
bonus levels can fluctuate significantly from year to year, such that
it is possible that an individual receives no bonus in a given year.
➔ Refer to the “Our employees” section of this report for more
information on the Core Cycle process
While employees have specific key performance indicators
against which they are assessed that are relevant for the determi-
nation of bonuses, we do not assign weightings to specific perfor-
mance indicators in determining an individual’s bonus.
At UBS, it is well-established practice to award part of the bo-
nus in UBS shares deferred for up to three, or in the case of GEB
members, five years. Over the deferral period, these deferred
amounts are forfeited if employees commit harmful acts. For
2010, our deferral threshold remained unchanged: bonuses
awarded to employees with a total compensation, that is, a base
salary and bonus, of CHF 250,000 or more, are partially deferred.
Above this level, employees receive a portion of their annual bo-
nus in shares granted under the Equity Ownership Plan (EOP). Fur-
thermore, we place a cap of CHF/USD 2 million on the amount
that can be paid out immediately in cash.
For 2010, for employees across all business divisions and locations,
the bonus was, on average, approximately 59% of the base salary.
Among GEB members, it was, on average, 510% of a GEB member’s
salary. As stated, bonuses are fully discretionary and we do not set a
fixed ratio between the bonus and base salary. The ratios stated above
are based on the size of the bonus pool for 2010.
➔ Refer to the discussion in the “Deferred variable compensation
plans” section of this report for more information
Compensation for financial advisors in Wealth Management
Americas
In line with the market practice in the US for brokerage, the com-
pensation system for financial advisors in Wealth Management
Americas is based on commissions. The commissions, paid monthly,
are based on revenue and other strategic performance measures
and objectives. We adjust payout rates if financial advisors make
repeated or significant client account or transaction errors. In addi-
tion to these commissions, advisors may also qualify for year-end
awards, most of which are deferred over either a six- or ten-year
period. The size of these awards may be based on length of service,
the amount of net new money brought in, or the amount of reve-
nue generated from Wealth Management-based services or prod-
ucts. For 2010, we paid a total of CHF 2,667 million in compensa-
tion to financial advisors in Wealth Management Americas.
Other variable compensation
In a few cases, we may offer additional incentives to support hir-
ing or retention, particularly at senior levels. These include re-
placement payments to compensate employees for deferred
awards forfeited as a result of joining UBS; guarantees, which are
fixed incentives, either in cash or in equity awarded under a plan,
paid regardless of future events, though in most cases tied to one
or more performance conditions and limited to one year; sign-on
payments, offered to important top-level candidates to increase
the chances of their accepting an offer; and retention payments,
made to key senior employees to induce them to stay, particularly
during critical periods for the firm.
Employment contracts for those holding the rank of Director
and above generally contain a notice period of between two and
six months, depending on the location, which such employees
must serve and during which time they are paid their base salary.
We provide for severance payments in redundancy cases when
employees are asked to leave as part of a retrenchment program
or reduction in force. These are governed by location-specific sev-
erance policies. In the very exceptional cases that special pay-
Severance and signon payments 1
d
e
t
i
d
u
A
These payments were made to certain GEB members, Group Managing Directors (replacing the former Group Managing Board in
February 2010), and to certain key risk-takers and controllers in 2010.
31.12.10
Total
Of which expenses
recognized in 2010
Of which expenses to
be recognized in
2011 and later
Sum of all sign-on payments, in CHF million 2
of which related to replacement awards and guarantees for the first year, in CHF million
Number of beneficiaries
Sum of all severance payments, in CHF million
Number of beneficiaries
Number of departing managers
95
82
19
13
7
18
55
46
13
40
36
N/A
1 For the purpose of this table we consider replacement awards and guarantees as sign-on payments. 2 Includes sign-on payments agreed in 2010 and awards granted in 2010. Awards granted are included with their
fair value at the date of grant.
228
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ments are made outside the circumstances described, or where
substantial severance payments are made, a further stringent ap-
proval process applies.
With the exception of severance payments made in redundan-
cy cases, all the payments described above, though typical in our
industry, are only offered in exceptional circumstances. They are
highly restricted, take into account the specific circumstances of
each case and are normally one-time payments with substantial
deferral. They require the approval of the divisional Chief Execu-
tive Officers and HR heads, and, in certain circumstances, the
Group Head of HR, Group CEO or the HRCC. Furthermore, such
payments may be forfeited should an employee subsequently act
in a manner detrimental to the interests of the firm.
Pensions and benefits
The main aim of pensions is to give employees and their depen-
dents a level of security after their retirement or in the event of
disability or death. While pension plans may vary across locations
in accordance with local requirements, pension plan rules in any
one location are generally the same for all employees in that loca-
tion, including management.
➔ Refer to “Note 30 Pension and other post-employment benefit
plans” in the “Financial Information” section of this report for
more information
As part of our efforts to attract and retain the best employees,
our total compensation includes, in addition to a base salary and
bonus, certain benefits such as health insurance and retirement
benefits. These benefits vary depending on the location, but are
competitive within each of the markets in which we operate.
Employee share purchase program
To enable our employees to invest in UBS and have a personal
stake in the success of the firm, our employee share purchase pro-
gram, the Equity Plus Plan, allows employees to contribute be-
tween 1%–30% of their base salary and / or 1%–35% of their
bonus toward the purchase of UBS shares. All employees except
those holding the rank of Managing Director and above are eligi-
ble to participate. Employees purchase UBS shares at market price,
but receive one share for free for every three shares purchased
through the program. These free shares vest after three years, with
vesting subject to continued employment at UBS.
Risktakers and controllers
Our risk-takers and controllers are a group of around 200 indi-
viduals who, by the nature of their role, have been determined to
be able to materially commit or control the firm’s resources and / or
exert significant influence over its risk profile, whether they are in
the front office, logistics or control functions. Risk-taker activities
are closely monitored, and risk-takers are subject to an additional
level of performance evaluation by the control functions. Addi-
tionally, their compensation is adjusted to reflect the individual
risks that they take, and a deferral rate of 60% is applied to their
annual bonus granted under the applicable plans. Furthermore,
the vesting of their deferred awards is contingent on the profit-
ability of the business division in which they work, or, in the case
of Corporate Center employees, on the profitability of the Group
as a whole. Like all other employees, risk-takers also face forfei-
ture or reduction of the deferred portion of their compensation if
they commit harmful acts.
➔ Refer to the discussion “Support appropriate and controlled
risktaking” in the “Total Reward Principles” section of this
report for more information
While we comply with the relevant Swiss Financial Market Su-
pervisory Authority (FINMA) requirements regarding risk-takers,
we are currently seeking guidance from regulators across the Eu-
ropean Union regarding the implementation of the Capital Re-
quirements Directive issued by the European Commission, which
contains some rules relating to compensation. In the UK, for in-
stance, the Financial Services Authority (FSA) has already issued a
revised remuneration code. In line with guidance from the FSA,
we have identified senior management and employees whose
professional activities could have a material impact on the firm’s
risk profile in the UK, so-called “Code staff”. Of the approxi-
mately 100 Code staff, about half are also part of our wider pop-
ulation of risk-takers and controllers. Code staff compensation is
generally similar to those of risk-takers. However, due to specific
FSA requirements, 50% of Code staff bonuses that are paid out
immediately are delivered in shares. Furthermore, any shares
granted to Code staff under the EOP for their performance in
2010 will be subject to an additional six-month blocking period
upon vesting.
Group Executive Board
Bonus
GEB members receive a fixed salary. In addition, they are eligible
to receive a bonus. While GEB bonuses are at the discretion of the
BoD, they are strongly tied to the overall performance of the
Group and dependent on the available bonus pool funding.
➔ Refer to the discussion in the “Compensation funding and
expenses” section of this report for more information
At least 76% of a GEB member’s bonus is deferred. Of the an-
nual bonus, 40% is awarded in cash under the Cash Balance Plan
(CBP): a maximum of 24% is paid out immediately, subject to a
cash cap of CHF/USD 2 million. Vesting of the deferred cash por-
tion is in equal installments over the following two years, with the
amount vesting dependent on the return on equity achieved by
the Group (Group RoE) in the financial year prior to vesting. The
remaining 60% of a GEB member’s bonus is paid in equity, with
20% delivered under the Performance Equity Plan (PEP) and 40%
under the Senior Executive Equity Ownership Plan (SEEOP). CBP
awards vest over two years, PEP awards after three years, and
229
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SEEOP awards over five years. The deferred portion of all these
awards is subject to forfeiture under certain conditions.
For 2010, 40% of a GEB member’s annual bonus was delivered
under the SEEOP, a plan that has existed since 2003 but which has
been updated over the years to include stricter forfeiture provi-
sions and a performance condition that enables the firm to reduce
awards when an individual’s business division is unprofitable. Part
of the equity component of a GEB member’s bonus for 2009 was
delivered under the Incentive Performance Plan (IPP), a one-time
share plan introduced that year for senior employees to support
the firm’s five-year strategic turnaround plan. The IPP has been
discontinued this year, thereby reducing the use of leverage in our
compensation system. Unlike the IPP, the SEEOP does not provide
for upward adjustments to the number of shares delivered on
vesting. The overall reduction in the leverage element in our com-
pensation plans further discourages excessive risk-taking.
➔ Refer to the “Deferred Variable Compensation Plans” section for
more information
Share retention
To further align their interests with those of our shareholders, GEB
members are required to retain long-term ownership of UBS
shares. Each must hold a minimum of 200,000 shares, while the
Group CEO is required to hold 300,000 shares. These sharehold-
ings are to be built up within a maximum period of five years from
the date a GEB member is appointed and must be retained for as
long as he or she remains in office. The number of UBS shares
held by each GEB member is determined by adding any vested or
unvested shares to privately held shares.
Advisory vote
Corporate governance and compensation
Compensation
2010 compensation framework for GEB members
Of the annual bonus, 40% is paid in cash and 60% in equity; and 76% of a
GEB member’s bonus is deferred.
Illustrative example
Payout of bonus
20%
20%
20%
20%
20%
20%1
20%1
0–200%1
60% 1
SEEOP
40%
PEP
20%
CBP
40%
Salary
y
t
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p
s
u
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o
B
s
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o
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l
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f
o
%
0
6
h
s
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i
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p
s
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o
B
s
u
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o
b
l
a
t
o
t
f
o
%
0
4
2010
2011
2012
2013
2014
2015
2016
Share
retention 3
300,000 shares for Group CEO
200,000 shares for other GEB members
1 Subject to possible change, dependent on plan rules. 2 Subject to cash cap of CHF /USD 2 million.
3 GEB members are required to hold a certain number of UBS shares as long as they are in office. This
holding has to be built up within a maximum period of five years from the date of their appointment
to the GEB.
230
Advisory vote
Employment contract terms
Employment contracts for GEB members do not provide for
“golden parachutes”, that is, special severance terms, including
supplementary contributions to pension plans. The notice period
in employment contracts for new GEB members was reduced in
2009 from 12 to six months to reflect changing industry practice,
thereby reducing UBS’s contractual obligations to GEB members
who leave, including our obligations with regard to their compen-
sation. Under employment contracts for GEB members, any bo-
nus paid up to the date of termination is fully discretionary, and
based on Group, business division and personal performance dur-
ing the period of employment. Any discretionary cash bonus will
generally be awarded under the CBP. Vesting of deferred bonuses
to GEB members is not accelerated when they leave the firm, al-
though exceptions may be made in cases of death or disability.
Benefits
Benefits for GEB members are in line with local practices for all
other employees.
Board of Directors
Chairman of the BoD
Since 2009, the Chairman of the BoD has received a fixed salary
that consists of cash and the right to receive a fixed number of
UBS shares that are blocked for four years. There is no variable or
performance-related component in the Chairman’s compensation
package. However, the share component ensures that his pay is
aligned with the long-term performance of the firm. The Chair-
man’s employment contract does not provide for special sever-
ance terms, including supplementary contributions to pension
plans.
The Chairman’s compensation is at the discretion of the HRCC,
which conducts an annual assessment and takes into consider-
ation pay levels for comparable roles outside of UBS.
Independent BoD members
Independent BoD members receive fixed base fees for their ser-
vices in line with those of our peers globally, with 50% of their
fees in cash and the other 50% in blocked UBS shares that are
granted with a 15% discount and restricted from sale for four
years. Alternatively, they may choose to have 100% of their com-
pensation paid in blocked UBS shares. In addition, independent
BoD members receive fees known as committee retainers depen-
dent on their workload in serving on the firm’s various board com-
mittees. The Senior Independent Director and the Vice Chairman
of the BoD receive an additional payment of CHF 250,000. In ac-
cordance with their role, independent BoD members do not re-
ceive bonuses or benefits.
Base fees received by independent BoD members are subject
to an annual review: a proposal is submitted by the Chairman of
the BoD to the HRCC, which then submits a recommendation to
the full BoD.
➔ Refer to the “2010 compensation for the Group Executive Board
and the Board of Directors” section of this report for more
information
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Corporate governance and compensation
Compensation
Deferred variable compensation plans
Apart from the need to attract talented and motivated profession-
als, the key focus in designing our variable compensation plans
has been and continues to be on maintaining a close link between
pay and long-term sustainable performance.
Under our present compensation model, all of our variable
compensation plans feature malus (forfeiture) provisions. These
provisions, which UBS was among the first in the industry to in-
corporate in its compensation system, require that a significant
part of an employee’s bonus be deferred over several years and
enable the firm to forfeit the deferred portion if an employee
commits certain harmful acts. As such, the firm maintains the
right not to pay deferred awards, which allows us to meet our
overriding objective of rewarding behavior that contributes to
sustainable profitability and, conversely, to withdraw incentives in
cases when employees act against the interests of the firm.
In 2010, we made a number of adjustments to keep pace with
industry compensation trends. Significantly, 60% of the bonus
that a GEB member receives is now in the form of deferred equity,
compared with 50% last year. In the case of certain categories of
employees, including GEB members, risk-takers and employees
whose total bonus exceeds CHF/USD 2 million, the vesting of
their deferred awards was made contingent on the profitability of
the business division in which they work. This serves to ensure a
direct connection between their pay and the long-term perfor-
mance of their business. Besides this, employees in the Invest-
ment Bank whose compensation exceeds CHF 1 million are sub-
ject to cash deferrals (for up to three years), leading to a reduction
in their immediate cash payout. We have also reduced the use of
leverage with the discontinuation of the Incentive Performance
Plan (IPP).
Overview of variable compensation plans
Compensation is closely linked to long-term sustainable performance. All of our variable compensation plans feature malus provi-
sions. A substantial part of variable compensation is deferred and at risk of forfeiture for several years.
Cash Balance Plan
Performance Equity Plan
Senior Executive Equity
Ownership Plan
Equity Ownership Plan
Deferred Cash Plan
Beneficiaries
GEB
GEB
GEB
DCP awards were granted to
Investment Bank employees
whose total compensation
exceeds CHF 1 million
Other em-
ployees with
total com-
pensation
greater than
CHF / USD
250,000
Risk-takers
and controllers,
Group Mana-
ging Directors
and employees
with total
bonus greater
than CHF /USD
2 million
Vesting schedule
Immediate vesting of 60%,
remainder in installments
of 20% each over following
two years
Vesting after three years.
Number of shares vesting
subject to fulfillment
of performance conditions
Vesting in equal installments
over five years
Vesting in equal installments
over three years
Vesting in equal installments
over three years
Share price
Forfeiture
clauses
Performance /
malus
conditions
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Profitability
as funding driver
Amount of cash delivered at
vesting depends on the return
on equity achieved by the
Group during the vesting
period
The number of performance
shares granted initially are
subject to the achievement
of economic profit and total
shareholder return profits.
The ultimate number may
vary between zero and two
times.
– Exposure to share price
development
– Vesting of awards is
contingent on the profit-
ability of a GEB member’s
business division, or on the
profitability of the Group
as a whole, if the GEB
member in question does
not head a division
Only vests in
full if employ-
ee‘s business
division is
profitable (or
the Group as
a whole in the
case of
Corporate
Center
employees)
Exposure
to share price
development
As the DCP replaces a part of
an individual’s cash bonus
with higher cash deferrals, no
additional performance
condition applies
Payout instrument
Cash
UBS shares
UBS shares
UBS shares
Cash
232
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Variable compensation plans 2010
Cash Balance Plan (CBP)
Plan type – Deferred cash plans
Illustrative example for bonus of CHF 100 awarded under the CBP
Eligible employees: CBP awards are granted annually to GEB members.
Description: Generally, 40% of a GEB member’s annual bonus consists of
cash awarded under the CBP. A maximum of 24% of the total bonus is
paid out immediately, subject to a cap of CHF/USD 2 million. The balance
is deferred and paid out in two equal installments over two years, subject
to the performance condition described below.
CHF 100
Bonus earned
under CBP for
the performance
year 2010
20%
20%
40% of variable
cash bonus
is deferred and
subject to
forfeiture
The amount of cash delivered on vesting depends on the return on equity
achieved by the Group during the vesting period. If the Group RoE is below
6%, no adjustment will be made to the amount of cash delivered upon
vesting. If the Group RoE exceeds 6%, the unvested amount will be
increased in line with the RoE achieved, though any such increase may not
exceed 20%. If the Group RoE is negative, the unvested amount will be
decreased accordingly, up to a maximum of 100%, and no vesting will
occur in that given year.
Restrictions: The CBP contains malus provisions so that the deferred
amount is partially or fully forfeited if a harmful act is committed. Even
after a GEB member has left the firm, the deferred portion of the CBP
award continues to be at risk of forfeiture. In addition, the award is
forfeited if a GEB member voluntarily terminates his or her employment
and joins another financial services organization.
60%
Paid out
immediately
(subject to
cash cap)
February
2011
March
2011
March
2012
March
2013
The amount of cash delivered on vesting was made dependent on the
Group RoE achieved during the vesting period.
Changes in 2010: The cap on the amount of cash that can be paid out
immediately is set at CHF/USD 2 million. This was raised from the previous
level of CHF/USD 1 million in line with industry practice.
In addition to the existing forfeiture provisions, awards granted from 2011
onward are now also forfeited if a GEB member voluntarily terminates his
or her employment and joins another financial services organization.
Senior Executive Equity Ownership Plan (SEEOP)
Plan type – UBS share plans
Illustrative example for bonus of CHF 100 awarded under the SEEOP
Eligible employees: SEEOP awards are granted annually to GEB members.
Description: SEEOP awards are in the form of UBS shares that vest in equal
installments over five years. The SEEOP is similar to the EOP, described
below, but has a longer vesting period to reflect the additional level of
commitment and long-term performance expected of GEB members.
Restrictions: SEEOP awards are subject to forfeiture in the event of a
harmful act, if the business division to which a GEB member belongs
makes a loss or if his or her employment is terminated voluntarily or for
cause.
Changes in 2010: We introduced a performance condition for SEEOP
awards, making the vesting of such awards contingent on the profitability
of a GEB member’s business division, or, if the GEB member in question
does not head a division, on the profitability of the Group as a whole. If the
business division (or Group) suffers a loss in a given performance year, then
the portion of the SEEOP award due to vest the following year will general-
ly be reduced by 10%–50%, depending on the extent of the loss.
0–20%
vests with
employee
0–20%
vests with
employee
Shares vest
equally over
five years and
are subject
to forfeiture.
Payout value
depends on
share price.
CHF 100
Bonus in
UBS shares
for the
performance
year 2010,
granted
under SEEOP
0–20%
vests with
employee
0–20%
vests with
employee
0–20%
vests with
employee
February
2011
March
2011
March
2012
March
2013
March
2014
March
2015
March
2016
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Corporate governance and compensation
Compensation
Performance Equity Plan (PEP)
Plan type – UBS share plans
Eligible employees: PEP awards are granted annually to GEB members.
Description: At the beginning of the three-year performance period, GEB
members are granted a certain number of restricted performance shares.
The actual number of UBS shares delivered at the end of the period can be
between zero and two times the number of performance shares granted
initially, depending on whether performance targets relating to economic
profit (EP) and relative total shareholder return (TSR) have been achieved. EP
is a measure of risk-adjusted profit that takes into account the cost of risk
capital and is only realized when the entire return on capital that is achieved
is higher than the firm’s cost of capital. TSR measures the total return of a
share to an investor, that is, both capital appreciation of the share price and
the dividend yield. We measure our TSR over a three-year period relative to
the companies in the Dow Jones Bank Titans 30 Index, an index
representing 30 leading companies in the global banks sector.
To determine the number of UBS shares delivered upon vesting, it is
necessary to first determine the EP multiplier to be used, as well as the TSR
multiplier. The EP multiplier changes in line with the level of three-year
cumulative EP achieved. The TSR multiplier used depends on the relative
ranking achieved by UBS among the companies in the Dow Jones Banks
Titans 30 Index at the time of vesting. As was the case last year, a 100%
multiplier will be applied if UBS is ranked 15th among the companies in
the index. The EP multiplier may range from 50%–150% and the TSR
multiplier may range from 50%–133%, but if both measures are below
the lowest threshold no shares will vest.
Once the EP and TSR multipliers have been established, to calculate the
number of shares delivered upon vesting:
– the EP multiplier is multiplied with the TSR multiplier; and
– the resulting figure is then multiplied with the number of performance
shares granted initially.
Illustrative example for bonus of CHF 100 awarded under the PEP
200%
Vesting of
between 0–200%
of initial
number of
shares granted
All shares vest
after three years.
Final number of
shares received
depends on TSR
and EP perfor-
mance over the
three-year
performance
period. Value
of PEP award
further depends
on share price
at vesting.
CHF 100
granted in
equivalent
number of
PEP shares for
the performance
year 2010
Performance period
February
2011
March
2011
March
2012
March
2013
0%
March
2014
Restrictions: PEP awards are subject to forfeiture in the event of a harmful
act or if employment has been terminated voluntarily or for cause.
Changes in 2010: No changes were made to the plan’s design. Perfor-
mance targets are set annually.
Vesting matrix
Under-
Performance
Rank 26–30
0%
P
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TSR Performance: rank within Dow Jones Banks Titans 30 Index
Median
Performance
Rank 15
Top
Performance
Rank 1–4
100%
200%
Illustration
If we assume that:
– a GEB member receives a bonus of CHF 850,000 under the PEP
– the share price at grant is CHF 16
– as a result, the number of shares granted is 53,125
(CHF 850,000 divided by 16)
The final number of shares delivered after the 3-year period depends on the
achievement of performance targets relating to EP and TSR:
– Under-Performance (TSR rank between 26–30):
UBS is below the EP target – no shares (0%) will be delivered.
– Median Performance (TSR rank of 15):
UBS achieves the EP target – 53,125 shares (100%) will be
delivered.
– Top Performance (TSR rank of 1–4):
UBS outperforms EP target – 106,250 shares (200%) will be
delivered.
(numbers need to be updated in Feb 2011)
234
Advisory vote
Equity Ownership Plan (EOP)
Plan type – UBS share plans /Equity Ownership Plan – fund linked
Illustrative example for bonus of CHF 100 awarded under the EOP
Eligible employees: The EOP is a mandatory bonus deferral plan for all
employees with a total compensation of CHF/USD 250,000 or more.
In 2010, around 8,000 employees received EOP awards. These employees
include risk-takers, Group Managing Directors (GMD) and employees
whose total bonus exceeds CHF/USD 2 million. EOP awards are granted
annually.
Description: Employees with a total compensation (that is, base salary and
bonus) of CHF/USD 250,000 or more receive 60% of their bonus above
that level in UBS shares that are deferred over three years under the EOP.
To align their compensation with the performance of the funds that they
manage, Global Asset Management employees receive their EOP awards
in the form of cash, the amount of which is dependent on the value of the
relevant underlying Global Asset Management funds at the time of
vesting. The vesting and forfeiture provisions of these awards are the
same as for EOP awards made in the form of UBS shares.
Restrictions: EOP awards are subject to forfeiture in the event of a harmful
act or if employment is terminated voluntarily or for cause.
EOP awards made to risk-takers, GMD and employees whose total bonus
exceeds CHF/USD 2 million will only vest in full if the business division to
which the employee belongs is profitable. If the business division incurs an
operating loss in a given year, then the deferred portion of the EOP award due
to vest in the following year will be partially forfeited. The amount forfeited
depends on the extent of the loss and generally ranges from 10%–50% of
the award portion due to vest. In the case of Corporate Center employees,
their awards are conditional on the profitability of the Group as a whole.
CHF 100
Bonus in
UBS shares
for the
performance
year 2010,
granted
under EOP
0–33%
vests with
employee
0–33%
vests with
employee
Shares vest
equally over
three years and
are subject to
forfeiture.
Payout value
depends on
share price.
0–33%
vests with
employee
February
2011
March
2011
March
2012
March
2013
March
2014
Changes in 2010: We introduced a performance condition for awards
granted to risk-takers, GMD and employees whose total bonus exceeds
CHF/USD 2 million, making the vesting of their deferred awards contin-
gent on the profitability of their respective business division, or, if such
employees belong to the Corporate Center, on the profitability of the
Group as a whole.
Deferred Cash Plan (DCP)
Plan type – Deferred cash plans
Illustrative example for bonus of CHF 100 awarded under the DCP
Eligible employees: DCP awards were granted to Investment Bank
employees whose total compensation exceeds CHF 1 million.
Description: Although the mandatory bonus deferral plan (for total
compensation above CHF/USD 250,000) or more applies to all employees,
certain Investment Bank employees are subject to additional cash deferrals
on the 40% cash component of their bonus. The DCP is a cash award
denominated either in USD or CHF. It vests in equal installments in the
three subsequent years following its grant. The CHF/USD 2 million cap on
the amount of cash that can be paid out immediately applies.
Restrictions: DCP awards are subject to forfeiture in the event of a harmful
act or if employment is terminated voluntarily or for cause.
CHF 100
Bonus in
cash for the
performance
year 2010,
granted
under DCP
0–33%
vests with
employee
0–33%
vests with
employee
Cash deferred
over three years
and subject to
forfeiture.
0–33%
vests with
employee
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February
2011
March
2011
March
2012
March
2013
March
2014
235
Advisory vote
Corporate governance and compensation
Compensation
Discontinued deferred compensation plans
The following table sets out the details of discontinued compensation plans, including those under which stock options, stock appre-
ciation rights and other instruments were granted in the past. UBS has not granted any options since 2009. The strike price for stock
options awarded under prior compensation plans has not been reset.
➔ Refer to Note 31 “Equity participation and other compensation plans” in the “Financial Information” section of this report for more information
Plan
Year granted
Eligible employees
Instrument
Performance
conditions
Restrictions /
other conditions
Time frame and
vesting terms
Incentive
Performance Plan
(IPP)
2010 only
GEB members and
other senior employees
(approximately 900
employees)
Performance shares
Dependent on share
price at the end of the
five-year period
Subject to continued
employment and
harmful act provisions.
Conditional Variable
Compensation Plan
(CVCP)
2009 only
Cash
Selected employees
(approximately 9,500
employees), excluding
GEB members
No financial loss
incurred and no need
for additional capital
injection by
government
2002–2009
Key Employee Stock
Appreciation Rights
Plan (KESAP) and
Key Employee Stock
Option Plan (KESOP)
Selected employees
(approximately 17,000
employees between
2002 and 2009)
2002–2009
GEB members and
Group Managing Board
Senior Executive
Stock Appreciation
Rights Plan (SESAP)
and Senior
Executive Stock
Option Plan (SESOP)
236
None
Share-settled stock
appreciation rights
(SARs) or stock options
with a strike price not
less than the fair
market value of a UBS
share on the date of
grant
None
SARs or stock options
with a strike price not
less than 110% of the
fair market value of a
UBS share on the date
of grant
Subject to continued
employment and
harmful act provisions.
Tranche forfeited if the
Group or relevant
business division fails to
achieve a profit in the
year preceding the year
of vesting, or if there is
any government
recapitalization during
the vesting period. The
first tranche of the
CVCP was forfeited as
the net profit
prerequisite was not
satisfied for the
performance year 2009.
The second tranche of
the CVCP is to vest on
12 April 2011 following
the announcement of
UBS’s 2010 profit (paid
to employees in all
business divisions except
Wealth Management
Americas, which recor d-
ed a full-year loss).
Subject to continued
employment,
non-solicitation of
clients and employees
and non-disclosure of
proprietary information.
Subject to continued
employment,
non-solicitation of
clients and employees
and non-disclosure of
proprietary information.
Vests in full at the end
of five years. Number
of shares that vest can
be between one and
three times the number
of performance shares
initially granted.
Vests in one-third
installments over a
three-year period.
Vests in full at the end
of the three-year
period. SARs and
options expire 10 years
from the date of grant.
Awards are settled by
the delivery of UBS
shares, except in
countries where this is
not permitted by law.
Vests in full at the end
of the three-year
period. SARs and
options expire 10 years
from the date of grant.
Awards are settled by
the delivery of UBS
shares, except in
countries where this is
not permitted by law.
Advisory vote
Compensation funding and expenses
How we determine our bonus pool
Each business division plans its bonus pool annually based on the
funding framework and process that has been agreed by the HRCC.
The “management pool” is the amount that a business division pro-
poses to award its employees for their performance in a given per-
formance year after consideration of all relevant factors. These pro-
posed pools are submitted to the Group CEO and the HRCC for
review, and approved by the full BoD. A detailed description of this
process is provided below. By comparison, the expenses charged to
the profit and loss account for any given year include compensation
expense, that is, accruals, for bonuses awarded for the latest perfor-
mance year recognized in the current year, as well as amortization
of deferred awards granted in prior years, that is, prior awards that
have not yet vested.
Profitability
Profitability is the main basis of our compensation funding frame-
work. At business division level, this is measured as profit before tax
and before bonus, adjusted for a cost of capital charge, thereby tak-
ing into consideration the cost of equity allocated to that business.
Bonus pool funding based on risk-adjusted profit supports the
firm’s overall objective of sustainable profitability. At the same
time, it is consistent with the regulatory requirements established
by FINMA, the FSB and our other regulators.
Funding rates and initial bonus pools
We derive the initial divisional bonus pools by multiplying the so-
called divisional compensation funding rate with the divisional
adjusted contribution before bonus. In 2010, we introduced
funding rates that are directly linked to the level of profitability in
each division. As profits within a business division increase, the
proportion of profits allocated for the payment of bonuses is
lowered.
Our funding rate model or approach allows us to protect the firm
in years of downturn or recovery by retaining key employees, while
providing additional shareholder return in good years by preventing
excessive capital usage for compensation. As such, we optimize
shareholder return in the longer term by adapting our compensa-
tion funding in line with the profitability situation of our businesses.
Management discretion
While profitability is the main factor in determining the size of our
bonus pool, and while we apply funding rates that provide an ini-
tial basis for determining divisional bonus pools, management
may still apply its discretion and make adjustments to further as-
sess the overall quality of earnings by looking at relevant key per-
formance indicators and other qualitative measures, including risk
factors. Furthermore, we recognize the strategic importance of
maintaining a competitive position in the labor market, and may
also make adjustments to variable compensation funding deter-
mined by competitive benchmarking. This involves studying our
market position, both from a performance and a compensation
perspective, together with industry compensation trends, includ-
ing at senior management levels, based on a comparison among
peer groups and across regions. Such management discretion is an
important element of the funding framework, enabling us to
achieve a balanced outcome that considers all the relevant factors.
Corporate Center employees are rewarded based on their indi-
vidual performance, along with the performance and profitability
of the Group as a whole. Compensation for control and logistics
functions is determined independently. It is not based on the per-
formance of the revenue producers these functions support, and
is contained within the costs allocated to the business divisions.
Review and approval process
The proposed divisional bonus pools and the underlying contribu-
tion before bonus, together with other relevant performance indi-
cators and input from Group Risk, are reported to the Group CEO.
The HRCC reviews the rationale behind the divisional bonus pools.
Sustainable profitability is key to compensation funding
Primary basis for funding across UBS is profitability. The following describes the process by which we determine our bonus pools.
HRCC provides independent oversight
Contribution before
bonus as the main basis
for business division pool
funding
Includes charge for cost of
equity capital
Compensation funding
rates applied to contri-
bution before bonus at
business division level
Initial business division
bonus pools proposed
Management discretion
applied in determining
business division
bonus pools
Adjustments for relative business
performance, risk factors, quality of
earnings and market compensation
Risk is assessed at each phase of the process
Proposed pools
reviewed by the Group
CEO and HRCC
Final approval by the
BoD
237
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Advisory vote
Corporate governance and compensation
Compensation
(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:78)(cid:67)(cid:85)(cid:86)(cid:2)(cid:86)(cid:89)(cid:81)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:85)
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(cid:55)(cid:36)(cid:53)(cid:2)(cid:67)(cid:69)(cid:74)(cid:75)(cid:71)(cid:88)(cid:71)(cid:70)(cid:2)(cid:67)(cid:2)(cid:82)(cid:84)(cid:81)(cid:386)(cid:86)(cid:2)(cid:68)(cid:71)(cid:72)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:67)(cid:90)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:14)(cid:22)(cid:23)(cid:23)(cid:2)
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(cid:20)(cid:14)(cid:23)(cid:24)(cid:19)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:80)(cid:2)(cid:20)(cid:18)(cid:18)(cid:27)(cid:16)(cid:2)(cid:54)(cid:74)(cid:71)(cid:2)(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)
(cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:82)(cid:84)(cid:81)(cid:386)(cid:86)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:71)(cid:70)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)
(cid:26)(cid:14)(cid:20)(cid:25)(cid:26)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:79)(cid:82)(cid:84)(cid:81)(cid:88)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:75)(cid:80)(cid:2)(cid:55)(cid:36)(cid:53)(cid:111)(cid:85)(cid:2)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:84)(cid:81)(cid:386)(cid:86)(cid:16)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:71)(cid:80)(cid:70)(cid:71)(cid:70)(cid:2)(cid:20)(cid:18)(cid:19)(cid:18)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)
(cid:67)(cid:80)(cid:2)(cid:75)(cid:80)(cid:70)(cid:87)(cid:85)(cid:86)(cid:84)(cid:91)(cid:15)(cid:78)(cid:71)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:36)(cid:43)(cid:53)(cid:2)(cid:86)(cid:75)(cid:71)(cid:84)(cid:2)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:19)(cid:25)(cid:16)(cid:26)(cid:7)(cid:16)(cid:2)(cid:37)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:69)(cid:81)(cid:80)(cid:386)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:75)(cid:85)(cid:2)
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(cid:88)(cid:81)(cid:78)(cid:87)(cid:79)(cid:71)(cid:85)(cid:2)(cid:67)(cid:85)(cid:2)(cid:89)(cid:71)(cid:78)(cid:78)(cid:2)(cid:67)(cid:85)(cid:2)(cid:75)(cid:79)(cid:82)(cid:84)(cid:81)(cid:88)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:80)(cid:71)(cid:86)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)
(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:16)(cid:2)(cid:57)(cid:71)(cid:2)(cid:67)(cid:78)(cid:85)(cid:81)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:75)(cid:80)(cid:87)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:81)(cid:85)(cid:86)(cid:85)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:69)(cid:74)(cid:75)(cid:71)(cid:88)(cid:71)(cid:70)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:386)(cid:90)(cid:71)(cid:70)(cid:2)(cid:69)(cid:81)(cid:85)(cid:86)(cid:85)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:16)
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(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)
(cid:57)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:8)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:57)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:54)(cid:84)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:91)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:88)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:69)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:75)(cid:86)(cid:71)(cid:79)(cid:85)
(cid:13)(cid:19)(cid:18)(cid:14)(cid:18)(cid:19)(cid:24)
(cid:13)(cid:19)(cid:25)(cid:18)
(cid:115)(cid:19)(cid:24)(cid:20)
(cid:13)(cid:25)(cid:26)
(cid:13)(cid:26)(cid:14)(cid:20)(cid:25)(cid:26)
(cid:13)(cid:19)(cid:14)(cid:24)(cid:23)(cid:21)
(cid:20)(cid:18)(cid:19)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:27)
(cid:115)(cid:26)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:115)(cid:22)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:18)
(cid:22)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:26)(cid:14)(cid:18)(cid:18)(cid:18)
➔ Refer to the “UBS business divisions and Corporate Center” section for more information on 2010 business division financial performance
It also considers performance indicators and risk factors specific to
each business division when assessing performance and earnings
quality, before recommending the size of the final bonus pool to
the BoD.
At a business division level, each CEO proposes funding and
allocation to the Group CEO, taking into account input from
Group Risk. Performance against agreed indicators, both qualita-
tive and quantitative, as well as risk factors specific to each busi-
ness division, are considered when assessing performance and
earnings quality.
Bonuses granted in 2010
Despite our improved performance in 2010, our bonus pool of CHF
4,245 million for 2010 is 11% lower than that for 2009, reflecting
factors such as the market environment, our need to further im-
prove our profitability, and our performance relative to the rest of
the industry.
The following table shows the amount of bonus awarded to
employees for the performance year 2010, together with the
number of beneficiaries for each type of award granted. In the
(cid:15)(cid:26)(cid:18)(cid:18)(cid:18)(cid:16)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)
(cid:15)(cid:24)(cid:27)(cid:21)(cid:21)(cid:16)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)
(cid:15)(cid:23)(cid:26)(cid:24)(cid:24)(cid:16)(cid:24)(cid:24)(cid:24)(cid:24)(cid:24)(cid:25)
(cid:15)(cid:22)(cid:26)(cid:18)(cid:18)(cid:16)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)
(cid:15)(cid:21)(cid:25)(cid:21)(cid:21)(cid:16)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)
(cid:15)(cid:20)(cid:24)(cid:24)(cid:24)(cid:16)(cid:24)(cid:24)(cid:24)(cid:24)(cid:24)(cid:25)
(cid:15)(cid:19)(cid:24)(cid:18)(cid:18)(cid:16)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)
(cid:15)(cid:23)(cid:21)(cid:21)(cid:16)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)(cid:23)(cid:21)(cid:21)(cid:16)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)(cid:19)(cid:24)(cid:18)(cid:18)(cid:16)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:20)(cid:24)(cid:24)(cid:24)(cid:16)(cid:24)(cid:24)(cid:24)(cid:24)(cid:24)(cid:25)(cid:21)(cid:25)(cid:21)(cid:21)(cid:16)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)(cid:22)(cid:26)(cid:18)(cid:18)(cid:16)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:23)(cid:26)(cid:24)(cid:24)(cid:16)(cid:24)(cid:24)(cid:24)(cid:24)(cid:24)(cid:25)(cid:24)(cid:27)(cid:21)(cid:21)(cid:16)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)(cid:21)
Total bonus pool 1
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Cash discretionary bonus
Deferred cash plans
UBS share plans
UBS share option plans
Equity Ownership Plan – fund-linked
Total discretionary bonus
Expenses
Expenses deferred
to 2011 and later
Accounting
adjustment
Total
Number of
beneficiaries
2009
2010
2009
2010
2,079
64
440
0
28
2009
2,245
44
276
33
34
2010
0
236
1,271
0
67
0
45
1,827
34
134
0
0
60
0
0
60
2010
2,079
300
1,771
0
95
2009
2,245
89
2,210
67
168
2010
51,522
576
7,516
0
579
2009
51,747
54
10,690
7,552
582
0
0
107
0
0
2,611
2,632
1,574
2,040
107
4,245
4,779
1 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial information” section of this report for more information.
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case of deferred cash and share awards, the final amount paid to
an employee is influenced by forfeiture provisions and any perfor-
mance conditions to which these awards are subject. The deferred
share award amount is based on the fair value of these awards at
the date of grant.
The accounting adjustment column in the table shows the dif-
ference between the bonus amount granted to employees and
the expensed fair value amount according to the IFRS 2 account-
ing standard. The relevant accounting rule provides for a discount
to reflect that the fair value of shares that have vested for ac-
counting purposes, but are still subject to sale or transfer restric-
tions, is lower than the market value of unrestricted shares. For
example, an EOP award vests for accounting purposes immedi-
ately when an employee retires, while the shares remain blocked
over the original vesting period. In this case, the expensed fair
value of the blocked EOP award is lower than the current market
value. Where a performance condition under the EOP applies, the
expensed fair value also includes a discount reflecting the proba-
bility of forfeiture as a result of failing to meet the performance
condition.
Total personnel expenses for 2010
The following table shows our total personnel expense for 2010, and
includes salaries, pension and other personnel costs, social security
contributions and variable compensation. Variable compensation
includes discretionary cash bonuses paid in 2011 for the perfor-
mance year 2010, the amortization of unvested deferred awards
granted in previous years and the cost of deferred awards granted to
employees who are eligible for retirement at the date of grant.
The bonus pool reflects the value of discretionary bonuses
granted relating to the 2010 performance year, including awards
that are paid out immediately and those that are deferred. To
Reconciling the overall bonus pool in 2010 with
bonus expense
Bonus pool awarded for the 2010 performance year and bonus expenses recognized in the 2010 profit
and loss account.
CHF million
4,779
2009
Bonus pool
for the
performance
year
Accounting
adjustment
(60)
(11%)
4,245
2010
Bonus pool
for the
performance
year
1,471
Amortiza-
tion of prior
year awards
4,082
2010
Bonus
expenses in
2010
financial
statements
Awards for
2010 defer-
red to future
periods
(1,574)
2,611
Bonus
expense for
the perfor-
mance year
2010
determine our variable compensation expense, several adjust-
ments are required in order to reconcile the bonus pool to the
accounting costs recognized in the Group’s financial statements
prepared under IFRS:
– reduction for the unrecognized future amortization of unvest-
ed deferred awards granted in 2011 for the performance year
2010; and
– addition for the amortization of unvested deferred awards
granted in previous years.
As an increasingly large part of compensation consists of de-
ferred awards, the amortization of unvested deferred awards
granted in previous years became a more significant part of the
2010 accounting costs, and will increase in 2011.
➔ Refer to “Note 31 Equity participation and other compensation
plans” in the “Financial information” section of this report for
more information
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Personnel expenses
CHF million
Salaries
Variable compensation – discretionary bonus expense
Variable compensation – other
Contractors
Social security
Pension and other post-employment benefit plans
Wealth Management Americas: financial advisor compensation 3
Other personnel expenses 4
Total personnel expenses
31.12.10
7,033
4,082 1
310 2
232
826
724
2,667
1,047
16,920 5
31.12.09
7,383
2,809
830
275
804
988
2,426
1,027
16,543
31.12.08
7,775
1,674
1,025
423
660
972
2,435
1,298
16,262
1 Includes expensing of current year bonuses of CHF 2,611 million and expensing of deferred awards of CHF 1,471 million relating to bonuses for previous years. 2 Includes replacement awards of CHF 107 million,
forfeitures of CHF (167) million, guaranteed bonuses of CHF 135 million, severance payments of CHF 69 million and UBS’s Equity Plus Plan of CHF 80 million. 3 Consists of grid-based compensation linked directly to
compensable revenues generated by financial advisors, and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. Also includes costs related to compensa-
tion commitments and advances granted to financial advisors at the time of recruitment, which are subject to vesting requirements. 4 Includes employee mandatory insurance programs and family allowances, recruit-
ment, training and related travel costs, the cost of employee anniversary awards, the costs of international assignees, and relocation costs. 5 Personnel expenses (including fixed and variable compensation) recognized
in the profit and loss statement 2010 of CHF 16,920 million (less charges and credits that derive from remuneration for previous financial years of CHF 2,069 million plus expenses deferred to 2011 and later from the
pool 2010 of CHF 2,609 million) amount to CHF 17,460 million.
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3750
2500
1250
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Corporate governance and compensation
Compensation
2010 compensation for the Group Executive Board and
Board of Directors
Group Executive Board compensation
In 2010, total compensation for GEB members reflected the indi-
vidual performance of each executive in the context of each busi-
ness division’s improved operating performance, overall Group
progress toward our medium-term strategic goals and the signifi-
cant turnaround in the Group’s profitability. In setting compensa-
tion levels, the HRCC and the BoD also considered the collective
achievements of the GEB in advancing our strategy, the relevant
external competitive market and the firm’s relative performance.
In total, the compensation for GEB members in office on De-
cember 2010 was CHF 91.0 million, compared with a total of CHF
68.7 million in 2009. There were 13 GEB members on 31 December
2010, the same number as at the end of 2009. Aggregate compen-
sation made to GEB members who stepped down in 2010 was CHF
3.3 million, compared with CHF 41.3 million in 2009. It should be
noted that GEB employment contracts were revised between 2009
and 2010 to further limit UBS’s contractual obligations to GEB
members who leave. The changes include reducing the notice peri-
od for new GEB members from 12 to six months, as well as making
any bonus payments for the year in which a GEB member leaves on
a fully discretionary, rather than pro rata, basis.
The highest paid GEB member in 2010 was Carsten Kengeter,
with a total compensation of CHF 9.3 million. As shown in the ta-
ble “Total compensation for all GEB members”, 88% of his bonus
was deferred, with 28% in deferred cash and 60% in deferred
equity vesting over three to five years.
Carsten Kengeter was appointed sole CEO of the Investment
Bank in November 2010, having previously held this position jointly
with Alexander Wilmot-Sitwell from January to October 2010. In
2010, the Investment Bank returned to profitability with a full-year
profit before tax of CHF 2.2 billion, an improvement of CHF 8.3 bil-
lion as compared with 2009. Significant progress was made in posi-
tioning the Investment Bank for the future through rebuilding se-
lected businesses in the Fixed Income Currencies and Commodities
(FICC) business area, increasing the alignment between FICC and
the leading Equities franchise, increasing market share in the advi-
sory and capital markets activities and implementing an integrated,
flow- and advisory-based client-centric business model. During
2010 residual risk positions were actively managed and reduced.
In 2010, the Group CEO, Oswald J. Grübel, was contractually
entitled to a bonus, given the level of Group profitability achieved,
the improvement in results over the previous year and the significant
progress towards the Group’s medium-term strategic goals. As in
2009, the Group CEO decided to waive the bonus. His decision is
based on what he believes is appropriate for the firm at this point in
light of the further progress still required to reach the long-term
goals set out in the firm’s overall strategy. His decision has been
gratefully accepted and agreed to by the HRCC and the BoD.
Base salary
Base salaries are fixed for all GEB members and reviewed annually
by the HRCC. Any adjustments are limited to significant changes in
market rates or to movements in the foreign exchange (FX) rates
relative to the Swiss franc. The HRCC decided not to change the
Swiss franc amount for 2010, but adjusted the salary for GEB mem-
bers who are paid in other currencies due to movements in FX
rates.
Benefits
GEB benefits are in line with previous years.
➔ Refer to “Note 30 Pension and other post-employment benefits”
in the “Financial Information” section of the Annual Report 2010
for details on the various post-employment benefit plans
established in Switzerland and other major markets
➔ Refer to the “Compensation funding and expenses” and
“Overview of our compensation model” sections for information
concerning the committee’s determination of the discretionary
bonus for 2010, and to the “Deferred variable compensation
plans” section for details of the compensation plans awarded to
GEB members
Board of Directors compensation
Chairman of the Board of Directors
For 2010, the total compensation awarded to the Chairman of
the BoD, Kaspar Villiger, was CHF 1,491,308. Our compensation
framework provides for the Chairman to receive a base salary,
200,000 UBS shares, blocked for four years, as well as benefits in
kind. Such shares are not designed or intended as variable com-
pensation. Kaspar Villiger chose to waive a substantial part of the
share award and instead to accept a limited number of 26,940
UBS shares with a fair value of CHF 500,000. In addition, he de-
cided to maintain the voluntary reduction in his annual base sal-
ary from CHF 2 million to CHF 850,000. The HRCC gratefully ac-
cepted and agreed with Kaspar Villiger’s decision.
Highest paid BoD member
The Chairman of the BoD, Kaspar Villiger, is the highest paid BoD
member, with total compensation of CHF 1,491,308.
Independent BoD members
The table “Remuneration details and additional information for
independent BoD members” shows the compensation received
240
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by independent BoD members between the 2010 and 2011
AGM. Fees for 2010 to 2011 remained unchanged.
exchange rules do not require disclosure of individual names of
GEB or BoD members making such transactions.
Compensation for former BoD and GEB members
Compensation and benefits in kind paid to former BoD and GEB
members amounted to CHF 77,722 for 2010 and reflect legacy
agreements still honored by UBS. These benefits have been dis-
continued for any BoD and GEB member who stepped down after
1 January 2008.
UBS executives receive a substantial portion of their compensa-
tion in UBS equity-based awards. For this reason, management
transactions generally see sales outweighing purchases. Blackout
periods and synchronized dates for unblocking or vesting of
shares or options granted as compensation may lead to transac-
tions being concentrated in short time periods.
In addition, three BoD members chose to receive their full pay
in UBS shares. These shares, representing a value of CHF
1,062,500, will be allocated in March 2011.
Transactions in 2010
Loans
In accordance with the applicable rules and regulations, manage-
ment transactions in UBS shares by BoD and GEB members are
publicly disclosed. Transactions which require reporting are those
involving all types of financial instruments whose price is primarily
influenced by the price of UBS shares.
From 1 January until 31 December 2010, one share purchase
was disclosed with a total value of CHF 1,501,830. Swiss stock
BoD and GEB members are granted loans, fixed advances and
mortgages. Such loans were made in the ordinary course of busi-
ness, on substantially the same terms as those granted to other
employees, including interest rates and collateral, and did not in-
volve more than the normal risk of collectability or contain other
unfavorable features.
➔ Refer to “Note 32 Related parties” in the “Financial information”
section of this report for information concerning loans granted
to current and former executives
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List of tables
Total compensation for all GEB members
Share and option ownership of GEB members on 31 December 2009 / 2010
Compensation details and additional information for non-independent BoD members
Remuneration details and additional information for independent BoD members
Total payments for all BoD members
Share holdings of BoD members on 31 December 2009 / 2010
Compensation paid to former BoD and GEB members
Total of all vested and unvested shares held by GEB members and non-independent BoD members
Total of all blocked and unblocked shares held by independent BoD members
Vested and unvested options held by GEB members on 31 December 2009 / 2010
Loans granted to GEB members on 31 December 2009 / 2010
Loans granted to BoD members on 31 December 2009 / 2010
Page
242
243
244
244
245
245
246
246
246
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250
250
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Corporate governance and compensation
Compensation
Total compensation for all GEB members
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CHF, except where indicated a
Variable cash
compensation under CBP
Name, function
For the year
ended
Oswald J. Grübel, Group CEO
2010
Carsten Kengeter, CEO Investment Bank
(highest-paid)
2010
Carsten Kengeter, CEO Investment Bank
(highest-paid)
2009
Aggregate of all GEB members who
were in office on 31 December 2010 1
Aggregate of all GEB members who
were in office on 31 December 2009 1
Aggregate of all GEB members who
stepped down during 2010 2
Aggregate of all GEB members who
stepped down during 2009 2
2010
2009
2010
2009
Base salary
3,000,000
Immediate
cash b
0
Deferred
cash b, 3
0
Annual
bonus
under PEP c
0
Annual
bonus under
SEEOP d
0
Annual
bonus
under IPP c
–
Benefits in
kind e
25,600
Contribu-
tions to
retirement
benefits
plans f
0
Total
3,025,600
874,626
1,002,496
2,339,158
1,670,827
3,341,654
–
92,547
0
9,321,308
669,092
3,002,082
2,001,388
6,155,869
–
1,349,336
0
12,545
13,190,312
14,705,894
15,588,145
14,451,756
15,019,951
30,039,901
–
381,851
843,402
91,030,900
12,000,055
15,440,827
10,293,884
13,453,424 4
– 15,696,333
270,971
1,551,068
68,706,566
755,950
1,380,000
920,000
2,447,544
23,065,858
15,377,239
0
0
0
–
–
0
78,817
118,334
3,253,101
215,151
171,122
41,276,914
1 Number and distribution of GEB members: 13 GEB members in office on 31 December 2010 and on 31 December 2009 respectively. 2 Number and distribution of former GEB members for 2010 includes Francesco
Morra (three months in office, including a notice period of six months); and 2009 includes Marcel Rohner (two months in office), Walter H. Stürzinger and Raoul Weil (three months in office), Jerker Johansson (four months
in office), Rory Tapner (six months in office) and Marten Hoekstra (10 months in office). 3 In 2010, for John Cryan, Carsten Kengeter and Alexander Wilmot-Sitwell, deferred cash includes blocked shares. 4 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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Explanation of the tables outlining compensation details for GEB members and non-independent BoD members
a. Local currencies are converted into CHF using the exchange rates as detailed in Note 39 “Currency translation rates” in the “Financial information” section
of this report.
b. Of the cash award, 60% is paid out immediately (representing 24% of a GEB member’s total annual bonus). The balance is paid out in equal installments
of 20%, each over the subsequent two years, and is subject to forfeiture.
c. Value of each performance share at grant: CHF 18.70 for PEP awards granted in 2011 relating to the performance year 2010; CHF 16.30 for PEP awards
granted in 2010 relating to the performance year 2009; and CHF 22.20 for IPP awards granted in 2010 relating to the performance year 2009. These
values are based on valuations for accounting purposes which take into account the performance conditions and the range of possible outcomes for these
conditions.
d. SEEOP is a pre-existing compensation plan that has been updated and re-introduced. SEEOP awards vest in equal installments over five years and are
subject to forfeiture. The grant date accounting value per share granted under SEEOP in 2011 relating to the performance year 2010 at grant is CHF 18.43
or USD 19.94 (actual shares) and CHF 18.30 or USD 19.80 (notional shares).
e. Benefits in kind are all valued at market price, for example, health and welfare benefits and general expense allowances.
f. Swiss executives participate in the same pension plan as all other employees. Under this plan, UBS makes contributions to the plan, which covers compensa-
tion of 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 contribution is included in the base salary and annual incentive award components.
In both the US and the UK, senior management participates in the same pension plans as all other employees. In the US, there are separate pension plans
for Wealth Management Americas compared with the other business divisions. There are generally two different types of pension plans. The grandfathered
plans, which are no longer open to new hires, operate (depending on the abovementioned distinction by business division) either on a cash balance basis
or a career average salary basis. Participants accrue a pension based on their annual compensation limited to USD 250,000 (or USD 150,000 for Wealth
Management Americas employees). The principal plans for new hires are defined contribution plans. In the defined contribution plans, UBS makes contribu-
tions to the plan based on compensation and limited to USD 245,000. US management may also participate in a 401(k) defined contribution plan (open to
all employees), which provides a limited 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 ben-
efit plan which provides a pension upon retirement based on career average base salary (individual caps introduced as of 1 July 2010).
242
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Number of
vested shares
Total number of
shares
Potentially
conferred voting
rights in %
Share and option ownership of GEB members on 31 December 2009 / 2010
Name, function 1
Oswald J. Grübel, Group Chief Executive Officer
John Cryan, Group Chief Financial Officer
Markus U. Diethelm, Group General Counsel
John A. Fraser,
Chairman and CEO Global Asset Management
Lukas Gähwiler, CEO UBS Switzerland and co-CEO
Wealth Management & Swiss Bank
Carsten Kengeter, CEO Investment Bank
Ulrich Körner, Group Chief Operating Officer and
CEO Corporate Center
Philip J. Lofts, Group Chief Risk Officer
Robert J. McCann, CEO Wealth Management Americas
Francesco Morra, former CEO UBS Switzerland 5
Alexander Wilmot-Sitwell, co-Chairman and
co-CEO Group Asia Pacific
Robert Wolf, Chairman and CEO, UBS Group Americas /
President Investment Bank
Chi-Won Yoon, co-Chairman and
co-CEO Group Asia Pacific
Jürg Zeltner, CEO UBS Wealth Management and
co-CEO Wealth Management & Swiss Bank
For the
year ended
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
Number of
unvested
shares / at risk 2
0
–
0
–
221,879
185,975
–
178,619
–
326,702
–
110,000
–
–
75,700
–
316,541
–
850
–
0
0
407,854
235,929
254,319
112,245
643,243
480,464
110,850
–
916,201
363,047
1,279,248
–
177,592
–
200,009
–
–
95,597
–
144,603
–
138,598
540,866
–
–
–
–
–
–
274,739
213,613
–
–
242,805
635,382
–
–
184,858
318,332
–
113,609
–
–
9,405
–
516,909
273,189
0
344,612
179,234
679,464
602,481
–
153,860
488,352
286,767
878,187
785,631
503,190
367,573
123,014
16,502
Number of
options held 3
4,000,000
4,000,000
382,673
382,673
0
0
1,088,795
1,088,795
0
–
905,000
905,000
0
0
577,723
577,723
0
0
–
325,086
353,807
353,807
948,473
948,473
623,253
623,253
205,470
205,470
Potentially
conferred voting
rights in % 4
0.181
0.217
0.017
0.021
0.000
0.000
0.049
0.059
0.000
0.041
0.049
0.000
0.000
0.026
0.031
0.000
0.000
0.018
0.016
0.019
0.043
0.051
0.028
0.034
0.009
0.011
0.000
0.000
0.018
0.013
0.012
0.006
0.029
0.026
0.005
0.058
0.028
0.012
0.000
0.016
0.010
0.031
0.033
0.008
0.022
0.016
0.040
0.043
0.023
0.020
0.006
0.001
1 This table includes vested and unvested shares and options held by GEB members, including related parties. 2 Includes shares granted under PEP and IPP. The actual number of shares vesting in the future will be
calculated under the terms of the plans. Refer to “Deferred variable compensation plans” in this section for more information on both plans. 3 Refer to “Note 31 Equity participation and other compensation plans” in
the “Financial information” section of this report for more information. 4 No conversion rights are outstanding. 5 GEB member who stepped down during 2010.
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243
Advisory vote
Corporate governance and compensation
Compensation
d
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A
d
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Compensation details and additional information for non-independent BoD members
CHF, except where indicated a
Name, function 1
Kaspar Villiger, Chairman
Peter Kurer, former Chairman
For the
year ended
2010
2009
2010
2009
Base salary
850,000
602,083
–
666,667
Annual bonus
(cash)
0
0
–
0
Annual
share award
500,000 2
0
–
0
Benefits in kind e
141,308
74,488
–
37,561
Contributions
to retirement
benefits plans f
0
0
–
89,780
Total
1,491,308
676,571
–
794,008
1 2010: Kaspar Villiger was the only non-independent member in office on 31 December 2010 and 31 December 2009, respectively. Peter Kurer did not stand for reelection at the AGM on 15 April 2009. 2 These shares
are blocked for four years.
Remuneration details and additional information for independent BoD members
CHF, except where indicated a
e
e
t
t
i
m
m
o
C
t
i
d
u
A
M
M
M
M
M
C
C
Name, function 1
Michel Demaré,
Vice Chairman
David Sidwell,
Senior Independent Director
Sally Bott,
member
Rainer-Marc Frey,
member
Bruno Gehrig,
member
Ann F. Godbehere,
member
Axel P. Lehmann,
member
Sergio Marchionne,
former Senior Independent Director,
former Vice Chairman
Wolfgang Mayrhuber,
member
Helmut Panke,
member
William G. Parrett,
member
Peter R. Voser,
former member
Total 2010
Total 2009
s
e
c
r
u
o
s
e
R
n
a
m
u
H
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
n
r
e
v
o
G
g
n
i
t
a
n
m
o
N
i
e
e
t
t
i
m
m
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
t
a
r
o
p
r
o
C
k
s
i
R
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
M
C
C
M
M
M
M
M
2010 / 2011 325,000
2009 / 2010 325,000
C 2010 / 2011 325,000
C 2009 / 2010 325,000
2010 / 2011 325,000
2009 / 2010 325,000
M 2010 / 2011 325,000
M 2009 / 2010 325,000
2010 / 2011 325,000
2009 / 2010 325,000
2010 / 2011 325,000
2009 / 2010 325,000
M 2010 / 2011 325,000
M 2009 / 2010 325,000
2010 / 2011
M
M
M
M
2009 / 2010 325,000
M
2010 / 2011 325,000
2009 / 2010
M 2010 / 2011 325,000
M 2009/2010 325,000
2010 / 2011 325,000
2009 / 2010 325,000
2010 / 2011
300,000
200,000
400,000
400,000
450,000
350,000
400,000
200,000
200,000
200,000
250,000
250,000
200,000
200,000
100,000
150,000
300,000
300,000
300,000
300,000
M
2009 / 2010 325,000
100,000
0
0
0
0
0
0
0
0
0
0
Share
percen-
tage 2
100
Number of
shares 3,4
52,631
50
50
50
50
50
100
100
50
50
50
50
100
100
100
50
50
50
50
50
50
21,203
30,893
29,281
24,556
27,261
43,583
40,301
16,634
21,203
18,219
23,222
31,519
40,301
51,845
15,050
19,803
25,242
19,803
25,242
17,164
Additional
payments
250,000 5
0
250,000 5
0
0
0
0
Total
875,000
525,000
975,000
725,000
775,000
675,000
725,000
525,000
525,000
525,000
575,000
575,000
525,000
0
525,000
–
250,000 5
675,000
475,000
–
625,000
625,000
625,000
625,000
–
425,000
6,700,000
6,425,000
0
0
0
Legend: C = Chairperson of the respective Committee; M = Member of the respective Committee
1 There were 10 independent BoD members in office on 31 December 2010. Wolfgang Mayrhuber was appointed at the AGM on 14 April 2010 and Sergio Marchionne and Peter Voser stepped down from the BoD at the
AGM on 14 April 2010. 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 Ber-
tarelli, Gabrielle Kaufmann-Kohler and Joerg Wolle stepped down from the BoD at the AGM on 15 April 2009. 2 Fees are paid 50% in cash and 50% in blocked UBS shares. However, independent BoD members can elect
to have 100% of their remuneration paid in blocked UBS shares. 3 For 2010, shares valued at CHF 18.56 (average price of UBS shares at SIX Swiss Exchange over the last 10 trading days of February 2011), included a
price discount of 15%, for a new value of discount price CHF 15.78. These shares are blocked for four years. 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. 4 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. 5 This payment is associated with the Vice Chairman or the SID function, respectively.
244
Advisory vote
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Total payments to all BoD members
CHF, except where indicated a
Aggregate of all BoD members
Share holdings of BoD members on 31 December 2009 / 2010
Name, function 1
Kaspar Villiger, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Sally Bott, member
Rainer-Marc Frey, member
Bruno Gehrig, member
Ann F. Godbehere, member
Axel P. Lehmann, member
Sergio Marchionne,
former Senior Independent Director, former Vice Chairman 2
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member
Peter R. Voser, former member 2
For the year ended
2010
2009
Total
8,191,310
7,895,579
For the year ended
Number of shares held
Voting rights in %
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
22,500
22,500
23,703
2,500
69,354
40,073
39,542
12,281
56,459
16,158
37,775
16,572
23,222
0
58,452
18,151
–
164,154
0
–
89,529
64,287
42,815
17,573
–
68,310
0.001
0.001
0.001
0.000
0.003
0.002
0.002
0.001
0.003
0.001
0.002
0.001
0.001
0.000
0.003
0.001
0,009
0.000
0.004
0.003
0.002
0.001
0.004
1 This table includes vested, unvested, blocked and unblocked shares held by BoD members, including related parties. No options were granted in 2009 and 2010. 2 BoD members who stepped down at the 2010 AGM.
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245
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d
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i
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A
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A
Advisory vote
Corporate governance and compensation
Compensation
Compensation paid to former BoD and GEB members1
CHF, except where indicated a
Name, function
Georges Blum, former BoD member
(Swiss Bank Corporation)
Franz Galliker, former BoD member
(Swiss Bank Corporation)
Walter G. Frehner, former BoD member
(Swiss Bank Corporation)
Hans (Liliane) Strasser, former BoD member
(Swiss Bank Corporation)
Robert Studer, former BoD member
(Union Bank of Switzerland)
Alberto Togni, former BoD member
(UBS)
Philippe (Alix) de Weck, former BoD member
(Union Bank of Switzerland)
Aggregate of all former GEB members 2
Aggregate of all former BoD and GEB members
For the
year ended
Compensation
Benefits in kind
0
0
0
0
0
0
0
0
0
0
0
320,136
0
0
0
0
0
0
92,399
0
10,659
0
25,371
0
9,758
0
18,751
20,493
355,983
0
93,135
57,229
18,293
77,722
Total
0
92,399
0
10,659
0
25,371
0
9,758
0
18,751
20,493
676,119
0
93,135
57,229
18,293
77,722
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
320,136
624,349
944,485
1 Compensation or remuneration that is connected with the former member’s activity on the BoD or GEB, that is not at market conditions. 2 Includes one former GEB member in 2010 and one former GEB member in 2009.
Total of all vested and unvested shares held by GEB members and non-independent BoD members1
Total
Of which
vested
Of which vesting
2011
2012
2013
2014
2015
Shares held on 31 December 2010
4,409,345
2,922,411
582,787
411,339
282,754
105,027
105,027
Shares held on 31 December 2009
1 Includes related parties.
3,760,095
1,971,557
1,078,664
397,046
222,601
2010
2011
2012
2013
90,227
2014
0
No individual BoD or GEB member holds 1% or more of all shares issued.
Total of all blocked and unblocked shares held by independent BoD members1
Total
Of which
unblocked
Shares held on 31 December 2010
440,851
46,010
Shares held on 31 December 2009
1 Includes related parties.
420,059
123,053
No individual Board member holds 1% or more of all shares issued.
2011
4,266
2010
6,232
Of which blocked until
2012
9,349
2011
13,352
2013
2014
127,970
253,256
2012
35,737
2013
241,685
246
Advisory vote
d
e
t
i
d
u
A
Vested and unvested options held by GEB members on 31 December 2009 / 2010 1
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Oswald J. Grübel, Group Chief Executive Officer
John Cryan, Group Chief Financial Officer (continued)
2010
2009
4,000,000 4,000,000
2009 26/02/2009 25/02/2014
CHF 10.10
2009
382,673
4,000,000 4,000,000
2009 26/02/2009 25/02/2014
CHF 10.10
John Cryan, Group Chief Financial Officer
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
2002 28/02/2003 28/02/2012
CHF 36.65
5,330
5,328
5,326
17,762
17,762
17,760
53,285
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
2008 01/03/2011 28/02/2018
CHF 32.45
2010
382,673
2009
382,673
21,362
20,731
20,725
5,454
5,294
5,292
23,626
23,620
23,612
5,526
5,524
5,524
17,072
17,068
17,063
14,210
14,210
14,207
5,330
5,328
5,326
17,762
17,762
17,760
53 285
21,362
20,731
20,725
5,454
5,294
5,292
23,626
23,620
23,612
5,526
5,524
5,524
17,072
17,068
17,063
14,210
14,210
14,207
2002 28/02/2004 28/02/2012
CHF 36.65
Markus U. Diethelm, Group General Counsel
2002 28/02/2005 28/02/2012
CHF 36.65
2003 01/03/2004 31/01/2013
CHF 27.81
2003 01/03/2005 31/01/2013
CHF 27.81
2010
2009
0
0
2003 01/03/2006 31/01/2013
CHF 27.81
John A. Fraser, Chairman and CEO Global Asset Management
2003 01/03/2004 28/02/2013
CHF 26.39
2010
1,088,795
76,380
2002 31/01/2005 31/01/2012
USD 21.24
2003 01/03/2005 28/02/2013
CHF 26.39
2003 01/03/2006 28/02/2013
CHF 26.39
2004 01/03/2005 27/02/2014
CHF 44.32
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
2005 01/03/2006 28/02/2015
CHF 47.58
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
2008 01/03/2011 28/02/2018
CHF 32.45
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
2002 28/02/2003 28/02/2012
CHF 36.65
2002 28/02/2004 28/02/2012
CHF 36.65
2002 28/02/2005 28/02/2012
CHF 36.65
2003 01/03/2004 31/01/2013
CHF 27.81
2003 01/03/2005 31/01/2013
CHF 27.81
2003 01/03/2006 31/01/2013
CHF 27.81
2003 01/03/2004 28/02/2013
CHF 26.39
2003 01/03/2005 28/02/2013
CHF 26.39
127,884
2002 28/06/2005 28/06/2012
CHF 37.90
127,884
2003 31/01/2006 31/01/2013
USD 22.53
170,512
2004 01/03/2007 27/02/2014
USD 38.13
202,483
2005 01/03/2008 28/02/2015
USD 44.81
213,140
2006 01/03/2009 28/02/2016
CHF 72.57
170,512
2007 01/03/2010 28/02/2017
CHF 73.67
2009
1,088,795
76,380
2002 31/01/2005 31/01/2012
USD 21.24
127,884
2002 28/06/2005 28/06/2012
CHF 37.90
127,884
2003 31/01/2006 31/01/2013
USD 22.53
170,512
2004 01/03/2007 27/02/2014
USD 38.13
202,483
2005 01/03/2008 28/02/2015
USD 44.81
213,140
2006 01/03/2009 28/02/2016
CHF 72.57
170,512
2007 01/03/2010 28/02/2017
CHF 73.67
Lukas Gähwiler, CEO UBS Switzerland and
co-CEO Wealth Management & Swiss Bank
2010
2009
0
–
Carsten Kengeter, CEO Investment Bank
2010
2009
905,000
905,000
2009 01/03/2012 27/12/2019
CHF 40.00
905,000
905,000
2009 01/03/2012 27/12/2019
CHF 40.00
Ulrich Körner, Group Chief Operating Officer and CEO Corporate Center
2010
2009
0
0
2003 01/03/2006 28/02/2013
CHF 26.39
Philip J. Lofts, Group Chief Risk Officer
2004 01/03/2005 27/02/2014
CHF 44.32
2010
577,723
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
2005 01/03/2006 28/02/2015
CHF 47.58
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
11,445
11,104
11,098
1,240
5,464
1,199
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
2002 28/02/2003 28/02/2012
CHF 36.65
2002 28/02/2004 28/02/2012
CHF 36.65
2002 28/02/2005 28/02/2012
CHF 36.65
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1 This table includes options held by GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial informa-
tion” section of this report for more information.
247
Advisory vote
Corporate governance and compensation
Compensation
d
e
t
i
d
u
A
Vested and unvested options held by GEB members on 31 December 2009 / 2010 1 (continued)
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Philip J. Lofts, Group Chief Risk Officer (continued)
Alexander Wilmot-Sitwell, co-Chairman und co-CEO Group Asia Pacific (cont.)
2010
577,723
9,985
9,980
9,974
1,833
1,830
1,830
35,524
35,524
35,521
2003 01/03/2004 31/01/2013
CHF 27.81
2010
353,807
2003 01/03/2005 31/01/2013
CHF 27.81
2003 01/03/2006 31/01/2013
CHF 27.81
2003 01/03/2004 28/02/2013
CHF 26.39
2003 01/03/2005 28/02/2013
CHF 26.39
2003 01/03/2006 28/02/2013
CHF 26.39
2009
353,807
2004 01/03/2005 27/02/2014
CHF 44.32
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
35,524
35,524
35,521
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
106,570
2007 01/03/2010 28/02/2017
CHF 73.67
85,256
53,282
2008 01/03/2011 28/02/2018
CHF 35.66
2005 01/03/2008 28/02/2015
CHF 47.58
2,130
2005 04/03/2007 04/03/2015
CHF 47.89
35,524
35,524
35,521
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
106,570
2007 01/03/2010 28/02/2017
CHF 73.67
85,256
2008 01/03/2011 28/02/2018
CHF 35.66
2009
577,723
117,090
2005 01/03/2008 28/02/2015
CHF 52.32
117,227
2006 01/03/2009 28/02/2016
CHF 72.57
85,256
74,599
11,445
11,104
11,098
1,240
5,464
1,199
9,985
9,980
9,974
1,833
1,830
1,830
35,524
35,524
35,521
2007 01/03/2010 28/02/2017
CHF 73.67
2008 01/03/2011 28/02/2018
CHF 35.66
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
2002 28/02/2003 28/02/2012
CHF 36.65
2002 28/02/2004 28/02/2012
CHF 36.65
2002 28/02/2005 28/02/2012
CHF 36.65
2003 01/03/2004 31/01/2013
CHF 27.81
2003 01/03/2005 31/01/2013
CHF 27.81
2003 01/03/2006 31/01/2013
CHF 27.81
2003 01/03/2004 28/02/2013
CHF 26.39
2003 01/03/2005 28/02/2013
CHF 26.39
2003 01/03/2006 28/02/2013
CHF 26.39
2004 01/03/2005 27/02/2014
CHF 44.32
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
117,090
2005 01/03/2008 28/02/2015
CHF 52.32
117,227
2006 01/03/2009 28/02/2016
CHF 72.57
85,256
74,599
2007 01/03/2010 28/02/2017
CHF 73.67
2008 01/03/2011 28/02/2018
CHF 35.66
Robert J. McCann, CEO Wealth Management Americas
2010
2009
0
0
Francesco Morra, former CEO UBS Switzerland 4
2010
–
2009
325,086
43,911
66,866
2006 01/03/2009 28/02/2016
CHF 72.57
2007 01/03/2010 28/02/2017
CHF 73.67
114,309
2008 01/03/2011 28/02/2018
CHF 35.66
100,000
2009 01/03/2012 27/02/2019
CHF 11.35
Alexander Wilmot-Sitwell, co-Chairman and co-CEO Group Asia Pacific
2010
353,807
53,282
2005 01/03/2008 28/02/2015
CHF 47.58
Robert Wolf, Chairman and CEO, UBS Group Americas /
President Investment Bank
2010
948,473
287,739
2003 31/01/2006 31/01/2013
USD 22.53
213,140
2004 01/03/2007 27/02/2014
USD 38.13
127,884
2005 01/03/2008 28/02/2015
USD 44.81
106,570
2006 01/03/2009 28/02/2016
CHF 72.57
106,570
2007 01/03/2010 28/02/2017
CHF 73.67
106,570
2008 01/03/2011 28/02/2018
CHF 35.66
2009
948,473
287,739
2003 31/01/2006 31/01/2013
USD 22.53
213,140
2004 01/03/2007 27/02/2014
USD 38.13
127,884
2005 01/03/2008 28/02/2015
USD 44.81
106,570
2006 01/03/2009 28/02/2016
CHF 72.57
106,570
2007 01/03/2010 28/02/2017
CHF 73.67
106,570
2008 01/03/2011 28/02/2018
CHF 35.66
Chi-Won Yoon, co-Chairman and co-CEO Group Asia Pacific
2010
623,253
11,577
11,229
11,227
2,252
6,446
2,184
8,648
8,642
8,635
4,262
3,374
3,371
3,371
6,200
4,262
6,198
6,195
2002 31/01/2002 31/01/2012
USD 21.24
2002 31/01/2004 31/01/2012
USD 21.24
2002 31/01/2005 31/01/2012
USD 21.24
2002 28/02/2002 28/02/2012
USD 21.70
2002 29/02/2004 28/02/2012
USD 21.70
2002 28/02/2005 28/02/2012
USD 21.70
2003 01/03/2004 31/01/2013
USD 20.49
2003 01/03/2005 31/01/2013
USD 20.49
2003 01/03/2006 31/01/2013
USD 20.49
2003 28/02/2005 28/02/2013
USD 19.53
2003 01/03/2004 28/02/2013
USD 19.53
2003 01/03/2005 28/02/2013
USD 19.53
2003 01/03/2006 28/02/2013
USD 19.53
2004 01/03/2005 27/02/2014
CHF 44.32
2004 27/02/2006 27/02/2014
CHF 44.32
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
2,130
2005 04/03/2007 04/03/2015
CHF 47.89
10,659
2005 01/03/2006 28/02/2015
CHF 47.58
1 This table includes options held by GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial informa-
tion” section of this report for more information. 4 GEB member who stepped down during 2010.
248
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Vested and unvested options held by GEB members on 31 December 2009 / 2010 1 (continued)
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Chi-Won Yoon, co-Chairman und co-CEO Group Asia Pacific (continued)
2010
623,253
2009
623,253
10,657
10,654
21,316
21,314
21,311
8,881
8,880
8,880
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
42,628
2008 01/03/2011 28/02/2018
CHF 32.45
350,000
2009 01/03/2012 27/02/2019
CHF 11.35
11,577
11,229
11,227
2002 31/01/2002 31/01/2012
USD 21.24
2002 31/01/2004 31/01/2012
USD 21.24
2002 31/01/2005 31/01/2012
USD 21.24
2,252
6,446
2,184
8,648
8,642
8,635
4,262
3,374
3,371
3,371
6,200
4,262
6,198
6,195
10,659
10,657
10,654
21,316
21,314
21,311
8,881
8,880
8,880
2002 28/02/2002 28/02/2012
USD 21.70
2002 29/02/2004 28/02/2012
USD 21.70
2002 28/02/2005 28/02/2012
USD 21.70
2003 01/03/2004 31/01/2013
USD 20.49
2003 01/03/2005 31/01/2013
USD 20.49
2003 01/03/2006 31/01/2013
USD 20.49
2003 28/02/2005 28/02/2013
USD 19.53
2003 01/03/2004 28/02/2013
USD 19.53
2003 01/03/2005 28/02/2013
USD 19.53
2003 01/03/2006 28/02/2013
USD 19.53
2004 01/03/2005 27/02/2014
CHF 44.32
2004 27/02/2006 27/02/2014
CHF 44.32
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
2005 01/03/2006 28/02/2015
CHF 47.58
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
42,628
2008 01/03/2011 28/02/2018
CHF 32.45
350,000
2009 01/03/2012 27/02/2019
CHF 11.35
Jürg Zeltner, CEO UBS Wealth Management and
co-CEO Wealth Management & Swiss Bank
2010
205,470
809
784
784
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
4,972
2004 01/03/2007 27/02/2014
CHF 44.32
Jürg Zeltner, CEO UBS Wealth Management and
co-CEO Wealth Management & Swiss Bank (continued)
2010
205,470
2009
205,470
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
2005 01/03/2006 28/02/2015
CHF 47.58
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
2005 04/03/2007 04/03/2015
CHF 47.89
2005 06/06/2007 06/06/2015
CHF 45.97
2005 09/09/2007 09/09/2015
CHF 50.47
2005 05/12/2007 05/12/2015
CHF 59.03
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2006 03/03/2008 03/03/2016
CHF 65.91
2006 09/06/2008 09/06/2016
CHF 61.84
2006 08/09/2008 08/09/2016
CHF 65.76
2006 08/12/2008 08/12/2016
CHF 67.63
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
223
2007 02/03/2009 02/03/2017
CHF 67.08
42,628
90,000
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
2008 01/03/2011 28/02/2018
CHF 35.66
2009 01/03/2012 27/02/2019
CHF 11.35
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
2004 01/03/2007 27/02/2014
CHF 44.32
2005 01/03/2006 28/02/2015
CHF 47.58
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
2005 04/03/2007 04/03/2015
CHF 47.89
2005 06/06/2007 06/06/2015
CHF 45.97
2005 09/09/2007 09/09/2015
CHF 50.47
2005 05/12/2007 05/12/2015
CHF 59.03
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2006 03/03/2008 03/03/2016
CHF 65.91
2006 09/06/2008 09/06/2016
CHF 61.84
2006 08/09/2008 08/09/2016
CHF 65.76
2006 08/12/2008 08/12/2016
CHF 67.63
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
223
2007 02/03/2009 02/03/2017
CHF 67.08
42,628
90,000
2008 01/03/2011 28/02/2018
CHF 35.66
2009 01/03/2012 27/02/2019
CHF 11.35
n
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1 This table includes options held by GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial informa-
tion” section of this report for more information.
249
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Advisory vote
Corporate governance and compensation
Compensation
Loans granted to GEB members on 31 December 2009 / 2010
CHF, except where indicated a
Name, function 1
Jürg Zeltner, CEO UBS Wealth Management, co-CEO Wealth Management & Swiss Bank 3
Jürg Zeltner, CEO UBS Wealth Management, co-CEO Wealth Management & Swiss Bank 3
Aggregate of all GEB members
For the year ended
2010
2009
2010
2009
Loans 2
5,739,862
5,800,202
20,696,569
15,356,483
1 No loans have been granted to related parties of the GEB members at conditions not customary in the market. 2 All loans granted are secured loans. 3 GEB member with the highest loan granted.
Loans granted to BoD members on 31 December 2009 / 2010
CHF, except where indicated a
Name, function 1
Kaspar Villiger, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Sergio Marchionne, former Senior Independent Director, former Vice Chairman 3
Sally Bott, member
Rainer-Marc Frey, member
Bruno Gehrig, member 4
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member 4
Peter R. Voser, member 3
Aggregate of all BoD members
For the year ended
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
Loans 2
0
0
850,000
850,000
0
0
–
0
0
0
0
0
798,000
798,000
0
0
0
0
0
0
0
0
0
1,260,731
–
0
1,648,000
2,908,731
1 No loans have been granted to related parties of BoD members at conditions not customary in the market. 2 All loans granted are secured loans. 3 BoD members who stepped down at the 2010 AGM. 4 Secured
loans granted prior to their election to the BoD.
250
Financial
information
Financial information
Table of contents
254
255
Introduction and accounting principles
Critical accounting policies
259
Consolidated financial statements
259 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,
reverse repurchase and repurchase agreements, and
derivative instruments
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
260
262
265
266
267
268
271
273
273
293
297
298
298
299
300
300
300
301
302
302
303
303
304
306
307
308
308
309
311
252
312
312
312
314
314
320
322
329
329
329
330
330
330
340
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 contingent liabilities
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 increase and mandatory convertible notes
27 Fair value of financial instruments
28 Pledged assets and transferred financial assets which
do not qualify for derecognition
341
29 Measurement categories of financial assets and
345
351
359
362
362
365
366
367
367
368
369
370
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
379
UBS AG (Parent Bank)
405
Additional disclosure required under SEC regulations
379
Parent Bank review
405
A – Introduction
380
380
381
382
383
383
385
385
385
386
386
386
387
387
388
388
388
389
389
389
389
390
390
390
390
390
391
391
392
393
393
394
394
395
396
399
399
400
402
406
407
408
409
409
410
410
411
411
411
413
415
416
416
417
418
419
420
421
422
423
424
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
Assets pledged or assigned as security for own
obligations and assets subject to reservation of title
Allowances and provisions
Statement of shareholders’ equity
Share capital and significant shareholders
Shareholders registered in the UBS shares register with
3% or more of shares issued
Other assets
Other liabilities
Off-balance-sheet and other information
Commitments and contingent liabilities
Derivative instruments
Fiduciary transactions
Due to UBS pension plans
Transactions with related parties
Outsourcing
Dispensations in statutory financial statements
Personnel
Corporate governance and compensation report
Total compensation for all GEB members
Share and option ownership of GEB members
Compensation details and additional information
for non-independent BoD members
Remuneration details and additional information
for independent BoD members
Total payments to all BoD members
Share holdings of BoD members
Compensation paid to former BoD and GEB members
Vested and unvested options held by GEB members
Loans granted to GEB members
Loans granted to BoD members
Report of the statutory auditor on the financial statements
Confirmations of the auditors concerning conditional
capital increase
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 investments in debt instruments
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
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253
Financial information
Introduction and accounting principles
The financial information section of UBS’s Annual Report 2010
comprises: a) the critical accounting policies applied when pre-
paring the consolidated financial statements of UBS Group, b)
the audited consolidated financial statements of UBS Group
(the “Financial Statements”) for 2010, 2009 and 2008, prepared
in accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board
(IASB), c) the audited financial statements of UBS AG, the Parent
Bank, for 2010 and 2009, prepared in order to meet Swiss re-
gulatory 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 statements is
described in Note 1 to the financial statements. Except 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” refer to the UBS
Group and not to the Parent Bank. UBS AG, the Swiss Parent
Bank, includes branches worldwide and owns all the UBS com-
panies, directly or indirectly. All references to 2010, 2009 and
2008 refer to the UBS Group and the Parent Bank’s fiscal years
ended 31 December 2010, 2009 and 2008, respectively. The fi-
nancial statements for the UBS Group and the Parent Bank have
been audited by Ernst & Young Ltd.
254
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 ap-
plication of certain of these accounting principles requires consid-
erable judgment based upon estimates and assumptions that in-
volve significant uncertainty at the time they are made. Estimates
and judgments are continually evaluated and are based on his-
torical experience and other factors, including expectations of fu-
ture events that are believed to be reasonable under the circum-
stances. Changes in assumptions may have a significant impact
on the Financial Statements in the periods where assumptions are
changed. Accounting policies that are deemed critical to UBS’s
results and financial position, in terms of materiality of the items
to which the policy is applied, and which involve significant as-
sumptions and estimates, are discussed in this section. A broader
and more detailed description of the accounting policies that 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 reported re-
sults to differ. UBS believes that the assumptions it has made are
appropriate, and that UBS’s Financial Statements therefore pres-
ent the financial position and results fairly in all material respects.
The alternative outcomes discussed below are presented solely to
assist the reader in understanding UBS’s Financial Statements.
They are not intended to suggest that other assumptions would
be more appropriate.
Many of the judgments that UBS makes when applying ac-
counting principles depend on an assumption, which UBS believes
to be correct, that UBS maintains sufficient liquidity to hold posi-
tions or investments until a particular trading strategy matures,
i.e. that UBS does not need to realize positions at unfavorable
prices in order to fund immediate cash needs.
The valuation techniques or models employed may not fully
reflect all of the factors relevant to the positions UBS holds. Va-
luations are therefore adjusted, where appropriate, to allow for
additional factors including model risk, 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 Po
sitive replacement values to reflect counterparty credit risk if
deemed necessary. Correspondingly, a debit valuation adjustment
(DVA) approach is applied to incorporate the own credit risk in
the fair value of uncollateralized Negative replacement values.
The own credit risk for Financial liabilities designated at fair value
is calculated using the funds transfer price (FTP) curve.
As of 31 December 2010, financial assets and financial liabili-
ties for which valuation techniques or models are used and whose
inputs are observable (level 2) amounted to CHF 496 billion each.
Financial assets and financial liabilities whose valuations include
significant unobservable inputs (level 3) amounted to CHF 25 bil-
lion each.
Changes in assumptions for input factors would affect the re-
ported fair value of financial instruments. If management 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 cash instruments would have been up to CHF 0.6
billion higher or lower on 31 December 2010. Similarly, the fair
value of derivative instruments would have been up to CHF 1.2
billion higher or lower than the amounts recognized on UBS’s bal-
ance sheet on 31 December 2010. Favorable valuation changes
for assets would be offset to a significant degree by unfavorable
changes in liabilities and vice versa, as a consistent use of different
assumptions and estimates would prevent a simultaneous favor-
able or unfavorable valuation change of assets and liabilities.
The valuation of financial instruments is described in detail in
Fair value of financial instruments
Note 27.
The fair values of financial instruments where no active market
exists or where quoted prices are not otherwise available are deter-
mined by using valuation techniques. In these cases, the fair values
are estimated using observable data in respect of similar financial
instruments as well as models. Where market observable inputs are
not available, inputs are estimated based on appropriate assump-
tions. Where valuation techniques or models are used to determine
fair values, they are periodically reviewed and validated by qualified
personnel independent of those who sourced them. Models are
calibrated to ensure that outputs reflect actual data and compara-
tive market prices. Where practicable, models use only observable
data; however, areas such as default rates, volatilities and correla-
tions require management to make estimates.
Goodwill impairment test
Goodwill allocated to the Investment Bank on 31 December 2010
amounted to CHF 3.0 billion, to Wealth Management Americas
CHF 3.3 billion, to Wealth Management CHF 1.4 billion and to
Global Asset Management CHF 1.4 billion.
The recoverable amount is determined using a discounted
cash flow model, which uses inputs that consider features of the
banking business and its regulatory environment. The recover-
able amount is calculated by estimating streams of earnings
available to shareholders over the next five years, discounted to
their present values. The terminal value reflecting all periods be-
yond the fifth year is calculated on the basis of the forecast of
255
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fifth-year profit, the cost of equity and the long-term growth
rate. For the 2010 test, the discount rates and long-term
growth rates used to calculate the present values of the cash
generating units remained unchanged. The recoverable amount
of a segment is the sum of discounted earnings available to
shareholders from the first five individually forecast years and the
terminal value.
The carrying amount for each segment is determined by refer-
ence to the Equity Attribution framework. Within this framework,
which is described in the Treasury management section of this
report, management attributes equity to the businesses after con-
sidering their risk exposure, asset size, goodwill and intangible
assets. Until the end of 2009, the carrying amount for each seg-
ment was determined by a roll-forward of the historic carrying
amount. The change in methodology for determining the carrying
amount of the cash-generating units from the roll-forward ap-
proach to the Equity Attribution framework was made in 2010 as
the principles underlying the Equity Attribution framework were
approved by the Board of Directors during the year. Moreover, the
framework became embedded in the Bank for purposes of mea-
suring the performance of each of its businesses. This new meth-
odology is aligned with the 2010 business planning process, the
inputs from which are used in calculating the recoverable amounts
of the respective cash-generating units.
The same impairment test model is applied to all segments car-
rying goodwill. The model used to determine the recoverable
amount is most sensitive to changes in the forecast earnings avail-
able to shareholders in years one to five, the cost of equity and
to changes in the long-term growth rate. The applied long-term
growth rate is based on real growth rates and expected inflation.
Earnings available to shareholders are estimated based on fore-
cast results, which take into account business initiatives and
planned capital investments. Valuation parameters used within
the Group’s impairment test model are linked to external market
information, where applicable.
On the basis of the impairment testing methodology described
in Note 16 and Note 1a) 20), UBS concluded that the year-end
2010 balances of goodwill allocated to all its segments remain
recoverable.
In addition, a stress test was performed employing the same
discounted cash flow model. The earnings used were based on
an economic stress scenario. The stressed values exceeded the
carrying values of all business divisions, including the Investment
Bank and Wealth Management Americas. However, if the regula-
tory pressure on the banking industry intensifies and conditions in
the financial markets turn out to be worse than anticipated in
UBS’s performance forecasts, the goodwill carried in these busi-
ness divisions may become impaired in future quarters.
Impairment of loans and receivables measured
at amortized cost
Loan impairment allowances represent management’s best esti-
mate of losses incurred in the lending portfolio at the balance
sheet date. The loan portfolio, which is measured at amortized
cost less impairment, consists of financial assets presented on the
balance sheet line Due from banks and Loans, including reclassi-
fied securities. In addition, irrevocable loan commitments are also
tested for impairment as described below.
Credit loss expense is recognized if there is objective evidence
that the Group will be unable to collect all amounts due according
to the original contractual terms or the equivalent value. A finan-
cial asset or group of financial assets is impaired only if a loss
event occurred after the initial recognition of the financial asset(s),
but not later than at the balance sheet date (“incurred loss mod-
el”). Management is required to exercise judgment in making as-
sumptions and estimations when calculating impairment losses
both on a counterparty-specific level and collec tively.
The impairment loss is the difference between the carrying
value of the financial asset and the estimated recoverable
amount. The estimated recoverable amount is the present value,
using the loan’s original effective interest rate (EIR), of expected
future cash flows, including amounts that may result from re-
structuring or the liquidation of collateral. If a loan has a variable
interest rate, the discount rate for measuring any impairment
loss is the current EIR. An allowance for credit losses is reported
as a reduction of the carrying value of the financial asset on the
balance sheet.
Reclassified and acquired securities: UBS periodically revises its
estimated cash flows associated with the portfolio of securities
backed by multiple assets. Adverse revisions in cash flow esti-
mates related to credit events are recognized in profit or loss as
credit loss expenses. For reclassified securities, increases in esti-
mated future cash receipts as a result of increased recoverability
are recognized as an adjustment to the EIR on the loan from the
date of change.
On 31 December 2010, UBS’s gross loan portfolio was CHF
264 billion; the related allowances amounted to CHF 1.1 billion.
Impairment charges presented as net credit loss expense were
CHF 66 million in 2010, of which CHF 172 million related to secu-
rities (reclassified and acquired).
UBS’s policy on allowances and provisions for credit losses is
described in Note 1a) 11).
Consolidation of Special Purpose Entities
UBS sponsors the formation of Special Purpose Entities (SPEs) and
interacts with non-sponsored SPEs for a variety of reasons, includ-
ing to allow clients to obtain or be exposed to specific risk and
reward profiles, to be provided funding or to sell or purchase
credit risk. In accordance with IFRS, UBS does not consolidate
SPEs that it does not control. In order to determine whether or
not UBS controls 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 operations, or (b) UBS has decision-
making powers to obtain the majority of the benefits of the ac-
tivities of the SPE, or UBS has delegated these decision-making
256
powers by setting 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 activi-
ties of the SPE, or (d) UBS retains the majority of the residual or
ownership risks related to the SPE or its assets in order to obtain
the benefits from its activities. In many instances, elements are
present that, considered in isolation, indicate control or lack of
control over an SPE, but when considered together require a sig-
nificant degree of judgment to reach a conclusion. The exposure
to volatility in profits and the absorption of risks and rewards, as
well as the ability to make operational decisions for the SPE in
question are generally the factors to which most weight is given
in reaching a conclusion.
UBS’s policy on consolidation of SPEs is further described in
Note 1a) 3).
Equity compensation
UBS recognizes shares, performance shares, options and share-
settled stock appreciation rights (SARs) awarded to employees as
compensation expenses based on their fair value at grant date.
The performance shares, options and SARs that UBS issues to its
employees have features that make them not directly comparable
with UBS’s shares traded in active markets. Accordingly, UBS can-
not determine the fair value by reference to a quoted market
price, but instead estimates fair value by using suitable option
valuation models. The models require inputs such as expected
dividends, share price volatility and historical employee exercise
behavior patterns based on statistical data.
Some of the model inputs UBS uses are not market observable
and have to be estimated or derived from available data. Use of
different estimates would produce different valuations, 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 models UBS applies
have been selected because they are able to handle some of the
specific features included in the various instruments granted to
UBS’s employees. If UBS were to use different models, the values
produced would differ, even if the same inputs were used.
Further information on UBS equity compensation plans is dis-
closed in Note 1a) 24) and Note 31 to the Financial Statements.
Deferred taxes
Deferred tax assets arise from a variety of sources, the most sig-
nificant being: a) tax losses that can be carried forward to be uti-
lized against profits in future years; and b) expenses recognized in
UBS’s income statement that are not deductible until the associ-
ated cash flows occur.
ture profitability having regard to relevant business plan forecasts.
At each balance sheet date, existing assessments are reviewed
and, if necessary, revised to reflect changed circumstances. In a
situation where recent losses have been incurred, the relevant ac-
counting standards require convincing evidence that there will be
sufficient future profitability.
Swiss tax losses can be carried forward for seven years, US
federal tax losses for 20 years and UK and Jersey tax losses for an
unlimited period. The deferred tax assets recognized on 31 De-
cember 2010 have been based on future profitability assumptions
over the five-year time horizon, adjusted to take into account the
recognition criteria of IAS 12. The level of deferred tax assets rec-
ognized may, however, need to be adjusted in the future in the
event of changes in those profitability assumptions. On 31 De-
cember 2010, the recognized deferred tax assets amounted to
CHF 9.5 billion, which included an amount of CHF 8.9 billion in
respect of tax losses (mainly in Switzerland and the US) that can
be utilized to offset taxable income in future years. Refer to Note
22 for further details.
UBS’s policy on deferred taxes is described in more detail in
Note 1a) 21).
Hedge accounting
The Group uses derivative instruments as part of its asset and li-
ability management activities to manage exposures particularly
to interest rate and foreign currency risks, including exposures
arising from forecast transactions. If derivative and non-deriva-
tive instruments meet certain criteria, they are designated as fair
value hedges, cash flow hedges or net investment hedges. The
designation of derivatives as hedging instruments is at the dis-
cretion of UBS.
At the time a financial instrument is designated as a hedge, the
Group formally documents the relationship between the hedging
instrument(s) and hedged item(s), including the risk management
objectives and strategy in undertaking the hedge transaction and
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 instruments, primarily derivatives, have been “highly ef-
fective” in offsetting changes in the fair value or cash flows of the
hedged items.
Changes in the fair value of derivatives that qualify as fair value
hedges are recorded in the income statement along with the change
in the fair value of the hedged item attributable to the hedged risk.
The effective portion of changes in the fair value of derivatives that
qualify as cash flow hedges is recognized in equity and transferred
to profit or loss in the same periods in which the hedged cash flows
affect profit or loss. Hedges of net investments in foreign operations
are accounted for similarly to cash flow hedges.
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 rec-
ognition is influenced by management’s assessment of UBS’s fu-
The Group discontinues hedge accounting when it determines
that a hedging instrument is not, or has ceased to be, highly effec-
tive as a hedge; when the derivative expires or is sold, terminated
or exercised; when the hedged item matures, is sold or repaid; or
257
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when a forecast transaction is no longer deemed highly probable.
In certain circumstances, the Group may decide to discontinue
hedge accounting even though the mentioned criteria for discon-
tinuing are not fulfilled. De-designated hedging deri vatives are
treated as held for trading from the de-designation date.
Further information on hedge accounting is disclosed in Note
1a) 15) and Note 23.
Provisions
Provisions are recognized when UBS has a present legal or con-
structive obligation as a result of past events, it is probable that an
outflow of resources will be required to settle the obligation and
the amount can be reliably estimated.
When a provision is recognized, its amount may need to be
estimated as the exact amount of the obligation is often un-
known. The estimate is based on all available information and
reflects the amount that in management’s opinion represents
the best estimate of the expen diture required to settle the pres-
ent obligation at the end of the reporting period. Future events
that may affect the amount required to settle the obligation are
reflected in the amount provided, whenever there is sufficient
objective evidence that such future events will occur. UBS revises
existing provisions up or down as soon as it is able to quantify
the amounts more accurately. Management is required to exer-
cise judgment in making assumptions and esti mations when cal-
culating provisions.
Provisions are classified in Note 21 into the following cate-
gories: operational risks, litigation, restructuring and other. Oper-
ational risks includes provisions resulting from security risks and
transaction processing risks. Litigation includes provisions for
claims related to legal, liability and compliance risks. Other in-
cludes reinstatement costs for leasehold improvement, provisions
for onerous lease contracts, provisions for employee benefits and
other items.
Further details of UBS’s policy on provisions are contained in
Note 1a) 26).
Pension and other post-employment benefit plans
The defined benefit obligation at the end of the year and the net
periodic pension cost for the year depend on the expected future
benefit promises that are determined using a number of econom-
ic and demographic assumptions. The economic assumptions in-
clude the discount rate, the expected salary increase, the expect-
ed return on plan assets as well as the rate of pension increase.
The discount rate is determined by reference to rates of return
on high-quality fixed-income investments of appropriate term at
the measurement date. For the Swiss pension plan, this assumption
decreased to 2.8% in 2010 compared with 3.3% in 2009 and re-
flects the decline in the Swiss franc interest rate observed in the
market.
The assumption for salary increases reflects the long-term ex-
pectations for salary growth and takes into account inflation, se-
niority, promotion and other relevant factors such as supply and
demand in the labor market. For the Swiss pension plan, the as-
sumption for 2010 remained stable in comparison with 2009.
The expected return on plan assets is the long-term average
return that is expected on the pension assets. This assumption
takes into account the expected returns for each asset class, e.g.
equities, debt instruments and real estate. For the Swiss pension
plan, the assumption for 2010 was 4.3% compared with 4.5% in
2009.
The assumption for pension increases reflects the long-term
expectations of pension increases. For the Swiss pension plan, this
assumption decreased to 0.3% in 2010 compared with 0.5% in
2009.
More information on Pension and other post-employment
benefit plans (including the assumptions for the international
pension plans) is given in Note 30 and Note 1a) 23).
258
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 re-
sponsible for establishing and maintaining adequate internal con-
trol over financial reporting. UBS’s internal control over financial re-
porting is designed to provide reasonable assurance regarding the
preparation and fair presentation 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 dispositions of assets;
– Provide reasonable assurance that transactions are recorded
as necessary to permit preparation and fair presentation of fi-
nancial statements, and that receipts and expenditures of the
company are being made only in accordance with authoriza-
tions of UBS management; and
– Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over finan-
cial reporting may not prevent or detect misstatements. Also, pro-
jections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
UBS management assessed the effectiveness of UBS’s internal
control over financial reporting as of 31 December 2010 based
on the criteria set forth by the Committee of Sponsoring Orga-
nizations of the Treadway Commission (COSO) in Internal Con-
trol-Integrated Framework. Based on this assessment, manage-
ment believes that, as of 31 December 2010, UBS’s internal
control over financial reporting was effective.
The effectiveness of UBS’s internal control over financial re-
porting as of 31 December 2010 has been audited by Ernst &
Young Ltd, UBS’s independent registered public accounting
firm, as stated in their report appearing on pages 260 to 261,
which expressed an unqualified opinion on the effectiveness of
UBS’s internal control over financial reporting as of 31 December
2010.
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Financial information
Consolidated financial statements
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Financial information
Consolidated financial statements
262
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Financial information
Consolidated financial statements
264
Income statement
CHF million, except per share data
Note
31.12.10
31.12.09
31.12.08
31.12.09
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 / (benefit)
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 non-controlling 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
(20)
26
(4)
96
33
(3)
103
42
2
5
(12)
(100)
(42)
(2)
14
(50)
(50)
(90)
3
3
3
4
3
5
6
7
15
16
16
22
37
22
8
8
18,872
(12,657)
6,215
(66)
6,149
17,160
7,471
1,214
31,994
16,920
6,585
918
0
117
24,539
7,455
(381)
7,836
2
0
2
7,838
304
303
1
7,534
7,533
1
1.99
1.99
0.00
1.96
1.96
0.00
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
(2,125)
(20,724)
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
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265
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 realized (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 non-controlling interests
Total comprehensive income attributable to UBS shareholders
For the year ended
31.12.10
7,838
31.12.09
(2,125)
31.12.08
(20,724)
(2,044)
237
121
(1,686) 1
(499)
72
(357)
153
13
(618) 1
927
(1,108)
38
(143)
(2,447)
5,391
(484)
5,875
(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 Other comprehensive income attributable to UBS shareholders related to foreign currency translations is negative CHF 909 million and related to financial investments available-for-sale is negative CHF 607 million.
266
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
Cash collateral receivables on derivative instruments
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
Cash collateral payables on derivative instruments
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
Cumulative net income recognized directly in equity, net of tax
Retained earnings
Equity classified as obligation to purchase own shares
Treasury shares
Equity attributable to UBS shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
Note
31.12.10
31.12.09
31.12.08
31.12.09
% change from
9
10
10
11
11
23
10
12
9
13
14
15
16
22
17
18
10
10
11
23
10
19
18
19
20, 21, 22
26,939
17,133
62,454
142,790
167,463
61,352
401,146
38,071
8,504
262,877
74,768
5,466
790
5,467
9,822
9,522
22,681
1,317,247
41,490
6,651
74,796
54,975
393,762
58,924
100,756
332,301
7,738
130,271
63,719
20,899
16,804
63,507
116,689
188,037
44,221
421,694
53,774
10,223
266,477
81,757
5,816
870
6,212
11,008
8,868
23,682
32,744
17,694
122,897
224,648
271,838
40,216
854,100
85,703
12,882
291,456
5,248
6,141
892
6,706
12,935
8,880
19,837
1,340,538
2,014,815
31,922
7,995
64,175
47,469
409,943
66,097
112,653
339,263
8,689
131,352
72,344
76,822
14,063
102,561
62,431
851,864
92,937
101,546
362,639
10,196
197,254
101,969
1,265,384
1,291,905
1,974,282
383
34,393
(6,534)
19,285
(54)
(654)
46,820
5,043
51,863
356
34,824
(4,875)
11,751
(2)
(1,040)
41,013
7,620
48,633
293
25,288
(4,335)
14,487
(46)
(3,156)
32,531
8,002
40,533
1,317,247
1,340,538
2,014,815
29
2
(2)
22
(11)
39
(5)
(29)
(17)
(1)
(9)
(6)
(9)
(12)
(11)
7
(4)
(2)
30
(17)
17
16
(4)
(11)
(11)
(2)
(11)
(1)
(12)
(2)
8
(1)
(34)
64
37
14
(34)
7
(2)
267
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Financial information
Consolidated financial statements
Statement of changes in equity
CHF million
Balance at 1 January 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
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
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 2010
1 Includes dividend payment obligations for preferred securities.
268
Retained earnings
35,795
Foreign currency
Financial investments
translation
(2,600)
available-for-sale
1,471
Cash flow
hedges
(32)
Total equity
attributable to
UBS shareholders
Non-controlling
interests
6,951
Total equity
43,826
Share capital
Share premium
Treasury shares
Equity classified
as obligation to
purchase own shares
207
86
293
63
12,471
(10,363)
(74)
(367)
7,574
(4,626)
20,003
(1,961)
(176)
(423)
28
(16)
25,288
(3,156)
(46)
(21,292)
14,487
(3,709)
(6,309)
(1,124)
347
1,659
1,627
(476)
2,592
(1,040)
(1,574)
1,960
(1,268)
10,599
291
1
(87)
356
27
34,824
(43)
(27)
(104)
(8)
(113)
(136)
44
(2)
(52)
(2,736)
11,751
(136)
(6,445)
17
364
(421)
1,206
383
34,393
(654)
(54)
7,534
19,285
(909)
(7,354)
(607)
(243)
(143)
1,063
5,875
46,820
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
(3,276)
41,013
27
(1,574)
1,960
(43)
(27)
(104)
(8)
(113)
(52)
(136)
0
0
0
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
27
(1,574)
1,960
(43)
(27)
(104)
(8)
(113)
(305)
(52)
(1,529)
(130)
(264)
5,391
51,863
(361)
1,618
12
(141)
(77)
8,002
(849)
(7)
3
(13)
484
7,620
(305)
(1,529)
6
(264)
(484)
5,043
Statement of changes in equity
CHF million
Balance at 1 January 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
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
Total comprehensive income for the year recognized in equity
Preferred securities
New consolidations and other increases
Deconsolidations and other decreases
Balance at 31 December 2009
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 2010
1 Includes dividend payment obligations for preferred securities.
207
86
293
63
(367)
7,574
(476)
2,592
(1,040)
(1,574)
1,960
(4,626)
20,003
(1,961)
(176)
(423)
(1,268)
10,599
291
1
(87)
(43)
(27)
(104)
(8)
(113)
(136)
28
44
(2)
(52)
Share capital
Share premium
Treasury shares
purchase own shares
12,471
(10,363)
(74)
Equity classified
as obligation to
Retained earnings
35,795
Foreign currency
translation
Financial investments
available-for-sale
(2,600)
1,471
Cash flow
hedges
(32)
(16)
25,288
(3,156)
(46)
(21,292)
14,487
(3,709)
(6,309)
(1,124)
347
1,659
1,627
356
27
34,824
(2,736)
11,751
(136)
(6,445)
17
364
(421)
1,206
Total equity
attributable to
UBS shareholders
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
(3,276)
41,013
27
(1,574)
1,960
(43)
(27)
(104)
(8)
(113)
0
(52)
0
(136)
0
383
34,393
(654)
(54)
7,534
19,285
(909)
(7,354)
(607)
(243)
(143)
1,063
5,875
46,820
Non-controlling
interests
6,951
Total equity
43,826
(361)
1,618
12
(141)
(77)
8,002
(849)
(7)
3
(13)
484
7,620
(305)
(1,529)
6
(264)
(484)
5,043
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
27
(1,574)
1,960
(43)
(27)
(104)
(8)
(113)
(305)
(52)
(1,529)
(130)
(264)
5,391
51,863
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269
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
For the year ended
31.12.10
7,254
31.12.09
7,381
(1,529)
(818)
4,907
(7)
(120)
7,254
31.12.08
6,381
1,618
(618)
7,381
1 Represents equity attributable to non-controlling interests. Increases and offsetting decreases of equity attributable to non-controlling interests due to dividends are excluded from this table.
Number of shares
Shares issued
Balance at the beginning of the year
Issuance of shares
Balance at the end of the year
Treasury shares
Balance at the beginning of the year
Acquisitions
Disposals
Balance at the end of the year
For the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
3,558,112,753
2,932,580,549
2,073,547,344
272,727,760
625,532,204
859,033,205
3,830,840,513
3,558,112,753
2,932,580,549
37,553,872
105,824,816
61,903,121
33,566,097
158,105,524
13,398,118
(104,486,657)
(57,915,346)
(109,600,521)
38,892,031
37,553,872
61,903,121
21
(56)
8
(39)
215
(80)
4
Shares issued
Conditional share capital
On 5 March 2010, the mandatory convertible notes (MCNs) with
a notional value of CHF 13 billion issued in March 2008 to the
Government of Singapore Investment Corporation Pte. Ltd. and
an investor from the Middle East were converted into UBS shares.
The notes were converted at a price of CHF 47.68 per share. As a
result, UBS issued 272,651,005 new shares with a nominal value
of CHF 0.10 each from existing conditional capital. The MCNs
were treated as equity instruments and recognized in Share pre
mium. The conversion of the MCNs resulted in a reclassification of
CHF 27 million from Share premium to Share capital.
On 31 December 2010, 149,920,712 shares were available for
issue to fund UBS’s employee share option programs. In addition,
conditional capital of up to 100,000,000 shares was available in
connection with the Swiss National Bank (SNB) transaction. Fur-
thermore, on 14 April 2010 the Annual General Meeting of UBS
AG approved the creation of conditional capital up to a maximum
amount of 380,000,000 shares for conversion rights / warrants
granted in connection with the issuance of bonds or similar finan-
cial instruments. These positions are shown as conditional share
capital in the UBS AG (Parent Bank) disclosure.
270
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
Net cash collateral on derivative instruments
Accrued expenses, deferred income and other liabilities
Income taxes paid, net of refunds
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 non-controlling interests 1
Dividends paid to / decrease in non-controlling 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 3
Total
31.12.10
For the year ended
31.12.09
31.12.08
7,838
(2,125)
(20,724)
918
117
66
(81)
(605)
(531)
1,125
9,022
(25,048)
21,212
(3,429)
608
9,277
(988)
(7,039)
(498)
11,963
(75)
307
(541)
242
(25,631)
(25,698)
4,459
(1,456)
(113)
78,418
(77,497)
6
(2,053)
1,764
(12,181)
(24,151)
164,973
140,822
26,939
77,998
35,885
140,822
1,048
1,323
1,832
(37)
(960)
425
8,355
(41,766)
162,822
11,118
(316)
(4,208)
(41,351)
(11,916)
(29,242)
(505)
54,497
(42)
296
(854)
163
(20,127)
(20,563)
(60,040)
673
3,726
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)
(41,589)
236,497
350,099
(156,486)
31,871
(220,935)
6,316
(56,232)
(887)
77,007
(1,502)
1,686
(1,217)
69
(712)
(1,676)
(40,637)
623
23,135
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 Includes issuance of preferred securities of CHF 1,617 million for the year ended 31 December 2008. 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 39,768 million, CHF 57,116 million and CHF 19,912 million were pledged at 31 December 2010, 31 December 2009 and 31 December 2008,
respectively. 3 Includes positions recognized in the balance sheet under Due from banks and Cash collateral receivables on derivative instruments.
271
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For the year ended
31.12.10
31.12.09
31.12.08
17,344
12,606
1,395
23,844
19,597
1,090
68,232
62,284
2,779
For the year ended
31.12.09
31.12.08
14
31
731
1,393
33
22
5
405
114
2
173
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
There were no significant items in 2010.
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
272
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 the 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, underwrit-
ing, financing, market making, asset management and broker-
age on a global level and retail banking in Switzerland. The Group
was formed on 29 June 1998 when Swiss Bank Corporation and
Union Bank of Switzerland merged. The merger was accounted
for using the uniting of interests method of accounting.
The consolidated financial statements of UBS (the “Financial
Statements”) are prepared in accordance with International Finan-
cial Reporting Standards (IFRS), as issued by the International Ac-
counting Standards Board (IASB), and are stated in Swiss francs
(CHF), the currency of Switzerland where UBS AG is incorporated.
On 3 March 2011, the Board of Directors approved them for issue.
Disclosures under IFRS 7 Financial Instruments: Disclosures about
the nature and extent of risks and capital disclosures under IAS 1
Presentation of Financial Statements have been included in the au-
dited parts of the “Risk and treasury management” section. Several
IFRS 7 credit risk-related disclosures are provided in Note 29c.
2) Use of estimates in the preparation of the Financial Statements
In preparing the financial statements in conformity with IFRS, man-
agement is required to make estimates and assumptions that affect
reported income, expenses, assets, liabilities and disclosure of con-
tingent assets and liabilities. Use of available information and ap-
plication 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 company
(UBS AG) and its subsidiaries, including controlled special purpose
entities (SPEs), presented as a single economic entity. UBS controls
an entity if it has the power to govern the financial and operating
policies. This is generally accompanied by a shareholding of more
than one-half of the voting rights. Subsidiaries, including SPEs
that are directly or indirectly controlled by the Group, are consoli-
dated from the date on which control is transferred to the Group.
Subsidiaries to be divested are consolidated up to the date of dis-
posal (i.e. loss of control).
Equity attributable to non-controlling interests (formerly mi-
nority interests) is presented on the consolidated balance sheet
within equity, and is separate from equity attributable to UBS
shareholders. Net profit attributable to non-controlling interests is
shown separately in the income statement.
The Group sponsors the formation of entities, which may or
may not be directly or indirectly owned subsidiaries, in order to
accomplish certain narrow and well defined objectives. Such
trusts and other SPEs are consolidated in the Group’s Financial
Statements when the substance of the relationship between the
Group and the company indicates that the company is controlled
by the Group. The following circumstances may indicate a rela-
tionship in which, in substance, UBS controls and consequently
consolidates 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;
– UBS has the decision-making powers to obtain the majority 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 associated with the
activities of the SPE; or
– UBS retains the majority of the residual or ownership risks re-
lated to the SPE or its assets in order to obtain benefits from its
activities.
SPEs that are used to allow clients to hold investments are
structures that allow one or more clients to invest in specific risk
and reward profiles or assets. Typically, UBS will receive service
and commission fees for the creation of the SPE, or because UBS
acts as investment manager, custodian or in some other function.
Some of these SPEs are single-investor or family trusts while oth-
ers allow a large number of investors to invest in a diversified
asset base through a single share, note or certificate. The majority
of UBS’s SPEs are created for client investment purposes and are
not consolidated. However, UBS consolidates SPEs in certain cas-
es, in which UBS absorbs the majority of the risks and rewards or
has unilateral liquidation rights.
SPEs used for securitization are created when UBS has assets
(for example, a portfolio of loans) which it sells to an SPE, and the
SPE in turn sells interests in the assets as securities to investors.
Consolidation of these SPEs depends mainly on whether UBS re-
tains the majority of the risks and rewards of the assets in the SPE.
273
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Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
UBS does not consolidate SPEs for securitization if it has no con-
trol over the assets and if it no longer retains any significant expo-
sure (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 known as a bankruptcy-remote entity: if UBS were
to go bankrupt, the holders of the securities would clearly be
owners of the asset, while if the SPE were to go bankrupt, the
securities holders would have no recourse against UBS.
SPEs used for credit protection are set up to allow UBS to sell
and purchase 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) to which it sells. The SPE in
turn has investors who provide it with capital and also participate
in the risks and rewards of the credit events that it insures. UBS
generally consolidates SPEs that are used for credit protection
when, for instance, UBS receives benefits from funding or has
unilateral liquidation rights.
in the fair value of the contingent consideration which is deemed
to be an asset or liability will be recognized either in profit or loss.
If the contingent consideration is classified as equity, it is not re-
measured until it is finally settled within equity.
Goodwill is recognized as a separate asset. It is initially mea-
sured at cost, being the excess of the aggregate of the consider-
ation transferred and the amount recognized for non-controlling
interests over the net identifiable assets acquired and liabilities
assumed. If the fair value of the net assets of the subsidiary ac-
quired exceeds the aggregate of the amounts specified above, the
difference is recognized in profit or loss on the acquisition date.
The accounting treatment of business combinations complet-
ed prior to 1 January 2010 was different in the following aspects:
– Transaction costs directly attributable to the acquisition formed
part of the acquisition costs.
– The non-controlling interest was measured as a proportion of
the acquiree’s identifiable net assets.
Employee benefit trusts are used in connection with share-
based payment arrangements and deferred compensation
schemes. Such trusts are consolidated when the substance of the
relationship between UBS and the entity indicated that the entity
is controlled by UBS.
– Contingent consideration was recognized if, and only if, UBS
had a present obligation, economic outflow was likely and a
reliable estimate was determinable. Subsequent adjustments
to the contingent consideration were recognized as part of
goodwill.
UBS continuously evaluates whether triggering events require
the reconsideration of consolidation decisions that were made at
inception of its involvement with the SPE. This is especially the
case in relation to securitization vehicles and collateralized debt
obligations (CDOs). Triggering events are usually caused by re-
structuring, the vesting of potential rights and acquisition or the
disposal or expiration of interests. In these circumstances, special
purpose entities may or may not be consolidated or deconsoli-
dated depending on how conditions have changed.
Consolidated financial statements are prepared using uniform
accounting policies for like transactions and other events in simi-
lar circumstances. Intercompany transactions, balances and unre-
alized gains or losses on transactions between the Group compa-
nies are eliminated.
Business combinations completed after 1 January 2010 are ac-
counted for using the acquisition method. As of the acquisition
date UBS recognizes the identifiable assets acquired and the liabil-
ities assumed at their acquisition-date fair values. For each busi-
ness combination, UBS measures the non-controlling interests in
the acquiree that are present ownership interests and provide en-
titlement to a proportionate share of the net assets in the event of
liquidation either at fair value or at the proportionate share of the
acquiree’s identifiable net assets. All other components of the non-
controlling interests are measured at their acquisition-date fair val-
ues. The cost of an acquisition is the aggregate of the assets trans-
ferred, the liabilities incurred to former owners of the acquiree and
the equity instruments issued, measured at acquisition-date fair
values. Acquisition-related costs are expensed as incurred.
Any contingent consideration to be transferred by UBS is rec-
ognized at fair value at the acquisition date. Subsequent changes
274
Assets and liabilities of subsidiaries are classified as “held
for sale” if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use
– see items 19) and 28). Major lines of business and subsidiar-
ies that were acquired exclusively for the purpose of resale are
presented as discontinued operations. This information is pre-
sented in the statement of comprehensive income for the pe-
riod when the sale occurred. It may also be presented when it
becomes highly probable that a sale will occur within 12 months
– see item 28).
4) Associates and jointly controlled entities
Investments in associates in which UBS has a significant influence
are accounted for under the equity method of accounting. Sig-
nificant influence is normally evidenced when UBS owns between
20% and 50% of a company’s voting rights. Investments in as-
sociates are initially recorded at cost, and the carrying amount is
increased or decreased to recognize the Group’s share of the in-
vestee’s net profit or loss (including 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 under the
equity method. A jointly controlled entity is subject to a contrac-
tual agreement between UBS and one or more third parties,
which establishes joint control over its economic activities. Inter-
ests in such entities are reflected under Investments in associates
on the balance sheet, and the related disclosures are included in
the disclosures for associates. UBS holds certain interests in jointly
controlled real estate entities.
Note 1 Summary of significant accounting policies (continued)
Investments in associates and interests in jointly controlled en-
tities are classified as “held for sale” if their carrying amount will
be recovered principally through a sale transaction rather than
through continuing use – see items 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 provisions of the
instrument.
UBS acts as trustee and in other fiduciary capacities that result
in the holding or placing of assets on behalf of individuals, trusts,
retirement benefit plans and other institutions. These assets and
the related income are excluded from UBS’s financial statements,
as they are not assets of UBS, unless the recognition criteria for
the assets are satisfied.
Financial assets
UBS enters into transactions where it transfers financial assets
recognized on its balance sheet but retains either all risks and
rewards of the transferred financial assets or a portion of them. If
all or substantially all risks and rewards are retained, the trans-
ferred financial assets are not derecognized from the balance
sheet. Transfers of financial assets with retention of all or sub-
stantially all risks and rewards include securities lending and re-
purchase transactions described under items 13) and 14). They
also include transactions where financial assets are sold to a
third party with a concurrent total return swap on the transferred
assets to retain all their risks and rewards. These types of trans-
actions are accounted for as secured financing transactions.
In transactions where substantially all of the risks and rewards
of ownership of a financial asset are neither retained nor trans-
ferred, UBS derecognizes the financial asset if control over the
asset is lost. The rights and obligations retained in the transfer are
recognized separately as assets and liabilities as appro priate. In
transfers where control over the financial asset is retained, the
Group continues to recognize the asset to the extent of its con-
tinuing involvement, determined by the extent to which it is ex-
posed 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, cancelled or expires. When an existing financial liabil-
ity is exchanged for a new one from the same lender on substan-
tially different terms, or the terms of an existing liability are sub-
stantially modified, such an exchange or modification is treated as
a derecognition of the original liability and recognition of a new
liability. The difference in the respective carrying amounts is rec-
ognized in profit or loss.
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 liability settled be-
tween knowledgeable, willing parties in an arm’s length trans-
action. Details of the determination of fair value of financial in-
struments, fair value hierarchy, valuation techniques and inputs
by products, day 1 profit or loss and other related fair value dis-
closures are disclosed in Note 27.
7) Trading portfolio assets and liabilities
An acquired non-derivative financial asset or liability is classified at
acquisition as held for trading and presented in the trading port-
folio 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 trading portfolio includes non-derivative financial instru-
ments (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 item 15)). UBS’s trading
portfolio assets and liabilities (refer to Note 11) include proprietary
positions, hedge positions and client business-related positions
(provided the recognition criteria mentioned in item 5) are satisfied.
Trading portfolio assets consist of debt instruments (including
those in the form of securities, money market paper, traded cor-
porate 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 obliga-
tions 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 trading portfolio is carried at fair value. Gains and losses real-
ized 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 income. Interest and dividend income and
expense on trading portfolio assets or liabilities are included in Inter
est and dividend income or Interest and dividend expense.
The Group uses settlement date accounting when recording
trading financial asset transactions. From the date the purchase
transaction is entered into (trade date), UBS recognizes any unre-
alized profits and losses arising from revaluing that contract to fair
value in Net trading income. The corresponding receivable or pay-
able is presented on the balance sheet as a Positive or Negative
replacement value. When the transaction is consummated (settle-
ment date), a resulting financial asset is recognized on the bal-
ance 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
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Note 1 Summary of significant accounting policies (continued)
a financial asset classified in its trading portfolio, unrealized prof-
its and losses are no longer recognized from the date the sales
transaction is entered into (trade date) and it derecognizes the
asset on the day of its transfer (settlement date).
Trading portfolio assets transferred to external parties that do
not qualify for derecognition (see item 5)) are reclassified on UBS‘s
balance sheet from Trading portfolio assets to Trading portfolio
assets pledged as collateral, if the transferee has received the right
to sell or repledge them.
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 cannot
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 man-
aged on a fair value basis and reported to senior management
on that basis, or
c) the application of the fair value option reduces or eliminates an
accounting mismatch that would otherwise arise.
UBS has designated most of its issued hybrid debt instruments
as Financial liabilities designated at fair value through profit or
loss. These instruments are based predominantly on the following
categories of underlyings:
– Credit-linked: bonds, notes linked to the performance (coupon
and / or redemption amount) of single names (such as a com-
pany 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 accounting mismatch, as
loans would have been otherwise accounted for at amortized
cost or as financial investments available-for-sale (refer to item 9),
whereas the hedging credit protection is accounted for as a de-
rivative instrument at fair value through profit or loss.
UBS has also applied the fair value option to a hedge fund in-
vestment and a structured reverse repurchase agreement which
are part of portfolios managed on a fair value basis. Fair value
changes related to financial instruments designated at fair value
through profit or loss are recognized in Net trading income.
Interest income and interest expense on financial assets and lia-
bilities designated at fair value through profit or loss are included in
Interest income on financial assets designated at fair value or Inter
est on financial liabilities designated at fair value. Refer to Note 3.
UBS applies the same recognition and derecognition principles
to financial instruments designated at fair value as to financial
instruments held for trading (refer to items 5) and 7)).
9) Financial investments available-for-sale
Financial investments availableforsale are non-derivative finan-
cial assets that are not classified as held for trading, designated at
fair value through profit or loss, or loans and receivables. They are
recognized on a settlement date basis.
Financial investments available-for-sale include highly liquid debt
securities, strategic equity investments, certain 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.
In addition, certain equity instruments, including private equity in-
vestments as well as debt instruments and non-performing loans
acquired in the secondary market are classified as financial invest-
ments available-for-sale. Highly liquid debt securities are mainly is-
sued by government and government-controlled institutions.
Financial investments available-for-sale are initially recognized
at fair value including direct transaction costs and are subsequent-
ly 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 disposed of, or until any such in-
vestment is determined to be impaired. Unrealized gains or losses
before tax are presented separately in Note 13. However, foreign
exchange translation gains or losses associated with monetary in-
struments such as debt securities are recognized in Net trading
income, whereas foreign exchange translation gains or losses as-
sociated with non-monetary instruments such as equity securities
are part of the overall fair value change of the assets and recog-
nized directly in Equity. On disposal of an investment, the accu-
mulated 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 average cost method
and are included in the income statement.
Interest and dividend income on financial investments avail-
able-for-sale are included in Interest and dividend income 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 in-
vestments available-for-sale, a significant or prolonged decline in
fair value below the original cost is considered to be objective
evidence of impairment. For debt investments available-for-sale,
objective evidence of impairment includes, for example, a signifi-
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Note 1 Summary of significant accounting policies (continued)
cant financial difficulty of the issuer or counterparty, default or
delinquency in interest or principal payments or probability that
the borrower will enter bankruptcy or financial re-organization. If
a financial investment available-for-sale is determined to be im-
paired, the related cumu lative net unrealized loss previously rec-
ognized in Equity is included in Net profit for the period and re-
ported as a deduction from Other income. Any further loss is
directly recognized in the income statement.
After the recognition of impairment on a financial investment
available-for-sale, increases in fair value of equity instruments are
reported in Equity and increases in fair value of debt instruments
up to original cost are recognized in Other income, provided that
the fair value increase is related to an event occurring after the
impairment loss was recorded.
UBS applies the same recognition and derecognition principles
to financial assets available-for-sale as to those “Held-for-trading”,
except that unrealized gains or losses between trade date and
settlement date are recognized in Equity (refer to items 5) and 7)).
10) Loans and receivables
“Loans and receivables” are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market, not classified as held-for-trading, not designated as at fair
value through profit and loss 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 deterioration.
“Loans and receivables” include:
– originated loans where money is provided directly to the bor-
rower, participation in a loan from another lender and pur-
chased loans (certain purchased non-performing loans are also
classified as financial investment available-for-sale at inception)
initially classified as “Loans and receivables”;
– securities initially classified as “Loans and receivables” and re-
classified securities previously “Held-for-trading” (refer to Note
29b) due to illiquid markets such as Auction Rate Securities;
– reclassified loans such as leverage finance loans previously
“Held-for-trading” (refer to Note 29b).
For an overview of financial assets and financial liabilities ac-
counted for as “Loans and receivables”, refer to the measure-
ment categories presented in Note 29.
In the fourth quarter of 2008 and the first quarter of 2009,
UBS reclassified certain debt financial assets from the category
“Held-for-trading” to “Loans and receivables”, mainly due to il-
liquid 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 receivables”, the financial asset
is reclassified at its fair value on the date of reclassification. Any
gain or loss recognized in the income statement before reclassi-
fication is not reversed. The fair value of a financial asset on the
date of reclassification becomes its cost basis or amortized cost
basis, as applicable.
Loans are recognized when cash is advanced to borrowers.
They are initially recorded at fair value, which is the cash given to
originate or purchase the loan, plus any direct transaction costs,
and are subsequently measured at amortized cost using the effec-
tive interest rate (EIR) method.
Interest on loans is included in Interest earned on loans and ad
vances 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 approximates the EIR 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 pe-
riod. 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 either
restructure a loan or take possession of collateral. Restructuring
may involve extending the payment arrangements and agreeing
to new loan conditions. Once the terms have been renegotiated,
any impairment is measured using the EIR as calculated before the
modification 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 impairment assess-
ment, calculated using the loan’s original EIR. If a loan has a vari-
able interest rate, the discount rate for measuring any impairment
loss is the current EIR.
Commitments
Letters of credit, guarantees and similar instruments commit UBS
to make payments on behalf of third parties under specific cir-
cumstances. These instruments, as well as undrawn irrevocable
credit facilities, and irrevocable forward starting reverse repur-
chase agreements and securities borrowing transactions, 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
provisions.
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 according to
the original contractual terms or the equivalent value. A “claim”
means a loan or receivable carried at amortized cost, or a commit-
ment such as a letter of credit, a guarantee, a commitment to
extend credit or other credit products.
Objective evidence of impairment includes, for example, a sig-
nificant financial difficulty of the issuer or counterparty; default or
delinquency in interest or principal payments; or probability that
the borrower will enter bankruptcy or financial re-organization.
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Note 1 Summary of significant accounting policies (continued)
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 allowances and provi-
sions 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 bor-
rower’s character, overall financial condition, resources and pay-
ment record; the prospects for support from any financially re-
sponsible guarantors; and, where applicable, the realizable value
of any collateral.
The estimated recoverable amount is the present value, using
the loan’s original EIR, of expected future cash flows, including
amounts that may result from restructuring or the liquidation of
collateral. Impairment is measured and allowances for credit loss-
es are established for the difference between the carrying amount
and the estimated 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 tim-
ing 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 expense.
An allowance for impairment is reversed only when the credit
quality has improved to such an extent that there is reasonable as-
surance of timely collection of principal and interest 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 un-
collectible or forgiven. Write-offs are charged against previously
established allowances for credit losses or directly to Credit loss
expense and reduce the principal amount of a claim. Recoveries in
part or in full of amounts previously written off are credited to
Credit loss expense. A restructuring of a financial asset could re-
sult in the original loan being derecognized and a new loan being
recognized. The new loan is measured at fair value at initial recog-
nition. Any allowance taken against the original loan is removed
by increasing write-offs. The gross counterparty exposure, how-
ever, may remain unaffected, if the rights existing prior to the re-
structuring 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 pay-
ments or the liquidation of collateral, insolvency proceedings have
commenced against the firm, or obligations have been restruc-
tured on concessionary terms.
Collectively: All loans for which no impairment is identified at a
counterparty-specific level are grouped on the basis of the Bank’s
internal credit grading system that considers credit risk characteris-
tics such as asset type, industry, geographical location, collateral
type, past-due status and other relevant factors to collectively assess
whether impairment exists within a portfolio. Future cash flows for
a group of financial assets that are collectively evaluated for impair-
ment are estimated on the basis of historical loss experience for as-
sets with credit risk characteristics similar to those in the group.
Historical loss experience is adjusted on the basis of current observ-
able data to reflect the effects of current conditions on which the
historical loss experience is based and to remove the effects of con-
ditions in the historical period that do not exist currently. Estimates
of changes in future cash flows reflect, and are directionally consis-
tent with, changes in related observable data from year to year. The
methodology and assumptions used for estimating future cash
flows are reviewed regularly to reduce any differences between loss
estimated and actual loss experience. Allowances from collective as-
sessment of impairment are recognized as Credit loss expense and
result in an offset to the aggregated loan position. As the allowance
cannot be allocated to individual loans, the loans are not considered
to be impaired and interest is accrued on each loan according to its
contractual terms. At 31 December 2010, the collective loan loss
allowances represented 3.7% of the total allowances and provisions
for credit losses (refer to Note 9b).
Reclassified and acquired securities: UBS periodically revises its
estimated cash flows associated with the portfolio of securities
backed by multiple assets. Adverse revisions in cash flow esti-
mates related to credit events are recognized in profit or loss as
credit loss expenses. For reclassified securities, increases in esti-
mated future cash receipts as a result of increased recoverability
are recognized as an adjustment to the EIR on the loan from the
date of change.
12) Securitization structures set up by UBS
UBS securitizes various financial assets, which generally results
in the sale of these assets to special purpose entities, which in
turn issue securities to investors. UBS applies the policies set
out in item 3) in determining whether the respective special
purpose entity must be consolidated and those set out in item
5) in determining whether derecognition of transferred fin-
ancial assets is appropriate. The following statements mainly
apply to transfers of financial assets, which are qualified for
derecognition.
Gains or losses on securitization are generally recognized when
the derecognition criteria are satisfied and are classified in Net
trading income.
Interests in the securitized financial assets may be retained in
the form of senior or subordinated tranches, interest-only strips or
other residual interests (“retained interests”). Retained interests
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Note 1 Summary of significant accounting policies (continued)
are primarily recorded in Trading portfolio assets and carried at
fair value. Synthetic securitization structures typically involve de-
rivative financial instruments for which the principles set out in
item 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 customers during the period prior
to securitization. UBS typically sells 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.
Consistent with the valuation of similar inventory, fair value of re-
tained tranches is initially and subsequently determined using mar-
ket price quotations where available or internal pricing models that
utilize variables such as yield curves, prepayment speeds, default
rates, loss severity, interest rate volatilities and spreads. Where pos-
sible, assumptions based on observable transactions are used to de-
termine 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 ge-
nerally entered into on a collateralized basis. In such transactions,
UBS typically lends or borrows securities in exchange for securities
or cash collateral. Additionally, UBS borrows securities from its
clients’ custody accounts in exchange for a fee. The majority of
securities lending and borrowing agreements involve shares, and
the remainder typically involve bonds and notes. The transactions
are normally conducted under standard agreements employed by
financial market participants and are undertaken with counterpar-
ties subject to UBS’s normal credit risk control processes. UBS
monitors the market value of the securities received or delivered
on a daily basis and requests or provides additional collateral or
returns or recalls surplus collateral in accordance with the under-
lying agreements.
The securities which have been transferred, whether in a bor-
rowing / lending transaction or as collateral, are not recognized on
or derecognized from the balance sheet unless the risks and re-
wards 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 re-
classified on the balance sheet from Trading portfolio assets to
Trading portfolio assets pledged as collateral. Cash collateral re-
ceived 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 receive it back (Cash collateral on securities borrowed).
Securities 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 re-
pledged also disclosed separately (see Note 24). Additionally, the
sale of securities received in a borrowing or lending transaction
triggers the recognition of a trading liability (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 repur
chase agreements) and securities sold under agreements to repur-
chase (Repurchase agreements) are treated as collateralized fi-
nancing transactions. Nearly all repurchase and reverse repurchase
agreements involve debt instruments, such as bonds, notes or
money market paper. The transactions are normally conducted
under standard agreements employed by financial market partici-
pants and are undertaken with counterparties subject to UBS’s
normal credit risk control processes. UBS monitors the market
value of the securities received or delivered on a daily basis and
requests or provides additional collateral or returns or recalls sur-
plus collateral in accordance with the underlying agreements.
In a reverse repurchase agreement, the cash delivered is derec-
ognized and a corresponding receivable, including accrued inter-
est, is recorded in the balance sheet line Reverse repurchase
agreements, recognizing UBS’s right to receive the cash back. In a
repurchase agreement, the cash received is recognized and a cor-
responding obligation, including accrued interest, is recorded in
the balance sheet line Repurchase agreements. Securities received
under reverse repurchase agreements and securities delivered un-
der repurchase agreements are not recognized on or derecog-
nized from the balance sheet, unless the risks and rewards of
ownership are obtained or relinquished. In repurchase agree-
ments where UBS transfers owned securities and where the re-
cipient is granted the right to resell or repledge them, the securi-
ties are reclassified in the balance sheet from Trading portfolio
assets to Trading portfolio assets pledged as collateral. Securities
received in a reverse repurchase agreement are disclosed 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 reverse repurchase transactions triggers the
recognition of a trading liability (short sale).
Interest earned on reverse repurchase agreements and interest
incurred on repurchase agreements is recognized as interest in-
come or interest expense over the life of each agreement.
The Group offsets reverse repurchase agreements and repur-
chase agreements with the same counterparty, maturity, currency
and Central Securities Depository (CSD) for transactions covered
by legally enforceable master netting agreements when net or si-
multaneous 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 remea-
sured to fair value. The method of recognizing fair value gains or
losses depends on whether derivatives are held for trading or are
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Note 1 Summary of significant accounting policies (continued)
designated and effective as hedging instruments. If designated as
hedging instruments, the method of recognizing gains or losses
depends on the nature of the risk being hedged.
Derivative instruments are reported on the balance sheet as
Positive replacement values or Negative replacement values (ex-
cept 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 loss-
es are recognized in Net trading income. Credit losses incurred on
over-the-counter (OTC) derivatives are also reported in Net trad
ing income.
Futures and LCH interest rate swaps with daily margining and
100% daily-margined exchange-traded options, and certain credit
derivatives contracts are transacted and measured at fair value.
They do not have a replacement value as the variation margin, ex-
pressing the cumulative market movements each day, is settled
daily on a cash basis. Any unpaid variation margin represents a re-
ceivable 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 Due to 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 asset and
liability management activities to manage exposures to interest
rate, foreign currency and credit risks, including exposures arising
from forecast transactions. If derivative and non-derivative instru-
ments meet certain criteria specified below, they are designated
as hedging instruments in hedges of the change in fair value of
recognized assets or liabilities (‘fair value hedges’); hedges of the
variability in future cash flows attributable to a recognized asset
or liability, or a highly probable forecast transaction (‘cash flow
hedges’); or hedges of a net investment in a foreign operation
(‘net investment hedges’).
At the time a financial instrument is designated as a hedge, the
Group formally documents the relationship between the hedging
instrument(s) and hedged item(s), including the risk management
objectives and strategy in undertaking the hedge transaction and
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 instruments, primarily derivatives, have been “highly ef-
fective” in offsetting changes in the fair value or cash flows of the
hedged items. UBS regards a hedge as highly effective if the fol-
lowing criteria are met: a) at inception of the hedge and through-
out its life, the hedge is expected to be highly effective in achiev-
ing 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 transac-
tion, 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 hedg-
ing instrument is not, or has ceased to be, highly effective as a
hedge; when the derivative expires or is sold, terminated or exer-
cised; 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 instrument differ from
changes in the fair value of the hedged item attributable to the
hedged risk or the amount by which changes in the present value
of future cash flows of the hedging instrument differ from
changes (or expected changes) in the present value of future cash
flows of the hedged item. Such ineffectiveness is recorded in cur-
rent period earnings in Net trading income.
Fair value hedges
For qualifying fair value hedges, the change in the fair value of the
hedging instrument is recognized in the income statement along
with the change in the fair value of the hedged item that is at-
tributable to the hedged risk. In fair value hedges of interest rate
risk, the fair value change of the hedged item attributable to the
hedged risk is reflected in the carrying value of the hedged item.
For a portfolio hedge of interest rate risk, the equivalent change
in fair value is reflected in a separate line within Other assets. 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 amortized to the in-
come statement over the remaining term until maturity. If the in-
terest-bearing instruments are derecognized, e.g. due to sale or
repayment, the unamortized fair value adjustment is recognized
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 ma-
terialize, resulting in income or expense, then the associated gain
or loss on the hedging derivative is simultaneously transferred
from Equity to the corresponding income or expense line item.
If a cash flow hedge for a forecast transaction is deemed to be
no longer effective, or if the hedge relationship is terminated, the
cumulative gain or loss on the hedging derivative previously re-
ported in Equity remains there until the committed or forecast
transaction occurs or is no longer expected to occur, at which
point it is transferred to profit or loss.
Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted
for similarly to cash flow hedges. Gains or losses on the hedging
instrument relating to the effective portion of the hedge are rec-
ognized directly in Equity (and presented in the statement of
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changes in equity and statement of comprehensive income 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.
– Derivative loan commitments (loan commitments that can be
settled net in cash or by delivering or issuing another financial
instrument) or if there is evidence that UBS is selling similar
loans resulting from its loan commitments before or shortly
after origination (refer to item 15)).
– Loan commitments designated at fair value through profit and
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. real-
ized and unrealized gains and losses are recognized in Net trading
income except that, in certain cases, 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 combi-
nations are known as hybrid instruments and arise predominantly
from the issuance of certain structured debt instruments. The em-
bedded derivative is generally required to be separated from the
host contract and accounted for as a standalone derivative instru-
ment at fair value through profit or loss, if (a) the host contract is
not carried at fair value with changes in fair value reported in the
income statement, (b) the economic characteristics and risks of
the embedded derivative are not closely related to the economic
characteristics and risks of the host contract, and (c) the embed-
ded derivative actually meets the definition of a derivative. Bifur-
cated embedded derivatives are presented on the same balance
sheet line as the host contract, and are shown in Note 29 in the
“Held for trading” category, reflecting the measurement and rec-
ognition principles applied.
Typically, UBS applies the fair value option to hybrid instru-
ments (see item 8)), in which case bifurcation of an embedded
derivative component is not required.
loss (“Fair value option”) (refer to item 8)).
– Below market loan commitments. Below market loan commit-
ments are recognized at fair value and subsequently measured at
the higher of the initially recognized liability at fair value less cu-
mulative amortization and a provision (refer to item 26)). UBS uses
them only in specific situations (e.g. restructuring, insolvency).
– Other loan commitments. Other loan commitments are not re-
corded in the balance sheet. However, a provision is recog-
nized if it is probable that a loss has been incurred and a reli-
able estimate of the amount of the obligation can be made
(refer to item 26)). Other loan commitments include irrevoca-
ble forward starting reverse repos and irrevocable securities
borrowing agreements.
17) Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equiv-
alents comprise balances with less than three months’ maturity
from the date of acquisition including cash and balances with
central banks, treasury bills, due from banks with an original
maturity of less than three months included in Due from banks
and Cash collateral receivables on derivative instruments, as well
as money market paper included in Trading portfolio assets and
Financial investments availableforsale.
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 rec-
ognized within the Trading portfolio assets. Changes in fair value
less costs to sell are recorded in Net trading income.
16) Loan commitments
Loan commitments are defined amounts (unutilized credit lines or
undrawn portions of credit lines) against which customers can
borrow money at defined terms and conditions.
19) Property and equipment
Property and equipment includes own-used properties, invest-
ment properties, leasehold improvements, IT, software and com-
munication and other machines and equipment.
Loan commitments that can be cancelled by UBS at any time
(without giving a reason) according to their general terms and
conditions are recognized neither on-balance sheet nor off-bal-
ance sheet. Upon a loan draw down by the counterparty, the
amount of the loan is accounted for as Loans and receivables
(refer to item 10)).
With the exception of investment properties, Property and
equipment is carried at cost, less accumulated depreciation and
accumulated impairment losses, and is periodically reviewed for
impairment. The useful life of property and equipment is estimat-
ed on the basis of the economic utilization of the asset.
Irrevocable loan commitments (where UBS has no right to
withdraw the loan commitment once communicated to the ben-
eficiary or which are revocable only due to automatic cancellation
upon the deterioration in a borrower’s creditworthiness) are clas-
sified into the following categories:
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 purposes, where-
as investment property is defined as property held to earn rental
income and / or for capital appreciation. If a property of the Group
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includes a portion that is own-used and another portion that is
held to earn rental income or for capital appreciation, the classifi-
cation is based on whether or not these portions can be sold sepa-
rately. If the portions of the property can be sold separately, they
are separately accounted for as own-used property and invest-
ment 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.
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 determine the fair
value of investment property by applying recognized valuation
techniques. In cases where prices of recent market transactions of
comparable properties are available, fair value is determined by
reference to these transactions.
Leasehold improvements
Leasehold improvements are investments made to customize
buildings and offices occupied under operating lease con-
tracts 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 liability
is recognized to reflect the obligation incurred. Reinstatement
costs are recognized in profit and loss through depreciation of
the capitalized leasehold improvements over their estimated
useful lives.
Property held for sale
Non-current property formerly own-used or leased to third par-
ties 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 fair value less cost to sell. Foreclosed properties
and other properties classified as current assets are included in
Properties held for sale and recorded in Other assets (see Note
17). They are also carried at the lower of book value or fair value
less cost to sell.
Software
Software development costs are capitalized when they meet cer-
tain criteria relating to identifiability, it is probable that future eco-
nomic benefits will flow to the enterprise and the cost can be
measured reliably. Internally developed software that meets these
criteria and purchased software are classified within IT, software
and communication.
Estimated useful life of property and equipment
Property and equipment is depreciated on a straight-line basis
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 ac-
quired entity at the date of acquisition. Goodwill is not amortized; it
is tested yearly for impairment and, additionally, when a reasonable
indication of impairment exists. The impairment test is conducted at
the segment level as reported in Note 2a. The segment has been de-
termined as the cash-generating unit for impairment testing purpos-
es, since 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 intangible
items arising from business combinations and certain purchased
trademarks and similar items. Intangible assets are recognized
at cost. The cost of an intangible asset acquired in a business com-
bination is its fair value at the date of acquisition. 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. Generally, all identified intangible assets of
UBS have a definite useful life. At each balance sheet date, intan-
gible assets are reviewed for indications of impairment or changes
in estimated future benefits. If such indications exist, the intangi-
ble 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) infra-
structure, and b) customer relationships, contractual rights and
other. Infrastructure consists of an intangible asset recognized in
connection with the acquisition of PaineWebber Group, Inc. Cus-
tomer relationships, contractual rights and other includes mainly
intangible assets for client relationships, non-compete agree-
ments, 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 pe-
riod in which profits arise. The tax effects of income tax losses
available for carry forward are recognized as a deferred tax as-
set if it is probable that future taxable profit (based on profit
forecast assumptions) will be available against which those
losses can be utilized.
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Note 1 Summary of significant accounting policies (continued)
Deferred tax assets are recognized for temporary differences
that will result in deductible amounts in future periods, but only
to the extent that it is probable that sufficient taxable profits will
be available against which these differences can be utilized. De-
ferred tax liabilities are recognized for temporary differences be-
tween the carrying amounts of assets and liabilities in the balance
sheet and their amounts as measured for tax purposes, which will
result in taxable amounts in future periods.
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 deferred)
are offset when they arise from the same tax reporting 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 recognized (i)
upon the acquisition of a subsidiary, (ii) for unrealized 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 currency translations of foreign opera-
tions, (iii) for certain tax benefits on deferred compensation
awards, and (iv) for gains and losses on the sale of treasury shares.
Deferred taxes recognized in a business combination (item (i)) are
considered when determining goodwill. Items (ii), (iii) and (iv) are
recorded in Net income recognized directly in equity.
22) Debt issued
Debt without embedded derivatives
Issued debt instruments without embedded derivatives that are
not designated at fair value through profit or loss are accounted
for at amortized cost. However, in cases where fair value hedge
accounting is applied to fixed-rate debt instruments as part of
the Group’s asset and liability management activity, 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 item 15) for further discussion.
amount of the net proceeds is allocated to the equity component
and reported in Share premium. The equity component is not sub-
sequently re-measured. However, if the entire 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 separated derivative is accounted for as a freestanding
derivative, with changes in fair value recorded in Net trading in
come unless the entire hybrid debt instrument is designated at fair
value through profit or loss (“Fair Value Option”) – refer to item 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 exchange, interest rate,
credit instruments or indices are considered structured debt instru-
ments. UBS has designated most of its structured debt instruments
at fair value through profit or loss (“Fair Value Option”) – see item
8). If such instruments 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 subsequent-
ly measured at amortized cost. The fair value option is not applied
to certain hybrid instruments which contain bifurcatable embedded
derivatives with references to foreign exchange rates and precious
metal prices and which are not hedged by derivative instruments.
Bonds issued by UBS held as a result of market making activi-
ties or deliberate purchases in the market are treated as redemp-
tion 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 Interest on
debt issued. Refer to Note 19 for further details on debt issued.
23) Pension and other post-employment benefit plans
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.
Debt with embedded derivatives (related to UBS AG shares)
Debt instruments issued with embedded derivatives that are relat-
ed to UBS AG shares (e.g. mandatory convertible notes) are sepa-
rated 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. A portion of the net proceeds of the instrument is
allocated to the debt component on the date of issue based on its
fair value. The determination of fair value is generally based on
quoted market prices for UBS debt instruments with comparable
terms but without a conversion feature. 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
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 service and compensation.
The defined benefit liability recognized in the balance sheet is
the present value of the defined obligation at the balance sheet
date less the fair value of the plan assets at the balance sheet
date, together with adjustments for any unrecognized actuarial
gains and losses and unrecognized past service cost. If the defined
benefit liability is negative (i.e. a defined benefit asset), measure-
ment of the asset is limited to the lower of a) the defined benefit
asset and b) the total of any cumulative unrecognized net actu-
arial losses plus unrecognized past service cost plus the present
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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 defined benefit obligation and the related current ser-
vice 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 actuarial
gains and losses at the beginning of the reporting period are out-
side 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.
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 employ-
ees participating in the plans.
UBS recognizes curtailments on its defined benefit plans when
the reductions in expected future service and in the defined ben-
efit 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 material, and reductions of less
than 5% are generally not recognized.
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 con-
structive obligation to pay further contributions if the plan does not
hold sufficient assets to pay employees the benefits relating to em-
ployee service in the current and prior periods. UBS’s contributions
are expensed when the employees have rendered services in ex-
change for such contributions; this is generally in the year of contri-
bution. Prepaid contributions are recognized as an asset to the extent
that a cash refund or a reduction in the future payments is available.
Other post-retirement benefits
UBS also provides post-retirement medical and life insurance benefits
to certain retirees in the US and the UK. The expected costs of these
benefits are recognized over the period of employment using the
same accounting methodology used for the defined benefit plans.
24) Equity participation and other compensation plans
as compensation expense over the period that the employee is
required to provide services in order to earn the award.
Plans containing voluntary termination non-compete provi-
sions (i.e. good leaver clauses) and no vesting conditions are con-
sidered vested at the grant date because no future service is re-
quired. 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 estimat-
ed. 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.
Plans containing vesting conditions have either a tiered vesting
structure, which vest in increments over that period or a cliff vest-
ing structure, which vest at the end of the period. Such plans may
contain provisions that shorten the required service period due
to retirement eligibility. In such instances, UBS recognizes compen-
sation 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.
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 its terms are modified such that the fair
value immediately after modification exceeds the fair value imme-
diately prior to modification. Any increase in fair value resulting
from a modification is recognized as compensation expense, either
over the remaining service period or immediately for vested awards.
Cash settled awards are classified as liabilities and remeasured
to fair value at each balance sheet date as long as the award is
outstanding. Decreases in fair value reduce compensation expense,
and no compensation expense, on a cumulative basis, is recognized
for awards that expire worthless or remain unexercised.
Details of the determination of fair value of equity participation
plans are disclosed in Note 31d).
Other compensation plans
UBS has established other fixed and variable deferred cash com-
pensation plans, the value of which is not linked to UBS’s own
equity. UBS’s deferred cash compensation plans are either manda-
tory or discretionary plans.
The grant date fair value of fixed deferred cash awards is rec-
ognized as compensation expense over the service period, which
is the period the employee is obligated to work in order to be-
come entitled to the award.
Equity participation plans
UBS has established several equity participation plans in the form
of share plans, option plans and share-settled stock appreciation
right (SAR) plans. UBS’s equity participation plans are mandatory,
discretionary, or voluntary plans. UBS recognizes the fair value of
share, option and SAR awards, determined at the date of grant,
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 as-
sets (i.e. money market funds, UBS and non-UBS mutual funds
and other UBS sponsored funds) on the grant date and is subse-
quently marked-to-market at each reporting date until the award
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Note 1 Summary of significant accounting policies (continued)
is distributed. Forfeiture of these awards results in the reversal of
expense. Refer to Note 31 for further details on equity participa-
tion and other compensation plans.
25) Amounts due under unit-linked investment contracts
UBS’s financial liabilities from unit-linked contracts are presented
as Other liabilities (refer to Note 20) on the balance sheet. These
contracts allow investors to invest in a pool of assets through in-
vestment units issued by a UBS subsidiary. The unit holders receive
all rewards and bear all risks associated with the reference asset
pool. The financial liability represents the amount due to unit hold-
ers and is equal to the fair value of the reference asset pool.
Assets held under unit-linked investment contracts are pre-
sented as Trading portfolio assets. Refer to Note 11.
26) Provisions
Provisions are recognized when UBS has a present legal or con-
structive obligation as a result of past events, it is probable that an
outflow of resources will be required to settle the obligation and
the amount can be reliably estimated. When a provision is recog-
nized, 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 reflects the amount that in manage-
ment’s opinion represents the best estimate of the expenditure
required to settle the obligation. UBS revises existing provisions up
or down as soon as it is able to quantify the amounts more accu-
rately. If the effect of the time value of money is material, provi-
sions are discounted and measured at the present value of the
expenditure expected to settle the obligation, using a rate that
reflects the current market assessments of the time value of mon-
ey and the risks specific to the obligation.
The majority of UBS’s provisions relate to operational risks, includ-
ing litigation and restructuring costs. Provisions are reflected un-
der Other liabilities on the balance sheet. Refer to Note 21.
If the amount of an obligation cannot be measured with suf-
ficient reliability, a present obligation is not recognized but dis-
closed as contingent liabilities in Note 21.
27) Equity, treasury shares and contracts on UBS shares
Transaction costs related to share issuances
Incremental costs directly attributable to the issue of new shares
or contracts with physical settlement (classified as equity instru-
ments) are recognized in Equity as “transaction costs related to
share issuances, net of tax” and are a deduction from Equity.
Noncontrolling interests
Net profit and Equity are presented including non-controlling in-
terests. Net profit is split into Net profit attributable to UBS share
holders and Net profit attributable to non-controlling interests.
Equity is split into Equity attributable to UBS shareholders and
Equity attributable to non-controlling interests.
UBS AG shares held (“treasury shares”)
UBS AG shares held by the Group are classified in Equity as Trea-
sury shares and accounted for at cost. Treasury shares are de-
ducted from total shareholders’ equity until they are cancelled or
reissued. The difference between the proceeds from sales of Trea-
sury 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 is exchanged against a fixed amount of cash) and ac-
counted for at cost. They are added to or deducted from equity
until settlement of such contracts. Upon settlement of such con-
tracts, the difference between the proceeds received and their
cost (net of tax, if any) are reported as Share premium.
Contracts with net cash settlement or net cash settlement option
Contracts on UBS AG shares that require net cash settlement, 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 purchase
contracts, including contracts where physical settlement is a settle-
ment alternative, result in the recognition of a financial liability. At
the 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 liability. The liability is subsequently ac-
creted, using the EIR method, over the life of the contract to the
nominal purchase obligation by recognizing interest expense. Upon
settlement of the contract, the liability is derecognized, 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 directly in Share premium.
Trust preferred securities issued
UBS has issued trust preferred securities through consolidated
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 subordinated to the
fully prior payment 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 non-
controlling interests in UBS’s consolidated financial statements.
Once a coupon payment becomes mandatory, i.e. when it is trig-
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gered by a contractually defined event, the full dividend payment
obligation on these trust preferred securities issued is reclassified
from Equity to a corresponding liability. In the income statement
the full dividend payment is reclassified from Net profit attribut
able to UBS shareholders to Net profit attributable to non-control
ling interests at that time. UBS bonds held by preferred funding
trusts are eliminated in consolidation.
28) Discontinued operations and non-current assets held for sale
UBS classifies individual non-current non-financial assets and dis-
posal groups as held for sale if such assets or disposal groups are
available for immediate sale in their present condition subject to
terms that are usual and customary for sales of such assets or
disposal groups and their sale is considered highly probable. For a
sale to be highly probable, management must be committed to a
plan to sell such assets and is actively looking for a buyer. Further-
more, the assets must be actively marketed at a reasonable sales
price in relation to their fair value and the sale is expected to be
completed within one year. 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 Other
assets and Other liabilities (see Notes 17 and 20).
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 sepa-
rate 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 eq-
uity investments). Net profit from discontinued operations includes
the net total of operating profit and loss before tax from discontin-
ued operations (including net gain or loss on sale before tax or
measurement to fair value less costs to sell) and discontinued op-
erations tax expense. A component of an entity comprises opera-
tions and cash flows that can be clearly distinguished, operation-
ally and for financial reporting purposes, from the rest of UBS’s
operations 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 further details.
29) Leasing
UBS enters into lease contracts, predominantly of premises and
equipment, as a lessor and a lessee. The terms and conditions of
these contracts are assessed and the leases are classified as oper-
ating leases or finance leases according to their economic sub-
stance. When making such an assessment, the Group focuses on
the following aspects: a) transfer of ownership of the asset to the
lessee at the end of the lease term; b) existence of a bargain pur-
chase 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 clas-
sified as a finance lease, while the non-existence of such condi-
tions normally leads to a classification as an operating lease.
Lease contracts classified as operating leases where UBS is the
lessee are disclosed in Note 25. These contracts include non-can-
cellable 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 ele-
ments 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 benefits to be
received under it, which requires that a lease contract is consid-
ered onerous in its entirety. A provision for onerous lease con-
tracts often includes significant vacant rental space.
30) Fee income
UBS earns fee income from a diverse range of services it provides
to its clients. Fee income can be divided into two broad categories:
income earned from services that are provided over a certain pe-
riod of time and income earned from providing transaction-type
services. Fees earned from services that are provided over a certain
period of time are recognized ratably over the service period with
the exception of performance-linked fees or fee components
which are recognized when the performance criteria are fulfilled.
Fees earned from providing transaction-type services are recog-
nized when the service has been completed. Loan commitment
fees on lending arrangements are deferred until the loan is drawn
down and then recognized as an adjustment to the effective yield
over the life of the loan. If the commitment expires and the loan is
not drawn down, the fees are recognized as revenue on expiry.
The following fee income is predominantly earned from ser-
vices that are provided over a period of time: investment fund
fees, portfolio management and advisory fees, insurance-related
fees and credit-related fees. Fees predominantly earned from pro-
viding transaction-type services include underwriting fees, corpo-
rate 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 currency, except for
non-monetary items, are translated using the closing exchange
rate. Non-monetary items measured at historical cost are trans-
lated at the exchange rate on the date of the transaction. Result-
ing foreign exchange differences are recognized in Net trading
income, except for non-monetary financial investments available-
for-sale. Foreign exchange differences from non-monetary finan-
286
Note 1 Summary of significant accounting policies (continued)
cial investments available-for-sale are recorded directly in Equity
until the asset is sold or becomes impaired, unless the non-mone-
tary financial investment is subject to a fair value hedge of foreign
exchange risk, in which case changes in fair value attributable to
the hedged risk are reported in Net trading income.
Upon consolidation, assets and liabilities of foreign operations are
translated into Swiss francs (CHF) – UBS’s presentation currency – at
the closing exchange rate on 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.
When a foreign operation is disposed of such that control, sig-
nificant influence or joint control is lost, the cumulative amount
in Foreign currency translation within Equity related to that foreign
operation attributable to UBS is reclassified to profit or loss as part
of the gain or loss on disposal. When UBS disposes of a portion of
its interest in a subsidiary that includes a foreign operation without
losing control, the related portion of the cumulative currency trans-
lation balance is reattributed to non-controlling interests. When
UBS disposes of a portion of its investment in an associate or joint
venture that includes a foreign operation while retaining signifi-
cant influence or joint control, the related portion of the cumula-
tive currency translation balance is reclassified to profit or loss.
32) Earnings per share (EPS)
Basic earnings per share are calculated by dividing the net profit
or loss for the period attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during
the period.
Diluted earnings per share are calculated using the same meth-
od as for basic EPS and adjusting the net profit or loss for the
period attributable to ordinary shareholders and the weighted av-
erage number of ordinary shares outstanding to reflect the poten-
tial dilution that could occur if options, warrants, convertible debt
securities or other contracts to issue ordinary shares were con-
verted or exercised into ordinary shares.
33) Segment reporting
UBS‘s businesses are organized on a worldwide basis into four
business divisions: Wealth Management & Swiss Bank, Wealth
Management Americas, Global Asset Management and Invest-
ment Bank, fully supported by the Corporate Center. In 2009,
these four business divisions were presented as four operating
segments or reportable segments in Note 2a “Segment report-
ing”, in addition to the Corporate Center column.
In 2010, for the purpose of segment reporting, the business
division Wealth Management & Swiss Bank was split into two
separate reportable segments, namely Wealth Management and
Retail & Corporate. As a result of the split, UBS now presents five
reportable segments. This change was made in order to better
reflect the management structure and responsibilities. In the in-
ternal management report to the Group Executive Board or the
chief operating decision maker, the financial information about
the five reportable segments and the Corporate Center was sepa-
rately presented. This internal management view was the basis for
the external segment reporting.
In addition, the Corporate Center column for Note 2a “Seg-
ment Reporting” was renamed to “Treasury activities and other
corporate items” to reflect the changes in presentation of the Cor-
porate Center information during the year as described in Note 1b
“Allocation of additional Corporate Center costs and to reportable
segments”. The Corporate Center is not considered an operating
segment under IFRS 8 Operating segments. It predominantly in-
cludes the results of treasury activities, e.g. from the management
of structural foreign exchange risks and interest rate risks, residual
operating expenses such as those associated with the functioning
of the Group Executive Board and the Board of Directors, other
costs related to organizational management, as well as a limited
number of specifically defined items. These items include the valu-
ation of UBS’s option to acquire the SNB StabFund’s equity and
expenses such as capital taxes, as well as the difference between
actually incurred Corporate Center costs and periodically agreed
flat fees charged to the business divisions. All other costs incurred
by the Corporate Center related to shared services and control
functions like risk management and control, finance, legal and
compliance, marketing and communications, human resources,
information technology infrastructure and service centers are
charged out to the reportable segments based on internal ac-
counting policies.
UBS’s internal accounting policies, which include the manage-
ment accounting policies and service level agreements, determine
the revenues and expenses directly attributable to each reportable
segment. Internal charges and transfer pricing adjustments are
reflected in the reportable segment performances.
Revenue-sharing agreements are used to allocate external cli-
ent revenues to reportable segments on a reasonable basis. Due to
the present arrangement of revenue-sharing agreements, the total
inter-segment revenues for UBS are not considered material.
The costs of shared services and control functions managed by
the Corporate Center are allocated to the direct cost lines of per-
sonnel expenses, general and administrative expenses and depre-
ciation in the respective reportable segment income statements,
based on internally determined allocation keys.
Net interest income is allocated to the reportable segments
based on their balance sheet positions. Assets and liabilities of the
reportable segments are funded through and invested with the
treasury departments located in each business division. The trea-
sury departments are supported by the Group Treasury in the Cor-
porate Center, with the net margin reflected in the results of each
reportable segment. The Corporate Center transfers interest in-
come earned from managing UBS’s consolidated equity back to
the reportable segments based on the average attributed equity.
Commissions are credited to the reportable segments based
on the corresponding client relationship. Revenue-sharing agree-
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Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
ments are used for the allocation of customer revenues where sev-
eral reportable segments are involved in the value-creation chain.
In line with the internal management reporting, segment as-
sets are reported without intercompany balances or on a third-
party view basis. Refer to Note 2a “Segment reporting” for fur-
ther details. 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 cur-
rently enforceable legal 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 interest rate
swaps transacted with London Clearing House. The positions are
netted by currency and across maturities.
b) Changes in accounting policies, comparability and other adjustments
Wealth Management & Swiss Bank reorganization
From 2010 onwards, the internal reporting of Wealth Manage-
ment & Swiss Bank to the Group Executive Board was revised in or-
der to better reflect the management structure and re sponsibilities.
Segregated financial information is now reported for:
– “Wealth Management”, encompassing all wealth manage-
ment business conducted out of Switzerland and in the Asian
and European booking centers;
– “Retail & Corporate”, including services provided to Swiss re-
tail private clients, small and medium enterprises and corpo-
rate and institutional clients.
In line with this revised internal reporting structure and IFRS 8
Operating segments, Wealth Management and Retail & Corpo-
rate are now presented in the external financial reports as sepa-
rate business units and reportable segments. Prior periods pre-
sented have been restated to conform to the new presentation
format.
Allocation of additional Corporate Center costs to
reportable segments
From 2010 onwards, almost all costs incurred by the Corporate
Center related to shared services and control functions are allo-
cated to the reportable segments, which directly and indirectly
receive the value of the services, either based on a full cost recov-
ery or on a periodically agreed flat fee. The allocated costs are
shown in the respective expense lines of the reportable segments
in Note 2a “Segment reporting”, and in the “UBS business divi-
sions and Corporate Center” section of this report.
Up to and including 2009, certain costs incurred by the Corpo-
rate Center were presented as Corporate Center expenses and
not charged to the business divisions. This change in allocation
policy has been applied prospectively and prior year numbers have
not been restated.
The incremental charges to the business divisions made in
2010 mainly relate to control functions. If figures for each quarter
of 2009 had been presented on the basis of the allocation meth-
odology applied for 2010, the estimated impact on operating ex-
penses and performance before tax would have been as shown in
the table below.
The “Corporate Center” column of the table in Note 2a “Seg-
ment reporting” has been renamed “Treasury activities and other
corporate items”. Refer to Note 1a) 33) “Segment reporting” for
more details.
Cash collateral from derivative transactions and Prime brokerage
receivables and payables
From 2010 onwards, UBS has changed the presentation of cash
collateral from derivative transactions and prime brokerage re-
ceivables and payables to improve transparency.
Cash collateral receivables and payables on derivatives are
presented in the new balance sheet lines Cash collateral receiv
ables on derivative instruments and Cash collateral payables on
deri vative instruments by transferring the amounts out of Due
from banks and Loans, and Due to banks and Due to customers,
respectively. Prime brokerage receivables and prime brokerage
payables have been transferred out of Due from banks and
Loans to Other assets, and out of Due to banks and Due to
customers to Other liabilities, respectively. These changes in pre-
sentation impacted neither UBS’s income statement nor total
assets and lia bilities. The respective tables, notes and other in-
formation in this financial information section were adjusted
accordingly.
Corporate Center cost allocation impact on 2009 figures
CHF million
Estimated increase in 2009 operating expenses and decrease in
performance before tax
288
Wealth Management &
Swiss Bank
Wealth
Management
Retail &
Corporate
Wealth
Management
Americas
Global Asset
Management
Investment
Bank
Total
business
divisions
Corporate
Center
128
96
84
44
288
640
(640)
Note 1 Summary of significant accounting policies (continued)
For 2009 and 2008, the following reclassifications were made:
Cash collateral from derivative transactions and Prime brokerage receivables and payables
CHF million
Due from banks
Cash collateral receivables on derivatives instruments
Loans
Other assets
Due to banks
Cash collateral payables on derivatives instruments
Due to customers
Other liabilities
31.12.09 – before
reclassification
Reclassification
31.12.09 – after
reclassification
31.12.08 – before
reclassification
Reclassification
31.12.08 – after
reclassification
46,574
0
306,828
7,336
65,166
0
410,475
33,986
(29,770)
53,774
(40,351)
16,347
(33,244)
66,097
(71,212)
38,359
16,804
53,774
266,477
23,682
31,922
66,097
339,263
72,344
64,451
0
340,308
9,931
125,628
0
465,741
42,998
(46,757)
85,703
(48,852)
9,906
(48,806)
92,937
(103,102)
58,971
17,694
85,703
291,456
19,837
76,822
92,937
362,639
101,969
Equity and Other comprehensive income
In 2010, UBS reviewed certain components of its equity and made
adjustments to correct immaterial misstatements that relate to
periods several years back. The following paragraphs describe the
impacts of the changes on UBS’s financial statements as of 31
December 2010.
Furthermore, UBS reclassified the pension costs related to bo-
nus to Pension and other post-employment benefit plans. Previ-
ously, those amounts were reported under Social security. Prior
period amounts have been adjusted accordingly. The change in
the presentation did not impact UBS’s personnel expenses. The
related amounts are disclosed in the footnotes to Note 6.
UBS’s Foreign currency translation balance was adjusted by a
credit of CHF 592 million. The adjustment increased total Other
comprehensive income by CHF 592 million and total Comprehen
sive income by CHF 429 million because a loss of CHF 163 million
was transferred to the income statement.
In addition, UBS reclassified an amount of CHF 213 million
from Equity attributable to non-controlling interests to Other lia
bilities as this amount has been identified as redeemable and
therefore not satisfying the criteria for an equity instrument under
IFRS. Also, an amount of CHF 134 million relating to an equity
participation plan was reclassified from Share premium to Other
liabilities as it was identified that the amount is not related to
equity settled awards. The impact on the income statement for
both items was insignificant.
Furthermore, UBS merged the balance of the balance sheet
line Revaluation reserve from step acquisitions, net of tax into
Share premium, resulting in an increase of Share premium by CHF
38 million. The balance sheet as of 31 December 2009 and 2008
and the statement of changes in equity for 2009 and 2008, were
adjusted accordingly.
Personnel expenses
In 2010, UBS reclassified certain elements of Other personnel ex
penses to Variable compensation – other in order to align the
presentation with the new FINMA definition of variable compen-
sation.
In addition, amounts previously reported under Salaries and
variable compensation are presented for the first time on the fol-
lowing separate lines: Salaries, Variable compensation – discre
tionary bonus, Variable compensation – other and Wealth Man
agement Americas: Financial advisor compensation.
Fair value hierarchy of financial instruments
From 2010 onwards, UBS considers input data observable and
classifies the respective financial instrument as level 2 in the fair
value hierarchy when there is an equally offsetting transaction.
An offsetting transaction constitutes evidence of an observable
market transaction, when it can be demonstrated that the offset-
ting transactions nullifies substantially all the price risk of the pro-
portion of the offset instrument and the proportion is significant.
In cases such as derivatives, where the counterparty’s credit risk is
also based on observable inputs, then it can be concluded that all
input data are observable. Refer to Note 27b) for more details.
Effective 2010
Improvements to IFRSs 2009
The IASB issued amendments to twelve IFRS standards as part of
its annual improvements project in April 2009. UBS adopted the
Improvements to IFRSs 2009 on 1 January 2010. The adoption of
the amendments did not have a significant impact on UBS’s fi-
nancial statements.
Amendments to IAS 39 Financial Instruments:
Recognition and Measurement – Eligible Hedged Items
The amendments to IAS 39 were issued in July 2008. The amend-
ments provide additional guidance on the designation of a
hedged item. The amendments clarify how the existing princi-
ples 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. UBS adopted the amend-
ments to IAS 39 on 1 January 2010. The adoption of the amend-
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Note 1 Summary of significant accounting policies (continued)
ments to IAS 39 did not have a significant impact on UBS’s fi-
nancial statements.
IFRS 3 Business Combinations, IAS 27 Consolidated and
Separate Financial Statements, and IAS 21 The Effects of
Changes in Foreign Exchange Rates
In January 2008, the IASB issued the revised IFRS 3 Business Com
binations and amendments to IAS 27 Consolidated and Separate
Financial Statements, and IAS 21 The effects of Changes in For
eign Exchange Rates.
The most significant changes under revised IFRS 3 are as follows:
– Contingent consideration should be recognized at fair value as
part of the consideration transferred at the acquisition date. Pre-
viously, contingent consideration was recognized if, and only if,
UBS had a present obligation, the economic outflow was more
likely than not and a reliable estimate was determinable.
– Non-controlling interests in an acquiree that are present owner-
ship interests and provide entitlement to a proportionate share
of the net assets in the event of liquidation should either be
measured at fair value or as the non-controlling interest’s pro-
portionate share of the fair value of net identifiable assets of
the entity acquired. All other components of the non-control-
ling interests are measured at their acquisition-date fair values.
The option is available on a transaction-by-transaction basis.
– Transaction costs incurred by the acquirer should be expensed
as incurred.
The amendments to IAS 27 and the consequential amendments
to IAS 21 require the effects (including foreign exchange translation)
of all transactions with non-controlling 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
should be re-measured to fair value, and a gain or loss (including
foreign exchange translation) should be recognized in profit or loss.
The amendments to IAS 21 further clarify that no deferred foreign
currency translation gains and losses are to be released upon a partial
repayment of share capital of a subsidiary without a loss of control.
UBS adopted the amendments to IFRS 3, IAS 27 and IAS 21 with
prospective effect on 1 January 2010. The adoption of the revised
guidance did not materially impact UBS’s financial statements.
Effective in 2009 and earlier
IAS 1 (revised) Presentation of Financial Statements
Effective 1 January 2009, the revised International Accounting
Standard (IAS) 1 affected the presentation of owner changes in
equity and of comprehensive income. UBS continued 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 finan-
cial investments available-for-sale, were presented in the “state-
ment of comprehensive income”.
When implementing these amendments as of 1 January 2009,
UBS also adjusted the format of its “statement of changes in eq-
uity” and replaced the “statement of recognized income and ex-
pense” in the financial statements of previous years with a “state-
ment of comprehensive income”.
UBS also re-assessed its accounting treatment of dividends
from trust preferred securities. In line with the classification of
trust preferred securities as equity instruments, UBS recognizes
liabilities for the full dividend payment obligation once a coupon
payment becomes mandatory, i.e., when it is triggered by a con-
tractually determined event. In the income statement, the same
amount is reclassified from net profit attributable to UBS share-
holders to net profit attributable to non-controlling interests.
IFRS 8 Operating Segments
Effective as of 1 January 2009, UBS adopted IFRS 8 Operating
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 management 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. Refer
to item 33) and Note 2 for further details.
IFRS 7 (revised) Financial Instruments: Disclosures
This standard was revised in March 2009 when the International
Accounting Standards Board (IASB) published the amendment
“Improving Disclosures about Financial Instruments”. Effective 1
January 2009, the amendment requires enhanced disclosures
about fair value measurements and liquidity risk.
The enhanced fair value measurement disclosure requirements
include: a fair value hierarchy (i.e. categorization of all financial
instruments into levels 1, 2 and 3 based on the relevant defini-
tions); significant transfers between level 1 and level 2; reconcilia-
tion 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 informa-
tion for the total position of level 3 instruments and the basis for
the calculation of such information.
The amended liquidity risk disclosure requirements largely con-
firm the previous rules for providing maturity information for non-
derivative financial liabilities, but amend the rules for providing
maturity information for derivative financial liabilities.
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
IFRIC 16 was issued on 1 October 2008 and became effective on
1 January 2009. IFRIC 16 provides guidance in identifying the for-
eign 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 determine the amounts to be reclassi-
290
Note 1 Summary of significant accounting policies (continued)
fied 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 Disclo
sures with latest possible effective date 1 January 2011. UBS has
early adopted the revised requirements in its annual financial state-
ments 2009. The revised standard amends the definition of related
parties, in particular, the relationship between UBS and associated
companies of UBS’s key management personnel or their close family
members. Transactions between UBS and associated companies of
UBS key management 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 an-
nual financial statements 2008 have been significantly reduced. Bal-
ances and movements of loans to related parties have been reduced
by CHF 668 million as of 31 December 2008 and fees received for
services provided by UBS have been reduced by CHF 11 million in
2008.
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 conditions and the accounting
treatment of cancellations. Under the amended standard, UBS is
required to distinguish between vesting conditions (such as ser-
vice and performance conditions) and non-vesting conditions.
The amended standard no longer considers vesting conditions
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: re-
duction of retained earnings by approximately CHF 2.3 billion, in-
crease 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 approximately
CHF 0.5 billion. Net profit attributable to UBS shareholders de-
clined by CHF 863 million in 2007 and by CHF 730 million in 2006.
Additional compensation expenses of CHF 797 million and CHF
516 million were recognized in 2007 and 2006, respectively. These
additional compensation expenses include awards granted in 2008
for the performance year 2007. The impact of the restatement on
total equity as of 31 December 2007 was a decrease of CHF 366
million. Retained earnings as of 31 December 2007 decreased by
approximately CHF 3.9 billion, share premium increased by approx-
imately CHF 3.5 billion, liabilities (including deferred tax liabilities)
increased by approximately CHF 0.6 billion and deferred tax assets
increased by approximately CHF 0.2 billion. The restatement de-
creased 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 or-
der to provide comparative information, these amounts also reflect
the retrospective 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-compete provi-
sions 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 Oc-
tober 2008, under which eligible financial assets, subject to cer-
tain conditions being met, may be reclassified out of the Held for
trading category if the firm had the intent and ability to hold them
for the foreseeable future or until maturity.
Although the amendment could have been applied retrospec-
tively from 1 July 2008, UBS decided at the end of October 2008
to apply the amendment with effect from 1 October 2008 follow-
ing an assessment of the implications on its financial statements.
Refer to Note 29b for further details on reclassification of financial
assets.
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Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
c) International Financial Reporting Standards and Interpretations to be adopted in 2011 and later
Effective in 2011
Improvements to IFRSs 2010
In May 2010, the IASB issued amendments to seven standards as
part of its annual improvements project. UBS will adopt the im-
provements to IFRSs 2010 as of 1 January 2011. The amendments
will not have a material impact on UBS’s financial statements.
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 limited cir-
cumstances when an entity is subject to minimum funding re-
quirements and makes an early payment of contributions 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 from 1 January 2011. Early application is permitted.
UBS is not affected by this amendment.
Effective in 2012 and later, if not adopted early
IFRS 9 Financial Instruments
In November 2009, the IASB issued IFRS 9 Financial instruments,
which includes revised guidance on the classification and mea-
surement of financial assets. In October 2010, the IASB updated
IFRS 9 to include guidance on financial liabilities and derecogni-
tion of financial instruments and amended IFRS 7 to include dis-
closures about transferred financial assets. The publication of IFRS
9 represents the completion of the first part of a multi-stage proj-
ect to replace IAS 39 Financial instruments: recognition and mea
surement.
The standard requires all financial assets to be classified on the
basis of the entity’s business model for managing the financial
assets, and the contractual cash flow characteristics of the finan-
cial asset. A financial asset is accounted for at amortized cost only
if the following criteria are met: (a) the objective of the business
model is to hold the financial asset for the collection of the con-
tractual cash flows, and (b) the contractual cash flows under the
instrument solely represent payments of principal and interest. If
a financial asset meets the criteria to be measured at amortized
cost, it can be designated at fair value through profit or loss under
the fair value option, if doing so would significantly reduce or
eliminate an accounting mismatch. Non-traded equity instru-
ments may be accounted for at fair value through other compre-
hensive income (OCI). Such designation is available on initial rec-
ognition on an instrument-by-instrument basis and is irrevocable.
There is no subsequent recycling of realized gains or losses from
OCI to profit or loss. All other financial assets are measured at fair
value through profit or loss.
The accounting and presentation for financial liabilities and for
derecognition of financial instruments has been transferred from
IAS 39 Financial instruments: Recognition and measurement to
IFRS 9. The guidance is unchanged with one exception: the ac-
counting for financial liabilities designated at fair value through
profit or loss. The requirements in IAS 39 regarding the classifica-
tion and measurement of financial liabilities have been retained,
including the related application and implementation guidance.
The two existing measurement categories for financial liabilities
remain unchanged. The criteria for designating a financial liability
at fair value through profit or loss also remain unchanged. For fi-
nancial liabilities designated at fair value through profit or loss,
changes in fair value due to changes in an entity’s own credit risk
are directly recognized in OCI instead of in profit and loss. There
is no subsequent recycling of realized gains or losses from OCI to
profit or loss. For financial liabilities that are required to be mea-
sured at fair value through profit or loss, i.e., all derivatives and
trading portfolio liabilities, all fair value movements will continue
to be recognized in profit and loss.
UBS is currently assessing the impact of the new standard on
its financial statements. The effective date for mandatory adop-
tion is 1 January 2013, with early adoption permitted. The IFRS 7
amendments are applicable for annual accounting periods begin-
ning on or after 1 July 2011. UBS did not early adopt IFRS 9 for
the year ended 31 December 2010.
Amendments to IAS 12 Income Taxes
In December 2010, the IASB issued amendments to IAS 12 Income
Taxes to clarify guidance related to the measurement of deferred
taxes. IAS 12 requires an entity to measure the deferred tax related
to an asset based on whether the entity expects to recover the
carrying amount of the asset principally through use or sale. The
guidance establishes a rebuttable presumption that recovery of
the carrying amount will normally be through sale. As a result of
the amendments, SIC-21, Income Taxes – Recovery of Revalued
NonDepreciable Assets, would no longer apply to investment
properties carried at fair value. The amendments provide a practi-
cal approach for measuring deferred tax liabilities and deferred tax
assets when investment property is measured using the fair value
model. The amendments also incorporate the guidance contained
in SIC-21, which is now withdrawn. The amendments are effective
for annual periods beginning on or after 1 January 2012, with
early adoption permitted. UBS is currently assessing the impact of
the revised standard on its financial statements.
292
Note 2a Segment reporting
UBS AG is the parent company of the UBS Group (Group). The op-
erational structure of the Group comprises the Corporate Center and
four business divisions: Wealth Management & Swiss Bank, Wealth
Management Americas, Global Asset Management and the Invest-
ment Bank. In 2010, for the purpose of segment reporting, the busi-
ness division Wealth Management & Swiss Bank was split into two
separate reportable segments, namely Wealth Management and
Retail & Corporate. As a result of the split, UBS now presents five
reportable segments compared with only four reportable segments
in 2009. The Corporate Center includes all corporate functions, elim-
ination items as well as the remaining industrial holdings activities
and is not considered a business segment. The “Corporate Center”
column of the table in Note 2a “Segment reporting” has been re-
named “Treasury activities and other corporate items”. Refer to Note
1a) 33) “Segment reporting” for more details.
of ultra high net worth, high net worth and core affluent individu-
als and families. It includes the domestic United States business
(Wealth Management US), the domestic Canadian business and
international business booked in the United States.
Global Asset Management
Global Asset Management is a large-scale asset manager with
businesses diversified across regions, capabilities and distribution
channels. It offers investment capabilities and styles across all
major traditional and alternative asset classes including equities,
fixed income, currency, hedge fund, real estate and infrastructure
that can also be combined into multi-asset strategies. The fund
services unit provides legal fund set-up and accounting and re-
porting for retail and institutional funds.
Wealth Management & Swiss Bank
Investment Bank
Wealth Management & Swiss Bank focuses on delivering compre-
hensive 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. Our Wealth Management business unit
provides clients in over 40 countries, including Switzerland, with
financial advice, products and tools to fit their individual needs.
Our Retail & Corporate business unit provides individual and busi-
ness clients with an array of banking services, such as deposits
and lending, and maintains a leading position across its client seg-
ments in Switzerland.
Wealth Management Americas
Wealth Management Americas provides advice-based solutions
through financial advisors who deliver a fully integrated set of
products and services specifically designed to address the needs
The Investment Bank provides securities and other financial prod-
ucts and research in equities, fixed income, rates, foreign exchange
and commodities. It also provides advisory services and access to
the world’s capital markets for corporate and institutional clients,
sovereign and governmental bodies, financial intermediaries, al-
ternative asset managers and private investors.
Corporate Center
The Corporate Center provides and manages support and control
functions for the Group in areas such as risk control, finance, legal
and compliance, funding, capital and balance sheet manage-
ment, management of non-trading risk, communication and
branding, human resources, information technology, real estate,
procurement, corporate development and service centres. Most
costs and personnel of the Corporate Center are allocated to the
business divisions.
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Financial information
Notes to the consolidated financial statements
Note 2a Segment reporting (continued)
Transactions between the reportable segments are carried out at internally agreed rates or at arm's length and are reflected in the
performance of each segment. Revenue-sharing agreements are used to allocate external client revenues to a segment and cost-
allocation agreements are used to allocate shared costs between the segments.
UBS
6,215
25,845
32,060
(66)
31,994
16,920
6,585
0
918
117
24,539
7,455
2
7,457
(381)
0
7,838
Wealth Management &
Swiss Bank
Wealth
Management
Retail &
Corporate
Wealth
Management
Americas
Global Asset
Management
Investment
Bank
Treasury
activities and
other corporate
items
1,737
5,608
7,345
11
7,356
3,153
1,264
449
163
19
5,049
2,308
0
2,308
2,422
1,524
3,946
(76)
3,870
1,625
836
(509)
146
0
2,098
1,772
0
1,772
695
4,870
5,565
(1)
5,564
4,225
1,223
(6)
198
55
5,694
(130)
0
(130)
(17)
2,075
2,058
0
2,058
1,096
400
(5)
43
8
1,542
516
0
516
2,235
9,775
12,010
0
12,010
6,743
2,693
64
278
34
9,813
2,197
0
2,197
(858)
1,993
1,135
0
1,135
78
168
8
89
0
343
793
2
795
CHF million
For the year ended 31 December 2010
Net interest income
Non-interest income
Income 1
Credit loss (expense) / recovery
Total operating income 2
Personnel expenses
General and administrative expenses
Services to / from other business divisions
Depreciation of property and equipment
Amortization of intangible assets 3
Total operating expenses 4
Performance from continuing
operations before tax
Performance from discontinued
operations before tax
Performance before tax
Tax expense / (benefit) on continuing operations
Tax expense / (benefit) on discontinued operations
Net profit
Additional information 5
Total assets
Additions to non-current assets
94,056
25
153,101
12
50,071
48
15,894
8
966,945
32
37,180
467
1,317,247
593
1 Impairments of financial investments available-for-sale for the year ended 31 December 2010 were as follows: Wealth Management & Swiss Bank CHF 45 million; Global Asset Management CHF 2 million; Investment
Bank CHF 41 million; Treasury activities and other corporate items CHF (16) million. The total inter-segment revenues for the Group are immaterial as the majority of the revenues are allocated across the business divisions
by means of revenue-sharing agreements. 2 Refer to “Note 38 Reorganizations and disposals” for further information on the impact on performance before tax of restructuring charges, and to “Note 27 Fair value of
financial instruments” for further information on the allocation of own credit charges to the Investment Bank. 3 Refer to “Note 16 Goodwill and intangible assets” for further information regarding goodwill and other
in tangible assets by business division. 4 Refer to “Note 1 Summary of significant accounting policies” for more information on the allocation of additional Corporate Center costs to business divisions from 2010 on-
wards. 5 The segment assets are based on a third-party view, i. e. the amounts do not include inter-company balances.
294
Note 2a Segment reporting (continued)
Transactions between the reportable segments are carried out at internally agreed rates or at arm’s length and are reflected in the per-
formance of each segment. Revenue-sharing agreements are used to allocate external client revenues to a segment and cost-allocation
agreements are used to allocate shared costs between the segments.
CHF million
For the year ended 31 December 2009
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 3
Performance from continuing
operations before tax
Performance from discontinued
operations before tax
Performance before tax
Wealth Management &
Swiss Bank
Wealth
Management
Retail &
Corporate
Wealth
Management
Americas
Global Asset
Management
Investment Bank
Treasury activities
and other
corporate items
1,853
5,574
7,427
45
7,471
3,360
1,182
428
154
0
67
5,191
2,280
0
2,280
2,681
1,415
4,096
(178)
3,918
1,836
835
(518)
136
0
0
2,289
1,629
0
1,629
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)
Tax expense / (benefit) on continuing operations
Tax expense / (benefit) on discontinued operations
Net profit
Additional information 4
Total assets
Additions to non-current assets
109,627
13
138,513
30
53,197
59
20,238
11
991,964
81
26,999
745
1,340,538
939
1 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; Treasury activities and other corporate items CHF 29 million. The total inter-segment revenues for the Group are immaterial as the majority of the revenues are allocated across the business divisions
by means of revenue-sharing agreements. 2 Refer to “Note 16 Goodwill and intangible assets” for further information regarding goodwill and other intangible assets by business division. 3 Refer to “Note 1 Sum-
mary of significant accounting policies” for more information on the allocation of additional Corporate Center costs to business divisions from 2010 onwards. 4 The segment assets are based on a third-party view, 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)
Transactions between the reportable segments are carried out at internally agreed rates or at arm’s length and are reflected in the per-
formance of each segment. Revenue-sharing agreements are used to allocate external client revenues to a segment and cost-allocation
agreements are used to allocate shared costs between the segments.
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)
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
Amortization of intangible assets
Total operating expenses 2
Performance from continuing
operations before tax
Performance from discontinued
operations before tax
Performance before tax
Wealth Management &
Swiss Bank
Wealth
Management
Retail &
Corporate
Wealth
Management
Americas
Global Asset
Management
Investment Bank
Treasury activities
and other
corporate items
2,217
8,285
10,502
(388)
10,114
3,503
2,357
409
181
0
33
6,483
3,631
0
3,631
3,207
1,704
4,911
(4)
4,907
1,927
938
(482)
142
0
0
2,524
2,382
0
2,382
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
Tax expense / (benefit) on continuing operations
Tax expense / (benefit) on discontinued operations
Net profit
Additional information 3
Total assets
Additions to non-current assets
96,777
241
154,710
34
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; Treasury activities and other corporate items CHF 40 million. The total inter-segment revenues for the Group are immaterial as the majority of the
revenues are allocated across the business divisions by means of revenue-sharing agreements. 2 Refer to “Note 1 Summary of significant accounting policies” for more information on the allocation of additional
Corporate Center costs to business divisions from 2010 onwards. 3 The segment assets are based on a third-party view, i.e. the amounts do not include inter-company balances.
296
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 transactions
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 our 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 2010
Switzerland
United Kingdom
Rest of Europe
United States
Asia Pacific
Rest of the world
Total
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
Total operating income
Total non-current assets
CHF million
Share %
CHF million
Share %
12,670
2,791
1,514
10,752
3,796
470
31,994
40
9
5
34
12
1
100
4,922
594
1,078
8,673
394
418
16,080
31
4
7
54
2
3
100
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
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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 interest
income and Net trading income (see the tables on this and the next
page). This required disclosure, however, does not take into ac-
count that net interest and trading income are generated by a
range of different businesses. In many cases, a particular business
can generate both interest and trading income. Fixed income trad-
ing activity, for example, generates both trading profits and cou-
pon income. 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 businesses) provides in-
formation that corresponds to this view: Net income from trading
businesses includes both interest and trading income generated by
the Investment Bank, including 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 Man-
agement Americas; Net income from treasury activities and other
reflects all income from the Group’s centralized treasury function.
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, 4
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 5
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
For the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
6,215
7,471
13,686
7,508
4,624
1,554
13,686
10,603
1,436
6,015
262
557
18,872
1,984
1,282
3,794
2,392
3,206
12,657
6,215
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
(4)
124
(8)
126
124
(20)
(45)
(16)
(17)
240
(20)
(49)
(41)
(2)
(16)
(24)
(26)
(4)
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 37 million for 2010, CHF 66 million for 2009 and CHF 42 million for 2008. 4 Includes interest income on cash collateral receivables on derivative instruments and net inter-
est income on swaps. 5 Includes interest expense on cash collateral payables on derivative instruments.
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Note 3 Net interest and trading income (continued)
CHF million
Net trading income 1
Investment Bank equities
Investment Bank fixed income, currencies and commodities
Other business divisions 2
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 3
For the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
2,356
2,000
3,115
7,471
465
(1,001)
2,462
(5,455)
2,668
(324)
678
(6,741)
4,694
(35,040)
4,525
(25,820)
(974)
44,284
(4)
17
(31)
85
1 Refer to the table “Net interest and trading income” on the previous page for the Net income from trading businesses (for an explanation, refer to the corresponding introductory comment). 2 Mainly consists of gains
and losses from foreign exchange and net trading income from treasury activities. 3 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. For more information on own credit refer to “Note 27 Fair value of financial instruments”.
Significant impacts on net trading income
Net trading income in 2010 included a gain of CHF 0.7 billion from
credit valuation adjustments for monoline credit protection
(CHF 0.8 billion loss in 2009). 2010 Net trading income also
included a gain of CHF 0.7 billion from the valuation of UBS’s
option to acquire the SNB StabFund’s equity (CHF 0.1 billion gain
in 2009).
➔ Refer to the “Risk management and control” section of this
report for more information on exposure to monolines and the
option to acquire equity of the SNB StabFund
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
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 1
Total fee and commission expense
Net fee and commission income
of which: net brokerage fees 1
For the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
1,157
755
1,912
857
4,930
3,898
5,959
361
17,918
448
850
19,216
1,093
964
2,057
17,160
3,837
1,590
796
2,386
881
5,400
4,000
5,863
264
18,794
339
878
20,010
1,231
1,068
2,299
17,712
4,169
1,138
818
1,957
1,662
7,150
5,583
7,667
317
24,335
273
1,010
25,618
1,164
1,524
2,689
22,929
5,985
(27)
(5)
(20)
(3)
(9)
(3)
2
37
(5)
32
(3)
(4)
(11)
(10)
(11)
(3)
(8)
1 In 2010, UBS corrected the amounts presented in previous periods on the lines Brokerage fees, Brokerage fees paid, Other and Net brokerage fees. Amounts previously disclosed have been decreased as follows:
Brokerage fees by CHF 817 million and CHF 1,059 million for the years ended 31 December 2009 and 31 December 2008 respectively; Brokerage fees paid by CHF 517 million and CHF 599 million for the years ended
31 December 2009 and 31 December 2008 respectively; Other and Net brokerage fees by CHF 300 million and CHF 460 million for the years ended 31 December 2009 and 31 December 2008 respectively. The totals of
Net fee and commission income and consequently Net profit attributable to UBS shareholders are not affected by this correction.
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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 2
Share of net profits of associates
Total
Financial investments available-for-sale
Net gains from disposals
Impairment charges
Total
Net income from properties 5
Net gains from investment properties 6
Other 7
Total other income
For the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
(7)
256
81
331
204
(72)
132
53
8
690
1,214
96
(1)
37
133
110
(349) 4
(239)
72
(39)
672
599
(184)
199
(6)
9
615 3
(202)
413
88
0
183
692
119
149
85
79
(26)
3
103
1 Includes foreign exchange amounts reclassified from equity upon disposal or deconsolidation of subsidiaries. 2009 included a loss of CHF 498 million on the sale of UBS Pactual. 2 Included in 2010 is a gain of
CHF 180 million from the sale of investments in associates owning office space in New York. 3 Includes a gain of approximately CHF 360 million for the disposal of UBS’s equity stake in Bank of China. 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 net gains from disposals of loans and receivables of CHF 324 million in 2010
and of CHF 205 million in 2009. 2010 includes a gain of CHF 158 million from the sale of a property in Zurich. 2009 included a gain of CHF 304 million from the public tender offer for four subordinated bonds of UBS.
Note 6 Personnel expenses
CHF million
Salaries
Variable compensation – discretionary bonus
Variable compensation – other 1
Contractors
Social security 2
Pension and other post-employment benefit plans 2
Wealth Management Americas: financial advisor compensation 3
Other personnel expenses 1
Total personnel expenses
Note
31.12.10
31.12.09
31.12.08
31.12.09
For the year ended
% change from
31
31
30
31
7,033
4,082
310
232
826
724
2,667
1,047
16,920
7,383
2,809
830
275
804
988
2,426
1,027
16,543
7,775
1,674
1,025
423
660
972
2,435
1,298
16,262
(5)
45
(63)
(16)
3
(27)
10
2
2
1 In 2010, UBS adjusted the amounts presented in previous periods on the line Other personnel expenses to align the presentation with the new definition by FINMA of variable compensation. Amounts previously dis-
closed under Other personnel expenses have been decreased by CHF 648 million for the year ended 31 December 2009 and CHF 702 million for the year ended 31 December 2008, with a corresponding increase in
Variable compensation – other. 2 Starting 2010, UBS presents the pension costs related to cash bonus in Pension and other post-employment benefit plans. Previously those amounts were reported under Social secu-
rity. Prior periods amounts have been adjusted accordingly as follows: by CHF 47 million for the year ended 31 December 2009 and by CHF 46 million for the year ended 31 December 2008. 3 Financial advisor com-
pensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure
and other variables. It also includes costs related to compensation commitments and advances granted to financial advisors at the time of recruitment, which are subject to vesting requirements.
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 1
Total general and administrative expenses
For the year ended
31.12.10
1,252
31.12.09
1,420
31.12.08
1,516
555
664
669
339
466
754
1,078
807
6,585
623
697
695
225
412
830
836
512
6,248
669
888
926
408
728
1,085
1,029
3,249 2
10,498
% change from
31.12.09
(12)
(11)
(5)
(4)
51
13
(9)
29
58
5
1 Includes litigation provisions. Refer to “Note 21 Provisions and contingent liabilities”. 2 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.
300
Note 8 Earnings per share (EPS) and shares outstanding
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 adjustment for capital increase 2
Mandatory convertible notes and exchangeable shares 3
Shares outstanding for EPS
As of or for the year ended
% change from
31.12.10
31.12.09
31.12.08
31.12.09
7,534
7,533
1
7,534
(2)
7,532
7,531
1
(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
3,789,732,938
3,661,086,266
2,792,023,098
48,599,111
754,948
1,151,556
3,838,332,049
3,661,841,214
2,793,174,654
60
4
5
0
20,166,373
27,909,964
(100)
1.99
1.99
0.00
1.96
1.96
0.00
(0.75)
(0.74)
0.00
(0.75)
(0.74)
0.00
(7.63)
(7.68)
0.05
(7.63)
(7.69)
0.05
3,830,840,513
3,558,112,753
2,932,580,549
38,892,031
37,553,872
61,903,121
3,791,948,482
3,520,558,881
2,870,677,428
23,252,487
580,261
273,264,461
605,547,748
3,792,528,743
3,793,823,342
3,499,477,663
8
4
8
(100)
0
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 241,320,185; 288,915,585 and
283,263,330 for the years ended 31 Decemeber 2010, 31 December 2009 and 31 December 2008 respectively. An additional 100 million ordinary shares ("contingent share issue") related to the SNB transaction were
not dilutive for all periods, but could potentially dilute earnings per share in the future. 2 Shares outstanding increased by 0.81% due to the capital increase in 2009. 3 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 Con-
federation in December 2008. All other numbers related to exchangeable shares.
n
o
i
t
a
m
r
o
f
n
i
l
a
i
c
n
a
n
i
F
301
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
Current accounts and loans
Securities 1
Subtotal
Allowance for credit losses
of which: related to securities 1
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 2
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 2
31.12.10
31.12.09
17,158
(24)
17,133
122,499
20,362
99,710
21,392
263,964
(1,087)
(273)
262,877
280,010
161,109
7,376
22,142
52,097
16,984
24,672
284,381
(1,111)
283,270
144,403
46,565
30,890
62,523
284,381
(1,111)
283,270
16,836
(32)
16,804
121,031
19,970
100,887
27,237
269,124
(2,648)
(179)
266,477
283,281
159,990
9,681
25,360
60,520
13,659
20,759
289,969
(2,680)
287,289
142,617
39,463
39,439
68,450
289,969
(2,680)
287,289
1 On 31 December 2010, includes reclassified US student loan auction rate securities (ARS) of CHF 4.3 billion (CHF 7.8 billion on 31 December 2009), other reclassified securities of CHF 7.4 billion (CHF 11.5 billion on
31 December 2009) and CHF 9.7 billion ARS acquired from clients (CHF 8.0 billion on 31 December 2009). The related allowances for reclassified ARS amount to CHF 157 million (CHF 66 million on 31 December 2009)
and other reclassified securities to CHF 63 million (CHF 96 million on 31 December 2009), respectively. 2 Includes loans designated at fair value of CHF 3.3 billion on 31 December 2010 and CHF 4.0 billion on
31 December 2009. For further details refer to “Note 12 Financial assets designated at fair value”.
302
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
Total 31.12.10
Total 31.12.09
2,771
(1,505)
79
67
0
(173)
1,239 1
49
0
0
(2)
0
0
47
2,820
(1,505)
79
66
0
(173)
1,287
3,070
(2,046)
52
1,832
(51)
(37)
2,820
Specific
allowances and
provisions
Collective loan
loss allowances
Total 31.12.10
Total 31.12.09
24
1,039
46
1,109
130
1,239
0
47
0
47
0
47
24
1,087
46
1,157
130
1,287
32
2,648
51
2,730
90
2,820
1 CHF 254 million is related to reclassified assets (securities and other assets) on 31 December 2010 and CHF 1,192 million on 31 December 2009.
Note 10 Cash collateral on securities borrowed and lent, reverse repurchase and repurchase agreements, and derivative
instruments
The Group enters into collateralized reverse repurchase and repur-
chase agreements, securities borrowing and secu rities lending
transactions and derivative 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
31.12.10
Reverse
repurchase
agreements
31.12.10
Cash collateral
receivables
on derivative
instruments
31.12.10
Cash collateral on
securities borrowed
31.12.09
20,302
42,153
62,454
91,788
51,002
142,790
20,230
17,841
38,071
17,143
46,364
63,507
Reverse
repurchase
agreements
31.12.09
71,051
45,638
116,689
Cash collateral on
securities lent
31.12.10
Repurchase
agreements
31.12.10
Cash collateral
payables
on derivative
instruments
31.12.10
Cash collateral on
securities lent
31.12.09
Repurchase
agreements
31.12.09
Cash collateral
receivables
on derivative
instruments
31.12.09
29,705
24,069
53,774
Cash collateral
payables
on derivative
instruments
31.12.09
5,820
831
6,651
28,201
46,595
74,796
34,930
23,994
58,924
7,268
727
7,995
26,167
38,008
64,175
32,932
33,165
66,097
n
o
i
t
a
m
r
o
f
n
i
l
a
i
c
n
a
n
i
F
303
Financial information
Notes to the consolidated financial statements
Note 11 Trading portfolio
The Group trades in debt instruments (including money market
paper and tradable loans), equity instruments, precious metals,
other commodities and derivatives to meet the financial needs of
its customers and to generate revenue. Refer to “Note 23 Deriva-
tive instruments and hedge accounting”. The table below repre-
sents a pure accounting view. It does not reflect hedges and other
risk mitigating factors and the amounts must therefore not be
considered risk exposures.
CHF million
Trading portfolio assets by counterparty
Debt instruments
Government and government agencies 1
of which: Switzerland
of which: United States
of which: Japan
Banks 1
Corporates and other
Total debt instruments
Equity instruments
Financial assets for unit-linked investment contracts
Financial assets held for trading
Precious metals and other physical commodities
Total trading portfolio assets
Trading portfolio liabilities by counterparty
Debt instruments
Government and government agencies 1
of which: Switzerland
of which: United States
of which: Japan
Banks 1
Corporates and other
Total debt instruments
Equity instruments
Total trading portfolio liabilities
31.12.10
31.12.09
83,952
13,292
19,843
25,996
14,711
35,647
134,310
57,506
18,056
209,873
18,942
228,815
29,628
237
11,729
7,699
3,107
4,640
37,376
17,599
54,975
85,483
3,778
22,498
25,795
10,850
39,902
136,234
57,541
21,619
215,393
16,864
232,258
26,317
85
10,351
3,384
3,462
5,447
35,226
12,243
47,469
1 From 2010 onwards bills issued by the Swiss National Bank are reported under Government and government agencies. In previous years, these bills were presented under Banks. The comparative period has been ad-
justed accordingly.
304
Note 11 Trading portfolio (continued)
CHF million
Level 1
Level 2
Level 3
Total
31.12.10
31.12.09
Trading portfolio assets by product type
Debt instruments
Government bills / bonds
Corporate bonds, including bonds issued by financial institutions
Loans
Asset-backed securities
of which: mortgage-backed securities
Total debt instruments
Equity instruments
Shares
Investment fund units and other
Total equity instruments
Financial assets for unit-linked investment contracts
Financial assets held for trading
Precious metals and other physical commodities
Total trading portfolio assets
Trading portfolio liabilities by product type
Debt instruments
Government bills / bonds
Corporate bonds, including bonds issued by financial institutions
Loans
Asset-backed securities
of which: mortgage-backed securities
Total debt instruments
Equity instruments
Shares
Investment fund units and other
Total equity instruments
Total trading portfolio liabilities
43,583
1,097
0
7,070
7,070
51,751
40,861
5,432
46,292
18,056
116,100
25,079
864
0
77
76
22,543
42,275
3,117
4,287
2,360
72,222
2,041
8,726
10,767
0
82,989
1,561
9,544
0
97
47
26,020
11,201
15,947
959
16,906
42,926
419
146
565
11,766
310
3,864
2,425
3,741
925
66,435
47,237
5,543
15,098
10,355
67,528
49,460
5,559
13,688
9,202
10,337
134,310
136,234
273
174
446
0
10,783
10
117
0
27
0
154
128
0
128
282
43,175
14,331
57,506
18,056
209,873
18,942
228,815
26,650
10,525
0
200
123
43,074
14,467
57,541
21,619
215,393
16,864
232,258
22,259
12,033
160
774
515
37,376
35,226
16,494
1,106
17,599
54,975
11,615
629
12,243
47,469
n
o
i
t
a
m
r
o
f
n
i
l
a
i
c
n
a
n
i
F
305
Financial information
Notes to the consolidated financial statements
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
31.12.10
31.12.09
2,331
929
2,784
1,345
1,115
8,504
3,052
957
3,712
1,662
840
10,223
The maximum exposure to credit loss of all items in the above
table is equal to the fair value except CHF 856 million as of 31 De-
cember 2010 and CHF 840 million as of 31 December 2009 re-
ported in Other financial assets which are generally comprised of
equity investments that are not directly exposed to credit risk. The
maximum exposure to credit loss as of 31 December 2010 and
31 December 2009 is mitigated by collateral of CHF 3,929 million
and CHF 4,845 million, respectively.
The amount by which credit derivatives or similar instruments
mitigate the maximum exposure to credit loss of loans and struc-
tured 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 amount 1
Credit derivatives related to loans and structured loans – fair value 1
Additional Information
CHF million
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
31.12.10
31.12.09
4,075
1,730
(5)
4,224
2,699
90
For the year ended
Cumulative from inception
until the year ended
31.12.10
31.12.09
31.12.10
31.12.09
100
(94)
530
(435)
(27)
(5)
(128)
90
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 on the balance sheet date. Cur-
rent and cumulative changes in the fair value of credit derivatives hedging such loans include all the derivatives which have been used to mitigate the 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.
306
Note 13 Financial investments available-for-sale
CHF million
Financial investments available-for-sale by counterparty
Debt instruments
Government and government agencies 1
of which: Switzerland
of which: United States
of which: United Kingdom
of which: Japan
Banks 1
Corporates and other
Total debt instruments
Equity instruments
Total financial investments available-for-sale
unrealized gains – before tax
unrealized (losses) – before tax
Net unrealized gains / (losses) – before tax
Net unrealized gains / (losses) – after tax
31.12.10
31.12.09
67,552
3,206
38,070
8,303
6,541
5,091
765
73,409
1,359
74,768
514
(662) 2
(148)
(243)
76,938
646
47,282
4,741
3,950
2,937
531
80,406
1,351
81,757
577
(93)
484
375
CHF million
Level 1
Level 2
Level 3
Total
31.12.10
31.12.09
Financial investments available-for-sale by product
Debt instruments
Government bills / bonds
Corporate bonds, including bonds issued by financial institutions
Asset-backed securities
of which: mortgage-backed securities
Total debt instruments
Equity instruments
Shares
Investment fund units
Private equity investments
Total equity instruments
52,285
561
6
2
52,852
80
2
82
5,324
11,045
4,078
4,078
20,447
445
87
1
533
Total financial investments available-for-sale
52,935
20,980
32
64
13
13
110
496
23
224
743
853
57,642
11,670
4,097
4,093
73,409
1,021
110
227
1,359
74,768
64,908
14,688
810
807
80,406
862
119
370
1,351
81,757
1 From 2010 onwards, bills issued by the Swiss National Bank are reported within Government and government agencies. In previous years, these bills were presented within Banks. The comparative period has been
adjusted accordingly. 2 Includes losses of CHF 31 million with a duration of more than 12 months.
n
o
i
t
a
m
r
o
f
n
i
l
a
i
c
n
a
n
i
F
307
Financial information
Notes to the consolidated financial statements
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
31.12.10
31.12.09
870
19
(94)
0
86
(6)
(29)
(55)
790
892
14
(38)
(1)
42
(4)
(30)
(5)
870
Significant associated companies of the Group had the following balance sheet and income statement totals on an aggregated basis,
not adjusted for the Group’s proportionate interest. Refer to “Note 34 Significant subsidiaries and associates”.
CHF million
Assets
Liabilities
Revenues
Net profit
Note 15 Property and equipment
At historical cost less accumulated depreciation
31.12.10
31.12.09
6,391
4,391
1,371
239
5,155
3,248
1,468
319
CHF million
Historical cost
Own-used
properties
Leasehold
improvements
IT, software
and com-
munication
Other machines
and equipment
Projects
in progress
31.12.10
31.12.09
Balance at the beginning of the year
9,468
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
33
0
(36)
(90)
(55)
9,321
5,417
209
(20)
(34)
(25)
5,548
3,773
3,227
96
0
(304)
31
(218)
2,832
2,109
286
(280)
38
(148)
2,005
827
4,150
170
0
(185)
104
(237)
4,002
3,669
359
(182)
(0)
(220)
3,625
377
784
41
0
(77)
9
(58)
700
555
63
(66)
8
(43)
518
182
217
198
0
(0)
(186)
(15)
213
0
0
0
0
0
0
213
17,846
17,952
538
0
(602)
(132)
(583)
854
0
(736)
(227)
2
17,068
17,846
11,750
918
(548)
12
(437)
11,695
5,373
11,461
1,048
(644)
(104)
(12)
11,750
6,096
1 Includes write-offs of fully depreciated assets. 2 In 2010, amounts include CHF 1 million impairments of own-used property, CHF 40 million impairments of leasehold improvements and CHF 1 million impairments of
IT, software and communication. 3 Fire insurance value of property and equipment is CHF 13,481 million (2009: CHF 13,800 million).
Investment properties at fair value
CHF million
Balance at the beginning of the year
Additions
Sales
Revaluations
Reclassifications
Foreign currency translation
Balance at the end of the year
308
31.12.10
31.12.09
116
3
(23)
2
6
(10)
94
215
0
(60)
(37)
0
(2)
116
Note 16 Goodwill and intangible assets
Introduction
As of 31 December 2010, the following four segments carried
goodwill: Wealth Management (CHF 1.4 billion), Wealth Manage-
ment Americas (CHF 3.3 billion), Global Asset Management (CHF
1.4 billion), and Investment Bank (CHF 3.0 billion). For the pur-
pose of testing goodwill for impairment, UBS considers the seg-
ments as reported in Note 2a as separate cash-generating units,
and determines the recoverable amount of a segment on the ba-
sis of value in use.
As of 31 December 2010, equity attributable to UBS sharehold-
ers stood at CHF 47 billion, up from CHF 41 billion as of 31 De-
cember 2009. UBS’s market capitalization was approximately CHF
59 billion as of 31 December 2010 compared with CHF 57 billion
as of 31 December 2009. On the basis of the impairment testing
metho dology described below, UBS concluded that the year-end
2010 balances of goodwill allocated to its segments remain recov-
erable.
Methodology for goodwill impairment testing
The recoverable amount is determined using a discounted cash
flow model, which uses inputs that consider features of the bank-
ing business and its regulatory environment. The recoverable
amount is calculated by estimating streams of earnings available
to shareholders over the next five years, discounted to their pres-
ent values. The terminal value reflecting all periods beyond the
fifth year is calculated on the basis of the forecast of fifth-year
profit, the cost of equity and the long-term growth rate. For the
2010 test, the discount rates and long-term growth rates used to
calculate the present values of the cash-generating units remained
unchanged. The recoverable amount of a segment is the sum of
discounted earnings available to shareholders from the first five
individually forecast years and the terminal value.
The carrying amount for each segment is determined by refer-
ence to the Equity Attribution framework. Within this framework,
which is described in the Treasury management section of this
report, management attributes equity to the businesses after con-
sidering their risk exposure, asset size, goodwill and intangible
assets. Until the end of 2009, the carrying amount for each seg-
ment was determined by a roll-forward of the historic carrying
amount. The change in methodology for determining the carrying
amount of the cash-generating units from the roll-forward ap-
proach to the Equity Attribution framework was made in 2010 as
the principles underlying the Equity Attribution framework were
approved by the Board of Directors during the year. Moreover, the
framework became embedded in the Bank for purposes of mea-
suring the performance of each of its businesses. This new meth-
odology is aligned with the 2010 business planning process, the
inputs from which are used in calculating the recoverable amounts
of the respective cash-generating units.
Assumptions
The model used to determine the recoverable amount is most
sensitive to changes in the forecast earnings available to share-
holders in years one to five, the cost of equity and to changes in
the long-term growth rate. The applied long-term growth rate is
based on real growth rates and expected inflation. Earnings avail-
able to shareholders are estimated on the basis of forecast results,
which take into account business initiatives and planned capital
investments. Valuation parameters used within the Group’s im-
pairment test model are linked to external market information,
where applicable. Management believes that reasonable changes
in key assumptions used to determine the recoverable amounts of
all segments will not result in an impairment situation.
Discount and growth rates
In %
Wealth Management
Wealth Management Americas
Global Asset Management
Investment Bank
Discount rates
Growth rates
31.12.10
31.12.09
31.12.10
31.12.09
9.0
9.0
9.0
11.0
9.0
9.0
9.0
11.0
1.2
2.4
2.4
2.4
1.2
2.4
2.4
2.4
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309
Financial information
Notes to the consolidated financial statements
Note 16 Goodwill and intangible assets (continued)
Investment Bank / Wealth Management Americas
As in prior years, the assessment of the goodwill of the Invest-
ment Bank and Wealth Management Americas continued to be a
focus. In its review of the year-end 2010 goodwill balance, UBS
considered the performance outlook of its Investment Bank and
Wealth Management Americas business divisions and the under-
lying business operations to resolve whether the recoverable
amounts for these units cover their carrying amounts, based on
the methodology described above. On this basis, UBS concluded
that goodwill allocated to the Investment Bank and Wealth Man-
agement Americas remains recoverable on 31 December 2010.
The conclusion was reached on the basis of the current forecast
results and the underlying assumption that the economy will
gradually improve and reach an average growth level.
In addition, a stress test was performed employing the same
discounted cash flow model. The earnings used were based on an
economic stress scenario. Under this economic stress scenario, the
key macro economic drivers are severely reduced in the near term,
with a gradual recovery thereafter. The stressed values exceeded
the carrying values of all business divisions, including the Invest-
ment Bank and Wealth Management Americas. However, if the
regulatory pressure on the banking industry further intensifies and
conditions in the financial markets turn out to be worse than an-
ticipated in our performance forecasts, the goodwill carried in
these business divisions may need to be impaired in future periods.
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
31.12.10
31.12.09
10,115
20
(3)
0
(1,016)
9,115
0
0
0
0
0
0
0
9,115
787
0
0
0
(77)
710
361
40
0
0
0
(39)
362
348
894
14
0
(1)
(97)
809
426
65
12
0
(1)
(52)
450
359
1,680
11,795
14
0
(1)
(174)
1,519
787
105
12
0
(1)
(91)
812
707
34
(3)
(1)
(1,190)
10,634
787
105
12
0
(1)
(91)
812
13,716
70
(2,190)
0
199
11,795
781
144
1,180
(1,416)
0
99
787
9,822
11,008
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
Disposals
Write-offs 1
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year
1 Represents write-offs of fully amortized intangible assets.
310
Note 16 Goodwill and intangible assets (continued)
The following table presents the disclosure of goodwill and intangible assets by business unit for the year ended 31 December 2010.
Balance at
the beginning
of the year
Additions and
reallocations
Disposals
Amortization
Impairment
Foreign
currency
translation
Balance at
the end of
the year
CHF million
Goodwill
Wealth Management
Wealth Management Americas
Global Asset Management
Investment Bank
UBS
Intangible assets
Wealth Management
Wealth Management Americas
Global Asset Management
Investment Bank
UBS
1,510
3,655
1,610
3,341
10,115
137
526
49
182
893
20
20
3
10
14
(3)
(3)
(12)
(8)
(55)
(8)
(34)
(105)
(12)
The estimated, aggregated amortization expenses for intangible assets are as follows:
CHF million
Estimated, aggregated amortization expenses for:
2011
2012
2013
2014
2015
2016 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
Prime brokerage receivables
Other receivables
Total other assets
(178)
(352)
(161)
(325)
(1,016)
(18)
(46)
(5)
(15)
(83)
1,351
3,303
1,448
3,013
9,115
100
425
40
143
707
Intangible assets
93
88
81
74
73
298
707
31.12.10
31.12.09
708
275
3,174
302
16,395
1,827
22,681
915
209
3,053
568
16,347
2,590
23,682
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311
Financial information
Notes to the consolidated financial statements
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
Repurchase agreements
Loan commitments 1
Total
31.12.10
41,490
104,607
227,694
332,301
373,791
31.12.09
31,922
101,573
237,691
339,263
371,185
31.12.10
31.12.09
46,894
19,761
20,439
949
88,043
12,475
93
145
54,856
25,663
16,367
2,286
99,173
13,306
0
174
100,756
112,653
1 Loan commitments recognized as Financial liabilities designated at fair value, until drawn down and recognized as loans. See Note 1a) 8) for additional information.
As of 31 December 2010, the contractual redemption amount at maturity of Financial liabilities designated at fair value through
profit or loss was CHF 11.1 billion higher than the carrying value. As of 31 December 2009, the contractual redemption amount at
maturity of such liabilities was CHF 7.6 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
31.12.10
56,039
54,627
8,547
8,455
2,605
130,271
31.12.09
51,579
57,653
11,244
7,909
2,967
131,352
312
Note 19 Financial liabilities designated at fair value and debt issued (continued)
The Group uses interest rate and foreign exchange derivatives 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 De-
rivative Instruments and Hedge Accounting”. As a result of apply-
ing hedge accounting, as of 31 December 2010 and 31 Decem-
ber 2009, the carrying value of debt issued was CHF 913 million
higher and CHF 600 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. As of 31 December 2010 and 31 December 2009, the
Group had CHF 8,547 million and CHF 11,244 million, respec-
tively, in subordinated debt. Subordinated debt usually pays fixed
interest annually or floating-rate interest based on three-month or
six-month London Interbank Offered Rate (LIBOR) and provides
for single principal payments upon maturity.
As of 31 December 2010 and 31 December 2009, the Group
had CHF 153,730 million and CHF 167,702 million, respectively,
in unsubordinated debt (excluding money market paper, com-
pound debt instruments – OTC and loan commitments designat-
ed at fair value).
The following table shows the split between fixed-rate and
floating-rate debt issues based on the contractual terms. Howev-
er, it should be noted that the Group uses interest rate swaps to
hedge many of the fixed-rate debt issues, which changes their
re-pricing characteristics into those of floating-rate debt.
Contractual maturity dates
CHF million, except where indicated
2011
2012
2013
2014
2015
2016–2020
Thereafter
31.12.10
Total
Total
31.12.09
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
Subtotal
Total
66,270
0–10.0
14,378
9,108
0–10.0
11,349
18,435
0–10.0
6,507
0
0
0
0
0
0
8,010
0–10.0
5,045
397
3.34
0
9,061
0–8.4
6,436
18,044
0–9.5
5,811
9,839
0–8.0
9,847
138,767
130,356
59,372
68,375
1,049
3,914
1,052
6,412
7,167
2.38–7.38
3–7.38
6.38–8.75
0
1,703
29,471
431
2,134
21,170
206,685
4,077
209,975
80,648
20,457
24,942
13,452
16,546
8,742
0–8.38
816
9,558
90,206
266
0–9.62
1,058
1,324
21,781
315
0–2.82
881
1,197
26,139
155
0–7.63
818
973
39
0–7.4
1,423
1,462
14,424
18,008
869
0–8.25
1,587
2,456
31,928
4,009
0–10.0
3,363
7,372
14,396
19,494
9,947
24,342
14,537
34,030
28,542
231,027
244,005
1 The contractual interest rates on some minor positions of structured products were not considered in the interest rate ranges. The interest rates of these products are up to 35.76%.
The table above indicates fixed interest rate coupons on the
Group’s bonds. The high or low coupons generally relate to struc-
tured 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 application of hedge accounting.
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313
Financial information
Notes to the consolidated financial statements
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
Prime brokerage payables
Other payables 1
Total other liabilities
Note
21
9b
22
31.12.10
1,574
130
750
97
579
961
18,125
36,383
5,121
63,719
31.12.09
2,311
90
1,082
142
612
1,430
21,740
38,359
6,579
72,344
1 Includes third-party interest of consolidated limited partnerships of CHF 0.9 billion (2009: CHF 1.6 billion) and liabilities from cash-settled employee compensation plans of CHF 2.2 billion (2009: CHF 2.5 billion).
Note 21 Provisions and contingent liabilities
a) Provisions
CHF million
Balance at the beginning of the year
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 risks 1
82
Litigation 2
1,028
86
(22)
(79)
0
0
0
(11)
56
721
(88)
(960) 4
0
0
(20)
(63)
618
Restructuring
488
144
(93)
(199)
0
0
1
(60)
281
Other 3
713
106
(58)
(103)
(24)
0
23
(39)
619
Total
31.12.10
Total
31.12.09
2,311
1,056
(260)
(1,341)
(24)
0
4
(173)
1,574
2,727
1,346
(309)
(1,375)
3
(35)
90
(135)
2,311
1 Includes provisions for litigation resulting from security risks and transaction processing risks. 2 Includes litigation resulting from legal, liability and compliance risks. Additionally, includes a provision established
in connection with demands for repurchase of US mortgage loans sold or securitized by UBS, as described in section “c) Other contingent liabilities” of this note. 3 Includes reinstatement costs for leasehold improvement
which amounted to CHF 122 million on 31 December 2010 (CHF 161 million on 31 December 2009), provisions for onerous lease contracts, provisions for employee benefits (service anniversaries and sabbatical leave)
and other items. 4 Includes an amount of CHF 651 million relating to the settlement of the US cross-border case. The respective provision was recognized in 2008.
314
Note 21 Provisions and contingent liabilities (continued)
b) Litigation and regulatory matters
The UBS Group operates in a legal and regulatory environment
that exposes it to significant litigation risks. As a result, UBS (which
for purposes of this Note may refer to UBS AG and / or one or
more of its subsidiaries, as applicable) is involved in various dis-
putes and legal proceedings, including litigation, arbitration, and
regulatory and criminal investigations. 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,
particularly 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 pro-
visions for cases brought against it when, in the opinion of man-
agement after seeking legal advice, it is probable that a liability
exists, and the amount can be reliably estimated.
Certain potentially significant legal proceedings or threat-
ened proceedings as of 31 December 2010 are described be-
low. In some cases we provide the amount of damages claimed,
the size of a transaction or other information in order to assist
investors in considering the magnitude of any potential expo-
sure. We are unable to provide an estimate of the possible fi-
nancial effect of particular claims or proceedings (where the
possibility of an outflow is more than remote) beyond the level
of current reserves established. Doing so can be expected to
prejudice seriously our position in these matters and would re-
quire us to provide speculative legal assessments as to claims
and proceedings which involve unique fact patterns or novel
legal theories, have not yet been initiated or are at early stages
of adjudication, or as to which alleged damages have not been
quantified by the claimant. In many cases a combination of
these factors impedes our ability to estimate the financial effect
of contingent liabilities.
1) Municipal Bonds
In November 2006, UBS and others received subpoenas from the
Antitrust Division of the US Department of Justice (DOJ) and the
US Securities and Exchange Commission (SEC) seeking informa-
tion relating to the investment of proceeds of municipal bond is-
suances and associated derivative transactions. In addition, vari-
ous state Attorneys General have issued subpoenas seeking
similar information. The investigations are ongoing, and UBS is
cooperating. Several putative class actions also have been filed in
Federal District Courts against UBS and numerous other firms. In
the SEC investigation, on 4 February 2008, UBS received a “Wells
notice” advising that the SEC staff is considering recommending
that the SEC bring a civil action against UBS in connection with
the bidding of various financial instruments associated with mu-
nicipal securities. In December 2010, three former UBS employees
were indicted in connection with the Federal criminal antitrust
investigation. Discussions with the SEC, DOJ and a number of
state Attorneys General are ongoing.
2) Auction Rate Securities
UBS was the subject of an SEC investigation and state regulatory
actions relating to the marketing and sale of auction rate securi-
ties (ARS) to clients, and to UBS’s role and participation in ARS
auctions and underwriting of ARS. UBS was also named in several
putative class actions and individual civil suits and arbitrations.
The regulatory actions and investigations and the civil proceed-
ings followed the disruption in the markets for these securities
and related auction failures since mid-February 2008. At the end
of 2008 UBS entered into settlements with the SEC, the New York
Attorney General (NYAG) and the Massachusetts Securities Divi-
sion whereby UBS agreed to offer to buy back ARS from eligible
customers within certain time periods, the last of which began on
30 June 2010, and to pay penalties 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 settle-
ments. UBS has settled with the majority of states and is continu-
ing to finalize settlements with the rest. The fines being paid in
these state settlements are being charged against the USD 150
million provision that was established in 2008. The SEC continues
to investigate individuals affiliated with UBS regarding the trading
in ARS and disclosures. During the third quarter of 2010, a claim-
ant alleging consequential damages from the illiquidity of ARS
was awarded approximately USD 80 million by an arbitration
panel and UBS has booked a provision of CHF 78 million relating
to the case. UBS moved in state court to vacate the award and
oral argument was heard on that motion in December 2010. UBS
is the subject of other pending arbitration and litigation claims by
clients and issuers relating to ARS.
3) Inquiries Regarding Cross-Border Wealth Management
Businesses
Following the disclosure and the settlement of the US cross-border
matter, tax and regulatory authorities in a number of countries
have made inquiries and served requests for information located in
their respective jurisdictions relating to the cross-border wealth
management services provided by UBS and other financial institu-
tions. UBS is cooperating with these requests within the limits of
financial privacy obligations under Swiss and other applicable laws.
4) 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, arbitra-
tions and disputes related to the credit crisis and in particular
315
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Financial information
Notes to the consolidated financial statements
Note 21 Provisions and contingent liabilities (continued)
mortgage-related securities and other structured transactions
and derivatives. In particular, the SEC is investigating UBS’s valu-
ation of super senior tranches of collateralized debt obligations
(CDOs) during the third quarter of 2007 and UBS’s reclassifica-
tion of financial assets pursuant to amendments to IAS 39 dur-
ing the fourth quarter of 2008. UBS has provided documents
and testimony to the SEC and is continuing to cooperate with
the SEC in its investigation. UBS has also communicated with
and has responded to other inquiries by various governmental
and regulatory authorities, including the Swiss Financial Market
Supervisory Authority (FINMA), the UK Financial Services Author-
ity (FSA), the SEC, the US Financial Industry Regulatory Authority
(FINRA), the Financial Crisis Inquiry Commission (FCIC), the New
York Attorney General, and the US Department of Justice, con-
cerning various matters related to the credit crisis. These matters
concern, among other things, UBS’s (i) disclosures and write-
downs, (ii) interactions with rating agencies, (iii) risk control,
valuation, structuring and marketing of mortgage-related instru-
ments, and (iv) role as underwriter in securities offerings for
other issuers.
5) Lehman Principal Protection Notes
From March 2007 through September 2008, UBS sold approxi-
mately USD 1 billion face amount of structured notes issued by
Lehman Brothers Holdings Inc. (“Lehman”), a majority of which
were referred to as “principal protection notes,” reflecting the
fact that while the notes’ return was in some manner linked to
market indices or other measures, some or all of the investor’s
principal was an unconditional obligation of Lehman as issuer of
the notes. UBS has been named along with other defendants in a
putative class action alleging materially misleading statements
and omissions in the prospectuses relating to these notes and as-
serting claims under US securities laws. UBS has also been named
in numerous individual civil suits and customer arbitrations (some
of which have resulted in settlements or adverse judgments), was
named in a proceeding brought by the New Hampshire Bureau of
Securities, and is responding to investigations by other state regu-
lators and FINRA relating to the sale of these notes to UBS cus-
tomers. The customer litigations and regulatory investigations re-
late primarily to whether UBS adequately disclosed the risks of
these notes to its customers.
6) Claims Related to Sales of RMBS and Mortgages
in the early stages of discovery. Of the original face amount of RMBS
at issue in these cases, approximately USD 4.5 billion was issued in
offerings in which a UBS subsidiary transferred underlying loans (the
majority of which were purchased from third party originators) into
a securitization trust and made representations and warranties
about those loans. The remaining USD 34.5 billion of RMBS to
which these cases relate was issued in third-party securitizations
where UBS acted as underwriter. In connection with most of the
claims included in this latter category, UBS currently expects to be
indemnified by the issuers against any loss or liability. These RMBS-
related claims include cases in which UBS is named as a defendant
in litigation by insurers of RMBS seeking recovery of insurance paid
to RMBS investors. These insurers allege that UBS and other RMBS
underwriters aided and abetted misrepresentations and fraud by
RMBS issuers, and claim equitable and contractual subrogation
rights. UBS has also been contacted by certain government-spon-
sored enterprises requesting that UBS repurchase USD 2 billion of
securities issued in UBS-sponsored RMBS offerings.
As described below under “c) Other contingent liabilities”,
UBS also has contractual obligations to repurchase US residential
mortgage loans as to which its representations made at the time
of transfer prove to have been materially inaccurate. Contested
loan repurchase demands relating to loans with an initial principal
balance of USD 30 million are the subject of litigation.
7) Claims Related to UBS Disclosure
A putative consolidated class action has been filed in the United
States District Court for the Southern District of New York against
UBS, a number of current and former directors and senior officers
and certain banks that underwrote UBS’s May 2008 Rights Offer-
ing (including UBS Securities LLC) alleging violation of the US se-
curities laws in connection with the firm’s disclosures relating to
its positions and losses in mortgage-related securities, its positions
and losses in auction rate securities, and its US cross-border busi-
ness. Defendants have moved to dismiss the complaint for failure
to state a claim. UBS, a number of senior officers and employees
and various UBS committees have also been sued in a putative
consolidated class action for breach of fiduciary duties brought on
behalf of current and former participants in two UBS Employee
Retirement Income Security Act (ERISA) retirement plans in which
there were purchases of UBS stock. Defendants have moved to
dismiss the ERISA complaint for failure to state a claim.
8) Madoff
From 2002 through about 2007, UBS was a substantial underwriter
and issuer of US residential mortgage-backed securities (RMBS).
UBS has been named as a defendant relating to its role as under-
writer and issuer of RMBS in more than 20 lawsuits relating to at
least USD 39 billion in original face amount of RMBS underwritten
or issued by UBS. Most of the lawsuits are in their early stages. Many
have not advanced beyond the motion to dismiss phase; some are
In relation to the Bernard L. Madoff Investment Securities LLC
(BMIS) investment fraud, UBS AG, 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-
316
Note 21 Provisions and contingent liabilities (continued)
embourg law, substantially all assets of which were with BMIS,
as well as certain funds established under offshore jurisdictions
with either direct or indirect exposure to BMIS. These funds now
face severe losses, and the Luxembourg funds are in liquidation.
The last reported net asset value of the two Luxembourg funds
before revelation of the Madoff scheme was approximately USD
1.7 billion in the aggregate, although that figure likely includes
fictitious profit reported by BMIS. The documentation establish-
ing both funds identifies UBS entities in various roles including
custodian, administrator, manager, distributor and promoter,
and indicates that UBS employees serve as board members. Be-
tween February and May 2009 UBS (Luxembourg) SA responded
to criticisms made by the CSSF in relation to its responsibilities as
custodian bank and demonstrated to the satisfaction of the
CSSF that it has the infrastructure and internal organization in
place in accordance with professional standards applicable to
custodian banks in Luxembourg. In December 2009 and March
2010 the liquidators of the two Luxembourg funds filed claims
on behalf of the funds against UBS entities, non-UBS entities
and certain individuals including current and former UBS em-
ployees. The amounts claimed are approximately EUR 890 mil-
lion and EUR 305 million respectively. In addition, a large number
of alleged beneficiaries have filed claims against UBS entities
(and non-UBS entities) for purported losses relating to the
Madoff scheme. The majority of these cases are pending in Lux-
embourg, where appeals have been filed against the March
2010 decisions of the court in which the claims in a number of
test cases were held to be inadmissible. In the US, the BMIS
Trustee has filed claims against UBS entities, amongst others, in
relation to the two Luxembourg funds and one of the offshore
funds. A claim was filed in November 2010 against 23 defen-
dants including UBS entities, the Luxembourg and offshore
funds concerned and various individuals, including current and
former UBS employees. The total amount claimed against all de-
fendants is no less than USD 2 billion. A second claim was filed
in December 2010 against 16 defendants including UBS entities
and the Luxembourg fund concerned. The total amount claimed
against all defendants is not less than USD 555 million. In Ger-
many, certain clients of UBS are exposed to Madoff-managed
positions through third-party funds and funds administered by
UBS entities in Germany. A small number of claims have been
filed with respect to such funds.
9) Transactions with City of Milan and Other Italian Public
Sector Entities
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 between 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 asserted to have been
made by the banks in an amount of approximately EUR 88 million
(of which UBS Limited is alleged to have received approximately
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. In addition, two current UBS employees
and one former employee, together with employees from other
banks, a former City officer and a former adviser to the City, are
facing a criminal trial for alleged “aggravated fraud” in relation to
the City’s 2005 bond issue and the execution, and subsequent
restructuring, of certain related derivative transactions. The pri-
mary allegation is that UBS Limited and the other international
banks fraudulently obtained hidden and / or illegal profits by en-
tering into the derivative contracts with the City of Milan. The
banks also face an administrative charge of failing to have in place
a business organizational model to avoid the alleged misconduct
by employees, the sanctions for which could include a limitation
on activities in Italy. The City has separately asserted claims for
damages against UBS Limited and UBS individuals in relation to
this alleged failure. A number of transactions with other public
entity counterparties in Italy have also been called into question or
become the subject of legal proceedings and claims for damages
and other awards. These include derivative transactions with the
Regions of Calabria, Tuscany, Lombardy and Lazio and the City of
Florence. UBS has itself issued proceedings before English courts
in connection with a number of derivative transactions with Ital-
ian public entities, including some of those mentioned above,
aimed at obtaining declaratory judgments as to the legitimacy of
UBS’s behavior.
10) HSH Nordbank AG (HSH)
HSH has filed an action against UBS in New York State court relat-
ing to USD 500 million of notes acquired by HSH in a synthetic
CDO transaction known as North Street Referenced Linked Notes,
2002-4 Limited (NS4). The notes were linked through a credit de-
fault swap between the NS4 issuer and UBS to a reference pool of
corporate bonds and asset-backed securities. HSH alleges that
UBS knowingly misrepresented the risk in the transaction, sold
HSH notes with “embedded losses”, and improperly profited at
HSH’s expense by misusing its right to substitute assets in the ref-
erence pool within specified parameters. HSH is seeking USD 500
million in compensatory damages plus pre-judgment interest. The
case was initially filed in 2008. Following orders issued in 2008
and 2009, in which the court dismissed most of HSH’s claims and
its punitive damages demand and later partially denied a motion
to dismiss certain repleaded claims, the claims remaining in the
case are for fraud, breach of contract and breach of the implied
covenant of good faith and fair dealing. Both sides have appealed
the court’s most recent partial dismissal order, and a decision on
the appeal is pending.
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Notes to the consolidated financial statements
Note 21 Provisions and contingent liabilities (continued)
11) Kommunale Wasserwerke Leipzig GmbH (KWL)
In 2006 and 2007, KWL entered into a series of managed Credit
Default Swap transactions with bank swap counterparties, includ-
ing UBS. Under the CDS contracts between KWL and UBS, the last
of which were terminated by UBS on 18 October 2010, a net sum
of approximately USD 138 million has fallen due from KWL but not
been paid. In January 2010, UBS issued proceedings in the English
High Court against KWL seeking various declarations from the Eng-
lish court, in order to establish that the swap transaction between
KWL and UBS is valid, binding and enforceable as against KWL. On
15 October 2010, the English court dismissed an application by
KWL contesting its jurisdiction, and ruled that it has jurisdiction and
will hear the proceedings. On 18 October 2010, UBS issued a fur-
ther claim against KWL in the English court seeking declarations
concerning the validity of UBS’s early termination on that date of
the remaining CDS with KWL. On 11 November 2010, the English
Supreme Court ruled in a case concerning similar jurisdictional is-
sues, but not involving UBS, that certain questions should be re-
ferred to the European Court of Justice. Thereafter, KWL was grant-
ed permission to appeal certain jurisdictional aspects of its claim,
and the court ordered a temporary stay of the proceedings related
to UBS’s claim for a declaration as to validity. In March 2010, KWL
issued proceedings in Leipzig, Germany, against UBS and other
banks involved in these contracts, claiming that the swap transac-
tions are void and not binding on the basis of KWL’s allegation that
KWL did not have the capacity or the necessary internal authoriza-
tion to enter into the trans actions and that the banks knew this.
UBS is contesting the claims and has also contested the jurisdiction
of the Leipzig court. The Leipzig court indicated in August 2010 that
it did not have jurisdiction over KWL’s claim. Subsequently, KWL
made a further submission in October 2010 making additional
allegations including fraudulent collusion by UBS employees. On
15 February 2011, the Leipzig court proposed that the proceedings
in Leipzig be stayed against UBS and the other banks pending the
outcome of the appeal on the jurisdiction aspects in England.
The other two banks that entered into CDS transactions with
KWL entered into back-to-back CDS transactions with UBS. In
c) Other contingent liabilities
April 2010, UBS issued separate proceedings in the English High
Court against those bank swap counterparties seeking declara-
tions as to the parties’ obligations under those transactions. The
aggregate amount that UBS contends is outstanding under those
transactions is approximately USD 189 million. These English pro-
ceedings are also currently stayed.
It is reported that in January 2011, the former managing direc-
tor of KWL and two financial advisers were convicted on criminal
charges related to certain KWL transactions, including swap trans-
actions with UBS and other banks.
12) Puerto Rico
The SEC has been investigating UBS’s secondary market trading
and associated disclosures involving shares of closed-end funds
managed by UBS Asset Managers of Puerto Rico, principally in
2008 and 2009. In November 2010, the SEC issued a “Wells
notice” to two UBS subsidiaries, advising them that the SEC
staff is considering whether to recommend that the SEC bring a
civil action against them relating to these matters. We believe
that the negative financial results, if any, to shareholders of the
funds who traded their shares through UBS during the relevant
periods were less than USD 5 million in the aggregate. There is,
however, no assurance that the SEC’s staff will agree with UBS’s
analysis.
13) LIBOR
UBS has received subpoenas from the SEC, the US Commodity
Futures Trading Commission and the US Department of Justice in
connection with investigations regarding submissions to the Brit-
ish Bankers’ Association, which sets LIBOR rates. UBS understands
that the investigations focus on whether there were improper at-
tempts by UBS, either acting on its own or together with others,
to manipulate LIBOR rates at certain times. In addition, UBS has
received an order to provide information to the Japan Financial
Supervisory Agency concerning similar matters. UBS is conducting
an internal review and is cooperating with the investigations.
Demands Related to Sales of Mortgages and RMBS
For several years prior to the crisis in the US residential mortgage
loan market, UBS sponsored securitizations of US residential
mortgage-backed securities (RMBS) and was a purchaser and
seller of US residential mortgages. A subsidiary of UBS, UBS Real
Estate Securities Inc. (“UBS RESI”), acquired pools of residential
mortgage loans from originators and (through an affiliate) depos-
ited them into securitization trusts. In this manner, from 2004
through 2007 UBS RESI sponsored approximately USD 80 billion
in RMBS, based on the original principal balances of the securities
issued. The overall market for privately issued US RMBS during
this period was approximately USD 3.9 trillion.
UBS RESI also sold pools of loans acquired from originators to
third-party purchasers. These whole loan sales during the period
2004 through 2007 totaled approximately USD 19 billion in origi-
nal principal balance.
UBS was not a significant originator of US residential loans. A
subsidiary of UBS originated approximately USD 1.5 billion in US
residential mortgage loans during the period in which it was active
from 2006 to 2008, and securitized less than half of these loans.
318
Note 21 Provisions and contingent liabilities (continued)
When UBS acted as an RMBS sponsor or mortgage seller, it
generally made certain representations relating to the characteris-
tics of the underlying loans. In the event of a material breach of
these representations, UBS was in most cases contractually obli-
gated to repurchase the loans to which they related or to indem-
nify certain parties against losses. UBS has been notified by cer-
tain institutional purchasers and insurers of mortgage loans and
RMBS that possible breaches of representations may entitle the
purchasers to require that UBS repurchase the loans or to other
relief. UBS has received relatively few repurchase demands and
has repurchased only a small fraction of the underlying loans.
In the period from 2006 through 2009, UBS received demands
to repurchase loans having an original principal balance of ap-
proximately USD 356 million in the aggregate. Of that principal
balance of USD 356 million, UBS has repurchased or agreed to
repurchase loans accounting for about 5%. Repurchase demands
accounting for about 45% were rescinded after rebuttal by UBS.
Demands accounting for a further 41% either were rebutted by
UBS but not rescinded (and are the subject of ongoing discus-
sions) or were not pursued by the party making the demand. Re-
purchase demands accounting for about 9% are the subject of
ongoing litigation.
In 2010, UBS received demands to repurchase additional loans
having an original principal balance of approximately USD 350
million. Of that principal balance of USD 350 million, UBS has
agreed to repurchase loans accounting for about 12%, repur-
chase demands accounting for about 67% have been rebutted by
UBS but not rescinded, UBS continues to review repurchase de-
mands accounting for about 15%, and demands accounting for
about 6% are being resolved between the repurchase requestor
and the originators of the loans. UBS expects that the majority of
the underlying loans subject to these 2010 repurchase demands
will ultimately not be required to be repurchased. Since 1 January
2011 UBS has received demands to repurchase additional loans
having an original principal balance of approximately USD 5 mil-
lion. Those loans are under review.
UBS established by the end of the fourth quarter 2010 a USD
97 million provision based on its best estimate of the loss arising
from loan repurchase demands received from 2006 through 2010
to which UBS has agreed, or which UBS has rebutted but which
are unresolved, and for certain anticipated loan repurchase de-
mands of which UBS has been informed. It is not yet clear when
or to what extent this provision will be utilized in connection with
actual repurchases or indemnity payments, because both the sub-
mission of anticipated demands and the timing of resolution of
such demands are uncertain. We nevertheless expect that most of
the repurchases and payments related to the demands received in
2010, excluding any that become the subject of litigation, will
occur in 2011.
UBS has made indemnity payments in amounts equivalent to
62% of the original principal balance of already-liquidated loans
that were the subject of 2010 demands to which UBS agreed.
With respect to unliquidated loans that UBS agreed to repurchase
in response to demands made in 2010, UBS does not yet have
sufficient information to estimate the charge it will recognize
upon repurchase. Losses upon repurchase will reflect the estimat-
ed value of the loans in question at the time of repurchase as well
as, in some cases, partial repayment by the borrowers prior to
repurchase. It is not possible to predict future indemnity rates or
percentage losses upon repurchase for reasons including timing
and market uncertainties as well as possible differences in the
characteristics of loans that may be the subject of future demands
compared to those that have been the subject of past demands.
In most instances in which UBS would be required to repur-
chase loans or indemnify against losses due to misrepresenta-
tions, UBS would be able to assert demands against third-party
loan originators who provided representations when selling the
related loans to UBS. However, many of these third parties are
insolvent or no longer exist. UBS estimates that, of the total origi-
nal principal balance of loans sold or securitized by UBS from
2004 through 2007, less than 50% was purchased from third-
party originators that remain solvent. In respect of loans that UBS
has agreed to repurchase pursuant to demands received in 2010,
UBS has in turn asserted indemnity or repurchase demands
against third parties for loans with an aggregate original principal
balance of USD 29 million. Only a small number of UBS’s demands
have been resolved, and UBS has not recognized any asset in re-
spect of the unresolved demands.
We cannot reliably estimate the level of future repurchase de-
mands, and do not know whether UBS’s past success rate in re-
butting such demands will be a good predictor of future success.
We also cannot reliably estimate the timing of any such demands.
As described above under “b) Litigation and regulatory mat-
ters”, UBS is also subject to claims and threatened claims in con-
nection with its role as underwriter and issuer of RMBS, and cer-
tain loan repurchase demands are also the subject of litigation.
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Financial information
Notes to the consolidated financial statements
Note 22 Income taxes
CHF million
Tax expense from continuing operations
Domestic
Current
Deferred
Foreign
Current
Deferred
Total income tax expense / (benefit) from continuing operations
Tax expense from discontinued operations
Domestic
Total income tax expense from discontinued operations
Total income tax expense / (benefit)
For the year ended
31.12.10
31.12.09
31.12.08
(75)
668
300
(1,273)
(381)
0
0
(381)
55
23
462
(983)
(443)
0
0
(443)
(336)
(7,282)
519
262
(6,837)
1
1
(6,836)
The deferred tax benefit reflects the recognition of additional de-
ferred tax assets in respect of tax losses and temporary differences
in a number of foreign locations including the US (CHF 1,161
million) and Japan (CHF 98 million), taking into account updated
forecast taxable profit assumptions over the five-year horizon
used for recognition purposes. This was partly offset by a Swiss
net deferred tax expense as Swiss tax losses for which deferred tax
assets have previously been recognized were used against profits
for the year (tax expense of CHF 1,409 million), which was itself
partly offset by an upwards revaluation of Swiss deferred tax as-
sets taking into account revised forecast profit assumptions (tax
benefit of CHF 741 million).
The current tax expense relates to tax expenses in respect of
taxable profits in the Group partly offset by tax benefits of CHF
261 million arising from the agreement of prior year positions with
tax authorities in various locations. In addition, there is a deferred
tax expense of CHF 3 million relating to prior years. The net tax
benefits relating to prior years were therefore CHF 258 million.
The Group made net corporate income tax payments, including
domestic and foreign taxes, of CHF 498 million, CHF 505 million
and CHF 887 million in 2010, 2009 and 2008 respectively.
The components of operating profit before tax, and the differ-
ences between income tax expense reflected in the financial
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 2010 and 2009, 22% for 2008
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 expenses and additional taxable income
Adjustments related to prior years
Change in deferred tax valuation allowances
Other items
Income tax expense / (benefit) from continuing operations
320
For the year ended
31.12.10
31.12.09
7,455
5,999
1,456
1,603
(49)
275
(1,225)
(889)
1,985
(258)
(1,820)
(3)
(381)
(2,561)
4,871
(7,433)
(551)
(1,636)
1,188
(79)
(932)
1,012
(65)
552
69
(443)
31.12.08
(27,758)
3,269
(31,027)
(6,107)
(7,056)
7,412
(10)
(773)
897
(490)
(692)
(17)
(6,837)
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 1
Tax loss carry-forwards 1
Trading assets 1
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
31.12.10
Valuation
allowance
(1,791)
(19,546)
(999)
(1,776)
(24,112)
Recognized
201
8,929
165
226
9,522
Gross
1,993
28,474
1,164
2,002
33,634
31.12.09
Valuation
allowance
(1,983)
(23,699)
(765)
(2,215)
(28,661)
Gross
2,204
31,945
923
2,458
37,529
0
0
25
1
40
31
97
Recognized
221
8,246
158
243
8,868
5
1
60
0
61
15
142
1 As compared to the figures stated in the tax note to the 2009 consolidated financial statements, the gross deferred tax assets and valuation allowance in the comparatives for 31 December 2009 have each been in-
creased by a net amount of CHF 224 million, resulting in no change in the deferred tax assets recognized. The net increase is made up of i) an increase for compensation and benefits of CHF 422 million, ii) an increase
for trading assets of CHF 362 million and iii) a decrease for tax loss carry-forwards of CHF 560 million.
Certain deferred tax asset and liability movements are recognized
directly in the statement of changes in equity and in the state-
ment of comprehensive income, including the effects of exchange
rate changes on tax assets and liabilities denominated in curren-
cies other than Swiss francs. In particular, in 2010, deferred tax
assets of CHF 318 million were recognized directly in Equity for
the increased recognition of those Swiss tax losses incurred in pre-
vious years that are of an equity nature for IFRS accounting pur-
poses (2009: CHF 203 million).
In the table above, the valuation allowance represents amounts
that are not expected to provide future benefits due to insuffi-
ciency of future taxable income.
UBS AG Switzerland and certain overseas branches and sub-
sidiaries of the Group have deferred tax assets related to tax loss
carry-forwards and other items as shown in the table above. For
entities that incurred tax losses in either the current or preceding
year, an amount of CHF 9,147 million is recognized as deferred
tax assets as of 31 December 2010 (CHF 8,773 million as of
31 December 2009). These deferred tax assets mainly relate to
Swiss tax losses (primarily due to the write-down of investments
in US subsidiaries in 2007 and 2008) and US tax losses.
The deferred tax assets recognized as of 31 December 2010 in
respect of tax losses have been based on profitability assumptions
over the five-year horizon. The expected future profitability is
based on business plan assumptions, as adjusted to take into ac-
count the recognition criteria of IAS 12. If the business plan earn-
ings and assumptions in future periods substantially deviate from
the current assumptions, the amount of deferred tax assets may
need to be adjusted in the future.
As of 31 December 2010, tax losses totaling CHF 51,355 million
which are not recognized as deferred tax assets are available to be
offset against future taxable income. As of 31 December 2009,
there were tax losses of CHF 72,313 million, which were not recog-
nized as deferred tax assets and were available to be offset against
future taxable income and potential tax adjustments. The tax losses
not recognized reduced during 2010 because of their utilization
against profits for the year, the increased recognition of deferred tax
assets for losses brought forward, foreign exchange rate effects on
the Swiss franc value of overseas losses and a change as of 31 De-
cember 2010 as compared to the prior year in terms of presenting
the unrecognized tax losses net of any potential tax adjustments.
The tax losses not recognized as deferred tax assets as of 31 De-
cember 2010 expire as follows:
CHF million
Within 1 year
From 2 to 5 years
From 6 to 10 years
From 11 to 20 years
No expiry
Total
31.12.10
0
3,184
54
36,943
11,174
51,355
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Notes to the consolidated financial statements
Note 22 Income taxes (continued)
In general, Swiss tax losses can be carried forward for seven
years, US federal tax losses for 20 years and UK and Jersey tax
losses for an unlimited period.
The Group provides for deferred income taxes on undistributed
earnings of subsidiaries except to the extent that those earnings
are indefinitely invested. As of 31 December 2010, no such earn-
ings were treated as indefinitely invested.
For the reasons set out in Note 33, as compared to UBS’s fourth
quarter 2010 report issued on 8 February 2011, the tax benefit for
the year in the income statement is CHF 320 million higher, the
deferred tax benefit recognized in equity is CHF 315 million lower
and deferred tax assets recognized at 31 December 2010 are CHF
5 million higher.
Note 23 Derivative instruments and hedge accounting
Derivatives: overview
A derivative is a financial instrument, the value of which is derived
from the value of some other variable (“underlying”). These un-
derlyings may be indices, exchange or interest rates, or the value
of shares, commodities, bonds, or other financial instruments.
The majority of derivative contracts are negotiated with respect to
notional amounts, as well as tenor, price and settlement mecha-
nisms, as is customary with other financial instruments.
The notional amount of a derivative is generally the quantity of
the underlying instrument on which the derivative contract is
based, and is the reference against which changes in the value of
the derivative are measured. Notional values in themselves are
generally not a direct indication of the values which are exchanged
between parties, and are therefore not a direct measure of risk or
financial exposure, but are viewed as an indication of the volume
of types of derivatives entered into by the Group.
Over-the-counter (OTC) contracts are usually traded under an
International Swaps and Derivatives Association (ISDA) master
trading agreement (MTA) between UBS and its counterparties.
Such contracts are negotiated directly with counterparties, at
terms agreed between those parties, and will have industry-stan-
dard settlement mechanisms prescribed by ISDA. Other derivative
contracts are standardized in terms of their amounts and settle-
ment dates, and are bought and sold on organized exchanges;
the latter are referred to as exchange-traded derivatives (ETD)
contracts. Exchanges offer the benefits of pricing transparency,
daily settlement of changes in value at the exchange, and conse-
quently reduced credit risk. In 2010, industry norms have resulted
in increased use of exchanges in favor of OTC trading and settle-
ment mechanisms, a trend which is expected to continue.
Derivative instruments which are transacted in the OTC mar-
ket are carried at fair value on the face of the balance sheet and
classified as Positive replacement values and Negative replace-
ment values, both on the balance sheet, and in the notes to the
accounts. Derivative instruments which trade at an exchange
are classified as either Due from or Due to banks and customers.
The treatment of exchange-traded derivatives in this manner is
an indication the Group has a receivable from, or payable to, an
exchange for the change in fair value from the previous day.
322
Products which receive this treatment are futures contracts,
100%-daily margined exchange-traded options, interest rate
swaps transacted with the London Clearing House, and certain
credit derivative contracts.
Principles and techniques applied in the measurement of fair
value derivative instruments are discussed in Note 27a). Positive
replacement values represent the amount the Group would re-
ceive if the derivative contract were settled in full on the balance
sheet date. Negative replacement values indicate the value at
which the Group would extinguish its obligations in respect of the
underlying contract, were it able and required to do so. It is not
industry standard for derivative contracts to be settled or extin-
guished before their maturity, as stated in, and governed by, ISDA
or the applicable exchange.
All contracts at an exchange are settled net, with the net re-
ceivable or payable, as reported by the applicable exchange, re-
corded on the balance sheet. The Group may avail itself of netting
provisions for OTC contracts, which do not settle via exchange, if
all necessary conditions exist. Those conditions are: contracts with
the same legal counterparty; legally enforceable rights to set off
amounts due; common maturity dates; and an intention to settle
net, which is evidenced by current practice. Changes in the re-
placement values of derivatives transacted in trading businesses
are recorded in net trading income, unless the derivatives are des-
ignated and effective as hedging instruments in certain types of
hedge accounting relationships as described in “Note 1a) 15) De-
rivative instruments and hedge accounting”.
Types of derivative instruments
The Group uses the following derivative financial instruments for
both trading and hedging purposes. Through the use of the prod-
ucts listed below the Group is engaged in extensive high volume
market making and client facilitation trading referred to as the
flow business. Measurement techniques applied to determine the
fair value of each product type are described in Note 27c).
The main types of derivative instruments used by the Group are:
– Options and warrants: 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
Note 23 Derivative instruments and hedge accounting (continued)
quantity of a financial instrument or commodity at a predeter-
mined price. The purchaser pays a premium to the seller for
this right. Options involving more complex payment structures
are also transacted. Options may be traded in the OTC market
or on a regulated exchange and may be traded in the form of
a security (warrant).
– Swaps: Swaps are transactions in which two parties exchange
cash flows on a specified notional amount for a predetermined
period.
– Forwards and futures: 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 agreements that are transacted between counter-
parties in the OTC market, whereas futures are standardized
contracts transacted on regulated exchanges.
– Cross-currency: Cross-currency swaps involve the exchange of
interest payments based on two different currency principal
balances and reference interest rates and generally also entail
exchange of principal amounts at the start and / or end of the
contract. Most cross-currency swaps are traded in the OTC
market.
The main underlying products used by the Group are:
– Interest rate contracts: Interest rate products include interest
rate swaps, swaptions and caps and floors.
– Credit derivatives: Credit default swaps (CDSs) are the most
common form of a credit derivative, under which the party
buying protection makes one or more payments to the party
selling protection in exchange for an undertaking by the seller
to make a payment to the buyer following a credit event (as
defined in the contract) with respect to a third-party credit en-
tity (as defined in the contract). Settlement following a credit
event may be a net cash amount or cash in return for physical
delivery of one or more obligations of the credit entity and is
made regardless of whether the protection buyer has actually
suffered a loss. After a credit event and settlement, the con-
tract is terminated. An elaboration of credit derivatives is in-
cluded in a separate section below.
– Total return swaps (TRSs): TRSs are employed in both the In-
vestment Bank’s fixed income and equity trading businesses
with underlyings which are generally equity or fixed income
indices, loans or bonds. TRSs are structured with one party
making payments based on a set rate, either fixed or variable,
and the other party making payments based on the return of
an underlying asset, which includes both the profit or loss it
generates and any changes in its value.
– Foreign exchange contracts: Foreign exchange contracts will
include spot, forward and cross-currency swaps and options
and warrants. Forward purchase and sale currency contracts
are typically executed to meet customer needs and for trading
and hedging purposes.
– Equity / Index contracts: The Group uses equity derivatives
linked to single names, indices and baskets of single names
and indices. The indices used may be based on a standard mar-
ket index, or may be defined by UBS. The product types traded
include vanilla listed derivatives, both options and futures, total
return swaps, forwards and exotic OTC contracts.
– Commodities contracts: The Group has an established com-
modity derivatives trading business, which includes the com-
modity index and the recently added flow business. The index
business is a client facilitation business trading exchange trad-
ed funds, OTC swaps and options on commodity indices. The
underlying indices cover third party and UBS defined indices
such as the UBS Bloomberg Constant Maturity Commodity
Index and the Dow Jones UBS Commodity indices. The flow
business is investor led and incorporates both ETD and vanilla
OTC products, for which the underlying covers the agriculture,
base metals and energy sectors. All of the flow trading is cash
settled with no physical delivery of the underlying.
– Precious metals: The Group has a well established precious met-
als ability in both flow and non-vanilla OTC products in-
corporating both physical and non-physical trading. The flow
business is investor led and products include ETD, vanilla OTCs
and certain non-vanilla OTCs. The vanilla OTCs are in forwards,
swaps and options. The non-vanilla OTC business relates to cash
settled forwards similar in nature to non deliverable forwards,
meaning there is no physical delivery of the underlying.
Usage of derivative instruments at UBS
Derivatives transacted for trading purposes
Most of the Group’s derivative transactions relate to sales and
trading activities. Sales activities include the structuring and mar-
keting of derivative products to customers to enable them to take,
transfer, modify or reduce current or expected risks. Trading ac-
tivities include market making, positioning and arbitrage activi-
ties. 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 mar-
ket risk positions with the expectation of profiting from favorable
movements in prices, rates or indices. Arbitrage activities involve
identifying and profiting from price differentials between the
same product in different markets or the same economic factor in
different products.
Detailed example: Credit derivatives
UBS is an active dealer in the fixed income market, including CDSs
and related products, with respect to a large number of issuer’s
securities. 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 (pro-
prietary trading).
Market making activity consists of buying and selling single-
name CDSs, index CDSs, loan CDSs and related referenced cash
instruments to facilitate client trading activity. Proprietary trading
323
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Notes to the consolidated financial statements
Note 23 Derivative instruments and hedge accounting (continued)
consists of trading in single-name CDSs, index CDSs and loan
CDSs to capitalize on pricing discrepancies between various cred-
it instruments (bonds, loans and equities) across investment
grade, high-yield and emerging markets.
market conventions based on the type of reference entity to
which the transaction relates. Applicable credit events by market
con ventions include “bankruptcy”, “failure to pay”, “restructur-
ing”, “obligation acceleration” and “repudiation / moratorium”.
UBS actively utilizes CDSs to economically hedge specific coun-
terparty credit risks in its accrual loan portfolio and off balance
sheet loan portfolio (including loan commitments) with the aim of
reducing concentrations in individual names, sectors or specific
portfolios. In addition, UBS actively utilizes CDSs to economically
hedge specific counterparty credit risks in its OTC derivative port-
folios including financial instruments which are designated at fair
value through profit or loss.
In 2009, UBS’s strategy with respect to CDS trading was the re-
duction in scope and scale of the firm’s structured credit risk trans-
fer products, proprietary credit trading, and synthetic assets securi-
tizations activities, a continuation of strategic decisions made in
2008. In 2010, market innovation and client demand for exposure
to related products resulted in an expansion of structured activities
and continuation of the Bank’s CDS flow trading. These activities
include market making on behalf of clients in index, multi-name
index, swap index option, and first-to-default CDS products. Where
applicable, these products may form part of structured arrange-
ments with clients seeking exposure to specific risks.
The value of protection bought and sold is not in isolation a
measure of UBS’s credit risk. Counterparty relationships are
viewed in terms of the total outstanding credit risk, which relates
to other instruments in addition to CDSs, and in connection with
collateral arrangements in place.
As of 31 December 2010, the total notional value of protection
bought was CHF 1,195 billion (CHF 39 billion and CHF 17 billion
Positive replacement values and Negative replacement values, re-
spectively) and the total notional value of protection sold was CHF
1,118 billion (CHF 17 billion and CHF 34 billion Positive replace-
ment values and Negative replacement values, respectively).
UBS’s credit derivatives 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 re-
ducing counterparty risk. UBS, along with other dealer members,
continued to participate in these initiatives throughout 2010.
A significant portion of UBS’s credit derivatives are traded un-
der 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 document-
ed in a bespoke (i.e. tailored) agreement. Those forms and agree-
ments use standardized terms that form the basis for market con-
ventions 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 perform
under a CDS contract are subject to agreement between the par-
ties at the time of the transaction. However, nearly all transactions
are traded using credit events that are applicable under certain
324
Credit Derivatives: 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 pay-
ment under a CDS).
Contingent features of derivative liabilities
Based on UBS’s credit ratings as of 31 December 2010, additional
collateral or termination payments pursuant to bi lateral agreements
with certain counterparties of approxi mately CHF 0.7 billion and
CHF 1.9 billion would have been required in the event of a one-
notch and two-notch reduction, respectively, in UBS’s long-term
credit ratings. In evaluating UBS’s liquidity requirements, UBS consid-
ers additional collateral or termination payments that would be re-
quired in the event of a reduction in UBS’s long-term credit ratings.
Derivatives used for structural hedging
The Group enters into derivative transactions for the purposes 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 accounting
purposes. These are described under the corresponding headings
in this note (fair value hedges, cash flow hedges and hedges of
net investments in foreign operations). The Group’s accounting
policies for derivatives designated and accounted for as hedging
instruments are explained in “Note 1a) 15) Derivative instruments
and hedge accounting”, where terms used in the following sec-
tions are explained.
The Group has also entered into interest rate swaps and other
interest rate derivatives (e.g. futures) for day-to-day economic in-
terest rate risk management purposes, but without applying hedge
accounting. In addition, the Group has used equity futures, options
and, to a lesser extent, swaps for economically hedging in a variety
of equity trading strategies to offset underlying equity and equity
volatility exposure. The Group has also entered into CDSs that pro-
vide economic hedges for credit risk exposures (refer to the credit
derivatives section). Fair value changes of derivatives that are part
of economic 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
Note 23 Derivative instruments and hedge accounting (continued)
fixed-rate instruments (e.g. long-term fixed-rate debt issues) due
to movements in market interest rates. The fair values of out-
standing interest rate derivatives designated as fair value hedges
were assets of CHF 1,171 million and liabilities of CHF 46 million
as of 31 December 2010 and assets of CHF 526 mil lion and liabil-
ities of CHF 71 million as of 31 December 2009.
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 also hedges foreign exchange exposures arising
from certain foreign currency denominated non-monetary finan-
cial investments available-for-sale using either the spot compo-
nent of the forward foreign exchange contracts or debt issued
denominated in the same currencies. As of 31 December 2010
the aggregate notional amount of hedging instruments desig-
nated as fair value hedges of foreign currency risk was CHF 393
million (CHF 386 million as of 31 December 2009). The ineffec-
tiveness of these hedges was not material for the financial state-
ments of the Group in the disclosed reporting periods.
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
31.12.10
31.12.09
31.12.08
402
(383)
19
(171)
182
11
778
(796)
(18)
Fair value hedges for portfolio interest rate risk
The Group also applies fair value hedge accounting to portfolio
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 as of 31 December 2010 was a
CHF 972 million liability; as of 31 December 2009 it was a CHF
956 million liability.
For the year ended
31.12.10
31.12.09
31.12.08
35
(60)
(25)
(48)
11
(37)
(644)
688
44
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 estimates of prepayments and
defaults. The aggregate principal balances and interest cash
flows across all portfolios over time form the basis for identify-
ing the non-trading interest rate risk of the Group, which is
hedged with interest rate swaps, the maximum maturity of which
is 18 years.
The schedule of forecasted principal balances on which the
expected interest cash flows arise as of 31 December 2010 is
shown below.
Forecasted cash flows
CHF billion
Cash inflows
Cash outflows
Net cash flows
< 1 year
1–3 years
3–5 years
5–10 years
over 10 years
215
52
163
368
87
281
233
60
173
180
44
136
15
1
14
To the extent the cash flow hedging relationship meets the qual-
ifying criteria, the effective portion of the fair value changes of the
designated derivative hedging instruments is recognized in Equity.
These gains and losses are transferred from Equity to current period
earnings in the same period in which the hedged cash flows affect
net profit or loss. The ineffective portion of the fair value changes of
the derivative hedging instruments is recognized immediately in the
income statement. A CHF 22 million loss, a CHF 183 million loss and
a CHF 108 million loss were recognized in 2010, 2009 and 2008,
respectively, in Net trading income due to hedge ineffectiveness.
325
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Notes to the consolidated financial statements
Note 23 Derivative instruments and hedge accounting (continued)
As of 31 December 2010, the fair values of outstanding deriva-
tives designated as cash flow hedges of forecasted transactions
were CHF 5,397 million assets and CHF 3,392 million liabilities
and as of 31 December 2009 the amounts were CHF 5,180 mil-
lion assets and CHF 2,736 million liabilities.
At the end of 2010 and 2009, gains of CHF 18 million and CHF
46 million associated with de-designated interest rate swaps were
deferred in Equity. They will be removed from Equity when the
previously hedged forecasted 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 28 million net gain
in 2010, CHF 40 million net gain in 2009 and CHF 49 million net
gain in 2008.
In 2008, due to reductions in the volume of short-term finan-
cial instruments, some of the forecasted cash flows previously in-
cluded in the hedge relationships were determined 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
2010 the fair values of the financial liabilities (predominantly struc-
tured products issued by UBS) designated as hedging instruments in
net investment hedges was CHF 1.9 billion as compared to CHF 2.5
billion at 31 December 2009. 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 investments in the sub-
sidiaries, which are also recognized in Equity. No material ineffec-
tiveness of hedges of net investments in foreign operations was
recognized in the income statements during 2010 and 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 “es-
sential” for the understanding of the timing of their cash flows.
Derivatives designated in hedge accounting relationships (undiscounted cash flows)
CHF billion
Interest rate swaps 1
Cash inflows
Cash outflows
Net cash flows
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
1
0
3
4
(1)
17
14
3
Total
21
19
2
1 Interest rate swaps are generally gross settled. The table includes cash inflows and cash outflows of all interest rate swaps designated in hedge accounting relationships, which are either assets or liabilities of UBS as of
31 December 2010.
Risks of derivative instruments
Derivative instruments are transacted in many trading portfolios,
which generally include several types of instruments, not just de-
rivatives. The market risk of derivatives is predominantly managed
and controlled as an integral part of the market risk of these port-
folios. The Group’s approach to market risk is described in the
audited “Market risk” section of this report.
Derivative instruments are transacted with many different
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 overall credit exposure
to each counterparty. The Group’s approach 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 counter-
party. This is, for example, because on the one hand, replace-
ment values can increase over time (“potential future expo-
sure”), while on the other hand, exposure may be mitigated by
entering into master netting agreements and bilateral collateral
arrangements with counterparties. Both the exposure measures
used by the Group internally to control credit risk and the capi-
tal requirements imposed by regulators reflect these additional
factors.
The replacement values presented on UBS’s balance sheet and
in the tables on the next page 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 Federal Banking law to IFRS is that Swiss
Federal Banking law netting is generally based on close-out net-
ting 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 col-
lateral) are presented on the bottom of the tables on the next
page.
The notional amounts presented in the tables indicate a nomi-
nal value of transactions outstanding at the reporting date but do
not necessarily indicate the amounts of future cash flows involved
or the current fair value of the instruments and, therefore, do not
indicate the Group’s exposure to credit or market risks.
326
Note 23 Derivative instruments and hedge accounting (continued) 1
As of
CHF billion
Interest rate contracts
Over-the-counter (OTC) contracts
Forward contracts
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions 7
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
Futures
Options
Agency transactions 7
Total
Equity / index contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts
Futures
Options
Agency transactions 7
Total
Commodities contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts
Futures
Options
Agency transactions 7
31.12.10
31.12.098
Notional
values
related
to PRVs
Total
PRV 2
Notional
values
related
to NRVs
Total
NRV 3
Other
notional
values 4
Notional
values
related
to PRVs
Total
PRV 2
Notional
values
related
to NRVs
Total
NRV 3
Other
notional
values 4
1.9
170.4
31.2
1,320.7
7,527.0
785.3
2.3
154.3
32.5
1,233.6
0.0
7,423.7 13,076.0
0.0
822.8
2.1
186.2
25.9
1,308.0
7,110.7
543.2
2.1
171.4
29.4
1,265.6
6,802.7
611.8
0.0
15,949.2
0.0
0.0
0.2
203.7
61.7
9,694.7
0.0
0.2
189.3
69.7
785.4
0.0
9,549.8 13,861.4
0.0
0.5
214.7
1.3
8,963.2
0.0
0.4
203.3
1,221.5
0.0
1.3
8,681.4
17,170.7
1,254.7
5.7
9.3
1,269.6
453.2
2,279.8
347.7
1.5
3,082.2
26.0
80.8
108.5
215.3
20.6
21.7
1.9
69.7
0.9
0.0
70.6
9.5
85.8
5.7
0.1
101.1
3.4
9.5
4.7
10.8
28.4
2.0
1.9
1,208.9
5.4
6.6
1,220.9
403.7
2,209.6
350.7
0.1
2,964.1
28.1
73.7
120.5
222.3
15.0
22.7
1.9
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.5
0.0
1.5
0.0
0.0
26.5
0.0
26.5
0.0
0.0
26.1
0.0
52.2
3.5
0.1
55.8
1,189.8
6.1
11.9
1,207.8
49.8
1.3
0.1
51.2
1,091.2
4.2
9.5
1,104.9
16.3
88.5
8.7
531.1
2,279.9
515.1
17.1
97.0
8.8
554.1
2,190.5
483.4
0.0
0.0
0.0
113.5
0.0
3,326.1
0.0
0.0
123.0
0.1
3,228.1
2.6
8.1
32.2
67.1
4.0
8.7
46.3
81.6
0.0
0.0
0.0
0.0
0.0
0.0
0.0
9.0
0.0
9.0
0.0
0.0
111.0
28.8
0.0
238.9
28.8
15.9
15.4
1.2
0.0
0.0
41.0
0.0
3.8
7.5
22.0
106.7
206.0
2.7
1.5
18.8
19.2
3.7
7.6
24.0
2.7
1.7
0.7
0.0
1.7
5.9
0.2
0.1
0.0
1.7
6.0
0.1
0.1
77.1
1.5
0.0
78.6
10.6
80.5
5.9
0.1
97.1
2.7
7.0
4.6
10,5
24.8
2.0
1.9
0.0
1.9
5.9
0.4
0.2
421.7
(313.2)
(37.2)
38.7
36.5
34.9
401.1 14,544.6
(301.5)
(36.5)
Total
Unsettled purchases of financial assets 5
Unsettled sales of financial assets 5
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; these derivatives amount to a PRV of CHF 2.7 billion (related notional values of CHF
8.6 billion) and a NRV of CHF 1.3 billion (related notional values of CHF 10.4 billion). 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 0.7 billion (2009: CHF 1.6 billion). Payables resulting from these derivatives are recognized on UBS’s balance sheet under Due to banks and Due to custom-
ers: CHF 2.7 billion (2009: CHF 1.6 billion). 5 Changes in the fair value of purchased and sold financial assets between trade date and settlement date are recognized as replacement values. 6 Includes the impact of
netting agreements (including cash collateral) in accordance with Swiss Federal Banking law, based on the IFRS scope of consolidation. 7 Notional values of exchange-traded agency transactions are not disclosed due
to their significantly different risk profile. 8 Notional values as of 31 December 2009 for Interest rate, Foreign exchange, Equity / index and Commodities contracts have been corrected.
32.5
41.0
18.8
0.0
0.0
13.0
393.8 14,186.0 13,940.2
(301.5)
(23.9)
44.2
35.9
30.4
13,640.8
39.6
25.4
14.3
13,168.1
17,224.9
63.1
68.3
64.1
71.3
26.1
1.9
5.8
0.2
0.5
409.9
(313.2)
(32.7)
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Financial information
Notes to the consolidated financial statements
Note 23 Derivative instruments and hedge accounting (continued)
On a notional value basis, credit protection bought and sold
held as of 31 December 2010 matures in a range of approximate-
ly 10% within one year, approximately 70% within 1 to 5 years
and approximately 20% after 5 years. The maturity profile of OTC
interest rate contracts held as of 31 December 2010, based on
notional values, is as follows: approximately 45% mature within
one year, 33% within 1 to 5 years and 22% over 5 years. No-
tional values of interest rate contracts cleared with The London
Clearing House are presented under “other notional values” and
are categorized into maturity buckets on the basis of contractual
maturities of the cleared underlying derivative contracts.
328
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
as collateral 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
31.12.10
573,852
571,970
1,882
428,347
352,668
54,975
20,705
31.12.09
528,856
515,314
13,542
398,883
335,371
47,469
16,043
Note 25 Operating lease commitments
As of 31 December 2010, UBS was obligated under a number of
non-cancellable operating leases for premises and equipment
used primarily for banking purposes. The significant premises
leases usually include renewal options and escalation clauses in
line with general office rental market conditions, as well as rent
adjustments based on price indices. However, the lease agree-
ments do not contain contingent rent payment clauses and pur-
chase options, nor do they impose any restrictions on UBS’s ability
to pay dividends, engage 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
2011
2012
2013
2014
2015
2016 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
CHF million
Gross operating lease expense
Sublease rental income
Net operating lease expense
31.12.10
862
741
646
554
464
1,818
5,085
500
4,585
31.12.10
31.12.09
31.12.08
1,057
97
960
1,191
57
1,134
1,215
50
1,165
Operating lease contracts include non-cancellable long-term leases of office buildings in most UBS locations. As of 31 December 2010,
the minimum lease commitments for each of 12 office locations exceeded CHF 100 million.
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Financial information
Notes to the consolidated financial statements
Additional information
Note 26 Capital increase and mandatory convertible notes
Conversion of the mandatory convertible notes issued
in March 2008
On 5 March 2010, the mandatory convertible notes (MCNs) with
a notional value of CHF 13 billion issued in March 2008 to the
Government of Singapore Investment Corporation Pte. Ltd. and
an investor from the Middle East were converted into UBS
shares. The notes were converted at a price of CHF 47.68 per
share. As a result, UBS issued 272,651,005 new shares with a
nominal value of CHF 0.10 each from existing conditional capi-
tal. The MCNs were treated as equity instruments and recog-
nized in Share premium. The conversion of the MCNs resulted
in a reclassification of CHF 27 million from Share premium to
Share capital.
Note 27 Fair value of financial instruments
a) Valuation principles
Fair value is the amount for which an asset could be exchanged,
or a liability settled, between knowledgeable, willing parties in an
arm’s length transaction. Financial instruments classified as held
for trading or designated as 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 mea-
sured at fair value.
Fair values are determined from quoted prices in active mar-
kets 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 offer price times the number
of units of the instrument held. Where a trading portfolio con-
tains both financial assets and financial liabilities with offsetting
market risks, fair value is determined by valuing the gross long
and short positions at current mid market prices, with an adjust-
ment 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 pricing model.
These valuation techniques and models involve a degree of esti-
mation, the extent of which depends on the instrument’s com-
plexity and the availability of market-based data. Valuation adjust-
ments may be made to allow for additional factors including
model risks, liquidity risk as reflected in the bid / offer and credit
risk. Based on the established fair value and model governance
policies and related controls and procedures applied, manage-
ment believes that these valuation adjustments are necessary and
appropriate to fairly state the values of financial instruments car-
ried 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 recogni-
tion 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 tech-
niques include discounted cash flow models, relative 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 present value. Relative value models
determine the value based on the market prices of similar assets
or liabilities. Option pricing models include such probability-based
techniques as binomial and Monte Carlo pricing.
UBS uses widely recognized valuation models for determining
fair values of financial instruments of lower complexity like inter-
est rate and currency swaps. For more complex instruments,
UBS uses internally developed models, which are usually based on
valuation methods and techniques generally recognized as stan-
dard within the industry. Such valuation models are used primar-
ily to value derivatives transacted in the over-the-counter (OTC)
market, unlisted equity and debt securities (including those with
embedded derivatives), and other fair valued debt instruments
for which markets were illiquid in 2010. Market-observable as-
sumptions 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 observable
market data. Little, if any, weight is placed on transaction prices
when calculating the fair value if there is no active market and
the transactions are not orderly (i.e., distressed or forced). For
positions where observable reference data are not available for
330
Note 27 Fair value of financial instruments (continued)
some or all parameters, UBS calibrates the non-market-observ-
able inputs used in its valuation models based on a combination
of historical experience and knowledge of current market condi-
tions. Assumptions and inputs used in valuation techniques and
models include benchmark interest rates, credit spreads and
other premiums used in estimating discount rates, bond and eq-
uity prices, equity index prices, foreign exchange rates and levels
of market volatility and correlation.
The output of a model is always an estimate or approximation
of a value that cannot be determined with certainty, and valuation
techniques employed may not fully reflect all factors relevant to
the positions UBS holds. Valuations are therefore adjusted, where
appropriate, to reflect close out costs, credit exposure, model un-
certainty and trading restrictions.
Interest rate curves
UBS uses various interest rate curves for valuing its financial in-
struments. Financial liabilities designated at fair value are mea-
sured using UBS’s funds transfer price curve. Financial assets des-
ignated at fair value are valued consistent with the curve used for
the particular business. Uncollateralized credit exposure is re-
served through normal credit rating and reserving methods. For
the valuation of uncollateralized derivative instruments, UBS gen-
erally employs a LIBOR flat curve. For the valuation of collateral-
ized derivatives, UBS generally employs the overnight indexed
swap (OIS) curve.
Valuation curve changes
For collateralized derivatives, the valuation approach was amend-
ed at the beginning of the year to use the OIS curve rather than
the LIBOR flat curve. This followed a change in the market con-
vention for pricing collateralized derivatives, to reflect that the
interest rate typically paid on cash collateral references the OIS
curve. The transitional effect of this change in estimate was rec-
ognized prospectively and resulted in an immaterial pre-tax gain.
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 counterparty inherent
in over-the-counter (OTC) derivatives transactions, derivatives em-
bedded in funded assets designated at fair value and derivatives
embedded in traded debt instruments. This amount represents
the estimated market value of protection required to hedge cred-
it risk from counterparties in UBS’s OTC derivatives portfolio, de-
rivatives embedded in funded assets designated at fair value and
in traded debt instruments. CVA depends on expected future ex-
posures, default probability and recovery rate. The calculation
takes into account whether collateral or netting arrangements or
break clauses are in place.
UBS’s own credit risk in the valuations of derivative financial
liabilities (Negative replacement values)
The Group estimates debit valuation adjustments (DVA) to incor-
porate own credit in the valuation of derivatives, predominately,
to align it with the CVA methodology as described above. The
calculation takes into account negative expected exposure pro-
files for the derivatives portfolio, collateral, netting agreements,
expected future mark-to-market movements, and UBS’s credit de-
fault 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
risk exposure or the credit risk reserve that a counterparty could
reasonably be expected to hold against their credit risk exposure to
UBS, if they applied the same methodology as used to calculate
UBS’s CVA.
As of 31 December 2010, the CVA and DVA for derivative fi-
nancial instruments (replacement values) were as follows:
CHF billion
Life-to-date gain / (loss)
of which: CVA on monoline credit protection – negative basis trades
of which: CVA on monoline credit protection – other
of which: CVA on other instruments
Gain / (loss) for the year ended 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.
31.12.10
CVA 1
(2.2)
(1.1)
(0.1)
(1.0)
1.0
0.7
0.1
0.2
DVA
0.5
N/A
N/A
N/A
0.2
N/A
N/A
N/A
331
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Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
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 partici-
pants. Own credit effects are not reflected in the valuations of
fully collateralized transactions and other instruments for which it
is established market practice not to include them.
Own credit changes are calculated based on a funds transfer
price (FTP) curve, which provides a single level of discounting for
uncollateralized funded instruments within UBS. The FTP curve is
used by UBS to value uncollateralized and partially collateralized
funding transactions designated at fair value, and for relevant tenors
is set by reference to the level at which newly issued UBS medium-
term notes (MTNs) are priced. The FTP curve spread is considered to
be representative of the credit risk which reflects the premium that
market participants require to acquire UBS MTNs. The FTP curve was
implemented at the end of the year and has replaced the asset and
liability management revaluation curve (ALMRC). The impact on the
income statement at implementation was not material.
The ALMRC was implemented at the beginning of the year and
replaced the senior debt curve (SDC). The ALMRC incorporated ad-
ditional market information from recently issued UBS debt instru-
ments and aligned the pricing and risk management of different
liability instruments under a single curve. UBS also improved the
estimation methodologies for the construction of interest rate
curves in non-USD currencies and for long-term maturities (i.e. ten-
ors over ten years). The transitional impact of this prospectively ap-
plied change in estimate was a pre-tax net loss of CHF 133 million.
As of 31 December 2010 and 2009, respectively, the own cred-
it results for Financial liabilities designated at fair value (predomi-
nantly 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
As of or for the year ended
31.12.10
31.12.09
31.12.08
(548)
(470)
237
(2,023)
(1,958)
890
2,032
3,993
2,953
Year-to-date amounts represent the change during the year and
life-to-date amounts reflect the cumulative change since initial
recognition. The change in own credit for the period can be ana-
lyzed in two components: (1) changes in fair value that are attrib-
utable to the change in UBS’s credit spreads during the period,
and (2) the effect of volume changes, which is the change in fair
values attributable to factors other than credit spreads, such as
redemptions, effects from time decay, changes in interest rates
and changes in the value of referenced instruments issued by
third parties. The disclosed own credit amounts are also impacted
by foreign currency movements.
A 1 basis point increase in the UBS credit spread over LIBOR is
expected to result in an own credit gain of approximately USD
19.6 million (CHF 18.3 million).
Reflection of market liquidity risk in fair value determinations
Fair value estimates incorporate the effects of market liquidity risk
in the relevant markets. Market liquidity risk is the risk that a loss
is incurred in neutralizing the exposures within a position or port-
folio by either liquidating the position or establishing an offsetting
position. A liquidity adjustment is therefore raised to provide
against the expected cost of covering open market risk positions
within a portfolio or position. Liquidity adjustments are bid / offer
adjustments taken where a net open risk position is retained and
the model on which it is valued is calibrated to mid market. Valu-
ations based on models incorporate liquidity or risk premiums ei-
ther implicitly (e.g., by calibrating to market prices that incorpo-
rate such premiums) or explicitly.
Reflection of model uncertainty in fair value determinations
Uncertainties associated with the use of model-based valuations
are predominantly addressed through the use of model reserves.
These reserves reflect the amounts that UBS estimates are appro-
priate to deduct from the valuations produced directly by the
models to reflect uncertainties in the relevant modeling assump-
tions and inputs used. In arriving at these estimates, UBS consid-
ers a range of market practice and how it believes other market
participants would assess these uncertainties. Model reserves are
periodically reassessed in light of information from market trans-
actions, pricing utilities, and other relevant sources.
Valuation processes
UBS’s fair value and model governance structure includes numerous
controls and procedural safeguards that are intended 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 measurement of financial instruments at fair value re-
sides with the business but is independently validated by risk and
financial control functions. In carrying out their valuation responsi-
bilities, the businesses are required to consider the availability and
quality of available external market information and to provide jus-
tification and rationale for their fair value estimates. Independent
price verification of financial instruments 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 verification process is to independently corroborate the busi-
332
Note 27 Fair value of financial instruments (continued)
ness’ estimates of fair value against available market information.
By benchmarking the business’ fair value estimates with observable
market prices or other independent sources, the degree of valua-
tion uncertainty embedded in these measurements can be assessed
and managed as required in the governance framework. A critical
aspect of the independent price verification process is the evalua-
tion of the appropriateness of modeling approaches and input as-
sumptions which yield fair value estimates derived from valuation
models. The output of modelling approaches is also compared to
observed prices and market levels for the specific instrument being
priced. This calibration analysis is performed to assess the ability of
the model and its inputs (which are frequently based upon a com-
bination of price levels of observable hedge instruments and diffi-
cult to observe parameters) to price a specific product in its own
specific market. An independent 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 valu-
ation 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.
b) Fair value hierarchy
All financial instruments at fair value are categorized into one of
three fair value hierarchy levels at year-end, based upon the low-
est level input that is significant to the product’s fair value mea-
surement in its entirety:
– Level 1 – quoted prices (unadjusted) in active markets for iden-
tical assets and liabilities
– 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.
Determination of fair values from quoted market prices or valuation techniques1
CHF billion
Financial assets held for trading 2
Financial assets held for trading 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
Other liabilities – amounts due under unit-linked investment contracts 3
Total liabilities
31.12.10
Level 1
Level 2
Level 3
77.8
38.3
3.6
0.9
0.3
2.3
0.0
0.8
52.9
173.4
42.9
3.5
1.0
0.3
2.2
0.0
0.0
60.8
22.2
385.1
201.5
48.1
112.2
17.5
5.8
7.3
21.0
496.4
11.8
379.9
187.8
44.9
120.9
20.5
5.8
86.7
18.1
10.0
0.8
12.4
1.3
7.7
1.0
2.4
0.0
0.5
0.9
24.5
0.3
10.4
0.7
6.2
1.8
1.5
0.1
14.0
46.4
496.5
24.7
Total
148.5
61.4
401.1
203.8
55.8
113.5
22.2
5.9
8.5
74.8
694.3
55.0
393.8
189.4
51.1
123.0
24.2
6.0
100.8
18.1
567.6
31.12.09
Level 1
Level 2
Level 3
94.1
31.3
4.0
0.8
0.3
2.9
0.0
0.8
74.3
204.5
33.5
3.7
0.7
0.3
2.8
0.0
0.0
37.2
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
21.6
526.8
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
Total
171.2
44.2
421.7
215.1
78.6
97.1
25.1
5.9
10.2
81.8
729.1
47.5
409.9
203.7
70.6
101.1
28.7
5.8
112.7
21.6
591.7
1 Bifurcated embedded derivatives, which are presented on the same balance sheet lines as host contracts, are excluded from this table. As of 31 December 2010, the fair value of the embedded derivative on Debt issued
line were negative net CHF 1.7 billion classified as level 3 instruments and positive net CHF 0.3 billion classified as level 2 instruments respectively. 2 Financial assets held for trading do not include precious metal and
commodities. 3 From December 2010 onwards, the amounts due under unit-linked investment contracts are reported in Other liabilities in this table. The comparative period has been adjusted.
Detailed breakdowns of UBS’s trading portfolio and financial investments available-for-sale by fair value hierarchy levels are shown in
the Notes 11 and 13, respectively.
333
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Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
Transfers between level 1 and level 2 of the fair value hierarchy
Trading assets of approximately CHF 0.8 billion, of which CHF
0.6 billion are equity instruments, and trading liabilities of ap-
proximately CHF 0.2 billion, of which almost all are short sold
equity instruments, were transferred from level 2 to level 1 due to
increased trading activities and volumes, respectively.
billion. The trading liabilities transferred from level 1 to level 2 large-
ly consist of short sold debt instruments of CHF 0.5 billion. These
assets and liabilities transferred from level 1 to level 2 no longer met
the average market activity UBS considers necessary when deter-
mining whether an instrument is traded in an active market.
Trading assets and liabilities with amounts of approximately CHF
1.5 billion and approximately CHF 0.6 billion were transferred from
level 1 to level 2 respectively. The assets are largely related to equity
instruments of CHF 0.8 billion and government bonds of CHF 0.2
Movements of level 3 instruments
The table below includes a roll-forward of the balance sheet
amounts of the significant classes of financial instruments classi-
fied within level 3.
Movements of level 3 instruments and gains / losses for level 3 instruments held at the end of the reporting period
Derivative instruments 1
Financial assets held for
trading (including those
pledged as collateral) 1
16.9
Positive
replacement values
37.8
Negative
replacement values
35.0
Financial liabilities
designated at fair value 1
10.3
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 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 2009
Net trading income
Other
Balance at 31 December 2009
Total gains / (losses) included in the income statement
Net trading income
Other
Purchases, sales, issuances and settlements
Purchases
Sales
Issuances
Settlements
Transfers into or out of level 3
Transfers into level 3
Transfers out of level 3
Foreign currency translation
Balance at 31 December 2010
(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
12.2
0.2
(0.2)
0.4
0.0
3.7
(3.7)
0.0
0.0
(0.4)
2.4
(2.8)
(1.0)
10.8
(13.0)
(12.8)
(0.2)
(9.6)
0.0
0.0
7.3
(16.9)
6.3
26.0
(19.7)
2.2
23.8
(9.3)
(9.4)
0.1
23.8
1.2
1.1
0.1
(7.0)
0.0
0.0
1.6
(8.6)
(2.7)
1.6
(4.3)
(3.0)
12.4
(15.4)
(15.0)
(0.4)
(8.6)
0.0
0.0
5.3
(13.9)
3.5
22.7
(19.2)
2.5
17.0
8.7
8.8
(0.1)
17.0
1.8
1.8
0.0
(5.4)
0.0
0.0
1.4
(6.8)
(1.1)
1.8
(2.9)
(1.9)
10.4
(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
10.3
0.3
0.1
0.2
(1.4)
0.0
0.0
3.3
(4.7)
4.7
5.8
(1.1)
0.1
14.0
Total gains / (losses) for the period included in the income statement
(0.3)
for level 3 instruments held at the end of the reporting period 2010
(0.1)
Net trading income
(0.2)
Other
1 Where financial instruments moved into or out of level 3 during the periods, this change is reflected as if the financial instrument had been in the new level as of the beginning of the year in which the movement took place.
(1.8)
(1.8)
0.0
0.2
(0.2)
0.4
1.2
1.1
0.1
334
Note 27 Fair value of financial instruments (continued)
Material changes in level 3 instruments
As of 31 December 2010, financial instruments measured with
valuation techniques using significant non-market observable in-
puts (level 3) mainly included the following:
– structured rates and credit trades, including bespoke collateral-
ized debt obligations (CDOs) and collateralized loan obliga-
tions (CLOs)
– reference-linked notes
– financial instruments linked to the US sub-prime residential
and US commercial real estate markets
– corporate bonds and corporate credit default swaps (CDS)
– equity linked notes issued by UBS
– traded loans
Financial assets held for trading
Trading portfolio assets transferred into and out of level 3
amounted to CHF 2.4 billion and CHF 2.8 billion, respectively.
Transfers into level 3 of approximately CHF 1.1 billion were re-
lated to certain corporate bonds where no independent price
verification was possible given the observability of the market.
In addition, traded loans of CHF 0.6 billion were transferred
into level 3 as trading activity diminished and independent
sources became unavailable, sovereign bonds of CHF 0.4 billion
were moved to level 3 as no independent price sources were
available to verify fair values. Transfers out of level 3 were
comprised of CHF 1.5 billion corporate bonds, of which CHF
1.3 billion were puttable bonds. Additionally, transfers out of
level 3 included CLOs of CHF 0.7 billion and financial instru-
ments linked to the Asian real estate market of CHF 0.2 billion
as independent price sources became available and were used
to verify fair values.
Level 3 trading assets purchased within the year amounted to
CHF 3.7 billion. These purchases include traded loans of CHF 0.9
billion, corporate bonds of CHF 0.9 billion, financial instruments
linked to the commercial real estate market of CHF 0.6 billion,
equity instruments of CHF 0.4 billion, asset backed bonds of CHF
0.3 billion, and financial instruments linked to the European real
estate market of CHF 0.2 billion.
Sales and settlements of level 3 trading assets amounted to
CHF 3.7 billion, which included corporate bonds of CHF 1.1 bil-
lion, traded loans of CHF 0.8 billion, asset backed bonds of CHF
0.4 billion, financial instruments linked to the US real estate mar-
ket of CHF 0.4 billion, financial instruments linked to the Asian
real estate market of CHF 0.2 billion and those linked to com-
modities of approximately CHF 0.2 billion.
Derivative instruments
Derivative instruments transferred into level 3 include positive re-
placement values of CHF 1.6 billion and negative replacement
values of CHF 1.8 billion. Transfers out of level 3 instruments in-
cluded positive replacement values of CHF 4.3 billion and nega-
tive replacement values of CHF 2.9 billion.
Transfers into level 3 positive replacement values were com-
prised primarily of structured rates exotic trades of CHF 0.6 billion
where skew and volatility could no longer be verified, structured
credit bespoke CDO positions of CHF 0.5 billion, due to a sub-set
of our portfolio being less comparable with available independent
market data for correlation, and CDS positions of CHF 0.3 billion
as credit curves and recovery rates could no longer be indepen-
dently verified. Transfers into level 3 negative replacement values
were comprised primarily of structured rates exotic trades of CHF
0.6 billion, structured credit bespoke CDO positions of CHF 0.3
billion, collateralized loan obligation CDS of CHF 0.3 billion,
equity options of CHF 0.2 billion as volatility became unobserv-
able for long-dated positions, and commercial mortgage-backed
securities (CMBS) CDS of CHF 0.1 billion as reliability of indepen-
dent market data for underlyings decreased.
Commencing 2010, UBS considers input data for a position
observable when there is an equally offsetting transaction that
nullifies substantially the price risk relating to that input of the
instrument. As a consequence, positive replacement values of
CHF 2.2 billion in total were transferred out of level 3. The follow-
ing financial instruments were impacted: super senior subprime
CDO positions of CHF 1.2 billion, subprime residential mortgage-
backed securities (RMBS) CDS of CHF 0.6 billion, CDO positions of
CHF 0.2 billion and CMBS CDS positions of CHF 0.1 billion. In ad-
dition, the following instruments were transferred out of level 3:
subprime RMBS CDS positions of CHF 0.8 billion as reliability of
independent market data on underlying positions increased,
structured credit bespoke CDO positions of CHF 0.7 billion, due to
a sub-set of our portfolio being more comparable with available
independent market data for correlation, and corporate bonds
CDS positions of CHF 0.3 billion where credit spreads and recov-
ery rates could be independently verified. Transfers of negative
replacement values out of level 3 include the effect of UBS’s new
view that offsetting transactions may give rise to a level 2 classifi-
cation. The effect amounted to CHF 2.2 billion in total. The fol-
lowing financial instruments were impacted: super senior sub-
prime CDO positions of CHF 1.2 billion, subprime RMBS CDS of
CHF 0.6 billion, CDO positions of CHF 0.2 billion and CMBS CDS
positions of CHF 0.1 billion. In addition, corporate bond CDS of
CHF 0.3 billion were transferred out of level 3.
Net issuances and purchases of level 3 positive replacement
values were 1.6 billion, which included equity options of CHF 0.8
billion, structured credit bespoke CDO positions of CHF 0.4 billion
and structured rates positions of CHF 0.1 billion. Net issuances
and purchases of level 3 negative replacement values were CHF
1.4 billion, which included structured credit bespoke CDO posi-
tions of CHF 0.9 billion, equity options of CHF 0.2 billion and
structured rates of CHF 0.1 billion.
Net settlements of level 3 positive replacement values were CHF
8.6 billion, which consisted primarily of structured credit positions
of CHF 3.0 billion, subprime super senior CDO positions of CHF 1.5
billion, asset-backed CDS positions of CHF 0.7 billion, subprime
335
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Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
RMBS CDS positions of CHF 0.6 billion, equity options of CHF 0.6
billion and US commercial real estate CMBS positions of approxi-
mately CHF 0.5 billion. Net sales and settlements of level 3 nega-
tive replacement values were CHF 6.8 billion, consist of structured
credit bespoke CDO positions of CHF 2.7 billion, auction rate secu-
rity forward purchase agreements of CHF 0.8 billion, corporate
bond CDS positions of CHF 0.6 billion, structured rate trades of
CHF 0.6 billion, subprime RMBS CDS positions of CHF 0.6 billion
and subprime super senior CDO positions of CHF 0.5 billion.
Financial liabilities designated at fair value
Transfers of financial liabilities designated at fair value into level 3
were CHF 5.8 billion, consist primarily of secured funding notes of
CHF 2.1 billion due to the lack of directly comparable transac-
tional data, structured rate-linked notes of CHF 1.9 billion as the
volatility of the embedded derivative could not be independently
tested, equity linked notes of CHF 1.3 billion as the volatility of
the embedded equity option could no longer be independently
verified.
Transfers of financial liabilities designated at fair value out
of level 3 were CHF 1.1 billion, which consisted of equity linked
notes of CHF 0.5 billion and structured rate-linked notes of CHF
0.5 billion where the volatility of the embedded option was inde-
pendently verified.
Net issuances of level 3 financial liabilities designated at fair
value were CHF 3.3 billion, consisting primarily of equity linked
notes of CHF 1.6 billion, structured rate-linked notes of CHF
1.2 billion and credit linked notes of CHF 0.4 billion. Net settle-
ments of level 3 financial liabilities designated at fair value were
CHF 4.7 billion, which consisted primarily of equity linked notes of
CHF 2.4 billion, structured rate-linked notes of approximately CHF
1.4 billion and credit linked notes of CHF 0.4 billion.
Sensitivity information
Sensitivity of level 3 financial assets and liabilities
Included in the fair value estimates of financial instruments car-
ried at fair value on the balance sheet are those estimated in
full or in part using valuation techniques based on assumptions
that are not supported by market observable prices, rates, or
other inputs. In addition, there may be uncertainty about a
valuation which results from the choice of valuation technique
or model used, the assumptions embedded in those models,
the extent to which inputs are not market observable, or as a
consequence of other elements affecting the valuation tech-
nique or model.
To show the effect when changing the unobservable inputs
to a reasonably possible alternative assumption, UBS per-
formed a sensitivity analysis of its financial instruments classi-
fied as level 3, which are valued using a model-based tech-
nique, and for which significant model inputs are unobservable
in the markets in which the underlying products are transact-
ed. For securities and loans which are not ascribed a value
from a model-based technique, fair values as of 31 December
were adjusted by two to 20 percent, as deemed adequate for
the applicable product in the professional judgment of control
functions, which perform procedures to establish the reason-
ableness of the Bank’s valuation assertions at the balance
sheet date. For all other level 3 financial instruments, the re-
spective significant unobservable parameters were identified,
and fair value estimates adjusted to alternative assumptions
deemed reasonable in the markets in which the instruments
may transact.
Cash instruments referred to in the below table relate to long
and short inventory, if applicable, of the respective product type.
For purposes of the below presentation, derivative instruments
will include positive and negative replacement values, as well as
issued notes with embedded equity or interest rate derivative
features, which are presented on the UBS balance sheet as finan-
cial assets or liabilities designated at fair value. For all instru-
ments, favorable changes are increases to asset values and de-
creases to liability values, as a consequence of applying the
relevant sensitivity percentage. Unfavorable changes are de-
creases in asset values, and increases in liability values, as a con-
sequence of applying the relevant sensitivity percentage for the
respective financial instruments.
As of
CHF billion
Cash instruments
Mortgage securities
Debt securities
Traded loans
Total cash instruments
Derivatives instruments
Equity derivatives
Interest rate derivatives
Credit derivatives
Total derivatives instruments
336
31.12.10
Favorable
changes
Unfavorable
changes
0.3
0.2
0.1
0.6
0.4
0.7
0.1
1.2
(0.3)
(0.2)
(0.1)
(0.6)
(0.4)
(0.7)
(0.1)
(1.2)
Note 27 Fair value of financial instruments (continued)
c) Valuation techniques by product
This section includes a description of main product categories,
and related valuation techniques employed by the Bank.
Government and corporate bonds, bills and loans
Government bonds and bills are generally actively traded with
quoted prices in liquid markets. Should market prices not be avail-
able, the securities are valued against yield curves implied from
similar issuances.
Corporate bonds are priced at market levels, which are based
on recent trades or broker and dealer quotes. In cases where no
directly comparable price is available, the bonds are tested against
yields derived from other securities by the same issuer or bench-
marked against similar securities adjusting for seniority, maturity
and liquidity. For illiquid securities credit modeling may be used,
which considers the features of the security and discounts cash-
flows using observable or implied credit spreads and prevailing
interest rates.
Loans held at fair value are priced at market levels reflect-
ing recent transactions or quoted dealer prices. For illiquid
loans where no market price is available, alternative valuation
techniques are used which may include relative value bench-
marking using pricing derived from debt instruments in compa-
rable entities.
The corporate lending portfolio is valued using either directly
observed market prices typically from consensus providers or us-
ing a credit default swap pricing model, which requires credit
spreads, recovery and interest rate inputs.
Equity securities, hedge fund and investment fund units,
convertible bonds, and options
The majority of equity securities are traded on public stock ex-
changes where quoted prices are readily and regularly available.
Hedge funds are measured at fair value based on their pub-
lished Net Asset Values (NAVs). The Bank will consider the avail-
ability of NAVs from the funds or restrictions imposed upon
the redemption of these funds when determining the final fair
value.
Convertible bonds are mostly valued using observable pricing
sources, which are generally available given frequency of trading
in the market.
Investment fund units are predominantly exchange traded,
with quoted prices in liquid markets. Should market prices not be
available these instruments may be valued based on their Net
Asset Value (NAV).
UBS has positions in both Exchange Traded Options (ETO)
and Over-the-Counter (OTC) options. ETOs generally have ob-
servable prices, and the Bank considers market prices for their
fair value assessment. OTC options are measured using either
industry standard models or internally developed proprietary
models.
Residential Mortgage-Backed Securities (RMBS), Commercial
Mortgage-Backed Securities (CMBS), Asset-Backed Securities
(ABS) and Collateralized Debt Obligations (CDO)
Values of RMBS, CMBS, ABS and CDOs are determined by traded
prices and independently verified market data when available. In
the absence of direct market data, values will be derived from
traded and quoted prices on the securities with similar character-
istics or indices through benchmarking and the triangulation ap-
proaches.
Securities with plain vanilla structure but limited observable
market data are valued through industry standard valuation
models, while those with complex structures are valued through
proprietary models. Key inputs to such models include manage-
ment’s quantitative and qualitative assessment on current and
future economic conditions, of securities’ projected perfor-
mance under such conditions, as well as liquidity in the market,
among other factors. When applicable, reserves including, but
not limited to, model risk and liquidity risk as reflected in the
bid / offer may also be taken into account to determine the final
value.
Credit derivatives related to RMBS, CMBS, ABS and CDO
Credit derivatives are in the form of credit default swaps, total
return swaps and balance guaranteed swaps either referencing an
index, single name securities or a basket of references. Single
name contracts are primarily priced using reliable market data or
traded prices on identical or similar exposures to determine their
value. More illiquid and bespoke credit derivatives are valued
through proprietary models and inputs to such models are derived
via market data and calibration to similar transactions, reference
indices, and securities.
Credit derivatives
Single name and index credit default swaps, and any derivation or
combination which can be classified as complex structured credit
products, are valued by using market available credit spreads and
recovery rates from either consensus pricing services or other mar-
ket participants. This data is fed into industry standard models in
order to derive fair value.
Complex structured credit products are valued using proprie-
tary models, which are calibrated to data derived from consensus
pricing services. Inputs to these models include single name cred-
it spreads, recovery rates, implied correlations, credit volatilities,
cash / synthetic basis spreads and quanto basis spreads.
Rates swaps and forwards
OTC swap products include interest rate swaps, basis swaps, cross
currency swaps, inflation swaps and interest rate forwards, often
referred to as forward rate agreements (FRAs). All of these prod-
ucts are valued by estimating future interest cash-flows (both
337
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Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
fixed and future index levels) and then discounting these flows
using an interest rate that reflects the appropriate funding rate for
that portion of the portfolio. Interest rates and future index levels
used in the above calculations are generated from observing cur-
rent market interest rates associated with typical OTC interest rate
derivatives (swap rates, basis swap spreads, futures prices, FRA
rates) and converting these into rates specific to the portfolio us-
ing market standard yield curve models.
Rates options
Interest rate caps and floors, swaptions, and other interest rate
options are valued using market standard option models. These
models use inputs that include (but are not limited to) interest
rate yield curves, inflation curves, interest rates volatilities, FX
rate volatilities, inflation volatilities, correlations (between differ-
ent interest rates or between rates and FX or inflation). The
models are calibrated so that they are able to recover market
observed prices for standard option instruments trading within
the market and the calibrated model is then used to revalue the
portfolio.
FX spot and forward
Open spot and settled FX positions are valued using the observed
market FX spot rate. Forward FX positions are valued using the
spot rate adjusted for forward pricing points observed from stan-
dard market sources.
FX options
OTC options on FX rates are valued using market standard option
models. These models include inputs that include (but are not
limited to) FX spot rates, FX forward points, FX volatilities, interest
rate yield curves, correlations between FX rates and interest rates.
The models are calibrated so that they are able to recover market
observed prices for standard option instruments trading within
the market and the calibrated model is then used to revalue the
portfolio.
➔ Refer to the “Risk and treasury management” section for more
information on certain financial instruments with significant
valuation uncertainty (CVA monolines, US and
non-US reference-linked notes, option to acquire equity of
the SNB StabFund)
d) Deferred day 1 profit or loss
The table reflects financial instruments for which fair value is de-
termined using valuation models where not all significant inputs
are market observable. Such financial instruments are initially rec-
ognized at their transaction price, although the values obtained
from the relevant valuation model on day 1 may differ. Day 1 re-
serves are released and P&L is recorded in trading profit or loss as
either the underlying parameters become observable or the trans-
action is closed out.
The table shows the aggregate difference yet to be recognized
in profit or loss at the beginning and end of the period and a
reconciliation of changes in the balance of this difference (move-
ment 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
31.12.10
31.12.09
599
282
(260)
(56)
565
627
231
(240)
(19)
599
On 31 December 2010, deferred day 1 profit or loss of approxi-
mately CHF 0.3 billion (31 December 2009: approximately CHF
0.3 billion) pertains largely to structured rates and credit trades,
including bespoke CDOs and multi-name credit default swaps,
and of approximately CHF 0.3 billion (31 December 2009: ap-
proximately CHF 0.3 billion) to over-the-counter (OTC) equity op-
tions. Both instruments are presented as replacement values on
UBS’s balance sheet.
338
Note 27 Fair value of financial instruments (continued)
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
Cash collateral receivables on derivative instruments
Accrued income and prepaid expenses, other assets
Liabilities
Due to banks
Due to customers
Cash collateral on securities lent
Repurchase agreements
Cash collateral payables on derivative instruments
Debt issued
Accrued expenses and deferred income, other liabilities
Commitments
Loan commitments 1
Guarantees and similar instruments 2
31.12.10
31.12.09
Carrying value
Fair value
Carrying value
Fair value
17.1
261.3
62.5
142.8
38.1
20.6
41.5
332.3
6.7
74.8
58.9
131.6
49.2
0.4
0.1
17.1
263.4
62.5
142.8
38.1
20.6
41.5
332.5
6.7
74.7
58.9
131.4
49.2
1.9
0.3
16.8
264.7
63.5
116.7
53.8
21.4
31.9
339.3
8.0
64.2
66.1
134.5
54.3
0.3
0.1
16.8
265.6
63.5
116.7
53.8
21.4
31.8
339.3
8.0
64.2
66.1
133.6
54.3
1.2
0.4
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.
Loans include Wealth Management assets, mainly mortgage loans, where fair values exceed related carrying values by CHF 3.4 billion,
and Investment Bank assets where fair values fall below related carrying values by CHF 1.2 billion.
The fair values included in the table above were calculated for
disclosure purposes only. The valuation techniques and assump-
tions described below provide a measurement of fair value of
UBS’s financial instruments accounted for at amortized cost.
However, because other institutions may use different methods
and assumptions for their fair value estimation, such fair value
disclosures cannot necessarily be compared from one financial in-
stitution to another. UBS applies significant judgments and as-
sumptions to arrive at these fair values, which are more holistic
and less sophisticated than UBS’s established fair value and model
governance policies and processes applied to financial instru-
ments accounted for at fair value, whose fair values impact UBS’s
balance sheet and net profit. The following principles were ap-
plied when determining fair value estimates for financial instru-
ments 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 in-
struments with similar credit risk and maturity. These estimates
generally include adjustments for counterparty credit or UBS’s
own credit.
– For short-term financial instruments with remaining maturi-
ties of three months or less, the carrying amount, which is net
of credit loss allowances, is generally considered a reasonable
estimate of fair value. The following financial instruments ac-
counted for at amortized cost have remaining maturities of
three months or less: 94% of amounts due from banks;
100% of cash collateral on securities borrowed; 95% of re-
verse repurchase agreements; 100% of cash collateral receiv-
ables on derivatives; 42% of loans; 94% of amounts due to
banks; 100% of cash collateral on securities lent; 93% of
repurchase agreements; 100% of cash collateral payable on
derivatives; 97% of amount due to customers; and 30% of
debt issued.
– The fair value of variable interest-bearing financial instruments
accounted for at amortized cost is assumed to be approximat-
ed by their carrying amounts, which are net of credit loss al-
339
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Notes to the consolidated financial statements
Note 27 Fair value of financial instruments (continued)
lowances, and does not reflect fair value changes in the credit
quality of counterparties or UBS’s own credit movements.
have not been included in the valuation due to the short term
nature of these instruments.
– The fair value estimates for repurchase and reverse repurchase
agreements with variable and fixed interest rates, for all ma-
turities, include the valuation of the interest rate component of
these instruments. Credit and debit valuation adjustments
– The estimated fair values of off balance sheet financial instru-
ments are based on market prices for similar facilities and guar-
antees. Where this information is not available, fair value is
estimated using discounted cash flow analysis.
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 repurchase
transactions, under collateralized credit lines with central
banks, against loans from mortgage institutions, in connection
with derivative transactions, as security deposits for stock
exchanges and clearinghouse memberships, or transferred for
security purposes in connection with the issuance of covered
bonds.
Assets pledged
CHF million
Financial assets held for trading portfolio assets pledged to third parties
of which: pledged to third parties with right of rehypothecation
Financial investments available-for-sale pledged to third parties
Mortgage loans
Other loans and receivables
of which: pledged to third parties with right of rehypothecation
Total financial assets pledged
Carrying amount
31.12.10
79,742
61,352
38,106
27,119
10,235
559
155,202
31.12.09
64,748
44,221
53,222
21,741
12,553
192
152,264
The following table presents details of financial assets which have been sold or otherwise transferred, but which do not qualify for
derecognition. Criteria for derecognition are discussed in Note 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
31.12.10
31.12.09
30.9
28.6
96.6
156.1
17.1
24.6
110.9
152.6
The transactions are mostly conducted under standard agree-
ments employed by financial market participants and are under-
taken with counterparties subject to UBS’s normal credit risk con-
trol processes. The resulting credit risk exposures are controlled by
daily monitoring and collateralization of the positions. The finan-
cial assets which continue to be recognized are typically trans-
ferred in exchange for cash or other financial assets. The associ-
ated liabilities can therefore be assumed to be approximately the
carrying amount of the transferred financial assets except for cer-
tain positions pledged with central banks.
UBS retains substantially all risks and rewards of the transferred
assets in each situation of continued recognition. These include
credit risk, settlement risk, country risk and market risk.
Repurchase agreements and securities lending agreements are
discussed in Notes 1a) 13) and 1a) 14). Other financial asset trans-
fers 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 con-
tinuing involvement were immaterial in 2010 and 2009.
340
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 be-
low, 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
Financial assets at amortized cost
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments
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
Cash collateral payables on derivative instruments
Due to customers
Accrued expenses and deferred income
Debt issued
Other liabilities
Total
Total financial liabilities
31.12.10
31.12.09
148,521
61,352
2,665
401,146
613,684
171,173
44,221
3,109
421,694
640,197
8,504
10,223
26,939
17,133
62,454
142,790
38,071
261,263
1,404
19,175
569,229
20,899
16,804
63,507
116,689
53,774
264,710
1,465
19,941
557,789
74,768
1,266,185
81,757
1,289,966
54,975
1,308
393,762
450,045
100,756
18,125
118,881
41,490
6,651
74,796
58,924
332,301
7,581
131,628
41,622
694,993
1,263,918
47,469
8
409,943
457,420
112,653
21,740
134,393
31,922
7,995
64,175
66,097
339,263
8,522
134,453
45,774
698,201
1,290,014
1 CHF 127 billion of Loans, CHF 26 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 Embed-
ded derivatives presented on the balance sheet line Debt issued.
341
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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 foreseeable
future is interpreted to mean a period of approximately 12 months
following the date of reclassification. The financial assets were
reclassified using their fair value on the date of the reclassifica-
tion, which became their new cost basis at that date.
In fourth quarter 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
Fair value
Pro-forma fair value gain / (loss)
31.12.10
31.12.09
11.9
12.1
0.2
19.9
19.0
(0.9)
In 2010, carrying values decreased by CHF 8.0 billion mainly
due to sales of CHF 6.3 billion. Redemptions of CHF 0.7 billion
and the appreciation of the Swiss franc against the US dollar of
CHF 1.4 billion resulted in further decreases. The decrease was
partially offset by the accretion of interest of approximately CHF
0.4 billion from the amortization of the discount between carry-
ing values and the expected recoverable amounts.
Fair values of reclassified financial assets decreased as well by
CHF 6.9 billion in 2010. The decreases included sales of CHF 6.3
billion, redemptions of CHF 0.7 billion, fair value changes of CHF
0.4 billion and the appreciation of the Swiss franc against the US
dollar of CHF 1.4 billion, partially offset by fair value gains of CHF
1.8 billion.
The table below provides notional values, fair values, and car-
rying values by product category, as well as the ratio of carrying
value to notional value.
Reclassified financial assets impacted UBS’s income statement
as presented in the table below.
Reclassified assets
CHF billion
US student loan and municipal auction rate securities
Monoline-protected assets
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
Contribution of the reclassified assets to the income statement
CHF billion
Net interest income
Credit loss (expense) / recovery
Other income 1
Impact on operating profit before tax
1 Includes net gains on the disposal of reclassified assets.
342
Notional value
Fair value
Carrying value
Ratio of carrying
to notional value
5.1
6.1
0.5
0.2
0.6
0.9
13.5
13.5
4.4
5.4
0.4
0.1
0.6
0.8
11.7
0.4
12.1
4.5
5.3
0.4
0.1
0.5
0.7
11.6
0.3
11.9
88%
86%
75%
81%
83%
82%
86%
For the year ended
31.12.10
31.12.09
0.5
(0.1)
0.1
0.5
1.5
(1.0)
0.1
0.6
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 cred-
it risk without taking account of any collateral held or other cred-
it enhancements. The amounts included in the table represent the
carrying amounts of financial instruments subject to credit risk,
which were determined under the guidance of IFRS. Financial in-
struments 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
CHF million
Balances with central banks
Due from banks
Loans
Cash collateral on securities borrowed
Reverse repurchase agreements
WM&SB
WMA
10,727
2,654
0
2,157
199,591
22,470
31.12.10
IB
13,732
12,007
39,044
62,454
Other 1
0
315
158
31.12.09
UBS WM&SB
WMA
IB
Other 1
24,459
17,133
8,589
2,647
261,263
194,410
0
1,074
21,492
62,454
9,525
12,802
48,722
63,507
282
86
UBS
18,114
16,804
264,710
63,507
3,615
123,574
15,601
142,790
1,107
4,302
109,896
1,384
116,689
Cash collateral receivables on derivative instruments
4
38,052
15
38,071
4
53,755
15
53,774
1,187
163
18,437
804
20,591
1,319
147
18,783
1,185
21,434
Accrued income, other assets and debt underwriting
commitments subject to credit risk
Financial instruments recognized at amortized
cost on balance sheet
Positive replacement values
2,688
600
396,018
1,840
401,146
2,534
520
214,163
28,405
307,300
16,893
566,762
208,076
27,015
316,989
416,862
2,952
1,778
555,032
421,694
Trading portfolio assets (including pledged positions) –
debt instruments
Financial assets designated at fair value –
debt instruments
Financial investments available-for-sale –
debt instruments
Financial instruments recognized at fair value
on balance sheet
10,707
613
122,986
5
134,310
16,341
1,107
117,047
1,739
136,234
30
27
7,359
7,389
65
9,317
9,383
11,585
3,426
58,371
73,409
5,393
16,515
52,183
6,315
80,406
13,453
12,798
529,789
60,215
616,255
24,333
18,142
595,409
9,832
647,717
Credit guarantees, performance guarantees, documentary
credits and similar instruments 2
Loan commitments
10,449
7,276
370
5,467
119
1,066
48,509
Irrevocable commitments to acquire ARS
Irrevocable forward starting reverse repos agreeements
Irrevocable forward starting securities borrowing
agreements
140
39,036
454
11,888
7,236
385
498
16,405
56,851
140
39,036
454
4,569
51,593
8,700
43,020
904
137
16,979
59,328
8,700
43,020
904
Commitments
Total at the year-end
17,724
1,436
93,607
119
112,887
19,124
883
108,786
137
128,931
245,340
42,640
930,695
77,228
1,295,903
251,533
46,040
1,021,184
12,921 1,331,680
1 Other includes Global Asset Management and treasury activities and other corporate items. 2 The related provision of CHF 130 million (CHF 90 million for 2009) has been deducted.
The table above does not include written credit protection,
which is generally recognized on UBS’s balance sheet under Neg-
ative replacement values. It also excludes UBS’s potential obliga-
tions under the Swiss Deposit Insurance (2010: CHF 961 million,
2009: 1,030 million).
The maximum exposure to credit risk determined under IFRS
guidance and disclosed in the table above is actively managed
and subject to credit risk management, such as collateralization
and hedging. Collateral held and credit risk mitigation 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)
Financial assets subject to credit risk by rating category
CHF million
Rating category 1
Balances with central banks
Due from banks
Loans
Cash collateral on securities borrowed and reverse repurchase agreements
Positive replacement values
Cash collateral receivables on derivative instruments
Trading portfolio assets (including pledged) – debt instruments
Financial investments available-for-sale – debt instruments
Other financial instruments
Commitments 2
Guarantees and similar instruments 3
Undrawn irrevocable credit facilities
Irrevocable forward starting reverse repos
Irrevocable forward starting securities borrowing
Total
CHF million
Rating category 1
Balances with central banks
Due from banks
Loans
Cash collateral on securities borrowed and reverse repurchase agreements
Positive replacement values
Cash collateral receivables on derivative instruments
Trading portfolio assets (including pledged) – debt instruments
Financial investments available-for-sale – debt instruments
Other financial instruments
Commitments 2
Guarantees and similar instruments 3
Undrawn irrevocable credit facilities
Irrevocable forward starting reverse repos
Irrevocable forward starting securities borrowing
Total
31.12.10
6–8
9–13 defaulted not rated 4
0–1
14,636
326
11,845
59,372
15,220
6,207
52,541
66,804
104
2–3
9,800
11,728
75,638
112,871
331,725
22,591
59,353
6,559
5,853
4–5
23
2,555
76,200
23,093
38,372
4,470
10,162
174
2
16,216
1,580
2,349
79,785
8,229
12,567
4,475
5,544
40
1,675
2,187
320
6,415
6
3,734
16,349
1,646
131
671
7,183
32,793
4,528
10,310
3,149
4,821
1,386
8,109
227,856
676,094
173,446
137,308
38,134
3,564
39,490 1,295,893
31.12.09
6–8
9–13
defaulted
not rated 4
Total
24,459
17,133
261,263
205,244
401,146
38,071
134,310
73,409
27,980
16,535
56,851
39,036
454
Total
18,114
16,804
264,710
180,196
421,694
53,774
136,234
80,406
30,816
17,070
59,328
43,020
904
4
1,074
8
296
294
159
147
39,036
454
111
2,716
52
1,456
194
701
323
56
422
43,020
904
0–1
14,491
312
15,738
47,928
18,138
7,956
60,216
75,363
177
2–3
3,615
14,092
68,854
100,127
357,590
37,621
56,032
5,007
7,407
4–5
9
1,517
76,986
24,108
31,511
3,563
9,871
3
596
84,120
7,444
10,316
3,835
4,429
25
176
16,295
537
2,682
606
4,985
8
5,001
15,528
2,380
87
962
8,391
40,682
4,129
8,441
2,931
3,357
1,475
5,463
241,368
699,417
165,140
132,582
34,608
6,032
43,924 1,323,070
1 Details on rating categories are available in table “UBS internal rating scale and mapping of external ratings” within section “Risk and treasury management”. 2 Excludes commitments to acquire ARS of CHF 140
million for 2010 (CHF 8,700 million 2009). 3 The provisions of CHF 130 million for 2010 (CHF 90 million 2009) are not deducted from the notional value of Guarantees and similar instruments. 4 These ratings are
not available for 2010 and 2009 respectively.
344
Note 30 Pension and other post-employment benefit plans
CHF million
Net periodic pension cost for defined benefit plans
of which: related to major plans (Note 30a)
of which: related to post-retirement medical and life insurance plans (Note 30b)
of which: related to remaining plans
Pension cost for defined contribution plans (Note 30c)
Total pension and other post-employment benefit plans (Note 6)
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 valuations are per-
formed for the plans in these countries. The measurement date of
these plans is 31 December for each year presented.
The overall investment policy and strategy for UBS’s defined
benefit pension plans are guided by the objective of achieving an
investment return which, together with the contributions paid, is
sufficient to maintain reasonable control over the various funding
risks of the plans. Depending on the country the pension fund
trustees and/or UBS are responsible for the determination of the
mix of asset types and target allocations. Actual asset allocation is
determined by a variety of current economic and market condi-
tions and in consideration of specific asset class risk.
The expected long-term rates of return on plan assets are
based on long-term expected inflation, interest rates, risk pre-
miums and targeted asset class allocations. These estimates
take into consideration historical asset class returns and are
determined together with the plans’ investment and actuarial
advisors.
Swiss pension plan
The Swiss pension plan covers all UBS employees in Switzerland
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 Foundation Board.
31.12.10
31.12.09
31.12.08
477
430
22
25
246
724
742
694
9
39
246
988
660
672
9
(21)
312
972
Contributions to the pension plan are paid by employees and
the employer. The employee contributions are calculated as a per-
centage of covered salary and are deducted monthly. The percent-
ages deducted from salary for the standard level of benefit cover-
age 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 employees’ contributions for the standard level of ben-
efit coverage. The benefits covered include retirement benefits;
disability, death and survivor pensions; and employment termina-
tion benefits.
The employer contributions expected to be made in 2011 to
the Swiss pension plan are CHF 530 million.
International pension plans
The international locations of UBS operate various pension plans
in accordance with local regulations and practices. The locations
with defined benefit plans of a significant 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 international plans reflect the net
funded positions of the significant international plans.
The pension plans provide benefits in the event of retirement,
death or disability. The level of benefits provided depends on the
defined rate of benefit accrual and level of compensation. The
plans are funded entirely by UBS. The employer contributions ex-
pected to be made in 2011 to these pension plans are CHF 96
million. The funding policy for these plans is consistent with local
government and tax requirements.
The assumptions used in international plans are based on local
economic conditions.
➔ Refer also to Note 1a) 23).
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345
Financial information
Notes to the consolidated financial statements
Note 30 Pension and other post-employment benefit plans (continued)
Defined benefit plans
CHF million
For the year ended
Swiss
International
31.12.10
31.12.09
31.12.08
31.12.10
31.12.09
31.12.08
Defined benefit obligation at the beginning of the year
(21,119)
(21,311)
(20,877)
(4,353)
(3,642)
(4,928)
Service cost
Interest cost
Plan participant contributions
Actuarial gain / (loss)
Benefits paid
Termination benefits
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
Employer contributions – termination benefits
Plan participant contributions
Benefits paid
Foreign currency translation
(384)
(657)
(197)
(149)
1,252
(45)
(432)
(672)
(195)
231
1,314
(54)
(21,299)
20,286
(21,119)
19,029
850
54
510
45
197
846
963
513
54
195
(336)
(710)
(233)
(288)
1,158
(25)
(21,311)
22,181
990
(3,820)
578
25
233
(1,252)
(1,314)
(1,158)
Fair value of plan assets at the end of the year
20,690
20,286
(41)
(237)
(119)
148
549
(4,053)
3,517
237
163
86
(148)
(449)
3,406
(647)
1,183
536
639
(130)
86
(59)
536
756
(220)
536
41
237
(237)
89
(41)
(230)
(471)
153
(122)
(4,353)
2,866
202
266
232
(153)
104
3,517
(836)
1,475
639
548
(167)
232
26
639
890
(251)
639
41
230
(202)
98
(63)
(251)
318
148
1,134
(3,642)
4,579
282
(1,027)
194
0
(148)
(1,014)
2,866
(776)
1,324
548
626
(69)
194
0
(203)
548
798
(250)
548
63
251
(282)
37
130
167
69
(609)
3,028
2,418
2,163
(300)
510
45
(833)
2,996
2,163
2,123
(527)
513
54
19,029
(2,282)
4,405
2,123
2,123
(603)
578
25
2,418
2,163
2,123
2,418
2,163
2,123
2,418
2,163
2,123
384
657
(850)
64
45
300
432
672
(846)
215
54
527
336
710
(990)
0
1,826
25
(1,304)
603
Funded status
Unrecognized net actuarial (gains) / losses
(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
Employer contributions – termination benefits
Foreign currency translation
(Accrued) / prepaid pension cost
Amounts recognized in the balance sheet
Prepaid pension cost
Accrued pension liability
(Accrued) / prepaid pension cost
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
Termination benefits
Limit of defined benefit asset
Net periodic pension cost
346
Note 30 Pension and other post-employment benefit plans (continued)
Defined benefit plans (continued)
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
31.12.10
31.12.09
31.12.08
31.12.07
31.12.06
Swiss
(21,299)
20,690
(609)
253
54
(21,119)
20,286
(833)
214
963
(21,311)
19,029
(2,282)
0
(3,820)
(20,877)
22,181
1,304
(21,506)
21,336
(170)
31.12.10
31.12.09
31.12.08
31.12.07
31.12.06
International
(3,813)
(240)
3,406
(647)
(17)
163
(4,078)
(275)
3,517
(836)
(12)
266
Swiss
(3,402)
(240)
2,866
(776)
62
(1,027)
(4,654)
(274)
4,579
(349)
(5,002)
(205)
4,602
(605)
International
31.12.10
31.12.09
31.12.08
31.12.10
31.12.09
31.12.08
Principal weighted average actuarial assumptions used (%)
Assumptions used to determine defined benefit obligations at the end of the year
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
Derivative financial instruments, counterparty UBS
Other assets used by UBS
2.8
2.5
0.3
3.3
4.3
2.5
0.5
32
54
13
1
100
15–39
44–68
10–18
0–5
4.6
258
25
298
188
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
25
193
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
41
107
1 The number of UBS AG shares was 1,638,000, 4,095,850 and 3,734,000 as of 31 December 2010, 31 December 2009 and 31 December 2008, respectively.
5.4
4.9
2.3
5.7
6.9
5.0
2.5
45
38
3
14
100
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
40–42
38–44
3–6
11–15
11.7
42–45
37–44
3–7
11–12
15.5
45–48
37–38
3–7
10–12
(18.2)
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347
Financial information
Notes to the consolidated financial statements
Note 30 Pension and other post-employment benefit plans (continued)
Mortality tables and life expectancies for major plans
Country
Switzerland
UK
Germany
US
Country
Switzerland
UK
Germany
US
Mortality table
BVG 2005
PA 2000 G, medium cohort with adjustment
Dr. K. Heubeck 2005 G
PPA mandated mortality table per IRC 1.430(h)(3)
Mortality table
BVG 2005
PA 2000 G, medium cohort with adjustment
Dr. K. Heubeck 2005 G
PPA mandated mortality table per IRC 1.430(h)(3)
Life expectancy at age 65 for a male member currently
aged 65
31.12.09
17.9
22.8
19.1
18.4
31.12.08
31.12.10
aged 45
31.12.09
31.12.08
17.8
22.7
19.0
18.4
17.9
25.9
22.0
19.0
17.9
25.7
21.9
18.4
17.8
25.6
21.8
18.4
Life expectancy at age 65 for a female member currently
aged 65
31.12.09
21.0
24.6
23.3
20.6
31.12.08
31.12.10
aged 45
31.12.09
31.12.08
21.1
24.5
23.1
20.6
21.0
26.6
26.0
20.9
21.0
26.5
25.8
20.6
21.1
26.4
25.7
20.6
31.12.10
17.9
23.0
19.3
19.0
31.12.10
21.0
24.7
23.4
20.9
348
Note 30 Pension and other post-employment benefit plans (continued)
b) Post-retirement medical and life insurance plans
In the US and the UK, UBS offers retiree medical benefits that
contribute to the health care coverage of certain employees and
beneficiaries 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 to certain employees. The
benefit obligation in excess of the fair value of plan assets for
these plans amounts to CHF 209 million as of 31 December 2010
(2009: CHF 186 million; 2008: CHF 159 million) and the total ac-
crued post-retirement cost amounts to CHF 158 million as of 31
December 2010 (2009: CHF 163 million; 2008: CHF 164 million).
The periodic post-retirement costs for the years ended 31 Decem-
ber 2010, 31 December 2009, and 31 December 2008 were CHF
22 million (net of a curtailment gain of CHF 0 million), CHF 9 mil-
lion (net of a curtailment gain of CHF 8 million), and CHF 9 million
(net of a curtailment gain of CHF 11 million), respectively.
The employer contributions expected to be made in 2011 to
the post-retirement medical and life insurance plans are CHF 7
million.
Post-retirement medical and life insurance plans
CHF million
Post-retirement benefit obligation at the beginning of the year
31.12.10
(186)
31.12.09
(159)
Service cost
Interest cost
Plan participant contributions
Actuarial gain / (loss)
Benefits paid
Curtailments
Foreign currency translation
Post-retirement benefit obligation at the end of the year
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
31.12.08
(190)
(8)
(11)
0
14
7
9
20
(7)
(10)
(2)
(31)
10
9
4
(186)
(159)
0
8
2
(10)
0
0
6
1
(7)
0
(9)
(11)
(2)
(35)
10
24
(209)
0
8
2
(10)
0
31.12.10
31.12.09
31.12.08
31.12.07
31.12.06
(209)
0
(209)
6
(186)
0
(186)
8
(159)
0
(159)
3
(190)
0
(190)
(219)
0
(219)
The post-retirement benefit expense is determined by using the
assumed average health care cost trend rate. The rate for 2011 is
assumed to be 8% and is assumed to decrease gradually to 5%
by 2018. On a country-by-country basis, the same discount rate is
used for the calculation of the post-retirement benefit obligation
from medical and life plans as for the defined benefit obligations
arising from pension plans.
Assumed average health care cost trend rates have a signifi-
cant 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 post-retirement benefit obligation and
the service and interest cost components of the periodic post-re-
tirement benefit costs as follows:
CHF million
Effect on total service and interest cost
Effect on the post-retirement benefit obligation
1% increase
1% decrease
5
35
(4)
(27)
349
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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
international locations. The locations with defined contribution
plans of a significant nature are in the UK and the US. Certain
plans permit employees to make contributions and earn matching
or other contributions from UBS. The employer contributions to
these plans recognized as expense for the years ended 31 Decem-
ber 2010, 31 December 2009, and 31 December 2008 were CHF
246 million, CHF 246 million, and CHF 312 million, respectively.
d) Related party disclosure
UBS is the principal bank for the pension fund of UBS in Switzer-
land. In this function, UBS is engaged to execute most of the
pension fund’s banking activities. These activities can include, but
are not limited to, trading and securities lending and borrowing.
All transactions have been executed at arm’s length conditions.
The international 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 certain bank-occupied properties to the
Swiss pension fund. UBS and the Swiss pension fund entered si-
multaneously into lease-back arrangements for some of the prop-
erties with 25-year lease terms and two renewal options for ten
years each. During 2009, UBS renegotiated one of the lease con-
tracts which reduced UBS’s remaining lease commitment.
As of 31 December 2010, the minimum commitment towards
the Swiss pension fund under the related leases is approximately
CHF 21 million (2009: CHF 27 million). The total rent paid by UBS
(including the lease-back arrangements) amounted to CHF 11 mil-
lion in 2010, CHF 12 million in 2009, and CHF 7 million in 2008.
The following amounts have been received or paid by UBS:
Related party disclosure
CHF million
Received by UBS
Fees
Paid by UBS
Rent
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
31.12.10
31.12.09
31.12.08
21
11
3
0
34
12
2
0
44
7
1
4
For the year ended
31.12.10
31.12.09
31.12.08
2,684
40
4,735
10
3,869
35
4,116
14
6,925
78
1,881
10
UBS did not hold financial instruments issued by UBS pension
plans as of 31 December 2010, 31 December 2009 and 31 De-
cember 2008, respectively.
Details to the fair value of plan assets of the defined pen-
sion plans are disclosed in Note 30a. Furthermore, UBS defined
contribution pension funds hold 17,665,621 UBS shares with
a market value of CHF 272 million as of 31 December 2010
(2009: 17,259,203 shares with a market value of CHF 278 mil-
lion; 2008: 17,866,949 shares with a market value of CHF 272
million).
350
Note 31 Equity participation and other compensation plans
a) Plans offered
UBS has established several equity participation and other com-
pensation plans to further align the interests of executives, man-
agers 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 re-
quirements of each country in which they are offered. UBS’s com-
pensation 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. Refer to Note 1a) 24) for a description of the
accounting policy related to equity participation and other com-
pensation plans.
Mandatory share-based compensation plans
Equity Ownership Plan (EOP): Selected employees receive a por-
tion of their annual performance-related compensation, above a
certain threshold, in the form of an EOP award of UBS shares,
notional UBS shares, UBS performance shares, or Alternative
Investment Vehicles (AIVs)1, on a mandatory basis. The awards
granted in UBS shares or notional UBS shares are settled by deliv-
ering UBS shares, except in countries 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
increments over a three-year vesting period. The awards are gen-
erally forfeitable upon voluntary termination of employment with
UBS. Compensation expense is recognized in the performance
year if the employee meets the retirement eligibility requirements
at the date of grant. Otherwise, compensation expense is recog-
nized from the grant date to the earliest of the vesting date or the
retirement eligibility date of the employee, on a tiered basis for
share-settled awards and on a straight-line basis for cash-settled
awards. During 2009, UBS only granted EOP awards to certain
employees for which it had a contractual commitment. The
awards granted in UBS performance shares are settled by deliver-
ing UBS shares but the vesting of these awards is subject to the
fulfillment of specific performance conditions. Deferred perfor-
mance shares will only vest in full if the participant’s division is
profitable (for Corporate Center participants, the Group as a
whole needs to be profitable). Compensation expense is recog-
nized in-line with the other EOP awards.
Senior Executive Equity Ownership Plan (SEEOP): Group Execu-
tive Board (GEB) members receive a portion of their mandatory
deferral in UBS shares or notional UBS shares. The shares vest in
one-fifth increments over a five-year vesting period and are for-
feitable if certain conditions are not met. During 2010 and 2009,
UBS only granted SEEOP awards to certain senior executives to
whom it had a contractual commitment. Since 2010, awards
granted under SEEOP are settled by delivering UBS shares, but the
vesting of these awards is subject to the fulfillment of specific
performance conditions. Compensation expense is recognized on
the same basis as for other share-settled EOP awards.
Incentive Performance Plan (IPP): In 2010 GEB members and cer-
tain other senior employees received as part of their annual incen-
tive in the form of restricted performance shares granted under the
IPP. Each performance share is a contingent right to receive between
one and three UBS shares at vesting for each performance share
granted, depending on the achievement of share price targets. IPP
awards cliff-vest after approximately five years and are subject to
continued employment with UBS. Compensation expense is recog-
nized on a tiered basis from the grant date to the earliest of the
vesting date or the retirement eligibility date of the employee. IPP
was a forward looking one-time plan granted in 2010 only.
Performance Equity Plan (PEP): In 2010 GEB members received
as part of their annual incentive in the form of restricted perfor-
mance shares. Each performance share is a contingent right to
receive between zero and two UBS shares at vesting for each per-
formance share granted, depending on the achievement of Eco-
nomic Profit (EP) and Total Shareholder Return (TSR) targets. PEP
awards cliff-vest after approximately three years. EP is a risk-ad-
justed profit measure that explicitly takes into account the cost of
risk capital. TSR measures the total return to UBS shareholders (in
form of share price appreciation and dividends) as compared to
the constituents of a banking index. Vesting is subject to contin-
ued employment with UBS. Compensation expense is recognized
on a tiered basis from the grant date to the earliest of the vesting
date or the retirement eligibility date of the employee.
Mandatory deferred cash compensation plans
Conditional Variable Compensation Plan (CVCP): In 2009 certain
employees received as part of their mandatory deferral a cash
award that is subject to a performance condition. The award con-
sists of a contingent right to receive cash payments at vesting
subject to forfeiture provisions. The awards are forfeitable upon
termination of employment and additionally require profitability
and recapitalization performance hurdles to be met. The awards
vest in one-third increments over a three-year vesting period.
Compensation expense is recognized on a straight-line basis from
the grant date to the earliest of the vesting date or the retirement
eligibility date of the employee. CVCP was a one-time plan grant-
ed in 2009 only.
WMUS Partner Plus Plan: Wealth Management Americas oper-
ates a mandatory deferred cash compensation plan for selected
employees based in the US. Amounts are 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 above-market rate of interest during
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 or cash, rather than the value of UBS’s equity.
351
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Notes to the consolidated financial statements
Note 31 Equity participation and other compensation plans (continued)
the initial four-year period and a market rate of interest thereafter.
The awards vest in 20% increments six to ten years following
grant date. Interest earned on UBS contributions is forfeitable un-
der certain circumstances. Compensation expense is recognized
on a straight-line basis from the grant date to the earliest of the
vesting date or the retirement eligibility date of the employee.
WMUS advances related to recruited financial advisors: The
Company has entered into various agreements with certain of its
financial advisors whereby these financial advisors receive a com-
pensatory advance in the form of an employee loan. These em-
ployee loans have been capitalized and are being expensed on a
straight-line basis over the terms specified in each agreement.
Cash Balance Plan (CBP): In 2010 Group Executive Board (GEB)
members received as part of their mandatory deferral a cash
award that allows for a maximum payout of 60% of a GEB mem-
ber’s variable cash incentive at the beginning of the following
year, subject to a total cash awards limitation. A minimum of 40%
of the GEB member’s cash incentive awarded is deferred and paid
out during the two following years subject to “malus”, i.e. the
entire cash incentive is paid out over a three-year period. The
“malus” allows for unvested awards to be reduced (including to
nil) in the event of termination for cause, financial losses in subse-
quent years, material restatement of the financial statements,
harm to UBS’s reputation, breaches of legal or regulatory require-
ments or of risk/compliance policies, and a number of other
events. Compensation expense is recognized in the performance
year, which is generally the period prior to the grant date.
Discretionary share-based compensation plans
Key Employee Stock Appreciation Rights Plan (KESAP) and Key
Employee Stock Option Plan (KESOP): Until 2009 key and high
potential employees were granted discretionary share-settled
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. 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.
These awards are settled by delivering UBS shares, except in
countries where this is not permitted for legal reasons. Options
granted prior to 2008 generally vested in one-third increments
over a three-year vesting period and generally expired ten years
from the grant date. SARs1 and options granted from 2008 on-
wards vested in full following a three-year vesting period and
generally expired ten years from the grant date. These awards are
generally forfeitable upon termination of employment with UBS.
Compensation expense is recognized on a tiered basis from the
grant date to the earliest of the vesting date or the retirement
eligibility date of the employee. No KESAP or KESOP awards were
granted in 2010.
Senior Executive Stock Appreciation Rights Plan (SESAP) and Se-
nior Executive Stock Option Plan (SESOP): Until 2008 senior execu-
tives were 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 an employee the right to
receive such number of UBS shares equal to the value of any appre-
ciation 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
registered UBS share at the option’s strike price. SESAP and SESOP
awards are settled by delivering UBS shares. These awards vest in full
following a three-year vesting period and generally expire ten years
from the grant date. These awards are forfeitable if certain condi-
tions are not met. Compensation expense for all SESAP and SESOP
awards is recognized during the performance year, which is gener-
ally the period prior to the grant date. During 2009, UBS granted
SESOP awards only to certain employees for which it had a contrac-
tual commitment. No SESOP awards were granted in 2010.
Voluntary share-based compensation plans
Equity Plus Plan (Equity Plus): This is a voluntary plan that gives
eligible employees the opportunity to purchase UBS shares at fair
market value and generally receive at no additional cost one free
notional UBS share for every three shares purchased, up to a max-
imum annual limit. Share purchases can be made annually from
bonus compensation and / or quarterly based on regular deduc-
tions from salary. Shares purchased under Equity Plus are restrict-
ed from sale for a maximum of three years from the time of pur-
chase. Prior to 2010, each participant generally received at no
additional cost two UBS options for each share purchased under
this plan. The options had a strike price equal to the fair market
value of a UBS share on the grant date, had a two-year vesting
period and generally expired ten years from the grant date. The
options are forfeitable in certain circumstances and are settled by
delivering UBS shares, except in countries where this is not per-
mitted for legal reasons. Compensation expense for the Equity
Plus plans is recognized on a tiered basis from the grant date to
the earliest of the vesting date or the retirement eligibility date of
the employee.
UBS satisfies share delivery obligations under its share, option
and SAR plans either by purchasing UBS shares in the market or
through the issuance of new shares. As of 31 December 2010,
UBS was holding approximately 26 million shares in treasury and
approximately 150 million unissued shares in conditional share
capital, which are available and can be used to satisfy awards of
notional shares and performance shares and for future employee
option and SAR exercises. The shares available cover all vested (i.e.
exercisable) employee options, SARs and notional shares.
1 The first grants made under KESAP were in 2009.
352
Note 31 Equity participation and other compensation plans (continued)
b) Effect on income statement
Effect on income statement for the financial year and future periods
The following table summarizes the compensation expenses rec-
ognized for the years ended 31 December 2010 and the compen-
sation expenses, which will be recognized as an expense in the
income statements 2011 and later. The deferred compensation
expenses in the table also include non-vested awards granted in
February and March 2011, which relate to the compensation core
cycle 2010.
Personnel expenses – recognized and deferred 1
Personnel expenses for the year ended 2010
Personnel expenses deferred to 2011 and later
CHF million
Variable bonus awards
Cash discretionary bonus
Conditional Variable Compensation Plan (CVCP)
Cash Balance and other cash plans
Total deferred cash plans
Equity Ownership Plan (EOP/SEEOP/Performance) – UBS shares
Performance Equity Plan (PEP)
Incentive Performance Plan (IPP)
Total UBS share plans
UBS share option plans (KESAP/KESOP)
Equity Ownership Plan (EOP) – AIVs
Total discretionary bonus
Variable compensation
Variable compensation – other 2
Financial advisor compensation – cash payments
Compensation commitments and advances related to
recruited financial advisors
Partner Plus and other deferred cash plans
UBS share plans
Wealth Management Americas financial advisor compensation 3
Total
Expenses
relating to
awards for
2010
Expenses
relating to
awards for
prior years
2,079
0
64
64
434
6
0
440
28
2,611
399
1,813
29
127
11
1,980
4,990
5
179
71
250
852
5
131
988
145
83
1,471
(89)
0
570
35
82
687
2,069
Relating to
awards
for 2010
Relating to
awards for
prior years
0
0
236
236
1,249
16
6
1,271
67
1,574
337
0
388
221
89
698
2,609
0
292
19
311
515
2
221
738
114
57
1,220
20
0
2,186
302
266
2,754
3,994
Total
2,084
179
135
314
1,286
11
131
1,428
145
111
4,082
310
1,813
599
162
93
2,667
7,059
Total
0
292
255
547
1,764
18
227
2,009
114
124
2,794
357
0
2,574
523
355
3,452
6,603
1 Total share-based personnel expenses recognized for the year ended 31 December 2010 of CHF 1,843 million is comprised of UBS share plans of CHF 1,428 million, UBS share option plans of CHF 145 million, Equity
Ownership Plan – AIVs of CHF 111 million, related social security costs of CHF 90 million and other variable compensation of CHF 69 million. 2 Includes replacement awards of CHF 107 million, forfeiture credits of
CHF (167) million, guaranteed bonuses of CHF 135 million, severance payments of CHF 69 million and UBS’s Equity Plus Plan of CHF 80 million. 3 Financial advisor compensation consists of grid-based compensation
based directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure and other variables. It also includes costs related
to compensation commitments and advances granted to financial advisors at the time of recruitment, which are subject to vesting requirements.
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Financial information
Notes to the consolidated financial statements
Note 31 Equity participation and other compensation plans (continued)
Personnel expenses – recognized and deferred 1
CHF million
Variable bonus awards
Cash discretionary bonus
Conditional Variable Compensation Plan (CVCP)
Cash Balance and other cash plans
Total deferred cash plans
Equity Ownership Plan (EOP/SEEOP) – UBS shares
Performance Equity Plan (PEP)
Incentive Performance Plan (IPP)
Total UBS share plans
UBS share option plans (KESAP/KESOP)
Equity Ownership Plan (EOP) – AIVs
Total discretionary bonus
Variable compensation
Variable compensation – other 2
Financial advisor compensation – cash payments
Compensation commitments and advances related to
recruited financial advisors
Partner Plus and other deferred cash plans
UBS share plans
Wealth Management Americas financial advisor compensation 3
Total
Personnel expenses for the year ended 2009
Personnel expenses deferred to 2010 and later
Expenses
relating to
awards for
2009
Expenses
relating to
awards for
prior years
Relating to
awards for
2009
Relating to
awards for
prior years
Total
2,245
(169)
2,076
0
44
44
276
0
0
276
33
34
2,632
816
1,712
127
28
0
1,867
5,315
19
0
19
283
0
0
283
23
21
177
14
0
471
(7)
95
559
750
19
44
63
559
0
0
559
56
55
2,809
830
1,712
598
21
95
2,426
6,065
0
0
45
45
1,352
8
467
1,827
34
134
2,040
61
0
1,198
124
110
1,432
3,533
0
558
12
570
97
0
0
97
286
13
966
27
0
1,744
241
236
2,221
3,214
Total
0
558
57
615
1,449
8
467
1,924
320
147
3,006
88
0
2,942
365
346
3,653
6,747
1 Total share-based personnel expenses recognized for the year ended 31 December 2009 of CHF 913 million is comprised of UBS share plans of CHF 559 million, UBS share option plans of CHF 56 million, Equity
Ownership Plan – AIVs of CHF 55 million, related social security costs of CHF 16 million and other variable compensation of CHF 227 million. 2 Includes replacement awards of CHF 41 million, forfeiture credits of
CHF (81) million, guaranteed bonuses of CHF 56 million, severance payments of CHF 433 million and UBS’s Equity Plus Plan of CHF 132 million. 3 Financial advisor compensation consists of grid-based compensation
based directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure and other variables. It also includes costs related
to compensation commitments and advances granted to financial advisors at the time of recruitment, which are subject to vesting requirements.
Additional disclosures on mandatory, discretionary and
voluntary share-based compensation plans (including AIVs
granted under EOP)
The total share-based personnel expenses recognized for the
years ended 31 December 2010, 2009 and 2008 were CHF 1,843
million, CHF 913 million and negative CHF 94 million, respectively.
These expenses include social security costs, and current perfor-
mance year awards for core cycle awards granted in the period
following the performance year where the employee meets the
retirement eligibility requirements at the date of grant.
The total compensation expenses for non-vested awards
granted up to 31 December 2010 to be recognized in future
periods is CHF 1,382 million and will be recognized in Personnel
expenses over a weighted average period of 2.5 years. Deferred
compensation amounts included in the table above differ from
this amount as they include non-vested awards granted in Febru-
ary and March 2011 related to the compensation core cycle 2010.
Actual payments to participants of cash-settled share-based
plans, including amounts granted as AIVs issued under EOP, for
the years ended 31 December 2010, 2009 and 2008 were CHF 79
million, CHF 83 million and CHF 80 million, respectively. The total
carrying amount of the liability related to unvested cash-settled
share-based compensation plans was CHF 54 million at 31 De-
cember 2010.
354
Note 31 Equity participation and other compensation plans (continued)
c) Movements during the year
UBS share and performance share awards
Movements in UBS share and notional share awards were as follows:
UBS share awards
Outstanding, at the beginning of the year
Shares awarded during the year
Distributions during the year
Forfeited during the year
Outstanding, at the end of the year
of which: shares vested for accounting purposes
Weighted
average grant
date fair
value CHF
31
15
42
21
18
Number of
shares
2010
86,888,626
125,133,310
(29,669,688)
(11,267,108)
171,085,140
47,366,286
Weighted
average grant
date fair
value CHF
53
12
66
38
31
Number of
shares
2009
84,736,935
39,067,130
(31,293,824)
(5,621,615)
86,888,626
40,148,461
Number of
shares
2008
59,102,580
90,895,594
(60,105,109)
(5,156,131)
84,736,935
65,767,017
Weighted
average grant
date fair
value CHF
66
32
61
54
53
The market value of shares that became legally vested during the years ended 31 December 2010, 2009, and 2008 was CHF 421 mil-
lion, CHF 346 million, and CHF 1,385 million, respectively.
Movements in IPP units are as follows:
Incentive Performance Plan
Forfeitable, at the beginning of the year
Awarded during the year
Distributions during the year
Forfeited / cancelled during the year
Increase / decrease of UBS shares to be delivered upon vesting, based on conditions at the end of the year
Forfeitable, at the end of the year
of which: performance shares vested for accounting purposes
Number of
performance shares
2010
0
19,629,916
0
(1,472,674)
N/A
18,157,242
4,073,546
Weighted average
fair value of IPP
performance shares
at grant date CHF 1
0
Representative of
UBS shares
2010 2
0
22
0
22
N/A
22
19,629,916
0
(1,472,674)
0
18,157,242
4,073,546
1 Valuations were carried out and take into account the relevant performance conditions, targets set, and the range of possible outcomes for these. 2 Based on conditions existing at the representative balance sheet date.
Movements in PEP units are as follows:
Performance Equity Plan
Forfeitable, at the beginning of the year
Awarded during the year
Distributions during the year
Forfeited during the year
Increase / decrease of UBS shares to be delivered upon vesting, based on conditions at the end of the year
Forfeitable, at the end of the year
of which: performance shares vested for accounting purposes
Number of
performance shares
2010
0
545,642
0
(26,805)
N/A
518,837
221,638
Weighted average
fair value of PEP
performance shares
at grant date CHF 1
0
Representative of
UBS shares
2010 2
0
16
0
16
N/A
16
545,642
0
(26,805)
(251,636)
267,201
114,143
1 Valuations were carried out and take into account the relevant performance conditions, targets set, and the range of possible outcomes for these. 2 Based on conditions existing at the representative balance sheet date.
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Notes to the consolidated financial statements
Note 31 Equity participation and other compensation plans (continued)
UBS option awards
Movements in option awards were as follows:
UBS option awards
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 2010
228,623,886
0
(40,894)
(5,814,986)
(17,222,431)
205,545,575
155,302,104
Weighted
average
exercise price
CHF 2
43
0
14
33
54
42
48
Number of
options 2009
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
13
16
37
48
43
51
Number of
options 2008 1
198,213,092
62,973,879
(3,673,657)
(6,732,080)
(14,725,689)
236,055,545
124,054,442
Weighted
average exercise
price CHF 1,2
52
30
26
52
46
47
46
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 offering. 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 pur-
poses of this table.
The following table provides additional information about option exercises, grants and intrinsic values:
Weighted average share price of options exercised (CHF)
Intrinsic value of options exercised during the year (CHF million)
Weighted average grant date fair value of options granted (CHF)
31.12.10
31.12.09
31.12.08
16
0.06
N/A
18
0.20
6.00
34
29
7.53
The following table provides additional information about options outstanding and options exercisable as of 31 December 2010:
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)
17,491,529
10,805,461
43,010,690
22,801,529
19,987,650
4,867,956
57,874,089
176,838,904
10,429,351
7,011,857
11,256,014
9,449
28,706,671
11.31
18.72
31.12
38.91
49.37
60.23
67.71
44.25
20.19
31.68
38.61
46.81
30.23
70.6
0.0
0.0
0.0
0.0
0.0
0.0
8.1
8.3
6.4
4.1
4.4
6.0
5.7
3,739,473
3,480,569
22,141,540
14,768,284
19,801,910
4,867,956
57,872,067
70.6
5.9 126,671,799
0.0
0.0
0.0
0.0
0.0
1.8
3.3
4.1
4.6
3.1
10,409,351
7,011,557
11,200,872
8,525
28,630,305
14.47
22.45
29.88
40.65
49.33
60.23
67.71
51.97
20.19
31.68
38.62
46.91
30.22
3.3
0.0
0.0
0.0
0.0
0.0
0.0
3.3
0.0
0.0
0.0
0.0
0.0
7.9
7.7
5.6
2.4
4.4
6.0
5.7
5.2
1.8
3.3
4.2
5.1
3.1
Range of exercise prices
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
15.51–25.00
25.01–35.00
35.01–45.00
45.01–46.91
15.51–46.91
356
Note 31 Equity participation and other compensation plans (continued)
UBS SARs awards
Movements in SARs granted under the equity participation plans are as follows:
UBS SAR awards
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 SARs
2010
60,907,175
0
(160,334)
(2,721,700)
(10,100)
58,015,041
4,005,317
Weighted
average
exercise
price CHF
Number
of SARs
2009
Weighted
average exercise
price CHF
12
0
12
11
11
12
10
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 provides additional information about SARs exercises, grants and intrinsic values:
Weighted average share price of SARs exercised (CHF)
Intrinsic value of SARs exercised during the year (CHF million)
Weighted average grant date fair value of SARs granted (CHF)
31.12.10
31.12.09
15.8
0.6
N/A
N/A
N/A
5.0
The following table provides additional information about SARs outstanding as of 31 December 2010:
Range of exercise prices
CHF
9.35–12.50
12.51–15.00
15.01–17.50
17.51–20.00
35.01–40.00
9.35–40.00
SARs outstanding
SARs exercisable
Number of
SARs
outstanding
Weighted
average
exercise
price (CHF)
Aggregate
intrinsic value
(CHF million)
Weighted
average
remaining
contractual
term (years)
Number of
SARs
exercisable
Weighted
average
exercise
price (CHF)
Aggregate
intrinsic value
(CHF million)
Weighted
average
remaining
contractual
term (years)
56,450,205
51,410
217,496
390,930
905,000
58,015,041
11.26
14.56
16.52
19.25
40.00
11.78
231.2
0.0
0.0
0.0
0.0
231.2
7.8
8.5
8.4
8.7
8.2
7.8
4,000,000
0
5,317
0
0
4,005,317
10.10
0.00
16.80
0.00
0.00
10.11
21.0
0.0
0.0
0.0
0.0
21.0
3.2
0.0
8.4
0.0
0.0
3.2
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Financial information
Notes to the consolidated financial statements
Note 31 Equity participation and other compensation plans (continued)
d) Valuation
UBS share awards
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 post-vesting sale and hedge restriction,
in accordance with IFRS 2 Share-based Payment: Vesting Conditions
and Cancellations. The fair value of the share awards subject to post-
vesting sale and hedge restrictions is discounted based upon the du-
ration of the post-vesting restriction and is referenced to the cost of
purchasing an at-the-money plain vanilla European put option for
the term of the transfer restriction. The weighted average discount
for share and performance share awards granted during 2010 is ap-
proximately 20.6 % of the market price of the UBS share. The grant
date fair value of notional UBS shares without dividend entitlements
also includes a deduction for the present value of future expected
dividends to be paid between grant date and distribution.
UBS options and SARs awards
Since 2010, the fair values of options and SARs have been determined
using a standard closed-formula option valuation model. The expect-
ed term of each instrument is calculated based on historical employee
exercise behavior patterns, taking into account the share price, strike
price, vesting period and the contractual life of the instrument. Similar
to 2009 and 2008, the term structure of volatility is derived from the
implied volatilities of traded UBS options in combination with the ob-
served long-term historical share price volatility. Expected future divi-
dends are derived from traded UBS options or from the historical
dividend pattern. No options or SARs were granted in 2010.
In 2009 and 2008, the fair value of options and SARs was deter-
mined by means of a Monte Carlo simulation. The simulation tech-
nique used a mix of implied and historical volatility and specific em-
ployee exercise behaviour patterns based on statistical data, taking
into account the specific terms and conditions under which the in-
strument was granted, such as the vesting period, forced exercises
during the lifetime, and gain- and time-dependent exercise behav-
iour. The expected term of each instrument was calculated as the
probability-weighted average period of the time between grant and
exercise. The term structure of volatility was derived from the implied
volatilities of traded UBS options in combination with the observed
long-term historical share price volatility. Expected future dividends
were derived from traded UBS options or from the historical dividend
pattern. The fair values of options and SARs granted during 2009
and 2008 were determined using the following assumptions:
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)
CHF awards
48.22
2.16
0.27
11.88
11.64
CHF awards
33.86
2.83
1.85
30.11
28.05
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
range high
53.47
2.57
0.29
40.00
19.27
range high
49.32
3.27
2.57
46.02
43.61
UBS performance share awards (IPP, PEP)
For performance share awards granted in 2010, UBS obtained
independent third party valuations based on the market condi-
tions at the date of grant. The valuation methodology applied
was a Monte Carlo simulation. The approach to determining in-
put parameters and valuing the post-vesting transfer restriction is
in line with that used for options. The fair value of IPP and PEP
units granted during 2010 was determined using the following
assumptions:
Expected TSR volatility (%)
Expected EP volatility (%)
Risk-free interest rate (%)
Expected dividend (CHF)
Share price (CHF)
358
31.12.10
IPP CHF awards PEP CHF awards
38.07
N/A
1.06
0.12
14.80
63.00
57.00
0.60
0.10
14.80
Note 32 Related parties
The Group defines related parties as associated companies (enti-
ties which are significantly influenced by UBS), post-employment
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
members. Key management personnel is defined as members of
the Board of Directors (BoD) and Group Executive Board (GEB).
This definition is based on the revised requirements of IAS 24 Re-
lated Party Disclosures issued in November 2009.
a) Remuneration of key management personnel
The non-independent members of the BoD have top management employment contracts and receive pension benefits upon retirement. Total
remuneration of the non-independent members of the BoD and GEB including those who stepped down during 2010 1 is as follows:
Remuneration of key management personnel
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
31.12.10
31.12.09
31.12.08
16
303
1
1
484
96
16
64
2
1
29
112
12
0
2
1
0
15
1 During 2010, Francesco Morra stepped down from the GEB. 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.
3 In 2010, incentive awards include immediate and deferred cash. 4 In 2010, equity compensation benefits include PEP, SEEOP and blocked shares.
The independent members of the BoD do not have employment
or service contracts with UBS, and thus are not entitled to benefits
upon termination of their service on the BoD. Payments to these
individuals for their services as external board members amount-
ed to CHF 6.7 million in 2010, CHF 6.4 million in 2009 and CHF
6.4 million in 2008.
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 Refer to “Note 31 Equity participation and other compensation plans” in this section for more information.
31.12.10
9,085,194
4,850,196
31.12.09
9,410,280
4,180,154
31.12.08
8,458,037
5,869,952
Of the share totals above, as of 31 December 2010, 31 December
2009 and 31 December 2008, 5,597 shares, 0 shares and 15,878
shares respectively were held by close family members of key man-
agement personnel and 0 shares, 0 shares and 103,841 shares re-
spectively were held by entities which are directly or indirectly con-
trolled or jointly controlled by key management personnel or their
close family members. Refer to “Note 31 Equity participation and
other compensation plans” in this section for more information. No
member of the BoD or GEB is the beneficial owner of more than
1% of the Group’s shares at 31 December 2010.
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359
Financial information
Notes to the consolidated financial statements
Note 32 Related parties (continued)
c) Loans, advances and mortgages to key management personnel
Non-independent 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 re-
duced credit risk. Independent BoD members are granted loans
and mortgages at general market conditions.
Movements in the loan, advances and mortgage balances are
as follows:
Loans, advances and mortgages to key management personnel
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year
31.12.10
31.12.09
18
8
(4)
22
11
12
(5)
18
No unsecured loans were granted to key management personnel as of 31 December 2010 and 31 December 2009.
d) Associated companies
All loans to associated companies are transacted at arm’s length:
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
Other transactions with associated companies transacted at arm’s length:
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.
31.12.10
31.12.09
373
2
(118)
0
2
259
39
1
301
295
(222)
(1)
0
373
42
1
As of or for the year ended
31.12.10
31.12.09
31.12.08
139
1
68
130
2
156
90
6
40
360
Note 32 Related parties (continued)
e) Other related party transactions
During 2010 and 2008, UBS entered into transactions at arm’s
length with entities which are directly or indirectly controlled or
jointly controlled by UBS’s key management personnel or their
close family members. In 2010, UBS provided services for H21
Macro Fund Ltd (Cayman Islands). In 2009, UBS did not enter into
any such transactions and in 2008, these entities included: Aebi +
Co. AG (Switzerland), Kedge Capital Selected Funds Ltd. (Jersey),
Löwenfeld AG (Switzerland), Martown Trading Ltd. (Isle of Man),
Omega Fund I Ltd (Jersey), Omega Fund IV Ltd (Jersey), Stadler
Rail Group (Switzerland), Team Alinghi (Switzerland) and Team
Alinghi (Spain).
Movements in loans to other related parties are as follows:
Other related party transactions
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year 1
31.12.10
31.12.09
31.12.08
0
0
0
0
6
0
(6)
0
158
0
(152)
6
1 In 2008 includes loans, guarantees and contingent liabilities of CHF 6 million and unused committed facilities of CHF 0 million but excludes unused uncommitted working capital facilities and unused guarantees of
CHF 320 million.
Other transactions with these related parties include:
CHF million
Goods sold and services provided to UBS
Fees received for services provided by UBS
31.12.10
31.12.09
31.12.08
0
1
0
0
1
11
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 and forwards) with various related parties men-
tioned 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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361
Financial information
Notes to the consolidated financial statements
Note 33 Events after the reporting period
Subsequent to the publication of the unaudited fourth quarter
2010 financial report on 8 February 2011, management decided
to adjust the annual financial statements 2010. The net impact of
these adjustments on net profit attributable to UBS shareholders
was a gain of CHF 373 million, which increased basic and diluted
earnings per share by CHF 0.10.
The principal change relates to an adjustment of the investment
carrying amount of a subsidiary held by UBS AG for purposes of
the Parent Bank’s 2010 statutory financial statements prepared
pursuant to Swiss Federal banking law. The adjustment, a reduc-
tion in the subsidiary carrying amount of CHF 1,609 million, de-
creases the level of Swiss taxable profit reported for the year 2010.
The adjustment resulted in an increase in the deferred tax benefit
for the year reflected in the Income statement of CHF 298 million.
In addition, other adjustments made to the Income statement
that forms part of the audited annual financial statements 2010
include a refinement in the 2010 variable compensation accrual at
year-end of CHF 74 million (credit to the Income statement) across
the business divisions, a litigation matter resulting in a CHF 40
million charge affecting Wealth Management, a credit valuation
adjustment gain of CHF 19 million affecting the Investment Bank,
and a tax benefit of CHF 22 million to the Income statement in
relation to these other items.
On 3 March 2011, the Board of Directors reviewed the finan-
cial statements and authorized them for issue. These financial
statements will be submitted to the Annual General Meeting of
shareholders on 28 April 2011 for approval.
Note 34 Significant subsidiaries and associates
The legal entity group structure of UBS is designed to support the
Group’s businesses within an efficient legal, tax, regulatory and
funding framework. Neither the business divisions of UBS (name-
ly Investment Bank, Wealth Management Americas, Wealth Man-
agement & Swiss Bank and Global Asset Management) nor the
Corporate Center are replicated in their own individual legal enti-
ties, but rather they generally operate out of UBS AG (Parent
Bank) through its Swiss and foreign branches.
The parent bank structure allows UBS to capitalize on the ad-
vantages offered by the use of one legal platform by all the busi-
ness divisions. It provides for the most cost efficient and flexible
structure and facilitates efficient allocation and use of capital,
comprehensive risk management and control and straightforward
funding processes.
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 par-
ent bank, then local subsidiary companies host the businesses.
The significant operating subsidiary companies in the Group are
listed below:
Significant subsidiaries
Company
CCR Asset Management S.A.
Ellington Co., Ltd.
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.
UBS Alternative and Quantitative Investments Limited
UBS Alternative and Quantitative Investments LLC
UBS Americas Inc
Jurisdiction of incorporation
Paris, France
Tokyo, Japan
Zurich, Switzerland
Moscow, Russia
Jakarta, Indonesia
Glattbrugg, Switzerland
Nassau, Bahamas
Paris, France
George Town, Cayman Islands
Milan, Italy
Luxembourg, Luxembourg
Vienna, Austria
Monte Carlo, Monaco
London, Great Britain
Delaware, USA
Delaware, USA
Business division 1
Global AM
IB
Global AM
IB
IB
WM&SB
WM&SB
WM&SB
IB
WM&SB
WM&SB
WM&SB
WM&SB
Global AM
Global AM
IB
EUR
JPY
CHF
RUB
IDR
CHF
USD
EUR
USD
EUR
CHF
CHF
EUR
GBP
USD
USD
Share capital
in millions
Equity interest
accumulated in %
5.3
10.0
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
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
1 WMA: Wealth Management Americas; WM&SB: Wealth Management & Swiss Bank; Global AM: Global Asset Management; IB: Investment Bank; CC: Corporate Center.
362
Share capital
in millions
Equity interest
accumulated in %
Note 34 Significant subsidiaries and associates (continued)
Significant subsidiaries (continued)
Company
UBS Asesores SA
UBS Bank (Canada)
UBS Bank (Netherlands) B.V.
UBS Bank Mexico, S.A. Institucion de Banca Multiple,
UBS Grupo Financiero
UBS Bank USA
UBS Bank, S.A.
UBS Belgium SA/NV
UBS Brasil Administradora de Valores Mobiliarios Ltda
UBS Capital Securities (Jersey) Limited
UBS Card Center AG
UBS Casa de Bolsa, S.A. de C.V.
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.
UBS Financial Services Incorporated of Puerto Rico
UBS Fund Advisor, L.L.C.
UBS Fund Management (Luxembourg) SA
UBS Fund Management (Switzerland) AG
UBS Fund Services (Cayman) Ltd
UBS Fund Services (Ireland) Limited
UBS Fund Services (Luxembourg) S.A.
UBS Fund Services (Luxembourg) S.A. Poland Branch
UBS Futures Singapore Ltd.
UBS Global Asset Management (Americas) Inc
UBS Global Asset Management (Australia) Ltd
UBS Global Asset Management (Canada) Co
Jurisdiction of incorporation
Panama, Panama
Toronto, Canada
Amsterdam, the Netherlands
Mexico City, Mexico
Utah, USA
Madrid, Spain
Brussels, Belgium
São Paulo, Brazil
St. Helier, Jersey
Glattbrugg, Switzerland
Mexico City, Mexico
Singapore, Singapore
Hong Kong, China
Frankfurt am Main, Germany
Milan, Italy
Willemstad, Netherlands Antilles
Delaware, USA
Delaware, USA
Hato Rey, Puerto Rico
Delaware, USA
Luxembourg, Luxembourg
Basel, Switzerland
George Town, Cayman Islands
Dublin, Ireland
Luxembourg, Luxembourg
Zabierzow, Poland
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
UBS Global Asset Management (Singapore) Ltd
UBS Global Asset Management (Taiwan) Ltd
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 Hong Kong Limited
UBS International Life Limited
Milan, Italy
Tokyo, Japan
Singapore, Singapore
Taipei, Taiwan
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
Hong Kong, China
Dublin, Ireland
Business division 1
WM&SB
WMA
WM&SB
IB
WMA
WM&SB
WM&SB
WM&SB
CC
WM&SB
IB
WM&SB
IB
WM&SB
WM&SB
CC
IB
WMA
WMA
WMA
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
WMA
WM&SB
USD
CAD
EUR
MXN
USD
EUR
EUR
BRL
EUR
CHF
MXN
SGD
HKD
EUR
EUR
USD
USD
USD
USD
USD
EUR
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
USD
EUR
0.0
8.5
0.2
706.4
1,880.0 2
82.2
28.0
0.0
0.0
0.1
114.9
5.5
880.0
176.0
0.2
0.1
37.3 2
3,875.0 2
31.0 2
0.0 2
10.0
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
125.0
17.2 2
26.0
151.4
15.0
5.0
0.1
45,000.0
0.1
6.8
1.7
1.0
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.
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
100.0
100.0
100.0
100.0
100.0
100.0
100.0
51.0
98.0
100.0
100.0
100.0
363
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Notes to the consolidated financial statements
Note 34 Significant subsidiaries and associates (continued)
Significant subsidiaries (continued)
Company
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
UBS New Zealand Limited
UBS O’Connor Limited
UBS O’Connor LLC
UBS Preferred Funding (Jersey) Limited
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
UBS Saudi Arabia
Jurisdiction of incorporation
Toronto, Canada
Makati City, Philippines
Milan, Italy
Zurich, Switzerland
Zurich, Switzerland
California, USA
London, Great Britain
Delaware, USA
Istanbul, Turkey
Auckland, New Zealand
London, Great Britain
Delaware, USA
St. Helier, Jersey
Delaware, USA
Delaware, USA
Delaware, USA
Munich, Germany
Delaware, USA
Massachusetts, USA
Riyadh, Saudi Arabia
UBS Sauerborn Private Equity Komplementär GmbH
Bad Homburg, Germany
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 Israel 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
UBS Wealth Management Israel Ltd
Bangkok, Thailand
Hong Kong, China
Sydney, Australia
Toronto, Canada
Madrid, Spain
Paris, France
Hong Kong, China
Mumbai, India
London, Great Britain
Herzliya Pituach, Israel
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
Sydney, Australia
Herzliya Pituach, Israel
Business division 1
WMA
IB
IB
WM&SB
WM&SB
WMA
IB
IB
IB
IB
Global AM
Global AM
CC
CC
CC
CC
Global AM
IB
Global AM
IB
WM&SB
IB
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
CAD
PHP
EUR
CHF
CHF
USD
GBP
USD
TRY
NZD
GBP
USD
EUR
USD
USD
USD
EUR
USD
USD
SAR
EUR
THB
HKD
AUD
CAD
EUR
EUR
HKD
INR
GBP
ILS
JPY
USD
MYR
PHP
SGD
KRW
PLN
ZAR
CHF
USD
USD
USD
GBP
SGD
GBP
GBP
AUD
ILS
Share capital
in millions
Equity interest
accumulated in %
0.0
360.0
15.1
10.0
25.0
39.3 2
153.7
16.7 2
30.0
7.5
8.8
1.0
0.0
0.0
0.0
0.0
7.5
1,300.4 2
9.3
110.0
0.0
400.0
20.0
209.8 2
10.0
15.0
22.9
430.0
140.0
18.0
0.0
60,000.0
22,205.6 2
80.0
190.0
311.5
150,000.0
1.4
0.0
1.5
55.0 2
2.0
2.0
0.0
3.3
132.0
2.5
53.9
3.5
100.0
99.4
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
94.9
100.0
100.0
73.0
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.
364
Note 34 Significant subsidiaries and associates (continued)
Changes in the consolidation scope 2010
Newly significant, fully consolidated companies
Ellington Co., Ltd. – Tokyo, Japan
UBS Brasil Administradora de Valores Mobiliarios Ltda – Sao Paulo, Brazil
UBS Fund Management (Luxembourg) SA – Luxembourg, Luxembourg
UBS International Hong Kong Limited – Hong Kong, China
UBS Saudi Arabia – Riyadh, Saudi Arabia
UBS Securities Israel Limited – Herzliya Pituach, Israel
UBS Wealth Management Israel Ltd – Herzliya Pituach, Israel
Significant deconsolidated companies
Caisse Centrale de Réescompte – Paris, France
UBS Convertible Securities (Jersey) Limited – St. Helier, Jersey
UBS Fund Holding (Luxembourg) S.A. – Luxembourg, Luxembourg
UBS Fund Holding (Switzerland) AG – Basel, Switzerland
UBS Preferred Funding Company LLC I – 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.
Note 35 Invested assets and net new money
Reason for deconsolidation
Merged
Liquidated
Liquidated
Merged
Liquidated
Industry
Financial
Financial
Equity interest in %
17.3
20.0
Invested assets include all client assets managed by or deposited
with UBS for investment purposes. Invested assets include man-
aged 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 pur-
poses and custody-only assets, including corporate client assets
held for cash management and transactional purposes, are exclud-
ed from invested assets as the Group only administers the assets
and does not offer advice on how the assets should be invested.
Also excluded are non-bankable assets (e. g. art collections) and
deposits from third-party banks for funding or trading purposes.
Discretionary assets are defined as client assets which UBS de-
cides 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 an-
other, it is counted in both the business division that manages the
investment and the one that distributes it. This results in double
counting within UBS total invested assets, as both business divi-
sions are providing a service independently to their respective cli-
ents, and both add value and generate revenue.
Net new money in a period is the net amount of invested as-
sets that are entrusted to UBS by new and existing clients less
those withdrawn by existing clients and clients who terminated
their relationship with UBS.
Net new money is calculated using the direct method, by which
inflows and outflows to / from invested assets are determined at
the client level based on transactions. Interest and dividend income
from invested assets is not counted as net new money inflow. Mar-
ket and currency movements as well as fees, commissions and in-
terest 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 custody-only assets as a result of a change in the service level
delivered are treated as net new money flows.
The Investment Bank does not track invested assets and net
new money. However, when a client is transferred from the Invest-
ment Bank to another business division, this produces net new
money even though client assets were already with UBS.
Net new money for 2010 includes inflows of CHF 3.7 billion
resulting from transfers of Investment Bank clients to Wealth
Management, as part of the Global Family Office initiative.
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Financial information
Notes to the consolidated financial statements
Note 35 Invested assets and net new money (continued)
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
31.12.10
31.12.09
282
596
1,274
2,152
225
0.0
(14.3)
319
590
1,325
2,233
254
(48.2)
(147.3)
Note 36 Business combinations
Business combinations completed in 2010
In 2010 no significant business combinations were completed.
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 commodity
index business of AIG Financial Products Corp., including AIG’s
rights to the DJ-AIG Commodity index. This commodity index busi-
ness comprises a product platform of commodity index swaps and
funded notes based on the benchmark Dow Jones-AIG Commod-
ity Index (DJ-AIGCI). The cost of the business combination, includ-
ing directly attributable 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, were made in
2010. The cost of the business combination was allocated to
Intangible assets of CHF 40 million (USD 35 million) and Goodwill
of CHF 34 million (USD 30 million). The business of AIG was inte-
grated 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
598
40
34
0
74
74
74
40
34
598
672
598
74
672
Pro-forma information (unaudited)
The following pro-forma information shows UBS’s total operat-
ing income, net profit attributable to UBS shareholders and
basic earnings per share as if all of the acquisitions completed
in 2009 had been made as of 1 January 2008. Adjustments
have been made to reflect additional amortization and depre-
ciation of assets and liabilities, which have been assigned
fair values different from their carryover basis in purchase
accounting.
Pro-forma information (unaudited)
CHF million, except where indicated
Total operating income
Net profit
Basic earnings per share (CHF)
366
For the year ended
31.12.09
22,606
(2,737)
(0.75)
31.12.08
910
(21,251)
(7.61)
Note 37 Discontinued operations
2010
2008
In 2010, private equity investments sold in prior years contributed
a subsequent gain of CHF 2 million to UBS’s net profit from dis-
continued operations.
2009
In 2009, private equity investments sold in prior years contributed
a subsequent loss of CHF 7 million to UBS’s net profit from discon-
tinued operations.
Industrial holdings
In 2008, private equity investments, including the sale of one eq-
uity investment and subsequent gains on private equity invest-
ments sold in prior years, contributed CHF 155 million to UBS’s
net profit from discontinued operations, which included after-tax
gains on sale of CHF 120 million and an after-tax operating profit
of CHF 34 million. The cash consideration received for the equity
investment sold in 2008 amounted to CHF 141 million. These pri-
vate equity investments were held within the Industrial Holdings
segment, integrated within the Corporate Center since the begin-
ning of 2008, and were sold in line with UBS’s strategy to exit the
private equity business.
For the year ended 31.12.08
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
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 Treasury activities and other corporate items in Note 2a.
Note 38 Reorganizations and disposals
Sale of investment in New York office building
Restructuring 2010
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 was CHF 187 million with a resulting gain on sale of
CHF 180 million.
During 2010, UBS incurred net restructuring charges of CHF 113
million. Wealth Management Americas recognized CHF 90 million
for real-estate related costs in General and administrative ex penses
and CHF 37 million for impairment in Depreciation of property and
equipment. In addition, the business division incurred personnel
related restructuring charges of CHF 35 million. The Investment
Bank released personnel related restructuring provisions of CHF 25
million.
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Financial information
Notes to the consolidated financial statements
Note 39 Currency translation rates
The following table shows the main rates used to translate the financial information of UBS’s foreign operations into Swiss francs:
1 USD
1 EUR
1 GBP
100 JPY
Spot rate
As of
Average rate
Year ended
31.12.10
31.12.09
31.12.10
31.12.09
31.12.08
0.93
1.25
1.46
1.15
1.04
1.48
1.67
1.11
1.04
1.37
1.62
1.18
1.08
1.51
1.70
1.16
1.06
1.58
1.96
0.98
Note 40 Swiss banking law requirements
The consolidated Financial Statements of UBS are prepared in ac-
cordance with International Financial Reporting Standards (IFRS).
The Guidelines of the Swiss Financial Market Supervisory Author-
ity (FINMA) require banks which present their financial statements
under IFRS to provide a narrative explanation of the main differ-
ences between IFRS and Swiss GAAP (FINMA circular 08/2) and
the Banking Ordinance. Included in this note are the significant
differences in regard to recognition and measurement between
IFRS and the provisions of the Banking Ordinance and the Guide-
lines of the FINMA governing financial statement reporting pursu-
ant 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 con-
solidated.
Under Swiss law, only entities that are active in the field of
banking and finance and real estate entities are subject to con-
solidation. Entities which are held temporarily are generally re-
corded as financial investments.
2. Financial investments available-for-sale
Under IFRS, Financial investments available-for-sale are carried at
fair value. Changes in fair value are recorded directly in equity
until an investment is sold, collected or otherwise disposed of, or
until an investment is determined to be impaired. At the time an
available-for-sale investment is determined to be impaired, the
cumulative unrealized loss previously recognized in equity is in-
cluded in net profit or loss for the period. On disposal of a finan-
cial investment available-for-sale, 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 impairment with
changes in measurement recorded in the income statement. Re-
368
ductions to market value below cost and reversals of such reduc-
tions up to original cost as well as gains and losses on disposal are
included in Other income. Permanent equity investments are clas-
sified on the balance sheet as Investments in associated compa-
nies and are measured at cost less impairment with impairment
losses recorded in the income statement.
3. Cash flow hedges
The Group uses derivative instruments to hedge the exposure
from varying cash flows. Under IFRS, when hedge accounting 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 materialize, the accumulated unrec-
ognized 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 income 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 amortized
cost less any accumulated depreciation less impairment losses un-
less the investment property is classified as held for sale. Invest-
ment 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 certain fi-
nancial assets and financial liabilities, mainly to hybrid debt instru-
ments. Hybrid instruments are accounted for at fair value with
changes in fair value reflected in Net trading income. Further-
more, UBS designated certain loans, loan commitments and fund
Note 40 Swiss banking law requirements (continued)
investments as financial assets designated at fair value through
profit and loss.
8. Extraordinary income and expense
Under Swiss accounting rules, the fair value option is not
available except for issued structured products that consist of a
debt host contract and a bifurcatable embedded derivative(s).
However, changes in fair value attributable to changes in own
credit are not recognized in the income statement.
Certain items of income and expense are classified as extraordi-
nary items under Swiss law, whereas in the Group Income State-
ment the amounts are classified as operating income or expense
or are included in net profit from discontinued operations, if re-
quired.
6. Goodwill and intangible assets
9. Netting of replacement values
Under IFRS, replacement values are reported on a gross basis, un-
less certain restrictive requirements are met. Under Swiss law, re-
placement values and the related cash collateral are reported on a
net basis, provided the master netting and the related collateral
agreements are legally enforceable.
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 impairment.
Under Swiss law, goodwill and intangible assets with indefinite
useful lives are amortized over a period not exceeding 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 non-current assets 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.
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369
Financial information
Notes to the consolidated financial statements
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, PaineWebber was a SEC
registrant. Upon the acquisition, PaineWebber was merged into
UBS Americas Inc., a wholly-owned subsidiary of UBS.
Under the guarantee, if UBS Americas Inc. fails to make
any timely payment under the Debt Securities agreements,
the holders of the Debt Securities or the Debt Securities trustee
may demand payment from UBS without first proceeding
against UBS Americas Inc. UBS’s obligations under the subordi-
nated 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 accor-
dance with IFRS and should be read in conjunction with the Con-
solidated Financial Statements of UBS of which this information is
a part.
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2010
UBS AG
Parent Bank 1
UBS
Americas Inc.
Subsidiaries
entries
UBS Group
Consolidating
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 / (benefit)
Net profit from continuing operations
Net profit from discontinued operations
Net profit
Net profit attributable to non-controlling interests
Net profit attributable to UBS shareholders
15,732
(12,153)
3,579
(2)
3,577
7,293
6,979
1,384
1,515
20,749
9,220
2,729
628
0
3
12,581
8,168
633
7,534
0
7,534
0
7,534
3,388
(1,409)
1,980
(16)
1,964
6,465
(117)
0
1,296
9,608
5,850
2,691
172
0
90
8,804
804
(1,150)
1,954
0
1,954
0
1,954
2,723
(2,067)
656
(48)
608
3,401
609
0
(1,597)
3,022
1,850
1,164
117
0
24
3,154
(132)
136
(268)
2
(266)
304
(570)
(2,971)
2,971
0
0
0
0
0
(1,384)
0
(1,384)
0
0
0
0
0
0
(1,384)
0
(1,384)
(1,384)
(1,384)
0
(1,384)
18,872
(12,657)
6,215
(66)
6,149
17,160
7,471
0
1,214
31,994
16,920
6,585
918
0
117
24,539
7,455
(381)
7,836
2
7,838
304
7,534
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.
370
Note 41 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated balance sheet
CHF million
As of 31 December 2010
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
Cash collateral receivables on derivative instruments
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
Cash collateral payables on derivative instruments
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 non-controlling interests
Total equity
Total liabilities and equity
UBS AG
Parent Bank 1
UBS
Americas Inc.
Subsidiaries
entries
UBS Group
Consolidating
26,372
30,941
39,315
130,977
108,678
61,428
393,565
42,940
4,778
258,378
59,269
1,450
62,095
4,493
448
6,054
18,504
1,249,683
79,842
20,374
40,713
45,191
383,892
45,024
94,864
301,976
5,071
125,113
23,286
1,165,349
84,334
0
84,334
1,249,683
69
5,038
61,314
53,203
22,853
9,412
8,624
5,010
4,788
37,828
11,647
3,612
6
614
8,150
2,897
5,938
498
68,198
9,572
85,331
37,652
2,162
115,618
23,861
8,850
12,778
3,853
942
0
360
1,224
571
1,914
241,001
373,384
47,430
23,613
79,920
13,433
8,667
10,543
295
29,266
2,433
398
20,580
236,578
4,408
15
4,423
241,001
1,261
10,410
80,883
1,215
117,863
37,097
18,457
47,166
773
10,315
23,529
348,968
19,388
5,028
24,416
373,384
0
(87,044)
(47,746)
(126,721)
(1,719)
(11,649)
(116,661)
(33,740)
(9,911)
(46,107)
0
(538)
(61,311)
0
0
0
26,939
17,133
62,454
142,790
167,463
61,352
401,146
38,071
8,504
262,877
74,768
5,466
790
5,467
9,822
9,522
(3,675)
(546,822)
22,681
1,317,247
(87,044)
(47,746)
(126,721)
(4,865)
(116,661)
(33,740)
(12,859)
(46,107)
(538)
(5,555)
(3,675)
(485,511)
(61,311)
0
(61,311)
(546,822)
41,490
6,651
74,796
54,975
393,762
58,924
100,756
332,301
7,738
130,271
63,719
1,265,384
46,820
5,043
51,863
1,317,247
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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371
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 2010
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 non-controlling interests
Dividends paid to / decrease in non-controlling 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 3
Total
UBS AG
Parent Bank 1
7,233
UBS
Americas Inc.
Subsidiaries
UBS Group
4,036
695
11,963
(75)
307
(367)
196
(17,374)
(17,312)
3,241
(1,456)
(113)
75,842
(65,968)
0
0
(122)
11,424
(10,218)
(8,873)
123,580
114,707
26,372
65,688
22,647
114,707
0
0
(88)
22
1,150
1,084
0
0
0
8
(82)
0
(6)
235
154
1,482
6,756
5,238
11,994
69
3,737
8,188
11,994
0
0
(86)
24
(9,407)
(9,471)
1,218
0
0
2,568
(11,447)
6
(2,047)
(113)
(9,815)
(3,444)
(22,034)
36,154
14,120
498
8,573
5,050
14,120
(75)
307
(541)
242
(25,631)
(25,698)
4,459
(1,456)
(113)
78,418
(77,497)
6
(2,053)
0
1,764
(12,181)
(24,151)
164,973
140,822
26,939
77,998
35,885
140,822
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 39,768 million were pledged as of 31 December 2010.
3 Includes positions recognized in the balance sheet under Due from banks and Cash collateral receivables on derivative instruments.
372
Note 41 Supplemental guarantor information required under SEC rules (continued)
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 / (benefit)
Net profit from continuing operations
Net profit from discontinued operations
Net profit
Net profit attributable to non-controlling 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)
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)
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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373
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
Cash collateral receivables on derivative instruments
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
Cash collateral payables on derivative instruments
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 non-controlling interests
Total equity
Total liabilities and equity
UBS AG
Parent Bank 1
UBS
Americas Inc.
Subsidiaries
Consolidating
entries
UBS Group
15,177
27,861
39,807
113,891
122,801
47,954
413,822
56,477
5,831
265,689
63,459
1,664
61,551
4,920
494
6,352
21,241
1,268,991
79,245
17,662
38,563
41,884
400,432
49,328
100,768
300,123
5,155
126,965
31,151
1,191,276
77,715
0
77,715
1,268,991
75
4,476
56,402
37,914
18,224
11,422
8,260
5,787
5,876
41,871
15,441
3,880
24
791
9,101
2,037
4,352
5,647
84,363
10,700
82,474
48,739
859
145,265
23,340
11,283
15,955
2,857
1,100
49
501
1,413
479
2,169
225,933
437,194
51,091
22,993
66,545
10,792
8,173
9,847
276
31,840
2,269
493
18,823
223,142
2,770
21
2,791
225,933
1,482
10,742
76,657
610
146,992
38,752
27,953
64,340
2,093
12,242
26,449
408,312
21,283
7,599
28,882
437,194
0
(99,896)
(43,402)
(117,590)
(1,727)
(16,014)
(145,654)
(31,830)
(12,768)
(57,039)
0
(828)
(60,754)
0
0
0
(4,078)
(591,580)
(99,896)
(43,402)
(117,590)
(5,817)
(145,654)
(31,830)
(16,344)
(57,039)
(828)
(8,348)
(4,078)
(530,826)
(60,754)
0
(60,754)
(591,580)
20,899
16,804
63,507
116,689
188,037
44,221
421,694
53,774
10,223
266,477
81,757
5,816
870
6,212
11,008
8,868
23,682
1,340,538
31,922
7,995
64,175
47,469
409,943
66,097
112,653
339,263
8,689
131,352
72,344
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.
374
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 non-controlling interests
Dividends paid to / decrease in non-controlling 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 3
Total
UBS AG
Parent Bank 1
4,841
UBS
Americas Inc.
(6,469)
Subsidiaries
56,126
UBS Group
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
(1,596)
(51,424)
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
(42)
296
(854)
163
(20,127)
(20,563)
(60,040)
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.
3 Includes positions recognized in the balance sheet under Due from banks and Cash collateral receivables on derivative instruments.
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375
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 / (benefit)
Net profit from continuing operations
Net profit from discontinued operations
Net profit
Net profit attributable to non-controlling 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.
376
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 non-controlling interests
Dividends paid to / decrease in non-controlling 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 3
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.
3 Includes positions recognized in the balance sheet under Due from banks and Cash collateral receivables on derivative instruments.
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377
Financial information
Notes to the consolidated financial statements
Note 41 Supplemental guarantor information required under SEC rules (continued)
Guarantee of other securities
UBS AG, acting through wholly-owned US-domiciled finance subsidiaries, issued the following trust preferred securities:
USD billion, unless otherwise indicated
Issuing entity
UBS Preferred Funding Trust II
UBS Preferred Funding Trust IV
UBS Preferred Funding Trust V
Type of security
Trust preferred securities 1
Floating rate non-cumulative trust
preferred securities
Trust preferred securities
Date issued
June 2001
May 2003
May 2006
Outstanding as of 31.12.10
Interest (%)
Amount
7.247
one-month LIBOR
+ 0.7%
6.243
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 securities guarantee
are subordinated to the prior payment in full of the deposit liabil-
ities of UBS and all other liabilities of UBS. At 31 December 2010,
the amount of senior liabilities of UBS to which the holders of the
subordinated debt securities would be subordinated is approxi-
mately CHF 1,256 billion.
Guarantee to UBS Ltd.
UBS AG issued a guarantee to each counterparty of UBS Ltd.
Under the guarantee UBS AG irrevocably and unconditionally
guarantees, for the benefit of each counterparty, each and every
obligation that UBS Ltd. entered into. UBS AG promises to pay to
that counterpart on demand any unpaid balance of such liabilities
under the terms of the guarantee.
378
Financial information
UBS AG (Parent Bank)
UBS AG (Parent Bank)
Parent Bank review
Income statement
Net profit for the Parent Bank UBS AG was CHF 6,123 million, an
increase of CHF 11,164 million, compared with a loss of CHF
5,041 million in 2009.
Net trading income improved by CHF 6,977 million from nega-
tive CHF 476 million to positive CHF 6,501 million, mainly due to
an improvement in the fixed income business and gains associat-
ed with the SNB transaction.
Income from investments in associated companies increased to
CHF 1,703 million from CHF 1,154 million in 2009, mainly due to
higher dividend distributions received.
Personnel expenses increased to CHF 10,300 million from CHF
9,101 million in 2009 mainly due to an increase in variable com-
pensation.
Depreciation decreased to CHF 2,051 million from CHF 2,405
million in 2009, mainly due to lower write-downs of investments
in associated companies.
Allowances, provisions and losses decreased to CHF 181 mil-
lion from CHF 1,432 million in 2009, which included credit loss
expenses of CHF 912 million.
The increase in Extraordinary income and in Extraordinary ex-
penses is explained in the section “Additional income statement
information”.
Balance sheet
bank lending (up CHF 15 billion), liquid assets (up CHF 11 billion)
due to larger holdings of cash and balances at central banks, and
investments in associated companies (up CHF 2 billion) in the
Americas and European region. These increases were partially off-
set by lower money market papers (down CHF 19 billion) related
to the aforementioned shift to financial investments, customer
loans and collateral trading (down CHF 11 billion), and positive
replacement values (down CHF 4 billion). Mortgage loans re-
mained stable in 2010 at CHF 142 billion.
Interbank lending
During 2010, interbank collateral trading increased by CHF 14 bil-
lion, due to higher trading volumes with UBS subsidiaries, in par-
ticular in Asia and Europe. Due from banks on time increased by
CHF 4 billion, predominantly due to the higher funding needs of
UBS bank subsidiaries in the Americas region. These increases
were partially offset by due from banks on demand, which de-
clined slightly by CHF 2 billion in the European region.
Customer lending
Customer loans decreased by CHF 11 billion as a result of lower
funding needs of UBS subsidiaries (non-banks) in the Americas
region, as well as lower cash collateral requirements on derivative
instruments in the Americas and Europe.
UBS’s Parent Bank assets stood at CHF 863 billion on 31 December
2010, up slightly from CHF 848 billion on 31 December 2009. The
total asset increased by CHF 15 billion due to UBS subsid iaries and
third-party banks in Asia and Europe increasing their assets and
therefore their funding needs from the Parent Bank.
The increases occurred in financial investments, which rose by
CHF 20 billion (due to a shift from money market papers), inter-
Money market papers
The decrease in money market papers was due to a rebalance in our
investment portfolio, which led to a shift from money market papers
to financial investments. These instruments include highly liquid se-
curities issued by governments and government-controlled institu-
tions in various currencies, mainly US dollar, euro and British pound.
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379
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
380
For the year ended
% change from
31.12.10
10,853
4,441
312
(12,181)
3,426
295
8,433
645
(2,070)
7,304
6,501
228
1,703
31
3,632
(3,422)
2,172
19,402
10,300
4,502
14,802
4,601
2,051
181
2,369
3,957
(178)
(25)
6,123
31.12.09
31.12.09
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)
(5,041)
(21)
(10)
239
(28)
84
16
(9)
3
(9)
(8)
85
48
19
(24)
(5)
(12)
65
13
2
9
(15)
(87)
475
(263)
69
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
Financial liabilities designated at fair value
Accruals and deferred income
Negative replacement values
Other liabilities
Allowances and provisions
Share capital
General statutory reserve
thereof capital contribution reserves 3
thereof retained earnings
Reserve for own shares
thereof capital contribution reserves 3
Other reserves
thereof retained earnings
Profit / (loss) for the period
Total liabilities and equity
Total subordinated liabilities
Total amounts payable to Group companies
31.12.10 1
31.12.10 2
31.12.09
% change from
31.12.09
26,372
73,049
206,162
142,634
141,708
139,685
34,788
21,075
4,557
1,643
65,449
6,373
863,495
2,287
254,762
50,729
192,511
78,322
260,404
2,605
89,860
79,847
7,634
60,723
4,717
1,424
383
31,904
42,091
(10,187)
432
432
2,000
2,000
863,495
14,689
129,243
26,372
73,049
206,162
142,634
141,708
139,685
34,788
21,075
4,557
1,643
65,449
6,373
863,495
2,287
254,762
50,729
192,511
78,322
260,404
2,605
89,860
79,847
7,634
60,723
4,717
1,424
383
27,379
42,091
(14,712)
432
432
402
402
6,123
863,495
14,689
129,243
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
41,689
(11,312)
835
835
2,042
2,042
(5,041)
847,543
19,410
145,268
74
(21)
8
(7)
0
1
129
10
(9)
(6)
(5)
(2)
2
(13)
5
13
5
7
(9)
(12)
(42)
2
11
(29)
(37)
8
(10)
1
(30)
(48)
(48)
(80)
(80)
2
(24)
(11)
1 After appropriation of retained earnings, which is subject to approval by the Annual General Meeting (AGM) on 28 April 2011. 2 Before appropriation of retained earnings. 3 Under Swiss tax law, effective 1 January
2011, repayments of capital contribution reserves are no longer subject to withholding tax deduction. For further information refer to Notes to the Parent Bank financial statements, Changes in accounting policies,
comparability and other adjustments, Capital contribution reserves.
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381
Financial information
UBS AG (Parent Bank)
Statement of appropriation of retained earnings
The Board of Directors proposes that the Annual General Meeting (AGM) on 28 April 2011 approves the following appropriation:
CHF million
Other reserves
Profit / (loss) for the financial year 2010 as per the Parent Bank’s Income Statement
Total for appropriation
Appropriation to other reserves
Appropriation to general statutory reserves (retained earnings)
Total appropriation
402
6,123
6,525
2,000
4,525
6,525
382
Notes to the Parent Bank financial statements
Accounting policies
The Parent Bank Financial Statements are prepared in accordance
with Swiss Federal banking law. The accounting policies are prin-
cipally the same as for the Group Financial Statements outlined in
“Note 1, Summary of Significant Accounting Policies.” Major dif-
ferences between the Swiss Federal banking law requirements
and International Financial Reporting Standards are described in
Note 40 to the consolidated financial statements. The accounting
policies applied for the statutory accounts 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. For the statu-
tory required risk assessment refer to the “Risk and treasury man-
agement” section of this report. For a description of the business
activities refer to the “UBS business divisions and Corporate
Center” section of this report.
Treasury shares
Treasury shares are own equity instruments held by an entity. Un-
der Swiss law, treasury shares are recognized in the balance sheet
as trading balances or as Financial investments. Short positions in
treasury shares are recognized in Due to banks. Treasury shares
recognized as trading balances and short positions in treasury
shares are measured at fair value with unrealized gains or losses
from remeasurement to fair value included in the income state-
ment. Treasury shares recognized as Financial investments are val-
ued according to the principles of lower of cost or market value.
Realized gains and losses on the sale or acquisition of treasury
shares are recognized in the income statement.
A reserve for own shares held for other than trading purposes
must be created in equity equal to the cost value of the treasury
shares held through reclassification from Other reserves. There-
fore the repurchases of treasury shares held for other than trading
purposes is only allowed if sufficient Other reserves are available.
The Reserve for own shares is not available for distribution 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. Income and
expense items are translated at weighted average exchange rates
for the period. Any exchange differences arising on the transla-
tion of each of these foreign branches are recognized in the in-
come statement.1
The main currency translation rates used by the Parent Bank
can be found in Note 39 to the consolidated financial statements.
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 subsidiaries through
which UBS AG conducts its banking business on a global basis. The
investments are carried at cost less impairment. The carrying value is
tested for impairment when indications for a decrease in value exist,
which include incurrence of significant operating losses or a severe
depreciation of the currency in which the investment is denominat-
ed. If an investment in associate is impaired, its value is generally
written down to the net asset value. Subsequent recoveries in value
are recognized up to the original cost value based on either the in-
creased net asset value or to a value above the net asset value if in
the opinion of management forecasts of future profitability provide
sufficient evidence that a carrying value above net asset value is sup-
ported. Management may exercise its discretion as to what extent
and in which period a recovery in value is recognized.
Deferred taxes
Deferred tax assets are not recognized in the Parent Bank Finan-
cial Statements under Swiss Federal banking law. However,
deferred tax liabilities may be recognized for taxable temporary
differences. The change in the deferred tax liability balance is rec-
ognized in profit or loss.
Equity participation and other compensation plans
Equity participation plans
Under Swiss law, employee share awards are recognized as com-
pensation expenses and accrued over the performance year,
which is generally the period prior to the grant date. Employee
option awards which do not contain voluntary termination non-
compete provisions are recognized as compensation expenses on
the grant date. If the award is performance based and contains
substantive future service/vesting conditions, compensation ex-
penses are recognized during the performance period. Employee
option awards which contain voluntary termination non-compete
provisions (i.e. good leaver clause) are recognized as compensa-
tion expenses over the performance year. Equity- and cash-settled
1 The description in the notes of our “foreign currency translation” accounting policy was changed to align it with our applied accounting practice. This foreign currency translation policy has been consistently applied for
the two periods presented, and therefore, the change in description in the notes does not affect the financial statements of UBS AG (Parent Bank) for the years ended 31 December 2010 and 2009.
383
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Financial information
UBS AG (Parent Bank)
awards are classified as liabilities. The employee share option
awards are remeasured 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 employ-
ee options, cash received for payment of the strike price is cred-
ited against share capital and general statutory reserve.
Other compensation plans
Fixed and variable deferred cash compensation is recognized as
compensation expenses over the performance year. If the award
is performance based and contains substantive future service /
vesting conditions, compensation expenses are recognized during
the performance period.
Changes in accounting policies, comparability and
other adjustments
Equity participation and other compensation plans
Employee share option awards, which UBS intends to settle using
treasury shares, are classified as liabilities and are re-measured to
fair value at each balance sheet date. As of 1 January 2010,
UBS simplified its approach to determine the fair value of such
employee share option awards (see details in Note 31 to the con-
solidated financial statements). UBS compared the values gener-
ated by the new model to those of the original model and con-
cluded that fair values obtained from the new valuation model are
not materially different from the fair values obtained from the
original model. A valuation difference of CHF 12 million was rec-
ognized as an expense in trading income. Employee share option
awards that are settled by issuing new shares out of conditional
capital are not affected by this model change as no compensation
expense and no liability is recognized.
Own bonds held for trading and market making activities
In 2010, UBS changed its accounting policy for owns bonds held.
Own bonds held for trading and market making purposes are no
longer treated as extinguishment of debt, but are rather classified
as trading assets. Gains and losses from trading and market mak-
ing activities are reported in trading income.
Financial liabilities designated at fair value
In December 2010, FINMA issued a “Frequently Asked Ques-
tions” document that amends FINMA circular 08/2 to allow des-
ignation of issued structured products that meet certain condi-
tions as at fair value through profit or loss. Changes in fair value
attributable to a change in own credit are not recognized. Issued
structured products are hybrid instruments that consist of a debt
host contract and a bifurcatable embedded derivative(s). UBS
adopted this amendment to FINMA circular 08/2 for year-end
2010. Issued structured products designated at fair value are
presented on the face of the balance sheet in the line Financial
liabilities designated at fair value. The difference between fair
value and amortized cost upon transition is recorded in trading
income and resulted in a trading loss of approximately CHF 988
million.
Capital contribution reserves
Under Swiss tax law, effective 1 January 2011, repayments of cap-
ital contribution reserves established since 1997 are no longer sub-
ject to withholding tax deduction. The presentation of the balance
sheet has been changed to present the components of the Gen-
eral statutory reserve, Reserve for own shares and Other reserves
accounts within shareholders’ equity. Amounts in these reserve ac-
counts originate either from share premiums paid in connection
with the issue of new shares or profits or losses transferred to any
of these reserve accounts (retained earnings). This more detailed
presentation has been made to establish the amount of capital
contribution reserves that UBS may be able to repay to sharehold-
ers without being subject to the withholding tax deduction that
applies to dividends paid out of retained earnings. Such amount is
subject to approval from the Swiss Tax Authorities. The compara-
tive prior year period conforms to the current year presentation.
In an additional column, the balance sheet as of 31 December
2010 is presented taking into account the proposed appropriation
of the available profit to reserves.
384
Additional income statement information
Net trading income
CHF million
Investment Bank equities
Investment Bank fixed income, currencies and commodities
Other business divisions
Total
Extraordinary income and expenses
For the year ended
% change from
31.12.10
31.12.09
31.12.09
1,890
2,326
2,285
6,501
3,005
(4,496)
1,014
(476)
(37)
125
Extraordinary income 2010 was mainly comprised of the follow-
ing items: merger gains and gains from sale of subsidiaries and
associated companies of CHF 601 million; reversal of write-downs
of investments in associated companies of CHF 2,337 million
(2009: CHF 265 million), mainly in the United States; a number of
prior period related valuation corrections aggregating CHF 741
million related to (i) share-based compensation plans, (ii) financial
instruments which, unlike under IFRS, cannot be accounted for at
fair value through profit or loss according to FINMA circular 08/2,
(iii) financial investments carried at lower of cost or market value,
and (iv) miscellaneous other valuation adjustments; and a release
of other liabilities of CHF 227 million.
Extraordinary expenses in 2010 included losses from the sale of
subsidiaries and associated companies of CHF 18 million (2009:
CHF 48 million) and prior year related valuation corrections of
CHF 160 million.
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385
Financial information
UBS AG (Parent Bank)
Additional balance sheet information
Assets pledged or assigned as security for own obligations and assets subject to reservation of title
CHF million
Money market papers 1
Mortgage loans 2
Securities 1
Other
Total
31.12.10
31.12.09
Change in %
Book value Effective liability
Book value
Effective liability
Book value
Effective liability
31,575
27,119
60,989
5,790
125,473
7,876
15,706
26,308
0
49,890
42,898
21,741
47,289
8,578
120,506
1,368
12,321
31,862
0
45,551
(26)
25
29
(33)
4
476
27
(17)
10
1 Includes positions pledged to central banks for credit facilities which are committed but undrawn. 2 Includes mortgage loans transferred for security purposes in preparation of existing and upcoming covered bond issuances.
Financial assets are mainly pledged in securities borrowing and lending transactions, in repurchase and reverse repurchase transactions,
under collateralized credit lines with central banks, against loans from mortgage institutions, in connection with derivative transactions,
as security deposits for stock exchanges and clearinghouse memberships or transferred for security purposes in connection with the
issuance of covered bonds.
Allowances and provisions
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
31.12.09
Provisions released
to income
New provisions
charged to income
Balance at
31.12.10
(383)
(764)
(20)
(30)
(112)
(75)
(1,384)
90
(29)
(6)
(13)
(13)
59
(28)
60
(378)
(37)
(7)
(32)
(64)
(74)
(592)
380
170
16
37
21
137
761
1,256
810
42
96
214
9
1,024
3,451
1,174
2,277
964
151
25
90
80
4
982
2,296
872
1,424
386
Statement of shareholders’ equity
CHF million
As of 31.12.08 and 1.1.09
Capital increase
Capital increase related to mandatory convertible notes (MCNs)
Profit / (loss) allocation
Prior year dividend
Profit / (loss) for the period
Changes in reserves for own shares
As of 31.12.09 and 1.1.10
Capital increase
Capital increase related to mandatory convertible notes (MCNs)
Profit / (loss) allocation
Prior year dividend
Profit / (loss) for the period
Changes in reserves for own shares
As of 31.12.10
Share capital and significant shareholders
As of 31.12.10
Issued and paid up
Conditional share capital
As of 31.12.09
Issued and paid up
Conditional share capital
Shares issued
On 5 March 2010, the mandatory convertible notes (MCNs) with
a notional value of CHF 13 billion issued in March 2008 to the
Government of Singapore Investment Corporation Pte. Ltd. and
an investor from the Middle East were converted into UBS
shares. The notes were converted at a price of CHF 47.68 per
share. As a result, UBS issued 272,651,005 new shares with a
nominal value of CHF 0.10 each from existing conditional capital.
The MCNs were treated as equity instruments and recognized in
Share premium.
Conditional share capital
On 31 December 2010, 149,920,712 shares were available for
issue to fund UBS‘s employee share option programs. In addition,
conditional capital of up to 100,000,000 shares was available in
connection with the Swiss National Bank (SNB) transaction. Fur-
thermore, on 14 April 2010 the annual general meeting of UBS
AG approved the creation of conditional capital up to a maximum
amount of 380,000,000 shares for conversion rights / warrants
Share
capital
General statutory
reserves
Reserves for
own shares
2,877
Other
reserves
22,115
Profit / (loss)
for the period
(36,489)
(22,115)
36,489
293
30
33
356
27
40,910
3,783
58
(14,374)
30,377
1
(2,999)
(2,042)
835
2,042
2,042
(2,042)
383
27,379
(402)
432
402
402
Total shareholders’
equity (before
distribution of profit)
29,706
3,813
91
0
0
(5,041)
0
28,569
1
27
0
0
6,123
0
34,719
(5,041)
(5,041)
5,041
6,123
6,123
Par value
Ranking for dividends
No. of shares
Capital in CHF
No. of shares
Capital in CHF
3,830,840,513
383,084,051
3,830,840,513
383,084,051
629,920,712
62,992,071
3,558,112,753
355,811,275
3,558,112,753
355,811,275
527,773,646
52,777,365
granted in connection with the issuance of bonds or similar finan-
cial instruments.
Significant shareholders
According to disclosure notifications filed with UBS AG and the
SIX Swiss Exchange, on 8 June 2010, The Capital Group Compa-
nies, Inc., Los Angeles, disclosed a holding of 4.90% of the total
share capital of UBS AG. On 12 March 2010, the Government of
Singapore, Singapore, as beneficial owner, disclosed under the
Swiss Stock Exchange Act, a holding by the Government of Singa-
pore Investment Corp. of 6.45% of the total share capital of UBS
AG. On 17 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 (3.21% of the total share
capital as of 11 March 2010).
According to UBS’s share register, the shareholders (acting in
their own name or in their capacity as nominees for other inves-
tors or beneficial owners) listed in the table below, were regis-
tered with 3% or more of the total share capital as of 31 Decem-
ber 2010.
387
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Financial information
UBS AG (Parent Bank)
Shareholders registered in the UBS shares register with 3% or more of shares issued
Chase Nominees Ltd, London
DTC (Cede & Co.), New York 1
Government of Singapore Investment Corp., Singapore
Nortrust Nominees Ltd, London
31.12.10
Total
nominal
value CHF
million
41
28
25
15
Quantity
409,822,353
280,355,684
245,481,682
145,038,407
Share %
10.70
7.32
6.41
3.79
Quantity
413,857,854
299,489,003
109,365,321
31.12.09
Total
nominal
value CHF
million
41
30
11
Share %
11.63
8.42
less than 3
3.07
1 DTC (Cede & Co.), New York, “The Depository Trust Company”, is a US securities clearing organization.
➔ Refer to the “Corporate governance and compensation” section
of this report for more information on significant shareholders’
and shareholders participation rights
31.12.10
31.12.09
499
203
2,839
2,832
6,373
592
128
2,664
3,120
6,504
31.12.10
31.12.09
444
581
1,443
2,250
4,717
484
883
782
4,493
6,641
Other assets
CHF million
Settlement and clearing accounts
VAT and other tax receivables
Prepaid pension costs
Other receivables
Total other assets
Other liabilities
CHF million
VAT and other tax payables
Settlement and clearing accounts
Deferral position for hedging instruments
Other payables
Total other liabilities
388
Off-balance-sheet and other information
Commitments and contingent liabilities
CHF million
Contingent liabilities
Irrevocable commitments
Irrevocable securities delivery obligations related to forward starting repos and securities lending transactions
Liabilities for calls on shares and other equities
Documentary credits
31.12.10
102,820
106,304
27,215
168
4,278
31.12.09
119,030
113,027
18,623
151
2,083
% change from
31.12.09
(14)
(6)
46
11
105
Contingent liabilities include indemnities and guarantees issued by
UBS AG for the benefit of subsidiaries and creditors of subsidiaries.
In instances where the indemnity amount issued by the Parent
Bank is not defined, the indemnity relates to the solvency or mini-
mum capitalization of a subsidiary, and therefore no amount is
included in the table above. This policy has been applied since
2010. The prior year amounts have been adjusted to conform to
the current year’s presentation.
From 2010 onwards, collateralized forward starting transactions
are presented in this table; the comparative period has been
adjusted accordingly. Irrevocable commitments include cash pay-
ment obligations from forward starting reverse repos and se-
curities borrowing transactions. Irrevocable securities delivery ob-
ligations related to forward starting repos and securities lending
transactions are presented on a separate line.
UBS AG is jointly and severally liable for the value added tax
Irrevocable commitments and securities delivery obligations:
(VAT) liability of Swiss subsidiaries that belong to its VAT group.
Derivative instruments 1
CHF million
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
31.12.10
NRV 3
166,919
50,578
122,843
3,755
19,455
927
364,477
303,754
60,723
PRV 2
176,918
57,812
113,514
3,784
16,281
894
369,203
303,754
65,449
Notional
amount
CHF billion
32,963
2,345
6,561
71
483
41
42,463
31.12.09
NRV 3
174,632
70,586
101,800
3,378
21,353
697
372,447
317,979
54,468
PRV 2
187,506
80,008
97,925
3,442
17,314
761
386,956
317,979
68,977
Notional
amount
CHF billion 4
34,726
2,525
6,051
78
451
31
43,862
1 Bifurcated embedded derivatives are presented in the same balance sheet line as the host contract and are excluded from this table. 2 PRV: Positive replacement value. 3 NRV: Negative replacement value.
4 Notional values as of 31 December 2009 for Interest rate, Foreign exchange, Equity/index and Commodities contracts have been corrected.
Fiduciary transactions
CHF million
Deposits:
with third-party banks
with subsidiaries
Total
31.12.10
31.12.09
% change from
31.12.09
11,529
1,740
13,269
17,088
1,810
18,898
(33)
(4)
(30)
389
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Financial information
UBS AG (Parent Bank)
Due to UBS pension plans
CHF million
Obligations due to UBS pension plans 1
1 From 2010 onwards, derivative financial instruments are included; the comparative period has been adjusted.
For the year ended
% change from
31.12.10
682
31.12.09
543
31.12.09
26
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 circular 08/7
“Outsourcing banks”.
Dispensations in statutory financial statements
As UBS Group prepares consolidated financial statements in accordance with IFRS, UBS AG (Parent Bank) is exempted from various
disclosures in the statutory financial statements. Refer to the IFRS “Consolidated financial statements” in the “Financial Information”
section of this report for more information.
Personnel
The Parent Bank employed 36,381 personnel on 31 December 2010 compared with 36,182 personnel on 31 December 2009.
390
Corporate governance and compensation report
Total compensation for all GEB members
CHF, except where indicated a
Variable cash
compensation under CBP
Name, function
For the year
ended
Oswald J. Grübel, Group CEO
2010
Carsten Kengeter, CEO Investment Bank
(highest-paid)
2010
Carsten Kengeter, CEO Investment Bank
(highest-paid)
2009
Aggregate of all GEB members who
were in office on 31 December 2010 1
Aggregate of all GEB members who
were in office on 31 December 2009 1
Aggregate of all GEB members who
stepped down during 2010 2
Aggregate of all GEB members who
stepped down during 2009 2
2010
2009
2010
2009
Base salary
3,000,000
Immediate
cash b
0
Deferred
cash b, 3
0
Annual
bonus
under PEP c
0
Annual
bonus under
SEEOP d
0
Annual
bonus
under IPP c
–
Benefits in
kind e
25,600
Contribu-
tions to
retirement
benefits
plans f
0
Total
3,025,600
874,626
1,002,496
2,339,158
1,670,827
3,341,654
–
92,547
0
9,321,308
669,092
3,002,082
2,001,388
6,155,869
–
1,349,336
0
12,545
13,190,312
14,705,894
15,588,145
14,451,756
15,019,951
30,039,901
–
381,851
843,402
91,030,900
12,000,055
15,440,827
10,293,884
13,453,424 4
– 15,696,333
270,971
1,551,068
68,706,566
755,950
1,380,000
920,000
2,447,544
23,065,858
15,377,239
0
0
0
–
–
0
78,817
118,334
3,253,101
215,151
171,122
41,276,914
1 Number and distribution of GEB members: 13 GEB members in office on 31 December 2010 and on 31 December 2009 respectively. 2 Number and distribution of former GEB members for 2010 includes Francesco
Morra (three months in office, including a notice period of six months); and 2009 includes Marcel Rohner (two months in office), Walter H. Stürzinger and Raoul Weil (three months in office), Jerker Johansson (four months
in office), Rory Tapner (six months in office) and Marten Hoekstra (10 months in office). 3 In 2010, for John Cryan, Carsten Kengeter and Alexander Wilmot-Sitwell, deferred cash includes blocked shares. 4 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.
Explanation of the tables outlining compensation details for GEB members and non-independent BoD members
a. Local currencies are converted into CHF using the exchange rates as detailed in Note 39 “Currency translation rates” in the “Financial information” section
of this report.
b. Of the cash award, 60% is paid out immediately (representing 24% of a GEB member’s total annual bonus). The balance is paid out in equal installments
of 20%, each over the subsequent two years, and is subject to forfeiture.
c. Value of each performance share at grant: CHF 18.70 for PEP awards granted in 2011 relating to the performance year 2010; CHF 16.30 for PEP awards
granted in 2010 relating to the performance year 2009; and CHF 22.20 for IPP awards granted in 2010 relating to the performance year 2009. These
values are based on valuations for accounting purposes which take into account the performance conditions and the range of possible outcomes for these
conditions.
d. SEEOP is a pre-existing compensation plan that has been updated and re-introduced. SEEOP awards vest in equal installments over five years and are
subject to forfeiture. The grant date accounting value per share granted under SEEOP in 2011 relating to the performance year 2010 at grant is CHF 18.43
or USD 19.94 (actual shares) and CHF 18.30 or USD 19.80 (notional shares).
e. Benefits in kind are all valued at market price, for example, health and welfare benefits and general expense allowances.
f. Swiss executives participate in the same pension plan as all other employees. Under this plan, UBS makes contributions to the plan, which covers compensa-
tion of 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 contribution is included in the base salary and annual incentive award components.
In both the US and the UK, senior management participates in the same pension plans as all other employees. In the US, there are separate pension plans
for Wealth Management Americas compared with the other business divisions. There are generally two different types of pension plans. The grandfathered
plans, which are no longer open to new hires, operate (depending on the abovementioned distinction by business division) either on a cash balance basis
or a career average salary basis. Participants accrue a pension based on their annual compensation limited to USD 250,000 (or USD 150,000 for Wealth
Management Americas employees). The principal plans for new hires are defined contribution plans. In the defined contribution plans, UBS makes contribu-
tions to the plan based on compensation and limited to USD 245,000. US management may also participate in a 401(k) defined contribution plan (open to
all employees), which provides a limited 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 ben-
efit plan which provides a pension upon retirement based on career average base salary (individual caps introduced as of 1 July 2010).
391
n
o
i
t
a
m
r
o
f
n
i
l
a
i
c
n
a
n
i
F
Number of
vested shares
Total number of
shares
Potentially
conferred voting
rights in %
Financial information
UBS AG (Parent Bank)
Share and option ownership of GEB members on 31 December 2009 / 2010
Name, function 1
Oswald J. Grübel, Group Chief Executive Officer
John Cryan, Group Chief Financial Officer
Markus U. Diethelm, Group General Counsel
John A. Fraser,
Chairman and CEO Global Asset Management
Lukas Gähwiler, CEO UBS Switzerland and co-CEO
Wealth Management & Swiss Bank
Carsten Kengeter, CEO Investment Bank
Ulrich Körner, Group Chief Operating Officer and
CEO Corporate Center
Philip J. Lofts, Group Chief Risk Officer
Robert J. McCann, CEO Wealth Management Americas
Francesco Morra, former CEO UBS Switzerland 5
Alexander Wilmot-Sitwell, co-Chairman and
co-CEO Group Asia Pacific
Robert Wolf, Chairman and CEO, UBS Group Americas /
President Investment Bank
Chi-Won Yoon, co-Chairman and
co-CEO Group Asia Pacific
Jürg Zeltner, CEO UBS Wealth Management and
co-CEO Wealth Management & Swiss Bank
For the
year ended
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
Number of
unvested
shares / at risk 2
0
–
0
–
221,879
185,975
–
178,619
–
326,702
–
110,000
–
–
75,700
–
316,541
–
850
–
0
0
407,854
235,929
254,319
112,245
643,243
480,464
110,850
–
916,201
363,047
1,279,248
–
177,592
–
200,009
–
–
95,597
–
144,603
–
138,598
540,866
–
–
–
–
–
–
274,739
213,613
–
–
242,805
635,382
–
–
184,858
318,332
–
113,609
–
–
9,405
–
516,909
273,189
0
344,612
179,234
679,464
602,481
–
153,860
488,352
286,767
878,187
785,631
503,190
367,573
123,014
16,502
Number of
options held 3
4,000,000
4,000,000
382,673
382,673
0
0
1,088,795
1,088,795
0
–
905,000
905,000
0
0
577,723
577,723
0
0
–
325,086
353,807
353,807
948,473
948,473
623,253
623,253
205,470
205,470
Potentially
conferred voting
rights in % 4
0.181
0.217
0.017
0.021
0.000
0.000
0.049
0.059
0.000
0.041
0.049
0.000
0.000
0.026
0.031
0.000
0.000
0.018
0.016
0.019
0.043
0.051
0.028
0.034
0.009
0.011
0.000
0.000
0.018
0.013
0.012
0.006
0.029
0.026
0.005
0.058
0.028
0.012
0.000
0.016
0.010
0.031
0.033
0.008
0.022
0.016
0.040
0.043
0.023
0.020
0.006
0.001
1 This table includes vested and unvested shares and options held by GEB members, including related parties. 2 Includes shares granted under PEP and IPP. The actual number of shares vesting in the future will be
calculated under the terms of the plans. Refer to “Deferred variable compensation plans” in the “Corporate governance and compensation” section of this report for more information on both plans. 3 Refer to “Note 31
Equity participation and other compensation plans” in the “Financial information” section of this report for more information. 4 No conversion rights are outstanding. 5 GEB member who stepped down during 2010.
392
Compensation details and additional information for non-independent BoD members
CHF, except where indicated a
Name, function 1
Kaspar Villiger, Chairman
Peter Kurer, former Chairman
For the
year ended
2010
2009
2010
2009
Base salary
850,000
602,083
–
666,667
Annual bonus
(cash)
0
0
–
0
Annual
share award
500,000 2
0
–
0
Benefits in kind e
141,308
74,488
–
37,561
Contributions
to retirement
benefits plans f
0
0
–
89,780
Total
1,491,308
676,571
–
794,008
1 2010: Kaspar Villiger was the only non-independent member in office on 31 December 2010 and 31 December 2009, respectively. Peter Kurer did not stand for reelection at the AGM on 15 April 2009. 2 These shares
are blocked for four years.
Remuneration details and additional information for independent BoD members
CHF, except where indicated a
e
e
t
t
i
m
m
o
C
t
i
d
u
A
M
M
M
M
M
C
C
Name, function 1
Michel Demaré,
Vice Chairman
David Sidwell,
Senior Independent Director
Sally Bott,
member
Rainer-Marc Frey,
member
Bruno Gehrig,
member
Ann F. Godbehere,
member
Axel P. Lehmann,
member
Sergio Marchionne,
former Senior Independent Director,
former Vice Chairman
Wolfgang Mayrhuber,
member
Helmut Panke,
member
William G. Parrett,
member
Peter R. Voser,
former member
Total 2010
Total 2009
s
e
c
r
u
o
s
e
R
n
a
m
u
H
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
n
r
e
v
o
G
g
n
i
t
a
n
m
o
N
i
e
e
t
t
i
m
m
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
t
a
r
o
p
r
o
C
k
s
i
R
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
M
C
C
M
M
M
M
M
2010 / 2011 325,000
2009 / 2010 325,000
C 2010 / 2011 325,000
C 2009 / 2010 325,000
2010 / 2011 325,000
2009 / 2010 325,000
M 2010 / 2011 325,000
M 2009 / 2010 325,000
2010 / 2011 325,000
2009 / 2010 325,000
2010 / 2011 325,000
2009 / 2010 325,000
M 2010 / 2011 325,000
M 2009 / 2010 325,000
2010 / 2011
M
M
M
M
2009 / 2010 325,000
M
2010 / 2011 325,000
2009 / 2010
M 2010 / 2011 325,000
M 2009/2010 325,000
2010 / 2011 325,000
2009 / 2010 325,000
2010 / 2011
300,000
200,000
400,000
400,000
450,000
350,000
400,000
200,000
200,000
200,000
250,000
250,000
200,000
200,000
100,000
150,000
300,000
300,000
300,000
300,000
M
2009 / 2010 325,000
100,000
0
0
0
0
0
0
0
0
0
0
Share
percen-
tage 2
100
Number of
shares 3,4
52,631
50
50
50
50
50
100
100
50
50
50
50
100
100
100
50
50
50
50
50
50
21,203
30,893
29,281
24,556
27,261
43,583
40,301
16,634
21,203
18,219
23,222
31,519
40,301
51,845
15,050
19,803
25,242
19,803
25,242
17,164
Additional
payments
250,000 5
0
250,000 5
0
0
0
0
Total
875,000
525,000
975,000
725,000
775,000
675,000
725,000
525,000
525,000
525,000
575,000
575,000
525,000
0
525,000
–
250,000 5
675,000
475,000
–
625,000
625,000
625,000
625,000
–
425,000
6,700,000
6,425,000
0
0
0
Legend: C = Chairperson of the respective Committee; M = Member of the respective Committee
1 There were 10 independent BoD members in office on 31 December 2010. Wolfgang Mayrhuber was appointed at the AGM on 14 April 2010 and Sergio Marchionne and Peter Voser stepped down from the BoD at the
AGM on 14 April 2010. 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 Ber-
tarelli, Gabrielle Kaufmann-Kohler and Joerg Wolle stepped down from the BoD at the AGM on 15 April 2009. 2 Fees are paid 50% in cash and 50% in blocked UBS shares. However, independent BoD members can elect
to have 100% of their remuneration paid in blocked UBS shares. 3 For 2010, shares valued at CHF 18.56 (average price of UBS shares at SIX Swiss Exchange over the last 10 trading days of February 2011), included a
price discount of 15%, for a new value of discount price CHF 15.78. These shares are blocked for four years. 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. 4 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. 5 This payment is associated with the Vice Chairman or the SID function, respectively.
393
n
o
i
t
a
m
r
o
f
n
i
l
a
i
c
n
a
n
i
F
Financial information
UBS AG (Parent Bank)
Total payments to all BoD members
CHF, except where indicated a
Aggregate of all BoD members
Share holdings of BoD members on 31 December 2009 / 2010
Name, function 1
Kaspar Villiger, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Sally Bott, member
Rainer-Marc Frey, member
Bruno Gehrig, member
Ann F. Godbehere, member
Axel P. Lehmann, member
Sergio Marchionne,
former Senior Independent Director, former Vice Chairman 2
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member
Peter R. Voser, former member 2
For the year ended
2010
2009
Total
8,191,310
7,895,579
For the year ended
Number of shares held
Voting rights in %
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
22,500
22,500
23,703
2,500
69,354
40,073
39,542
12,281
56,459
16,158
37,775
16,572
23,222
0
58,452
18,151
–
164,154
0
–
89,529
64,287
42,815
17,573
–
68,310
0.001
0.001
0.001
0.000
0.003
0.002
0.002
0.001
0.003
0.001
0.002
0.001
0.001
0.000
0.003
0.001
0,009
0.000
0.004
0.003
0.002
0.001
0.004
1 This table includes vested, unvested, blocked and unblocked shares held by BoD members, including related parties. No options were granted in 2009 and 2010. 2 BoD members who stepped down at the 2010 AGM.
394
Compensation paid to former BoD and GEB members1
CHF, except where indicated a
Name, function
Georges Blum, former BoD member
(Swiss Bank Corporation)
Franz Galliker, former BoD member
(Swiss Bank Corporation)
Walter G. Frehner, former BoD member
(Swiss Bank Corporation)
Hans (Liliane) Strasser, former BoD member
(Swiss Bank Corporation)
Robert Studer, former BoD member
(Union Bank of Switzerland)
Alberto Togni, former BoD member
(UBS)
Philippe (Alix) de Weck, former BoD member
(Union Bank of Switzerland)
Aggregate of all former GEB members 2
Aggregate of all former BoD and GEB members
For the
year ended
Compensation
Benefits in kind
0
0
0
0
0
0
0
0
0
0
0
320,136
0
0
0
0
0
0
92,399
0
10,659
0
25,371
0
9,758
0
18,751
20,493
355,983
0
93,135
57,229
18,293
77,722
Total
0
92,399
0
10,659
0
25,371
0
9,758
0
18,751
20,493
676,119
0
93,135
57,229
18,293
77,722
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
320,136
624,349
944,485
1 Compensation or remuneration that is connected with the former member’s activity on the BoD or GEB, that is not at market conditions. 2 Includes one former GEB member in 2010 and one former GEB member in 2009.
n
o
i
t
a
m
r
o
f
n
i
l
a
i
c
n
a
n
i
F
395
Financial information
UBS AG (Parent Bank)
Vested and unvested options held by GEB members on 31 December 2009 / 2010 1
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Oswald J. Grübel, Group Chief Executive Officer
John Cryan, Group Chief Financial Officer (continued)
2010
2009
4,000,000 4,000,000
2009 26/02/2009 25/02/2014
CHF 10.10
2009
382,673
4,000,000 4,000,000
2009 26/02/2009 25/02/2014
CHF 10.10
John Cryan, Group Chief Financial Officer
5,330
5,328
5,326
17,762
17,762
17,760
53,285
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
2008 01/03/2011 28/02/2018
CHF 32.45
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
2002 28/02/2003 28/02/2012
CHF 36.65
2010
382,673
2009
382,673
21,362
20,731
20,725
5,454
5,294
5,292
23,626
23,620
23,612
5,526
5,524
5,524
17,072
17,068
17,063
14,210
14,210
14,207
5,330
5,328
5,326
17,762
17,762
17,760
53 285
21,362
20,731
20,725
5,454
5,294
5,292
23,626
23,620
23,612
5,526
5,524
5,524
17,072
17,068
17,063
14,210
14,210
14,207
2002 28/02/2004 28/02/2012
CHF 36.65
Markus U. Diethelm, Group General Counsel
2002 28/02/2005 28/02/2012
CHF 36.65
2003 01/03/2004 31/01/2013
CHF 27.81
2010
2009
2003 01/03/2005 31/01/2013
CHF 27.81
0
0
2003 01/03/2006 31/01/2013
CHF 27.81
John A. Fraser, Chairman and CEO Global Asset Management
2003 01/03/2004 28/02/2013
CHF 26.39
2010
1,088,795
76,380
2002 31/01/2005 31/01/2012
USD 21.24
2003 01/03/2005 28/02/2013
CHF 26.39
2003 01/03/2006 28/02/2013
CHF 26.39
2004 01/03/2005 27/02/2014
CHF 44.32
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
2005 01/03/2006 28/02/2015
CHF 47.58
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
2008 01/03/2011 28/02/2018
CHF 32.45
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
2002 28/02/2003 28/02/2012
CHF 36.65
2002 28/02/2004 28/02/2012
CHF 36.65
2002 28/02/2005 28/02/2012
CHF 36.65
2003 01/03/2004 31/01/2013
CHF 27.81
2003 01/03/2005 31/01/2013
CHF 27.81
2003 01/03/2006 31/01/2013
CHF 27.81
2003 01/03/2004 28/02/2013
CHF 26.39
2003 01/03/2005 28/02/2013
CHF 26.39
127,884
2002 28/06/2005 28/06/2012
CHF 37.90
127,884
2003 31/01/2006 31/01/2013
USD 22.53
170,512
2004 01/03/2007 27/02/2014
USD 38.13
202,483
2005 01/03/2008 28/02/2015
USD 44.81
213,140
2006 01/03/2009 28/02/2016
CHF 72.57
170,512
2007 01/03/2010 28/02/2017
CHF 73.67
2009
1,088,795
76,380
2002 31/01/2005 31/01/2012
USD 21.24
127,884
2002 28/06/2005 28/06/2012
CHF 37.90
127,884
2003 31/01/2006 31/01/2013
USD 22.53
170,512
2004 01/03/2007 27/02/2014
USD 38.13
202,483
2005 01/03/2008 28/02/2015
USD 44.81
213,140
2006 01/03/2009 28/02/2016
CHF 72.57
170,512
2007 01/03/2010 28/02/2017
CHF 73.67
Lukas Gähwiler, CEO UBS Switzerland and
co-CEO Wealth Management & Swiss Bank
2010
2009
0
–
Carsten Kengeter, CEO Investment Bank
2010
2009
905,000
905,000
2009 01/03/2012 27/12/2019
CHF 40.00
905,000
905,000
2009 01/03/2012 27/12/2019
CHF 40.00
Ulrich Körner, Group Chief Operating Officer and CEO Corporate Center
2010
2009
0
0
2003 01/03/2006 28/02/2013
CHF 26.39
Philip J. Lofts, Group Chief Risk Officer
2004 01/03/2005 27/02/2014
CHF 44.32
2010
577,723
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
2005 01/03/2006 28/02/2015
CHF 47.58
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
11,445
11,104
11,098
1,240
5,464
1,199
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
2002 28/02/2003 28/02/2012
CHF 36.65
2002 28/02/2004 28/02/2012
CHF 36.65
2002 28/02/2005 28/02/2012
CHF 36.65
1 This table includes options held by GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial informa-
tion” section of this report for more information.
396
Vested and unvested options held by GEB members on 31 December 2009 / 2010 1 (continued)
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Philip J. Lofts, Group Chief Risk Officer (continued)
Alexander Wilmot-Sitwell, co-Chairman und co-CEO Group Asia Pacific (cont.)
2010
577,723
9,985
9,980
9,974
1,833
1,830
1,830
35,524
35,524
35,521
2003 01/03/2004 31/01/2013
CHF 27.81
2010
353,807
2003 01/03/2005 31/01/2013
CHF 27.81
2003 01/03/2006 31/01/2013
CHF 27.81
2003 01/03/2004 28/02/2013
CHF 26.39
2003 01/03/2005 28/02/2013
CHF 26.39
2003 01/03/2006 28/02/2013
CHF 26.39
2009
353,807
2004 01/03/2005 27/02/2014
CHF 44.32
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
35,524
35,524
35,521
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
106,570
2007 01/03/2010 28/02/2017
CHF 73.67
85,256
53,282
2008 01/03/2011 28/02/2018
CHF 35.66
2005 01/03/2008 28/02/2015
CHF 47.58
2,130
2005 04/03/2007 04/03/2015
CHF 47.89
35,524
35,524
35,521
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
106,570
2007 01/03/2010 28/02/2017
CHF 73.67
85,256
2008 01/03/2011 28/02/2018
CHF 35.66
2009
577,723
117,090
2005 01/03/2008 28/02/2015
CHF 52.32
117,227
2006 01/03/2009 28/02/2016
CHF 72.57
85,256
74,599
11,445
11,104
11,098
1,240
5,464
1,199
9,985
9,980
9,974
1,833
1,830
1,830
35,524
35,524
35,521
2007 01/03/2010 28/02/2017
CHF 73.67
2008 01/03/2011 28/02/2018
CHF 35.66
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
2002 28/02/2003 28/02/2012
CHF 36.65
2002 28/02/2004 28/02/2012
CHF 36.65
2002 28/02/2005 28/02/2012
CHF 36.65
2003 01/03/2004 31/01/2013
CHF 27.81
2003 01/03/2005 31/01/2013
CHF 27.81
2003 01/03/2006 31/01/2013
CHF 27.81
2003 01/03/2004 28/02/2013
CHF 26.39
2003 01/03/2005 28/02/2013
CHF 26.39
2003 01/03/2006 28/02/2013
CHF 26.39
2004 01/03/2005 27/02/2014
CHF 44.32
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
117,090
2005 01/03/2008 28/02/2015
CHF 52.32
117,227
2006 01/03/2009 28/02/2016
CHF 72.57
85,256
74,599
2007 01/03/2010 28/02/2017
CHF 73.67
2008 01/03/2011 28/02/2018
CHF 35.66
Robert J. McCann, CEO Wealth Management Americas
2010
2009
0
0
Francesco Morra, former CEO UBS Switzerland 4
2010
–
2009
325,086
43,911
66,866
2006 01/03/2009 28/02/2016
CHF 72.57
2007 01/03/2010 28/02/2017
CHF 73.67
114,309
2008 01/03/2011 28/02/2018
CHF 35.66
100,000
2009 01/03/2012 27/02/2019
CHF 11.35
Alexander Wilmot-Sitwell, co-Chairman and co-CEO Group Asia Pacific
2010
353,807
53,282
2005 01/03/2008 28/02/2015
CHF 47.58
Robert Wolf, Chairman and CEO, UBS Group Americas /
President Investment Bank
2010
948,473
287,739
2003 31/01/2006 31/01/2013
USD 22.53
213,140
2004 01/03/2007 27/02/2014
USD 38.13
127,884
2005 01/03/2008 28/02/2015
USD 44.81
106,570
2006 01/03/2009 28/02/2016
CHF 72.57
106,570
2007 01/03/2010 28/02/2017
CHF 73.67
106,570
2008 01/03/2011 28/02/2018
CHF 35.66
2009
948,473
287,739
2003 31/01/2006 31/01/2013
USD 22.53
213,140
2004 01/03/2007 27/02/2014
USD 38.13
127,884
2005 01/03/2008 28/02/2015
USD 44.81
106,570
2006 01/03/2009 28/02/2016
CHF 72.57
106,570
2007 01/03/2010 28/02/2017
CHF 73.67
106,570
2008 01/03/2011 28/02/2018
CHF 35.66
Chi-Won Yoon, co-Chairman and co-CEO Group Asia Pacific
2010
623,253
11,577
11,229
11,227
2002 31/01/2002 31/01/2012
USD 21.24
2002 31/01/2004 31/01/2012
USD 21.24
2002 31/01/2005 31/01/2012
USD 21.24
2,252
6,446
2,184
8,648
8,642
8,635
4,262
3,374
3,371
3,371
6,200
4,262
6,198
6,195
2002 28/02/2002 28/02/2012
USD 21.70
2002 29/02/2004 28/02/2012
USD 21.70
2002 28/02/2005 28/02/2012
USD 21.70
2003 01/03/2004 31/01/2013
USD 20.49
2003 01/03/2005 31/01/2013
USD 20.49
2003 01/03/2006 31/01/2013
USD 20.49
2003 28/02/2005 28/02/2013
USD 19.53
2003 01/03/2004 28/02/2013
USD 19.53
2003 01/03/2005 28/02/2013
USD 19.53
2003 01/03/2006 28/02/2013
USD 19.53
2004 01/03/2005 27/02/2014
CHF 44.32
2004 27/02/2006 27/02/2014
CHF 44.32
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
2,130
2005 04/03/2007 04/03/2015
CHF 47.89
10,659
2005 01/03/2006 28/02/2015
CHF 47.58
1 This table includes options held by GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial informa-
tion” section of this report for more information. 4 GEB member who stepped down during 2010.
397
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Financial information
UBS AG (Parent Bank)
Vested and unvested options held by GEB members on 31 December 2009 / 2010 1 (continued)
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year ended
Total
number of
options held 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Chi-Won Yoon, co-Chairman und co-CEO Group Asia Pacific (continued)
2010
623,253
2009
623,253
10,657
10,654
21,316
21,314
21,311
8,881
8,880
8,880
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
42,628
2008 01/03/2011 28/02/2018
CHF 32.45
350,000
2009 01/03/2012 27/02/2019
CHF 11.35
11,577
11,229
11,227
2002 31/01/2002 31/01/2012
USD 21.24
2002 31/01/2004 31/01/2012
USD 21.24
2002 31/01/2005 31/01/2012
USD 21.24
2,252
6,446
2,184
8,648
8,642
8,635
4,262
3,374
3,371
3,371
6,200
4,262
6,198
6,195
10,659
10,657
10,654
21,316
21,314
21,311
8,881
8,880
8,880
2002 28/02/2002 28/02/2012
USD 21.70
2002 29/02/2004 28/02/2012
USD 21.70
2002 28/02/2005 28/02/2012
USD 21.70
2003 01/03/2004 31/01/2013
USD 20.49
2003 01/03/2005 31/01/2013
USD 20.49
2003 01/03/2006 31/01/2013
USD 20.49
2003 28/02/2005 28/02/2013
USD 19.53
2003 01/03/2004 28/02/2013
USD 19.53
2003 01/03/2005 28/02/2013
USD 19.53
2003 01/03/2006 28/02/2013
USD 19.53
2004 01/03/2005 27/02/2014
CHF 44.32
2004 27/02/2006 27/02/2014
CHF 44.32
2004 01/03/2006 27/02/2014
CHF 44.32
2004 01/03/2007 27/02/2014
CHF 44.32
2005 01/03/2006 28/02/2015
CHF 47.58
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
42,628
2008 01/03/2011 28/02/2018
CHF 32.45
350,000
2009 01/03/2012 27/02/2019
CHF 11.35
Jürg Zeltner, CEO UBS Wealth Management and
co-CEO Wealth Management & Swiss Bank
2010
205,470
809
784
784
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
4,972
2004 01/03/2007 27/02/2014
CHF 44.32
Jürg Zeltner, CEO UBS Wealth Management and
co-CEO Wealth Management & Swiss Bank (continued)
2010
205,470
2009
205,470
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
2005 01/03/2006 28/02/2015
CHF 47.58
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
2005 04/03/2007 04/03/2015
CHF 47.89
2005 06/06/2007 06/06/2015
CHF 45.97
2005 09/09/2007 09/09/2015
CHF 50.47
2005 05/12/2007 05/12/2015
CHF 59.03
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2006 03/03/2008 03/03/2016
CHF 65.91
2006 09/06/2008 09/06/2016
CHF 61.84
2006 08/09/2008 08/09/2016
CHF 65.76
2006 08/12/2008 08/12/2016
CHF 67.63
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
223
2007 02/03/2009 02/03/2017
CHF 67.08
42,628
90,000
2008 01/03/2011 28/02/2018
CHF 35.66
2009 01/03/2012 27/02/2019
CHF 11.35
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
2002 31/01/2003 31/01/2012
CHF 36.49
2002 31/01/2004 31/01/2012
CHF 36.49
2002 31/01/2005 31/01/2012
CHF 36.49
2004 01/03/2007 27/02/2014
CHF 44.32
2005 01/03/2006 28/02/2015
CHF 47.58
2005 01/03/2007 28/02/2015
CHF 47.58
2005 01/03/2008 28/02/2015
CHF 47.58
2005 04/03/2007 04/03/2015
CHF 47.89
2005 06/06/2007 06/06/2015
CHF 45.97
2005 09/09/2007 09/09/2015
CHF 50.47
2005 05/12/2007 05/12/2015
CHF 59.03
2006 01/03/2007 28/02/2016
CHF 65.97
2006 01/03/2008 28/02/2016
CHF 65.97
2006 01/03/2009 28/02/2016
CHF 65.97
2006 03/03/2008 03/03/2016
CHF 65.91
2006 09/06/2008 09/06/2016
CHF 61.84
2006 08/09/2008 08/09/2016
CHF 65.76
2006 08/12/2008 08/12/2016
CHF 67.63
2007 01/03/2008 28/02/2017
CHF 67.00
2007 01/03/2009 28/02/2017
CHF 67.00
2007 01/03/2010 28/02/2017
CHF 67.00
223
2007 02/03/2009 02/03/2017
CHF 67.08
42,628
90,000
2008 01/03/2011 28/02/2018
CHF 35.66
2009 01/03/2012 27/02/2019
CHF 11.35
1 This table includes options held by GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial informa-
tion” section of this report for more information.
398
Loans granted to GEB members on 31 December 2009 / 2010
CHF, except where indicated a
Name, function 1
Jürg Zeltner, CEO UBS Wealth Management, co-CEO Wealth Management & Swiss Bank 3
Jürg Zeltner, CEO UBS Wealth Management, co-CEO Wealth Management & Swiss Bank 3
Aggregate of all GEB members
For the year ended
2010
2009
2010
2009
Loans 2
5,739,862
5,800,202
20,696,569
15,356,483
1 No loans have been granted to related parties of the GEB members at conditions not customary in the market. 2 All loans granted are secured loans. 3 GEB member with the highest loan granted.
Loans granted to BoD members on 31 December 2009 / 2010
CHF, except where indicated a
Name, function 1
Kaspar Villiger, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Sergio Marchionne, former Senior Independent Director, former Vice Chairman 3
Sally Bott, member
Rainer-Marc Frey, member
Bruno Gehrig, member 4
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member 4
Peter R. Voser, member 3
Aggregate of all BoD members
For the year ended
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
Loans 2
0
0
850,000
850,000
0
0
–
0
0
0
0
0
798,000
798,000
0
0
0
0
0
0
0
0
0
1,260,731
–
0
1,648,000
2,908,731
1 No loans have been granted to related parties of BoD members at conditions not customary in the market. 2 All loans granted are secured loans. 3 BoD members who stepped down at the 2010 AGM. 4 Secured
loans granted prior to their election to the BoD.
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399
Financial information
UBS AG (Parent Bank)
400
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Financial information
UBS AG (Parent Bank)
402
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403
Financial information
UBS AG (Parent Bank)
404
Financial information
Additional disclosure required under SEC regulations
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 prepared 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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405
Financial information
Additional disclosure required under SEC regulations
B – Selected financial data
The tables below provide information concerning the noon
purchase rate for the Swiss franc, expressed in United States
dollars per one Swiss franc. The noon purchase rate is the rate
in New York City for cable transfers in foreign currencies as cer-
tified for customs purposes by the Federal Reserve Bank of
New York.
On 25 February 2011, the noon purchase rate was 1.0774
USD per 1 CHF.
Year ended 31 December
2006
2007
2008
2009
2010
Month
September 2010
October 2010
November 2010
December 2010
January 2011
February 2011 2
Average rate 1
(USD per 1 CHF)
At period end
0.8034
0.8381
0.9298
0.9260
0.9670
0.8200
0.8827
0.9369
0.9654
1.0673
High
0.8396
0.9087
1.0142
1.0016
1.0673
High
1.0254
1.0493
1.0438
1.0673
1.0719
1.0808
Low
0.7575
0.7978
0.8171
0.8408
0.8610
Low
0.9828
1.0108
0.9984
1.0003
1.0251
1.0251
1 The average of the noon purchase rates on the last business day of each full month during the relevant period. 2 High / Low-rates between 1 February and 25 February 2011.
406
Key figures
CHF million, except where indicated
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 (%) 1
Total BIS (%) 1
Risk-weighted assets 1
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
1 The calculation prior to 2008 is based on the Basel I approach.
31.12.10
31.12.09
31.12.08
31.12.07
31.12.06
As of or for the year ended
1,317,247
1,340,538
2,014,815
2,274,891
2,348,733
46,820
3.0
58,803
41,013
1.9
57,108
32,531
1.5
43,519
36,875
1.8
108,654
51,037
2.0
154,222
3,830,840,513
3,558,112,753
2,932,580,549
2,073,547,344
2,105,273,286
38,892,031
37,553,872
61,903,121
158,105,524
164,475,699
17.8
20.4
198,875
2,152
23,284
6,634
4,122
137
22,031
1,147
7,263
64,617
15.4
19.8
206,525
2,233
24,050
6,204
4,145
134
22,702
1,132
6,865
65,233
11.0
15.0
302,273
2,174
26,406
7,071
4,817
145
27,362
1,984
9,998
77,783
9.1
12.2
374,421
3,189
27,884
8,813
4,776
139
29,921
2,054
9,973
83,560
12.2
15.0
344,015
2,989
27,022
8,243
4,338
102
29,076
1,743
7,616
78,140
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407
Financial information
Additional disclosure required under SEC regulations
Income statement data
CHF million, except where indicated
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 / (benefit)
Net profit from continuing operations
Net profit from discontinued operations
Net profit
Net profit attributable to non-controlling 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
31.12.10
18,872
(12,657)
6,215
(66)
6,149
17,160
7,471
1,214
31,994
24,539
7,455
(381)
7,836
2
7,838
304
7,534
76.5
1.99
1.96
1.97
N/A
N/A
N/A
16.7
16.6
0.5
For the year ended
31.12.09
31.12.08
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)
31.12.07
109,112
(103,775)
31.12.06
87,401
(80,880)
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
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.
408
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
Cash collateral receivables on derivative instruments
Loans
Financial investments available-for-sale
Other assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
Other liabilities
Equity attributable to UBS shareholders
Ratio of earnings to fixed charges
31.12.10
31.12.09
31.12.08
31.12.07
31.12.06
For the year ended
1,317,247
1,340,538
2,014,815
2,274,891
2,348,733
17,133
62,454
142,790
167,463
61,352
401,146
38,071
262,877
74,768
22,681
41,490
6,651
74,796
54,975
393,762
58,924
100,756
332,301
130,271
63,719
46,820
16,804
63,507
116,689
188,037
44,221
421,694
53,774
266,477
81,757
23,682
31,922
7,995
64,175
47,469
409,943
66,097
112,653
339,263
131,352
72,344
41,013
17,694
122,897
224,648
271,838
40,216
854,100
85,703
291,456
5,248
19,837
76,822
14,063
102,561
62,431
851,864
92,937
101,546
362,639
197,254
101,969
32,531
25,976
207,063
376,928
660,182
114,190
428,217
64,978
271,492
4,966
51,417
121,983
31,621
305,887
164,788
443,539
77,781
191,853
496,279
222,077
153,107
36,875
32,156
351,590
405,834
648,346
230,168
292,975
24,433
258,350
8,937
52,949
182,316
63,088
545,480
204,773
297,063
52,251
145,687
451,020
190,143
137,935
51,037
The following table sets forth UBS’s ratio of earnings to fixed charges on an IFRS basis for the periods indicated. The ratios are calcu-
lated based on earnings from continuing operations. Ratios of earnings to combined fixed charges and preferred stock dividend re-
quirements are not presented as there were no preferred share dividends in any of the periods indicated.
31.12.10
1.53
31.12.09
0.82
31.12.08
0.53
31.12.07
0.96
31.12.06
1.17
For the year ended
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Financial information
Additional disclosure required under SEC regulations
C – Information on the company
Property, plant and equipment
At 31 December 2010, UBS operated about 907 business and
banking locations worldwide, of which about 43% were in Swit-
zerland, 41% in the Americas, 11% in the rest of Europe, Middle
East and Africa and 5% in Asia-Pacific. Of the business and bank-
ing locations in Switzerland, 36% were owned directly by UBS,
with the remainder, along with most of UBS’s offices outside Swit-
zerland, being held under commercial leases.
These premises are subject to continuous maintenance and up-
grading and are considered suitable and adequate for current and
anticipated operations.
410
D – Information required by industry guide 3
Selected statistical information
The tables below set forth selected statistical information regard-
ing the Group’s banking operations extracted from the Financial
Statements. Unless otherwise indicated, average balances for the
years ended 31 December 2010, 31 December 2009 and 31 De-
cember 2008 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 2010, 2009 and 2008.
Average
balance
31.12.10
Interest
Average
rate (%)
Average
balance
31.12.09
Interest
Average
rate (%)
Average
balance
31.12.08
Interest
Average
rate (%)
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
Cash collateral receivables on derivative instruments
Domestic
Foreign
Financial assets designated at fair value
Domestic
Foreign
Loans
Domestic
Foreign
Financial investments available-for-sale
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Other interest-earning assets
Domestic
Foreign
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
3,037
14,280
13
60
11,277
296,252
14,150
212,430
2,033
214,463
49,095
568
9,128
196
1,240
231
5,769
15
5,784
306
0
262
179,164
90,032
4,921
2,584
18
539
539
0
484
16,638
2,234
18,872
1,712
74,821
74,821
0
15,227
973,206
973,206
471,046
5,884
81,876
1,532,012
56
260
244
2,385
228
6,915
7
6,922
282
0
316
21
143
143
0
517
21,258
2,203
23,461
0.4
0.4
1.7
0.4
1.6
2.7
0.7
2.7
3,420
16,194
10,029
381,049
10,976
270,674
2,160
272,834
0.6
68,482
548
11,674
2.9
2.7
2.9
1.1
0.7
0.7
3.2
1.7
991
28,295
0
28,295
0
13,785
1,103,748
1.9
1,103,748
654,651
6,609
86,133
1,851,141
179,680
105,791
5,676
4,208
945
11,024
0
404
188,950
91,281
6,919
5,603
1.6
1.6
2.4
0.6
2.1
2.6
0.3
2.5
7,243
15,946
342
789
31,642
669,010
15,104
522,804
8,070
530,874
1,208
21,313
520
21,494
383
21,877
4.7
4.9
3.8
3.2
3.4
4.1
4.7
4.1
0.4
70,867
2,196
3.1
2.7
3.2
4.0
2.1
0.5
0.5
3.8
1.9
1,599
3,370
3,370
0
27,227
1,665,082
2.1
1,665,082
600,073
7,091
82,357
2,354,603
72
73
73
0
1,275
62,591
3,088
65,679
3.7
3.7
6.1
4.5
2.2
2.2
4.7
3.8
3.9
411
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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
Cash collateral payables on derivative instruments
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 1
Short-term debt
Domestic
Foreign
Long-term debt
Domestic
Foreign
Other interest-bearing liabilities
Domestic
Foreign
Total interest-bearing liabilities
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
Average
balance
31.12.10
Interest
Average
rate (%)
Average
balance
31.12.09
Interest
Average
rate (%)
Average
balance
31.12.08
Interest
Average
rate (%)
29,400
10,318
12,089
176,098
1,068
59,672
361
69,223
878
253
99
147
1,135
37
3,757
0
242
3
108,405
2,389
85,838
75,802
7,977
169,617
168,099
1,140
53,454
13,462
68,267
0
37,996
106
409
49
564
756
9
394
142
2,661
0
69
979,547
12,657
459,987
40,418
1,479,952
52,060
1,532,012
0.9
1.0
1.2
0.6
3.5
6.3
36,248
34,205
11,321
195,991
1,411
58,091
30
0.3
84,747
934
106,690
64,872
68,042
13,075
145,989
220,860
971
85,904
11,152
76,961
0
41,139
0.3
2.2
0.1
0.5
0.6
0.3
0.4
0.8
0.7
1.1
3.9
0.2
1.3
219
245
200
1,979
55
3,823
0
278
17
2,838
98
521
451
1,070
1,971
27
1,280
153
2,771
0
90
1,112,644
17,016
641,028
54,720
1,808,392
42,749
1,851,141
2.9
3.5
3.3
3.8
4.6
6.7
2.8
4.8
4.8
0.9
0.9
3.0
1.4
3.3
3.6
4.6
2.6
3.4
1.6
3.7
0.6
0.7
1.8
1.0
3.9
6.6
51,027
55,731
1,503
1,930
31,269
397,453
1,026
15,097
5,525
132,901
256
8,906
0
0
0.3
82,969
2,343
69
7,229
495
604
1,081
2,180
8,998
63
6,216
148
2,527
0
1,196
59,687
1.8
2.7
0.2
0.8
3.4
0.7
0.9
2.8
1.5
1.4
3.6
1,444
151,324
56,730
65,073
35,575
157,378
271,487
1,735
134,920
5,766
74,531
0
0.2
1.5
72,762
1,628,222
605,990
77,476
2,311,688
42,915
2,354,603
6,215
6,446
5,992
0.6
0.6
0.4
1 Due to customers in foreign offices consists mainly of time deposits.
The percentage of total average interest-earning assets attribut-
able to foreign activities was 78% for 2010 (81% for 2009 and
85% for 2008). The percentage of total average interest-bearing
liabilities attributable to foreign activities was 77% for 2010 (81%
for 2009 and 84% for 2008). All assets and liabilities are trans-
lated into CHF at uniform month-end rates. Interest income and
expense are translated at monthly average rates.
Average rates earned and paid on assets and liabilities can
change from period to period based on the changes in interest
rates in general, but are also affected by changes in the currency
mix included in the assets and liabilities. This is especially true for
foreign assets and liabilities. Tax-exempt income is not recorded
on a tax-equivalent basis. For all three years presented, tax- exempt
income is considered to be insignificant and the impact from such
income is therefore negligible.
412
Analysis of changes in interest income and expense
The following tables allocate, by categories of interest-earning as-
sets and interest-bearing liabilities, the changes in interest income
and expense due to changes in volume and interest rates for the
year ended 31 December 2010 compared with the year ended
31 December 2009, and for the year ended 31 December 2009
compared with the year ended 31 December 2008. Volume and
rate variances have been calculated on movements in average
balances and changes in interest rates. Changes due to a combi-
nation of volume and rates have been allocated proportionally.
Refer to the appropriate section of Industry Guide 3 for a discus-
sion 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
Cash collateral receivables on derivative instruments
Domestic
Foreign
Financial assets designated at fair value
Domestic
Foreign
Loans
Domestic
Foreign
Financial investments available-for-sale
Domestic
Foreign taxable
Foreign non-taxable
Foreign total
Other interest-bearing assets
Domestic
Foreign
Interest income
Domestic
Foreign
Total interest income from interest-earning assets
Net interest on swaps
Total interest income
2010 compared with 2009
2009 compared with 2008
Increase / (decrease)
due to changes in
Increase / (decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
(6)
(31)
30
(509)
67
(1,514)
(1,514)
(37)
(169)
(78)
(636)
(64)
368
8
376
(43)
(200)
(48)
(1,145)
(180)
12
(821)
(9,215)
3
(140)
(1,146)
(10,337)
8
(278)
(106)
(541)
(143)
(9,713)
(152)
(4,242)
(98)
(286)
(529)
(964)
(18,928)
(292)
(14,579)
(376)
(1,138)
(10,615)
(4,340)
(14,955)
(78)
102
(69)
15
24
0
(54)
(755)
(1,624)
(3)
396
396
(74)
(1,840)
(1,914)
0
24
(343)
885
(27)
548
548
0
(112)
(900)
(2,280)
(24)
(478)
(478)
0
(88)
(1,243)
(1,395)
(51)
70
70
(738)
(994)
(18)
163
163
(17)
(630)
15
233
233
55
89
(2,543)
(2,454)
(88)
(33)
(632)
(126)
(758)
(935)
(1,231)
(2,166)
(846)
(3,774)
(4,620)
31
(4,589)
(1,511)
(19,067)
(20,578)
(1,325)
(19,430)
(20,755)
(2,836)
(38,497)
(41,333)
(885)
(42,218)
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413
Financial information
Additional disclosure required under SEC regulations
Analysis of changes in interest income and expense (continued)
2010 compared with 2009
2009 compared with 2008
Increase / (decrease)
due to changes in
Increase / (decrease)
due to changes in
Average
volume
Average
rate
Net
change
Average
volume
Average
rate
Net
change
(41)
(167)
14
(199)
(13)
104
75
21
(67)
(645)
(5)
(170)
34
(146)
(53)
(844)
(18)
(66)
(429)
(753)
(658)
(7,656)
(189)
(5,012)
(855)
(932)
(1,284)
(1,685)
(168)
(5,462)
(826)
(13,118)
(12)
(71)
(201)
(5,083)
(47)
11
(36)
50
(2,115)
(2,065)
(1)
46
42
62
(173)
(69)
(475)
5
(487)
32
(313)
(13)
(495)
(34)
(174)
(229)
(437)
(740)
(23)
(399)
(43)
203
(14)
(449)
8
(112)
(402)
(506)
(24)
(2,142)
(28)
(2,249)
73
27
(675)
(575)
(470)
(110)
45
(535)
(1,215)
(1,671)
(5,356)
(18)
(886)
(11)
(110)
(28)
(2,255)
140
83
(8)
(2,681)
(135)
161
(52)
(4,391)
(397)
(83)
(630)
(1,110)
(7,027)
(36)
(4,936)
5
244
(6)
(15)
(21)
(506)
(600)
(1,106)
(73)
(1,544)
(1,617)
(513)
(2,229)
(2,742)
(586)
(3,773)
(4,359)
(1,763)
(19,862)
(21,625)
(1,741)
(19,305)
(21,046)
(3,504)
(39,167)
(42,671)
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
Cash collateral payables on derivative instruments
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
Other interest-bearing liabilities
Domestic
Foreign
Interest expense
Domestic
Foreign
Total interest expense
414
Deposits
The following table analyzes average deposits and the average
rates on each deposit category listed below for the years ended
31 December 2010, 2009 and 2008. 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 63,953 million, CHF 54,957 million and CHF 45,082 million
as of 31 December 2010, 31 December 2009 and 31 December
2008, respectively.
CHF million, except where indicated
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.
31.12.10
31.12.09
31.12.08
Average
deposit
Average
rate (%)
Average
deposit
Average
rate (%)
Average
deposit
Average
rate (%)
1,315
1,722
3,037
14,280
17,317
85,838
75,802
7,977
169,617
35,588
132,511
168,099
337,716
0.0
2.1
1.2
1.0
1.0
0.1
0.5
0.6
0.3
0.2
0.5
0.4
0.4
1,154
2,266
3,420
16,194
19,614
64,872
68,042
13,075
145,989
29,725
191,135
220,860
366,849
0.1
0.9
0.6
0.7
0.7
0.2
0.8
3.4
0.7
0.8
0.9
0.9
0.8
2,341
4,902
7,243
15,946
23,189
56,730
65,073
35,575
157,378
38,761
232,726
271,487
428,865
0.5
3.8
2.7
3.5
3.2
0.9
0.9
3.0
1.4
1.7
3.6
3.3
2.6
As of 31 December 2010, the maturity of time deposits exceeding CHF 150,000, or an equivalent amount in other currencies, was as
follows:
CHF million
Within 3 months
3 to 6 months
6 to 12 months
1 to 5 years
Over 5 years
Total time deposits
Domestic
35,520
2,077
1,718
336
102
Foreign
63,087
4,182
2,386
411
108
39,753
70,174
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415
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 borrowings,
along with the average rates and period-end rates at and for the years ended 31 December 2010, 2009 and 2008.
CHF million, except where indicated
31.12.10
31.12.09
31.12.08
31.12.10
31.12.09
31.12.08
Money market papers issued
Due to banks
Repurchase agreements 1
31.12.09
31.12.10
31.12.08
Period-end balance
Average balance
Maximum month-end balance
Average interest rate during the period (%)
Average interest rate at period-end (%)
56,039
54,594
64,941
0.7
0.7
51,579
86,875
125,812
1.5
0.9
111,619
136,655
170,503
4.6
2.9
24,332
22,401
37,886
0.9
1.0
15,086
50,838
70,985
0.7
0.6
59,106
83,569
95,979
3.2
2.3
150,024
178,458
207,828
0.4
0.4
136,811
195,613
272,443
0.7
0.3
140,039
404,512
591,005
3.5
1.4
1 For the purpose of this disclosure, balances are presented on a gross basis.
Contractual maturities of investments in debt instruments available-for-sale1,2
CHF million, except percentages
31 December 2010
Swiss national government and agencies
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 2009
Swiss national government and agencies
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
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 (%)
3,048
18,500
20,916
5,119
51
47,633
0.54
0.41
0.55
1.02
14.52
95
6,687
843
652
3
3
8,284
1.34
1.11
0.78
0.81
4.83
14.52
1.62
3.28
5.38
13.09
8,792
4,552
1
1
13,345
4.00
5.20
15.84
3.04
1
28
4
4,089
4,123
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 (%)
623
41,451
28,861
1,139
27
98
72,199
0.47
0.16
0.30
0.11
0.00
2.80
16
5,044
96
1,808
3
3
6,970
2.27
0.02
2.75
0.10
4.87
1.21
1.11
1.88
21.80
3.75
6
25
0
25
56
1
4.00
3.66
21.80
0.43
18
3
752
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 (%)
39
2,122
188
2,349
1.14
1.05
9.06
2
0
88
3
93
3.46
0.00
3.38
13.47
2.81
3.12
4.00
33
38
42
113
1
34
12
455
37
539
4.00
5.22
1.74
5.28
7.42
1 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 15.8% (21.8% in 2009).
416
Due from banks and loans (gross)
The Group’s lending portfolio is widely diversified across industry
sectors with no significant concentrations of credit risk. CHF
151.2 billion (53.1% of the total) consists of loans to thousands
of private households, predominantly in Switzerland, and mostly
secured by mortgages, financial collateral or other assets. Expo-
sure to banks and financial institutions amounted to CHF 63.8
billion (22.4% of the total). Exposure to banks includes money
market deposits with highly rated institutions. Excluding banks
and financial institutions, the largest industry sector exposure as
of December 2010 is CHF 15.3 billion (5.4% of the total) to ser-
vices. For further discussion of the loan portfolio, refer to the
“Credit risk” section of this report.
The following table illustrates the diversification of the loan
portfolio among industry sectors at 31 December 2010, 2009,
2008, 2007 and 2006. The industry categories presented are con-
sistent with the classification of loans for reporting to the Swiss
Financial Market Supervisory Authority (FINMA) and Swiss Nation-
al Bank.
CHF million
Domestic
Banks 1
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 2
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 3
Total foreign
Total gross
31.12.10
31.12.09
31.12.08
31.12.07
31.12.06
1,130
1,356
3,737
1,803
3,192
119,796
4,908
12,252
4,101
5,728
3,107
609
1,381
4,370
1,882
3,373
119,432
3,785
11,745
4,288
5,712
3,413
1,056
1,554
5,984
1,811
3,795
119,285
4,042
11,921
4,781
5,935
3,539
735
1,594
5,322
1,824
3,766
121,536
4,734
11,489
4,647
5,875
3,712
458
1,742
5,382
1,957
3,578
117,852
4,972
11,148
4,507
6,450
4,710
161,109
159,990
163,705
165,233
162,757
16,474
394
1,008
686
42,470
2,456
2,776
31,361
9,880
1,578
1,765
9,621
1,959
843
16,891
2,403
741
759
44,143
3,313
2,799
33,166
10,808
1,240
1,558
8,363
3,059
735
17,629
2,816
619
1,655
60,775
4,709
3,787
33,216
8,104
4,069
2,045
9,913
3,603
584
25,905
646
867
880
37,074
4,370
4,272
42,219
2,825
4,813
1,954
8,720
1,860
977
32,374
1,333
862
717
39,361
2,324
3,171
34,861
1,318
4,021
1,648
7,074
1,648
546
123,271
284,381
129,978
289,969
153,524
317,228
137,381
302,614
131,257
294,014
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. 2 Includes chemicals, food and beverages, transportation, storage, mining,
electricity, gas and water supply. 3 Includes food and beverages, hotels and restaurants.
The table above also includes loans designated at fair value.
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417
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
2010, 2009, 2008, 2007and 2006. Mortgages 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
31.12.10
31.12.09
31.12.08
31.12.07
31.12.06
136,687
6,174
142,861
122,499
20,362
142,861
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
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
1,082
52,673
17,577
71,332
15,767
4,038
61,041
80,846
152,178
48
58,778
4,384
63,210
183
1,583
8,300
10,066
73,276
25,236
1,331
26,567
77
553
28,470
29,100
55,667
1,130
136,687
23,292
161,109
16,027
6,174
97,811 2
120,012
281,121
1 Loans designated at fair value are not included. 2 On 31 December 2010, includes reclassified US student loan auction rate securities (ARS) of CHF 4.3 billion (CHF 7.8 billion on 31 December 2009), other reclas-
sified securities of CHF 7.4 billion (CHF 11.5 billion on 31 December 2009) and CHF 9.7 billion ARS acquired from clients (CHF 8.0 billion on 31 December 2009).
At 31 December 2010, the total amount of Due from banks and loans due after one year granted at fixed and floating rates are as
follows:
CHF million
Fixed-rate loans
Adjustable or floating-rate loans
Total
1 to 5 years
Over 5 years
72,595
681
73,276
27,857
27,810
55,667
Total
100,452
28,491
128,943
418
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 col-
lateral; 2) when insolvency proceedings have commenced; or 3)
when obligations have been restructured on concessionary terms.
CHF million
31.12.10
31.12.09
31.12.08
31.12.07
31.12.06
Gross interest income that would have been recorded
under non-performing loans:
Domestic
Foreign
Interest income included in net profit of non-performing loans:
Domestic
Foreign
11
35
35
19
13
89
41
30
16
7
32
6
39
6
40
2
50
10
56
8
The table below provides an analysis of the Group’s non-performing loans. For further information see credit risk in the “Risk and trea-
sury management” section.
CHF million
Non-performing loans:
Domestic
Foreign
Total non-performing loans
31.12.10
31.12.09
31.12.08
31.12.07
31.12.06
1,164
563
1,727
1,462
3,940
5,402
1,431
3,272
4,703
1,349
132
1,481
1,744
174
1,918
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 informa-
tion refer to the “Credit risk” section of this report. Instead, spe-
cific loan allowances are established as necessary. Unrecognized
interest related to restructured loans was not material to the re-
sults of operations in 2010, 2009, 2008, 2007 or 2006.
In addition to the non-performing loans shown above, the
Group has CHF 2,466 million, CHF 1,463 million, CHF 4,442 mil-
lion, CHF 911 million and CHF 710 million in “other impaired
loans” for the years ended 31 December 2010, 2009, 2008, 2007
and 2006, respectively.
Other impaired loans are loans where the Group’s credit offi-
cers have expressed doubts as to the ability of the borrowers to
repay the loans. For the years ended 31 December 2010, 2009,
2008, 2007 and 2006, these loans are not considered “non-per-
forming” in accordance with Swiss regulatory guidelines. As of
31 December 2010, 31 December 2009, 31 December 2008,
31 December 2007 and 31 December 2006, specific allowances
of CHF 536 million, CHF 410 million, CHF 941 million, CHF 124
million, CHF 106 million, respectively, had been established
against these loans.
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419
Financial information
Additional disclosure required under SEC regulations
Cross-border outstandings
Cross-border outstandings consist of exposures in relation to (i)
general banking products with third parties, such as loans and
advances, (ii) over-the-counter (OTC) derivatives, exchange-trad-
ed (ETD) derivatives and securities financing transactions, which
are represented as a credit equivalent based on UBS’s internal risk
measures, and (iii) the market value of the inventory of debt secu-
rities. Outstandings are monitored and reported on an ongoing
basis by the credit risk control organization with a dedicated
country risk information system. With the exception of the largest
most developed economies, to which UBS assigns a high rating,
and a small number of financial centers, where the credit quality
of UBS’s exposures is not correlated with the state of their internal
economy, these exposures are rigorously limited.
Claims that are secured by third-party guarantees are recorded
against the guarantor’s country of domicile. Outstandings that are
secured by collateral are recorded against the country where the
asset could be liquidated. This follows the “Guidelines for the
Management of Country Risk”, which are applicable to all banks
that are supervised by the Swiss Financial Market Supervisory Au-
thority (FINMA).
The following tables list those countries for which cross-
border outstandings exceeded 0.75% of total assets at 31 De-
cember 2010, 2009 and 2008. At 31 December 2010, there
were no outstandings that exceeded 0.75% of total assets in
any country currently facing liquidity problems that the Group
expects would materially affect the country’s ability to service its
obligations.
For more information on country exposure, refer to the “Cred-
it risk” section of this report.
Banks
8,039
725
12,842
4,157
7,521
3,814
Banks
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
31.12.10
Private sector
Public sector
Total % of total assets
48,145
3,155
6,455
8,715
5,665
5,276
46,332
39,551
6,044
7,864
4,715
3,315
31.12.09
102,516
43,431
25,341
20,736
17,901
12,405
7.8
3.3
1.9
1.6
1.4
0.9
Private sector
Public sector
Total % of total assets
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
99,687
54,174
35,526
25,324
20,832
20,469
4.9
2.7
1.8
1.3
1.0
1.0
CHF million
United States
Japan
Germany
United Kingdom
France
Netherlands
CHF million
United States
Germany
Japan
France
United Kingdom
Netherlands
Italy
Luxembourg
CHF million
United States
Japan
Germany
France
United Kingdom
Luxembourg
420
Summary of movements in allowances and provisions for credit losses
The following table provides an analysis of movements in allow-
ances and provisions for credit losses.
UBS writes off loans against allowances only on final settle-
ment of bankruptcy proceedings, the sale of the underlying 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 forgiven through a formal
agreement.
CHF million
Balance at beginning of year
Domestic
Write-offs
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 1
Total domestic write-offs
Foreign
Write-offs
Banks
Chemicals
Construction
Financial institutions
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 2
Total foreign write-offs
Total specific provisions for off-balance sheet
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
31.12.10
2,820
31.12.09
3,070
31.12.08
1,164
31.12.07
1,332
31.12.06
1,776
(8)
(47)
(1)
(28)
(66)
0
(2)
(117)
(49)
(16)
(332)
(2)
(846)
0
(267)
(22)
0
(21)
(1)
(1)
(1)
(9)
(3)
0
(1,173)
0
(1,505)
38
41
79
(1,427)
67
(2)
(173)
1,287
(173)
0
(173)
(15)
(2)
(2)
(21)
(61)
0
(19)
(41)
(3)
(12)
(177)
(8)
(111)
(10)
(685)
(138)
(5)
(40)
(20)
(196)
(122)
(413)
(37)
(80)
(1,865)
(5)
(2,046)
44
8
52
(1,994)
1,806
26
(88)
2,820
(37)
(51) 3
(88)
(6)
(37)
(3)
(24)
(112)
0
(10)
(4)
(7)
(8)
(210)
(134)
(1)
0
(501)
(6)
0
(4)
(2)
(1)
0
0
(6)
(1)
(658)
0
(868)
43
1
44
(824)
3,007
(11)
(266)
3,070
(43)
(223) 3
(266)
(9)
(9)
(8)
(14)
(69)
(1)
(26)
(62)
(17)
(54)
(268)
(1)
0
0
(15)
(21)
0
(14)
(2)
0
0
0
0
0
(53)
0
(321)
52
3
55
(266)
242
(4)
(140)
1,164
(9)
(131)
(140)
(14)
(11)
(16)
(37)
(89)
0
(44)
(20)
(43)
(7)
(281)
(3)
0
0
0
(6)
(1)
(7)
(58)
0
0
0
0
(5)
(80)
(1)
(363)
51
11
62
(301)
(108)
(48)
13
1,332
10
3
13
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Includes food and beverages, hotels and restaurants. 3 In 2009 the Other adjustment was due to the sale
of UBS Pactual. In 2008 a loan was forgiven in exchange for the collateral.
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421
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 sector and
geographic location at 31 December 2010, 2009, 2008, 2007
and 2006. For a description of procedures with respect to allow-
ances and provisions for credit losses, refer to the “Credit risk”
section of this report.
CHF million
Domestic
Banks
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 1
Total domestic
Foreign
Banks 2
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 3
Total foreign
Collective loan loss provisions
Included in other liabilities related to provisions for contingent claims
Total allowances and provisions for credit losses
31.12.10
31.12.09
31.12.08
31.12.07
31.12.06
1
23
28
5
93
91
0
19
165
45
27
497
23
8
2
0
190
15
0
139
171
15
8
12
29
0
613
47
130
1,287
1
27
126
6
104
119
1
21
221
99
43
768
31
1,037
1
0
414
83
0
171
18
36
17
100
7
0
1,913
49
90
2,820
16
39
18
8
84
125
1
50
262
79
47
729
6
960
8
2
530
25
4
226
19
208
81
205
1
12
2,287
23
31
3,070
10
43
52
10
98
190
1
57
247
87
53
848
35
1
1
3
96
13
0
13
20
8
4
7
1
17
219
34
63
1,164
10
73
61
27
104
188
4
98
312
94
106
1,076
20
4
1
8
9
35
0
26
21
3
4
7
1
1
143
38
76
1,332
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Counterparty allowances and provisions only. 3 Includes food and beverages, hotels and restaurants.
422
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 cate-
gories.
In %
Domestic
Banks 1
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 2
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 3
Total foreign
Total gross
31.12.10
31.12.09
31.12.08
31.12.07
31.12.06
0.4
0.5
1.3
0.6
1.1
42.1
1.7
4.3
1.4
2.0
1.1
56.7
5.8
0.1
0.4
0.2
14.9
0.9
1.0
11.0
3.5
0.6
0.6
3.4
0.7
0.3
0.2
0.5
1.5
0.6
1.2
41.2
1.3
4.1
1.5
2.0
1.2
55.2
5.8
0.8
0.3
0.3
15.2
1.1
1.0
11.4
3.7
0.4
0.5
2.9
1.1
0.3
0.3
0.5
1.9
0.6
1.2
37.6
1.3
3.8
1.5
1.9
1.1
51.6
5.6
0.9
0.2
0.5
19.2
1.5
1.2
10.5
2.6
1.3
0.6
3.1
1.1
0.2
0.2
0.5
1.8
0.6
1.2
40.2
1.6
3.8
1.5
1.9
1.2
54.6
8.6
0.2
0.3
0.3
12.3
1.4
1.4
14.0
0.9
1.6
0.6
2.9
0.6
0.3
0.2
0.6
1.8
0.7
1.2
40.1
1.7
3.8
1.5
2.2
1.6
55.4
11.0
0.5
0.3
0.2
13.4
0.8
1.1
11.9
0.4
1.4
0.6
2.4
0.6
0.2
43.3
100.0
44.8
100.0
48.4
100.0
45.4
100.0
44.6
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. 2 Includes chemicals, food and beverages, transportation, storage, mining,
electricity, gas and water supply. 3 Includes food and beverages, hotels and restaurants.
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423
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
31.12.10
281,121
4,193
1,727
1,287
1,427
(66)
1.5
0.6
0.5
30.7
74.5
25.4
30.6
0.5
0.5
110.9
0.90
31.12.09
285,960
6,865
5,402
2,820
1,994
(1,832)
31.12.08
312,076
9,145
4,703
3,070
824
(2,996)
31.12.07
298,498
2,392
1,481
1,164
266
(238)
2.4
1.9
1.0
41.1
52.2
38.3
41.6
0.7
0.7
70.7
1.41
2.9
1.5
1.0
33.6
65.3
31.8
41.8
0.3
0.3
26.8
3.73
0.8
0.5
0.4
48.7
78.6
41.7
58.9
0.1
0.1
22.9
4.38
31.12.06
308,332
2,628
1,918
1,332
301
156
0.9
0.6
0.4
50.7
69.4
46.3
58.0
0.1
0.1
22.6
4.43
1 Includes Due from banks and Loans from Industrial Holdings in the amount of CHF 27 million for 2007 and CHF 93 million 2006. 2 Includes collective loan loss provisions. 3 Allowances relating to impaired loans
only. 4 Allowances relating to non-performing loans only.
424
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426Annual Report 2010 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 de-scribed, 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) developments in the markets in which UBS operates or to which it is exposed, including movements in securities prices or liquidity, credit spreads, currency exchange rates and interest rates and the effect of economic conditions and market developments on the financial position or creditworthiness of UBS’s clients and counterparties; (2) changes in the availability of capital and funding, including any changes in UBS’s credit spreads and ratings; (3) the ability of UBS to retain earnings and reduce its risk-weighted assets in order to comply with recommended Swiss capital requirements without adversely affecting its business; (4) changes in financial regulation in Switzerland, the US, the UK and other major financial centers which may impose constraints on or necessitate changes in the scope and location of UBS’s business activities and in its legal and booking structures, including the imposition of more stringent capital and liquidity requirements, incremental tax requirements and constraints on remuneration, some of which may affect UBS in a different manner or degree than they affect competing institutions; (5) the liability to which UBS may be exposed due to legal claims and regulatory investigations, including those stemming from market dislocation and losses incurred by clients and counterparties during the financial crisis; (6) the outcome and possible consequences of pending or future inquiries or actions concerning UBS’s cross-border banking business by tax or regulatory authorities in various jurisdictions; (7) 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; (8) UBS’s ability to retain and attract the employees necessary to generate revenues and to manage, support and control its businesses; (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 effective-ness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (11) changes in the size, capa-bilities and effectiveness of UBS’s competitors, including whether UBS will be successful in keeping pace with competitors in updating its technology, particularly in trading businesses; and (12) the occurrence of operational failures, such as fraud, unauthorized trading and systems failures, either within UBS or within a counterparty. Our business and financial performance could be affected by other factors identified 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 2010. 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. UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com
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