Annual Report 2011
Our performance in 2011
Contents
Letter to shareholders
2
6 Key figures
7 UBS and its businesses
8 Our Board of Directors
10 Our Group Executive Board
12 The making of UBS
1. Operating environment
and strategy
16 Current market climate and industry drivers
19 Regulatory developments
22 Our strategy
27 Measurement of performance
30 Wealth Management
33 Retail & Corporate
35 Wealth Management Americas
38 Global Asset Management
Investment Bank
42
45 Corporate Center
47 Regulation and supervision
50 Risk factors
2. Financial and
operating performance
58 Critical accounting policies
62 UBS results
72 Balance sheet
76 Off-balance sheet
80 Cash flows
83 Wealth Management
86 Retail & Corporate
89 Wealth Management Americas
95 Global Asset Management
Investment Bank
102
108 Corporate Center
3. Risk, treasury and
capital management
112 Risk management and control
116 Credit risk
133 Market risk
140 Operational risk
142 Treasury management
144
Liquidity and funding management
Interest rate and currency management
151
153 Capital management
161 Basel 2.5 Pillar 3
4. Corporate governance, responsibility
and compensation
196 Corporate governance
222 Corporate responsibility
234 Our employees
242 Compensation
5. Financial
information
284 Consolidated financial statements
297 Notes to the consolidated financial statements
411 UBS AG Parent Bank financial statements
439 Additional disclosure required under
SEC regulations (including industry guide 3)
Appendix
461 UBS registered shares
462
464 Cautionary statement
Information sources
Annual Report 2011
Letter to shareholders
Dear shareholders,
For the financial year 2011 we report a net profit attributable to
UBS shareholders of CHF 4.2 billion and diluted earnings per
share of CHF 1.08. During the year we strengthened our indus-
try-leading capital position, with our Basel II tier 1 capital ratio
increasing significantly to 19.6% from 17.8%, and our Basel 2.5
tier 1 capital ratio rising to 15.9%. We attracted significant net
new money inflows despite the challenging operating environ-
ment, recording combined net inflows in our wealth- and asset-
gathering businesses of almost CHF 40 billion. We have also
made progress in reducing both risk-weighted assets and costs
and, taking into account the challenges we faced, the perfor-
mance of our businesses gives us great confidence in the firm’s
future. We are therefore proposing to pay a dividend1 to our
shareholders for the financial year 2011 of CHF 0.10 per share,
subject to shareholder approval at our Annual General Meeting
of Shareholders (AGM) in May.
2011 was challenging for the firm and the industry as a whole.
Markets were affected by ongoing concerns surrounding euro-
zone sovereign debt, the European banking system, the US fed-
eral budget deficit and economic growth issues, all of which af-
fected client confidence. Activity levels were very subdued as
many investors sought out safe haven investments, including in
the Swiss franc, and remained on the sidelines of markets for
most of the second half of the year. We also faced our own chal-
lenges, as in September we discovered unauthorized trading that
led to a loss of CHF 1.8 billion.
During the year, it became increasingly clear that higher regula-
tory capital and liquidity requirements would put pressure on
structures and business models throughout the industry, funda-
mentally impacting many business areas, most notably for invest-
ment banks. In light of the changed market environment and
more stringent regulatory requirements, the Board of Directors
and Group Executive Board re-evaluated the Group’s strategy to
ensure we continue to place our clients at the center of everything
we do and with the ultimate goal of delivering more attractive
and sustainable returns in future. The results of this re-evaluation
were presented at our Investor Day 2011.
Our future strategic course has now been set: our wealth man-
agement businesses globally and our universal bank in Switzer-
land are central to our strategy. In order to serve the needs of our
core wealth management clients, our Global Asset Management
business and our Investment Bank must each be strong and suc-
cessful in meeting the needs of their clients. Going forward, our
Investment Bank will be less complex and less capital intensive. It
will focus firmly on its corporate, institutional, sovereign, ultra
high net worth, wealth management and other clients and will be
an important partner to them. Only a competitive and successful
Investment Bank will enable us to take our wealth management
businesses to the next level.
Our plans build on the strengths of all of our businesses together
with our leading capital and sound liquidity and funding profile.
The new operating environment will require the industry to build
capital and improve capital efficiency. In line with our desire to
reduce complexity and drive high-quality risk-adjusted returns, by
2016 we aim to reduce risk-weighted assets in the Investment
Bank and in the legacy portfolio together by 50% compared with
30 September 2011 levels calculated on a pro forma Basel III basis.
We believe our leading capital position gives us a distinct competi-
tive advantage, and we are determined to build on this strength to
maintain that advantage in the Basel III banking environment. FIN-
MA, our Swiss regulator, will require that systemically important
banks such as UBS hold significantly higher levels of total capital in
future. We made good progress towards achieving our strategic tar-
get of a common equity tier 1 ratio of 13% under Basel III, well
above FINMA’s minimum requirements, ending the year with an es-
timated ratio of 10.8%. As a further step towards meeting these
more stringent requirements, we also initiated an issuance program
of loss-absorbing capital in February 2012, with a USD 2 billion in-
augural issue. We continued to reduce risk-weighted assets and, in
the fourth quarter alone, we achieved a 5% reduction in pro forma
Basel III risk-weighted assets2. We are determined to build on this
progress over coming quarters, and we are confident that our tar-
geted capital structure, which is well in excess of international core
capital requirements, will bolster confidence further in the firm. The
more stringent Basel III capital and liquidity requirements will likely
lead to greater competition for stable sources of funding, both se-
cured funding and deposits, and to increased funding costs. Our
sound funding position, derived from our wealth management busi-
nesses and our Retail & Corporate business, reinforces our financial
position further.
In line with our new strategy, we updated our financial targets for
our business divisions and the Group, underlined our determina-
1 The term “dividend” is used throughout the report, notwithstanding that for Swiss tax purposes the distribution is characterized as a payment from capital contribution reserves. Refer to
the “Statement of appropriation of retained earnings” of the Parent Bank in the “Financial information” section of this report for more information. 2 Our pro forma Basel III risk-weight-
ed assets calculation is a combination of the existing Basel 2.5 risk-weighted assets, a revised treatment for securitization exposures which applies a fixed risk weighting, as well as several
new capital charges which require the development of new models and calculation engines. Our pro forma Basel III risk-weighted assets are based on estimates of the impact of these new
capital charges, and will be refined as we progress with our implementation of the new models and associated systems.
2
Sergio P. Ermotti Group Chief Executive Officer Kaspar Villiger Chairman of the Board of Directors
3
Annual Report 2011
Letter to shareholders
tion to control costs and announced our intention to implement a
progressive capital returns policy, beginning with the CHF 0.10
dividend we propose to pay this year.
We are well advanced in implementing our CHF 2 billion cost re-
duction program announced in July, and we expect to see more of
the benefits as a result of these measures coming through in 2012
and 2013. We remain vigilant on costs and will continue to seek
additional efficiencies by exploring opportunities to lower the
structural cost base of the firm. As already stated, our capacity for
further tactical cost-cutting measures is limited and we must fo-
cus on strategic changes which go to the heart of our organiza-
tional design and structures. In addition, we will monitor markets
actively and, if conditions deteriorate materially, we will take fur-
ther measures to reduce our cost base.
Despite the challenges we faced in 2011, most of our businesses
delivered improved profitability compared with the prior year.
Wealth Management reported a pre-tax profit of CHF 2.7 billion,
up from CHF 2.3 billion in 2010. Wealth Management Americas
made notable progress reporting a pre-tax profit of CHF 534 mil-
lion compared with a loss of CHF 130 million in the prior year, and
our Retail & Corporate business recorded a pre-tax profit of CHF
1.9 billion, up from CHF 1.8 billion, attracting the highest level of
new client assets since 2007. Together, these businesses delivered
a 30% increase in pre-tax profits compared with the previous
year. We also saw a marked improvement in our net new money
performance across our wealth management businesses. Wealth
Management’s net new money improved significantly, with net
inflows of CHF 23.5 billion compared with net outflows of CHF
12.1 billion in 2010, reflecting improvements in all regions and
client segments. Wealth Management Americas attracted net
new money inflows of CHF 12.1 billion compared with outflows
of CHF 6.1 billion in 2010. This turnaround reflects the success we
have had in both retaining and recruiting experienced financial
advisors during the year.
In a difficult year for the asset management industry, our Global
Asset Management business reported a pre-tax profit of CHF 428
million. Although de-risking continued to dominate investors’ de-
cisions, the business achieved an increase in total net new money
during 2011. Notably, we attracted net inflows from third-party
clients of CHF 12.2 billion, excluding money market flows. Clients
continued to recognize the strengths of the business’s diversified
product range and, in particular, its leading alternative investment
offerings and fast-growing passive capabilities. Expanding these
areas remains a key strategic objective for the business in order to
capture the opportunities presented by the longer-term industry
trends.
A reduction in volumes and client activity as well as the strength-
ening of the Swiss franc impacted the Investment Bank’s result for
the year, as did the CHF 1.8 billion loss associated with the unau-
thorized trading incident in September. As soon as this incident
was discovered we acted swiftly to mitigate its effects on the firm
and our shareholders. We were deeply disappointed by this occur-
rence and we have already taken action designed to reinforce our
control framework and we remain committed to ensuring that we
address any further recommendations that come out of the ongo-
ing independent investigations quickly and decisively. Despite
these circumstances, the business reported a pre-tax profit of CHF
154 million, and a number of our businesses in the Investment
Bank delivered notable performances. Our cash equities exchange
market share rose slightly compared with 2010 levels, and reve-
nues in our macro business rose to CHF 2.6 billion, an increase of
15% reflecting higher revenues across all interest rates business
lines. Our foreign exchange business took advantage of market
volatility in the second half of 2011, bolstered by the investments
we have made in our new e-trading platform. In our advisory
business, our market share and revenues increased as our efforts
to build client relationships bore fruit. Additionally, the business
successfully reduced its risk-weighted assets, something that is
fundamental to its overall strategy and that will enable the busi-
ness to deliver attractive and sustainable returns in future.
In September, the Board of Directors accepted the resignation of
Oswald J. Grübel. We would like to reiterate our gratitude to him
for the outstanding contribution he made to the firm. In Novem-
ber, the Board confirmed the appointment of Sergio P. Ermotti as
Group Chief Executive Officer with immediate effect. Chairman
of the Board Kaspar Villiger announced his decision not to stand
for reelection and, as a result, Axel Weber has been proposed to
succeed as Chairman, subject to his election at this year’s AGM. In
addition, we announced that Beatrice Weder di Mauro and
Isabelle Romy will be nominated for election to the Board and,
if elected, they will bring with them invaluable experience and
4
expertise to strengthen the Board further. Bruno Gehrig has de-
cided not to stand for reelection and we would like to express our
thanks to Bruno for his exceptional contribution and great com-
mitment since joining the Board in 2008 during some testing
times for the firm.
Over the coming months, we will continue to mark our 150th an-
niversary by expressing our gratitude to all those who have sup-
ported us over the years, and by giving back to the communities
we belong to across the globe, with a particular focus on projects
promoting education and entrepreneurship. Our employees will
be able to share this experience and will have the opportunity to
volunteer for regional fundraising and other events that will bring
long-lasting benefits to the communities in which they live and
work.
Looking ahead, 2012 will be a year of progress for the Group. We
will continue our efforts to drive efficiencies throughout the firm,
we will drive home our distinct competitive advantages by con-
tinuing to strengthen our capital position and we will ensure that
we continue to place our clients at the center of everything we
do. We believe our clients will continue to place great value in
safety and stability and will look to us more than ever to provide
the best possible advice and solutions to help them achieve their
investment aims. 2012 will also be a year of transition for the
Investment Bank as we continue the process of reducing risk-
weighted assets and reshaping the business to ensure its future
success. By achieving our strategic objectives in a disciplined and
timely manner, we are confident we will be able to provide more
attractive and sustainable returns to our shareholders.
15 March 2012
Yours sincerely,
UBS
Kaspar Villiger
Chairman of the
Board of Directors
Sergio P. Ermotti
Group Chief
Executive Officer
5
Annual Report 2011
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, Basel II, 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, Basel 2.5 (%) 5
BIS tier 1 ratio, Basel II (%) 5
FINMA leverage ratio (%) 6
Balance sheet and capital management
Total assets
Equity attributable to UBS shareholders
Total book value per share (CHF) 6
Tangible book value per share (CHF) 6
BIS total ratio, Basel 2.5 (%) 5
BIS total ratio, Basel II (%) 5
BIS risk-weighted assets, Basel 2.5 5
BIS risk-weighted assets, Basel II 5
BIS tier 1 capital, Basel 2.5 5
BIS tier 1 capital, Basel II 5
Additional information
Invested assets (CHF billion)
Personnel (full-time equivalents)
Market capitalization 7
As of or for the year ended
31.12.11
31.12.10
31.12.09
27,788
22,439
5,350
4,159
1.08
8.5
13.7
2.1
(44.8)
42.4
80.5
15.9
19.6
5.4
1,419,162
53,447
14.26
11.68
17.2
21.6
240,962
198,494
38,370
38,980
2,167
64,820
42,843
31,994
24,539
7,455
7,534
1.96
16.7
15.5
2.3
N/A
(14.3)
76.5
17.8
4.4
22,601
25,162
(2,561)
(2,736)
(0.75)
(7.8)
9.9
1.5
N/A
(147.3)
103.0
15.4
3.9
1,317,247
46,820
12.35
9.76
1,340,538
41,013
11.65
8.52
20.4
19.8
198,875
206,525
35,323
31,798
2,152
64,617
58,803
2,233
65,233
57,108
1 Refer to “Note 8 Earnings per share (EPS) and shares outstanding” in the “Financial information” section of this report for more information. 2 For the definitions of our key performance indicators, refer to the “Mea-
surement of performance” section of this report. 3 Not meaningful and not included if either the reporting period or the comparison period is a loss period. 4 Excludes interest and dividend income. 5 Capital man-
agement data as of 31 December 2011 is disclosed in accordance with the Basel 2.5 framework. Comparative data under the new framework is not available for 31 December 2010 and 31 December 2009. The com-
parative information under the Basel II framework is therefore provided. Refer to the “Capital management” section of this report for more information. 6 Refer to the “Capital management” section of this report for
more information. 7 Refer to the appendix “UBS registered shares” in this report for more information.
The 2011 results and the balance sheet in this report differ from those presented in our fourth quarter 2011 report issued on 7 Feb-
ruary 2012. The net impact of adjustments made subsequent to the publication of the unaudited fourth quarter 2011 financial re-
port on net profit attributable to UBS shareholders was a loss of CHF 74 million, which decreased basic and diluted earnings per share
by CHF 0.02.
➔ Refer to the “Certain items affecting our results in 2011” sidebar in the “Group results” section and to “Note 32 Events after the
reporting period” in the “Financial information” section of this report for more information
6
UBS and its businesses
We draw on our 150-year heritage to serve private, institutional and corporate clients worldwide, as well as retail
clients in Switzerland. Our business strategy is centered on our pre-eminent global wealth management businesses and
our universal bank in Switzerland. Together with a client-focused Investment Bank and a strong, well-diversified Global
Asset Management business, we will drive further growth and expand our premier wealth management franchise.
Headquartered in Zurich and Basel, Switzerland, we have offices in more than 50 countries, including all major financial
centers, and employ approximately 65,000 people. Under Swiss company law, we are organized as an Aktiengesellschaft
(AG), a corporation that has issued shares of common stock to investors. UBS AG is the parent company of the UBS
Group (Group). The operational structure of the Group comprises the Corporate Center and four business divisions:
Wealth Management & Swiss Bank, Wealth Management Americas, Global Asset Management and the Investment Bank.
The Investment Bank provides a broad range of products and ser-
vices in equities, fixed income, foreign exchange and commodities
to corporate and institutional clients, sovereign and government
bodies, financial intermediaries, alternative asset managers and
UBS’s wealth management clients. The Investment Bank is an
active participant in capital markets flow activities, including sales,
trading and market-making across a broad range of securities. It
provides financial solutions to a wide range of clients, and offers
advisory and analytics services in all major capital markets.
The Corporate Center provides treasury services, and manages
support and control functions for the business divisions and the
Group in such areas as risk control, finance, legal and compliance,
funding, capital and balance sheet management, management
of non-trading risk, communications and branding, human re-
sources, information technology, real estate, procurement, corpo-
rate development and service centers. It allocates most of the
treasury income, operating expenses and personnel associated
with these activities to the businesses based on capital and service
consumption levels. The Corporate Center also encompasses cer-
tain centrally managed positions, including the SNB StabFund
option and (starting with the first quarter 2012 reporting) the
legacy portfolio formerly in the 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. Starting with the first quarter of 2012, we
will report Wealth Management and Retail & Corporate as sepa-
rate business divisions, and will no longer report Wealth Manage-
ment & Swiss Bank which will cease to be a business division.
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 and high net worth individuals and fami-
lies. It includes the domestic US business, the domestic Canadian
business and international business booked in the US.
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, infrastructure and
private equity that can also be combined into multi-asset strate-
gies. The fund services unit provides professional services, includ-
ing legal fund set-up, accounting and reporting for traditional
investment funds and alternative funds.
7
Annual Report 2011
Our Board of Directors
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
appointment 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 mem-
bers of the BoD are independent.
8
1
2
7
3
8
4
9
5
10
6
11
1 Kaspar Villiger Chairman of the Board of Directors, Chairperson of the Governance and Nominating Committee
and member of the Corporate Responsibility Committee 2 Michel Demaré Independent Vice Chairman,
member of the Audit Committee and the Governance and Nominating Committee 3 David Sidwell Senior
Independent Director, Chairperson of the Risk Committee and member of the Governance and Nominating
Committee 4 Rainer-Marc Frey Member of the Audit Committee and the Risk Committee 5 Bruno Gehrig
Member of the Governance and Nominating Committee and the Human Resources and Compen sation
Committee 6 Ann F. Godbehere Chairperson of the Human Resources and Compensation Committee, member
of the Audit Committee and the Corporate Responsibility Committee 7 Axel P. Lehmann Member of the
Governance and Nominating Committee and the Risk Committee 8 Wolfgang Mayrhuber Chairperson
of the Corporate Responsibility Committee and member of the Human Resources and Compensation Committee
9 Helmut Panke Member of the Human Resources and Compensation Committee, member of the
Risk Committee 10 William G. Parrett Chairperson of the Audit Committee 11 Joseph Yam Member of the
Corporate Responsibility Committee and the Risk Committee
9
Annual Report 2011
Our Group Executive Board
The 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.
10
1
7
2
8
3
9
4
10
5
11
6
12
1 Sergio P. Ermotti Group Chief Executive Officer 2 Markus U. Diethelm Group General Counsel
3 John A. Fraser Chairman and CEO Global Asset Management 4 Lukas Gähwiler CEO UBS Switzerland and
co-CEO Wealth Management & Swiss Bank 5 Carsten Kengeter Chairman and CEO Investment Bank
6 Ulrich Körner Group Chief Operating Officer, CEO Corporate Center and CEO UBS Group Europe, Middle East
and Africa 7 Philip J. Lofts Group Chief Risk Officer 8 Robert J. McCann CEO Wealth Management Americas
and CEO UBS Group Americas 9 Tom Naratil Group Chief Financial Officer 10 Alexander Wilmot-Sitwell
Co-Chairman and co-CEO of UBS Group Asia Pacific 11 Chi-Won Yoon Co-Chairman and co-CEO of UBS Group
Asia Pacific 12 Jürg Zeltner CEO UBS Wealth Management and co-CEO Wealth Management & Swiss Bank
11
Annual Report 2011
The making of UBS
In 2012, UBS celebrates its 150th anniversary. This important milestone in our long history serves to demonstrate
the firm’s established and pivotal role in the development and growth of Swiss banking traditions.
The heritage of the banking industry in Switzerland can be traced
back to its origins in medieval times. This long history may help ex-
plain the widespread impression, reinforced in popular fiction, that
Switzerland has always possessed a strong financial sector. In reality,
the size and international reach of the Swiss banking sector we know
today is largely a product of the second half of the 20th century,
strongly influenced by two banks: Union Bank of Switzerland and
Swiss Bank Corporation (SBC), which merged to form UBS in 1998.
At the time of the merger, both banks were already well estab-
lished and successful in their own right. Union Bank of Switzerland
celebrated its 100th anniversary in 1962, tracing its origins back to
the Bank in Winterthur. SBC marked its centenary in 1972 with cel-
ebrations in honor of its founding forebear, the Basler Bankverein.
The historical roots of Paine Webber, acquired by UBS in 2000, go
back to 1879, while S.G. Warburg, the central pillar upon which to-
day’s Investment Bank was built, commenced operations in 1946.
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12
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In the early 1990s, SBC and Union Bank of Switzerland were
both commercial banks operating mainly out of Switzerland.
The banks shared a similar vision: to become a world leader in
wealth management, a successful global investment bank, and
a top-tier global asset manager while remaining an important
commercial and retail bank in their home market of Switzer-
land.
Union Bank of Switzerland, the largest and best-capitalized
Swiss bank of its time, pursued these goals primarily through a
strategy of organic growth. In contrast, SBC, then the third-
largest Swiss bank, grew through a combination of partnership
and acquisition. In 1989, SBC started a joint venture with
O’Connor, a leading US derivatives firm noted for its dynamic
and innovative culture, its meritocracy and its team-oriented
approach. O’Connor brought state-of-the-art risk management
and derivatives technology to SBC, and in 1992 SBC moved to
fully acquire O’Connor. In 1994, SBC added to its capabilities
when it acquired Brinson Partners, a leading US-based institu-
tional asset management firm.
The next major milestone was in 1995, when SBC acquired S.G.
Warburg, the British merchant bank. The deal helped SBC fill a stra-
tegic gap in its corporate finance, brokerage, and research capabili-
ties and, most importantly, brought with it an institutional client
franchise that remains crucial to our equities business to this day.
The 1998 merger of SBC and Union Bank of Switzerland into
the firm we know today created a world-class wealth manager
and the biggest universal bank in Switzerland complemented by a
strong investment bank and a leading global institutional asset
manager. In 2000, UBS grew further with the acquisition of
PaineWebber, establishing the firm as a significant player in the
US. Since 2000, UBS has built a strong presence in the Asia Pacific
region and the emerging markets. Our new global reach found
expression through our new global UBS brand identity introduced
in 2003.
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13
Annual Report 2011
The firm’s progress was reflected by the fact that 2006 was
the most successful year in our history. However, in 2007 the
effects of the global financial crisis started to be felt across the
financial industry. This crisis had its origins in the structured
financial product business linked to the US residential real es-
tate market. Between the third quarter of 2007 and the fourth
quarter of 2009, UBS incurred losses of more than CHF 50
billion on these assets and received an equity investment from
the Swiss Confederation concurrent with the Swiss National
Bank’s establishment of a fund to purchase illiquid securities
and other positions from UBS. UBS responded with decisive
action designed to reduce its risk exposures and stabilize its
businesses. More recently, UBS increased its capital strength to
meet new and enhanced industry-wide regulatory require-
ments, as well as better equipping the firm for the new post-
crisis market realities.
Over the past few years, we have successfully reduced our bal-
ance sheet and legacy positions: compared with the end of 2008,
our balance sheet is over half a trillion Swiss francs smaller and our
Basel II risk-weighted assets are approximately 35% lower. Today,
our Basel 2.5 tier 1 capital ratio is one of the highest in the industry.
We will continue to build on this strength as well as on our stable
funding and sound liquidity positions by leveraging the comple-
mentary capabilities of all our businesses to generate sustainable
returns. With our focus on putting clients at the center of every-
thing we do, increasing collaboration across the firm, building cap-
ital and continuing to reduce risk-weighted assets, while remaining
vigilant on costs, we believe UBS will be able to deliver sustainable
earnings and increasingly attractive returns to our shareholders. We
have every reason to be confident about our future.
➔ For a full overview of UBS’s history, please see the interactive
timeline at http://www.ubs.com/history
Celebrating our 150th anniversary
In 2012, we are celebrating our firm’s
150th anniversary. Our celebrations focus
on enhancing our social and charitable
commitments around the world. We want
to build on our legacy by strengthening
and deepening our business relationships,
and by helping the communities in which
we live and work through long-lasting
and valuable programs. Last but not least,
our activities in 2012 signal that UBS is
looking to the future with optimism and
confidence.
There are a wide range of activities
planned during the year, including
celebrations for selected guests in Switzer-
land and our main business locations
around the globe. Overall, we are hosting
25 client events in the Asia Pacific region,
Europe, the US and South America.
Additionally, we are using this opportunity
to launch our global “Excellence in
Volunteering” award. Employees around
the world who give of their time freely to
help their local community are eligible to
receive one of 150 awards in recognition
of outstanding achievement. We are
focusing on projects that promote
education and entrepreneurship, the two
umbrella themes for our community
affairs activities. These include the Young
Enterprise Switzerland project, The
Bridge Academy in Hackney in London,
Investing for Success in the Americas as
well as community employee engagement
programs in the Asia Pacific region.
actual date of UBS’s founding 150 years
ago. The bank will present an anniversary
leisure offering to both clients and the
general public. In addition, the UBS Kids
Cup is holding a special competition and
will distribute gifts to young Swiss
athletes who participated in the competi-
tion. Through our partnership with
Stiftung Landschaftsschutz Schweiz, UBS
volunteers can engage in a variety of
projects designed to protect and conserve
the natural beauty of the Swiss country-
side. In Switzerland UBS is also offering
social, environmental and educational
charities additional help both through
financial support and volunteers.
In Switzerland, our home market, we will
host a small birthday celebration in all
UBS branches on 25 June 2012, the
If you would like to find out more about
our 150th anniversary celebrations then
go to http://www.ubs.com/150years.
14
Operating
environment
and strategy
Operating environment and strategy
Current market climate and industry drivers
Current market climate and industry drivers
Sovereign debt stress continues to test financial stability
The start of 2011 was characterized by a modest global econom-
ic recovery. Thereafter, the markets were affected by ongoing
concerns surrounding eurozone sovereign debt, the European
banking system and US federal budget deficit issues, as well as
renewed uncertainty about the global economic outlook in gen-
eral. As a result, volatility increased in the markets and investor
activity levels fell significantly, especially in the second half of
the year. Switzerland was perceived as a safe haven by investors
and the resulting appreciation of the Swiss franc led the Swiss
National Bank (SNB) to intervene in early September, announcing
that it would not tolerate an exchange rate of less than CHF
1.20 per euro.
Growth in 2011: subdued initial recovery stymied by macro-
economic and sovereign concerns
In the early part of 2011, the world experienced a subdued, two-
speed recovery. Developed economies continued to grow mod-
estly but steadily, though unemployment remained high. At the
same time, activity in many emerging markets, which came out of
the crisis relatively unscathed, was buoyant, though coupled with
some inflationary pressures and risks of overheating. Monetary
policy was highly accommodative, especially in advanced econo-
mies (central bank interest rates remained low) and fiscal policy
provided additional stimulus globally. Bond and equity markets
generally rebounded.
From the second quarter onwards, the global economy en-
tered a new phase. Economic activity slowed markedly, as the
earthquake and tsunami in Japan affected the global supply
chain, unrest in the Middle East caused oil prices to rise and the
sovereign debt crisis escalated considerably.
In the US, growth lagged behind that of previous recoveries,
especially as difficulties in the housing market persisted, dampen-
ing consumer demand, while in Europe, the debt crisis spread
increasingly beyond weaker countries and began to challenge
core countries as well. As the “Arab spring” changed the political
landscape in the Middle East and North Africa, it also impacted
economic activity in the region. Finally, growing concerns over
problems affecting China’s real estate market and banking sector
in particular increased fears of a possible hard landing for the
country’s economy.
After the financial crisis of 2008 and 2009, the public sector
replaced the private sector in sustaining aggregate demand. In
2011, however, the public sector also started to retrench in many
countries due to heightened pressure on public finances. At the
same time, the macroeconomic environment and forthcoming
regulatory overhaul prompted banks to deleverage, exacerbating
the situation further.
Sovereign stress: eurozone debt crisis and political deadlock
around the US debt ceiling
The European sovereign debt crisis was one of the most signifi-
cant factors influencing global financial markets through most of
2011, with market pressure eventually reaching the eurozone core
countries. Following initial stabilization packages for Greece and
Ireland in 2010, the early part of the year saw European leaders
agreeing to a bail-out of Portugal and negotiations on a second
support package for Greece. However, these actions, combined
with the creation of a permanent stabilization fund, failed to pre-
vent yields on Spanish and Italian bonds from rising sharply from
August onward.
In autumn, a reinforced “three-pronged” agreement on mea-
sures to alleviate the pressure on Greece by European leaders, in-
cluding a reduction in the net present value of Greek sovereign
debt held by the private sector, a top-up for the eurozone bailout
fund and requirements for European banks to hold more capital,
also proved to be insufficient in preventing a further escalation of
the crisis. While yields for debt issued by Spain and Italy rose fur-
ther, core countries, including France, were also challenged. Fol-
lowing another round of talks, eurozone countries and other EU
members agreed to press ahead with an intergovernmental treaty
enshrining new budgetary rules to tackle the crisis. Towards the
end of the year, the European Central Bank announced two lon-
ger-term refinancing operations which contributed to the stabili-
zation of financial markets going into the early part of 2012.
Nonetheless, discussions on measures and support for Greece
were ongoing in early 2012.
As a consequence of these developments, 12 out of 17 euro-
zone countries were downgraded by rating agencies; France and
Austria lost their Standard & Poor’s AAA status in early 2012.
Meanwhile, politicians from the Democratic and Republican
parties in the US struggled to reach an agreement to increase the
US debt ceiling, the limit beyond which the US Department of the
Treasury may not borrow. After the debt ceiling was initially
reached in April without a political solution, extraordinary mea-
sures were taken to allow the government to continue function-
ing. A last-minute agreement was finally reached at the end of
July.
The political stalemate prompted Standard & Poor’s to down-
grade the US from AAA to AA+ in August, quoting reduced con-
fidence in the government’s ability to manage its finances. As the
deadlock continued, the Congressional super committee set up to
find ways to reduce the budget deficit also failed to reach an
agreement.
Nevertheless, the US dollar remained the world’s main reserve
currency and yields on US 10-year government bonds fell to be-
low 2% by the end of the year, while the labor market showed
signs of slow improvements.
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Foreign exchange markets: Swiss franc appreciation leads to
Swiss National Bank intervention
Switzerland was seen as a safe haven by investors amid a dete-
riorating economic environment. The Swiss franc appreciated
strongly against most major currencies during the first half
of 2011. By early August, it neared parity with the euro. In light
of these developments, on 6 September 2011 the SNB set a
minimum rate of CHF 1.20 per euro, arguing that the massive
overvaluation of the Swiss franc posed an acute threat to the
Swiss economy and carried the risk of deflation. The SNB
stressed that it would defend this rate with the utmost deter-
mination and was prepared to buy foreign currency in unlimit-
ed quantities. Since the announcement, the Swiss franc has
fluctuated but remained slightly above the rate of CHF 1.20
per euro. However, the SNB has said the franc’s value remains
high even at a rate of CHF 1.20 per euro, and unless the Swiss
franc weakens further, additional SNB measures cannot be
ruled out.
Outlook
Sovereign debt concerns will continue to dominate the market
environment in 2012. While the world economy is expected to
grow slightly below 3% for the year, high uncertainty in the
eurozone remains the main factor weighing on growth pros-
pects in the region, leading to a recessionary outlook. However,
this should not be sufficient to derail recovery in the US and
emerging economies. Against this backdrop and as inflation
pressures remain limited, monetary policy in developed econo-
mies will probably remain very accommodative up to at least
well into 2013.
Industry drivers
banks, and this will have a fundamental impact on the investment
banking business. Over time, this is likely to lead to a new equi-
librium characterized by greater industry concentration, higher
pricing, and reduced levels of compensation. Meanwhile, the
i ncreased liquidity needs resulting from the Basel III liquidity cover-
age ratio and net stable funding ratio are likely to lead to in-
creased competition for both secured funding and deposits as a
stable source of funding, thus leading to higher funding costs. As
a consequence, banks are expected to focus even more on fee-
generating businesses that require less capital and funding, with
the resulting increased competition in these businesses putting
pressure on returns as well.
Regulation is putting pressure on banking models to become
simpler and more transparent, more risk-averse and less lever-
aged. As an indirect consequence of reform, consumers are
likely to pay higher costs for banking services, while credit ex-
tended to companies is already being constrained or made more
expensive.
➔ Refer to the “Regulatory developments” section of this report
for more information
Macroeconomic environment impacting the industry
A low-yield environment and flat yield curve, as well as very low
growth, put pressure on net interest margins, while clients be-
came more risk averse, undermining activity levels and trading
volumes, especially in the second part of 2011. At the same time,
investors adopted a risk-on, risk-off approach, resulting in in-
creased correlation and volatility in the market. Together with
regulatory changes, this made the operating environment particu-
larly challenging for the banking industry which led to lower rev-
enues and earnings, resulting in many banks taking measures to
reduce costs, including redundancies.
Regulation driving structural and business model changes
Following the 2008 / 2009 financial crisis, regulators and legisla-
tors in major financial centers embarked on a path toward signifi-
cantly stricter regulation of financial services. This remains the big-
gest driver of structural and business model changes in the
industry. At the same time, regulatory uncertainty persists, hinder-
ing the necessary adaptation process and presenting a major ob-
stacle to future growth.
On the one hand, such far-reaching legal reforms as the Inde-
pendent Commission on Banking’s recommendations for the ring-
fencing of retail activities in the UK, the US Volcker rule pro hibiting
proprietary trading and, to some extent, the Swiss “too-big-to-
fail” law are forcing substantial structural changes on banks.
While implementation timetables extend over the next few years,
banks must already start considering the implications, plan ahead
and adjust their business models accordingly.
On the other hand, new rules requiring banks to hold more
capital and liquidity, starting with the Basel III international stan-
dards, are impacting the relative attractiveness of certain busi-
nesses and will generally pressure banks’ returns on equity. More
than ever, regulatory capital is becoming a key constraint for
Funding stability: a key near-term market challenge
Obtaining sufficient medium- and long-term funding across all
tenors to maintain a cost efficient and properly balanced liquidity
and funding position was one of the key challenges for banks in
2011’s difficult market conditions, particularly in the second half
of the year. Market turmoil, especially in Europe, disrupted both
short-term and long-term unsecured funding markets. The cost of
raising new long-term unsecured funding remained well above
pre-crisis levels, while the securitization markets were partially
closed.
Many banks that were challenged to fulfill their appropriate
funding requirements sourced liquidity from central banks. Start-
ing in summer 2011, some European banks experienced a rather
acute shortage of USD funding, as US money market funds sig-
nificantly reduced their exposure to European banks. Differences
in funding costs between the strongest banks and those perceived
by the market as weaker are already increasing, and financial
strength will continue to be a strong competitive advantage for
the foreseeable future.
➔ Refer to the “Liquidity and funding management” section of
this report for more information
17
Operating environment and strategy
Current market climate and industry drivers
Pressure on client confidentiality is materially changing the
environment for Swiss banks
Pressure on client confidentiality continues to increase world-
wide. In this context, Switzerland signed withholding tax agree-
ments with Germany and the UK in 2011. Under the agree-
ments, persons resident in Germany and in the UK can have
their existing banking relationships in Switzerland retrospec-
tively taxed either by making a one-time tax payment or by dis-
closing their accounts. If implemented, future investment in-
come and capital gains of German and British bank clients in
Switzerland (which are not disclosed) will be subject to a final
withholding tax, with Switzerland transferring the proceeds to
the German and British authorities. The tax agreements are cur-
rently pending approval of the parliaments in all three countries
and, if approved, should enter into force in early 2013. Addi-
tional discussions are likely to occur between Switzerland and
other countries. The pressure on client confidentiality will have
an impact on the business of banks serving cross-border clients,
particularly in Switzerland. As a consequence, banks such as
UBS will need to adapt to new client demands, rethink their
cross-border value propositions and make significant efforts to
ensure operational readiness and compliance. This is likely to be
a challenge for smaller banks and is expected to lead to further
consolidation in the sector.
18
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Regulatory developments
In 2011, designing policy measures to address the “too-big-to-fail” issue was the key regulatory focus. Switzerland’s
parliament adopted a law to define the regulatory framework for the country’s largest banks, while the G20 heads of
states endorsed a set of measures for global systemically important banks, including additional loss absorbency require-
ments, standards on effective resolution regimes and stricter supervision.
Swiss “too-big-to-fail” law
Following the recommendations presented in October 2010 by
the Commission of Experts appointed by the Swiss Federal
Government, the political process continued around the “too-big-
to-fail” law to define the framework for the largest banks in
Switzerland.
The Federal Council issued an initial text for consultation be-
tween December 2010 and March 2011 and presented the draft
law and explanatory notes to the Swiss parliament in April 2011.
Following the parliamentary process, the law (a revision of the
Swiss banking law or Bankengesetz) was finally adopted on 30
September 2011. This revision applies to systemically important
Swiss banks as designated by the Swiss National Bank, currently
only UBS and Credit Suisse. Finally, in December 2011, the Swiss
Federal Department of Finance (FDF) launched a consultation on
the changes to the banking and capital adequacy ordinances nec-
essary to implement the “too-big-to-fail” law. This consultation
lasted until 16 January 2012.
Key elements of the law and of the draft ordinances as pro-
posed for consultation include the following:
1. Capital: higher capital requirements than for other banks, to
be determined by the Swiss Financial Market Supervisory Au-
thority (FINMA). We expect the capital requirements to consist
of (i) a minimum of 4.5% (of risk-weighted assets (RWA)) in
the form of common equity tier 1, (ii) a buffer of 8.5% com-
posed of a minimum of 5.5% common equity tier 1 and up to
3% of high-trigger contingent capital, and (iii) a progressive
component based on market share and aggregate exposure
that can be fulfilled with low-trigger contingent capital. Ac-
cordingly, the progressive component is currently expected to
amount to 6%, bringing total capital requirements to 19%.
The ordinances also contain provisions for a leverage ratio.
2. Organization: each systemically important bank is required to
produce an emergency plan, demonstrating how their system-
ically important functions within Switzerland can be main-
tained in case of impending insolvency.
3. Liquidity and risk: banks will be subject to tighter liquidity and
enhanced risk diversification requirements.
The law contains a review clause to allow for future interna-
tional policy developments to be taken into account. Also, the
largest banks are eligible for a capital rebate, if they take actions
that facilitate recovery and resolvability beyond ensuring that
systemically important functions are maintained in case of insol-
vency.
The ordinances implementing the “too-big-to-fail” law must
now be presented to the Swiss parliament for approval during the
course of 2012. They are expected to come into force on 1 Janu-
ary 2013. Thereafter, UBS must comply with the new rules, based
on a transitional timetable lasting until the beginning of 2019.
➔ Refer to the “Capital management” section of this report for
more information
Proposals for the introduction of macroprudential mea-
sures in Switzerland
In November 2011, the FDF issued a consultation for the intro-
duction of a countercyclical capital buffer in Switzerland. Accord-
ing to the proposal, the buffer would apply in principle to all
risk-weighted positions in Switzerland, but its scope can be lim-
ited to certain sectors of the economy, for example, to credit
positions related to the Swiss mortgage market. It would be
capped at 2.5% of the risk-weighted positions in Switzerland. It
would be the Swiss National Bank’s responsibility to request acti-
vation of the buffer, spelling out its scope and the size in percent-
age terms applicable to each affected category of risk-weighted
positions. The Federal Council would have to take the ultimate
decision on any proposed activation. These capital requirements
would have to be satisfied with common equity tier 1. The FDF
estimates the impact on the two large banks in terms of addi-
tional capital requirements to be between 0.1% and 0.6% of
RWA, depending on the scope and size of the buffer. These cap-
ital requirements would be in addition to all other capital require-
ments to which banks in Switzerland are subject. Following the
FDF’s review of the various consultation responses, the effective
date of implementation of the proposal – not synonymous with
the potential activation date of the buffer – could be in the first
half of 2012.
Separately, the FDF issued a consultation paper outlining pro-
posed changes to the capital adequacy ordinance focusing on
increased capital requirements for mortgage loans secured by resi-
dential properties. The proposal includes higher risk weights for
residential mortgages under the Basel standard approach, where
the loan-to-value or income coverage ratio exceeds prudent stan-
dards. For banks using the advanced internal ratings-based ap-
19
Operating environment and strategy
Regulatory developments
proach, including UBS, the FDF proposes the introduction of an ad-
ditional capital charge that corresponds to the difference between
the determined RWA and an amount that corresponds to 80% of
the RWA that the bank would report, if it adopted the standard ap-
proach. If implemented as proposed, this would significantly in-
crease the capital requirements for our Swiss mortgage book.
International regulatory framework for large banks
In December 2010, the Basel Committee on Banking Supervision
(BCBS) launched “Basel III: A global regulatory framework for
more resilient banks and banking systems” that set internation-
ally agreed capital and liquidity standards. Since the beginning of
2011, international regulatory discussions have focused principally
on an additional regulatory framework to solve the “too-big-to-
fail” issue.
On 25 June 2011, the Group of Governors and Heads of
Supervision (GHOS), the oversight body of the BCBS, announced
measures for global systemically important banks (G-SIB). Based
on the results of a related consultation process over the summer,
the heads of state at the G20 Summit in November 2011 endorsed
a series of measures developed by the BCBS and the Financial Sta-
bility Board (FSB). These measures must now be implemented in
national regulatory frameworks and comprise the following:
1. A methodology to determine G-SIB and additional loss absor-
bency requirements for G-SIB. The methodology uses an indi-
cator-based measurement approach. Once implemented,
banks identified as G-SIB would be required to hold additional
capital requirements of 1% to 2.5% of RWA in the form of
common equity tier 1 over and above the Basel III international
standards. An additional, though currently empty, bucket with
requirements of 3.5% of RWA has been created to discourage
banks from increasing their systemic relevance further. These
additional loss absorbency requirements will be phased-in in
parallel with the capital conservation and countercyclical buf-
fers of the Basel III framework, i.e. between 2016 and 2018,
becoming fully effective on 1 January 2019.
2. The FSB’s “Key attributes of effective resolution regimes” are
intended to set minimum international standards that will en-
able authorities to resolve financial institutions in the case of
insolvency, while maintaining the continuation of their vital
economic functions and without exposing taxpayers to losses.
The measures proposed are targeted at national authorities
and comprise an international standard for national resolution
regimes, requirements for recovery and resolution planning
and resolvability assessments as well as institution-specific
cross-border cooperation agreements.
3. More intensive and effective supervision of systemically impor-
tant financial institutions (SIFI), including stronger supervisory
mandates, resources and powers, and higher supervisory ex-
pectations for risk management functions, data aggregation
capabilities, risk governance and internal controls.
Based on the G-SIB methodology put forward by the BCBS, an
initial list of 29 G-SIFI was published by the FSB. The list includes
UBS. While the term G-SIB applies specifically to banks and the list
currently contains only banking groups, SIFI refers to financial in-
stitutions in general. In the future, the list will be updated and
could include G-SIFI that are not banking groups. The additional
loss absorption measures referred to above are not expected to
affect UBS, given that UBS will already be subject to the elevated
capital requirements to be imposed by FINMA.
Basel 2.5 market risk framework
The primary effect of revisions to the Basel II market risk frame-
work (commonly referred to as Basel 2.5) issued by the BCBS in
2009 was to introduce new requirements to incorporate the
effects of stressed markets. The new requirements have led to
lower Bank for International Settlements (BIS) tier 1 and total
capital and to higher BIS RWA, thereby lowering UBS’s BIS tier 1
and total capital ratios. In line with the BIS transition requirement,
the impact of Basel 2.5 is included in our disclosures from 31 De-
cember 2011 onwards.
➔ Refer to the “Capital management” and “Basel 2.5 Pillar 3”
sections for more information on the Basel 2.5 framework
Regulatory developments in other jurisdictions
Developments in US regulatory initiatives are focused on rule-
making stemming from the Dodd-Frank Act passed in July 2010.
Regulators have made significant progress with implementation
of many provisions to occur in 2012. A key topic remains the
so-called “Volcker Rule,” which would prohibit banking entities
from engaging in proprietary trading, subject to a defined set of
permitted exceptions, including market-making, hedging, and
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underwriting activities. The rule would also limit banking entities
from investing in hedge funds, private equity funds and other
similar “covered funds” except under limited circumstances. The
two-year transition period to comply with the Volcker Rule’s pro-
hibition commences in July 2012. US regulators have proposed
regulations to further implement the Volcker Rule, which are
expected to be issued in final form later in 2012. UBS expects
that certain of its historical trading activities will be considered
prohibited proprietary trading. UBS Investment Bank’s decision
to exit equities proprietary trading business segments, an-
nounced during our Investor Day on 17 November 2011, in-
cludes businesses likely to be prohibited. For principal trading
activity permitted under one of the exemptions, UBS anticipates
that it will be required to implement a compliance regime in-
cluding calculation of required metrics for each trading book. As
proposed, the implementing regulations may effectively require
the Investment Bank to implement its compliance program glob-
ally. Depending on the nature of the final rules, as well as the
manner in which they are implemented, the Volcker Rule could
have a substantial impact on market liquidity and the economics
of market-making. UBS is not able to estimate the effect of im-
plementation of the Volcker Rule compliance program on per-
mitted trading activities until regulations (including the required
metrics) are finalized and the required metrics are calculated and
calibrated. The Volcker Rule also broadly limits investments and
other transactional activities between banks and covered funds.
The proposed implementing regulations both expand the scope
of covered funds and provide only a very limited exclusion for
activities of UBS outside the US. If adopted as proposed, the
regulations could limit certain activities of UBS in relation to
funds, particularly outside the US.
US regulators have also begun to issue final regulations gov-
erning swaps and derivatives markets as contemplated by the
Dodd-Frank Act. UBS expects that UBS AG’s swaps activities will
require it to register as a swap dealer with the US Commodity
Futures Trading Commission and the Securities and Exchange
Commission during 2012. The regulations will impose substantial
new requirements for clearing, trade execution, recordkeeping,
transaction reporting, compliance and conduct in relations to
swaps activities. US regulators have not yet issued guidance on
the application of US regulation to activities of registered swap
dealers outside the US. The potential extraterritorial application of
swap dealer regulatory requirements could impose a significant
operational and compliance burden and creates the potential for
duplicative and conflicting regulation.
In the EU, 2011 saw many important legislative proposals from
the European Commission (including a review of the Markets in Fi-
nancial Instruments Directive (MiFID), Capital Requirements Directive
IV, a review of the Market Abuse Directive and Credit Rating Agen-
cies Regulation III), political agreement by the Council and European
Parliament on the Short Selling Regulation, which has now moved
to the rule-making phase, negotiations on the European Market In-
frastructure Regulation, and consultations on secondary legislation
on the Alternative Investment Fund Managers Directive.
Of particular note are the legislative proposals on the review of
MiFID, which contains a very broad reform agenda encompassing
the trading market structure, transparency regime, regulation of
commodity derivatives, investor protection and third-country ac-
cess to the EU single market. The dossier is now being considered
by EU legislators, with political agreement only expected in the
first half of 2013. Significant progress was also made on the Eu-
ropean Market Infrastructure Regulation, which once it comes
into force in 2012, will mandate the clearing of all standardized
over-the-counter derivative contracts through central counterpar-
ties and reporting of over-the-counter derivative contracts to
trade repositories in line with commitments made at the G20
summit in Pittsburgh in 2009.
In the UK, in September 2011, the Independent Commission
of Banking issued its final recommendations on reforms of the
UK banking sector to promote financial stability and competition.
These included the ring-fencing of retail activities and additional
loss absorbency requirements for banks. The UK government
responded in December 2011, agreeing with the thrust of the
recommendations, but amending some points and subjecting a
set of issues to a further consultation scheduled for the second
quarter of 2012. On the reform of the UK regulatory architec-
ture, the government is moving closer to transferring regulatory
responsibility to the Financial Policy Committee (macroprudential
regulator), the Prudential Regulation Authority (PRA) (prudential
regulator for certain deposit-takers and investment banks) and
the Financial Conduct Authority (conduct and markets regulator
as well as prudential regulator for non-PRA firms). The related
Financial Services Bill was introduced to Parliament in Janu-
ary 2012, and is expected to receive Royal Assent by the end of
2012, with full implementation of the new architecture by the
middle of 2013.
21
Operating environment and strategy
Our strategy
Our strategy
UBS is a client-focused financial services firm that aims to provide superior financial advice and solutions to clients. Our
strategy is shaped by our commitment to deliver attractive and sustainable risk-adjusted returns and takes into account
the changing business environment and more stringent capital regulatory requirements. We believe the successful
execution of this strategy will enable us to implement a progressive capital returns policy starting with the dividend of
CHF 0.10 per share we propose to pay to our shareholders for the financial year 2011.
At our Investor Day in November 2011, we provided a compre-
hensive update on our strategic plans, which center on our pre-
eminent wealth management businesses and our universal bank
in Switzerland supported by our Global Asset Management busi-
ness and the Investment Bank. Our strategy builds on the strengths
of all of these businesses, and at the same time targets a signifi-
cant reduction in risk-weighted assets and improvements to our
strong capital position. At the end of 2011, our Basel 2.5 capital
ratio was one of the highest in the industry at 15.9%, and our
Basel III pro forma common equity ratio, calculated on the phased-
in basis that will become applicable as of January 2013, stood at
an estimated 10.8%. We will build on this strength as well as on
our stable funding and sound liquidity positions by capitalizing on
the complementary capabilities of all our businesses to generate
more sustainable returns. This requires us to make changes to our
risk profile and to focus and simplify some aspects of our Invest-
ment Bank. In line with our desire to reduce complexity and drive
high-quality risk-adjusted returns, we aim to reduce risk-weighted
assets. To facilitate this objective and as announced during our
Investor Day in November 2011, we transferred a portfolio of
legacy assets from the Investment Bank to the Corporate Center.
By 2016, we aim to reduce risk-weighted assets in the Investment
Bank and in the legacy portfolio together by 50% from 30 Sep-
tember 2011 levels calculated on a pro forma Basel III basis.
Since the last financial crisis, we have turned around the perfor-
mance of Wealth Management and Wealth Management Ameri-
cas. When adjusted for restructuring costs, the gain made on the
sale of our strategic investment portfolio in 2011 and a provision
related to an arbitration matter in 2010, our wealth management
businesses increased their 2011 aggregate profits by 19% to CHF
2.9 billion despite challenging market conditions. This progress
also led to increased confidence amongst our clients and we re-
corded combined net new money of CHF 35.6 billion compared
with net outflows of CHF 18.2 billion in 2010. Combined invested
assets increased by CHF 2 billion to CHF 1,459 billion. Improved
profitability and our ability to attract new assets have enabled us
both to retain and recruit high-quality advisors, as evidenced in
particular by the significant reduction in advisor attrition rates in
our Wealth Management Americas business. We remain commit-
ted to our home market and to growing the profitability of our
leading Retail & Corporate business, which is critical to the Group
in terms of both revenue and profitability, as well as delivering
growth to other businesses. The more stringent Basel III capital and
liquidity requirements are likely to lead to increased competition
for both secured funding and deposits as a stable source of fund-
ing, and to higher funding costs. Our solid funding position, de-
rived from our wealth management businesses and our Retail &
Corporate business, as well as the stable earnings generated by our
Retail & Corporate business, reinforces our financial position fur-
ther. Our strategy centers on these businesses and we are commit-
ted to building on the progress we have made in the last few years.
Our strategy puts our clients at the center of everything we do
and close collaboration between our businesses allows us to de-
liver the very best of UBS to them. Today, our clients benefit from
the comprehensive range of complementary capabilities offered
by the Group as a whole. While collaboration has always been
part of our corporate ethos, we believe there are further benefits
to be delivered both for our clients and our shareholders. As a key
part of this, the Investment Bank will work more closely with
UBS’s wealth management businesses and increase its emphasis
on the execution, advisory and research capabilities it provides to
wealth management clients.
The Investment Bank is critical to the success of our wealth
management businesses and the Group as a whole. The comple-
mentary needs of clients of the Investment Bank and of our
wealth management businesses means we can maximize value
for them and for the firm. Making connections between clients,
markets and ideas is the essence of value creation, and these con-
nections between private wealth and wholesale markets are espe-
cially close in areas where we already have a strong presence,
such as the Asia Pacific region. There, for example, we have the
strongest combination of wealth management and investment
banking businesses and through closer collaboration we can build
further on our leading position. However, new regulations require
us to build and improve the quality of our capital base, and so we
are adjusting our Investment Bank to make it simpler, more fo-
cused, less capital-intensive and able to deliver improved risk-
adjusted returns. We will build on its strengths in equities, foreign
exchange and advisory, while shaping the business in favor of the
products and services that our clients demand, that offer the best
growth opportunities and that are less capital-intensive.
We will continue to invest in key geographies and products
where we identify opportunities across the Group. In practice, this
means that our Wealth Management business will work to
22
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strengthen its industry-leading positioning, while accelerating de-
velopment within growth markets. Our Wealth Management
Americas business will continue with its strategic banking initia-
tives, including its mortgage lending initiatives, to ensure contin-
ued growth in balances coming from credit lines to our target
high net worth and ultra high net worth client base. It will also
sharpen the focus on “delivering the bank”, as we aim to become
the provider of choice for companies, their employees and fami-
lies for all their wealth management needs. Our Retail & Corpo-
rate business will further enhance the range of life cycle products
and services we offer our clients, while capitalizing on additional
growth opportunities in advisory and execution. Our Global Asset
Management business will expand its alternatives platform fur-
ther and invest in fast-growing passive capabilities, while continu-
ing to grow its third-party wholesale business. Finally, the Invest-
ment Bank will work to service our core clients competitively,
optimize capital allocation and reduce risk-weighted assets in core
businesses with the goal of delivering attractive and sustainable
risk-adjusted returns.
Capital strength remains the foundation for our success and
we will continue to build capital to achieve our targeted Basel III
tier 1 common equity ratio of 13%. This target is above the regu-
latory requirements for both the Swiss Financial Market Super-
visory Authority (FINMA) and the Basel Committee on Banking
Supervision and we believe this will provide even greater comfort
to our clients and increase confidence further in the firm as a
whole. We have built a strong track record both in balance sheet
and legacy asset reductions. Over the past few years, we have
successfully reduced our balance sheet and legacy positions: com-
pared with the end of 2008, our balance sheet is over half a tril-
lion Swiss francs smaller and our Basel II risk-weighted assets are
approximately 35% lower. We have achieved significant reduc-
tions in legacy positions in the Investment Bank since the end of
2008. We will continue to reduce risk by exiting or shrinking busi-
nesses within our Investment Bank that deliver unattractive re-
turns relative to their capital consumption, particularly in our fixed
income, currencies and commodities operations.
Vigilance on costs remains paramount in an industry undergo-
ing fundamental change, and since the financial crisis of 2007–
2009 we have successfully reduced expenses, with costs for 2011
around 20% below 2008 levels. As concerns mounted around
issues in the eurozone and the US during 2011, we took further
action to prepare our cost base for more challenging market con-
ditions. In August 2011, we announced a CHF 2 billion cost reduc-
tion program. We have already seen some benefits as a result of
these measures, and we expect more of the benefits to become
apparent in our results over coming quarters. Given the cost re-
ductions we have implemented and announced, scope for further
material tactical cuts is limited. Thus we are focused on making
strategic changes which go to the heart of our organization’s
structure and design. While we believe these changes will be ad-
equate to resize our cost base to the current environment and to
meet our financial targets, we will monitor markets actively and,
if conditions deteriorate materially, we will take further action.
Our reputation remains our most valuable asset, and retain-
ing the trust and confidence of all our stakeholders is critical to
the long-term success of UBS. We have set ourselves the key
strategic objective of strengthening our operational risk frame-
work to ensure that all of our employees, at every level of the
organization, pay even greater attention to safeguarding and
reinforcing our reputation. As a first step, we are enhancing our
performance management processes to ensure operational risk
has a stronger weighting in the assessment of individuals, teams
and business performance. This assessment will be fundamental
to the success, compensation and career prospects of all UBS
employees.
We are confident that our focus, placing our clients at the cen-
ter of everything we do, increasing collaboration across the firm,
continuing to reduce risk-weighted assets and build capital, while
remaining vigilant on costs, constitutes the right strategy to en-
able us to deliver sustainable earnings and increasingly attractive
capital returns to our shareholders.
The strategic priorities for our businesses
Our strategy centers on our Wealth Management and Wealth
Management Americas businesses and our universal bank in Swit-
zerland supported by our Global Asset Management business and
the Investment Bank.
Wealth management is a growth business area with attractive
profit margins and high barriers to entry in many markets. Our
preeminent Wealth Management business has a strong global
footprint in all major financial centers, making it ideally placed
to take advantage of these conditions and the opportunities they
present. Wealth Management Americas is a client-focused and
advisor-centric business. We believe the long-term growth pros-
pects of the wealth management business are attractive in the
Americas, with the high net worth and ultra high net worth mar-
kets expected to be the fastest growing segments in terms of in-
vested assets.
Our strategy for Wealth Management builds on the consider-
able progress we have made and aims to extend our industry-
leading position. We plan to achieve this through a combination
of targeted investments and the expansion of client advisor capa-
bilities in markets we believe present attractive growth opportuni-
ties. We aim to increase efficiency by consolidating our on- and
offshore European businesses to reflect the convergence of client
needs in this market, and we will focus our investment in regions
with the highest potential for growth, particularly Asia Pacific and
the emerging markets where we expect to see the fastest market
growth in the global ultra high net worth and high net worth cli-
ent segments. We also aim to enhance the business’s gross mar-
gin through pricing initiatives and increasing lending opportuni-
ties. Our transformation from a traditional private bank into a
more dynamic investment manager with strong advisory capabili-
ties will help to meet our clients’ needs whatever the market en-
vironment. Our clients will continue to benefit from the access our
Investment Bank gives them to execution, capital markets, invest-
23
Operating environment and strategy
Our strategy
ment insight and research, as well as advisory and other capabili-
ties.
In Wealth Management Americas we remain committed to our
client-focused and advisor-centric strategy. We will build on our
achievements by continuing to focus on delivering advice-based so-
lutions and by seeking to capture more banking and lending oppor-
tunities in the high net worth and ultra high net worth client seg-
ments through our unique position in the market and our force of
high-quality financial advisors. We will bolster our financial advisors’
productivity through increased training and platform enhance-
ments, and work to strengthen our partnership with the Investment
Bank further. We believe we are uniquely positioned to serve high
net worth and ultra high net worth investors in the world’s largest
wealth market. We are large enough to be relevant, but small
enough to be nimble, enabling us to combine the advantages of
both large and boutique wealth managers. We aim to differentiate
ourselves from competitors by being a trusted and leading provider
of financial advice and solutions to our clients by enabling our finan-
cial advisors to leverage the full resources of UBS, including unique
access to wealth management research and global solutions from
our asset-gathering businesses and the Investment Bank.
Our leading Retail & Corporate business constitutes a central
building block for the universal bank model in Switzerland and is
critical to the Group in terms of both revenue and profitability, as
well as delivering growth to other businesses. Our goal is to deliver
value-added services that make us the bank of choice for retail cli-
ents. We will continue to refine our suite of life cycle-based offerings
which provide our clients with products and dedicated services to
fulfill their evolving needs. Through systematic and consistent sales
management, we will continue to ensure an efficient and seamless
sales process. We will continue to put our clients first by investing in
our branches and electronic channels, using technology to comple-
ment, rather than replace, our traditional branch network.
Our diversity and size puts us in a unique position to serve all
our clients’ complex financial needs. We aim to be the main bank
of Swiss corporate and institutional clients ranging from small-
and medium-size enterprises to multinationals, and from pension
funds and commodity traders to banks and insurers. We strive to
further expand and leverage our trans action banking capabilities
and increase our presence and grow in the commodities trade fi-
nance business. Combining the universal bank approach with our
local market expertise will enable us to provide access to all UBS
capabilities, while generating opportunities to cross-sell and in-
crease referrals. Achieving these goals for the business will allow
the firm to continue to benefit from the advantages this success
brings to our global brand in general and to our leading wealth
management business in particular.
We have shaped our Global Asset Management strategy ac-
cording to the changing needs of clients by developing a diversi-
fied business model across investment capabilities, regions and
distribution channels. The diversification of our business places us
in a good position to benefit from shifting market dynamics and
provides a solid foundation for capturing industry growth oppor-
tunities.
With long-term performance as our focus, we will work close-
ly with clients in pursuit of their investment goals. In particular, we
are continuing to expand our strong third-party institutional busi-
ness both in developed and emerging markets; while expanding
third-party wholesale distribution in the Americas and Europe,
building on our strengths in areas including Asia Pacific and Swit-
zerland. We also remain committed to delivering distinctive prod-
ucts and solutions to the clients of UBS’s wealth management
businesses. We aim to expand our successful alternatives plat-
form, building on our established positions in real estate and fund
of hedge fund businesses, and invest in our fast-growing passive
capabilities, including exchange-traded funds and strategies
tracking non-standard indices.
The Investment Bank is critical to the success of UBS, and its
strategy is built on the principles of client relevance, capital effi-
ciency and close collaboration with our Wealth Management and
Wealth Management Americas businesses. The business is focused
firmly on meeting the needs of our corporate, institutional, sover-
eign, ultra high net worth, wealth management and other clients
while adapting to more stringent capital requirements. Having a
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24
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the first half of 2011
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competitive and successful Investment Bank is critical to the suc-
cess of our wealth management businesses. To achieve this we
will build on our current strengths in providing flow, solutions and
advisory services. We aim to grow our leading equities franchise
through targeted technology investments and to reshape our
fixed income, currencies and commodities business to materially
reduce its level of risk and capital consumption and to make the
business more client-focused. We also aim to increase market
share in our investment banking department and global capital
markets businesses by leveraging our client relationships and
global footprint further. To ensure we are able to deliver effec-
tively, we will be highly disciplined in executing, trading, actively
managing our portfolio and using our resources to the best pos-
sible advantage. To support our goal of becoming more focused
and less complex while taking on less risk, we will continue with
our efforts to increase our capital efficiency and to actively reduce
risk-weighted assets. We will do this by optimizing our business
mix in favor of products and services that have the highest rele-
vance to clients, offer the best growth opportunities and are less
capital-intensive.
Reducing risk and building capital
the firm. Our capital strength is the foundation for the future suc-
cess of our businesses and today our Basel 2.5 capital ratio is one
of the highest in the industry. We will continue derisking our bal-
ance sheet and building our capital base to ensure we remain
among the world’s best-capitalized banks under Basel III.
Our strategic imperative to achieve our targets for Basel III cap-
ital ratios requires a rapid and prudent reduction of risk deployed
in our Investment Bank and in the legacy portfolio in the Corpo-
rate Center. We intend to reduce the Group’s Basel III risk-weight-
ed assets by a third with a targeted reduction of risk-weighted
assets in the Investment Bank and the legacy portfolio of around
half by 2016. These plans to improve capital efficiency in the In-
vestment Bank involve a reduction in risk-weighted assets in our
core businesses of approximately 35% and a reduction of around
90% in legacy risk-weighted assets by 2016. We will continue to
invest in growth businesses where we have strong market posi-
tions and in areas critical to the success of the Group as a whole.
➔ Refer to the “Capital management” section of this report for
more information on Basel III
Measuring our performance
We benefit from a strong liquidity position as measured under the
proposed Basel III guidelines, and our mix of funding sources is
stable and well diversified by market, product and currency, with
client deposits providing the single largest source of funding for
To track our progress in executing our strategy, we have estab-
lished annual target performance ranges for each of our business
divisions and for the Group as a whole. These ranges focus on the
key performance metrics of growth, profitability and efficiency.
We believe these are the appropriate metrics against which to
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(cid:19)(cid:2)(cid:35)(cid:80)(cid:80)(cid:87)(cid:67)(cid:78)(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:84)(cid:67)(cid:80)(cid:73)(cid:71)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:20)(cid:2)(cid:86)(cid:74)(cid:84)(cid:81)(cid:87)(cid:73)(cid:74)(cid:2)(cid:20)(cid:18)(cid:19)(cid:24)(cid:29)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:89)(cid:80)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:72)(cid:87)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:2)
(cid:80)(cid:81)(cid:80)(cid:15)(cid:84)(cid:71)(cid:69)(cid:87)(cid:84)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:86)(cid:71)(cid:79)(cid:85)(cid:14)(cid:2)(cid:75)(cid:72)(cid:2)(cid:67)(cid:80)(cid:91)(cid:16)(cid:2)(cid:54)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:85)(cid:2)(cid:67)(cid:85)(cid:85)(cid:87)(cid:79)(cid:71)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:86)(cid:67)(cid:80)(cid:86)(cid:2)(cid:72)(cid:81)(cid:84)(cid:71)(cid:75)(cid:73)(cid:80)(cid:2)(cid:71)(cid:90)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:71)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:37)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:10)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
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(cid:67)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:78)(cid:81)(cid:67)(cid:80)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:22)(cid:2)(cid:54)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(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:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:86)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(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: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:67)(cid:82)(cid:82)(cid:78)(cid:91)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:71)(cid:73)(cid:75)(cid:80)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:72)(cid:2)(cid:20)(cid:18)(cid:19)(cid:21)(cid:16)(cid:2)(cid:20)(cid:18)(cid:19)(cid:20)(cid:2)(cid:75)(cid:85)(cid:2)(cid:67)(cid:2)(cid:86)(cid:84)(cid:67)(cid:80)(cid:85)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:67)(cid:85)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:75)(cid:85)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:2)
(cid:85)(cid:87)(cid:68)(cid:85)(cid:86)(cid:67)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:80)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:15)(cid:89)(cid:71)(cid:75)(cid:73)(cid:74)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:16)(cid:2)(cid:2)(cid:35)(cid:85)(cid:2)(cid:67)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:14)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:86)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:86)(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:75)(cid:85)(cid:2)
(cid:71)(cid:90)(cid:82)(cid:71)(cid:69)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:68)(cid:71)(cid:2)(cid:84)(cid:71)(cid:70)(cid:87)(cid:69)(cid:71)(cid:70)(cid:14)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:81)(cid:80)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:68)(cid:71)(cid:2)(cid:67)(cid:78)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:37)(cid:71)(cid:80)(cid:86)(cid:71)(cid:84)(cid:2)(cid:84)(cid:71)(cid:78)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:78)(cid:71)(cid:73)(cid:67)(cid:69)(cid:91)(cid:2)
(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:89)(cid:67)(cid:85)(cid:2)(cid:86)(cid:84)(cid:67)(cid:80)(cid:85)(cid:72)(cid:71)(cid:84)(cid:84)(cid:71)(cid:70)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:86)(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:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:37)(cid:71)(cid:80)(cid:86)(cid:71)(cid:84)(cid:2)(cid:68)(cid:71)(cid:72)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:20)(cid:18)(cid:19)(cid:19)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:89)(cid:75)(cid:78)(cid:78)(cid:2)(cid:68)(cid:71)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:71)(cid:70)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:71)(cid:72)(cid:72)(cid:71)(cid:69)(cid:86)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:85)(cid:86)(cid:2)(cid:83)(cid:87)(cid:67)(cid:84)(cid:86)(cid:71)(cid:84)(cid:2)(cid:81)(cid:72)(cid:2)(cid:20)(cid:18)(cid:19)(cid:20)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:37)(cid:71)(cid:80)(cid:86)(cid:71)(cid:84)(cid:16)
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300
200
100
0
(cid:19)(cid:36)(cid:38)(cid:19)(cid:18)(cid:20)(cid:65)(cid:71)
Operating environment and strategy
Our strategy
judge our future success. While any target framework will natu-
rally be subject to the vagaries of the market, we believe these
ranges are realistic and achievable on an annual basis over the
next five years. As we have previously stated, we have taken 2013
as the starting point for the Group’s return on equity target and
the Investment Bank’s return on attributed equity target, because
2012 will be a year of transition for the Investment Bank in which
we will focus on reducing risk-weighted assets in the business.
The target performance ranges for all other business divisions ap-
ply from 2012. Achieving these divisional targets should enable
the Group to deliver a return on equity of 12–17% starting in
2013 and a cost / income ratio of 65–75%.
UBS Switzerland
UBS is the largest and strongest universal
bank in Switzerland. Switzerland is the
only country where we operate in retail,
corporate and institutional banking,
wealth and asset management as well as
investment banking. Our strong position
in the Swiss home market is crucial to
sustain our global brand and further grow
our global core business. We are fully
committed to our home market, and by
building on our 150 years of banking heri-
tage, UBS Switzerland maintains a leading
position in all five business areas. With
approximately 300 branches and 4,700
client-facing staff, we are able to reach
approximately 80% of Swiss wealth, one
in three households, one in every three
wealthy individuals and almost half of all
Swiss companies.
We strive to be the leading bank in
Switzerland with regard to client
satisfaction, employee engagement and
sustainable profitability. UBS Switzer-
land’s unique universal bank model is
central to our success. Our dedicated
Swiss management team has representa-
tives from all five business areas, and
ensures a uniform approach to the
market when offering our full range of
banking products, expertise and services.
Our cross-divisional management
approach allows us to utilize efficiently
our existing resources, promotes
cross-divisional thinking and enables
seamless collaboration across all business
areas. As a result, we are in a unique
position to efficiently serve our clients
with a comprehensive range of banking
products and services to fit their needs.
We are able to differentiate ourselves
through leveraging our strengths across
all segments while ensuring stability and
continuity throughout the client’s life
cycle. Our universal bank model has
proven itself to be highly effective in
Switzerland and provides a substantial
part of the Group’s revenues.
Given the strength of the economy
and stable political environment in
Switzerland, the country remains an
attractive and growing financial market.
This inherent stability and growth has
been the basis for our success and
the constant contribution from UBS
Switzerland to the Group financial
performance. Thanks to our universal
bank model, vast client base and branch
network, we are well-positioned to
capture future market growth and
strengthen our leading position in our
home market.
26
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Measurement of performance
Performance measures
Key performance indicators
Our key performance indicators (KPI) framework focuses on key
drivers of total shareholder return, which measures the total re-
turn 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 al-
ways aligned to the changing business conditions.
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 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.
In keeping our focus on the key performance metrics of
growth, profitability and efficiency, a few enhancements will be
made to the KPI framework with effect from the first quarter of
2012 reporting onwards.
➔ Refer to the “Changes to key performance indicators in 2012”
sidebar for more information
Group / business division key performance indicators
Key performance indicators
Definition
Net profit growth (%)
Pre-tax profit growth (%)
Cost / income ratio (%)
Return on equity (RoE) (%)
Return on attributed equity
(RoaE) (%)
Return on assets, gross (%)
Return on risk-weighted assets,
gross (%)
Change in net profit attributable to UBS shareholders from
continuing operations between current and comparison
periods / net profit attributable to UBS shareholders from con-
tinuing 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)
FINMA leverage ratio (%)
FINMA tier 1 capital / average adjusted assets as per definition
by the Swiss Financial Market Supervisory Authority (FINMA)
BIS tier 1 ratio (%)
BIS tier 1 capital / BIS risk-weighted assets
Net new money (CHF billion)
Inflow of invested assets from new and existing clients less
outflow from existing clients or due to client defection
Gross margin on invested assets
(bps)
Operating income before credit loss (expense) or recovery
(annualized as applicable) / average invested assets
Impaired loans portfolio as a % of
total loans portfolio, gross (%)
Impaired loans portfolio, gross / total loans portfolio, gross
Average VaR (1-day, 95% con-
fidence, 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
Wealth Management &
Swiss Bank
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27
Operating environment and strategy
Our strategy
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 only 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 invested
assets that are entrusted to us by new or existing clients less those
withdrawn by existing clients or clients who terminated their rela-
tionship 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 also show net new money
including interest and dividend income to facilitate comparison
with a US peer. 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 acquisition or divestment
of a UBS subsidiary or business. Reclassifications between invest-
ed 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 division, this produces net new money
even though client assets were already with UBS.
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-
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
216 billion of invested assets were double counted in 2011 (CHF
225 billion in 2010).
➔ Refer to “Note 34 Invested assets and net new money” in the
“Financial information” section of this report for more informa-
tion
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.
28
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Changes to key performance indicators in 2012
Commencing in the first quarter of 2012,
we will implement two new key perfor-
mance indicators for our Retail &
Corporate segment; namely, “Net new
business volume growth (%)” and “Net
interest margin (%)”. Both new key
performance indicators will be used to
assess and monitor the performance of
this business. “Net new business volume
growth (%)” will capture our success in
expanding our business volume from
lending to clients as well as acquiring
client assets. The “Net interest margin
(%)” is a key profit driver as net interest
income contributes to more than half
of our total operating income. Wealth
Management Americas will also report a
new key performance indicator “Share of
recurring revenue (%)” to measure its
business performance.
The currently disclosed KPI “Net new
money (CHF billion)” for the Group and
the segments Wealth Management,
Wealth Management Americas and
Global Asset Management will be
replaced by “Net new money growth
(%)”. Our senior management considers
the change from an absolute to a growth
rate of net new money to be a more
meaningful key performance indicator.
Group / business division key performance indicators
Key performance indicators
Definition
Net new business volume
growth (%)
Net interest margin (%)
Net new business volume (i.e. total net inflows and outflows of client
assets and loans) for the period (annualized as applicable) / business volume
(i.e. total of client assets and loans) at the beginning of the period
Net interest income on a year-to-date basis (annualized as applicable) /
average loans (year-to-date basis)
Share of recurring revenue (%)
Total recurring fees and net interest income / total operating income
Net new money growth (%)
Net new money for the period (annualized as applicable) / invested assets at
the beginning of the period
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29
Operating environment and strategy
Our strategy
Wealth Management
Headquartered in Switzerland, with a presence in over 40 countries, Wealth Management provides wealthy private
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. With CHF 750 billion of invested
assets at the end of 2011, we are one of the largest wealth man-
agers in the world. Our clients benefit from the entire spectrum of
UBS resources, ranging from asset management to estate plan-
ning 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 complement our own
product lines.
Strategy and clients
Our goal is to be the bank of choice for wealthy individuals
worldwide. We offer products and services to private clients, fo-
cusing in particular on the ultra high net worth (clients with
investable assets of more than CHF 50 million) and high net
worth client segments (clients with investable assets between
CHF 2 million and CHF 50 million). In addition, we also provide
wealth management solutions, products and services to financial
intermediaries.
We remain confident on the long-term growth prospects of
our wealth management business, and we expect the wealth
management market to grow twice as fast as the gross domestic
product in all regions of the globe. From a client segment per-
spective, the global ultra high net worth market shows the high-
est growth potential, followed by the high net worth market. Our
broad client base and strong global footprint put us in an excel-
lent position to take advantage of the substantial growth oppor-
tunities this expected wealth creation presents. This applies in
particular to Asia, Latin America, the Middle East and Central and
Eastern Europe, the areas where we expect to see the fastest mar-
ket growth based on economic development and entrepreneurial
wealth creation. In the key onshore locations in which we are ex-
panding, our Wealth Management business benefits from our
established local Investment Bank and Global Asset Management
business relationships.
We continue to build on our integrated client service model,
bundling competencies across the Group to identify investment
opportunities in all market conditions and tailor products to indi-
vidual client needs. We intend to increase our client advisor base
to about 4,700 advisors in the medium term, with a particular
emphasis on the emerging markets and Asia Pacific growth re-
gions. Our global booking centers give us a strong local presence
that enables us to book client assets in multiple locations. In an
increasingly complex regulatory environment, we aim to differen-
tiate ourselves from competitors through our sophisticated and
robust compliance framework. In our pursuit of the highest pos-
sible levels of compliance, we make ongoing investments to opti-
mize our risk management processes and conduct extensive
employee training. We strive to adapt quickly to changes to regu-
Invested assets by client domicile(cid:15)
In %, except where indicated
Total: CHF 750 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:23)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
On 31.12.11
22
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Europe, Middle East and Africa
Switzerland
Americas
Asia Pacific
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(cid:23)(cid:19)
1BD014_e
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(cid:19)(cid:19)
(cid:20)(cid:21)
(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)
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latory and suitability requirements in every region, drawing on our
local know-how and experience.
In Asia Pacific, we continue to focus on Hong Kong and Singa-
pore, the leading financial centers in the region, as well as on se-
lective presences in the major onshore markets. Today, we are
present in seven markets and have already established sizeable
businesses in several onshore locations such as Japan and Taiwan.
We continue to invest in our local presences in China and India to
capture long-term growth opportunities.
In the emerging markets, we are focusing on the Middle East,
Latin America, as well as Central and Eastern Europe, and we al-
ready have local presences in more than 20 countries. As the major-
ity of our clients from emerging markets prefer to book their assets
in established financial centers, we are strengthening our emerging
markets coverage through our booking centers in the US, the UK
and Switzerland. We will continue to expand our local presence
where appropriate, for example, through the establishment of new
advisory offices, such as the one recently opened in Israel.
In Europe, our growth ambition is underpinned by an estab-
lished European footprint in all major booking centers and a
broad franchise. We are combining the management of our Euro-
pean offshore and onshore businesses to reflect the converging
needs of clients in the region. This reorganization enables us to
leverage our extensive Swiss product offering, while creating
economies of scale and helping us to deal more efficiently with
increased regulatory requirements.
In Switzerland, our wealth management operations’ close col-
laboration with our leading retail, corporate, asset management
and investment banking businesses gives us the foundation to
grow market share in our Wealth Management franchise, and pro-
vides our clients access to investment insight and research, prod-
ucts, capital markets and execution as well as to advisory and other
capabilities. Our extensive branch network, including over 100
wealth management offices, fosters referrals from the Swiss corpo-
rate and retail client base as well as retail clients’ development to
our wealth management operations as their wealth increases.
We aim to build on our position as market leader in the ultra
high net worth segment, which we regard as having considerable
growth potential, by continuously enhancing our service and
product offering. We have, for example, recently introduced a
new product group in our philanthropy offering called “Impact
Investing”, which aims to make measurable, positive social and
environmental impacts at the same time as generating financial
returns for the investor. Moreover, to cover the needs of the larg-
est 250 family offices worldwide, we have created the Global
Family Office Group as a joint venture between Wealth Manage-
ment and the Investment Bank. With its dedicated specialist
teams from both Wealth Management and the Investment Bank,
the Global Family Office Group delivers the full range of capabili-
ties our integrated bank has to offer this highly sophisticated cli-
ent group.
Our Global Financial Intermediaries (Global FIM) business
serves approximately 1,700 asset managers. Based on defined
business models, Global FIM supports financial intermediaries as a
strategic business partner, offering professional investment advi-
sory services and tailored solutions that enable them to advise
their clients more effectively. Global FIM is represented in 11 Swiss
locations and 14 international locations. We regard financial in-
termediaries as an attractive client segment offering high growth
potential.
Organizational structure
Wealth Management is headquartered in Switzerland, with a
presence in over 40 countries and approximately 200 wealth
management 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 2011, Wealth Management em-
ployed roughly 16,000 people worldwide, of whom approximate-
ly 4,200 were client advisors. The Wealth Management business
unit is governed by an executive committee and is primarily orga-
nized along regional lines with the business areas Asia Pacific,
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(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)(cid:2)
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(cid:49)(cid:80)(cid:2)
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(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: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:14)(cid:2)(cid:386)(cid:70)(cid:87)(cid:69)(cid:75)(cid:67)(cid:84)(cid:91)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
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(cid:2)(cid:25)(cid:23)
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(cid:2)(cid:20)(cid:23)
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(cid:19)(cid:19)
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(cid:19)(cid:23)
(cid:23)
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(cid:19)(cid:26)
(cid:20)(cid:26)
(cid:21)(cid:21)
(cid:19)(cid:36)(cid:38)(cid:18)(cid:19)(cid:20)(cid:65)(cid:71)
(cid:55)(cid:53)(cid:38)
(cid:39)(cid:55)(cid:52)
(cid:37)(cid:42)(cid:40)
(cid:41)(cid:36)(cid:50)
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31
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(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
(cid:19)(cid:16)(cid:18)(cid:18)
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(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
Operating environment and strategy
Our strategy
Europe, Global Emerging Markets, Switzerland and Global Ultra
High Net Worth Clients. Our business is supported by a Chief In-
vestment Officer and a global Investment Products & Services unit
as well as central functions.
Competitors
Our major global competitors include Credit Suisse, Julius Bär,
HSBC, Deutsche Bank, JP Morgan and Citigroup. In the European
domestic markets, we primarily compete with the private banking
operations of such large local banks as Barclays in the UK,
Deutsche Bank in Germany and Unicredit in Italy. The private
banking franchises of HSBC, Citigroup and Credit Suisse are our
main competitors in Asia Pacific.
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 advise them in a timely manner. We provide our
clients with the financial advice, products and tools that best fit
their individual needs. We accommodate the individual needs
of our clients by offering services across the full investment
spectrum, from execution only to discretionary mandates. Clients
who opt for a discretionary mandate delegate the management
of their assets to a team of professional portfolio managers. Cli-
ents who prefer to be actively involved in the management of
their assets can choose an advisory mandate, in which invest-
ment professionals provide analysis and monitoring of portfolios,
together with tailor-made proposals to support investment deci-
sions. Our clients can trade the full range of financial instruments
from single securities, such as equities and bonds, to various in-
vestment funds, structured products and alternative investments.
Additionally, we offer structured lending, corporate finance and
wealth planning advice on client needs such as funding for edu-
cation, inheritance and succession. For our ultra high net worth
clients, we offer institutional-like servicing that provides special
access to our Investment Bank and Global Asset Management
offerings.
Financial markets have changed fundamentally over the last
few years and are characterized by a high degree of uncertainty
and volatility. In these difficult market conditions our clients have
become increasingly focused on protecting their assets and ex-
pect strong advisory support for their investment decisions. We
are, therefore, continuing to evolve our wealth management
business model from a traditional private bank towards an invest-
ment manager with strong advisory capabilities. This implies ac-
tive relationships between our highly qualified client advisors and
their clients. Fast and focused communication, new investment
ideas, access to growth markets and wealth protection are critical
for our clients’ success. To this end, and with the ultimate goal of
improving our clients’ investment performance, we have set up a
new team under the leadership of our Chief Investment Officer
that formulates our investment view by integrating the research
32
and expertise of our investment specialists across all business divi-
sions and from all around the globe. Based on this “UBS house
view”, our client advisors actively and regularly inform our clients
about our opinion on developments in the financial markets. Cli-
ents receive investment proposals directly related to our house
view, as well as solutions for alternative scenarios should clients
have diverging views on market trends.
Our Investment Products & Services unit ensures our offering
is consistently adapted to market conditions by aligning our
products with the investment views of our Chief Investment
Officer. Wealth Management also gives clients access to the
knowledge, and product and service offerings from Global Asset
Management and the Investment Bank, complemented by an
open product platform providing access to a wide array of prod-
ucts from third-party providers. By aggregating private invest-
ment flows into institutional-size flows, we are in a position to
offer our Wealth Management clients access to investments that
would otherwise only be available to institutional clients.
Our integrated client service model allows client advisors to
analyze their clients’ 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 a given
client’s life cycle needs, risk appetite and performance expecta-
tions. We continuously train our client advisors and provide them
with ongoing support to ensure they present the best solutions to
our clients.
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Retail & Corporate
As the leading retail and corporate banking business in Switzerland, our goal is to deliver comprehensive financial
products and services to our retail, corporate and institutional clients, provide stable and substantial profits for the
Group and create revenue opportunities for other businesses within the Group.
Business
Strategy and clients
Our Retail & Corporate business unit delivers comprehensive fi-
nancial products and services to our retail, corporate and institu-
tional clients in Switzerland, and maintains a leading position in
these client segments. As shown in the “Business mix” chart, Re-
tail & Corporate has generated stable profits which have contrib-
uted substantially to the overall financial performance of the
Group. We are market leaders in the retail and corporate loan
market in Switzerland, with a highly collateralized lending port-
folio of CHF 135 billion on 31 December 2011, as shown in the
“Loans, gross” chart. This portfolio is managed for profitability
rather than for market share.
Our Retail & Corporate unit constitutes a central building block
for the universal bank model of UBS Switzerland. Retail & Corpo-
rate supports our other business divisions by referring clients to
them and assisting retail clients to build their wealth to a level at
which we can transfer them to our Wealth Management unit.
Furthermore, Retail & Corporate leverages the cross-selling poten-
tial of products and services provided by our asset-gathering and
investment banking businesses. Together, these actions contrib-
ute strongly to our Group profitability. In addition, Retail & Corpo-
rate provides and pays for a substantial part of the Swiss infra-
structure, including nearly 300 branches, and the Swiss banking
product platform.
Our goal is to deliver value-added services that make us the bank
of choice for retail clients in Switzerland. With a network of
around 300 branches, 1,250 automated teller machines, self-ser-
vice terminals and customer service centers, alongside e-banking
and mobile banking, we serve one in three households in Switzer-
land. We are continuously refining our suite of life cycle-based
offerings which provide our clients with products and dedicated
services to fulfill their evolving needs. Through systematic and
consistent sales management, we ensure an efficient and seam-
less sales process. In order to improve our clients’ experience of
banking with us, we will continue to invest in our branches and
electronic channels, using technology to complement, rather than
replace, our traditional branch network.
Our size in Switzerland and the diversity of businesses we
operate put us in a unique position to serve all our clients’
complex financial needs. We aim to be the main bank of corpo-
rate and institutional clients ranging from small- and medium-
size enterprises to multinationals, and from pension funds and
commodity traders to banks and insurers. We serve almost
one in two Swiss companies, including more than 85% of the
1,000 largest Swiss corporations, as well as one in three pension
funds in Switzerland, including 75 of the largest 100. We strive
to further expand and leverage our transaction banking capa-
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33
Operating environment and strategy
Our strategy
bilities (e.g. payment and cash management services, custody
solutions, trade and export finance). In addition, we plan to
increase our presence and grow in the commodities trade
finance business. Combining the universal bank approach with
our local market expertise across all Swiss regions enables us to
optimize our client service by providing access to all UBS capa-
bilities while generating opportunities to cross-sell and increase
referrals.
As the leading retail and corporate banking business in Swit-
zerland, we understand the importance of our role in supporting
the needs of our clients. In 2011, we initiated the necessary steps
to hone and simplify our service commitments across the busi-
ness, including streamlining our processes, reducing the adminis-
trative burden on our client advisors and enhancing their produc-
tivity without compromising our risk standards.
Organizational structure
The Retail & Corporate unit is a core element of UBS Switzerland’s
universal bank delivery model, which allows us to extend the
expertise of the entire bank to our Swiss retail, corporate and
institutional clients.
To ensure consistent delivery throughout Switzerland, the
Swiss network is organized into ten geographical regions. Dedi-
cated management teams in the regions and in the branches
derived from all business areas are responsible for executing the
universal bank model, fostering cross-divisional collaboration and
ensuring that the public and clients have a uniform experience
based on a single corporate image and shared standards of
service.
Competitors
In the Swiss retail banking business, our competitors are Credit
Suisse, Raiffeisen, the cantonal banks and 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 a life cycle-based, comprehensive
offering including cash accounts, payments, savings and retirement
solutions, investment fund products, residential mortgages, as well
as life insurance and advisory services. These are tailored to clients’
individual needs and requirements. We provide financing solutions
to our corporate clients, offering access to capital markets (equity
and debt capital), syndicated and structured credit, private place-
ments, leasing and traditional financing. Our transaction banking
offers solutions for payments and cash management services, trade
and export finance, receivable finance, as well as global custody
solutions to institutional clients. Our close collaboration with the
Investment Bank enables us to offer capital market products such
as foreign exchange offerings, hedging strategies (currency, interest
rates, and commodities) and trading (equities and fixed income,
currencies and commodities), and to provide corporate finance ad-
vice in fields such as mid-market mergers and acquisitions, corpo-
rate succession planning and real estate. We also cater to the asset
management needs of institutional clients by offering portfolio
management mandates, strategy execution and fund distribution.
34
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Wealth Management Americas
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 in terms of financial advisor productivity
and invested assets, and includes the domestic US and Canadian
businesses as well as international business booked in the US. On
31 December 2011, the business division had CHF 709 billion in
invested assets.
Strategy and clients
Our goal is to be the best wealth management business in the
Americas. In order to achieve this, we must continue to be both
client-focused and advisor-centric. We deliver a fully integrated
set of advice-based wealth management solutions and banking
services through our financial advisors in key metropolitan mar-
kets 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 in-
vestable assets), while also serving the needs of the core affluent
(USD 250,000 to USD 1 million in investable assets). We are com-
mitted to providing high-quality advice to our clients across all
their financial needs by employing the best professionals in the
industry, delivering the highest standard of execution, and run-
ning a streamlined and efficient business.
We believe we are uniquely positioned to serve high net worth
and ultra high net worth investors in the world’s largest wealth
market. With a network of almost 7,000 financial advisors and
CHF 709 billion in invested assets, we are large enough to be rel-
evant, but small enough to be nimble, enabling us to combine the
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35
Operating environment and strategy
Our strategy
advantages of both large and boutique wealth managers. We aim
to differentiate ourselves from competitors and be a trusted and
leading provider of financial advice and solutions to our clients by
enabling our financial advisors to leverage the full resources of
UBS, including unique access to wealth management research
and global solutions from our asset-gathering businesses and the
Investment Bank. These resources are augmented by our commit-
ment to an open architecture and our partnerships with many of
the world’s leading third-party institutions. Moreover, our wealth
management offerings are complemented by banking, mortgage,
and financing solutions that enable us to provide advice on both
the asset and liability sides of our clients’ financial balance sheets.
We believe the long-term growth prospects of the wealth
management business are attractive in the Americas, with high
net worth and ultra high net worth expected to be the fastest
growing segments in terms of invested assets in the region. In
2011, our strategy and focus led to an improvement in financial
results, retention of high-quality financial advisors and net new
money growth. Building on this progress, we aim for continued
growth in our business by developing our financial advisors’ focus
toward advice-based solutions, leveraging the global capabilities
of UBS to clients by partnering with the Investment Bank and
Global Asset Management, and delivering banking and lending
services that complement our wealth management solutions. We
also plan to continue investing in improved platforms and tech-
nology. We expect these efforts to enable us to achieve higher
levels of client satisfaction, strengthen our client relationships,
and lead to greater revenue productivity among our financial ad-
visors and a more profitable business.
Organizational structure
Wealth Management Americas consists of branch networks in the
US, Puerto Rico and Canada, with 6,967 financial advisors as of
31 December 2011. Most corporate and operational functions of
the business division are located in the home office in Wee-
hawken, New Jersey.
In the US and Puerto Rico, Wealth Management Americas
operates through direct and indirect subsidiaries of UBS AG. Secu-
rities 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.
Canadian wealth management and banking operations are
conducted through UBS Bank (Canada).
Significant business transfers in the past few years included
the 2009 sales of 56 branches to Stifel, Nicolaus & Company,
Incorporated and UBS’s Brazilian financial services business, UBS
Pactual, to BTG Investments, LP.
Competitors
Wealth Management Americas competes with national full-ser-
vice brokerage firms, domestic and global private banks, regional
broker-dealers, independent broker-dealers, registered invest-
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36
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O
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
giving, tax management strategies, estate strategies, insurance,
retirement, and trusts and foundations with corresponding prod-
uct offerings for each stage. Our advisors work closely with inter-
nal consultants in areas such as wealth planning, port folio strate-
gy, retirement and annuities, alternative investments, managed
accounts, 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’ financial needs, we also offer competitive
lending and cash management services such as securities-backed
lending, the resource management account, FDIC-insured depos-
its, mortgages and credit cards.
Additionally, our Corporate Employee Financial Services unit
provides a comprehensive, personalized stock benefit plan and
related services to many of the largest US corporations and their
executives. For corporate and institutional clients, we offer a ro-
bust suite of solutions, including equity compensation, adminis-
tration, investment consulting, defined benefit and contribution
programs and cash management services.
Our clients can choose asset-based pricing, transaction-based
pricing or a combination of both. Asset-based accounts have access
to both discretionary and non-discretionary investment advisory
programs. 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 dis-
cretionary program, the client can give investment discretion to a
qualified financial advisor, a team of our investment professionals
or a third-party investment manager. Separately, mutual fund advi-
sory 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.
37
Operating environment and strategy
Our strategy
Global Asset Management
Global Asset Management is a large-scale asset manager with businesses well diversified across regions, capabilities
and distribution channels. We serve third-party institutional and wholesale clients and the clients of UBS’s wealth
management businesses with a broad range of investment capabilities and styles across all major traditional and
alternative asset classes.
Business
Global Asset Management’s investment capabilities encompass
equities, fixed income, currency, hedge funds, real estate, infra-
structure and private equity. We also enable clients to invest in a
combination of different asset classes through multi-asset strate-
gies. Our fund services unit, a global fund administration busi-
ness, provides professional services including legal fund set-up,
accounting and reporting. Invested assets totaled CHF 574 billion
and assets under administration were CHF 375 billion on 31 De-
cember 2011. Global Asset Management is a leading fund house
in Europe, the largest mutual fund manager in Switzerland and
one of the largest fund of hedge funds and real estate investment
managers in the world.
Strategy
With long-term performance as our focus, we work closely with
clients in pursuit of their investment goals. In particular, we are
continuing to expand our strong third-party institutional business
both in developed and emerging markets while also expanding
third-party wholesale distribution in the Americas and Europe,
building on our strengths in this channel in Asia Pacific and Swit-
zerland. We also remain committed to delivering distinctive prod-
ucts and solutions to the clients of UBS’s wealth management
businesses.
In the highly volatile market environment, investors are in-
creasingly looking for market-like returns (“beta”) from passive
investments, complemented by higher potential returns (“al-
pha”) from higher-risk investments, including alternatives. In
response to this, we continue to expand our successful alterna-
tives platform, building on our established positions in real
estate and fund of hedge funds businesses. In addition, we con-
tinue to invest in our fast-growing passive capabilities, including
exchange-traded funds and strategies tracking non-standard
indices.
The current environment and near-term outlook are character-
ized by market uncertainty, investor risk aversion and lower inter-
est rates. In this environment, the diversification of our business
places us in a good position to benefit from shifting market dy-
namics and provides a solid foundation for capturing industry
growth opportunities.
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38
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The long-term outlook for the asset management industry re-
mains strong, with three main drivers: (i) the financial crisis has
reduced the assets of both the retired and the working popula-
tion, creating a pressing need for increased savings rates; (ii)
emerging markets will continue to drive growth in the mutual
funds industry and retirement schemes in these markets; and (iii)
as governments focus on reducing deficits, they will need to re-
duce support for benefits and pensions and will face increased
pressure to privatize infrastructure assets.
Competitors
Our competitors include global firms with wide-ranging capabili-
ties, such as Fidelity Investments, AllianceBernstein Investments,
BlackRock, JP Morgan Asset Management and Goldman Sachs
Asset Management. Most of our other competitors are more re-
gional or local specialist niche players that focus mainly on one
asset class, particularly in the real estate, hedge fund or infrastruc-
ture investment areas.
Organizational structure
Clients and markets
The “Business structure” chart shows the investment, distribution
and support structure of the business division. We employ around
3,800 personnel in 26 countries, and have our principal offices in
London, Chicago, Frankfurt, Hartford, Hong Kong, New York,
Paris, Singapore, Sydney, Tokyo and Zurich. Global Asset Manage-
ment operates through UBS AG or its subsidiaries.
Significant recent acquisitions, business transfers and other
developments
– In November 2011, investment management responsibility for
a private equity fund of funds was transferred to Global Asset
Management from Wealth Management & Swiss Bank.
– In October 2011, Global Asset Management completed the
acquisition of the ING Investment Management Limited busi-
ness in Australia. This currently operates as a subsidiary of UBS
Global Asset Management (Australia) Ltd and will be fully inte-
grated during 2012.
– In July 2011, the infrastructure and private equity fund of funds
businesses were transferred from our alternative and quantita-
tive investment area to our infrastructure investment area
which, as a result, was renamed infrastructure and private eq-
uity.
– In January 2011, investment management responsibility for a
multi-manager alternative fund was transferred to Global
Asset Management from Wealth Management & Swiss Bank.
– In October 2010, UBS increased from 51.0% to 94.9% its
holding in UBS Real Estate Kapitalanlagegesellschaft mbH
(KAG), a Global Asset Management joint venture with Siemens
in Munich, Germany.
– In September 2010, investment management responsibility for
Wealth Management Americas’ US hedge fund business was
transferred to Global Asset Management’s alternative and
quantitative investments area. A joint venture between the
two business divisions aims to deliver attractive hedge fund
and fund of hedge funds solutions to Wealth Management
Americas’ clients.
– In December 2009, the real estate investment management
business of Wealth Management & Swiss Bank was transferred
to Global Asset Management.
– In September 2009, UBS completed the sale of its Brazilian fi-
nancial services business, including its asset management busi-
ness, UBS Pactual Asset Management.
Global Asset Management serves third-party institutional and
wholesale clients, and the clients of UBS’s wealth management
businesses. As shown in the chart of invested assets by channel,
at 31 December 2011, approximately 66% of invested assets
originated from third-party clients, including institutional clients
(e.g. corporate and public pension plans, governments and their
central banks) and wholesale clients (e.g. financial intermediaries
and distribution partners). A further 34% originated from UBS’s
wealth management businesses.
Products and services
Global Asset Management’s business lines are as follows: tradi-
tional investments (equities, fixed income and global investment
solutions); alternative and quantitative investments; global real
estate; infrastructure and private equity; and fund services. Reve-
nues and key performance indicators are reported according to
these business lines and a breakdown of invested assets by busi-
ness line is shown in the chart on the next page.
The “Investment capabilities and services” chart illustrates our
offering, which can be delivered in the form of segregated, pooled
and advisory mandates, along with a range of more than 1,000
registered investment funds, exchange-traded funds and other
investment vehicles in a wide variety of jurisdictions and across all
major asset classes.
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39
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Operating environment and strategy
Our strategy
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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 (strategies that em-
ploy proprietary analytics and quantitative methods, including
passive).
– Fixed income offers a diverse range of global, regional and lo-
cal market-based investment strategies. Its capabilities include
single-sector strategies such as government and corporate
bond portfolios, multi-sector strategies such as core and core
plus bond, and extended-sector strategies such as high-yield
and emerging market debt. In addition to this suite of tradi-
tional fixed income offerings, the team also manages uncon-
strained fixed income, currency strategies and customized so-
lutions.
– Global investment solutions offers active asset allocation, cur-
rency, multi-manager, structured solutions, risk advisory and
strategic investment advisory services. It manages a wide array
of regional and global multi-asset investment strategies across
the full investment universe and risk / return spectrum, struc-
tured portfolios, convertible bonds and absolute-return strate-
gies. Through its risk management and strategic investment
advisory services, it supports clients in a wide range of invest-
ment-related functions.
40
– Alternative and quantitative investments has two primary
business lines – Alternative Investment Solutions (AIS) and
O’Connor. AIS offers a full spectrum of hedge fund solutions
and advisory services including multi-manager strategies.
O’Connor is a key provider of single-manager global hedge
funds.
– Global real estate actively manages real estate investments
globally and regionally within Asia, Europe, Switzerland and
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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)
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the US, across the major real estate sectors. Its capabilities are
focused on core and value-added strategies but also include
other strategies across the risk / return spectrum. It offers direct
and indirect investment, multi-manager and real estate securi-
ties strategies.
– Infrastructure and private equity manages direct infrastructure
investment and multi-manager infrastructure and private eq-
uity strategies for both institutional and high net worth inves-
tors. Infrastructure asset management manages direct invest-
ments in core infrastructure assets globally. Alternative Fund
Advisory (AFA) infrastructure and AFA private equity construct
broadly diversified fund of funds portfolios across the infra-
structure and private equity asset classes, respectively.
– Fund services, the global fund administration business, pro-
vides professional services, including legal set-up, reporting
and accounting for retail and institutional investment funds,
hedge funds and other alternative products.
Distribution
Our capabilities and services are distributed through our regional
business structure (Americas, Asia Pacific, Europe and Switzer-
land) as detailed in the “Business structure” chart. A breakdown
of invested assets across these regions is shown in the bar chart.
Through regional distribution, we are able to leverage the full
resources of our global investment platforms and functions to
provide clients with relevant investment management products
and services, client servicing and reporting at a local level.
We also have a dedicated global sovereign markets group to
deliver an integrated approach to this client segment and ensure
that sovereign institutions receive the focused advisory, invest-
ment and training solutions they require.
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(cid:35)(cid:85)(cid:75)(cid:67)(cid:2)(cid:50)(cid:67)(cid:69)(cid:75)(cid:386)(cid:69)
(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)(cid:14)(cid:2)(cid:47)(cid:75)(cid:70)(cid:70)(cid:78)(cid:71)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)(cid:14)(cid:2)(cid:35)(cid:72)(cid:84)(cid:75)(cid:69)(cid:67)
(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:19)(cid:36)(cid:38)(cid:18)(cid:22)(cid:20)(cid:65)(cid:71)
(cid:19)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:84)(cid:71)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(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:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:89)(cid:81)(cid:84)(cid:78)(cid:70)(cid:89)(cid:75)(cid:70)(cid:71)(cid:16)(cid:2)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:85)(cid:82)(cid:78)(cid:75)(cid:86)(cid:2)(cid:75)(cid:85)(cid:2)(cid:82)(cid:84)(cid:75)(cid:79)(cid:67)(cid:84)(cid:75)(cid:78)(cid:91)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:75)(cid:80)(cid:73)(cid:2)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:16)
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41
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Operating environment and strategy
Our strategy
Investment Bank
The Investment Bank provides a broad range of products and services in equities, fixed income, foreign exchange and
commodities to corporate and institutional clients, sovereign and government bodies, financial intermediaries, alterna-
tive asset managers and UBS’s wealth management clients. The Investment Bank is an active participant in capital
markets flow activities, including sales, trading and market-making across a broad range of securities. It provides
financial solutions to a wide range of clients, and offers advisory and analytics services in all major capital markets.
Business
The Investment Bank is organized into three distinct business ar-
eas to align the delivery of our services and the execution of our
strategy with the needs of our clients:
– equities
– fixed income, currencies and commodities (FICC)
– the investment banking department
The equities and FICC businesses are aligned within securities
to foster a higher degree of cooperation across sales and trading.
Together, they offer access to the primary and secondary securi-
ties markets, foreign exchange and prime brokerage services as
well as research on equities, fixed income, commodities, and eco-
nomic and quantitative research. The investment banking depart-
ment provides advice on mergers and acquisitions and raises
capital for corporate, institutional and sovereign clients in the
debt and equity markets. In addition, the investment banking de-
partment plays a lead role in marketing UBS to corporates by le-
veraging senior client relationships.
Strategy
The Investment Bank is critical to the success of UBS’s strategy. It
is well positioned across many businesses and regions – for ex-
ample, we are among the market leaders in equities, equity de-
rivatives and foreign exchange and we have a strong presence
across all businesses in Asia.
We are repositioning the Investment Bank to align our busi-
nesses more closely with the needs of our core clients and the
wealth management franchise, and to address economic and
regulatory changes that affect the entire industry. Our business
model aims to be simpler and more focused, with the goal of
optimizing returns predicated on the efficient execution of our
strategy across three strategic pillars: (i) flow; (ii) solutions; and (iii)
advisory and analytics. Each pillar represents businesses that have
similar transactional characteristics and success factors.
We believe that while none of the three pillars can support our
franchise or deliver adequate returns on its own, a carefully bal-
anced combination can better protect our profitability against
fluctuations in client demand, costs or market movements.
To support our goal of becoming more focused and less com-
42
plex while taking on less risk, we have intensified efforts to in-
crease our capital efficiency and to actively reduce risk-weighted
assets. In line with this strategy, we plan on reducing risk-weight-
ed assets in the core businesses by approximately one-third and
reducing our legacy portfolio (managed and reported in the Cor-
porate Center starting with the first quarter of 2012) by close to
90% by the end of 2016. In our operating plan, we estimate the
potential revenue loss from the risk-weighted assets reduction in
our core businesses to be approximately CHF 500 million per an-
num. To this end, we will optimize our business mix in favor of
products and services that have the highest relevance to clients,
offer the best growth opportunities and are less capital intensive.
– In reshaping our securities business, we are exiting certain ar-
eas, including FICC asset securitization, complex structured
products, FICC macro directional and equities proprietary
trading. With the exception of macro directional and equities
proprietary trading, the assets associated with the areas we
intend to exit will be managed in a legacy asset portfolio,
which will be reported in the Corporate Center starting with
the first quarter of 2012.
– We have also revised our approach to other businesses with
high capital intensity relative to returns, such as long-dated
rates derivatives in flow rates, which will be scaled back sig-
(cid:49)(cid:87)(cid:84)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:91)
(cid:57)(cid:74)(cid:67)(cid:86)(cid:33)
(cid:37)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)(cid:33)
(cid:40)(cid:78)(cid:81)(cid:89)
(cid:53)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:39)(cid:90)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:47)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:15)(cid:79)(cid:67)(cid:77)(cid:75)(cid:80)(cid:73)
(cid:37)(cid:78)(cid:71)(cid:67)(cid:84)(cid:75)(cid:80)(cid:73)
(cid:53)(cid:87)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:77)(cid:71)(cid:91)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:53)(cid:71)(cid:78)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:15)(cid:86)(cid:67)(cid:77)(cid:75)(cid:80)(cid:73)
(cid:47)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:71)(cid:84)(cid:86)(cid:75)(cid:85)(cid:71)
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(cid:52)(cid:71)(cid:85)(cid:71)(cid:67)(cid:84)(cid:69)(cid:74)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:85)(cid:75)(cid:73)(cid:74)(cid:86)
(cid:35)(cid:70)(cid:88)(cid:75)(cid:85)(cid:81)(cid:84)(cid:91)
(cid:35)(cid:80)(cid:67)(cid:78)(cid:91)(cid:85)(cid:75)(cid:85)
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(cid:75)(cid:80)(cid:85)(cid:86)(cid:75)(cid:86)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)
(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:14)(cid:2)
(cid:69)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:85)(cid:14)(cid:2)(cid:85)(cid:81)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:73)(cid:80)(cid:85)(cid:14)(cid:2)
(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:81)(cid:84)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:75)(cid:86)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)
(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:14)(cid:2)
(cid:69)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:85)(cid:14)(cid:2)(cid:85)(cid:81)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:73)(cid:80)(cid:85)(cid:14)(cid:2)
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(cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:80)(cid:85)(cid:75)(cid:86)(cid:91)
(cid:52)(cid:81)(cid:39)
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(cid:47)(cid:71)(cid:70)(cid:75)(cid:87)(cid:79)(cid:115)(cid:42)(cid:75)(cid:73)(cid:74)
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nificantly. We will nevertheless continue to invest in businesses
in which we have a strong presence and those that offer at-
tractive risk-return characteristics, such as cash and equity de-
rivatives, foreign exchange, certain credit businesses and com-
modities.
– In advisory and capital markets, we are increasing the intensity
of our coverage to leverage our global footprint more effec-
tively. This includes strengthening our presence in the Ameri-
cas, restoring our position in Europe, the Middle East and Af-
rica and extending our leading market position in Asia Pacific.
Across the Investment Bank, we will continue to invest in in-
frastructure, technology, the retention and development of our
people and hiring of talent in key areas to ensure the successful
execution of our strategy. The Investment Bank is also investing
to improve its internal risk control systems and increasing its fo-
cus on corporate governance. In 2011, we continued to focus on
the efficiency of our cost base through a number of initiatives,
and we expect the full impact of our activities to be realized dur-
ing the course of 2012 and 2013. These initiatives include head-
count reductions, refocusing of discretionary spending on client
revenue generating activities and increasing efficiency of our op-
erating model and processes.
➔ Please refer to the “Our strategy” section of this report for
further information about our strategy and targets
Organizational structure
The Investment Bank comprises the three business areas described
in the “Business” section above. Additionally, the global capital
markets business is a joint venture between securities and the in-
vestment banking department, which consists of two separate
areas: equity capital markets and debt capital markets. Global
leveraged finance is a joint venture between the investment bank-
ing department and FICC and includes the global syndicated
finance business.
We employ approximately 17,000 personnel in over 30 coun-
tries. We operate through branches and subsidiaries of UBS AG.
Securities activities in the US are conducted through UBS Securi-
ties LLC, a registered broker-dealer.
Significant recent acquisitions, disposals and business transfers
In September 2009, UBS completed the sale of its Brazilian finan-
cial services business, UBS Pactual.
In April 2010, UBS entered into an agreement to acquire Link
Investimentos, a Brazilian financial services firm.
Competitors
Our main competitors are the major global investment banks, in-
cluding Bank of America / Merrill Lynch, Barclays Capital, Citi-
group, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan
Chase and Morgan Stanley. Other competing firms are active in
many of the businesses and markets in which we participate.
Products and services
Securities
The securities segment provides a coordinated distribution plat-
form with enhanced cross-asset delivery and specialist skills. Secu-
rities research is a consistently top-ranked research house, which
provides in-depth investment analysis across various asset classes
of more than 3,400 companies worldwide, or about 85% of the
global market capitalization, in over 50 markets. In addition, we
have a specialist research function offering quantitative analysis,
socially responsible investing, alternative research, valuation and
accounting, and special situations analysis.
Equities
We are one of the world’s largest participants in the primary
and secondary markets for cash equity and equity-related prod-
ucts, including listed options, structured products, equity-linked
securities, swaps, futures and over-the-counter (OTC) derivative
contracts. Our equities franchise utilizes a client-centric model
to serve hedge funds, asset managers, wealth management ad-
visors, banks, pension funds and corporations globally. We
structure, execute, distribute, finance and clear cash equity and
equity-related products, in addition to distributing new equity
and equity-related issues. Our prime services franchise includes
prime brokerage and execution and clearing services, which en-
ables clients to address regulatory changes in the OTC deriva-
tive markets.
The main business lines of the equities business area are out-
lined below:
– Cash equities provides clients with liquidity, investment advi-
sory, trade execution and related consultancy services, togeth-
er with comprehensive access to primary markets, corporate
management and subject matter experts. We offer full-service
trade execution for single stocks and portfolios, including cap-
ital commitment, block trading, small-cap execution and com-
mission management services. In addition, we provide clients
with a full suite of advanced electronic trading algorithms,
strategies and analytical tools.
– Derivatives and equity-linked provides a full range of flow,
structured, synthetic and equity-linked products with global
access to primary and secondary markets. The franchise en-
ables clients to hedge and manage risk through a wide
range of exchange-traded, OTC, securitized and fund–
wrapped products. We create customized structured prod-
ucts for institutional and retail investors with returns linked
to individual companies, sectors and indices across multiple
asset classes.
– Prime services offers an integrated global prime brokerage
business, including multi-asset class clearing and custody, cap-
ital consultancy, financing, securities lending and equity swaps
execution. In addition, we provide clients with execution and
clearing capabilities on futures and options contracts across all
asset classes, including equities, fixed income and commodi-
ties, on more than 70 exchanges globally.
43
Operating environment and strategy
Our strategy
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. The main
business lines of the FICC business area are outlined below:
– 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 market liquidity and tailored solutions to our clients.
In partnership with the investment banking department, we
also provide capital markets debt financing and liability 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
through our onshore presence in key locations. We also pro-
vide liquidity in local markets across foreign exchange, credit,
rates and structured products.
institutional and corporate clients from risk management to di-
rect or structured investments, enabling them to structure deals
at all levels of complexity and to access liquidity during and out-
side exchange times and across time zones. From the first quar-
ter of 2012, this business will be part of the macro business.
Investment banking department
The investment banking department provides strategic advice and
a range of capital markets execution services to corporate clients,
financial institutions, financial sponsors, sovereign clients and
hedge funds. With a presence in all major financial markets, in-
vestment banking coverage is based on a matrix of country, sector
and product banking professionals.
The main business lines of the investment banking department
business area are outlined below:
– 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.
– Our commodities business includes market-leading indices and
precious metals offerings, combined with flow trading in agri-
culture, base metals and energy. We service a broad spectrum of
– Global leveraged finance provides event-driven (acquisition,
leveraged buyout) loans, and bond and mezzanine leveraged
finance to corporate clients and financial sponsors.
44
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Corporate Center
The Corporate Center enables UBS to operate coherently and effectively by providing and managing support and
control functions for the business divisions and the Group. It provides services 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 develop-
ment, security and offshoring.
Aims and objectives
The Corporate Center provides the business divisions with Group-
level control in the areas of finance, risk, legal and compliance,
and a global corporate shared services organization comprising
support and logistics functions. We strive to maintain effective
corporate governance processes, including compliance with rele-
vant regulations, ensuring an appropriate balance between risk
and return. Each functional head in the Corporate Center has
authority over all businesses in their area of responsibility, includ-
ing 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 under the leadership of
the Group Chief Operating Officer (Group COO) was completed
in 2009. At the same time, the control functions were centralized
under the Group Chief Financial Officer (Group CFO), the Group
Chief Risk Officer (Group CRO), and the Group General Counsel
(Group GC), respectively.
The Corporate Center has improved efficiency, execution and
service quality. We have upgraded our cost management for glob-
al and Group-wide cost responsibilities, and have implemented
simple service delivery models with clear responsibilities. Our in-
vestment governance process provides oversight, review and ap-
proval of programs in the project portfolio and of those in the
pipeline. This is part of a global service level agreement frame-
work, ensuring investments are aligned with the Group’s strategic
priorities. Overall, the integrated structure helps us to maintain
independent control functions and a core platform from which
we can create synergies for revenue growth and enhance share-
holder value.
The Corporate Center also encompasses certain centrally man-
aged positions, including the SNB StabFund option and (with ef-
fect from the first quarter of 2012) the legacy portfolio formerly
in the Investment Bank.
In 2011, the Corporate Center focused on further streamlining
the organization, implementing strategic change programs and
improving operational excellence. At the end of the year, there
were approximately 19,300 employees across all of the Corporate
Center functions. The majority of the Corporate Center’s treasury
income, costs and headcount are re-allocated to the business divi-
sions for which the respective services are performed.
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
The Group CFO is responsible for transparency in, and appraisal
of, the financial performance of the Group and its business divi-
sions; the Group’s financial reporting; forecasting, planning and
controlling processes; and for providing advice on financial as-
pects of strategic projects and transactions. The Group CFO
manages the divisional and Group financial control functions. He
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 Board of Directors’ Audit Committee, the Group CFO
makes proposals to the Board of Directors (BoD) regarding the
policies for accounting we have adopted, and defines the policies
for financial reporting and disclosure. Together with the Group
Chief Executive Officer (CEO), the Group CFO provides external
certifications under sections 302 and 404 of the Sarbanes-Oxley
Act 2002, and, in coordination with the Group CEO, manages
relations with analysts, investors and rating agencies.
Group Chief Operating Officer
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. In addi-
tion, the Group COO supports the Group CEO in developing our
strategy and addressing key strategic issues. The Group COO also
acts as the CEO of the Corporate Center, and oversees the busi-
ness and strategic planning of shared services.
45
Operating environment and strategy
Our strategy
Group Chief Risk Officer
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 and appetite, risk measurement, portfolio
controls and risk reporting; and has management responsibility
over the divisional and Group risk control functions. He imple-
ments 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, portfolio limits
and provisions in accordance with the delegated risk control au-
thorities, and monitors and challenges the firm’s risk-taking ac-
tivities.
Group General Counsel
The Group GC is responsible for legal and compliance matters,
policies and processes, and for managing the legal and com-
pliance function for the UBS Group. The Group GC assumes
responsibility for establishing a Group-wide management and
control process for our relationship with regulators, in close co-
operation with the Group CRO and the Group CFO where rel-
evant, and for maintaining the relationships with our key regu-
lators with respect to legal and compliance matters. The Group
GC is further responsible for reporting legal and compliance
risks and material litigation, for managing litigation and special
and regulatory investigations, and for ensuring that we meet
relevant regulatory and professional standards in the conduct of
our business.
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Regulation and supervision
As a Swiss-registered company, our home country regulator and
consolidated supervisor is the Swiss Financial Market Supervi-
sory Authority (FINMA). However, our operations are global and
are therefore regulated and supervised by the relevant authori-
ties in each of the jurisdictions in which we conduct business.
The next sections describe the regulation and supervision of our
business in Switzerland and the regulatory and supervisory en-
vironments in the US and the UK, our next two largest areas of
operation.
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. 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 into the Capital Adequacy Ordinance
and related circulars. The enhancements strengthen the Basel II
rules governing trading book capital, and enhance the three pil-
lars of the Basel II framework. The revised Capital Adequacy Ordi-
nance, together with the FINMA circulars, entered into force on
1 January 2011. These requirements are being upgraded to reflect
the Basel III framework issued by the Basel Committee on Banking
Supervision as implemented in Switzerland.
➔ Refer to the “Capital management” section of this report for
more information about capital requirements
In autumn 2011, the Swiss parliament amended the Federal
Banking Law to address the lessons learned from the financial
crisis and to address the “too big to fail” issue. The amended
sections are applicable to the largest Swiss banks including UBS
and contain specific capital requirements and provisions to en-
sure that systemically relevant functions can be maintained in
case of insolvency. In addition, and in line with global require-
ments, UBS is required to produce and update recovery and
resolution plans that will help the firm and the regulator pre-
vent another crisis or to mitigate its effects on both clients and
counterparties. These new sections are expected to enter into
force during 2012.
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.
The legal basis for the investment funds business in Switzer-
land is the Swiss Federal Act on Collective Investment Schemes
(Collective Investment Schemes Act) of 23 June 2006, which
came into force on 1 January 2007. The supervisory authority for
investment funds in Switzerland is FINMA, which is responsible for
the authorization and supervision of the institutions and invest-
ment funds subject to its control.
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 frame-
work for banks:
– FINMA has substantial influence on the drafting of Swiss
federal acts and ordinances from the Federal Council or the
parliament.
– On a more technical level, FINMA is empowered to issue its
own ordinances and circulars.
Self-regulation by the SIX Swiss Exchange and
the Swiss Bankers Association
Certain aspects of securities brokering, such as the organization
of trading, are subject to self-regulation through the SIX Swiss
Exchange (SIX), under the overall supervision of FINMA. Further-
more, we are also an issuer of listed shares subject to self-regula-
tion 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 FINMA.
47
Operating environment and strategy
Regulation and supervision
The responsibility of external auditors encompasses the audit of
financial statements, the review 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 FINMA Circular 08 / 9 on the
Supervision of Large Banking Groups. Supervisory tools include
scheduled meetings with management and information exchange
encompassing all control and business areas, independent assess-
ments through review activities, and a regular exchange of views
with internal audit functions, external auditors and important
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.
Role of the Swiss National Bank and division of tasks between
FINMA and the Swiss National Bank
While the Swiss National Bank (SNB) does not exercise any bank-
ing supervision and is not responsible for enforcing banking legis-
lation, it is mandated to contribute to the stability of the financial
system, is responsible for the supply of liquidity and conducts the
monetary policy. In fulfilling its mandate, the SNB monitors devel-
opments in the banking sector from the perspective of the system
as a whole. Accordingly, FINMA and the SNB work together in the
following areas: (i) assessment of the soundness of systemically
important banks; (ii) regulations that have a major impact on the
soundness of banks, including liquidity, capital adequacy and risk
distribution provisions, where they are of relevance for financial
stability; and (iii) contingency planning and crisis management.
FINMA and the SNB exchange information and share opinions
about the soundness of the banking sector and systemically im-
portant banks, and are authorized to exchange information and
documents that are not publicly accessible if they require these in
order to fulfill their tasks. With regard to systemically important
banks, the SNB may also carry out its own enquiries and may
request that these banks provide information as required.
➔ Refer to the “Regulatory developments” and “Risk factors”
sections of this report for more information
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 Connect-
icut, Illinois, Florida and New York. These branches are licensed
either by the Office of the Comptroller of the Currency or the
state banking authority of the state in which the branch is locat-
ed. 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 regu-
lated by state regulators or the Office of the Comptroller of the
Currency. In addition, the Board of Governors of the Federal Re-
serve System exercises examination and regulatory authority over
our state-licensed US branches. Only the deposits of our subsid-
iary 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 prudential restrictions, such
as limits on extensions of credit to a single borrower, including
UBS subsidiaries and affiliates.
The licensing authority of each US branch 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
licenses. Such circumstances generally include violations of law,
unsafe business practices and insolvency. As long as we maintain
one or more federal branches, the Office of the Comptroller of
the Currency also has the authority to take possession of the US
operations of UBS 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
regulation by the Board of Governors of the Federal Reserve
System under various laws (including the International Banking
Act of 1978 and the Bank Holding Company Act of 1956). On
10 April 2000, UBS was designated a “financial holding compa-
ny” under the Bank Holding Company Act of 1956. Financial
holding companies may engage in a broader spectrum of activi-
ties than bank holding companies or foreign banking organiza-
tions that are not financial holding companies, including under-
writing 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 chartered trust company, and our US subsid-
iary bank located in Utah are required to meet certain examina-
tion ratings, and (iii) our subsidiary 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.
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The Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 impacts the financial services industry by addressing,
among other issues, the following: (i) systemic risk oversight, (ii)
bank capital standards, (iii) the liquidation of failing systemically
significant financial institutions, (iv) OTC derivatives, (v) the ability
of deposit-taking banks to engage in proprietary trading activities
and invest in hedge funds and private equity (the so-called Vol-
cker rule), (vi) consumer and investor protection, (vii) hedge fund
registration, (viii) securitization, (ix) investment advisors, (x) share-
holder “say on pay,” (xi) the role of credit-rating agencies, and
more. The details of the legislation and its impact on UBS’s opera-
tions will depend on the final regulations ultimately adopted by
various agencies and oversight boards.
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
entity is also regulated by some or all of the following: the NYSE,
the Municipal Securities Rulemaking Board, the US Department of
the Treasury, the Commodities Futures Trading Commission and
other exchanges of which it may be a member, depending on the
specific nature of the respective broker-dealer’s business. In addi-
tion, the US states, provinces and territories have local securities
commissions that regulate and monitor activities in the interest of
investor protection. These regulators have a variety of sanctions
available, including the authority to conduct administrative 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; in-
forming and educating the investing public; providing trade re-
porting and other industry utilities; and administering a dispute
resolution forum for investors and registered firms. It also per-
forms 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.
➔ Refer to the “Regulatory developments” and “Risk factors”
sections of this report for more information
Regulation and supervision in the UK
Our operations in the UK are mainly regulated by the Financial Ser-
vices Authority (FSA), which establishes a regime of rules and guid-
ance governing all relevant aspects of financial services businesses.
UBS AG, London Branch is regulated by both the FSA and FINMA.
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 EU directives which require, among other things, com-
pliance with certain capital adequacy standards, client protection
requirements and conduct of business rules (such as the Markets
in Financial Instruments Directive). These directives apply through-
out the EU and are reflected in the regulatory regimes of the vari-
ous member states.
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. These proposals are currently the subject of con-
sultation and legislative consideration.
➔ Refer to the “Regulatory developments” and “Risk factors”
sections of this report for more information
49
Operating environment and strategy
Risk factors
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 become
apparent only with the benefit of hindsight, risks of which we are
not presently aware or which we currently do not consider to be
material could also materially affect our business activities, finan-
cial condition, results of operations and prospects. The sequence
in which the risk factors are presented below is not indicative of
their likelihood of occurrence or the potential magnitude of their
financial consequences.
Regulatory and legislative changes may adversely affect
our business and ability to execute our strategic plans
Fundamental changes in the laws and regulations affecting fi-
nancial institutions could have a material and adverse effect on
our business. In the wake of the recent financial crisis, and in
light of the current instability in global financial markets, regu-
lators and legislators have proposed, adopted, or are actively
considering, a wide range of changes to these laws and regula-
tions. The measures are generally designed to address the per-
ceived causes of the crisis and to limit the systemic risks posed
by major financial institutions. These measures include the fol-
lowing:
– significantly higher regulatory capital requirements;
– changes in the definition and calculation of regulatory capital,
including the capital treatment of certain capital instruments
issued by UBS and other banks;
– changes in the calculation of risk-weighted assets (RWA);
– new or significantly enhanced liquidity requirements;
– requirements to maintain liquidity and capital in multiple juris-
dictions where activities are conducted and booked;
– limitations on principal trading and other activities;
– new licensing, registration and compliance regimes;
– 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.
A number of measures have been adopted and will be imple-
mented in the next several years; some 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 referred to above, in-
cluding the timing of their implementation.
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 financial
institutions and unregulated non-bank competitors.
In September 2011, the Swiss parliament adopted the “too-
big-to-fail” law to address the issues posed by large banks. The
law became effective on 1 March 2012. Accordingly, Swiss regu-
latory 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 are implementing requirements that are
significantly more onerous and restrictive for major Swiss banks,
such as UBS, than those adopted, proposed or publicly espoused
by regulatory authorities in other major global banking centers.
The Swiss Federal Department of Finance has consulted on pro-
posed changes to the banking ordinance and capital adequacy or-
dinance. These ordinances, when final, could in effect result in
higher capital adequacy requirements than the 19% of RWA that
has been publicly discussed. In particular, de facto higher capital
requirements (to be fulfilled at the level of the Group and the par-
ent holding systemically relevant functions) may be the result of the
leverage ratio if implemented as currently proposed, or of the
planned early implementation in Switzerland of the anticyclical buf-
fer requirement recommended by the Basel Committee on Banking
Supervision. In addition, the Swiss Government’s proposed changes
to the risk weighting of residential mortgages would significantly
increase the capital requirements for our Swiss mortgage book.
The new ordinances will, among other things, contain provisions
regarding emergency plans for systemically important functions,
recovery and resolution planning and intervention measures that
may be triggered when certain capital thresholds are breached.
Those intervention levels may be set at higher capital levels than
under current law, and may depend upon the capital structure and
type of buffer capital the bank will have to issue to meet the spe-
cific Swiss requirements (6% to cover systemic risk in addition to
the 13% to be required due to the combination of Basel III and the
“Swiss finish”). The Swiss Federal Council will have to present the
revised ordinances to the Swiss parliament for approval; the ordi-
nances are expected to come into force on 1 January 2013.
If we are not able to demonstrate that our systemically relevant
functions in Switzerland can be maintained even in case of a
threatened insolvency, FINMA may impose more onerous require-
ments on us. Although the actions that FINMA may take in such
circumstances are not yet defined, we could be required directly
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or indirectly, for example, to alter our legal structure (e.g., sepa-
rate lines of business into dedicated entities, possibly with limita-
tions on intra-group funding and guarantees), or in some manner
to reduce business risk levels.
Regulatory changes in other locations in which we operate
may subject us to requirements to move activities from UBS AG
branches into subsidiaries, which in turn creates operational, risk
control, capital and tax inefficiencies, as well as higher local capi-
tal requirements and potentially client and counterparty concerns
about the credit quality of the subsidiary. Such changes could also
negatively impact our funding model and severely limit our book-
ing flexibility. For example, we have significant operations in the
UK and use London as a global booking center for many types of
products. The UK Independent Commission on Banking (ICB) has
recommended structural and non-structural reform of the bank-
ing sector to promote financial stability and competition. Key
measures proposed include the ring-fencing of retail activities in
the UK, additional common equity tier 1 capital requirements of
up to 3% of RWA for retail banks, and the issuance of debt sub-
ject to “bail-in” provisions. Such measures could have a material
effect on our businesses located or booked in the UK, although
the applicability and implications of such changes to offices and
subsidiaries of foreign banks are not yet entirely clear. Already,
we are being required by regulatory authorities to increase the
capitalization of our UK bank subsidiary, UBS Limited, and expect
to be required to change our booking practices to reduce or even
eliminate our utilization of UBS AG London branch as a global
booking center for the Investment Bank.
The adoption of the Dodd-Frank Act in the US will also affect
a number of our activities as well as those of other banks. The
implementation of the Volcker Rule as of July 2012, for example,
is one reason for our announced decision to exit equities propri-
etary trading business segments within the Investment Bank. For
other trading activity, we will be required to implement a compli-
ance regime, including the calculation of detailed metrics for
each trading book, and may be required to implement a compli-
ance plan globally. Depending on the nature of the final rules, as
well as the manner in which they are implemented, the Volcker
Rule could have a substantial impact on market liquidity and the
economics of market-making activities. The Volcker Rule broadly
limits investments and other transactional activities between
banks and covered funds. The proposed implementing regula-
tions both expand the scope of covered funds and provide only a
very limited exclusion for activities of UBS outside the US. If ad-
opted as proposed, the regulations could limit certain of our ac-
tivities in relation to funds, particularly outside the US.
Because many of the regulations that must be adopted to
implement the Dodd-Frank Act have not yet been finalized, the
effect on business booked or conducted by UBS in whole or in
part outside the US cannot yet be determined fully.
In addition, in 2009 the G20 countries committed to move all
standardized over-the-counter (OTC) derivative contracts on ex-
change and clear them through central counterparties by the end
of 2012. This commitment is being implemented through the
Dodd-Frank Act in the US and corresponding legislation in the Eu-
ropean Union and other jurisdictions, and will have a significant
impact on our OTC derivatives business, primarily in the Invest-
ment Bank. For example, most OTC derivatives trading will move
toward a central clearing model, increasing transparency through
trading on exchanges or swap execution facilities. Although we
are preparing for these thematic market changes, they are likely to
reduce the revenue potential of certain lines of business for market
participants generally, and we may be adversely affected.
In connection with the rules being adopted on swaps and de-
rivative markets in the US as part of the Dodd-Frank Act, UBS AG
could be required to register as a swap dealer in the US during
2012. The new regulations will impose substantial new require-
ments on registered swap dealers, but no guidance has been is-
sued yet on their application to the activities of swap dealers out-
side the US. The potential extra-territorial application of the new
rules could create a significant operational and compliance bur-
den and potential for duplicative and conflicting regulation.
We are currently required to produce recovery and resolution
plans in the US, UK and Switzerland. Resolution plans may in-
crease the pressure for structural change if our analysis identifies
impediments that are not acceptable to regulators. Such struc-
tural changes may negatively impact our ability to benefit from
synergies between business units.
The planned and potential regulatory and legislative develop-
ments in Switzerland and in other jurisdictions in which we have
operations may have a material adverse effect on our ability to
execute our strategic plans, on the profitability or viability of cer-
tain business lines globally or in particular locations, and in some
cases on our ability to compete with other financial institutions.
They are likely to be costly to implement and could also have a
negative impact on our legal structure or business model. Finally,
the uncertainty related to legislative and regulatory changes may
have a negative impact on our relationships with clients and our
success in attracting client business.
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 substantially higher lev-
els 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.
Our reputation is critical to the success of our business
Damage to our reputation can have fundamental negative effects
on our business and prospects. Our reputation is critical to the suc-
cess of our strategic plans. Reputational damage is difficult to re-
verse, and improvements tend to be slow and difficult to measure.
This was demonstrated in recent years as our very large losses dur-
ing the financial crisis, the US cross-border matter and other events
seriously damaged our reputation. Reputational damage was an
important factor in our loss of clients and client assets across our
asset-gathering businesses, and contributed to our loss of and dif-
51
Operating environment and strategy
Risk factors
ficulty in attracting staff, in 2008 and 2009. These developments
had short-term and also more lasting adverse effects on our finan-
cial performance. 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. The unauthorized trading incident that we announced
in September 2011 also adversely affected our reputation. 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.
➔ Refer to the “Certain items affecting our results in 2011” sidebar
for more information on the unauthorized trading incident
Our capital strength is important in supporting our
strategy, client franchise and competitive position
Our capital position, as measured by the BIS tier 1 and total capital
ratios, is determined by (i) RWA (credit, non-counterparty related,
market and operational risk positions, measured and risk-weight-
ed according to regulatory criteria) and (ii) eligible capital. Both
RWA and eligible capital are subject to change. Eligible capital
would be reduced if we experience net losses, as determined for
the purpose of the regulatory capital calculation. Eligible capital
can also be reduced for a number of other reasons, including cer-
tain reductions in the ratings of securitization exposures, adverse
currency movements directly affecting the value of equity and
prudential adjustments that may be required due to the valuation
uncertainty associated with certain types of positions. RWA, on
the other hand, are driven by our business activities and by chang-
es in the risk profile of our exposures. 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 po-
sitions (such as the application of market stresses in accordance
with Basel 2.5 adopted in the last quarter of 2011), adverse cur-
rency movements, increased counterparty risk or a deterioration
in the economic environment could result in a rise in RWA. Any
such reduction in eligible capital or increase in RWA could materi-
ally reduce our capital ratios.
The required levels and calculation of our regulatory capital and
the calculation of our RWA are also subject to changes in regula-
tory requirements or their interpretation. We are subject to regula-
tory capital requirements imposed by FINMA, under which we have
higher RWA than would be the case under BIS guidelines. Forth-
coming changes in the calculation of RWA under Basel III and FIN-
MA requirements will significantly increase the level of our RWA
and, therefore, have an adverse effect on our capital ratios. We
have announced plans to reduce RWA very substantially and to
mitigate the effects of the changes in the RWA calculation. How-
ever, there is a risk that we will not be successful in pursuing our
plans, either because we are unable to carry out fully the actions we
have planned or because other business or regulatory develop-
ments to some degree counteract the benefit of our actions.
In addition to the risk-based capital requirements, FINMA has
introduced a minimum leverage ratio, which must be achieved by
1 January 2013. The leverage ratio operates separately 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 of the banking law under the “too-big-to-fail” measures),
could have a material adverse effect on our business and could
affect our competitive position internationally compared with in-
stitutions that are regulated under different regimes. Moreover,
although we have recently identified certain businesses that we
plan to exit in response to regulatory and business changes, chang-
es in the calculation and level of capital requirements or other regu-
latory changes may render uneconomic certain other businesses
conducted in our Investment Bank or in other business divisions, or
may undermine their viability in other ways. The reduction or elimi-
nation of lines of business could adversely affect our competitive
position, particularly if competitors are subject to different require-
ments under which those activities continue to be sustainable.
Performance in the financial services industry is affected
by market conditions and 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 can nega-
tively affect our revenues and ultimately our capital base.
A market downturn can be precipitated by a number of factors,
including geopolitical events, changes in monetary or fiscal policy,
trade imbalances, natural disasters, pandemics, civil unrest, war or
terrorism. Because financial markets are global and highly intercon-
nected, even local and regional events can have widespread impacts
well beyond the countries in which they occur. A crisis could develop,
regionally or globally, as a result of disruptions in emerging markets
which are susceptible to macroeconomic and political developments,
or as a result of the failure of a major market participant. 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 generate growth and reve-
nue in the emerging markets, we become more exposed to these
risks. The ongoing eurozone crisis demonstrates that such develop-
ments, even in more developed markets, can have similarly unpredict-
able 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,
as we have experienced in recent quarters, affects fees, com-
missions and margins from market-making and client-driven
transactions and activities; local or regional economic factors,
such as the ongoing eurozone sovereign debt and banking
industry concerns, could also have an effect on us;
52
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– 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;
We hold positions related to real estate in various countries,
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.
– assets we own and account for as investments or trading posi-
tions 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 pay-
ments or other exchange or capital controls, or change their
currency (for example, if one or more countries should leave
the euro), we could suffer losses from enforced default by
counterparties, be unable to access our own assets, or be im-
peded in – or prevented from – managing our risks.
Because we have very substantial exposures to other major fi-
nancial institutions, the failure of one or more of such institutions
could have a material effect on us.
The developments mentioned above can materially affect the
performance of our business units and of UBS as a whole, and ulti-
mately our financial condition. There is also a somewhat related risk
that the carrying value of goodwill of a business unit might suffer
impairments and deferred tax assets levels may need to be adjusted.
We hold legacy and other risk positions that may be
adversely affected by conditions in the financial markets;
legacy risk positions may be difficult to liquidate
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. Although we have significantly reduced our risk exposures
starting in 2008, in part through transfers in 2008 and 2009 to a
fund controlled by the SNB, we continue to hold substantial legacy
risk positions, the value of which was reduced significantly by the
financial crisis. In many cases these risk positions continue to be il-
liquid and have not recovered much of their lost value. In the fourth
quarter of 2008 and the first quarter of 2009, certain of these posi-
tions were reclassified for accounting purposes from fair value to
amortized cost; these assets are subject to possible impairment due
to changes in market interest rates and other factors.
We have announced and begun to carry out plans to reduce
drastically the risk-weighted assets associated with the legacy risk
positions, but the continued illiquidity and complexity of many of
these legacy risk positions could make it difficult to sell or otherwise
liquidate these exposures. At the same time, our strategy rests
heavily on our ability to reduce sharply the risk-weighted assets as-
sociated with these exposures in order to meet our future capital
targets and requirements without incurring unacceptable losses.
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 as-
sets, revenues and expenses are denominated in other currencies,
particularly the US dollar, the euro and the British pound. Accord-
ingly, changes in foreign exchange rates, particularly between the
Swiss franc and the US dollar (US dollar revenue accounts for the
largest portion of our non-Swiss franc revenue) have an effect on
our reported income and expenses, and on other reported figures
such as invested assets, balance sheet assets, RWA and tier 1 capi-
tal. For example, the strengthening of the Swiss franc especially
against the US dollar and euro, which occurred during 2011, had
an adverse effect on our revenues and invested assets. Since ex-
change rates are subject to constant change, sometimes for com-
pletely unpredictable reasons, our results are subject to risks associ-
ated 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
lending, underwriting and derivatives businesses and positions.
Changes in interest rates, credit spreads, equity prices and liquid-
ity, foreign exchange levels and other market fluctuations can ad-
versely affect our earnings. Some losses from risk-taking activities
are inevitable, but to be successful over time, we must balance
the risks we take against the returns we generate. We must,
therefore, diligently identify, assess, manage and control our risks,
not only in normal market conditions but also as they might de-
velop under more extreme (stressed) conditions, when concentra-
tions of exposures can lead to severe losses.
As seen during the financial crisis of 2007–2009, we are not
always able to prevent serious losses arising from extreme or
sudden market events that are not anticipated by our risk mea-
sures and systems. Value-at-risk, a statistical measure for mar-
ket risk, is derived from historical market data, and thus by
definition could not have anticipated the losses suffered in the
stressed conditions of the financial crisis. Moreover, stress loss
and concentration controls and the dimensions in which we
aggregate risk to identify potentially highly correlated exposures
proved to be inadequate. Notwithstanding the steps we have
taken to strengthen our risk management and control frame-
53
Operating environment and strategy
Risk factors
work, 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 accordingly we 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 rel-
evant benchmarks against which clients assess investment perfor-
mance, 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 businesses (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 generally are 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; models have
inherent limitations and may use inputs which have 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, therefore, we apply valuation
techniques to measure such instruments. Valuation techniques use
“market observable inputs” where available, derived from similar as-
sets 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 inputs required for the valu-
ation techniques 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 mod-
els have inherent limitations; different assumptions and inputs would
generate different results, and these differences could have a signifi-
cant impact on our financial results. We regularly review and update
our valuation models to incorporate all factors that market partici-
pants would consider in setting a price, including factoring in current
market conditions. Judgment is an important component of this pro-
cess. 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 outflows of client assets in our
wealth management and asset management businesses
We experienced substantial net outflows of client assets in our
wealth management and asset management businesses in 2008 and
2009. 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. Many of these factors have been successfully addressed, as
evidenced by our overall net new money inflows in 2011, 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 experience again material net out-
flows of client assets, the results of our wealth management and
asset management businesses are likely to be adversely affected.
Liquidity and funding management are critical to
our ongoing performance
The viability of our business depends upon the availability of funding
sources, and its success depends upon our ability to obtain funding
at times, in amounts, for tenors and at rates that enable us to effi-
ciently support our asset base in all market conditions. A substantial
part of our liquidity and funding requirements is met using short-
term unsecured funding sources, including wholesale and retail de-
posits and the regular issuance of money market securities. The vol-
ume of our funding sources has generally been stable, but could
change in the future due to, among other things, general market
disruptions, which could also influence the cost of funding. A
change in the availability of short-term funding could occur quickly.
Reductions in our credit ratings can increase our funding costs,
in particular with regard to funding from wholesale unsecured
sources, and can affect the availability of certain kinds of funding.
In addition, as we experienced in recent years, ratings downgrades
can require us to post additional collateral or make additional cash
payments under master trading agreements relating to our de-
rivatives businesses. Our credit ratings, together with our capital
strength and reputation, also contribute to maintaining client and
counterparty confidence and it is possible that ratings changes
could influence the performance of some of our businesses.
The more stringent Basel III capital and liquidity requirements will
likely lead to increased competition for both secured funding and
deposits as a stable source of funding, and to higher funding costs.
➔ Refer to the “Risk, treasury and capital management” section of
this report for more information on our approach to liquidity
and funding management
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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, to comply with requirements of many differ-
ent legal and regulatory regimes to which we are subject and to
prevent, or promptly detect and stop, unauthorized, fictitious or
fraudulent transactions. Our operational risk management and con-
trol systems and processes are designed to help ensure that the risks
associated with our activities, including those arising from process
error, failed execution, unauthorized trading, fraud, system failures,
cyber-attacks and failure of security and physical protection, are ap-
propriately 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, such as the loss from the
unauthorized trading incident announced in September 2011.
Certain types of operational control weaknesses and failures
could also adversely affect our ability to prepare and publish ac-
curate and timely financial reports. We identified control deficien-
cies following the unauthorized trading incident announced in
September 2011, and management determined that we had a
material weakness in our internal control over financial reporting
as of the end of 2010 and 2011, although this has not affected
the reliability of our financial statements for either year.
➔ Refer to the “Update on internal control over financial report-
ing” and the “Management’s report on internal control over
financial reporting” in the “Financial information” section of this
report for more information
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 proceedings expose us to
substantial monetary damages and legal defense costs, injunctive
relief and criminal and civil penalties, in addition to potential regu-
latory restrictions on our businesses. The outcome of these mat-
ters cannot be predicted and they could adversely affect our fu-
ture business or financial results. We continue to be subject to
government inquiries and investigations, and are involved in a
number of litigations and disputes, many of which arose out of
the financial crisis of 2007–2009. The unauthorized trading inci-
dent announced in September 2011 has triggered a joint investi-
gation by FINMA and the UK Financial Services Authority and
separate enforcement proceedings by the two authorities. We are
also subject to potentially material exposure in connection with
claims relating to US RMBS and mortgage loan sales, the Madoff
investment fraud, Lehman principal protection notes, LIBOR rate
submissions and other matters.
We are in active dialogue with our regulators concerning the
actions that we are taking to improve our operational and risk man-
agement controls, processes and systems. Ever since our losses in
2007 and 2008, we have been subject to a very high level of regu-
latory scrutiny and to certain regulatory measures that constrain
our strategic flexibility. While we believe that we have largely reme-
diated the deficiencies that led to the material losses during the
recent financial crisis, the unauthorized trading incident announced
in September 2011 has revealed different shortcomings that we are
also urgently addressing. The unauthorized trading incident has
presented us with further challenges and potential constraints on
the execution of our business strategy, as we seek once again to
enhance our operational and control framework and demonstrate
its effectiveness to regulatory authorities. Notwithstanding the re-
mediation we have already completed and which is in process, the
consequences of the ongoing regulatory review and enforcement
proceedings arising from the incident cannot be predicted.
➔ Refer to “Note 21 Provisions and contingent liabilities” in the
“Financial information” section of this report for more informa-
tion on litigation and regulatory matters and other contingent
liabilities
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.
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 amount and structure of our employee compensation are
affected not only by our business results but also by competitive
factors and regulatory considerations. 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
affect our business performance. Starting with the performance
year 2009, the portion of variable compensation granted in the
form of deferred shares was much higher than in the past. Al-
though our peers have over time also increased their deferral per-
centages, we continue to be subject to the risk that key employ-
ees will be attracted by competitors and decide to leave UBS, or
that we may be less successful than our competitors in attracting
qualified employees. Regulatory constraints and pressure from
regulators and other stakeholders affect not only UBS but also the
other major international banks, but some of our peers may have
a competitive advantage due to differences in the requirements
and intensity of pressure among different jurisdictions.
55
Operating environment and strategy
Risk factors
Our financial results may be negatively affected by
changes to accounting standards
We are required to report our results and financial position in
accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board.
Changes to IFRS may mean that our reported results and financial
position differ in the future from those expected. Such changes
also may affect our regulatory capital and ratios. When account-
ing changes are finalized, UBS assesses the potential impact and
discloses significant future changes in its financial statements.
Currently, there are a number of finalized and potential account-
ing changes that are expected to impact our reported results,
financial position and regulatory capital in the future.
➔ Refer to the “Financial Information” section of this report for
more information on changes in accounting requirements
Our financial results may be negatively affected by changes
to assumptions supporting the value of our goodwill
The goodwill we have recognized on our balance sheet is tested for
impairment at least annually. Our impairment test in respect of the
assets recognized as of 31 December 2011 indicated that the value
of our goodwill is not impaired. The impairment test is based on
assumptions regarding estimated earnings, discount rates and
long-term growth rates impacting the recoverable amount of each
segment and on estimates of the carrying amounts of the segments
to which the goodwill relates. If the estimated earnings and other
assumptions in future periods deviate from the current outlook, the
value of our goodwill may become impaired in the future, giving
rise to losses in the income statement.
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 as-
sets 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 acqui-
sitions or other transactions and the ability to obtain and maintain
the necessary licenses to operate in local markets. Changes in lo-
cal tax laws or regulations and their enforcement may affect the
ability or the willingness of our clients to do business with us or
the viability of our strategies and business model.
The effects of taxes on our financial results are signi-
ficantly 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 2011 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-
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
revised downward substantially.
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
results. If, for example, the Group’s performance in the UK and
especially in the US is strong, we could be expected to write up
additional US and / or UK deferred tax assets in the coming years.
The effect of doing so would significantly reduce the Group’s
effective tax rate in years in which any write ups are made.
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 20–25% (although the tax
rate may differ if there are significant book tax adjustments,
which generally mainly affect Swiss taxable profits, for example
own credit gains / losses).
Our effective tax rate is also sensitive to any future reductions
in tax rates, particularly in the US and Switzerland, which would
cause the expected future tax saving from items such as tax loss
carry-forwards in those locations to diminish in value. This in turn
would cause a write-down of deferred tax assets.
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.
In 2011, the UK government introduced a balance sheet based
levy payable by banks operating and / or resident in the UK. An
expense for the year of CHF 109 million has been recognized in
operating expenses (within pre-tax profit) in the fourth quarter of
2011. In November 2011 the UK government announced its inten-
tion to increase the rate of the levy by 17% from 1 January 2012.
The Group’s bank levy expense for future years will depend on
both the rate and the Group’s taxable UK liabilities at each year
end: changes to either factor could increase the cost. Whilst not
yet certain, we expect that the annual bank levy expense will con-
tinue to be recognized for IFRS purposes as a one-off cost arising
in the final quarter of each financial year, rather than being accrued
throughout the year, as it is charged by reference to the year-end
balance sheet position.
56
Financial and
operating
performance
Financial and operating performance
Critical accounting policies
Critical accounting policies
Basis of preparation and selection of policies
We prepare our Financial statements in accordance with Inter-
national Financial Reporting Standards (IFRS) as issued by the Inter-
national Accounting Standards Board. The application of certain of
these accounting principles requires considerable judgment based
upon estimates and assumptions that involve significant uncer-
tainty at the time they are made. Estimates and judgments are
continually evaluated and are based on historical experience and
other factors, including expectations of future events that are be-
lieved to be reasonable under the circumstances. Changes in as-
sumptions may have a significant impact on the Financial state-
ments in the periods when assumptions are changed. Accounting
policies that are deemed critical to our results and financial po-
sition, in terms of materiality of the items to which the policy is
applied, and which involve significant assumptions and estimates,
are discussed in this section. A broader and more detailed descrip-
tion of the accounting policies that we use is included in “Note 1
Summary of significant accounting policies” in the “Financial in-
formation” section of this report.
The application of assumptions and estimates means that any
selection of different assumptions could cause the reported re-
sults to differ. We believe that the assumptions we have made are
appropriate, and that our Financial statements therefore present
the financial position and results fairly in all material respects. The
alternative outcomes discussed below are presented solely to
assist the reader in understanding our Financial statements. They
are not intended to suggest that other assumptions would be
more appropriate.
Fair value of financial instruments
The fair values of financial instruments where no active market
exists or where quoted prices are not otherwise available are
determined by using valuation techniques. In these cases, the fair
values are estimated using observable data in respect of similar fi-
nancial instruments as well as models. Where market observable
inputs are not available, inputs are estimated based on appropriate
assumptions. 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 comparative market prices. Where practicable, models use
only observable data; however, areas such as default rates, vola-
tilities and correlations require management to make estimates.
The valuation techniques or models employed may not fully re-
flect all the factors relevant to the positions we hold. Valuations are
therefore adjusted, where appropriate, to allow for additional fac-
tors, including model risk, liquidity risk and credit risk. We use dif-
ferent approaches to calculate the credit risk, depending on the
classification of a financial instrument at fair value. A credit valua-
tion adjustment approach based on an expected exposure profile is
used to adjust the fair value of Positive replacement values to re-
flect counterparty credit risk if deemed necessary. Correspondingly,
a debit valuation adjustment approach is applied to incorporate
own credit risk in the fair value of uncollateralized Negative re-
placement values. Own credit risk for Financial liabilities designated
at fair value is calculated using the funds transfer price curve.
As of 31 December 2011, financial assets and financial liabilities
for which valuation techniques or models are used and whose in-
puts are observable (level 2) amounted to CHF 550 billion and CHF
561 billion, respectively. Financial assets and financial liabilities
whose valuations include significant unobservable inputs (level 3)
amounted to CHF 25 billion and CHF 24 billion, respectively.
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 our level 3
instruments accounted for at fair value through profit or loss, the
net fair value of non-derivative instruments would have been up
to CHF 0.6 billion higher or lower on 31 December 2011. Simi-
larly, the net fair value of derivative instruments would have been
up to CHF 1.1 billion higher or lower than the amounts recog-
nized on our balance sheet on 31 December 2011.
➔ Refer to “Note 26 Fair value of financial instruments” in the
“Financial information” section of this report for more informa-
tion on valuation of financial instruments
Goodwill impairment test
UBS performs an impairment test on its goodwill assets on an an-
nual basis, or when indicators of a potential impairment exist. The
impairment test is performed for each segment for which good-
will is allocated and compares the recoverable amount and the
carrying amount of the segment. An impairment charge is recog-
nized if the carrying amount exceeds the recoverable amount. The
impairment test is based on a number of assumptions, as de-
scribed further below.
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 of a segment is the sum of the discounted earnings at-
tributable to shareholders from the first five individually forecast-
ed years and the terminal value. The terminal value reflecting all
periods beyond the fifth year is calculated on the basis of the
forecast of fifth-year profit, the discount rate and the long-term
growth rate.
The carrying amount for each segment is determined by refer-
ence to the equity attribution framework. Within this framework,
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which is described in the “Capital management” section of this
report, management attributes equity to the businesses after con-
sidering their risk exposure, risk-weighted assets usage, asset size,
goodwill and intangible assets. The framework is used primarily
for purposes of measuring the performance of the businesses and
includes certain management assumptions. Attributed equity
equates to the capital that a segment requires to conduct its busi-
ness and is considered an appropriate starting point from which
to determine the carrying value of the segments. The attributed
equity methodology is aligned with the business planning pro-
cess, the inputs from which are used in calculating the recover-
able amounts of the respective cash-generating units.
Valuation parameters used within the Group’s impairment test
model are linked to external market information, where applica-
ble. 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, to changes in the discount rates, and
to changes in the long-term growth rate. The applied long-term
growth rate is based on long-term economic growth rates for dif-
ferent regions worldwide. Earnings available to shareholders are
estimated based on forecast results, which are part of the busi-
ness plan approved by the Board of Directors. The discount rates
are determined by applying a capital-asset-pricing-model-based
approach, as well as considering quantitative and qualitative in-
puts from both internal and external analysts and the view of
UBS’s management.
If the estimated earnings and other assumptions in future peri-
ods deviate from the current outlook, the value of our goodwill
may become impaired in the future, giving rise to losses in the
income statement. This may be the case if the regulatory pressure
on the banking industry further intensifies and conditions in the
financial markets diminish our performance relative to forecast.
Recognition of any impairment of goodwill would reduce IFRS eq-
uity attributable to UBS shareholders and net profit. It would not
impact cash flows and, as goodwill is required to be deducted
from capital under the Basel capital framework, there would be
no impact to the BIS tier 1 capital ratio or BIS total capital ratio of
the UBS Group.
As of 31 December 2011, the following four segments carried
goodwill: Wealth Management (CHF 1.3 billion), Wealth Manage-
ment Americas (CHF 3.3 billion), Global Asset Management (CHF
1.4 billion), and the Investment Bank (CHF 3.0 billion). On the
basis of the impairment testing methodology described above,
UBS concluded that the year-end 2011 balances of goodwill allo-
cated to its segments remain recoverable.
➔ Refer to “Note 1a) 21) Goodwill and intangible assets” and “Note
16 Goodwill and intangible assets” in the “Financial information”
section of this report for more information
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 lines Due from banks and Loans, including reclassi-
fied securities. In addition, irrevocable loan commitments are
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
assumptions and estimations when calculating impairment losses
both on a counterparty-specific level and collectively.
The impairment loss is the excess of the carrying value of the
financial asset over the estimated recoverable amount. The esti-
mated recoverable amount is the present value, using the loan’s
original effective interest rate, of expected future cash flows, in-
cluding amounts that may result from restructuring or the liquida-
tion of collateral. If a loan has a variable interest rate, the discount
rate for measuring any impairment loss is the current effective
interest rate. An allowance for credit losses is reported as a re-
duction of the carrying value of the financial asset on the balance
sheet.
Estimated cash flows associated with financial assets reclassi-
fied from Held for trading to Loans and receivables in accordance
with the requirements in “Note 1a) 10) Loans and receivables” in
the “Financial information” section of this report and other simi-
lar assets acquired subsequently, are revised periodically. Adverse
revisions in cash flow estimates related to credit events are recog-
nized in profit or loss as credit loss expenses. For reclassified secu-
rities, increases in estimated future cash receipts as a result of
increased recoverability are recognized as an adjustment to the
effective interest rate on the loan from the date of change.
➔ Refer to “Note 9a Due from banks and loans”, “Note 9b
Allowances and provisions for credit losses” and “Note 28
Measurement categories of financial assets and financial
liabilities” in the “Financial information” section of this report
for more information
On 31 December 2011, our gross loan portfolio was CHF 267
billion and the related allowances amounted to CHF 0.8 billion, of
which CHF 83 million related to reclassified and similar acquired
securities.
➔ Refer to “Note 1a) 11) Allowance and provision for credit losses”
in the “Financial information” section of this report for more
information
Consolidation of special purpose entities
We sponsor the formation of special purpose entities (SPE) and
interact with non-sponsored SPE for a variety of reasons, in-
cluding allowing clients to obtain or be exposed to specific risk
and reward profiles, to provide funding or to sell or purchase
59
Financial and operating performance
Critical accounting policies
credit risk. In accordance with IFRS, we do not consolidate spe-
cial purpose entities that we do not control. In order to deter-
mine whether or not we control an SPE, we evaluate a range of
factors, including whether (i) the activities of the SPE are being
conducted on our behalf according to our specific business
needs so that we obtain the benefits from the SPE operations,
or (ii) we have decision-making powers to obtain the majority
of the benefits of the activities of the SPE, or we have delegat-
ed these decision-making powers by setting up an autopilot
mechanism, or (iii) we have the right to obtain the majority of
the benefits of the activities of an SPE and, therefore, may be
exposed to risks arising from the activities of the SPE, or (iv) we
retain the majority of the residual or ownership risks related to
the SPE or its assets in order to obtain the benefits from its
activities. In many instances, elements are present that, con-
sidered in isolation, indicate control or lack of control over an
SPE, but when considered together require a significant 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 general ly the factors to which most weight is given in
reaching a conclusion.
➔ Refer to “Note 1a) 3) Subsidiaries” in the “Financial information”
section of this report for more information
Equity compensation
We recognize shares, performance shares, options and share-
settled stock appreciation rights awarded to employees as com-
pensation expense based on their fair value at grant date. The fair
value of UBS shares issued to employees is determined by ref-
erence to quoted market prices, adjusted, where appropriate, to
take into account the terms and conditions inherent in the award.
Options, stock appreciation rights, and certain performance
shares issued by UBS to its employees have features which are not
directly comparable with our shares and options traded in active
markets. Accordingly, we determine the fair value using suitable
valuation models. The models require inputs such as expected
dividends, share price volatility and historical employee exercise
behavior patterns.
Some of the model inputs we use 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 recognition of higher or lower compensation
expense.
Several recognized valuation models exist. The models we
a pply have been selected because they are able to handle the
specific features included in the various instruments granted to
our employees. If we were to use different models, the values
produced would differ, even if the same inputs were used.
➔ Refer to “Note 1a) 25) Equity participation and other
compen sation plans” and “Note 30 Equity participation and
other compensation plans” in the “Financial information”
section of this report for more information
60
Deferred taxes
Deferred tax assets arise from a variety of sources, the most sig-
nificant being the following: (i) tax losses that can be carried for-
ward to be utilized against profits in future years; and (ii) expenses
recognized in our income statement that are not deductible until
the associated cash flows occur.
We record a valuation allowance to reduce our deferred tax
assets to the amount which can be recognized in line with the
relevant accounting standards. The level of deferred tax asset
recognition is influenced by management’s assessment of our fu-
ture profitability regarding relevant business plan forecasts. Exist-
ing assessments are reviewed and, if necessary, revised to reflect
changed circumstances. This review is conducted annually, in the
second half of each year, but adjustments may be made at other
times, if required. In a situation where recent losses have been
incurred, the relevant accounting 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 2011 have been based on future profitability assumptions
over a five-year time horizon, adjusted to take into account the
recognition criteria of IAS 12 Income Taxes. The level of deferred
tax assets recognized may, however, need to be adjusted in the
future in the event of changes in those profitability assumptions.
On 31 December 2011, the deferred tax assets amounted to
CHF 8.5 billion, which included an amount of CHF 8.0 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 Income taxes” and “Note 1a) 22) Income taxes”
in the “Financial information” section of this report for more
information
Hedge accounting
The Group uses derivative instruments as part of its asset and
liability management activities to manage exposures particularly
to interest rate and foreign currency risks, including exposures
arising from forecast transactions. If derivative and non-derivative
instruments meet certain criteria, they are designated as hedging
instruments in fair value hedges, cash flow hedges or net invest-
ment hedges. The designation of derivative or non-derivative
hedging instruments is at our discretion.
At the time a financial instrument is designated in a hedge rela-
tionship, 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 effec-
tiveness of the hedging relationship. Accordingly, the Group as-
sesses, both at the inception of the hedge and on an ongoing basis,
whether the hedging instruments, primarily derivatives, have been
“highly effective” in offsetting changes in the fair value or cash
flows associated with the designated risk of the hedged items.
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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.
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
when a forecast transaction is no longer deemed highly probable.
In certain circumstances, the Group may decide to discontinue
hedge accounting voluntarily, even though the mentioned criteria
for discontinuing are not fulfilled. De-designated hedging deriva-
tives from hedge relationships are treated as held for trading from
the de-designation date.
➔ Refer to “Note 1a) 15) Derivative instruments and hedge
accounting” and “Note 23 Derivative instruments and
hedge accounting” in the “Financial information” section of
this report for more information
Provisions
Provisions are recognized when we have a present legal or con-
structive obligation as a result of past events, if it is probable that
an outflow of resources will be required to settle or discharge the
obligation and a reliable estimate of the obligation can be made.
Recognition of provisions often requires use of an estimate as
the exact amount of the obligation is often unknown. The esti-
mate is based on all available information and reflects the amount
that in management’s opinion represents the best estimate of the
expenditure required to settle or discharge the present obligation
at the end of the reporting period, taking into account the risks
and uncertainties surrounding the obligation. Future events that
may affect the amount required to settle or discharge the obliga-
tion are reflected in the amount provided, whenever there is suf-
ficient objective evidence that such future events will occur. We
revise existing provisions up or down when additional informa-
tion becomes available which allows the estimates to be quanti-
fied more accurately. Management necessarily exercises judg-
ment in making assumptions and estimates when calculating
provisions.
Provisions are classified in “Note 21 Provisions and contingent
liabilities” in the “Financial information” section of this report
into the following categories: operational risks, litigation and reg-
ulatory matters, restructuring, provisions for loan commitments
and guarantees, and other. Operational risks include provisions
resulting from security risks and transaction processing risks. Liti-
gation and regulatory matters includes provisions for claims re-
lated to legal, liability and compliance risks. Provisions for rein-
statement costs for leasehold improvements, provisions for
onerous lease contracts, provisions for employee benefits and
other items are disclosed under Other.
➔ Refer to “Note 1a) 27) Provisions” in the “Financial information”
section of this report for more information
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
benefits to be provided, determined using a number of economic
and demographic assumptions. The assumptions include life ex-
pectancy, the discount rate, expected salary increases, expected
returns on plan assets and pension rates.
Life expectancy is determined by reference to published mor-
tality tables. The discount rate is determined by reference to rates
of return on high-quality fixed-income investments of appropriate
term at the measurement date. The assumption for salary in-
creases reflects the long-term expectations for salary growth and
takes into account inflation, seniority, promotion and other rele-
vant factors such as supply and demand in the labor market. The
expected return on plan assets is the long-term average return
that management believes is expected on the pension assets,
based on class of asset.
The most significant plan is the Swiss pension plan. Life ex-
pectancy for this plan has been based on the 2010 BVG genera-
tional mortality tables. This change has resulted in higher life
expectancies than the prior year, which was based on the 2005
BVG mortality table that preceded the 2010 tables. The assump-
tions for the discount rate and the expected return on plan as-
sets also changed from the prior year, to 2.3% and 3.5%, re-
spectively.
➔ Refer to “Note 29 Pension and other post-employment benefit
plans” and “Note 1a) 24) Pension and other post-employment
benefit plans” in the “Financial information” section of this report
for more information
61
Financial and operating performance
UBS results
UBS results
Net profit attributable to UBS shareholders was CHF 4,159 million in 2011 compared with CHF 7,534 million in 2010.
Pre-tax profit declined to CHF 5,350 million from CHF 7,455 million, reflecting lower operating income primarily in
the Investment Bank, partly offset by cost reductions. In 2011, we recorded a net tax expense of CHF 923 million com-
pared with a net tax benefit of CHF 381 million in 2010.
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
Comprehensive income
Total comprehensive income
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to UBS shareholders
62
For the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
17,969
(11,143)
6,826
(84)
6,742
15,236
4,343
1,467
27,788
15,591
5,959
761
0
127
22,439
5,350
923
4,426
0
0
0
4,427
268
268
0
4,159
4,158
0
7,457
560
6,896
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
6,484
609
5,875
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)
(2,125)
610
600
10
(2,736)
(2,719)
(17)
(2,792)
484
(3,276)
(5)
(12)
10
27
10
(11)
(42)
21
(13)
(8)
(10)
(17)
9
(9)
(28)
(44)
(100)
(100)
(44)
(12)
(12)
(100)
(45)
(45)
(100)
15
(8)
17
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2011
Performance before tax
Profit from continuing operations before tax was CHF 5,350 mil-
lion down from CHF 7,455 million, mainly due to a decline in op-
erating income of CHF 4,206 million, partly offset by cost reduc-
tions of CHF 2,100 million.
Operating income
Total operating income was CHF 27,788 million in 2011, down
CHF 4,206 million from CHF 31,994 million in 2010. This decline
was mainly due to a reduction of CHF 1,924 million in net fee and
commission income on lower underwriting fees and a decline in
asset-based fees, the loss of CHF 1,849 million related to the un-
authorized trading incident, and (even excluding the effect of the
unauthorized trading incident) lower trading revenues in our equi-
ties and fixed income, currencies and commodities (FICC) busi-
nesses. These declines were partly offset by an own credit gain on
financial liabilities designated at fair value of CHF 1,537 million,
compared with a loss of CHF 548 million in the prior year. In addi-
tion, in 2011 we incurred a loss of CHF 133 million on the valua-
tion of our option to acquire the SNB StabFund’s equity compared
with a gain of CHF 745 million in 2010. Furthermore, in 2011 we
recorded a gain of CHF 722 million on the sale of our strategic
investment portfolio.
➔ Refer to the “Certain items affecting our results in 2011” sidebar
in this section of this report for more information on the
➔ Refer to “Note 26 Fair value of financial instruments” in
the “Financial information” section of this report for more
information on own credit
Equities interest and trading revenues, excluding own credit
and the unauthorized trading incident, declined by CHF 523 mil-
lion reflecting the strengthening of the Swiss franc, and lower
revenues in the derivatives and equity-linked businesses.
Net interest income in Wealth Management increased by CHF
231 million, mainly as higher treasury-related income and a 10%
growth in average lending volumes compensated for margin pres-
sure resulting from low market interest rates. In addition, net inter-
est income benefited from income derived from the strategic invest-
ment portfolio in the first nine months of 2011. Income derived
from the strategic investment portfolio was significantly lower in
2010 as the portfolio was only established during the fourth quarter
of that year. Net trading income in Wealth Management also in-
creased by CHF 231 million, partly due to treasury-related revenues.
Net interest income in Retail & Corporate declined by CHF 94
million due to margin pressure that was partly offset by higher
volumes.
Net trading revenues in Wealth Management Americas fell by
CHF 120 million, impacted by the strengthening of the Swiss
franc, lower taxable fixed income and municipal trading income,
partly offset by higher trading income from structured notes.
Corporate Center trading revenues included a loss of CHF 133
million on the valuation of our option to acquire the SNB Stab-
Fund’s equity compared with a gain of CHF 745 million in 2010.
➔ Refer to the “Risk management and control section” section of
this report for more information on our option to acquire the
unauthorized trading incident, the sale of our strategic
SNB StabFund’s equity
investment portfolio and our cost reduction program
Net interest and trading income
Net interest and trading income was CHF 11,169 million, down
CHF 2,517 million from the prior year. In 2011, we recorded a loss
of CHF 1,849 million related to the unauthorized trading incident,
which was partly offset by an own credit gain of CHF 1,537 mil-
lion due to the widening of our credit spreads during the year.
Own credit in 2010 was a loss of CHF 548 million as credit spreads
tightened during the year.
Net interest and trading income in FICC, excluding own cred-
it, was down by CHF 1,621 million, partly reflecting the strength-
ening of the Swiss franc. Credit trading revenues declined due to
concerns surrounding the eurozone and the global economic
outlook in general, which led to increased market volatility and
significantly impacted liquidity and client activity. Emerging mar-
ket interest and trading revenues also declined. Furthermore, in
2011 we recorded a loss of CHF 284 million related to credit
valuation adjustments for monoline credit protection compared
with a gain of CHF 667 million in 2010. These declines were
partly offset by higher macro net interest and trading revenues
which increased across interest rates and foreign exchange busi-
ness lines.
Credit loss expense / recovery
In 2011, we recorded a net credit loss expense of CHF 84 million,
mainly reflecting an increase in collective loan loss allowances due
to increased credit risks arising predominantly from Swiss corpo-
rate clients that had become exposed to significant foreign cur-
rency related risk as a result of the impact of the strength ening
Swiss franc on their financial position. In 2010, we reported net
credit loss expenses of CHF 66 million, which included CHF 172
million of impairment charges taken on reclassified and acquired
securities, partially offset by recoveries on certain loan positions.
➔ Refer to the “Risk management and control section” section of
this report for more information on our risk management
approach, method of credit risk measurement and the develop-
ment of credit risk exposures
Net fee and commission income
Net fee and commission income was CHF 15,236 million com-
pared with CHF 17,160 million in the previous year.
Underwriting fees decreased by CHF 732 million or 38% to
CHF 1,180 million, reflecting a decline in both equity and debt
underwriting fees. The decline in equity underwriting fees result-
ed in part from an overall market slowdown due to volatility in
63
Financial and operating performance
UBS results
Net interest and trading income
CHF million
Net interest and trading income
Net interest income
Net trading income
Total net interest and trading income
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 1
of which: related to acquired securities
Corporate Center
Total
For the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
6,826
4,343
11,169
6,215
7,471
13,686
6,446
(324)
6,122
10
(42)
(18)
For the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
11
(101)
(90)
(6)
12
37
(28)
(1)
(84)
11
(76)
(64)
(1)
0
(133)
(39)
0
(66)
45
(178)
(133)
3
(1,698)
(425)
(18)
(5)
(1,832)
0
33
41
500
(28)
27
1 Refer to “Note 28b Reclassification of financial assets” in the “Financial information” section of this report.
capital markets and a reduced market fee pool. Debt underwrit-
ing fees declined due to lower revenues in the Investment Bank’s
debt capital market business, in part reflecting the market impact
of European sovereign debt concerns.
A decline of CHF 601 million in net brokerage fees reflected a
downturn in the market, with lower transactional volumes and
reduced level of client activity.
Portfolio management and advisory fees for the Group fell 7%,
or CHF 408 million, to CHF 5,551 million, mainly due to the
strengthening of the Swiss franc.
Investment fund fees decreased CHF 321 million, or 8%, to
CHF 3,577 million, due to lower asset-based fees resulting from a
lower average invested asset base, primarily as a result of the
strengthening of the Swiss franc.
Merger and acquisition and corporate finance fees increased
by CHF 135 million, or 16%, reflecting a somewhat improved
merger and acquisition environment in 2011 with the completion
of several large deals.
➔ Refer to “Note 4 Net fee and commission income” in the “Financial
Other income in 2011 also included gains of CHF 344 million
from the sale of loans and receivables compared with CHF 324
million in 2010. The 2011 gains mainly related to the sale of col-
lateralized loan obligations, which had been reclassified previ-
ously from Held for trading to Loans and receivables, and were
partly offset by related hedge termination losses recorded in net
trading income. Additionally, in 2011 we recorded a gain of CHF
78 million on sale of a property in Switzerland, compared with a
gain of CHF 158 million on sale of a property in Switzerland in
2010.
Net gains from disposals of investments in associates were
down CHF 236 million, mainly as 2010 included a gain of CHF 180
million from the sale of investments in associates owning office
space in New York. Other income in 2010 further included a CHF
69 million demutualization gain from our stake in the Chicago
Board Options Exchange.
➔ Refer to “Note 5 Other income” in the “Financial information”
section of this report for more information
information” section of this report for more information
Operating expenses
Other income
Other income was CHF 1,467 million compared with CHF 1,214
million in the previous year.
In 2011, net gains from financial investments available-for-sale
were CHF 887 million compared with 132 million in 2010. Gains
in 2011 included CHF 722 million from the sale of our strategic
investment portfolio as well as gains of CHF 81 million in Wealth
Management Americas’ available-for-sale portfolio.
Total operating expenses were CHF 22,439 million in 2011 com-
pared with CHF 24,539 million in 2010. Operating expenses in
2011 included CHF 380 million of net restructuring charges com-
pared with CHF 113 million in 2010.
Personnel expenses
Personnel expenses decreased by CHF 1,329 million, or 8%,
to CHF 15,591 million due to strengthening of the Swiss franc.
64
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In 2011, we recorded CHF 261 million in personnel-related net
restructuring charges, compared with a net release of CHF 2 mil-
lion in the prior year.
Salary costs decreased by CHF 174 million, or 2%, as a result
Outsourcing of IT and other services increased by CHF 73 mil-
lion, or 7%, due to higher IT business demand and capacity ex-
pansion needed for control functions related to increased regula-
tory requirements.
of the strengthening of the Swiss franc.
Expenses for discretionary variable compensation were CHF
3,392 million, a decrease of CHF 690 million, or 17%, from the
prior year. Expenses relating to 2011 bonus awards recognized in
the performance year 2011 were CHF 1,807 million, down CHF
804 million or 31% from the prior year, reflecting a 40% decrease
in the overall bonus pool for the 2011 performance year. The
amortization of deferred compensation awards from prior years
increased by CHF 114 million, or 8%, to CHF 1,585 million.
Other variable compensation increased by CHF 86 million,
mainly reflecting an increase in restructuring-related severance
charges.
Expenses for litigation and regulatory matters decreased by CHF
355 million, or 56%, mainly due to lower charges for litigation pro-
visions in Wealth Management Americas and the Investment Bank.
Other general and administrative expenses decreased by CHF
53 million, or 30%, due to a release of provisions for value-added
tax in Switzerland and favorable currency translation effects, par-
tially offset by increased real restate related restructuring charges
which were CHF 93 million in 2011 compared with CHF 79 million
in the prior year.
➔ Refer to “Note 7 General and administrative expenses” in the
“Financial information” section of this report for more information
Financial advisor compensation in Wealth Management Amer-
icas decreased by CHF 149 million to CHF 2,518 million. In US
dollar terms, financial advisor compensation increased, reflecting
higher revenue production and higher compensation commit-
ments and advances related to recruited financial advisors.
Depreciation and amortization
Depreciation of property and equipment was CHF 761 million, a
decrease of CHF 157 million, or 17%, from the prior year. The
strengthening of the Swiss franc contributed substantially to the
overall decrease.
Other personnel expenses decreased by CHF 369 million,
mainly as the prior year included a charge of CHF 200 million for
the UK bank payroll tax.
➔ Refer to “Note 6 Personnel expenses” and “Note 30 Equity
participation and other compensation plans” in the “Financial
information” section of this report and to the “Compensation”
section of this report for more information
General and administrative expenses
General and administrative expenses were CHF 5,959 million in
2011 compared with CHF 6,585 million in 2010. The strengthen-
ing of the Swiss franc contributed substantially to the overall de-
crease.
Occupancy costs decreased by CHF 193 million or 15% mainly
as vacant office space was provisioned for in the prior year, and
also as a result of reduced rental expenses and favorable currency
translation effects.
Rent and maintenance of machines and equipment decreased
by CHF 126 million, or 23%, mainly due to reduced costs for IT
maintenance services. Expenses for communications and market
data services decreased by CHF 48 million, or 7%, mainly as a
result of reduced costs for market data services.
Administration costs decreased by CHF 48 million, or 7%, as a
result of a release of value added tax accruals in the UK and the
favorable effect of the strengthening of the Swiss franc, largely
offset by a CHF 109 million charge related to the UK bank levy.
The prior year included a charge of CHF 40 million to reimburse
the Swiss government for costs incurred in connection with the
US cross-border matter.
Marketing and public relations expenses increased by CHF 54
million, or 16%, primarily due to higher costs associated with
sponsoring activities and marketing. Professional fees increased
by CHF 68 million, or 9%, mainly due to higher legal fees.
Depreciation of IT and other equipment decreased partly as
the useful life of some assets was extended. In 2011 we recorded
a reversal of impairment losses on a property of CHF 34 million,
partly offset by CHF 26 million restructuring related impairments
of real estate assets. The prior year included CHF 37 million im-
pairment charges related to restructuring in Wealth Manage-
ment Americas.
Amortization of intangible assets was CHF 127 million com-
pared with CHF 117 million in 2010. Higher impairment charges
on intangible assets, mainly resulting from the impairment of in-
tangible assets related to a past acquisition in the UK, were only
partially offset by lower amortization of intangible assets due to
favorable currency impacts.
Income tax
We recognized a net income tax expense in the income statement
for the year of CHF 923 million. This includes a Swiss net deferred
tax expense of CHF 1,063 million, which reflects a tax expense of
CHF 949 million for the amortization of deferred tax assets, as tax
losses are used against profits arising from business operations. In
addition, it reflects a tax charge of CHF 245 million relating to the
revaluation of deferred tax assets (reflecting updated profit fore-
cast assumptions including the expected geographical mix) partly
offset by a CHF 131 million tax effect relating to the unauthorized
trading incident. Additionally, it includes a foreign net deferred
tax benefit of CHF 246 million, including a US tax benefit of CHF
400 million, which mainly relates to a write-up of deferred tax
assets for US tax losses incurred in previous years, predominantly
in the parent bank, UBS AG. This was partly offset by a tax ex-
pense of CHF 41 million relating to the downward revaluation of
deferred tax assets for Japan, following a change in statutory tax
rates and loss offset rules, and a tax expense of CHF 113 million
65
Financial and operating performance
UBS results
for the amortization of deferred tax assets, as tax losses are used
against profits in various locations. It also includes a current tax
expense of CHF 106 million, which reflects tax expenses of CHF
277 million for taxable profits of Group entities, partly offset by
current tax benefits of CHF 171 million relating to prior periods.
During 2010, we recognized a net income tax benefit in our
income statement of CHF 381 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.
In the first half of 2012, we expect our tax rate to be in the
region of 20–25%. However, the tax rate may differ if there are
significant book tax adjustments, which generally mainly affect
Swiss taxable profits – for example, own credit gains / losses. In
the second half of 2012, consistent with past practice, we expect
to revalue our deferred tax assets based on a reassessment of
future profitability taking into account updated business plan
forecasts.
➔ Refer to “Note 22 Income taxes” in the “Financial information”
section of this report for more information
Net profit attributable to non-controlling interests
Net profit attributable to non-controlling interests for 2011 was
CHF 268 million, compared with CHF 304 million in 2010. This
mainly reflected dividends paid on preferred securities and divi-
dend accruals triggered by the call of a hybrid tier 1 instrument in
2011.
Comprehensive income attributable to UBS shareholders
Comprehensive income attributable to UBS shareholders includes
all changes in equity (including net profit) attributed to UBS share-
holders during a period, except those resulting from investments
by and distributions to shareholders as well as equity-settled
share-based payments. Items included in comprehensive income,
but not in net profit, are reported under other comprehensive in-
come (OCI). Most of those items will be recognized in net profit
when the underlying item is sold or realized.
Comprehensive income attributable to UBS shareholders in
2011 was CHF 6,896 million, including net profit attributable to
UBS shareholders of CHF 4,159 million, and other comprehensive
income attributable to UBS shareholders of CHF 2,737 million.
OCI attributable to UBS shareholders included foreign currency
translation gains of CHF 706 million, fair value gains on financial
investments available-for-sale of CHF 495 million, and fair value
gains of CHF 1,537 million on interest rate swaps designated as
cash flow hedges.
Foreign currency translation gains of CHF 706 million were pre-
dominantly related to net investments in US foreign operations,
which led to gains as the US dollar appreciated in the second half
of 2011. Fair value gains of CHF 495 million on financial invest-
ments available-for-sale were almost entirely driven by net gains of
CHF 545 million related to the strategic investment portfolio. De-
clining market interest rates resulted in an increase in fair values of
CHF 1,267 million and other comprehensive income gains prior to
the sale of the portfolio in the third quarter of 2011, more than
offsetting unrealized losses of CHF 545 million recognized in OCI
in 2010. Upon sale, a realized gain of CHF 722 million was recog-
nized in the income statement within other income, which re-
duced other comprehensive income accordingly. Fair value gains of
CHF 1,537 million on net fixed receiver interest rate swaps desig-
nated as cash flow hedges resulted from declining long-term inter-
est rates across all major currencies.
OCI attributable to UBS shareholders in 2010 was negative
CHF 1,659 million, mainly reflecting foreign currency translation
losses of CHF 909 million and fair value losses on financial invest-
ments available-for-sale of CHF 607 million.
➔ Refer to the “Statement of comprehensive income” in the “Fi-
nancial information” section of this report for more information
Performance by reporting segment
The management discussion and analysis by reporting segment is
provided in the following sections of this report.
Development of invested assets
Net new money
In Wealth Management, net new money improved significantly,
with net inflows of CHF 23.5 billion compared with net outflows
of CHF 12.1 billion in 2010 due to improvements in all regions
Performance from continuing operations before tax
CHF million
Wealth Management
Retail & Corporate
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Investment Bank
Corporate Center
Operating profit from continuing operations before tax
66
For the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
2,676
1,919
4,596
534
428
154
(363)
5,350
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)
16
8
13
(17)
(93)
(28)
Net new money 1
CHF billion
Wealth Management
Wealth Management Americas
Global Asset Management
of which: money market flows
1 Excludes interest and dividend income.
Invested assets
CHF billion
Wealth Management
Retail & Corporate
Wealth Management & Swiss Bank
Wealth Management Americas
Traditional investments
of which: money market funds
Alternative and quantitative investments
Global real estate
Infrastructure and private equity 1
Global Asset Management
Total
For the year ended
31.12.11
31.12.10
31.12.09
23.5
12.1
4.3
(4.7)
(12.1)
(6.1)
1.8
(6.4)
(87.1)
(11.6)
(45.8)
(12.1)
31.12.11
As of
31.12.10
% change from
31.12.09
31.12.10
750
134
883
709
497
92
31
38
8
574
2,167
768
136
904
689
487
96
34
36
1
559
2,152
825
135
960
690
502
111
41
39
1
583
2,233
(2)
(1)
(2)
3
2
(4)
(9)
6
700
3
1
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1 With effect from 2011, the Infrastructure and private equity fund of funds businesses were transferred from Alternative and quantitative investments to Infrastructure, which following the transfer was renamed Infra-
structure and private equity. As the amounts were not material, prior periods were not restated.
and client segments. The strongest net inflows were recorded in
Asia Pacific and the emerging markets as well as globally from
ultra high net worth clients. Europe reported net outflows, mainly
related to the offshore business with countries neighboring Swit-
zerland partly offset by net inflows from the European onshore
business.
Net new money inflows in Wealth Management Americas
were CHF 12.1 billion compared with net outflows of CHF 6.1
billion in 2010. This turnaround was due to improved net inflows
from net recruiting of financial advisors, including higher inflows
from recruitment of experienced financial advisors, and lower
outflows from financial advisor attrition. Net new money from
financial advisors employed with UBS for more than one year
remained positive, but declined from 2010.
In Global Asset Management, excluding money market flows,
net new money inflows from third parties were CHF 12.2 billion in
2011 compared with net inflows of CHF 16.2 billion in 2010, and
net outflows from clients of UBS’s wealth management businesses
were CHF 3.1 billion compared with net outflows of CHF 8.1 billion.
The flows from UBS’s wealth management businesses included two
transfers of investment management and research responsibility
from Wealth Management & Swiss Bank to Global Asset Manage-
ment: a CHF 1.8 billion multi-manager alternative fund was trans-
ferred to alternative and quantitative investments, and CHF 2.9 bil-
lion in private equity funds of funds were transferred to infrastructure
and private equity. It should be noted that these assets are reported
as invested assets in both business divisions, as Wealth Manage-
ment & Swiss Bank continues to advise the clients of the funds.
Money market net inflows from third parties were CHF 0.2 bil-
lion compared with CHF 2.0 billion in 2010, and money market
net outflows from clients of UBS’s wealth management business-
es were CHF 5.0 billion compared with CHF 8.3 billion.
Invested assets
Total invested assets were CHF 2,167 billion on 31 December 2011,
up slightly from CHF 2,152 billion on 31 December 2010. Net new
money inflows of CHF 42 billion and the addition of CHF 25 billion
in invested assets related to the ING Investment Management ac-
quisition were largely offset by adverse market impacts.
➔ Refer to the “Wealth Management”, “Wealth Management
Americas” and “Global Asset Management” sections of this
report for more information
67
Financial and operating performance
UBS results
Certain items affecting our results in 2011
Cost reduction program
In July 2011, we announced a cost
reduction program intended to align our
cost base with changes in the market
environment. As part of this program, in
August we announced that we would
reduce our headcount by approximately
3,500 and rationalize our real estate
requirements. As a result, we expect
to recognize restructuring charges totaling
approximately CHF 550 million, of
which CHF 403 million was recognized in
2011.
Staff reductions announced in August
included redundancies as well as natural
attrition. Of the expected 3,500 staff
reductions, approximately 45% will come
from the Investment Bank, 35% from
Wealth Management & Swiss Bank, 10%
from Global Asset Management, and
10% from Wealth Management Ameri-
cas. The majority of affected staff
departed in 2011.
UBS will continue to be vigilant in man-
aging its cost base while remaining
committed to investing in growth areas.
➔ Refer to “Note 37 Reorganizations and
disposals” in the “Financial information”
section of this report for more information
Unauthorized trading incident
In September 2011, we announced that
the Investment Bank had incurred a loss
of CHF 1,951 million (USD 2,229 million)
due to an unauthorized trading incident.
Large stock index futures positions were
offset in our systems with fictitious,
forward-settling exchange-traded funds
(ETF) positions. These fictitious ETF
positions masked the risk related to the
futures positions, and ultimately the
substantial losses incurred on them. Our
risk and operational systems detected
unauthorized or unexplained activity,
but this was not sufficiently investigated
nor was appropriate action taken to
ensure that existing controls were
enforced.
The resulting loss adversely impacted the
Group’s pre-tax profit for the year by CHF
1,849 million. The remainder of the loss,
CHF 102 million, was a foreign currency
translation loss recognized directly in
equity (other comprehensive income) as a
result of the fact that the activity took
place in a foreign operation in a func-
tional currency other than the Swiss franc.
A special committee of the Board of
Directors was established and is conduct-
ing an investigation of the unauthorized
trading activity and its relation to the
control environment. A second investiga-
tion is being carried out jointly by the
Swiss Financial Market Supervisory
Authority (FINMA) and the UK Financial
Services Authority (UK FSA); they have
retained KPMG for this purpose. In
addition, FINMA and the UK FSA have
announced that they have commenced
enforcement proceedings against UBS in
relation to this matter. We are cooperat-
ing fully with these investigations and are
committed to addressing all findings to
ensure that we have a risk management
framework that better protects the firm
and its shareholders.
➔ Refer to the “Impact of the unauthorized
trading” sidebar in the “Compensation”
section of this report for more information
Sale of our strategic investment
portfolio
In the third quarter of 2011, we sold our
strategic investment portfolio comprised
of long-term fixed-interest-rate US
Treasury securities with a face value of
USD 9.4 billion and UK Government
bonds with a face value of GBP 2.9
billion. The gain on sale of CHF 722
million was recognized as other income.
Of this gain, CHF 433 million was
allocated to Wealth Management and
CHF 289 million to Retail & Corporate.
This portfolio was established in the
fourth quarter of 2010 to hedge
negative effects on the bank’s net
68
interest income stemming from the
prolonged period of very low interest
rate yields. As the market yields of
the positions were declining below
targeted levels, we closed these positions
to realize gains.
➔ Refer to the “Interest rate and currency
management” section of this report for
more information on our management of
non-trading interest rate risk
Adjustments to 2011 results after
issuance of fourth quarter report
After the publication of our fourth quarter
2011 financial report on 7 February 2012,
management adjusted the 2011 results to
account for subsequent events. The net,
after-tax effect of these adjustments was
to reduce net profit attributable to UBS
shareholders by CHF 74 million, which
decreased basic and diluted earnings per
share by CHF 0.02.
The principal change relates to an
agreement in principle that we entered
into with a monoline insurer in March
2012, under which we agreed to the
commutation of certain credit default
swap contracts in exchange for a net cash
payment. This had the effect of reducing
the Investment Bank’s 2011 net trading
income by CHF 167 million. The settle-
ment, if consummated, would also
include the resolution of litigation and the
mutual release of claims, as well as the
removal of certain existing impediments
to the restructuring or sale by UBS of
legacy assets which account for aggregate
Basel III risk-weighted assets of almost
CHF 15 billion. The transaction is in
keeping with our strategy to reduce our
Basel III risk-weighted assets in anticipa-
tion of future capital requirements. We
cannot predict when or at what prices the
underlying assets may be restructured or
sold.
➔ Refer to “Note 32 Events after the
reporting period” in the “Financial
information” section of this report for more
information
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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 opera-
tions of CHF 7,455 million and a profit before tax from discontin-
ued 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 interest and trading income
Net interest and trading income was CHF 13,686 million com-
pared with CHF 6,122 million in 2009.
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
comparatively less tightening of our credit spreads in 2010. Deb-
it valuation 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 wid-
ening of overall credit spreads in the second quarter, partially
offset by a tightening of the credit spreads in the third and
fourth quarters.
Interest income in Wealth Management was down CHF 116
million, or 6%, due to pressure from the low interest rate environ-
ment and the decrease in value of the euro and US dollar against
the Swiss franc in 2010. Interest income in Retail & Corporate was
down 259 million, or 10%, partly as low market interest rates
continued to exert downward pressure on interest margins. In
Wealth Management Americas, interest income declined by CHF
105 million, or 13%, to CHF 695 million due to lower investment
portfolio interest income, partly offset by higher income from se-
curities-backed lending. Net trading income in Wealth Manage-
ment Americas declined CHF 193 million to CHF 570 million,
partly due to lower municipal trading income.
Net interest and trading income in the Corporate Center in-
creased and included a CHF 745 million gain on the valuation of
our option to acquire the SNB StabFund’s equity compared with a
CHF 117 million gain in the prior year.
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 million
in 2009.
➔ Refer to the “Risk, treasury and capital management” section of
this report for more information on our risk management
approach, method of credit risk measurement and the develop-
ment 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 underwrit-
ing fees resulted from an overall market slowdown. Debt un-
derwriting fees declined due to lower revenues in the Invest-
ment 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
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 manage-
ment fees in our Wealth Management Americas business di-
vision. This was partly offset by lower portfolio management
fees in Global Asset Management, primarily resulting from
lower performance fees in its alternative and quantitative in-
vestments 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.
69
Financial and operating performance
UBS results
Other income
Other income was CHF 1,214 million in 2010, compared with CHF
599 million in the previous year. Other income in 2010 included 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, gains of CHF 324 million from
the disposal of loans and receivables (including sales and issuer
redemptions of auction rate securities), a CHF 69 million demu-
tualization 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
other equipment, communication and market data services, ad-
ministration and professional fees.
➔ Refer to “Note 7 General and administrative expenses” in the
“Financial information” section of this report for more informa-
tion
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.
Operating expenses
Income tax
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. Oth-
er personnel expenses in 2010 included a charge of CHF 0.2 bil-
lion for the UK bank payroll tax.
Other variable compensation was CHF 230 million in 2010 com-
pared with CHF 699 million in 2009. The decrease was mainly due
to restructuring-related severance costs recognized in 2009.
➔ Refer to “Note 6 Personnel expenses” and “Note 30 Equity
participation and other compensation plans” in the “Financial
information” section of this report and to the “Compensation”
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 the updated taxable profit forecast assump-
tions 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.
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.
section of this report for more information
Net profit attributable to non-controlling interests
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, partially
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
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
70
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 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: (i) 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; (ii) fair value losses on financial investments
available-for-sale of CHF 607 million (net of tax); and (iii) 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 consists
of US and UK government bonds. During the fourth quarter, the
fair value of this portfolio decreased, mostly due to rising market
interest rates. On a net basis, the fair value movement of US dol-
lar, euro and British pound fix-receiver and fixed-payer interest
rate swaps designated in cash flow hedges was slightly negative
during the year.
➔ Refer to the “Statement of comprehensive income” 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.
➔ Refer to the “Wealth Management”, “Wealth Management
Americas” and “Global Asset Management” sections of this
report for more information
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71
Financial and operating performance
UBS results
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
of which: 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
Treasury shares
Equity classified as obligation to purchase own shares
Retained earnings
Cumulative net income recognized directly in equity, net of tax
Equity attributable to UBS shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
72
31.12.11
31.12.10
31.12.09
31.12.10
% change from
40,638
23,218
58,763
213,501
181,525
39,936
486,584
41,322
10,336
266,604
53,174
6,327
795
5,688
9,695
8,526
26,939
17,133
62,454
142,790
228,815
61,352
401,146
38,071
8,504
262,877
74,768
5,466
790
5,467
9,822
9,522
12,465
1,419,162
22,681
1,317,247
30,201
8,136
102,429
39,480
473,400
67,114
88,982
342,409
6,850
140,617
61,692
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
232,258
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
1,361,309
1,265,384
1,291,905
383
34,614
(1,160)
(39)
23,603
(3,955)
53,447
4,406
57,852
383
34,393
(654)
(54)
19,444
(6,693)
46,820
5,043
51,863
356
34,824
(1,040)
(2)
11,910
(5,034)
41,013
7,620
48,633
1,419,162
1,317,247
1,340,538
51
36
(6)
50
(21)
(35)
21
9
22
1
(29)
16
1
4
(1)
(10)
(45)
8
(27)
22
37
(28)
20
14
(12)
3
(11)
8
(3)
8
0
1
77
(28)
21
(41)
14
(13)
12
8
(cid:20)(cid:18)(cid:19)(cid:19)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:20)(cid:18)(cid:19)(cid:19)(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:2)(cid:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)
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(cid:20)(cid:23)
(cid:24)(cid:25)
(cid:10)(cid:22)(cid:25)(cid:11)
(cid:19)(cid:14)(cid:22)(cid:19)(cid:27)
(cid:10)(cid:20)(cid:27)(cid:11)
(cid:26)(cid:23)
(cid:19)(cid:14)(cid:21)(cid:19)(cid:25)
(cid:19)(cid:14)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:22)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:21)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:20)(cid:18)(cid:18)
(cid:18)
(cid:19)(cid:14)(cid:21)(cid:19)(cid:25)
(cid:19)(cid:14)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:22)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:21)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:20)(cid:18)(cid:18)
(cid:18)
(cid:20)(cid:27)
(cid:19)(cid:19)
(cid:26)(cid:18)
(cid:10)(cid:19)(cid:23)(cid:11)
(cid:10)(cid:21)(cid:11)
(cid:19)(cid:14)(cid:22)(cid:19)(cid:27)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)
(cid:50)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)
(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)
(cid:37)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)
(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:46)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:19)
(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:40)(cid:75)(cid:80)(cid:16)(cid:2)(cid:75)(cid:80)(cid:88)(cid:16)(cid:2)(cid:67)(cid:72)(cid:85)(cid:17)
(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:20)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:19)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)
(cid:19)(cid:36)(cid:53)(cid:18)(cid:20)(cid:18)(cid:65)(cid:71)
(cid:48)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)
(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)
(cid:37)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)
(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)
(cid: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:19)(cid:17)
(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:36)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:19)
(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:67)(cid:85)(cid:74)(cid:2)(cid:67)(cid:80)(cid:70)(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: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:84)(cid:71)(cid:69)(cid:71)(cid:75)(cid:88)(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: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: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)
Balance sheet development
31.12.11 vs. 31.12.10
Our total assets stood at CHF 1,419 billion on 31 December 2011,
up CHF 102 billion or 8% from CHF 1,317 billion on 31 December
2010. The increase occurred mainly in positive replacement val-
ues, which grew by CHF 85 billion to CHF 487 billion.
Our funded assets volume, which excludes positive replace-
ment values, rose by CHF 16 billion to CHF 933 billion. Collateral
trading assets grew by CHF 67 billion to CHF 272 billion, while
lending assets, which include cash deposits at central banks, rose
by CHF 25 billion to CHF 341 billion. These increases were partially
offset by lower trading portfolio assets, which dropped CHF 47
billion to CHF 182 billion, reduced financial investments available-
for-sale positions, which fell by CHF 22 billion to CHF 53 billion,
and prime brokerage receivables in other assets, which declined
by CHF 10 billion to CHF 6 billion.
(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)
Currency movements between 31 December 2010 and 31 De-
cember 2011 had only a small effect on our funded balance sheet
assets, which led to a net increase of CHF 2 billion.
To a large extent, the total asset increase occurred in the Invest-
ment Bank, as the abovementioned change in positive replace-
ment values and collateral trading assets significantly contributed
to the business division’s CHF 107 billion increase to CHF 1,074 bil-
lion. Wealth Management and Wealth Management Americas
increased their lending activities resulting in balance sheet assets
growth of CHF 7 billion to CHF 101 billion and CHF 4 billion to
CHF 54 billion, respectively. The Corporate Center’s balance sheet
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(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
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(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
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(cid:19)(cid:23)(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:23)(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)
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(cid:25)
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(cid:20)(cid:14)(cid:20)(cid:25)(cid:23)
(cid:25)(cid:25)(cid:22)
(cid:23)(cid:26)(cid:22)
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(cid:18)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
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(cid:20)(cid:14)(cid:18)(cid:19)(cid:23)
(cid:21)(cid:19)(cid:20)
(cid:21)(cid:22)(cid:26)
(cid:21)(cid:23)(cid:23)
(cid:20)(cid:14)(cid:23)(cid:18)(cid:18)
(cid:20)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:23)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:27)
(cid:18)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
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(cid:21)
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(cid:19)
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(cid:16)
(cid:18)
(cid:21)
(cid:16)
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(cid:19)
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(cid:18)
(cid:16)
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(cid:20)
(cid:19)
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(cid:21)
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(cid:21)
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(cid:16)
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(cid:19)
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(cid:16)
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(cid:19)
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(cid:19)
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(cid:20)(cid:14)(cid:20)(cid:25)(cid:23)
(cid:26)
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(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:20)(cid:14)(cid:18)(cid:19)(cid:23)
(cid:19)(cid:14)(cid:26)(cid:21)(cid:19)(cid:149)
(cid:20)(cid:14)(cid:23)(cid:18)(cid:18)
(cid:20)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:16)
(cid:19)
(cid:19)
(cid:20)
(cid:19)
(cid:19)
(cid:21)
(cid:16)
(cid:19)(cid:14)(cid:22)(cid:22)(cid:25)
(cid:19)(cid:14)(cid:22)(cid:19)(cid:27)
(cid:19)(cid:14)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:22)(cid:7)
(cid:19)(cid:14)(cid:21)(cid:22)(cid:19)
(cid:19)(cid:14)(cid:21)(cid:19)(cid:25)
(cid:19)(cid:14)(cid:20)(cid:27)(cid:19)
(cid:19)(cid:14)(cid:20)(cid:21)(cid:25)
(cid:19)(cid:14)(cid:22)(cid:22)(cid:25)
(cid:19)(cid:14)(cid:22)(cid:19)(cid:27)
(cid:19)(cid:14)(cid:21)(cid:22)(cid:19)
(cid:19)(cid:14)(cid:21)(cid:19)(cid:25)
(cid:19)(cid:14)(cid:20)(cid:27)(cid:19)
(cid:19)(cid:14)(cid:20)(cid:21)(cid:25)
(cid:19)(cid:14)(cid:19)(cid:24)(cid:19)(cid:149)
(cid:27)(cid:19)(cid:27)(cid:149)
(cid:27)(cid:19)(cid:24)(cid:149)
(cid:27)(cid:21)(cid:21)(cid:149)
(cid:27)(cid:18)(cid:20)(cid:149)
(cid:27)(cid:19)(cid:18)(cid:149)
(cid:27)(cid:21)(cid:21)(cid:149)
(cid:20)(cid:21)(cid:20)
(cid:19)(cid:26)(cid:18)
(cid:21)(cid:19)(cid:22)
(cid:20)(cid:20)(cid:27)
(cid:20)(cid:18)(cid:23)
(cid:21)(cid:19)(cid:23)
(cid:20)(cid:21)(cid:24)
(cid:20)(cid:20)(cid:18)
(cid:21)(cid:19)(cid:27)
(cid:20)(cid:20)(cid:21)
(cid:20)(cid:19)(cid:25)
(cid:21)(cid:18)(cid:26)
(cid:20)(cid:18)(cid:24)
(cid:19)(cid:26)(cid:26)
(cid:21)(cid:26)(cid:19)
(cid:19)(cid:26)(cid:20)
(cid:20)(cid:25)(cid:20)
(cid:21)(cid:22)(cid:19)
(cid:19)(cid:14)(cid:19)(cid:24)(cid:21)(cid:149)
(cid:19)(cid:24)(cid:7)
(cid:27)(cid:21)(cid:19)(cid:149)
(cid:27)(cid:20)(cid:21)(cid:149)
(cid:27)(cid:22)(cid:20)(cid:149)
(cid:20)(cid:19)(cid:7)
(cid:19)(cid:27)(cid:7)
(cid:19)(cid:27)(cid:7)
(cid:27)(cid:18)(cid:25)(cid:149)
(cid:19)(cid:26)(cid:7)
(cid:19)(cid:25)(cid:7)
(cid:27)(cid:19)(cid:27)(cid:149)
(cid:27)(cid:22)(cid:24)(cid:149)
(cid:19)(cid:25)(cid:7)
(cid:20)(cid:25)(cid:7)
(cid:21)(cid:19)(cid:7)
(cid:21)(cid:24)(cid:7)
(cid:21)(cid:24)(cid:7)
(cid:21)(cid:24)(cid:7)
(cid:21)(cid:24)(cid:7)
(cid:21)(cid:24)(cid:7)
(cid:21)(cid:24)(cid:7)
(cid:19)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:23)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:46)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73) (cid:20)
(cid:37)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:21)
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)(cid:20)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(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:21)
(cid:37)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:50)(cid:81)(cid:85)(cid:75)(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:53)(cid:74)(cid:81)(cid:84)(cid:86)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(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:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70) (cid:20)(cid:14) (cid:22)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(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: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:82)(cid:81)(cid:85)(cid:75)(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: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:67)(cid:80)(cid:70)(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: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:84)(cid:71)(cid:69)(cid:71)(cid:75)(cid:88)(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:36)(cid:67)(cid:80)(cid:77)(cid:85)
(cid:48)(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: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)
73
(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)
Financial and operating performance
UBS results
declined by CHF 10 billion to CHF 27 billion following the sale
of our strategic investment portfolio in the third quarter of 2011.
Retail & Corporate’s assets declined by a net CHF 4 billion to CHF
149 billion, as the reduction in cash deposits at central banks
outweighed the growth in the lending book. The balance sheet
size of Global Asset Management remained relatively stable at
CHF 15 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 of 2011 and
2010
Lending and borrowing
Lending (including cash and balances with central banks)
Cash and balances with central banks was CHF 41 billion on
31 December 2011, an increase of CHF 14 billion from the prior
year-end. Interbank lending rose by CHF 6 billion to CHF 23 bil-
lion, mainly on higher short-term lending activities by the Invest-
ment Bank. Loans to customers increased by a net CHF 4 billion to
CHF 267 billion, predominantly in our wealth management busi-
nesses, which contributed a CHF 14 billion volume growth across
several products, including fixed term, Lombard and call loans as
well as LIBOR-based mortgages. This increase was partly offset by
the continued sale of our Investment Bank’s residual risk positions
of approximately CHF 10 billion.
➔ Refer to the “Risk, treasury and capital management” section for
more information
Borrowing
Overall, our unsecured funding remained relatively stable, declin-
ing by CHF 3 billion to CHF 602 billion, however with some shifts
in products.
Reduced balances were recorded in the following categories:
(i) financial liabilities designated at fair value with a decrease of
CHF 12 billion to CHF 89 billion on 31 December 2011 on lower
valuations of equity-linked notes issued and to a lesser extent on
maturities of credit-linked notes issued; (ii) short-term interbank
borrowings (Due to banks), which was CHF 30 billion on 31 De-
cember 2011, were down CHF 11 billion from 31 December 2010
due to lower bank borrowings by the Investment Bank; and (iii)
long-term debt declined CHF 5 billion to CHF 69 billion, as matur-
ing senior bonds and lower tier 2 subordinated bonds outweighed
new covered bond issuances.
These declines were almost offset by higher client deposits
(Due to customers) and increased money market paper issuances.
Client deposits amounted to CHF 342 billion on 31 December
2011, a net increase of CHF 10 billion compared with 31 Decem-
ber 2010 due to cash deposits inflows in our wealth management
and retail businesses of CHF 23 billion mainly in current, savings
and personal accounts, partly offset by lower wholesale client de-
posits in the Investment Bank of CHF 11 billion. Money market
paper issued was CHF 71 billion at year-end 2011, an increase of
CHF 15 billion from the prior year-end, mainly due to a higher
level of outstanding commercial paper and increased issuance of
yield enhancement products for our wealth management clients.
➔ Refer to the “Liquidity and funding management” section for
more information on long-term debt issuance
Trading portfolio
Trading portfolio assets dropped by CHF 47 billion to stand at CHF
182 billion on 31 December 2011. The Investment Bank reduced
certain debt instruments and increased liquid collateral trading
investments. The following products were reduced: CHF 20 billion
of money market papers mainly in Swiss and Japanese govern-
ment bills, CHF 12 billion of corporate and bank debt instruments
and CHF 10 billion of equity instruments, mainly due to lower
valuations on equity-linked notes issued hedges.
Reverse repurchase agreements and cash collateral on
securities borrowed
Cash collateral on securities borrowed and reverse repurchase
agreements increased by CHF 67 billion to CHF 272 billion, main-
ly due to the aforementioned shift from trading portfolio assets
and general higher trading activities in the Investment Bank.
Replacement values
The positive and the negative replacement values of derivative
instruments rose by similar amounts on both sides of the balance
sheet, increasing by CHF 85 billion (21%) and CHF 80 billion
74
(20%), respectively, and ending 2011 at CHF 487 billion and
CHF 473 billion, respectively. Increases in positive replacement
values occurred mainly in interest rate contracts, which rose by
CHF 92 billon due to a flattening of the interest yield curves, and
credit derivative contracts, which rose by CHF 11 billion due to a
general widening of credit spreads. These increases were partially
offset by lower foreign exchange contracts, which declined by
CHF 16 billion, mainly due to currency movements.
Financial investments available-for-sale
Financial investments available-for-sale declined by CHF 22 billion
to CHF 53 billion in 2011, primarily reflecting the sale of our stra-
tegic investment portfolio in the third quarter of 2011.
Other assets / other liabilities
Prime brokerage receivables declined by CHF 10 billion to CHF 6
billion, mainly due to continued client concerns related to the
eurozone and other uncertainties. Cash collateral payables on de-
rivatives increased by CHF 8 billion on higher current accounts
arising from over-the-counter derivatives.
Equity
On 31 December 2011, equity attributable to UBS shareholders
was CHF 53.4 billion, representing an increase of CHF 6.6 billion
compared with 31 December 2010. This increase reflected (i) an-
nual net profit of CHF 4.2 billion; (ii) net positive effects recog-
nized in equity of CHF 2.7 billion related to fair value gains of CHF
1.5 billion on interest rate swaps designated as cash flow hedges,
currency translation effects of CHF 0.7 billion and fair value gains
of CHF 0.5 billion on financial investments available-for-sale; and
(iii) a net increase of CHF 0.2 billion in share premium, mainly re-
lated to equity compensation plans. These increases were partially
offset by net treasury share repurchases of CHF 0.5 billion. Equity
attributable to non-controlling interests decreased by CHF 0.6 bil-
lion to CHF 4.4 billion, mainly related to the redemption of trust
preferred securities.
➔ Refer to the “Statement of changes in equity” in the “Financial
information” section, and to “Comprehensive income attribut-
able to UBS shareholders” in the “UBS results” section of this
report for more information
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75
Financial and operating performance
UBS results
Off-balance sheet
Off-balance sheet arrangements
In the normal course of business, we enter into transactions that are
not recognized on the balance sheet in accordance with Interna-
tional Financial Reporting Standards (IFRS) because we have either
transferred or have not assumed the related risks and rewards
(financial assets), and / or because we did not become party to the
contractual provisions of the financial instruments. These off-bal-
ance sheet arrangements are transacted to either meet the financial
needs of clients or offer investment opportunities through entities
that are not controlled by us. These transactions include derivative
instruments, guarantees and similar arrangements, retained or
contingent interests in assets transferred to non-consolidated enti-
ties and obligations and liabilities (including contingent obligations
and liabilities) from retained interests in non-consolidated entities.
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 certain instances the amount
recognized on the balance sheet does not represent the full gain
or loss potential inherent in such arrangements.
We continuously evaluate whether triggering events require re-
consideration of the consolidation conclusions made at the incep-
tion of our involvement with special purpose entities (SPE). As of
31 December 2011, there were no holdings which required recon-
sideration of the consolidation assessment.
Refer to “Note 1a) 3) Subsidiaries” and “Note 1a) 5) Recognition
and derecognition of financial instruments” in the “Financial infor-
mation” section of this report for more information on accounting
policies regarding consolidation and deconsolidation of subsidiar-
ies, including SPE, and recognition and derecognition of financial
instruments, respectively.
The following paragraphs discuss several distinct areas of off-
balance sheet arrangements. Additional relevant off-balance
sheet information is primarily provided in “Note 21 Provisions and
contingent liabilities”, “Note 23 Derivative instruments and hedge
accounting” and “Note 25 Operating lease commitments” in the
“Financial information” section of this report.
Risk disclosures, including our involvement with off-balance
sheet vehicles
Refer to the “Risk, treasury and capital management” section of
this report for comprehensive liquidity, market and credit risk in-
formation related to risk positions, including our exposure to off-
balance sheet involvements.
Non-consolidated securitization vehicles and collateralized debt
obligations
Our involvement (in the form of purchased or retained interests or
derivatives) in non-consolidated securitization vehicles and collateral-
ized debt obligations (CDO) is outlined within the table on the follow-
ing page under the column “Involvements in non-consolidated SPE
held by UBS”. As of 31 December 2011, the carrying value of our
purchased and retained interests relating to non-consolidated SPE
and CDO totaled CHF 10.7 billion, of which CHF 7.1 billion was held
in Trading portfolio assets and measured at fair value and CHF 3.6
billion was held at amortized cost within Loans. In addition, we had
involvements in SPE in the form of net Negative replacement values,
mainly interest rate swaps and credit default swaps, of CHF 0.6 bil-
lion as of 31 December 2011. The total pool of assets held by these
non-consolidated investment vehicles in which UBS has involvement
are reflected in the column “Total SPE assets”. These total SPE assets
represent the total size and exposure of the SPE and are not indica-
tive of our risk of loss. Our maximum loss potential is generally lim-
ited to our involvements in the non-consolidated SPE.
During 2011 we sponsored the creation of a limited number of
special purpose entities that principally facilitated the securitization
of commercial mortgage loans. These securitization transactions
generally involved the transfer of assets into a trust or corporation,
which in turn issued beneficial interests in the form of securities.
Financial assets transferred to such trusts and corporations are no
longer reported in our consolidated financial statements once the
accounting requirements for derecognition are met, including the
transfer of substantially all of the risks and rewards related to such
assets. UBS retained certain involvements in these special purpose
entities, which are included in the disclosure on the next page. UBS
did not consolidate these special purpose entities as of 31 Decem-
ber 2011 as we did not control them.
➔ Refer to “Note 1a) 12) Securitization structures set up by UBS”
in the “Financial information” section of this report for more
information on accounting policies regarding securitization
vehicles established by UBS
➔ Refer to the securitization disclosures in the “Basel 2.5 Pillar 3”
section of this report for a more comprehensive overview of our
securitization activities
In addition to our retained involvement in 2011 securitization ac-
tivities, we also continue to hold involvement in earlier securitization
issuances, mainly legacy positions, which were originated by UBS or
by third-parties. The volume and size of these positions, a majority of
which are linked to the US mortgage market, have been further re-
duced as of 31 December 2011 when compared with the prior year.
Our involvement in non-consolidated securitization vehicles
and collateralized debt obligations disclosed in this section are
typically managed on a portfolio basis alongside hedges and other
offsetting financial instruments. The numbers presented do not
include these offsetting factors.
Purchased and retained trading portfolio assets included in the
table on the next page exclude residential and commercial mort-
76
gage-backed securities which are backed by a US government
agency or instrumentality or US government-sponsored enter-
prise (for example the Government National Mortgage Associa-
tion, the Federal National Mortgage Association, or the Federal
Home Loan Mortgage Corporation). These positions are excluded
due to the comprehensive involvement of the US government in
these organizations and their significantly lower risk profile.
Loans held at amortized cost included in the table below are
mainly comprised of student loan auction rate securities, to the
extent these are not backed by a US government agency or US
government sponsored enterprise, as well as assets which were
previously Held for trading and later reclassified to Loans and re-
ceivables, including monoline-protected assets, US reference
linked notes and other assets. Refer to “Note 28b Reclassified fi-
nancial assets” in the “Financial information” section of this report
for further information on reclassified financial assets.
The numbers outlined in the table below deviate from the se-
curitization positions presented in the “Basel 2.5 Pillar 3” section
of this report, primarily due to: (i) different scopes, mainly exclu-
sion of certain government-backed and synthetic securitization
transactions from the table below, (ii) a different measurement
basis in certain cases, IFRS carrying value within the table below
compared with net exposure amount at default for Basel 2.5 Pillar
3 disclosures, and (iii) different classification of originated and
sponsored activities. “Originated by UBS” amounts presented be-
low include both securitization activities which we originated and
those in which we acted as the lead manager for the transaction
(i.e. sponsored). For Basel 2.5 Pillar 3 disclosures, originated and
sponsored activities are presented separately.
Liquidity facilities and similar obligations
On 31 December 2011 and 2010, we had no significant exposure
through liquidity facilities and guarantees to structured investment
vehicles, conduits and other similar types of SPE. Losses resulting
from such obligations were not significant in 2011 and 2010.
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-consoli-
dated investment funds. Such investment funds are originated ei-
ther by us or by third parties. For hedging purposes, we generally
invest in the funds to which our obligations from the certificates are
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Non-consolidated securitization vehicles and collateralized debt obligations
CHF billion
Involvements in non-consolidated SPE held by UBS
Total SPE assets 2
Purchased and
retained interests
held by UBS 1
Derivatives held by UBS
As of 31 December 2011
Carrying value
Fair value
Nominal value
Original principal
outstanding
Current principal
outstanding
Delinquency
amounts
Originated by UBS
CDO
Residential mortgage
Commercial mortgage
Other ABS
Securitizations
Residential mortgage
Commercial mortgage
Other ABS
Total
Not originated by UBS
CDO
Residential mortgage
Commercial mortgage
Other ABS
Securitizations
Residential mortgage
Commercial mortgage
Other ABS
Total
0.0
0.4
0.1
0.0
0.2
0.0
0.7
0.4
1.4
1.7
0.9
3.2
2.5
10.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
(0.7)
0.0
0.0
(0.6)
0.7
1.2
0.0
1.3
0.0
0.0
3.2
0.0
0.0
0.9
2.6
0.4
0.0
3.9
9.6
7.1
7.8
19.9
61.1
1.2
106.7
39.9
79.4
49.8
427.5
1,007.3
397.7
2,001.6
3.2
5.3
7.4
4.0
42.9
0.5
63.3
18.1
75.9
52.7
105.0
622.5
191.8
1,066.0
0.0
0.0
0.0
1.1
3.2
0.1
4.4
0.3
0.3
0.1
23.5
54.7
4.3
83.2
1 Includes loans and receivables measured at amortized cost in the amount of CHF 0.1 billion originated by UBS and CHF 3.5 billion not originated by UBS as well as trading assets measured at fair value in the amount
of CHF 0.6 billion originated by UBS and CHF 6.5 billion not originated by UBS. 2 “Total SPE assets” includes information which UBS could gather after making exhaustive efforts but excludes data which UBS was un-
able to obtain (in sufficient quality), especially for structures originated by third parties.
77
Financial and operating performance
UBS results
linked. Risks resulting from these contracts are considered minimal,
as the full performance of the funds, whether positive or negative,
is passed on to third parties.
In a limited number of cases and primarily stemming from the
financial markets crisis, UBS has provided support to certain non-
consolidated investment funds in the form of collateralized fi-
nancing, direct acquisition of fund units and purchases of assets
from the funds. These funds are managed in our wealth and asset
management businesses, and support was provided in cases where
there were regulatory requirements, legal requirements or other
exceptional circumstances. Throughout 2011 we have continued
to reduce our positions in these acquired fund units or assets, and
as of 31 December 2011 the carrying value of fund units acquired
and assets purchased from such funds totaled CHF 0.3 billion.
Direct acquisitions of fund units were not material in 2011. Pur-
chases of assets from the funds that we manage and guarantees
granted to third parties in the context of such non-consolidated
funds were also not material. Collateralized financing provided in
the ordinary course of business to non-consolidated investment
funds was CHF 0.7 billion as of 31 December 2011. Net losses in-
curred on fund units, which are generally accounted as financial
investments available-for-sale, were not material in 2011.
In accordance with standard industry practice, our wealth and
asset management businesses occasionally also provide short-term
funding facilities to certain investment funds to cover timing gaps
in the redemption and subscription processes. These facilities did
not result in any losses in 2011.
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 2011, the exposure to credit risk (gross values
less sub-participations) for credit guarantees and similar instru-
ments was CHF 17.4 billion compared with CHF 15.4 billion as of
31 December 2010. Fee income from issuing guarantees was not
significant to total revenues in 2011.
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 par-
ties. 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 exposure to credit 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 2011, we recognized net credit loss
recoveries of CHF 22 million, compared with net credit loss ex-
penses of CHF 43 million for the year ended 31 December 2010,
related to obligations incurred for guarantees and loan commit-
ments. Provisions recognized for guarantees and loan commit-
ments were CHF 93 million as of 31 December 2011, and CHF
130 million as of 31 December 2010.
For certain obligations, we enter into partial sub-participations
to mitigate various risks from guarantees and loan commitments.
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 contractual relationship with the obligor,
and the sub-participant has only an indirect relationship. We will
only enter into sub-participation agreements with banks to which
we ascribe a credit rating equal to or better than that of the ob-
ligor.
Furthermore, we provide representations, warranties and in-
demnifications to third parties in the normal course of business.
Clearinghouse and exchange memberships
We are a member of numerous securities and derivative ex-
changes and clearinghouses. In connection with some of those
memberships, we may be required to pay a share of the financial
obligations of another member who defaults, or otherwise be
exposed to additional financial obligations as a result. While the
membership rules vary, obligations generally would arise only if
the exchange or clearinghouse had exhausted its resources. We
consider the probability of a material loss due to such obligations
to be remote.
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 2011 to 30 June 2012, the Swiss Financial
Market Supervisory Authority (FINMA) estimates our share in the
deposit insurance system to be CHF 1.0 billion. The deposit insur-
ance is a guarantee and exposes us to additional risk. This is not
reflected in the table on the following page due to its unique
characteristics. As of 31 December 2011, we consider the prob-
ability of a material loss from our obligation to be remote.
Underwriting commitments
Gross equity underwriting commitments on 31 December 2011
and 31 December 2010 amounted to CHF 1.1 billion and CHF
0.4 billion, respectively. Gross debt and private equity underwrit-
ing commitments on 31 December 2011 and 31 December
2010 were not material.
78
Financial instruments not recognized on the 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
31.12.11
Gross
Sub-
participations
Net
Gross
31.12.10
Sub-
participations
(315)
(493)
(737)
(1,545)
(1,640)
(278)
(1,918)
8,356
2,845
6,160
17,360
56,552
882
57,434
8,671
3,337
6,897
18,905
58,192
1,160
59,352
27,113
502
21,134
0
(401)
(506)
(255)
(1,162)
(1,475)
(196)
(1,671)
8,612
3,362
4,561
16,535
56,851
404
57,255
39,036
454
22,468
0 2
Net
8,212
2,856
4,306
15,374
55,376
208
55,584
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1 Cash to be paid in the future by either UBS or the counterparty. 2 In 2011, we corrected the value presented on the line securities lending agreements by CHF 783 million.
Contractual obligations
The table below includes contractual obligations by period as of
31 December 2011.
All contracts included in this table, with the exception of
purchase obligations (those in which we are committed to
purchasing determined volumes of goods and services), are
either recognized as liabilities on our balance sheet or, in the
case of operating leases, disclosed in “Note 25 Operating
lease commitments” in the “Financial information” section of
this report.
The following liabilities are recognized on the balance sheet and
are excluded from the table: (i) provisions (as disclosed in “Note 21
Provisions and contingent liabilities” in the “Financial information”
section of this report); (ii) current and deferred tax liabilities (refer to
“Note 22 Income taxes” in the “Financial information” section of
this report for more information); (iii) liabilities to employees for
equity participation plans; (iv) settlement and clearing accounts;
and (v) amounts due to banks and customers.
Within purchase obligations, the obligation to employees under
mandatory notice periods is excluded (i.e. the period in which we
must pay contractually-agreed salaries to employees leaving the firm).
Contractual obligations
CHF million
Long-term debt obligations
Finance lease obligations
Operating lease obligations
Purchase obligations
Other liabilities
Total
Payment due by period
< 1 year
31,315
46
819
1,010
492
33,682
1–3 years
45,073
30
1,332
827
2
47,264
3–5 years
28,041
> 5 years
53,793
977
199
2
2,591
3
2
29,219
56,389
79
Financial and operating performance
UBS results
Cash flows
As a global financial institution, our cash flows are complex and
bear little relation to our net earnings and net assets. Conse-
quently, we believe that traditional cash flow analysis is less mean-
ingful in evaluating our liquidity position than the liquidity, fund-
ing and capital management polices described within the “Risk,
treasury and capital management” section of this report. Cash
flow analysis may, however, be helpful in highlighting certain
macro trends and strategic initiatives in our businesses.
With regard to the cash flow activities described below, refer
to the “Statement of cash flows” in the “Financial information”
section of this report for more information. In 2011, we have re-
fined our definition of cash and cash equivalents to restrict it to
balances with an original maturity of three months or less. Prior
period amounts have been restated.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Financial information” section of
increase in operating assets. This cash consumption was mainly
due to an increase in secured collateral trading positions (reverse
repurchase agreements and cash collateral on securities bor-
rowed) of CHF 67.0 billion and an increase in net due from / to
banks of CHF 14.3 billion. These outflows were partially offset by
cash inflows from operating assets of CHF 34.0 billion resulting
from lower net trading portfolio, net replacement values and
financial assets designated at fair value as well as reduced net
loans / due to customers and accrued income, prepaid expenses
and other assets including prime brokerage activities.
Net cash inflows of CHF 33.8 billion resulted from an overall
increase in operating liabilities including net payments for income
taxes, mainly reflecting an increase in repurchase agreements and
cash collateral on securities lent (secured collateral trading) of CHF
29.1 billion.
this report for more information
Investing activities
2011
As of 31 December 2011, cash and cash equivalents totaled CHF
85.6 billion, an increase of CHF 5.7 billion from 31 December 2010.
Net cash flow generated from investing activities was CHF 19.4
billion compared with CHF 4.1 billion in 2010. The 2011 cash in-
flow primarily reflected the net divestment of financial invest-
ments available-for-sale of CHF 20.3 billion, which included CHF
14.2 billion from the sale of our strategic investment portfolio.
Operating activities
Financing activities
For the year ended 31 December 2011, net cash flows used in
operating activities were CHF 14.2 billion compared with net cash
flow generated from operating activities of CHF 13.4 billion in
2010. Net operating cash flow used (before changes in operating
assets and liabilities and income taxes paid, net of refunds) totaled
CHF 0.7 billion in 2011, compared with net cash flow generated
in 2010 of CHF 8.8 billion.
In 2011, net cash of CHF 47.3 billion was utilized by an overall
Net cash flow from UBS’s funding activities was CHF 2.7 billion, re-
flecting net cash inflow from short-term debt issuances of CHF 15.3
billion, offset by cash outflows for the net redemption of long-term
debt (repayments less issuances) of CHF 10.0 billion, net acquisition
of treasury shares and own equity derivative activity of CHF 1.9 bil-
lion and redemptions and dividends paid on preferred securities
reflected in non-controlling interests of CHF 0.7 billion. In 2010, fi-
nancing activities generated net cash inflows of CHF 1.8 billion.
80
2010
As of 31 December 2010, cash and cash equivalents increased to
CHF 79.9 billion, CHF 7.0 billion higher than CHF 72.9 billion at
the end of 2009.
Operating activities
Operating activities generated a cash inflow of CHF 13.4 billion
in 2010 compared with a cash inflow of CHF 86.7 billion in
2009. Operating cash inflows (before changes in operating as-
sets and liabilities and income taxes paid, net of refunds) to-
taled CHF 8.8 billion in 2010, a decrease of CHF 1.0 billion
from 2009. Net profit improved CHF 10.0 billion compared
with 2009.
Cash inflow of CHF 3.8 billion was generated by the net de-
crease in operating assets and cash inflow of CHF 1.3 billion was
generated from the net increase in operating liabilities. Net pay-
ments to tax authorities related to income taxes were CHF 0.5 bil-
lion in 2010, almost unchanged from the previous year.
Investing activities
Net cash flow from investing activities was CHF 4.1 billion com-
pared with cash flow used in investing activities of CHF 78.8 billion
in 2009.
The net divestment of financial investments available-for-sale
was CHF 4.2 billion.
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 on preferred securities reflected in non-controlling
interests of CHF 2.1 billion, the issuance of CHF 78.4 billion of
long-term debt and long-term debt repayments that totaled CHF
77.5 billion. Net short-term debt issued generated a net cash in-
flow of CHF 4.5 billion. In 2009, UBS had a net cash outflow of
CHF 54.2 billion from financing activities.
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81
Financial and operating performance
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank
Business division reporting
CHF million, except where indicated
Net interest income
Net fee and commission income
Net trading income
Other 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 division performance before tax
Key performance indicators 3
Pre-tax profit growth (%)
Cost / income ratio (%)
Additional information
Average attributed equity (CHF billion) 4
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets, Basel II (CHF billion) 5
BIS risk-weighted assets, Basel 2.5 (CHF billion) 5
Return on risk-weighted assets, Basel II, gross (%) 5
Goodwill and intangible assets (CHF billion)
Invested assets (CHF billion)
Client assets (CHF billion)
Loans, gross (CHF billion)
Due to customers (CHF billion)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
4,296
5,537
1,211
776 1
11,820 1
(90)
11,730 1
4,924
2,026
(152)
300
37
7,135 2
4,596 1
12.6
60.4
10.0
46.0
41.8
41.8
28.1
1.4
883
1,723
210.4
288.1
27,334
4,159
6,142
895
94
11,291
(64)
11,226
4,778
2,101
(61)
309
19
7,147
4,080
4.3
63.3
9.0
45.3
43.4
N/A
24.3
1.5
904
1,799
201.9
268.5
27,752
4,533
6,259
819
(88)
11,523
(133)
11,390
5,197
2,017
(90)
289
67
7,480
3,910
(35.0)
64.9
9.0
43.4
48.6
N/A
21.7
1.6
960
1,844
197.2
282.7
27,548
3
(10)
35
726
5
41
4
3
(4)
(149)
(3)
95
0
13
11
(4)
(7)
(2)
(4)
4
7
(2)
1 Includes revenues from the sale of our strategic investment portfolio of CHF 722 million. 2 Operating expenses include restructuring charges of CHF 114 million. Refer to “Note 37 Reorganizations and disposals” in
the “Financial information” section of this report for more information. 3 For the definitions of our key performance indicators, refer to the “Measurement of performance” section of this report. 4 Refer to the “Cap-
ital management” section of this report for more information about the equity attribution framework. 5 Capital management data as of 31 December 2011 is disclosed in accordance with the Basel 2.5 framework.
Comparative data under the new framework is not available for 31 December 2010 and 31 December 2009. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital man-
agement” section of this report for more information.
82
Wealth Management
Business unit reporting
CHF million, except where indicated
Net interest income
Net fee and commission income
Net trading income
Other 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 division performance before tax
Key performance indicators 3
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money (CHF billion) 4
Gross margin on invested assets (bps) 5
Swiss wealth management
Income
Net new money (CHF billion) 4
Invested assets (CHF billion)
Gross margin on invested assets (bps)
International wealth management
Income
Net new money (CHF billion) 4
Invested assets (CHF billion)
Gross margin on invested assets (bps) 5
Additional information
Average attributed equity (CHF billion) 6
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets, Basel II (CHF billion) 7
BIS risk-weighted assets, Basel 2.5 (CHF billion) 7
Return on risk-weighted assets, Basel II, gross (%) 7
Goodwill and intangible assets (CHF billion)
Invested assets (CHF billion)
Client assets (CHF billion)
Loans, gross (CHF billion)
Due to customers (CHF billion)
Personnel (full-time equivalents)
Client advisors (full-time equivalents)
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As of or for the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
1,968
4,363
878
425 1
7,634 1
11
7,645 1
3,258
1,192
318
165
37
4,969 2
2,676 1
15.9
65.1
23.5
101
1,585
1.1
126
121
6,049
22.4
624
97
5.0
53.5
16.6
16.6
45.7
1.4
750
875
75.1
170.2
15,904
4,202
1,737
4,964
647
(3)
7,345
11
7,356
3,153
1,264
449
163
19
5,049
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
N/A
41.4
1.5
768
920
67.1
156.8
15,663
4,172
1,853
5,137
625
(189)
7,427
45
7,471
3,360
1,182
428
154
67
5,191
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
N/A
37.4
1.6
825
1,005
61.9
182.6
15,408
4,286
13
(12)
36
4
0
4
3
(6)
(29)
1
95
(2)
16
10
3
(8)
8
4
(1)
10
14
(2)
(7)
(2)
(5)
12
9
2
1
1 Includes revenues from the sale of our strategic investment portfolio: Wealth Management CHF 433 million, of which CHF 79 million relate to Swiss wealth management and CHF 354 million relate to International
wealth management. 2 Operating expenses include restructuring charges of CHF 82 million. Refer to “Note 37 Reorganizations and disposals” in the “Financial information” section of this report for more informa-
tion. 3 For the definitions of our key performance indicators, refer to the “Measurement of performance” section of this report. 4 Excludes interest and dividend income. 5 Excludes any effect on profit or loss from
a property fund (2011: loss of 22 million, 2010: loss of CHF 45 million, 2009: loss of CHF 155 million). 6 Refer to the “Capital management” section of this report for more information about the equity attribution
framework. 7 Capital management data as of 31 December 2011 is disclosed in accordance with the Basel 2.5 framework. Comparative data under the new framework is not available for 31 December 2010 and
31 December 2009. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital management” section of this report for more information.
83
Financial and operating performance
Wealth Management & Swiss Bank
Business performance
2011
Results
Pre-tax profit was CHF 2,676 million in 2011 compared with CHF
2,308 million in 2010, and included a gain of CHF 433 million
from the sale of our strategic investment portfolio and CHF 82 mil-
lion of restructuring charges associated with our cost reduction
program. When adjusted for these two items, pre-tax profit was
CHF 2,325 million, slightly up from the previous year as adverse
currency effects and reduced client activity were more than offset
by ongoing cost management.
➔ Refer to the “Certain items affecting our results in 2011” sidebar
for more information on our cost reduction program and the sale
of our strategic investment portfolio
Operating income
Operating income was CHF 7,645 million compared with CHF
7,356 million. When adjusted for the sale of our strategic invest-
ment portfolio, total operating income declined 2% to CHF 7,212
million.
Net interest income increased 13% which included higher
treasury-related income, partially due to interest income stem-
ming from the strategic investment portfolio (which was acquired
in late 2010) and an adjustment to the allocation of treasury-
related income between Wealth Management and Retail & Cor-
porate. Further, net interest income benefited from 10% higher
average lending volumes. This was offset by margin pressure as a
result of low market interest rates.
Net fee and commission income declined 12%. This was main-
ly due to lower asset-based fees, reflecting a CHF 44 billion lower
average invested asset base, primarily as a result of the strength-
ening Swiss franc and negative equity market performance. A de-
terioration in client activity, primarily in the second half of the
year, impacted fee income. Trading income increased 36%, due
to higher income linked to foreign exchange and precious metal
client trading activities as well as changes in the revenue-sharing
agreement related to the Investment Products & Services unit and
higher treasury-related revenues. Other income was CHF 425
million in 2011 due to the abovementioned sale of our strategic
investment portfolio.
Operating expenses
Operating expenses were down 2% from the prior year, or 3%
excluding restructuring charges associated with our cost reduc-
tion program.
84
Personnel expenses increased 3% compared with the prior
year. Excluding restructuring costs, personnel expenses were up
1%, primarily reflecting a 4% increase in average headcount,
which was partially offset by lower bonus accruals. General and
administrative expenses were CHF 1,192 million compared with
CHF 1,264 million in 2010, which included a CHF 40 million litiga-
tion provision and a CHF 40 million charge to reimburse the Swiss
government for costs incurred in connection with the US cross-
border matter. Charges for services from other business divisions
were down significantly to CHF 318 million from CHF 449 million,
mainly due to higher charges to other businesses in relation to the
Investment Products & Services unit. Depreciation was CHF 165
million compared with CHF 163 million one year earlier. Amortiza-
tion of intangible assets was CHF 37 million, up from CHF 19
million in 2010, mainly due to the impairment of intangible assets
related to a past acquisition in the UK.
Development of invested assets
Net new money
Net new money improved significantly, with net inflows of CHF
23.5 billion compared with net outflows of CHF 12.1 billion in
2010, due to improvements in all regions and client segments.
International wealth management net new money was CHF
22.4 billion compared with outflows of CHF 12.9 billion in the
prior year. The strongest net inflows were recorded in Asia Pacific
and emerging markets as well as globally from ultra high net
worth clients. Europe reported net outflows, mainly related to the
offshore business with countries neighboring Switzerland partly
offset by net inflows from the European onshore business. Swiss
wealth management reported net inflows of CHF 1.1 billion in
2011 compared with CHF 0.8 billion net inflows the year before.
Invested assets
Invested assets were CHF 750 billion on 31 December 2011, a
decrease of CHF 18 billion from 31 December 2010. Negative
equity market performance as well as adverse currency effects,
mainly resulting from a 3% decline in the value of the euro against
the Swiss franc, more than offset net new money inflows and
positive bond market performance.
Gross margin on invested assets
The gross margin on invested assets was 101 basis points. When
adjusted for the abovementioned sale of our strategic investment
portfolio, the gross margin was 96 basis points, an improvement
of 4 basis points from the prior year. The gross margin calculation
excludes any effect on profit or loss from a property fund.
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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 operat-
ing expenses. Operating income was down 2%, and was nega-
tively affected by low market interest rates and the strengthening
of the Swiss franc against major currencies.
Operating income
Total operating income was CHF 7,356 million, down 2% from
CHF 7,471 million one year earlier. Interest income was down 6%
due to pressure from the low interest rate environment and the
decrease in value of the euro and US dollar against the Swiss
franc. Fee income decreased 3% primarily due to lower asset-
based fees, reflecting a 4% lower average asset base. Lower inter-
est income was partly offset by a shift of treasury-related revenues
from Retail & Corporate to Wealth Management in the second
quarter of 2010, impacting interest and trading income. Other
income improved from negative CHF 189 million in 2009 to nega-
tive CHF 3 million in 2010 as CHF 155 million of revaluation ad-
justments on a property fund were included in 2009. Credit loss
recoveries were CHF 11 million in 2010, down from CHF 45 mil-
lion 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
connection with the US cross-border matter, CHF 40 million liti-
gation provision, and higher sponsorship and branding costs re-
lated to the global re-launch of the UBS brand. Charges for ser-
vices from other business divisions, at CHF 449 million in 2010,
were slightly up from CHF 428 million in the previous year. De-
preciation was CHF 163 million compared with CHF 154 million
a year earlier. Amortization of intangible assets was CHF 19 mil-
lion, down from CHF 67 million, mainly reflecting the impairment
of intangible assets related to invested asset outflows in UBS (Ba-
hamas) Ltd. in 2009.
➔ Refer to “Note 1 Summary of significant accounting policies”
in the “Financial information” section of our Annual Report 2010
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
in net new money as net 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,
partially due to discussions regarding tax treaties, 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. Net new money for 2010 included
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 de-
crease of CHF 57 billion from 31 December 2009, as positive equity
market performance was more than offset by adverse currency ef-
fects including 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 euro 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, reflecting 3% lower income (excluding any effect
on profit or loss from a property fund), compared with a 4% de-
cline in average invested assets.
85
Financial and operating performance
Wealth Management & Swiss Bank
Retail & Corporate
Business unit reporting
CHF million, except where indicated
Net interest income
Net fee and commission income
Net trading income
Other 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 division performance before tax
Key performance indicators 3
Pre-tax profit growth (%)
Cost / income ratio (%)
Impaired loans portfolio as a % of total loans portfolio, gross (%) 4
Additional information
Average attributed equity (CHF billion) 5
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets, Basel II (CHF billion) 6
BIS risk-weighted assets, Basel 2.5 (CHF billion) 6
Return on risk-weighted assets, Basel II, gross (%) 6
Goodwill and intangible assets (CHF billion)
Invested assets (CHF billion)
Client assets (CHF billion)
Loans, gross (CHF billion)
Due to customers (CHF billion)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
2,328
1,175
333
350 1
4,186 1
(101)
4,085 1
1,666
834
(470)
136
0
2,166 2
1,919 1
8.3
51.7
0.7
5.0
38.4
25.2
25.2
16.5
0.0
134
848
135.3
117.9
11,430
2,422
1,178
249
97
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
N/A
13.7
0.0
136
879
134.8
111.7
12,089
2,681
1,121
194
100
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
N/A
12.3
0.0
135
840
135.2
100.1
12,140
(4)
0
34
261
6
33
6
3
0
8
(7)
3
8
9
(5)
(1)
(4)
0
6
(5)
1 Includes revenues from the sale of our strategic investment portfolio of CHF 289 million. 2 Operating expenses include restructuring charges of CHF 32 million. Refer to “Note 37 Reorganizations and disposals” in
the “Financial information” section of this report for more information. 3 For the definitions of our key performance indicators, refer to the “Measurement of performance” section of this report. 4 Refer to the “Risk
management and control” section of this report for more information on impairment ratios. 5 Refer to the “Capital management” section of this report for more information about the equity attribution frame-
work. 6 Capital management data as of 31 December 2011 is disclosed in accordance with the Basel 2.5 framework. Comparative data under the new framework is not available for 31 December 2010 and
31 December 2009. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital management” section of this report for more information.
86
Business performance
2011
Results
Pre-tax profit for 2011 was CHF 1,919 million, and included a CHF
289 million gain on the sale of our strategic investment portfolio
as well as CHF 32 million in restructuring charges associated with
our cost reduction program. When adjusted for these two items,
pre-tax profit was CHF 1,662 million, down from CHF 1,772 mil-
lion in 2010, primarily as a result of lower interest income caused
by the ongoing low interest rate environment.
➔ Refer to the “Certain items affecting our results in 2011” sidebar
in this section of this report for more information on our cost
reduction program and the sale of our strategic investment
portfolio
funds were mostly offset by higher credit related fees and in-
creased transaction-based revenues. Net trading income increased
to CHF 333 million from CHF 249 million, mainly reflected higher
treasury-related income and higher foreign exchange income
linked to client trading activities. Other income was CHF 350 mil-
lion compared with CHF 97 million in 2010 due to the abovemen-
tioned sale of our strategic investment portfolio. Credit loss ex-
penses were CHF 101 million in 2011 compared with CHF 76
million in 2010. This was mostly due to a CHF 82 million increase
in collective loan loss allowances, which were booked mainly in
the third quarter of 2011.
➔ Refer to the “Interest rate and currency management” section of
this report for more information on our replication portfolio
➔ Refer to “Note 1a) 11) Allowance and provision for credit losses”
in the “Financial information” section of this report section for
more information on collective loan loss allowances
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Operating income
Total operating income increased to CHF 4,085 million from CHF
3,870 million, and included the abovementioned sale of our stra-
tegic investment portfolio. When adjusted for this gain, operating
income was CHF 3,796 million, down 2% from the previous year.
Net interest income decreased 4% from the prior period, pri-
marily due to a significant decline in the deposit margin as a result
of low market interest rates, which more than offset growth of
deposit volumes. In addition, net interest income was impacted by
an adjustment to the allocation of treasury-related income be-
tween Wealth Management and Retail & Corporate. Low market
interest rates also impacted income from our replication portfolio,
resulting in lower net interest income. These effects more than
offset higher interest income derived from the strategic invest-
ment portfolio which was acquired in late 2010. Net fee and com-
mission income was CHF 1,175 million, virtually unchanged from
CHF 1,178 million in 2010, as lower fees related to investment
Operating expenses
Operating expenses were CHF 2,166 million compared with CHF
2,098 million, partially impacted by the abovementioned restruc-
turing charges. Excluding these charges, operating expenses in-
creased by 2%. Personnel expenses increased to CHF 1,666 million
from CHF 1,625 million. Excluding restructuring charges, person-
nel expenses were CHF 1,637 million, broadly unchanged from
2010 as salary increases were mostly offset by a 4% reduction in
average personnel during 2011 and lower variable compensation
accruals compared with 2010. General and administrative expens-
es were CHF 834 million compared with CHF 836 million in 2010.
Net charges to other business divisions were CHF 470 million,
down 8% from CHF 509 million the previous year, mainly due to a
refinement of internal cost allocations reflecting a review of service
level agreements and allocations between Retail & Corporate,
Wealth Management and other parts of the organization. Depre-
ciation was CHF 136 million compared with CHF 146 million.
87
Financial and operating performance
Wealth Management & Swiss Bank
2010
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 lower
compared with the previous year as reduced interest income was
only partly offset by lower credit loss expenses.
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 down-
ward pressure on interest margins. In addition, interest income de-
creased as approximately 30% of treasury related revenues were
allocated from Retail & Corporate to Wealth Management starting
in the second quarter of 2010. These effects were only partially
compensated by higher volumes in certain products and improved
margins on new mortgage loans. Fee and commission income
increased 5% to CHF 1,178 million from CHF 1,121 million, partly
reflecting pricing initiatives initiated in 2010. Trading income in-
creased from CHF 194 million to CHF 249 million, largely due to
higher treasury related income. Net credit loss expenses were CHF
76 million in 2010, a decline of CHF 102 million.
Operating expenses
Operating expenses declined 8% to CHF 2,098 million from CHF
2,289 million due to cost-cutting measures initiated in 2009. Per-
sonnel 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 were down
2% to CHF 509 million from CHF 518 million the previous year,
largely due to business realignments between Wealth Manage-
ment and Retail & Corporate. Depreciation was CHF 146 million
compared with CHF 136 million.
➔ Refer to “Note 1 Summary of significant accounting policies”
in the “Financial information” section of our Annual Report 2010
for more information on allocation of additional Corporate
Center costs to the business divisions in 2010
88
Wealth Management Americas
Business division reporting
CHF million, except where indicated
Net interest income
Net fee and commission income
Net trading income
Other income
Income
Credit loss (expense) / recovery
Total operating income
Personnel expenses
Financial advisor compensation 1
Compensation commitments and advances related to recruited financial advisors 2
Salaries and other personnel costs
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 4
Pre-tax profit growth (%) 5
Cost / income ratio (%)
Net new money (CHF billion) 6
Net new money including interest and dividend income (CHF billion) 7
Gross margin on invested assets (bps)
Additional information
Average attributed equity (CHF billion) 8
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets, Basel II (CHF billion) 9
BIS risk-weighted assets, Basel 2.5 (CHF billion) 9
Return on risk-weighted assets, Basel II, gross (%) 9
Goodwill and intangible assets (CHF billion)
Invested assets (CHF billion)
Client assets (CHF billion)
Loans, gross (CHF billion)
Due to customers (CHF billion)
of which: deposit accounts (CHF billion)
Personnel (full-time equivalents)
Financial advisors (full-time equivalents)
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As of or for the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
729
4,018
450
103
5,300
(6)
5,295
3,840
1,982
536
1,322
783
(9)
99
0
48
4,760 3
534
N/A
89.8
12.1
30.4
79
8.0
6.7
24.4
26.1
22.3
3.7
709
746
27.9
38.9
28.5
695
4,244
570
56
5,565
(1)
5,564
4,225
2,068
599
1,558
1,223
(6)
198
0
55
5,694
(130)
N/A
102.3
(6.1)
13.0
80
8.0
(1.6)
23.8
N/A
23.8
3.7
689
738
22.5
35.8
26.0
800
3,948
763
36
5,546
3
5,550
4,231
1,828
599
1,804
1,017
4
170
34
62
5,518
32
N/A
99.5
(11.6)
8.7
81
8.8
0.4
22.8
N/A
23.5
4.2
690
737
21.5
39.4
28.2
16,207
6,967
16,330
6,796
16,925
7,084
5
(5)
(21)
84
(5)
(500)
(5)
(9)
(4)
(11)
(15)
(36)
(50)
(50)
(13)
(16)
(1)
0
3
0
3
1
24
9
10
(1)
3
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 pro-
ductivity, firm tenure, assets and other variables. 2 Compensation commitments and advances related to recruited financial advisors represents costs related to compensation commitments and advances granted to
financial advisors at the time of recruitment which are subject to vesting requirements. 3 Operating expenses include restructuring charges of CHF 10 million. Refer to “Note 37 Reorganizations and disposals” in the
“Financial information” section of this report for more information. 4 For the definitions of our key performance indicators, refer to the “Measurement of performance” section of this report. 5 Not meaningful and
not included if either the reporting period or the comparison period is a loss period. 6 Excludes interest and dividend income. 7 For purposes of comparison with a US peer. 8 Refer to the “Capital management”
section of this report for more information about the equity attribution framework. 9 Capital management data as of 31 December 2011 is disclosed in accordance with the Basel 2.5 framework. Comparative data
under the new framework is not available for 31 December 2010 and 31 December 2009. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital management” section of
this report for more information.
89
Financial and operating performance
Wealth Management Americas
Business division reporting (continued)
CHF million, except where indicated
Business division reporting excluding PaineWebber acquisition costs 1
Business division performance before tax
Cost / income ratio (%)
Average attributed equity (CHF billion) 2
As of or for the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
620
88.3
5.1
(21)
100.4
4.6
155
97.3
5.2
11
1 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. 2 Refer to the “Capital
management” section of this report for more information about the equity attribution framework.
90
Business performance
2011
Results
Wealth Management Americas reported a pre-tax profit of CHF
534 million in 2011 compared with a pre-tax loss of CHF 130 mil-
lion in 2010. This improved performance resulted from a 12%
increase in revenue in US dollar terms due to increases in fees and
commissions, interest income and gains on investments in our
available-for-sale portfolio. Operating expenses declined 1% in
US dollar terms as a result of significantly lower litigation provision
charges and lower restructuring charges. In 2011, Wealth Man-
agement Americas incurred restructuring charges of CHF 10 mil-
lion, while 2010 included restructuring charges of CHF 162 mil-
lion. In addition, 2011 included a pre-tax gain of CHF 30 million,
net of compensation charges related to a change in accounting
estimates for certain mutual fund fees on an accrual basis.
Operating income
Operating income decreased 5% to CHF 5,295 million from CHF
5,564 million in 2010, but increased 12% in US dollar terms. Net
fee and commission income decreased CHF 226 million to CHF
4,018 million, but increased 12% in US dollar terms. Recurring fees
increased 15% in US dollar terms due to higher fees on managed
accounts and mutual funds corresponding to higher invested asset
levels. In addition, recurring fees included CHF 45 million related to
the abovementioned change in accounting estimates for certain
mutual fund fee income recognition. Transaction-based revenues
declined 10%, but increased 6% in US dollar terms, due to higher
income from insurance and annuities, alternative investments, and
equities products. Interest income increased 5% to CHF 729 mil-
lion, or 24% in US dollar terms, due to higher client balances in
securities-based lending and mortgages, as well as from higher
yields on lending products. In addition, 2011 included an upward
adjustment reclassifying CHF 20 million from other comprehensive
income relating to mortgage-backed securities in our available-for-
sale portfolio to properly reflect estimated future cash flows under
the effective interest method. This adjustment was not material to
prior periods. Trading income declined 21% to CHF 450 million, or
7% in US dollar terms, due to lower taxable fixed income and mu-
nicipal trading income, partly offset by higher trading income from
structured notes. Other income increased 84% to CHF 103 million
due to a CHF 81 million increase in realized gains on sales of finan-
cial investments held in UBS Bank USA’s available-for-sale portfolio,
compared with CHF 4 million in the prior year. These gains resulted
from rebalancing the investment portfolio for risk adjustment pur-
poses within the parameters of our investment policy during the
year. In addition, other income in 2010 included a CHF 7 million
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demutualization gain from Wealth Management Americas’ stake in
the Chicago Board Options Exchange.
Operating expenses
Operating expenses decreased 16% to CHF 4,760 million from
CHF 5,694, 1% in US dollar terms, due to lower non-personnel
expenses. In 2011, operating expenses included CHF 10 million in
restructuring charges compared with CHF 162 million in restruc-
turing charges in 2010.
Personnel expenses were CHF 3,840 million, down 9% from
CHF 4,225 million. Personnel expenses included CHF 5 million in
restructuring charges compared with CHF 35 million in 2010. In US
dollar terms, personnel expenses increased 7% due to a 13% in-
crease in financial advisor compensation corresponding to higher
revenue production, and a 6% increase in expenses for compensa-
tion commitments and advances related to recruited financial advi-
sors. Salaries and other personnel costs declined 15%, but were
broadly flat compared with 2010 in US dollar terms. Compensation
advance balances were CHF 3,584 million as of 31 December 2011,
up 15% from 31 December 2010, or 14% in US dollar terms. This
increase included scheduled payments in early 2011 related to the
second tranche of the GrowthPlus program. Compensation ad-
vances continue to be expensed over the life of the employees’
agreements on a straight-line amortization basis.
Non-personnel expenses decreased 37% to CHF 920 million from
CHF 1,470 million, or 26% in US dollar terms. Non-personnel-related
restructuring charges were CHF 5 million compared with CHF 127
million. General and administrative costs declined 36%, or 24% in US
dollar terms, due to lower litigation provisions, which decreased to
CHF 70 million from CHF 320 million, as well as lower restructuring
charges related to real estate writedowns. This decline was partly off-
set by higher professional legal and consulting fees. Depreciation ex-
penses declined 50%, or 41% in US dollar terms, due to lower re-
structuring charges related to the impairment of real estate assets and
lower allocations from shared services areas in the Corporate Center.
Development of invested assets
Net new money
Net new money inflows were CHF 12.1 billion compared with
outflows of CHF 6.1 billion in 2010. This turnaround was due to
improved net inflows from net recruiting of financial advisors, in-
cluding higher inflows from recruitment of experienced financial
advisors, and lower outflows from financial advisor attrition. Net
new money from financial advisors employed with UBS for more
than one year remained positive, but declined from 2010. Includ-
ing interest and dividend income, Wealth Management Americas
had net new money inflows of CHF 30.4 billion in 2011 compared
with CHF 13.0 billion in 2010.
91
Financial and operating performance
Wealth Management Americas
Invested assets
Wealth Management Americas had CHF 709 billion in invested
assets on 31 December 2011, up 3% from CHF 689 billion on
31 December 2010. In US dollar terms, invested assets in-
creased 2% due to positive net new money including interest
and dividend income, partly offset by negative market perfor-
mance. As of 31 December 2011, managed account assets
were 7% higher than one year earlier at CHF 190 billion. In US
dollar terms, managed account assets increased 6% and com-
prised 27% of invested assets compared with 26% on 31 De-
cember 2010.
Gross margin on invested assets
The gross margin on invested assets was 79 basis points in 2011,
down from 80 basis points in 2010. This reflected a 5% decrease
in income compared with a 3% decrease in average invested as-
sets. In US dollar terms, the gross margin on invested assets in-
creased by 2 basis points to 80 basis points in 2011, reflecting a
12% increase in income compared with a 10% increase in aver-
age invested assets. Growth in net interest income, net fee and
commission income, and other income each contributed a 1 basis
point increase to the gross margin, partly offset by a decline of 1
basis point attributable to lower trading income.
92
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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 restructur-
ing charges of CHF 162 million, while 2009 included restructuring
charges of CHF 152 million and net goodwill impairment charges
of CHF 19 million related to the sale of UBS Pactual. Excluding
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 provisions 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. Net fee and commission income increased 7%, 12%
in US dollar terms, to CHF 4,244 million due to a 15% rise in recur-
ring fees, as a result of higher fees from managed accounts and
mutual funds related to higher invested assets, and a 6% increase
in transaction-based revenue. Interest income declined 13% to
CHF 695 million, a decrease of 10% in US dollar terms, due to
lower investment portfolio interest income, partly offset by higher
income from securities-backed lending. Net trading income de-
clined 25% to CHF 570 million, 22% in US dollar terms, due to
lower municipal trading income. Other income increased 56% to
CHF 56 million, and included a reclassification of revenues from
net trading income as well as a CHF 7 million 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
2009. Additionally, 2009 included CHF 34 million in goodwill im-
pairment charges related to the sale of UBS Pactual (of which CHF
15 million was charged to the Corporate Center, as this was re-
lated 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 mil-
lion in restructuring charges in 2010 and CHF 71 million in re-
structuring charges in 2009, personnel expenses would have in-
creased 1% from the previous year. This increase was due
primarily to higher financial advisor compensation related to high-
er revenue production and the introduction of the GrowthPlus
incentive compensation program in 2010, partly offset by lower
salaries and other personnel costs, resulting from restructuring ini-
tiatives in 2010 and 2009. Expenses for compensation commit-
ments and advances related to recruited financial advisors were
flat from 2009, but increased 4% in US dollar terms. Compensa-
tion 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, principally due to higher litigation provi-
sions, which increased to CHF 320 million from CHF 54 million.
Non-personnel expenses included CHF 127 million in restructuring
charges in 2010 related to real estate writedowns, while 2009 in-
cluded restructuring charges of CHF 82 million and the abovemen-
tioned 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 our Annual Report 2010
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 compared with CHF 11.6 billion in the prior year.
We experienced net new money outflows during the first
half of 2010, mainly due to financial advisor attrition and lim-
ited recruiting of experienced financial advisors. Net new mon-
ey turned positive in the second half of 2010 due to improved
financial advisor retention and improved net new money in-
flows from financial advisors employed with UBS for more than
one year. Including interest and dividend income, net new mon-
ey inflows of CHF 13.0 billion in 2010 improved from CHF 8.7
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.
Invested assets
Invested assets were CHF 689 billion on 31 December 2010,
broadly flat compared with CHF 690 billion on 31 December 2009.
In US dollar terms, invested assets increased 12%, primarily due to
positive 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, go-
ing 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
inflows increased by CHF 2.2 billion. Managed account assets in-
creased 5% to CHF 177 billion as of 31 December 2010, from CHF
168 billion on 31 December 2009. In US dollar terms, managed
account assets increased 18% and comprised 26% of invested
assets compared with 24% on 31 December 2009.
93
Financial and operating performance
Wealth Management Americas
Gross margin on invested assets
The gross margin on invested assets was 80 basis points, down
from 81 basis points, as income increased only slightly, while aver-
age invested assets increased 2%. In US dollar terms, the gross
margin on invested assets decreased 3 basis points to 78 basis
points, as income growth of 4% was outpaced by an 8% rise in
average invested assets. This margin decrease was due to declines
in net trading income and interest of 3 basis points and 2 basis
points, respectively, partly offset by an increase of 2 basis points
from net fees and commissions.
94
Global Asset Management
Business division reporting
CHF million, except where indicated
Net management fees 1
Performance fees
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation of property and equipment
Impairment of goodwill
Amortization of intangible assets
Total operating expenses
Business division performance before tax
Key performance indicators 3
Pre-tax profit growth (%)
Cost / income ratio (%)
Information by business line
Income
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure and private equity 4
Fund services
Total operating income
Gross margin on invested assets (bps)
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure and private equity 4
Total gross margin
Net new money (CHF billion) 5
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure and private equity 4
Total net new money
Net new money excluding money market flows
of which: from third parties
of which: from UBS’s wealth management businesses
Money market flows
of which: from third parties
of which: from UBS’s wealth management businesses
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As of or for the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
(11)
(30)
(12)
(13)
(6)
80
(12)
0
(11)
(17)
(13)
(22)
2
71
(18)
(12)
(8)
(14)
6
(36)
(8)
1,704
99
1,803
955
375
(1)
38
0
8
1,375 2
428
(17.1)
76.3
1,097
253
263
24
165
1,803
23
76
72
83
33
0.0
(0.8)
1.6
3.5
4.3
9.0
12.2
(3.1)
(4.7)
0.2
(5.0)
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
8.2
16.2
(8.1)
(6.4)
2.0
(8.3)
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)
(33.7)
(6.8)
(26.9)
(12.1)
1.7
(13.8)
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 Operating expenses include restructuring charges of CHF 26 million. Refer to “Note 37 Reorganizations and
disposals” in the “Financial information” section of this report for more information. 3 For the definitions of our key performance indicators, refer to the “Measurement of performance” section of this report. 4 With
effect from 2011, the Infrastructure and private equity fund of funds businesses were transferred from Alternative and quantitative investments to Infrastructure. Following the transfer it was renamed Infrastructure and
private equity. As the amounts were not material, prior periods were not restated. 5 Excludes interest and dividend income.
95
Financial and operating performance
Global Asset Management
Business division reporting (continued)
CHF million, except where indicated
Invested assets (CHF billion)
Traditional investments
of which: money market funds
Alternative and quantitative investments
Global real estate
Infrastructure and private equity 1
Total invested assets
Assets under administration by fund services
Assets under administration (CHF billion) 2
Net new assets under administration (CHF billion) 3
Gross margin on assets under administration (bps)
Additional information
Average attributed equity (CHF billion) 4
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets, Basel II (CHF billion) 5
BIS risk-weighted assets, Basel 2.5 (CHF billion) 5
Return on risk-weighted assets, Basel II, gross (%) 5
Goodwill and intangible assets (CHF billion)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
497
92
31
38
8
574
375
(5.5)
4
2.5
17.1
3.6
3.6
50.6
1.5
3,750
487
96
34
36
1
559
390
(0.8)
5
2.5
20.6
3.5
N/A
56.8
1.5
3,481
502
111
41
39
1
583
406
(59.7)
5
2.8
15.9
4.1
N/A
37.7
1.7
3,471
2
(4)
(9)
6
700
3
(4)
(20)
0
3
0
8
1 With effect from 2011, the Infrastructure and private equity fund of funds businesses were transferred from Alternative and quantitative investments to Infrastructure. Following the transfer it was renamed Infrastruc-
ture and private equity. As the amounts were not material, prior periods were not restated. 2 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. 3 Inflows of assets under administration from new and existing funds less outflows from existing funds or fund exits. 4 Refer to the “Capital
management” section of this report for more information about the equity attribution framework. 5 Capital management data as of 31 December 2011 is disclosed in accordance with the Basel 2.5 framework. Com-
parative data under the new framework is not available for 31 December 2010 and 31 December 2009. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital manage-
ment” section of this report for more information.
96
Business performance
2011
Results
Pre-tax profit for 2011 was CHF 428 million compared with CHF
516 million in 2010. Lower net management fees and lower per-
formance fees, primarily in alternative and quantitative invest-
ments, were only partially offset by lower expenses, which includ-
ed CHF 26 million in restructuring charges associated with both
our cost reduction program and the acquisition of the ING Invest-
ment Management business in Australia.
Operating income
Total operating income was CHF 1,803 million in 2011 compared
with CHF 2,058 million in 2010. This decrease was mainly due to
lower net management fees, primarily as a result of negative mar-
ket performance and the strengthening of the Swiss franc over
most of the year leading to lower average invested assets. Perfor-
mance fees were also lower, primarily in alternative and quantita-
tive investments.
Operating expenses
Total operating expenses were CHF 1,375 million in 2011 com-
pared with CHF 1,542 million in 2010, mainly due to lower per-
sonnel costs as well as lower general and administrative expenses,
both partly due to the strengthening of the Swiss franc and savings
associated with our cost reduction program. A total of CHF 26 mil-
lion in restructuring charges was incurred in 2011, of which CHF
19 million related to our cost reduction program and CHF 7 million
related to the ING Investment Management business acquisition.
Personnel expenses were CHF 955 million in 2011 compared
with CHF 1,096 million in 2010, mainly due to lower accruals for
variable compensation as a result of lower profits, the strengthen-
ing of the Swiss franc and savings associated with our cost reduc-
tion program.
General and administrative expenses were CHF 375 million in
2011 compared with CHF 400 million in 2010, mainly due to
lower premises, IT and advertising costs as well as the reversal of
previously recognized expenses of CHF 9 million related to a past
business closure.
Net charges to other business divisions were CHF 1 million in
2011 compared with CHF 5 million in 2010.
Development of invested assets
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of CHF 16.2 billion in 2010, and net outflows from clients of UBS’s
wealth management businesses were CHF 3.1 billion compared
with net outflows of CHF 8.1 billion. The flows from UBS’s wealth
management businesses included two transfers of investment
management and research responsibility from Wealth Manage-
ment & Swiss Bank to Global Asset Management: a CHF 1.8 bil-
lion multi-manager alternative fund was transferred to alternative
and quantitative investments, and CHF 2.9 billion in private equity
funds of funds were transferred to infrastructure and private eq-
uity. It should be noted that these assets are reported as invested
assets in both business divisions, as Wealth Management & Swiss
Bank continues to advise the clients of the funds.
Money market net inflows from third parties were CHF 0.2 bil-
lion compared with CHF 2.0 billion in 2010, and money market
net outflows from clients of UBS’s wealth management business-
es were CHF 5.0 billion compared with CHF 8.3 billion in 2010.
Invested assets
Total invested assets increased to CHF 574 billion on 31 December
2011 from CHF 559 billion on 31 December 2010, mainly due to
the addition of CHF 25 billion from the ING Investment Manage-
ment business acquisition, which was partly offset by negative
market performance. As agreed prior to the acquisition, portions
of the acquired invested assets are being sold or redeemed in the
first half of 2012. These further actions are expected to result in a
net divestment of approximately half of the acquired invested as-
sets in the first half of 2012.
Invested assets varied considerably during the year but were on
average lower due to market volatility and currency movements.
Taking the year as a whole, the currency impact on invested assets
was flat, while positive net new money was more than offset by
negative market performance.
Gross margin on invested assets
The gross margin was 33 basis points in 2011 compared with 36
basis points in 2010, reflecting lower performance fees, primarily
in alternative and quantitative investments.
Results by business line
Traditional investments
Revenues were CHF 1,097 million compared with CHF 1,259 mil-
lion, predominantly reflecting lower average invested assets as a
result of negative market performance and the strengthening of
the Swiss franc over most of the year.
The gross margin was 23 basis points compared with 25 basis
Net new money
Excluding money market flows, net new money inflows from third
parties were CHF 12.2 billion in 2011 compared with net inflows
points in 2010, mainly due to changes in the asset mix.
Net new money inflows were nil compared with CHF 4.2 bil-
lion inflows in the prior year. Excluding money market flows, net
97
Financial and operating performance
Global Asset Management
new money inflows were CHF 4.7 billion compared with CHF 10.6
billion. Equities net inflows were CHF 4.7 billion compared with
CHF 7.5 billion. Fixed income net inflows were CHF 5.7 billion
compared with CHF 9.7 billion. Multi-asset net outflows (which
included flows related to alternative investments not managed by
the alternative and quantitative investments, global real estate or
infrastructure and private equity investment areas) were CHF
5.7 billion compared with CHF 6.6 billion.
Invested assets were CHF 497 billion on 31 December 2011
compared with CHF 487 billion on 31 December 2010, mainly
due to the ING Investment Management business acquisition,
partially offset by negative market performance. By mandate
type, CHF 141 billion of invested assets related to equities, CHF
141 billion to fixed income, CHF 92 billion to money markets and
CHF 123 billion to multi-asset mandates (including CHF 6 billion
of alternative investments not managed by the alternative and
quantitative investments, global real estate or infrastructure and
private equity investment areas).
Alternative and quantitative investments
Revenues were CHF 253 million compared with CHF 325 million,
mainly due to performance fees being lower by CHF 50 million,
which also contributed to the decline in the gross margin to 76
basis points from 88 basis points. Management fees were also
lower, primarily due to lower average invested assets.
Net new money outflows were CHF 0.8 billion compared with net
outflows of CHF 3.2 billion. The flows included a CHF 1.8 billion
inflow related to the transfer of investment management and re-
search responsibility for a multi-manager alternative fund from
Wealth Management & Swiss Bank.
Invested assets were CHF 31 billion on 31 December 2011 com-
pared with CHF 34 billion on 31 December 2010. The transfer
within Global Asset Management of infrastructure and private
equity fund of funds businesses to infrastructure and private equity
with effect from 1 July 2011 was partially offset by the abovemen-
tioned transfer from Wealth Management & Swiss Bank.
Global real estate
Revenues were CHF 263 million compared with CHF 258 million,
mainly due to higher transaction and performance fees, which
more than offset the currency impact from the strengthening of
the Swiss franc. As a result, the gross margin increased to 72 basis
points compared with 68 basis points.
Net new money inflows were CHF 1.6 billion compared with
CHF 0.6 billion in 2010.
Invested assets were CHF 38 billion on 31 December 2011,
increased from CHF 36 billion on 31 December 2010, mainly due
to net new money inflows.
Infrastructure and private equity
Revenues were CHF 24 million compared with CHF 14 million. The
increase was mainly due to a one-time distribution fee from a co-
investment in the UBS International Infrastructure Fund and the
transfer of infrastructure and private equity fund of funds busi-
nesses from alternative and quantitative investments. As a result of
this transfer, the name of this business line changed to infrastruc-
ture and private equity.
Net new money inflows were CHF 3.5 billion compared with
CHF 0.1 billion in 2010, mainly due to a CHF 2.9 billion inflow
resulting from a transfer of investment management and research
responsibilities for private equity funds of funds from Wealth
Management & Swiss Bank.
Invested assets were CHF 8 billion on 31 December 2011 com-
pared with CHF 1 billion on 31 December 2010. This increase
mainly related to the abovementioned transfer from Wealth Man-
agement & Swiss Bank and to the transfer within Global Asset
Management of infrastructure and private equity fund of funds
businesses from alternative and quantitative investments with ef-
fect from 1 July 2011.
Fund services
Revenues were CHF 165 million compared with CHF 202 million,
mainly due to lower administrative fees resulting from lower aver-
age assets under administration and lower interest income.
The gross margin on assets under administration was 4 basis
points compared with 5 basis points.
Net new assets under administration outflows were CHF 5.5 bil-
lion compared with CHF 0.8 billion.
Total assets under administration were CHF 375 billion com-
pared with CHF 390 billion due to negative market performance
and currency impact as well as net outflows.
Investment performance
Widespread macro-economic uncertainty led to heightened mar-
ket volatility in 2011, making it a challenging year for fundamen-
tally-based managers. Our actively-managed traditional strategies
struggled in this environment, but alternative strategies generally
performed well.
Core / value equity strategies generally underperformed their
benchmarks in 2011, largely as most were less favorably posi-
tioned for the market stresses that dominated in the third quar-
ter. Key global, European and US large cap strategies performed
below benchmarks and peer averages. By contrast, the concen-
trated pan-European strategy beat its benchmark and peer aver-
age, as did most Asian and emerging markets strategies. Notably,
concentrated pan-European, emerging markets and global sus-
tainable and responsible strategies all exceeded their benchmarks
in each of the last three calendar years. Among small cap strate-
gies, Australia performed especially well in 2011 and, in common
with European and Swiss small cap equity, also exceeded bench-
mark in each of the last three calendar years. Over three years, on
an annualized basis, key global, global ex-US, pan-European,
Asian, emerging markets and Australian large cap equity capa-
bilities were clearly ahead of their benchmarks, while US large
cap was behind.
After performing well in 2010, the majority of growth equity
strategies struggled to match those gains in 2011. The flagship
98
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US large cap growth select strategy finished well ahead of peers
in 2011, despite being modestly behind its benchmark for the
year. A notable leader versus benchmark and peers was US small
cap growth, which has exceeded its benchmark in each of the
last three calendar years. The majority of key growth equity
strategies were well ahead of benchmarks over three years to
end of 2011.
Performance of structured equity strategies was mixed in 2011,
with some global, US, UK and Japan active strategies beating
benchmarks. US active, a quantitative large cap strategy, comfort-
ably outperformed both benchmark and peers, and exceeded its
benchmark in each of the last three calendar years. US market
neutral, an alternative fundamentally-based large cap strategy,
provided a solid positive return above cash for the year. The ma-
jority of active structured equity strategies were ahead of bench-
marks over three years. Passive strategies and exchange traded
funds met their objectives in 2011 by maintaining high tracking
accuracy despite volatile markets.
During the year, uncertainty surrounding peripheral European
sovereigns was a dominant factor in fixed income markets. Many
of our fixed income strategies underperformed their benchmarks
for the year but remained relatively strong over three years. The
one-year underperformance was consistent across most regions
and strategies and was evident in both traditional global and local
bond strategies (such as Australian, Canadian, Swiss, UK and US)
and in some extended sectors (such as emerging markets, high
yield and Asian bonds). Some higher alpha strategies (such as
global fixed income opportunities and US core plus) as well as
some individual regional strategies (such as euro corporates and
Japanese bond) outperformed benchmarks for the year. Many
strategies lagged peer averages over the year, although three-year
peer rankings were better. Money market funds continued to
achieve their capital preservation objectives.
Absolute performance of key multi-asset strategies managed
by global investment solutions was negative in 2011 and relative
performance was slightly negative versus benchmark. Longer-term
track records remained strong and, over three years, key strategies
were predominantly in the first quartile versus peers. After a solid
first half of 2011, the strategies were positioned defensively in the
second half of the year, leading to relative underperformance
when markets rebounded. The stand-alone active currency strate-
gy posted negative returns for the year but was positive over lon-
ger periods.
Absolute return strategies managed by global investment solu-
tions continued to strengthen their position and were in the first
quartile versus peers over three years. Business cycle-driven strate-
gies delivered solid, close-to-flat one-year performance and were in
the first quartile versus peers. For convertibles, the strategies had a
difficult year overall in both absolute and relative terms, although
longer-term track records remained strong.
In alternative and quantitative investments, hedge funds con-
tinued to navigate a challenging market environment. Core
O’Connor single manager funds posted positive returns and out-
performed most peers on an absolute and risk-adjusted basis. In
the multi-manager business, returns were mixed across strategies.
Non-market neutral portfolios were slightly negative, while relative
value and fixed income arbitrage-oriented portfolios were positive
for the year.
In global real estate, the majority of direct European strategies
generated positive absolute returns for 2011. The Swiss compos-
ite outperformed its benchmark for the year. The flagship UK
fund outperformed its benchmark for the year and retained its
upper quartile position versus peers. US real estate and farmland
strategies produced strong positive absolute returns for 2011. In
Japan, the flagship J-REIT underperformed its benchmark. In real
estate securities strategies, the global strategy underperformed
benchmark while the Swiss flagship strategy outperformed.
Multi-manager strategies produced positive absolute returns for
the year.
In infrastructure and private equity, the acquisition in June
2011 of a material stake in Gassled, the world’s largest offshore
gas transmission system, meant the flagship direct infrastructure
strategy was close to fully invested. The strategy performed in line
with its return objectives. Infrastructure fund of funds performance
continued to improve throughout the year. Private equity fund of
funds strategies performed broadly in line with expectations.
99
Financial and operating performance
Global Asset Management
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,
pre-tax profit decreased by CHF 113 million.
Operating income
Total operating income was CHF 2,058 million compared with
CHF 2,137 million. Lower performance fees and revenues follow-
ing 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 compared with
CHF 1,698 million. Excluding the abovementioned goodwill im-
pairment and restructuring charges of CHF 48 million in 2009,
operating expenses increased by CHF 83 million in 2010, mainly
due to increased personnel expenses. This increase was partly off-
set 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 Corpo-
rate Center in 2010.
Personnel expenses were CHF 1,096 million compared with
CHF 996 million, mainly due to increased expenses for deferred
variable compensation in prior years, partly offset by lower fixed
compensation costs as a result of headcount reductions in 2009
and reduced expenses following the sale of UBS Pactual.
General and administrative expenses were CHF 400 million
compared with CHF 387 million, mainly due to higher sponsoring
and branding costs. The increase was partly offset by lower ex-
penses following the sale of UBS Pactual.
Net charges to other business divisions were CHF 5 million
compared with CHF 74 million. Excluding a charge to the Corpo-
rate Center of CHF 149 million in 2009, we 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.
➔ Refer to “Note 1 Summary of significant accounting policies”
in the “Financial information” section of our Annual Report 2010
for more information on allocation of additional
Corporate Center costs to the business divisions in 2010
Development of invested assets
ents of UBS’s wealth management businesses were CHF 8.1 bil-
lion compared with CHF 26.9 billion. The flows from UBS’s wealth
management businesses included a CHF 2.5 billion transfer of
investment management responsibility for the US hedge fund of
funds business from Wealth Management Americas to Global
Asset Management’s alternative and quantitative investments
business.
Money market net inflows from third parties were CHF 2.0 bil-
lion compared with CHF 1.7 billion, and money market net out-
flows from clients of UBS’s wealth management businesses were
CHF 8.3 billion compared with CHF 13.8 billion in 2009.
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 primarily
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 net inflows were CHF 7.5 billion compared with net out-
flows of CHF 8.2 billion. Fixed income net inflows were CHF 9.7
billion compared with net outflows of CHF 5.6 billion. Multi-asset
net outflows (which included flows related to alternative invest-
ments not managed by the alternative and quantitative invest-
ments, global real estate or infrastructure and private equity in-
vestment areas) were CHF 6.6 billion compared with net outflows
of CHF 14.6 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.
Net new money
Excluding money market flows, net new money inflows from
third parties were CHF 16.2 billion in 2010 compared with net
outflows of CHF 6.8 billion in 2009, and net outflows from cli-
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.
100
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. These
assets are reported as invested assets in both business divisions 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. As a result, the gross margin was higher at 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 assets
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 bil-
lion compared with net outflows of CHF 59.7 billion in 2009.
Total assets under administration were CHF 390 billion com-
pared with CHF 406 billion, due to negative currency effects and
net new assets outflows, partly offset by positive market move-
ments.
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101
Financial and operating performance
Investment Bank
Investment Bank
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 3
Total operating income excluding own credit and
unauthorized trading incident
Own credit 4
Total operating income excluding unauthorized trading incident
Unauthorized trading incident
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
Business division performance before tax excluding own credit
Key performance indicators 6
Pre-tax profit growth (%) 7
Cost / income ratio (%)
Return on attributed equity (RoaE) (%)
Return on assets, gross (%)
Average VaR (1-day, 95% confidence, 5 years of historical data)
As of or for the year ended
% change from
Excluding
unauthorized
trading incident
31.12.11 2
31.12.11 1
1,371
964
1,329
574
755
(921)
7,969
3,698
4,271
9,340
12
9,352
1,537
10,889
(1,849)
9,040
5,801
2,637
161
254
0
34
8,886 5
154
(1,383)
(93.0)
98.4
0.5
0.9
75
10,889
8,886
2,003
466
81.7
6.4
1.1
N/A
31.12.10
31.12.09
31.12.10
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
2,745
N/A
81.7
8.7
1.2
56
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)
(4,058)
N/A
190.7
(24.1)
0.4
55
(43)
14
(33)
(44)
(22)
(116)
(21)
(17)
(25)
(26)
(26)
(25)
(14)
(2)
152
(9)
0
(9)
(93)
34
1 Income and expenses related to the SNB StabFund investment management team, who are employed by UBS, were transferred from the Investment Bank to the Corporate Center. The impact on performance from con-
tinuing operations before tax is not material in the current or any prior period. Comparative prior periods have not been adjusted. 2 Excludes the impact from the unauthorized trading incident of CHF 1,849 million in
the income statement, and its risk-weighted assets impact of CHF 10.1 billion on both a Basel II and Basel 2.5 basis. 3 Includes credit loss (expense) / recovery on reclassified and acquired securities (2011: recovery of
CHF 9 million; 2010: credit loss expense of CHF 172 million). 4 Represents own credit changes on financial liabilities designated at fair value through profit or loss. The cumulative own credit gain for such debt held
on 31 December 2011 amounts to CHF 1.9 billion; the cumulative own credit gain for such debt held at 31 December 2010 amounts to CHF 0.2 billion. The gains have reduced the fair value of financial liabilities desig-
nated at fair value through profit or loss recognized on our balance sheet. Refer to “Note 26 Fair value of financial instruments” in the “Financial information” section of this report for more information. 5 Operating
expenses include restructuring charges of CHF 216 million. Refer to “Note 37 Reorganizations and disposals” in the “Financial information” section of this report for more information. 6 For the definitions of our key
performance indicators, refer to the “Measurement of performance” section of this report. 7 Not meaningful and not included if either the reporting period or the comparison period is a loss period.
102
Business division reporting (continued)
As of or for the year ended
% change from
CHF million, except where indicated
31.12.11 1
Additional information
Total assets (CHF billion) 3
Average attributed equity (CHF billion) 4
BIS risk-weighted assets, Basel II (CHF billion) 5
BIS risk-weighted assets, Basel 2.5 (CHF billion) 5
Return on risk-weighted assets, Basel II, gross (%) 5
Goodwill and intangible assets (CHF billion)
Compensation ratio (%)
Impaired loans portfolio as a % of total loans portfolio, gross (%)
Personnel (full-time equivalents)
1,073.6
31.3
119.1
155.7
7.2
3.2
64.2
3.8
17,256
Excluding
unauthorized
trading incident
31.12.11 2
109.0
145.6
9.0
31.12.10
31.12.09
31.12.10
966.9
25.3
119.3
N/A
9.7
3.2
56.1
7.2
16,860
992.0
25.3
122.4
N/A
3.1
3.5
115.2
10.0
15,666
11
24
0
N/A
0
2
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1 Income and expenses related to the SNB StabFund investment management team, who are employed by UBS, were transferred from the Investment Bank to the Corporate Center. The impact on performance from con-
tinuing operations before tax is not material in the current or any prior period. Comparative prior periods have not been adjusted. 2 Excludes the impact from the unauthorized trading incident of CHF 1,849 million in
the income statement, and its risk-weighted assets impact of CHF 10.1 billion on both a Basel II and Basel 2.5 basis. 3 Based on third-party view, i.e. without intercompany balances. 4 Refer to the “Capital manage-
ment” section of this report for more information about the equity attribution framework. 5 Capital management data as of 31 December 2011 is disclosed in accordance with the Basel 2.5 framework. Comparative
data under the new framework is not available for 31 December 2010 and 31 December 2009. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital management” sec-
tion of this report for more information.
103
Financial and operating performance
Investment Bank
Business performance
2011
Results
Pre-tax profit of CHF 154 million was recorded in 2011 compared
with a pre-tax profit of CHF 2,197 million in 2010. Excluding an
own credit gain of CHF 1,537 million and a loss relating to the
unauthorized trading incident of CHF 1,849 million in 2011 and
an own credit loss of CHF 548 million in 2010, pre-tax profit was
CHF 466 million compared with a profit of CHF 2,745 million in
2010. This was due to lower revenues across all business areas
and the strengthening of the Swiss franc.
Total operating income as reported
Total operating income was CHF 9,040 million compared with
CHF 12,010 million in the prior year, a decrease of 25%, or 11%
in US dollar terms. During the year, we incurred a loss from the
unauthorized trading incident of CHF 1,849 million in the equities
business area. After a strong start to the year, increasing instabil-
ity in the eurozone and the US government debt rating down-
grade contributed to lack of liquidity, impacting the credit busi-
ness, while the macro businesses benefited from increased
volatility. In addition, subdued volumes and lower client activity
affected the equities business.
Credit loss expense / recovery
Net credit loss recoveries in 2011 were CHF 12 million com-
pared with a net credit loss expense of zero in 2010. In 2011,
recoveries mainly related to reclassified and similar acquired se-
curities.
➔ 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
An own credit gain on financial liabilities designated at fair value
of CHF 1,537 million was recorded in 2011, mainly due to a wid-
ening of our credit spreads during the year. An own credit loss of
CHF 548 million was recorded in 2010, mainly due to a tightening
of our credit spreads.
➔ Refer to “Note 26 Fair value of financial instruments” in the
“Financial information” section of this report for more informa-
tion on own credit
Operating income by business area
In 2011, we implemented two structural changes in our business
division: allocating risk management premiums from equities and
104
fixed income, currencies and commodities (FICC) to investment
banking; and transferring the commodities business, formerly
booked in equities, to FICC. The changes were not material and
therefore did not necessitate restatement at a divisional level.
However, we have made reference to these changes where rele-
vant to aid explanation of the business area results.
Investment banking
Investment banking revenues decreased 43% to CHF 1,371 mil-
lion in 2011 from CHF 2,414 million in the previous year. This was
mainly due to a reduction in global capital markets activity and
the revised allocation of the risk management premiums, which
were higher compared with 2010, as well as the effects of the
strengthening of the Swiss franc. In US dollar terms, revenues de-
clined 33%.
Advisory revenues increased 14% to CHF 964 million from
CHF 846 million, as a result of a more robust market in the first
half of 2011. Our market share increased slightly compared with
2010.
Capital market revenues were CHF 1,329 million compared
with CHF 1,994 million due in part to the deepening of the sover-
eign debt crisis in Europe as well as slower US economic growth
which depressed activity levels. Equities capital market revenues
were CHF 574 million, down 44% from CHF 1,020 million as rev-
enues and market share decreased across all regions against a
25% reduction in the fee pool in US dollar terms. Fixed income
capital market revenues decreased 22% to CHF 755 million from
CHF 974 million as our market share declined while the market
fee pool increased 12% in US dollar terms.
Other fee income and risk management revenues were negative
CHF 921 million compared with negative CHF 426 million, primar-
ily due to an increase in risk management premiums and the effect
of their revised allocation to investment banking.
Securities
Securities revenues were CHF 7,969 million compared with CHF
10,144 million in 2010. In US dollar terms, revenues decreased 7%.
Equities
Revenues in equities were CHF 3,698 million, down 17% from
CHF 4,469 million in 2010, primarily due to the strengthening of
the Swiss franc. In US dollar terms, revenues declined 2%.
Cash revenues decreased 17% to CHF 1,480 million compared
with CHF 1,776 million. In US dollar terms, revenues declined 2%.
The decrease was primarily due to a reduction in volumes and client
activity. However, our cash equities exchange market share was
slightly up on 2010.
Derivatives and equity-linked revenues were CHF 1,035 million
compared with CHF 1,580 million. Within derivatives, revenues in
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Europe, the Middle East and Africa declined and more than offset
higher revenues in Asia Pacific and the Americas. In addition, trad-
ing revenues were impacted by ongoing market volatility. In equity-
linked, revenues declined due to lower valuations and volumes
as well as reduced primary market activity, which impacted the
secondary markets.
In the prime services business, revenues declined 3% to CHF
1,009 million, reflecting the Swiss franc appreciation as the ma-
jority of our balances are US dollar denominated. In US dollar
terms, revenues were up 15% as a result of improved securities
lending revenues.
Other FICC revenues were negative CHF 288 million in 2011
and positive CHF 581 million in 2010 largely due to losses from
residual risk positions. Revenues in 2011 included negative CHF
296 million from residual risk positions due to a widening in credit
valuation adjustment spreads and increased credit valuation ad-
justments following an agreement in principle with a monoline
insurer on a potential commutation, compared with positive CHF
737 million in 2010.
➔ Refer to “Note 32 Events after the reporting period” in the
“Financial information” section of this report for more information
Other equities revenues were CHF 175 million compared with
CHF 77 million, mainly due to the abovementioned revised alloca-
tion of risk management premiums. Proprietary trading reported
positive revenues, though these were lower than 2010.
In 2011, we recorded a gain of CHF 244 million from debit
valuation adjustments on our derivatives portfolio compared with
a gain of CHF 155 million from debit valuation adjustments as
UBS’s credit default swap spreads widened in both periods.
Fixed income, currencies and commodities
FICC revenues decreased 25% to CHF 4,271 million in 2011 from
CHF 5,675 million in 2010, primarily due to the strengthening of
the Swiss franc. In US dollar terms, revenues declined 11%. The
combined revenues from credit, macro and emerging markets de-
creased 11% to CHF 4,558 million from CHF 5,093 million, but
rose 6% in US dollar terms due to improved results in macro.
In credit, revenues decreased to CHF 1,548 million from CHF
2,304 million in 2010, primarily due to mark-to-market losses in the
flow business. Concerns surrounding the eurozone and the global
economic outlook significantly impacted market volatility, liquidity
and client activity, resulting in challenging conditions for flow trad-
ing, partly offset by an improved performance by credit solutions.
In macro, revenues rose to CHF 2,615 million from CHF 2,268
million in 2010. Revenues increased across all interest rates busi-
ness lines. Foreign exchange benefited from market volatility in
the second half of 2011 and from the contributions of our new
e-trading platform. Non-linear interest rates reported a turn-
around from negative to positive revenues in 2011.
Emerging markets revenues decreased to CHF 395 million from
CHF 521 million, as increased foreign exchange revenues were
more than offset by lower revenues in credit and rates. Latin
America saw an improvement in revenues whereas both Asia and
Europe reported a decrease.
Operating expenses
Total operating expenses decreased 9% to CHF 8,886 million from
CHF 9,813 million, mostly due to the strengthening of the Swiss
franc. Excluding restructuring costs of CHF 216 million associated
with our cost reduction program, operating expenses decreased
12%. In US dollar terms, operating expenses increased 4%.
Personnel expenses decreased 14% to CHF 5,801 million
from CHF 6,743 million due to lower variable compensation
accruals and the favorable effect of the strengthening Swiss
franc. Further, 2010 included a UK bank payroll tax charge of
CHF 190 million.
General and administrative expenses decreased to CHF 2,637
million from CHF 2,693 million due to the strengthening Swiss
franc and UK value added tax releases, partially offset by the UK
bank levy of CHF 106 million.
Net charges from other business divisions were CHF 161 mil-
lion compared with CHF 64 million due to transfer of approxi-
mately 280 personnel to Wealth Management & Swiss Bank as
part of forming the Investment Products & Services unit in early
2011.
Depreciation decreased 9% to CHF 254 million from CHF 278
million, largely due to lower charges for IT hardware.
Amortization of intangible assets was in line with 2010 at CHF
34 million.
105
Financial and operating performance
Investment Bank
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.
Total operating income as reported
Total operating income in 2010 was CHF 12,010 million compared
with CHF 3,135 million in the prior year. This was mainly a result of
increased revenues in the FICC business, a significant reduction 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 our
Annual Report 2010 for more information on our risk manage-
ment 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 re-
duced 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 26 Fair value of financial instruments” in the
“Financial information” section of this report for more information
Operating income by business area
due to reduced market activity in the first half of 2010 follow-
ing uncertainty over sovereign risk in Europe, and lower reve-
nues in Asia Pacific as domestic Chinese banks took a greater
share of fees than in 2009. Fixed income capital market reve-
nues were CHF 974 million, up 8% from CHF 904 million, main-
ly 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 million,
primarily due to the absence in 2010 of large losses recorded
in 2009 in relation to an overall stabilization of the credit mar-
kets.
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
decreased client activity in the US, offsetting stronger perfor-
mance in Europe, the Middle East and Africa.
Derivatives and equity-linked revenues were CHF 1,580 million,
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 Europe, the Middle
East and Africa due to the sovereign debt crisis, creating a lack of
both liquidity and client flow. Equity-linked revenues were down
after a strong performance 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 while 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.
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
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
lowering of negative revenues from the legacy risk portfolio (the
106
exposure to which was also reduced during this period), and the
selective re-entry into previously exited products.
number of employees and a UK bank payroll tax charge of CHF
190 million.
In macro, revenues of CHF 2,268 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.
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
brand. These costs were partially offset by a reduction in profes-
sional fees.
Emerging markets revenues decreased to CHF 521 million from
CHF 1,162 million as divesture of UBS Pactual, spread compres-
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 581 million com-
pared with negative CHF 2,710 million. The 2010 revenues in-
cluded CHF 737 million from residual risk positions due to a
reduced credit valuation adjustment requirement and net gains
on sale.
Operating expenses
Operating expenses increased 6% to CHF 9,813 million in 2010
from CHF 9,216 million in the previous year.
Personnel expenses increased 21% to CHF 6,743 million from
CHF 5,568 million, mainly due to increased variable compensa-
tion as a result of amortization of prior years’ awards, increased
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
associated with a restructuring charge.
Goodwill impairment charges were nil in 2010 compared with a
charge of CHF 749 million in 2009, related to the sale of UBS Pactual.
Amortization of intangible assets was CHF 34 million compared
with CHF 59 million in 2009.
In addition, non-personnel costs included an additional allo-
cation of expenses from the Corporate Center to the business di-
visions in 2010.
➔ Refer to “Note 1 Summary of significant accounting policies”
in the “Financial information” section of our Annual Report 2010
for more information on allocation of additional
Corporate Center costs to the business divisions in 2010
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107
Financial and operating performance
Corporate Center
Corporate Center
Treasury activities and other corporate items reporting
CHF million, except where indicated
Income
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation of property and equipment
Amortization of intangible assets
Total operating expenses
Performance from continuing operations before tax
Performance from discontinued operations before tax
Performance before tax
Additional information
BIS risk-weighted assets, Basel II (CHF billion) 3
BIS risk-weighted assets, Basel 2.5 (CHF billion) 3
Personnel (full-time equivalents)
Allocations to business divisions (full-time equivalents)
Personnel after allocations (full-time equivalents)
Corporate Center expenses before service allocation to business divisions 4
Personnel expenses
General and administrative expenses
Depreciation of property and equipment
Total operating expenses before service allocation to business divisions
Net allocations to business divisions
Total operating expenses
31.12.11 1
(80)
(1)
(80)
71
139
3
70
0
283 2
(363)
0
(363)
9.7
13.7
19,270
(18,996)
274
3,684
3,351
728
7,762
(7,479)
283
As of or for the year ended
% change from
31.12.10
31.12.09
31.12.10
1,135
0
1,135
78
168
8
89
0
343
793
2
795
8.9
N/A
19,472
(19,278)
194
3,870
3,523
809
8,202
(7,859)
343
394
(5)
389
551
199
306
193
0
1,250
(860)
(7)
(867)
8.5
N/A
20,054
(18,430)
1,624
4,043
3,516
943
8,501
(7,251)
1,250
(9)
(17)
(63)
(21)
(17)
9
(1)
1
41
(5)
(5)
(10)
(5)
5
(17)
1 Income and expenses related to the SNB StabFund investment management team, who are employed by UBS, were transferred from Investment Bank to Corporate Center in 2011. The impact on performance from
continuing operations before tax is not material in the current or any prior period. Comparative prior periods have not been adjusted. 2 Operating expenses include restructuring charges of CHF 15 million. Refer to
“Note 37 Reorganizations and disposals” in the “Financial information” section of this report for more information. 3 Capital management data as of 31 December 2011 is disclosed in accordance with the Basel 2.5
framework. Comparative data under the new framework is not available for 31 December 2010 and 31 December 2009. The comparative information under the Basel II framework is therefore provided. Refer to the
“Capital management” section of this report for more information. 4 Please note that some of the comparative figures in this table may differ from those originally published in quarterly and annual reports (for example
due to adjustments following organizational changes).
108
2011
Results
The Corporate Centre recorded a pre-tax loss of CHF 363 million
in 2011 compared with a gain of CHF 795 million in 2010. This
mostly reflects a decline in the value of our option to acquire the
SNB StabFund’s equity and lower proceeds from the sale of real
estate in 2011.
Operating income
The Corporate Center’s operating income was negative CHF 80 mil-
lion in 2011 compared with positive CHF 1,135 million in 2010.
The revaluation of our option to acquire the SNB StabFund’s equity
resulted in a loss of CHF 133 million in 2011, reflecting lower fore-
cast cash flows and increased risk premia for the fund’s assets,
compared with a gain of CHF 745 million in 2010.
➔ Refer to the discussion of “Non-trading portfolios – valuation
and sensitivity information by instrument category” in the
“Risk management and control” section of this report for
more information on changes in the value of our option
to acquire the SNB StabFund’s equity
Treasury income remaining in the Corporate Center after alloca-
tions to the business divisions amounted to a gain of CHF 38 million
in 2011, compared with a gain of CHF 152 million in 2010. Further-
more, 2011 included a gain of CHF 78 million from the sale of a
property in Switzerland, while 2010 included a CHF 180 million
gain from the sale of investments in associates owning office space
in New York as well as a gain of CHF 158 million from a sale of
property in Switzerland.
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Personnel expenses decreased by CHF 186 million to CHF 3,684
million, primarily due to favorable currency effects of CHF 298 mil-
lion, partially offset by CHF 55 million personnel-related restructur-
ing expenses associated with our cost reduction program in the
second half of 2011, capacity increases for regulatory require-
ments and personnel transfers from other business divisions.
General and administrative expenses decreased by CHF 172
million to CHF 3,351 million due to favorable currency effects of
CHF 300 million, partly offset by restructuring charges of CHF 113
million due to the consolidation of our real estate portfolio as part
of our cost reduction program. Furthermore, the effects of effi-
ciency initiatives and other cost reductions were offset by the
abovementioned increased business demand affecting Group
Technology and the consolidation of services in the Corporate
Center.
Depreciation expenses decreased by CHF 81 million to CHF
728 million, primarily due to favorable currency effects of CHF
49 million and the reversal of an impairment loss. These decreases
were partly offset by CHF 28 million in restructuring charges,
mainly related to the abovementioned real estate consolidation
in 2011.
The business divisions were charged net CHF 7,479 million for
shared services, a decrease of CHF 380 million. Total operating
expenses remaining after allocations to the business divisions
were CHF 283 million compared with CHF 343 million in the prior
year. This decrease was due to a value added tax provision release
of CHF 22 million and a discretionary compensation accrual
release of CHF 19 million in 2011. Furthermore, 2011 included
lower litigation provisions, partially offset by additional expenses
related to the SNB StabFund investment management team trans-
ferred from the Investment Bank and the “too-big-to-fail” pro-
gram.
Operating expenses
On a gross basis before service allocations to the business divi-
sions, the Corporate Center reported operating expenses of CHF
7,762 million, down from CHF 8,202 million in 2010. This de-
crease was due to favorable currency effects of CHF 647 million
resulting from the depreciation of the US dollar and British pound
against the Swiss franc, as well as the effects of efficiency initia-
tives and other cost reductions of approximately CHF 400 million
resulting from the execution of the UBS real estate consolidation
strategy and lower IT costs. This was partially offset by restructur-
ing charges of CHF 196 million as well as an increase of approxi-
mately CHF 400 million in expenses due to focused investments in
technology, capacity expansion needed for control functions to be
able to satisfy increased regulatory requirements, and the con-
tinuing consolidation of services in the Corporate Center.
Personnel
At the end of the year 2011, the Corporate Center employed
19,270 personnel, of which 18,996 were allocated to the busi-
ness divisions based on the services used. The reduction of 202
personnel from the prior year related mainly to the abovemen-
tioned cost reduction program in the second half of 2011, partly
offset by higher personnel required to meet additional regulatory
requirements, and further consolidation of services in the Corpo-
rate Center.
The 274 personnel remaining in the Corporate Center were
related to Group governance functions and other corporate items.
The increase of 80 personnel compared with the prior year was
mainly due to the SNB StabFund investment management team
transferred from the Investment Bank and the “too-big-to-fail”
program.
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Financial and operating performance
Corporate Center
2010
Results
The pre-tax result in 2010 was a gain of CHF 795 million, compared
with a loss of CHF 867 million in 2009, mainly due to a higher
revaluation gain of our option to acquire the SNB StabFund’s equity
as well as lower operating expenses as a result of additional charg-
es to the business divisions reflecting a change in allocation meth-
odology.
Operating income
The Corporate Center’s operating income was positive CHF 1,135
million in 2010 compared with positive CHF 389 million in 2009.
The revaluation of our option to acquire the SNB StabFund’s eq-
uity resulted in a gain of CHF 745 million in 2010, compared with
a gain of CHF 117 million in 2009.
➔ Refer to the discussion of “Non-trading portfolios – valuation
and sensitivity information by instrument category” in the
“Risk management and control” section of our Annual Report
2010 for more information on changes in the value of our
option to acquire the SNB StabFund’s equity
A CHF 180 million gain from the sale of investments in asso-
ciates owning office space in New York as well as a gain of CHF
158 million from a sale of property in Switzerland was recorded in
2010. In comparison, 2009 included own credit related alloca-
tions of negative revenues to the Corporate Center and a CHF
498 million loss on the closing of the UBS Pactual sale in 2009,
which was largely related to foreign exchange losses. These losses
were partly offset by a net gain of CHF 297 million on the valua-
tion of the mandatory convertible notes issued in December 2008
and converted in August 2009, an additional foreign exchange
gain of CHF 430 million due to the de-consolidation and liquida-
tion of subsidiaries and a gain of CHF 304 million on the buyback
of subordinated debt.
Operating expenses
Total operating expenses decreased to CHF 343 million from CHF
1,250 million in 2009, mainly due to a goodwill impairment charge
of CHF 492 million in 2009 relating to the sale of UBS Pactual,
which was reallocated to the Corporate Center from the business
divisions, partly offset by the credit related to the UBS Pactual
operating result which was transferred from the business divisions.
In addition, from 2010 onwards, almost all costs incurred by the
Corporate Center related to shared services and control functions
were allocated to the reportable segments, which directly and in-
directly receive the value of the services, either based on a full cost
recovery or on a periodically agreed flat fee. Up to and including
2009, certain costs incurred by the Corporate Center were pre-
sented as Corporate Center expenses and not charged to the busi-
ness 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 of 2009 had been presented
on the basis of the allocation methodology applied for 2010, the
estimated impact on operating expenses and performance before
tax would have been CHF 640 million.
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 per-
sonnel costs in IT and lower real estate-related costs. The business
divisions fully benefited from the reduced cost base through low-
er allocations.
Personnel
At the end of the year 2010, the Corporate Center employed
19,472 personnel, of whom 19,278 were allocated to the business
divisions based on the services used. The reduction of 582 person-
nel mainly related to the restructuring program in 2009. The re-
maining 194 personnel related to Group governance functions
and other corporate items. The decrease of 1,430 personnel com-
pared with the prior year was due to the abovementioned change
in allocation methodology, mainly related to control functions.
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Risk, treasury
and capital
management
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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 within this section of the report
and is incorporated by cross-reference into the financial statements of this report.
Risk, treasury and capital management
Risk management and control
Risk management and control
During 2011 we continued to focus on aligning the firm’s risk profile with our client-centric strategy. In the second half
of 2011, we took measures to reduce market risk exposures significantly. Value-at-risk decreased by almost half to CHF
36 million on 31 December 2011 from CHF 68 million the prior year. Credit risk exposure saw a modest rise, reflecting
increased lending within our international wealth management businesses, particularly in Asia Pacific. We also made
further progress in reducing our exposures to monoline insurers and student loan auction rate securities. During 2011
while our risk under a number of stress scenarios was reduced in line with these reduced positions, we still remain
significantly exposed to the impact of potential stress scenarios on our market, credit, operational and business risk.
Disciplined risk management and control are essential to our suc-
cess. In 2011, we continued to make significant investments in our
infrastructure, processes, methodologies and people to ensure
that our risk frameworks are sufficiently robust to support our
business aspirations and risk appetite. Our risk appetite is estab-
lished within our risk capacity as determined by a complementary
set of firm-wide risk metrics, and is approved under Board of Di-
rectors (BoD) authority. It is administered and enforced by a de-
tailed 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 with-
in the firm. All material risks are reported to the respective author-
ity holders at least monthly.
The unauthorized trading incident underscored the impor-
tance of ensuring a robust operational risk framework. A number
of weaknesses identified in the wake of the incident have been
fully or largely remediated, but there is more to be done to im-
prove the broader internal control environment. We initiated a
programme in 2011 to enhance our operational risk framework
and internal controls; this extensive programme will continue
through 2012.
Summary of key developments in 2011
The most important developments that took place in 2011 with
regard to risk management and control include the following:
– Our year-end value-at-risk reduced to CHF 36 million on 31
December 2011 from CHF 68 million on 31 December 2010.
This significant decrease was mainly attributed to concerted
risk reductions within our trading business, in line with our
strategy of running a more focused, less complex and less cap-
ital-intensive Investment Bank, but also reflected market condi-
tions prevalent at the end of 2011.
– Residual risk exposures in the Investment Bank were further
reduced during 2011. This followed the commutation of
monoline insurance combined with sales of the underlying
assets, predominantly collateralized loan obligations, and the
sales of certain student loan auction rate securities portfolios.
Net exposure to monoline insurers relating to negative basis
trades and after credit valuation adjustments reduced to USD
1.0 billion from USD 1.6 billion. Our student loan auction rate
securities portfolio reduced to USD 5.7 billion from USD
9.8 billion.
– New credit loss expenses minus credit loss recoveries for the
Group totaled CHF 84 million, up from CHF 66 million in 2010.
The change resulted primarily from an increase in collective
loan loss allowances in the third quarter 2011, mainly due to
heightened credit risks arising predominantly from Swiss cor-
porate clients that had become exposed to significant foreign
currency-related risk as a result of the impact of the strength-
ening Swiss franc on their financial position.
– Our impaired loan portfolio decreased by CHF 2.0 billion to
CHF 2.1 billion on 31 December 2011, primarily due to sales of
residual risk exposures.
– We continued to make significant investments in our risk IT
platforms during 2011, particularly in the Investment Bank,
where we refined our new platform for risk aggregation. The
roll-out of standardized methodologies, processes and tools
for credit monitoring across our wealth management locations
also progressed well, and we completed the deployment of a
third-party risk measurement application within Global Asset
Management.
– Significant developments of the UBS Advanced Measurement
Approach model for operational risk were approved by the
Swiss Financial Market Supervisory Authority (FINMA) in the
first quarter of 2011 and have been implemented for regula-
tory capital reporting.
– We established a dedicated firm-wide treasury risk control
function with a direct reporting line into the Group Chief Risk
Officer.
– FINMA conducts semi-annual macro-economic stress tests on
the two large Swiss banks. Their scenario assumes a severe
global recession together with very sharp, specific shocks for
certain countries. The most recent assessment was done in the
third quarter of 2011, when FINMA analyzed the impact of the
stress test on our capital ratios and confirmed that we exceed-
ed their regulatory minimum requirements under the specified
scenario.
– Over the course of last year, we further embedded risk consid-
erations within our compensation framework. In particular and
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in line with evolving industry practice, we adapted our ap-
proach to identifying our key risk-takers, individuals in our or-
ganization who, by the nature of their role, can materially set,
commit or control the firm’s resources, or exert influence over
the firm’s risk profile.
➔ Refer to the “Credit risk“, “Market risk“, “Operational risk“ and
“Liquidity and funding management“ sections of this report for
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Risk management and control principles
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Five pillars support our efforts to achieve an appropriate balance
between risk and return:
1. Protecting the financial strength of UBS by controlling our risk
exposures and avoiding potential risk concentrations at the
level of individual exposures, at specific portfolio levels and at
an aggregate firm-wide level across all risk types.
2. Reputation protection through a sound risk culture character-
ized by a holistic and integrated view of risk, performance
and reward, and by full compliance with our standards and
principles, particularly our Code of Business Conduct and
Ethics.
3. Management accountability whereby business management,
as opposed to risk control, owns all risks assumed throughout
the firm and is responsible for the continuous and active man-
agement of all risk exposures to ensure that risk and return are
balanced.
4. Independent control functions which monitor the effectiveness
of the business’s risk management and oversee risk-taking ac-
tivities.
5. Comprehensive and transparent disclosure of risks to senior
management, the BoD, shareholders, regulators, rating agen-
cies and other stakeholders.
Our risk management and control principles are implemented
through a risk management and control framework. This frame-
work comprises qualitative elements such as policies, procedures
and authorities, and quantitative components including risk mea-
surement methodologies and risk limits.
The framework is dynamic and continuously adapted to our
evolving businesses and the market environment. It includes clear-
ly defined processes to deal with new business initiatives as well
as large and complex transactions.
Risk management and control responsibilities
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The key roles and responsibilities for risk management and control
are as follows:
– 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 risk assessment and
management oversight performed by the BoD considers evolv-
ing best practices and is intended to conform to statutory re-
quirements, as is the related disclosure in this section. The BoD
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is supported by the BoD Risk Committee, which monitors and
oversees the firm’s risk profile and the implementation of the
risk framework as approved by the BoD. The BoD Risk Commit-
tee also assesses and approves the firm’s key risk measurement
methodologies.
– 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 Chief Executive Officers are accountable for the
results of their business divisions. This includes actively manag-
ing their risk exposures, and ensuring that risks and returns are
balanced.
– The Group Chief Risk Officer reports directly to the Group CEO
and has functional and management authority over risk con-
trol throughout the firm. Risk Control provides independent
oversight of risk and is responsible for implementing 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 infrastructure. The risk
control process is supported by a framework of policies and
authorities, which are delegated to Risk Control Officers ac-
cording to their expertise, experience and 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 corporate
governance standards. The Group CFO is also responsible for the
management of firm-wide treasury risks and for implementing
the risk management and control framework for tax.
– The Group General Counsel is responsible for implementing
the firm’s risk management and control principles for legal and
compliance matters.
Risk categories
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, issuer risk and
investment risk. Consequential risks consist of operational risk,
which includes legal, compliance and tax risks, and liquidity and
funding risks. Certain business risks arise from the commercial,
strategic and economic risks inherent in our business activities.
These are overseen and managed by the firm’s respective business
and group management.
Definitions of primary and consequential risks are the follow-
ing:
– Credit risk: the risk of loss resulting from the failure of a client
or counterparty to meet its contractual obligations.
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Risk management and control
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– 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, issuer risk and investment risk: the risk of loss re-
sulting from changes in market variables, whether to our trad-
ing positions or financial investments.
– Operational risk: the risk of loss resulting from inadequate or
failed internal processes, people and systems, or the risk of a
loss resulting from external causes, whether deliberate, acci-
dental or natural. This includes risks related to legal, compli-
ance and tax matters.
– Liquidity and funding risk: the risk of being unable either to
meet our payment obligations when due or to borrow funds in
the market at an acceptable price to fund actual or proposed
commitments.
➔ 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 our risk concentrations.
Risks that are not fully reflected within standard measures are
subject to additional controls, which may include pre-approval of
transactions and specific restrictions. Models to quantify risk are
generally developed by dedicated units within control functions.
Valuations and risk models that could impact the firm’s books and
records are independently verified, and subjected to ongoing
monitoring and control by the Group CRO and Group CFO orga-
nizations.
The base measures are position level market risk sensitivities
and credit risk exposures which, on aggregate, provide an over-
view of our risk across trades. These measures are supplemented
with portfolio level statistical and stress loss measures, which are
two complementary types of risk measures we use to assess po-
tential future losses at an aggregate level.
Statistical loss
Statistical loss measures include value-at-risk (VaR), expected loss
and earnings-at-risk (EaR). VaR estimates the losses arising from
market risk, which could potentially be realized over a set time
period at an established level of confidence. Expected loss mea-
sures the average annual costs that are expected to arise from our
credit portfolios and operational risks. EaR measures the potential
shortfall in our earnings that could be realized over a set time
period at an established level of confidence, and is comprised of
core statistical measures complemented by management assess-
ment.
➔ Refer to the “Credit risk”, “Market risk” and “Operational risk”
sections of this report for a description of our key statistical loss
measures
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Stress loss
Stress loss is the loss that could result from extreme events under
specified scenarios. We perform stress testing to complement our
statistical loss measures and to give us a better understanding of
our risk capacity and appetite. Stress testing quantifies our expo-
sures to plausible yet extreme and unusual market movements,
and enables us to identify, understand and manage our potential
vulnerabilities and risk concentrations. Our stress testing frame-
work 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 the risks
of specific portfolios within the business divisions. Our portfolio
stress loss measures are characterized by past events but also in-
clude forward-looking elements. The stress scenarios for trading
risks capture the liquidity characteristics of different markets and
positions. Our stress frameworks include, for example a scenario
which reflects the extreme market conditions that were experienced
at the height of the financial crisis in the fourth quarter of 2008.
Our combined stress test (CST) framework captures firm-wide
exposures to a number of global systemic events, including a se-
vere global recession triggered by severe market events similar to
those observed in 2008. Other topical forward-looking scenarios
developed over the past two years include a eurozone crisis. These
stress tests are based on forward-looking market event and mac-
roeconomic scenarios calibrated to different levels of severity. The
evolution of market indicators and economic variables under
these scenarios is defined and applied to our entire risk portfolio.
The impact of primary, consequential and business risks is as-
sessed with the aim of calculating the loss and capital implications
should these stress scenarios occur.
Stress test results are included in risk reporting and are impor-
tant inputs for the risk control, risk appetite and business planning
processes of the firm. Our firm-wide stress testing, which captures
all major identified 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 of representatives from the business divi-
sions, Risk Control and economic research. Our stress testing
therefore attempts to provide a control framework that is for-
ward-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
with respect to earnings and capital levels that we seek to main-
tain, even after experiencing severe losses over a defined time
horizon. In order to monitor our risk profile against our risk ap-
petite, we use our two complementary firm-wide risk measure-
ment frameworks: EaR (together with its extension, capital-at–risk
(CaR)) and CST. Both frameworks seek to capture risks across all
of our business divisions and from all major risk categories, includ-
ing primary risks, consequential risks and business risks. These
measures are significant components of our risk control, capital
management and business planning processes, which are de-
scribed 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%.
– Combined stress testing complements EaR and CaR. As de-
scribed in the “Stress loss” section above, our firm-wide stress
tests evaluate the potential impact of stress scenarios across
our risk portfolios, and thereby on our earnings and capital,
based on specified stress scenarios.
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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. Once identified, risk concentrations
are subject to increased monitoring.
Based on our assessment of portfolios and asset classes with
the potential for material loss in a stress scenario relating to the
current environment, we believe that our exposures to monoline
insurers and student loan auction rate securities shown and dis-
cussed in the following sections were considered risk concentra-
tions as of 31 December 2011, in accordance with the abovemen-
tioned definition.
➔ Refer to the discussions of “Exposure to student loan auction
rate securities” and “Exposure to monoline insurers” within
the “Composition of credit risk – business divisions” section of
the report for more information
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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 ap-
petite objective, taking into account inherent limitations in the
precision of risk exposure measures focusing on extreme market
and economic events. The risk limit framework takes into account
a comparison of the firm’s risk exposure with our risk capacity
under prevailing operating conditions and according to prospec-
tive business plans. This comparison is a key tool supporting man-
agement decisions on potential adjustments to the risk profile of
our firm.
➔ Refer to the “Credit risk” and “Market risk” sections of this report
It is possible that material losses could occur on asset classes,
positions and hedges other than those previously mentioned,
particularly if the correlations that emerge in a stressed environ-
ment 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 are also exposed to 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 conditions were to
worsen.
➔ Refer to the discussion of credit risk, market risk and operational
risk below for more information on the risks to which we are
for more information on our risk exposures
exposed
Risk concentrations
Risk disclosures
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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-
Our measures of risk exposure may differ depending on the pur-
pose for which exposures are calculated, for example, for financial
accounting purposes under International Financial Reporting
Standards (IFRS), determination of our required regulatory capital
or our internal management purposes. The exposures detailed in
the “Credit risk” and “Market risk” sections are typically based on
our internal management view of risk exposure.
➔ Refer to the “Basel 2.5 Pillar 3” section of this report for
more information on the exposures we use in the deter mination
of our required regulatory capital
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Risk, treasury and capital 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. This includes
settlement risk, an example of which would be a counterparty
failing to deliver the counter-value of a foreign exchange transac-
tion in which we have fulfilled our obligation. In addition a credit
loss can be triggered by economic or political difficulties in the
country in which a counterparty or issuer of a security is based or
has substantial assets (country risk).
Sources of credit risk
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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 that constrain risk concentrations at portfolio and sub-
portfolio levels with regard to sector exposures, country risk and
specific 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).
It also arises from traded products, including over-the-counter
(OTC) derivative transactions and exchange-traded derivatives, as
well as securities financing transactions such as repurchase agree-
ments (repos and reverse repos), securities borrowing and lending
transactions. The same general risk control processes are applied
to these products, although the accounting treatment may vary,
as products can be carried at amortized cost (loans and receiv-
ables), 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 instru-
ments) depending on the product type and the nature of the ex-
posure. Securities and other obligations in tradable form also pose
credit risk, as their fair values are affected by changing expecta-
tions regarding the probability of issuers failing to meet these ob-
ligations or when issuers actually fail to meet these obligations.
Where these securities and obligations are held in connection
with a trading activity, we view the risk as an issuer risk. Debt se-
curities not held in connection with a trading activity are reported
as debt investments and discussed 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. 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 these limits.
Risk mitigation
We actively manage the credit risk in our portfolios by taking col-
lateral against exposures and utilizing credit hedging. In Wealth
Management & Swiss Bank, the majority of loans are extended on
a secured basis. For real estate financing, a mortgage over the
property is taken to secure the claim. Commercial loans may also
be secured by mortgages on business premises or other real es-
tate. We apply measures to evaluate collateral and determine
maximum loan-to-value ratios, including an assessment of income
cover.
Lombard loans are made against the pledge of eligible market-
able securities, guarantees and other forms of collateral. The
Investment Bank also takes collateral in the form of marketable
securities and cash in its OTC derivatives and securities financing
businesses. Discounts (haircuts) are generally applied to the market
value of the collateral reflecting the quality, liquidity and volatility
of the underlying collateral. Exposure and collateral values are con-
tinuously monitored, and margin calls or close-out procedures are
enforced when the market value of collateral falls below a pre-
defined trigger level. Concentrations within individual collateral
portfolios and across clients are also monitored where relevant and
may affect the haircut applied to a specific collateral pool.
Our OTC derivatives trading is generally conducted under bilat-
eral International Swaps and Derivatives Association (ISDA), or
ISDA-equivalent, master netting 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. 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 agreements, including the requirement to have a legal
opinion on the enforceability of contracts in relevant jurisdictions
in the case of insolvency.
In the Investment Bank, a distinction is made between expo-
sures intended to be held to maturity (take-and-hold exposures)
Primarily in the Investment Bank, we actively manage the cred-
it risk of our portfolios with the aim of reducing concentrations of
116
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risk from specific counterparties, sectors or portfolios. Hedging
measures used include single-name credit default swaps (CDS),
index CDS 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, when monitoring expo-
sures against limits, we do not usually recognize credit risk miti-
gants such as proxy hedges (credit protection on a correlated but
different name) or index CDS. Buying credit protection creates
credit exposure against the hedge provider. We monitor our expo-
sures to credit protection providers and the effectiveness of credit
hedges as part of our overall credit exposures to the relevant
counterparties. In addition, we identify and monitor positions
where we believe there is significant exposure and correlation be-
tween the counterparty and the hedge provider (so-called wrong-
way risk). Our policy is to discourage such activity, but in any event
or as market correlations may change, not to recognize wrong-
way-risk hedge benefit within counterparty limits and capital cal-
culations.
➔ Refer to the “Basel 2.5 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 advanced
internal ratings-based approach of the Basel 2.5 framework gov-
erning international convergence of capital. We also use models
to derive the portfolio credit risk measures of expected loss, statis-
tical loss and stress loss.
medium enterprise segment using statistically developed score-
cards. The underlying data used in our scorecards is predominant-
ly based on a combination of clients’ financial information, quali-
tative criteria and credit loss history over several years. To rate our
large corporate clients domiciled in Switzerland, Wealth Manage-
ment & Swiss Bank uses templates established for this segment 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 capacity of
the obligor into account. We rate lombard loan exposures 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 map-
ping to our internal rating 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 available from the rating agencies. For each external rating
category, the average default rate is compared to our internal de-
fault probability bands to derive a mapping to our internal rating
scale. Our internal rating of a counterparty may, therefore, di-
verge from one or both of the correlated external ratings shown
in the table. Observed defaults by rating agencies may vary
through economic cycles, and we do not necessarily expect the
actual number of defaults in our equivalent rating band to equal
the rating agencies’ average in any given period. We periodically
assess the long-term average default rates of credit rating agen-
cies’ grades, and we adjust their mapping to our masterscale as
necessary to reflect any material changes.
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Probability of default
The probability of default 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), which is designed to en-
sure a consistent assessment of default probabilities across coun-
terparties. We regularly assess the performance of our rating tools
and adjust our model parameters as necessary. In addition to us-
ing ratings for credit risk measurement, we use them as an impor-
tant input for determining credit risk approval authorities.
In the Investment Bank, rating tools are applied to broad seg-
ments including banks, sovereigns, corporates, funds, hedge funds
and commercial real estate. We determine our choice of the rele-
vant assessment criteria, for example, financial ratios and qualita-
tive factors, for the rating tools on the basis of various statistical
analyses, externally available information and expert judgment.
Within our retail and corporate banking business in Switzer-
land, we rate our business and corporate clients in the small to
Internal UBS rating scale and mapping of external ratings
Internal
UBS rating
Description
Moody’s Investors
Service mapping
Standard & Poor’s
mapping
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
Ba3
B1
B2
B3
Caa
Ca to C
Sub-investment grade
Defaulted
AAA
AA+ to AA–
A+ to A–
BBB+ to BBB
BBB–
BB+
BB
BB–
B+
B
B–
CCC
CC to C
D
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Risk, treasury and capital management
Risk management and control
Exposure at default
Exposure at default (EaD) represents the amount we expect to
be owed by a counterparty at the time of a possible default. We
derive EaD from our current exposure to the counterparty and the
possible future development of that exposure.
The EaD of a loan is the drawn or face value of the loan. For
loan commitments and 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 various points in time. For secu-
rities financing transactions, we assess the net amount that may
be owed to us or that we may owe to others, taking into account
the impact of market moves over the potential time it would take
to close out all our positions. For exchange-traded derivatives, our
calculation of EaD takes into account initial and daily variation
margin. 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 modeling
the potential development of replacement values and 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 level of confidence 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
Loss given default (LGD) is the magnitude of the likely loss in case
of default. LGD estimates include loss of principal, interest and
other amounts (such as workout costs, including the cost of car-
rying an impaired position during the workout process) less recov-
ered amounts. We determine LGD based on the likely recovery
rate of claims against defaulted counterparties, which depends
on the type of counterparty and any credit mitigation by way of
collateral or guarantees. 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 col-
lateral type and is statistically estimated based on our internal loss
data. Where we hold collateral, such as marketable securities or a
mortgage on a property, loan-to-value ratios are a key factor in
determining 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.
Expected loss is a statistical measure used to estimate the
average annual costs we expect to experience from positions
in our current credit portfolio that become impaired. The ex-
pected loss for a given credit facility is a function of the three
components described above: probability of default, exposure
at default and LGD. We aggregate the expected loss for indi-
vidual counterparties to derive our expected portfolio credit
losses.
Expected loss 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 in-
put 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 ex-
pected loss. The loss estimates deviate from the mean due the
statistical uncertainty on the defaulting counterparties and to sys-
tematic default relationships among counterparties within, and
between segments. It is sensitive to concentration risks on indi-
vidual counterparties and groups of counterparties. The outcome
provides 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 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 internal 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 for credit losses,
118
credit valuation adjustment (CVA) on traded products and
specific credit hedges. Portfolio hedges, such as index CDS, are
not included in this analysis. Banking product exposures are
shown on an amortized cost or notional basis, without applying
credit conversion factors. Exposures to OTC derivatives are gen-
erally shown in the table as net positive replacement values (RV)
after the application of legally enforceable netting agreements
and the deduction of cash collateral. In some cases, however,
the exposures are based on a more simplistic RV plus add-on
approach. Exchange-traded derivatives (ETD) exposures take
into account initial and daily variation margins. Securities fi-
nancing exposures are shown net of the collateral received.
Our lending business saw increased levels in 2011, following
to CHF 82 billion. The largest com ponent of our credit expo-
sure before deductions as of 31 December 2011 was our loan
portfolio, accounting for CHF 257 billion or 54% of our total
credit exposure. Of this, CHF 210 billion was attributable to
Wealth Management & Swiss Bank.
Additional information on the composition and credit quality
of Wealth Management & Swiss Bank’s loan portfolio and the
Investment Bank’s banking products and OTC derivatives port-
folios is provided further on in this section. Analysis of our Invest-
ment Bank and Wealth Management & Swiss Bank portfolios is
based on net exposure (i.e. after deduction of credit hedges,
allowances and provisions, CVA) because we actively utilize credit
hedging to manage our risks in these portfolios.
material client deleveraging in the prior year.
Total credit exposure before deductions amounted to CHF
476 billion on 31 December 2011 compared with CHF 445 bil-
lion at the end of 2010. Our banking product exposures in-
creased to CHF 394 billion from CHF 356 billion, mainly due to
increases in the balances with central banks and in the loan
books of Wealth Management & Swiss Bank and Wealth Man-
agement Americas. Our traded products exposures, which
arise largely in our Investment Bank, declined by CHF 7 billion
➔ Refer to the “Basel 2.5 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 28c Measurement categories of financial assets
and liabilities“ in the “Financial information” section of this
report for further information on IFRS required disclosures
on derivatives 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 4
Wealth Management &
Swiss Bank
Wealth Management
Americas
Investment Bank
Other1
UBS
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
3,370
4,395
10,727
2,678
2,161
1,594
210,375
201,942
27,894
11,797
7,955
10,505
7,276
237,893
233,128
5,709
984
4,048
978
6,693
244,585
243,476
5,026
238,155
236,488
406
1,076
33,131
74
877
155
1,106
34,238
34,235
2,157
22,472
370
1,066
26,065
56
1,114
156
1,326
27,391
27,389
31,743
18,182
18,552 2
5,551
46,927
120,955
45,759
7,938
20,051
73,748
194,703
163,057
13,732
13,924
17,679 2
4,820
46,216
96,371
47,452
14,599
20,279
82,330
178,701
143,364
1,290
655
155
129
2,229
330
330
2,559
2,559
38,565
24,826
256,977 2
17,884
55,958
394,209
51,871
9,799
20,206
81,877
476,086
443,328
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
315
158
123
596
284
284
880
876
1 Includes Global Asset Management and Corporate Center. 2 Does not include reclassified securities and similar acquired securities. 3 Excludes loans designated at fair value. 4 Net of allowances, provisions, CVA
and hedges.
119
Risk, treasury and capital 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 238 billion on 31 December 2011,
compared with CHF 233 billion on 31 December 2010. The high
quality of this portfolio is illustrated by the rating and loss given
default distributions shown in the table “Wealth Management &
Swiss Bank: distribution of net banking products exposure across
UBS internal rating and loss given default buckets”. Approximate-
ly 75% of Wealth Management & Swiss Bank’s banking product
portfolio is rated investment grade, with over 85% of this portion
categorized in the lowest LGD bucket of 0–25%. The table below
shows a shift from sub-investment to investment grade, mainly
due to the introduction of a new rating methodology for the retail
mortgage segment in 2011.
Wealth Management & Swiss Bank’s gross loan portfolio in-
creased to CHF 210 billion, from CHF 202 billion in the prior year.
The increase came mainly from our Wealth Management business
in the Asia Pacific region and in Switzerland. Of Wealth Manage-
ment & Swiss Bank’s loan portfolio, 93% was secured by collat-
eral, of which 75% was secured by real estate and the remaining
25% by marketable securities, guarantees and other forms of col-
lateral. The majority of the real estate exposure is secured by Swiss
residential property (single and multi-family homes), which have
typically exhibited a low risk profile.
Wealth Management & Swiss Bank’s gross unsecured loan
portfolio amounted to CHF 14.9 billion, 45% of which was rated
investment grade. Furthermore, 67% of the unsecured portfolio
related to cash-flow-based lending to corporate counterparties,
and 20% to public authorities, mainly in Switzerland.
Wealth Management Americas
The total gross banking products exposure of Wealth Manage-
ment Americas increased to CHF 33 billion on 31 December 2011
compared with CHF 26 billion on 31 December 2010. This expo-
sure arose from three main product categories: loans secured by
marketable securities, residential mortgage loans and credit cards.
The majority of loans secured by marketable securities were of
high quality, with 88% (93% in 2010) rated investment grade.
Our Wealth Management Americas mortgage loan portfolio con-
sists primarily of residential mortgages offered in all US states.
Exposure continued to grow to CHF 1.8 billion as of 31 Decem-
ber 2011 from CHF 1.1 billion the prior year. The overall quality of
this portfolio remains high and we have experienced no credit
losses since the inception of the mortgage program. The credit
risk exposure arising from the credit card business was CHF 135
million on 31 December 2011.
120
Wealth Management & Swiss Bank: distribution of net banking products exposure across internal UBS ratings and
loss given default buckets
CHF million, except where indicated
Internal UBS ratings
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
Investors
Service
mapping
Standard &
Poor’s
mapping
31.12.11
LGD buckets
Exposure
0–25%
26–50%
51–75% 76–100%
Aaa to Baa3
AAA to BBB–
177,355
154,085
22,520
Ba1 to B1
B2 to Caa
BB+ to B+
B to CCC
Ca & lower
CC & lower
58,232
55,257
2,686
289
48,453
45,921
2,249
283
7,531
7,112
414
5
10
1,010
1,010
740
1,238
1,214
23
1
235,587
202,538
30,051
1,978
1,020
1,196
236,783
Weighted
average
LGD (%)
13
15
15
15
6
13
31.12.10
Weighted
average
LGD (%)
16
12
11
17
20
14
Exposure
140,194
89,888
86,867
2,967
55
230,082
1,379
231,461
1 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 709 million (31 December 2010:
CHF 817 million)andcredithedgesofCHF400million(31December2010:CHF849million)isCHF237,893million(31December2010:CHF233,128million).
Wealth Management & Swiss Bank: composition of loan portfolio, gross
CHF million, except where indicated
Secured by residential property
Secured by commercial / industrial property
Secured by securities 1
Unsecured loans
Total loans, gross
Total loans, net of allowances and credit hedges
1 Includes guarantees and other collateral.
Wealth Management & Swiss Bank: unsecured loans by industry sector
31.12.11
31.12.10
124,639
21,347
49,521
14,867
210,375
209,572
59.2%
10.1%
23.5%
7.1%
100.0%
122,815
20,766
42,993
15,367
201,942
201,012
60.8%
10.3%
21.3%
7.6%
100.0%
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Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other
Total
31.12.11
31.12.10
120
919
327
2,542
1,785
2,938
1,112
1,715
3,113
296
252
642
59
2,172
1,842
4,895
889
1,551
2,776
288
14,867
15,367
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Risk, treasury and capital management
Risk management and control
Investment Bank
The “Investment Bank: banking products and OTC derivatives
exposure” table shows the Investment Bank’s credit exposures
to banking products and OTC derivatives before and after
allowances and provisions, CVA and specific hedges based on
our internal risk view. Portfolio hedges, such as index CDS, are
not included in this analysis. The gross banking product expo-
sures shown in this table exclude exposure to central banks,
due from banks, nostro accounts and money market balances,
which are included in the “Credit exposure by business divi-
sion” table.
Approximately 94% of the Investment Bank’s net OTC deriva-
tive portfolio was traded with counterparties rated investment
grade, the vast majority of which were banks and regulated finan-
cial institutions with which trading was conducted primarily on a
collateralized basis. Approximately 67% of the Investment Bank’s
net banking products portfolio was rated investment grade, with
the majority of the exposures related to its lending activities as-
sociated with corporates and other non-banks.
The tables shown on the next page provide additional analysis
of the portfolio by our internal rating and LGD, industry sector
and geographical region.
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
31.12.11
75,380 2
(93)
31.12.10
70,885 2
(124)
(22,886)
(29,154)
52,401
41,608
31.12.11
31.12.10
45,759
(2,917)
(5,637)
37,205
47,452
(2,224)
(3,683)
41,546
1 Banking products: risk view, excludes balances with central banks, due from banks, reclassified and similar acquired securities and internal risk adjustments; OTC derivatives: net replacement value includes the impact
ofnetting agreements(includingcashcollateral)inaccordancewithSwissFederalBankingLaw. 2 Banking products including money market and nostro accounts amount to CHF 120,955 million (31 December 2010:
CHF 96,371 million).
Investment Bank: distribution of net banking products exposure, across internal UBS ratings and
loss given default (LGD) buckets
CHF million, except where indicated
Internal UBS ratings
Investment grade
Sub-investment grade
of which: 6–9
of which: 10–12
Moody’s
Investors
Service
mapping
Standard &
Poor’s
mapping
Aaa to Baa3
AAA to BBB–
Ba1 to B1
B2 to Caa
BB+ to B+
B to CCC
of which: 13 & defaulted
Ca & lower
CC & lower
Net banking products exposure,
after application of credit hedges 1
31.12.11
LGD buckets
Exposure
35,017
17,384
9,717
7,121
547
0–25%
10,426
8,363
4,406
3,544
413
26–50%
51–75% 76–100%
15,269
6,002
2,852
3,073
77
4,101
1,728
1,322
357
49
5,221
1,291
1,137
146
7
52,401
18,790
21,271
5,829
6,511
31.12.10
Weighted
average
LGD (%)
43
33
36
31
35
39
Exposure
25,603
16,005
6,812
8,285
908
41,608
Weighted
average
LGD (%)
43
31
35
27
21
39
1 Banking products: risk view, excludes balances with central banks, due from banks, reclassified and similar acquired securities and internal risk adjustments.
Investment Bank: distribution of net OTC derivatives exposure, across internal UBS ratings and
loss given default (LGD) buckets
CHF million, except where indicated
Internal UBS ratings
Investment grade
Sub-investment grade
of which: 6–9
of which: 10–12
Ba1 to B1
B2 to Caa
BB+ to B+
B to CCC
of which: 13 & defaulted
Ca & lower
CC & lower
Net OTC derivatives exposure,
after application of credit hedges 1
Moody’s
Investors
Service
mapping
Standard &
Poor’s
mapping
31.12.11
LGD buckets
Exposure
0–25%
26–50%
51–75% 76–100%
Aaa to Baa3
AAA to BBB–
34,898
8,096
2,307
1,650
356
301
420
258
24
138
23,966
1,126
697
294
135
1,925
152
115
30
7
912
607
580
7
20
37,205
8,516
25,092
2,077
1,519
31.12.10
Weighted
average
LGD (%)
36
54
55
53
70
39
Exposure
37,552
3,994
2,302
889
803
41,546
Weighted
average
LGD (%)
32
51
56
48
32
33
1 OTC derivatives: net replacement value includes the impact of netting agreements (including cash collateral) in accordance with Swiss Federal Banking Law.
122
The Investment Bank’s net banking products exposure in-
creased to CHF 52.4 billion as of 31 December 2011 from CHF
41.6 billion at the end of 2010. The Investment Bank continued to
actively manage the credit risk of this portfolio and, as of 31 De-
cember 2011, held CHF 23 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
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 2011.
➔ Refer to “Note 28b Reclassification of financial assets” in the
“Financial information” section of this report for more informa-
tion on reclassified securities
Loan to BlackRock fund
In the second quarter of 2008, we sold a portfolio of US residential
mortgage-backed securities (RMBS) for USD 15 billion to the RMBS
Opportunities Master Fund, LP (RMBS fund), a special purpose en-
tity managed by BlackRock Financial Management, Inc. The RMBS
fund was capitalized with approximately USD 3.75 billion in equity
raised by BlackRock from third-party investors and an eight-year
amortizing USD 11.25 billion senior secured loan provided by UBS.
The RMBS fund amortizes the loan through monthly payments
drawn from amounts collected 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
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 further specified decline in the notional balance.
As of 31 December 2011, the loan had a balance outstanding
of USD 4.7 billion compared with USD 5.7 billion on 31 Decem-
ber 2010, taking into account amounts held in escrow. This loan
balance is reflected in the Investment Bank’s credit exposures
shown in the tables of this section. The aggregate notional bal-
ance of the RMBS fund’s assets collateralizing the loan on 31 De-
cember 2011 was USD 11.5 billion. By notional balance, the port-
folio primarily comprised of Alt-A (54%) and sub-prime (33%)
credit grades. In terms of priority, the portfolio was dominated by
senior positions (96%).
The RMBS fund is not consolidated in our financial statements.
We continue to monitor the RMBS fund and its performance and
will reassess the consolidation status if events warrant and dete-
rioration of the underlying RMBS mortgage pools indicates that
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
31.12.11
31.12.10
5,082
1,866
3,760
17,735
6,354
5,990
1,369
1,791
4,041
4,413
2,608
1,046
2,380
13,054
8,021
3,707
1,611
1,921
2,722
4,537
31.12.11
10,935
31.12.10
13,409
188
252
16,068
626
211
7,233
43
943
707
179
155
20,778
524
94
4,916
49
861
581
52,401
41,608
37,205
41,546
1 Banking products: exposure to commercial counterparties after risk transfer and application of credit hedges. OTC derivatives: net replacement value includes the impact of netting agreements (including cash collateral)
in accordance with Swiss Federal Banking Law.
Investment Bank: net banking products and OTC derivatives exposure by geographical region
t
n
e
m
e
g
a
n
a
m
l
a
t
i
p
a
c
d
n
a
y
r
u
s
a
e
r
t
,
k
s
i
R
CHF million
Switzerland
Rest of Europe
North America
Latin America
Asia Pacific
Middle East and Africa
Total
Banking products
OTC derivatives
31.12.11
31.12.10
31.12.11
31.12.10
758
7,943
38,507
653
4,269
271
52,401
348
5,291
32,721
34
2,658
556
41,608
1,263
18,884
13,003
278
3,345
433
37,205
1,804
19,874
15,764
185
3,338
580
41,546
123
Risk, treasury and capital management
Risk management and control
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. Develop-
ments through the year ended 31 December 2011 did not alter
our conclusion that the loan is not impaired and that consolida-
tion is not required.
d
e
t
i
d
u
A
Exposure to student loan auction rate securities
We continue to regard our inventory of student loan auction rate
securities as a “risk concentration”. The overall exposure de-
creased to USD 5.7 billion on 31 December 2011 from USD
9.8 billion on 31 December 2010 following sales during the year.
At the end of 2011, 77% of the collateral underlying the re-
maining student loan auction rate securities inventory was backed
by Federal Family Education Loan Program guaranteed collateral,
which is reinsured by the US Department of Education for no less
than 97% of principal and interest. All of our student loan auction
rate securities positions are held as Loans and receivables and are
subject to a quarterly impairment test that includes a review of
performance reports for each issuing trust.
➔ Refer to the “Risk concentrations” section of this report for more
information
Exposure to monoline insurers
We continue to regard our exposure to monoline insurers as a
“risk concentration”. The vast majority of this exposure arises
d
e
t
i
d
u
A
d
e
t
i
d
u
A
from OTC derivative contracts, mainly credit default swap (CDS)
protection purchased to hedge specific positions. The table “Ex-
posure to monoline insurers, by rating” shows this exposure cal-
culated as the sum of the fair values of individual CDS after credit
valuation adjustments (CVA).
On 31 December 2011, based on fair values, 41% of the
insured assets were commercial mortgage-backed securities
(CMBS), 31% were collateralized loan obligations, 21% were
other asset-backed securities and 7% were asset-backed securi-
ties high-grade collateralized debt obligations of US sub-prime
residential mortgage-backed securities.
The total fair value of CDS protection purchased from mono-
line insurers was USD 1.0 billion after cumulative CVA of USD 1.4
billion. The changes reported in the table “Exposure to mono-
line insurers, by rating” do not equal the profit or loss associated
with this portfolio as a significant portion of the underlying
assets are classified as Loans and receivables for accounting
purposes. In addition to credit protection purchased on the posi-
tions detailed in the table, we held direct derivative exposure to
monoline insurers of USD 264 million after CVA of USD 216 mil-
lion, on 31 December 2011.
➔ Refer to the “Non-trading portfolios – valuation and sensitivity
information by instrument category” section below for more
information
➔ Refer to the “Risk concentrations” section of this report for
more information
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Student loan ARS inventory
USD million
US student loan ARS
of which rated BB– and above
of which rated below BB–
Carrying value
31.12.11
5,683 1
5,154
529
31.12.10
9,784
8,374
1,410
1 Includes USD 2.9 billion (CHF 2.7 billion) at carrying value of student loan ARS that were reclassified to Loans and receivables from Held for trading in the fourth quarter 2008. Refer to “Note 28b Reclassification of
financial assets” in the “Financial information” section of this report for more information.
Exposure to monoline insurers, by rating 1
USD million
Credit protection on US sub-prime residential mortgage-
backed securities (RMBS) CDO high grade, 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 31.12.11
Total 31.12.10
Notional
amount 3
Fair value
of underlying
assets
Column 1
Column 2
31.12.11
Fair value of
CDS prior to
credit valuation
adjustment
Column 3
(=1–2)
Credit
valuation
adjustment
Fair value of
CDS after
credit valuation
adjustment
Column 4
Column 5
(=3–4)
726
4,392
658
3,734
5,118
11,906
188
2,585 4
483
2,103
2,773
9,206
538
1,807
175
1,631
2,345
2,699
470
912
48
864
1,382
1,087
68
895
127
767
963
1,612
1 Excludes the benefit of credit protection purchased from unrelated third parties. 2 Categorization based on the lowest insurance financial strength rating assigned by external rating agencies. 3 Represents gross
notional amount of credit default swaps (CDS) purchased as credit protection. 4 Includes USD 0.8 billion (CHF 0.7 billion) at fair value / USD 0.9 billion (CHF 0.8 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 28b Reclassification of financial assets” in the “Financial information” section of this report.
124
Impairment and default – distressed claims
d
e
t
i
d
u
A
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. Loans in arrears for 90 days are evaluated in-
dividually for impairment. However, an impairment analysis would
be carried out irrespective of whether the loan was in arrears if
other objective evidence indicates that a loan may be impaired.
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 contractual terms of
the loans or the equivalent value from liquidation of collateral. We
also assess claims from securities financing transactions for de-
fault and impairment using the same principles and processes 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 the exception of a part of the mortgage portfolio
and small unsecured retail account overdrafts, we assess each
identified case individually. Our workout strategy and estimation
of recoverable amounts are independently approved.
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 as described above. To
cover the time lag between the occurrence of an impairment
event and its identification, we establish collective loan loss allow-
ances based on the expected loss for the portfolio over the aver-
age period between trigger events and the identification of indi-
vidual impairment. Collective loan loss allowances of this kind are
typically not required for our investment banking businesses be-
cause we continuously monitor individual counterparties and ex-
posures to identify impairment events at an early stage.
None of the portfolios with collective loan loss allowances 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.
d
e
t
i
d
u
A
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 regularly use a set of global
d
e
t
i
d
u
A
economic drivers to assess the most vulnerable countries and re-
view 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
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 26a Valuation principles” in the “Financial
information” section of this report for more information on
credit valuation adjustments
Impaired loans, allowances and provisions
The credit risk exposures reported in the 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 Guaran-
tees and Loan commitments. The table also shows the IFRS re-
ported allowances and provisions for credit losses and impair-
ments.
The table shows that our allowances and provisions for credit
losses, excluding collective loan loss allowances of CHF 131 mil-
lion, decreased 33% to CHF 804 million on 31 December 2011
from CHF 1,193 million (excluding collective loan loss allowances
of CHF 47 million) at the end of 2010.
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 2,135 mil-
lion of 31 December 2011 from CHF 4,172 million.
The ratio of the impaired loan portfolio to the total loan port-
folio (both measured gross) reduced by half to 0.8% compared
with 1.6% on 31 December 2010, mainly due to sales of impaired
reclassified assets. For loans excluding securities the ratio was
0.6% compared with 0.9%.
We reclassified loans and receivables with carrying amounts
of CHF 186 million and CHF 242 million from impaired to per-
forming during 2011 and 2010, respectively. The 2010 number
has been corrected from CHF 39 million to CHF 242 million.
These reclassifications occurred because the loans had either
been renegotiated and the new terms and conditions met nor-
mal 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 collectible in accordance
with the original contractual terms.
Collateral held against our impaired loan portfolio mainly con-
sisted of real estate and securities on 31 December 2011.
It is our policy to dispose of foreclosed real estate as soon as
practicable. The carrying amount of foreclosed property recorded
d
e
t
i
d
u
A
125
t
n
e
m
e
g
a
n
a
m
l
a
t
i
p
a
c
d
n
a
y
r
u
s
a
e
r
t
,
k
s
i
R
of which: related to other loans
255,909
242,572
1,589
Risk, treasury and capital management
Risk management and control
Allowances and provisions for credit losses 1
CHF million, except where indicated
IFRS exposure, gross
Impaired exposure 2
Specific allowances
and provisionsfor
credit losses3
Estimated liquidation
proceeds of collateral
Impairment ratio (%)
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
As of
Group
Balances with central banks
Due from banks
Loans
of which: related to reclassified securities 4
of which: related to similar acquired securities
Guarantees
Loan commitments
Banking products
Investment Bank
Balances with central banks
Due from banks
Loans
of which: related to reclassified securities 4
of which: related to similar 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
21
4,172
1,574
351
2,247
160
142
38,565
23,235
24,459
17,158
267,429
263,964
4,996
6,524
11,719
9,673
20
2,135
450
95
18,905
58,192
16,535
56,851
94
70
406,326
378,967
2,318
4,495
31,743
16,592
29,005
4,996
6,524
17,485
6,572
49,161
13,732
12,007
39,392
11,719
9,673
18,000
5,536
48,509
11
1,114
450
95
569
69
67
2,838
1,574
351
913
67
95
17
694
68
15
611
87
6
804
5
157
68
15
74
61
1
24
1,039
221
52
766
96
34
893
389
81
423
3
1
2,286
1,376
313
597
7
5
1,193
897
2,298
642
389
81
172
1,926
1,376
313
237
348
221
52
76
43
26
133,073
119,177
1,261
3,000
223
417
642
1,926
3,370
4,395
10,727
2,678
9
210,375
201,942
1,020
11,797
7,955
10,505
7,276
25
3
21
1,333
93
47
237,893
233,128
1,057
1,494
12
537
26
5
581
24
689
49
8
770
1,165
555
463
456
75,056
67,104
45
166
42
126
2,641
1,220
2,391
983
80,637
71,397
45
166
42
126
2,205
3,840
10,265
2,222
135,320
134,838
9,156
6,735
8,114
6,293
9
975
25
3
21
1,167
93
47
157,256
161,732
1,012
1,328
12
495
26
5
539
24
563
49
8
644
251
3
1
255
6
6
246
3
1
250
360
7
5
372
45
45
315
7
5
327
0.0
0.1
0.8
9.0
1.5
0.6
0.5
0.1
0.6
0.0
0.1
3.8
9.0
1.5
3.3
1.1
0.1
0.9
0.0
0.2
0.5
0.2
0.0
0.4
0.0
0.0
0.1
0.0
0.0
0.1
0.0
0.2
0.7
0.3
0.0
0.6
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
1 Excludes allowances for securities borrowed. 2 Excludes reclassified securities that are not considered impaired. 3 Excludes CHF 131 million collective loan loss allowances (31 December 2010: CHF 47 million). 4
Refer to “Note 28b Reclassification of financial assets” in the “Financial information” section of this report.
126
Impaired assets by type of financial instrument
d
e
t
i
d
u
A
CHF million
Impaired exposure
Specific allowances,
provisions and CVA
adjustments
Estimated liquidation
proceeds of collateral
Net impaired exposure
Impaired loans (incl. due from banks)
Impaired guarantees and loan commitments
Defaulted derivatives contracts
Defaulted securities financing transactions
Total
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
2,155
164
2,143
3
4,465
4,193
301
1,915
59
6,468
(711) 1
(93)
(1,457)
(3)
(2,263)
(1,064) 1
(130)
(1,130)
(46)
(2,370)
(893)
(4)
(897)
(2,286)
(12)
(13)
(2,310)
551
67
686
844
159
785
1,304
1,788
1 Excludes CHF 131 million collective loan loss allowances (31 December 2010: CHF 47 million).
d
e
t
i
d
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A
in our balance sheet under Other assets at the end of 2011 and
2010 amounted to CHF 58 million and CHF 90 million, respec-
tively.
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.
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 by CHF 2.0 billion to CHF 4.5 billion
on 31 December 2011, mainly due to sales of legacy loan positions.
After deducting allocated specific allowances, provisions and
CVA of CHF 2.3 billion and the estimated liquidation proceeds of
collateral of CHF 0.9 billion, net impaired assets amounted to CHF
1.3 billion as of 31 December 2011.
➔ Refer to “Note 9a Due from banks and loans” in the “Financial
information” section of this report for more information
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 entirely to our Wealth Manage-
ment & Swiss Bank division, where delayed payments are rou-
tinely observed. We currently have no past due but not impaired
loans in the Investment Bank.
The increase in our past due but not impaired loan exposures
resulted primarily from a slight growth in the categories 1–60 days.
Our past due but not impaired loans in the greater-than-90-day
category related primarily to mortgage loans. However, our overall
past due but not impaired levels on mortgage loans were not sig-
nificant compared with the overall size of the mortgage portfolio.
Settlement risk
Settlement risk arises in transactions involving exchange of value
where we must fulfill our obligation to deliver without first being
t
n
e
m
e
g
a
n
a
m
l
a
t
i
p
a
c
d
n
a
y
r
u
s
a
e
r
t
,
k
s
i
R
Past due but not impaired loans
d
e
t
i
d
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A
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
31.12.11
31.12.10
105
54
57
9
670
486
895
62
59
30
20
678
468
849
31.12.11
31.12.10
Total mortgage
exposure
135,237
of which:
pastdue> 90days
but not impaired
486
Total mortgage
exposure
133,343
of which:
pastdue> 90 days
but notimpaired
468
127
Risk, treasury and capital management
Risk management and control
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, a foreign exchange clearing house which allows transac-
tions to be settled on a delivery-versus-payment basis, thereby
significantly reducing foreign exchange-related settlement risk
relative to the volume of business.
The mitigation of settlement risk through Continuous Linked
Settlement membership and other means, such as payment net-
ting, does not eliminate our credit risk in foreign exchange trans-
actions resulting from changes in exchange rates prior to settle-
ment. 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 en-
sure that our exposure to certain countries is commensurate with
the credit ratings we assign to them, and that it is not dispropor-
tionate to the respective 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
major rating agencies, are based on our counterparty rating
classes as described in the “Probability of default” section
above. For all countries rated 3 and below, we set country risk
ceilings approved either by the BoD or under delegated author-
ity by the Group CEO or Group Chief Risk Officer. A country
risk ceiling applies to all our exposures to counterparties or is-
suers of securities and financial investments in the respective
country. We may limit the extension of credit, transactions in
traded products or positions in securities based on a country
ceiling, even if our exposure to a counterparty is otherwise ac-
ceptable.
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 sig-
nificant 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 coun-
try’s debt and equity markets and asset prices or a sharp deprecia-
tion of the currency. We use stress testing to assess the potential
financial impact of a severe emerging markets crisis. This involves
identifying countries that may potentially be subject to a crisis
event, determining potential losses and making assumptions
about recovery rates depending on the types of credit transactions
involved and their economic importance to the affected countries.
Our exposures to market risks are subject to stress tests that
cover major global scenarios whereby we apply market shock fac-
tors to equity indices, interest and currency rates in all relevant
countries and consider the potential liquidity of the instruments.
In light of the ongoing European sovereign debt crisis, we in-
creased the monitoring and focus on the quality of collateral we hold.
Country risk exposure
Product categories
The presentation of exposures follows our internal risk manage-
ment view without recognizing any expected recovery values.
Banking products are loans (at amortized cost), unfunded loan
commitments (notional basis) and financial guarantees (notional
basis) and include an immaterial amount of available-for-sale debt
and equity positions (at fair value).
Traded products include the counterparty risk arising from OTC
derivatives and securities financing transactions, presented at net
positive replacement value after taking into account valid master
netting agreements.
Trading inventory includes securities such as bonds and equi-
ties, as well as the risk relating to the underlying reference assets
for derivative positions, including those linked to credit protection
we buy or sell. Trading inventory exposures represent the change
in fair value, if the value of a security or, in the case of derivatives,
128
the underlying reference asset, fell instantaneously to zero. As we
manage the trading inventory on a net basis, we also net the
value of long positions against short positions with the same un-
derlying issuer. This is a conservative approach as the reported
sum of net long exposures per legal entity does not recognize the
offsetting benefit of certain hedges and short positions across is-
suers. This is especially relevant when estimating the potential
exposure to moves in general country credit spreads.
Country allocation methodology
The basis for the presentation of the country exposure from bank-
ing products or traded products exposures is the domicile alloca-
tion used in our internal risk view. In general, the country of domi-
cile of the legal entity (parent or subsidiary) that is our contractual
counterparty determines the country against which the exposure is
shown. For example, a loan to a bank domiciled in country X
would be shown against country X, while the exposure to a Y-do-
miciled subsidiary of that bank would be shown against country Y.
For some counterparties whose economic substance in terms of
assets or source of revenues is primarily located in a different country,
the exposure is allocated to the risk domicile of that different country.
This is the case, for example, with legal entities incorporated in finan-
cial offshore centers, which have their main assets and revenue
streams outside the country of domicile. The same principle applies
to exposures for which we hold third-party guarantees or collateral.
In such cases, we report the exposure against the country of domicile
of either the guarantor or the issuer of the underlying security, or
against the country where pledged physical assets are located.
Special rules apply for banking products exposures (money
market deposits, loans) to branches of financial institutions which
are located in a country other than that of the domicile of the le-
gal entity. In such cases, exposures are recorded in full against the
country of domicile of the firm, and additionally in full against the
country in which the branch is located.
ed against the (risk) domicile of the legal entity which issued the
relevant reference asset. As a basic example: if a CDS protection
for a notional value of 100 bought from a counterparty domiciled
in country X referencing debt of an issuer domiciled in country Y
has a positive replacement value of 20, we record: (i) the fair value
of the CDS (20) against country X (within traded products) and (ii)
the hedge benefit (notional minus fair value) of the CDS (100 – 20
= 80) against country Y (within trading inventory). In the example
of protection bought, the 80 hedge benefit would offset against
any exposure arising from securities held and issued by the same
entity as the reference asset, floored at zero per issuer. In the case
of protection sold, this would be reflected as a risk exposure of 80
in addition to any exposure arising from securities held and issued
by the same entity as the reference asset.
Country risk in relation to securities held within trading inven-
tory is allocated based on our internal risk domicile view. In general,
the country of domicile of issuer determines the country against
which the exposure is shown. For example, an equity issued by a
company domiciled in country X would be shown against country
X, independent of the exchange on which it is registered. In some
cases where the economic substance of an issuer is primarily locat-
ed in a different country, or in the case where we hold third-party
guarantees, the same principles apply to trading inventory expo-
sures as described above for banking products.
Risk mitigants
The risk-reducing effect of collateral, either in the form of cash or
portfolios of diversified marketable securities is taken into ac-
count when determining the “Exposure before hedges” in the
table “Exposure to selected European countries”.
Within banking products and traded products, the risk-reduc-
ing effect of any credit protection is taken into account on a no-
tional basis when determining the “Net of hedges” exposures.
For derivative exposures, we show the counterparty risk against
the country of (risk) domicile of the counterparty within traded
products. In addition, we reflect the benefits / liabilities arising from
changes in fair value of the derivative due to changes in the value
of the underlying reference asset within trading inventory, reflect-
Exposures to selected European countries
The table “Exposures to selected European countries” includes all
eurozone countries rated lower than AAA / Aaa by at least one of
the major rating agencies. The overview provides an internal risk
view of gross and net exposures split by sovereign, local govern-
t
n
e
m
e
g
a
n
a
m
l
a
t
i
p
a
c
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a
y
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u
s
a
e
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t
,
k
s
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R
129
Risk, treasury and capital management
Risk management and control
ment, bank, and other counterparties. The “sovereign” category
includes agencies and central banks. Corporates, insurance com-
panies and funds are included within the “other” category. The
gross exposures to Andorra, Cyprus, Estonia, Malta, Monaco,
Montenegro, San Marino, Slovakia, and Slovenia are grouped into
“other” and totaled CHF 185 million on 31 December 2011.
Exposure to emerging market countries
The table “Emerging markets net exposure by major geographical
region and product type” shows the five largest emerging market
country exposures in each major geographical area by product type
on 31 December 2011 compared with 31 December 2010. Based
on the main country rating categories, on 31 December 2011,
Exposures to selected European countries
CHF million
Total
31.12.11
France
Sovereign, agencies and central banks
Local governments
Banks
Other
Italy
Sovereign, agencies and central banks
Local governments
Banks
Other
Spain
Sovereign, agencies and central banks
Local governments
Banks
Other
Austria
Sovereign, agencies and central banks
Local governments
Banks
Other
Ireland 2
Sovereign, agencies and central banks
Local governments
Banks
Other
Belgium
Sovereign, agencies and central banks
Local governments
Banks
Other
Portugal
Sovereign, agencies and central banks
Local governments
Banks
Other
Greece
Sovereign, agencies and central banks
Local governments
Banks
Other
Other
Net of
hedges 1
9,861
3,611
78
1,499
4,673
3,652
951
113
1,467
1,121
3,517
6
19
2,084
1,409
1,586
859
15
553
159
1,584
0
0
541
1,043
841
409
0
291
141
266
0
1
29
236
104
37
0
34
32
185
11,505
3,732
78
1,499
6,197
6,993
3,836
129
1,474
1,554
4,414
6
19
2,084
2,305
1,867
1,104
15
553
195
1,585
0
0
541
1,044
876
443
0
291
141
363
0
1
29
334
141
37
0
34
70
185
of which:
unfunded
659
84
544
168
Banking products
(loans, unfunded commitments, guarantees)
Net of collateral
Net of
hedges 1
1,714
73
59
627
956
996
4
0
589
403
1,991
5
0
1,825
160
133
0
0
59
74
581
0
0
429
152
312
0
0
227
85
15
0
0
11
3
19
0
0
19
0
92
Exposure
before hedges
3,147
73
59
627
2,389
1,429
4
0
589
837
2,692
5
0
1,825
861
169
0
0
59
110
581
0
0
429
152
312
0
0
227
85
112
0
0
11
101
57
0
0
19
38
92
18
35
45
30
9
Traded products
(counterparty risk from deriva-
tives and securities financing)
After master netting agreements
and net of collateral
Tradinginventory
(securities and potential
benefits / remaining ex-
posure from derivatives)
Exposure
before hedges
3,524
784
1
730
2,009
4,311
3,832
89
156
234
381
0
18
77
286
1,325
1,101
15
178
31
532
0
0
38
495
528
443
0
59
25
12
0
0
4
8
47
5
0
16
26
45
Net of
hedges
3,312
663
1
730
1,918
1,404
947
74
149
234
186
0
18
77
91
1,081
857
15
178
31
532
0
0
38
494
493
409
0
59
25
12
0
0
4
8
47
5
0
16
26
45
Net long per issuer
4,834
2,874
18
143
1,799
1,252
0
40
729
484
1,341
0
0
182
1,158
372
3
0
315
54
471
0
0
74
397
36
0
0
5
31
239
0
1
13
225
38
32
0
0
6
49
1 Not deducted are total allowances and provisions of CHF 25 million (of which: Austria CHF 15 million and France CHF 8 million). 2 The majority of the Ireland exposure relates to funds and foreign bank subsidiaries.
130
86% of our emerging market country exposures were rated invest-
ment grade compared with 87% on 31 December 2010.
Debt investments
The overall credit and market risk exposure in the Middle East
and North Africa remained modest. Of the CHF 2.5 billion shown
for the Middle East and Africa in the table below, CHF 2 billion
relate specifically to Middle Eastern and North African countries,
which includes the larger positions in Saudi Arabia and the United
Arab Emirates.
d
e
t
i
d
u
A
Debt investments classified according to IFRS as Financial invest-
ments available-for-sale are measured at fair value with changes
in fair value recorded through equity, and can be broadly cate-
gorized as money market instruments and debt securities pri-
marily held for statutory, regulatory or liquidity reasons. Debt
investments available-for-sale may also include non-performing
Emerging markets net exposure 1 by internal UBS country rating category
CHF million
Investment grade
Sub-investment grade
Total
31.12.11
31.12.10
19,341
3,053
22,394
17,567
2,521
20,088
1 Net of credit hedges (for banking products and for traded products); net long per issuer (for trading inventory). Total allowances and provisions of CHF 61 million are not deducted (31 December 2010: CHF 40 million).
Emerging market exposures by major geographical region and product type
Banking products
(loans, unfunded commitments,
guarantees)
Net of collateral
Net of hedges 1
Traded products
(counterparty risk from derivatives
and securities financing)
After master netting agreements
and net of collateral
Net of hedges
Tradinginventory
(securities and potential
benefits / remaining exposure from
derivatives)
Net long per issuer
Total
Net of hedges 1
31.12.11
2,500
905
843
31.12.10
2,177
1,090
249
31.12.11
939
355
310
31.12.10
681
212
158
31.12.11
337
117
45
31.12.10
178
29
42
31.12.11
1,224
433
488
31.12.10
1,318
849
49
CHF million
As of
Emerging Europe
Russia
Turkey
Hungary
Ukraine
Poland
Other
Emerging Asia
Hong Kong
China
India
South Korea
Taiwan
Other
Emerging Americas
Brazil
Colombia
Mexico
Chile
Argentina
Other
Middle East and Africa
Saudi Arabia
South Africa
United Arab Emirates
Israel
Qatar
Other
Total
159
140
110
343
13,671
3,048
2,978
2,620
2,037
1,459
1,529
3,692
1,538
597
487
258
233
580
2,531
649
526
451
149
114
642
22,394
318
87
156
277
11,937
2,597
2,267
2,519
1,495
1,433
1,626
3,387
1,699
61
951
155
134
387
2,587
606
589
608
214
26
544
20,088
3
61
29
182
5,240
983
1,373
1,158
513
458
754
656
168
122
125
154
39
48
1,094
170
137
214
85
47
441
7,929
20
59
17
215
4,905
950
1,127
919
592
451
866
293
119
2
59
42
31
40
969
110
163
223
125
4
344
6,848
95
0
52
28
2,390
602
733
172
432
310
142
791
527
37
134
75
0
18
807
438
61
142
10
32
124
4,325
39
0
62
6
2,443
565
605
32
588
343
310
620
471
15
95
38
0
1
819
488
39
130
40
3
119
4,060
61
79
30
133
6,041
1,462
872
1,290
1,091
692
634
2,245
842
438
228
29
194
514
630
41
328
95
55
35
77
10,140
1 Not deducted are total allowances and provisions of CHF 61 million (31 December 2010: CHF 40 million).
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259
28
77
56
4,589
1,082
535
1,568
315
639
450
2,474
1,109
44
797
75
103
346
799
8
387
255
49
19
81
9,180
131
Risk, treasury and capital management
Risk management and control
d
e
t
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d
u
A
loans purchased in the secondary market by the Investment
Bank.
d
e
t
i
d
u
A
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 anal-
ysis, firm-wide earnings-at-risk, capital-at-risk and combined
stress test metrics.
Composition of debt investments
Debt financial instruments classified as Financial investments
available-for-sale decreased to CHF 52.5 billion on 31 December
d
e
t
i
d
u
A
2011 compared with CHF 73.9 billion on 31 December 2010.
These instruments primarily comprised highly liquid short-term
securities issued by governments and government-controlled in-
stitutions. The reduction is mainly due to the sale of our strategic
investment portfolio.
➔ 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
132
Market risk
d
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t
i
d
u
A
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,
e xchange 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
d
e
t
i
d
u
A
We take general and specific market risks both in our trading ac-
tivities and in some non-trading businesses.
d
e
t
i
d
u
A
Trading portfolios
Most of our market risk arises from trading activities in the Invest-
ment Bank, including market-making, facilitating client business
and associated position-taking in cash and derivative markets for
equities, fixed income, interest rates, foreign exchange and com-
modities.
Our trading businesses are subject to multiple market risk lim-
its. 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 instrument and the position being hedged may not always
move in parallel (often referred to as basis risk). We also actively
manage such basis risks. Management and Risk Control may also
give instructions to reduce the risk, even when limits are not ex-
ceeded.
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.
d
e
t
i
d
u
A
Non-trading portfolios
Market risk exposures, primarily general interest rate and foreign
exchange risks, may arise from non-trading activities such as retail
banking and lending in our wealth management businesses, our
retail and corporate banking business in Switzerland, the Invest-
ment Bank’s lending businesses and our treasury activities, primar-
ily from funding, balance sheet, liquidity and capital management
needs. Equity and certain debt investments can also give rise to
specific market risks.
Non-trading foreign exchange risks are managed under mar-
ket risk limits, with the exception of Group Treasury management
of consolidated capital activity. Non-trading interest rate risk is
either managed under market risk limits or subject to specific
d
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i
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A
d
e
t
i
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u
A
monitoring and is reported in firm-wide earnings-at-risk, capital-
at-risk and combined stress testing metrics.
➔ Refer to the “Non-trading portfolios” and “Treasury manage-
ment” sections of this report for more information
Market risk limits
d
e
t
i
d
u
A
We use a limit framework to control our market risks. We have
two major portfolio measures of market risk: value-at-risk (VaR)
and stress loss. Both are common to all our business divisions and
subject to limits that are approved by the BoD.
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In the Investment Bank, these portfolio measures are comple-
mented by concentration and other supplementary limits on port-
folios, 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 instru-
ments (debt, equity and derivatives) of a single issuer (or issuer
group) were that issuer to be subject to a credit event, including
default. Our concentration and other supplementary limits take a
variety of forms, including values (market or notional) and risk
sensitivities, which are measures of exposure to a given risk factor
such as interest rates, credit spreads, equity indices, foreign ex-
change rates or volatilities. These limits take into account the ex-
tent of market liquidity and volatility, available operational capac-
ity, 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 ap-
proved under delegated risk management and risk control au-
thorities. As such, certain larger or more complex transactions
are required to be approved by our Commitment Committee,
which includes representatives from both business and control
functions.
Market risk limits are set for each of the business divisions and
Corporate Center. 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.
Value-at-risk definition and limitations
We use a single VaR model for both internal management
purposes and for determining market risk regulatory capital
requirements, although the confidence levels and time horizons
differ.
133
Risk, treasury and capital management
Risk management and control
d
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i
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A
d
e
t
i
d
u
A
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Our VaR model is approved by FINMA and ongoing significant
revisions of our VaR methodology and model are also subject to
regulatory approval.
d
e
t
i
d
u
A
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 2.5 and FIN-
MA 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.
As part of a regular update of time series data used in VaR, an
improved source of credit spread time series, based on a more com-
prehensive coverage population and more closely tracking external
benchmark series, was introduced in the third quarter of 2011.
Actual realized losses may differ from those implied by our VaR.
All VaR measures are subject to limitations and must be interpreted
accordingly. The limitations of VaR include the following:
– 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 VaR measure is calibrated to a specified level of confidence
and may not indicate potential losses beyond this confidence
level.
– The 1-day time horizon in the VaR measure, or 10-day in the
case of regulatory VaR, may not fully capture the 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 estima-
tion errors which may result from non-linear risk sensitivities, as
well as the potential for actual volatility and correlation 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 capture more ac-
curately the relationships between the market risks associated
Group: value-at-risk (1-day, 95% confidence, 5 years of historical data)
CHF million, except where indicated
Min.
Max.
Average
31.12.11
Min.
Max.
Average
31.12.10
For the year ended 31.12.11
For the year ended 31.12.10
Business divisions
Investment Bank
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Corporate Center
Diversification effect
Total management VaR, Group
Diversification effect (%)
Total management VaR, Group, excluding the ef-
fect of unauthorized trading incident
30
0
1
0
4
1
31
31
219
0
2
0
14
1
222
97
75
0
1
0
7
(7)
76
(8)
60
34
0
2
0
4
(4)
36
(9)
36
1 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a portfolio 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)
Investment Bank: value-at-risk (1-day, 95% confidence, 5 years of historical data)
CHF million, except where indicated
Min.
Max.
Average
31.12.11
Min.
Max.
Average
31.12.10
For the year ended 31.12.11
For the year ended 31.12.10
Risk type
Equities
Interest rates
Credit spreads
Foreign exchange
Energy, metals and commodities
Diversification effect
Total management VaR, Investment Bank
Diversification effect (%)
10
13
26
3
2
1
30
205
31
83
17
10
1
219
34
23
54
8
4
(48)
75
(39)
13
19
26
4
3
(32)
34
(49)
11
13
42
2
2
1
42
37
44
70
15
8
78
1
19
24
55
7
3
(51)
56
(48)
17
23
59
6
7
(43)
68
(39)
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
134
with our risk positions, as well as the revenue impact of large
market movements on particular trading positions.
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(cid:20)(cid:2)(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:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:67)(cid:85)(cid:2)(cid:67)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:87)(cid:80)(cid:67)(cid:87)(cid:86)(cid:74)(cid:81)(cid:84)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:69)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:16)
Value-at-risk developments in 2011
The tables on the previous page show our management VaR for
the Group and the Investment Bank. Positional risks relating to
the unauthorized trading incident have been included within the
summary figures shown and account for the sizable increase in
the average and maximum. An additional total row is provided to
show the equivalent summary statistics excluding the effects of
the unauthorized trading incident.
The Group’s management VaR decreased to CHF 36 million on
31 December 2011 compared with CHF 68 million on 31 Decem-
ber 2010. This significant decrease was mainly due to concerted
risk reduction across businesses in the second half of 2011, in line
with our strategy of running a more focused, less complex and
capital-intensive Investment Bank, but also reflected market con-
ditions prevalent at the end of 2011. Average management VaR
excluding the effects of the unauthorized trading incident in the
third quarter of 2011 was CHF 60 million for 2011 compared with
CHF 57 million in 2010. Credit spread risk continued to be one of
the dominant components of our VaR. Interest rate risk has be-
come an additional significant component of our VaR as a result
of the reduced dominance of credit spread risk.
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 three backtesting exceptions in 2011 com-
pared with one backtesting exception in 2010. All three excep-
tions occurred in the third quarter 2011 due to extreme market
moves and the unauthorized trading incident.
The chart “Investment Bank: development of backtesting rev-
enues against value-at-risk” shows the 12-month development of
1-day 99% VaR against backtesting revenues in the Investment
Bank for the whole year of 2011. The histogram “Investment
Bank: all revenue distribution” shows the Investment Bank’s full
trading revenues distribution in 2011.
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 and business division Chief Risk Officers.
Backtesting exceptions are also reported to internal and exter-
nal auditors and to the relevant regulators.
d
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A
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135
(cid:26)(cid:18)
(cid:24)(cid:18)
(cid:22)(cid:18)
(cid:20)(cid:18)
(cid:18)
100
-50
-125
-200
25
Risk, treasury and capital management
Risk management and control
Non-trading portfolios
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A
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A
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 additional information for certain
significant portfolios and positions that are not included in our
management VaR or in our interest risk in the banking book table.
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, earnings-at-risk, capital-at-risk and combined stress test-
ing metrics. Interest rate risk sensitivity figures are provided for the
impact of a 1-basis-point parallel increase and the +/–100-basis-
points parallel moves in yield curves on present values of future
cash flows, irrespective 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.
Interest rate risks arising in Wealth Management & Swiss Bank
are transferred either by means of back-to-back transactions or, in
the case of products with no contractual maturity date or direct
market-linked rate, by “replicating” portfolios from the originat-
ing business into one of two centralized interest rate risk manage-
ment units of Group Treasury or the Investment Bank’s fixed in-
come, currencies and commodities (FICC) unit. These units
manage these risks as part of their risk portfolios within their al-
located market risk limits and controls, exploiting the netting po-
tential across interest rate risks from different sources.
The Investment Bank’s portfolio of assets that were reclassified
to Loans and receivables from Held-for-trading in the fourth quar-
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ter of 2008 and the first quarter of 2009, and certain other debt
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.
This interest rate risk is closely measured, monitored and managed
within approved risk limits and controls, taking into account Wealth
Management Americas balance sheet items that naturally offset risk.
The interest sensitivity of non-contractual maturity products is
modeled using historical behavior patterns from a complete interest
rate cycle.
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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 includes 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 manages portfolios that aim to economically hedge
negative effects on the firm’s net interest income stemming
from the extraordinarily low yield environment. These activities
included our strategic investment portfolio which we sold dur-
ing the third quarter of 2011. The sale of this portfolio was the
main driver behind the decrease in sensitivity compared with
year end 2010.
➔ Refer to the “Interest rate and currency management” section of
this report for more information
The table “Interest rate sensitivity – banking book” shows the
impact on present value for an immediate + / –100-basis-points
parallel move in yield curves. Due to the low level of interest rates
the downward moves are capped to ensure that the resulting in-
terest rates are not negative. This effect, combined with pre-pay-
ment risk on US mortgage products and impact of low interest
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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
31.12.11
31.12.10
(0.7)
(1.6)
0.1
(3.7)
(0.1)
(6.0)
(0.7)
(2.1)
(2.9)
(10.7)
(0.3)
(16.6)
1 Does not include interest rate sensitivities for CVA on monoline credit protection, US and non-US RLN and our option to acquire equity of the SNB StabFund for which the interest rate sensitivities are separately disclosed.
Also not included are the interest rate sensitivities of our inventory of student loan ARS, as from an economic perspective these exposures are not materially affected by parallel shifts in USD interest rates, holding other
factors constant.
136
rates on client deposit behavior, results in non-linear behavior of
the exposure.
Non-trading portfolios – valuation and sensitivity
information by instrument category
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 set by regulators.
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Interest rate sensitivity of available-for-sale debt investments
Debt financial instruments classified as Financial investments avail-
able-for-sale amounted to CHF 52.5 billion on 31 December 2011
compared with CHF 73.9 billion on 31 December 2010. From an
accounting perspective, the sensitivity of this position (excluding
hedges) to a 1-basis-point parallel increase in the yields of the re-
spective instruments is approximately negative CHF 6 million, which
would be posted to other comprehensive income. The interest rate
sensitivity of this position including the associated hedges is includ-
ed within the table “Impact of a 1-basis-point parallel increase in
yield curves on present value of future cash flows”, some elements
of which are additionally disclosed in VaR.
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➔ 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
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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 statement on
the occurrence of the underlying hedged interest cash flows. Interest
rate swaps designated in cash flow hedges are denominated in US
dollar, euro, British pound, Swiss franc and Canadian dollar. As of 31
December 2011, the fair value of interest rate swaps amounted to
CHF 7.5 billion (positive replacement values) and CHF 3.6 billion (neg-
ative replacement values). The impact on other comprehensive in-
come under IFRS of a 1-basis-point increase of underlying LIBOR
curves would have decreased equity by approximately CHF 25 million.
This estimate excludes economically offsetting positions and is includ-
ed in the above table on interest rate sensitivities in the banking book,
together with hedge and funding effects that are partially offsetting.
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 and the interest rate risk in the banking book as disclosed
in the “Risk and treasury management” section of this report.
Numbers are stated in US dollar, with the Swiss franc equivalent
shown in brackets for comparative purposes.
Credit valuation adjustments on monoline credit protection
Included within our residual risk positions are negative basis
trades, whereby we purchased credit default swap (CDS) protec-
tion from monolines against UBS-held underlyings, including resi-
dential mortgage-backed securities (RMBS) collateralized debt
obligations (CDO) and commercial mortgage-backed securities
(CMBS) CDO, transactions with collateralized loan obligations,
and asset-backed securities CDO. Since the start of the financial
crisis, the credit valuation adjustments (CVA) relating to these
monoline exposures have been a source of valuation uncertainty,
given market illiquidity, and the contractual terms of these expo-
sures 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 collateralized loan obligations asset categories,
cash flow projections are used in conjunction with current fair
values of the underlying assets 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
credit default swaps spreads (e.g. from 1,000 basis points to
1,100 basis points for a specific monoline) was considered. On
31 December 2011, such an increase would have resulted in an
increase in the monoline CVA of approximately USD 39 million
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Interest rate sensitivity – banking book 1
CHF million
CHF
EUR
GBP
USD
Other
Total impact on interest rate-sensitive banking book positions
31.12.11
–100 bps
+100 bps
17.5
169.6
(9.4)
(105.5)
(7.2)
65.0
(66.9)
(160.3)
13.2
(364.9)
(5.5)
(584.3)
1 Does not include interest rate sensitivities for CVA on monoline credit protection, US and non-US RLN and our option to acquire equity of the SNB StabFund for which the interest rate sensitivities are separately disclosed.
Also not included are the interest rate sensitivities of our inventory of student loan ARS, as from an economic perspective these exposures are not materially affected by parallel shifts in USD interest rates, holding other
factors constant.
137
Risk, treasury and capital management
Risk management and control
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(CHF 37 million) compared with USD 45 million (CHF 42 million)
on 31 December 2010. After taking into account the impact of
the potential commutation transaction discussed in “Note 32
Events after the reporting period” in the “Financial Information”
section, this sensitivity reduces from USD 39 million (CHF 37 mil-
lion) to USD 33 million (CHF 31 million), respectively.
The sensitivity of the monoline CVA to a decrease of one per-
centage point in the monoline recovery rate assumptions (e.g.
from 30% to 29% for a specific monoline, conditional on default
occurring) was estimated to result in an increase of approximately
USD 11 million (CHF 10 million) in the CVA, compared with USD
9 million (CHF 8 million) on 31 December 2010. After taking into
account the impact of the potential commutation transaction
discussed in “Note 32 Events after the reporting period” in the
“Financial Information” section, this sensitivity reduces from USD
11 million (CHF 10 million) to USD 3 million (CHF 3 million), re-
spectively. The sensitivity to credit spreads and recovery rates is
substantially linear.
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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.
These are primarily CMBS and subprime RMBS and / or corporate
bonds and loans across all rating categories. While the assets in
the portfolio are marked to market, the credit protection embed-
ded in the RLN is fair valued using a market standard approach to
the valuation of portfolio credit protection (Gaussian copula). This
approach is intended to effectively simulate correlated 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 mod-
el include correlations and recovery rates. We apply fair value ad-
justments related to potential uncertainty in each of these param-
eters, which are only partly observable. In addition, we apply fair
value adjustments for uncertainties associated with the use of
observed spread levels as the primary inputs. These fair value ad-
justments are calculated by applying shocks to the relevant pa-
rameters and revaluing the credit protection. These shocks for
correlation, recovery and spreads are set to various levels depend-
ing on the asset type and / or region and may vary over time de-
pending on the best judgment of the relevant trading and control
personnel. Correlation and recovery shocks are generally in the rea-
sonably possible range of 5 to 15 percentage points. Spread shocks
vary more widely and depend on whether the underlying protec-
tion is funded or unfunded to reflect cash or synthetic basis effects.
On 31 December 2011, the fair value of the US RLN credit pro-
tection was approximately USD 319 million (CHF 299 million) com-
pared with USD 629 million (CHF 588 million) on 31 December
2010. The reduction in protection value was due to the reduction
of notional of the notes primarily due to writedowns of the refer-
ence assets across the RLN deals. This fair value included fair value
adjustments which were calculated by applying the shocks de-
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scribed above of approximately USD 22 million (CHF 21 million).
This compared with USD 31 million (CHF 29 million) on 31 Decem-
ber 2010. 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 2011, the fair value of the non-US RLN credit
protection was approximately USD 468 million (CHF 439 million)
compared with USD 660 million (CHF 616 million) on 31 Decem-
ber 2010. This fair value included fair value adjustments which
were calculated by applying the shocks described above of ap-
proximately USD 46 million (CHF 43 million) compared with USD
72 million (CHF 67 million) on 31 December 2010. This adjust-
ment may also be considered a measurement of sensitivity.
Option to acquire equity of the SNB StabFund
Our 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 2011, the fair value (after adjustments) of
the call option held by UBS was approximately USD 1,736 million
(CHF 1,629 million) compared with USD 1,906 million (CHF 1,781
million) on 31 December 2010. The decline in the value of the
option reflected lower forecast cash flows and increased risk pre-
mia for the fund’s assets.
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 to discount
future cash flows such that the model-generated price of the under-
lying asset pool equals our assessed fair value of the asset pool. The
model incorporates a model reserve (fair value adjustment) to ad-
dress potential uncertainty in this calibration. On 31 December 2011,
this adjustment was USD 131 million (CHF 123 million) compared
with USD 250 million (CHF 234 million) on 31 December 2010. The
decline in the reserve amount reflects greater convergence of valua-
tions across the scenarios, consistent with lesser dependence of the
valuation on projections of future cash flows
On 31 December 2011, a 100-basis-point increase in the dis-
count rate would have decreased the option value by approxi-
mately USD 139 million (CHF 130 million) compared with USD
167 million (CHF 156 million) on 31 December 2010; and a
100-basis-point decrease would have increased the option value
by approximately USD 155 million (CHF 145 million) compared
with USD 188 million (CHF 176 million).
Market risk – stress loss
To complement VaR and other measures of market risk, we run
macro stress scenarios, combining various market moves to reflect
the most common types of potential stress events, as well as more
138
targeted stress tests for our concentrated exposures and vulnera-
ble portfolios. Targeted stress tests are typically applied to specific
asset classes or to specific markets and products. We continued to
enhance our market risk stress framework in 2011, in order to in-
crease the scope and detail of the analysis. Our scenarios capture
the liquidity characteristics of different markets, asset classes and
positions.
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Our market risk stress testing framework is designed to pro-
vide a control framework that is forward-looking and responsive
to changing market conditions. Our stress scenarios are there-
fore reviewed regularly in the context of the macroeconomic
and geopolitical environment by a committee comprised of
represen tatives from the business divisions, Risk Control and
Economic Research. 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
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 lockup agreements.
For these reasons, we generally do not control these exposures
using the market risk measures applied to trading activities. Such
equity investments are, however, subject to a different range of
controls, including pre-approval of new investments by business
management and Risk Control and regular monitoring and re-
porting. They are also included in our firm-wide earnings-at-risk,
capital-at-risk and combined stress testing metrics.
Investments made as part of an ongoing business are also sub-
ject to our standard controls, including portfolio and concentra-
tion 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.
more information
Equity investments
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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 rev-
enue generation or as part of strategic initiatives. Other invest-
ments, such as exchange and clearing house memberships, are
held to support our business activities. We may also make invest-
ments in funds that we manage, in order to fund or “seed” them
at inception, or to demonstrate that our interests concur with
those of 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.
We may make direct investments in a variety of entities or buy
equity holdings in both listed and unlisted companies, if such in-
vestments are illiquid. The fair value of equity investments tends
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Composition of equity investments
On 31 December 2011, we held equity investments totaling CHF
2.2 billion, of which CHF 0.7 billion were classified as Financial
investments available-for-sale, CHF 0.7 billion as Financial assets
designated at fair value and CHF 0.8 billion as Investments in as-
sociates.
This compares with 31 December 2010, when we held equity
investments totaling CHF 2.6 billion, of which CHF 0.9 billion clas-
sified as financial investments available-for-sale, CHF 0.9 billion as
financial assets designated at fair value and CHF 0.8 billion as in-
vestments in associates.
The vast majority of the CHF 0.7 billion of Financial assets des-
ignated at fair value represented the assets of trust entities associ-
ated with employee compensation schemes. They are broadly
offset by liabilities to plan participants included in Other liabilities.
The equivalent positions on 31 December 2010 amounted to CHF
0.9 billion.
➔ Refer to “Note 12 Financial assets designated at fair value”,
“Note 13 Financial investments available-for-sale” and “Note 14
Investments in associates” in the “Financial information” section
of this report for more information
139
Risk, treasury and capital management
Risk management and control
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). Such events may
cause direct financial losses or manifest themselves indirectly as
revenue forgone due to the suspension of business. They may also
result in damage to our reputation and to our franchise, causing
longer-term financial implications. Operational risk is an inevitable
consequence of being in business, and managing it is a core ele-
ment of our business activities.
It is not possible to eliminate every source of operational risk,
but our aim is to provide a framework that supports the identifica-
tion and assessment of all material operational risks and their po-
tential concentrations in order to achieve an appropriate balance
between risk and return. We seek to develop a firm-wide risk-
conscious culture where all employees identify, discuss, manage
and remediate potential and actual operational risks.
Organizational structure and governance
The business division Chief Executive Officers and the Corporate
Center function heads are ultimately accountable for the effec-
tiveness of operational risk management and implementation of
the required framework.
Management in all functions (business, logistics and control
functions) is responsible for establishing an appropriate opera-
tional risk management environment, including the establish-
ment and maintenance of robust internal controls and a strong
risk culture. Controls must be regularly assessed, utilizing both
positive and negative evidence to confirm design and operating
effectiveness.
Operational risk control provides an independent and objective
view on whether management is adequately managing material
operational risk. It is governed by the Operational Risk Manage-
ment Committee, which is chaired by the Global Head of Opera-
tional Risk Control, who reports to the Group Chief Risk Officer
and is a member of the Risk Executive Committee. The Opera-
tional Risk Management Committee oversees operational risk fo-
rums and work streams, ensures oversight of the implementation
of the operational risk framework, and provides an effective and
independent assessment of the operational risk profile.
Operational risk framework
The operational risk framework describes general requirements
for managing and controlling operational risk at UBS. This
framework was significantly enhanced in 2011, and the imple-
mentation process remains ongoing. The major elements of
the enhanced framework are described below and are built on
four pillars:
1. Identification of inherent risks through the operational risk
taxonomy
2. Assessment of the design and operating effectiveness of con-
trols through the internal control assessment process
3. Assessment of residual risk through the operational risk assess-
ment process
4. Remediation to address identified deficiencies which are out-
side accepted levels of residual risk
The operational risk taxonomy defines the universe of inherent
operational risks that arise as a consequence of our business ac-
tivities. It provides a clear and logical classification of operational
risk and facilitates a common understanding of operational risk
across all business divisions. The framework requires that for each
element of the operational risk taxonomy, core controls are de-
fined which are linked to key procedural controls within the orga-
nization. The completeness of core controls can be tested using
scenarios through which the inherent risk, including stress and tail
risk, may materialize.
Core controls are the critical controls that, if designed and op-
erating effectively, will materially ensure that our operational risk
profile stays within acceptable boundaries. Functions are required
to identify key procedural controls relevant to their activities that
support the core controls. These key procedural controls are a
main aspect of the functional control environment enabling func-
tions to control their assigned roles and responsibilities. Full imple-
mentation and integration of scenarios, core and key procedural
controls will lead to a complete hierarchy of control from firm-wide
inherent risk (operational risk taxonomy) to functionally operated
procedural controls. The unauthorized trading incident announced
in September 2011 has given added impetus to the implementa-
tion of the revised operational risk framework, specifically the
need to finalize the work on definition of core controls, linkage to
key procedural controls and implementation of quarterly positive
evidence based assessment of control operation.
Significant control deficiencies surfaced during the assessment
of the design and operational effectiveness of key procedural con-
trols (ICAP) must be reported in the operational risk inventory and
remediation instigated. The aggregated impact of the control defi-
ciencies and the adequacy of remediation efforts are assessed by
operational risk control for all relevant operational risk taxonomy
categories as part of the operational risk assessment process. This
front-to-back process, complemented with expert opinion, pro-
vides a transparent assessment of the current operational risk expo-
sure or residual operational risk. We are currently working to deter-
mine the acceptable levels of residual operational risk for each
operational risk taxonomy category. The resulting operational risk
appetite can be expressed through the establishment of quantita-
tive constraints such as operating limits or qualitative statements in
140
the form of policies. Where the residual operational risk exceeds
our operational risk appetite, management must adapt its business
activities or adjust the internal control environment accordingly.
The operational risk assessment process also holds manage-
ment accountable for timely, sufficient and, above all, sustainable
remediation. To assess the overall operational risk management
performance across UBS and provide effective management in-
centives, quarterly operational risk performance metrics are pro-
duced, which focus on unidentified control deficiencies and insuf-
ficient remediation performance.
The assessment processes described above culminate in regu-
lar and substantial reporting to various stakeholders and gover-
nance bodies of operational risk exposure against the appetite for
each operational risk taxonomy category. Financial and non-finan-
cial events considered to be the crystallization of existing opera-
tional risk are also considered for risk assessment and reporting
purposes. Our Group Executive Board and Board of Directors Risk
and Audit Committees reporting was extended in 2011 to include
reporting of operational risk performance metrics and Group Sig-
nificant Operational Risk Issues. These are issues which have the
largest risk impact on UBS or a high degree of regulatory focus
and therefore require prioritization and sponsorship at the top
hierarchical level.
Operational risk quantification
The enhanced operational risk framework is aligned to an efficient
capital calculation which represents a major step forward in our
approach to quantifying operational risk and setting effective
management incentives. The processes detailed above are integral
to the quantification of operational risk and integration of the op-
erational risk framework and the capital calculation.
We measure operational risk exposure and calculate opera-
tional risk regulatory capital by utilizing the advanced measure-
ment approach (AMA) in accordance with FINMA requirements.
For regulated subsidiaries, the basic indicator or standardized ap-
proaches are adopted as agreed with local regulators.
Following the unauthorized trading incident an ad-hoc review
of the relevant AMA category was completed and this led to an
increase of operational risk RWA of CHF 9.5 billion, which was
implemented in the fourth quarter of 2011.
Advanced measurement approach model
The AMA model has two main components. The historical com-
ponent is a retrospective view based on our history of opera-
tional risk losses since January 2002, excluding extreme internal
losses, which are assigned to the scenario component to avoid
duplication. The key assumption within this component is that
past events form a reasonable proxy for future events. A distri-
bution of aggregated losses over one year is derived by model-
ling severities and frequencies separately and combining them.
Therefore, it is referred to as a loss distribution approach. It is
used to project future total losses based on historical experience
and determine the expected loss portion of our capital require-
ment.
The scenario component is a forward-looking view of poten-
tial operational losses that may occur based on the operational
risk issues facing the bank. The intent is to reach a reasonable
estimate of unexpected or tail loss exposure (corresponding to
a low frequency / high severity event). We use 20 AMA catego-
ries, and for each of these categories three frequency / severity
pairs are defined, representing the base, stress and worst cases.
Calibration is based on internal extreme losses, loss data from
99 peer banks, business environment and internal control fac-
tors, as well as extensive annual verification by internal subject
matter experts based on their view of our particular exposure to
risk taxonomies.
Our AMA model adds the sampled losses from the historical
and scenario component to derive the regulatory capital figure
which equals the 99.9% quantile of the overall loss distribution.
Currently, we do not reflect mitigation through insurance or any
other risk transfer mechanism in our AMA model.
In the course of 2010 and 2011, the AMA model was further
enhanced by improving data quality, removing the remaining du-
plication between components, reviewing data-dependencies
and by improving / widening the use of subject matter experts for
taxonomy assessments.
➔ Refer to the “Capital management” section of this
report for more information on the development of
risk-weighted assets for operational risk
➔ Refer to the “Certain items affecting our results in 2011” sidebar
in the “UBS results” section of this report for more information
on the unauthorized trading incident
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141
Risk, treasury and capital 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 interest rate and currency risks arising from
balance sheet and capital management activities.
Liquidity management
Interest rate and currency management
In 2011, we continued to maintain a sound liquidity position and a
diversified portfolio of funding sources, despite the significant mar-
ket volatility caused by uncertainties regarding the global macroeco-
nomic environment, including European fiscal and sovereign debt
concerns and the potential impact of financial regulatory reforms.
We manage our liquidity position to provide adequate time and fi-
nancial flexibility to respond to a UBS-specific liquidity crisis in a gen-
erally stressed market environment. On 31 December 2011, our pro-
visional net stable funding ratio and liquidity coverage ratio remained
generally in line with the minimum Basel III requirements.
Funding management
Our funding activities are planned after analyzing the overall
liquidity and funding profile of our balance sheet, taking into
account the amount of stable funding that would be needed to
support ongoing business activities through prolonged periods of
difficult operating conditions.
Our liability portfolio is broadly diversified by market, product and
currency, contributing to our funding stability and financial flexibility.
During 2011, we raised CHF 5.8 billion equivalent of public
benchmark bonds with an average maturity of 3.5 years, whilst a
similar amount of public bonds matured during 2011. We contin-
ued to raise medium- and long-term funds through medium-term
notes and private placements throughout the year, and recorded
CHF 23 billion net cash inflows into our wealth management and
retail deposits.
Group Treasury is responsible for the interest rate risk manage-
ment of Wealth Management & Swiss Bank transactions executed
in the majority of its locations. The consolidation of these flows
allows for the optimization of risk management and netting po-
tential arising from different sources of interest rate risk. In re-
sponse to prolonged low yields, Group Treasury continued to
manage measures to improve Wealth Management & Swiss
Bank’s margin income through income-generating fixed receiver
swap portfolios. Additionally, 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
capital ratios. Profits and losses in foreign currencies were hedged
to protect shareholder value.
Capital management
On 31 December 2011, our Basel II tier 1 capital ratio stood at
19.6%, compared with 17.8% on 31 December 2010. As a re-
sult of changing the relevant capital framework to the enhanced
Basel II market risk framework (commonly known as Basel 2.5),
our tier 1 ratio on this basis on 31 December 2011 was 15.9%.
This was the result of Basel 2.5 risk-weighted assets being sig-
nificantly higher than under Basel II and due to higher tier 1
deductions. We continued to manage our capital structure to-
ward our target total capital ratio of 19% under Basel III consist-
ing of 13% tier 1 common equity capital and up to 6% loss-
absorbing capital.
142
Equity attribution
We use an equity attribution framework to evaluate the perfor-
mance of our businesses and to guide our businesses in the allo-
cation of resources to the current and prospective opportunities
that are expected to provide the best risk-adjusted profit ability. In
2011, the amount of average equity attributed to the business
divisions and the Corporate Center increased by CHF 7 billion.
This rise was mainly due to the increases in risk-weighted assets
related to the implementation of the Basel 2.5 framework, which
was included on a forward-looking basis to prepare the business-
es for future capital market standards.
Shares
As of 31 December 2011, we had a total of 3,832,121,899 shares
issued. In 2011, the issued shares were increased by a total of
1,281,386 shares due to exercises of employee options. We intend
to propose a dividend for the financial year 2011 of CHF 0.10 per
share.
Financial resource governance
The Group Asset and Liability Management Committee (Group
ALCO) ensures that our assets and liabilities are used in line
with our overall Group strategy as defined by the Board of Di-
rectors (BoD) and the Group Executive Board (GEB), as well as
our regulatory commitments, and the interests of shareholders
and other stakeholders. The Group ALCO manages the business
divisions’ balance sheet targets, which are set by the BoD. It
also manages our capital, liquidity and funding, taking into ac-
count the business divisions’ actual performance, strategic di-
rection and overall prevailing and prospective risk profile as well
as market conditions.
Group Treasury provides the Group ALCO with monthly report-
ing on our financial resources (e.g. balance sheet, capital, liquidity
and funding) needed to monitor our asset and liability manage-
ment policies and processes, and to ensure they are effective un-
der prevailing and prospective conditions.
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143
Risk, treasury and capital management
Treasury management
Liquidity and funding management
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We define liquidity risk as the risk of being unable to generate
sufficient funds from assets to meet payment obligations when
they fall due. Funding risk is the risk of being unable to borrow
funds in the market on an ongoing basis at an acceptable price to
fund actual or proposed commitments, thereby supporting our
current business and strategic direction.
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Our major sources of liquidity are channeled through entities
that are fully consolidated. We consider the possible impact on
our access to markets from stress events affecting some or all
parts of our business. The results of this analysis are factored into
our overall contingency plans for a liquidity crisis, which are then
incorporated into our wider crisis management process.
Liquidity and funding are critical for a financial institution. They
must be managed continuously to ensure they can be adjusted to
sudden changes in market conditions or the operating environ-
ment, whether widespread or relatively small. An institution that
is unable to meet its liabilities when they fall due may fail without
becoming insolvent, because it is unable to borrow sufficient
funds on an unsecured basis, has insufficient high-quality assets
to borrow against or has insufficient liquid assets it can sell to
raise the cash it needs immediately.
➔ Refer to “Current market climate and industry drivers”
in the “Operating environment and strategy” section for
more information
Liquidity and funding management
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Our liquidity and funding strategy is proposed by Group Treasury,
approved by Group ALCO and overseen by the BoD Risk Commit-
tee. Liquidity and funding limits are set at Group and business
division levels, and are reviewed and approved at least once a year
by the BoD, the Group ALCO, the Group Chief Financial Officer
(Group CFO) and the Group Treasurer. Group Treasury monitors
and oversees the implementation and execution of our liquidity
and funding strategy, and ensures adherence to our liquidity and
funding policies including limits, and reports the bank’s overall li-
quidity and funding position at least monthly to the Group ALCO
and the BoD Risk Committee.
We aim to maintain a sound liquidity position to meet all our
liabilities when due, whether under normal or stressed conditions,
without incurring unacceptable losses or risking sustained dam-
age to our various businesses. We employ an integrated liquidity
and funding framework to govern the liquidity management of all
our branches and subsidiaries.
We perform stress analysis to determine the asset / liability
structure that allows us to maintain an appropriately balanced
liquidity and funding position under various scenarios. Further-
more, we manage our liquidity and funding risk with the overall
objective of optimizing the value of our business franchise across
a broad range of temporal market conditions.
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We monitor both the contractual and behavioral maturity
profile of the balance sheet (as described under “Liquidity model-
ing“). In the behavioral maturity profile, we model the liquidity
exposures of the firm under a variety of potential scenarios that
encompass normal and stressed market conditions.
We continuously refine the assumptions used in our crisis sce-
nario and maintain a robust, actionable and tested contingency
plan. A key component of this framework is an assessment and
regular testing of all material, known and expected cash flows as
well as the level and availability of high-grade collateral that could
be used to raise additional funding if required.
d
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t
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A
Liquidity management
We manage our liquidity position to provide adequate time and
financial flexibility to respond to a UBS-specific liquidity crisis in a
generally stressed market environment. Complementing this, our
funding risk management aims for the optimal liability structure
to finance our businesses reliably and cost-efficiently.
Our business activities generate asset and liability portfolios that
are highly diversified with respect to market, product, tenor and cur-
rency. This reduces our exposure to individual funding sources and
provides a broad range of investment opportunities, reducing liquid-
ity risk.
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 treasury
trading and the short term interest rate units in the Investment
Bank’s fixed income, currencies and commodities (FICC) business.
Group Treasury establishes a control framework, while the Invest-
ment Bank manages operational cash and collateral within the
established limits.
This permits close control of both our cash position and our
stock of high-quality liquid securities. Our treasury processes also
ensure that the firm’s general access to wholesale cash markets is
concentrated in the Investment Bank’s FICC unit. Funds raised ex-
ternally are largely channeled into FICC, including the proceeds of
debt securities issued by UBS, an activity for which Group Treasury
is responsible. FICC in turn meets the Investment Bank’s internal
demands for funding by channeling funds from units generating
surplus cash to those in need of financing.
d
e
t
i
d
u
A
Liquidity modeling
For the purpose of monitoring our liquidity situation, we employ
the following main measures:
– An operational cash ladder which is used to monitor our fund-
ing requirements on a daily basis within limits set by Group
ALCO, the Group CFO and the Group Treasurer. This cumula-
tive cash ladder shows the projected daily funding position –
144
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the net cumulative funding requirement for a specific day –
from the current day to three months forward.
d
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A
– A stressed version of the operational cash ladder which uses
behavioral assumptions that model a severe liquidity crisis sce-
nario in a generally stressed market environment. This stress
scenario is run daily and used to project potential outflows
over a one-month time horizon.
– A maturity gap analysis which is comprised of a contractual
maturity gap analysis of our assets and liabilities over a one-
year time horizon, and a behavioral maturity gap analysis un-
der an assumed UBS-specific liquidity crisis in combination with
a generally stressed market environment over a one-year time
horizon.
– A cash capital model which measures the amount of long-term
funding- or stable customer deposits, long term debt (over one
year) and equity- available to fund illiquid assets. 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 effective cash value when used as collateral in a secured
funding transaction. Our 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 our customer deposits that are
deemed to have a behavioral maturity of at least one year.
d
e
t
i
d
u
A
A breakdown of the contractual maturities of our assets and li-
abilities serves as the starting point for stress testing analyses. This
contractual view is adjusted to include behavioral components as
well as a more detailed breakdown of asset and liability types.
The liquidity crisis scenario combines a UBS-specific crisis with
market disruption and focuses on a time horizon of up to one
year. This scenario assumes large drawdowns on otherwise stable
client deposits mainly due on demand; inability to renew or re-
place maturing unsecured wholesale funding; unusually large
drawdowns on loan commitments; reduced capacity to generate
liquidity from trading assets; liquidity outflows corresponding to a
three-notch downgrade triggering contractual obligations to un-
wind derivative positions or to deliver additional collateral; and
additional collateral needs due to adverse movements in the mar-
ket values of derivatives. All these models and their assumptions
are reviewed regularly to incorporate the latest business and mar-
ket developments.
d
e
t
i
d
u
A
Contingency planning
Liquidity crisis scenario analysis and contingency planning sup-
port the liquidity management process, which ensures that im-
mediate corrective measures to absorb potential sudden liquidity
shortfalls 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 prod-
ucts. The liquidity status indicators combine internal metrics from
the liquidity stress models with market data to provide a dash-
board of early warning indicators reflecting the current liquidity
situation. The liquidity status indicators are used both on a Group
level to assess the overall global as well as regional situation.
Our Group contingency funding plan is an integral part of our
global crisis management concept, which covers various types of
crisis events. The contingency funding plan contains an assess-
ment of the contingent funding sources in a stressed environ-
ment, liquidity status indicators and metrics and contingency pro-
cedures. Should a crisis require contingency funding measures to
be invoked, Group Treasury is responsible for coordinating liquid-
ity generation with representatives of the relevant business areas.
Our contingent funding sources include: a large multi-currency
portfolio of high-quality, short-term unencumbered assets; avail-
able and unutilized liquidity facilities at several major central
banks; and contingent reductions of liquid trading portfolio as-
sets.
Liquidity limits and controls
Liquidity and funding limits and targets are set by the BoD, the
Group ALCO, the Group CFO, the Group Treasurer and the busi-
ness divisions, taking into consideration current and projected
business strategy and risk tolerance. The principles underlying our
limit and target framework aim to maximize and sustain the value
of our business franchise and maintain an appropriate balance in
the asset/liability structure. Structural limits and targets focus on
the structure and composition of the balance sheet, while supple-
mentary limits and targets are designed to drive the utilization,
diversification and allocation of funding resources. Together the
limits and targets focus on liquidity and funding risk for periods
out to one year, including stress testing. Group Treasury is respon-
sible for the oversight of the liquidity and funding limits and tar-
gets. Performance is monitored against limits and targets and
regularly communicated to senior management. These limits and
targets are, at least annually, 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.
Funds transfer pricing
Funding costs and benefits are allocated to our business divisions
according to our liquidity and funding risk management frame-
work. Our internal funds transfer pricing system is designed to
provide the proper liability structure to support the assets and
planned activities of each business division while minimizing
cross-divisional subsidies. The funds transfer pricing mechanism
aims to allocate funding and liquidity costs to the activities gen-
erating the liquidity and funding risks and deals with the move-
ment of funds from those businesses in surplus to those that
have a shortfall. Funding is internally transferred or allocated
among businesses at rates and tenors that reflect each business’
asset composition, liquidity and reliable external funding. We
continue to review and improve our internal funds transfer pric-
ing system.
145
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m
l
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u
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i
R
Risk, treasury and capital management
Treasury management
Liquidity Regulation
In December 2010, the Basel Committee on Banking Supervision
published the “International framework for liquidity risk measure-
ment, standards and monitoring” (Basel III Liquidity). The frame-
work comprises two liquidity ratios: the liquidity coverage ratio
(LCR) and the net stable funding ratio (NSFR). Both ratios are sub-
ject to an observation period that began in 2011. Both LCR and
NSFR will become established standards by 2015 and 2018, re-
spectively. During the observation period, both standards are un-
der review by the Basel Committee on Banking Supervision.
The Swiss liquidity regime that was introduced in 2010 by the
Swiss Financial Market Supervisory Authority (FINMA) and the
Swiss National Bank (SNB) for large banks is generally aligned
with international proposals for liquidity regulations. The core ele-
ment of the liquidity regime is a severe stress scenario that com-
bines a general financial market crisis with creditors’ loss of trust
in the bank. The new liquidity regulations require that banks hold
high quality liquid assets sufficient to offset any projected out-
flows under the stress scenario for a period of 30 days.
d
e
t
i
d
u
A
In 2011, FINMA issued a circular outlining the implementation
plan of the new international liquidity standards. In 2012, a na-
tional working group will consult and propose new draft legisla-
tion, which is expected to become law by 2013. FINMA will intro-
duce test reporting in 2012 for certain institutions, which will
become a general reporting requirement for all banks and brokers
in 2013. The results of the test reporting will be used to specify
the detailed minimum requirements in 2013. The actual require-
ments are expected to be effective in 2015 (LCR) and 2018 (NSFR),
the same as the international timeline.
Our provisional NSFR and LCR ratios at year-end 2011 remained
generally in line with the minimum Basel III requirements. Cur-
rently, banks employ a wide range of interpretations to calculate
the LCR and the NSFR, given that the precise definition of these
ratios is still to be finalized. We believe we have adopted a gener-
ally conservative approach in estimating these ratios.
➔ Refer to the “Regulatory developments“ section of this
report for more information
Funding management
Our funding activities are planned by analyzing the overall liquidity
and funding profile of our balance sheet, taking into account the
amount of stable funding that would be needed to support ongoing
business activities through periods of difficult market conditions.
Our liability portfolio is broadly diversified by market, product
and currency. Our wealth management businesses represent a
significant, cost-efficient and reliable source of funding. In addi-
tion, we have numerous short-, medium- and long-term funding
programs that issue senior unsecured and structured notes. These
programs allow institutional and private investors in Europe, the
US and Asia Pacific to customize their investments in UBS’s debt
securities. We also generate long-term funding by pledging a por-
tion of our portfolio of Swiss residential mortgages as collateral
for the Swiss Pfandbriefe and our own covered bond program. A
short-term secured funding program sources funding globally,
generally for the highest quality assets. Collectively, these broad
product offerings, and the global scope of our business activities,
contribute to our funding stability and financial flexibility.
Group Treasury regularly monitors our funding status including
concentration risks to ensure we maintain a well-balanced and
diversified liability structure and reports its findings on a monthly
basis to the Group ALCO.
d
e
t
i
d
u
A
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(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:80)(cid:81)(cid:86)(cid:71)(cid:85)(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:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)(cid:142)
(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:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:52)(cid:71)(cid:82)(cid:81)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(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:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:80)(cid:81)(cid:86)(cid:71)(cid:85)(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:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)(cid:142)
(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:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:52)(cid:71)(cid:82)(cid:81)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(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)
Funding position and diversification
As stated, both of our wealth management business divisions
represent valuable and cost-efficient sources of funding. At year-
end 2011, these businesses contributed CHF 327 billion, or
95%, of the CHF 342 billion total customer deposits shown
in the “UBS asset funding” graph. Compared with the CHF
267 billion of net loans as of 31 December 2011, customer
deposits provided 128% coverage compared with 126% on
31 December 2010.
In terms of secured funding (i.e. repurchase agreements and
securities lent against cash collateral received), at year-end 2011,
we borrowed less cash on a collateralized basis than we lent out,
leading to a surplus of net securities sourced – shown as the CHF
162 billion collateral surplus in the “UBS asset funding” graph.
The overall composition of our funding sources at the end of
2011 is shown in the “UBS: funding by product and currency”
table and the pie-charts illustrate the funding sources by curren-
cy. These funding sources amounted to CHF 817 billion on the
balance sheet, up from CHF 782 billion the year before, and
comprise repurchase agreements, securities lending against cash
collateral received, due to banks, money market paper issued,
due to customers and long-term debt including financial liabili-
ties at fair value, cash collateral payables on derivative instru-
ments and prime brokerage payables. Despite the increase in
customer deposits, the relative funding composition shifted from
unsecured funding to secured funding during the year, as the
percentage funding contribution of repurchase agreements and
securities lending increased from 10.4% to 13.5% (as shown in
the “UBS: funding by product and currency” table). The increase
in secured funding mainly related to higher business activities
in our Investment Bank. Our overall customer deposits, which
UBS: funding by product and currency
(cid:40)(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:2)(cid:124)(cid:2)
(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:19)
(cid:22)(cid:23)(cid:7)(cid:2)(cid:55)(cid:53)(cid:38)(cid:149)(cid:2)(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:24)(cid:24)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:20)(cid:19)(cid:7)(cid:2)(cid:39)(cid:55)(cid:52)(cid:149)(cid:2)(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:25)(cid:20)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:19)(cid:21)
(cid:19)(cid:23)
(cid:19)(cid:20)
(cid:22)
(cid:21)(cid:23)
(cid:26)(cid:25)
(cid:22)(cid:27)
(cid:25)
(cid:23)(cid:20)
(cid:23)(cid:26)
(cid:20)(cid:18)(cid:7)(cid:2)(cid:37)(cid:42)(cid:40)(cid:149)(cid:2)(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:24)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:22)(cid:7)(cid:2)(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:149)(cid:2)(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:19)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:24)
(cid:20)
(cid:21)
(cid:20)(cid:18)
(cid:26)
(cid:26)
(cid:19)(cid:22)
(cid:19)(cid:22)
(cid:19)(cid:21)(cid:21)
(cid:20)(cid:20)
(cid:22)(cid:27)
(cid:23)(cid:26)
(cid:22)(cid:25)
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:80)(cid:81)(cid:86)(cid:71)(cid:85)(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:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)(cid:142)
(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:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:52)(cid:71)(cid:82)(cid:81)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(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:70)(cid:75)(cid:80)(cid:73)
(cid:19)(cid:2)(cid:53)(cid:86)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:2)(cid:67)(cid:2)(cid:82)(cid:71)(cid:84)(cid:69)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:81)(cid:87)(cid:84)(cid:69)(cid:71)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:19)(cid:25)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:67)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(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:19)(cid:14)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:84)(cid:75)(cid:85)(cid:75)(cid:80)(cid:73)(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:14)(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:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(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:84)(cid:71)(cid:69)(cid:71)(cid:75)(cid:88)(cid:71)(cid:70)(cid:14)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)(cid:14)(cid:2)(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: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:14)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:69)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:85)(cid:14)(cid:2)(cid:78)(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:2)(cid:10)(cid:75)(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: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:11)(cid:2)(cid:67)(cid:80)(cid:70)(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:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(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:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:37)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(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:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(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:16)
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 instruments
Prime brokerage payables
Total
All currencies
CHF
EUR
USD
Others
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
1.0
12.5
3.7
8.7
14.0
16.7
3.5
7.8
19.4
8.2
4.5
0.9
9.6
5.3
7.2
13.4
15.6
3.9
9.6
22.4
7.5
4.7
0.0
0.0
0.7
0.2
9.7
6.2
0.1
0.3
2.4
0.3
0.1
0.0
1.0
1.1
0.2
9.3
5.9
0.2
0.5
3.2
0.2
0.1
0.2
1.7
0.5
1.4
0.7
2.9
1.0
1.4
7.1
3.7
0.5
0.2
1.4
0.6
0.7
0.8
3.1
1.1
1.2
8.0
3.2
0.5
0.6
10.0
0.9
6.0
3.5
5.0
1.9
3.5
7.1
3.4
3.0
0.6
6.4
1.3
5.7
3.3
4.5
2.1
5.3
8.0
3.2
3.4
0.2
0.9
1.7
1.0
0.0
2.6
0.5
2.7
2.7
0.9
0.9
0.1
0.8
2.3
0.6
0.0
2.1
0.6
2.6
3.2
0.9
0.7
100.0
100.0
20.1
21.5
21.1
20.7
44.8
43.9
14.0
13.9
1 Stated as a percent of the total funding sources of CHF 817 billion as of 31 December 2011, 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.
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(cid:21)(cid:41)(cid:54)(cid:18)(cid:20)(cid:20)(cid:65)(cid:71)
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147
Risk, treasury and capital management
Treasury management
include time, retail savings, demand and fiduciary deposits, in-
creased by CHF 10 billion to CHF 342 billion, while remaining
stable at 42% of our funding sources. Cash deposits in Wealth
Management & Swiss Bank rose by CHF 20 billion to CHF 288 bil-
lion, while Wealth Management Americas deposits were up CHF
3 billion to CHF 39 billion, partially offset by lower wholesale cli-
ent deposits in the Investment Bank (CHF 11 billion). Wealth
management and retail client deposits represented approximate-
ly 95% of our total customer deposits, up from 92% at 31 De-
cember 2010.
Our outstanding long-term debt, including financial liabilities
at fair value, decreased by CHF 17 billion during the year to CHF
158 billion, mainly due to the lower valuation of equity-linked
notes issued, and to a lesser extent, matured credit-linked notes
issued as well as a decline in long-term debt issued. This resulted
in long-term debt decreasing from 22.4% to 19.4% in relation to
our funding sources. During 2011, we raised CHF 5.8 billion
equivalent of public benchmark bonds with an average maturity
of 3.5 years, including CHF 2.6 billion equivalent of covered bond
issuance. The amount of public bond issuance roughly offset the
CHF 6.0 billion equivalent of public benchmark bonds that ma-
tured or were redeemed during 2011, CHF 4.1 billion of which
was from public unsecured bonds and CHF 1.9 billion from subor-
dinated / hybrid tier 1 debt. Additionally, we continued to raise
medium- and long-term funds through medium-term notes and
private placements throughout the year. In January 2012, we suc-
cessfully issued covered bonds (EUR 1.5 billion 2.25% 5-year and
USD 1.5 billion 1.875% 3-year) as well as EUR 1.5 billion 3.125%
4-year senior unsecured public bonds.
Our Investment Bank reduced short-term interbank borrowing
year-over-year by CHF 8 billion, which was more than compen-
sated by a CHF 13 billion increase in money market paper issued.
Cash collateral payables on derivative instruments and prime bro-
kerage payables remained relatively stable with a one percentage
point increase to 13% of our funding sources.
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 des-
ignated at fair value. The long-term straight debt portfolio
amounted to CHF 67.3 billion on 31 December 2011. It is com-
posed of CHF 60.3 billion of senior debt including both publicly
and privately placed notes and bonds as well as Swiss cash
bonds, and CHF 7.0 billion of subordinated debt. Of the posi-
tions shown in the graph, CHF 9.8 billion, or 15%, will mature
within one year. There are no subordinated debt positions with
an early-call date during 2012.
The long-term straight debt forms part of the CHF 141 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
148
(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:19)
(cid:20)(cid:18)
(cid:19)(cid:23)
(cid:19)(cid:18)
(cid:2)(cid:23)
(cid:2)(cid:2)(cid:2)
(cid:2)(cid:18)
(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:20)(cid:18)(cid:19)(cid:23)(cid:115)(cid:19)(cid:24)
(cid:20)(cid:18)(cid:19)(cid:25)(cid:115)(cid:20)(cid:19)
(cid:20)(cid:18)(cid:20)(cid:20)(cid:115)(cid:21)(cid:19)
(cid:67)(cid:72)(cid:86)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:21)(cid:19)
(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:41)(cid:54)(cid:18)(cid:21)(cid:18)(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)
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Maturity analysis of financial liabilities
Contractual maturity information about our assets and liabilities
serves as a starting point for the stress testing analyses described
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 contractual maturities of our non-derivative and non-trad-
ing financial liabilities as of 31 December 2011 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 2010. Derivative
positions and trading liabilities, predominantly made up of short
sale transactions, are assigned to the column “On demand” as
this provides a conservative reflection of the nature of these trad-
ing activities. The contractual maturities may extend over signifi-
cantly longer periods.
Credit ratings
Credit ratings can affect the cost and availability of funding, espe-
cially funding from wholesale unsecured sources. Our credit rat-
ings can also influence the performance of some of our business-
es and levels of client and counterparty confidence. Rating
agencies take into account a range of factors when assessing
creditworthiness and setting credit ratings. These include the sta-
bility and quality of earnings, capital adequacy, risk profile and
management, liquidity management, diversification of funding
sources, asset quality and corporate governance. Credit ratings
reflect the opinions of the rating agencies and can therefore
change at any time.
Following the announcement of the unauthorized trading inci-
dent on 15 September 2011, Standard & Poor’s and Moody’s
placed our long-term ratings on negative watch and under review
for possible downgrade, respectively. On 13 October 2011, Fitch
Ratings downgraded our long-term issuer default rating from
“A+” to “A” with a stable outlook based upon its assessment of
diminishing government support. This decision was based on
(cid:20)(cid:18)
(cid:19)(cid:24)
(cid:19)(cid:20)
(cid:26)
(cid:22)
(cid:18)
Maturity analysis of financial liabilities 1
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CHF billion
Financial liabilities recognized on balance sheet 2
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities 3, 4
Negative replacement values 3
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 31.12.11
Total 31.12.10
Financial liabilities not recognized on balance sheet 5
Commitments
Loan commitments
Underwriting commitments
Total commitments
Guarantees
Forward starting transactions
Reverse repurchase agreements
Securities borrowing agreements
Total 31.12.11
Total 31.12.10
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
18.5
6.1
8.8
39.5
473.4
66.9
235.7
0.2
53.2
902.4
762.1
56.5
0.0
56.5
18.8
75.3
80.4
7.3
0.9
86.8
0.1
5.0
90.0
2.8
39.3
3.8
236.1
250.2
1.4
0.3
1.7
0.1
26.9
0.5
29.2
29.2
2.3
1.1
5.1
6.4
8.4
2.1
27.1
52.4
47.9
0.1
0.8
0.9
0.0
0.2
1.1
0.9
1.0
1.7
17.2
7.5
17.4
44.7
64.1
0.1
0.0
0.1
0.0
0.1
0.2
1.9
1.1
0.0
37.1
0.7
41.9
80.7
82.2
0.0
0.1
0.1
0.0
0.1
0.8
0.1
0.1
28.7
0.2
28.5
57.5
54.8
0.0
0.0
0.0
0.1
Total
30.3
8.1
102.5
39.5
473.4
67.1
94.3
342.5
5.1
154.2
57.1
1,374.1
1,261.3
58.2
1.2
59.4
18.9
27.1
0.5
105.9
113.3
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1 Non-financial liabilities such as deferred income, deferred tax liabilities, provisions and liabilities on employee compensation plans are not included in this analysis. 2 Except for trading portfolio liabilities and negative re-
placement values (see footnote 3), amounts as of 31 December 2011 generally represent undiscounted cash flows of future interest and principal payments. This is a change from prior year, when these amounts represented
the carrying values. Although undiscounted cash flow amounts may differ from the carrying values on the balance sheet, amounts as of 31 December 2010 have not been restated as these differences were not material.
3 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. 4 Contractual maturities of trading portfolio liabilities are: CHF 36.7
billion due within one month (2010: CHF 53.7 billion); and CHF 2.8 billion due between one month and one year (2010: CHF 1.2 billion). 5 Comprises the maximum irrevocable amount of guarantees, commitments and
forward starting transactions.
149
Risk, treasury and capital management
Treasury management
changes in assumptions that are part of Fitch’s rating method-
ology for banks, and is part of its broader review of changing
sovereign support in developed countries.
On 29 November 2011, Standard & Poor’s announced rating
changes for 37 of the largest rated banks as a consequence of
significant changes to its rating methodology for banks. As part
of this review process, our long-term senior unsecured debt rat-
ing was lowered to “A” (from “A+”) with a negative outlook.
With this action, Standard & Poor’s removed the negative credit
watch on our long-term rating, which was introduced on 16 Sep-
tember 2011 after the announcement of the unauthorized
trading incident. Our short-term rating of “A–1” was affirmed.
Standard & Poor’s had no discernible impact on our overall
liquidity and funding position. 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, the need to deliver ad-
ditional collateral or other ratings-based requirements.
On 15 February 2012, as part of an announcement of ratings
reviews affecting 114 financial institutions in Europe, Moody’s
placed UBS’s short-term ratings under review for a possible
downgrade.
➔ Refer to “Note 23 Derivative instruments and hedge accounting”
in the “Financial information” section of this report for
The abovementioned ratings actions by Fitch Ratings and
more information relating to one or two notch downgrades
150
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
Wealth Management Americas, the inherent interest rate risk ex-
posures are transferred from the originating business into one of
two centralized interest rate risk management units: Group Trea-
sury or the Investment Bank’s FICC business. These units manage
the risks on an integrated basis, which allows for netting across
different sources.
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➔ Refer to “Market risk” section of this report for more informa-
tion on non-trading interest rate risk exposures
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Group Treasury is responsible for the interest rate risk manage-
ment of Wealth Management & Swiss Bank transactions executed
in the majority of locations. The fixed-rate products do not con-
tain embedded options, such as early prepayment, which would
allow clients to prepay at par. All prepayments are therefore sub-
ject to market-based unwinding costs.
Current and savings accounts as well as many other retail prod-
ucts of Wealth Management & Swiss Bank have no contractual ma-
turity date or direct market-linked rate, and therefore their interest
rate risk cannot be transferred by simple back-to-back transactions.
Instead, they are managed on a pooled basis by replicating portfo-
lios which seek to immunize originating business units as much as
possible against market interest rate movements, while allowing the
business units to retain and manage their own product margin.
A replicating portfolio is a series of loans or deposits at market
rates and fixed terms between the originating business unit and
Group Treasury, and is structured to approximate the implied be-
havioral interest rate cash flow and repricing behavior of simple
back-to-back transactions. The portfolios are rebalanced monthly.
Their structure and parameters are based on long-term market
observations and client behavior, and are regularly reviewed and
adjusted as necessary.
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 Trea-
sury through replicating portfolios, which in this case are aligned
with the tenor mandated by senior management.
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
through the Investment Bank. Group Treasury does not directly
access the external market for swap transactions.
In addition to its regular risk management activities, Group Trea-
sury executes transactions that aim to economically hedge negative
effects on our net interest income stemming from the prolonged
period of extraordinarily low yields, mainly through income-gener-
ating fixed receiver swap portfolios. Further, as part of this strategy,
in October and November 2010 we acquired approximately CHF
10 billion face value of US Treasury securities and approximately
CHF 5 billion face value of UK Government bonds, with a weighted
average maturity at the end of 2010 of approximately 8 years. This
strategic investment portfolio was held on the balance sheet and
was classified for accounting purposes as available-for-sale. The
difference between the market value of these securities and their
amortized cost did not affect net profit, but was included in the
calculation of comprehensive income and accordingly affected our
shareholders’ equity and our regulatory capital.
In the third quarter of 2011, we sold these positions following a
decline in long-term US dollar interest rates after the announce-
ment of the US Federal Reserve’s “Operation Twist” (in this matu-
rity extension program, the Federal Reserve intends to sell USD 400
billion of shorter-term Treasury securities by the end of June 2012
and use the proceeds to buy longer-term Treasury securities). The
gain on sale amounted to CHF 722 million and was recognized as
other income. Of this gain, CHF 433 million was allocated to Wealth
Management and CHF 289 million to Retail & Corporate.
➔ 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.
The majority of our capital and many of our assets are de-
nominated in Swiss francs, but we also hold RWA and some eli-
gible capital in other currencies, primarily US dollars, euros and
British pounds. Any significant depreciation of the Swiss franc
against these currencies would adversely impact our key ratios.
Group Treasury’s mandate is to minimize adverse currency impacts
on these ratios.
The Group ALCO’s target to hedge these key ratios is based on
a currency mix of capital that broadly reflects the currency distri-
bution of our consolidated RWA. As the Swiss franc depreciates
or appreciates against these currencies, the consolidated RWA
increases 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 UBS AG (Parent Bank) itself is held predomi-
151
Risk, treasury and capital management
Treasury management
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nantly 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 maintains
a further portfolio of fixed receiver transactions to achieve a tar-
get tenor profile and return on invested equity.
To provide a benchmark for investments of equity, senior man-
agement defines a replicating portfolio of target tenors by currency.
The effective investment positions created by both internal cash de-
posits and interest rate swaps are then measured against this bench-
mark tenor replication portfolio. Mismatches between the two are
measured, together with other non-trading interest rate risk posi-
tions, against Group Treasury’s market risk limits (VaR and stress loss).
On 31 December 2011, our consolidated equity was invested
as follows: in Swiss francs (including most of the capital of the
Parent Bank) with an average duration of approximately four
years and fair value sensitivity of CHF 10.5 million per basis point;
in US dollars with an average duration of approximately four years
and a sensitivity of CHF 6.8 million per basis point; in euros with
an average duration of approximately three years and a sensitivity
of CHF 0.7 million per basis point; and in British pounds with
a duration of approximately three years and a sensitivity of CHF
0.3 million per basis point. The sensitivities directly relate to the
chosen durations.
Corporate currency management
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Our corporate currency management activities are designed to
reduce adverse currency effects on our reported financial results
in Swiss francs, within regulatory constraints. We focus on three
principal areas of currency risk management: 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. Non-
trading foreign exchange risks are managed under market risk
limits, with the exception of Group Treasury management of con-
solidated capital activity.
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,
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.
In 2011, we changed our approach to foreign currency transla-
tion risk from match funding to net investment hedge account-
ing. Net investment hedge accounting is now applied to core in-
vestments in foreign currency to reduce exposures exceeding the
level needed to provide the desired off-set to currency fluctua-
tions in our key-capital ratios.
➔ Refer to “Note 23 Derivative instruments and hedge accounting”
in the “Financial information” section of this report for more
information
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Sell-down of reported profits and losses
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. Monthly income statement
items of foreign subsidiaries and branches with a functional cur-
rency other than Swiss franc are translated with month-end rates
into Swiss franc. Weighted average rates for a year represent an
average of twelve month-end rates, weighted according to the
income and expense volumes of all foreign subsidiaries and
branches with the same functional currency for each month. To
eliminate earnings volatility on the retranslation of previously rec-
ognized 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 simi-
lar monthly sell-down process into their own reporting currencies.
Retained earnings in operating entities with a reporting currency
other than the Swiss franc are integrated and managed as part of
our consolidated equity.
Hedging of anticipated future reported profits and losses
At any time, the Group ALCO may instruct Group Treasury to ex-
ecute hedges to protect anticipated future profit and losses in
foreign currencies against possible adverse trends of foreign ex-
change rates from one reporting period to the next. Although
intended to hedge future earnings, these transactions are ac-
counted for as open currency positions and are subject to internal
market risk VaR and stress loss limits.
Group Treasury: value-at-risk (1-day, 95% confidence, 5 years of historical data)
CHF million
Interest rates
Foreign exchange
Diversification effect
Total management VaR
Year ended 31.12.11
Year ended 31.12.10
Min.
Max.
Average
31.12.11
Min.
Max.
Average
31.12.10
3
0
4
1
11
11
14
1
5
3
0
7
3
1
0
4
2
0
2
1
18
18
22
1
6
5
(2)
8
4
2
(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.
152
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 require-
ments of our regulators, in particular our lead regulator FINMA.
We aim to maintain sound capital ratios at all times and therefore
consider not only the current situation but also projected business
and regulatory developments. The main tools we employ to manage
our capital ratios are the active management of own shares, capital
instruments, dividends and risk-weighted assets (RWA).
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Capital adequacy management
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Ongoing compliance with regulatory capital requirements and
target capital ratios is central to our capital adequacy manage-
ment. In this process, we manage our capital according to tier 1
and total capital target ratios. In the target-setting process, we
take into account the current and future minimum requirements
set by regulators as well as their buffer expectations. Furthermore,
we consider our own internal assessment of aggregate risk expo-
sure in terms of capital-at-risk, the views of rating agencies and
comparisons with peer institutions, as well as the impact of ex-
pected accounting policy changes.
➔ Refer to the “Risk management and control“ section and “Note 1c
International Financial Reporting Standards and Interpretations
to be adopted in 2012 and later” in the “Financial information”
section of this report for more information
Regulatory requirements
We have published our 31 December 2011 capital and RWA in
accordance with the Basel 2.5 market risk framework. These new
requirements imposed additional deductions from our Bank for
International Settlements (BIS) tier 1 and total capital and higher
calculated BIS RWA as of 31 December 2011. The prior-period
comparisons are however still shown according to the Basel II
framework. To make a comparison possible, we also provide the
31 December 2011 amounts under the Basel II framework.
FINMA regulatory capital requirements result in higher RWA
than under the published BIS guidelines. There were no differ-
ences in eligible capital between BIS guidelines and FINMA regula-
tions as of 31 December 2011. During 2011, however, we were
already subject to the Basel 2.5 framework under the FINMA
regulation, which resulted in lower eligible capital than under BIS
Basel II guidelines. During 2011, we complied with all externally
imposed capital requirements.
The Basel III revisions will have an impact on capital, mainly due
to the exclusion of deferred tax assets, pension assets and hybrid
tier 1 capital instruments for the calculation of common equity.
They will also result in significantly higher RWA. Consequently,
our common equity ratio on a Basel III basis would be materially
lower than our current Basel 2.5 tier 1 ratio, if those requirements
were effective immediately. It is therefore important to also con-
sider the Basel III transitional arrangements, which effectively
phase-in certain impacts on capital between 2014–2018.
We continue to manage toward the 19% Swiss total capital
requirement applicable in 2019 with a target capital structure
consisting of 13% common equity tier 1 capital and 6% loss ab-
sorbing capital. As of 31 December 2011, our estimated Basel III
common equity tier 1 ratio based on a phased-in calculation stood
at 10.8 %. This is expected to further improve by a combination
of profit retention and efforts to reduce our RWA.
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Capital ratios and RWA
CHF billion
9
0
.
9
.
0
3
19.4
211
15.0
9
0
.
2
1
.
1
3
19.8
207
15.4
Basel II
0
1
.
6
.
0
3
20.4
16.4
205
0
1
.
9
.
0
3
20.2
16.7
208
0
1
.
3
.
1
3
20.0
16.0
209
8
0
.
2
1
.
1
3
302
15.0
11.0
9
0
.
6
.
0
3
248
17.7
13.2
9
0
.
3
.
1
3
278
14.7
10.5
Ratio in %
Basel 2.5
0
1
.
2
1
.
1
3
20.4
17.8
199
1
1
.
3
.
1
3
19.4
17.9
203
1
1
.
6
.
0
3
19.5
18.1
206
1
1
.
9
.
0
3
20.0
18.4
207
1
1
.
2
1
.
1
3
21.6
19.6
198
1
1
.
2
1
.
1
3
241
17.2
15.9
1
1
.
9
.
0
3
284
14.2
13.2
2.5
2.7
3.5
3.5
3.9
4.1
4.1
4.4
4.4
4.6
4.8
5.4
5.4
5.4
5.4
Credit risk
Non-counterparty related risk
Market risk
Operational risk
BIS total capital ratio
BIS tier 1 ratio
FINMA leverage ratio
350
280
210
140
70
0
25
20
15
10
5
0
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Risk, treasury and capital management
Capital management
Further, we have issued our first Basel III compliant note in Feb-
ruary 2012 (USD 2 billion) or approximately 0.5% of our estimated
Basel III RWA of CHF 380 billion as of 31 December 2011, which
contributes to the targeted 6% loss absorbing capital.
➔ Refer to the “Regulatory developments“ section of this report
for more information
BIS capital ratios
The BIS capital ratios compare eligible capital with total RWA.
On 31 December 2011, our Basel II tier 1 capital ratio stood at
19.6%, compared with 17.8% on 31 December 2010. On a
Basel 2.5 basis, our tier 1 ratio was 15.9%. This is the result of
Basel 2.5 RWA being significantly higher than under Basel II
and due to increased tier 1 deductions for securitization expo-
sures.
➔ Refer to the discussions on “Capital adequacy management”
and “Eligible capital” in this section for more information
Capital requirements
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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.
➔ Refer to the additional capital management disclosure in the
“Basel 2.5 Pillar 3” section of this report for more information
On 31 December 2011, our Basel 2.5 RWA were CHF 241.0
billion compared with CHF 198.9 billion on a Basel II basis at the
end of 2010, as an increase in RWA of CHF 42.5 billion due to the
introduction of Basel 2.5 eclipsed a reduction of CHF 0.4 billion in
RWA under Basel II.
Credit risk
The Basel II RWA for credit risk amounted to CHF 124.3 billion on
31 December 2011, compared with Basel II RWA of CHF 119.9
billion on 31 December 2010. This increase of CHF 4.4 billion was
mainly attributable to derivatives and the repo-style exposures,
partly offset by reduced securitization exposures. The introduction
of Basel 2.5 added a further CHF 2.5 billion of RWA due to higher
risk weights for securitization positions held for trading that at-
tract banking book capital charges as well as higher risk weights
for re-securitization exposures.
➔ Refer to the “Credit risk” section of this report for more
information
Non-counterparty related assets
The Basel II RWA for non-counterparty related assets amounted
to CHF 6.1 billion on 31 December 2011 compared with CHF
6.2 billion on 31 December 2010. The Basel 2.5 framework had
no impact on this RWA category.
Market risk
The Basel II market risk RWA decreased by CHF 11.6 billion to CHF
9.2 billion on 31 December 2011, mainly due to reduced credit
spread risk. The new Basel 2.5 regulations increased RWA by CHF
40.0 billion to CHF 49.2 billion.
The CHF 40.0 billion RWA increase between the Basel II and
Basel 2.5 framework was composed of the following:
(i) a new incremental risk charge for default and rating migration
risk of trading book positions (CHF 19.6 billion of RWA);
(ii) an additional stressed VaR requirement, taking into account a
one-year observation period relating to significant losses (CHF
13.1 billion of RWA);
(iii) a comprehensive risk measure requirement for correlation trad-
ing (CHF 8.6 billion of RWA); and
(iv) a negative adjustment of CHF 1.3 billion for RWA relief in VaR.
➔ Refer to the “Market risk” 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).
154
Basel 2.5
31.12.11
34,014
38,370
41,564
14.1
15.9
17.2
240,962
126,804
6,050
49,241
58,867
Basel II
31.12.11
34,623
38,980
42,783
17.4
19.6
21.6
198,494
124,337
6,050
9,240
58,867
Basel II
31.12.10
30,420
35,323
40,542
15.3
17.8
20.4
198,875
119,919
6,195
20,813
51,948
Reconciliation of IFRS equity to BIS capital
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CHF million
IFRS equity attributable to UBS shareholders
Treasury shares at cost / equity classified as obligation to purchase own shares
Own credit, net of tax 1
Unrealized gains from Financial investments available-for-sale 1
Unrealized (gains) / losses from cash flow hedges 1
Other 2
BIS core tier 1 capital prior to deductions
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 3
Less: goodwill & intangible assets
Less: securitization exposures 4
Less: other deduction items 5
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 4
Less: other deduction items 5
BIS total capital
Basel 2.5
31.12.11
Basel II
31.12.11
53,447
1,198
(1,842)
(228)
(2,600)
(798)
49,177
383
48,794
(2,131)
(9,695)
(2,627)
(711)
34,014
4,356
1,490
2,866
38,370
388
6,145
(2,627)
(711)
41,564
53,447
1,198
(1,842)
(228)
(2,600)
(798)
49,177
383
48,794
(2,131)
(9,695)
(2,017)
(711)
34,623
4,356
1,490
2,866
38,980
388
6,145
(2,017)
(711)
42,783
Basel II
31.12.10
46,820
708
(205)
(181)
(1,063)
286
46,365
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
1 IFRS equity components which are not recognized for capital purpose, adjusted for changes in foreign exchange. 2 Consists of: i) qualifying non-controlling interests; ii) the netted impact of the change in scope of con-
solidation; iii) other adjustments due to reclassifications and revaluations of participations and prudential valuation and anticipated dividend payment. 3 Consists of: i) net long position in own shares held for trading pur-
poses; ii) own shares bought for unvested or upcoming share awards; iii) and accruals built for upcoming share awards. 4 Includes a 50% deduction of the fair value of our option to acquire the SNB StabFund’s equity
(CHF 1,629 million on 31 December 2011 and CHF 1,781 million on 31 December 2010). 5 Positions to be deducted as 50% from tier 1 and 50% from total capital mainly consist of: i) net long position of non-consoli-
dated participations in the finance sector; ii) expected loss on advanced internal ratings-based portfolio less general provisions (if difference is positive); iii) expected loss for equities (simple risk weight method).
Operational risk
Basel II RWA for operational risk increased to CHF 58.9 billion on
31 December 2011 from CHF 51.9 billion on 31 December 2010,
as agreed with FINMA. This increase is primarily attributable to
changes made to scenario assumptions, following the unauthor-
ized trading incident in the third quarter of 2011, partially offset
by enhancements made to our models. The Basel 2.5 framework
had no impact on this RWA category.
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➔ Refer to the “Operational risk” section of this report for
more information
Eligible capital
Tier 1 capital
Our Basel II tier 1 capital amounted to CHF 39.0 billion on 31 De-
cember 2011, compared with CHF 35.3 billion on 31 Decem-
ber 2010, an increase of CHF 3.7 billion. The main positive con-
tributor to this increase was the CHF 4.2 billion net profit
attributable to UBS shareholders. Further increases were due to
positive currency effects, own share related components and a
reduction of low rated securitization exposures, mainly resulting
from sales. These effects were partially offset by the reversal of
own credit gains of CHF 1.5 billion, a redemption of hybrid tier 1
capital of CHF 0.5 billion, dividend accruals, prudential valuation
adjustments and other items. The Basel 2.5 framework resulted in
additional tier 1 deductions of CHF 0.6 billion.
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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 to
our shareholders as defined by IFRS. The most notable adjust-
ments are the deductions for goodwill, intangible assets, invest-
ments in unconsolidated entities engaged in banking and finan-
cial activities and own credit effects on liabilities designated at fair
value (see further details in the “Reconciliation of IFRS equity to
BIS capital” table).
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Hybrid tier 1 capital
Hybrid tier 1 instruments represent innovative and non-innovative
perpetual instruments. Hybrid tier 1 instruments are perpetual in-
struments 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 inno-
vative instruments only, a limited step-up of the interest rate.
155
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Capital management
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Non-innovative instruments do not have a step-up of the interest
rate and are therefore viewed as having a higher equity character-
istic for regulatory capital purposes. The instruments are issued
either through trusts or our subsidiaries and rank senior to our
equity 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.
As of 31 December 2011, our hybrid tier 1 instruments amounted
to CHF 4.4 billion, down from CHF 4.9 billion as of 31 December
2010, mainly resulting from the redemption of a USD 0.5 billion
hybrid tier 1 instrument in June 2011. Under IFRS, these instruments
are accounted for as equity attributable to non-controlling interests.
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Tier 2 capital
The major element in tier 2 capital is subordinated long-term
debt. Tier 2 instruments have been issued in various currencies
and with a range of maturities across capital markets globally. Tier
2 instruments rank senior to both our shares and to hybrid tier 1
instruments but are subordinated to all our senior obligations.
Our Basel II tier 2 capital, net of tier 2 deductions amounted
to CHF 3.8 billion on 31 December 2011, compared with CHF
5.2 billion on 31 December 2010, a decrease of CHF 1.4 billion. In
2011, we redeemed a floating-rate USD 1.6 billion subordinated
bond. The change is further impacted by currency fluctuations, a
reduction of low rated securitization exposures, mainly resulting
from sales, and an excess of general provisions over expected
losses. The Basel 2.5 framework resulted in additional tier 2 de-
ductions of CHF 0.6 billion.
In order to improve the quality of capital, regulators have pro-
posed new requirements for capital instruments and created a
new category of contingent capital instruments. The changes pro-
posed are designed to increase resilience against a financial crisis,
and are expected to provide a buffer to maintain the banks as
going concerns or allow for an orderly liquidation. Regulators
view these instruments as additional protection against the sys-
temic risks of large banks.
On 22 February 2012, we issued USD 2 billion of tier 2 notes at
an initial rate of 7.25%. This 10-year security, which does not dilute
the value of the equity held by the bank’s shareholders, qualifies as
a loss-absorbing instrument that complies with Basel III regulations
and counts as progressive buffer capital under the Swiss draft regu-
lations for its systemically relevant banks. The notes will remain as
debt throughout their life, subordinate to the bank’s senior debt.
Their principal amount would be written down to zero if at any time
the bank’s core tier 1 / common equity ratio falls below 5%, if FINMA
determines that a writedown is necessary to ensure UBS’s viability as
defined, or if UBS receives a commitment of governmental support
that FINMA determines to be necessary to ensure UBS’s viability.
➔ Refer to the “Regulatory developments” section of this report for
more information with regard to regulation on systemically
important banks and “Note 32 Events after the reporting period”
in the “Financial Information” section of this report
for more information on the issuance of these tier 2 notes
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 business-
es within an efficient legal, tax, regulatory and funding frame-
work. We enter into intragroup transactions to provide funding
and capital to individual UBS entities. As of 31 December 2011,
UBS has not been subject to 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.
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 2011, our Group FINMA leverage ratio im-
proved to 5.4%, compared with the 31 December 2010 ratio of
4.4%. During the year, average total assets prior to deductions de-
creased by CHF 5.5 billion to CHF 1,392.9 billion. The average total
adjusted assets fell by CHF 80 billion to CHF 714.2 billion. The table
FINMA leverage ratio
CHF billion, except where indicated
Total balance sheet 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
FINMA tier 1 capital (at year-end) 5
FINMA leverage ratio (%)
Average 4Q11
Average 4Q10
1,392.9
(436.6)
(163.6)
(65.8)
(12.8)
714.2
38.4
5.4
1,398.5
(410.1)
(161.6)
(20.1)
(12.4)
794.2
35.3
4.4
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 “Reconciliation of IFRS equity to BIS capital”
table for more information on deductions of assets from FINMA tier 1 capital corresponding to Basel 2.5 tier 1 capital on 31 December 2011 and to Basel II tier 1 capital on 31 December 2010. 5 FINMA tier 1 capital
corresponds to Basel 2.5 tier 1 capital as of 31 December 2011 and to Basel II tier 1 capital as of 31 December 2010.
156
“FINMA leverage ratio” shows the FINMA leverage ratio calculation
for the Group.
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Equity attribution framework
The equity attribution framework reflects our objectives of main-
taining a strong capital base and guiding businesses toward ac-
tivities with the best balance of profit potential, risk and capital
usage.
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Within this framework, the BoD attributes equity to the busi-
nesses after considering their risk exposure, risk-weighted assets
(RWA) usage, asset size, goodwill and intangible assets.
The design of the equity attribution framework enables us to
do the following:
– calculate and assess return on attributed equity (RoaE) in each
of our business divisions; RoaE 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; and
– make better comparisons between our businesses and those of
our competitors.
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In our capital allocation methodology, we use three drivers to
allocate tangible equity to our business divisions in order to pro-
vide a comprehensive view of the resource usage and risk profile
of our businesses. We use capital ratio and leverage ratio targets
as well as risk-based capital, which is an internal measure of risk
similar to economic capital.
In addition to tangible equity, we allocate equity to support
goodwill and intangibles.
After reviewing the results of this formulaic approach, the
Group ALCO recommends and the BoD makes discretionary ad-
justments to the final equity attribution to reflect our views of the
likely future risk profile and resource usage of the businesses. The
BoD currently makes equity attribution decisions on a quarterly
basis.
The amount of equity attributed to all businesses corresponds to
the amount we believe is required to maintain a strong capital base
and support our businesses adequately. If the total equity attributed
to the business divisions and the Corporate Center differs from the
Group’s actual equity during a given period, the difference (positive
or negative) is reflected as a separate line item. Further, the equity
attribution framework continues to be forward-looking. Therefore,
with regard to the RWA and asset drivers, we will be taking into
account the impacts of planned Basel III requirements in 2012.
In November 2011, the BoD approved a refinement in the
methodology of equity attribution. The intent of this refinement is
to measure the RoaE of each business in a way which is more
comparable to the business segments of international competi-
tors and reflects the returns generated by businesses on resources
under their direct control.
Accordingly, in the future equity attributed to the Corporate
Center is expected to grow due to several factors, including our
decision to allocate equity related to our deferred tax assets and
deferred pension expenses centrally. This expected increase also
includes the capital related to our legacy portfolio assets following
the transfer from the Investment Bank to the Corporate Center, as
well as capital related to our option to purchase equity in the SNB
StabFund.
In addition, with regard to the RWA driver, in the future the
Corporate Center will carry incremental common equity not allo-
cated to the business divisions, reflecting additional equity that we
have targeted above a 10% Basel III common equity tier 1 ratio.
The amount of equity attributed to each business division is an
important input into the calculation of economic profit for that
business division. Broadly speaking, economic profit equals profit
minus the product 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, Wealth Man-
agement & Swiss Bank and the Corporate Center increased by CHF
5 billion, CHF 1 billion and CHF 1 billion, respectively, from the
fourth quarter of 2010 to the fourth quarter of 2011.
The increase in the Investment Bank was influenced by RWA
increases related to the implementation of the Basel 2.5 frame-
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Average attributed equity
CHF billion
Wealth Management
Retail & Corporate
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Investment Bank
Corporate Center
Average equity attributed to the business divisions and Corporate Center
Difference
Average equity attributable to UBS shareholders
4Q11
5.0
5.0
10.0
8.0
2.5
32.0 1
4.0
56.5
(3.9)
52.6
4Q10
4.4
4.6
9.0
8.0
2.5
27.0
3.0
49.5
(2.2)
47.3
1 Approximately CHF 4.5 billion of the average equity attributed to the Investment Bank relates to the legacy portfolio that was transferred to the Corporate Center before the end of 2011 and will be managed and
reported with effect from the first quarter of 2012 as a separate segment within the Corporate Center.
157
Risk, treasury and capital management
Capital management
work. The increase in Wealth Management & Swiss Bank was due
to the expectation that the capital requirement for this business
division will increase, taking into account current regulatory
trends and capital positions of relevant competitors. The increase
in the Corporate Center was related to the trends in risk-based
capital and RWA seen under this segment.
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 below
lists all shareholder-approved issuances of shares at year-end
2011.
UBS shares
Holding of UBS shares
The majority of our tier 1 capital comprises share premium and
retained earnings attributed to UBS shareholders. As of 31 De-
cember 2011, total IFRS equity attributable to our shareholders
amounted to CHF 53,447 million, and was represented by a to-
tal of 3,832,121,899 shares issued, of which 2.2% were held by
UBS.
In 2011, shares issued were increased by a total of 1,281,386
shares due to exercises of employee options. Each share has a par
value of CHF 0.10 and generally entitles the holder to one vote at
the shareholders’ meeting as well as a proportionate share of dis-
tributed dividends. There are no preferential rights for shareholders
and no other classes of shares are issued by the Parent Bank.
➔ Refer to the “Shareholders’ participation rights” section of
this report for more information
UBS holds own shares for two main purposes: in Group Treasury
to cover employee share and option programs; and in the Invest-
ment Bank, to a limited extent, for trading purposes where the
Investment Bank engages in market-making activities in UBS
shares and related derivative products. The holding of treasury
shares on 31 December 2011 increased to 84,955,551, or 2.2%
of shares issued, from 38,892,031, or 1.0%, on the same date
one year prior.
As of 31 December 2011, employee options and stock appre-
ciation rights to receive 10.5 million shares were exercisable.
Shares held in treasury or newly shares issued are delivered to the
employee at exercise. On 31 December 2011, 75.7 million shares
were available for this purpose, and an additional 148.6 million
unissued shares in conditional share capital were assigned to
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
UBS shares
Shares outstanding
Ordinary shares issued
of which: issue of shares for employee option plans for the year ended
Treasury shares
Shares outstanding
Shareholders equity (CHF million)
Equity attributable to UBS shareholders
Less: goodwill and intangible assets
Tangible shareholders’ equity
Book value per share (CHF)
Total book value per share
Tangible book value per share
158
Maximum number of
shares to be issued
Year approved by
shareholder general
meeting
% of shares issued
31.12.11
100,000,000
148,639,326
380,000,000
628,639,326
2009
2006
2010
2.61
3.88
9.92
16.44
31.12.11
31.12.10
3,832,121,899
3,830,840,513
1,281,386
84,955,551
76,755
38,892,031
3,747,166,348
3,791,948,482
53,447
9,695
43,752
14.26
11.68
46,820
9,822
36,998
12.35
9.76
cover future employee option exercises. At the end of 2011, 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.
by the BoD to the shareholders and is subject to their approval
at the Annual General Meeting in May 2012. We intend to pro-
pose a dividend for the financial year 2011 of CHF 0.10 per
share.
Share liquidity
Treasury shares held by the Investment Bank
The Investment Bank, acting as a liquidity provider to the equity
index futures market and as a market-maker in our shares and
derivatives, has issued derivatives linked to UBS stock. Most of
these instruments are classified as cash-settled derivatives and are
primarily 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.
➔ Refer to Note 8 “Earnings per share and shares outstanding” for
more information
Distributions to shareholders
The decision whether to pay a dividend, and the level of the
dividend, are dependent on our targeted capital ratios and cash
flow generation. The decision on dividend payments is proposed
During 2011, the daily average volume traded in UBS shares on
the SIX Swiss Exchange (SIX) was 15.6 million shares. On the New
York Stock Exchange (NYSE), it was 1.0 million shares. As the SIX
trades a higher volume of UBS shares, 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.
Treasury share activities
Month of purchase
January 2011
February 2011
March 2011
April 2011
May 2011
June 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
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
19,040,000
42,870,000
0
1,914,494
34,015,961
4,200,000
9,840,000
13,256,947
0
0
0
0.00
18.53
17.48
0.00
15.83
15.27
13.06
11.69
9.96
0.00
0.00
0.00
0
19,040,000
61,910,000
61,910,000
63,824,494
97,840,455
102,040,455
111,880,455
125,137,402
125,137,402
125,137,402
125,137,402
0.00
18.53
17.80
17.80
17.74
16.88
16.73
16.28
15.61
15.61
15.61
15.61
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 378,000 UBS shares during the year and held 2,014,000 UBS shares
as of 31 December 2011.
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Trading volumes
1,000 shares
SIX Swiss Exchange total
SIX Swiss Exchange daily average
NYSE total
NYSE daily average
Source: Reuters
31.12.11
3,974,639
15,648
239,713
951
For the year ended
31.12.10
4,166,417
16,403
296,517
1,177
31.12.09
5,105,358
20,340
222,052
881
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Risk, treasury and capital management
Capital management
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)
19.13
12.23
11.62
11.41
12.23
15.75
11.80
12.76
15.75
17.60
16.55
17.43
17.60
19.13
18.60
19.13
17.57
18.60
17.83
18.53
18.60
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
9.34
9.80
10.60
9.80
9.84
9.34
9.34
9.93
12.70
14.37
14.37
15.66
15.93
15.43
16.26
16.86
15.43
13.31
14.92
13.94
14.15
13.31
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
11.18
11.18
11.18
11.18
11.21
10.54
10.54
11.67
13.11
15.33
15.33
16.34
17.29
16.48
16.48
18.45
16.93
15.35
15.35
16.68
14.46
17.14
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
20.08
14.21
12.55
12.79
14.21
18.63
14.75
16.84
18.63
20.03
19.62
20.01
20.03
20.08
19.99
20.08
18.54
18.48
18.48
18.47
17.75
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
10.42
10.47
11.33
10.60
10.47
10.42
10.42
13.18
16.08
17.20
17.20
17.82
17.76
16.11
17.73
18.05
16.11
12.26
14.99
13.04
12.26
12.40
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
11.83
11.83
11.83
12.47
12.62
11.43
11.43
14.48
16.48
18.26
18.26
19.32
20.00
18.05
18.05
19.85
17.96
16.47
16.47
17.03
13.22
16.28
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
2011
Fourth quarter 2011
December
November
October
Third quarter 2011
September
August
July
Second quarter 2011
June
May
April
First quarter 2011
March
February
January
2010
Fourth quarter 2010
Third quarter 2010
Second quarter 2010
First quarter 2010
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
1 Historical share price adjusted for the rights issue and stock dividend 2008.
160
Basel 2.5 Pillar 3
Introduction
Basel 2.5
The 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 require-
ments 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 supervising
banks. The aim of Pillar 3 is to encourage market discipline by re-
quiring 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.
In certain cases, our Pillar 3 disclosures may differ from the way
we manage our risks and to how these risks are disclosed in our
quarterly reports and in other sections of this annual report.
Revisions to the Basel II market risk framework published in July
2009 and the enhancements to the Basel II framework (commonly
referred to as Basel 2.5), introduced new capital requirements to
increase the amount of regulatory capital in the banking system.
The new measures under Basel 2.5 include:
– a stressed value-at-risk (VaR) requirement taking into account a
one year observation period relating to significant losses;
– an incremental risk charge, which accounts for default and rat-
ing migration risk of trading book positions;
– a comprehensive risk measure to capture correlated defaults
and other complex price risk in the correlation portfolio;
– a revised requirement for the other securitization positions held
for trading, in line with the banking book capital charges; and
– higher risk weights for re-securitization exposures across the
trading and banking book to better reflect the inherent risk in
these products.
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Overview of disclosures
The following table provides an overview of our Basel 2.5 Pillar 3 disclosures in our Annual Report 2011:
Basel 2.5 Pillar 3 requirement
Disclosure in the Annual Report 2011
Capital structure
Capital adequacy
Risk management objectives, policies and methodologies
(qualitative disclosures)
Credit risk
Investment positions
Market risk
Securitization
Operational risk
Interest rate risk in the banking book
“Capital management” section
“Capital management” and “Basel 2.5 Pillar 3” sections
“Risk management and control” section
“Risk management and control” and “Basel 2.5 Pillar 3” section
“Basel 2.5 Pillar 3” section
“Risk management and control” and “Basel 2.5 Pillar 3” sections
“Basel 2.5 Pillar 3” section
“Risk management and control” section
“Risk management and control” section
161
Risk, treasury and capital management
Basel 2.5 Pillar 3
These additional measurements are described and reported be-
low. The first public disclosure of this information was required as
of 31 December 2011; comparatives are not required.
Besides introducing these additional charges, Basel 2.5 also had
an impact on how VaR is converted into market risk RWA: (i) there
is only a single multiplier applied to VaR compared with separate
multipliers for general market risk and specific market risk that
were applied under Basel II; and (ii) the securitization positions in
the trading book captured under the revised treatment, in line
with banking book rules, may be excluded from the specific risk
calculation in VaR. Each of these led to a reduction in the baseline
VaR charge, and therefore also have to be taken into account
when looking at the effect of the introduction of Basel 2.5.
Risk exposure measures and derivation of risk-weighted
assets
As noted above, measures of risk exposure may differ depending
on the purpose for which exposures are calculated: financial ac-
counting under International Financial Reporting Standards (IFRS),
determination of our regulatory capital or internal management
of the firm. Our Basel 2.5 Pillar 3 disclosures are generally based
on the measures of risk exposure that are used to calculate the
regulatory capital that is required to underpin those risks.
the BIS naming convention equate to “central governments and
central banks” as used under the Swiss and EU regulations.
Similarly, “banks” equate to “institutions” and “residential mort-
gages” equate to “claims secured on residential real estate.”
Although we determine published risk-weighted assets (RWA)
according to BIS guidelines, our calculation of the regulatory cap-
ital requirement is based on the regulations of FINMA, which are
more conservative and therefore result in higher RWA.
Generally, the scope of consolidation for purposes of calculat-
ing these regulatory capital requirements follows the IFRS con-
solidation 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
subsidiaries in the Group consolidated for IFRS purposes are listed
in “Note 33 Significant subsidiaries and associates” in the “Finan-
cial information” section of this report. The main differences in
the basis of consolidation for IFRS and regulatory capital purposes
relate to the following entity types, and apply regardless of our
level of control:
– Real estate and commercial companies and investment 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.
The table on the next page provides a more detailed summary
of the approaches we use for the main risk categories for the de-
termination of regulatory capital.
– Securitization vehicles are not consolidated for regulatory cap-
ital purposes but are treated under the securitization frame-
work.
The naming conventions for the exposure segments used in
the following tables are based on BIS rules and differ from those
under Swiss and EU regulations. For example, “sovereigns” under
– Joint ventures that are controlled by two ventures are fully
consolidated for regulatory capital purposes, whereas they are
accounted for under the equity method for IFRS.
162
Category
Credit risk
UBS approach
Under the advanced internal ratings-based approach applied for the majority of our businesses, credit risk
weights are determined by reference to internal counterparty ratings and loss given default estimates. We use
internal models to measure the credit risk exposures to third parties on over-the-counter derivatives and
repurchase-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 framework.
Equity exposures outside trading book
Simple risk weight method under the advanced internal ratings-based approach.
Market risk
Operational risk
Securitization exposures
Regulatory capital requirement is derived from our VaR. It includes regulatory VaR, stressed VaR, an incremental
risk charge and the comprehensive risk measure.
We have developed a model to quantify operational risk, which meets the regulatory capital standard under
the advanced measurement approach.
Securitization exposures in the banking book are assessed using advanced internal ratings-based approach, applying
risk weights based on external ratings. Securitization exposures in the trading book are assessed for their general
market risk as well as for their specific risk. The capital charged for the general market risk is determined by the VaR
method, whereas the capital charge for the specific risk is determined using the comprehensive risk measure method
or the internal ratings-based approach applying risk weights based on external ratings.
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163
Risk, treasury and capital management
Basel 2.5 Pillar 3
Risk-weighted assets
The “Detailed segmentation of BIS risk-weighted assets” table
provides a granular breakdown of our risk-weighted assets. The
table also shows the net exposure at default (EaD) per category
for the current disclosure period, which forms the basis for the
calculation of the risk-weighted assets.
➔ Refer to the “Capital management” section of this report for
more information
➔ Refer to the table “Derivation of regulatory net credit exposure”
for BIS exposure segment definitions
Credit risk
requirements. These include, for example, the application of
regulatory prescribed floors and multipliers, and differences
with respect to eligibility criteria and exposure definitions. The
exposure information presented in this section differs therefore
from that disclosed in the “Risk management and control” sec-
tion of this report. Similarly the regulatory capital prescribed
measure of credit risk exposure also differs from that required
under IFRS.
For the calculation of derivative exposures to determine our
required regulatory capital, we apply the effective expected posi-
tive exposure as defined in Annex 4 to the Basel framework. For
a small portion of the derivatives portfolio, we also apply the
current exposure method based on the replacement value of de-
rivatives in combination with a regulatory prescribed add-on.
The tables in this section provide details on the exposures used
to determine the firm’s credit risk regulatory capital. The para
meters applied under the advanced internal ratings-based ap-
proach are generally based on the same methodologies, data
and systems we use for internal credit risk quantification, ex-
cept where certain treatments are specified by regulatory
The regulatory net credit exposure detailed in the tables in this
section is shown as the regulatory exposure at default after apply-
ing collateral, netting 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 con-
sistent with the regulatory capital calculation.
Detailed segmentation of BIS risk-weighted assets
CHF million
Credit risk
Sovereigns
Banks
Corporates
Retail
Residential mortgages
Lombard lending
Other retail
Securitization / Re-securitization exposures 1
Banking book exposures
Trading book exposures
Non-counterparty related risk
Settlementrisk(failedtrades)
Equity exposures outside trading book 2
Market risk
Value-at-risk (VaR)
Stressed value-at-risk (sVaR)
Incremental risk charge (IRC)
Comprehensive risk measure (CRM)
Operational risk 3
Total BIS
Additional RWA according to FINMA regulations 4
Total FINMA RWA 5
31.12.11
Net EaD
Basel 2.5 RWA
Advanced
IRB approach
Standardized
approach
556,577
107,479
63,651
183,816
201,632
123,650
73,681
4,300
19,684
10,165
9,519
17,417
80
881
23,440
331
2,158
16,617
4,334
1,854
0
2,481
6,050
58
92,688
8,959
11,848
58,768
13,112
9,311
3,345
457
7,287
4,147
3,139
21
3,310
49,241
7,935
13,117
19,564
8,625
58,867
594,639
211,414
29,548
31.12.10
Basel II RWA
Total
109,096
6,577
14,528
71,542
16,450
10,871
3,074
2,504
7,085
7,085
6,195
47
3,691
20,813
20,813
51,948
198,875
16,135
215,010
Total
116,129
9,290
14,006
75,385
17,447
11,164
3,345
2,937
7,287
4,147
3,139
6,050
79
3,310
49,241
7,935
13,117
19,564
8,625
58,867
240,962
15,475
256,437
1 On 31 December 2011, CHF 5.3 billion of the securitization exposures, including CHF 1.6 billion for the option to acquire the SNB StabFund equity, were deducted from capital and therefore did not generate RWA
(on 31December2010atotalofCHF4.8billionofsecuritizationexposuresweredeductedaswellasCHF1.8billionfortheoptiontoacquiretheSNBStabFund). 2 Simple risk weight method. 3 Advanced measure-
ment approach. 4Reflectsanadditionalchargeof10%oncreditriskRWA for exposurestreatedunderthestandardizedapproach,asurchargeof200%forRWAofnon-counterpartyrelatedassetsandadditional
requirements for market risk. 5Asof31December2011,theFINMAtier 1ratioamountsto15.0%(15.6%for2010,BaselII)andtheFINMAtotalcapitalratioto16.2%(18.0%for2010,BaselII).
164
Credit risk exposures and RWA
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 31.12.11
Total 31.12.10
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
38,266
20,026
254,595
7,373
43,258
363,518
75,172
8,521
58,614
38,550
21,102
259,474
9,093
43,435
371,654
72,558
6,633
55,954
142,307
135,144
6,874
57,891
6,053
25,000
95,818
601,644
605,386
7,145
51,589
6,040
13,792
78,565
585,364
573,174
(9,185)
(3,460)
(5,090)
(3,252)
(20,986)
(67)
(53)
(7,680)
(7,800)
(28,786)
(31,608)
38,550
11,917
256,014
4,003
40,184
350,668
72,558
6,633
55,954
135,144
7,077
51,589
5,987
6,112
70,765
556,577
541,565
3%
24%
14%
52%
33%
16%
50%
16%
11%
32%
59%
3%
80%
99%
23%
21%
20%
1,217
2,827
36,905
2,084
13,317
56,350
36,280
1,034
5,947
43,260
4,152
1,507
4,778
6,081
16,518
116,129
109,096
1 Mainly includes margin accounts for derivatives. 2 The derivation of RWA is based on the various credit risk parameters of the advanced IRB approach and the standardized approach. 3 Includes guarantees, loan
commitments and forward starting transactions. 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 counterparty.
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Latin
America Asia Pacific
Middle East
and Africa
Total regulatory
gross credit
exposure
Total regulatory
net credit
exposure
CHF million
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Off-balance sheet 2
Banking products
Derivatives
Cash collateral receivables on derivative instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 3
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.11
Total 31.12.10
Switzerland
24,872
522
160,322
7,097
192,814
6,916
228
5,004
12,148
319
402
4,498
5,219
Rest of
Europe
6,778
10,602
20,900
1,885
8,299
48,464
31,227
4,451
17,575
53,253
2,260
12,928
1,191
2,516
North
America 1
3,572
3,835
55,337
6,802
23,389
92,936
25,034
1,508
27,073
53,615
2,820
29,153
4,250
6,424
18,895
42,647
210,181
120,612
189,198
199,486
127,115
182,340
3,328
5,770
13,825
328
3,813
195
5,480
54
395
178
3,610
23
442
6,124
27,064
4,253
836
28
444
7,774
145
4,860
1,308
12,778
126
2
18
3
150
7,582
6,149
1,833
9,151
167
319
11,470
51,312
51,874
772
272
996
2,041
107
35
12
31
184
6,479
6,209
38,550
21,102
259,474
9,093
43,435
371,654
72,558
6,633
55,954
135,144
7,145
51,589
6,040
13,792
78,565
585,364
573,174
1 Includes the Caribbean. 2 Includes guarantees, loan commitments and forward starting transactions. 3 Excludes equity positions.
38,550
11,917
256,014
4,003
40,184
350,668
72,558
6,633
55,954
135,144
7,077
51,589
5,987
6,112
70,765
556,577
541,565
165
Risk, treasury and capital management
Basel 2.5 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 exposure segments defined under the Basel framework and 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 2
Banking products
Derivatives
Cash collateral receivables on derivative financial instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 3
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.11
Total 31.12.10
Private
individuals
Corporates 1
2
165,269
2,601
167,871
1,653
168
1,820
3
4,050
1,618
5,671
175,361
167,150
89,325
5,756
38,583
133,667
35,771
2,762
41,597
80,129
4,589
9,140
1,161
11,543
26,433
240,229
221,206
Public entities
(including
sovereigns and
centralbanks)
Banks and
multilateral
institutions
Total
regulatory
gross credit
exposure
38,166
317
4,879
564
43,926
17,796
445
4,082
22,323
1,847
36,903
173
148
39,070
105,319
118,556
382
20,785
3,337
1,687
26,191
17,338
3,426
10,107
30,872
708
5,543
656
485
7,391
64,454
66,261
38,550
21,102
259,474
9,093
43,435
371,654
72,558
6,633
55,954
135,144
7,145
51,589
6,040
13,792
78,565
585,364
573,174
Total
regulatory
net credit
exposure
38,550
11,917
256,014
4,003
40,184
350,668
72,558
6,633
55,954
135,144
7,077
51,589
5,987
6,112
70,765
556,577
541,565
1 Also includes non-bank financial institutions. 2 Includes guarantees, loan commitments and forward starting transactions. 3 Excludes equity positions.
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 maturity.
CHF million
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Off-balance sheet 2
Banking products
Derivatives
Cash collateral receivables on derivative financial instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 3
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.11
Total 31.12.10
Due in
1 year or less
Due over
1 year to 5 years
Due over
5 years
3,849
114,790
1,717
11,652
132,009
26,619
11,954
38,573
2,516
32,238
34,754
205,337
201,173
703
78,193
5,875
28,945
113,715
13,460
576
14,036
2,242
9,814
12,056
139,807
134,036
77
32,476
1,483
2,569
36,604
32,475
30
32,505
2,378
9,537
11,915
81,024
91,542
Total
regulatory
gross credit
exposure
38,550
21,102
259,474
9,093
43,435
371,654
72,558
6,633
55,954
135,144
7,145
51,589
6,040
13,792
78,565
585,364
573,174
Other 1
38,550
16,473
34,015
18
270
89,326
4
6,633
43,393
50,030
8
6,040
13,792
19,841
159,196
146,423
Total
regulatory
net credit
exposure
38,550
11,917
256,014
4,003
40,184
350,668
72,558
6,633
55,954
135,144
7,077
51,589
5,987
6,112
70,765
556,577
541,565
1 Includes positions without an agreed residual contractual maturity, for example loans without a fixed term and cash collateral receivables on derivative financial instruments, on which notice of termination has not been
given. 2 Includes guarantees, loan commitments and forward starting transactions. 3 Excludes equity positions.
166
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
internal ratings-based approach and the standardized approach.
The table also provides a breakdown according to BIS defined expo-
sure segments.
These are defined as follows:
– Corporates: consists of all exposures that do not fit into any of
the other exposure segments below. It includes private commer-
cial entities such as corporations, partnerships or proprietorships,
insurance companies, funds, exchanges and clearing houses.
– Sovereigns (central governments and central banks as defined
under Swiss and EU regulations): consists of exposures relating
to sovereign states and their central banks, the BIS, the Inter-
national Monetary Fund, the EU including the European Cen-
tral Bank and eligible multilateral development banks.
– Banks (as defined 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 framework, including, in
particular, riskbased capital requirements. BIS also defines this
regulatory exposure segment to include 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 as defined under Swiss and EU regulations): consists
of residential mortgages, regardless of exposure size, if the
obligor owns and occupies or rents out the mortgaged
property.
– Lombard lending: loans which are made against the pledge of
eligible marketable securities or cash.
– Other retail: consists of exposures to small businesses, pri-
vate clients and other retail customers without mortgage
financing.
CHF million
Total regulatory gross credit exposure
Less: regulatory credit risk offsets and adjustments 1
Total regulatory net credit exposure
Total 31.12.10
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 31.12.10
1 Mainly includes margin accounts for derivatives.
Advanced IRB
approach
Standardized
approach
Total 31.12.11
Total 31.12.10
492,089
(23,292)
468,796
436,214
159,853
58,727
55,953
119,565
73,681
1,018
468,796
436,214
93,275
(5,494)
87,781
105,352
23,963
48,752
7,698
4,085
3,283
87,781
105,352
585,364
(28,786)
556,577
183,816
107,479
63,651
123,650
73,681
4,300
556,577
573,174
(31,608)
541,565
167,718
112,036
75,469
120,298
62,355
3,688
541,565
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Risk, treasury and capital management
Basel 2.5 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 BIS defined exposure segments.
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.
The collateral amounts in the table reflect the values used for
determining regulatory capital. However, we utilize credit hedging
➔ Refer to the “Credit risk” section of this report for more
information on credit risk mitigation
CHF million
Exposure segment
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.11
Total 31.12.10
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
5,864
92
504
6
493
44
7,003
4,697
17,132
63
102
17,297
20,103
168
Advanced IRB approach
Advanced IRB approach: regulatory net credit exposure by internal UBS ratings
This table provides a breakdown of the regulatory net credit exposure of our credit portfolio (including loan commitments) using the
advanced internal ratings-based approach according to our internal rating classes.
CHF million, except
where indicated
Internal UBS ratings
Regulatory net credit
exposure-weighted average
probability of default
Regulatory net credit exposure
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.11
of which: loan commitments
Total 31.12.10
of which: loan commitments
Internal UBS ratings
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
31.12.11
31.12.10
0.004%
0.057%
0.293%
0.971%
5.662%
0.471%
0.542%
2,875
35,511
3,170
70,978
16,164
40,367
1,780
66,788
146
36,272
6,299
8,843
90,739
3,817
61
41,555
196,225
146,031
201
33,148
388
17,982
189,919
18,293
5,517
101,893
3,901
33,704
707
3,122
23,853
2,174
793
64,353
2,244
85,436
2,294
14,116
1,908
159,853
15
401
2,709
898
12
18,151
3,268
22,192
3,659
31
50
58,727
55,953
484
119,565
4
5
73,681
1,018
2,482
468,796
56
3,626
98
16,005
237
12,509
255
262
1
29,269
140,979
43,562
69,809
118,604
62,355
905
436,214
12,034
135
15,407
890
167
28,633
1 Values of defaulted derivative contracts are based on replacement values including “add-ons” used in the calculation of regulatory capital.
Advanced IRB approach: regulatory net exposure-weighted average loss given default (LGD) by internal UBS ratings
This table provides a breakdown of the net exposure-weighted average loss given default for our credit portfolio exposures calculated
using the advanced internal ratings-based approach, according to our internal rating classes.
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in %
Internal UBS ratings
Regulatory net credit exposure-weighted average LGD
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Average 31.12.11
Average 31.12.10
Internal UBS ratings
Investment
grade
Sub-investment
grade
Regulatory net credit
exposure-weighted
average LGD
0 / 1
2 / 3
4 / 5
6–8
9–13
31.12.11
31.12.10
43
19
16
21
35
25
41
31
10
20
20
26
28
30
68
34
10
20
5
19
20
29
39
39
10
20
44
22
17
28
21
35
10
20
14
25
23
28
34
31
10
20
38
23
30
42
31
10
20
35
24
169
Risk, treasury and capital management
Basel 2.5 Pillar 3
Advanced IRB approach: regulatory net exposure-weighted average risk weight by internal UBS ratings
This table provides a breakdown of the net exposure-weighted average risk weight for our credit portfolio exposures calculated using
the advanced internal ratings-based approach according to our internal rating classes.
in %
Internal UBS ratings
Regulatory net credit exposure-weighted average risk weight
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Average 31.12.11
Average 31.12.10
Internal UBS ratings
Investment
grade
Sub-investment
grade
Regulatory net credit
exposure-weighted average
risk weight
0 / 1
2 / 3
4 / 5
6–8
9–13
31.12.11
31.12.10
15
1
5
2
4
11
11
13
1
3
3
9
10
43
93
33
6
10
3
20
17
52
85
71
10
19
53
37
25
87
78
134
30
30
23
77
74
35
14
20
7
4
42
19
35
13
18
8
5
41
18
Standardized approach
The standardized approach is generally applied where it is not
possible to use the advanced internal ratings-based approach
and / or where an exemption from the advanced internal
ratings-based 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 weightings
applied to rated counterparties. We use ECAI risk assessments
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 use three FINMA-recognized ECAI for this purpose:
Moody’s Investors Service, Standard & 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.
170
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
treated under the standardized approach, according to BIS defined exposure segments.
CHF million
Risk weight
Regulatory gross credit exposure
Corporates
Sovereigns 1
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.11
Total 31.12.10
Regulatory net credit exposure 2
Corporates
Sovereigns 1
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.11
Total 31.12.10
0%
>0–35%
36–75%
76–100%
150%
31.12.11
31.12.10
Total exposure
Total exposure
48,315
8,748
111
5,714
1,265
48,315
68,201
15,838
13,075
48,315
8,748
111
5,714
1,265
48,315
68,201
15,838
12,968
863
35
2,009
2,848
3,260
9,015
6,104
863
35
1,958
2,820
3,258
8,935
6,113
18,445
300
5
1,126
19,877
23,161
14,182
291
5
14,479
17,673
183
20
1
25
229
411
169
20
1
25
215
397
28,241
48,761
7,749
5,240
3,285
93,275
23,963
48,752
7,698
4,085
3,283
87,781
31,541
68,500
5,767
2,359
2,785
110,953
26,739
68,475
5,660
1,694
2,784
105,352
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 BIS defined exposure segments.
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CHF million
Exposure segment
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total
1 Reflects the impact of the application of regulatory haircuts. For traded products, these haircuts are the difference between the IFRS reported values and the regulatory net credit exposure.
Regulatory net credit exposure
under standardized approach
Eligible financial collateral recognized
in capital calculation1
31.12.11
31.12.10
31.12.11
31.12.10
23,963
48,752
7,698
26,739
68,475
5,660
4,085
1,694
3,283
87,781
2,784
105,352
5,211
40
1,188
1,155
3
7,596
7,252
26
1,948
664
2
9,891
171
Risk, treasury and capital management
Basel 2.5 Pillar 3
Impairment, default and credit loss
As illustrated in the tables below, our impaired assets decreased 18% on 31 December 2011 compared with 31 December 2010,
mainly due to sales of legacy loan positions.
Impaired assets by region
This table shows a breakdown of credit exposures arising from impaired assets and allowances / provisions according to BIS defined
exposure segments. Impaired asset exposures include loans, offbalance sheet claims, securities financing transactions, and derivative
transactions.
Regulatory gross
credit exposure
210,181
120,612
189,198
7,582
51,312
6,479
585,364
573,174
Impaired assets 1
870
735
2,739
37
66
17
4,465
6,468
Specific allowances,
provisions and
credit valuation
adjustments
Impaired assets
net of specific
allowances,
provisions and
credit valuation
adjustments
(475)
(220)
(1,461)
(27)
(45)
(34)
(2,263)
(2,370)
394
515
1,278
10
21
(17)
2,201
4,097
Total allowances,
provisions and
specific credit
valuation
adjustments 2
(604)
Collective
allowances and
provisions 2
(128)
(220)
(1,465)
(27)
(45)
(34)
(2,395)
(3)
(131)
(47)
Total allowances,
provisions and
specific credit
valuation
adjustments
31.12.10
(609)
(267)
(1,444)
(25)
(41)
(32)
(2,418)
CHF million
Switzerland
Rest of Europe
North America 3
Latin America
Asia Pacific
Middle East and Africa
Total 31.12.11
Total 31.12.10
1Valuesofdefaultedderivativecontracts(CHF2,143million)arebasedonreplacementvaluesanddonotinclude“add-ons”usedinthecalculationofregulatorycapital. 2 Collective credit valuation adjustments of
CHF 1,073 million are partially included in the upper tier 2 capital and 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.
Specific allowances,
provisions and
credit valuation
adjustments
(2,081)
Impaired assets 1
4,058
Collective
allowances and
provisions 2
Total allowances,
provisions and
specific credit
valuation
adjustments 2
(2,081)
14
22
232
42
97
(10)
(15)
(66)
(37)
(54)
4,465
6,468
(2,263)
(2,370)
(131)
(131)
(47)
(10)
(15)
(66)
(37)
(54)
(131)
(2,395)
(2,418)
Total allowances,
provisions and
specific credit
valuation
adjustments
31.12.10
Write-offs for the
year ended
31.12.11
(267)
(1)
(4)
(27)
(299)
(1,505)
(2,083)
(10)
(30)
(68)
(120)
(59)
(47)
(2,418)
Regulatory gross
credit exposure
197,622
107,666
77,287
124,805
73,681
4,303
585,364
573,174
CHF million
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Not allocated segment 3
Total 31.12.11
Total 31.12.10
1Valuesofdefaultedderivativecontracts(CHF2,143million)arebasedonreplacementvaluesanddonotinclude“add-ons”usedinthecalculationofregulatorycapital. 2 Collective credit valuation adjustments of
CHF 1,073 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.
172
Changes in allowances, provisions and specific credit valuation adjustments
This table provides a breakdown of movements in the specific and collective allowances and provisions for impaired assets, including
changes in the credit valuation allowance for defaulted derivatives.
CHF million
Opening balance as of 1.1.11
Write-offs
Recoveries(onwritten-offpositions)
Increase/(decrease)inallowances,
provisions and specific credit valuation
adjustments 2
Foreign currency translations and other
adjustments
Transfers
Specific allowances
and provisions
for bankingproducts
and securities
financing
1,240
(500)
51
17
Specific credit
valuation
adjustments for
derivatives
1,130
303
56
(32)
Total specific
allowances,
provisions and
credit valuation
adjustments
Collective
allowances and
provisions 1
For the
year ended
31.12.11
2,370
(500)
51
303
73
(32)
47
(1)
84
2,418
(501)
51
387
73
(32)
Opening balance as
of 1.1.10
Closing balance as of 31.12.11
807
1,457
2,263
131
2,395
Closing balance
as of31.12.10
For the
year ended
31.12.10
5,881
(1,505)
79
(1,615)
(421)
2,418
1 Collective credit valuation adjustments of CHF 1,073 million are partially included in the upper tier 2 capital and therefore not included in this table. 2 Represents total actual credit loss (credit loss expense and
changesinspecificcreditvaluationadjustmentsrecognizedinnettradingincome).
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 December
2010, and the actual IFRS credit loss amount (including credit
valuation adjustments on derivatives) charged against our in-
come statement in 2011, according to BIS defined exposure
segments of the advanced internal ratings-based 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 experience, whereas actual loss represents our credit loss
expense charged to the income statement in the financial year.
The difference in our expected and actual loss amounts resulted
from credit recoveries and from lower-than-expected actual
losses in 2011.
Expected loss
Actualcredit(loss)/recoveryandcreditvaluationadjustments
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31.12.10
Total expected loss
Actual credit
(loss) / recovery
For the year ended
31.12.11
Specific credit
valuation adjust-
ments for defaulted
derivatives
Total actual credit
(loss) / recovery
and creditvaluation
adjustments
Corporates 1
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Not allocated 2
Total
(336)
(27)
(40)
(62)
(30)
(494)
(18)
(1)
3
12
(5)
(75)
(84)
(303)
(303)
(321)
(1)
3
12
(5)
(75)
(387)
1 Includes actual credit recovery from securities, which amounted to CHF 9 million. 2 Includes changes in collective loan loss allowances and provisions.
For the year ended
31.12.10
Total actual credit
(loss)/recovery
and creditvaluation
adjustments
1,577
26
1
5
(2)
7
1,615
173
Risk, treasury and capital management
Basel 2.5 Pillar 3
Other credit risk information
Our credit derivatives trading is predominantly on a collateral-
ized basis. This means that our credit exposures arising from our
derivatives activities with collateralized counterparties are typi-
cally closed out in full or reduced to nominal levels on a regular
basis by the use of collateral.
Derivatives trading with counterparties with high credit
ratings (for example a large bank or broker-dealer) is typically
under an International Swaps and Derivatives Association master
trading agreement and credit exposures to those counterparties
from credit default swaps (CDS), together with exposures from
other over-the-counter derivatives, are netted and included in
the calculation of the collateral required to be posted. Trading
with lower rated counterparties (for example, hedge funds)
would also generally require an initial margin to be posted by
the counterparty.
We receive collateral from or post collateral to our counter-
parties based on our open net receivable or net payable from
over-the-counter derivative activities. Under the terms of the In-
ternational Swaps and Derivatives Association master trading
agreement and similar agreements, this collateral, which gener-
ally takes the form of cash or highly liquid fixed income securi-
ties, is available to cover any amounts due under those deriva-
tive transactions.
Settlement risk (including payment risk) of CDS has been
mitigated to some extent by the development of a market-wide
credit event auction process. This has resulted in a widespread
shift to the cash settlement of CDS following a credit event on a
reference entity. We did not experience any significant losses
from failed settlements on CDS contracts in 2011.
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 were mar-
ket professionals. Based on the same notional measure, approxi-
mately 98% 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 cred-
it exposures. The net balance sheet credit exposure differs from
the regulatory net credit exposures because of differences in valu-
ation methods and the netting and collateral deductions used for
accounting and regulatory capital purposes. Specifically, net cur-
rent credit exposure is derived from gross positive replacement
values, whereas regulatory net credit exposure is calculated using
our internal credit valuation models.
CHF million
Grosspositivereplacementvalues
Netting benefits recognized for regulatory purposes
Collateral held
Net current credit exposure
Regulatory net credit exposure (total counterparty credit risk)
of which: determined by internal models (effective expected positive exposure [EPE])
of which: determined by supervisory approaches (current exposure method)
Breakdown of the collateral held
Cash collateral
Securitiescollateralanddebtinstrumentscollateral(excludingequity)
Equity instruments collateral
Other collateral
Total collateral held
174
31.12.11
486,584
(383,338)
(50,955)
52,291
72,558
57,874
14,684
45,572
5,055
109
218
50,955
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
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 risks (banking book for regulatory purposes) and
those arising through intermediation activities (trading book for regulatory capital purposes).
Notional amounts, CHF million
Credit default swaps
Total return swaps
Total 31.12.11
Total 31.12.10
Regulatory banking book
Regulatory trading book
Total
Protection
bought
22,348
Protection
sold
Total
Protection
bought
Protection
sold
Total
31.12.11
31.12.10
3,719
26,067
1,279,326
1,236,239
2,515,565
2,541,632
2,304,549
22,348
28,650
3,719
2,602
26,067
1,283,606
1,236,362
2,519,968
2,546,035
31,252
1,167,228
1,115,000
2,282,228
2,313,480
4,280
123
4,403
4,403
8,931
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
positiveexposure(orexposureaccordingtocurrentexposuremethod)istaken. 2 Notional amounts are reported based on regulatory scope of consolidation and do not include options and warrants.
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
31.12.11
31.12.10
31.12.11
31.12.10
31.12.11
31.12.10
60
23
1
16
59
25
2
15
59
23
1
18
58
25
1
17
61
23
2
14
60
25
3
12
1 Counterparty analysis based on notional CDS exposures of the Investment Bank sourced from credit risk systems.
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175
Risk, treasury and capital management
Basel 2.5 Pillar 3
Investment positions
The regulatory capital view for investment positions differs from
the IFRS view primarily due to the following:
(i) differences in the basis of valuation, e.g. financial investments
available for sale are subject to fair value accounting under
IFRS but have to be treated under the “lower-of-cost-or-mar-
ket” concept for regulatory capital purposes;
(ii) the use of different frameworks to determine regulatory capi-
tal, e.g. tradable assets are treated under market risk value-at-
risk (VaR); and
(iii) differences in the scope of consolidation, e.g. certain special
purpose entities are consolidated for IFRS but not for regula-
tory capital.
Equities disclosure for banking book positions
The table below shows the three different equity investment categories held in the banking book with their amounts as disclosed for
IFRS, followed by the regulatory capital adjustment amount. This adjustment considers the above mentioned differences to IFRS result-
ing in the total regulatory equity exposure under BIS, the corresponding risk-weighted assets and the capital charge.
The table also shows net realized gains and losses and unrealized revaluation gains relating to the equity investments. We had no
unrealized revaluation losses that had not been recognized for available-for-sale investments..
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 1
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 unrealized gains from equities
Netrealizedgains/(losses)fromdisposals
Unrealized revaluation gains
of which: included in tier 2 capital
1IncludesCHF717millionexposurebookedintrustentitiesthatdidnotgenerateRWA(CHF842millionon31December2010).
Book value
31.12.11
31.12.10
873
730
795
2,397
604
3,001
173
1,427
1,402
3,310
265
1,667
(9)
49
22
1,359
856
790
3,006
281
3,287
390
1,513
1,384
3,691
295
1,679
270
68
31
176
Market risk
As a result of the implementation of Basel 2.5, risk-weighted
assets (RWA) attributable to market risk increased to CHF 49.2
billion as of 31 December 2011 compared with CHF 20.8 billion
under Basel II as of 31 December 2010. The increased RWA are
composed of a new incremental risk charge (CHF 19.6 billion of
RWA), stressed VaR requirement (CHF 13.1 billion of RWA) and
comprehensive risk measure requirement (CHF 8.6 billion of
RWA). These increases were partially offset by a RWA relief in
VaR of CHF 1.3 billion due to the exclusion of the specific market
risk for securitization in the trading book under Basel 2.5 and a
decrease in exposure of CHF 11.6 billion. The market risk regula-
tory capital requirement is 8% of the respective risk-weighted
assets. Market risk regulatory capital and risk-weighted assets
are based on our VaR model and subject to regulatory deter-
mined multipliers.
The following VaR tables for 2011 include positional risks relat-
ing to the unauthorized trading incident announced in the third
quarter of 2011.
Group: regulatory 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 periodend regulatory VaR by business division.
CHF million
Business divisions
Investment Bank
Wealth Management & Swiss Bank
Wealth Management Americas
GlobalAssetManagement
Corporate Center
Diversification effect
Total regulatory VaR, Group
Diversificationeffect(%)
Basel II – for the year ended
31.12.11
Basel 2.5 –
for the
year ended
Basel II – for the year ended
31.12.10
Min.
Max.
Average
31.12.11
31.12.11
Min.
Max.
Average
31.12.10
131
0
11
0
8
1
1,374
1
25
1
47
1
139
1,386
449
1
16
1
17
(20)
463
(4)
394
142
0
24
0
9
(25)
150
(14)
150
132
0
24
0
9
(24)
142
(14)
132
0
13
0
5
1
140
546
1
30
1
71
1
561
306
1
21
1
22
(27)
323
(8)
389
1
14
1
13
(17)
401
(4)
t
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e
m
e
g
a
n
a
m
l
a
t
i
p
a
c
d
n
a
y
r
u
s
a
e
r
t
,
k
s
i
R
Total regulatory VaR, Group, excluding the
effect of unauthorized trading incident
139
819
1 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a portfolio diversification effect.
177
Risk, treasury and capital management
Basel 2.5 Pillar 3
Investment Bank: regulatory 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 periodend 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
Diversificationeffect(%)
Basel II – for the year ended
31.12.11 1
Basel 2.5 –
for the
year ended
Basel II – for the year ended
31.12.10
Min.
Max.
Average
31.12.11
31.12.11
Min.
Max.
Average
31.12.10
42
42
189
16
7
2
131
1,171
182
860
121
51
2
1,374
150
103
471
53
18
(346)
449
(44)
52
64
189
57
17
(237)
142
(63)
52
64
189
57
17
(247)
132
(65)
47
54
225
8
5
2
132
133
138
635
88
44
2
546
68
95
422
28
12
(319)
306
(51)
64
96
386
41
43
(242)
389
(38)
1 Excluding the effect of the unauthorized trading incident, the Investment Bank and equities regulatory maximum VaR figures were CHF 799 million and CHF 303 million, respectively. 2 As the minimum and maximum
occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
Group: regulatory 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 periodend regulatory backtesting VaR by business
division.
CHF million
Investment Bank
Group
Group, excluding the effect of
unauthorized trading incident
Basel II – for the year ended
31.12.11
Basel 2.5 –
for the
year ended
Min.
Max.
Average
31.12.11
31.12.11
Regulatory VaR 2
Regulatory VaR 2
Regulatory VaR
50
50
48
388
390
154
118
120
90
56
58
58
55
58
Basel II – for the year ended
31.12.10
Min.
57
58
Max.
110
114
Average
31.12.10
82
84
93
94
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.
178
Stressed value-at-risk
Stressed VaR is a 10day 99% measure calibrated to a 1 year period of significant financial stress relevant to the current portfolio of
UBS Group. Stressed VaR adopts broadly the same methodology as VaR with modifications as required to calibrate the model to a
historical stress period.
Group: stressed value-at-risk (10-day, 99% confidence, 5 years of historical data)
This table provides a breakdown of the Group’s periodend regulatory stressed VaR by business division.
For the year ended 31.12.11
Min. 1
Max. 1
Average 1
31.12.11
CHF million
Business divisions
Investment Bank
Wealth Management & Swiss Bank
Wealth Management Americas
GlobalAssetManagement
Corporate Center
Diversification effect
Total stressed VaR, Group
Diversificationeffect(%)
CHF million
Risk type
Equities
Interest rates
Credit spreads
Foreign exchange
Energy, metals and commodities
Diversification effect
Total stressed VaR, Investment Bank
Diversificationeffect(%)
Total stressed VaR, Group, excluding the effect of unauthorized trading incident
1 Because this is a new requirement under Basel 2.5, which only became effective as of 31 December 2011, the minimum, maximum and average values are therefore not shown.
Investment Bank: stressed value-at-risk (10-day, 99% confidence, 5 years of historical data)
This table provides a breakdown of the Investment Bank’s periodend regulatory stressed VaR by risk type.
For the year ended 31.12.11
Min. 1
Max. 1
Average 1
31.12.11
1 Because this is a new requirement under Basel 2.5, which only became effective as of 31 December 2011, the minimum, maximum and average values are therefore not shown.
t
n
e
m
e
g
a
n
a
m
l
a
t
i
p
a
c
d
n
a
y
r
u
s
a
e
r
t
,
k
s
i
R
173
0
31
0
14
(39)
181
(18)
181
65
54
355
88
22
(410)
173
(70)
179
Risk, treasury and capital management
Basel 2.5 Pillar 3
Incremental risk charge
The incremental risk charge (IRC) represents an estimate of the
default and migration risk of unsecuritized credit products held in
the trading book, measured over a oneyear time horizon at a
99.9% confidence level. To capture the risk over a oneyear peri-
od, a constant position assumption is applied; i.e. all positions in
the IRC portfolio have a one-year liquidity horizon and hence are
kept unchanged over this time period.
The portfolio default and credit migrations loss distribution is
estimated using a Monte Carlo simulation of correlated credit
migration events (defaults and credit rating changes) for all issuers
in the IRC portfolio, based on a Merton-type model. For each posi-
tion, default losses are calculated based on the maximum default
exposure measure (loss on a current position in case of an imme-
diate default event and assuming zero recovery) and a random re-
covery concept. To account for the default basis risk different re-
covery values may be generated for different instruments even if
they belong to the same issuer. To calculate credit migration losses
a linear (delta) approximation is used: a loss due to a migration
event is calculated as the credit spread change multiplied by the
corresponding sensitivity of a position to the credit spread changes.
Our IRC methodology and implementation is approved by
FINMA, with ongoing methodology improvements also subject to
regulatory approval.
Group: incremental risk charge
This table provides a breakdown of the Group’s periodend regulatory incremental risk charge by business division.
CHF million
Business divisions
Investment Bank
Wealth Management & Swiss Bank
Wealth Management Americas
GlobalAssetManagement
Corporate Center
Diversification effect
Total incremental risk charge, Group
Diversificationeffect(%)
For the year ended 31.12.11
Min. 1
Max. 1
Average 1
31.12.11
1,349
82
306
(303)
1,435
(17)
1 Because this is a new requirement under Basel 2.5, which only became effective as of 31 December 2011, the minimum, maximum and average values are therefore not shown.
Comprehensive risk charge
Comprehensive risk measure (CRM) represents an estimate of
the default and complex price risk including the convexity and
cross convexity of the correlation trading portfolio across spread,
correlation and recovery; measured over a oneyear time horizon
at a 99.9% confidence level. To capture the risk over a oneyear
period, a constant position assumption is applied; i.e. all posi-
tions in the CRM portfolio have a one-year liquidity horizon and
hence are kept unchanged over this time period.
The CRM loss distribution is estimated using Monte Carlo
simulation of real-world defaults between the spot and the end
of the one-year horizon date, and calculates resulting cash
flows in the CRM portfolio. The portfolio is then revalued on
the one-year horizon date, with inputs such as credit spreads
and index basis being migrated from spot to horizon date. The
99.9% worst percentile is then taken from the resulting profit
or loss distribution, which is the CRM model result.
Our CRM methodology and implementation is approved by
FINMA, with ongoing methodology improvements also subject
to regulatory approval. It is subject to qualitative minimum
standards as well as stress testing requirements. The calculated
CRM measure for regulatory capital purposes is subject to a
floor calculation equal to 8% of the equivalent capital charge
under a the securitization framework
Group: comprehensive risk charge
This table provides a breakdown of the Group’s periodend regulatory comprehensive risk charge for the Investment Bank.
CHF million
Investment Bank
Group
For the year ended 31.12.11
Min. 1
Max. 1
Average 1
31.12.11
636
636
1 Because this is a new requirement under Basel 2.5, which only became effective as of 31 December 2011, the minimum, maximum and average values are therefore not shown.
180
Securitization
This section provides details on traditional and synthetic securiti-
zation exposures held in the banking and trading book and the
regulatory capital associated with these exposures, based on the
revised Basel II market risk framework (commonly referred to as
Basel 2.5). In a traditional securitization, a pool of loans (or other
debt obligations) is typically transferred to a special purpose entity
which is established to own the loan pool and to issue tranched
securities to third-party investors referencing the pool of loans. In
a synthetic securitization, we retain legal ownership of the securi-
tized pools of assets, but transfer the associated credit risk (typi-
cally) to a special purpose entity through guarantees, credit deri-
vates or credit-linked notes. Hybrid structures with a mix of
traditional and synthetic features are disclosed as synthetic securi-
tizations. We act in different roles in securitization transactions.
As originator we create or purchase financial assets which are
then securitized in traditional or synthetic securitization transac-
tions, achieving a significant risk transfer to third party investors.
As sponsor we manage or advise securitization programs. In line
with the Basel framework sponsoring includes underwriting, i.e.
placing securities into the market.
In 2011 under Basel 2.5, trading book securitization posi-
tions were added to the securitization framework in addition to
the securitization positions held in the banking book. Also high-
er risk weights have been introduced for re-securitization posi-
tions.
Risk-weighted assets attributable to securitization positions in-
creased to CHF 7.3 billion as of 31 December 2011 compared
with CHF 7.1 billion as of 31 December 2010. The increase was
mainly due to the abovementioned changes. Risk-weighted assets
attributable to trading book positions contributed CHF 3.1 billion
and re-securitizations in the banking book CHF 0.5 billion to the
increase. This was offset by CHF 3.4 billion of reductions in secu-
ritization positions in the banking book during the year.
Objectives, roles and involvement
or advised securitization programs and helped to place the securi-
ties into the market.
Securitization and re-securitization positions in the banking
book are valued either at fair value or at amortized cost less impair-
ment. Impairment is assessed based on the basis of the net present
value of future cash flows expected from the instrument, which are
derived from underlying pool.
Securitization in the trading book
Securitizations (including correlation products) held in the trading
book are part of the trading activities within the Investment Bank,
which typically include market-making and client facilitation. Dur-
ing the year, we were also involved in the placement of securitiza-
tions of assets originated by other institutions in the market, i.e.
acted in a sponsor role. Included in the trading book are positions
in our correlation book, legacy positions in leveraged super senior
tranches as well as re-securitizations of corporate credit exposure.
In the trading book, securitization and re-securitization positions
are reported at either market value or the aggregate of notional
amount and the associated replacement value of the exposures
securitized at the balance sheet date.
Type of special purpose entities and affiliated entities involved in
the securitization transactions
For the securitization of third party exposures, the type of special
purpose entities is selected as appropriate based on the type of
transaction being undertaken. Examples of this include limited li-
ability corporations, common law trusts and depositor entities.
We manage or advise the following significant groups of af
filiated entities that invest in exposures we have securitized or in
special purpose entities that we sponsor: North Street, Brookla-
nds, and East Street are involved in the US, European and Asia
Pacific referencelinked note programs. The Mortgage Backed Se-
curities Consolidated Trust is an entity used to consolidate both
UBS / non-UBS issued securitizations if it is determined that we
hold the majority of the risk and rewards of a deal retained within
the trading portfolio.
Securitization in the banking book
The majority of our securitization positions held in the banking
book are legacy risk positions, a significant amount of which were
reclassified under IFRS from Held for trading to Loans and receiv-
ables in the fourth quarter of 2008 and the first quarter of 2009.
As of 31 December 2011, this portfolio included mainly collateral-
ized debt obligations and collateralized loan obligations with
credit default swap protection purchased from monoline insurers
as well as US commercial mortgage-backed securities, residential
mortgage-backed securities, the global reference-linked note pro-
gram and student loan auction rate securities. We also have a
synthetic securitization structure over part of the credit risk in our
over the counter derivatives portfolio.
During 2011, we have acted in both originator and sponsor
roles. As originator, we sold originated commercial mortgage loans
into a third party securitization program. As sponsor, we managed
Managing and monitoring of the credit and market risk of
securitization positions
The banking book securitization portfolio is subject to specific
monitoring, which may include interest rate and credit spread
sensitivity analysis, as well as inclusion in firm wide earningsat
risk, capital-at-risk and combined stress test metrics.
The trading book securitization positions are subject to
multiple risk limits. As part of managing risks within the pre-
defined risk limits, traders may utilize hedging and risk mitiga-
tion strategies. Hedging may however expose the firm to basis
risks as the hedge instrument and the position being hedged
may not always move in parallel. Such basis risks are considered
within the overall limits measurement. Any retained securitiza-
tion from origination activities and any purchased securitization
positions are governed by risk limits as with any other trading
activities.
181
t
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,
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i
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Risk, treasury and capital management
Basel 2.5 Pillar 3
Regulatory capital treatment of securitization structures
Except in the cases described below, in both the banking and trad-
ing book we generally apply the ratings-based approach to securi-
tization positions using Moody’s, Standard & Poor’s and Fitch rat-
ings. Under the ratings-based approach, the amount of capital
required for securitization and re-securitization exposures in the
banking book is capped at the level of the capital requirement that
would have been assessed against the underlying assets had they
not been securitized. This treatment has been applied in particular
to the US and European reference-linked note program.
➔ Refer to the “Market risk” section of this report for more
information on reference-linked notes
For purposes of determining regulatory capital and the Pillar 3
disclosure, the underlying exposures are reported under the stan-
dardized approach, the advanced internal ratings-based approach
or the securitization approach depending on the category of the
underlying security itself. If the underlying security was reported
under the standardized approach or the advanced internal rat-
ings-based approach, the related positions are excluded from the
tables on the following pages.
The supervisory formula approach is applied to the synthetic secu-
ritization of a portfolio of counterparty credit risk resulting from over-
the-counter derivatives where an external rating was not sought. The
supervisory formula approach is also applied for leveraged super
senior tranches.
In the trading book the comprehensive risk measure (CRM) is
used for the correlation portfolio as defined by Basel 2.5 require-
ments. This broadly covers securitizations of liquid corporate un-
derlying assets as well as associated hedges that are not securiti-
zations (e.g. credit default swap and credit default swap indices).
We do not apply the concentration ratio approach or the inter-
nal assessment approach for securitization positions.
The counterparty risk of interest rate or foreign currency de-
rivatives with securitization vehicles is treated under the advanced
internal ratings-based approach, and is therefore not part of this
disclosure.
Accounting policies
Refer to “Note 1 Summary of significant accounting policies” in
the “Financial information” section of this report for informa-
tion on our accounting policies that relate to our securitization
activities – primarily item 3 of Note 1 on “Special purpose enti-
ties” and item 12 on “Securitization structures set up by UBS”.
For the purposes of disclosure under the Basel 2.5 Pillar 3 re-
quirements, we disclose in this section our intention to securitize
exposures as an originator after the pricing of a deal has been
fixed. Exposures intended to be securitized continue to be val-
ued in the same way until such time as the securitization trans-
action takes place. We recognize liabilities on our balance sheet
for arrangements that require us to provide financial support for
securitized assets.
Presentation principles
It is our policy to present Pillar 3 disclosures for securitization
transactions and balances in line with the capital adequacy
treatments which have been applied under Pillar 1 in the respec-
tive period presented.
Furthermore, as of 31 December 2011 we have implemented
a new presentation policy. Under this policy, we will not amend
comparative prior period numbers for presentational changes
which are triggered by new and revised information from third
party providers, provided that the updated information does not
impact the Pillar 1 treatments of prior periods.
Good practice guidelines
On 18 December 2008, the European Banking Federation, the
Association for Financial Markets in Europe, the European Sav-
ings Banks Group and the European Association of Public Banks
and Funding Agencies published the “Industry good practice
guidelines on Pillar 3 disclosure requirement for securitization”.
These guidelines were slightly revised in 2009 / 2010 and this
report is in compliance with all material aspects of the publica-
tion.
182
Securitization in the banking book
Banking book – securitization activity of the year
This table outlines the exposures (i.e. deal size at inception) we
securitized in the banking book in 2011 and 2010, respectively.
Gains or losses recognized on sales of underlying assets into tradi-
tional securitization structures where we acted as the originator
of the underlying assets are also disclosed.
Securitized exposures are split into two parts, those where we
have retained any securitization positions and / or continue to be
involved on an ongoing basis (e.g. credit enhancement, implicit
support) and those where we have no retained securitization posi-
tions and / or have no further involvement.
Traditional securitization amounts disclosed in this table reflect
the total outstanding notes at par value issued by the securitiza-
tion vehicle at issuance. For synthetic securitization transactions,
the amounts disclosed generally reflect the balance sheet carrying
values of the securitized exposures at issuance.
Where we acted as both originator and sponsor to a securitiza-
tion, originated assets are reported under “Originator”, and the
total amount of the underlying assets securitized is reported under
“Sponsor”. As a result, CHF 2.8 billion has been disclosed twice in
2011, once under “Originator” and once under “Sponsor”.
Originator
Sponsor
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.11
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.10
Traditional
Synthetic
Securitization
positions retained
No securitization
positions retained
Securitization
positions retained
No securitization
positions retained
Realized
gains / losses on
traditional
securitizations
Traditional
Synthetic
2,789
80
6,232
t
n
e
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e
g
a
n
a
m
l
a
t
i
p
a
c
d
n
a
y
r
u
s
a
e
r
t
,
k
s
i
R
2,789
0
0
0
80
6,232
0
0
0
1,715
1,715
0
0
0
0
183
Risk, treasury and capital management
Basel 2.5 Pillar 3
Banking book – total outstanding securitized exposures
Traditional securitization amounts disclosed in this table reflect
the total outstanding notes at par value issued by the securitiza-
tion vehicle. For synthetic securitization transactions, we disclose
either the balance sheet carrying values of the exposures securi-
tized or, for hybrid structures, the outstanding notes at par value
issued by the securitization vehicle.
Disclosure is made where we have retained or originated
securitization positions at the balance sheet date in the bank-
ing book and / or are otherwise involved on an ongoing basis
(e.g. credit enhancement, implicit support). Where we have
retained positions in both the banking book and the trading
book, the outstanding exposure is presented in the banking
book. The table also includes securitization activities of the
year 2011 where we retained / purchased positions (these are
also included in the table on the previous page).
After the year of inception, the securitization activities in which
we acted both as originator and sponsor will be reported solely
under “Sponsor”, provided we have continuously retained / pur-
chased positions.
All values in this table are as of the balance sheet date.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total
31.12.11
31.12.10 1
Originator
Sponsor
Originator
Sponsor
Traditional
Synthetic
Traditional
Synthetic
Traditional
Synthetic
Traditional
Synthetic
2,589
2,767
150
5,034
597
10,987
3,594
1,861
5,605
6,071
22,210
341
872
20,295
3,210
1,760
54,759
1,526
149
3,462
0
4,988
2,126
4,401
6,676
2,960
31,339
341
3,401
32,368
3,498
3,811
77,718
0
1 2010 numbers have been restated to align the disclosure with our securitization presentation and disclosure policy which requires Pillar 3 disclosures to follow the capital adequacy treatment under Pillar 1 in the
respective period presented and to include certain transactions which we have sponsored but which were erroneously not included in previous disclosures. Total amounts for “Originator / Traditional” and “Originator /
Synthetic” have been reduced by CHF 3,908 million and CHF 1,176 million, respectively. The total amount for “Sponsor / Traditional” has been increased by CHF 1,338 million compared with the numbers disclosed for
31 December 2010 in the report “Our Basel II Pillar 3 disclosure for first half 2011”.
Banking book – impaired or past due securitized exposures
This table provides a breakdown of the outstanding impaired or past
due exposures at the balance sheet date for transactions where we
acted as originator or sponsor in the banking book. Where we did
not retain positions, impaired or past due information is only re-
ported in the year of inception. Where available, past due informa-
tion was derived from investor reports. Past due is generally defined
as delinquency above 60 days. Where investor reports do not pro-
vide this information, alternative methods have been applied, which
may include an assessment of the fair value of the retained position
or reference assets, or identification of any credit events.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total
31.12.11
31.12.10 1
Originator
Sponsor
Originator
Sponsor
Securitization
positions
retained
No securitiza-
tion positions
retained
Securitization
positions
retained
No securitiza-
tion positions
retained
1,531
43
5,547
1,010
8,131
1,486
975
1,122
30
3,613
778
41
4,490
316
5,625
0
453
2,041
1,571
46
4,111
0
1 2010 numbers have been restated to align the disclosure with our securitization presentation and disclosure policy which requires Pillar 3 disclosures to follow the capital adequacy treatment under Pillar 1 in the respective period
presented and to include certain transactions which we have sponsored but which were erroneously not included in previous disclosures. Total amounts for “Originator / Securitization positions retained” and “Sponsor” have been
reduced by CHF 3,705 million and CHF 2,073 million, compared with the numbers disclosed for 31 December 2010 in the report “Our Basel II Pillar 3 disclosure for first half 2011”.
184
Banking book – losses recognized from retained securitization positions
This table provides a breakdown of year-to-date losses we have
recognized on securitization positions retained or purchased in
the banking book. Losses are reported after taking into account
the offsetting effects of any credit protection that is an eligible
risk mitigation instrument under the Basel 2.5 framework for the
retained or purchased position. We report such positions partially
on a fair value and partially on an amortized cost less impairment
basis.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total
31.12.11
31.12.10
Originator
Sponsor
Originator
Sponsor
2
4
1
7
1
11
1
4
5
4
26
2
1
1
3
6
1
14
21
41
Banking book – outstanding exposures intended to be securitized
We only disclose our intention to securitize exposures when we act as originator and after the pricing of a deal has been fixed. On this
basis, as of 31 December 2011, no exposures in the banking book were intended to be securitized.
Banking book – securitization positions retained or purchased
This table provides a breakdown of securitization positions which we have retained or purchased in the banking book, irrespective of
our role in the securitization transaction. The value disclosed is either the net exposure amount at default subject to risk-weighting or
the carrying value subject to capital deduction at the balance sheet date.
CHF million
Residential mortgages 1
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations 2
Other
Total
31.12.11
31.12.10
On balance sheet
Off balance sheet
On balance sheet
Off balance sheet
810
584
62
331
1
5,468
1,632
3,303
12,189
1,000
1,000
1,045
2,100
53
130
1,855
4
9,475
4,824
4,715
24,201
0
1 As of 31 December 2010, Alt-A, subprime residential mortgage-backed exposures of CHF 1,651 million were underpinned on the basis of the standardized approach. Hence these exposures were not disclosed in this
table for 31 December 2010, instead they were disclosed in the credit risk exposure section. In 2011, these positions were subject to the securitization framework and included in the table in the line “Residential mort-
gages” for 31 December 2011. 2 It is our policy to present Pillar 3 disclosures in line with the respective capital adequacy treatment under Pillar 1. In 2010, the capital adequacy treatment under Pillar 1 for banking
book securitization and re-securitization structures was identical. In 2011, following the implementation of Basel 2.5, the differentiation between securitizations and re-securitizations became relevant for Pillar 1 capital
adequacy purposes. As a consequence, we have refined our processes to differentiate between securitization types and applied the revised presentation principles prospectively. Securitization transactions of CHF 2,332
millionpresentedunderre-securitizationsasof31December2010arepresentedintheline“Other”(CHF970million)and“LoanstocorporatesorSME”(CHF1,362million)on31December2011.
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185
Risk, treasury and capital management
Basel 2.5 Pillar 3
Banking book – capital charge for securitization / re-securitization positions retained or purchased
These tables provide the capital charge for securitization / re-secu-
ritization positions we have purchased or retained in the banking
book, irrespective of our role in the securitization transaction, split
by risk weight bands and regulatory capital approach. Neither ta-
ble contains capital deductions. With the introduction of Basel 2.5,
re-securitization positions require a higher capital charge. No com-
parative numbers for 31 December 2010 are provided as this infor-
mation is disclosed for the first time under Basel 2.5.
Capital charge for securitization positions retained or purchased
31.12.11
Capital charge
ratings-based
approach
Capital charge
supervisory formula
approach
2
45
27
7
4
7
10
47
87
237
15
15
31.12.11
Capital charge
ratings-based
approach
Capital charge
supervisory formula
approach
1
1
38
2
1
4
14
61
0
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
Capital charge for re-securitization positions retained or purchased
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
186
Banking book – deductions from eligible capital related to securitization positions retained or purchased
This table outlines the capital deductions related to securitization
positions we have retained or purchased in the banking book
irrespective of our role in the securitization transaction. At the
balance sheet dates, we neither had securitization positions
which would be required to be deducted entirely from BIS tier 1
capital, nor did we hold credit-enhancing interest-only strips that
were required to be deducted.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total
31.12.11
31.12.10
Positions
deducted from
BIS tier1capitaland
BIS tier 2 capital
Positions
deducted from
BIS tier 1 capitaland
BIS tier 2 capital
672
242
38
27
1
496
432
1,116
3,024
238
266
57
1
1,489
808
131
2,990
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187
Risk, treasury and capital management
Basel 2.5 Pillar 3
Banking book – securitization exposures subject to early amortizations
We currently do not have securitization structures in the banking book that are subject to early amortization treatment.
Banking book – re-securitization positions retained or purchased and broken down according to guarantor credit-
worthiness categories
The upper part of this table shows the total of re-securitization
positions (cash as well as synthetic) held in the banking book
broken down into positions for which credit risk mitigation has
been recognized versus positions where no credit risk mitigation
has been recognized. Credit risk mitigation includes protection
bought by entering into credit derivates with third party protec-
tion sellers as well as financial collateral received. Both protection
sellers and financial collateral must be eligible under Basel 2.5
regulations.
The lower part of this table shows the re-securitization posi-
tions which have an integrated insurance wrapper, split into posi-
tions with investment grade, sub-investment grade and defaulted
insurance. The values disclosed in both tables are the net expo-
sure amount at default at the balance sheet date.
Banking book – re-securitization positions retained or purchased
CHF million
Total 31.12.11
With credit risk
mitigation
Without credit risk
mitigation
0
1,632
Total
1,632
Banking book – re-securitization positions broken down according to guarantor creditworthiness categories 1
CHF million
3
3
34
16
57
0/1
2
3
4
5
6
7
8
9
10
11
12
13
14
Total 31.12.11
1 Internal UBS rating scale.
Investment grade
Sub-investment grade
Defaulted
188
Securitization in the trading book
Trading book – securitization activity of the year
This table outlines the total exposures (i.e. deal size at inception) which were securitized in the trading book in 2011. The activity is
further broken down by our role (originator / sponsor) and by type (traditional / synthetic).
During 2011, we only acted as sponsor by either advising securitization programs or placing securities into the market.
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
55
495
422
2,796
2,074
5,780
11,622
0
0
0
0
0
0
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.11
Trading book – total outstanding securitized exposures
This table outlines exposures (i.e. outstanding deal size) in the trading book where we have acted as originator and / or sponsor and
have retained securitization positions in the trading book. Where we have not retained positions, the outstanding deal size is only
disclosed in the year of inception. The value disclosed is the notional of the outstanding notes issued by the securitization vehicle at
the balance sheet date.
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Originator
Sponsor
Synthetic
Traditional
Synthetic
Traditional
897
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.11
897
0
14,223
15,010
282
920
2,796
2,074
10,375
45,681
0
189
Risk, treasury and capital management
Basel 2.5 Pillar 3
Trading book – total outstanding exposures intended to be securitized
We disclose our intention to securitize exposures only when we act as originator and after the pricing of a deal has been fixed. On this
basis, as of 31 December 2011, no exposures in the trading book were intended to be securitized.
Trading book – aggregated amount of securitized exposures subject to the market risk approach
This table provides a split of the total outstanding exposures which we have securitized in the trading book in the role of originator
and / or sponsor. Disclosure is made only where we have retained positions in the trading book. The amount disclosed is the notional
amount of the outstanding notes issued by the securitization vehicle at the balance sheet date.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.11
Traditional
897
Originator
Sponsor
Synthetic
Traditional
Synthetic
14,223
14,955
282
920
897
0
4,595
34,975
0
Trading book – securitization positions retained or purchased subject to the securitization framework for specific risk
This table provides a breakdown of securitization positions which
we have purchased or retained in the trading book, irrespective of
our role in the securitization transaction. Gross long and gross
short amounts reflect the positions prior to the eligible offsetting
of cash and derivative positions. Net long and net short amounts
are the result of off-setting cash and derivative positions to the
extent eligible under Basel 2.5. The amounts disclosed are either
the market value or the aggregate of notional amount and the
associated replacement value of the exposures securitized at the
balance sheet date.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.111
Cash positions
Derivative positions
Total
Grosslong
Grossshort
Grosslong
Grossshort
212
482
3
4
6
1
4
4
396
299
1,410
2
12
4
14
8
40
7,197
77
84
17
7,376
7,432
695
939
150
200
9,416
Net long
1,352
491
3
3
5
1
3
4
480
199
2,542
Net short
2,037
637
469
4
163
197
3,506
1Leveragedsuperseniortranchesandre-securitizedcorporatecreditexposure(bothsubjecttothesecuritizationframework)arenotincludedinthistable,butdisclosedinthetable“TradingBook–Correlationproducts
subject to the comprehensive risk measure or the securitization framework for specific risk” together with the CRM positions.
190
Trading book – correlation products subject to the comprehensive risk measure or the securitization
framework for specific risk
This table outlines products in the correlation port folio which we
retained or purchased in the trading book, irrespective of our role
in the securitization transaction. They are either subject to the
comprehensive risk measure or the securitization framework for
specific risk. Correlation products subject to the securitization
framework are leveraged super senior and certain re-securitized
corporate credit exposure positions. As per IFRS, the values dis-
closed are market values for cash positions, replacement values
and notionals for derivative positions. Gross long risk trades across
the portfolio have an overall negative replacement value and
gross short trades have an overall positive replacement value.
CHF million
Gross long
Gross short
Gross long
Gross short
Gross long
Gross short
Positions subject to comprehensive risk measure
Positions subject to securitization framework 1
167
44
1,067
0
6,256
131
5,621
188
111,681
12,511
100,343
22,936
1 Includes leveraged super senior tranches and re-securitized corporate credit exposure.
Cash positions
Market values
Derivative positions
Replacement values
Notionals
Trading book – securitization positions retained or purchased subject to the securitization framework for specific risk
This table outlines securitization positions which we have purchased or retained in the trading book subject to the securitization frame-
work for specific risk, irrespective of our role in the securitization transaction, broken down by risk weight bands and regulatory capital
approach. The amounts disclosed are market values at the balance sheet date after eligible netting under Basel 2.5.
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%
Ratings-based approach
Supervisory formula approach
Net short
2,998 1
Net long
Net short
Net long
332
80
348
372
118
139
297
78
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over 250 – 1,250%
Total 31.12.112
1 As per FINMA Circular “Market risk banks” only the higher of the net long or the net short securitization positions require a capital charge. The interim relief is granted until 31 December 2013. After the transition period
both net long and net short positions require a capital charge. The amount disclosed under net short is for information only i.e. a 0% riskweight was applied. 2 Leveraged super senior tranches and re-securitized corporate
creditexposure(bothsubjecttothesecuritizationframework)arenotincludedinthistable,butdisclosedinthetable“TradingBook–Correlationproductssubjecttothecomprehensiveriskmeasureorthesecuritization
framework for specific risk” together with the CRM positions.
2,998
1,950
185
0
0
191
Risk, treasury and capital management
Basel 2.5 Pillar 3
Trading book – capital charge / deductions for securitization positions related to correlation products
This table outlines the capital treatment for securitization positions in the trading book for correlation products, including positions
subject to comprehensive risk measure and positions related to leveraged super senior and certain re-securitized corporate credit expo-
sures positions subject to the securitization framework. Our model does not distinguish between “default risk”, “migration risk” and
“correlation risk”.
CHF million
Positions subject to comprehensive risk measure
Positions subject to securitization framework 1
1 Includes leveraged super senior tranches and re-securitized corporate credit exposure
31.12.11
Capital charge
690
121
31.12.11
Deduction
9
Trading book – capital charge for securitization positions subject to the securitization framework
This table outlines the capital charge for securitization positions subject to the securitization framework for specific risk in the trading
book, split by risk weight bands and regulatory capital approach. This table does not contain capital deductions.
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 31.12.111
Ratings-based
approach
Supervisory formula
approach
2
0
6
9
4
8
13
12
75
130
0
1 Leveraged super senior tranches subject to the securitization framework are not included in this table, but disclosed in table “Trading Book – Capital charge / Deductions for securitization positions related to correlation
products” together with the CRM positions.
Trading book – deductions from eligible capital related to securitization positions
This table outlines the capital deductions related to securitization positions we have retained or purchased in the trading book, irrespec-
tive of our role in the securitization transaction. As of 31 December 2011, we had no securitization positions which would need to be
entirely deducted from tier 1 capital, and no deduction positions related to credit enhancing interest only strips.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or SME
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.111
Positions deducted from
BIS tier 1 capitalandBIStier2capital
262
89
4
1
230
6
591
1 Deductions related to re-securitized corporate credit exposure are captured in table “Capital charge / deductions for securitization positions related to correlation products”.
192
Trading book – securitization exposures subject to early amortizations
We currently do not have securitization structures that are subject to early amortization treatment.
Trading book – re-securitization positions retained or purchased and broken down according to guarantor
creditworthiness categories
The upper part of the table below outlines re-securitization posi-
tions retained or purchased which are held in the trading book
on a gross long and gross short basis, including synthetic long
and short positions resulting from derivative transactions. It also
includes positions on a net long and net short basis, i.e. after
applying off-setting to the extent it is eligible under Basel 2.5.
The lower part of the table discloses the total re-securitization
positions which have an integrated insurance wrapper split by
positions with investment grade, sub-investment grade and de-
faulted insurance.
Trading book – re-securitization positions retained or purchased
CHF million
Total 31.12.11
Grosslong
Grossshort
480
163
Net long
480
Net short
163
Trading book – re-securitization positions broken down according to guarantor creditworthiness categories 1
CHF million
0/1
Investment grade
2
3
4
5
6
7
8
9
10
11
12
13
14
Total 31.12.11
1 Internal UBS rating scale.
Sub-investment grade
Defaulted
3
3
31
31
3
3
31
31
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193
Corporate
governance,
responsibility and
compensation
Audited information according to the Swiss Code of Obligations and applicable regu-
latory requirements and guidance
Disclosures provided in line with the requirements of articles 663bbis and 663c para. 3 of the Swiss Code of Obligations (supplemen-
tary disclosures for companies whose shares are listed on a stock exchange: compensations and participations) and applicable regula-
tions and guidance are also included in the audited financial statements of this report. Tables containing such information are marked
by a bar “audited” throughout this section.
Information assured according to the Global Reporting Initiative (GRI)
Content of the sections “Corporate responsibility” and “Our employees” has been reviewed by Ernst & Young Ltd against the GRI
Sustainability Reporting Guidelines for application level A+, as evidenced in the Ernst & Young assurance report on pages 240–241.
The assurance by Ernst & Young also covered relevant text and data in the Annual Report 2011 and on the website of UBS which is
referenced in the GRI Index (www.ubs.com/gri)
195
Corporate governance, responsibility and compensation
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 in compliance with, all relevant Swiss legal
and regulatory requirements regarding corporate governance, in
particular with all applicable laws, the SIX Swiss Exchange’s (SIX)
Directive on Information Relating to Corporate Governance as
well as the standards established in the Swiss Code of Best Prac-
tice for Corporate Governance, including the appendix on execu-
tive compensation.
In addition, as a foreign company with shares listed on the
New York Stock Exchange (NYSE), we are in compliance with all
relevant corporate governance standards applicable to foreign
listed companies.
The Board of Directors (BoD) has adopted the revised Organi-
zation Regulations of UBS AG (Organization Regulations) that
came into effect on 1 January 2012 and constitute our corporate
governance guidelines. The BoD has also adopted the UBS Code
of Business Conduct and Ethics (the Code).
➔ Refer to www.ubs.com/governance for more details on both,
the Organization Regulations and the Code
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 Audit Committee (AC) has been assigned all the abovemen-
tioned responsibilities, except for appointment of the indepen-
dent auditors, who are elected by the shareholders as per Swiss
company law. The AC assesses the performance and qualification
of the external auditors and submits its proposal for appointment,
reappointment or removal to the full BoD, which brings its pro-
posal to the shareholders for vote at the Annual General Meeting
of Shareholders (AGM).
Discussion of risk assessment and risk management policies
by the Risk Committee
In accordance with our Organization Regulations, the Risk Commit-
tee (RC) has the authority to define our risk principles and risk capac-
ity. The RC is responsible for monitoring our adherence to those risk
principles and for monitoring whether business divisions and control
units run appropriate systems for risk management and control.
Supervision of the internal audit function
The Chairman of the BoD (Chairman), the RC and the AC share
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 Chief Executive Officer (Group CEO) and Group Execu-
tive Board (GEB) members, are completed by the Chairman and
the Human Resources and Compensation Committee, and are
reported to the full BoD. All BoD Committees perform a self-
assessment of their activities and report back to the full BoD. The
BoD has direct responsibility and authority to evaluate its own
performance, without preparation by a BoD Committee.
Proxy statement reports of the Audit Committee and
Human Resources and Compensation Committee
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 the nature and
components of capital in their articles of association, and each
increase of capital is required to be submitted for shareholders’
approval. This means that, if equity-based compensation plans
result in a need for a capital increase, AGM approval is man-
datory. If, however, shares for such plans are purchased in the
market, shareholders do not have the authority to vote on their
approval.
➔ Refer to the section “Board of Directors” for more information
about the Board of Directors Committees
➔ Refer to the section “Capital structure” for more information on
capital
196
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 UBS Group (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 when ad-
ditional legal entities join the Group through acquisition.
Operational Group structure
On 31 December 2011, 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.
➔ Refer to the “Financial and operating performance” 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 33 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, must
notify the company and the SIX Swiss Exchange (SIX) if the hold-
ing attains, falls below or exceeds one of the following threshold
percentages: 3, 5, 10, 15, 20, 25, 331⁄3, 50, or 662⁄3% of the
voting rights, whether they are exer cisable or not. The detailed
disclosure requirements and the methodology for calculating the
thresholds are defined in the Ordinance of the Swiss Financial
Market Supervisory Authority (FINMA) on Stock Exchanges and
Securities Trading (the Ordinance). In particular, the Ordinance
takes into account all future potential share obligations irrespec-
tive of their possible contingent nature, and prohibits the netting
of acquisition positions (in particular shares, conversion 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 reported as soon as it reaches one of
the abovementioned thresholds. Nominee companies which can-
not autonomously decide how voting rights are exercised, are not
obligated to notify UBS and the SIX if they reach, exceed or fall
below the threshold percentages.
In addition, pursuant to the Swiss Code of Obligations, 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 30 September 2011, Norges Bank (the Central Bank
of Norway), Oslo, disclosed under the Swiss Stock Exchange Act,
a holding of 3.04% of the total share capital of UBS AG. On
15 April 2011, the Capital Group Companies, Inc., Los Angeles,
disclosed under the Swiss Stock Exchange Act, that their holding
d
e
t
i
d
u
A
Shareholders registered in the UBS share 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.
31.12.11
10.95
7.07
6.41
4.20
31.12.10
10.70
7.32
6.41
3.79
31.12.09
11.63
8.42
less than 3
3.07
197
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Corporate governance, responsibility and compensation
Corporate governance
of 4.90% of the total share capital of UBS AG, disclosed on
8 June 2010, fell below the threshold of 3%. 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 Investment Corp. of 6.45% of
the total share capital of UBS AG. On 17 December 2009, Black-
Rock Inc., New York, disclosed under the Swiss Stock Exchange
Act, a holding of 3.45% of the total share capital of UBS AG. In
accordance with the Swiss Stock 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/disclosure/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 table on the previous
page were registered with 3% or more of the total share capital
on 31 December 2011, 2010 and 2009.
Cross shareholdings
We have no cross shareholdings in excess of a reciprocal 5% of
capital or voting rights with any other company.
198
Capital structure
Capital
Under Swiss company law, shareholders must approve in a
shareholders’ meeting any increase in the total number of issued
shares, which may arise from an ordinary share capital increase,
or the creation of conditional or authorized capital. At year-end
2011, 3,832,121,899 shares were issued with a par value of
CHF 0.10 each, leading to ordinary share capital of CHF
383,212,189.90.
Conditional share capital
At year-end 2011, 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 fully paid registered shares, with a nominal
value of CHF 0.10 each, to be used for employee option
grants. Options are exercisable at any time between their
vesting and expiration dates. Shareholders have no pre-emp-
tive rights. In 2011, options on 1,281,386 shares were exer-
cised under the option plans with a total of 148,639,326
conditional capital shares being available to satisfy further
exercises of options.
– At the AGM held in 2009, our shareholders approved the
creation of conditional capital for the potential issuance of
100,000,000 fully paid registered shares, with a nominal value
of CHF 0.10 each, in the event of the exercise of warrants
granted to the Swiss National Bank (SNB) in connection with
the loan granted by the SNB to the SNB StabFund.
– 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
instruments by UBS. Shareholders have no pre-emptive rights.
The owners of conversion rights and / or warrants would be
entitled to subscribe to the new shares. At year-end 2011, the
BoD had not made use of the allowance to issue bonds or
warrants with conversion rights covered by conditional share
capital.
the delivery of shares out of the conditional capital to satisfy
awards granted under employee share plans.
➔ Refer to the discussion of “UBS shares” in the “capital manage-
ment” 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 53.4
billion on 31 December 2011 (2010: CHF 46.8 billion; 2009: CHF
41.0 billion). The UBS Group shareholders’ equity was represent-
ed by 3,832,121,899 issued shares on 31 December 2011 (2010:
3,830,840,513; 2009: 3,558,112,753).
➔ 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 tables on the fol-
lowing page provide information about the distribution of our share-
holders by category and geographical location. This information re-
lates only to registered shareholders and cannot 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 entitled to exercise voting rights.
➔ Refer to the “Shareholders’ participation rights” section of
this report for more information
For the AGM 2012, the BoD proposes to increase the size of the
existing conditional capital of Article 4a para. 1 of the Articles of
Association, originally approved at the AGM held in 2006, from
CHF 14,863,932.60 to CHF 30,000,000 which allows the BoD to
issue up to 300 million UBS shares. At the same time, the BoD
proposes to amend the current wording of said article to permit
On 31 December 2011, 2,181,819,724 shares carried voting
rights, 396,311,882 shares were entered in the share register
without voting rights, and 1,253,990,293 shares were not regis-
tered. All 3,832,121,899 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.
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199
Corporate governance, responsibility and compensation
Corporate governance
Distribution of UBS shares
On 31 December 2011
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
5,000,001–38,321,218 (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
38,987
190,899
104,519
10,448
749
96
28
1
1
0
1
3 1
345,732
%
11.3
55.2
30.3
3.0
0.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2,274,547
88,190,965
290,072,681
263,182,320
187,940,646
204,778,874
273,827,225
72,243,657
98,879,288
0
160,917,513
935,823,890
100.0
2,578,131,606
1,253,990,293
3,832,121,899 3
0.1
2.3
7.6
6.9
4.9
5.3
7.1
1.9
2.6
0.0
4.2
24.4
67.3
32.7
100.0
1 On 31 December 2011, Chase Nominees Ltd., London, entered as a trustee / nominee, was registered with 10.95% of all UBS shares issued. However, according to the provisions of UBS, voting rights of a trustee / nom-
inee are limited to a maximum of 5% of all UBS shares issued. The US securities clearing organization DTC (Cede & Co.), New York, was registered with 7.07% of all UBS shares issued and is not subject to this 5% vot-
ing limit as securities clearing organization. The same applies to the Government of Singapore Investment Corp., Singapore, which is registered as beneficial owner with 6.41% of all UBS shares issued. 2 Shares not
entered in the share register on 31 December 2011. 3 Of the total shares issued, 396,311,882 registered shares do not carry voting rights.
Shareholders: type and geographical distribution
On 31 December 2011
Individual shareholders
Legal entities
Nominees, fiduciaries
Unregistered
Total
Switzerland
Europe
North America
Other countries
Unregistered
Total
Ordinary share capital
On 31 December 2009
Issue of shares for capital increase (conversion of mandatory convertible notes)
Issue of shares out of conditional capital due to employee options exercised
On 31 December 2010
Issue of shares out of conditional capital due to employee options exercised
On 31 December 2011
200
Shareholders
Shares
Number
337,602
7,569
561
%
97.6
2.2
0.2
Number
665,300,452
704,903,448
1,207,927,706
1,253,990,293
%
17.4
18.4
31.5
32.7
345,732
100.0
3,832,121,899
100.0
309,443
19,060
9,252
7,977
89.5
5.5
2.7
2.3
835,304,519
915,253,433
489,932,937
337,640,717
1,253,990,293
21.8
23.9
12.8
8.8
32.7
345,732
100.0
3,832,121,899
100.0
Share capital in CHF Number of shares
Par value in CHF
355,811,275
3,558,112,753
27,265,100
272,651,005
7,676
76,755
383,084,051
3,830,840,513
128,139
1,281,386
383,212,190
3,832,121,899
0.10
0.10
0.10
0.10
0.10
0.10
At year-end 2011, we owned UBS registered shares cor-
responding to 2.2% of the total share capital of UBS AG.
At the same time, we had disposal positions relating to
467,465,923 voting rights of UBS AG, corresponding to 12.20%
of the total voting rights of UBS AG. They consisted mainly of
9.12% of voting rights on shares deliverable in respect of em-
ployee awards. The calculation methodology for the disposal
position is based on the Ordinance by FINMA on Stock Exchang-
es and Securities Trading, which takes into account all future
potential share delivery obligations irrespective of the contin-
gent nature of the delivery.
We have no participation certificates outstanding.
new shares. We had CHF 4.4 billion principal amount of deeply
subordinated capital instruments outstanding, which count as hy-
brid tier 1 capital under Swiss regulatory rules, and CHF 7.1 billion
principal amount of outstanding tier 2 capital securities (mainly
subordinated bonds). As the regulatory requirements on the
structure of capital instruments were evolving, we did not issue
any capital instruments in 2011.
On 22 February 2012, UBS issued USD 2 billion Basel III compli-
ant loss-absorbing tier 2 notes. The 7.25% 10-year security does
not dilute the value of the equity held by the bank’s shareholders,
and counts as progressive buffer capital under the Swiss regula-
tions for its systemic banks.
➔ Refer to the “Capital management” section for more information
Transferability, voting rights and nominee registration
on this loss- absorbing instrument
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
Options
In connection with the loan granted by the Swiss National Bank
(SNB) to the SNB StabFund, 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 exer-
cisable only if the SNB incurs a loss on its loan to the fund.
On 31 December 2011, there were 235,017,185 employee op-
tions, including stock appreciation rights outstanding. Delivery
obligations equivalent to 10,544,604 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 2011, 75,674,805
treasury shares were available for this purpose, and an additional
148,639,326 unissued shares in conditional share capital were as-
signed to future employee option exercises. At year-end 2011, the
shares available covered all exercisable employee obligations.
On 31 December 2011, there were no contingent capital securi-
ties or convertible bonds outstanding requiring the issuance of
➔ Refer to the discussion of “UBS shares” in the ”capital manage-
ment” section of this report for more information on options
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201
Corporate governance, responsibility and compensation
Corporate governance
Shareholders’ participation rights
We are committed to shareholder participation in our decision-
making process. More than 340,000 directly registered sharehold-
ers, as well as some 90,000 US shareholders registered via nomi-
nee companies, regularly receive written information about our
activities and performance and are personally invited to share-
holder 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 individu-
al investors, and regularly inform them about the development of
the company of which they are co-owners.
The Annual General Meeting (AGM) offers shareholders the
opportunity to raise any questions regarding our development
and the events of the year that is under review. Board of Directors
(BoD) and Group Executive Board members, as well as the internal
and external auditors, are present to answer these questions.
Voting rights, restrictions and representation
We place no restrictions on share ownership and voting rights.
However, nominee companies and trustees, who normally repre-
sent a large number of individual shareholders and may hold an
unlimited number of shares, have voting rights limited to a maxi-
mum of 5% of outstanding UBS shares to avoid the risk of un-
known shareholders with large stakes being entered in the share
register. Securities clearing organizations, 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 attend
in person, they can issue instructions to accept, reject or abstain
on each individual item on the meeting agenda, either by giving
instructions to an independent proxy 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 col-
lected votes to UBS.
Statutory quorums
Shareholder resolutions, including the election and reelection of
BoD members and the appointment of the 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 repre-
sented at the AGM, and the absolute majority of the par value of
shares represented at the AGM, must vote in favor of the resolu-
tion. These issues include, among others, the creation of shares
with privileged voting rights, the introduction of restrictions on
the transferability of registered shares, conditional and authorized
capital increases, and restrictions or exclusions of shareholders’
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 as-
certain the exact number of votes cast. Voting by a show of hands
remains possible if a clear majority is predictable. Shareholders rep-
resenting at least 3% of the votes represented may still request
that a vote or election takes place electronically or by written bal-
lot. In order to allow shareholders to clearly express their views on
all individual topics, each item on the agenda is put to a vote sepa-
rately and BoD elections are made on a person-by-person basis.
202
Convocation of general meetings of shareholders
The AGM normally takes place each year in late April or early May,
but in any case within six months of the close of the financial year. A
personal invitation including a detailed agenda and explanation of
each motion is sent to every registered shareholder at least 20 days
ahead of the scheduled 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 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 Extraordinary General Meet-
ing 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 next
shareholders’ meeting.
We publish the deadline for submitting such proposals in the
Swiss Official Gazette of Commerce and on our website www.
ubs.com/agm. Requests for items to be placed on the agenda
must include the actual motions to be put forward, together 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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203
Corporate governance, responsibility and compensation
Corporate governance
Board of Directors
The Board of Directors (BoD), under the leadership of the Chair-
man, decides on the strategy of the Group upon recommenda-
tion of the Group Chief Executive Officer (Group CEO), exercises
the ultimate supervision over senior management, and appoints
all Group Executive Board (GEB) members. The BoD also ap-
proves all financial statements for issue. Shareholders elect each
member of the BoD, which in turn appoints its Chairman, Vice
Chairmen, Senior Independent Director, the members of the BoD
Committees, their respective Chairpersons and the Company
Secretary.
Members of the Board of Directors
Sally Bott tendered her resignation taking effect on 11 February
2011. At the Annual General Meeting (AGM) held on 28 April
2011, Kaspar Villiger, Michel Demaré, David Sidwell, Rainer-Marc
Frey, Bruno Gehrig, Ann F. Godbehere, Axel P. Lehmann, Wolf-
gang Mayrhuber, Helmut Panke and William G. Parrett were re-
elected as their terms of office expired. Joseph Yam was elected
to his first term on the BoD. Following their election, the BoD
appointed Michel Demaré as Vice Chairman and David Sidwell as
Senior Independent Director. On 1 July 2011, the BoD nominated
Axel A. Weber, former President of the Deutsche Bundesbank, for
election to the BoD at the 3 May 2012 AGM and planned, in
expectation of his election, to appoint him as non-independent
Vice Chairman. In November 2011, the Chairman of the BoD Kas-
par Villiger decided to accelerate the leadership change at UBS by
not standing for reelection to the BoD at the 2012 AGM. Axel
A. Weber was then proposed to succeed Mr. Villiger as the Chair-
man should he be elected at the AGM 2012. On 3 February 2012,
UBS announced that Bruno Gehrig will not stand for reelection.
The BoD nominated Beatrice Weder di Mauro, professor of eco-
nomics, economic policy and international macroeconomics at
the Johannes Gutenberg University of Mainz, and Isabelle Romy,
partner at the Swiss law firm Niederer Kraft & Frey, for election to
the BoD at the 2012 AGM.
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. On 31 Decem-
ber 2011, with the exception of the non-independent Chairman,
Kaspar Villiger, all BoD members were considered independent by
the BoD.
The following biographies provide information on the BoD mem-
bers and the Company Secretary, valid as of 31 December 2011.
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 Governance and Nominating Committee and has been a member of the
Corporate Responsibility Committee since 2009. Mr. Villiger was elected Federal Councillor in 1989, and served as the
Minister of Defence 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 Councillor,
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 at UBS.
As co-owner of the Villiger Group, Mr. Villiger managed the Swiss parent firm, Villiger Söhne AG, from 1966 until 1989. In
addition, he held several political positions, first in the parliament of the canton of Lucerne and, from 1982 until 1989, in
the Swiss Parliament. Mr. Villiger graduated from the Swiss Federal Institute of Technology (ETH) in Zurich with a degree in
mechanical engineering in 1966.
Kaspar Villiger
Swiss, born 5 February 1941
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Chairman of the Board of Directors / member of
the Corporate Responsibility Committee / Chairperson
of the Governance and Nominating Committee
Year of initial appointment: 2009
204
Professional history and education
Michel Demaré was elected to the BoD at the 2009 AGM, and in April 2010 was appointed independent Vice Chairman. He
has been a member of the Audit Committee since 2009 and the Governance and Nominating Committee since 2010.
Mr. Demaré joined ABB in 2005 as Chief Financial Officer (CFO) and as a member of the Group Executive Committee.
Between February and September 2008, he acted as the interim CEO of ABB. From September 2008 to March 2011, he
combined the CFO responsibility with the role of President of Global Markets. 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, Mr. Demaré was the CFO of the Global Polyolefins and Elastomers division. He began his career as an of-
ficer in the multinational banking division of Continental Illinois National Bank of Chicago, and was based in Antwerp.
Mr. Demaré graduated with an MBA from the Katholieke Universiteit Leuven, Belgium, and holds a degree in applied eco-
nomics 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.
Professional history and education
David Sidwell was elected to the BoD at the 2008 AGM. In April 2010, he was appointed Senior Independent Director. He
has chaired the Risk Committee since 2008 and has been a member of the Governance and Nominating Committee since
2011. Mr. Sidwell was Executive Vice President and CFO of Morgan Stanley between 2004 and 2007. Before joining Morgan
Stanley, he worked for JPMorgan Chase & Co., where in his 20 years of service, he held a number of different positions in-
cluding 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 with 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 is
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
Rainer-Marc Frey was elected to the BoD at the October 2008 Extraordinary General Meeting and has been a member of
the Audit Committee since 2010 and the Risk Committee since 2008. Mr. Frey is the founder of the investment management
company Horizon21 AG. He is the Chairman of Horizon21 AG as well as of its holding company and 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. 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. Mr. Frey 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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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
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 / member of the Governance and
Nominating Committee
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
205
Corporate governance, responsibility and compensation
Corporate governance
Professional history and education
Bruno Gehrig was elected to the BoD at the October 2008 Extraordinary General Meeting and has been a member of the
Governance and Nominating Committee and the Human Resources and Compensation Committee since 2009. 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 Union Bank
of Switzerland 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. Mr. Gehrig 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. She has chaired the Human Resources and Compensation
Committee since 2011 and has been a member of the Audit Committee and the Corporate Responsibility Committee since
2009. 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’s 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 & 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, she was
CEO of Swiss Re Life & Health in Canada. In 1996 and 1997, she was CFO of Swiss Re Life & Health North America.
Ms. Godbehere 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 chairs
both its Audit Committee and Conflicts Committee. She is also a member of the board and is Chairperson of the Audit
Committee of Ariel Holdings Ltd., Bermuda. In addition, she is a board member of British American Tobacco plc.
Professional history and education
Axel P. Lehmann was elected to the BoD at the 2009 AGM and has been a member of the Governance and Nominating
Committee since 2011 and the Risk Committee since 2009. He is a member of the Group Executive Committee of Zurich
Financial Services (Zurich) and has been Group Chief Risk Officer since January 2008 and Regional Chairman Europe since
October 2011. In July 2011, he was appointed as Chairman of the Board of Farmers Group, Inc., and was responsible for
Group IT from 2008 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 it with UK, Ireland and South Africa. 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 holds a PhD and
a master’s degree in business administration and economics from the University of St. Gallen and 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. He is a mem-
ber and past Chairman of the Chief Risk Officer Forum and is a member of the executive committee of the International
Financial Risk Institute Foundation.
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
Chairperson of the Human Resources and
Compensation Committee / 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
Functions in UBS
Member of the Governance and Nominating
Committee / member of the Risk Committee
Year of initial appointment: 2009
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Professional history and education
Wolfgang Mayrhuber was elected to the BoD at the 2010 AGM. He has chaired the Corporate Responsibility Committee
since 2011 and has been a member of the Human Resources and Compensation Committee since 2010. 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 (dipl. Ing.) at the Technical College in
Steyr, Austria, and at the Bloor Collegiate Institute in Canada. 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 HEICO Corporation,
Hollywood, FL, the executive board of Acatech (Deutsche Akademie der Technikwissenschaften) and is a trustee of the American
Academy of Berlin.
Professional history and education
Helmut Panke was elected to the BoD at the 2004 AGM. He has been a member of the Human Resources and Compensation
Committee and the Risk Committee since 2008. Between 2002 and 2006, Mr. Panke was Chairman of the Board of
Management of BMW Group. In 1982, he joined BMW’s Research and Development division as Head of Planning and
Controlling. He subsequently assumed management functions in corporate planning, organization and corporate strategy.
Before his appointment as Chairman, he was a member of BMW’s Board of Management from 1996. Between 1993 and
1996, he was Chairman and CEO of BMW Holding Corporation in the US. Mr. Panke graduated from the University of
Munich with a PhD in physics, and was on special research assignment at the University of Munich and the Swiss Institute
for Nuclear Research before joining McKinsey & Company in Dusseldorf and Munich as a consultant.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Panke is a member of the board of Microsoft Corporation (Chairperson of the Antitrust Compliance Committee) and
Singapore Airlines Ltd. (Chairperson of the Board Safety & Risk Committee). 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 Extraordinary General Meeting and has chaired the Audit
Committee since 2009. 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 between 1999 and 2007. 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 cli-
ents 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 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.
Wolfgang Mayrhuber
Austrian, born 22 March 1947
Deutsche Lufthansa AG,
Flughafen Frankfurt am Main 302,
D-60546 Frankfurt am Main
Functions in UBS
Chairperson 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 Human Resources and Compensation
Committee / member of the Risk Committee
Year of initial appointment: 2004
William G. Parrett
American (US), born 4 June 1945
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Chairperson of the Audit Committee
Year of initial appointment: 2008
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Corporate governance, responsibility and compensation
Corporate governance
Professional history and education
Joseph Yam was elected to the BoD at the 2011 AGM. He has been a member of the Corporate Responsibility Committee
and the Risk Committee since 2011. He is Executive Vice President of the China Society for Finance and Banking, and in that
capacity, has served as an advisor to the People’s Bank of China since 2009. He was instrumental in the establishment of
the Hong Kong Monetary Authority and served as its Chief Executive from 1993 until his retirement in 2009. He began his
career in Hong Kong as a statistician in 1971 and served the public for over 38 years. During his service he occupied sev-
eral positions such as Director of the Office of the Exchange Fund in 1991, Deputy Secretary for Monetary Affairs in 1985
and Principal Assistant Secretary for Monetary Affairs in 1982. Mr. Yam graduated from the University of Hong Kong in 1970
with first class honors in economics and statistics. He holds honorary doctorate degrees and professorships from a number
of universities in Hong Kong and overseas. He is a Distinguished Research Fellow of the Institute of Global Economics and
Finance at the Chinese University of Hong Kong.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Yam is Chairman of the Board of Macroprudential Consultancy Limited and sits on the International Advisory Councils
of a number of government and academic institutions. He is a board member and chairs the Risk Committee of the China
Construction Bank. He is on the board of Johnson Electric Holdings Limited.
Professional history and education
Luzius Cameron was appointed Company Secretary by the BoD in 2005. He is a Group Managing Director and was
appointed to the former Group Managing Board in 2002. From 2002 to 2005, Mr. Cameron was the Director of Strategic
Planning and New Business Development, Wealth Management USA. Prior to this role, he was Head of Group Strategic
Analysis, and before that, Head of Corporate Business Analysis. Mr. Cameron joined Swiss Bank Corporation in 1989, where
he started in Corporate Controlling before assuming a number of senior roles in the Investment Bank Warburg Dillon Read,
such as Chief of Staff to the Chief Operating Officer in London and Business Manager of the Global Rates Business in Zurich.
From 1984 to 1989, he was a lecturer in astrophysics at the University of Basel. Between 1980 and 1989, he was a research
analyst at the Institute of Astronomy at the University of Basel and European Southern Observatory. Mr. Cameron holds a
PhD in astrophysics from the University of Basel.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Cameron is the Chairman of the Zurich Symphony Orchestra.
Joseph Yam
Chinese and Hong Kong citizen,
born 9 September 1948
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Member of the Corporate Responsibility
Committee / member of the Risk Committee
Year of initial appointment: 2011
Company Secretary
Luzius Cameron
Australian and Swiss, born 11 September 1955
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Company Secretary since 2005
Elections and terms of office
In accordance with article 19 para. 1 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 3 May 2012.
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. The BoD granted the extension of age limit to Kaspar Villiger
and William G. Parrett.
Organizational principles and structure
The Organization Regulations were revised and are valid as of 1 Jan-
uary 2012. Changes included a closer alignment of the language of
our provisions on the regulation and supervision of the internal con-
trol to the Swiss Financial Market Supervisory Authority (FINMA) Cir-
cular 08 / 24 on supervision and internal control at banks and intro-
ducing the appointment of a deputy CEO from within the GEB.
Following each AGM, the BoD meets to appoint its Chairman,
Vice Chairman, Senior Independent Director, BoD Committee
members and their respective 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 23 meetings were held in 2011, of which nine included
GEB members and 14 were without GEB participation. On aver-
age, 96% of BoD members were present at BoD meetings with-
out GEB participation, and 97% at meetings with GEB participa-
tion. The duration of each meeting was three hours on average.
In addition, the BoD met for a one-day BoD seminar.
At every 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 under the auspices of the
Governance and Nominating Committee, as well as a self-assess-
ment of the BoD Committees, and seeks to determine whether
208
the BoD and its Committees are functioning effectively and effi-
ciently.
The Committees listed below assist the BoD in the perfor-
mance of its responsibilities. These Committees and their charters
are described in the Organization Regulations, published on
www.ubs.com/governance.
Audit Committee
The Audit Committee (AC) comprises at least three BoD mem-
bers, with all members having been determined by the BoD to be
fully independent and financially literate. On 31 December 2011,
William G. Parrett chaired the AC with Michel Demaré, Rainer-
Marc Frey and Ann F. Godbehere as additional members. All
members have accounting and financial management expertise
and are considered to be “financial experts” according to the
rules established under the US Sarbanes-Oxley Act of 2002.
The AC itself does not perform audits, but monitors the work
of the external auditors, Ernst & Young Ltd., Basel (Ernst & Young),
who in turn are responsible for auditing UBS’s and the Group’s
financial statements and for reviewing the quarterly financial
statements. The function of the AC is to serve as an independent
and objective body with oversight of the following: (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 dis-
closure 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 reviews the annual and quarterly financial statements
of UBS and the Group, as proposed by management, with the
external auditors and Group Internal Audit in order to recom-
mend their approval (including any adjustments the AC considers
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 in relation to the appoint-
ment or dismissal of the external auditors and the rotation of the
lead audit partner. The BoD then submits these proposals to the
AGM. During 2011, the AC held a total of seven meetings and
eleven telephone conferences. The meetings had an average
duration of four hours and the telephone conferences lasted
approximately one hour. Participation was 100%. Also present at
the meetings were 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. The conference calls were conducted in the pres-
ence of the AC members, the Group CFO and selected manage-
ment members. Joint AC / RC sessions were held at least 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 representatives of our
external auditors present their long-form report to the BoD, as
required by FINMA.
The NYSE has more stringent independence requirements for
audit committee members. Each of the four members of our AC
is an external BoD member who, in addition to satisfying our in-
dependence criteria, does not receive, directly or indirectly, any
consulting, advisory or other compensatory fees from UBS other
than in its capacity as director; does not hold, directly or indirectly,
UBS shares in excess of 5% of the outstanding capital; and (ex-
cept as noted below) does not serve on audit committees of more
than two other public companies. 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 func-
tions, the BoD has granted this exemption in his case.
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
2011, was chaired by Wolfgang Mayrhuber with Kaspar Villiger,
Ann F. Godbehere and Joseph Yam as additional members. The
CRC is advised and supported by a number of senior business
representatives. It met twice for approximately two hours on aver-
age in 2011, and 100% of CRC members were present.
➔ Refer to the “Corporate responsibility” section of this report for
more information
Governance and Nominating Committee
The Governance and Nominating Committee (GNC) supports the
BoD in fulfilling its duty to establish best practices in corporate
governance across the Group, to conduct a BoD annual self-as-
sessment, 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 four independent BoD
members and, on 31 December 2011, Kaspar Villiger chaired the
GNC, with Michel Demaré, Bruno Gehrig, Axel P. Lehmann and
David Sidwell as additional members. In 2011, nine meetings and
three telephone conferences were held with an average participa-
tion of 94% of members and a duration averaging one hour and
a half. Two meetings were held with external advisors.
Human Resources and Compensation Committee
The Human Resources and Compensation Committee (HRCC) is
responsible for the following functions: (i) supporting the BoD in
its duties to set guidelines on compensation and benefits; (ii) ap-
209
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Corporate governance, responsibility and compensation
Corporate governance
proving 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; and (iv)
proposing to the BoD for approval, upon recommendation of the
Group CEO, the total individual compensation for GEB members.
The HRCC also reviews the compensation disclosure included in
this report.
The HRCC comprises four independent BoD members and, on
31 December 2011, Ann F. Godbehere chaired the HRCC with
Bruno Gehrig, Wolfgang Mayrhuber and Helmut Panke as addi-
tional members. In 2011, eight meetings and five telephone con-
ferences were held with an average duration of 100 minutes and
participation of 96%. Of those meetings and calls, nine were held
with external advisors, 10 with the Chairman and 11 with the
Group CEO.
➔ Refer to the “Compensation governance” section of this
report for more information on the Human Resources and
Compensation Committee’s decision-making procedures
Risk Committee
The Risk Committee (RC) is responsible for overseeing and sup-
porting the BoD in fulfilling its duty to supervise and set appropri-
ate risk management and control principles in the following areas:
(i) risk management and control, including credit, market, country
and operational risks; (ii) treasury and capital management, in-
cluding funding, liquidity and equity attribution; and (iii) balance
sheet management, including in each case any consequent repu-
tational risk. For these purposes, the RC receives all relevant infor-
mation from the GEB and has the authority to meet with regula-
tors and external bodies in consultation with the Group CEO. On
31 December 2011, the RC comprised five independent BoD
members. David Sidwell chaired the RC with Rainer-Marc Frey,
with Axel P. Lehmann, Helmut Panke and Joseph Yam as addi-
tional members. During 2011, the RC held a total of eight meet-
ings and five calls, with an average participation rate of 95% of
members. The average meeting duration was five and a half hours
and the calls lasted approximately one hour and a half.
The Audit Committee Chairperson regularly attends part or all
of the RC’s meetings. In 2011, the Chairman, the Group CEO, the
Group CFO, the Group Chief Risk Officer, the Group General
Counsel, the CEO of the Investment Bank, the Head of Group In-
ternal Audit and Ernst & Young were also regularly present. In
addition, the RC and HRCC meet jointly to discuss topics on which
they have shared responsibility. Annually, one session is held with
the Governing Board of the SNB and one with FINMA. One meet-
ing was held with the Federal Reserve Bank of New York.
Special Committee conducting an independent internal
investigation
In light of the unauthorized trading incident identified on
14 September 2011, the BoD created a Special Committee on
16 September 2011 comprised of three independent Risk Com-
mittee and Audit Committee members. The role of the Special
Committee is, with assistance from Group Internal Audit, to con-
duct an independent internal investigation of the event, its causes,
disciplinary consequences and the proposed remedial actions, and
to report on this to the BoD. A second investigation is being car-
ried out jointly by FINMA and the UK FSA; they have retained
KPMG for this purpose. The Special Committee, on behalf of the
BoD, serves as the FINMA and UK FSA regulatory contact regard-
ing the incident, and received regular updates from KPMG on its
investigation at the request of the abovementioned regulatory
bodies.
On 31 December 2011, David Sidwell chaired the Special Com-
mittee with Ann F. Godbehere and Joseph Yam as additional
members. Since its creation, the Special Committee has held 10
conference calls and four meetings, and the Special Committee
Chairperson independently met with the UK FSA on one occa-
sion. During these calls and meetings, 100% of the Special Com-
mittee members were present and the meetings lasted for one
hour on average. In addition, the Special Committee also met
with FINMA on one occasion.
Roles and responsibilities of the Chairman of the
Board of Directors
Kaspar Villiger, the Chairman of the Board (the Chairman), has
entered into a full-time employment contract with UBS in connec-
tion 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 the
recommendation of the Group CEO, exercises the ultimate super-
vision over management and appoints all GEB members.
The Chairman presides over all Annual and Extraordinary Gen-
eral Meetings, and works with the Committee Chairpersons to
coordinate the work of all Committees. Together with the Group
CEO, the Chairman is responsible for ensuring effective commu-
nication with shareholders and other stakeholders, including gov-
ernment officials, regulators and public organizations. This is in
addition to establishing and maintaining a close working relation-
ship with the Group CEO and the other GEB members, providing
advice and support while respecting the fact that day-to-day man-
agement responsibility is delegated to the GEB.
Roles and responsibilities of the Vice Chairmen and the
Senior Independent Director
The BoD appoints one or more Vice Chairmen and a Senior Inde-
pendent Director. If the BoD appoints more than one Vice Chair-
man, one of them must be independent. A Vice Chairman is re-
quired to lead the BoD in the absence of the Chairman and to
provide support and advice to the Chairman. At least twice a year,
the Senior Independent Director organizes and leads a meeting of
the independent BoD members in the absence of the Chairman.
In 2011, two independent BoD meetings were held for a duration
210
of three and a half hours each. The Senior Independent Director
relays any issues or concerns of independent BoD members to the
Chairman and acts as a contact point for shareholders and stake-
holders 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 com-
panies, including those in which our BoD members assume
management or independent board responsibilities. The GNC
has determined that the nature of the relationships between UBS
and companies whose chair, chief executive or other officer is a
member of our BoD does not compromise the BoD members’ ca-
pacity for independent judgment. 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 Regula-
tions. The BoD decides on the strategy of the Group upon the
recommendation of the Group CEO, and supervises and moni-
tors the business, whereas the GEB, headed by the Group CEO,
has executive management responsibility. The functions of Chair-
man of the BoD and Group CEO are assigned to two different
people, thus ensuring a separation of power. This structure es-
tablishes checks and balances and preserves the institutional
independence of the BoD from the day-to-day management of
the firm, for which responsibility is delegated to the GEB under
the leadership 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,
including the latter document’s “Annex B – Responsibilities and
authorities”.
➔ Refer to www.ubs.com/governance for more details on checks
and balances for the BoD and GEB
Information and control instruments vis-à-vis the Group
Executive Board
The BoD is kept informed of the activities of the GEB in 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 Risk Committee. The Audit Committee
must be informed of the results of internal audits.
In February 2011, 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
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211
Corporate governance, responsibility and compensation
Corporate governance
Group Executive Board
UBS operates under a strict dual board structure, as required by
Swiss banking law. The management of the business is delegated
by the BoD to the Group Executive Board (GEB).
Executive Officer (Group CEO) on an interim basis following the
resignation of Oswald J. Grübel. On 15 November 2011, the BoD
appointed Mr. Ermotti as permanent Group CEO.
Members of the Group Executive Board and
changes in 2011
On 3 December 2010, the BoD appointed Sergio P. Ermotti as
Chairman and Chief Executive Officer of UBS Group Europe,
Middle East and Africa and GEB member as of 1 April 2011, and
Tom Naratil as Group Chief Financial Officer (Group CFO) and a
GEB member as of 1 June 2011. John Cryan stepped down from
the Group CFO position and from the GEB on 1 June 2011. On
24 September 2011, Sergio P. Ermotti was named Group Chief
On 1 December 2011, UBS announced the following several
senior executive changes: Philip J. Lofts, CEO UBS Group Ameri-
cas, resumed his former role as Group Chief Risk Officer as
Maureen Miskovic stepped down; Robert J. McCann assumed the
role of CEO UBS Group Americas in addition to his current role as
CEO Wealth Management Americas; and Ulrich Körner took over
the role of CEO UBS Group Europe, Middle East and Africa in ad-
dition to his current role as Group Chief Operating Officer and
CEO Corporate Center.
The following biographies provide information on the GEB
members on 31 December 2011.
Professional history and education
Sergio P. Ermotti was appointed Group CEO in November 2011. He had held the position of Group CEO on an interim basis
since September 2011. Mr. Ermotti became a member of the GEB in April 2011 and was Chairman and CEO of UBS Group
Europe, Middle East and Africa from April to November 2011. From 2007 to 2010, he was the Group Deputy Chief Executive
Officer at UniCredit, Milan, and was responsible for the Corporate and Investment Banking as well as Private Banking
strategic business areas. He joined UniCredit in 2005 as the Head of the Markets & Investment Banking Division. Between
2001 and 2003, he worked at Merrill Lynch, and served as co-Head of Global Equity Markets and as a member of the
Executive Management Committee for Global Markets & Investment Banking. He began his career with Merrill Lynch in
1987, and held various positions within equity derivatives and capital markets. Mr. Ermotti is a Swiss-certified banking
expert and is a graduate of the Advanced Management Program at Oxford University.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Ermotti is a non-executive Director of the London Stock Exchange Group.
Professional history and education
Markus U. Diethelm was appointed Group General Counsel of UBS and became a member of the GEB 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,
securities transactions, litigation and regulatory investigations while working out of the firm’s Brussels and Paris offices.
From 1989 until 1992, he practiced at the Shearman & Sterling law firm in New York, specializing in mergers and acquisi-
tions. 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. Mr. Diethelm 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.
Sergio P. Ermotti
Swiss, born 11 May 1960
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Group CEO
Year of initial appointment: 2011
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
212
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 member of the GEB in July 2002. Since 2008, he has been the Chairman of UBS Saudi Arabia. From 1998 to 2001,
he was President and Chief Operating Officer of UBS Asset Management and Head of Asia Pacific. 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 the Economic Minister at the Australian Embassy in Washington, D.C. 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 Advisory Council of AccountAbility and 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 in Melbourne.
Professional history and education
Lukas Gähwiler became a member of the GEB and was appointed CEO of UBS Switzerland and co-CEO of Wealth
Management & Swiss Bank in April 2010. In his role as CEO of UBS Switzerland he is responsible for all businesses in UBS’s
home market. From 2003 to 2010, he was the Chief Credit Officer at Credit Suisse and was accountable for the worldwide
credit business of Private Banking, including Commercial Banking in Switzerland. In 1998, Mr. Gähwiler was appointed as
Chief of Staff to the CEO of the Credit Suisse Private and Corporate Business Unit, and previous to that, he held various
front-office positions in Switzerland and North America. He earned a bachelor’s degree in business administration from the
University of Applied Sciences in St. Gallen. Mr. Gähwiler 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 board of the Zurich Chamber of Commerce and the Opernhaus AG as well as Vice Chairman
of the Swiss Finance Institute. He is a member of the Foundation Board of the UBS pension fund.
Professional history and education
Carsten Kengeter was appointed Chairman and CEO of the Investment Bank in November 2010, after having been ap-
pointed co-CEO in April 2009, when he became a member of the GEB. He joined UBS in December 2008, and served as the
joint Global Head of Fixed Income, Currencies & Commodities (FICC) in 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 from 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,
Mr. Kengeter was made Head of the European and Asian Collateralized Debt Obligation business in London, and before that
he was in derivatives marketing in Frankfurt. From 1992 to 1997, he worked for Barclays de Zoete Wedd, and was respon-
sible for credit derivatives trading. Mr. Kengeter graduated as Diplom-Betriebswirt from Fachhochschule Reutlingen, holds a
bachelor’s in business administration from Middlesex University as well as an MSc in finance and accounting from the
London School of Economics.
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
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
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
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213
Corporate governance, responsibility and compensation
Corporate governance
Professional history and education
Ulrich Körner was appointed Group Chief Operating Officer and CEO Corporate Center, and became a member of the GEB
in April 2009. Additionally to this function he was appointed CEO of UBS Group Europe, Middle East and Africa in December
2011. In 1998, Mr. Körner joined Credit Suisse. He served as a member of the Credit Suisse Group Executive Board from
2003 to 2008, holding various management positions including CFO and Chief Operating Officer. From 2006 to 2008, he
was responsible for the entire Swiss client business as CEO Credit Suisse Switzerland. Mr. Körner received a PhD from the
University of St. Gallen in business administration, and served for several years as an auditor 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 in Zurich, and is Vice President of the Board of Lyceum Alpinum Zuoz. He is the Deputy Chairman of the
Supervisory Board of UBS Deutschland AG, Chairman of the Foundation Board of the UBS pension fund, a member of the
Financial Service Chapter Board of the Swiss-American Chamber of Commerce and is a member of the Advisory Board of
the Department of Banking and Finance at the University of Zurich.
Professional history and education
Philip J. Lofts became a GEB member in 2008, and was re-appointed as Group Chief Risk Officer in December 2011 after
serving in the same role from 2008 to 2010. He was CEO of UBS Group Americas from January to November 2011. Mr. Lofts
began his career with UBS over 25 years ago. In 2008, he became the Group Risk Chief Operating Officer after having
previously been the Group Chief Credit Officer for three years. Before this, Mr. Lofts worked for the Investment Bank in a
number of business and risk control positions in Europe, Asia Pacific and the US. Mr. Lofts joined Union Bank of Switzerland
in 1984 as a credit analyst and was appointed Head of Structured Finance in Japan in 1998. Philip J. Lofts successfully
completed his A-levels at Cranbrook School. From 1981 to 1984, he was a trainee at Charterhouse Japhet plc, a merchant
bank, which was acquired by the Royal Bank of Scotland in 1985.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Lofts is a board member of the University of Connecticut Foundation.
Professional history and education
Robert J. McCann was appointed CEO of Wealth Management Americas and became a member of the GEB in October 2009.
In addition, he has been CEO UBS Group Americas since December 2011. From 2003 to 2009, he worked for Merrill Lynch
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 began his career with Merrill Lynch in 1982, working in various positions
in capital markets and research. From 2001 to 2003, he was the Head of Global Securities Research and Economics. In 2000,
he was appointed the Chief Operating Officer of Global Markets and Investment Banking. From 1998 to 2000, he was the
Global Head of Global Institutional Debt and Equity Sales. Mr. McCann graduated with a bachelor’s in economics from
Bethany College, West Virginia and 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 in Washington D.C.
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
CEO UBS Group Europe, Middle East and Africa
Year of initial appointment: 2009
Philip J. Lofts
British, born 9 April 1962
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Group Chief Risk Officer
Year of initial appointment: 2008
Robert J. McCann
American (US) and Irish, born 15 March 1958
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
CEO Wealth Management Americas
CEO UBS Group Americas
Year of initial appointment: 2009
214
Professional history and education
Tom Naratil was appointed Group CFO and became a member of the GEB in June 2011. He served as CFO and Chief Risk
Officer of Wealth Management Americas from 2009 until his current appointment. Before 2009, he held various senior
management positions within UBS, including heading the Auction Rate Securities Solutions Group during the financial crisis
in 2008. He was named Global Head of Marketing, Segment & Client Development in 2007, Global Head of Market Strategy
& Development in 2005, and Director of Banking and Transactional Solutions, Wealth Management USA in 2002. During this
time, he was a member of the Group Managing Board. He joined Paine Webber Incorporated in 1983, and after the merger
with UBS became Director of the Investment Products Group. Mr. Naratil holds an MBA in economics from New York
University and a Bachelor of Arts degree in history from Yale University.
Professional history and education
Alexander Wilmot-Sitwell was appointed co-Chairman and co-CEO of UBS Group Asia Pacific in November 2010. He be-
came a member of the GEB 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 the Chairman and CEO of UBS
Group Europe, the Middle East and Africa. Mr. Wilmot-Sitwell joined the firm in 1996 as the Head of Corporate Finance in
South Africa and moved to London in 1998 as the Head of UK Investment Banking. He 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 bachelor’s degree in modern history.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Wilmot-Sitwell is Vice President of the Save the Children Fund, London.
Professional history and education
Chi-Won Yoon has been co-Chairman and co-CEO of UBS Group Asia Pacific since November 2010. From June 2009 to
November 2010, he served as sole Chairman and CEO of UBS AG, Asia Pacific and has been a member of the GEB since June
2009. Prior to his current role, Mr. Yoon served as Head of UBS’s securities business in Asia Pacific: Asia Equities, which he
oversaw from 2004, and Asia Pacific 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, he worked
as an electrical engineer in satellite communications. In 1982, Mr. Yoon earned a bachelor’s degree in electrical engineering
from the Massachusetts Institute of Technology (MIT), and in 1986, a master’s degree in 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.
Tom Naratil
American (US), born 1 December 1961
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
Group CFO
Year of initial appointment: 2011
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 Asia Pacific
Year of initial appointment: 2008
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 Asia Pacific
Year of initial appointment: 2009
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215
Corporate governance, responsibility and compensation
Corporate governance
Professional history and education
Jürg Zeltner was appointed CEO UBS Wealth Management and co-CEO of Wealth Management & Swiss Bank, and became
a member of the GEB in February 2009. In November 2007, he was appointed as Head of Wealth Management North, East
& Central Europe. From 2005 to 2007, he was the 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, he was with Swiss
Bank Corporation in various roles within the Private and Corporate Client division in Berne, New York and Zurich. Mr. Zeltner
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.
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 ap-
proved strategies. The GEB constitutes itself as the risk council
of the Group. In this function, the GEB has overall responsibility
for the following: establishing and supervising the implementa-
tion of risk management and control principles; approving core
risk policies; and controlling the risk profile of the Group as a
whole as determined by the BoD and the Risk Committee. In
2011, the GEB held a total of 18 meetings.
➔ Refer to the Organization Regulations, which are available
at www.ubs.com/governance, for more information on the
authorities of the Group Executive Board
The Group Asset and Liability Management Committee (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 capital, liquidity and funding; and promot-
ing a one-firm financial management culture. The Organization Reg-
ulations additionally specify which powers of the GEB are delegated
to the Group ALCO. In 2011, the Group ALCO held nine meetings.
Management contracts
We have not entered into management contracts with any third
parties.
216
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 employment agreement with the Chairman of the
Board of Directors, nor the employment contracts with the Group
Executive Board (GEB) members, contain change of control clauses.
All employment contracts 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 members are enti-
tled to their salary and continuation of existing employment
benefits.
In case of a change of control, the Human Resources and Com-
pensation Committee may, at its discretion, accelerate the vesting
of restricted shares and amend the vesting date or lapse date of
options.
According to the agreement we have entered into with the
Swiss National Bank (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 SNB Stab-
Fund at its outstanding principal amount plus accrued interest,
and that we purchase the StabFund’s equity at 50% of its value
at the time.
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217
Corporate governance, responsibility and compensation
Corporate governance
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 Audit Committee
(AC), and ultimately the Board of Directors (BoD), supervises the
effectiveness of audit work.
➔ Refer to the “Board of Directors” section of this report for more
information on the Audit Committee
External independent auditors
At the 2011 Annual General Meeting (AGM), Ernst & Young were
reelected as auditors for the Group for a further one-year term of
office. Ernst & Young assume virtually all auditing functions ac-
cording to laws, regulatory requests and the Articles of Associa-
tion. The Ernst & Young lead partner in charge of the UBS financial
audit has been Jonathan Bourne since 2010 and his incumbency is
limited to five years. The Lead Auditor and Signing Partner leading
the FINMA regulatory audit in 2011 was Iqbal Khan, and Andreas
Loetscher was co-signing Partner, for both the financial and the
FINMA regulatory audit. Both have been in charge for UBS since
2011 with an incumbency of seven years. Ernst & Young will be
proposed for reelection at the AGM in 2012.
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 auditors in connection with cap-
ital increases. BDO AG will be proposed for reelection at the AGM
in 2012.
Fees paid to external independent auditors
The fees (including expenses) paid to our auditors Ernst & Young
are set forth in the table on the next page. In addition, Ernst &
Young received CHF 30,106,000 in 2011 (CHF 33,206,000 in
2010) for services performed on behalf of our investment funds,
many of which have independent fund boards or trustees.
Audit work includes all services necessary to perform the audit
in accordance with applicable laws and generally accepted audit-
ing standards, as well as other assurance services that convention-
ally only the auditor can provide. These include statutory and
regulatory audits, attest services, and the review of documents to
be filed with regulatory bodies.
Audit-related work comprises assurance and related servic-
es that traditionally are performed by the auditor, such as at-
test services related to financial reporting, internal control re-
views, performance standard reviews, consultation concerning
financial accounting and reporting standards and due dili-
gence investigations on transactions in which we propose to
engage.
Tax work involves services performed by professional staff
in Ernst & Young’s tax division, and includes tax compliance,
tax consultation and tax planning with respect to our own af-
fairs.
“Other” services are approved on an exceptional basis only.
They mainly comprise on-call advisory services. In addition, 2010
and 2011 included non-recurring expenses.
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.
The AC has delegated pre-approval authority to its Chairper-
son, hence the Group Chief Financial Officer (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 ap-
provals granted by its Chairperson and of services authorized un-
der bucket pre-approvals.
218
Fees paid to external independent 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
31.12.11
31.12.10
52,600
5,240
57,840
8,190
3,123
4,626
441
1,021
1,483
10,694
46,939
11,604
58,543
7,225
3,073
4,058
94
521
1,152
8,898
Tax advisory
Other
Total non-audit
Group Internal Audit
With 339 personnel worldwide on 31 December 2011, Group
Internal Audit performs the internal auditing function for the en-
tire Group. Group Internal Audit supports the BoD and its Com-
mittees in discharging their governance responsibilities by inde-
pendently assessing risk management, control and governance
processes; assessing the reliability of financial and operational in-
formation; and ensuring we are compliant with legal, regulatory
and statutory requirements. All reports with key issues are
provided to the Group Chief Executive Officer (Group CEO), the
Group Executive Board members responsible for the business
divisions and other responsible management. In addition, the
Chairman, the Risk Committee (RC) and the AC are regularly in-
formed about important issues. Group Internal Audit closely co-
operates with internal and external legal advisors and risk control
units on investigations into major control issues.
To maximize its independence from management, the Head of
Group Internal Audit, 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 and the AC may
order special audits to be conducted. Other BoD members, Com-
mittees or the Group CEO may request such audits with the ap-
proval of the AC or the RC.
Coordination and close cooperation with the external auditors
enhance the efficiency of Group Internal Audit’s work.
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219
Corporate governance, responsibility and compensation
Corporate governance
Information policy
We provide regular information to our shareholders and to the
financial community.
Financial disclosure principles
Financial results will be published as follows
First quarter 2012
Second quarter 2012
Third quarter 2012
2 May 2012
31 July 2012
30 October 2012
The Annual General Meeting of shareholders will take
place as follows
2012
2013
3 May 2012
2 May 2013
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.
Based on discussions with analysts and investors, we believe
that the market rewards companies that provide clear, consis-
tent and informative disclosure about their business. There-
fore, we aim to communicate our strategy and results in a
manner that allows shareholders and investors to gain an un-
derstanding 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 as-
sessed and, when we consider it appropriate, reflected in our
quarterly and annual reports. To continue to achieve these
goals, we apply the following principles in our financial report-
ing 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 disclosures relating
to risk management and control, capital, liquidity and funding
management.
Our financial statements are prepared according to IFRS as is-
sued by the International Accounting Standards Board.
➔ Refer to www.ubs.com/investors for a complete set of
published reporting documents and a selection of senior
➔ Refer to “Note 1 Summary of significant accounting policies” in
the “Financial information” section of this report for a detailed
management industry conference presentations
explanation of the basis of UBS’s accounting
➔ Refer to the corporate calendar at www.ubs.com/investors for
future financial report publication dates
220
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 Annual and
Extraordinary General Meetings, 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.
An evaluation was carried out under the supervision of
management including the Group Chief Executive Officer (Group
CEO) and Group Chief Financial Officer (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 concluded
that our disclosure controls and procedures were ineffective as of
31 December 2011, solely because of the deficiencies described in
“Management’s Report on Internal Control over Financial Report-
ing” in the “Financial information” section of this report.
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 2011. The external auditors’ report
on this assessment is also included in this report.
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221
Corporate governance, responsibility and compensation
Corporate responsibility
Corporate responsibility
In 2011, we continued working towards meeting the demanding societal goals and commitments we have set ourselves,
guided by our Code of Business Conduct and Ethics (the Code). While we undoubtedly faced significant challenges in
2011, this has only served to strengthen our resolve to ensure that all our people at every level follow the Code unre-
servedly both in letter and spirit. By adhering to the Code, we demonstrate our desire to be a responsible corporate
institution and to act with integrity in all our interactions with our stakeholders.
In 2011, we continued to make a valuable contribution to the fight
against money laundering, corruption and terrorist financing
(AML). We strengthened our management of environmental and
social (including human rights) risks, intensified our sustainability-
related business activities (notably via the further development of
our values-based investing), and continued with the execution of
our supply chain program and our investment in community activi-
ties as well as our in-house environmental management program.
As an illustration of the progress made regarding environmental
management, we have already reduced our global CO2 emissions
by 39% compared with 2004 levels, and we are confident that we
will very shortly meet our 40% reduction target for 2012.
We also strengthened senior management accountability in
relation to particular corporate responsibility activities, most nota-
bly through the oversight provided by two Group Executive Board
(GEB) Committees concerned with environmental and social risks
and community investment. These, and other corporate responsi-
bility developments at UBS, were monitored and reviewed by the
UBS Corporate Responsibility Committee (CRC), a Board of Direc-
tors (BoD) Committee.
Governance, strategy and commitments
Corporate responsibility governance
At UBS, the BoD is responsible for formulating our values and
standards to ensure we meet our obligations to all our stakehold-
ers. Both the Chairman of the BoD and the Group Chief Exe-
cutive Officer (Group CEO) play a key role in safeguarding our
reputation and ensuring we communicate effectively with all our
stakeholders.
All BoD Committees are focused on achieving our goal of cre-
ating sustainable value. Of the five BoD Committees, the CRC
shoulders the main undertaking for corporate responsibility. It ac-
tively reviews and assesses how we meet the existing and evolving
corporate responsibility expectations of our stakeholders. It also
monitors and reviews our corporate responsibility policies and
regulations, as well as the implementation of our corporate re-
sponsibility activities and commitments. Moreover, it regularly re-
views the Code. In 2011, no changes were made to the Code as
the CRC concluded that it continues to appropriately reflect the
relevant commitments.
➔ Refer to www.ubs.com/responsibility for more information on
➔ Refer to www.ubs.com/code for a copy of the UBS Code of
the contents of this section
Business Conduct and Ethics
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222
In 2011, BoD member Wolfgang Mayrhuber became chair of
the CRC. In addition to the Chairperson, the Committee has three
members, including the Chairman of the BoD. The committee is
advised by a panel of seven members of the GEB, including the
Group CEO, and other senior managers. The members of the advi-
sory panel participate in CRC meetings and are responsible for im-
plementing its recommendations. The advisory panel’s membership
also ensures that we benefit from a direct connection to opera-
tional corporate responsibility activities with, for instance, the
Group Environmental Representative being a member of the panel.
The GEB is responsible for the development and implementa-
tion of our Group and business division strategies including strate-
gies pertaining to corporate responsibility. At, or directly below,
GEB level there are various committees or boards concerned with
tasks and activities relating to particular aspects of corporate re-
sponsibility.
In 2011, the Global Environmental & Social Risk Committee
was established to address transactional and policy matters relat-
ing to environmental and social (including human rights) risks and
associated reputational risks. The Committee is chaired by the
Group Environmental Representative and includes five GEB mem-
bers. Additionally, our Environmental & Human Rights Committee
oversees the operational execution of UBS’s Environmental Policy
and Statement on Human Rights. The Committee consists of
senior environmental representatives drawn from each business
division and is supported by dedicated functions.
➔ Refer to www.ubs.com/environment for more information on
our environmental and human rights governance
Our efforts to combat money laundering, corruption and ter-
rorist financing are led by the Head of Global AML Compliance
and supported by a network of expert global business teams. To
enhance consistency and cooperation between our business divi-
sions we are working to streamline our policies and processes,
and to bolster the ways in which we assess threats and risks with-
in the business. We are determined to protect the firm and our
reputation from those who would use UBS to legitimize illicit as-
sets and we have put in place extensive and robust policies de-
signed to prevent, detect and report money laundering, corrup-
tion and terrorist financing.
➔ Refer to the discussion on combating financial crime below for
more information on our AML activities
Our global diversity and inclusion team supports senior man-
agement and Human Resources business partners in developing
diversity and inclusion-related strategies and plans for each busi-
ness division. The implementation of these strategies and plans is
monitored by the GEB. The global diversity team also coordinates
efforts to integrate diversity and inclusion awareness and content
into the Human Resources process. Regional diversity and inclusion
heads, along with senior business managers, consider and design
diversity and inclusion and business-aligned plans that are linked
to regional and divisional business and talent strategies. They also
provide regional support for divisional management in assessing
the progress made on relevant diversity and inclusion objectives.
Additionally, they support our numerous employee networks, in-
cluding the development and coordination of diversity-related
events, which support regional diversity and inclusion initiatives.
➔ Refer to the “Our employees” section of this report for more
information on labor standards and diversity programs
Following a strategic review of UBS’s Community Affairs activi-
ties, the governance structure has been streamlined and given a
more strategic focus with the creation of the Global Community
Affairs Steering Committee, chaired by the Group CEO and com-
posed of several members of our senior management. The Steer-
ing Committee sets the overall strategic direction and aims of our
community affairs. Furthermore, the Committee is ultimately re-
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223
Corporate governance, responsibility and compensation
Corporate responsibility
sponsible for deciding on our response to worldwide disasters.
Community activities are governed by a central framework based
on our Group community affairs guidelines overseen by the Steer-
ing Committee. These guidelines are supplemented by additional
regional guidelines, which are embedded in UBS’s regional struc-
tures. Each region has a dedicated Community Affairs team,
which coordinates charitable commitments by the firm and our
employees. The Corporate Center ensures global coordination of
these activities and provides a central reporting structure to col-
lect community investment data from across UBS as a whole. The
Steering Committee reports to the CRC regarding the most im-
portant decisions on strategy and funding.
➔ Refer to the discussion on community investment below for
more information on our charitable and related activities
External commitments and initiatives
By incorporating environmental and social standards and conven-
tions in our business practices we benefit from participation in
various external initiatives. These include the UN Global Compact
and its local network in Switzerland, the Wolfsberg Group, the
UNEP Finance Initiative (UNEP FI), the UN Principles for Responsi-
ble Investment, and the VfU (Association for Environmental Man-
agement and Sustainability in Financial Institutes).
In June 2011, the UN Human Rights Council endorsed the
Guiding Principles for the Implementation of the United Nations
“Protect, Respect and Remedy” Framework on business and hu-
man rights (the Guiding Principles). The Guiding Principles provide
a blueprint for companies to know and show that they respect
human rights, and reduce the risk of causing or contributing to
human rights harm. In May, directly prior to the UN’s endorse-
ment of the Guiding Principles, UBS convened a meeting in Thun,
Switzerland, of a number of universal banks (subsequently re-
ferred to as the Thun Group) to consider the Guiding Principles.
During the meeting the Thun Group initiated a process to interpret
the Guiding Principles with specific reference to their application to
the banking sector. A short statement on the Guiding Principles
was released by this group at the UNEP FI global sustainability
roundtable in October 2011. Subsequently, a practical guidance
tool, which sets out the challenges and best practice examples of
operationalizing the Guiding Principles in universal banks, has been
drafted and is currently under discussion within the group.
External ratings, assurance and awards
Our performance and success in the area of sustainability is re-
flected in the key external ratings and rankings we have achieved.
UBS was once again named as an index component for the Dow
Jones Sustainability Index (DJSI) World, increasing our total DJSI
score, and we are a member of the FTSE4Good index series. We
have been a continuous member of both the DJSI World and the
FTSE4Good since their inception.
We continue to be included in the Carbon Performance Lead-
ership Index, which is produced by the Carbon Disclosure Project.
The Index features companies that have distinguished themselves
through their efforts to reduce emissions and their strategies for
combating climate change. We are also represented in the Car-
bon Disclosure Leadership Index, figuring among the companies
which are setting the standards in reporting on the risks and op-
portunities arising for businesses in connection with climate
change. We are among the few financial sector companies repre-
sented in both Carbon Disclosure Project indices.
In 1999, we were the first bank to obtain ISO 14001 certifica-
tion for our worldwide environmental management system. The
management system covers all products, services and in-house
operations which may have an environmental impact. It is audited
annually and recertified every three years by SGS, a leading in-
spection, verification, testing and certification company. These
comprehensive audits verify that appropriate policies and process-
es are in place to manage environmental issues, and that they are
being implemented on a day-to-day basis. In 2011, UBS passed
the extensive ISO 14001 recertification audit, which consisted of
17 audit days and involved 170 employees in six countries. SGS
confirmed that we have a well-performing and fully integrated
environmental management system that is suitable for managing
environmental risks and helps to promote continuous improve-
ments to our environmental performance.
We achieved a top-four ranking in each of the key rankings for
brokerage firms in the 2011 Thomson Reuters Extel and UKSIF
Socially Responsible Investing & Sustainability Survey: Socially
Responsible Investment Research, Thematic Research, Corporate
Governance Research, and Renewable Energy Research.
In the UK, we received two major accolades for our work in
this field. We were ranked joint number one in The Environment
Agency’s new performance league table. This table ranks over
2,000 organizations according to early actions metrics that reflect
the installation of smart meters, as well as to what degree the
organization has satisfied the requirements of the Carbon Trust
Standard for good energy management. In December, UBS and its
Bridge Academy partnership (refer to the “Community invest-
ment” section below) won the UK Big Society Award established
by the UK Prime Minister, David Cameron. Commenting on the
award, the Prime Minister said: “The Bridge Academy is a brilliant
example of business working with their local community to make
a difference and create something really special for their area. The
innovative ideas, enthusiasm and skills of the UBS volunteers have
had a clear impact on the Academy, inspiring students and help-
ing them reach their potential.”
Furthermore, we were ranked third in Lundquist’s CSR Online
Awards Switzerland 2011, maintaining our top three ranking for
the third consecutive year. The CSR Online Awards consider how
well a corporate website is used as a platform for CSR communi-
cations and stakeholder engagement.
Stakeholder dialogue
Dialogue with external parties is crucial to our overall understand-
ing and approach to corporate responsibility. In 2011, we engaged
with experts and stakeholders on a range of topics. These includ-
ed discussions with investors on a wide range of environmental,
social and governance (ESG) topics and discussions with non-gov-
224
ernmental organizations on the subjects of deforestation, human
rights and coal. In addition, we sought input from our employees
regarding our corporate responsibility strategy and associated ac-
tivities. An internal, cross-divisional and cross-regional network of
experts continues to play a particularly important role, with its
members providing critical input on stakeholder expectations and
concerns. These contributions are relayed back to the CRC and pro-
vide a very valuable addition to information gathered through other
monitoring channels. To enhance further our provision of corporate
responsibility information to our stakeholders, we published a UBS
Health & Safety statement on our corporate responsibility website
following a review of our health and safety activities and efforts.
The statement demonstrates our long-standing commitment to
creating a work and business environment that safeguards the
health and safety of employees, business partners and clients.
Training and awareness-raising
Through induction, education and broader awareness-raising ac-
tivities we ensure that our employees are in no doubt as to the
importance of our societal commitments. General information is
published on our intranet and on our corporate responsibility
website. In 2011, training and awareness-raising activities for all
employees continued to focus on the Code, notably via the Lead-
ing UBS Forward program and through induction events for new
employees. Employees were also made aware of the firm’s corpo-
rate responsibility strategy and activities through other training
and awareness raising activities. Furthermore, some 19,300 em-
ployees received training on environmental issues. Of these,
15,700 received a general education on our environmental policy
and programs and 3,600 participated in specialist training target-
ed within their area of expertise and influence. Employee speaker
sessions, exhibitions and lunchtime training sessions have been
delivered in all regions alongside specific technical training for the
regional environmental team. Employees are also required to un-
dergo regular refresher training in AML-related issues. This in-
cludes online training, awareness campaigns and seminars.
➔ Refer to the “Education and talent development” section of this
report for more information
Responsible banking
We are focused on gaining and retaining the trust of all our stake-
holders alongside our goal of generating sustainable earnings and
creating long-term shareholder value. Our shareholders, clients,
employees and society in general demand that our banking ac-
tivities are undertaken in a responsible manner, and that our prod-
ucts and services are best suited to the needs and requirements of
our clients. Through our corporate responsibility efforts we dem-
onstrate that we are listening to our stakeholders and constantly
striving to meet their expectations.
Continuous improvement
Our commitment to responsible banking requires us to undertake
a regular and critical assessment of our policies and practices.
This, in turn, requires the careful consideration and assessment of
societal issues of potential relevance to UBS. With the Global En-
vironmental & Social Risk Committee, a GEB-level Committee,
and the CRC, a BoD-level Committee, we have demonstrated that
we have firmly established responsibility for the oversight of this
important and complex task at the highest level of the firm.
Combating financial crime
We will always act decisively to prevent potentially irresponsible or
harmful actions. First and foremost, this means that our employ-
ees must uphold the law, adhere to relevant regulations, and be-
have in a responsible and principled manner.
We continue to strengthen our efforts to both prevent and
combat financial crime. By taking responsibility to preserve the
integrity of the financial system, and our own operations, we are
committed to assisting in the fight against money laundering, cor-
ruption and terrorist financing. We employ a rigorous risk-based
approach to ensure our policies and procedures are able to detect
risks, and that relationships which are classified as higher risk are
dealt with appropriately. We adhere to strict know-your-clients
regulations but without undermining clients’ legitimate right to
privacy. Ongoing due diligence and monitoring assists in the iden-
tification of suspicious activities, including the use of advanced
technology to help identify transaction patterns or unusual deal-
ings. If discovered, they are promptly escalated to management or
control functions. During 2011, Global AML Compliance worked
closely with the Environmental and Social Risk group to develop
and introduce new and more effective ways to screen potential
business partners, vendors and clients in respect of any potential
issue regarding environmental and social risk.
As part of our extensive and ongoing efforts to prevent money
laundering, corruption and terrorist financing, additional enhance-
ments to address more specific risks in relation to corruption and
terrorist financing were implemented globally during 2011.
We are a founding member of the Wolfsberg Group, an asso-
ciation of 11 global banks established in 2000, which aims to de-
velop financial services industry standards and related products for
Know-Your-Customer, Anti-Money Laundering and Counter Ter-
rorist Financing policies. The Group continues to update its existing
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225
Corporate governance, responsibility and compensation
Corporate responsibility
publications and a revised version of the Trade Finance Principles
and Anti-Corruption Guidance was published in 2011. Together
with the other members of the Group, we continue to work close-
ly with the Financial Action Task Force, an inter-governmental body
that develops and promotes national and international policies to
combat money laundering and terrorist financing through consul-
tation processes with the private sector.
Managing environmental and social risks across UBS
Environmental and social (including human rights) risks are
broadly defined as the possibility that UBS is harmed reputa-
tionally or financially as a result of transactions, products, ser-
vices or activities such as lending, capital raising, advisory ser-
vices or investments that involve a party associated with
environmentally or socially sensitive activities, or exposed to risks
such as environmental liabilities, human rights infringements or
changes in environmental regulations. For products, services and
activities identified as having significant environmental and
social risk potential, procedures and tools for the timely identifi-
cation, assessment, approval and monitoring of such risks are
applied and integrated into standard risk, compliance and op-
erations processes.
– Client onboarding: new corporate clients are assessed for envi-
ronmental and social risks associated with their business activities
– Transaction due diligence: before proceeding with a transac-
tion, environmental and social risks are identified and analyzed
as part of standard transaction due diligence processes
– In-house environmental management: our operational activi-
ties and employees (or contractors working on UBS premises)
are assessed for compliance with relevant environmental and
labor rights regulations
– Supply chain management: prior to any new or renewed con-
tract being awarded, standardized checks are completed to as-
sess supplier and commodity specific environmental, labor and
human rights risks
Some of our clients operate in sectors characterized by ongoing
environmental and social challenges. To support the consistent
identification and assessment of such risks, we developed internal
industry sector guidelines in 2009. These guidelines, adopted by
each of our business divisions in their transactional and client due
diligence processes, provide an overview of key environmental and
human rights issues that arise in the various life cycles of the sector,
and summarize industry standards in dealing with them. The guide-
lines currently cover six sectors: chemicals; forestry products and
biofuels; infrastructure; metals and mining; oil and gas, and utilities.
In 2011, we strengthened further our environmental and social
risk management (including human rights) by executing the “UBS
position on relationships with clients and suppliers associated
with controversial activities” that was published in January. This
stipulates activities that we will not engage in, or will only engage
in under stringent pre-established guidelines. We will not know-
ingly provide financial services to corporate clients, nor will we
purchase goods or services from suppliers, where the use of pro-
ceeds, primary business activity, or acquisition target involves the
following environmental and social risks:
Extractive industries, heavy infrastructure, forestry and plantations
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 Species;
– high conservation value forests as defined by the six categories
of the Forest Stewardship Council;
– 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
enhance certification of its production;
– wetlands: on the RAMSAR list; and
– world heritage sites as classified by UNESCO.
Managing environmental and social risks
Environmental and social risk assessments 2
Requests by region
Americas
Asia Pacific
Europe, Middle East and Africa
Switzerland
Requests by business division 2
Investment Bank
Wealth Management & Swiss Bank
Wealth Management Americas
For the year ended
% change from
GRI 1
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
31.12.11
416
111
136
119
50
330
81
5
31.12.10
194
48
84
32
30
147
44
3
31.12.09
31.12.10
93
20
32
20
21
69
24
n/a
114
131
62
272
67
124
84
67
1 Global Reporting Initiative (see also www.globalreporting.org). FS stands for the performance indicators defined in the GRI Financial Services Sector Supplement. 2 Transactions and onboarding requests referred to
environmental and social risk functions.
226
All commercial activities that:
– engage in child labor: according to ILO Conventions 138 (min-
imum age) and 182 (worst forms);
– engage in forced labor: according to ILO Convention 29;
– threaten indigenous peoples’ rights in accordance with IFC
Performance Standard 7; and
– engage in diamond mining and trading of rough diamonds
unless Kimberley Process certified.
We also require enhanced due diligence and approval processes
in certain other areas, such as coal mining practices that use
mountain top removal in the US Appalachian Mountains as an
extraction method. As part of this review, we assess to what extent
companies rely on mountain top removal mining for their revenue
generation, and we need to be satisfied that the client is commit-
ted to reducing its exposure to this form of mining over time.
Following the execution of our position on relationships with
clients and suppliers associated with controversial activities by the
business divisions, the number of cases referred for assessment to
the environmental and social risk units in 2011 more than doubled
as shown by the table “Managing environmental and social risks”
on the previous page.
Environmental and social business opportunities
Equally as important as managing environmental and social risks is
providing financial products and services which help our clients
manage their environmentally and socially related business opportu-
nities. We seek to help investors benefit from such opportunities by
integrating environmental and social considerations, where relevant,
in our investment, research, ownership and financing processes.
This applies across our businesses in asset management, wealth
management, retail and corporate banking and investment bank-
ing. It includes funds, research and advisory services provided to pri-
vate and institutional clients, access to the world’s capital markets
for renewable energy firms and, in Switzerland, “eco” mortgages.
Investment products and advisory
Taking environmental, social and governance (ESG) issues into ac-
count in investment processes is becoming of increasing interest
to clients and consultants across all of our investment areas. Since
2009, Global Asset Management has demonstrated commitment
to ESG integration as a signatory to the UN Principles for Respon-
sible Investment. The Principles provide a voluntary framework by
which all investors can incorporate ESG issues into their decision-
making and ownership practices to better align their objectives
with those of society at large.
A dedicated Sustainable & Responsible Investment (SRI) team
within Global Asset Management offers a wide range of products
to their institutional clients, including thematic SRI funds which
are focused on innovative companies that provide solutions to the
challenges of climate change, water scarcity and demographic
change. They offer a range of products focusing on each individ-
ual theme and the UBS (Lux) Equity Fund Global Innovators, which
spans all three themes. In 2011, UBS broke new ground by listing
four exchange-traded funds (ETF) on the German Stock Exchange
that track sustainability leaders identified by socially responsible
indices, such as the new MSCI ESG Indices. Additionally, the team
offers customized client portfolios in the form of segregated
mandates / institutional accounts based on “negative” screening,
which exclude certain controversial stocks or sectors based on
their negative social or environmental impact, as perceived by the
client. Our global platform and investment research capabilities
enable us to offer such tailor-made solutions.
Furthermore, Global Asset Management’s Global Real Estate
business has defined and implemented a Sustainability and Re-
sponsible Property Investment strategy for its real estate products
and mandates. As a responsible property investor the financial
objectives of clients remain the primary focus, but we also con-
sider long-term social and environmental aspects.
In 2011, combined teams from philanthropy and values-based
investing (VBI) and sustainable investing developed further our
Socially responsible investments (SRI) invested assets 1
As of
% change
from
CHF billion, except where indicated
GRI 2
31.12.11
31.12.10
31.12.09
31.12.10
UBS total invested assets
UBS SRI products and mandates
positive criteria
positive criteria / RPI 3
exclusion criteria 4
exclusion criteria / policy-based restrictions 5
Third-party 6
Total SRI invested assets
Proportion of total invested assets (%) 8
2,167
2,152
2,233
FS11
FS11
FS11
FS11
FS11
FS11
1.84
28.19
27.46
181.49
2.59
241.57 7
11.15
2.00
na
21.27
na
2.40
25.67
1.19
2.72
na
22.44
na
1.69
26.85
1.20
1
(8)
na
29
na
8
841
1 The terms Socially Responsible Investing and Values-Based Investing are used interchangeably. All figures are based on the level of knowl-
edge as of January 2012. 2 FS stands for the performance indicators defined in the Global Reporting Initiative Financial Services Sector Sup-
plement. 3 Responsible Property Investment (RPI) strategy. 4 Includes customized screening services (single or multiple exclusion criteria).
5 Assets subject to restrictions under UBS policy on the prohibition of investments in companies related to anti-personnel mines and cluster
munitions. 6 SRI products from third-party providers apply either positive and exclusion criteria or a combination thereof. 7 Due to adjust-
ments in the reporting boundaries, 78.3% of reported assets have newly been included in 2011. 8 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.
227
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Corporate governance, responsibility and compensation
Corporate responsibility
holistic service offering in our wealth management businesses.
These teams provide thought leadership, advice, products and so-
lutions to assist our private clients and prospects who wish to in-
vest all or part of their portfolio according to their values and in-
vestment objectives and want to deliver positive change through
their philanthropy and investments. These services include sus-
tainability-focused alternatives to conventional products, mission-
related investing for donor-advised funds and private founda-
tions. They also include values-based portfolio management, such
as mandate solutions for private clients with a strong focus on
sustainability across all asset classes, portfolio review and propos-
als for the integration of sustainability into stock or bond selec-
tion. In the US, this offering also includes managed accounts
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 our private clients to customize mandates to
their particular social policy criteria.
In response to increased client demand we have expanded our
own offering and, through our open architecture, we can offer
clients the chance to invest in SRI bonds, equity and microfinance
products from leading third-party providers. The table “Socially
responsible investments (SRI) invested assets” on the previous
page shows that, as of 31 December 2011, our total SRI / VBI in-
vested assets were CHF 241.57 billion, representing 11.2% of our
total invested assets. The increase in our reported SRI / VBI invested
assets in 2011 is largely due to the expansion of our SRI / VBI report-
ing framework, which now includes products subject to our Sus-
tainability and Responsible Property Investment strategy. It also in-
cludes assets subject to restrictions under the UBS policy on the
prohibition of investments in companies related to anti-personnel
mines and cluster munitions, which applies to actively managed
retail and institutional funds domiciled in Switzerland, Luxembourg
and Ireland.
Research
Client interest in ESG issues has grown and, correspondingly, so
has our research coverage in this area. Specialized research teams
focus on a range of ESG issues, with a view to understanding what
impact developing trends such as climate change / energy efficien-
cy, water scarcity, demographics, and other potential environmen-
tal and social constraints might have upon the sectors and compa-
nies covered by our analysts. They collaborate closely with other
teams to write about emerging themes and relevant research con-
tent is regularly published by a growing number of mainstream
analysts. Specialized teams have been established within each of
our business divisions to serve their respective clients.
The ESG Analyzer is an Investment Bank publication that helps
clients take ESG issues into consideration at every stage of the
investment process. The ESG Analyzer was published several
times during 2011, but was only available for Europe and South
Africa. As a result of client demand, we now plan to make the
Analyzer available for other regions starting in 2012. The Q-se-
ries® reports focus on thought-provoking discussions, leading to
a firm-wide drive for more thoughtful, proprietary and valuable
research. The report “Q-series®: Water Risks to Business”
achieved the second-highest readership of any UBS Equity Re-
search publication in 2011. Additionally, during the year the
Investment Bank hosted both the annual UBS SRI Conference,
which was focused primarily on sustainable supply chains, and
the UBS Q-series® Sustainable Innovation Conference.
Wealth Management Research published a paper on Impact
Investing, a new investment philosophy that is attracting interest
from our clients. Reports under the “Greentech” label covered
investment ideas such as electric cars (more efficient cars and bet-
ter battery technology) and energy efficiency (smart grids, LED,
the future of energy). Furthermore, the Wealth Management &
Swiss Bank research magazine “UBS outlook on energy” included
an analysis of renewable forms of energy.
Clients also benefited from a series of bulletins from our senior
scientific advisor, Sir David King, director of the Smith School of
Enterprise and Environment at the University of Oxford and for-
merly the UK Government’s Chief Scientific Advisor and Head of
the Government Office of Science. These bulletins provided cli-
ents with an insight into a variety of current topics, including bio-
fuels and actions various countries were taking in relation to cli-
mate change.
Engagement and voting rights
We believe that voting rights have an economic value and should
be treated accordingly. Global Asset Management, wherever ap-
propriate, seeks to influence the corporate responsibility and corpo-
rate 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 be most favorable to the value of their in-
vestments. We are strongly supportive of the Stewardship Code
published by the UK Financial Reporting Council in 2010. This aims
to enhance the quality of engagement between institutional inves-
tors and companies. Good corporate governance should, in the
long term, result in better corporate performance and improved
shareholder value. As such, we expect board members of compa-
nies in which we have invested to act in the best interests of their
shareholders, and to view themselves as stewards of the company
by exercising appropriate judgment and by undertaking diligent
oversight of the management of the company. In 2011, we voted
on more than 48,000 separate resolutions at over 4,600 company
meetings. In addition, we are active members of a number of share-
holder bodies and are keen to work with like-minded shareholders.
Since 2010, Global Asset Management in Switzerland has of-
fered UBS Voice, a free service enabling holders of Swiss institu-
tional funds to express voting preferences ahead of the sharehold-
ers’ meeting of major Swiss corporations. This allows additional
shareholder input into the voting decisions of the funds’ manage-
ment company.
The Global Asset Management SRI team in Switzerland
engages in dialogue with companies represented in the SRI funds
they manage. The analysts and portfolio managers provide posi-
228
tive and negative feedback on relevant ESG issues that may im-
pact investment performance. This is carried out as part of the
regular communication process with corporate management
teams. When controversial information on a company’s environ-
mental or social performance is received, the SRI analysts contact
the company and provide management with a chance to demon-
strate what measures have been taken to resolve 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 applied to SRI funds in
addition to the positive screening processes.
Renewable energy and clean technology financing and advisory
In 2010, we created the Renewable Energy & Clean Technology
team (RE&CT) within our Investment Bank to focus our efforts and
build upon our successes in this important sector. RE&CT, which
includes five senior employees from four continents, provides
capital raising and strategic advisory services to renewable energy
and clean technology companies globally, including those in the
solar, wind, energy efficiency, biofuels and renewable chemicals
sectors.
In 2011, our global RE&CT team raised approximately USD
2.6 billion from fourteen equity and debt transactions and advised
on seven deals, establishing RE&CT as one of the leading clean
technology practices globally. Recent transactions include the
USD 123 million initial public offering (IPO) of Gevo, the first suc-
cessful IPO in next-generation biochemical and advanced bio-
fuels, the USD 220 million IPO of BYD Company, the largest
A-share IPO in the renewable energy sector in 2011, and the USD
162 million IPO of KiOR, the largest market cap of any pre-reve-
nue clean technology company upon IPO.
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 can
sell their unused quota to other entities, thereby creating an emis-
sions market. Through the use of financial instruments, we are
able to help our clients manage their exposure to the emissions
markets. UBS Exchange Traded Derivatives is an active member of
the major emission exchanges in Europe and North America, and
offers execution and full service clearing for contracts on EU ETS
allowances, UN Certified Emissions Reductions, Regional Green-
house Gas Initiative allowances, and permits for nitrogen oxide
and sulfur dioxide.
Corporate responsibility in operations
Our operational targets continue to focus on the direct environmen-
tal impact of the firm, including energy, paper, waste and water.
Having deployed a new carbon reporting system and rolled out
training to our local, regional and global specialists, we have en-
hanced further the quality of data capture (verified to ISO 14064)
and increased the speed with which management information
can be released.
Environmental and CO2 footprints
We have a direct impact on the environment in a number of ways:
our businesses consume electricity, notably through our IT systems,
and fossil fuels; employees travel, use paper and generate waste in
the course of their work; and offices require heating and comfort
cooling systems. Improving the ways we use these resources can
both reduce our operational costs and improve our environmental
performance. Therefore, we have put in place a series of measures
to efficiently manage our environmental impact.
Climate change strategy and emission reduction
In February 2006, the GEB decided to establish a Group-wide CO2
emission reduction target of 40% below 2004 levels by 2012. We
seek to achieve this target by adopting in-house energy efficiency
measures that reduce the energy consumption of our buildings
while increasing the proportion of renewable energy used. This
limits emissions at source. Emissions that cannot be reduced by
other means (e.g. business air travel) are offset. As a result, we
have reduced further our 2011 CO2 emissions, with an overall
global reduction of 39% below 2004 levels, and we are close to
achieving our targets for 2012.
Energy consumption and efficiency
Energy consumption has a significant environmental impact and
is the biggest contributor to our overall greenhouse gas emis-
sions. In line with our wider business strategy, improvements in
energy efficiency have helped to reduce both emissions and
costs. Our energy consumption is down 14% on the baseline
year of 2009 through a combination of building portfolio man-
agement, better building controls, data center efficiency and im-
proved employee housekeeping. Our IT-driven initiatives contrib-
uted significantly to these energy savings, most notably through
a server consolidation program, and the Desktop Transformation
Program that is deploying the latest in business PC hardware and
software globally.
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. In 2011, 45% of our energy consumption
came from renewable energy and district heating.
Business travel and offsetting CO2 emissions
Our levels of business air travel naturally mirror our client advisor
activity. In 2011, this resulted in a significant increase in business
air travel. We seek to reduce the environmental impact of air trav-
el and therefore actively promote and invest in video conferencing
where volumes have increased substantially.
For travel within Europe, we encourage an ongoing move to-
wards high speed rail travel in preference to air. The marketing
and events team has adopted the environmental guidelines for
229
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Corporate governance, responsibility and compensation
Corporate responsibility
(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)
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(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:2)(cid:20)(cid:20)(cid:18)(cid:14)(cid:23)(cid:27)(cid:25)
(cid:22)(cid:26)
(cid:23)(cid:19)
(cid:22)(cid:23)
(cid:22)(cid:21)
(cid:22)(cid:23)
(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:2)
(cid:20)(cid:18)(cid:19)(cid:19)
(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)
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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)
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client conferences and now considers the impact of delegate trav-
el, hotels, venue features and catering as part of their logistics
and planning.
Once again in 2011, we offset all CO2 emissions resulting from
agency booked business air travel. Working with reputable inter-
mediaries and a panel of internal specialists, we select projects
which meet the requirements of the Gold Standard for voluntary
emissions reductions while providing positive community bene-
fits. Schemes selected include wind power projects in Taiwan and
Turkey and a community biofuel project in China.
Paper, waste and water
We are making steady progress towards achieving our 2012 pa-
per consumption, waste generation and water usage reduction
targets (please refer to the tables “Environmental indicators per
full-time employee” below and “Environmental indicators” on
the next page). Double-sided printing and copying is now the de-
fault setting for most of our employees and, combined with an
ongoing shift towards the distribution of electronic documents,
has resulted in a 6% reduction in paper used per employee
against baseline year 2009. The share of office paper from Forest
Stewardship Council or recycled sources increased from 34% in
2009 to 44% in 2011. The continued implementation of bin-less
offices in many larger locations has reduced the waste per em-
ployee by 9% since 2009. However, our waste recycling ratio re-
Environmental indicators per full-time employee
Direct and intermediate energy
Business travel
Paper consumption
Waste
mained flat at 54%. Paradoxically, this is due to our success in
reducing paper consumption, which is a significant recyclable
waste stream. Our water consumption decreased 22% compared
with 2009 levels.
(cid:21)(cid:24)(cid:14)(cid:21)(cid:20)(cid:21)
(cid:21)(cid:19)(cid:14)(cid:24)(cid:21)(cid:23)
(cid:27)(cid:26)(cid:14)(cid:27)(cid:19)(cid:26)
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(cid:20)(cid:21)(cid:18)(cid:14)(cid:18)(cid:19)(cid:23)
(cid:20)(cid:20)(cid:23)(cid:14)(cid:26)(cid:23)(cid:22)
Supply chain management
In 2011, UBS spent over CHF 6.7 billion purchasing products and
services ranging from office maintenance services across IT infra-
structure to components such as stationery. Responsible supply
chain management (RSCM) principles serve to embed our 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 cor-
ruption. In 2011, over 600 suppliers were screened according to
our social and environmental criteria. We also trained 42 procure-
ment and sourcing officers to help with this work, and responsible
supply chain requirements were included in the agreements with
relevant suppliers who were awarded contracts. Also in 2011, sup-
ply & demand management developed a risk rating concept to al-
low us to focus better on the potential risks of products and ser-
vices and increase our impact in the area of RSCM. Finally, we
engaged in a full strategic review of our RSCM operations and de-
veloped an action plan for 2012 to ensure best practice in this area.
(cid:22)(cid:37)(cid:52)(cid:18)(cid:18)(cid:24)(cid:65)(cid:71)
(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)
Community investment
We are continuing with our well-established tradition of support-
ing the advancement and empowerment of organizations and
individuals within the communities in which we do business. Our
initial focus was centered on direct cash donations, but we have
progressed to a position where our community investment pro-
gram encompasses employee volunteering, matched-giving
schemes, in-kind donations, disaster relief efforts and partner-
ships with community groups, educational institutions and cul-
tural organizations in all of our business regions.
Community Affairs
In 2011, UBS and our affiliated foundations made direct cash
donations totaling CHF 31.1 million to carefully selected non-
profit partner organizations and charities. These donations were
directed primarily towards achieving our Community Affairs key
500000
437500
375000
312500
250000
187500
125000
62500
0
Unit
kWh / FTE
Pkm / FTE
kg / FTE
kg / FTE
m3 / FTE
t / FTE
2011
12,459
11,489
122
242
30.1
3.32
Trend
➙
➙
➙
➘
➘
2010
12,633
8,743
119
251
33.3
3.66
2009
11,986
7,016
130
265
31.9
3.12
Water consumption
CO2 footprint
Legend: FTE = full-time employee; kWh = kilowatt hour; Pkm = person kilometer; kg = kilogram; m3 = cubic meter; t = tonne
230
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
827 GWh
EN3
128 GWh
84.2%
13.1%
2.6%
0.03%
EN4
699 GWh
18.1%
2.3%
15.8%
10.8%
29.5%
13.9%
9.7%
45%
EN29
762 m Pkm
EN1
EN2
EN22
EN8
EN16
EN16
EN17
1.5%
0.4%
98.1%
337,573
8,093 t
18.2%
26.1%
55.6%
0.1%
16,083 t
54.2%
20.0%
25.8%
2.00 m m3
25,235 t
227,978 t
110,010 t
363,223 t
53,759 t
88,867 t
2011 2
Data
quality 5
***
Trend 6
➙
**
**
***
***
***
***
**
***
**
**
***
***
***
***
***
***
**
***
***
***
***
***
***
**
***
***
***
**
**
**
***
***
***
***
***
➙
➙
➙
➚
➙
➙
➙
➙
➙
➙
➙
➙
➘
➙
➙
➘
➙
➘
➙
➘
2010 2
Absolute
normalized 4
859 GWh
137 GWh
82.6%
15.0%
2.3%
0.02%
2009 2
Absolute
normalized 4
957 GWh
132 GWh
84.6%
10.9%
4.5%
0.05%
722 GWh
825 GWh
16.3%
4.1%
17.1%
11.5%
29.1%
13.5%
8.5%
43%
10.6%
2.9%
17.5%
9.5%
28.0%
23.6%
7.8%
51%
595 m Pkm
560 m Pkm
1.9%
0.5%
97.6%
258,766
8,076 t
21.9%
20.9%
57.0%
0.3%
3.7%
1.0%
95.3%
258,396
10,349 t
16.7%
17.1%
65.9%
0.4%
17,053 t
21,183 t
53.7%
18.1%
28.2%
2.27 m m3
27,153 t
248,893 t
89,957 t
366,003 t
57,226 t
69,152 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
220,597 t
Total net GHG emissions (GHG footprint) 15
Legend: GWh = gigawatt hour; Pkm = person kilometer; t = tonne; m3 = cubic meter; m = million; CO2e = CO2 equivalents
1 All figures are based on the level of knowledge as of January 2012. 2 Reporting period: 2011 (1 July 2010–30 June 2011), 2010 (1 July 2009–30 June 2010), 2009 (1 July 2008–30 June 2009). 3 Global Report-
ing 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 associated 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 emissions from our business air travel. 15 GHG footprint equals gross GHG emissions minus GHG reductions from renewable energy and CO2e offsets.
239,624 t
249,101 t
***
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231
Corporate governance, responsibility and compensation
Corporate responsibility
themes of “education” and “entrepreneurship”. Contributions
were also made to other activities, in particular disaster relief,
including CHF 3.2 million in Japan. These donations, combined
with other significant activities, notably the volunteering activi-
ties of employees, have continued to provide substantial bene-
fits to projects and people around the world (see examples
below).
Across all business regions, our employees continue to play a
very active role in our community investment efforts, in particu-
lar through their volunteering activities. In 2011, 11,678 employ-
ees spent 105,000 hours volunteering. We support their com-
mitment by offering up to two working days a year for
volunteering efforts, and also match employee donations to se-
lected 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 2011, these organizations have
Examples of UBS’s community investment activities across the globe
Americas – In 2011, we developed a
unique community partnership with artist
Stephen Wiltshire and student artists from
The Children’s Aid Society, The Harlem
School of the Arts, and the YMCA of
Greater New York. New York City:
Through our eyes was a special exhibition
focusing on the New York City skyline
from varying perspectives. It was used as
a foundation for the young artists to
reflect on their own feelings about their
community. The program allowed
students to draw their own interpretation
of the skyline as a way to learn and
engage in discussions about 9 / 11 and
their neighborhoods in general. The main
feature of the exhibition is Wiltshire’s
intricate panorama of the New York City
skyline. This panorama can be seen on a
160-foot long UBS billboard greeting
passengers arriving at the JFK Interna-
tional Airport terminal. To commemorate
the 10th anniversary of 11 September
2001, UBS published Reflections of
Recovery and Resurgence: UBS 9 / 11
Humanitarian Relief Fund, a booklet
which highlights the firm’s commitment
and support of the National September 11
Memorial & Museum. Immediately
following the events of 9 / 11, UBS created
the UBS 9 / 11 Humanitarian Relief Fund
to provide assistance to victims as well as
long-term grants for the children of
victims. This booklet also provides helpful
information related to support groups,
guidance for talking to your family about
9 / 11, and other resources.
Our mentor programs, which operate in
four US cities, continue to be our main
volunteer initiatives. In 2011, employees
volunteered to become mentors to
hundreds of children – helping students
build the confidence and skills they need
for future success. Our mentor programs
empower students of all ages and range
from the Power Lunch reading program
designed to increase elementary school
literacy through to college preparatory
and career skills development for high
school students through our iMentor
program.
To encourage the development of quality
education, the Americas region is
supporting innovative and collaborative
after-school programs for Beacon centers
in New York City. These high school
after-school programs aim to integrate
children’s learning experiences in and
outside the classroom as well as offering
career skills development, job training and
computer literacy that contribute to
greater opportunities for success after
graduation.
Asia Pacific – The Community Leadership
Experience, developed in partnership with
Charities Aid Foundation India, was held
in June 2011 in Mumbai. It focused on
women leaders and the 20 participants
came away with fresh perspectives on
how to tackle the challenges of leading
and managing a not-for-profit organiza-
tion in India. Launched in 2008, the
annual three-day program has been
welcomed by the non-profit sector as a
much-needed platform to bring leaders
together. Participants get to share and
learn from each other and help to
improve their own organization’s capacity
to deliver services to their own commu-
nity. Across the Asia Pacific region, UBS
employees continued to volunteer in
record numbers and, in 2011, significantly
increased the number of hours contrib-
uted to our community partners. In Japan,
volunteers from the Investment Bank
worked with Social Venture Partners
Tokyo to develop financial accounting
232
Examples of UBS’s community investment activities across the globe
again made valuable contributions to important social causes,
including fostering the humanities and the creative arts, sup-
porting communities in need, and helping disabled and disad-
vantaged people.
Client foundation
The UBS Optimus Foundation is one of Switzerland’s largest char-
itable foundations. It is a non-profit organization which offers
UBS clients a broad range of opportunities to improve the lives of
children around the globe and has contributed over CHF 118 mil-
lion to 250 projects in 73 countries since its foundation. Employ-
ing the highest standards of quality when selecting or monitoring
its projects and project partners, the Foundation plays a key role
in bringing about positive social change in the areas in which it
targets, including healthcare, education and child protection. As
UBS bears all the administrative costs related to the UBS Optimus
Foundation, clients can be sure that 100% of every donation goes
directly to the projects themselves.
processes for 10 new start-up not-for-
profit organizations. In Singapore, more
than 200 employees and interns helped
to organize the International Association
for Volunteer Effort’s biannual World
Volunteer Conference which attracted
more than 1,000 participants from
around the globe. At this event, UBS
continued its support for a unique
program which aims to increase the
capability of not-for-profit organizations
to secure funding from the private sector.
Called “The Pitch”, five finalists taken
from more than 100 applicants from
around the globe competed before a live
audience and panel of expert judges to
secure funding for innovative volunteer
management projects.
Europe, Middle East and Africa –
Throughout the region, we continue to
support educational and entrepreneurial
activities, particularly in areas close to
where we conduct our business. We now
have active Community Affairs programs
in the UK, France, Italy, South Africa,
Poland, UAE, Russia, Ireland and Jersey.
The regional flagship program is our
partnership with the Bridge Academy, a
mixed, non-denominational school for
11–18 year olds in Hackney, one of the
most deprived boroughs in London and
adjacent to UBS’s London base. In 2003,
UBS agreed to sponsor a new secondary
school under the UK government’s “Acad-
emy” program. UBS volunteers helped
develop the vision and plans for the devel-
opment of the Bridge Academy which
opened in 2007. A fundamental principle
of the partnership is that all activity must
directly improve student attainment and
achievement. To date, 1,700 volunteers
have contributed over 18,000 hours in a
range of activities.
– Governance: five UBS Managing
Directors form a majority on the
governing body, contributing strategic
expertise and taking responsibility for
the Bridge Academy’s direction and
results
– Literacy and numeracy: intervention
schemes involving 80 volunteers per
week
– Work-related learning program:
providing an introduction to the world
of work, a focus on relevant skills and
the motivation to think positively about
the working world
– Bespoke activities range from design-
ing a virtual trading project with 54
top maths students from the Academy
working with equities traders, through
to engaging with Stonewall and the
UBS Pride Network to work with
180 students to help tackle homo-
phobic bullying
– UBS volunteers provide support for
Bridge staff learning and development,
finance, operations, communications,
fundraising and IT
Switzerland – During the European
Year of Volunteering in 2011, UBS
launched a unique national volunteering
project to restore Swiss hiking trails. UBS
em ployees replaced broken or inaccurate
signposts, restored sections of the
network of hiking trails and constructed
new ones. Through their volunteering
efforts UBS employees helped to ensure
the continued quality and safety of the
hiking trails. This, in turn, helps to
ensure that hiking remains a popular
and healthy leisure activity. The volun-
teering activities took place in six loca-
tions across Switzerland. In total,
319 em ployees participated in this
important project volunteering 3,805
hours.
➔ Refer to www.ubs.com/community
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233
Corporate governance, responsibility and compensation
Our employees
Our employees
Our employees’ drive, skill and dedication are key to meeting the needs of our clients and building our businesses.
We are committed to investing in our talent and to attracting, developing and retaining highly qualified people, while
maintaining our reputation as a leading employer. We are also dedicated to promoting a performance-oriented culture
that values and encourages collaboration across the entire Group. This helps to maximize opportunities to create value
for the firm and support our employees’ success.
Our workforce
Our competitive strength depends on the quality of our people.
Hiring, developing and retaining high-quality employees are pri-
orities for the firm, as our workforce is fundamental to the success
of our strategy. Due to ongoing market challenges, we had to
make some difficult business decisions in 2011 that impacted our
workforce, including personnel reductions. Throughout this pro-
cess, we endeavored to act as a responsible employer, making full
use of our internal labor market and, where necessary, career
transition support services. We also continued to invest in the de-
velopment and training of talented employees who can help us to
grow our businesses.
In general, employee levels were stable in 2011, with the num-
ber of people employed on 31 December 2011 at 64,820, up 203
or 0.3% from year-end 2010. In 2011, our employees worked in 57
countries, with approximately 36% of our staff employed in Swit-
zerland, 35% in the Americas, 17% in the rest of Europe, the
Middle East and Africa and 12% in Asia Pacific. Employee turnover,
as a percentage of average overall headcount, was 13.8% in 2011.
Employee-initiated turnover was 6.9%, down 0.2% from 2010.
Internal mobility encourages integration, collaboration and in-
novation, as well as individual career development. In 2011, we
continued to support employee mobility across all regions and
business divisions. In 2011, 472 employees moved to roles in a
different region, compared with 489 in 2010. In 2011, 1,228 em-
Personnel by region
Full-time equivalents
Switzerland
UK
Rest of Europe
Middle East and Africa
USA
Rest of the Americas
Asia Pacific
Total
Personnel by reporting segment
Full-time equivalents
Wealth Management
Retail & Corporate
Wealth Management & Swiss Bank
Wealth Management Americas
Global Asset Management
Investment Bank
Corporate Center
Total
of which: Corporate Center personnel (before allocations) 1
31.12.11
23,188
6,674
4,182
162
21,746
1,177
7,690
64,820
31.12.11
15,904
11,430
27,334
16,207
3,750
17,256
274
64,820
19,270
As of
31.12.10
23,284
6,634
4,122
137
22,031
1,147
7,263
64,617
31.12.09
24,050
6,204
4,145
134
22,702
1,132
6,865
65,233
% change from
31.12.10
0
1
1
18
(1)
3
6
0
As of
31.12.10
% change from
31.12.09
31.12.10
15,663
12,089
27,752
16,330
3,481
16,860
194
64,617
19,472
15,408
12,140
27,548
16,925
3,471
15,666
1,624
65,233
20,054
2
(5)
(2)
(1)
8
2
41
0
(1)
1 Please note that some of the figures in this table may differ from those originally published in quarterly and annual reports (for example due to adjustments following organizational changes).
234
ployees transferred between business divisions, compared with
1,290 in 2010.
(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:19)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:20)(cid:21)(cid:14)(cid:21)(cid:25)(cid:21)(cid:2)
(cid:25)(cid:14)(cid:26)(cid:22)(cid:21)(cid:2)
(cid:22)(cid:14)(cid:24)(cid:21)(cid:21)(cid:2)
(cid:20)(cid:22)(cid:14)(cid:19)(cid:22)(cid:20)(cid:2)
(cid:24)(cid:14)(cid:26)(cid:24)(cid:22)
(cid:2)
(cid:20)(cid:26)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:19)(cid:14)(cid:18)(cid:18)(cid:18)
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(cid:26)(cid:14)(cid:25)(cid:27)(cid:22)
(cid:2)(cid:2)(cid:25)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:22)(cid:14)(cid:23)(cid:25)(cid:27)
(cid:21)(cid:14)(cid:23)(cid:21)(cid:20)
(cid:22)(cid:14)(cid:21)(cid:19)(cid:19)
(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:19)(cid:22)
(cid:20)(cid:14)(cid:25)(cid:19)(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:24)(cid:18)
(cid:19)(cid:23)(cid:14)(cid:22)(cid:26)(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:19)(cid:19)(cid:21)
(cid:22)(cid:14)(cid:25)(cid:23)(cid:19)
(cid:55)(cid:80)(cid:75)(cid:86)(cid:71)(cid:70)
(cid:45)(cid:75)(cid:80)(cid:73)(cid:70)(cid:81)(cid:79)
(cid:22)(cid:42)(cid:52)(cid:18)(cid:18)(cid:24)(cid:65)(cid:71)
Recruiting new employees
Despite the challenging operating environment, we continued to
recruit new talent to help strengthen and grow our businesses. In
2011, there was a strong focus on recruiting experienced client
advisors in our asset-gathering businesses and making targeted
hires in our investment banking and centrally managed functions.
We continued to invest in talent for the future by hiring graduates
and interns in each of our operating regions. We reduced hiring
costs further in 2011 by increasing internal hires and making the
most of employee referrals, both of which reduced the need to
use outside agencies to fill positions.
We continued to be an attractive employer in 2011. Globally,
94% of candidates accepted our offer of employment, with 97%
of individuals in Switzerland accepting. UBS ranked third among
Swiss business students in the 2011 Universum Switzerland’s Ideal
Employers survey.
In 2011, we filled 6,459 positions across the firm. This was a
decrease of 29% compared with 2010, largely due to significant-
ly less recruiting in the Investment Bank and in centrally managed
functions. Wealth Management & Swiss Bank hired 414 client ad-
visors globally; 686 financial advisors were hired in Wealth Man-
agement Americas in 2011. Referrals from current employees
were an important source for these hires; for example, in Asia
Pacific, employee referrals accounted for 49% of the client advi-
sors we hired. In addition, specialized client advisor associate pro-
grams were launched in Switzerland and Asia Pacific to recruit
professionals from other industries into client advisory roles.
Several new recruiting initiatives were launched in 2011 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. As part of our under-
graduate and MBA graduate training programs, 1,111 university
graduates joined UBS in 2011. An additional 1,215 interns were
hired globally over the course of the year. Our apprenticeship pro-
gram in Switzerland continued to be strong in 2011, hiring 300
apprentices.
Strengthening and sustaining our diverse workforce and
inclusive work environment
In today’s global business environment, we believe it is essential to
have a workforce of individuals from widely differing back-
grounds, cultures and life experiences. Diversity in gender, ethnic-
ity, nationality, religion, age, disability, sexual orientation and
other factors supports the firm in meeting the needs of our in-
creasingly diverse client base. We also believe a diverse employee
base and inclusive work environment increases employees’ en-
gagement. Ultimately, our success depends on equal employment
opportunities and having the best person in each role. We are
committed to increasing the diversity of our workforce at all levels
of the organization, as well as increasing our retention of diverse
(cid:19)(cid:2)(cid:37)(cid:67)(cid:78)(cid:69)(cid:87)(cid:78)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:67)(cid:85)(cid:75)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:67)(cid:2)(cid:82)(cid:71)(cid:84)(cid:85)(cid:81)(cid:80)(cid:2)(cid:10)(cid:89)(cid:81)(cid:84)(cid:77)(cid:75)(cid:80)(cid:73)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:15)(cid:86)(cid:75)(cid:79)(cid:71)(cid:2)(cid:81)(cid:84)(cid:2)(cid:82)(cid:67)(cid:84)(cid:86)(cid:15)(cid:86)(cid:75)(cid:79)(cid:71)(cid:11)(cid:2)(cid:75)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:70)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:71)(cid:2)(cid:74)(cid:71)(cid:67)(cid:70)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:2)(cid:75)(cid:80)(cid:2)
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(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:85)(cid:86)(cid:67)(cid:72)(cid:72)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:37)(cid:67)(cid:84)(cid:70)(cid:2)(cid:37)(cid:71)(cid:80)(cid:86)(cid:71)(cid:84)(cid:14)(cid:2)(cid:42)(cid:81)(cid:86)(cid:71)(cid:78)(cid:2)(cid:53)(cid:71)(cid:71)(cid:82)(cid:67)(cid:84)(cid:77)(cid:2)(cid:54)(cid:74)(cid:87)(cid:80)(cid:14)(cid:2)(cid:57)(cid:81)(cid:78)(cid:72)(cid:85)(cid:68)(cid:71)(cid:84)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:57)(cid:75)(cid:70)(cid:70)(cid:71)(cid:84)(cid:2)(cid:42)(cid:81)(cid:86)(cid:71)(cid:78)(cid:16)
employees. At the same time, we seek to strengthen and sustain
an inclusive work environment that encourages employee devel-
opment and enhances client relationships.
Our workforce is truly global. We have 895 offices in 57 coun-
tries, and our employees are citizens of 146 countries. In 2011, the
average age of our employees was 38 years and the average length
of employment at the firm was 8.6 years. In Switzerland, more than
51% of employees have worked at UBS for more than 10 years.
Our global strategy is delivered through concrete action plans
for each business, the integration of diversity and inclusion into
our people management processes, and regional initiatives that
reinforce our global strategy. For example, we integrated informa-
tion regarding “unconscious bias” into our performance manage-
ment processes in 2011.
In 2011, regional diversity teams continued to work with busi-
ness and human resource leaders on plans linked to regional tal-
ent strategies. For example, in 2011, a cross-divisional gender ini-
tiative in parts of Europe that aims to build a culture in which men
and women thrive equally in their careers was extended to Asia
Pacific and rolled out across the Investment Bank. Components
include training for managers, providing sponsoring opportunities
for senior-level women, enhancing support for employees on ma-
ternity leave and a focus on flexible working options for all em-
ployees. Over 50% of the business areas or regions in the initial
group have shown a proportionate increase in the number of fe-
male Executive and Managing Directors due to hiring, promotion
or retention since the program launched in 2009.
In 2011, we relaunched a mentoring program in Switzerland
for women Associate Directors and Directors to help women fo-
cus on their career progression. The second annual UK Diversity &
Inclusion Week, designed to raise awareness about the value of a
diverse and inclusive workplace and what it takes to build one,
featured a wide range of employee events, awards, and presenta-
tions on workplace diversity and inclusion issues. In Asia Pacific,
we worked with our businesses to sponsor marketing events
235
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(cid:19)(cid:22)(cid:18)(cid:18)(cid:18)
(cid:25)(cid:18)(cid:18)(cid:18)
(cid:18)
Corporate governance, responsibility and compensation
Our employees
Gender distribution by employee category 1
As of 31.12.11
Male
Female
Total
Officers
(Director and above)
Officers
(other officers)
Non-officers
Total
Number
18,319
4,850
23,169
%
79.1
20.9
100.0
Number
14,563
8,214
22,777
%
63.9
36.1
100.0
Number
8,960
11,949
20,909
%
42.9
57.1
100.0
Number
41,842
25,013
66,855
%
62.6
37.4
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-2011 employee number of 66,855, which excludes staff from
UBS Card Center, Hotel Seepark Thun, Wolfsberg and Hotel Widder.
targeted specifically toward female clients. In the US, we launched
a recruiting initiative to hire a number of financial advisors to pro-
vide insight and access to underserved, diverse market opportuni-
ties. Online “harassment free” workplace training also was intro-
duced in the US, in addition to existing classroom training.
provide a framework for performance management that features
regular opportunities for employee-manager dialogue, consis-
tent and transparent assessment processes and a clear link be-
tween performance, demonstrated achievements and compen-
sation.
More than 11,500 employees are members of over 25 employ-
ee networks across UBS that help build cross-business relation-
ships and strengthen our inclusive culture. In the US, for example,
a “straight ally” initiative significantly raised participation from
the firm’s leaders and increased membership in our lesbian, gay,
bisexual and transgender (LGBT) employee network by promoting
an inclusive and supportive workplace environment. A straight
ally member is encouraged to proactively support the inclusive
treatment of LGBT colleagues, and participate in community ser-
vice, networking and educational events to demonstrate their
support. Our global network guidelines enable employees to set
up or join employee networks / affinity groups in all our operating
regions. Additionally, our human resource policies and processes
have global coverage and outline our commitment to nondiscrim-
ination, a harassment-free workplace and equal opportunity for
all employees.
Managing performance
We are committed to giving employees the tools and support they
need to be effective in their jobs and advance their careers. We
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(cid:73)
(cid:79)
(cid:50)
(cid:67)
(cid:71)
(cid:84)
(cid:80)
(cid:67)
(cid:73)
(cid:71)
(cid:79)
(cid:71)
(cid:80)
(cid:86)
(cid:72)
(cid:81)
(cid:84)
(cid:79)
(cid:67)
(cid:80)
(cid:69)
(cid:71)
(cid:80) (cid:80) (cid:75) (cid:80) (cid:73)
(cid:75) (cid:80) (cid:73)
(cid:69)
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(cid:67)(cid:80) (cid:70)(cid:2)(cid:85) (cid:81)
(cid:87)
(cid:84)
(cid:75) (cid:80) (cid:71) (cid:85) (cid:85)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:91)
(cid:85)
(cid:87)
(cid:36)
(cid:49)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:85)
(cid:71)
(cid:86)
(cid:86)(cid:75)
(cid:80)
(cid:80)
(cid:75)(cid:81)
(cid:85)
(cid:85)
(cid:71)
(cid:69)
(cid:69)
(cid:87)
(cid:85)
(cid:17)
(cid:86)
(cid:80)
(cid:71)
(cid:86)
(cid:80)
(cid:71)
(cid:79)
(cid:71)
(cid:73)
(cid:67)
(cid:80)
(cid:67)
(cid:79)
(cid:40)(cid:81)(cid:85)(cid:86)(cid:71)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)
(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:14)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:85)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:79)(cid:82)(cid:78)(cid:81)(cid:91)(cid:71)(cid:71)
(cid:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:69)(cid:87)(cid:78)(cid:86)(cid:87)(cid:84)(cid:71)
(cid:78)
(cid:67)
(cid:54)
(cid:38)
(cid:39)
(cid:79)
(cid:82)
(cid:78)
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(cid:91)(cid:71)(cid:71)(cid:2)(cid:82)(cid:81)(cid:78)(cid:75)(cid:69)(cid:75)(cid:71)(cid:85) (cid:2) (cid:67) (cid:80) (cid:70) (cid:2) (cid:82) (cid:84) (cid:67)(cid:69)(cid:86)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:67) (cid:84) (cid:70)
(cid:89)
(cid:52)
(cid:71)
(cid:71)
(cid:88)
236
In 2010, we made some significant changes to our perfor-
mance management processes to increase transparency, support
employee development and better reward employees in line with
their contributions. These goals have not changed. However,
based on employee feedback and a comprehensive review of the
impact, we amended some aspects of the evaluation process in
2011. These changes were made to increase efficiency, improve
the business focus of assessments and put more emphasis on in-
dividual development. Our underlying goal remains: to strengthen
our performance culture and focus on our strategy so we can
achieve long-term, sustainable profitability.
Employees’ performance reviews are based on their contribu-
tion and whether their individual performance appropriately re-
flects factors like leadership, collaboration and teamwork, client
focus and professional behavior. In 2011, 99% of the employees
eligible to participate in the firm’s global performance assessment
received a performance review.
Performance management for our senior executives and cer-
tain other key employees is especially rigorous. Senior leaders,
including all Group Executive Board (GEB) members, receive a
comprehensive evaluation based on key achievements, business
performance, risk management, leadership skills and meeting
specific financial targets. Direct peer input is also required.
In 2011, our “key risk takers and controllers” were again sub-
ject to extended performance management procedures. These
individuals may work in front office, logistics or control functions,
and, due to their role are able to materially commit, use or control
the firm’s resources and exert significant influence over our risk
profile. We therefore ensure that a holistic evaluation is conduct-
ed 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 and salary ranges that are appli-
cable to all employees. We also have a standardized role classifi-
cation model across the firm. Many human resource processes
are based on these global role profiles, and this enables more
clearly defined career paths and development plans for all em-
ployees.
Education and talent development
We take a structured approach to leadership and professional de-
velopment, business education and talent management. This
helps ensure that our employees and senior leaders have the
knowledge, skills and experience required to succeed in their roles
and support our strategic goals. The UBS Business University is our
global corporate university, composed of nine physical locations,
several smaller in-house facilities and a comprehensive online
training library. It manages all of UBS’s learning activities, ensuring
that they are aligned with Group-wide, divisional and regional
business strategies.
One of the Business University’s primary objectives is to help
our senior leaders and our key talent build an effective leadership
culture so that they can work together to attain the firm’s goals.
A series of leadership development offerings, management skills
training and new hire programs equip our current and future
leaders with the skills to lead UBS forward. Collaborative, cross-
divisional learning is a hallmark of our leadership development
and talent programs.
As a firm, we must be able to offer our private, corporate and
institutional clients a broad range of products and services. Client
Leadership Experience (CLE) workshops bring together client-fac-
ing employees from all divisions to build the knowledge, skills and
networks needed to deliver the best solutions from the entire firm
to our clients. In 2011, 33 workshops were held in 13 cities in the
Americas, Europe, Asia Pacific and Switzerland and attended by
1,200 Directors, Executive Directors and Managing Directors.
Since 2008, nearly 3,000 employees have participated in a CLE.
A comprehensive business education offering is provided
through more than 90 role-specific learning pathways. These
pathways are a structured sequence of activities that help ensure
consistent training across similar job roles worldwide. Client-fac-
ing staff participate in specialized advisory and sales training to
more effectively meet clients’ needs.
A GEB-sponsored “Leading UBS forward” training program
was launched in 2010 and continued through mid-2011. More
than 53,000 employees attended one of 1,400 face-to-face work-
shops led by senior leaders from across the firm. These sessions
gave employees the opportunity to improve their understanding
of key components of our strategy, identity and strategic princi-
ples, and to embed our values in their daily work. A further 5,000
employees completed an online version of the course.
All employees can access a broad range of professional devel-
opment training. Our eLearning portfolio, which consists of more
than 2,000 courses, enables all employees to build skills at their
own pace. In 2011, 34,200 employees participated in voluntary
web-based learning on topics such as professional skills, leader-
ship and management, understanding our business, IT and finan-
cial markets. Mandatory web-based training modules helped en-
sure that compliance and regulatory requirements were met by
the relevant employees.
Each year, we invest in talent development and succession
planning for the most critical roles across the firm. An annual
Strengthening the accountability of our leadership
In December 2010, the GEB approved
specific leadership behaviors for the
firm’s leaders, who are expected to be
role models, to lead authentically and to
collaborate with other senior managers
across the firm. These “leadership
accountabilities” commit our Managing
Directors and members of the GEB to
deliver results, develop talent and drive
collaboration. Starting with the firm’s
performance management and educa-
tion processes, these standards were
integrated into all of the firm’s human
resource processes in 2011. For example,
all newly promoted Managing Directors
were required to take action to strength-
en two of the three accountabilities
within their teams. Ninety days later, they
were asked to quantify the impact of
their actions. For example, increased
collaboration was reported by 55% of
respondents, with 41% reporting better
client relationships.
Leadership accountabilities
Deliver sustainable results
Develop and engage talent
Drive business collaboration
Accept full accountability for your actions and make
clear and timely decisions.
Lead by being a role model for UBS’s values and strate-
gic principles with authenticity.
Promote cross-business collaboration and a mind-set to
put the client’s interest first.
Lead your business by building a strong performance-
oriented culture and reward the right actions and
behavior.
Ensure consistent high-quality delivery and execution.
Hire, develop and retain the best talent while respecting
diversity.
Engage your people through inspiring, open and honest
communication.
Develop a vision for your business aligned with UBS’s
identity and communicate clear priorities and a plan for
your function.
Align your organization and people to drive change.
Manage risk prudently to ensure long-term sustainable
results.
Provide constructive feedback and coaching guidance to
enhance performance.
Build high-trust relationships.
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237
Corporate governance, responsibility and compensation
Our employees
firm-wide talent review helps to identify and build the skills and
competencies of employees who are identified as having leader-
ship potential. In addition, possible successors for senior leader-
ship roles are identified and tracked on a firm-wide basis, and
they are offered specialized development opportunities in addi-
tion to on-the-job training.
Compensation
We strive to provide our employees with competitive pay and in-
centives, while carefully considering our obligations to sharehold-
ers and regulators. Our approach recognizes the need to compen-
sate individuals for their performance within the context of
competitive market conditions, a fast-changing commercial envi-
ronment and evolving regulatory oversight. Our foremost priority
is to encourage and reward behavior that contributes to sustain-
able profitability, and thereby the long-term success of the firm. In
2011, we increased our efforts to actively consider risk and ac-
count for risk-adjusted profitability in our compensation ap-
proach.
Our compensation structure is designed to be appropriately
balanced between fixed and variable elements. We emphasize
the variable component as an incentive to excel and to foster a
performance-driven culture, while supporting appropriate and
controlled risk taking. We always take a holistic view of em-
ployee compensation within a total reward framework that
takes into account base salary, discretionary incentives and
benefits.
Our Total Reward Principles are the foundation of our compen-
sation framework, particularly for integrating risk control and
managing performance, as well as specifying how we structure
our compensation and bonus pool funding. They reflect our long-
standing focus on pay for performance, sustained profitability,
risk awareness and sound governance.
Employee share ownership
We support employee share ownership in principle because we
believe that personal accountability for business actions and de-
cisions can be encouraged through equity-based awards. As an
example, through Equity Plus, our voluntary equity-based pro-
gram, employees purchase shares at market price and receive
one share for every three shares purchased. These shares vest
within three years, subject to continued employment at UBS. On
31 December 2011, current employees held an estimated 6% of
UBS shares outstanding (including approximately 4% in un-
vested / blocked shares), based on all known shareholdings from
employee participation plans, personal holdings and individual
retirement plans. At the end of 2011, an estimated 51% of all
employees held UBS shares, while an estimated 39% held UBS
stock options.
➔ Refer to the “Compensation” section of this report for more
information
Our commitment to being a responsible employer
Relationships based on respect, trust and mutual understanding
are the foundation for all of our business activities. The firm’s
Code of Business Conduct and Ethics (the Code) demonstrates
the importance we place on responsible workplace behavior. The
Code sets out the principles and practices employees are expect-
ed to follow and forms the basis for the policies and guidelines
that govern employees’ behavior. We provided training on the
Code to all employees in 2010 and all staff who joined the firm
in 2011.
We are committed to upholding our corporate values. They are
integrated into our corporate decision-making and people man-
agement processes, and are aimed at shaping the daily actions of
our employees.
Benefits and well-being
We strive to be a responsible employer and invest in all of our
employees, whether they are full- or part-time staff, by offering a
comprehensive suite of benefits such as insurance, pension, re-
tirement and time off that are competitive in our markets. We also
offer additional benefits to employees where practical. For exam-
ple, flexible working arrangements are available to employees in
many of our major markets, and we encourage and support our
employees’ efforts to volunteer in the many communities in which
we operate.
To help employees manage life and work issues, we offer em-
ployee assistance programs (EAP) in a number of locations. In the
UK, the EAP provides access to specialist support on topics such
238
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 elder-
care facility.
In the US, the Work Life Assistance Program offers around-the-
clock counseling and referral services to employees and their fam-
ilies to help resolve issues that may affect their health, personal
life, or job performance. The program also provides information
about work-life effectiveness and offers referral services for child
care, prenatal 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 help employees
and their immediate family manage work and life stress, family,
mental health, personal development or other challenges. In Ja-
pan, these services are available through an outside team of con-
sultants trained in fields such as counseling, law, accounting and
psychology.
In Switzerland, assistance for current and retired employees, as
well as their family members, is provided through our Social
Counseling and Retiree Services functions. Services include coun-
seling for personal issues, difficulties in the workplace, sickness,
financial difficulties and retirement. Employees also have access to
an internal ombudsman’s office. An HR Health Care function con-
siders local health and safety matters. Work days lost to accident
or illness are tracked, with 20,835 and 128,668 days respectively
accounted for in 2011. This amounts to six work days per em-
ployee in Switzerland.
Programs are in place in every region to provide transitional
support to employees impacted by restructuring exercises. For ex-
ample, 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. COACH
advisors provide support and assistance in finding a new job by
working closely with our internal recruitment center and outside
employment services. During the COACH process, employees re-
tain full salary and benefits, and financial assistance is available
for job-related training, if needed.
Employees below the level of Director were eligible for the So-
cial Partnership Agreement for employees in Switzerland (SOVIA
CH) in 2011. A new social plan became valid on 1 January 2012,
replacing SOVIA CH, which had expired. This social plan lays out
the terms and conditions for making redundancies among em-
ployees whose jobs are subject to the Agreement on Conditions
of Employment for Bank Staff (ACEBS). It governs the require-
ments and procedures for internal hiring, job transfers, and, when
needed, severance. The aim is to make any necessary job cuts or
operational changes in a responsible manner, making full use of
our internal labor market, and to offer support and career advice
to these employees.
➔ Refer to www.ubs.com/health-safety for more information on
our health and safety statement
Employee representation
As part of our commitment to being a responsible employer, we
partner with all of our employee representation groups to main-
tain an active dialogue between employees and management.
The UBS Employee Forum (UBSEF) was established in 2002 and
has representatives from 18 countries across Europe. The UBSEF
facilitates an open exchange of views and information on pan-
European issues that have the potential to impact our regional
performance, prospects or operations. Additionally, local forums
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 em-
ployee interests on specific topics outlined in the collaboration
and co-determination clauses of staff policies. It also supports
open dialogue through a variety of channels and activities. ERC
representatives are elected to represent employees whose work
contracts are governed by Swiss law and the ACEBS. The UK Em-
ployee Forum (UKEF), which is formed by elected representatives
from all of our UK businesses and appointed management repre-
sentatives, focuses on local economic, financial and social activi-
ties 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.
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Corporate governance, responsibility and compensation
Our employees
240
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241
Advisory vote
Corporate governance, responsibility and compensation
Compensation
Compensation
Letter from the Human Resources and Compensation Committee of the Board of Directors
Dear shareholders,
As the new chair of the Human Resources
and Compensation Committee (HRCC),
I am pleased to submit our compensation
report for 2011, for which we will seek
your support at our Annual General Meet-
ing in May 2012.
I would like to take this opportunity to
thank my predecessor, Sally Bott, for her
contribution to the Committee in the past,
and to Helmut Panke, who stepped in
as interim chair of the HRCC after Sally’s
departure and prior to my appointment.
I also welcome Wolfgang Mayrhuber, who
joined the Committee in 2011.
We firmly believe that successfully
implementing our business strategy and
improving our profitability can only be
achieved by having the right people at the
firm. As such, compensation remains of
key strategic importance for us. By
offering compensation that is competitive
and features a balanced mix of fixed and
variable elements, we can attract the
talented professionals that we seek, as
well as motivate them to perform well
and encourage them to stay.
At the same time, we want to ensure that
our employees’ interests are aligned with
those of our shareholders. Accordingly, a
significant part of the incentives that we
award is deferred over several years and
may be forfeited when employees act
against the interests of the firm or when
any applicable performance conditions
are not met. These incentives reward our
employees for performing well and,
together with the risk considerations that
are integrated within the compensation
process, keep them focused on the long-
term profitability of the firm.
unsustainable in the future if profitability
declines throughout the industry. In this
new environment, we must find the right
balance between the sometimes conflict-
ing objectives related to compensation,
namely, ensuring that we retain the
qualified, competent people needed to
deliver sustained success, keeping pay
aligned with performance, and building
up sufficient capital to meet the new
regulatory requirements with which we
must comply.
Adapting to a new market
environment
Last year was a turbulent one for our
industry, and many of the challenges that
were present in 2011 will remain in 2012
and beyond. Financial firms, including
UBS, continue to face volatility in the
financial markets, which has dampened
earnings in a number of businesses.
Banks must also cope with the impact of
substantial new capital requirements,
which are widely expected to lead to
lower returns on capital in the industry in
the future.
We are keenly aware that the environ-
ment in which we operate is changing
dramatically. It is therefore imperative that
we adapt accordingly. We recognize that
past levels of compensation will be
Applying our approach successfully
in 2011
Despite the new realities that we face, we
are convinced that our approach to
compensation remains appropriate.
In 2011, our compensation framework
responded effectively to the decline in
the firm’s overall performance as well as
the impact of the unauthorized trading
incident within the Investment Bank. Our
significantly smaller bonus pool reflects
our weaker performance last year, in
particular at the Investment Bank, and
demonstrates our commitment to
ensuring that pay is appropriate in relation
to performance.
Appropriately, our lower profitability
affected compensation at an individual
level. In addition to the impact that our
242
Advisory vote
Letter from the Human Resources and Compensation Committee of the Board of Directors
weaker share price performance had on
the value of their awards, employees
saw their share-based incentives further
reduced last year due to the application
of performance conditions in our variable
compensation plans that enabled us to
claw back unvested bonuses that had
been awarded in previous years. At the
Investment Bank, 50% of bonuses
granted under the Senior Executive Equity
Ownership Plan and the Performance
Equity Ownership Plan in 2011 that were
due to vest in 2012 have been forfeited.
The unauthorized trading within the
Investment Bank represented a setback
for us. Given the serious nature of
this incident, we took disciplinary action
against certain employees involved,
including some in supervisory roles and in
the relevant control functions. Such action
included appropriate measures regarding
their compensation. The substantial
financial and reputational damage
contributed to a 60% reduction in the
bonus pool for the Investment Bank.
Continuing to integrate risk
perspectives
The unauthorized trading incident served
to underscore the importance of ensuring
that risk perspectives are adequately
considered in making compensation deci-
sions. Over the course of last year, we
undertook more work to ensure that risk
controls are integrated within our
compensation framework. In line with
evolving practice in the industry, we
adapted our approach to identifying our
key risk-takers, individuals in our organi-
zation who, by the nature of their role,
can materially set, commit or control the
firm’s resources, and / or exert influence
over the firm’s risk profile, and to whom
specific stringent compensation measures
apply. As a result, the number of identi-
fied key risk-takers more than doubled to
around 450 last year from around 200 in
2010.
An effective and enduring approach
Our compensation system was fundamen-
tally revised in 2009, and we have made
only minor adjustments to our variable
compensation plans to reflect new
requirements that have emerged in the
years since. While a number of improve-
ments were made to strengthen how we
identify key risk-takers and measure their
performance, no specific changes were
made to the overall framework in 2011.
It thus offers stability and continuity, as
well as the necessary features that allow
us, on one hand, to motivate our
employees by rewarding strong perfor-
mance, and on the other hand, to
withdraw or reduce incentives where
performance has been weak or where
employees act against the interests
of the firm.
Nonetheless, we will keep our framework
under review to ensure that it continues
to meet our key goal of aligning employ-
ee and shareholder interests by rewarding
people for delivering sustainable long-
term profitability. While we are certain
that it will evolve in response to new
regulations and increased capital require-
ments, we are convinced that the
approach we have adopted is fundamen-
tally sound and that it will continue to
serve us well as we position ourselves for
the future.
Ann F. Godbehere
Chair of the Human Resources
and Compensation Committee of
the Board of Directors
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243
Advisory vote
Corporate governance, responsibility and compensation
Compensation
Compensation governance
Given the significant role that compensation plays in attracting
and retaining talent, and the strong impact that it thus has on the
firm’s future success, it is critical that we have appropriate com-
pensation principles. Our compensation governance principles are
designed to support long-term value creation and include appro-
priate checks and balances. They ensure that we continue to keep
compensation aligned with the long-term interests of our share-
holders and that we incentivize appropriate risk-taking.
The Human Resources and Compensation Committee (HRCC),
as a committee of the Board of Directors (BoD), is mandated to
develop recommendations regarding our compensation plans and
programs and overall bonus funding.
➔ Refer to the “Board of Directors” section of this report for
further information about the Human Resources and Compen-
sation Committee
UBS’s corporate governance principles are in compliance with
the relevant laws, rules and regulations, including the Swiss Finan-
cial Market Regulatory Authority (FINMA) Circular 2010 / 1 that
sets minimum standards for the design, implementation and dis-
closure of remuneration schemes at financial firms.
Human Resources and Compensation Committee
The HRCC is composed of four independent BoD members. On
31 December 2011, the HRCC members were Ann F. Godbehere,
who chaired the committee following her reelection to the BoD
at the Annual General Meeting (AGM) in April 2011, Bruno Geh-
rig, Wolfgang Mayrhuber and Helmut Panke. The committee held
13 meetings in 2011. Each meeting had an average attendance of
96%. External advisors attended nine of those meetings. The
Chairman of the BoD and the Group Chief Executive Officer
(Group CEO) were present at 10 and 11 of those meetings, re-
spectively.
During the year, the HRCC reappointed Hostettler, Kramarsch
& Partner to provide impartial external advice on compensation-
related matters. The company has no other mandates with UBS.
Compensation consulting firm Towers Watson, which was ap-
pointed by Group Human Resources, continued to provide the
HRCC with data on market trends and benchmarks, including in
relation to Group Executive Board (GEB) and BoD compensation.
Various subsidiaries of Towers Watson provide similar data to
Group Human Resources in relation to compensation at lower
Compensation authorities
The BoD has the ultimate responsibility for approving the compensation strategy proposed by the HRCC, a BoD committee that
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 and HRCC
GEB members
HRCC and Group CEO
BoD
BoD
Key risk-takers
(excluding GEB members)1
Responsible GEB member together with
functional management team
Divisional pools: HRCC
Overall pool: BoD
Communicated by
HRCC
Chairman of the BoD
Group CEO
Line manager
Independent BoD members
(remuneration system and fees)
Chairman of the BoD and 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 pool: BoD
Communicated by
Line manager
1 Additional performance condition applies.
244
Advisory vote
levels of the organization. Towers Watson has no other compen-
sation-related mandates with UBS.
Responsibilities and authorities of the Human Resources
and Compensation Committee
The HRCC reviews the Total Reward Principles – on which our
approach to compensation is founded – annually, and submits 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;
– 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;
– together with the Chairman of the BoD, proposes the compen-
sation for the Group CEO; and
– approves the total compensation for the Chairman of the BoD.
Members of the GEB and BoD do not attend meetings at which
decisions are taken about their individual compensation and have
no right to a say in or to otherwise influence such decisions.
The responsibilities and authorities for compensation-related
decisions, illustrated in the table on the preceding page, are set
out in “Annex B – Responsibilities and authorities,” and “Annex
C – Charter of the Committees of the Board of Directors of UBS
AG” of the Organization Regulations of UBS AG.
cess and how Group Risk Control has been involved in imple-
menting compensation programs. In addition, the committee re-
views whether the risk-related aspects of the compensation
process have been adhered to.
The HRCC and Risk Committee meet periodically to discuss
topics on which they have shared responsibility. Furthermore,
Mr. Panke sits on both these committees, thereby providing a valu-
able risk perspective in considering compensation-related issues.
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 in each performance year.
Its recommendations are submitted to the BoD for approval. This
process relies on a detailed and balanced review, not only of the
performance of the Group, but of the relevant business division
and the impact of specific individuals. It considers Group and
divisional performance information, including risk-adjusted prof-
itability and other financial and non-financial factors such as cli-
ent focus, leadership effectiveness, risk management and reme-
diation, strategy execution and reputational impact. It also takes
into account performance information from the businesses, ini-
tial compensation recommendations from the Group CEO, terms
of employment contracts, regulatory requirements and relevant
market data, such as that relating to industry compensation
trends.
Shareholders’ advisory vote
Risk Committee’s involvement in compensation matters
The Risk Committee assumes an essential role in supporting the
HRCC to ensure that compensation plans are aligned with our
business strategy, and that policies are designed to enhance risk
awareness and compliance with risk policies. The Risk Committee
supervises and sets appropriate risk management and control
principles, including those relating to credit, market, country and
operational risks; treasury and capital management; and balance
sheet management. In doing so, it also examines the possibility of
reputational risk. The committee is also briefed by management
regarding how risk has been factored into the compensation pro-
We value the opinions of our shareholders. As such, we will pro-
vide, as we have done the past three years, an opportunity for
shareholders to express their views through an advisory vote on
this compensation report at the AGM in May 2012. While such a
vote is advisory in nature, we encourage our shareholders to par-
ticipate in it as we regard it as a meaningful way of involving them
in the compensation discussion and take its outcome seriously.
Shareholders also have the opportunity to raise questions at the
AGM, and can address their questions about compensation or
related issues at any time to BoD members by contacting the
Company Secretary. Contact details are provided at the end of
this report.
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Corporate governance, responsibility and compensation
Compensation
Total Reward Principles
Our approach to compensation is based on our “Total Reward
Principles.” These principles establish a framework for ensuring
that performance is the key consideration behind our compensa-
tion policies and that risk control is appropriately integrated within
our compensation processes. At the same time, they specify how
we structure compensation and provide funding for our bonus
pool. They reflect our focus on pay for performance, sustainable
profitability, sound governance and risk awareness, and build on
the UBS strategy of enhancing the firm’s reputation, increasing
client focus and teamwork, and improving integration and execu-
tion. At the same time, they give full effect to the relevant regula-
tory requirements.
The Total Reward Principles apply to all employees across the
Group globally. We provide specific guidance as to how the prin-
ciples are implemented in practice, which may vary in certain loca-
tions due to local laws and regulations.
We remain fully committed to these principles. Over the course
of the year, we continued to apply them to ensure that our per-
formance and compensation objectives were achieved and that
the governance processes with respect to compensation were
firmly in place. The Total Reward Principles were reaffirmed by the
Human Resources and Compensation Committee (HRCC) and
reconfirmed by the BoD on 1 December 2011.
Total Reward Principles
The four Total Reward Principles establish a framework for managing performance and integrating risk control.
They also specify how we structure compensation and provide necessary funding for our bonus pool.
Attract and engage
a diverse, talented
workforce
Foster effective
individual performance
management
and communication
Total
Reward
Principles
Support
appropriate
and controlled
risk-taking
Align reward
with sustainable
performance
Attract and engage a diverse, talented workforce
Our need to attract and retain talented, competent employees to
help implement our business strategy and create sustainable value
for our shareholders over the long term underpins our compen-
sation policies. We offer market-competitive compensation that
strikes an appropriate balance between fixed and variable ele-
ments. Base salaries should be sufficient to allow for a flexible
policy when it comes to variable compensation. We set award
levels that incentivize employees to perform and to be entrepre-
neurial, while at the same time placing an emphasis on strong risk
management and measured risk-taking.
➔ Refer to the “Overview of our compensation model” section of
this report for more information about our compensation system
Foster effective individual performance management and
communication
We evaluate performance rigorously to ensure that compensation
is fairly and appropriately allocated. Employees are assessed
against a range of financial and non-financial objectives. In deter-
mining the annual bonus for employees, we not only consider
their contribution to UBS’s business results and whether they have
achieved their individual performance objectives, but also take
into account whether they:
– observe our corporate values and principles;
– implement our strategic goals of enhancing reputation and im-
proving 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, including operational risk, and strike an
appropriate balance between risk and reward; and
– exhibit professional and ethical behavior.
Employees are 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.
➔ Refer to the “Our employees” section of this report for more
information on our performance management processes
Align reward with sustainable performance
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
Throughout UBS, sustainable performance is a key factor in de-
termining compensation. Our assessment of performance goes
beyond whether financial objectives have been achieved and
246
Advisory vote
takes into account the long-term risk impact of employee ac-
tions and reputational issues.
Variable compensation funding is primarily based on risk-ad-
justed profitability, that is, a measure of profitability adjusted to
consider risks associated with particular transactions. This per-
formance metric, which takes into account the cost of capital,
not only supports our objectives and business strategy, but is
also in line with regulatory requirements.
Our framework is sufficiently flexible to allow management
to apply its judgment if it deems it appropriate. Adjustments
may be made based on considerations relating to risk, quality
and reliability of earnings, relative industry performance, future
strategic plans, and market competitiveness. The divisional Chief
Executive Officers, the Group CEO and the HRCC regularly re-
view and monitor progress against business performance targets
and the foregoing considerations that affect annual variable
compensation funding. The bonus pool proposed by the Group
CEO is reviewed by the HRCC and ultimately approved by the
BoD. To ensure that any risk-related issues are fully considered,
risk control functions are involved in the performance reviews of
key risk-takers, who are individuals who can materially set, com-
mit or control significant amounts of the firm’s resources, and
other senior employees.
➔ Refer to the “Compensation governance” section of this report
for more information about responsibilities and authorities for
compen sation-related decisions
Support appropriate and controlled risk-taking
We place a strong emphasis on sound risk control in our com-
pensation policies as our long-term sustainable performance de-
pends on prudent and balanced risk-taking.
Accordingly, our compensation system provides incentives
that take specific account of risk. Our performance reviews rec-
ognize 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 based on the risks
taken, the full impact of which may only emerge in subsequent
years. All employees are expected to demonstrate an appropri-
ate understanding of the nature of their business and its associ-
ated risks, including operational risks, to consider their actions in
light of UBS’s reputation and risk appetite, and to accept respon-
sibility for all risks that arise, which includes taking steps to man-
age and mitigate them. As part of their compliance training,
employees are required to certify annually that they are compli-
ant with various UBS policies.
In determining bonus funding, whether on a Group, division-
al or business area level, we take the following key risks into
account, where applicable: market risk; credit risk; liquidity risk;
compliance risk; operational risk; and reputational risk. In 2010,
our control functions introduced these quantitative risk mea-
sures for each business area that are relevant in determining
their bonus pools. The risk metrics we use include, but are not
limited to, the level of impaired lending, the number of days on
which the daily value at risk is exceeded, and the number of
operational risks and audit recommendations that are effectively
resolved. Our risk measures are supplemented by qualitative as-
sessments conducted by Risk and Legal & Compliance regarding
how the businesses manage such issues.
To keep our employees focused on the long-term profitabili-
ty of the firm, we require that a significant part of their bonus
be deferred for up to three years if their total compensation
exceeds CHF / USD 250,000. In the case of GEB members, the
deferral period is up to five years to reflect the additional com-
mitment and long-term performance that is expected from
them. Some or all of the unvested deferred portion may be for-
feited in certain cases, including if an employee has acted con-
trary to the firm’s interests by contributing to significant finan-
cial losses or restatements, causing reputational harm, or
breaching risk policy, legal or regulatory requirements, all of
which constitute “harmful acts”.
In addition, we take measures regarding the compensation
of our key risk-takers, who, as previously stated, are individuals
who can materially set, commit or control significant amounts
of the firm’s resources. They are the most senior members of
management, together with selected individuals who, by the
nature of their role, exert significant influence over the firm’s
risk profile. We identify these individuals, whether they are in
front office, control or logistics functions (such as IT) consistent
with best practice in the industry and in line with specific regu-
latory guidance. During 2011 the number of individuals identi-
fied as key risk-takers more than doubled to around 450. Key
risk-takers are subject to more rigorous scrutiny, which they
receive in the form of performance evaluations from the con-
trol functions, and part of their compensation is subject to per-
formance conditions. These compensation measures for key
risk-takers, introduced in 2010, remained unchanged in 2011.
Following the unauthorized trading incident within the Invest-
ment Bank, we reviewed these measures and determined that
they remain appropriate.
To monitor risk, our control functions, primarily Legal & Com-
pliance, Risk Control, Finance and Operational Risk, must be
able to make independent decisions in overseeing our business-
es. As such, compensation for these functions is determined in-
dependently from the revenue producers that they oversee, su-
pervise or support. Bonus pool funding for our control functions
is not based on the performance of the businesses that they
support but reflects the performance of the firm as a whole. In
addition, we consider other factors such as how well the func-
tion has in fact performed, together with our market positioning
and the pre vailing market trends. We do not permit bonus fund-
ing for these functions to be supplemented by funds from the
business divisions. Decisions regarding individual compensation
for the leaders of these functions are made by the function
heads and approved by the Group CEO.
➔ Refer to the “Overview of our compensation model” section
of this report for more information about key performance
indicators and key risk-takers
247
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Corporate governance, responsibility and compensation
Compensation
Benchmarking against peers
We benchmark Group 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
spread, product and services scope, and
staffing and pay strategy, among other
factors. These companies, which are large
European and US banks operating inter-
nationally, 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 and the BoD, our
executive compensation structure is appro-
priate 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.
With regard to compensation for other
employees, 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 em-
ployee 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
Products and
services scope3
Geographic
scope4
Headquarters
location5
Competitors
for talent6
Regulatory /
political
environment7
Staffing and
pay strategy8
Firm
Bank of America
Barclays
Citigroup
Credit Suisse
Deutsche Bank
HSBC
JP Morgan Chase
Morgan Stanley
Comparable
Mostly 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: a key fac-
tor 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: identifies peers with similar pay and staffing strategies.
248
Advisory vote
Overview of our compensation model
Our compensation model is consistent with and supports our
Total Reward Principles. It rewards appropriate risk-taking and
behavior that produces sustainable results.
percentage terms. All monetary figures stated in the “Compensa-
tion” section are gross figures (compensation before applicable
withholdings and deductions).
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 employ-
ee’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.
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 and per-
formance-related compensation. This approach allows us to have
the flexibility required to respond to different circumstances, such
as changing business and market conditions or retention needs.
We do, however, set a cap on the maximum amount of cash that
is paid out immediately in any year. Furthermore, each of our de-
ferred variable compensation plans is capped in the sense that the
maximum payout under each plan is fixed, either in absolute or
Base salary
The base salary reflects an employee’s particular skills, 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 base salary review, we have decided to
very selectively increase base salaries for 2012. With effect from
March 2012, base salaries were increased by a total of CHF 86 mil-
lion or 1% of the monthly salary run rate for February 2012. This
compares with a base salary increase made for 2011 of approxi-
mately 5%. The increases for 2012 apply primarily to employees
who were promoted and those whose base salary fell signifi-
cantly short of the market benchmark for their role. This is in
contrast to 2011 when, in line with changes that were being made
in the industry, increases were made in certain cases to effect a
shift in the mix between base salary and bonus. Our total salary
expense for 2011 was CHF 6,859 million, down 2% from 2010
and down 7% from 2009.
Compensation overview
A balanced mix of fixed and variable compensation ensures 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
Key risk-takers2
Other
employees
Base salary
Cash bonus
Cash Balance Plan (CBP)
Performance Equity Plan (PEP)
Senior Executive Equity Ownership Plan (SEEOP)
Equity Ownership Plan (EOP)
Base fee and committee retainer(s)
5
4
3, 4
1 The base salary of the Chairman of the BoD consists of cash and a fixed number of shares. 2 Bonuses granted to key risk-takers 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 key risk-takers, Group
Managing Directors and other employees with total bonus exceeding CHF/USD 2 million. 5 At least 50% of the base fee is paid in blocked UBS shares.
249
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Corporate governance, responsibility and compensation
Compensation
Bonus
The majority of permanent employees are con sidered 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 – on an
absolute as well as relative basis.
part of the Corporate Center, we apply broader qualitative indica-
tors, while taking into account our market position and the pre-
vailing market trends. In addition, we look at the organization’s
risk profile and culture, including the extent to which operational
risks and audit issues are identified and resolved and the quality of
its engagement in risk initiatives.
Key performance indicators
Group and business division performance are relevant in de-
termining the size of the divisional bonus pools, while the size of
the business area pools depends on business division and business
area performance. Although the amount of bonus that an indi-
vidual is awarded necessarily depends on the available funding for
his or her business area and business division, as well as on the
achievement of his or her individual goals, we do not apply a for-
mula or assign weightings to specific performance indicators in
determining individual bonuses. Bonus levels can fluctuate signifi-
cantly from year to year, such that it is possible that an individual
receives no bonus in a given year. For example, for 2011, 17% of
eligible employees at the Investment Bank received no bonus
mainly as a result of the Investment Bank’s poor performance, in-
cluding the impact of the unauthorized trading incident. By way
of comparison, 10% of eligible employees across the Group as a
whole received no bonus for 2011.
➔ Refer to the “Compensation funding and expenses” section of
this report for more information
We assess Group performance using key criteria such as risk-
adjusted profits, its performance relative to the industry and its
general market competitiveness.
Key performance indicators for the business divisions vary. We
assess the financial performance of business areas in our wealth
management businesses using criteria such as the level of net
new money over the year and the return on assets. At the Invest-
ment Bank, we consider factors such as revenue and profitability,
the cost-income ratio and the return on risk-weighted assets,
while at Global Asset Management the financial performance of
business areas is assessed using criteria such as the level of assets
under management and investment performance. Risk-related
objectives include, in our wealth management businesses, the
level of impaired lending and operational costs; in investment
banking, the number of days during which the daily value at risk
is exceeded; and in Global Asset Management, whether risk in-
vestment guidelines and Group and risk policies have been ad-
hered to, and whether significant risk events occur. For a large
Members of the GEB have key performance indicators that
are tied to Group and divisional goals. The Group CEO’s bonus
depends on the performance of the Group as a whole, while
GEB members who are divisional Chief Executive Officers are
assessed based on Group and divisional profitability. Those
who lead Group control functions or who are regional Chief
Executive Officers are assessed based on the performance of
the Group and the regions that they oversee. We also apply
various qualitative criteria in evaluating the performance of
GEB members. These include their ability to manage risk, bring
about change in the organization, establish strong teams and
develop new leadership. GEB members are also assessed based
on how effectively they adhere to our strategic principles and
apply our values.
We evaluate performance on an ongoing basis. If performance
is weak, we reduce our bonus pool accruals as appropriate.
Deferral of bonuses
We pay a significant part of our variable compensation in the
form of equity that is deferred over several years. The unvested
deferred amounts are forfeited if employees have committed
harmful acts or if any applicable performance conditions are not
met. Bonuses awarded to employees with a total compensation,
that is, a base salary and bonus, of CHF / USD 250,000 or more,
are partially deferred. Above this level, employees receive a por-
tion of their annual bonus in shares granted under the Equity
Ownership Plan (EOP). Furthermore, we place a cap of CHF / USD
2 million on the amount that can be paid out immediately in cash.
For the 2011 performance year, for employees across all busi-
ness divisions and locations, the bonus was, on average, approxi-
mately 37% of the base salary. Among GEB members, it was, on
average, 331% of a GEB member’s base salary. In 2010, these
figures were 60% and 510%, respectively. As previously stated,
bonuses are fully discretionary and we do not set a fixed ratio
between the bonus and base salary. The percentages stated above
are based on the size of the bonus pools for 2011 and 2010, re-
spectively.
➔ Refer to the “Deferred variable compensation plans” section of
this report for more information
250
Advisory vote
Impact of the unauthorized trading incident
The serious nature of the unauthorized
trading incident that was uncovered at
the Investment Bank in September 2011
and the strong negative financial and
reputational impact it had on the firm
called for a thorough review of what
happened and for disciplinary action to
be taken against the employees involved.
These include Kweku Adoboli, who
has been charged with fraud and false
accounting in connection with the
unauthorized transactions, and those who
supervised or worked alongside him in
his specific business area. As our internal
investigations revealed deficiencies in
our operational risk controls, certain indi-
viduals in the relevant support and control
functions were also disciplined.
Following this incident, we terminated
the employment of certain individuals,
including Mr. Adoboli. Several others
chose to resign. In the case of most other
employees involved, we determined
the appropriate financial and non-financial
measures to be taken by means of
the firm’s internal disciplinary processes.
Our regulators in Switzerland and the UK
are conducting a joint investigation into
the unauthorized trading incident and have
commenced separate enforcement pro-
ceedings against UBS in relation to this mat-
ter. We are cooperating fully with them.
Bonus pool funding
This incident had a significant effect on
the financial performance of UBS, and of
the Investment Bank in particular, in 2011.
Accordingly, it led to substantially lower
bonuses for 2011, in particular at the
Investment Bank. The bonus pools for
all other business divisions and the
Corporate Center were considerably less
affected, largely in line with their business
performance, and, in the case of the
Corporate Center, overall Group perfor-
mance.
➔ Refer to the “Compensation funding
and expenses” section of this report for
more information
Deferred compensation and bonuses
A key feature of our compensation frame-
work is the inclusion of forfeiture provi-
sions in our deferred compensation plans
which enable the firm to forfeit the
unvested, deferred portion of an employ-
ee’s bonus if he or she resigns voluntarily,
is terminated for cause, or commits certain
harmful acts that cause financial or
reputational damage to the firm.
Incident & Consequences Process
Any disciplinary action taken against an employee as a result of poor performance, inappropriate
behavior and violations of controls or policies is considered during the year-end performance review,
and may give rise to financial or non-financial consequences. Financial consequences include a
reduced or no bonus, a reduced or no base salary increase and potential for feiture of unvested
deferred compensation. Non-financial consequences include a less favorable performance evaluation
and cancellation of a promotion. These decisions are audited through an internal disciplinary process
known as the “Incident & Consequences Process”. If the measures to be applied in a case with regard
to base salary, bonus, promotion and performance rating are outside the established guidelines, the
business is asked to review its decisions. Exception requests are presented to the Incident & Conse-
quences Committee, which is comprised of the Group Chief Financial Officer, the Group Chief Risk
Officer, the Group Head of Human Resources and the Global Head of Compliance. Requests are
accompanied by a factual justification for the exception. The committee can grant or decline to grant
an exception.
In 2011, 400 employees were subject to disciplinary reviews, though disciplinary action was not taken
in all cases. These employees include those who were considered to have been potentially involved in
the unauthorized trading incident.
Accordingly, certain employees whose
employment was terminated in connection
with the unauthorized trading incident
have forfeited their unvested deferred
compensation. In addition, we are currently
reviewing whether the unvested deferred
compensation of additional employees
should be forfeited in connection with the
incident. Some of these decisions will also
depend on the outcome of investigations
by our regulators.
The vesting of certain awards granted
in prior years that are subject to divisional
profitability requirements has been
affected as a result of the impact that the
unauthorized trading incident has had
on the Investment Bank’s financial perfor-
mance in 2011. As a result, 50% of the
first installment of the Senior Executive
Equity Ownership Plan (SEEOP) award
granted in 2011 to Carsten Kengeter, CEO
of the Investment Bank, was forfeited,
as was 50% of the first installment of EOP
awards granted in 2011 to Investment
Bank employees who are key risk-takers,
Group Managing Directors, or whose total
bonus for 2010 exceeded CHF / USD 2 mil-
lion. Consequently, these employees only
received 50% of these unvested awards
that were due to vest in March 2012.
Impact on the GEB
The unauthorized trading incident was
also considered in evaluating the perfor-
mance of certain members of the GEB.
Former Group CEO Oswald J. Grübel,
who assumed full responsibility for the
matter, resigned at the end of September
2011. He elected not to be considered for
a bonus and did not receive one for 2011.
Likewise, Mr. Kengeter elected to receive
no bonus for 2011.
➔ Refer to the discussion in the “2011
compensation for the Group Executive
Board and Board of Directors” section
of this report for more information
251
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Corporate governance, responsibility and compensation
Compensation
Compensation for financial advisors in Wealth Management
Americas
In line with market practice in the US for the brokerage business,
the compensation system for financial advisors in Wealth Manage-
ment Americas is based on commissions. The commissions, paid
monthly, are based on revenue and other strategic performance
measures and objectives. We reduce payout rates if financial ad-
visors make repeated or significant client account or transaction
errors. In addition to these commissions, advisors may also qualify
for year-end awards, most of which are deferred over either a six-
or 10-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 revenue generated from Wealth Management-based
services or products. For 2011, we paid a total of CHF 2,866 mil-
lion in compensation to financial advisors in Wealth Management
Americas.
Other variable compensation
To support hiring or retention, particularly at senior levels, we may
offer certain incentives. These include the following:
– replacement payments, which 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,
and are 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.
Replacement payments, guarantees and sign-on payments are
usually agreed at the time of hiring. The table on the following
page shows the amount of such payments made in 2011, to-
gether with the number of beneficiaries.
Employment contracts for those holding the rank of Director
and above generally contain a notice period of between one 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 a reduction in workforce. These are governed by location-spe-
cific severance policies. At a minimum, we offer severance terms
which comply with the applicable local laws (“legally obligated
severance”). In certain locations, we may provide severance pack-
ages that are negotiated with our local social partners that go
beyond these minimum legal requirements (“standard sever-
ance”). In addition, we may make severance payments that ex-
ceed legally obligated or standard severance payments (“supple-
mental severance”) where we believe that they are appropriate
under the circumstances. For example, we may award bonuses on
a pro-rated basis to employees who have performed well but have
been made redundant after the third quarter of the year. In the
exceptional cases that special payments are made outside the cir-
cumstances described above, or where substantial severance pay-
ments are made, a further stringent approval process applies.
With the exception of severance payments made in redundancy
cases, all the payments described above, though typical in our in-
dustry, are only offered in special circumstances. They are highly
restricted, take into account the specific circumstances of each case
and are normally one-time payments with substantial deferral.
They generally require the approval of the divisional Chief Executive
Officers and Human Resources heads, and, in certain circumstanc-
es, the Group Head of Human Resources, Group CEO or the Hu-
man Resources and Compensation Committee. Furthermore, such
payments may be forfeited or reduced should an employee subse-
quently act in a manner detrimental to the interests of the firm.
2012 Special Plan Award Program for the Investment Bank
Making the Investment Bank more focused and less complex and
substantially reducing our risk-weighted assets are key elements
of our business strategy. To ensure that we succeed in doing so, it
is crucial that we retain key staff at the Investment Bank to help
us execute our plans. As part of our efforts to motivate senior
managers and encourage them to stay, we have decided to make
a one-off strategic award to certain Managing Directors and
Group Managing Directors in the Investment Bank in April 2012.
The award, made in UBS shares, will vest three years after the
date of grant (that is, in 2015). Vesting is subject to performance
conditions, strict forfeiture conditions and continued employment
with the firm.
Consistent with our strategy of reducing our risk-weighted as-
sets, the vesting of Special Plan awards is subject to performance
conditions based on the level of reduction in risk-weighted assets
achieved and the average published return on risk-weighted assets
in the Investment Bank in 2012, 2013 and 2014.
We will award a total of CHF 300 million under this program,
the financial impact of which will be reflected in 2012 and in
subsequent years. Special Plan awards represent an investment in
critical staff. As such, they do not relate to or arise from perfor-
mance in 2011, and do not form part of our 2011 bonus pool.
Members of the Investment Bank’s Executive Committee received
a significant part of their variable compensation in the form of
Special Plan Awards, thereby further aligning their interests with
those of our shareholders.
252
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Sign-on payments, severance payments and guarantees
d
e
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u
A
CHF million, except where indicated
Total sign-on payments 1
Amount
Number of beneficiaries
of which Group Executive Board (GEB) members 2
Amount
Number of beneficiaries
of which key risk-takers 3
Amount
Number of beneficiaries
Total guarantees
Amount
Number of beneficiaries
of which GEB members 2
Amount
Number of beneficiaries
of which key risk-takers 3
Amount
Number of beneficiaries
Total severance payments 4
Amount
Number of beneficiaries
of which GEB members 2
Amount
Number of beneficiaries
of which key risk-takers 3
Amount
Number of beneficiaries
Of which expenses
recognized in 2011 5
Of which expenses
to be recognized
in 2012 and later
50
0
13
102
0
33
239
0
5
133
0
49
135
0
51
0
0
0
Total
183
828
0
0
62
36
237
359
0
0
84
34
239
1,530
0
0
5
4
1 For the purpose of this table we consider replacement payments as sign-on payments. 2 Expenses for GEB members are reported on a pro rata basis. As for 2011, no severance or sign-on payments were made to GEB
members for 2010. 3 Expenses for key risk-takers are full-year amounts for individuals in office on 31 December 2011. 4 Includes legally obligated and standard severance payments, as well as supplemental sever-
ance payments of CHF 23 million which are expensed as discretionary bonus. 5 Expenses before post vesting transfer restrictions.
Pensions and benefits
As part of our efforts to attract and retain the best employees, our
total compensation includes, in addition to a base salary and bo-
nus, certain benefits such as health insurance and retirement ben-
efits. These benefits vary depending on the location, but are com-
petitive within each of the markets in which we operate.
The main aim of pensions is to give employees and their de-
pendents a level of security after their retirement or in the event
of disability or death. While pension plans may vary across loca-
tions in accordance with local requirements, pension plan rules in
any one location are generally the same for all employees in that
lo cation, including management.
We recently announced changes to our Swiss pension plan.
These changes, which were made to reflect higher future life ex-
pectancy and the changed market environment, will take effect in
2013 and will apply in their entirety to all employees in 2021. The
main changes are an increase in the retirement age and a reduc-
tion in the conversion rate used to calculate the pension on retire-
ment.
➔ Refer to “Note 29 Pension and other post-employment benefit
plans” in the “Financial Information” section of this report for
more information
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
program, 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 eli-
gible to participate. Employees purchase UBS shares at market
price, but receive one free share for every three purchased through
the program. These free shares vest after three years, with vesting
subject to continued employment at UBS.
253
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Advisory vote
Corporate governance, responsibility and compensation
Compensation
Key risk-takers
As it constitutes sound business practice, particularly in relation to
our efforts to ensure that we incentivize appropriate risk-taking,
and in compliance with regulatory requirements in major jurisdic-
tions, we identify the key risk-takers at our firm. These are around
450 individuals who, by the nature of their role, have been deter-
mined to be able to materially set, commit or control significant
amounts of the firm’s resources and / or exert significant influence
over its risk profile, whether they are in the front office, logistics
or control functions. All GEB members are key risk-takers.
Key risk-takers are subject to an additional level of perfor-
mance evaluation by the control functions. Additionally, the vest-
ing of their deferred awards is partially 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, key risk-takers also face for-
feiture or reduction of the deferred portion of their compensation
if they commit harmful acts.
The same compensation measures apply to all Group Managing
Directors regardless of whether they are determined to be key risk-
takers or not, and to all employees with a total bonus exceeding
CHF / USD 2 million. These two groups of employees receive their
annual bonuses under the EOP, with the vesting of their deferred
awards partially contingent on the same performance conditions to
which key risk-takers are subject.
With effect from 2012, employees with a bonus exceeding
CHF / USD 2 million will also be considered key risk-takers if they
have not already been identified as such based on our overall
criteria for identifying key risk-takers. This category of employees,
who, as mentioned, are already subject to the deferral measures
that apply to key risk-takers, will in future also receive performance
evaluations from the control functions.
➔ Refer to the discussion “Support appropriate and controlled
risk-taking” in the “Total Reward Principles” section of this
report for more information
While we comply with the relevant FINMA requirements re-
garding risk-takers, we also consult with our other regulators on
this topic. In accordance with guidance from the UK Financial
Services Authority (UK FSA), we have identified senior manage-
ment 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 approximately 180 Code staff, about two-
thirds are also part of our wider population of key risk-takers.
Compensation measures that apply to Code staff are generally
similar to those applied to key risk-takers. However, due to spe-
cific UK 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 perfor-
mance in 2011 will be subject to an additional six-month block-
ing period upon vesting.
In the US, the Federal Reserve has recommended a more expan-
sive approach for identifying such employees. Based on guidance
from the Federal Reserve Bank of New York we have identified
those employees, known as “covered employees”. They are ap-
Fixed and variable compensation 1
d
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i
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A
CHF million, except where indicated
Group Executive Board (GEB) members 2
Total compensation
Amount
Number of beneficiaries
Fixed compensation
Base salary
Variable compensation
Cash Balance Plan (CBP)
Performance Equity Plan (PEP)
Senior Executive Equity Ownership Plan (SEEOP)
Key risk-takers
Total compensation
Amount
Number of beneficiaries
Fixed compensation
Base salary
Variable compensation
Total for the year
ended 2011
Not deferred
Deferred 3
amount
%
amount
%
amount
%
75
15
20
55
23
10
22
656
448
194
462
100
33
44
42
56
27
73
20
13
13
0
0
100
24
56
0
0
0
42
10
10
22
100
362
55
294
30
70
194
168
100
36
0
294
0
76
44
100
100
45
0
64
1 The compensation of GEB members who assumed their role in 2011 is reflected in the GEB and key risk-taker numbers above on a pro-rated basis. 2 The figures refer to all GEB members in office as of 31 Decem-
ber 2011 and all GEB members who stepped down during 2011. 3 This is based on the specific plan vesting which may differ from the accounting expensing.
254
Advisory vote
proximately 1,000 senior executives, employees who manage
revenue-producing lines of business and revenue producers in the
US who individually or collectively expose the firm to material
amounts of risk. About 100 of these covered employees identified
using the wider Federal Reserve Bank of New York definition also
form part of our global population of key risk-takers.
Group Executive Board
Base salary and bonus
GEB members receive a base salary. In addition, they are eligible
to receive a bonus. While GEB bonuses are at the discretion of the
BoD, they are tied to the overall performance of the Group and
dependent on the available bonus pool funding.
➔ Refer to the discussion in the “2011 compensation for the
Group Executive Board and Board of Directors” and “Compen-
At least 76% of a GEB member’s bonus is deferred. Of the
annual 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
portion 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 SEEOP awards over five years. The deferred por-
tion of all these awards is subject to forfeiture under certain
conditions. The overall reduction in the leverage element in our
compensation plans since 2009 further discourages excessive
risk-taking.
sation funding and expenses” sections of this report for more
➔ Refer to the “Deferred variable compensation plans” section of
information
this report for more information
2011 compensation framework for GEB members
Of the annual bonus, 40% is paid in cash and 60% in equity; 76% of a GEB member’s bonus is deferred.
Illustrative example
Payout of bonus
SEEOP
40%
PEP
20%
CBP
40%
60% 1
Base salary
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20%1
0–200%1
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• UBS shares awarded
• Award vests in one-fifth installments over five years
• Subject to forfeiture in the event of financial loss, harmful acts or termination
of employment
• Performance shares awarded1
• Award vests after three years. Number of shares that vest may be between 0–2x
the original number of performance shares awarded, depending on whether
certain targets have been met
• Subject to forfeiture in the event of a harmful act or termination of employment
• 60%paid out immediately, subject to cash cap of USD/CHF 2 million, remainder
paid out in equal installments of 20% over subsequent two years
• Annual adjustment in line with Group RoE: upward adjustment only if RoE
exceeds 6%. Maximum adjustment capped at 20%
• Subject to forfeiture in the event of harmful acts or termination of employ-
ment
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2011
2012
2013
2014
2015
2016
2017
Share
retention
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.
• 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.
255
Advisory vote
Corporate governance, responsibility and compensation
Compensation
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.
years. There is no variable or performance-related component in
the Chairman’s compensation package. However, the share com-
ponent ensures that his pay is aligned with the long-term perfor-
mance of the firm. The Chairman’s employment agreement does
not provide for special severance terms, including supplementary
contributions to pension plans.
The Chairman’s compensation is at the discretion of the Hu-
man Resources and Compensation Committee (HRCC), which
conducts an annual assessment and takes into consideration pay
levels for comparable roles outside of UBS.
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. All employment
contracts with GEB members contain a notice period of six
months, except for one which contains a 12-month notice period.
Under employment contracts for GEB members, any bonus paid
up to the date of termination is fully discretionary, and based on
Group, business division and personal performance during the pe-
riod 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, although
exceptions may be made in cases of death or disability.
Benefits
Benefits for GEB members are in line with local practices for other
employees.
Board of Directors
Independent Board of Directors members
With the exception of the Chairman, all BoD members are inde-
pendent. Independent BoD members receive fixed base fees for
their services 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 restricted from sale for four years and thus granted with a
15% discount. Alternatively, they may choose to have 100% of
their remuneration paid in blocked UBS shares. In addition, inde-
pendent BoD members receive fees known as committee retain-
ers dependent on their workload in serving on the firm’s various
board committees. The Senior Independent Director and the Vice
Chairman of the BoD each receive an additional payment of CHF
250,000. In accordance with their role, independent BoD mem-
bers do not receive bonuses or benefits.
Base fees and committee retainers 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 “2011 compensation for the Group Executive Board
and the Board of Directors” section of this report for more
Chairman of the Board of Directors
The Chairman of the BoD receives a base salary that consists of
cash and a fixed number of UBS shares that are blocked for four
information
256
Advisory vote
Deferred variable compensation plans
Apart from the need to attract talented and motivated profession-
als, the key focus in designing our variable compensation plans is
on maintaining a close link between pay and long-term sustain-
able performance.
To ensure that our employees’ interests are aligned with those of
our shareholders, we pay a large part of our bonuses in shares. To
keep our employees focused on the long-term profitability of the
firm, all of our variable compensation plans require a significant
part of an employee’s bonus to be deferred over three to five years.
Our plans include forfeiture provisions that enable the firm to for-
feit some or all of the unvested deferred portion if an employee has
committed certain harmful acts, as well as performance conditions
that make the vesting of awards partially conditional on a certain
level of performance being achieved. Consequently, while an em-
ployee’s individual performance is a key factor in determining the
amount of bonus (including deferred equity awards) he or she re-
ceives, the amount that is finally paid out under our deferred vari-
able compensation plans largely depends on Group or divisional
performance, subject to forfeiture provisions as previously noted.
Once an award has vested, we do not make any adjustments to it.
➔ Refer to “Note 30 Equity participation and other compensation
plans” in the “Financial Information” section of this report for
more information on valuation principles and valuation of the
awards granted
Overview of variable compensation plans
Compensation is closely linked to long-term sustainable performance. All of our variable compensation plans feature performance
provisions. 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
Beneficiaries
GEB
GEB
GEB
Key risk-takers,
Group Managing
Directors and
employees with
total bonus
greater than CHF /
USD 2 million
Other employees
with total com-
pensation greater
than CHF / USD
250,000
Vesting schedule
60% vests immediately. Remainder
in installments of 20% each over
following two years
Vests after three years. Number of
shares that vest subject to fulfillment
of performance conditions
Vests in equal installments over
five years
Vests in equal installments over
three years
Share price
Forfeiture
clauses
Performance
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
Number of shares that vest is
subject to the achievement of
economic profit and total share-
holder return
Final number of shares delivered
may be between 0 – 2 times the
number of performance shares
granted
Exposure to share price develop-
ment
Exposure to
share price
development
Vesting of awards is contingent
on the profitability 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
Exposure to share price develop-
ment
Only vests in full if
employee‘s busi-
ness division is
profitable (or the
Group as a whole
in the case of
Corporate Center
employees)
Exposure to share
price development
Payout instrument
Cash
UBS shares
UBS shares
UBS shares 1
1 Deferred cash plan for Global Asset Management employees.
257
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Advisory vote
Corporate governance, responsibility and compensation
Compensation
Cash Balance Plan
Plan type – Deferred cash plan
How the CBP works: an illustration
Eligible employees: Cash Balance Plan (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.
The amount of cash delivered on vesting depends on the return
on equity achieved by the Group (Group RoE) 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. The in-
crease will correspond in percentage terms to the Group RoE
achieved, though it may not exceed 20%. If the Group RoE is
negative, the unvested amount will be decreased accordingly, up
to a maximum of 100%.
Bonus granted
under CBP
for 2011
performance
year
20%
20%
40% of variable cash
bonus is deferred
& subject to forfeiture
Actual amount paid out
depends on Group RoE
of the financial year
prior to vesting
60%
Paid out
immediately
(subject to
cash cap)
February
2012
March
2012
March
2013
March
2014
No changes were made to the plan design in 2011.
Restrictions: The CBP contains forfeiture 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 de-
ferred portion of the CBP award continues to be at risk of for-
feiture. In addition, the deferred unvested portion of the award
is forfeited if a GEB member voluntarily terminates his or her
employment and joins another financial services organization.
Vesting for 2011: The second installment of the CBP award grant-
ed in 2010 for the performance year 2009 vested in full in March
2012. The amount that vested was not adjusted as the RoE re-
quirement described above only applies from 2011.
The first installment of the CBP award granted in 2011 for the
performance year 2010 vested in March 2012. The amount that
vested was increased by 8.6% in line with the Group RoE of 8.6%
in the 2011 financial year.
258
Advisory vote
Performance Equity Plan
Plan type – UBS share plan
How the PEP works: an illustration
Eligible employees: Performance Equity Plan (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 mea-
sures the total return of a share to an investor, that is, both capital
appreciation of the share price and the dividend yield. We mea-
sure 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 banking sector.
To determine the number of UBS shares delivered at vesting, an EP
multiplier, which changes in line with the level of three-year
cumulative EP achieved, and ranges from 50%–150%, is multi-
plied with a TSR multiplier, which ranges from 50%–133%.
If both are below the lowest threshold no shares will vest. If both
are at or above the highest threshold the number of UBS shares
delivered at the end of the performance period is twice that of the
performance shares granted initially.
200%
Final number of
shares received
depends on TSR
and EP performance
over three-year
performance
period
Vesting of
between 0–200%
of initial
number of
shares granted
Value of PEP
award further
depends on share
price at vesting
Bonus granted
in performance
shares
Performance period
February
2012
March
2012
March
2013
March
2014
0%
March
2015
No changes were made to the plan design in 2011.
Restrictions: PEP awards are subject to forfeiture in the event of a
harmful act or if employment has been terminated voluntarily or
for cause.
Vesting for 2011: No vesting will take place in 2012. As the PEP
was introduced in 2010, it is due to vest for the first time in March
2013.
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259
Advisory vote
Corporate governance, responsibility and compensation
Compensation
Senior Executive Equity Ownership Plan
Plan type – UBS share plan
How the SEEOP works: an illustration
Eligible employees: Senior Executive Equity Ownership Plan (SEEOP)
awards are granted annually to GEB members.
Description: SEEOP awards are granted in the form of UBS shares
that vest in equal installments over five years. The SEEOP is similar
to the EOP, described on the next page, but has a longer vesting
period to reflect the additional level of commitment and long-
term performance expected of GEB members.
Bonus in
UBS shares
granted
under SEEOP
for 2011
performance
year
0–20%
vests with
employee
0–20%
vests with
employee
Shares vest
equally over
five years and
are subject to
forfeiture
Shares vest
depending on
profitability
of the bank
Payout value
depends on
share price
0–20%
vests with
employee
0–20%
vests with
employee
0–20%
vests with
employee
February
2012
March
2012
March
2013
March
2014
March
2015
March
2016
March
2017
Vesting for 2011: The SEEOP profitability requirement was intro-
duced starting from the performance year 2010. The first install-
ment of the award granted in 2011 for the performance year
2010, which was due to vest in March 2012, vested in full for all
GEB members except Carsten Kengeter, CEO of the Investment
Bank. As the Investment Bank did not meet its profitability re-
quirement in 2011, 50% of his SEEOP award installment was for-
feited.
No changes were made to the plan design in 2011.
Restrictions: SEEOP awards are subject to partial or full forfeiture
in the event of a harmful act or if the business division to which a
GEB member belongs makes a loss. Under the SEEOP, profitability
is defined as an operating profit before tax adjusted for certain
items such as disclosed own credit, restructuring charges, the
profit and loss impact of strategic divestments or investments,
goodwill-related foreign currency translation charges and certain
unique, non-recurring costs that are not within the control of
divisional or Group management. The amount forfeited depends
on the extent of the loss and generally ranges from 10%–50% of
the award portion due to vest.
SEEOP awards will be fully forfeited if employment is terminated
voluntarily or for cause.
260
Advisory vote
Equity Ownership Plan
Plan type – UBS share plan (deferred cash plan for Global Asset
Management employees)
How the EOP works: an illustration
Eligible employees: The Equity Ownership Plan (EOP) is a manda-
tory bonus deferral plan for all employees with total compen sation
of CHF / USD 250,000 or more. For 2011, around 7,000 employees
received EOP awards. These employees include key risk-takers,
Group Managing Directors and employees whose total bonus ex-
ceeds CHF / USD 2 million. EOP awards are granted annually.
Bonus in
UBS shares
granted
under EOP
for 2011
performance
year
Description: Employees with total compensation (that is, base sal-
ary 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 deferred cash, the amount of
which depends on the value of the relevant underlying Global
Asset Management funds in a designated alternative investment
vehicle at the time of vesting. The vesting and forfeiture pro-
visions of these awards are the same as for EOP awards made in
the form of UBS shares.
No changes were made to the plan design in 2011.
Restrictions: The unvested portion of EOP awards is subject to
forfeiture in the event of a harmful act or if employment is termi-
nated voluntarily or for cause.
EOP awards granted to key risk-takers, Group Managing Directors
and employees whose total bonus exceeds CHF / USD 2 million are
known as Performance EOP awards. They vest in full only 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 follow-
ing year will be partially forfeited. Under the EOP, profitability is
defined as an operating profit before tax adjusted for certain
items such as disclosed own credit, restructuring charges, the
0–33%
vests with
employee
Shares vest
equally over
three years and
are subject to
forfeiture
Shares vest
depending on
profitability
of the bank1
Payout value
depends on share
price
0–33%
vests with
employee
0–33%
vests with
employee
February
2012
March
2012
March
2013
March
2014
March
2015
1(cid:31)Profitability performance conditions are in place for key risk-takers, Group Managing Directors and other
employees with a total bonus exceeding CHF/ USD 2 million.
profit and loss impact of strategic divestments or investments,
goodwill-related foreign currency translation charges and certain
unique, non-recurring costs that are not within the control of
divisional or Group management.
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, the vesting of
their awards is partially conditional on the profitability of the
Group as a whole.
Vesting for 2011: Performance EOP awards were granted for the
first time in 2011 for the 2010 performance year. The first install-
ment of that award, which was due to vest in March 2012, vested
in full for employees in all divisions except the Investment Bank.
For Investment Bank employees, 50% of their award installments
were forfeited as the Investment Bank did not meet its profitability
requirement in 2011.
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261
Advisory vote
Corporate governance, responsibility 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 30 Equity participation and other compensation plans” in the “Financial Information” section of this report for more information
Plan
Conditional Variable
Compensation Plan
(CVCP)
Deferred Cash
Plan (DCP)
Incentive Performance
Plan (IPP)
Key Employee Stock
Appreciation Rights
Plan (KESAP) and Key
Employee Stock Option
Plan (KESOP)
Senior Executive Stock
Appreciation Rights
Plan (SESAP) and
Senior Executive Stock
Option Plan (SESOP)
Year granted
2009 only
2011 only
2010 only
2002 – 2009
2002 – 2009
Eligible employees
Selected employees
(approximately 9,500
employees), excluding GEB
members
Investment Bank employees
whose total compensation
exceeded CHF 1 million
GEB members and other
senior employees (approxi-
mately 900 employees)
Instrument
Cash
Cash
Performance shares
Selected employees
(approximately 17,000
employees between 2002
and 2009)
Share-settled stock appreci-
ation rights (SAR) or stock
options with a strike price
not less than the fair mar-
ket value of a UBS share on
the date of grant
GEB members and Group
Managing Board
SAR 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
None
Dependent on share price
at the end of the five-year
period
None
None
Subject to continued em-
ployment and harmful acts
provisions
Subject to continued
employment and harmful
act provisions
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
Performance
conditions
Restrictions / other
conditions
No financial loss incurred
(vesting based on disclosed
full-year results) and no
need for additional capital
injection by government
Subject to continued em-
ployment, non-solicitation of
clients and employees and
non-disclosure of proprietary
information
The first tranche of the CVCP
was forfeited in its entirety
as the Group was not profit-
able in 2009
The second tranche of the
CVCP vested on 12 April
2011 following the an-
nouncement of UBS’s 2010
profit (paid to employees
in all business divisions
except Wealth Management
Americas, which recorded a
full-year loss)
The third tranche of the
CVCP vested in April 2012
following the announce-
ment of UBS’s 2011 profit.
It was paid to employees in
all divisions
Vesting period
Vests in one-third install-
ments over a three-year
period
Vests in one-third install-
ments over a three-year-
period
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 full three years af-
ter grant. SAR and options
expire 10 years from the
date of grant
Vests in full three years
after grant. SAR and
options expire 10 years
from the date of grant
262
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 reviewed by the
Human Resources and Compensation Committee (HRCC). Over
the course of the year, each division makes accruals to ensure that
sufficient funds are available to pay bonuses at the end of the
year. However, the actual size of the final bonus pool depends on
the various factors outlined below and is subject to the approval
of the BoD.
Business performance is the basis of our compensation funding
framework. At business division level, performance is measured by
a variety of factors, including profit, or contribution before bonus
and economic contribution before bonus. Economic contribution
before bonus deducts the cost of capital based on the equity allo-
cated to a business, which is a reflection of the relative riskiness of
that business.
We derive the initial divisional bonus pools by multiplying the
so-called divisional compensation funding rate with the divisional
adjusted contribution before bonus. In determining our funding
rates, we consider various factors such as the appropriate change
in pay that reflects the change in performance over the year, af-
fordability and our need to be competitive in the market. Funding
rates 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 reduced. This ap-
proach allows us to protect the firm in years of downturn or re-
covery by retaining key employees, while providing additional
shareholder return in good years by preventing excessive capital
usage for compensation.
Although profitability is the main factor in determining the size
of our bonus pool, and while we apply funding rates that provide
an initial basis for determining divisional bonus pools, manage-
ment may still apply its judgment and make adjustments to fur-
ther assess the overall quality of earnings by looking at relevant
key performance indicators and other qualitative measures, in-
cluding risk factors. If the bonus pool for a business division is
deemed not to fully reflect its performance, the Group CEO may
apply his discretion and make recommendations to increase or
reduce the size of the pool. These recommendations are reviewed
by the HRCC. Such discretionary adjustments may be made, for
example, where a business division is in the process of restructur-
ing or investing heavily in growth, both of which have a strong
negative short-term financial impact, but provide for sustained
profitability over the longer term. Furthermore, we recognize the
strategic importance of maintaining a competitive position in the
labor market, and may also make adjustments to variable com-
pensation funding determined by competitive benchmarking.
This involves considering our market position, both from a perfor-
mance and a compensation perspective, together with industry
compensation trends, including at senior management levels,
based on a comparison among peer groups and across regions.
Finally, particularly given our need to build up capital to meet
new, more stringent capital requirements, we also consider the
capital impact when determining the size of our bonus pool.
At a business division level, each CEO proposes funding and
allocation, taking into account input from Group Risk. These are
discussed with the Group CEO together with the underlying con-
tribution before bonus and other relevant performance indicators.
The HRCC reviews the rationale provided for the divisional bonus
pools. 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.
Sustainable profitability is key to compensation funding
Primary basis for funding across UBS is profitability. The following describes how we determine our bonus pools.
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
divisional bonus pools
Adjustments for relative business
performance, risk factors, quality of
earnings and market compensation
HRCC provides independent oversight
Risk is assessed at each phase of the process
Proposed pools
reviewed by the Group
CEO and HRCC
Final approval by the
BoD
263
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Advisory vote
Corporate governance, responsibility 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)
(cid:49)(cid:87)(cid:84)(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:89)(cid:67)(cid:85)(cid:2)(cid:89)(cid:71)(cid:67)(cid:77)(cid:71)(cid:84)(cid:2)(cid:75)(cid:80)(cid:2)(cid:20)(cid:18)(cid:19)(cid:19)(cid:14)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(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:23)(cid:14)(cid:21)(cid:23)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:67)(cid:84)(cid:71)(cid:70)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:14)(cid:22)(cid:23)(cid:23)(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:19)(cid:18)(cid:16)(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:49)(cid:87)(cid:84)(cid:2)(cid:82)(cid:84)(cid:71)(cid:15)(cid:86)(cid:67)(cid:90)(cid:2)(cid:82)(cid:84)(cid:81)(cid:386)(cid:86)(cid:2)(cid:70)(cid:71)(cid:69)(cid:78)(cid:75)(cid:80)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:14)(cid:21)(cid:23)(cid:18)(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:19)(cid:19)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:14)(cid:22)(cid:23)(cid:23)(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:19)(cid:18)(cid:14)(cid:2)
(cid:84)(cid:71)(cid:387)(cid:71)(cid:69)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:78)(cid:81)(cid:89)(cid:71)(cid:84)(cid:2)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:82)(cid:84)(cid:75)(cid:79)(cid:67)(cid:84)(cid:75)(cid:78)(cid:91)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(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:14)(cid:2)(cid:82)(cid:67)(cid:84)(cid:86)(cid:78)(cid:91)(cid:2)(cid:81)(cid:72)(cid:72)(cid:85)(cid:71)(cid:86)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:81)(cid:85)(cid:86)(cid:2)(cid:84)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)
(cid:67)(cid:69)(cid:84)(cid:81)(cid:85)(cid:85)(cid:2)(cid:79)(cid:81)(cid:85)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:71)(cid:85)(cid:16)(cid:2)(cid:38)(cid:87)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:20)(cid:18)(cid:19)(cid:19)(cid:2)(cid:89)(cid:71)(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:85)(cid:86)(cid:84)(cid:71)(cid:80)(cid:73)(cid:86)(cid:74)(cid:71)(cid:80)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:67)(cid:78)(cid:84)(cid:71)(cid:67)(cid:70)(cid:91)(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:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:16)(cid:2)(cid:35)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:14)(cid:2)
(cid:81)(cid:87)(cid:84)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(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:85)(cid:86)(cid:81)(cid:81)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:19)(cid:27)(cid:16)(cid:24)(cid:7)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:20)(cid:16)(cid:23)(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:89)(cid:67)(cid:85)(cid:2)(cid:19)(cid:23)(cid:16)(cid:27)(cid:7)(cid:16)(cid:2)
(cid:57)(cid:71)(cid:2)(cid:67)(cid:78)(cid:85)(cid:81)(cid:2)(cid:85)(cid:67)(cid:89)(cid:2)(cid:67)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:70)(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:81)(cid:87)(cid:84)(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: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:67)(cid:69)(cid:84)(cid:81)(cid:85)(cid:85)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)
(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:71)(cid:85)(cid:16)
(cid:49)(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:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:75)(cid:80)(cid:87)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:68)(cid:71)(cid:72)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:67)(cid:90)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:59)(cid:71)(cid:67)(cid:84)(cid:2)(cid:81)(cid:80)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)
(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:52)(cid:71)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)
(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:20)(cid:18)(cid:19)(cid:18)
(cid:20)(cid:18)(cid:19)(cid:19)
(cid:10)(cid:19)(cid:14)(cid:18)(cid:18)(cid:18)(cid:11)
(cid:18)
(cid:22)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:10)(cid:20)(cid:14)(cid:19)(cid:18)(cid:23)(cid:11)
(cid:13)(cid:21)(cid:24)(cid:26)
(cid:13)(cid:19)(cid:22)(cid:25)
(cid:13)(cid:23)(cid:19)(cid:24)
(cid:13)(cid:24)(cid:24)(cid:22)
(cid:10)(cid:26)(cid:26)(cid:11)
(cid:10)(cid:20)(cid:14)(cid:18)(cid:22)(cid:21)(cid:11)
(cid:26)(cid:14)(cid:18)(cid:18)(cid:18)
Bonus pools for 2011 were determined based on the financial
performance as reported in the Group’s fourth quarter 2011 fi-
nancial report which was published 7 February 2012. The 2011
results have since been adjusted to account for subsequent
events. These adjustments decreased the Group’s pre-tax profit by
CHF 103 million (from CHF 5,453 million to CHF 5,350 million).
The Investment Bank’s operating profit decreased by a net CHF
150 million (from CHF 304 million to CHF 154 million), including
the benefit of CHF 17 million lower personnel expenses resulting
from the HRCC decision to forfeit more of the Performance EOP
tranche due to vest for the year 2011. Partially offsetting the net
reduction in operating profit in the Investment Bank were increas-
es in Wealth Management Americas of CHF 30 million (from CHF
504 million to CHF 534 million) and in Corporate Center of CHF
17 million (from a loss of CHF 380 million to a loss of CHF 363
million).
➔ Refer to “Note 32 Events after the reporting period” in the
“Financial information” section of this report for more information
Bonuses granted for the 2011 performance year
Our bonus pool for 2011 is CHF 2.6 billion, 40% lower than it was
for 2010 (compared with adjusted contribution before bonus
which was 37% lower), consistent with a marked decline in our
overall profitability last year in a demanding market environment.
The bonus pool for the Investment Bank was reduced by approxi-
mately 60% due to the combined impact of the unauthorized trad-
ing incident and substantially weaker divisional performance last
year. In other business divisions, where performance was stronger,
the reduction in the bonus pool was less significant.
The “Total variable compensation” table shows the amount of
variable compen sation awarded to employees for the performance
year 2011, together with the number of beneficiaries for each type
of award granted. We define variable compensation as the discre-
tionary, performance-based bonus pool for the given year.
In the case of deferred cash and share awards, the final amount
paid to an employee is influenced by forfeiture provisions and the
performance conditions to which these awards are subject. The
deferred share award amount is based on the fair value of these
awards on the date of grant.
The accounting adjustment column in the “Total variable com-
pensation” table shows the difference between the bonus amount
granted to employees and the expensed fair value amount accord-
ing to the Inter national Financial Reporting Standards (IFRS) 2 ac-
counting standard. This adjustment is made to reflect that the fair
value of shares that have vested for accounting purposes, but are
still subject to sale or transfer restrictions, is lower than the market
value of un restricted shares. For example, an EOP award vests for
accounting purposes immediately when an employee retires, while
the shares remain blocked over the original vesting period. In this
case, the fair value of the blocked EOP award is less than the current
market value of an unrestricted share. Where a performance condi-
tion under EOP applies, the expensed amount reflects a discount for
expected forfeitures which is trued-up to reflect the actual outcome.
The “Deferred compensation” table shows the current intrinsic
value of unvested outstanding deferred variable compensation
awards that are subject to ex-post adjustments. For share-based
plans, the intrinsic value is determined based on the closing share
price on 30 December 2011. For fund-linked plans, it is deter-
mined using the latest available market price for the underlying
funds, and for cash-settled awards, it is determined based on the
outstanding amount of cash owed to award recipients.
All awards made under our deferred compensation plans listed
in the “Deferred compensation” table on the following page are
subject to ex-post adjustments, whether implicitly, through expo-
sure to share price movements, or explicitly, for example, through
forfeitures made by the firm. Accordingly, their value can change
over time. The amounts shown in the column “Relating to awards
for prior years” in fact already take into account ex-post implicit
adjustments that have occurred as a result of share price move-
ments between the respective dates on which these awards were
granted and 30 December 2011.
➔ Refer to “Note 30 Equity participation and other compensation
plans” in the “Financial Information” section of this report for
more information
264
(cid:15)(cid:19)(cid:18)(cid:18)(cid:18)(cid:16)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)(cid:18)
(cid:15)(cid:22)(cid:18)(cid:18)(cid:16)(cid:18)(cid:18)(cid:18)(cid:18)(cid:25)(cid:24)(cid:19)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:26)(cid:22)(cid:25)(cid:25)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:25)(cid:25)(cid:19)(cid:19)(cid:21)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:24)(cid:27)(cid:23)(cid:19)(cid:27)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:24)(cid:19)(cid:27)(cid:20)(cid:23)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:23)(cid:22)(cid:20)(cid:21)(cid:19)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:22)(cid:24)(cid:24)(cid:21)(cid:25)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:21)(cid:27)(cid:18)(cid:22)(cid:21)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:21)(cid:19)(cid:21)(cid:22)(cid:27)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:20)(cid:21)(cid:25)(cid:23)(cid:23)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:19)(cid:24)(cid:19)(cid:24)(cid:19)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:18)(cid:26)(cid:22)(cid:24)(cid:25)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:27)(cid:18)(cid:18)(cid:26)(cid:25)(cid:21)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:26)(cid:27)(cid:21)(cid:20)(cid:25)(cid:27)(cid:27)(cid:27)(cid:16)(cid:27)(cid:27)(cid:26)(cid:26)(cid:23)(cid:24)
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Total variable compensation 1
CHF million, except where indicated
Cash discretionary bonus
Deferred cash plans
UBS share plans
UBS share option plans
Equity Ownership Plan – fund-linked
Total discretionary bonus pool
Total variable compensation – other 2
Total WMA financial advisor compensation 3
Expenses
Expenses deferred
to future periods
Accounting
adjustment
Total
Number of
beneficiaries
2011
1,514
34
234
0
25
1,807
335
1,842
2010
2,079
64
440
0
28
2,611
399
1,980
2011
0
3
635
0
69
707
247
1,024
2010
0
236
1,271
0
67
1,574
337
698
2011
2010
0
0
54
0
0
54
0
0
0
0
60
0
0
60
0
2
2011
1,514
37
923
0
94
2,568
582
2,866
2010
2,079
300
1,771
0
95
4,245
736
2,680
2011
50,620
62
6,514
0
515
2010
51,522
576
7,516
0
579
50,635
51,535
1 The total “discretionary bonus” awarded to employees for the performance years 2011 (CHF 2,568 million) and 2010 (CHF 4,245 million). Expenses under “total variable compensation – other” and “Total WMA
financial advisor compensation” are not part of UBS’s discretionary bonus pool. 2 Replacement payments, guarantees for new hires, forfeiture credits, severance payments and retention plan payments. 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, assets 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.
Deferred compensation 1, 2
CHF million, except where indicated
Cash discretionary bonus
Cash Balance Plan
Equity Ownership Plan
Senior Executive Equity Ownership Plan
Performance Equity Plan
Equity Ownership Plan – fund-linked
Discontinued deferred compensation plans
Total
Relating to awards
for 2011
0
10
884
22
10
94
0
Relating to awards
for prior years3
0
19
2,298
46
14
576
577
Total
0
29
3,182
68
24
670
577
of which exposed to
ex-post adjustments
0%
100%
100%
100%
100%
100%
100%
1,020
3,530
4,550
1 This is based on the specific plan vesting which may differ to the accounting expensing. 2 For more information, refer to “Note 30 Equity participation and other compensation plans” in the “Financial Information”
section of this report. 3 This takes into account the ex-post implicit adjustments, given the share price movements since grant.
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265
Advisory vote
Corporate governance, responsibility and compensation
Compensation
Bonus expense in the 2011 performance year
2011 bonus pool down 40% year on year1
CHF million
The bonus pool for a given performance year includes all discre-
tionary, performance-based variable awards for that performance
year. Certain awards that form part of the bonus pool, mainly
discretionary cash awards, are already expensed in the same year
while deferred awards are largely expensed in subsequent years.
The chart “2011 bonus pool down 40% year on year” illustrates
how the bonus pool for the 2011 performance year reconciles
with the bonus expense in the 2011 financial year. The bonus
expense includes all immediate expenses related to 2011 com-
pensation awards and expenses related to awards made in prior
years.
As illustrated in the chart, the bonus pool declined by
CHF 1,677 million or 40% in 2011, while the 2011 bonus expense
under the IFRS accounting rules declined by CHF 690 million or
17%. The reduction in the size of the bonus pool is more pro-
nounced than the reduction in the bonus expense for the follow-
ing reasons:
– The amount of new deferred awards granted in 2012 for the
performance year 2011 is CHF 867 million lower than the
amount of new deferred awards granted in 2011 for the per-
formance year 2010.
– Amortization for prior year awards in 2011 increased by
CHF 114 million from 2010. This reflects an increase in amorti-
zations of deferred awards, which have become a more sig-
nificant part of our compensation system. Since 2010, a larger
part of compensation has consisted of deferred awards grant-
ed primarily under the EOP.
– The impact of accounting adjustments is lower for 2011 than it
was for 2010.
At the end of 2011, the amount of unrecognized awards to
be amortized in subsequent years was CHF 1.7 billion. Together
with the Special Plan awards to be granted to senior managers
at the Investment Bank in spring 2012, the total sum of unrec-
ognized awards is CHF 2.0 billion, compared with CHF 2.8 bil-
lion at the end of 2010. The chart “Amortization of deferred
compensation” shows that this reduction is due to the reduction
in unamortized awards and significantly lower new awards
granted for 2011.
➔ Refer to the “Overview of our compensation model” section of
this report for more information about the Special Plan Award
Program
The table on the next page shows the value of actual ex-post
explicit and implicit adjustments to outstanding deferred compen-
sation in the 2011 financial year. Ex-post adjustments occur after
an award has been granted. Ex-post explicit adjustments occur
when we adjust compensation by forfeiting deferred awards. By
contrast, ex-post implicit adjustments are unrelated to action tak-
en by the firm and occur as a result of share price movements that
impact the value of an award.
The total value of ex-post explicit adjustments made to UBS
266
IFRS expense down 17% year on year
Down 40%
60
Accounting
adjustment2
1,574
2010
bonus
pool
4,245
2010 IFRS
expense
4,082
Amortiza-
tion of
prior year
awards
1,471
Awards
for 2010
performance
year deferred
to future
periods3
Bonus
expense
for 2010
performance
year
2,611
(cid:31)
2011
bonus
pool
2,568
(cid:31)
2011 IFRS
expense
3,392
Amortization
of prior year
awards
1,5854
54
Accounting
adjustment2
707
Awards
for 2011
performance
year deferred
to future
periods3
Bonus
expense
for 2011
performance
year
1,807
2010
2011
of which Investment Bank
1 Excluding bonus add-ons such as social security. 2 Post vesting transfer restrictions and adjustments
related to performance conditions. 3 Estimate. The actual amount to be expensed in future years may vary,
for example due to forfeitures. 4 Includes CHF 54 million of restructuring costs related to these awards.
Amortization of deferred compensation
We expect a CHF 0.5 billion reduction in the awards to be amortized in 2012 (CHF 1.1 billion)
vs 2011 (CHF 1.6 billion)¹
CHF billion
Unrecognized
awards to be
amortized²
2.8
Amortized
1.6
Special plan
awards
0.3
to be granted
in 2012
Unrecognized
awards to be
amortized¹, ³
2.0
Unrecognized
awards to be
amortized¹,²
1.7
Forfeited
0.2
Annual awards
to be expensed
in future years
0.7
Including
awards to be
granted in
1Q12 for the
performance
year 2011
31.12.10
Including awards granted in 1Q11 for
the performance year 2010
31.12.11
Including awards granted in 1Q12 for
the performance year 2011
1 Estimate. The actual amount to be expensed in future years may vary, for example due to forfeitures.
2 Related to discretionary bonus. 3 Estimate. Includes Special Plan awards to be granted in 2012.
shares in 2011, based on the 15,132,302 shares forfeited during
2011, is CHF 171 million. The total value of ex-post explicit adjust-
ments made to UBS options in 2011, based on the 3,756,444
options forfeited during 2011, is CHF 22 million. The size of im-
plicit adjustments is mainly due to a decline in the share price. The
lower share price also means that many of the options previously
granted are out of the money. Hence, the majority of outstanding
option awards currently hold no intrinsic value.
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Ex-post explicit and implicit adjustments to deferred compensation in 2011 1
CHF million
UBS shares (EOP, IPP, PEP, SEEOP) 2
UBS options (KESOP) and SAR (KESAP) 2
UBS fund-linked plan (EOP) 3
Ex-post explicit adjustments 4
(171)
adjustments to unvested awards 5
(1,432)
Ex-post implicit
(22)
(11)
(290)
(50)
1 Compensation (discretionary bonus and other variable compensation) relating to awards for previous performance years. 2 IPP, KESOP and KESAP are discontinued deferred compensation plans. For CBP no ex-post ad-
justments were made in 2011. 3 Awards granted under this plan are cash-settled and 100% susceptible to ex-post implicit adjustments. 4 Ex-post explicit adjustments are calculated as units forfeited during the year,
valued at the share price on 30 December 2011 (CHF 11.18). For the UBS fund-linked plan this represents the forfeiture credits recognized in 2011. 5 Ex-post implict adjustments for UBS shares are calculated based
on the difference between the weighted average grant date fair value and the share price on 30 December 2011. For UBS options they are calculated based on the difference between the fair value at grant and the
aggregated intrinsic value on 30 December 2011. For the fund-linked plan they are calculated using the mark-to-market change during 2011.
Total personnel expenses for 2011
The following table shows our total personnel expenses in 2011
for our 64,820 employees and includes salaries, pension and
other personnel costs, social security contributions and variable
compensation. Variable compensation includes discretionary cash
bonuses paid in 2012 for the 2011 performance year, the amorti-
zation of unvested deferred awards granted in previous years and
the cost of deferred awards granted to employees who are eligi-
ble for retirement at the date of grant.
The bonus pool reflects the value of discretionary bonuses
granted relating to the 2011 performance year, including awards
that are paid out immediately and those that are deferred. To
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 2012 for the performance year
2011; and
– addition for the amortization of unvested deferred awards
granted in previous years.
As a large part of compensation consists of deferred awards, the
amortization of unvested deferred awards granted in previous years
forms a significant part of both the 2010 and 2011 accounting costs.
➔ Refer to “Note 30 Equity participation and other compensation
plans” in the “Financial information” section of this report for
more information
Personnel expenses
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CHF million
Salaries
Variable compensation – discretionary bonus 1
Variable compensation – other 1, 2
of which replacement payments 3
of which guarantees for new hires
of which forfeiture credits
of which severance payments 4
of which retention plan payments 5
Contractors
Social security
Pension and other post-employment benefit plans 6
Wealth Management Americas: financial advisor compensation 1, 7
Other personnel expenses 2
Total personnel expenses
Relating to awards
for 2011
Relating to awards
for prior years
Total 2011
Expenses
6,859
1,807
335
31
88
0
216
0
217
697
788
1,842
726
13,271
0
1,585
(19)
90
85
(215)
0
21
0
46
0
676
32
2,320
6,859
3,392
316
121
173
(215)
216
21
217
743
788
2,518
758
15,5918
2010
7,033
4,082
230
107
135
(167)
69
85
232
826
724
2,667
1,127
16,920
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7,383
2,809
699
41
56
(81)
433
250
275
804
988
2,426
1,159
16,543
1 Refer to “Note 30 Equity participation and other compensation plans” of this report for more information. 2 In 2011, we reclassified the costs related to our voluntary employee share ownership plan (Equity Plus) from
Variable compensation – other to Other personnel expenses. Prior periods were adjusted for this change. As a result, Other personnel expenses were increased by CHF 80 million and CHF 132 million for the year ended
31 December 2010 and for the year ended 31 December 2009, respectively, with a corresponding decrease in Variable compensation – other. 3 Replacement payments are payments made to compensate employees for
deferred awards forfeited as a result of joining UBS. 4 Includes legally obligated and standard severance payments. 5 Retention plan payments related to strategic retention programs. 6 Refer to “Note 29 Pension and
other post-employment benefit plans” of this report for more information. 7 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. 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. 8 Includes restructuring charges of CHF 261 million. Refer to “Note 37 Reorganizations and disposals” for more information.
267
Advisory vote
Corporate governance, responsibility and compensation
Compensation
2011 compensation for the Group Executive Board and
Board of Directors
Group Executive Board compensation
In 2011, total compensation for Group Executive Board (GEB) mem-
bers reflected the performance of each executive in the context of
each business division’s operating performance, overall Group prog-
ress towards our medium-term strategic goals and each GEB mem-
ber’s individual contribution to effecting change, building high-per-
forming teams and managing risk. We consider specific key
performance indicators for individual GEB members that are relevant
to their role, including risk-adjusted profitability, management of
risk-weighted assets, growth in net new money and cost efficiency.
In setting compensation levels for GEB members, the Human Re-
sources and Compensation Committee (HRCC) and the Board of
Directors (BoD) also considered their collective achievements in ad-
vancing our strategy, together with the compensation structure and
levels of our main peers and the firm’s relative performance.
The overall total compensation of GEB members in office on
31 December 2011 was CHF 70.1 million, compared with a total of
CHF 91.0 million in 2010. Following a re-organization in the fourth
quarter of 2011, which resulted in the combination of certain roles,
there were 12 GEB members in office on 31 December 2011, com-
pared with 13 on 31 December 2010. Aggregate compensation
for the three GEB members who stepped down in 2011 was CHF
7.0 million, compared with CHF 3.3 million for the one GEB member
who did so in 2010.
The highest paid GEB member in 2011 was Robert J. McCann,
with total compensation of CHF 9.2 million. As shown in the table
“Total compensation for GEB members”, 76% of his bonus was de-
ferred, with 16% in deferred cash and 60% in deferred equity vest-
ing over three to five years. In 2011, Mr. McCann led the turnaround
in profitability in Wealth Management Americas, despite market
volatility and a challenging market environment, with significant net
new money, a significant reduction in financial advisor attrition rates
and the leading position in financial advisor productivity.
In 2011, the Group Chief Executive Officer (Group CEO), Sergio P.
Ermotti, was granted a bonus of CHF 4.6 million. As such, his total
compensation was CHF 6.4 million. As shown in the table “Total
compensation for GEB members”, 88% of his bonus was deferred,
with 28% in deferred cash and blocked shares and 60% in deferred
equity vesting over three to five years. In considering this award, the
HRCC and the BoD considered both his contribution and his achieve-
ment against stated objectives as Group CEO since the end of Sep-
tember 2011 and his prior performance as Chairman and CEO for
Europe, the Middle East and Africa following his joining the firm in
April 2011. As Group CEO, Mr. Ermotti has been quick to grasp the
leadership challenges presented, including finalizing and presenting
the Group strategy on Investor Day and reestablishing investor and
regulatory confidence in the wake of the unauthorized trading inci-
dent within the Investment Bank. A number of transformation initia-
tives have been launched within the firm related to both the operat-
ing environment and controls and to promoting the delivery of the
full firm across our client franchises in each region. Before assuming
the role of Group CEO, Mr. Ermotti was instrumental in further im-
proving the firm’s impact in a number of our Europe, Middle East and
Africa locations and advancing an enhanced regional governance
strategy.
The previous Group CEO, Oswald J. Grübel, who assumed full
responsibility for the unauthorized trading incident, stepped
down at the end of September 2011 and elected not to be con-
sidered for a bonus for 2011. The HRCC accepted and the BoD
agreed with his decision.
Base salary
Base salaries are fixed for all GEB members and reviewed annually
by the HRCC. Early in 2011, following a review of market trends
with regard to the mix between fixed and variable compensation
and the balance of awards within the compensation framework,
the HRCC set the base pay at an annual level of CHF 1.5 million
or equivalent in relevant local currency for GEB members other
than the Group CEO. With respect to the Group CEO, the HRCC
reviewed his base salary level upon his appointment and set it at
an annual level of CHF 2.5 million. Following a further review in
the first quarter of 2012, the HRCC decided that there will be no
adjustment in base salary levels for the GEB in 2012. Base salaries
received over the year by GEB members are fully taken into ac-
count when considering their total compensation levels.
Benefits
There were no changes to the terms of GEB benefits.
➔ Refer to “Note 29 Pension and other post-employment benefit
plans” in the “Financial Information” section of this report for
details on the various post-employment benefit plans estab-
lished in Switzerland and other major markets
➔ Refer to the “Compensation funding and expenses” and
“Overview of our compensation model” sections for information
concerning the Human Resources and Compensation Commit-
tee’s determination of the discretionary bonus for 2011, and to
the “Deferred variable compensation plans” section for details
of the compensation plans awarded to Group Executive Board
members
Board of Directors compensation
Chairman of the Board of Directors
For 2011, the total compensation awarded to the Chairman of
the BoD, Kaspar Villiger, was CHF 1,494,568. Our compensation
268
Advisory vote
framework provides for the Chairman to receive a base salary and
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. Mr. Villiger chose to waive a substantial part of the
share award and instead to accept a limited number of 38,700
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 Mr. Villiger’s decision.
Highest paid Board of Directors member
The Chairman of the BoD, Mr. Villiger, is the highest paid BoD
member, with total compensation of CHF 1,494,568.
Axel A. Weber’s compensation
In July 2011, we announced that Axel A. Weber would be nomi-
nated for election to the BoD as non-independent Vice-Chairman
at the 2012 Annual General Meeting (AGM) and that if reelected
in 2013, he would likely succeed Mr. Villiger as Chairman of the
BoD. In November 2011, Mr. Villiger decided that he would not
stand for reelection to the BoD at the AGM in 2012. As such,
should Mr. Weber be elected to the BoD in 2012, he will succeed
Mr. Villiger as Chairman of the BoD in 2012.
In line with the BoD’s compensation structure, Mr. Weber will
receive a base salary, blocked UBS shares and benefits in kind. In the
event that he is elected to the BoD at the AGM in 2012 and suc-
ceeds Mr. Villiger as Chairman of the BoD, his annual compensation
will be CHF 2 million, together with 200,000 UBS shares that are
blocked for four years.
As previously announced, the BoD agreed that Mr. Weber will
receive a one-time payment upon his election to the BoD at the 2012
AGM. This consists of one year’s total compensation or CHF 2 mil-
lion and 200,000 UBS shares that are blocked for one year.
Independent Board of Directors members
The table “Remuneration details and additional information for
independent BoD members” shows the compensation received
by independent BoD members between the 2011 and 2012 AGM.
Fees for 2010 to 2011 remained unchanged. As the chair of the
Corporate Responsibility Committee is now held by an indepen-
dent BoD member, a retainer of CHF 100,000 has been awarded
to that function.
Compensation for former Board of Directors and Group
Executive Board members
No compensation or benefits in kind were paid to former BoD and
GEB members for 2011. In 2010, part of such compensation paid
related to legacy agreements with GEB members who left several
years ago that were still honored by UBS. Benefits provided for
under such agreements have been discontinued for all BoD and
GEB members who stepped down after 1 January 2008.
Transactions in 2011
In accordance with the applicable rules and regulations, manage-
ment transactions in UBS shares by BoD and GEB members are
publicly disclosed.
From 1 January until 31 December 2011, five share sales were
disclosed with a total value of CHF 7,760,461.35. Swiss stock ex-
change rules do not require disclosure of individual names of GEB
or BoD members making such transactions.
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, and in accordance with normal practice, two BoD
members chose to receive their full pay in UBS shares. These
shares, representing a value of CHF 650,000, will be allocated in
March 2012.
Loans
BoD and GEB members are granted loans, fixed advances and
mortgages. Such loans are 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 do not in-
volve more than the normal risk of collectability or contain other
unfavorable features.
➔ Refer to “Note 31 Related parties” in the “Financial information”
section of this report for information concerning loans granted
to current and former executives
List of tables
Total compensation for GEB members
Share and option ownership / entitlements of GEB members on 31 December 2010 / 2011
Compensation details and additional information for non-independent BoD members
Remuneration details and additional information for independent BoD members
Total payments to BoD members
Number of shares of BoD members on 31 December 2010 / 2011
Compensation paid to former BoD and GEB members
Total of all vested and unvested shares of GEB members
Total of all blocked and unblocked shares of BoD members
Vested and unvested options of GEB members on 31 December 2010 / 2011
Loans granted to GEB members on 31 December 2010 / 2011
Loans granted to BoD members on 31 December 2010 / 2011
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269
Advisory vote
Corporate governance, responsibility and compensation
Compensation
Total compensation for GEB members
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CHF, except where indicated a
Variable cash
compensation under CBP
Name, function
Sergio P. Ermotti, Group CEO 1
Oswald J. Grübel, former Group CEO 2
Oswald J. Grübel, former Group CEO
Robert J. McCann, CEO Wealth Management
Americas (highest-paid)
Carsten Kengeter, CEO Investment Bank
(highest-paid)
Aggregate of all GEB members who
were in office on 31 December 2011 3
Aggregate of all GEB members who
were in office on 31 December 2010 3
Aggregate of all GEB members who
stepped down during 2011 4
Aggregate of all GEB members who
stepped down during 2010 4
2011
2011
2010
2011
2010
2011
2010
2011
2010
For the year
Base salary
Immediate
cash b
553,200
Deferred
cash 5, b
1,290,800
Annual
bonus
under PEP c
922,000
Annual
bonus under
SEEOP d
1,844,000
0
0
0
0
0
0
0
0
Benefits
in kind e
195,450
35,971
25,600
Contributions
to retirement
benefit plans f
150,816
0
0
Total
6,350,711
2,227,638
3,025,600
1,394,445
2,191,667
3,000,000
1,321,538
1,869,233
1,246,155
1,557,694
3,115,388
67,053
6,264
9,183,325
874,626
1,002,496
2,339,158
1,670,827
3,341,654
92,547
0
9,321,308
15,962,737
11,929,365
8,874,910
10,402,137
20,804,274
1,165,601
995,290
70,134,314
14,705,894
15,588,145
14,451,756
15,019,951
30,039,901
381,851
843,402
91,030,900
4,155,602
509,201
1,166,759
755,950
1,380,000
920,000
0
0
962,768
171,954
80,499
7,046,783
0
78,817
118,334
3,253,101
1 Sergio P. Ermotti was appointed on 1 April 2011 as GEB member and regional CEO of Europe, the Middle East and Africa. He was appointed on 24 September 2011 the new Group CEO ad interim and confirmed on
15 November 2011. 2 Oswald J. Grübel stepped down on 24 September 2011 as Group CEO. 3 Number and distribution of GEB members: 12 GEB members were in office on 31 December 2011, 13 GEB members
were in office on 31 December 2010. 4 Number and distribution of former GEB members: 2011: includes five months in office as a GEB member for John Cryan, nine months for Oswald J. Grübel and 11 months for
Maureen Miskovic. 2010: includes three months in office as a GEB member for Francesco Morra. 5 In 2011, for Sergio P. Ermotti, due to applicable UK FSA regulations, deferred cash includes blocked shares. In 2010,
for John Cryan, Carsten Kengeter and Alexander Wilmot-Sitwell, due to applicable UK FSA regulations, deferred cash includes blocked shares.
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Explanation of the tables outlining compensation details for GEB and BoD members
a. Local currencies are converted into CHF using the exchange rates as detailed in Note 38 “Currency translation rates” in the “Financial information” section
in 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 13.26 for PEP awards granted in 2012 relating to the performance year 2011; CHF 18.70 for PEP awards
granted in 2011 relating to the performance year 2010. These values are based on valuations for accounting purposes which take into account the per-
formance conditions and the range of possible outcomes for these conditions.
d. SEEOP awards vest in equal installments over five years and are subject to forfeiture. The grant date accounting value per share granted under SEEOP is:
CHF 12.76 or USD 14.14 (actual shares) and CHF 12.36 or USD 13.70 (notional shares) for SEEOP awards granted in 2012 relating to the performance
year 2011; CHF 18.43 or USD 19.94 (actual shares) and CHF 18.30 or USD 19.80 (notional shares) for SEEOP awards granted in 2011 relating to the
performance year 2010.
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 compen-
sation of up to CHF 835,200. 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 attrib-
uted to the employer’s portion of the legal BVG requirement. The employee contribution is included in the base salary and annual incentive award com-
ponents. 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:
grandfathered plans and principal 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 com-
pensation limited to USD 250,000 (or USD 150,000 for Wealth Management Americas employees). The principal plans for new hires are defined contribu-
tion plans. In the defined contribution plans, UBS makes contributions to the plan based on compensation and limited to USD 245,000 (USD 250,000 as
from 1 January 2012). 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. As from 2 January 2012 the match is not available anymore for Wealth Management
Americas employees with compensation in excess of USD 250,000. In the UK, management participates in either the principal pension plan, which oper-
ates on a defined contribution basis and is limited to an earnings cap of GBP 100,000, or a grandfathered defined benefit plan which provides a pension
upon retirement based on career average base salary (individual caps introduced as of 1 July 2010).
270
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Share and option ownership / entitlements of GEB members on 31 December 2010 / 2011 1
Number of
vested shares
Total number
of shares
Potentially
conferred voting
rights in %
Name, function
For the year
Sergio P. Ermotti, Group Chief Executive Offcier
Oswald J. Grübel, former Group Chief Executive Officer 5
John Cryan, former Group Chief Financial Officer 5
Markus U. Diethelm, Group General Counsel
2011
2010
2011
2010
2011
2010
2011
2010
John A. Fraser, Chairman and CEO Global Asset Management 2011
Lukas Gähwiler, CEO UBS Switzerland and co-CEO
Wealth Management & Swiss Bank
Carsten Kengeter, Chairman and 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
Maureen Miskovic, former Group Chief Risk Officer 5
Tom Naratil, Group Chief Financial Officer
Alexander Wilmot-Sitwell, co-Chairman and co-CEO
Group Asia Pacific
Robert Wolf, former 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
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
Number of
unvested
shares / at risk 2
0
–
–
0
–
221,879
358,042
178,619
460,707
326,702
252,293
110,000
971,575
916,201
389,090
177,592
377,614
200,009
330,047
138,598
–
–
0
–
–
0
–
185,975
91,506
75,700
280,414
316,541
37,517
850
556,016
363,047
95,597
95,597
150,772
144,603
0
540,866
–
–
0
–
–
0
–
407,854
449,548
254,319
741,121
643,243
289,810
110,850
1,527,591
1,279,248
484,687
273,189
528,386
344,612
330,047
679,464
–
–
221,238
193,836
415,074
–
495,553
274,739
–
242,805
306,515
184,858
306,487
113,609
–
220,955
213,613
–
635,382
350,311
318,332
11,756
9,405
–
716,508
488,352
–
878,187
656,826
503,190
318,243
123,014
Number of
options 3
0
Potentially
conferred voting
rights in % 4
0.000
–
–
4,000,000
–
382,673
0
0
1,088,795
1,088,795
0
0
905,000
905,000
0
0
577,723
577,723
0
0
–
–
1,046,122
–
353,807
353,807
–
948,473
623,253
623,253
205,470
205,470
–
–
0.181
–
0.017
0.000
0.000
0.050
0.049
0.000
0.000
0.041
0.041
0.000
0.000
0.026
0.026
0.000
0.000
–
–
0.048
–
0.016
0.016
–
0.043
0.029
0.028
0.009
0.009
0.000
–
–
0.000
–
0.018
0.021
0.012
0.034
0.029
0.013
0.005
0.070
0.058
0.022
0.012
0.024
0.016
0.015
0.031
–
–
0.019
–
0.033
0.022
–
0.040
0.030
0.023
0.015
0.006
1 This table includes all vested and unvested shares and options of GEB members, including related parties. 2 Includes shares granted under variable compensation plans with forfeiture provisions. 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 the plans. 3 Refer to “Note 30 Equity participa-
tion and other compensation plans” in the “Financial information” section of this report for more information. 4 No conversion rights are outstanding. 5 GEB members who stepped down during 2011.
271
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Advisory vote
Corporate governance, responsibility and compensation
Compensation
Compensation details and additional information for non-independent BoD members
CHF, except where indicated a
Name, function 1
Kaspar Villiger, Chairman
For the year
Base salary
2011
2010
850,000
850,000
Annual bonus
(cash)
0
0
Annual
share award
500,000 2
500,000 2
Benefits in kind e
144,568
141,308
Contributions
to retirement
benefit plans f
0
0
Total
1,494,568
1,491,308
1 Kaspar Villiger was the only non-independent member in office on 31 December 2011 and 31 December 2010, respectively. 2 These shares are blocked for four years.
Remuneration details and additional information for independent BoD members
CHF, except where indicated a
e
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M
M
M
M
M
M
C
C
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For the
period
AGM to
AGM
Base fee
Committee
retainer(s)
Benefits
in kind
M
M
M
M
M
M
M
C
M
M
C
M
M
M
M
2011 / 2012 325,000
2010 / 2011 325,000
C 2011 / 2012 325,000
C 2010 / 2011 325,000
2011 / 2012
–
M
2010 / 2011 325,000
M 2011 / 2012 325,000
M 2010 / 2011 325,000
M
M
C
M
2011 / 2012 325,000
2010 / 2011 325,000
2011 / 2012 325,000
2010 / 2011 325,000
M 2011 / 2012 325,000
M 2010 / 2011 325,000
2011 / 2012 325,000
2010 / 2011 325,000
M 2011 / 2012 325,000
M 2010 / 2011 325,000
2011 / 2012 325,000
2010 / 2011 325,000
M
M 2011 / 2012 325,000
2010 / 2011
–
300,000
300,000
500,000
400,000
–
450,000
400,000
400,000
200,000
200,000
550,000
250,000
250,000
200,000
200,000
150,000
300,000
300,000
300,000
300,000
250,000
–
Name, function 1
Michel Demaré, Vice Chairman
David Sidwell,
Senior Independent Director
Sally Bott, former member
Rainer-Marc Frey, member
Bruno Gehrig, member
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member
Joseph Yam, member
Total 2011
Total 2010
Share
percen-
tage 2
50
100
50
50
–
50
100
100
50
50
50
50
100
100
50
50
50
50
50
50
50
–
Number of
shares 3, 4
39,845
52,631
48,952
30,893
–
24,556
62,635
43,583
23,907
16,634
39,845
18,219
49,632
31,519
23,907
15,050
28,460
19,803
28,460
19,803
26,183
–
Total
875,000
Additional
payments
250,000 5
250,000 5
875,000
250,000 5 1,075,000
250,000 5
975,000
–
775,000
725,000
725,000
525,000
525,000
875,000
575,000
575,000
525,000
525,000
475,000
625,000
625,000
625,000
625,000
575,000
–
7,000,000
6,700,000
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 2011. Joseph Yam was appointed at the AGM on 28 April 2011 and Sally Bott stepped down on 11 February 2011. 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. 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 2011, shares valued at CHF 12.92 (average
price of UBS shares at SIX Swiss Exchange over the last 10 trading days of February 2012), included a price discount of 15%, for a new value of discount price CHF 10.98. These shares are blocked for four years. 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 of CHF 15.78.
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 / with-
holding tax. 5 This payment is associated with the Vice Chairman or the Senior Independent Director function, respectively.
272
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Total payments to BoD members
CHF, except where indicated a
Aggregate of all BoD members
For the year
2011
2010
Total
8,494,568
8,191,310
Number of shares of BoD members on 31 December 2010 / 2011 1
Name, function
Kaspar Villiger, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Sally Bott, former member 2
Rainer-Marc Frey, member
Bruno Gehrig, member
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member
Joseph Yam, member
For the year
Number of shares held
Voting rights in %
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
49,440
22,500
76,334
23,703
100,247
69,354
–
39,542
100,042
56,459
54,409
37,775
41,441
23,222
89,971
58,452
15,050
0
109,332
89,529
62,618
42,815
0
–
0.002
0.001
0.003
0.001
0.005
0.003
–
0.002
0.005
0.003
0.002
0.002
0.002
0.001
0.004
0.003
0.001
0.000
0.005
0.004
0.003
0.002
0.000
–
1 This table includes blocked and unblocked shares held by BoD members, including related parties. No options were granted in 2010 and 2011. 2 Sally Bott stepped down on 11 February 2011 as BoD member.
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273
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Corporate governance, responsibility and compensation
Compensation
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Compensation paid to former BoD and GEB members1
CHF, except where indicated a
Name, function
Alberto Togni, former BoD member
Aggregate of all former GEB members 2
Aggregate of all former BoD and GEB members
For the year
Compensation
Benefits in kind
2011
2010
2011
2010
2011
2010
0
0
0
0
0
0
0
20,493
0
57,229
0
77,722
Total
0
20,493
0
57,229
0
77,722
1 Compensation or remuneration connected with the former member’s activity on the BoD or GEB that is not at market conditions. 2 Includes zero former GEB member in 2011 and one former GEB member in 2010.
Total of all vested and unvested shares of GEB members 1, 2
Shares on 31 December 2011
2,863,887
1,988,680
408,037
290,631
Total
Of which
vested
2012
2013
Of which vesting
2014
88,269
2015
88,269
2011
2012
2013
2014
2016
0
2015
Shares on 31 December 2010
4,409,345 3
2,922,411 3
582,787
411,339
282,754
105,027
105,027
1 Includes related parties. 2 Excludes shares granted under variable compensation plans with forfeiture provisions. 3 Includes 22,500 vested shares of the Chairman.
No individual GEB member holds 1% or more of all shares issued.
Total of all blocked and unblocked shares of BoD members 1
Shares on 31 December 2011
Total
Of which
unblocked
698,884
72,775
Shares on 31 December 2010
440,851 2
46,010 2
1 Includes related parties. 2 Excludes 22,500 vested shares of the Chairman.
No individual BoD member holds 1% or more of all shares issued.
2012
9,349
2011
4,266
Of which blocked until
2013
2014
2015
115,690
225,995
275,075
2012
9,349
2013
2014
127,970
253,256
274
Advisory vote
d
e
t
i
d
u
A
Vested and unvested options of GEB members on 31 December 2010 / 2011 1
For the
year
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Sergio P. Ermotti, Group Chief Executive Officer
John A. Fraser, Chairman and CEO Global Asset Management (continued)
2011
2010
0
–
Oswald J. Grübel, former Group Chief Executive Officer 4
2011
–
2010
4,000,000 4,000,000
2009 26/02/2009 25/02/2014
CHF 10.10
John Cryan, former Group Chief Financial Officer 4
2011
–
2010
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
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
2011
2010
0
0
2010
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
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
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
Carsten Kengeter, Chairman and CEO Investment Bank
2011
2010
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
2011
2010
0
0
Philip J. Lofts, Group Chief Risk Officer
2011
577,723
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
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
11,445
11,104
11,098
1,240
5,464
1,199
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
y
t
i
l
i
b
i
s
n
o
p
s
e
r
,
e
c
n
a
n
r
e
v
o
g
e
t
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o
C
n
o
i
t
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s
n
e
p
m
o
c
d
n
a
Markus U. Diethelm, Group General Counsel
2011
2010
0
0
John A. Fraser, Chairman and CEO Global Asset Management
2011
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
2010
577,723
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
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 30 Equity participation and other compensation plans” in the “Financial informa-
tion” section of this report for more information. 4 GEB members who stepped down during 2011.
275
Advisory vote
Corporate governance, responsibility and compensation
Compensation
d
e
t
i
d
u
A
Vested and unvested options of GEB members on 31 December 2010 / 2011 1 (continued)
For the
year
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year
Total
number of
options 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 and co-CEO Group Asia Pacific (cont.)
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
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
2011
2010
0
0
Maureen Miskovic, former Group Chief Risk Officer 4
2011
–
2010
–
Tom Naratil, Group Chief Financial Officer
2011
1,046,122
35,524
35,524
35,521
2002 31/01/2003 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
4,262
2002 29/02/2004 28/02/2012
USD 21.70
63,942
2003 31/01/2006 31/01/2013
USD 22.53
4,262
2003 28/02/2005 28/02/2013
USD 19.53
145,962
2004 01/03/2007 27/02/2014
USD 38.13
166,010
2005 01/03/2008 28/02/2015
USD 44.81
142,198
2006 01/03/2009 28/02/2016
CHF 72.57
131,277
2007 01/03/2010 28/02.2017
CHF 73.67
181,640
2008 01/03/2011 28/02/2018
CHF 35.66
100,000
2009 01/03/2012 27/02/2019
CHF 11.35
35,524
35,521
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
Robert Wolf, former Chairman and CEO, UBS Group Americas /
President Investment Bank
2011
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
Chi-Won Yoon, co-Chairman and co-CEO Group Asia Pacific
2011
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
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
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
2002 28/02/2002 28/02/2012
USD 21.70
2010
–
Alexander Wilmot-Sitwell, co-Chairman and co-CEO Group Asia Pacific
2011
353,807
53,282
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
2010
353,807
85,256
53,282
2008 01/03/2011 28/02/2018
CHF 35.66
2010
623,253
2005 01/03/2008 28/02/2015
CHF 47.58
2,130
2005 04/03/2007 04/03/2015
CHF 47.89
35,524
2006 01/03/2007 28/02/2016
CHF 65.97
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 30 Equity participation and other compensation plans” in the “Financial informa-
tion” section of this report for more information. 4 GEB members who stepped down during 2011.
276
Advisory vote
d
e
t
i
d
u
A
Vested and unvested options of GEB members on 31 December 2010 / 2011 1 (continued)
For the
year
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Chi-Won Yoon, co-Chairman and co-CEO Group Asia Pacific (continued)
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 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
2011
205,470
809
784
784
4,972
7,106
7,103
7,103
93
161
149
127
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
Jürg Zeltner, CEO UBS Wealth Management and
co-CEO Wealth Management & Swiss Bank (continued)
2010
205,470
7,106
7,103
7,103
110
242
230
221
7,105
7,105
7,103
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
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 30 Equity participation and other compensation plans” in the “Financial informa-
tion” section of this report for more information. 4 GEB members who stepped down during 2011.
y
t
i
l
i
b
i
s
n
o
p
s
e
r
,
e
c
n
a
n
r
e
v
o
g
e
t
a
r
o
p
r
o
C
n
o
i
t
a
s
n
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p
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o
c
d
n
a
277
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Advisory vote
Corporate governance, responsibility and compensation
Compensation
Loans granted to GEB members on 31 December 2010 / 2011 1
CHF, except where indicated a
Name, function
Jürg Zeltner, CEO UBS Wealth Management, co-CEO of Wealth Management & Swiss Bank 3
Jürg Zeltner, CEO UBS Wealth Management, co-CEO of Wealth Management & Swiss Bank 3
Aggregate of all GEB members
For the year
2011
2010
2011
2010
Loans 2
5,387,500
5,739,862
17,539,601 4
20,696,569
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, except for CHF 45,435 in 2011. 3 GEB member with the high-
est loan granted. 4 Includes a loan of CHF 3.3 million that will be forgiven in three equal installments over the next three years, subject to the GEB member’s continued full-time employment with UBS and his perfor-
mance being satisfactory and commensurate with his responsibilities.
Loans granted to BoD members on 31 December 2010 / 2011 1
CHF, except where indicated a
Name, function
Kaspar Villiger, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Sally Bott, former member 3
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
Joseph Yam, member
Aggregate of all BoD members
For the year
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
Loans 2
0
0
850,000
850,000
0
0
–
0
0
0
798,000
798,000
0
0
0
0
0
0
0
0
0
0
0
–
1,648,000
1,648,000
1 No loans have been granted to related parties of the BoD members at conditions not customary in the market. 2 All loans granted are secured loans. 3 Sally Bott stepped down on 11 February 2011 as BoD member.
4 Secured loan granted prior to his election to the BoD.
278
Financial
information
Financial information
Table of contents
282
Introduction and accounting principles
283
Update on internal control over financial reporting
284
Consolidated financial statements
284 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
285
287
289
290
291
292
295
297
297
319
323
324
324
325
326
327
327
328
329
329
330
330
331
333
334
335
335
336
338
280
339
339
339
341
341
349
351
358
358
358
359
359
369
Balance sheet notes: liabilities
18 Due to banks and customers
19 Financial liabilities designated at fair value and
debt issued held at amortized cost
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 Fair value of financial instruments
27 Pledged assets and transferred financial assets which
do not qualify for derecognition
370
28 Measurement categories of financial assets and
375
381
391
393
394
397
398
398
399
399
400
402
financial liabilities
29 Pension and other post-employment benefit plans
30 Equity participation and other compensation plans
31 Related parties
32 Events after the reporting period
33 Significant subsidiaries and associates
34 Invested assets and net new money
35 Business combinations
36 Discontinued operations
37 Reorganizations and disposals
38 Currency translation rates
39 Swiss banking law requirements
40 Supplemental guarantor information required
under SEC rules
411
UBS AG (Parent Bank)
411
Parent Bank review
414
414
415
416
417
417
Parent Bank financial statements
Income statement
Balance sheet
Statement of appropriation of retained earnings
Notes to the Parent Bank financial statements
Business activities, risk assessment,
1
outsourcing and personnel
417
2 Accounting policies
420
420
420
421
421
421
421
422
422
423
424
425
425
425
425
426
426
427
428
428
429
429
430
430
430
431
434
434
Additional income statement information
3 Net trading income
4 Extraordinary income and expenses
Additional balance sheet information
5 Other assets and other liabilities
6
Assets pledged or assigned as security for own
obligations and assets subject to reservation of title
7 Due to UBS pension plans
8 Allowances and provisions
9 Statement of shareholders’ equity
10 Share capital and significant shareholders
11 Transactions with related parties
Off-balance-sheet and other information
12 Commitments and contingent liabilities
13 Derivative instruments
14 Fiduciary transactions
Compensation of the members of the Board of Directors
and the Group Executive Board
Total compensation for all GEB members
Share and option ownership / entitlements of GEB
members on 31 December 2010 / 2011
Compensation details and additional information
for non-independent BoD members
Remuneration details and additional information for
independent BoD members
Total payments to BoD members
Number of shares of BoD members on
31 December 2010 / 2011
Compensation paid to former BoD and GEB members
Total of all vested and unvested shares of GEB members
Total of all blocked and unblocked shares of BoD members
Vested and unvested options of GEB members on
31 December 2010 / 2011
Loans granted to GEB members on
31 December 2010 / 2011
Loans granted to BoD members on
31 December 2010 / 2011
435
437
Report of the statutory auditor on the financial statements
Confirmation of the auditors concerning conditional
capital increase
439
Additional disclosure required under SEC regulations
439
A – Introduction
440
441
442
443
443
444
444
445
445
446
448
450
451
451
452
453
454
455
456
457
458
459
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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Financial information
Introduction and accounting principles
The financial information section of UBS’s Annual Report 2011
comprises: a) the audited consolidated financial statements of
UBS Group (the “Financial Statements”) for 2011, 2010 and
2009, prepared in accordance with International Financial Report-
ing Standards (IFRS) as issued by the International Accounting
Standards Board (IASB), b) the audited financial statements of
UBS AG, the Parent Bank, for 2011 and 2010, prepared in order
to meet Swiss regulatory requirements and in compliance with
Swiss Federal Banking Law, and c) 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 oth-
erwise explicitly stated in these financial statements, all financial
information is in Swiss francs (CHF) and presented on a consoli-
dated 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 Group
companies, directly or indirectly. All references to 2011, 2010 and
2009 refer to the fiscal years ended 31 December 2011, 2010 and
2009, respectively. The financial statements for the UBS Group
and the Parent Bank have been audited by Ernst & Young Ltd.
282
Update on internal control over financial reporting
Requirement to assess internal control over financial
reporting
As a US-listed company, UBS is required under the Sarbanes-Oxley
Act to evaluate the effectiveness of its “internal control over finan-
cial reporting” on an annual basis. Management is required to de-
termine, as of the end of each fiscal year, whether UBS’s internal
control over financial reporting was effective or whether there was
a material weakness in such controls. A material weakness is a de-
ficiency or combination of deficiencies in internal control over fi-
nancial reporting such that there is a reasonable possibility that a
material misstatement of a registrant’s financial statements will not
be prevented or detected on a timely basis. Further information
concerning the purpose, scope and inherent limitations of internal
controls over financial reporting is included in Management’s Re-
port on Internal Control over Financial Reporting on the next page.
Evaluation following discovery of unauthorized trading
Following the discovery in September 2011 of unauthorized and
fictitious trading in our Global Synthetic Equity business unit in
London, management determined that certain controls designed
to prevent or detect the use of unauthorized and fictitious trans-
actions on a timely basis were not operating effectively, and had
not been operating effectively as of 31 December 2010. Specifi-
cally (i) the control requiring bilateral confirmation with counter-
parties of trades within our Investment Bank’s equities business
with settlement dates of greater than 15 days after trade date
was not operating, and when such trades were cancelled, re-
booked or amended, the related monitoring control to ensure the
validity of these changes ceased to operate effectively, and (ii) the
controls in the inter-desk reconciliation process within the Invest-
ment Bank’s equities and fixed income, currencies and commodi-
ties businesses to ensure that internal transactions are valid and
accurately recorded in our books and records, including controls
over cancellations and amendments of internal trades that require
supervisor review, intervention and resolution, did not operate ef-
fectively. The controls described in clauses (i) and (ii) are referred
to below as the “Confirmation and Reconciliation Controls”.
Management at the same time confirmed that the financial effect
of the unauthorized trading activity was fully reflected in UBS’s
third quarter 2011 financial report, and reconfirmed the reliability
of the consolidated financial statements included in UBS’s 2010
Annual Report.
Evaluation as of 31 December 2011
UBS management has assessed the effectiveness of UBS’s internal
control over financial reporting as of 31 December 2011. Based
on the remedial work conducted during the fourth quarter of
2011, management confirmed that the Confirmation and Recon-
ciliation Controls had been designed effectively and were in op-
eration on 31 December 2011. While significant progress had
been made, management recognized that, particularly given the
relatively brief period since the unauthorized trading incident was
discovered, a longer period of operational testing and further re-
finement would be necessary before it could conclude that the
Confirmation and Reconciliation Controls were operating effec-
tively. Based on this assessment, management concluded that the
remediation of the material weakness in UBS’s internal control
over financial reporting was not yet complete, and accordingly
assessed UBS’s internal control over financial reporting as ineffec-
tive, as of 31 December 2011. Notwithstanding the foregoing, we
have determined that UBS’s consolidated financial statements in-
cluded in this report fairly pre sent, in all material respects, our fi-
nancial position on 31 December 2009, 2010 and 2011 and our
results of operations and cash flows for the years then ended in
accordance with IFRS.
Remediation of identified control deficiencies
As soon as we identified the control deficiencies referred to
above, we initiated work to remediate them. The confirmation
control and the monitoring control over the validity of changes to
trades have been reactivated and refined, and we are extensively
modifying our front-to-back control process with a view to ensur-
ing that the transactions identified by the inter-desk reconcilia-
tion process referred to above are effectively reviewed, investi-
gated and resolved on a timely basis. We have also developed
new monitoring reports and processes as part of a broader pro-
gram we have initiated to strengthen the effectiveness of super-
visory oversight. The confirmation control and the monitoring
control over the validity of changes to trades were placed into
operation in the fourth quarter of 2011, and their operational
effectiveness has been tested for each month from November
2011 through February 2012. Before we confirm that the Confir-
mation and Reconciliation Controls are effective, we will perform
additional testing of their operational effectiveness, and further
refine them as appropriate.
In view of the progress that has been made through the date
of this report, management believes that in the near future it will
be able to determine that the Confirmation and Reconciliation
Controls are operating effectively. Any such determination in the
near future would be made on an interim basis, as management’s
required annual assessment for 2012 will be made only after the
end of the year. In addition, our auditor, Ernst & Young Ltd, will
audit our internal controls over financial reporting as of 31 De-
cember 2012.
283
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Financial information
Financial information
Consolidated financial statements
Consolidated financial statements
Consolidated financial statements
Management’s Report on Internal Control over Financial
Reporting
registrant’s financial statements will not be prevented or detected
on a timely basis.
Management’s responsibility for internal control over financial
reporting
The Board of Directors and management of UBS are responsible
for establishing and maintaining adequate internal control over
financial reporting. UBS’s internal control over financial reporting
is designed to provide reasonable assurance regarding the prepa-
ration and fair presentation of published financial statements in
accordance with International Financial Reporting Standards
(IFRS) as issued by the International Accounting Standards Board
(IASB).
UBS’s internal control over financial reporting includes those
policies and procedures that:
– Pertain to the maintenance of records that, in reasonable de-
tail, 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 finan-
cial statements, and that receipts and expenditures of the com-
pany are being made only in accordance with authorizations of
UBS management; and
– Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the fi-
nancial 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.
Management is required to determine, as of the end of each
fiscal year, whether UBS’s internal control over financial reporting
was effective or whether there was a material weakness in such
controls. A material weakness is a deficiency or combination of
deficiencies in internal control over financial reporting such that
there is a reasonable possibility that a material misstatement of a
Management’s assessment of internal control over financial
reporting at 31 December 2011
Following the discovery in September 2011 of unauthorized and
fictitious trading in our Global Synthetic Equity business unit in
London, management determined that certain controls designed
to prevent or detect the use of unauthorized and fictitious trans-
actions on a timely basis were not operating effectively. Specifi-
cally (i) the control requiring bilateral confirmation with counter-
parties of trades within our Investment Bank’s equities business
with settlement dates of greater than 15 days after trade date
was not operating, and when such trades were cancelled, re-
booked or amended, the related monitoring control to ensure the
validity of these changes ceased to operate effectively, and (ii) the
controls in the inter-desk reconciliation process within the Invest-
ment Bank’s equities and fixed income, currencies and commodi-
ties businesses to ensure that internal transactions are valid and
accurately recorded in our books and records, including controls
over cancellations and amendments of internal trades that require
supervisor review, intervention and resolution, did not operate ef-
fectively.
UBS management has assessed the effectiveness of UBS’s in-
ternal control over financial reporting as of 31 December 2011
based on the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on this assessment, man-
agement concluded that the remediation of the material weak-
ness in UBS’s internal control over financial reporting arising from
the control deficiencies noted above was not yet complete, and
accordingly assessed UBS’s internal control over financial report-
ing as ineffective, as of 31 December 2011.
The effectiveness of UBS’s internal control over financial re-
porting as of 31 December 2011 has been audited by Ernst &
Young Ltd, UBS’s independent registered public accounting firm,
as stated in their report appearing in pages 285 to 286 below,
which, consistent with management’s assessment, expressed an
adverse opinion on the effectiveness of UBS’s internal control over
financial reporting as of 31 December 2011.
284
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285
Financial information
Consolidated financial statements
286
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287
Financial information
Consolidated financial statements
288
Income statement
CHF million, except per share data
Note
31.12.11
31.12.10
31.12.09
31.12.10
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
3
3
3
4
3
5
6
7
15
16
16
22
36
22
8
8
17,969
(11,143)
6,826
(84)
6,742
15,236
4,343
1,467
27,788
15,591
5,959
761
0
127
22,439
5,350
923
4,426
0
0
0
4,427
268
268
0
4,159
4,158
0
1.10
1.10
0.00
1.08
1.08
0.00
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)
(2,125)
610
600
10
(2,736)
(2,719)
(17)
(0.75)
(0.74)
0.00
(0.75)
(0.74)
0.00
(5)
(12)
10
27
10
(11)
(42)
21
(13)
(8)
(10)
(17)
9
(9)
(28)
(44)
(100)
(100)
(44)
(12)
(12)
(100)
(45)
(45)
(100)
(45)
(45)
(45)
(45)
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289
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 1
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 1
Cash flow hedges
Effective portion of changes in fair value of derivative instruments designated
as cashflowhedges,beforetax
Net (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 hedges1
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
31.12.11
31.12.10
31.12.09
UBS
shareholders
Non-controlling
interests
4,159
268
7,838
(2,125)
703
8
(6)
706
1,458
39
(950)
24
(76)
495
3,093
(1,140)
(417)
1,537
2,737
6,896
292
292
292
560
(951) 2
237
121
(593) 2
(499)
72
(357)
153
13
(618)
927
(1,108)
38
(143)
(1,354) 2
6,484 2
609 2
5,875
(35)
(259)
22
(272)
157
70
(147)
1
(54)
27
78
(756)
257
(421)
(667)
(2,792)
484
(3,276)
Total
4,427
995
8
(6)
998
1,458
39
(950)
24
(76)
495
3,093
(1,140)
(417)
1,537
3,030
7,457
560
6,896
1 Other comprehensive income attributable to UBS shareholders related to foreign currency translations was negative CHF 909 million in 2010 and negative CHF 136 million in 2009. Other comprehensive income
attributable to UBS shareholders related to financial investments available-for-sale was negative CHF 607 million in 2010 and positive CHF 17 million in 2009. Other comprehensive income related to cash flow hedges
was attributable to UBS shareholders for all periods presented. 2 Presentational changes have been made to the prior period related to the redemption of preferred securities; refer to “Note 1b Changes in accounting
policies, comparability and other adjustments” for more information.
290
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
of which: 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
Treasury shares
Equity classified as obligation to purchase own shares
Retained earnings
Cumulative net income recognized directly in equity, net of tax
Equity attributable to UBS shareholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
Note
31.12.11
31.12.10
31.12.09
31.12.10
% change from
9a
10
10
11
23
10
12
9a
13
14
15
16
22
17
18
10
10
11
23
10
19
18
19
20, 21
40,638
23,218
58,763
213,501
181,525
39,936
486,584
41,322
10,336
266,604
53,174
6,327
795
5,688
9,695
8,526
26,939
17,133
62,454
142,790
228,815
61,352
401,146
38,071
8,504
262,877
74,768
5,466
790
5,467
9,822
9,522
12,465
1,419,162
22,681
1,317,247
30,201
8,136
102,429
39,480
473,400
67,114
88,982
342,409
6,850
140,617
61,692
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
232,258
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
1,361,309
1,265,384
1,291,905
383
34,614
(1,160)
(39)
23,603
(3,955)
53,447
4,406
57,852
383
34,393
(654)
(54)
19,444
(6,693)
46,820
5,043
51,863
356
34,824
(1,040)
(2)
11,910
(5,034)
41,013
7,620
48,633
1,419,162
1,317,247
1,340,538
51
36
(6)
50
(21)
(35)
21
9
22
1
(29)
16
1
4
(1)
(10)
(45)
8
(27)
22
37
(28)
20
14
(12)
3
(11)
8
(3)
8
0
1
77
(28)
21
(41)
14
(13)
12
8
291
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Financial information
Consolidated financial statements
Statement of changes in equity
CHF million
Balance as of 1 January 2009
Change in accounting policy 1
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury shares gains / (losses) and net premium / (discount) on
own equity derivative activity, net of tax
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 2
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 as of 31 December 2009
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury shares gains / (losses) and net premium / (discount) on
own equity derivative activity, net of tax
Premium / (discount) 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 2
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 as of 31 December 2010
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury shares gains / (losses) and net premium / (discount) on
own equity derivative activity, net of tax
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 2
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 as of 31 December 2011
Share capital
Share premium
Treasury shares
Equity classified
as obligation to
purchase own shares
25,288
(3,156)
(46)
293
63
Retained earnings
14,487
159
Foreign currency
Financial investments
translation
available-for-sale
(6,309)
(159)
347
Total equity
attributable to
UBS shareholders
Cash flow
hedges
1,627
Non-controlling
interests
8,002
Total equity
40,533
(476)
2,592
(1,040)
(1,574)
1,960
(654)
(2,455)
1,949
(1,268)
10,599
291
1
(87)
356
27
34,824
(43)
(27)
(104)
(8)
(113)
(136)
383
34,393
188
10
19
9
(5)
44
(2)
(52)
(54)
15
383
34,614
(1,160)
(39)
4,159
23,603
706
(6,807)
495
252
1,537
2,600
6,896
53,447
(2,736)
11,910
(136)
(6,604)
17
364
(421)
1,206
7,534
19,444
(909)
(7,513)
(607)
(243)
(143)
1,063
32,531
0
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
0
5,875
46,820
(2,455)
1,949
188
10
19
9
0
0
0
0
15
(5)
0
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)
(2,622)
(130)
(264)
6,484
51,863
0
(2,455)
1,949
188
10
19
9
0
15
(269)
(882)
(4)
(47)
7,457
57,852
(849)
(7)
3
(13)
484
7,620
(305)
(2,622) 3
6
(264)
609 3
5,043
(269)
(882)
1
(47)
560
4,406
1 In 2011, we adjusted the 2009 opening balance of retained earnings by a credit of CHF 159 million and foreign currency translation by a corresponding debit of CHF 159 million to reflect a change in accounting policy.
Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information. 2 Represents dividend payment obligations for preferred securities. 3 Presentational changes have been
made to the prior period related to the redemption of preferred securities; refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information.
292
Statement of changes in equity
CHF million
Balance as of 1 January 2009
Change in accounting policy 1
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury shares gains / (losses) and net premium / (discount) on
own equity derivative activity, net of tax
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 2
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 as of 31 December 2009
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury shares gains / (losses) and net premium / (discount) on
own equity derivative activity, net of tax
Premium / (discount) 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 2
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 as of 31 December 2010
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury shares gains / (losses) and net premium / (discount) on
own equity derivative activity, net of tax
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 2
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 as of 31 December 2011
Share capital
Share premium
Treasury shares
purchase own shares
25,288
(3,156)
(46)
Equity classified
as obligation to
293
63
Retained earnings
14,487
159
Foreign currency
translation
Financial investments
available-for-sale
(6,309)
(159)
347
Cash flow
hedges
1,627
356
27
34,824
(2,736)
11,910
(136)
(6,604)
17
364
(421)
1,206
383
34,393
7,534
19,444
(909)
(7,513)
(607)
(243)
(143)
1,063
(476)
2,592
(1,040)
(1,574)
1,960
(654)
(2,455)
1,949
(1,268)
10,599
291
1
(87)
(43)
(27)
(104)
(8)
(113)
(136)
188
10
19
9
(5)
44
(2)
(52)
(54)
15
Total equity
attributable to
UBS shareholders
32,531
0
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
5,875
46,820
0
(2,455)
1,949
188
10
19
9
0
0
15
0
(5)
0
1 In 2011, we adjusted the 2009 opening balance of retained earnings by a credit of CHF 159 million and foreign currency translation by a corresponding debit of CHF 159 million to reflect a change in accounting policy.
Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information. 2 Represents dividend payment obligations for preferred securities. 3 Presentational changes have been
made to the prior period related to the redemption of preferred securities; refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information.
383
34,614
(1,160)
(39)
4,159
23,603
706
(6,807)
495
252
1,537
2,600
6,896
53,447
Non-controlling
interests
8,002
Total equity
40,533
0
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)
(2,622)
(130)
(264)
6,484
51,863
0
(2,455)
1,949
188
10
19
9
0
(269)
15
(882)
(4)
(47)
7,457
57,852
293
n
o
i
t
a
m
r
o
f
n
i
l
a
i
c
n
a
n
i
F
(849)
(7)
3
(13)
484
7,620
(305)
(2,622) 3
6
(264)
609 3
5,043
(269)
(882)
1
(47)
560
4,406
Financial information
Consolidated financial statements
Equity attributable to non-controlling interests
CHF million
Preferred securities 1
Balance at the beginning of the year
Redemptions 2
Foreign currency translation 3
Balance at the end of the year
Other non-controlling interests at the end of the year
Total equity attributable to non-controlling interests
For the year ended
31.12.11
31.12.10
31.12.09
4,907
(882)
334
4,359
47
4,406
7,254
(2,622) 4
275 4
4,907
136
5,043
7,381
(7)
(120)
7,254
366
7,620
1 Increases and offsetting decreases due to dividends are excluded from this table. 2 Represents nominal amount translated at the historical currency exchange rate. 3 In 2011, foreign currency translation losses of
CHF 121 million were offset by the derecognition of cumulative foreign currency translation losses of CHF 455 million related to the redemption of trust preferred securities, which represent the difference between the
historical currency exchange rate at issuance and the currency exchange rate prevailing at the redemption date. 4 Presentational changes have been made to the prior period related to the redemption of preferred
securities; refer to “Note 1b) Changes in accounting policies, comparability and other adjustments” for more information.
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
Conditional share capital
On 31 December 2011, 148,639,326 additional shares could have
been issued to fund UBS’s employee share option programs. Fur-
ther conditional capital of up to 100,000,000 shares was avail-
able in connection with an arrangement with the Swiss National
Bank (SNB). The SNB provided a loan to a fund owned and con-
trolled by the SNB (the SNB StabFund), to which UBS transferred
certain illiquid securities and other positions. As part of this ar-
For the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
3,830,840,513
3,558,112,753
2,932,580,549
1,281,386
272,727,760
625,532,204
3,832,121,899
3,830,840,513
3,558,112,753
38,892,031
37,553,872
155,636,639
105,824,816
61,903,121
33,566,097
(109,573,119)
(104,486,657)
(57,915,346)
84,955,551
38,892,031
37,553,872
8
(100)
0
4
47
5
118
rangement, UBS granted warrants on shares to the SNB and these
warrants become exercisable if the SNB incurs a loss on its loan to
the SNB StabFund.
On 14 April 2010 the annual general meeting of UBS AG
shareholders approved the creation of conditional capital to a
maximum amount of 380,000,000 shares for conversion
rights / warrants granted in connection with the issuance of bonds
or similar financial instruments. These positions are shown as
conditional share capital in the UBS AG (Parent Bank) disclosure.
294
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, associates and intangible assets
Disposal of subsidiaries, associates and intangible assets
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 short-term debt 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 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: 1
Cash and balances with central banks
Money market paper 2
Due from banks 3
Total
For the year ended
31.12.11
31.12.10
31.12.09
4,427
7,838
(2,125)
761
127
84
(42)
817
(996)
(5,856)
(14,296)
(67,020)
17,257
6,298
10,428
29,119
7,050
(2,049)
(349)
(14,241)
(58)
50
(1,129)
233
20,281
19,377
15,338
(1,885)
0
52,590
(62,626)
1
(749)
2,670
(2,129)
5,678
79,934
85,612
40,638
3,900
41,074
85,612
918
117
66
(81)
(605)
(531)
1,125
9,022
(25,048)
22,634
(3,429)
608
9,277
(988)
(7,039)
(498)
13,385
(75)
307
(541)
242
4,164
4,097
4,459
(1,456)
(113)
78,418
(77,497)
6
(2,053)
1,764
(12,181)
7,066
72,868
79,934
26,939
17,110
35,885
79,934
1,048
1,323
1,832
(37)
(960)
425
8,355
(41,766)
162,822
43,344
(316)
(4,208)
(41,351)
(11,916)
(29,242)
(505)
86,723
(42)
296
(854)
163
(78,376)
(78,812)
(60,040)
673
3,726
67,062
(65,024)
3
(583)
(54,183)
5,529
(40,744)
113,611
72,868
20,899
6,327
45,642
72,868
1 In 2011, we have refined our definition of cash and cash equivalents. Prior periods have been adjusted accordingly. Refer to “Note 1 Summary of significant accounting policies” for more information. 2 Money market paper
is included in the balance sheet under Trading portfolio assets (31 December 2011: CHF 1,783 million, 31 December 2010: CHF 11,750 million) and Financial investments available-for-sale (31 December 2011: CHF 2,117 mil-
lion, 31 December 2010: CHF 5,360 million). CHF 0 million and CHF 9,941 million of money market paper was pledged as of 31 December 2011 and 31 December 2010, respectively. 3 Includes positions recognized in the
balance sheet under Due from banks (31 December 2011: CHF 18,733 million, 31 December 2010: CHF 15,655 million) and Cash collateral receivables on derivative instruments with bank counterparties (31 December 2011:
CHF 22,341 million, 31 December 2010: CHF 20,230 million, refer to Note 10).
295
n
o
i
t
a
m
r
o
f
n
i
l
a
i
c
n
a
n
i
F
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 equity investments (including associates)
Significant non-cash investing and financing activities
No significant items in 2011 and 2010.
CHF million
Deconsolidation of UBS Pactual
Financial investments available-for-sale
Property and equipment
Goodwill and intangible assets
Debt issued
31.12.11
For the year ended
31.12.10
31.12.09
16,669
9,845
1,343
17,344
12,606
1,395
23,844
19,597
1,090
For the year ended
31.12.09
14
31
731
1,393
296
Notes to the consolidated fi nancial statements
Note 1 Summary of significant accounting policies
a) Significant accounting policies
The principal accounting policies applied in the preparation of
these consolidated fi nancial 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 fi nancial services including: advisory services, underwrit-
ing, fi nancing, market-making, asset management and brokerage
on a global level and retail banking in Switzerland. The Group was
formed on 29 June 1998 when Swiss Bank Corporation and
Union Bank of Switzerland merged. The merger was accounted
for using the uniting of interests method of accounting.
The consolidated fi nancial statements of UBS (the “Financial
Statements”) are prepared in accordance with International
Financial Reporting Standards (IFRS), as issued by the Internation-
al Accounting Standards Board (IASB), and are stated in Swiss
francs (CHF), the currency of Switzerland where UBS AG is incor-
porated. On 13 March 2012, the consolidated fi nancial state-
ments were authorized for issue1. Consolidated fi nancial state-
ments are prepared using uniform accounting policies for like
transactions and other events in similar circumstances. Transac-
tions and balances between Group companies are eliminated.
Disclosures incorporated in the “Risk, treasury and capital man-
agement” section which are part of these fi nancial statements are
marked as audited. These disclosures relate to requirements under
IFRS 7 Financial Instruments: Disclosures and IAS 1 Presentation of
Financial Statements and are not repeated in the “Financial informa-
tion - consolidated fi nancial statements” section.
2) Use of estimates in the preparation of the Financial Statements
In preparing the Financial Statements in conformity with IFRS,
management is required to make estimates and assumptions that
affect reported income, expenses, assets, liabilities and disclosure
of contingent assets and liabilities. Use of available information
and application of judgment are inherent in the formation of esti-
mates. 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 when it has the power to govern the fi nancial and oper-
ating policies of the entity. Generally this is indicated by a direct
shareholding of more than one-half of the voting rights. Subsid-
iaries, including SPEs that are controlled by the Group, are con-
solidated from the date control is transferred to the Group and
are deconsolidated from the date control ceases.
Equity attributable to non-controlling interests is presented on the
consolidated balance sheet within equity, and is separate from equity
attributable to UBS shareholders. Net profi t attributable to non-con-
trolling interests is shown separately in the income statement.
Special purpose entities
The Group sponsors the formation of SPEs for a variety of reasons
in order to accomplish certain narrow and well-defi ned objectives.
Many SPEs are established as bankruptcy remote, meaning that
only the assets in the SPE are available for the benefi t of the inves-
tors in the SPE and such investors have no other recourse to UBS.
SPEs including trusts are consolidated when the substance of the
relationship between the Group and the SPE indicates that the
SPE is controlled by the Group. The following circumstances may
indicate a relationship 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 specifi c business needs so that UBS obtains
benefi ts from the SPE’s operations;
– UBS has the decision-making powers to obtain the majority of
the benefi ts of the activities of the SPE or, through setting up
an “autopilot” mechanism, UBS has delegated these decision-
making powers;
– UBS has rights to obtain the majority of the benefi ts 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 related
to the SPE or its assets in order to obtain benefi ts from its activities.
SPEs that are established to facilitate clients holding investments
are structures that allow one or more clients to invest in specifi c
assets or risk and reward profi les. Typically, UBS will receive service
and commission fees for the creation of the SPE, or for its services
as investment manager, custodian or some other capacity. Some of
these SPEs are single-investor or family trusts while others allow a
1 The Board of Directors authorizes the issuance of the consolidated financial statements. On 8 March 2012 the Board convened to review and authorize the issuance of the consolidated financial statements, and delegated to
the Chairman of the Audit Committee authority to give final approval based on whether or not an agreement in principle with a monoline insurer (then in the final stages of negotiation) would be signed. The agreement in prin-
ciple was signed on 12 March 2012, and the consolidated financial statements were authorized for issuance on 13 March 2012. Refer to “Note 32 Events after the reporting period” for more information.
297
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a
m
r
o
f
n
i
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a
i
c
n
a
n
i
F
Financial information
Notes to the consolidated fi nancial statements
Note 1 Summary of significant accounting policies (continued)
large number of investors to invest in a diversifi ed asset base
through shares, notes or certifi cates. The majority of UBS’s SPEs
created for client investment purposes are not consolidated. How-
ever, UBS will consolidate such SPEs when a control relationship
exists, for example when UBS absorbs the majority of the risks and
rewards, or when UBS has unilateral liquidation rights.
SPEs used for securitization are established when UBS sells as-
sets to an SPE (for example, a portfolio of loans) or facilitates the
purchase of assets on behalf of 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 retains the majority of
the risks and rewards of the assets in the SPE. UBS does not con-
solidate SPEs used for securitization if it has no control over the
assets and if it no longer retains any signifi cant exposure (for gain
or loss) to the income or investment returns on the assets sold to
the SPE, or the proceeds of their liquidation.
SPEs used for credit protection are established to allow UBS to
sell to and purchase from one or more investors the credit risk on
portfolios, which may or may not be held by UBS. UBS generally
consolidates SPEs that are used for credit protection when, for
instance, UBS receives benefi ts from funding or has unilateral liq-
uidation rights.
Employee benefi t 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 indicates that the entity
is controlled by UBS.
UBS continuously evaluates whether triggering events require
the reconsideration of consolidation decisions that were made at
inception of its involvement with any particular SPE. This is espe-
cially relevant for securitization vehicles. Triggering events are usu-
ally caused by restructuring, the vesting of potential rights and the
acquisition, disposal or expiration of interests. SPEs may be con-
solidated or deconsolidated depending on the facts and circum-
stances of any change.
Business combinations
Following the adoption of IFRS 3 Business Combinations, business
combinations completed after 31 December 2009 are accounted
for using the acquisition method. As of the acquisition date UBS
recognizes the identifi able assets acquired and the liabilities as-
sumed at their acquisition-date fair values. For each business
combination, UBS measures the non-controlling interests in the
acquiree (being present ownership interests providing entitlement
to a proportionate share of the net assets of the acquiree in the
event of liquidation) either at fair value or at their proportionate
share of the acquiree’s identifi able net assets.
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 that may be transferred by UBS is
recognized at fair value at the acquisition date. If the contingent
consideration is classifi ed as an asset or liability, subsequent
changes in the fair value of the contingent consideration are rec-
ognized in the income statement. If the contingent consideration
is classifi ed as equity, it is not re-measured until it is fi nally settled.
Any excess of the aggregate of the consideration transferred
and the amount recognized for non-controlling interests over the
net identifi able assets acquired and liabilities assumed is consid-
ered goodwill and is recognized as a separate asset on the bal-
ance sheet, initially measured at cost. If the fair value of the net
assets of the subsidiary acquired exceeds the aggregate of the
consideration transferred and the amount recognized for non-
controlling interests, the difference is recognized in the income
statement on the acquisition date.
The accounting treatment for business combinations complet-
ed prior to 1 January 2010 differed primarily in the following re-
spects:
– Transaction costs directly attributable to the acquisition formed
part of the acquisition costs.
– Any non-controlling interest were measured as a proportion of
the acquiree’s identifi able net assets.
– Contingent consideration was recognized if, and only if, UBS
had a present obligation, economic outfl ow was likely and a
reliable estimate of the amount was determinable. Subsequent
adjustments to the contingent consideration were recognized
as part of goodwill.
4) Associates and jointly controlled entities
Investments in associates in which UBS has signifi cant infl uence
are accounted for under the equity method of accounting. Nor-
mally, signifi cant infl uence is indicated when UBS owns more than
20% of a company’s voting rights. Investments in associates are
initially recorded at cost, and the carrying amount is increased or
decreased after the date of acquisition to recognize the Group’s
share of the investee’s net profi t or loss (including net profi t or loss
recognized directly in equity). Interests in jointly controlled entities
also are accounted for under the equity method of accounting. A
jointly controlled entity is subject to a contractual agreement be-
tween UBS and one or more third parties, which establishes joint
control over its economic activities. Interests in such entities are
classifi ed as Investments in associates on the balance sheet and
for disclosure purposes.
If the reporting date of an associate or joint venture is different
to UBS’s reporting date, the most recently available fi nancial state-
ments of the associate or joint venture are used to apply the eq-
uity method. Adjustments are made for effects of signifi cant
transactions or events that may occur between that date and the
UBS reporting date.
Investments in associates and interests in jointly controlled en-
tities are classifi ed as “held for sale” if their carrying amount will
be recovered principally through a sale transaction rather than
through continuing use – see items 20) and 29).
298
Note 1 Summary of significant accounting policies (continued)
5) Recognition and derecognition of fi nancial instruments
UBS recognizes fi nancial 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 fi duciary capacities that result
in the holding or placing of assets on behalf of individuals, trusts,
retirement benefi t plans and other institutions. Unless the recog-
nition criteria for the assets are satisfi ed, these assets and the re-
lated income are excluded from UBS’s fi nancial statements, as
they are not assets of UBS.
Financial assets
UBS enters into certain transactions where it transfers fi nancial
assets recognized on its balance sheet but retains either all or a
portion of the risks and rewards of the transferred fi nancial assets.
If all or substantially all risks and rewards are retained, the trans-
ferred fi nancial assets are not derecognized from the balance
sheet. Transactions where transfers of fi nancial assets result in
UBS retaining all or substantially all risks and rewards include se-
curities lending and repurchase transactions described under
items 13) and 14). They also include transactions where fi nancial
assets are sold to a third party together with a total return swap
that results in UBS retaining all or substantially all the risks and
rewards of the transferred assets. These types of transactions are
accounted for as secured fi nancing transactions.
In transactions where substantially all of the risks and rewards
of ownership of a fi nancial asset are neither retained nor trans-
ferred, UBS derecognizes the fi nancial asset if control over the
asset is lost. The rights and obligations retained in the transfer
are recognized separately as assets and liabilities, respectively. In
transfers where control over the fi nancial 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 include written put options, acquired call
options, or other instruments linked to the performance of the
asset.
Financial liabilities
UBS removes a fi nancial liability from its balance sheet when it is
extinguished, i.e., when the obligation specifi ed in the contract is
discharged, cancelled or expired. When an existing fi nancial 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 modifi ed, such an exchange or modifi cation is treated as
the derecognition of the original liability and the recognition of a
new liability. Any difference in the respective carrying amounts is
recognized in the income statement.
arm’s length transaction. Determining fair value is considered a
signifi cant accounting policy for the Group and further details are
disclosed in Note 26.
7) Trading portfolio assets and liabilities
Non-derivative fi nancial assets and liabilities are classifi ed at ac-
quisition as held for trading and presented in the trading portfolio
if they are (a) acquired or incurred principally for the purpose of
selling or repurchasing in the near term; or (b) part of a portfolio
of identifi ed fi nancial instruments that are managed together and
for which there is evidence of a recent actual pattern of short-
term profi t-taking.
The trading portfolio includes non-derivative fi nancial instru-
ments (including those with embedded derivatives) and commod-
ities. Financial instruments which are considered derivatives in
their entirety generally are presented on the balance sheet as
Positive replacement values or Negative replacement values (see
item 15)). The trading portfolio includes recognized assets and li-
abilities relating to proprietary, hedging and client related busi-
ness (refer to Note 11 for more details).
Trading portfolio assets include debt instruments (including
those in the form of securities, money market paper and traded
corporate and bank loans); equity instruments, assets held under
unit-linked contracts and precious metals and other commodities
owned by the Group (“long” positions). Trading portfolio liabili-
ties include obligations to deliver fi nancial instruments such as
debt and equity instruments which the Group has sold to third
parties, but does not own (“short” positions).
Assets and liabilities in the trading portfolio are measured at
fair value. Gains and losses realized on disposal or redemption of
these assets and liabilities and unrealized gains and losses from
changes in the fair value of these assets and liabilities are reported
as Net trading income. Interest and dividend income and expense
on these assets and liabilities are included in Interest and dividend
income or Interest and dividend expense.
The Group uses settlement date accounting when recognizing
assets and liabilities in the trading portfolio. From the date a pur-
chase transaction is entered into (trade date) until settlement
date, UBS recognizes any unrealized profi ts and losses arising
from re-measuring the transaction to fair value in Net trading
income. The corresponding receivable or payable is presented on
the balance sheet as a Positive replacement value or Negative
replacement value, respectively. On settlement date, the resulting
fi nancial asset is recognized on the balance sheet at the fair value
of the consideration given or received plus or minus the change
in fair value of the contract since the trade date. From the trade
date of a sales transaction, unrealized profi ts and losses are no
longer recognized and the asset is derecognized on settlement
date.
6) Determination of fair value
Fair value is the amount for which an asset could be exchanged or
a liability settled between knowledgeable, willing parties in an
Trading portfolio assets transferred to external parties that do
not qualify for derecognition (see item 5)) and where the trans-
feree has obtained the right to sell or re-pledge the assets are
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Notes to the consolidated fi nancial statements
Note 1 Summary of significant accounting policies (continued)
classifi ed on the UBS balance sheet as Trading portfolio assets and
identifi ed as Trading portfolio assets pledged as collateral. Such
assets continue to be measured at fair value.
UBS applies the same recognition and derecognition principles
to fi nancial instruments designated at fair value as to fi nancial
instruments in the trading portfolio (refer to items 5) and 7)).
8) Financial assets and Financial liabilities designated at fair value
through profi t or loss (“Fair Value Option”)
A fi nancial instrument may only be designated at fair value
through profi t or loss at inception and this designation cannot be
changed subsequently. Financial assets (refer to Note 12) and fi -
nancial liabilities (refer to Note 19) designated at fair value are
presented on separate lines on the face of the balance sheet.
There are restrictions as to when the fair value option can be ap-
plied. The conditions for applying the fair value option are met
when:
– the fi nancial instrument is a hybrid instrument which includes
an embedded derivative; or
– the fi nancial instrument is part of a portfolio which is risk man-
aged on a fair value basis and reported to senior management
on that basis; or
– the application of the fair value option reduces or eliminates
an accounting mismatch that would otherwise arise.
UBS has used the fair value option to designate most of its is-
sued hybrid debt instruments as Financial liabilities designated at
fair value through profi t or loss, on the basis that such fi nancial
instruments include embedded derivatives or are managed on a
fair value basis, predominantly as follows:
– Credit-linked bonds or notes: linked to the performance (cou-
pon and / or redemption amount) of single names (such as a
company or a country) or a basket of reference entities
– Equity-linked bonds or notes: linked to a single stock, a basket
of stocks or an equity index
– Rates-linked bonds or notes: linked to a reference interest rate,
interest rate spread or formula
The fair value option is also applied to certain loans and loan com-
mitments which are hedged predominantly with credit derivatives.
The application of the fair value option to these instruments reduces
an accounting mismatch, as the credit derivatives are accounted for
as derivative instruments at fair value through profi t or loss.
UBS has also applied the fair value option to certain structured
loans and reverse repurchase and securities borrowing agree-
ments which are part of portfolios managed on a fair value basis,
and to assets held to hedge deferred cash-settled employee com-
pensation awards, in order to reduce an accounting mismatch.
Fair value changes related to fi nancial instruments designated
at fair value through profi t or loss are recognized in Net trading
income. Interest income and interest expense on fi nancial assets
and liabilities designated at fair value through profi t or loss are
recognized in Interest income on fi nancial assets designated at
fair value or Interest expense on fi nancial liabilities designated at
fair value (refer to Note 3).
9) Financial investments available-for-sale
Financial investments available-for-sale are non-derivative fi nan-
cial assets that are not classifi ed as held for trading, designated at
fair value through profi t or loss, or loans and receivables. They are
recognized on a settlement date basis.
Financial investments available-for-sale include debt securities
held as part of the liquidity reserve (mainly issued by government
and government-controlled institutions); strategic equity invest-
ments; certain investments in real estate funds; certain equity in-
struments, including private equity investments; and debt instru-
ments and non-performing loans acquired in the secondary market.
Financial investments available-for-sale are recognized initially
at fair value less direct transaction costs and are measured subse-
quently 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 invest-
ment is determined to be impaired. Unrealized gains or losses be-
fore tax are presented separately in Note 13. For monetary instru-
ments (such as debt securities) foreign exchange translation gains
and losses determined by reference to the instrument’s amortized
cost basis are recognized in Net trading income. Foreign exchange
translation gains and losses related to other changes in fair value
are recognized in Other comprehensive income. Foreign exchange
translation gains or losses associated with non-monetary instru-
ments (such as equity securities) are part of the overall fair value
change of the assets and are recognized directly in Other compre-
hensive income. On disposal of an investment, any related accu-
mulated unrealized gains or losses included in Equity are trans-
ferred to the income statement and reported in Other income;
gains and losses on disposal are determined using the average
cost method. Interest and dividend income on fi nancial invest-
ments available-for-sale are included in Interest and dividend in-
come from fi nancial investments available-for-sale; interest in-
come is determined by reference to the instrument’s amortized
cost basis using the effective interest rate.
At each balance sheet date, UBS assesses whether there are
indicators 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 af-
ter the initial recognition of the investment, the estimated future
cash fl ows from the investment have decreased. For equity invest-
ments, a signifi cant or prolonged decline in fair value below the
original cost (e.g. 20% or six months) can be considered as an
objective evidence of impairment. For debt investments, objective
evidence of impairment includes signifi cant fi nancial diffi culty for
the issuer or counterparty; default or delinquency in interest or
principal payments; or probability that the borrower will enter
bankruptcy or fi nancial re-organization. If a fi nancial investment
300
Note 1 Summary of significant accounting policies (continued)
available-for-sale is determined to be impaired, the related cumu-
lative net unrealized loss previously recognized in Equity is includ-
ed in the income statement within Other income. For equity in-
struments, any further loss is recognized directly in the income
statement, whereas for debt instruments, any further loss is rec-
ognized in the income statement if there is additional objective
evidence of impairment. After the recognition of an impairment
on a fi nancial investment available-for-sale, increases in the fair
value of equity instruments are reported in Equity and increases in
the fair value of debt instruments up to amortized cost in original
currency are recognized in Other income, provided that the fair
value increase is related to an event occurring after the impair-
ment loss was recorded.
UBS applies the same recognition and derecognition principles
to fi nancial assets available-for-sale as to fi nancial instruments in
the trading portfolio (refer to items 5) and 7)), except that unreal-
ized gains or losses between trade date and settlement date are
recognized in Equity rather than the income statement.
10) Loans and receivables
Loans and receivables are non-derivative fi nancial assets with
fi xed or determinable payments that are not quoted in an active
market, not classifi ed as held-for-trading, not designated as at
fair value through profi t and loss or available-for-sale, and are
not assets for which the Group may not recover substantially all
of its initial net investment, other than because of a credit dete-
rioration. Financial assets classifi ed as Loans and receivables in-
clude:
– originated loans where funding is provided directly to the bor-
rower; participation in a loan from another lender and pur-
chased loans;
– securities which are classifi ed as loans and receivables at acqui-
sition date, such as auction rate securities;
– securities previously in the trading portfolio and reclassifi ed
to loans receivables (refer to Note 28b);
– loans such as leverage fi nance loans previously in the trading
portfolio and reclassifi ed (refer to Note 28b).
is advanced, any fees are recognized as follows: For loan commit-
ments that are not expected to result in a loan being advanced,
the fees are recognized in Credit-related fees and commissions
over the commitment period. For loan syndication fees where UBS
does not retain a portion of the syndicated loan, fees are credited
to Commission income from other services when the services
have been provided.
Financial assets reclassifi ed to loans and receivables
When a fi nancial asset is reclassifi ed from held for trading to loans
and receivables, the fi nancial asset is reclassifi ed at its fair value on
the date of reclassifi cation. Any gain or loss recognized in the in-
come statement before reclassifi cation is not reversed. The fair
value of a fi nancial asset on the date of reclassifi cation becomes its
cost basis going forward. In 2008 and 2009 UBS determined that
certain fi nancial assets classifi ed as held for trading were no longer
held for the purpose of selling or repurchasing in the near term
and that the Group had the intention and ability to hold these as-
sets for the foreseeable future, considered to be a period of ap-
proximately twelve months from the reclassifi cation. Therefore,
these assets were reclassifi ed from held for trading to loans and
receivables. (Refer to Note 28b and Notes 9a and 9b).
Renegotiated loans
Subject to assessment on a case-by-case basis, UBS may restruc-
ture a loan, or take possession of collateral. Restructuring may
involve extending the payment arrangements or agreeing to new
loan conditions. Once the terms have been renegotiated, any im-
pairment is measured using the EIR as calculated before the mod-
ifi cation of terms. Because the terms and conditions of the loan
were renegotiated the loan is not considered as past due. Man-
agement 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 assessment, cal-
culated using the loan’s original EIR. If a loan has a variable inter-
est rate, the discount rate for measuring any impairment loss is
the current EIR.
For an overview of fi nancial assets accounted for as loans and
receivables, refer to the measurement category Financial assets at
amortized cost presented in Note 28.
Loans and receivables are recognized when funding is ad-
vanced to borrowers. They are recorded initially at fair value,
based on the amount given to originate or purchase the loan,
together with any direct transaction costs. Subsequently they are
measured at amortized cost using the effective interest rate (EIR)
method. Interest on loans and receivables is included in Interest
earned on loans and advances and is recognized on an accrual
basis. Fees and direct costs relating to loan origination, refi nanc-
ing 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 EIR method. Where no loan is expected to or
11) Allowances and provisions for credit losses
An allowance or provision for credit losses is established if there is
objective evidence that the Group will be unable to collect all
amounts due (or the equivalent value) on a claim according to the
original contractual terms (refer to Note 9b). A “claim” means a
loan or receivable carried at amortized cost, or a commitment
such as a letter of credit, a guarantee, or another similar instru-
ment. Objective evidence of impairment includes signifi cant
fi nancial diffi culty for the issuer or counterparty; default or delin-
quency in interest or principal payments; or probability that the
borrower will enter bankruptcy or fi nancial reorganization.
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
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Notes to the consolidated fi nancial statements
Note 1 Summary of significant accounting policies (continued)
reported in Other liabilities. Additions to allowances and provi-
sions for credit losses are recognized as a Credit loss expense.
analysis may occur sooner if other objective evidence indicates
that a loan may be impaired.
Allowances and provisions for credit losses are evaluated at a
counterparty-specifi c level and collectively based on the following
principles:
Counterparty-specifi c: A claim is considered impaired when
management determines that it is probable that the Group will
not be able to collect all amounts due (or the equivalent value)
according to the original contractual terms. Individual credit ex-
posures are evaluated based on the borrower’s character, overall
fi nancial condition, resources and payment record; the prospects
for support from any fi nancially responsible guarantors; and,
where applicable, the realizable value of any collateral. The esti-
mated recoverable amount is the present value, using the loan’s
original EIR, of expected future cash fl ows, including amounts
that may result from restructuring or the liquidation of collateral.
Impairment is measured and allowances for credit losses are es-
tablished for the difference between the carrying amount and
the estimated recoverable amount. Upon impairment, the ac-
crual 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.
Generally all impaired claims are reviewed and analyzed at
least annually. Any subsequent changes to the amounts and tim-
ing of the expected future cash fl ows compared with prior esti-
mates result in a change in the allowance for credit losses and are
charged or credited to Credit loss expense / recovery. An allow-
ance for impairment is reversed only when the credit quality has
improved to such an extent that there is reasonable assurance of
timely collection of principal and interest in accordance with the
original contractual terms of the claim, or the equivalent value. A
write-off is made when all or part of a claim is deemed uncollect-
ible or forgiven. Write-offs reduce the principal amount of a claim
and are charged against previously established allowances for
credit losses or, if no allowance has been established previously,
directly to Credit loss expense / recovery. Recoveries, in part or in
full, of amounts previously written off are credited to Credit loss
expense / recovery.
A restructuring of a fi nancial asset could result in the original
loan being derecognized and a new loan being recognized. The
new loan is measured at fair value at initial recognition. Any al-
lowance taken against the original loan is removed and recog-
nized as a write-off. If the rights existing prior to the restructuring
have not been legally waived, the original gross counterparty ex-
posure still exists, although a new loan has been recognized.
A loan is classifi ed as non-performing when the payment of
interest, principal or fees is overdue by more than 90 days and
there is no fi rm evidence that it will be made good by later pay-
ments or the liquidation of collateral; insolvency proceedings have
commenced against the fi rm; or obligations have been restruc-
tured on concessionary terms. Loans in arrears for 90 days are
evaluated individually for impairment; however, an impairment
Collectively: All loans for which no impairment is identifi ed at a
counterparty-specifi c level are grouped on the basis of the bank’s
internal credit grading system that considers credit risk character-
istics 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
fl ows for a group of fi nancial assets that are collectively evaluated
for impairment are estimated on the basis of historical loss experi-
ence for assets with credit risk characteristics similar to those in
the group. Historical loss experience is adjusted on the basis of
current observable data to refl ect the effects of current conditions
of the group of fi nancial assets on which the historical loss experi-
ence is based and to remove the effects of conditions in the his-
torical period that do not exist currently in the portfolio. Estimates
of changes in future cash fl ows for the group of fi nancial assets
refl ect, and are directionally consistent with, changes in related
observable data from year to year. The methodology and assump-
tions used for estimating future cash fl ows for the group of fi nan-
cial assets are reviewed regularly to reduce any differences be-
tween loss estimated and actual loss experience. Allowances from
collective assessment of impairment are recognized as Credit loss
expense / recovery 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 ac-
crued on each loan according to its contractual terms. If objective
evidence becomes available that indicates that an individual fi -
nancial asset is impaired, it is removed from the group of fi nancial
assets assessed for impairment on a collective basis and is as-
sessed separately as a counterparty-specifi c claim.
Reclassifi ed securities and acquired securities carried at amor-
tized cost: Estimated cash fl ows associated with fi nancial assets
reclassifi ed from the held for trading to loans and receivables in
accordance with the requirements in item 10 above and other
similar assets acquired subsequently, are revised periodically. Ad-
verse revisions in cash fl ow estimates related to credit events are
recognized in profi t or loss as credit loss expenses. For reclassifi ed
securities, increases in estimated 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 (refer to Notes 9a, 9b and
28b).
12) Securitization structures set up by UBS
UBS securitizes various fi nancial 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 en-
tity must be consolidated and those set out in item 5) in determin-
ing whether derecognition of transferred fi nancial assets is ap-
propriate. The following statements mainly apply to transfers
of fi nancial assets, which qualify for derecognition.
302
Note 1 Summary of significant accounting policies (continued)
Gains or losses related to the sale of fi nancial assets involving a
securitization are generally recognized when the derecognition
criteria are satisfi ed and are classifi ed in Net trading income.
Interests in the securitized fi nancial assets may be retained in
the form of senior or subordinated tranches, interest-only strips or
other residual interests (“retained interests”). Retained interests
are primarily recorded in Trading portfolio assets and carried at
fair value. Synthetic securitization structures typically involve de-
rivative fi nancial instruments for which the principles set out in
item 15) apply.
UBS acts as structurer and placement agent in various mort-
gage-backed securities (MBS) and other asset-backed securities
(ABS) securitizations. In such capacity, UBS may purchase collat-
eral on its own behalf or on behalf of customers during the pe-
riod prior to securitization. UBS then typically sells the collateral
into designated trusts upon closing of the securitization. In other
securitizations, UBS may only provide fi nancing to a designated
trust in order to fund the purchase of collateral by the trust prior
to securitization. UBS underwrites the offerings to investors,
earning fees for its placement and structuring services. Consis-
tent with the valuation of similar inventory, fair value of retained
tranches is initially and subsequently determined using market
price quotations where available or internal pricing models that
utilize variables such as yield curves, prepayment speeds, default
rates, loss severity, interest rate volatilities and spreads. Where
possible, assumptions based on observable transactions are used
to determine the fair value of retained interests, but for some
interests substantially no observable information is available.
13) Securities borrowing and lending
Securities borrowing and securities lending transactions are gen-
erally entered into on a collateralized basis. In such transactions,
UBS typically lends or borrows equity and debt securities in ex-
change for securities or cash collateral. Additionally, UBS borrows
securities from its clients’ custody accounts in exchange for a fee.
The transactions are normally conducted under standard agree-
ments employed by fi nancial market participants and are under-
taken with counterparties subject to UBS’s normal credit risk con-
trol 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 ac-
cordance with the underlying agreements.
Cash collateral received is recognized with a corresponding ob-
ligation to return it (Cash collateral on securities lent) and cash
collateral delivered is derecognized and a corresponding receiv-
able refl ecting UBS’s right to receive it back is recorded (Cash col-
lateral on securities borrowed). The securities which have been
transferred are not recognized on or derecognized from the bal-
ance sheet unless the risks and rewards of ownership are also
transferred (see item 5). In those transactions where UBS transfers
owned securities and where the borrower is granted the right to
sell or re-pledge the transferred securities, the securities are pre-
sented on the balance sheet as Trading portfolio assets, of which:
assets pledged as collateral. Securities received in a borrowing
transaction are disclosed as off-balance sheet items if UBS has the
right to resell or re-pledge them, with additional disclosure for
securities that UBS has actually re-sold or re-pledged (see Note
24). The sale of securities received in a borrowing or lending
transaction generally triggers the recognition of a trading liability
(short sale).
Interest receivable or payable for fi nancing transactions is rec-
ognized in the income statement on an accrual basis and is re-
corded 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 re-
purchase (Repurchase agreements) are treated as collateralized
fi nancing transactions. Nearly all repurchase and reverse repur-
chase agreements involve debt instruments, such as bonds,
notes or money market paper. The transactions are normally
conducted under standard agreements employed by fi nancial
market participants and are undertaken with counterparties
subject to UBS’s normal credit risk control processes. UBS moni-
tors the market value of the securities received or delivered on a
daily basis and requests or provides additional collateral or re-
turns or recalls surplus collateral in accordance with the underly-
ing 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 transferred. In repurchase agreements
where UBS transfers owned securities and where the recipient is
granted the right to resell or re-pledge them, the securities are
presented on the balance sheet as Trading portfolio assets, of
which: assets pledged as collateral. Securities received in reverse
repurchase agreements are disclosed as off-balance sheet items if
UBS has the right to resell or re-pledge them, with additional dis-
closure for securities that UBS has actually resold or re-pledged
(see Note 24). Additionally, the sale of securities received in re-
verse repurchase transactions generally 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
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Notes to the consolidated fi nancial statements
Note 1 Summary of significant accounting policies (continued)
and Central Securities Depository (CSD) in accordance with the
relevant accounting requirements.
15) Derivative instruments and hedge accounting
Derivatives are initially recognized at fair value at the date the
derivative contract is entered into and are remeasured subse-
quently to fair value. The method of recognizing fair value gains
or losses depends on whether derivatives are held for trading or
are designated and effective as hedging instruments. If designat-
ed as hedging instruments, the method of recognizing gains or
losses depends on the nature of the risk being hedged.
Derivative instruments are generally reported on the balance
sheet as Positive replacement values or Negative replacement val-
ues. Derivative instruments that trade on an exchange or through
a clearing house are generally classifi ed as Cash collateral receiv-
ables or payables on derivative instruments. They are not classifi ed
within replacement values because the change in fair value of
these instruments is economically settled each day through the
cash payment of variation margin. Products that receive this treat-
ment are futures contracts, 100% daily margined exchange trad-
ed options, interest rate swaps transacted with the London Clear-
ing House and certain credit derivative contracts. Changes in the
fair values of derivatives are recorded in Net trading income, un-
less the derivatives are designated and effective as hedging instru-
ments in certain types of hedge accounting relationships.
Hedge accounting
The Group also uses derivative instruments as part of its asset and
liability management activities to manage exposures particularly
to interest rate and foreign currency risks, including exposures
arising from forecast transactions. If derivative and non-derivative
instruments meet certain criteria specifi ed below, they are desig-
nated as hedging instruments in hedges of the change in fair
value of recognized assets or liabilities (‘fair value hedges’); hedg-
es of the variability in future cash fl ows attributable to a recog-
nized asset or liability, or a highly probable forecast transaction
(‘cash fl ow hedges’); or hedges of a net investment in a foreign
operation (‘net investment hedges’).
At the time a fi nancial instrument is designated in a hedge re-
lationship, the Group formally documents the relationship be-
tween 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 effective” in offsetting changes in the fair val-
ue or cash fl ows associated with designated risk of the hedged
items. UBS regards a hedge as highly effective if the following
criteria are met: a) at inception of the hedge and throughout its
life, the hedge is expected to be highly effective in achieving off-
setting changes in fair value or cash fl ows attributable to the
hedged risk, and b) actual results of the hedge are within a range
of 80% to 125%. In the case of hedging a forecast transaction,
the transaction must have a high probability of occurring and
must present an exposure to variations in cash fl ows that could
ultimately affect the reported net profi t or loss. The Group discon-
tinues hedge accounting voluntarily or when it determines that a
hedging instrument is not, or has ceased to be, highly effective as
a hedge; when the derivative expires or is sold, terminated or ex-
ercised; 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 fl ows of the hedging instrument exceed changes
(or expected changes) in the present value of future cash fl ows of
the hedged item. Such ineffectiveness is recorded in current peri-
od earnings in Net trading income. Interest income and expense
on derivatives designated as hedging instruments in effective
hedge relationships is included in Net interest 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 refl ected in the carrying value of the hedged item.
For a portfolio hedge of interest rate risk, the equivalent change
in fair value is refl ected in a separate line within Other assets or
Other liabilities. 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 amor-
tized to the income statement over the remaining term until ma-
turity.
Cash fl ow hedges
A fair value gain or loss associated with the effective portion of a
derivative designated as a cash fl ow hedge is recognized initially
in Equity. When the cash fl ows 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 fl ow hedge for a forecasted 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
reported in Equity remains there until the committed or forecast-
ed transaction occurs. If the forecasted transaction is no longer
expected to occur, the deferred gain or loss is transferred immedi-
ately to profi t or loss.
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Note 1 Summary of significant accounting policies (continued)
Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted for
similarly to cash fl ow hedges. Gains or losses on the hedging in-
strument relating to the effective portion of the hedge are recog-
nized directly in Equity (and presented in the statement of changes
in equity and statement of comprehensive income under Foreign
currency translation), while any gains or losses relating to the inef-
fective and / or undesignated portion (for example, the interest ele-
ment of a forward contract) are recognized in the income state-
ment. On disposal of the foreign operation, the cumulative value
of any such gains or losses associated with the entity recognized
directly in Equity is reclassifi ed to the income statement.
Economic hedges which do not qualify for hedge accounting
Derivative instruments which are transacted as economic hedges
but do not qualify for hedge accounting are treated in the same way
as derivative instruments used for trading purposes, i.e., realized and
unrealized gains and losses are recognized in Net trading income
except that, in certain cases, the forward points on short duration
foreign exchange contracts are reported in Net interest income. Re-
fer to Note 23 for more information on “economic hedges”.
Irrevocable loan commitments (where UBS has no right to
withdraw the loan commitment once communicated to the ben-
efi ciary, or which are revocable only due to automatic cancellation
upon deterioration in a borrower’s creditworthiness) are classifi ed
into the following categories:
– Derivative loan commitments (loan commitments that can be
settled net in cash or by delivering or issuing another fi nancial
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 profi t and
loss (“Fair value option”) (refer to item 8).
– All other loan commitments, which are not recorded in the
balance sheet. However, a provision is recognized if it is prob-
able that a loss has been incurred and a reliable estimate of the
amount of the obligation can be made (refer to item 27). Oth-
er loan commitments include irrevocable forward starting re-
verse repurchase and irrevocable securities borrowing agree-
ments. Any increase in the liability relating to these other loan
commitments is recorded in the income statement in Credit
loss expense / recovery.
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 profi t 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 defi nition of a derivative. Bifur-
cated embedded derivatives are presented on the same balance
sheet line as the host contract, and are shown in Note 28 in the
“Held for trading” category, refl ecting 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.
16) Loan commitments
Loan commitments are defi ned amounts (unutilized credit lines or
undrawn portions of credit lines) against which customers can
borrow money at defi ned terms and conditions.
Loan commitments that can be cancelled by UBS at any time
(without giving a reason) according to their general terms and
conditions, are not recognized on the balance sheet and are not
included in the off balance sheet disclosures. Upon a loan draw-
down by the counterparty, the amount of the loan is accounted
for in accordance with Loans and receivables (refer to item 10)).
17) Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer
to make specifi ed payments to reimburse the holder for an in-
curred loss because a specifi ed debtor fails to make payments
when due in accordance with the terms of a specifi ed debt instru-
ment. UBS issues such fi nancial guarantees to banks, fi nancial
institutions and other parties on behalf of customers to secure
loans, overdrafts and other banking facilities.
Certain written fi nancial guarantees that are managed on a fair
value basis are designated at fair value through profi t or loss (refer
to item 8). Financial guarantees that are not managed on a fair
value basis are initially recognized in the fi nancial statements at fair
value. Subsequent to initial recognition, these fi nancial guarantees
are measured at the higher of the amount initially recognized less
cumulative amortization, and the best estimate of the expenditure
required to settle the fi nancial obligation at the balance sheet date.
Any increase in the liability relating to guarantees is recorded in the
income statement in Credit loss expense / recovery.
18) Cash and cash equivalents
For the purposes of the statement of cash fl ows, cash and cash
equivalents comprise balances with an original maturity of three
months or less including cash, money market paper and balances
with central and other banks. Refer to Note 1b for more informa-
tion on our defi nition of cash and cash equivalents.
19) 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-
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Notes to the consolidated fi nancial statements
Note 1 Summary of significant accounting policies (continued)
ognized within the Trading portfolio assets. Changes in fair value
less costs to sell are recorded in Net trading income.
20) Property and equipment
Property and equipment includes own-used properties, invest-
ment properties, leasehold improvements, IT hardware, externally
purchased and internally developed software and communication
and other similar equipment. With the exception of investment
properties, Property and equipment is carried at cost, less accu-
mulated depreciation and accumulated impairment losses, and is
reviewed periodically for impairment. The useful lives of property
and equipment are estimated on the basis of the economic utiliza-
tion of the asset.
Classifi cation of own-used property
Own-used property is defi ned as property held by the Group for
use in the supply of services or for administrative purposes,
whereas investment property is defi ned as property held to earn
rental income and / or for capital appreciation. If a property of the
Group includes a portion that is own-used and another portion
that is held to earn rental income or for capital appreciation, the
classifi cation is based on whether or not these portions can be
sold separately. If the portions of the property can be sold sepa-
rately, they are separately accounted for as own-used property
and investment property. If the portions cannot be sold separately,
the whole property is classifi ed as own-used property unless the
portion used by the Group is minor. The classifi cation of property
is reviewed on a regular basis to account for major changes in its
usage. When the use of a property changes from own-used to
investment property, the property is remeasured to fair value and
reclassifi ed as investment property. Any gain arising on remea-
surement is recognized in profi t or loss to the extent that it re-
verses a previous impairment loss on the specifi c property, with
any remaining gain recognized in other comprehensive income
and presented in the revaluation reserve in equity. Any loss is rec-
ognized immediately in profi t or loss.
Investment property
Investment property is carried at fair value with changes in fair
value recognized in the income statement in Other income in the
period of change. UBS uses its internal real estate experts to de-
termine the fair value of investment property by applying recog-
nized valuation techniques. In cases where prices of recent market
transactions of comparable properties are available, fair value is
determined by reference to these transactions. When the use of a
property changes such that it is reclassifi ed as own-used property,
its fair value at the date of reclassifi cation becomes its cost for
subsequent accounting.
make them suitable for the intended purpose. If required, the
present value of estimated reinstatement costs to bring a
leased property back into its original condition at the end of the
lease, is capitalized as part of total leasehold improvements with
a corresponding liability recognized to refl ect the obligation in-
curred. Reinstatement costs are recognized in profi t and loss
through depreciation of the capitalized leasehold improvements
over their estimated useful lives.
Property held for sale
Where UBS has decided to sell non-current assets such as prop-
erty or equipment and the sale of these assets is highly probable
to happen within 12 months, these assets are classifi ed as non-
current assets held for sale and are recorded in Other assets. Upon
classifi cation 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.
Software
Software development costs are capitalized when we are able to
assess how a program generates future economic benefi ts for
UBS, determine the period over which these economic benefi ts
will accrue to UBS and track those costs that can be capitalized to
determine a reliable measurement. Internally generated software
that meets these criteria and purchased software are classifi ed
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 hardware, software and
communication
Not exceeding 50 years
Residual lease term,
but not exceeding 10 years
Not exceeding 10 years
Not exceeding 5 years
21) 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 identifi able assets of the
acquired entity at the date of acquisition. Goodwill is not amor-
tized; it is tested annually for impairment and, additionally, when
a reasonable indication of impairment exists. For the purpose of
testing goodwill for impairment, UBS considers the segments as
reported in Note 2a Segment reporting as separate cash-generat-
ing units, since this is the level at which the performance of in-
vestments is reviewed and assessed by management. The recover-
able amount of a segment is determined on the basis of its value
in use. Refer to Note 16 for details.
Leasehold improvements
Leasehold improvements are investments made to customize
buildings and offi ces occupied under operating lease contracts to
Intangible assets comprise separately identifi able intangible
items arising from business combinations and certain purchased
trademarks and similar items. Intangible assets are recognized at
306
Note 1 Summary of significant accounting policies (continued)
cost. The cost of an intangible asset acquired in a business com-
bination is its fair value at the date of acquisition. Intangible as-
sets with a defi nite useful life are amortized using the straight-
line method over their estimated useful economic life, generally
not exceeding 20 years. Intangible assets with an indefi nite use-
ful life are not amortized. Generally, all identifi ed intangible as-
sets of UBS have a defi nite useful life. At each balance sheet
date, intangible assets are reviewed for indications of impair-
ment or changes in estimated future benefi ts. If such indications
exist, the intangible assets are analyzed to assess whether
their carrying amount is fully recoverable. An impairment loss
is recognized if the carrying amount exceeds the recoverable
amount.
Intangible assets are classifi ed 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, trademarks and trade names acquired
in business combinations.
22) Income taxes
Income tax payable on profi ts is recognized as an expense based
on the applicable tax laws in each jurisdiction in the period in
which profi ts arise. The tax effects of income tax losses available
for carry forward are recognized as a deferred tax asset if it is
probable that future taxable profi t (based on profi t forecast as-
sumptions) will be available against which those losses can be
utilized.
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 suffi cient taxable profi ts 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 ex-
ists, and they are intended to be settled net or realized simultane-
ously.
Current and deferred taxes are recognized as income tax ben-
efi t or expense except for current and deferred taxes recognized
(i) upon the acquisition of a subsidiary, (ii) for unrealized gains or
losses on fi nancial investments available-for-sale, for changes in
fair value of derivative instruments designated as cash fl ow hedg-
es, and for certain foreign currency translations of foreign opera-
tions, (iii) for certain tax benefi ts 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.
23) Debt issued
Debt issued is carried at amortized cost. In cases where, as part of
the Group’s asset and liability management activity, fair value
hedge accounting is applied to fi xed-rate debt instruments carried
at amortized cost, their carrying amount is adjusted for changes
in fair value related to the hedged exposure – refer to item 15) for
further details on hedge accounting. Generally, structured notes
issued are designated at fair value through profi t or loss using the
fair value option, on the basis that they are managed on a fair
value basis and / or that the structured notes contain an embed-
ded derivative – refer to item 8) for further details on the fair value
option. The fair value option is not applied to certain structured
notes that contain embedded derivatives that reference foreign
exchange rates and precious metal prices. For these instruments,
the embedded derivative component is measured on a fair value
basis and the related underlying debt host component is mea-
sured on an amortized cost basis, with both components present-
ed together within Debt issued.
All debt issued and then repurchased by UBS in relation to mar-
ket making or other activities is treated as redeemed. A gain or
loss on redemption is recorded depending on whether the repur-
chase 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 reis-
suance of debt. Interest expense on debt instruments measured at
amortized cost is included in Interest on debt issued. Refer to
Note 19 for further details on debt issued.
24) Pension and other post-employment benefi t plans
UBS sponsors a number of post-employment benefi t plans for its
employees worldwide, which include defi ned benefi t and defi ned
contribution plans, and other post-retirement benefi ts such as
medical and life insurance benefi ts.
Defi ned benefi t plans
Typically, defi ned benefi t plans defi ne an amount of pension ben-
efi t that an employee will receive on retirement, usually depen-
dent on one or more factors such as age, years of service and
compensation.
The defi ned benefi t liability recognized in the balance sheet is
the present value of the defi ned 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 de-
fi ned benefi t liability is negative (i.e., a defi ned benefi t asset),
measurement of the asset is limited to the lower of a) the de-
fi ned benefi t asset and b) the total of any cumulative unrecog-
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Notes to the consolidated fi nancial statements
Note 1 Summary of significant accounting policies (continued)
nized net actuarial losses plus unrecognized past service cost
plus the present value of economic benefi ts 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 deter-
mine the present value of its defi ned benefi t obligation and the
related current service cost and, where applicable, past service
cost. These amounts are calculated annually by independent ac-
tuaries. The principal actuarial assumptions used are set out in
Note 29.
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 defi ned as the greater of:
a) 10% of the present value of the defi ned benefi t 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 state-
ment over the expected average remaining working lives of the
employees participating in the plans.
Defi ned contribution plans
A defi ned contribution plan is a pension plan under which UBS
pays fi xed contributions into a separate entity. UBS has no legal or
constructive obligation to pay further contributions if the plan
does not hold suffi cient assets to pay employees the benefi ts re-
lating to employee service in the current and prior periods. UBS’s
contributions are expensed when the employees have rendered
services in exchange for such contributions; this is generally in the
year of contribution. Prepaid contributions are recognized as an
asset to the extent that a cash refund or a reduction in future pay-
ments is available.
Other post-retirement benefi ts
UBS also provides post-retirement medical and life insurance ben-
efi ts to certain retirees in the US and the UK. The expected costs
of these benefi ts are recognized over the period of employment
using the same accounting methodology used for defi ned benefi t
pension plans.
25) Equity participation and other compensation plans
Equity participation plans
UBS has established several equity participation plans in the form
of share plans, option plans and share-settled stock appreciation
right (SAR) plans. UBS’s equity participation plans include manda-
tory, discretionary, and voluntary plans. UBS recognizes the fair
value of share, option and SAR awards, determined at the date of
grant, as compensation expense over the period that the employ-
ee is required to provide services in order to earn the award.
Awards that do not require the employee to provide future
service to become entitled to the award, such as those granted to
retirement eligible employees, are considered vested at the grant
date. Compensation expense is fully recognized on the grant date
or in a period prior to the grant date if the bank can substantiate
that the award is attributable to past service and the amount of
the award can be reasonably and reliably estimated. Such 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 re-
lated services have been received.
Plans containing vesting conditions have either a tiered vesting
structure, which vest in increments over a specifi ed period or a
cliff vesting structure, which vest at the end of a specifi ed period.
Compensation expense is recognized on a tiered basis for awards
that have a tier vesting structure and on a straight-line basis for
awards with a cliff vesting structure. Plans may contain provisions
that shorten the required service period due to achievement of
retirement eligibility or upon termination due to redundancy. In
such instances, UBS recognizes compensation expense over the
period from grant to the retirement eligibility or redundancy date.
Forfeiture of these awards that occur during the service period
results in a reversal of compensation expense.
Equity-settled awards are classifi ed as equity instruments. The
fair value of an equity-settled award is determined at the date of
grant and is not subsequently remeasured, unless its terms are
modifi ed such that the fair value immediately after modifi cation
exceeds the fair value immediately prior to modifi cation. Any in-
crease in fair value resulting from a modifi cation is recognized as
compensation expense, either over the remaining service period
or immediately for vested awards.
Cash-settled awards are classifi ed 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, on a cumulative basis, no compensation expense is recog-
nized for awards that expire worthless or remain unexercised.
Details of the determination of fair value of equity participation
plans are disclosed in Note 30d).
Other compensation plans
UBS has established other fi xed and variable deferred compensa-
tion plans, the value of which is not linked to UBS’s own equity.
UBS’s deferred cash compensation plans are either mandatory or
discretionary plans. Deferred compensation plans include awards
based on a notional cash amount, where ultimate payout is fi xed
or may vary based on achievement of performance conditions.
UBS recognizes compensation expense over the period that the
employee is required to provide services in order to earn the
award. The amount recognized during the service period is based
on an estimate of the amount the bank expects to pay-out under
the plan, such that cumulative expense recognized ultimately
equals the cash distributed to employees. UBS also awards de-
308
Note 1 Summary of significant accounting policies (continued)
ferred compensation plans in the form of alternative investment
vehicles (AIVs). The grant date fair value for AIVs is based on the
fair value on the grant date of the underlying assets (i.e., money
market funds, UBS and non-UBS mutual funds and other UBS-
sponsored funds) and is subsequently marked to market at each
reporting date until the award is distributed. Forfeiture of these
awards results in the reversal of expense. Refer to Note 30 for
further details on equity participation and other compensation
plans.
26) Amounts due under unit-linked investment contracts
UBS’s fi nancial 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 fi nancial liability represents the amount due to unit
holders 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.
27) 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
outfl ow of resources will be required to settle or discharge the
obligation and the amount can be reliably estimated. Provisions
for restructuring are recognized when UBS has approved a de-
tailed and formal restructuring plan and also has raised a valid
expectation of the restructuring, either through commencement
of the plan or announcements to the affected employees.
When a provision is recognized, its amount needs to be esti-
mated as the exact amount of the obligation is generally unknown.
The estimate is based on all available information and refl ects the
amount that in management’s opinion represents the best esti-
mate of the expenditure required to settle or discharge the obliga-
tion. UBS revises existing provisions up or down as soon as it is able
to quantify the amounts more accurately. If the effect of the time
value of money is material, provisions are discounted and mea-
sured at the present value of the expenditure expected to settle or
discharge the obligation, using a rate that refl ects the current mar-
ket assessments of the time value of money and the risks specifi c
to the obligation.
The majority of UBS’s provisions relate to operational risks, liti-
gation and regulatory matters, restructuring costs and provisions
for loan commitments and guarantees. Provisions are refl ected
under Other liabilities on the balance sheet. A provision is not
recognized, but a contingent liability is disclosed, when it has yet
to be confi rmed whether UBS has a present obligation as a result
of past events; when it is not probable that an outfl ow of re-
sources will be required to settle or discharge a present obligation,
or when a suffi ciently reliable estimate of the amount of the obli-
gation cannot be made. Refer to Note 21.
28) Equity, treasury shares and contracts on UBS AG shares
Transaction costs related to share issuances
Incremental transaction costs directly attributable to the issue of
new shares or contracts with mandatory gross physical settlement
classifi ed as equity instruments are recognized in Equity as “Trans-
action costs related to share issuances, net of tax” and are de-
ducted from Equity.
Non-controlling interests
Net profi t and Equity are presented including non-controlling in-
terests. Net profi t is split into Net profi t attributable to UBS share-
holders and Net profi t 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 presented in Equity as Trea-
sury shares at their acquisition cost which includes transaction
costs. Treasury shares are deducted from Equity until they are can-
celled or reissued. The difference between the proceeds from
sales of Treasury shares and their weighted average cost (net of
tax, if any) is reported as Share premium.
Contracts with 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 classifi ed as trading
instruments, with changes in fair value reported in the income
statement as Net trading income.
Contracts with mandatory gross physical settlement (except for
written put options and forward share purchase contracts)
Contracts that require gross physical settlement in UBS AG shares
are presented in Equity as Share premium (provided a fi xed
amount of shares is exchanged against a fi xed amount of cash or
another fi nancial asset) and accounted for at cost, which is added
to or deducted from Equity as appropriate. Upon settlement of
such contracts, the difference between the proceeds received and
their cost (net of tax, if any) is reported as Share premium.
Written put options and forward share purchase contracts with
gross physical settlement
Written put options and forward share purchase contracts with
gross physical settlement, including contracts where gross physi-
cal settlement is a settlement alternative, result in the recognition
of a fi nancial liability booked against Equity. 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 recog-
nized as a liability. The liability is subsequently accreted, using the
EIR method, over the life of the contract to the nominal purchase
obligation by recognizing interest expense. Upon settlement of
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Note 1 Summary of significant accounting policies (continued)
the contract, the liability is derecognized, and the amount of eq-
uity originally recognized as a liability is reclassifi ed within Equity
to Treasury shares. The premium received for writing put options
is recognized directly in Share premium.
and cash fl ows. If an entity or a component of an entity is classifi ed
as a discontinued operation, UBS restates prior periods in the in-
come statement. Refer to Note 36 for further details.
Trust preferred securities issued
UBS has issued trust preferred securities through consolidated pre-
ferred 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 full pri-
or 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 inter-
ests in UBS’s consolidated fi nancial statements. Once a coupon pay-
ment becomes mandatory, i.e., when it is triggered by a contractu-
ally defi ned event, the full dividend payment obligation on these
trust preferred securities issued is reclassifi ed from Equity to a cor-
responding liability. In the income statement the full dividend pay-
ment is reclassifi ed from Net profi t attributable to UBS shareholders
to Net profi t attributable to non-controlling interests at that time.
29) Discontinued operations and non-current assets held for sale
UBS classifi es individual non-current non-fi nancial 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 dis-
posal 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 must be 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 must be 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 are presented in Other
assets and Other liabilities (see Notes 17 and 20). Non-current assets
and liabilities of subsidiaries are classifi ed as “held for sale” if their
carrying amount will be recovered principally through a sale transac-
tion rather than through continuing use.
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 classifi ed 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 equity
investments). Net profi t from discontinued operations includes the
net total of operating profi t and loss before tax from discontinued
operations (including net gain or loss on sale before tax or mea-
surement to fair value less costs to sell) and discontinued opera-
tions tax expense. A component of an entity comprises operations
and cash fl ows that can be clearly distinguished, operationally and
for fi nancial reporting purposes, from the rest of UBS’s operations
310
30) 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 classifi ed as oper-
ating leases or fi nance 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 modifi cations being made. If
one or more of the conditions are met, the lease is generally clas-
sifi ed as a fi nance lease, while the non-existence of such condi-
tions normally leads to a classifi cation as an operating lease.
Lease contracts classifi ed as operating leases where UBS is the
lessee are disclosed in Note 25. These contracts include non-can-
cellable long-term leases of offi ce buildings in most UBS locations.
Operating lease rentals payable are recognized as an expense on
a straight-line basis over the lease term, which commences when
the lessee controls the physical use of the property. Lease incen-
tives are treated as a reduction of rental expense and are also
recognized over the lease term on a straight-line basis.
Certain arrangements do not take the legal form of a lease but
convey a right to use an asset in return for a payment or series of
payments. For such arrangements, UBS determines at inception
date of the arrangement whether the fulfi llment of the arrange-
ment is dependent on the use of a specifi c asset or assets. If the
arrangement conveys a right to use the asset, the arrangement is
accounted for as a lease.
When UBS enters into contractual arrangements which are not
considered leases in their entirety, but which include lease ele-
ments, then the general lease requirements are applied to the
lease element of the arrangement.
Lease contracts classifi ed as operating leases where UBS is the
lessor, and fi nance lease contracts where UBS is the lessor or the
lessee, are not material.
UBS recognizes provisions for premises leases if the unavoid-
able costs of a contract exceed the benefi ts to be received under
it (onerous lease contracts). This may occur, for instance, when a
signifi cant portion of a rental space is expected to be vacant for
an extended period.
31) 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:
Note 1 Summary of significant accounting policies (continued)
fees earned from services that are provided over a certain period of
time and fees 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 with spe-
cifi c performance criteria, which are recognized when the perfor-
mance criteria are fulfi lled. Fees earned from providing transac-
tion-type services are recognized when the service has been
completed. Loan commitment fees on lending arrangements are
deferred until the loan is drawn down and are 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 when the commitment expires.
The following fee income is earned predominantly 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 earned predominantly from pro-
viding transaction-type services include underwriting fees, corpo-
rate fi nance fees and brokerage fees.
32) 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. Gener-
ally, resulting foreign exchange differences are recognized in Net
trading income. Foreign exchange differences from non-monetary
fi nancial investments available-for-sale are recorded directly in Eq-
uity until the asset is sold or becomes impaired, unless the non-
monetary fi nancial investment is subject to a fair value hedge of
foreign exchange risk, in which case changes in fair value attribut-
able 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 cur-
rency – 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 ex-
change rates are recognized directly in Foreign currency transla-
tion within Equity.
When a foreign operation is disposed of such that control, sig-
nifi cant infl uence or joint control is lost, the cumulative amount
in Foreign currency translation within Equity related to that foreign
operation attributable to UBS is reclassifi ed to profi t 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 infl uence or joint control, the related portion of the cumulative
currency translation balance is reclassifi ed to profi t or loss.
33) Earnings per share (EPS)
Basic earnings per share are calculated by dividing the net profi t
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 profi t or loss for the
period attributable to ordinary shareholders and the weighted av-
erage number of ordinary shares outstanding to refl ect 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.
34) 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 the In-
vestment Bank, supported by the Corporate Center.
For the purpose of segment reporting, the business division
Wealth Management & Swiss Bank is split into two separate re-
portable segments, namely; Wealth Management and Retail &
Corporate. The fi ve reportable segments, together with the Cor-
porate Center, refl ect the internal management structure and re-
sponsibilities. Financial information about the fi ve reportable seg-
ments and the Corporate Center is presented separately in the
internal management report to the Group Executive Board (con-
sidered the “chief operating decision maker” within the context
of IFRS 8 Operating Segments).
The Corporate Center is not considered an operating segment un-
der IFRS 8 Operating Segments. It includes predominantly 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 organiza-
tional management, as well as a limited number of specifi cally de-
fi ned items. These items include UBS’s option to acquire the SNB
StabFund’s equity and expenses such as capital taxes. As the Corpo-
rate Center agrees fl at fees to be charged to the business divisions,
adjusted on a periodic basis, there will be differences between actual
costs incurred and those recharged. All other costs incurred by the
Corporate Center related to shared services and control functions like
risk control, fi nance, legal and compliance, communications and
branding, human resources, information technology, real estate, pro-
curement, corporate development and service centers are charged
out to the reportable segments based on internal accounting policies.
The costs of shared services and control functions managed by the
Corporate Center are allocated to the direct cost lines of personnel
expenses, general and administrative expenses and depreciation in
the respective reportable segment income statements, based on in-
311
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Notes to the consolidated fi nancial statements
Note 1 Summary of significant accounting policies (continued)
ternally determined allocations. UBS’s internal accounting policies,
which include management accounting policies and service level
agreements, determine the revenues and expenses directly attribut-
able to each reportable segment. Internal charges and transfer pricing
adjustments are refl ected in the reportable segment performances.
Revenue-sharing agreements are used to allocate external cli-
ent revenues to reportable segments. Due to the present arrange-
ment of revenue-sharing agreements, the total inter-segment
revenues for UBS are not considered material.
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 Group Treasury in the Corpo-
rate Center, with the net margin refl ected 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 average attributed equity.
Commissions are credited to the reportable segments based
on the corresponding client relationship. Revenue-sharing agree-
b) Changes in accounting policies, comparability and other adjustments
ments are used for the allocation of customer revenues where sev-
eral reportable segments are involved in the value-creation chain.
In line with internal management reporting, segment assets are
reported without intercompany balances on a third-party view basis.
Refer to Note 2a “Segment reporting” for further details. For the
purpose of segment reporting under IFRS 8, the non-current assets
consist of investments in associates and joint ventures, goodwill,
other intangible assets and plant, property and equipment.
35) Netting
UBS nets assets and liabilities on 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: OTC in-
terest rate swaps (IRS) transacted with the London Clearing House,
netted by currency and across maturity dates and repurchase and
reverse repurchase transactions entered into with the both the Lon-
don Clearing House and the Fixed Income Clearing Corporation,
netted by counterparty, currency, central securities depository
(CSD) and maturity.
Effective in 2011
Interests in consolidated investment funds
In 2011, UBS changed its accounting policy for investments in
consolidated investment funds that are not considered equity in-
struments as defi ned in IAS 32. Effective 2011, foreign currency
gains and losses from translation of our investments in such funds
are recorded in the income statement on the basis that the invest-
ment interests are fi nancial liabilities of the consolidated invest-
ment fund. Previously, foreign currency translation gains and
losses from these investments were presented in Foreign currency
translation within Other comprehensive income on the basis that
the investment interests represented a right to the residual assets
and were therefore previously considered non-monetary items.
The revised accounting policy is considered more relevant as it
better aligns the treatment of the foreign currency differences
arising on the investments in the subsidiaries with the treatment
of the investment interests.
This change in accounting policy was applied retrospectively, re-
sulting in an adjustment to the opening balance sheet as of 1 January
2009. Foreign currency translation within Cumulative net income
recognized directly in equity, net of tax was debited by CHF 159 mil-
lion and Retained earnings was credited by CHF 159 million, with a
corresponding impact on the statement of changes in equity. There
was no impact on the reported net profi t of 2009, 2010 and 2011.
Interests in non-consolidated investment funds
In connection with the above change in accounting policy, the
classifi cation of investments in non-consolidated funds in Note 11
Trading portfolio and Note 13 Financial investments available-for-
sale has been amended to align to the criteria in IAS 32 Financial
Instruments: Presentation. The reclassifi cation of these interests
from equity instruments to debt instruments has no impact on
UBS’s income statement and balance sheet. Prior periods in Note
11 and Note 13 have been restated accordingly.
Capitalization of internally generated software
Following the approval of a new long-term IT investment plan, in
the third quarter 2011 UBS reviewed the capitalization practice for
internally generated computer software. As a result of this review,
UBS implemented a process whereby UBS improved the ability to
assess how software programs generate future economic benefi ts
for UBS, determine the period over which these economic benefi ts
will accrue to UBS, and track the capitalizable costs associated
with the various programs to determine a reliable measurement of
an amortizable asset. The change has been applied prospectively
and led to capitalizing additional computer software development
costs of CHF 106 million in the second half of 2011.
Presentation of redemption of preferred securities
In the third quarter of 2010, UBS redeemed trust preferred securi-
ties of USD 1.5 billion classifi ed as non-controlling interests, which
had accumulated foreign currency translation (FCT) losses of CHF
1,093 million. At the time of the redemption, the reversal of these
accumulated FCT losses was presented as part of the change to
Preferred securities in non-controlling interests in the Statement
of Changes in Equity. This reversal of the FCT loss would have
been better presented as a foreign currency translation move-
312
Note 1 Summary of significant accounting policies (continued)
ment within non-controlling interests within the Statement of
Comprehensive Income. The change also impacts the related Pre-
ferred securities table. This was only a presentational matter with-
in non-controlling interests on the Statement of Changes in Eq-
uity and the Statement of Comprehensive income; balance sheet
and income statement lines were not affected and the equity at-
tributable to UBS shareholders was unchanged. Comparative
amounts for 2010 have been amended to refl ect the improved
presentation, as follows:
– In the Statement of comprehensive income, Foreign currency
translation movements during the year, before tax was
changed by CHF 1,093 million to negative CHF 951 million for
year ended 31 December 2010. Total comprehensive income
attributable to non-controlling interests was changed by CHF
1,093 million to positive CHF 609 million for the year ended
31 December 2010.
– In the non-controlling interests component of the Statement
of changes in equity for the year ended 31 December 2010,
Preferred securities were reduced by CHF 1,093 million and
Total comprehensive income for the year recognized in equity
was increased by CHF 1,093 million.
– In the table on preferred securities for the year ended 31 Decem-
ber 2010, Redemptions were changed by CHF 1,093 million to
negative CHF 2,622 million and Foreign currency translation was
changed by CHF 1,093 million to positive CHF 275 million.
Defi nition of cash and cash equivalents
For the purposes of the statement of cash fl ows, UBS has refi ned
its defi nition of cash and cash equivalents to restrict it to balances
with an original maturity of three months or less including cash,
money market paper and balances with central and other banks.
This refi ned defi nition is considered to result in more relevant and
comparable information for the purposes of the statement of
cash fl ows. Cash and cash equivalents have been reduced by CHF
60,888 million at 31 December 2010 and by CHF 92,105 million
at 31 December 2009, to CHF 79,934 million and CHF 72,868
million, respectively, with related changes to cash fl ows from op-
erating activities and investing activities. Nevertheless, the
amounts now excluded from cash and cash equivalents in the
statement of cash fl ows continue to be part of our liquidity posi-
tion.
Transfer of legacy portfolio from the Investment Bank to the
Corporate Center
On 30 December 2011, a portfolio of legacy assets was trans-
ferred from the Investment Bank to the Corporate Center. Togeth-
er with the option to buy the equity of the SNB StabFund, UBS will
report the legacy portfolio as a separate segment in the Corporate
Center beginning in the fi rst quarter of 2012, when all necessary
internal reporting changes will have been put into place. Restated
historical segment information will be provided prior to the publi-
cation of our fi rst quarter 2012 fi nancial report.
Personnel expenses
In 2011, UBS reclassifi ed the costs related to the voluntary employee
share ownership plan (Equity Plus) from Variable compensation –
other to Other personnel expenses in order to align the presentation
with the FINMA defi nition of variable compensation. Prior periods in
“Note 6 Personnel expenses” have been restated accordingly. As a
result, Other personnel expenses were increased by CHF 80 million
and CHF 132 million for the year ended 31 December 2010 and for
the year ended 31 December 2009, respectively, with a correspond-
ing decrease in Variable compensation – other. The change in pre-
sentation did not affect the total Personnel expenses.
Improvements to IFRS 2010
In May 2010, the IASB issued amendments to seven IFRS stan-
dards as part of its annual improvements project. UBS adopted
the Improvements to IFRS 2010 on 1 January 2011. The adoption
of the amendments resulted only in changes to the disclosure of
maximum exposure to credit risk, as shown in Note 28c.
This is the only amendment to accounting standards that sig-
nifi cantly impacts UBS effective 2011.
Effective in 2010 and earlier
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 refl ect the management structure and responsi-
bilities. Segregated fi nancial 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 & Corporate
are now presented in the external fi nancial 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 re-
ceive the value of the services, either based on a full cost recovery
or on a periodically agreed fl at fee. The allocated costs are shown
in the respective expense lines of the reportable segments in Note
2a “Segment reporting”, and in the “Financial and operating per-
formance” section of this report.
Up to and including 2009, certain costs incurred by the Corpo-
rate Center were presented as Corporate Center expenses and
313
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Notes to the consolidated fi nancial statements
Note 1 Summary of significant accounting policies (continued)
not charged to the business divisions. This change in allocation
policy has been applied prospectively and prior year numbers have
not been restated.
following separate lines: Salaries, Variable compensation – discre-
tionary bonus, Variable compensation – other and Wealth Man-
agement Americas: Financial advisor compensation.
The incremental charges to the business divisions made in
2010 mainly relate to control functions. If fi gures 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.
Furthermore, UBS reclassifi ed the pension costs related to bo-
nus to Pension and other post-employment benefi t 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.
Equity and Other comprehensive income
In 2010, UBS reviewed certain components of its equity and made
adjustments to correct immaterial misstatements that related to
periods several years back. The following paragraphs describe
the impacts of the changes on UBS’s fi nancial statements as of
31 December 2010.
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 reclassifi ed an amount of CHF 213 million from
Equity attributable to non-controlling interests to Other liabilities as
this amount has been identifi ed 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 reclassifi ed from Share premium to Other liabilities as it was
identifi ed that the amount is not related to equity settled awards. The
impact on the income statement for both items was insignifi cant.
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.
Improvements to IFRS 2009
The IASB issued amendments to twelve IFRS standards as part of
its annual improvements project in April 2009. UBS adopted the
Improvements to IFRS 2009 on 1 January 2010. The adoption of
the amendments did not have a signifi cant impact on UBS’s fi nan-
cial 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 provided additional guidance on the designation of a
hedged item. The amendments clarifi ed how the existing princi-
ples underlying hedge accounting should be applied in two par-
ticular situations: a) a one-sided risk in a hedged item and b) in-
fl ation in a fi nancial hedged item. UBS adopted the amendments
to IAS 39 on 1 January 2010. The adoption of the amendments
to IAS 39 did not have a signifi cant impact on UBS’s fi nancial
statements.
IFRS 3 Business Combinations, IAS 27 Consolidated and Sepa-
rate 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 signifi cant changes under revised IFRS 3 were as fol-
Personnel expenses
In 2010, UBS reclassifi ed certain elements of Other personnel ex-
penses to Variable compensation – other in order to align the pre-
sentation with the new FINMA defi nition of variable compensation.
In addition, amounts previously reported under Salaries and
variable compensation were presented for the fi rst time on the
lows:
– Contingent consideration should be recognized at fair value as
part of the consideration transferred at the acquisition date.
Previously, contingent consideration was recognized if, and only
if, UBS had a present obligation, the economic outfl ow was
more likely than not and a reliable estimate was determinable.
Corporate Center cost allocation impact on 2009 figures
CHF million
Estimated increase in 2009 operating expenses and decrease
in performance before tax
314
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)
– 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 identifi able 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 amend-
ments to IAS 21 required 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 profi t or loss. The amendments to IAS 21 further
clarifi ed 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 fi nancial statements.
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 fl ow hedges and fi nan-
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 fi nancial 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 classifi cation 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 reclassifi ed from net profi t attributable to UBS share-
holders to net profi t 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 re-
porting is now based on the internal management reporting to
the Group Executive Board (or the “chief operating decision mak-
er”), which makes decisions on the allocation of resources and
assesses the performance of the reportable segments. Refer to
item 34) 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
included: a fair value hierarchy (i.e. categorization of all fi nancial
instruments into levels 1, 2 and 3 based on the relevant defi ni-
tions); signifi cant 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 profi t 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
confi rm the previous rules for providing maturity information
for non-derivative fi nancial liabilities, but amended the rules
for providing maturity information for derivative fi nancial lia-
bilities.
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 foreign currency risks that qualify as a hedged risk in the
hedge of a net investment in a foreign operation; where, within
a group, hedging instruments that are hedges of a net invest-
ment in a foreign operation can be held to qualify for hedge
accounting, and how an entity should determine the amounts
to be reclassifi ed from equity to profi t or loss for both the hedg-
ing instrument and the hedged item. The impact of this inter-
pretation on UBS’s fi nancial statements was immaterial.
IAS 24 Related Party Disclosures
In November 2009, the IASB amended IAS 24 Related Party
Disclosures with latest possible effective date 1 January 2011.
UBS has early adopted the revised requirements in its annual
fi nancial statements 2009. The revised standard amends the
defi nition of related parties, in particular the relationship be-
tween UBS and associated companies of UBS’s key manage-
ment personnel or their close family members. Transactions
between UBS and associated companies of UBS key manage-
ment personnel over which UBS key management personnel
does not have control or joint control are no longer considered
related-party transactions.
315
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Notes to the consolidated fi nancial statements
Note 1 Summary of significant accounting policies (continued)
c) International Financial Reporting Standards and Interpretations to be adopted in 2012 and later
Amendments to IAS 12 Income Taxes
In December 2010, the IASB issued amendments to IAS 12 In-
come Taxes which incorporate the principles of previous guidance
in SIC Interpretation 21 Income Taxes - Recovery of Revalued Non-
Depreciable Assets and that Interpretation was withdrawn.
IAS 12 generally requires an entity to measure the deferred tax
related to assets refl ecting the tax consequences that would fol-
low from the manner in which the entity expects to recover their
carry amount (e.g. sale or use). However, under the amendments,
there is a rebuttable presumption that investment property will be
recovered through sale. The amendments provide a practical ap-
proach for measuring deferred tax liabilities and deferred tax as-
sets when investment property is measured using the fair value
model.
The amendments are effective for annual periods beginning on
or after 1 January 2012, with early adoption permitted and will
not have a material impact on UBS’s fi nancial statements.
IFRS 9 Financial Instruments
In November 2009, the IASB issued IFRS 9 Financial Instruments,
which includes revised guidance on the classifi cation and mea-
surement of fi nancial assets. In October 2010, the IASB updated
IFRS 9 to include guidance on fi nancial liabilities and derecogni-
tion of fi nancial instruments. The publication of IFRS 9 repre-
sented the completion of the fi rst part of a multi-stage project
to replace IAS 39 Financial Instruments: Recognition and Mea-
surement.
The standard requires all fi nancial assets to be classifi ed as fair
value through profi t or loss or at amortized cost on the basis of
the entity’s business model for managing the fi nancial assets and
the contractual cash fl ow characteristics of the fi nancial asset. If a
fi nancial asset meets the criteria to be measured at amortized
cost, it can be designated at fair value through profi t or loss under
the fair value option if doing so would signifi cantly reduce or
eliminate an accounting mismatch. Equity instruments that are
not held for trading may be accounted for at fair value through
other comprehensive income (OCI).
The accounting guidance for fi nancial liabilities is unchanged
with one exception: changes in fair value due to changes in an
entity’s own credit risk associated with fi nancial liabilities desig-
nated at fair value through profi t or loss are directly recognized
in OCI instead of in profi t and loss. There is no subsequent recy-
cling of realized gains or losses from OCI to profi t or loss.
UBS is currently assessing the impact of the new standard on the
fi nancial statements. In December 2011, the IASB issued amend-
ments to IFRS 9 Financial Instruments that defer the mandatory ef-
fective date from 1 January 2013 to 1 January 2015. The amend-
ments also provide relief from the requirement to restate comparative
fi nancial statements for the effect of applying IFRS 9. Early applica-
tion of IFRS 9 is still permitted.
Amendments to IFRS 7 Financial instruments: Disclosures
In October 2010, the IASB issued revised IFRS 7 Financial Instru-
ments: Disclosures to provide additional disclosures around trans-
fers of fi nancial assets, including those transfers in which an en-
tity retains a continuing interest in the transferred asset(s) at the
reporting date. The amendments are intended to allow users of
fi nancial statements to improve their understanding of transfer
transactions of fi nancial assets, including understanding the pos-
sible effects of any risks that may remain with the entity that
transferred the assets. The effective date for mandatory adoption
is for annual periods beginning on or after July 2011, with early
adoption permitted. UBS will adopt the new standard as of
1 January 2012.
IFRS 10 Consolidated Financial Statements
In May 2011, the IASB issued IFRS 10 Consolidated Financial State-
ments, which establishes a single control-based model for assessing
whether one entity should consolidate another. IFRS 10 applies to
all types of entities and will replace SIC-12 Consolidation – Special
Purpose Entities, and portions of IAS 27 Consolidated and Separate
Financial Statements. IFRS 10 is based on the existing principle that
an entity should consolidate all other entities that it controls. The
defi nition of control in IFRS 10 focuses on the presence of power,
exposure to variable returns and the ability to utilize power to affect
an entity’s own returns. The determination of control is based on
current facts and circumstances and is continuously assessed. Vot-
ing rights or contractual rights may be evidence of power, or a
combination of the two may give an investor power. Power does
not need to be exercised for control to exist. An investor with more
than half the voting rights would meet the power criteria in the
absence of restrictions or other circumstances.
The standard provides additional guidance to assist in the de-
termination of control in circumstances this assessment is diffi cult
to make. For example, IFRS 10 introduces guidance on assessing
whether an entity with decision-making rights is a principal or an
agent; only entities that are principals can have control.
UBS is currently assessing the impact of the new standard on
its fi nancial statements. The effective date for mandatory adop-
tion is 1 January 2013, with early adoption permitted.
IFRS 11 Joint Arrangements
In May 2011, the IASB issued IFRS 11 Joint arrangements, which
supersedes IAS 31 Interests in Joint Ventures, and SIC 13 Jointly
Controlled Entities – Non-monetary Contributions by Venturers.
The classifi cation of a joint arrangement under IFRS 11 depends
upon the rights and obligations of the arrangement, rather than its
legal form (as is currently the case). The standard addresses incon-
sistencies in the reporting of joint arrangements by eliminating the
proportionate consolidation approach and requiring the equity
method to account for interests in jointly controlled entities.
316
Note 1 Summary of significant accounting policies (continued)
UBS does not expect the new standard to have a signifi cant
impact on its fi nancial statements, as we do not currently apply
the proportionate consolidation approach. The effective date for
mandatory adoption is 1 January 2013, with early adoption per-
mitted.
IFRS 12 Disclosures of Interests in Other Entities
In May 2011, the IASB issued IFRS 12 Disclosure of Interests in
Other Entities, which provides new and comprehensive guidance
on disclosure requirements for all entities reporting under the two
new standards, IFRS 10 Consolidated Financial Statements and
IFRS 11 Joint Arrangements. It replaces the disclosure require-
ments currently included in IAS 28 Investment in Associates. The
standard requires entities to disclose information that helps users
to evaluate the nature, risks and fi nancial effects associated with
the entity’s interests in subsidiaries, associates, joint arrangements
and, in particular, unconsolidated structured entities.
UBS is currently assessing the impact of the new standard on
its fi nancial statements. The effective date for mandatory adop-
tion is 1 January 2013, with early adoption permitted.
IFRS 13 Fair Value Measurement
In May 2011, the IASB issued IFRS 13 Fair Value Measurement,
which completes a major project of the IASB and the US Financial
Accounting Standards Board (FASB) to improve IFRS and US GAAP
and bring about their convergence. The new standard defi nes fair
value, provides guidance on its determination and introduces con-
sistent requirements for disclosures on fair value measurements. The
standard does not introduce new fair value measurements, nor does
it eliminate practicability exceptions to fair value measurements.
IFRS 13 improves consistency and reduces complexity by pro-
viding, for the fi rst time, a precise defi nition of fair value as the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date, i.e., an exit price. The defi nition empha-
sizes that fair value is a market-based measurement, not an enti-
ty-specifi c measurement. As such, an entity’s intention to hold an
asset or to settle or otherwise fulfi ll a liability is not relevant when
measuring fair value. IFRS 13 allows a limited exception to the
basic fair value measurement principles for a reporting entity that
holds a group of fi nancial assets and fi nancial liabilities with off-
setting positions in particular market risks or counterparty credit
risk and manages those holdings on the basis of the entity’s net
exposure to either risk. This exception allows the reporting entity,
if certain criteria are met, to measure the fair value of the net as-
set or liability position in a manner consistent with how market
participants would price the net risk position.
The standard setters did not achieve convergence with respect
to the treatment of “Day 1” profi ts as the IAS 39 guidance is still
applicable. UBS is currently assessing the impact of the new stan-
dard on its fi nancial statements. The effective date for mandatory
adoption is 1 January 2013, with early adoption permitted.
IAS 1 Presentation of Financial Statements
In June 2011, the IASB issued the revised IAS 1 Presentation of
Financial Statements. The revised standard requires the grouping
together for presentation purposes of items within other compre-
hensive income (OCI) into those that may be recycled to profi t or
loss in subsequent periods and those that may not be. The revised
standard reaffi rms existing requirements that items in OCI and
profi t or loss should be presented as either a single statement or
two consecutive statements. Currently, all items in our OCI may
be recycled to profi t or loss, but this will change with the adop-
tions of IAS 19 (revised) Employee Benefi ts and IFRS 9 Financial
Instruments, as both of these accounting standards will generate
OCI items that will not be recycled to profi t or loss in subsequent
periods. The effective date for mandatory adoption is 1 January
2013, with early adoption permitted.
IAS 19 (revised) Employee Benefi ts
In June 2011, the IASB issued revisions to IAS 19 Employee Ben-
efi ts (‘IAS 19R’ or ‘the revised standard’). The revised standard
introduces changes to the recognition, presentation and disclo-
sure of post-employment benefi ts. IAS 19R eliminates the “corri-
dor method”, under which the recognition of actuarial gains and
losses was deferred. Instead, all actuarial gains and losses are rec-
ognized immediately in Other Comprehensive Income (OCI). In
addition, IAS 19R requires the income statement recognition to
be based on the net interest on the net defi ned benefi t obligation
(asset), using the discount rate that is used to measure the de-
fi ned benefi t obligation. The effect of this is to remove the current
concept of recognizing an expected return on plan assets. The
revised standard also enhances the disclosure requirements for
defi ned benefi t plans, providing more information about the
characteristics of defi ned benefi t plans and the risks to which en-
tities are exposed through participation in those plans. The effec-
tive date for mandatory adoption is 1 January 2013, with early
adoption permitted. UBS is assessing whether to adopt IAS 19R
earlier than its mandatory date.
The main impact of adopting IAS 19R will be that UBS will
derecognize the deferred pension expenses and accrued pension
liabilities included in Other assets and Other liabilities and will rec-
ognize the aggregate accounting defi cits of the defi ned benefi t
plans in Other liabilities. The income statement will be changed to
remove the interest cost, expected return on plan assets and
amortization of actuarial variances. This will be replaced with a
net interest amount that is calculated by applying the discount
rate to the net defi ned benefi t obligation.
If UBS had applied IAS 19R in its 2011 fi nancial statements,
as at the year end Other assets would have been lower by ap-
proximately CHF 3.3 billion, Other liabilities would have been
higher by approximately CHF 3.1 billion and Deferred tax assets
would have been higher by approximately CHF 1.2 billion. The
impact of these changes will fl ow through a component of eq-
uity at the time of adoption. These estimates do not take into
317
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Financial information
Notes to the consolidated fi nancial statements
Note 1 Summary of significant accounting policies (continued)
account any potential reduction in the defi ned benefi t obliga-
tion to refl ect the risk-sharing features of the Swiss pension
plan, as it is not yet practicable to determine this. In addition,
the impact of these changes on UBS’s regulatory capital remains
subject to clarifying guidance from FINMA. Should UBS choose
to adopt IAS 19R earlier than its mandatory date, UBS will dis-
close further information later in 2012.
IAS 32 Financial Instruments: Presentations and IFRS 7 Financial
Instruments: Disclosures
In December 2011, the IASB amended the accounting require-
ments and disclosures related to offsetting fi nancial assets and
fi nancial liabilities by issuing amendments to IAS 32 Financial In-
struments: Presentation and IFRS 7 Financial Instruments: Disclo-
sures.
The amendments to IAS 32 change current practice by requir-
ing that, to achieve offsetting on the balance sheet, an arrange-
ment must be legally enforceable in the event of default, bank-
ruptcy or insolvency in addition to the normal course of business.
Further, it must be demonstrated that the right of offset is recipro-
cal among all parties. The amendments also provide incremental
guidance for determining when gross settlement systems effec-
tively achieve the functional equivalent of net settlement.
Additionally, the IASB simultaneously issued disclosure require-
ments intended to enable users to assess the effect (or potential
effect) of offsetting arrangements on an entity’s fi nancial position.
The amendments to IFRS 7 Financial Instruments: Disclosures re-
quire that entities disclose both gross and net amounts associated
with master netting agreements and similar arrangements, in-
cluding the effects of fi nancial collateral, whether or not present-
ed net on the face of the balance sheet.
UBS is currently assessing the impact of the revised standards
on its fi nancial statements. The amendments to IAS 32 are effec-
tive for annual periods beginning on or after 1 January 2014. The
amendments to IFRS 7 are effective for annual periods beginning
on or after 1 January 2013.
318
Note 2a Segment reporting
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. For the purpose of segment reporting,
the business division Wealth Management & Swiss Bank is split
into two separate reportable segments, namely Wealth Manage-
ment and Retail & Corporate. There are therefore fi ve reportable
segments altogether, in addition to the Corporate Center present-
ed in the fi nancial statements, which refl ects the internal man-
agement structure and responsibilities. The Corporate Center is
not considered an operating segment.
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank focuses on delivering com-
prehensive fi nancial 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 cor-
porate clients in Switzerland. Our Wealth Management business
unit provides clients in over 40 countries, including Switzerland,
with fi nancial advice, products and tools to fi t 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 segments in Switzerland. Starting with the fi rst quarter of
2012, we will report Wealth Management and Retail & Corpo-
rate as separate business divisions and will no longer report
Wealth Management & Swiss Bank which will cease to be a busi-
ness division.
Wealth Management Americas
Wealth Management Americas provides advice-based solutions
through fi nancial advisors who deliver a fully integrated set of
products and services specifi cally designed to address the needs
of ultra high net worth and high net worth individuals and fami-
lies. It includes the domestic US business, the domestic Canadian
business and international business booked in the US.
Global Asset Management
Global Asset Management is a large-scale asset manager with
businesses diversifi ed across regions, capabilities and distribution
channels. It offers investment capabilities and styles across all ma-
jor traditional and alternative asset classes including equities,
fi xed income, currency, hedge fund, real estate, infrastructure and
private equity that can also be combined into multi-asset strate-
gies. The fund services unit provides professional services includ-
ing legal fund set-up, accounting and reporting for traditional in-
vestment funds and alternative funds.
Investment Bank
The Investment Bank provides a broad range of products and ser-
vices in equities, fi xed income, foreign exchange and commodities
to corporate and institutional clients, sovereign and government
bodies, fi nancial intermediaries, alternative asset managers and
UBS’s wealth management clients. The Investment Bank is an ac-
tive participant in capital markets fl ow activities, including sales,
trading and market-making across a broad range of securities. It
provides fi nancial solutions to a wide range of clients, and offers
advisory and analytics services in all major capital markets.
Corporate Center
The Corporate Center provides treasury services, and manages
support and control functions for the business divisions and the
Group in such areas as risk control, fi nance, legal and compliance,
funding, capital and balance sheet management, management of
non-trading risk, communications and branding, human resourc-
es, information technology, real estate, procurement, corporate
development and service centers. It allocates most of the treasury
income, operating expenses and personnel associated with these
activities to the businesses based on capital and service consump-
tion levels. The Corporate Center also encompasses certain cen-
trally managed positions, including the SNB StabFund option and
(starting with the fi rst quarter 2012 reporting) the legacy portfolio
formerly in the Investment Bank.
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319
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.
CHF million
For the year ended 31 December 2011
Net interest income
Non-interest income
Income 1, 2, 3
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation of property and equipment
Amortization of intangible assets 4
Total operating expenses 5, 6
Performance from continuing
operations before tax
Performance from discontinued
operations before tax
Performance before tax
Tax expense / (benefit) on continuing operations
Tax expense on discontinued operations
Net profit
Additional information
Total assets 7, 8
Additions to non-current assets
Wealth Management &
Swiss Bank
Wealth
Management
Retail &
Corporate
Wealth
Management
Americas
Global Asset
Management
Investment
Bank
Corporate
Center
UBS
1,968
5,666
7,634
11
7,645
3,258
1,192
318
165
37
4,969
2,676
0
2,676
2,328
1,858
4,186
(101)
4,085
1,666
834
(470)
136
0
2,166
1,919
0
1,919
729
4,571
5,300
(6)
5,295
3,840
783
(9)
99
48
(15)
1,817
1,803
0
1,803
955
375
(1)
38
8
4,760
1,375
534
0
534
428
0
428
1,933
7,096
9,029
12
9,040
5,801
2,637
161
254
34
8,886
154
0
154
(117)
37
(80)
(1)
(80)
71
139
3
70
0
283
(363)
0
(363)
6,826
21,046
27,872
(84)
27,788
15,591
5,959
0
761
127
22,439
5,350
0
5,350
923
0
4,427
100,598
148,697
5
22
54,150
25
15,352
1,073,590
18
110
26,775
1,012
1,419,162
1,192
1 Impairments of financial investments available-for-sale for the year ended 31 December 2011 were as follows: Wealth Management & Swiss Bank CHF 28 million; Investment Bank CHF 12 million. 2 Thetotalinter-
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. 3 Referto“Note26Fairvalueoffinancialinstru-
ments” for further information on own credit in the Investment Bank. 4 Referto“Note16Goodwillandintangibleassets”forfurtherinformationregardinggoodwillandotherintangibleassetsbybusinessdivi-
sion. 5 Referto“Note37Reorganizationsanddisposals”forfurtherinformationonrestructuringcharges. 6 Referto“Note1b)Changesinaccountingpolicies,comparabilityandotheradjustments”formore
information on the allocation of additional Corporate Center costs to business divisions from 2010 onwards. 7 Thesegmentassetsarebasedonathird-partyview,i.e.theamountsdonotincludeinter-companybal-
ances. 8 On30December2011,anagreementwasreachedtotransferthelegacyportfoliofromtheInvestmentBanktoCorporateCenter.ThelegacyportfoliowillbepresentedasareportablesegmentwithinCorpo-
rate Center beginning in the first quarter of 2012, when all necessary internal reporting changes will have been put into place.
320
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.
CHF million
For the year ended 31 December 2010
Net interest income
Non-interest income
Income 1, 2, 3
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation of property and equipment
Amortization of intangible assets 4
Total operating expenses 5
Performance from continuing
operations before tax
Performance from discontinued
operations before tax
Performance before tax
Tax expense / (benefit) on continuing operations
Tax expense on discontinued operations
Net profit
Additional information
Total assets 6
Additions to non-current assets
Wealth Management &
Swiss Bank
Wealth
Management
Retail &
Corporate
Wealth
Management
Americas
Global Asset
Management
Investment
Bank
Corporate
Center
UBS
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
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
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; Corporate Center CHF (16) million. 2 Thetotalinter-segmentrevenuesfortheGroupareimmaterialasthemajorityoftherevenuesareallocatedacrossthebusinessdivisionsbymeansofrevenue-
sharing agreements. 3 Referto“Note26Fairvalueoffinancialinstruments”forfurtherinformationonowncreditintheInvestmentBank. 4 Referto“Note16Goodwillandintangibleassets”forfurtherinformation
regarding goodwill and other intangible assets by business division. 5 Referto“Note1b)Changesinaccountingpolicies,comparabilityandotheradjustments”formoreinformationontheallocationofadditional
Corporate Center costs to business divisions from 2010 onwards. 6 Thesegmentassetsarebasedonathird-partyview,i.e.theamountsdonotincludeinter-companybalances.
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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.
CHF million
For the year ended 31 December 2009
Net interest income
Non-interest income
Income 1, 2, 3
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 4
Performance from continuing
operations before tax
Performance from discontinued
operations before tax
Performance before tax
Tax expense / (benefit) on continuing operations
Tax expense on discontinued operations
Net profit
Additional information
Total assets 5
Additions to non-current assets
Wealth Management &
Swiss Bank
Wealth
Management
Retail &
Corporate
Wealth
Management
Americas
Global Asset
Management
Investment
Bank
Corporate
Center
UBS
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
2
2,134
2,137
0
2,137
996
387
(74)
36
340
13
5,518
1,698
32
0
32
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)
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)
109,627
138,513
13
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; Invest-
ment Bank CHF 142 million; Corporate Center CHF 29 million. 2 Thetotalinter-segmentrevenuesfortheGroupareimmaterialasthemajorityoftherevenuesareallocatedacrossthebusinessdivisionsbymeansof
revenue-sharing agreements. 3 Referto“Note26Fairvalueoffinancialinstruments”forfurtherinformationonowncreditintheInvestmentBank. 4 Referto“Note1b)Changesinaccountingpolicies,comparabil-
ity and other adjustments” for more information on the allocation of additional Corporate Center costs to business divisions from 2010 onwards. 5 Thesegmentassetsarebasedonathird-partyview,i.e.theamounts
do not include inter-company balances.
322
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 geographic
analysis of operating income and non-current assets is provided in order to comply with IFRS.
For the year ended 31 December 2011
Switzerland
United Kingdom
Rest of Europe
United States
Asia Pacific
Rest of the world
Total
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
Total operating income
Total non-current assets
CHF million
11,494
1,385
1,638
9,324
3,689
258
27,788
Share %
CHF million
Share %
41
5
6
34
13
1
100
5,045
653
1,026
8,617
407
429
16,177
31
4
6
53
3
3
100
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
2
3
100
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323
Financial information
Notes to the consolidated fi nancial statements
Income statement notes
Note 3 Net interest and trading income
The “Breakdown by businesses” table below analyzes net interest
and trading income according to the businesses that drive it:
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 Management Americas;
Net income from treasury activities and other refl ects 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
31.12.11
31.12.10
31.12.09
31.12.10
6,826
4,343
11,169
5,964
4,874
332
11,169
9,925
1,716
5,466
248
615
17,969
2,040
1,352
2,851
1,993
2,907
11,143
6,826
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
10
(42)
(18)
(21)
5
(79)
(18)
(6)
19
(9)
(5)
10
(5)
3
5
(25)
(17)
(9)
(12)
10
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 20 million for 2011, CHF 37 million for 2010 and CHF 66 million for 2009. 4 Includes interest income on Cash collateral receivables on derivative instruments. 5 Includes
interest expense on Cash collateral payables on derivative instruments.
324
Note 3 Net interest and trading income (continued)
CHF million
Net trading income 1
Investment Bank equities and investment banking
Investment Bank fixed income, currencies and commodities
Other business divisions and Corporate Center
Net trading income
of which: net gains / (losses) from financial assets designated at fair value
of which: net gains / (losses) from financial liabilities designated at fair value 2
For the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
601
2,183
1,559
4,343
419
7,437
2,356
2,000
3,115
7,471
465
(1,001)
2,462
(5,455)
2,668
(324)
678
(6,741)
(74)
9
(50)
(42)
(10)
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 Fair value changes of
hedges related to financial liabilities designated at fair value are also reported in Net trading income. For more information on own credit refer to “Note 26 Fair value of financial instruments”.
Net trading income in 2011 included a loss of CHF 1,849 million
due to the unauthorized trading incident reflected in Investment
Bank equities.
Net trading income in 2011 included a loss of CHF 284 million
from credit valuation adjustments for monoline credit protection
reflected in the Investment Bank’s fixed income, currencies and
commodities business, compared with a CHF 667 million gain in
2010.
➔ Refer to the “Risk management and control” section of this
report for more information on exposure to monolines
Net trading income in 2011 included a loss of CHF 133 million
from the valuation of our option to acquire the SNB StabFund’s
equity reflected in Other business divisions and Corporate Center,
compared with a CHF 745 million gain in 2010.
➔ Refer to the “Risk management and control” section of this
report for more information on the valuation of our option to
acquire the SNB StabFund’s equity
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
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
Other
Total fee and commission expense
Net fee and commission income
of which: net brokerage fees
For the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
626
554
1,180
992
4,169
3,577
5,551
368
15,837
438
827
17,102
933
933
1,866
15,236
3,236
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
(46)
(27)
(38)
16
(15)
(8)
(7)
2
(12)
(2)
(3)
(11)
(15)
(3)
(9)
(11)
(16)
325
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Financial information
Notes to the consolidated financial statements
Note 5 Other income
CHF million
Associates and subsidiaries
Net gains / (losses) from disposals of consolidated subsidiaries 1
Net gains / (losses) from disposals of investments in associates
Share of net profits of associates
Total
Financial investments available-for-sale
Net gains / (losses) from disposals
Impairment charges
Total
Net income from properties 2
Net gains / (losses) from investment properties 3
Other 4
Total other income
For the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
(18)
20
42
44
926
(39)
887
38
9
490
1,467
(7)
256
81
331
204
(72)
132
53
8
690
1,214
96
(1)
37
133
110
(349)
(239)
72
(39)
672
599
157
(92)
(48)
(87)
354
(46)
572
(28)
13
(29)
21
1 Includes foreign exchange gains / losses reclassified from equity upon disposal or deconsolidation of subsidiaries. 2 Includes net rent received from third parties and net operating expenses. 3 Includes unrealized
and realized gains / losses from investment properties at fair value and foreclosed assets. 4 Includes net gains / losses from disposals of loans and receivables and own-used property.
Net gains from disposals of Financial investments available- for-
sale in 2011 includes a gain of CHF 722 million from the sale of
our strategic investment portfolio as well as gains of CHF 81 mil-
lion in Wealth Management Americas’ available-for-sale portfolio.
The line Other included gains from sale of loans and receiv-
ables of CHF 344 million in 2011, CHF 324 million in 2010 and
CHF 205 million in 2009. The 2011 gains were mainly due to the
sale of collateralized loan obligations, which were reclassified
from held-for-trading to loans and receivables in 2008, and were
largely offset by related hedge termination losses recorded in net
trading income. Additionally, it included a gain of CHF 78 million
on sale of a property in Switzerland in 2011, compared with a
gain of CHF 158 million on sale of a property in Switzerland in
2010. 2009 included a gain of CHF 304 million on the buyback of
subordinated bonds for a total consideration below the principal
amount. Net gains from disposals of investments in associates in
2010 included a gain of CHF 180 million from the sale of invest-
ments in associates owning office space in New York.
Impairment charges on Financial investments available-for-sale
in 2009 included 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.
326
Note 6 Personnel expenses
CHF million
Salaries
Variable compensation – discretionary bonus 1
Variable compensation – other 1, 2
of which: replacement payments 3
of which: guarantees for new hires
of which: forfeiture credits
of which: severance payments 4
of which: retention plan payments 5
Contractors
Social security
Pension and other post-employment benefit plans 6
Wealth Management Americas: Financial advisor compensation 1, 7
Other personnel expenses 2
Total personnel expenses
For the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
6,859
3,392
316
121
173
(215)
216
21
217
743
788
2,518
758
15,591 8
7,033
4,082
230
107
135
(167)
69
85
232
826
724
2,667
1,127
16,920
7,383
2,809
699
41
56
(81)
433
250
275
804
988
2,426
1,159
16,543
(2)
(17)
37
13
28
29
213
(75)
(6)
(10)
9
(6)
(33)
(8)
1 Refer to “Note 30 Equity participation and other compensation plans” of this report for more information. 2 In 2011, we reclassified the costs related to our voluntary employee share ownership plan (Equity Plus) from
Variable compensation – other to Other personnel expenses. Prior periods were adjusted for this change. As a result, Other personnel expenses were increased by CHF 80 million and CHF 132 million for the year ended
31 December2010andfortheyearended31December2009,respectively,withacorrespondingdecreaseinVariablecompensation–other. 3 Replacement payments are payments made to compensate employees
for deferredawardsforfeitedasaresultofjoiningUBS. 4 Includes legally obligated and standard severance payments. 5 Retention plan payments related to strategic retention programs. 6 Refer to “Note 29 Pension
and other post-employment benefit plans” of this report for more information. 7 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. 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. 8 Includes restructuring charges of CHF 261 million. Refer to “Note 37 Reorganizations and disposals” for more information.
Note 7 General and administrative expenses
CHF million
Occupancy
Rent and maintenance of IT and other equipment
Communication and market data services
Administration
Marketing and public relations
Travel and entertainment
Professional fees
Outsourcing of IT and other services
Litigation and regulatory matters 1
Other 2
Total general and administrative expenses
For the year ended
31.12.11
1,059
31.12.10
1,252
31.12.09
1,420
429
616
621
393
470
822
1,151
276
122
5,959
555
664
669
339
466
754
1,078
631
175
6,585
623
697
695
225
412
830
836
233
279
6,248
% change from
31.12.10
(15)
(23)
(7)
(7)
16
1
9
7
(56)
(30)
(10)
1 Reflects the net increase / release of provisions for Litigation and regulatory matters recognized in the income statement and recoveries from third parties. 2 Includes mainly real estate related restructuring charges
of CHF93million,CHF79millionandCHF256millionfortheyearsended31December2011,31December2010and31December2009,respectively.Referto“Note37Reorganizationsanddisposals”formore
information.
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Financial information
Notes to the consolidated financial statements
Note 8 Earnings per share (EPS) and shares outstanding
As of or for the year ended
% change from
31.12.11
31.12.10
31.12.09
31.12.10
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
Mandatory convertible notes and exchangeable shares 2
Shares outstanding for EPS
4,159
4,158
0
4,159
(3)
4,156
4,155
0
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)
3,774,036,437
3,789,732,938
3,661,086,266
61,259,378
48,599,111
754,948
3,835,295,815
3,838,332,049
3,661,841,214
0
1.10
1.10
0.00
1.08
1.08
0.00
0
20,166,373
1.99
1.99
0.00
1.96
1.96
0.00
(0.75)
(0.74)
0.00
(0.75)
(0.74)
0.00
3,832,121,899
3,830,840,513
3,558,112,753
84,955,551
38,892,031
37,553,872
3,747,166,348
3,791,948,482
3,520,558,881
509,243
580,261
273,264,461
3,747,675,591
3,792,528,743
3,793,823,342
(45)
(45)
(100)
(45)
50
(45)
(45)
(100)
0
26
0
(45)
(45)
(45)
(45)
0
118
(1)
(12)
(1)
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 244,151,646; 241,320,185 and
288,915,585 for the years ended 31 December 2011, 31 December 2010 and 31 December 2009, respectively. An additional 100 million ordinary shares (“contingent share issue”) related to the SNB transaction were
not dilutive for any periods presented, but could potentially dilute earnings per share in the future. 2 31 December 2009 includes 272,651,005 shares for the mandatory convertible notes issued to two investors in
March 2008. All other numbers related to exchangeable shares.
328
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 1
Securities 2
Subtotal
Allowance for credit losses
of which: related to securities
Net loans
Net due from banks and loans (held at amortized cost)
By geographical region (based on the location of the borrower)
Switzerland
United Kingdom
Rest of Europe
United States
Asia Pacific
Rest of the world
Subtotal
Allowance for credit losses
Net due from banks, loans (held at amortized cost)
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)
31.12.11
31.12.10
23,235
(17)
23,218
125,775
21,247
108,887
11,520
267,429
(825)
(83)
266,604
289,822
161,365
8,222
24,396
48,542
20,645
27,494
290,664
(842)
289,822
148,319
56,613
32,201
53,532
290,664
(842)
289,822
17,158
(24)
17,133
122,499
20,362
99,710
21,392
263,964
(1,087)
(273)
262,877
280,010
161,108
6,978
21,257
50,701
16,614
24,464
281,121
(1,111)
280,010
144,403
46,565
29,303
60,851
281,121
(1,111)
280,010
1 Includes leveraged finance loans of CHF 0.4 billion (gross of allowances) reclassified from held-for trading as of 31 December 2011 (31 December 2010: CHF 0.5 billion). Refer to Note 1a)10) and Note 28b for more
information on reclassified assets. Refer to Note 9b for more information on allowances for reclassified assets. 2 Includes US student loan auction rate securities (ARS) of CHF 2.8 billion (gross of allowances) reclassi-
fied from held-for-trading as of 31 December 2011 (31 December 2010: CHF 4.3 billion), other securities of CHF 2.2 billion (gross of allowances) reclassified from held-for-trading as of 31 December 2011 (31 December
2010: CHF 7.4 billion) and CHF 6.5 billion (gross of allowances) similar acquired securities from clients as of 31 December 2011 (31 December 2010: CHF 9.7 billion). Refer to Note 1a)10) and Note 28b for more infor-
mation on reclassified assets. Refer to Note 9b for more information on allowances for reclassified assets.
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Financial information
Notes to the consolidated financial statements
Note 9b Allowances and provisions for credit losses
CHF million
Balance at the beginning of the year
Write-offs / usage of provisions
Recoveries
Increase / (decrease) in credit loss allowances and provisions recognized
in the income statement
Foreign currency translation and other adjustments
Balance at the end of the year
of which: a reduction of due from banks
of which: a reduction of loans
of which: a reduction of cash collateral on securities borrowed
Specific
allowances
Collective loan
loss allowances
1,109
(486)
51
22
18
714
17
694 2
3
47
(1)
0
84
0
131
0
131
0
Provisions 1
130
(14)
0
(22)
(2)
93
Total 31.12.11
Total 31.12.10
1,287
(501)
51
84
17
938
17
825
3
2,820
(1,505)
79
66
(173)
1,287
24
1,087
46
1 Provisions for loan commitments and guarantees, which are included in Other liabilities. Refer to “Note 21 Provisions and contingent liabilities” for more information. Refer to the “Financial and operating performance”
section of this report for the maximum irrevocable amount of loan commitments and guarantees. 2 Includes allowances of CHF 43 million (31 December 2010: CHF 157 million) related to US student loan auction rate
securities reclassified from held-for-trading, CHF 25 million (31 December 2010: CHF 63 million) related to other securities reclassified from held-for-trading, CHF 15 million (31 December 2010: CHF 52 million) related
to similar acquired securities and CHF 32 million (31 December 2010: CHF 33 million) related to leveraged finance loans reclassified from held-for-trading. Refer to Note 1a)10) and Note 28b for more information on
reclassified assets.
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 securities 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.
Cash collateral
on securities
borrowed
31.12.11
Reverse
repurchase
agreements
31.12.11
Cash collateral
receivables
on derivative
instruments
31.12.11
Cash collateral on
securities borrowed
31.12.10
Reverse repurchase
agreements
31.12.10
Cash collateral
receivables
on derivative
instruments
31.12.10
17,236
41,527
58,763
133,010
80,491
213,501
22,341
18,980
41,322
20,302
42,153
62,454
91,788
51,002
142,790
20,230
17,841
38,071
Cash collateral on
securities lent
31.12.11
Repurchase
agreements
31.12.11
Cash collateral
payables
on derivative
instruments
31.12.11
Cash collateral on
securities lent
31.12.10
Repurchase
agreements
31.12.10
Cash collateral
payables
on derivative
instruments
31.12.10
7,601
536
8,136
16,986
85,443
102,429
38,890
28,224
67,114
5,820
831
6,651
28,201
46,595
74,796
34,930
23,994
58,924
Balance sheet assets
CHF million
By counterparty
Banks
Customers
Total
Balance sheet liabilities
CHF million
By counterparty
Banks
Customers
Total
330
Note 11 Trading portfolio
CHF million
Trading portfolio assets by issuer type
Debt instruments
Government and government agencies
of which: Switzerland
of which: United States
of which: Japan
of which: United Kingdom
of which: Germany
of which: Australia
Banks
Corporates and other 1
Total debt instruments 1
Equity instruments 1
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 issuer type
Debt instruments
Government and government agencies
of which: Switzerland
of which: United States
of which: Japan
of which: United Kingdom
of which: Germany
of which: Australia
Banks
Corporates and other 1
Total debt instruments 1
Equity instruments 1
Total trading portfolio liabilities
31.12.11
31.12.10
62,118
418
22,958
14,258
3,709
3,547
3,540
10,597
36,330
109,045
37,400
16,376
162,821
18,704
181,525
18,913
261
5,634
3,894
1,946
2,492
756
1,913
4,716
25,542
13,937
39,480
83,952
13,292
19,843
25,996
2,707
3,679
4,463
14,711
48,818
147,481
44,335
18,056
209,873
18,942
228,815
29,628
237
11,729
7,699
3,103
2,350
953
3,107
5,474
38,209
16,765
54,975
1 From 2011 onwards, investment fund units have been classified as Corporates and other debt instruments; previously these investment fund units were classified as equity instruments. The comparative period has been
adjusted accordingly; refer to “Note 1b) Changes in accounting policies, comparability and other adjustments” for more information.
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Financial information
Notes to the consolidated financial statements
Note 11 Trading portfolio (continued)
CHF million
Level 1
Level 2
Level 3
Total
31.12.11
31.12.10
Trading portfolio assets by product type
Debt instruments
Government bills / bonds
Corporate bonds, municipal bonds, including bonds issued by financial institutions
Loans
Investment fund units 1
Asset-backed securities
of which: mortgage-backed securities
Total debt instruments 1
Equity instruments 1
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, municipal bonds, including bonds issued by financial institutions
Investment fund units 1
Asset-backed securities
of which: mortgage-backed securities
Total debt instruments 1
Equity instruments 1
Total trading portfolio liabilities
34,449
695
0
3,779
9,513
9,513
48,436
35,312
15,616
99,363
15,418
471
921
0
0
16,809
13,621
30,430
10,753
29,699
2,698
6,048
3,785
2,673
52,983
1,933
760
55,677
1,608
6,315
161
17
9
8,101
313
8,414
95
2,371
1,390
33
3,737
1,684
7,625
155
0
7,781
0
335
1
296
278
632
3
636
45,297
32,765
4,088
9,859
17,035
13,868
109,045
37,400
16,376
162,821
18,704
181,525
17,026
7,122
1,083
312
287
25,542
13,937
39,480
66,435
47,237
5,543
13,171
15,098
10,355
147,481
44,335
18,056
209,873
18,942
228,815
26,650
10,525
834
200
123
38,209
16,765
54,975
1 From 2011 onwards, investment fund units have been classified as debt instruments; previously these investment fund units were classified as equity instruments. The comparative period has been adjusted accordingly;
refer to “Note 1b) Changes in accounting policies, comparability and other adjustments” for more information.
332
Note 12 Financial assets designated at fair value
CHF million
Loans
Structured loans
Reverse repurchase and securities borrowing agreements
of which: banks
of which: customers
Other debt instruments
Financial assets designated at fair value – debt instruments
Investment fund units and other
Total financial assets designated at fair value
31.12.11
2,358
960
6,071
3,514
2,557
218
9,607
730
10,336
31.12.10 1
2,173
833
4,383
3,038
1,345
258
7,647
856
8,504
1 In 2011, we corrected the amounts presented for 31 December 2010. As a result, Loans were reduced by CHF 158 million, Structured loans were reduced by CHF 96 million and Reverse repurchase and securities bor-
rowing agreements of which: banks were increased by CHF 254 million.
The maximum exposure to credit risk of financial assets desig-
nated at fair value – debt instruments is equal to the fair value,
except for Other debt instruments. The maximum exposure is
mitigated by collateral, which mainly relates to structured loans
and reverse repurchase and securities borrowing agreements of
CHF 6,919 million and CHF 3,929 million for 31 December 2011
and 31 December 2010, respectively. These collateral values are
capped at the maximum exposure to credit risk for which they
serve as security.
Other debt instruments mainly reflect loan commitments and
letters of credit designated at fair value which have a maximum
exposure to credit risk of CHF 4,423 million and CHF 2,198 mil-
lion as of 31 December 2011 and as of 31 December 2010,
respectively. The maximum exposure to credit risk of these in
struments is generally hedged through derivative transactions.
Investment fund units and other are not directly exposed to
credit risk.
The maximum exposure to credit risk of loans, but not struc-
tured loans, is generally mitigated by credit derivatives or similar
instruments. Information regarding these instruments and the
exposure which they mitigate is provided in the table below on
a notional basis.
Notional amounts of loans designated at fair value and related credit derivatives
CHF million
Loans – notional amount
Credit derivatives related to loans – notional amount 1
Credit derivatives related to loans – fair value 1
1 Credit derivatives contracts include credit default swaps, total return swaps and similar instruments.
31.12.11
31.12.10
2,595
1,404
37
2,204
1,730
(5)
The table below provides the impact to the fair values of loans from changes in credit risk for the periods presented and cumulatively
since inception. Similarly, the change in fair value of credit derivatives and similar instruments which are used to hedge these loans is
also provided.
Changes in fair value attributable to changes in credit risk
CHF million
Changes in fair value of loans designated at fair value, attributable to changes in credit risk 1
Changes in fair value of credit derivatives and similar instruments which mitigate the maximum
exposure to credit risk of loans designated at fair value 1
For the year ended
Cumulative from inception
until the year ended
31.12.11
31.12.10
31.12.11
31.12.10
(15)
35
100
(94)
(49)
37
(27)
(5)
1 Current and cumulative changes in the fair value of loans designated at fair value, attributable to changes in their credit risk are only calculated for those loans outstanding at balance sheet date. Current and cumula-
tive changes in the fair value of credit derivatives hedging such loans include all derivatives which have been used to mitigate credit risk of these loans since designation at fair value. For loans reported under the fair
value option, changes in fair value due to changes in the credit standing of the borrower are calculated using counterparty credit information obtained from independent market sources.
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Financial information
Notes to the consolidated financial statements
Note 13 Financial investments available-for-sale
CHF million
Financial investments available-for-sale by issuer type
Debt instruments
Government and government agencies
of which: Switzerland
of which: United States
of which: Japan
of which: United Kingdom
of which: France
Banks
Corporates and other 1
Total debt instruments 1
Equity instruments 1
Total financial investments available-for-sale
Unrealized gains – before tax
Unrealized (losses) – before tax 2
Net unrealized gains / (losses) – before tax
Net unrealized gains / (losses) – after tax
31.12.11
31.12.10
47,144
357
25,677
8,854
3,477
2,170
4,271
1,060
52,475
699
53,174
477
(55)
422
250
67,552
3,206
38,070
6,541
8,303
3,005
5,091
1,206
73,850
918
74,768
514
(662)
(148)
(243)
1 From 2011 onwards, investment fund units have been classified as Corporates and other debt instruments; previously these investment fund units were classified as equity instruments. The comparative period has been
adjusted accordingly; refer to “Note 1b) Changes in accounting policies, comparability and other adjustments” for more information. 2 Includes losses of CHF 28 million with a duration of more than 12 months as of
31 December 2011 (31 December 2010: CHF 31 million).
CHF million
Level 1
Level 2
Level 3
Total
31.12.11
31.12.10
Financial investments available-for-sale by product
Debt instruments
Government bills / bonds
Corporate bonds, municipal bonds, including bonds issued by financial institutions
Investment fund units 1
Asset-backed securities
of which: mortgage-backed securities
Total debt instruments 1
Equity instruments
Shares
Private Equity investments
Total equity instruments 1
Total financial investments available-for-sale
33,999
632
24
0
0
868
7,881
416
8,541
8,541
34,654
17,706
155
0
155
30
1
32
34,810
17,738
33
77
5
0
0
115
296
216
512
627
34,899
8,590
445
8,541
8,541
52,475
481
218
699
57,642
11,670
441
4,097
4,093
73,850
690
227
918
53,174
74,768
1 From 2011 onwards, investment fund units have been classified as debt instruments; previously these investment fund units were classified as equity instruments. The comparative period has been adjusted accordingly.
Refer to “Note 1 Summary of significant accounting policies” for more information.
334
Note 14 Investments in associates
CHF million
Carrying amount at the beginning of the year
Additions
Disposals
Income
Other comprehensive income
Impairments
Dividends paid
Foreign currency translation
Carrying amount at the end of the year
31.12.11
790
1
(4)
42
(27)
0
(28)
21
795
31.12.10
870
19
(93)
86
(1)
(6)
(29)
(55)
790
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 33 Significant subsidiaries and associates”.
CHF million
Assets
Liabilities
Revenues
Net profit
31.12.11
5,806
3,789
1,356
181
31.12.10
6,391
4,391
1,371
239
Note 15 Property and equipment
At historical cost less accumulated depreciation
CHF million
Historical cost
Balance at the beginning of the year
Additions
Additions from acquired companies
Disposals / write-offs 2
Reclassifications
Foreign currency translation
Balance at the end of the year
Accumulated depreciation
Balance at the beginning of the year
Depreciation 3
Disposals / write-offs 2
Reclassifications
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year 4
Own-used
properties
Leasehold
improvements
IT hardware,
software and
communication
Other machines
and equipment
Projects in
progress
31.12.11
31.12.10
8,617
62
0
(69)
67
1
8,679
4,844
194
(69)
(34)
(2)
4,934
3,745
2,832
76
1
(336)
93
8
2,674
2,005
217
(327)
23
12
1,930
744
4,002
393
1
(357)
5
5
4,049
3,625
293
(328)
0
5
3,596
453
700
55
0
(29)
11
(1)
736
518
57
(28)
(1)
1
546
190
213
542
0
0
(216)
6
545
0
0
0
0
0
0
545
16,364
1,129
2
(791)
(40)
19
16,683
10,991
761
(752)
(12)
16
11,005
5,678
17,169 1
538
0
(629) 1
(132)
(583)
16,364 1
11,073 1
918
(575) 1
12
(437)
10,991 1
5,373
1 In 2011, we corrected the amounts presented for 2010 for both historical cost and accumulated depreciation. Net book value at the end of the year was not impacted. 2 Includes write-offs of fully depreciated assets.
3 In 2011, amounts presented include a CHF 22 million net reversal of impairments of own used property, CHF 29 million net impairments of leasehold improvements and CHF 3 million net impairments of other machines
and equipment. 4 Fire insurance value of property and equipment is CHF 13,075 million (2010: CHF 13,092 million), predominantly related to real estate.
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
31.12.11
94
0
(87)
4
(1)
(1)
10
31.12.10
116
3
(23)
2
6
(10)
94
335
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Financial information
Notes to the consolidated financial statements
Note 16 Goodwill and intangible assets
Introduction
As of 31 December 2011, the following four segments carried
goodwill: Wealth Management (CHF 1.3 billion), Wealth Man-
agement Americas (CHF 3.3 billion), Global Asset Management
(CHF 1.4 billion), and the Investment Bank (CHF 3.0 billion). For
the purpose of testing goodwill for impairment, UBS considers
the segments as reported in “Note 2a Segment reporting” as
separate cash-generating units, and determines the recoverable
amount of a segment on the basis of the value in use. On the
basis of the impairment testing methodology described below,
UBS concluded that the yearend 2011 balances of goodwill allo-
cated to its segments remain recoverable.
Methodology for goodwill impairment testing
The recoverable amount is determined using a discounted cash flow
model, which uses inputs that consider features of the banking busi-
ness and its regulatory environment. The recoverable amount of a
segment is the sum of the discounted earnings attributable to share-
holders from the first five individually forecasted years and the ter-
minal value. The terminal value reflecting all periods beyond the fifth
year is calculated on the basis of the forecast of fifthyear profit, the
discount rate and the longterm growth rate.
The carrying amount for each segment is determined by refer-
ence to the equity attribution framework. Within this framework,
which is described in the “Capital management” section of this re-
port, management attributes equity to the businesses after consid-
ering their risk exposure, RWA usage, asset size, goodwill and intan-
gible assets. The framework is used primarily for purposes of
measuring the performance of the businesses and includes certain
management assumptions. Attributed equity equates to the capital
that a segment requires to conduct its business and is considered an
appropriate starting point from which to determine the carrying
value of the segments. The attributed equity methodology is aligned
with the business planning process, the inputs from which are used
in calculating the recoverable amounts of the respective cash-gener-
ating units.
Assumptions
Valuation parameters used within the Group’s impairment
test model are linked to external market information, where
applicable. The model used to determine the recoverable
amount is most sensitive to changes in the forecast earnings
available to shareholders in years one to five, to changes in
the discount rates, and to changes in the long-term growth
rate. The applied longterm growth rate is based on longterm
economic growth rates for different regions worldwide. Earn-
ings available to shareholders are estimated based on forecast
results, which are part of the Business plan approved by the
Board of Directors. The discount rates are determined by ap-
plying a capital-asset-pricing-model-based approach, as well
as considering quantitative and qualitative inputs from both
internal and external analysts and the view of UBS’s manage-
ment.
Key assumptions used to determine the recoverable
amounts of each segment are tested for sensitivity by apply-
ing a reasonably possible change to those assumptions. Fore-
cast earnings available to shareholders were changed by up to
20%, the discount rates were changed by 1% and the long-
term growth rates were changed by 0.5%. Under all but one
scenario, the recoverable amounts for each of the segments
exceeded their respective carrying amounts such that the rea-
sonably possible changes in key assumptions would not result
in impairment. When forecast earnings from the Investment
Bank are changed by 20%, the Investment Bank’s carrying
amount exceeds the recoverable amount. At 31 December
2011, the Investment Bank’s recoverable amount exceeds its
carrying amount by CHF 3.8 billion. If forecast earnings for
the Investment Bank were changed by approximately 12%,
then the Investment Bank’s recoverable amount would be
equal to its carrying amount.
If the estimated earnings and other assumptions in future
periods deviate from the current outlook, the value of our
goodwill may become impaired in the future, giving rise to
losses in the income statement. This may be the case if the
regulatory pressure on the banking industry further intensifies
and conditions in the financial markets diminish our perfor-
mance relative to forecast. Recognition of any impairment of
goodwill would reduce IFRS Equity attributable to UBS share-
holders and net profit. It would not impact cash flows and,
as goodwill is required to be deducted from capital under
the Basel capital framework, there would be no impact to
the BIS tier 1 capital ratio or BIS total capital ratio of the UBS
Group.
Discount and growth rates
In %
Wealth Management
Wealth Management Americas
Global Asset Management
Investment Bank
336
Discount rates
Growth rates
31.12.11
31.12.10
31.12.11
31.12.10
10.7
10.0
10.0
12.0
9.0
9.0
9.0
11.0
1.7
2.4
2.4
2.4
1.2
2.4
2.4
2.4
Note 16 Goodwill and intangible assets (continued)
CHF million
Historical cost
Balance at the beginning of the year
Additions and reallocations
Disposals
Write-offs 2
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 2
Foreign currency translation
Balance at the end of the year
Goodwill
Total
Infrastructure
Intangible assets
Customer
relationships,
contractual
rights and other
9,115
(7) 1
0
0
(35)
9,074
0
0
0
0
0
0
0
710
0
0
0
3
713
362
34
0
0
0
4
399
314
809
47
(2)
0
0
854
450
56
37
0
0
4
547
307
Total
31.12.11
31.12.10
1,519
10,634
11,795
47
(2)
0
3
40
(2)
0
(32)
1,567
10,641
812
90
37
0
0
8
946
621
812
90
37
0
0
8
946
9,695
34
(3)
(1)
(1,190)
10,634
787
105
12
0
(1)
(91)
812
9,822
Net book value at the end of the year
9,074
1 Mainly includes the addition of CHF 11 million related to two business acquisitions completed in 2011, more than offset by a downward purchase price adjustment of CHF 20 million for an acquisition completed prior
to the adoption of IFRS 3 revised. Refer to “Note 35 Business combinations” for more information. 2 Represents write-offs of fully amortized intangible assets.
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Financial information
Notes to the consolidated financial statements
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 2011.
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
1,351
3,303
1,448
3,013
9,115
100
425
40
143
707
(20) 1
7
7
(7)
1
6
9
30
47
(6)
(48)
(7)
(30)
(90)
(31)
(1)
(4)
(37)
(2)
(2)
1 Reflects a downward purchase price adjustment of CHF 20 million for an acquisition completed prior to the adoption of IFRS 3 revised.
The estimated, aggregated amortization expenses for intangible assets are as follows:
CHF million
Estimated, aggregated amortization expenses for:
2012
2013
2014
2015
2016
2017 and thereafter
Not amortized due to indefinite useful life
Total
Note 17 Other assets
CHF million
Prime brokerage receivables
Deferred pension expenses 1
Settlement and clearing accounts
Properties and other non-current assets held for sale
VAT and other tax receivables
Other receivables
Total other assets
1 Refer to “Note 29 Pension and other post-employment benefit plans” of this report for more information.
338
(12)
(10)
(13)
0
(35)
(2)
(1)
(1)
(1)
(5)
1,319
3,293
1,442
3,019
9,074
62
382
41
136
621
Intangible assets
90
83
76
75
63
212
22
621
31.12.11
6,103
3,300
482
183
176
2,222
12,465
31.12.10
16,395
3,174
708
302
275
1,827
22,681
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 held at amortized cost
Financial liabilities designated at fair value
CHF million
Bonds and structured debt instruments issued
Equity linked
Credit linked
Rates linked
Other
Total
Structured debt instruments – OTC
Repurchase agreements
Loan commitments 2
Total
31.12.11
30,201
114,079
228,330
342,409
372,610
31.12.10
41,490
104,607
227,694
332,301
373,791
31.12.11
31.12.10 1
40,104
10,481
22,561
1,912
75,059
13,001
477
445
47,810
13,100
23,462
3,671
88,043
12,475
93
145
88,982
100,756
1 In 2011, we corrected the classification of bonds and structured debt instruments issued. 2 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 2011, the contractual redemption amount at
maturity of Financial liabilities designated at fair value through
profi t or loss was CHF 6.1 billion higher than the carrying value.
As of 31 December 2010, the contractual redemption amount at
maturity of such liabilities was CHF 3.7 billion higher than the car
rying value. The 2010 number has been corrected from CHF 11.1
billion to CHF 3.7 billion. Refer to Note 1a) 8) for details on Finan
cial liabilities designated at fair value through profi t or loss.
Debt issued (held at amortized cost)
CHF million
Short-term debt
Long-term debt:
Senior bonds
Subordinated bonds
Debt issued through the central bond institutions of the Swiss regional or cantonal banks
Medium-term notes
Total1
1 Net of bifurcated embedded derivatives with a net fair value of CHF 955 million as of 31 December 2011 (31 December 2010: CHF 1,357 million).
31.12.11
71,377
53,113
7,035
7,141
1,951
140,617
31.12.10
56,039
54,627
8,547
8,455
2,605
130,271
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Financial information
Notes to the consolidated financial statements
Note 19 Financial liabilities designated at fair value and debt issued held at amortized cost (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 2011 and 31 December
2010, the carrying value of debt issued was CHF 2,051 million
and CHF 913 million higher, respectively, reflecting changes in fair
value due to interest rate movements.
The Group issues both CHF and nonCHF denominated fixed
rate and floatingrate 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 2011 and 31 December 2010, the
Group had CHF 7,035 million and CHF 8,547 million in subordi-
nated debt, respectively. A majority of the subordinated debt out-
standing as of 31 December 2011 pays a fixed rate of interest,
with the remainder paying floatingrate interest based on three
month or sixmonth London Interbank Offered Rate (LIBOR). Both
the fixed and floating rate instruments provide for a single princi-
pal payment upon maturity.
As of 31 December 2011 and 31 December 2010, the Group
had CHF 137,263 million and CHF 153,730 million in unsubordi-
nated debt (excluding short-term debt, compound debt instru-
ments – OTC, repurchase agreements and loan commitments
designated at fair value), respectively.
The following table shows the split between fixedrate and
floatingrate debt issues based on the contractual terms and does
not consider early redemption features. 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 floatingrate debt.
Contractual maturity dates
CHF million, except where indicated
2012
2013
2014
2015
2016
2017–2021
Thereafter
UBS AG (Parent Bank)
Senior debt
Fixed rate
Interest rates (range in %)
Floating rate
Subordinated debt
Fixed rate
Interest rates (range in %)
Floating rate
Subtotal
Subsidiaries
Senior debt
Fixed rate
Interest rates (range in %)
Floating rate
Subtotal
Total
61,969
0–10.0
19,620
15,694
0–10.0
10,244
0
0
0
0
10,443
0–8.8
6,471
386
3.1
0
8,193
0–8.4
6,087
1,064
2.4–7.4
0
4,865
0–10.0
4,235
1,422
3.1–5.9
0
81,589
25,938
17,300
15,344
10,522
Total
31.12.11
Total
31.12.10
127,015
116,1931
64,339
81,9461
6,350
6,412
5,486
0–8.0
11,403
1,022
6.4–8.8
0
17,911
198,390
685
2,134
206,685
20,365
0–8.4
6,280
2,457
4.1–7.4
685
29,787
3,411
0–8.1
1,328
4,739
17,961
0–8.2
605
18,566
100,155
266
0–2.8
1,327
1,593
137
0–7.6
624
762
104
0–7.4
1,076
1,181
713
0–8.3
313
1,027
849
0–6.2
2,492
3,341
23,443
14,396
7,766
31,208
9,947
24,342
27,531
18,062
16,525
11,548
34,526
21,252
229,599
231,027
1 In 2011, we corrected the split of fixed rate and floating rate senior debt. Total fixed rate senior debt was corrected from CHF 138,767 million to CHF 116,193 million. Total floating rate senior debt was corrected from
CHF 59,372 million to CHF 81,946 million. Total senior debt was not impacted.
The table above indicates fixed interest rate coupons on the
Group’s bonds. The high or low coupons generally relate to
structured debt issues prior to the separation of embedded de-
rivatives. 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.
340
Note 20 Other liabilities
CHF million
Prime brokerage payables
Amounts due under unit-linked investment contracts
Provisions 1
Settlement and clearing accounts
Current tax liabilities
Deferred tax liabilities 2
VAT and other tax payables
Accrued pension and post-employment benefit liability 3
Other payables 4
Total other liabilities
31.12.11
31.12.10
36,746
16,481
1,626
874
505
79
492
406
4,482
61,692
36,383
18,125
1,704
961
750
97
579
395
4,726
63,719
1 Presentational changes have been made in 2011. Total provisions now also include provisions for loan commitments and guarantees. Refer to “Note 21 Provisions and contingent liabilities” for more information. 2 Refer
to “Note 22 Income taxes” for more information. 3 Refer to “Note 29 Pension and other post-employment benefit plans” for more information. 4 2011 includes third-party interest in consolidated limited partnerships of
CHF 1.4 billion (2010: CHF 0.9 billion) and liabilities from cash settled employee compensation plans of CHF 1.6 billion (2010: CHF 1.7 billion).
Note 21 Provisions and contingent liabilities
a) Provisions
CHF million
Balance at the beginning of the year
Additions from acquired companies
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
Provisions used in conformity with designated purpose
Capitalized reinstatement costs
Disposal of subsidiaries
Reclassifications
Foreign currency translation / Unwind of discount
Balance at the end of the year
Operational
risks 1
56
Litigation and
regulatory
matters 2
618
0
60
(9)
(50)
0
0
0
2
58
0
396
(87)
(455)
0
0
0
10
482
Loan
commitments
and guarantees
Restructuring
281
0
393
(55)
(115)
0
0
(49) 5
13
467
130
0
6
(28)
(14)
0
0
(2)
1
93
Other 3
619
2
92
(109)
(82)
(2)
(1)
0
7
Total
31.12.11
1,704
Total
31.12.10 4
2,401
2
947
(288)
(716)
(2)
(1)
(52)
32
0
1,126
(286)
(1,341)
(24)
(1)
8
(180)
1,704
525
1,626
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) of this Note. 3 Includes reinstatement costs for leasehold improvements which amounted to
CHF 109 million on 31 December 2011 (CHF 122 million on 31 December 2010), provisions for onerous lease contracts, provisions for employee benefits (service anniversaries and sabbatical leave) and other items.
4 Presentational changes have been made in 2011. Total provisions now also include provisions for loan commitments and guarantees. These provisions were previously separately disclosed in “Note 20 Other
liabilities”. 5 Reflects a reclassification to share premium of the restructuring provisions related to share-based compensation.
341
Financial information Financial information
Notes to the consolidated fi nancial statements
Note 21 Provisions and contingent liabilities (continued)
b) Litigation and regulatory matters
The Group operates in a legal and regulatory environment that
exposes it to signifi cant 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 disputes and
legal proceedings, including litigation, arbitration, and regulatory
and criminal investigations. Such cases are subject to many uncer
tainties, and the outcome is often diffi cult to predict, including
the impact on operations or on the fi nancial statements, particu
larly in the earlier stages of a case. In certain circumstances, to
avoid the expense and distraction of legal proceedings, UBS may,
based on a costbenefi t analysis, enter into a settlement even
though denying any wrongdoing. The Group makes provisions for
cases brought against it when, in the opinion of management
after seeking legal advice, it is probable that a liability exists, and
the amount can be reliably estimated.
Certain potentially signifi cant legal proceedings or threatened
proceedings as of 31 December 2011 are described below. 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 exposure. We are
unable to provide an estimate of the possible fi nancial effect of
particular claims or proceedings (where the possibility of an out-
fl ow is more than remote) beyond the level of current reserves
established. Doing so would require us to provide speculative le
gal assessments as to claims and proceedings which involve
unique fact patterns or novel legal theories, which have not yet
been initiated or are at early stages of adjudication, or as to
which alleged damages have not been quantifi ed by the claim
ants. In many cases a combination of these factors impedes our
ability to estimate the fi nancial effect of contingent liabilities. We
also believe that such estimates could seriously prejudice our po-
sition in these matters.
1) Municipal bonds
On 4 May 2011, UBS announced a USD 140.3 million settlement
with the US Securities and Exchange Commission (SEC), the Anti
trust Division of the US Department of Justice (DOJ), the Internal
Revenue Service (IRS) and a group of state attorneys general relat
ing to the investment of proceeds of municipal bond issuances
and associated derivative transactions. The settlement resolves
the investigations by those regulators which had commenced in
November 2006. Several related putative class actions, which
were fi led in Federal District Courts against UBS and numerous
other fi rms, remain pending. However, approximately USD 63 mil
lion of the regulatory settlement will be made available to poten-
tial claimants through a settlement fund, and payments made
through the fund should reduce the total monetary amount at
issue in the class actions for UBS. In December 2010, three former
UBS employees were indicted in connection with the Federal crim
342
inal antitrust investigation; those individual matters also remain
pending.
2) Auction rate securities
In late 2008, UBS entered into settlements with the SEC, the New
York Attorney General (NYAG) and the Massachusetts Securities Di
vision whereby UBS agreed to offer to buy back Auction Rate Secu
rities (ARS) from eligible customers, and to pay penalties of USD
150 million (USD 75 million to the NYAG and USD 75 million to the
other states). UBS has since fi nalized settlements with all of the
states. The settlements resolved investigations following the indus
trywide disruption in the markets for ARS and related auction fail
ures beginning in midFebruary 2008. The SEC continues to investi
gate individuals affi liated with UBS regarding the trading in ARS and
disclosures. UBS was also named in (i) several putative class actions;
(ii) arbitration and litigation claims asserted by investors relating to
ARS, including a pending consequential damages claim by a former
customer for damages of USD 76 million; and (iii) arbitration and
litigation claims asserted by issuers, including a pending litigation
under state common law and a state racketeering statute seeking
at least USD 40 million in compensatory damages, plus exemplary
and treble damages, and several recently fi led arbitration claims al
leging violations of state and federal securities law that seek com-
pensatory and punitive damages, among other relief.
3) Inquiries regarding cross-border wealth management
businesses
Following the disclosure and the settlement of the US crossbor
der matter, tax and regulatory authorities in a number of coun-
tries have made inquiries and served requests for information lo-
cated in their respective jurisdictions relating to the cross-border
wealth management services provided by UBS and other fi nancial
institutions. UBS is cooperating with these requests within the
limits of fi nancial privacy obligations under Swiss and other ap
plicable laws.
4) Matters related to the credit crisis
UBS is responding to a number of governmental inquiries and in
vestigations and is involved in a number of litigations, arbitrations
and disputes related to the credit crisis and in particular mortgage-
related securities and other structured transactions and derivatives.
In particular, the SEC is investigating UBS’s valuation of super se
nior tranches of collateralized debt obligations (CDO) during the
third quarter of 2007, UBS’s structuring and underwriting of cer
tain CDOs during the fi rst and second quarters of 2007, and UBS’s
reclassifi cation of fi nancial assets pursuant to amendments to IAS
39 during the fourth quarter of 2008. UBS has provided docu
Note 21 Provisions and contingent liabilities (continued)
ments and testimony to the SEC and is continuing to cooperate
with the SEC in its investigations. UBS has also communicated with
and has responded to other inquiries by various governmental and
regulatory authorities, including the Swiss Financial Market Super
visory Authority (FINMA), the UK Financial Services Authority (FSA),
the SEC, the US Financial Industry Regulatory Authority (FINRA),
the Financial Crisis Inquiry Commission (FCIC), the New York At
torney General, and the US Department of Justice, concerning
various matters related to the credit crisis. These matters concern,
among other things, UBS’s (i) disclosures and writedowns, (ii) inter
actions with rating agencies, (iii) risk control, valuation, structuring
and marketing of mortgagerelated instruments, and (iv) role as
underwriter in securities offerings for other issuers.
5) Lehman principal protection notes
From March 2007 through September 2008, UBS Financial Services
Inc. (UBSFS) sold approximately USD 1 billion face amount of struc
tured notes issued by Lehman Brothers Holdings Inc. (Lehman), a
majority of which were referred to as “principal protection notes,”
refl ecting the fact that while the notes’ return was in some manner
linked to market indices or other measures, some or all of the inves-
tor’s principal was an unconditional obligation of Lehman as issuer
of the notes. UBSFS 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. UBSFS 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 which was settled for USD 1 million, and is responding to
investigations by other state regulators relating to the sale of these
notes to UBSFS’s customers. The customer litigations and regula
tory investigations relate primarily to whether UBSFS adequately
disclosed the risks of these notes to its customers. In April 2011,
UBSFS entered into a settlement with FINRA related to the sale of
these notes, pursuant to which UBSFS agreed to pay a USD 2.5 mil
lion fi ne and approximately USD 8.25 million in restitution and in
terest to a limited number of investors in the US.
6) Claims related to sales of residential mortgage-backed
securities and mortgages
From 2002 through about 2007, UBS was a substantial under
writer and issuer of US residential mortgagebacked securities
(RMBS). UBS has been named as a defendant relating to its role as
underwriter and issuer of RMBS in a large number of lawsuits
relating to approximately USD 45 billion in original face amount
of RMBS underwritten or issued by UBS. Many of the lawsuits are
in their early stages, and have not advanced beyond the motion
to dismiss phase; others are in varying stages of discovery. Of the
original face amount of RMBS at issue in these cases, approxi
mately USD 9 billion was issued in offerings in which a UBS sub
sidiary transferred underlying loans (the majority of which were
purchased from thirdparty originators) into a securitization trust
and made representations and warranties about those loans
(UBSsponsored RMBS). The remaining USD 36 billion of RMBS to
which these cases relate was issued by third parties in securitiza-
tions in which UBS acted as underwriter (thirdparty RMBS). In
connection with certain of these lawsuits, UBS has indemnifi ca
tion rights against surviving third-party issuers or originators for
losses or liabilities incurred by UBS, but UBS cannot predict the
extent to which it will succeed in enforcing those rights.
These lawsuits include an action brought by the Federal Housing
Finance Agency (FHFA), as conservator for the Federal National
Mortgage Association (Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac and collectively with Fannie
Mae, the GSEs) in connection with the GSEs’ investments in USD
4.5 billion in original face amount of UBSsponsored RMBS and USD
1.8 billion in original face amount of thirdparty RMBS. These suits,
which were initially fi led in July 2011 and then amended in Septem
ber 2011, assert claims for damages and rescission under federal and
state securities laws and state common law and allege losses of ap-
proximately USD 1.2 billion. The FHFA also fi led suits in September
2011 against UBS and other fi nancial institutions relating to their
role as underwriters of thirdparty RMBS purchased by the GSEs as
serting claims under various legal theories, including violations of
the federal and state securities laws and state common law. Addi
tionally, UBS is named as a defendant in three lawsuits brought by
insurers of RMBS seeking recovery of insurance paid to RMBS inves
tors. 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.
On 29 September 2011 a federal court in New Jersey dismissed
on statute of limitations grounds a putative class action lawsuit
that asserted violations of the federal securities laws against vari-
ous UBS entities, among others, in connection with USD 2.6 bil
lion in original face amount of UBSsponsored RMBS. The plaintiff
fi led an amended complaint on 31 October 2011, which UBS has
again moved to dismiss on statute of limitations grounds, among
others. The motion remains pending.
As described below under “c) Other contingent liabilities”,
UBS has also received demands to repurchase US residential mort
gage loans as to which UBS made certain representations at the
time the loans were transferred to the securitization trust.
On 2 February 2012, Assured Guaranty Municipal Corp. (As
sured Guaranty), a fi nancial guaranty insurance company, fi led
suit against UBS Real Estate Securities Inc. (UBS RESI) in a New
York State Court asserting claims for breach of contract and de
claratory relief based on UBS RESI’s alleged failure to repurchase
allegedly defective mortgage loans with an original principal bal-
ance of at least USD 997 million that serve as collateral for UBS
sponsored RMBS insured by Assured Guaranty. Assured Guaranty
also claims that UBS RESI breached representations and warran
343
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Notes to the consolidated fi nancial statements
Note 21 Provisions and contingent liabilities (continued)
ties concerning the mortgage loans and breached certain obliga-
tions under commitment letters. Assured Guaranty seeks unspec
ifi ed damages that include payments on current and future claims
made under Assured Guaranty insurance policies totaling approx-
imately USD 308 million to date, compensatory and consequen
tial losses, fees, expenses and prejudgment interest.
7) Claims related to UBS disclosure
A putative consolidated class action has been fi led in the United
States District Court for the Southern District of New York against
UBS, a number of current and former directors and senior offi cers
and certain banks that underwrote UBS’s May 2008 Rights
Offering (including UBS Securities LLC) alleging violation of the
US securities laws in connection with UBS’s disclosures relating to
UBS’s positions and losses in mortgagerelated securities, UBS’s
positions and losses in auction rate securities, and UBS’s US cross
border business. In September 2011, the court dismissed all
claims based on purchases or sales of UBS ordinary shares made
outside the US. On 15 December 2011, Defendants moved to
dismiss the claims based on purchases or sales of UBS ordinary
shares made in the US for failure to state a claim. UBS, a number
of senior offi cers and employees and various UBS committees
have also been sued in a putative consolidated class action for
breach of fi duciary duties brought on behalf of current and
former participants in two UBS Employee Retirement Income
Security Act (ERISA) retirement plans in which there were pur
chases of UBS stock. In March 2011, the court dismissed the
ERISA complaint. The plaintiffs have sought leave to fi le an
amended complaint.
8) Madoff
In relation to the Bernard L. Madoff Investment Securities LLC
(BMIS) investment fraud, UBS AG, UBS (Luxembourg) SA and cer
tain other UBS subsidiaries have been subject to inquiries by a
number of regulators, including FINMA and the Luxembourg
Commission de Surveillance du Secteur Financier (CSSF). Those
inquiries concerned two third-party funds established under Lux-
embourg law, substantially all assets of which were with BMIS, as
well as certain funds established in offshore jurisdictions with ei-
ther 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 bil
lion in the aggregate, although that fi gure likely includes fi cti
tious profi t reported by BMIS. The documentation establishing
both funds identifi es UBS entities in various roles including custo
dian, administrator, manager, distributor and promoter, and indi-
cates that UBS employees serve as board members. Between
February and May 2009, UBS (Luxembourg) SA responded to
criticisms made by the CSSF in relation to its responsibilities as
344
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. UBS (Luxembourg) SA and certain other
UBS subsidiaries are also responding to inquiries by Luxembourg
investigating authorities, without however being named as par-
ties in those investigations. In December 2009 and March 2010,
the liquidators of the two Luxembourg funds fi led claims on be
half of the funds against UBS entities, nonUBS entities and cer
tain individuals including current and former UBS employees. The
amounts claimed are approximately EUR 890 million and EUR
305 million, respectively. The liquidators have fi led supplemen
tary claims for amounts that the funds may possibly be held liable
to pay the BMIS Trustee. The amounts claimed by the liquidator
are approximately EUR 564 million and EUR 370 million, respec
tively. In addition, a large number of alleged benefi ciaries have
fi led claims against UBS entities (and nonUBS entities) for pur
ported losses relating to the Madoff scheme. The majority of
these cases are pending in Luxembourg, where appeals have
been fi led 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 fi led claims against UBS entities,
among others, in relation to the two Luxembourg funds and one
of the offshore funds. A claim was fi led in November 2010
against 23 defendants including UBS entities, the Luxembourg
and offshore funds concerned and various individuals, including
current and former UBS employees. The total amount claimed
against all defendants was not less than USD 2 billion. A second
claim was fi led in December 2010 against 16 defendants includ
ing UBS entities and the Luxembourg fund concerned. The total
amount claimed against all defendants was not less than USD
555 million. Following a motion by UBS, in November 2011 the
District Court dismissed all of the Trustee’s claims other than
claims for recovery of fraudulent conveyances and preference
payments that were allegedly transferred to UBS on the ground
that the Trustee lacks standing to bring such claims. In Germany,
certain clients of UBS are exposed to Madoffmanaged positions
through thirdparty funds and funds administered by UBS entities
in Germany. A small number of claims have been fi led with re
spect to such funds.
9) Transactions with City of Milan and
other Italian public sector entities
In January 2009, the City of Milan (City) fi led civil proceedings
against UBS Limited, UBS Italia SIM Spa and three other interna
tional banks in relation to a 2005 bond issue and associated de-
rivatives transactions entered into with the City 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 re
cover alleged hidden profi ts asserted to have been made by the
Note 21 Provisions and contingent liabilities (continued)
banks in an amount of approximately EUR 88 million (of which
UBS Limited is alleged to have received approximately EUR 16 mil
lion) together with further damages of not less than EUR 150 mil
lion. The claims are made against all of the banks on a joint and
several basis. The case is currently stayed following a petition fi led
by the four banks to the Italian Court of Cassation challenging the
jurisdiction of the Italian courts but is likely to be resumed follow-
ing the recent decision of the Court which confi rmed jurisdiction
of the Italian courts. In addition, two current UBS employees and
one former employee, together with employees from other banks,
a former City offi cer 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 restruc-
turing, of certain related derivative transactions. The primary alle
gation is that UBS Limited and the other international banks ob
tained hidden and / or illegal profi ts by entering into the derivative
contracts with the City. In the criminal proceedings, UBS Limited
also faces 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 dam
ages against UBS Limited and UBS individuals in those proceed
ings. UBS is engaged in discussions with the City in relation to a
possible settlement of the City’s claims. 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 deriva
tive transactions with the Regions of Calabria, Tuscany, Lombardy
and Lazio and the City of Florence. Florence and Tuscany have also
attempted to invoke Italian administrative law remedies which pur-
port to allow a public entity to challenge its own decision to enter
into the relevant contracts and avoid their obligations thereunder.
UBS is resisting these attempts.
UBS has itself commenced proceedings before English courts
against the City of Milan and certain other Italian public entities in
connection with various derivative transactions with Italian public
entities. These proceedings are aimed at obtaining declaratory
judgments as to the validity and enforceability of UBS’s English
law contractual arrangements with its counterparties and, to the
extent relevant, the legitimacy of UBS’s conduct in respect of
those counterparties. The English proceedings against the City of
Milan and the Region of Tuscany have been stayed by agreement
of the parties.
10) HSH Nordbank AG (HSH)
HSH has fi led 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,
20024 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 assetbacked securities. HSH alleges that
UBS knowingly misrepresented the risk in the transaction, sold
HSH notes with “embedded losses”, and improperly profi ted at
HSH’s expense by misusing its right to substitute assets in the ref
erence pool within specifi ed parameters. HSH is seeking USD 500
million in compensatory damages plus prejudgment interest. The
case was initially fi led 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.
11) Kommunale Wasserwerke Leipzig GmbH (KWL)
In 2006 and 2007, KWL entered into a series of Credit Default
Swap (CDS) transactions with bank swap counterparties, includ
ing UBS. Under the CDS contracts between KWL and UBS, the
last of which were terminated by UBS in 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 English court, in order to establish that the swap trans
action between KWL and UBS is valid, binding and enforceable
as against KWL. In October 2010, the English court ruled that it
has jurisdiction and will hear the proceedings, and UBS issued a
further claim seeking declarations concerning the validity of its
early termination of the remaining CDS transactions with KWL.
KWL withdrew its appeal from that decision and the civil dispute
is now proceeding before the English court. UBS has served Par
ticulars of Claim and KWL has served its Defence and Counter-
claim which also joins UBS Limited and another bank to the pro
ceedings.
In March 2010, KWL commenced proceedings in Leipzig, Ger-
many, against UBS and other banks involved in these contracts,
claiming that the swap transactions are void and not binding on
the basis of KWL’s allegation that KWL did not have the capacity
or the necessary internal authorization to enter into the transac-
tions and that the banks knew this. Upon and as a consequence
of KWL withdrawing its appeal on jurisdiction in England, KWL
has also withdrawn its civil claims against UBS and one of the
other banks in the German courts and no civil claim will proceed
against either of them in Germany. The proceedings brought by
KWL against the third bank are now proceeding before the Ger-
man courts. In December 2011, the Leipzig court ruled that it is
for the London court and not the Leipzig court to determine the
validity and effect of a Third Party Notice served by Landesbank
BadenWurttemberg on UBS in the Leipzig proceedings.
The other two banks that entered into CDS transactions with
KWL entered into backtoback CDS transactions with UBS. In
April 2010, UBS commenced separate proceedings in the English
345
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Notes to the consolidated fi nancial statements
Note 21 Provisions and contingent liabilities (continued)
High Court against those bank swap counterparties seeking dec-
larations as to the parties’ obligations under those transactions.
The backtoback CDS transactions were terminated in April and
June 2010. The aggregate amount that UBS contends is outstand
ing under those transactions is approximately USD 183 million
plus interest. The stay of the court proceedings against one of the
bank swap counterparties has been terminated by UBS, and UBS
has added a money claim to the proceedings. The other swap
counterparty has terminated the stay of the proceedings brought
against it by UBS Limited and has added a claim against KWL to
those proceedings, which will now proceed.
In January 2011, the former managing director of KWL and
two fi nancial advisers were convicted on criminal charges related
to certain KWL transactions, including swap transactions with
UBS and other banks.
In November 2011, the SEC commenced an inquiry regarding
the KWL transactions and UBS is providing information to the SEC
relating to those transactions.
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 no
tice” to two UBS subsidiaries, advising them that the SEC staff is
considering whether to recommend that the SEC bring a civil ac
tion against them relating to these matters. UBS is engaged in
settlement discussions with the SEC staff; however, there is no
assurance that a settlement will be reached. UBS and several un
related parties were also sued in Puerto Rico superior court in
October 2011 in a purported civil derivative action seeking to
bring claims on behalf of the Employee Retirement System of
Puerto Rico related to, among other things, the issuance of the
bonds underwritten by UBS and the investment of the proceeds
of those bond issuances.
13) LIBOR
Several government agencies, including the SEC, the US Com
modity Futures Trading Commission, the DOJ and the FSA, are
conducting investigations regarding submissions with respect to
British Bankers’ Association LIBOR rates. We understand that the
investigations focus on whether there were improper attempts by
UBS (among others), either acting on our own or together with
others, to manipulate LIBOR rates at certain times. In addition, the
Swiss Competition Commission (WEKO) has commenced an in
vestigation of numerous banks and fi nancial intermediaries con
cerning possible collusion relating to LIBOR and TIBOR reference
rates and certain derivatives transactions.
UBS has been granted conditional leniency or conditional
immunity from authorities in certain jurisdictions, including the
346
Antitrust Division of the DOJ and WEKO, in connection with po
tential antitrust or competition law violations related to submis-
sions for Yen LIBOR and Euroyen TIBOR. WEKO has also granted
UBS conditional immunity in connection with potential competi
tion law violations related to submissions for Swiss franc LIBOR
and certain transactions related to Swiss franc LIBOR. The Cana
dian Competition Bureau has granted UBS conditional immunity in
connection with potential competition law violations related to
submissions for Yen LIBOR. As a result of these conditional grants,
we will not be subject to prosecutions, fi nes or other sanctions for
antitrust or competition law violations in the jurisdictions where
we have conditional immunity or leniency in connection with the
matters we reported to those authorities, subject to our continu-
ing cooperation. How ever, the conditional leniency and condition
al immunity grants we have received do not bar government agen-
cies from asserting other claims against us. In addition, as a result
of the conditional leniency agreement with the DOJ, we are eligi
ble for a limit on liability to actual rather than treble damages were
damages to be awarded in any civil antitrust action under US law
based on conduct covered by the agreement and for relief from
potential joint-and-several liability in connection with such civil an-
titrust action, subject to our satisfying the DOJ and the court pre
siding over the civil litigation of our cooperation. The conditional
leniency and conditional immunity grants do not otherwise affect
the ability of private parties to assert civil claims against us.
On 16 December 2011, the Japan Financial Services Agency
(JFSA) commenced an administrative action against UBS Securities
Japan Ltd (UBS Securities Japan) based on fi ndings by the Japan
Securities and Exchange Surveillance Commission (SESC) that (i) a
trader of UBS Securities Japan engaged in inappropriate conduct
relating to Euroyen TIBOR (Tokyo Interbank Offered Rate) and Yen
LIBOR, including approaching UBS AG, Tokyo Branch, and other
banks to ask them to submit TIBOR rates taking into account
requests from the trader for the purpose of benefi ting trading
positions; and (ii) serious problems in the internal controls of UBS
Securities Japan resulted in its failure to detect this conduct. Based
on the fi ndings, the JFSA issued a Business Suspension Order re
quiring UBS Securities Japan to suspend trading in derivatives
transactions related to Yen LIBOR and Euroyen TIBOR from 10
January to 16 January 2012 (excluding transactions required to
perform existing contracts). The JFSA also issued a Business Im
provement Order that requires UBS Securities Japan to (i) develop
a plan to ensure compliance with its legal and regulatory obliga-
tions and to establish a control framework that is designed to
prevent recurrences of the conduct identifi ed in the JFSA’s admin
istrative action, and (ii) provide periodic written reports to the
JFSA regarding the company’s implementation of the measures
required by the order. On the same day the JFSA also commenced
an administrative action against UBS AG, Tokyo Branch, based on
a fi nding that an employee of the Tokyo branch “continuously
received approaches” from an employee of UBS Securities Japan
regarding Euroyen TIBOR rate submissions, which was determined
Note 21 Provisions and contingent liabilities (continued)
to be an inappropriate practice that was not reported to the
branch’s management. Pursuant to this administrative action, the
JFSA issued an order under the Japan Banking Act which imposes
requirements similar to those imposed under the Business Im
provement Order directed to UBS Securities Japan.
A number of putative class actions and other actions have
been fi led in federal courts in the US against UBS and numerous
other banks on behalf of certain parties who transacted in LIBOR
based derivatives. The complaints allege manipulation, through
various means, of the US dollar LIBOR rate and prices of US dollar
LIBORbased derivatives in various markets. Claims for damages
are asserted under various legal theories, including violations of
the US Commodity Exchange Act and antitrust laws.
14) SinoTech Energy Limited
Since August 2011, multiple putative class action complaints have
been fi led, and have since been consolidated, in the United States
District Court for the Southern District of New York against
SinoTech Energy Limited (SinoTech), its offi cers and directors, its
auditor at the time of the offering, and its underwriters, including
UBS, alleging, among other claims, that the registration state
ment and prospectus in connection with SinoTech’s 3 November
2010 USD 168 million initial public offering of American Deposi
tary Shares contained materially misleading statements and
c) Other contingent liabilities
omissions, in violation of the US federal securities laws. UBS un
derwrote 70% of the offering. Plaintiffs seek unspecifi ed com
pensatory damages, among other relief.
15) Swiss retrocessions
The Zurich High Court decided in January 2012, in a test case,
that fees received by a bank for the distribution of fi nancial prod
ucts issued by third parties should be considered to be “retroces-
sions” unless they are received by the bank for genuine distribu-
tion services. Fees considered to be retrocessions would have to
be disclosed to the affected clients and, absent specifi c client con
sent, surrendered to them. If the holding in this case is not re
versed on appeal and is followed in other cases, UBS (like other
banks in Switzerland) could be subject to reimbursement claims
by certain clients for fees retained in the past.
16) Unauthorized trading incident
FINMA and the FSA have been conducting a joint investigation
of the unauthorized trading incident that occurred in the In-
vestment Bank and was announced in September 2011. In ad
dition, FINMA and the FSA have announced that they have
commenced enforcement proceedings against UBS in relation
to this matter.
Demands related to sales of mortgages and RMBS
For several years prior to the crisis in the US residential mortgage
loan market, we sponsored securitizations of US residential mort
gagebacked securities (RMBS) and were a purchaser and seller of
US residential mortgages. A subsidiary of UBS, UBS RESI, acquired
pools of residential mortgage loans from originators and (through
an affi liate) deposited them into securitization trusts. In this man
ner, 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
thirdparty purchasers. These whole loan sales during the period
2004 through 2007 totaled approximately USD 19 billion in origi
nal principal balance.
We were not a signifi cant 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 ac
tive from 2006 to 2008, and securitized less than half of these loans.
When we acted as an RMBS sponsor or mortgage seller, we
generally made certain representations relating to the characteris-
tics of the underlying loans. In the event of a material breach of
these representations, we were in certain circumstances contrac-
tually obligated to repurchase the loans to which they related or
to indemnify certain parties against losses. We have been notifi ed
by certain institutional purchasers and insurers of mortgage loans
and RMBS, including a GSE, that possible breaches of representa
tions may entitle the purchasers to require that UBS repurchase
the loans or to other relief. We have tolling agreements with
some of these institutional purchasers and insurers concerning
their potential claims. The table below summarizes repurchase de
mands received by UBS and UBS’s repurchase activity from 2006
through 29 February 2012.
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347
Financial information
Notes to the consolidated fi nancial statements
Note 21 Provisions and contingent liabilities (continued)
Loan repurchase demands by year received – original principal balance of loans 1
USD million
Actual or agreed loan repurchases / make whole payments by UBS
Demands resolved or expected to be resolved through enforcement of
indemnification rights against third party originators
Demands resolved in litigation
Demands in litigation 2
Demands rebutted by UBS but not yet rescinded by counterparty
Demands rescinded by counterparty
Demands in review by UBS
Total
2006–2008
11.7
0.6
110.2
2009
1.4
77.4
20.7
4.0
99.6
2.1
122.5
205.1
2010
2011
through
29 February
2012
1.8
46.2
5.3
345.6
1.8
18.8
0.1
368.2
652.1
368.5
8.1
9.1
1,084.1
12.1
85.6
103.1
Total
13.1
130.7
21.3
997.1
386.4
236.8
97.5
1,882.9
1 Loans submitted by multiple counterparties are counted only once. This is a change from our prior practice in the presentation of this information. For this reason, the comparable table in our fourth quarter 2011 report
included double-counted loans with an original principal balance of approximately USD 42.4 million. 2 Includes (i) USD 124.9 million of demands in litigation which were previously classified as Demands resolved or
expected to be resolved through enforcement of UBS’s indemnification rights against third-party originators; and (ii) USD 47.7 million of demands in litigation which were previously classified as Actual or agreed loan
repurchases / make whole payments by UBS.
Our balance sheet as of 31 December 2011 refl ected a provision
of USD 104 million (adjusted from USD 93 million previously re
ported) based on our best estimate of the loss arising from certain
loan repurchase demands received since 2006 to which we have
agreed or which remain unresolved, and for certain anticipated
loan repurchase demands of which we have been informed. As
sured Guaranty advised UBS in 2011 that it intended to make loan
repurchase demands that were estimated to be at least USD 900
million in original principal balance. Of the USD 598 million (by
original principal balance) of purported loan repurchase demands
received in the fourth quarter of 2011 and through 29 February
2012, approximately USD 489 million of such demands were re
ceived from Assured Guaranty. As described above under “b) Liti
gation and regulatory matters”, Assured Guaranty fi led a lawsuit
against UBS RESI on 2 February 2012 relating to certain of these
repurchase demands, among others. It is not clear when or to
what extent additional demands will be made by Assured Guar-
anty or others. UBS also cannot reliably estimate when or to what
extent the provision will be utilized in connection with actual loan
repurchases or payments for liquidated loans, because both the
submission of loan repurchase demands and the timing of resolu-
tion of such demands are uncertain.
Payments made by UBS to date to resolve repurchase de
mands have been for liquidated adjustable rate mortgages that
provide the borrower with a choice of monthly payment options
(Option ARM loans). These payments were equiva lent to ap
proximately 62% of the original principal balance of the Option
ARM loans. The corresponding percentages for other loan types
can be expected to vary. With respect to unliquidated Option
ARM loans that UBS has agreed to repurchase, UBS expects se
verity rates will be similar to payments made for liquidated loans.
Actual losses upon repurchase will refl ect the estimated value of
the loans in question at the time of repurchase as well as, in
some cases, partial repayment by the borrowers or advances by
servicers prior to repurchase. It is not possible to predict future
indemnity rates or percentage losses upon repurchase for rea-
sons including timing and market uncertainties as well as pos-
sible differences in the characteristics of loans that may be the
subject of future demands compared with those that have been
the subject of past demands.
In most instances in which we would be required to repurchase
loans or indemnify against losses due to misrepresentations, we
would be able to assert demands against third-party loan origina-
tors who provided representations when selling the related loans
to UBS. However, many of these third parties are insolvent or no
longer exist. We estimate that, of the total original principal bal
ance of loans sold or securitized by UBS from 2004 through 2007,
less than 50% was purchased from surviving third-party origina-
tors. In connection with approximately 60% of the loans (by orig
inal principal balance) for which UBS has made payment or agreed
to make payment in response to demands received in 2010 and
2011, UBS has in turn asserted indemnity or repurchase demands
against originators. Only a small number of our demands have
been resolved, and we have not recognized any asset on our bal-
ance sheet in respect of the unresolved demands. UBS has also
advised certain surviving originators of repurchase demands made
against UBS for which UBS would be entitled to indemnity and
has asserted that such demands should be resolved directly by the
originator and the party making the demand.
We cannot reliably estimate the level of future repurchase de-
mands, and do not know whether our rebuttals of such demands
will be a good predictor of future rates of rebuttal. We also can
not reliably estimate the timing of any such demands.
As described above under “b) Litigation and regulatory mat
ters”, we are also subject to claims and threatened claims in con-
nection with our role as underwriter and issuer of RMBS.
348
Note 22 Income taxes
CHF million
Tax expense / (benefit) from continuing operations
Swiss
Current
Deferred
Foreign
Current
Deferred
Total income tax expense / (benefit) from continuing operations
Tax expense from discontinued operations
Swiss
Total income tax expense from discontinued operations
Total income tax expense / (benefit)
For the year ended
31.12.11
31.12.10
31.12.09
23
1,063
83
(246)
923
0
0
923
(75)
668
300
(1,273)
(381)
0
0
(381)
55
23
462
(983)
(443)
0
0
(443)
The Swiss net deferred tax expense of CHF 1,063 million reflects a
tax expense of CHF 949 million for the amortization of deferred tax
assets, as tax losses are used against profits arising from business
operations. In addition, it reflects a tax charge of CHF 245 million
relating to the revaluation of deferred tax assets (reflecting updat-
ed profit forecast assumptions including the expected geographi-
cal mix) partly offset by a CHF 131 million tax effect relating to the
unauthorized trading incident.
The foreign net deferred tax benefit of CHF 246 million re-
flects a US tax benefit of CHF 400 million, which mainly relates
to a writeup of deferred tax assets for US tax losses incurred in
previous years, predominantly in the parent bank, UBS AG. This
was partly offset by a tax expense of CHF 41 million relating to
the downward revaluation of deferred tax assets for Japan, fol-
lowing a change in statutory tax rates and loss offset rules, and
a tax expense of CHF 113 million for the amortization of de-
ferred tax assets, as tax losses are used against profits in various
locations.
The net current tax expense of CHF 106 million (Swiss CHF 23
million, foreign CHF 83 million) reflects tax expenses of CHF 277
million in relation to taxable profits of Group entities, partly offset
by current tax benefits of CHF 171 million relating to prior periods.
A deferred tax expense of CHF 17 million related to prior years re-
duces the net tax benefits related to prior years to CHF 155 million.
The Group made net corporate income tax payments, including
Swiss and foreign taxes, of CHF 349 million, CHF 498 million and
CHF 505 million in 2011, 2010, and 2009 respectively. The compo-
nents of operating profit before tax, and the differences between
income tax expense reflected in the financial statements and the
amounts calculated at the Swiss tax rate, are as follows:
CHF million
Operating profit from continuing operations before tax
of which: Swiss
of which: foreign
Income taxes at Swiss tax rate of 21.5% for 2011, 2010 and 2009
Increase / (decrease) resulting from:
Applicable tax rates differing from Swiss tax 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
Adjustments to deferred tax balances arising from changes in tax rates
Other items
Income tax expense / (benefit) from continuing operations
For the year ended
31.12.11
31.12.10
31.12.09
5,350
4,743
607
1,150
106
939
(8)
(1,189)
674
(155)
(676)
42
39
923
7,455
5,999
1,456
1,603
(49)
275
(1,225)
(889)
1,985
(258)
(1,820)
11
(14)
(381)
(2,561)
4,871
(7,433)
(551)
(1,636)
1,188
(79)
(932)
1,012
(65)
552
14
55
(443)
349
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Notes to the consolidated fi nancial statements
Note 22 Income taxes (continued)
Certain deferred tax asset and liability movements are recognized
directly in equity, including the effects of exchange rate changes
on tax assets and liabilities denominated in currencies other than
Swiss francs. In particular, in 2011, a net deferred tax charge of
CHF 218 million was refl ected directly in equity. This included a
tax charge refl ected in other comprehensive income of CHF 498
million, which mainly related to an increase in a Swiss deferred tax
liability for cash fl ow hedges, partly offset by a tax benefi t in the
share premium account of CHF 280 million, which mainly refl ects
an increase in recognized Swiss tax losses incurred in previous
years that are of an equity nature for IFRS accounting purposes.
In the table below, the valuation allowance represents amounts
that are not expected to provide future benefi ts due to insuffi
cient projected future taxable income.
UBS AG Switzerland and certain overseas branches and sub
sidiaries of the Group have deferred tax assets related to tax loss
carryforwards and other items as shown in the table below.
For entities that incurred losses in either the current or preced-
ing year, CHF 564 million is recognized as deferred tax assets as
of 31 December 2011 (CHF 9,147 million as of 31 December
2010).
CHF million
Deferred tax assets
Compensation and benefits
Tax loss carry-forwards
Trading assets
Other
Total deferred tax assets
Deferred tax liabilities
Compensation and benefits
Property and equipment
Financial investments and associates
Trading assets
Goodwill and intangible assets
Other
Total deferred tax liabilities
31.12.11
Valuation
allowance
(1,564)
(19,122)
(813)
(1,447)
(22,946)
Gross
1,780
27,171
880
1,641
31,471
Recognized
216
8,049
67
194
8,526
31.12.10
Valuation
allowance
(1,791)
(19,258) 1
(999)
(1,776)
(23,823)
Gross
1,993
28,186 1
1,164
2,002
33,345
Recognized
201
8,929
165
226
9,522
0
1
32
1
37
6
79
0
0
25
1
40
31
97
1 In 2011, we corrected the amounts presented for gross deferred tax assets for tax loss carry-forwards as of 31 December 2010 from CHF 28,474 million to CHF 28,186 million and valuation allowance correspond-
ingly from CHF 19,546 million to CHF 19,258 million. Total recognized deferred tax assets were not affected.
The deferred tax assets recognized as of 31 December 2011 in
respect of tax losses have been based on profi tability assumptions
over a fi veyear horizon. The expected future profi tability is based
on business plan assumptions, as adjusted to take into account
the recognition criteria of IAS 12. If the business plan earnings
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 2011, tax losses totaling CHF 52,073 mil-
lion which are not recognized as deferred tax assets, are available
to be offset against future taxable income. The tax losses not rec
ognized as deferred tax assets 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
31.12.11
31.12.10
3
29
85
38,647
13,309
52,073
0
3,184
54
38,761 1
11,174
53,173
1 In 2011, we corrected the tax losses not recognized as deferred tax assets as of 31 December 2010 from CHF 36,943 million to CHF 38,761 million.
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.
earnings of subsidiaries except to the extent that those earnings
are indefi nitely invested.
As of 31 December 2011, no such earnings were treated as
The Group provides for deferred income taxes on undistributed
indefi nitely invested.
350
Note 23 Derivative instruments and hedge accounting
Derivatives: overview
A derivative is a fi nancial instrument, the value of which is derived
from the value of a variable (“underlying”). Underlyings may be in
dices, exchange or interest rates, or the value of shares, commodi-
ties, bonds, or other fi nancial instruments. A derivative commonly
requires no initial investment by either counterparty to the trade.
The majority of derivative contracts are negotiated with re-
spect to notional amounts, tenor, price and settlement mecha-
nisms, as is customary with other fi nancial instruments. The no
tional 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 gen
erally not a direct indication of the values which are exchanged
between parties, and are therefore not a direct measure of risk or
fi nancial exposure, but are viewed as an indication of the scale of
the different types of derivatives entered into by the Group.
Overthecounter (OTC) contracts are usually traded under a
standardized International Swaps and Derivatives Association
(ISDA) master trading agreement (MTA) between UBS and its
counterparties. Terms are negotiated directly with counterparties
and the contracts will have industry-standard settlement mecha-
nisms prescribed by ISDA. Other derivative contracts are standard
ized in terms of their amounts and settlement dates, and are
bought and sold on organized exchanges; these are commonly
referred to as exchangetraded derivatives (ETD) contracts. Ex
changes offer the benefi ts of pricing transparency, standardized
daily settlement of changes in value, and consequently reduced
credit risk. During 2011, the industry continued to promote the
use of Central Counterparties (CCP) to clear OTC trades. The
trend toward CCP clearing and settlement will generally facilitate
the reduction of systemic credit exposures.
Derivative instruments are measured at fair value and generally
classifi ed as Positive replacement values and Negative replace-
ment values on the face of the balance sheet. Derivative instru
ments that trade on an exchange or through a clearing house are
generally classifi ed as Cash collateral receivable or payable on de-
rivative instruments. They are not classifi ed within replacement
values because the change in fair value of these instruments is
economically settled each day through the cash payment of varia-
tion margin. Products that receive this treatment are futures con
tracts, 100% daily margined exchange traded options, interest
rate swaps transacted with the London Clearing House and cer-
tain credit derivative contracts.
Additionally, for presentation purposes, the Group is subject to
the IFRS netting provisions for other derivative contracts, if all the
following conditions exist: contracts are with the same legal coun-
terparty; the Group has legally enforceable rights to set off
amounts due; the contracts have common maturity dates; and
the parties intend to settle net, which may be evidenced by cur-
rent practice. Changes in the replacement values of derivatives
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”.
Valuation principles and techniques applied in the measure-
ment of fair value derivative instruments are discussed in “Note
26a) Valuation principles”. Positive replacement values repre-
sent the estimated amount the Group would receive if the de-
rivative 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 under-
lying contract, were it required or entitled to do so on the bal-
ance sheet date.
Types of derivative instruments
The Group uses the following derivative fi nancial 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
fl ow business. Measurement techniques applied to determine the
fair value of each product type are described in “Note 26c Valua-
tion techniques by product”.
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) at, or before, a set date, a spec
ifi ed quantity of a fi nancial instrument or commodity at a pre
determined price. The purchaser pays a premium to the seller
for this right. Options involving more complex payment struc
tures 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 fl ows on a specifi ed notional amount for a predetermined
period.
– Forwards and futures: Forwards and futures are contractual
obligations to buy or sell fi nancial instruments or commodities
on a future date at a specifi ed 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 swaps: Cross-currency swaps involve the ex-
change 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 or end
of the contract. Most crosscurrency swaps are traded in the
OTC market.
The main products and underlyings, that the Group uses are:
– Interest rate contracts: Interest rate products include interest
rate swaps, swaptions and caps and fl oors.
351
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Notes to the consolidated fi nancial statements
Note 23 Derivative instruments and hedge accounting (continued)
– 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 the occurrence of a
contractually defi ned credit event with respect to a specifi ed
thirdparty credit entity. Settlement following a credit event
may be a net cash amount, or cash in return for physical deliv-
ery of one or more obligations of the credit entity, and is made
regardless of whether the protection buyer has actually suf-
fered a loss. After a credit event and settlement, the contract is
generally terminated. An elaboration of credit derivatives is
included in a separate section below.
– Total return swaps (TRSs): TRSs are employed in both the In
vestment Bank’s fi xed income and equity trading businesses
with underlyings which are generally equity or fi xed income
indices, loans or bonds. TRSs are structured with one party
making payments based on a set rate, either fi xed or variable,
and the other party making payments based on the return of
an underlying asset, which includes both the profi t 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 client 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 defi ned 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, the structured business and the fl ow business.
The index and structured business are client facilitation busi-
nesses trading exchange traded funds, OTC swaps and options
on commodity indices. The underlying indices cover third party
and UBS defi ned indices such as the UBS Bloomberg Constant
Maturity Commodity Index and the Dow Jones UBS Commod
ity indices. The fl ow 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 fl ow trading is cash settled with no physical delivery of the
underlying.
– Precious metals: The Group has an established precious metals
ability in both fl ow and nonvanilla OTC products incorporat
ing both physical and nonphysical trading. The fl ow business
is investor led and products include ETD, vanilla OTCs and cer
tain nonvanilla OTCs. The vanilla OTCs are in forwards, swaps
and options. The nonvanilla OTC business relates to cashset
tled forwards similar in nature to non-deliverable forwards,
meaning there is no physical delivery of the underlying.
Risks of derivative instruments
Derivative instruments are transacted in many trading portfolios,
which generally include several types of instruments, not just
derivatives. The market risk of derivatives is predominantly man
aged and controlled as an integral part of the market risk of
these portfolios. The Group’s approach to market risk is de
scribed in the audited portions of the “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 portions of the “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 refl ection of the Group’s
credit exposure in its derivatives business with that counterparty.
This is, for example, because on one hand, replacement values
can increase over time (“potential future exposure”), while on the
other hand, exposure may be mitigated by entering into master
netting agreements and bilateral collateral arrangements with
other counterparties. Both the exposure measures used by the
Group internally to control credit risk and the capital requirements
imposed by regulators refl ect these additional factors.
The replacement values presented on UBS’s balance sheet in
clude netting in accordance with IFRS requirements (refer to
“Note 1a) 35) Netting”), which is more restrictive than netting
in accordance with Swiss Federal Banking law. Swiss Federal
Banking law netting is generally based on closeout netting
arrangements that are enforceable in case of insolvency. The
positive and negative replacement values based on netting in
accordance with Swiss Federal Banking law (factoring in cash
collateral) are presented on the bottom of the table 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 fl ows involved
or the current fair value of the instruments and, therefore, do not
indicate the Group’s exposure to credit or market risks.
352
Note 23 Derivative instruments and hedge accounting (continued)
Derivative instruments 1
CHF billion
Interest rate contracts
Over-the-counter (OTC) contracts
Forward contracts 7
Swaps
Options
Exchange-traded contracts
Futures
Options
Agency transactions 8
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 8
Total
Equity / index contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts
Futures
Options
Agency transactions 8
Total
Table continues on the next page.
31.12.11
31.12.10 6
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
2.0
247.3
46.7
1,610.0
6,661.7
1,173.2
2.3
226.1
48.0
0.0
1,637.4
6,561.5 15,771.7
0.0
1,185.2
1.9
170.4
31.2
1,320.7
7,527.0
785.3
2.3
154.3
32.5
1,233.6
7,423.7
822.8
0.0
13,076.0
0.0
0.0
0.1
296.1
124.0
9,569.0
0.0
0.1
276.4
1,450.5
0.0
127.8
9,511.9 17,222.2
0.0
0.2
203.7
43.7
9,676.7
0.0
0.2
189.3
778.3
0.0
49.4
9,529.5
13,854.3
66.6
0.6
0.1
67.3
1,292.2
2.4
3.6
1,298.1
62.9
0.5
0.1
63.5
1,238.0
2.0
4.6
1,244.6
172.4
0.0
0.0
172.4
15.7
75.7
5.8
648.3
2,177.4
367.8
14.9
85.5
5.8
610.5
2,165.5
346.4
0.0
0.0
97.2
0.1
3,193.7
0.0
0.0
106.3
0.6
3,123.0
12.2
52.2
3.5
0.1
55.8
16.3
88.5
8.7
1,189.8
6.1
11.9
1,207.8
531.1
2,279.9
515.1
49.8
1.3
0.1
51.2
17.1
97.0
8.8
1,091.2
4.2
9.5
1,104.9
554.1
2,190.5
483.4
0.0
0.0
113.5
0.0
3,326.1
0.0
0.0
123.0
0.1
3,228.1
0.0
0.0
0.0
12.2
0.0
2.8
8.7
38.3
69.0
3.3
3.9
18.8
84.6
191.8
3.0
8.9
3.7
4.2
19.8
39.0
86.9
85.2
0.0
0.0
14.7
0.0
211.1
14.7
2.5
8.1
3.8
7.5
21.9
31.5
67.0
94.4
192.9
3.5
8.6
3.7
7.6
23.4
40.5
81.0
98.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
9.0
0.0
9.0
0.0
0.0
23.3
0.0
219.7
23.3
n
o
i
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a
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o
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a
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353
Financial information
Notes to the consolidated financial statements
Note 23 Derivative instruments and hedge accounting (continued)
Table continued from previous page.
CHF billion
Commodities contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts
Futures
Forward contracts 9
Options
Agency transactions 8
Total
Unsettled purchases of non-derivative financial assets 10
Unsettled sales of non-derivative financial assets 10
31.12.11
31.12.10 6
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
Total
NRV 4
Other
notional
values 3, 5
2.8
1.6
0.1
0.0
2.3
6.9
0.2
0.1
29.9
30.4
36.7
4.4
101.3
39.8
17.9
2.3
2.1
0.2
0.0
2.4
7.0
0.2
0.2
21.4
28.1
35.0
6.3
90.9
10.7
30.2
0.0
0.0
17.7
0.0
0.0
17.7
0.0
0.0
2.8
1.5
0.0
1.7
6.0
0.2
0.1
19.5
19.3
0.7
39.5
36.5
34.9
3.2
1.8
0.0
1.7
6.6
0.1
0.1
21.7
16.0
1.2
38.9
18.8
13.0
0.0
0.0
37.8
0.0
0.0
37.8
0.0
0.0
Total derivative instruments, based on IFRS netting
486.6 14,411.6
473.4 14,222.4 17,439.2
401.1
14,514.3
393.8
14,152.9
13,924.4
Replacement value netting, based on capital adequacy rules
Cash collateral netting, based on capital adequacy rules
Total derivative instruments, based on capital
adequacy netting 11
(383.3)
(45.6)
57.7
(383.3)
(28.0)
62.1
(301.5)
(36.5)
63.1
(301.5)
(23.9)
68.3
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 1.1 billion (2010: CHF 2.7 billion) (re-
lated notional values of CHF 24.8 billion (2010: CHF 8.6 billion)) and an NRV of CHF 0.2 billion (2010: CHF 1.3 billion) (related notional values of CHF 9.3 billion (2010: CHF 10.4 billion)). 2 PRV: Positive replacement
value. 3 For 31 December 2011: in case of netting of replacement values on the balance sheet, notional values of gross derivatives are presented in accordance with the gross positive replacement value and gross
negative replacement value of the netted derivatives, respectively. For 31 December 2010: in case of netting of replacement values on the balance sheet, the sum of the notional values of netted derivatives is presented
in accordance with the related net positive replacement value or net negative replacement value of the netted derivatives. 4 NRV: Negative replacement value. 5 Receivables resulting from these derivatives are rec-
ognized on our balance sheet under Due from banks, Loans and Cash collateral receivables on derivative instruments totaling CHF 2.4 billion (2010: CHF 0.7 billion). Payables resulting from these derivatives are recog-
nized on our balance sheet under Due to banks, Due to customers and Cash collateral payables on derivative instruments totaling CHF 2.7 billion (2010: CHF 2.7 billion). 6 In 2011, we corrected notional values for
Interest rate and Equity / index contracts. In addition, we reclassified certain PRVs, NRVs and related notional amounts from Equity / index contracts to Commodities contracts. 7 Negative replacement values as of
31 December 2011 include CHF 0.2 billion related to derivative loan commitments (31 December 2010: 0.3 billion). The maximum irrevocable amount related to these commitments was CHF 6.1 billion as of 31 Decem-
ber 2011 (31 December 2010: CHF 1.0 billion), which is not reflected in the reported notional amounts. 8 Notional values of exchange-traded agency transactions are not disclosed due to their significantly different
risk profile. 9 In 2010, these forward contracts were not reported as PRVs and NRVs, but on the balance sheet lines Loans and Due to customers, respectively. Notional values were reported as Other notional val-
ues. 10 Changes in the fair value of purchased and sold non-derivative financial assets between trade date and settlement date are recognized as replacement values. 11 Includes the impact of netting agreements
(including cash collateral) in accordance with Swiss Federal Banking law.
On a notional value basis, credit protection bought and sold held
as of 31 December 2011 matures in a range of approximately
18% (2010: 10%) within one year, approximately 69% (2010:
70%) within 1 to 5 years and approximately 13% (2010: 20%)
after 5 years. The maturity profile of OTC interest rate contracts
held as of 31 December 2011, based on notional values, is as fol-
lows: approximately 42% (2010: 45%) mature within one year,
35% (2010: 33%) within 1 to 5 years and 23% (2010: 22%) over
5 years. Notional 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 con-
tracts.
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 through market making activities and for the on-
going hedging of trading book exposures.
Market making activity consists of buying and selling single-
name CDSs, index CDSs, loan CDSs and related referenced cash
354
Note 23 Derivative instruments and hedge accounting (continued)
instruments to facilitate client trading activity. UBS also actively
utilizes CDSs to economically hedge specifi c counterparty credit
risks in its accrual loan portfolio and off balance sheet loan port-
folio (including loan commitments) with the aim of reducing con
centrations in individual names, sectors or specifi c portfolios.
In addition, UBS actively utilizes CDSs to economically hedge
specifi c counterparty credit risks in its OTC derivative portfolios
including fi nancial instruments which are designated at fair value
through profi t or loss. In 2010, market innovation and client de
mand for exposure to related products resulted in an expansion of
structured activities and continuation of the Bank’s CDS fl ow trad
ing. These activities included market making on behalf of clients
in index, multiname index, swap index option and fi rsttodefault
CDS products. 2011 saw a continuation of this client driven busi
ness. Where applicable, these products form part of structured
arrangements and solutions, with clients seeking exposure to spe-
cifi c 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 2011, the total notional value of protection
bought was CHF 1,393 billion (CHF 63 billion Positive replace-
ment values, CHF 3 billion Negative replacement values) and the
total notional value of protection sold was CHF 1,322 billion (CHF
4 billion Positive replacement values, CHF 61 billion Negative re-
placement values).
UBS’s credit derivatives are usually traded as OTC contracts.
Since 2009, in line with the broader derivatives industry, a number
of initiatives have been launched in both the US and Europe to
establish CCP solutions for OTC CDS contracts with the aim of
reducing counterparty risk. UBS, along with other dealer mem
bers, has participated in these initiatives and continued to do so
throughout 2011.
A signifi cant portion of UBS’s credit derivatives are traded under
an ISDA MTA between UBS and its counterparty. UBS’s CDS trades
are also documented using industry standard forms of documenta-
tion published by ISDA or equivalent terms documented in a be
spoke (i.e. tailored) agreement. Those forms and agreements use
standardized terms that form the basis for market conventions re-
lated to the types of credit events that would trigger performance
(i.e. payment default, bankruptcy, etc. – see below) under a CDS.
Those agreements and forms do not contain recourse provisions
that would enable UBS to recover from third parties any amounts
paid out by UBS (i.e. this is the case where a credit event occurs
and UBS is required to make payment under a CDS).
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
market conventions based on the type of reference entity to
which the transaction relates. Applicable credit events by market
conventions include “bankruptcy”, “failure to pay”, “restructur-
ing”, “obligation acceleration” and “repudiation / moratorium”.
Contingent collateral and termination features of
derivative liabilities
Certain derivative payables contain contingent collateral or termi-
nation features triggered upon a downgrade of the published cred-
it rating of the Group in the normal course of business. Based on
UBS’s credit ratings as of 31 December 2011, additional collateral
or termination payments pursuant to bilateral agreements with cer-
tain counterparties of approximately CHF 0.7 billion and CHF 2.1
billion would have been required in the event of a one-notch and
twonotch reduction, respectively, in UBS’s longterm credit ratings.
In evaluating UBS’s liquidity requirements, UBS considers additional
collateral or termination payments that would be required in the
event of a reduction in UBS’s longterm credit ratings.
Derivatives transacted for hedging purposes
Derivatives used for structural hedging
The Group enters into derivative transactions for the purposes
of hedging assets, liabilities, forecast transactions, cash fl ows
and credit exposures. The accounting treatment of hedge
transactions varies according to the nature of the instrument
hedged and whether the hedge qualifi es as such for account
ing purposes.
Derivative transactions that qualify and are designated as
hedges for accounting purposes are described under the corre-
sponding headings in this note (fair value hedges, cash fl ow
hedges and hedges of net investments in foreign operations). The
Group’s accounting policies for derivatives designated and ac-
counted for as hedging instruments are explained in “Note 1a)
15) Derivative instruments and hedge accounting”, under which
terms used in the following sections are explained.
The Group has also entered into various hedging strategies uti-
lizing derivatives for which hedge accounting has not been ap-
plied. These include interest rate swaps and other interest rate
derivatives (e.g. futures) for daytoday economic interest rate risk
management purposes. In addition, the Group has used equity
futures, options and, to a lesser extent, swaps for economical
hedging in a variety of equity trading strategies to offset underly-
ing equity and equity volatility exposure. The Group has also en
tered into CDSs that provide economic hedges for credit risk ex
posures (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 reported in Net trad-
ing income, except for forward points on certain FX swaps used
to manage short-term interest rate risk on foreign currency loans
and deposits.
355
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Financial information
Notes to the consolidated fi nancial statements
Note 23 Derivative instruments and hedge accounting (continued)
Fair value hedges of interest rate risk
The Group’s fair value hedges principally consist of interest rate
swaps that are used to protect against changes in the fair value of
fi xedrate instruments (e.g. longterm fi xedrate debt issues) due
to movements in market interest rates. The fair values of out
standing interest rate swaps designated as fair value hedges were
assets of CHF 2,422 million and liabilities of CHF 16 million as of
31 December 2011 and assets of CHF 1,171 million and liabilities
of CHF 46 million as of 31 December 2010.
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
For the year ended
31.12.11
31.12.10
31.12.09
1,203
(1,172)
31
402
(383)
19
(171)
182
11
Fair value hedges of portfolio of interest rate risk
The Group also applies fair value hedge accounting to mortgage
loan 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
outstanding interest rate swaps designated for these hedges as
of 31 December 2011 was a liability of CHF 1,389 million (31
December 2010: liability of CHF 972 million).
Fair value hedges of portfolio of interest rate risk 1
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.
Fair value hedges of foreign currency risk
The Group hedges foreign exchange exposures arising from cer-
tain foreign currency denominated nonmonetary fi nancial invest
ments available-for-sale using the spot component of foreign ex-
change forward contracts. As of 31 December 2011 the aggregate
notional amount of hedging instruments designated as fair value
hedges of foreign currency risk was CHF 244 million (CHF 393
million as of 31 December 2010). The fair values of these hedging
instruments were CHF 22 million assets as of 31 December 2011
and CHF 30 million assets as of 31 December 2010. The gains and
losses on the hedging instruments and the hedged items, as well
as the ineffectiveness of these hedges, were all not material in the
periods presented in the fi nancial statements.
Forecasted cash flows
CHF billion
Cash inflows
Cash outflows
Net cash flows
356
For the year ended
31.12.11
31.12.10
31.12.09
(461)
452
(9)
35
(60)
(25)
(48)
11
(37)
Cash fl ow hedges of forecasted transactions
The Group is exposed to variability in future interest cash fl ows on
nontrading fi nancial 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 fl ows, representing
both principal and interest fl ows, are projected for each portfolio
of fi nancial assets and liabilities, based on contractual terms
and other relevant factors including estimates of prepayments and
defaults. The aggregate principal balances and interest cash fl ows
across all portfolios over time form the basis for identifying the
non-trading interest rate risk of the Group, which is hedged with
interest rate swaps, the maximum maturity of which is 16 years.
The schedule of forecasted principal balances on which the
expected interest cash fl ows arise as of 31 December 2011 is
shown below.
< 1 year
1–3 years
3–5 years
5–10 years
over 10 years
366
70
296
500
91
409
309
45
264
232
58
174
18
18
Note 23 Derivative instruments and hedge accounting (continued)
To the extent the designated cash fl ow hedging relationship
meets the qualifying criteria, the effective portion of the fair value
changes of the designated derivative hedging instruments is rec-
ognized in Equity. These gains and losses are transferred from Eq
uity to current period earnings in the same period in which the
hedged cash fl ows affect net profi t or loss. The ineffective portion
of the fair value changes of the derivative hedging instruments is
recognized immediately in the income statement. A CHF 38 mil
lion loss, a CHF 22 million loss and a CHF 183 million loss were
recognized in 2011, 2010 and 2009, respectively, in Net trading
income due to hedge ineffectiveness.
As of 31 December 2011, the fair values of outstanding deriva-
tives designated as cash fl ow hedges of forecasted transactions
were CHF 7,450 million assets and CHF 3,583 million liabilities
and as of 31 December 2010 the amounts were CHF 5,397 mil-
lion assets and CHF 3,392 million liabilities.
At the end of 2011 and 2010, gains of CHF 7 million and CHF
18 million associated with de-designated interest rate swaps were
deferred in Equity. They will be removed from Equity when the
previously hedged forecasted cash fl ows have an impact on net
profi t or loss, or when the forecasted cash fl ows are no longer
expected to occur. Amounts reclassifi ed from Equity to Net inter
est income of de-designated swaps were CHF 11 million net gain
in 2011, CHF 28 million net gain in 2010 and CHF 40 million net
gain in 2009.
ing instruments in net investment hedge accounting arrange-
ments were CHF 10 million and CHF 40 million, respectively. The
corresponding notional amount was CHF 9.6 billion in total. The
effective portion of gains and losses of these FX swaps is trans-
ferred directly to Equity to offset foreign currency translation (FCT)
gains and losses on the net investments in foreign branches and
subsidiaries. As such, these FX swaps hedge the structural FX ex
posure resulting in the accumulation of FCT on the level of indi-
vidual foreign branches and subsidiaries and hence on the total
FCT other comprehensive income (OCI) of the Group.
Also with effect from the fourth quarter 2011, UBS began to
designate certain nonderivative foreign currency fi nancial assets
and liabilities of foreign branches or subsidiaries as hedging in-
struments in net investment hedge accounting arrangements.
The FX translation difference recorded in Equity (FCT OCI) of the
non-derivative hedging instrument of one foreign entity offsets
the structural FX exposure of another foreign entity. Therefore,
the aggregated FCT OCI of the Group is unchanged from this
hedge designation. As of 31 December 2011, the nominal
amount of nonderivative fi nancial assets and liabilities designat
ed as hedging instruments in such net investment hedges was
CHF 16.9 billion and CHF 16.9 billion, respectively. No material
in effectiveness of hedges of net investments in foreign operations
was recognized in the income statement in 2011.
Refer also to Note 1b) Interests in consolidated investment funds.
Hedges of net investments in foreign operations
With effect from the fourth quarter 2011, the Group started to
apply hedge accounting for certain net investments in foreign op-
erations. As of 31 December 2011, the positive replacement value
and negative replacement value of FX swaps designated as hedg-
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 fl ows.
Derivatives designated in hedge accounting relationships (undiscounted cash flows)
CHF billion
Interest rate swaps 1
Cash Inflows
Cash Outflows
FX swaps / forwards
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
10
10
0
0
0
0
3
2
1
11
8
3
4
4
0
0
1 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 at 31 December 2011.
Total
19
15
10
10
4
357
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Financial information
Notes to the consolidated fi nancial statements
Off -balance-sheet information
Note 24 Pledgeable off-balance-sheet securities
The Group obtains securities which are not recorded on the balance sheet with the right to sell or repledge them as shown in the table below.
CHF million
Fair value of securities received which can be sold or repledged
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
Note 25 Operating lease commitments
31.12.11
551,590
550,023
1,567
398,110
331,415
39,480
27,216
31.12.10
573,852
571,970
1,882
428,347
352,668
54,975
20,705
As of 31 December 2011, UBS was obligated under a number of
non-cancellable operating leases for premises and equipment
used primarily for operational purposes. The signifi cant premises
leases usually include renewal options and escalation clauses in
line with general offi ce rental market conditions, as well as rent
adjustments based on price indices. None of our lease agree
ments contain volume-based or leveraged contingent rent pay-
ment clauses or purchase options, or impose any restrictions on
UBS’s ability to pay dividends, engage in debt fi nancing trans
actions or enter into further lease agreements.
The minimum commitments for non-cancellable leases of
premises and equipment and the Group’s operating lease
expenses are as follows:
CHF million
Operating leases due
2012
2013
2014
2015
2016
2017 and thereafter
Subtotal commitments for minimum payments under operating leases
Less: Sublease rental commitments 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
358
31.12.11
819
705
627
532
445
2,591
5,719
453
5,266
31.12.11
31.12.10
31.12.09
837
84
754
1,057
97
960
1,191
57
1,134
Additional information
Note 26 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 classifi ed as held for trad-
ing or designated as at fair value through profi t or loss, and fi nancial
assets classifi ed as available for sale are recognized in the fi nancial
statements at fair value. All derivatives are measured at fair value.
Fair values are determined from quoted prices in active markets
for identical fi nancial assets or fi nancial liabilities where these are
available. Fair value of a fi nancial asset or fi nancial liability in an ac-
tive market is the current bid or offer price times the number of units
of the instrument held. Where a trading portfolio contains both fi -
nancial assets and fi nancial liabilities with offsetting market risks, fair
value is generally estimated by valuing the gross long and short posi-
tions at current mid market prices, with an adjustment at portfolio
level to the net open long or short position to amend the valuation
to bid or offer as appropriate.
Where the market for a fi nancial instrument is not active, fair value
is established using a valuation technique or pricing model. Valuation
techniques and models involve a degree of estimation, the extent of
which depends on the instrument’s complexity and the availability of
market-based data. Valuation adjustments may be made to allow for
additional factors including model risks, liquidity risk as refl ected in
the bid / offer spread and credit risk. Based on the established fair
value and model governance policies and related controls and proce-
dures applied, management believes that these valuation adjust-
ments are necessary and appropriate to fairly refl ect the values of fi -
nancial instruments carried at fair value on the balance sheet.
When entering into a transaction where model inputs are not
market observable, the fi nancial 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. Refer to “Note 26d) Deferred day-1 profi t or loss” for more
information. The timing of the recognition in profi t 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.
clude such probability-based techniques as binomial and Monte
Carlo pricing.
UBS uses widely recognized valuation techniques for determining
fair values of less complex fi nancial instruments such as interest rate
and currency swaps. For more complex instruments, values may be
estimated using a combination of observed transaction prices, inde-
pendent pricing services and relevant quotes. Consideration is given
to the nature of the quotes (e.g., indicative or fi rm) and the relation-
ship of recently evidenced market activity to the prices provided
from independent pricing services. UBS also uses internally devel-
oped models, which are usually based on valuation methods and
techniques generally recognized as standard within the industry.
Such valuation models are used primarily 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 il-
liquid. Market-observable assumptions and inputs are used where
available, and derived from similar assets in similar and active mar-
kets, from recent transaction 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 avail-
able for some or all parameters, UBS determines the non-market-
observable inputs to be used in its valuation models based on a
combination of historical experience and knowledge of current mar-
ket conditions. Assumptions and inputs used in valuation techniques
and models include benchmark interest rate curves, credit spreads
and other premiums used in estimating discount rates, bond and
equity 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 estimated with certainty. As a result, valuations
are adjusted, where appropriate, to refl ect close-out costs, credit ex-
posure, model-driven-valuation adjustments and trading restrictions
when such factors would be considered by market participants.
Pricing models and valuation techniques
The most frequently applied valuation techniques and pricing
models include discounted cash fl ow models, relative value
models and option pricing models. Discounted cash fl ow models
determine the value by estimating the expected future cash
fl ows 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 in-
Interest rate curves
UBS uses various interest rate curves for valuing its fi nancial instru-
ments. Financial liabilities designated at fair value are measured us-
ing UBS’s funds transfer price curve. Financial assets designated at
fair value are valued in line with the curve used for the particular
product. Uncollateralized credit exposure is evaluated under our
credit risk control framework. For the valuation of uncollateralized
derivative instruments, UBS generally employs a LIBOR fl at curve.
359
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Financial information
Notes to the consolidated fi nancial statements
Note 26 Fair value of financial instruments (continued)
Valuation curve changes
During 2011, we incorporated the use of differentiated valuation
curves in the underlying risk management systems which value
the substantial portion of our collateralized derivatives. These
curves are linked to the terms of our Credit Support Annex (CSA)
for the majority of our collateralized discounting exposure. This
change in estimate resulted in a pre-tax loss of CHF 134 million
recorded in Net trading income.
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 estimate fair value, credit valuation adjustments (CVA)
are necessary to refl ect the credit risk of the counterparty inherent
in OTC derivatives transactions, derivatives embedded in funded
assets designated at fair value and derivatives embedded in trad-
ed debt instruments. This amount represents the estimated mar-
ket value of protection required to hedge counterparty credit risk
from counterparties in UBS’s OTC derivatives portfolio, derivatives
embedded in funded assets designated at fair value and traded
debt instruments. CVA depends on expected future exposures,
default probabilities and recovery rates. The CVA takes into con-
sideration collateral or netting arrangements, break clauses and
other contractual factors.
UBS’s own credit risk in the valuations of derivative fi nancial
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 DVA
represents the theoretical cost to counterparties of hedging their
UBS credit risk exposure or the credit risk reserve that a counter-
party could reasonably be expected to hold against their credit risk
exposure to UBS, if they applied the same methodology used to
calculate UBS’s CVA. The DVA takes into account negative expect-
ed exposure profi les for the derivatives portfolio, collateral, netting
agreements, expected future mark-to-market movements and
UBS’s credit default spreads to determine the UBS counterparty
exposure from the perspective of holders of UBS debt.
As of 31 December 2011 and 2010, the CVA and DVA for de-
rivative fi nancial instruments (replacement values) were as follows:
CVA and DVA for derivative financial instruments
CHF billion
DVA
Gain / (loss) for the year ended
Life-to-date gain / (loss)
CVA1
Gain / (loss) for the year ended 2
of which: Monoline credit protection – negative basis trades
of which: Monoline credit protection – other
of which: Other instruments
Life-to-date gain / (loss)
of which: Monoline credit protection – negative basis trades
of which: Monoline credit protection – other
of which: Other instruments
1 Amounts do not include reserves against defaulted counterparties. 2 Amounts do not include commutations.
31.12.11
31.12.10
0.2
0.8
(0.8)
(0.3)
(0.1)
(0.4)
(2.9)
(1.3)
(0.2)
(1.4)
0.2
0.5
1.0
0.7
0.1
0.2
(2.2)
(1.1)
(0.1)
(1.0)
UBS’s own credit risk in the valuations of fi nancial liabilities
designated at fair value
Changes in UBS’s own credit are refl ected in the valuation of
those fi nancial liabilities designated at fair value, for which UBS’s
own credit risk would be considered by market participants. Own
credit effects are not refl ected in the valuations of fully collateral-
ized 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 ten-
ors is set by reference to the level at which newly issued UBS me-
dium-term notes (MTNs) are priced. The FTP curve spread is consid-
ered to be representative of the credit risk which refl ects the
premium that market participants require to purchase UBS MTNs.
As of 31 December 2011 and 2010, respectively, the own cred-
it results for Financial liabilities designated at fair value (predomi-
nantly issued structured products) were as follows:
360
Note 26 Fair value of financial instruments (continued)
Own credit on financial liabilities designated at fair value
CHF million
Total gain / (loss) for the period ended
of which: credit spread related only
Life-to-date gain
Year-to-date amounts represent the change during the year and
life-to-date amounts refl ect 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 val-
ues attributable to factors other than credit spreads, such as re-
demptions, 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 CHF
18.5 million.
Refl ection of market liquidity risk in fair value estimates
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
market risk position. A liquidity adjustment is therefore made 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 re-
tained and the model on which it is valued is calibrated to mid
market. Valuations based on models incorporate liquidity or risk
premiums either implicitly (e.g., by calibrating to market prices
that incorporate such premiums) or explicitly.
Refl ection of model uncertainty in fair value estimates
Uncertainties associated with the use of model-based valuations
are predominantly addressed through the use of model reserves.
These reserves refl ect the amounts that UBS estimates are appro-
priate to deduct from the valuations produced directly by the
models to refl ect uncertainties in the relevant modeling assump-
tions, inputs used, calibration of the output, or choice of model.
In arriving at these estimates, UBS considers a range of market
practice and how it believes other market participants would
assess these uncertainties. Model reserves are periodically reas-
sessed in light of information from market transactions, pricing
utilities and other relevant sources.
As of or for the year ended
31.12.11
31.12.10
31.12.09
1,537
1,526
1,934
(548)
(471)
237
(2,023)
(1,958)
890
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 fi nancial statements. New products must be reviewed and
approved by all stakeholders relevant to risk and fi nancial con-
trol. Responsibility for the ongoing measurement of fi nancial
instruments at fair value resides with the business, but is inde-
pendently validated by risk and fi nancial control functions. In
carrying out their valuation responsibilities, the businesses are
required to consider the availability and quality of external mar-
ket information and to provide justifi cation and rationale for
their fair value estimates. Independent price verifi cation of fi -
nancial 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 verifi -
cation process is to independently corroborate the business’s
estimates of fair value against available market information. By
benchmarking the business’s fair value estimates with observ-
able market prices or other independent sources, the degree of
valuation uncertainty embedded in these measurements can be
assessed and managed as required in the governance frame-
work. A critical aspect of the independent price verifi cation pro-
cess is the evaluation of the appropriateness of modeling ap-
proaches and input assumptions which yield fair value estimates
derived from valuation models. The output of modeling ap-
proaches is also compared to observed prices and market levels
for the specifi c instrument being priced if possible and appropri-
ate. This calibration analysis is performed to assess the ability of
the model and its inputs (which are frequently based upon a
combination of price levels of observable hedge instruments and
diffi cult to observe parameters) to price a specifi c product in its
own specifi c market. An independent model review group re-
views UBS’s valuation models on a regular basis or if specifi c
triggers occur and approves them for valuing specifi c products.
As a result of the valuation controls employed, valuation adjust-
ments may be made to the business’ estimate of fair value to
either align with independent market information or fi nancial
accounting standards.
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361
Financial information
Notes to the consolidated fi nancial statements
Note 26 Fair value of financial instruments (continued)
b) Fair value hierarchy
All fi nancial 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 signifi cant 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 signifi cant inputs
are market observable, either directly or indirectly; and
– Level 3 – valuation techniques which include signifi cant inputs
that are not based on observable market data.
Determination of fair values from quoted market prices or valuation techniques 1
CHF billion
Financial assets held for trading 2
of which: 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
Total liabilities
31.12.11
Level 1
Level 2
Level 3
99.4
33.2
3.4
0.4
0.0
0.4
2.6
0.0
0.7
34.8
138.4
30.4
3.5
0.4
0.0
0.4
2.7
0.0
0.0
0.0
34.0
55.7
6.2
469.2
294.9
58.4
94.8
14.2
6.9
6.9
17.7
549.5
8.4
459.1
275.7
56.3
103.6
16.5
6.9
76.9
16.4
560.8
7.8
0.5
13.9
0.9
8.8
2.0
2.2
0.0
2.7
0.6
25.0
0.6
10.8
0.3
7.1
2.3
0.9
0.1
12.1
0.0
23.5
Total
162.8
39.9
486.6
296.2
67.3
97.2
19.1
6.9
10.3
53.2
712.9
39.5
473.4
276.5
63.4
106.3
20.1
7.0
89.0
16.4
618.2
31.12.10
Level 1
116.1
38.3
3.6
0.9
0.0
0.3
2.3
0.0
0.8
52.9
173.4
42.9
3.5
1.0
0.0
0.3
2.2
0.0
0.0
0.0
46.4
Level 2
83.0
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
496.5
Level 3
10.8
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
0.0
24.7
Total
209.9
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
1 Bifurcated embedded derivatives, which are presented on the same balance sheet lines as their host contracts, are excluded from this table. As of 31 December 2011, net bifurcated embedded derivative assets held
at fair value, totaling CHF 1.0 billion (of which CHF 0.8 billion were net level 3 assets and CHF 0.2 billion net level 2 assets), were recognized on our balance sheet within Debt issued. As of 31 December 2010, net
bifurcated embedded derivative assets held at fair value, totaling CHF 1.4 billion (of which CHF 1.7 billion were net level 3 assets and CHF 0.3 billion net level 2 liabilities), were recognized on our balance sheet within
Debt issued. 2 Financial assets held for trading do not include precious metals and commodities.
Transfers between level 1 and level 2 of the fair value hierarchy
Trading assets of approximately CHF 0.3 billion, of which CHF
0.2 billion are debt instruments, and trading liabilities of approxi-
mately CHF 0.4 billion, of which CHF 0.3 billion are debt instru-
ments, were transferred from level 2 to level 1, respectively, due
to increased trading activities and volumes.
ments of CHF 1.3 billion and CHF 0.5 billion, respectively. These
positions were transferred from level 1 to level 2 because actual
trading activity no longer met the average market activity as de-
fi ned in UBS’s valuation governance principles in determining
whether an instrument is traded in an active market.
Trading assets and liabilities with amounts of approximately
CHF 1.4 billion and approximately CHF 0.7 billion were trans-
ferred from level 1 to level 2, respectively. Trading assets and trad-
ing liabilities transferred were primarily comprised of debt instru-
Movements of level 3 instruments
The table below includes a roll-forward of the balance sheet
amounts of the signifi cant classes of fi nancial instruments classi-
fi ed within level 3.
362
Note 26 Fair value of financial instruments (continued)
Movements of level 3 instruments
CHF billion
Balance at 31 December 2009
Total gains / losses included in the income statement 1
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
Balance at 31 December 2010
Total gains / losses included in the income statement 1
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 2011
Derivative instruments
Financial assets
held for trading
Positive
replacement values
Negative
replacement values
Financial liabilities
designated at fair value
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
10.8
(0.4)
(0.6)
0.2
(2.2)
2.5
(4.7)
0.0
0.0
(0.4)
1.0
(1.4)
0.1
7.8
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
12.4
1.9
1.9
0.0
(1.1)
0.0
0.0
3.3
(4.4)
0.6
1.7
(1.1)
0.1
13.9
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
10.4
0.7
0.7
0.0
(0.5)
0.0
0.0
1.7
(2.2)
0.1
1.3
(1.2)
0.1
10.8
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
14.0
(0.5)
(0.5)
0.1
0.4
0.0
0.0
5.2
(4.8)
(2.0)
1.8
(3.8)
0.0
12.0
1 Reflects gains and losses included in the income statement for instruments which were classified as level 3 instruments at both the beginning and the end of the period as well as gains and losses for the entire period for
instruments which were transferred into level 3 during the period.
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363
Financial information
Notes to the consolidated fi nancial statements
Note 26 Fair value of financial instruments (continued)
Material changes in level 3 instruments
As of 31 December 2011, fi nancial instruments measured with
valuation techniques using signifi cant non-market observable in-
puts (level 3) mainly included the following:
– structured rates and credit positions, including bespoke collat-
eralized debt obligations (CDO) and collateralized loan obliga-
tions (CLO);
– reference-linked notes (RLN);
– fi nancial instruments linked to the US and European residential
and US and non-US commercial real estate markets;
– corporate bonds and corporate credit default swaps (CDS);
and
– lending-related products
Financial assets held for trading
Financial assets held for trading transferred into and out of level 3
amounted to CHF 1.0 billion and CHF 1.4 billion, respectively.
Transfers into level 3 were comprised primarily of CHF 0.4 billion
of corporate bonds, CHF 0.2 billion of fi nancial instruments linked
to the Asian real estate market, CHF 0.1 billion of fi nancial instru-
ments related to the European real estate market, CHF 0.1 billion
of fi nancial instruments linked to student loans, and CHF 0.1 bil-
lion of US RLN where no independent price verifi cation was pos-
sible given reduced observability of market inputs. Transfers out
of level 3 were comprised primarily of CHF 0.4 billion of fi nancial
instruments linked to the Asian real estate market, CHF 0.3 billion
of corporate bonds, CHF 0.2 billion of sovereign bonds, CHF 0.2
billion of asset backed securities, and CHF 0.1 of lending-related
products as independent price sources became available by which
to verify fair values.
Level 3 fi nancial assets held for trading purchased during the
year amounted to CHF 2.5 billion. These purchases mainly includ-
ed CHF 1.1 billion of lending-related products, CHF 0.9 billion of
corporate bonds and CHF 0.2 billion of fi nancial instruments
linked to the US commercial real estate market.
Sales of level 3 fi nancial assets held for trading amounted to
CHF 4.7 billion, which included CHF 1.6 billion of lending-related
products, CHF 0.7 billion of fi nancial instruments linked to the US
commercial real estate market, CHF 0.7 billion of corporate bonds,
CHF 0.5 billion of fi nancial instruments linked to the Asian real
estate market, CHF 0.3 billion CLO, and CHF 0.2 billion of equities.
Derivative instruments
Derivative instruments transferred into level 3 include positive re-
placement values of CHF 1.7 billion and negative replacement
values of CHF 1.3 billion. Transfers out of level 3 instruments in-
cluded positive replacement values of CHF 1.1 billion and negative
replacement values of CHF 1.2 billion.
Transfers into level 3 positive replacement values were com-
prised primarily of CHF 0.8 billion corporate CDS positions as
credit curves and recovery rates could no longer be independently
verifi ed, CHF 0.4 billion of structured credit bespoke CDO posi-
364
tions due to a reduction in the correlation between the portfolio
held and the representative market portfolio used to indepen-
dently verify market data and CHF 0.2 billion of sovereign CDS
positions as credit curves could no longer be independently veri-
fi ed. Transfers into level 3 negative replacement values were com-
prised primarily of CHF 0.7 billion structured credit bespoke CDO
positions due to a reduction in the correlation between the port-
folio held and the representative market portfolio used to inde-
pendently verify market data, CHF 0.3 billion of corporate CDS
positions as credit curves and recovery rates could no longer be
independently verifi ed and CHF 0.1 billion of sovereign CDS posi-
tions as credit curves could no longer be independently verifi ed.
Transfers out of level 3 positive replacement values were com-
prised primarily of CHF 0.2 billion of corporate CDS positions
where credit curves and recovery rates could be independently
verifi ed, CHF 0.2 billion of US residential CDS positions as the reli-
ability of independent underlying market data increased, CHF 0.2
billion of equity options where volatility could be independently
verifi ed, CHF 0.2 billion of US commercial real estate CDS posi-
tions as the reliability of independent underlying market data in-
creased and CHF 0.1 billion of structured credit bespoke CDO
positions due to an increase in the correlation between the port-
folio held and the representative market portfolio used to inde-
pendently verify market data. Transfers out of level 3 negative
replacement values were comprised primarily of CHF 0.4 billion of
equity options where volatility could be independently verifi ed,
CHF 0.2 billion of US residential CDS positions as the reliability of
independent underlying market data increased, CHF 0.2 billion of
structured credit bespoke CDO positions due to an increase in the
correlation between the portfolio held and the representative
market portfolio used to independently verify market data, CHF
0.1 billion of US commercial real estate CDS positions as the reli-
ability of independent underlying market data increased, and CHF
0.1 billion of structured rates positions where volatility could be
independently verifi ed.
Issuances of level 3 positive replacement values were CHF 3.3
billion, which included CHF 1.4 billion of structured credit be-
spoke CDO positions, CHF 0.7 billion of corporate CDS positions
and CHF 0.6 billion of structured rates positions. Issuances of
level 3 negative replacement values were CHF 1.7 billion, which
included CHF 0.8 billion of structured credit bespoke CDO posi-
tions, CHF 0.6 billion of corporate CDS positions, and CHF 0.2
billion of structured rates positions.
Settlements of level 3 positive replacement values were CHF
4.4 billion, which included CHF 1.9 billion of structured credit po-
sitions, CHF 0.6 billion of structured rates positions, CHF 0.5 bil-
lion of CLO CDS positions, CHF 0.5 billion of US commercial real
estate CDS positions, and CHF 0.4 billion of corporate CDS posi-
tions. Settlements of level 3 negative replacement values were
CHF 2.2 billion, which included CHF 0.9 billion of structured cred-
it bespoke CDO positions, CHF 0.4 billion of structured rate
trades, CHF 0.2 billion of equity options, CHF 0.2 billion of corpo-
Note 26 Fair value of financial instruments (continued)
rate CDS positions and CHF 0.1 billion of European real estate
CDS positions.
Financial assets designated at fair value
Issuances of structured fi nance level 3 fi nancial assets designated
at fair value were approximately CHF 2.2 billion.
Financial liabilities designated at fair value
Transfers of fi nancial liabilities designated at fair value into level 3
of CHF 1.8 billion consisted primarily of CHF 0.7 billion credit-
linked notes where the underlying credit curve could no longer be
independently verifi ed, CHF 0.6 billion of equity-linked notes and
CHF 0.5 billion of interest rate-linked notes as the volatility of the
embedded option could not be independently verifi ed.
Transfers of fi nancial liabilities designated at fair value out
of level 3 were CHF 3.8 billion, which included CHF 1.5 billion of
interest rate-linked notes, CHF 1.5 billion of equity-linked notes
where the volatility of the embedded option could be indepen-
dently verifi ed and CHF 0.5 billion of credit-linked notes as the
underlying credit curve could be independently verifi ed.
Issuances of level 3 fi nancial liabilities designated at fair value
were CHF 5.2 billion, consisting primarily of CHF 3.6 billion of
credit- linked notes and CHF 1.0 billion of equity-linked notes.
Settlements of level 3 fi nancial liabilities designated at fair val-
ue were approximately CHF 4.8 billion, which consisted of CHF
2.1 billion of credit-linked notes, CHF 1.4 billion of equity-linked
notes and CHF 1.3 billion of interest rate-linked notes.
Sensitivity information
Included in the fair value estimates of fi nancial 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 valu-
ation 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 performed
a sensitivity analysis of its fi nancial instruments classifi ed as level 3,
which are valued using model-based techniques, and for which
signifi cant model inputs are unobservable in the markets in
which the underlying products are transacted. The fair values as
of 31 December 2011 of cash instruments were adjusted by 3%
to 20% and of derivative instruments by 1% to 40% as deemed
adequate for the applicable product in the professional judg-
ment of management.
Cash instruments referred to in the table relate to long and
short inventory, if applicable, of the respective product type. For
purposes of the 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 fi nancial assets or
liabilities designated at fair value. For all instruments, favorable
changes are increases in asset values and decreases in liability
values, as a consequence of applying the relevant sensitivity per-
centage. Unfavorable changes are decreases in asset values, and
increases in liability values, as a consequence of applying the rel-
evant sensitivity percentage for the respective fi nancial instru-
ments.
Sensitivity of level 3 financial assets and liabilities
As of
CHF billion
Cash instruments
Mortgage securities
Debt securities
Traded loans
Total cash instruments
Derivative instruments
Equity derivatives
Interest rate derivatives
Credit derivatives
Other
Total derivative instruments
31.12.11
31.12.10
Favorable
changes
Unfavorable
changes
Favorable
changes
Unfavorable
changes
0.3
0.2
0.1
0.6
0.1
0.3
0.5
0.2
1.1
(0.3)
(0.2)
(0.1)
(0.6)
(0.1)
(0.3)
(0.5)
(0.2)
(1.1)
0.3
0.2
0.1
0.6
0.4
0.7
0.1
0.4
1.6
(0.3)
(0.2)
(0.1)
(0.6)
(0.4)
(0.7)
(0.1)
(0.4)
(1.6)
365
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Financial information
Notes to the consolidated fi nancial statements
Note 26 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-
fl ows using observable or implied credit spreads and prevailing
interest rates.
Loans held at fair value are priced at market levels refl ecting re-
cent transactions or quoted dealer prices. For illiquid loans where
no market price is available, alternative valuation techniques are
used which may include relative value benchmarking using pricing
derived from debt instruments in comparable entities or different
products in the same entity.
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 derivatives
The majority of equity securities are traded on public stock
exchanges where quoted prices are readily and regularly avail-
able.
Hedge funds are measured at fair value based on their pub-
lished net asset values (NAV). The bank will consider the avail-
ability of NAV from the funds or restrictions imposed upon
the redemption of these funds when determining the fi nal 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
NAV.
UBS has positions in both exchange-traded derivatives (ETD)
and OTC derivatives. ETD generally have observable prices and
the bank considers market prices for its fair value assessment.
OTC derivatives are measured using either industry standard mod-
els or internally developed proprietary models.
366
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 CDO are estimated by traded
prices and independently verifi ed market data when available. In
the absence of direct market data, values will be derived from
traded and quoted prices on one or more securities with similar
characteristics or indices through benchmarking or triangula-
tion.
Securities with plain vanilla features but limited observable
market data are valued through industry standard valuation mod-
els, while those with complex structures are valued through pro-
prietary models and fundamental analysis. Key inputs to such
models include management’s quantitative and qualitative assess-
ment of current and future economic conditions, the securities’
projected performance under such conditions, as well as liquidity
in the market, among other factors.
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 referencing an in-
dex, single-name securities or a basket of single-name securities.
Single name contracts are primarily priced using reliable market
data or are derived from traded and quoted prices on similar ex-
posures to determine their value. More illiquid and bespoke cred-
it 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 classifi ed as complex structured
credit products, are valued by using market available credit
spreads and recovery rates from either consensus pricing services
or other market participants. These data are used in industry stan-
dard models in order to derive fair value.
Complex structured credit products are valued using proprie-
tary models, which are calibrated to data derived from market
data obtained. Inputs to these models include single-name credit
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, infl ation swaps and interest rate for-
wards, often referred to as forward rate agreements (FRA). All
these products are valued by estimating future interest cash
fl ows (both fi xed and future index levels) and then discounting
these fl ows using an interest rate that refl ects the appropriate
funding rate for that portion of the portfolio. Interest rates and
Note 26 Fair value of financial instruments (continued)
future index levels used in the above calculations are generated
from observing current market interest rates associated with
typical OTC interest rate derivatives (swap rates, basis swap
spreads, futures prices, FRA rates) and converting these into
rates specifi c to the portfolio using market standard yield curve
models.
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.
Rates options
Interest rate caps and fl oors, swaptions, and other more complex
non-linear interest-rate products are valued using market stan-
dard option models. These models use inputs that include (but are
not limited to) interest rate yield curves, infl ation curves, interest
rates volatilities, FX rate volatilities and infl ation volatilities, corre-
lations (between different interest rates or between rates and FX
or infl ation). 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 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 and 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 reval-
ue the portfolio.
➔ Refer to the “Risk, treasury and capital management” section
for more information on certain fi nancial instruments with
signifi cant 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 refl ects the activity in deferred profi t or loss attributable
to fi nancial instruments for which fair value is estimated using valu-
ation models and not all signifi cant inputs are market observable.
Such fi nancial instruments are initially recognized at their trans-
action price, even if the values obtained from the relevant valuation
model on day 1 differ. Day 1 reserves are released and gains or
losses are recorded in trading profi t or loss as either the underlying
parameters become observable or the transaction is closed out or
by an appropriate amortization methodology. The table shows the
aggregate difference yet to be recognized in profi t or loss at the
beginning and end of the period and a reconciliation of changes in
the balance (movement of deferred day-1 profi t 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
31.12.11
31.12.10
565
221
(354)
1
433
599
282
(260)
(56)
565
On 31 December 2011, deferred day-1 profi t or loss of approxi-
mately CHF 0.1 billion (31 December 2010: approximately CHF
0.3 billion) pertains largely to structured rates positions and of
approximately CHF 0.3 billion (31 December 2010: approximately
CHF 0.3 billion) to OTC equity options. Both instruments are pre-
sented as replacement values on UBS’s balance sheet.
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367
Financial information
Notes to the consolidated fi nancial statements
Note 26 Fair value of financial instruments (continued)
e) Financial instruments accounted for at amortized cost
The following table refl ects the estimated fair values for UBS’s instruments accounted for at amortized cost. Refer to “Note 28 Mea-
surement categories of fi nancial assets and fi nancial liabilities” for an overview of fi nancial assets classifi ed as “loans and receivables”
and fi nancial liabilities accounted for at amortized cost.
Financial instruments 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, 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, other liabilities
Guarantees / loan commitments 1
Guarantees
Loan commitments
31.12.11
31.12.10
Carrying value
Fair value
Carrying value
Fair value
23.2
266.6
58.8
213.5
41.3
10.2
30.2
342.4
8.1
102.4
67.1
141.6
47.2
0.1
0.0
23.2
268.2
58.8
213.3
41.3
10.2
30.2
342.4
8.1
102.4
67.1
140.6
47.2
0.1
0.7
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
0.1
0.0
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
0.1
0.4
1 From 2011 onwards, only reflects loan commitments and guarantees not recognized on the balance sheet, unless a provision is required. Previously, derivative loan commitments and loan commitments accounted for
as financial liabilities designated at fair value were also included. The prior period has been adjusted.
Loans include Wealth Management assets, mainly mortgage loans, where fair values exceeded related carrying values by CHF 3.4 billion,
and Investment Bank assets where fair values were below related carrying values by CHF 1.5 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 fi nancial 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 fi nancial in-
stitution to another. UBS applies signifi cant 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 fi nancial instru-
ments accounted for at fair value, whose fair values impact UBS’s
balance sheet and net profi t. The following principles were ap-
plied when determining fair value estimates for fi nancial instru-
ments accounted for at amortized cost:
– For fi nancial instruments with remaining maturities greater
than three months, the fair value was determined from quoted
market prices, if available.
– Where quoted market prices were not available, the fair values
were estimated by discounting contractual cash fl ows 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 fi nancial instruments with remaining maturities
of three months or less, the carrying amount, which is net of
credit loss allowances, is generally considered a reasonable es-
timate of fair value. The following fi nancial instruments ac-
counted for at amortized cost have remaining maturities of
three months or less: 85% of amounts due from banks; 100%
of cash collateral on securities borrowed; 94% of reverse re-
purchase agreements; 100% of cash collateral receivables on
derivatives; 46% of loans; 93% of amounts due to banks;
100% of cash collateral on securities lent; 98% of repurchase
agreements; 100% of cash collateral payable on derivatives;
98% of amount due to customers; and 47% of debt issued.
– The fair value of variable interest-bearing fi nancial instru-
ments accounted for at amortized cost is assumed to be
368
Note 26 Fair value of financial instruments (continued)
approximated by their carrying amounts, which are net of
credit loss allowances, and does not refl ect fair value changes
in the credit quality of counterparties or UBS’s own credit
movements.
– The fair value estimates for repurchase and reverse repurchase
agreements with variable and fi xed interest rates, for all ma-
turities, include the valuation of the interest rate component of
these instruments. Credit and debit valuation adjustments
have not been included in the valuation due to the short-term
nature of these instruments.
– The estimated fair values of off-balance sheet fi nancial 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 fl ow analysis.
Note 27 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 ex-
changes and clearinghouse memberships, or transferred for se-
curity 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
31.12.11
31.12.10
58,463
39,936
26,022
27,841
5,971
43
79,742
61,352
38,106
27,119
10,235
559
118,296
155,202
The following table presents details of fi nancial assets which have been sold or otherwise transferred, but which do not qualify for
derecognition. Criteria for derecognition are discussed in “Note 1a) 5) Recognition and derecognition of fi nancial instruments”.
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
31.12.11
31.12.10
22.9
15.6
80.0
118.5
30.9
28.6
96.6
156.1
The transactions are mostly conducted under standard agree-
ments employed by fi nancial 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 fi nan-
cial assets which continue to be recognized are typically trans-
ferred in exchange for cash or other fi nancial assets. The associ-
ated liabilities can therefore be assumed to be approximately the
same as the carrying amount of the transferred fi nancial assets
except for certain positions pledged with central banks.
assets in each situation of continued recognition. These may in-
clude 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 fi nancial asset trans-
fers include fi nancial assets pledged in fi nancial transactions as
described above, other than those pledged in securities lending
arrangements and repurchase agreements. It also includes sales
of fi nancial assets while concurrently entering into a total return
swap with the same counterparty.
Transferred fi nancial assets which are subject to partial con-
UBS retains substantially all risks and rewards of the transferred
tinuing involvement were not material in 2011 and 2010.
369
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Financial information
Notes to the consolidated fi nancial statements
Note 28 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 fi nancial instruments within the
measurement categories of fi nancial assets and fi nancial liabilities
as defi ned in IAS 39. Only those assets and liabilities which are
deemed to be fi nancial instruments are included in the table be-
low, which causes certain balances to differ from those presented
on the balance sheet.
➔ Refer to “Note 26 Fair value of fi nancial instruments” for more
information on how fair value of fi nancial instruments is
determined
CHF million
Financial assets 1
Held for trading
Trading portfolio assets
of which: 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 costs
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
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
Debt issued
Other liabilities
Total
Total financial liabilities
31.12.11
31.12.10
162,821
39,936
1,149
486,584
650,554
209,873
61,352
2,665
401,146
613,684
10,336
8,504
40,638
23,218
58,763
213,501
41,322
266,604
1,464
8,757
654,267
26,939
17,133
62,454
142,790
38,071
261,263
1,404
19,175
569,229
53,174
1,368,331
74,768
1,266,185
39,480
194
473,400
513,074
88,982
16,481
105,462
30,201
8,136
102,429
67,114
342,409
6,646
141,572
40,512
739,019
1,357,555
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
1 As of 31 December 2011, CHF 118 billion of Loans, CHF 1 billion of Due from banks, CHF 1 billion of Reverse repurchase agreements, CHF 20 billion of Financial investments available-for-sale and CHF 8 billion of
Financial assets designated at fair value are expected to be recovered or settled after twelve months. 2 Represents the embedded derivative component of structured debt issued for which the fair value option has not
been used. The amounts shown here as positive and negative replacement values are presented within Debt issued on the balance sheet.
370
Note 28 Measurement categories of financial assets and financial liabilities (continued)
b) Reclassified financial assets
In fourth quarter 2008 and fi rst quarter 2009, fi nancial assets were
reclassifi ed out of held-for-trading to loans and receivables (refer
to Note 1a) 10) for more information). On their reclassifi cation
date these assets had fair values of CHF 26 billion and CHF 0.6
billion, respectively.
Held-for-trading assets reclassified to loans and receivables
CHF billion
US student loan and municipal auction rate securities
Monoline-protected assets
Leveraged finance
US reference-linked notes
Other assets
Total (excluding CMBS interest-only strips)
CMBS interest-only strips
Total reclassified assets
Held-for-trading assets reclassified to loans and receivables
CHF billion
Carrying value
Fair value
Pro-forma fair value gain / (loss)
The table below provides notional values, fair values and
carrying values by product category for remaining reclassifi ed
fi nancial assets.
31.12.11
Notional value
Fair value
Carrying value
3.3
1.0
0.5
0.3
0.9
5.9
5.9
2.7
0.7
0.4
0.2
0.8
4.8
0.1
4.9
3.0
0.8
0.4
0.2
0.8
5.2
0.1
5.3
Ratio of
carrying to
notional value
92%
84%
78%
69%
85%
88%
31.12.11
31.12.10
5.3
4.9
(0.4)
11.9
12.1
0.2
In 2011, carrying values of reclassifi ed fi nancial assets de-
creased by CHF 6.6 billion, mainly due to sales of assets with a
carrying value of CHF 6.9 billion at the time of the sale. Redemp-
tions of CHF 0.2 billion and the appreciation of the Swiss franc
against the US dollar of CHF 0.2 billion resulted in further de-
creases. The impact on operating profi t before tax from these
fi nancial assets was a profi t of CHF 0.7 billion (see table below).
If the fi nancial assets had not been reclassifi ed, the impact on
2011 operating profi t before tax would have been a profi t of ap-
proximately CHF 0.2 billion.
Contribution of the reclassified assets to the income statement
CHF million
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 financial assets.
For the year ended
31.12.11
31.12.10
381
36
306
723
453
(63)
134
525
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371
Financial information
Notes to the consolidated fi nancial statements
Note 28 Measurement categories of financial assets and financial liabilities (continued)
c) Maximum exposure to credit risk and credit quality information
The table below represents the Group’s maximum exposure to
credit risk by class of fi nancial instrument and the respective col-
lateral and other credit enhancements mitigating credit risk for
these classes of fi nancial instruments. The maximum exposure to
credit risk includes the carrying amounts of fi nancial instruments
recognized on the balance sheet subject to credit risk and the
notional amounts for off-balance sheet arrangements.
Where available, collateral is presented at fair value; for other
collateral such as real estate, a best estimate of fair value is used.
Credit enhancements (credit derivative contracts / guarantees) are
included at their notional amounts. Both are capped at the maxi-
mum exposure to credit risk for which they serve as security.
The section “Risk management and control” describes man-
agement’s view of credit risk and the related exposures. These
differ in certain respects to the requirements of the accounting
standard.
Maximum exposure to credit risk
CHF billion
Financial assets measured at amortized cost
on the balance sheet
Balances with central banks
Due from banks
Loans 2, 3
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments 4
Accrued income, other assets
Total financial assets measured at amortized cost
Financial assets measured at fair value
on the balance sheet
Positive replacement values 5
Trading portfolio assets – debt instruments 6, 7
Financial assets designated at fair value – debt instruments
Financial investments available-for-sale – debt instruments
Total financial assets measured at fair value
Total maximum exposure to credit risk reflected
on the balance sheet
Guarantees
Loan commitments
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Total maximum exposure to credit risk not reflected
on the balance sheet
Total at the year-end
31.12.11
Collateral
Credit enhancements
Maximum
exposure to
credit risk
Cash
collateral
received
Collateral-
ized by
securities
Secured by
real estate
Other
collateral 1
Netting
Credit
derivative
contracts Guarantees
148.2
0.5
16.4
0.6
0.6
2.6
38.6
23.2
266.6
58.8
213.5
41.3
10.2
652.2
486.6
99.2
9.6
52.3
647.7
1,299.9
18.8
58.2
27.6
104.6
1,404.5
0.0
11.4
11.5
0.0
11.5
1.5
0.3
1.8
13.2
2.7
53.9
58.8
213.5
6.2
335.1
6.7
6.7
148.2
16.9
0.0
341.8
148.2
1.9
0.4
27.6
29.9
371.7
0.2
1.1
1.3
149.5
0.2
0.2
17.1
1.5
8.8
10.3
27.5
28.0
28.0
428.9
428.9
456.9
456.9
0.6
3.2
1.4
1.4
2.0
1.8
18.1
19.8
21.8
0.0
3.2
1.9
3.0
5.0
8.2
1 Includes but not limited to life insurance contracts, inventory, accounts receivable, patents, and copyrights. 2 Loans include a balance outstanding of USD 4.7 billion to the BlackRock fund. This loan is collateralized
by a portfolio of US residential mortgage-backed securities included within “Other collateral”. Refer to the “Risk, treasury and capital management” section of this report for more information. 3 Loans include mono-
line-protected assets which were reclassified from held-for-trading to loans and receivables in fourth quarter 2008. The remaining carrying value of these assets was CHF 0.8 billion as of 31 December 2011. The fair
value of credit default swap protection after credit valuation adjustments related to these assets was CHF 0.2 billion, which is not included in the column “Credit derivative contracts”. Refer to the “Risk, treasury and
capital management” section of this report for more information. 4 Included within cash collateral receivables on derivative instruments are margin balances due from exchanges or clearing houses. The amount shown
in the netting column represents the netting with related negative replacement values in accordance with Swiss Federal Banking Law. 5 The amount shown in the netting column represents the netting with related
negative replacement values and cash collateral payables in accordance with Swiss Federal Banking Law. 6 These positions are generally managed under the market risk framework and are included in VaR. For the
purpose of this disclosure, collateral and credit enhancements were not considered. 7 Does not include debt instruments held for unit-linked investment contracts and investment fund units.
372
Note 28 Measurement categories of financial assets and financial liabilities (continued)
Maximum exposure to credit risk (continued)
CHF billion
Financial assets measured at amortized cost
on the balance sheet
Balances with central banks
Due from banks
Loans 2, 3
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments 4
Accrued income, other assets
Total financial assets measured at amortized cost
Financial assets measured at fair value
on the balance sheet
Positive replacement values 5
Trading portfolio assets – debt instruments 6, 7
Financial assets designated at fair value – debt instruments
Financial investments available-for-sale – debt instruments
Total financial assets measured at fair value
Total maximum exposure to credit risk reflected
on the balance sheet
Guarantees
Loan commitments
Irrevocable commitments to acquire ARS
Forward starting transactions, reverse repurchase and
securities borrowing agreements
Total maximum exposure to credit risk not reflected
on the balance sheet
Total at the year-end
31.12.10
Collateral
Credit enhancements
Maximum
exposure to
credit risk
Cash
collateral
received
Collateral-
ized by
securities
Secured by
real estate
Other
collateral 1
Netting
Credit
derivative
contracts
Guarantees
24.5
17.1
261.3
62.5
142.8
38.1
20.6
566.7
401.1
134.3
7.6
73.4
616.5
1,183.3
16.4
56.9
0.1
39.5
112.9
1,296.1
8.4
8.4
0.0
8.4
1.5
0.2
1.7
10.1
0.2
46.3
62.5
142.8
16.9
268.7
3.7
3.7
272.4
1.8
0.2
39.5
41.4
313.8
144.3
0.0
17.2
1.1
0.3
2.3
144.3
17.3
0.2
0.2
17.5
2.3
8.1
10.4
27.9
0.0
144.3
0.3
0.9
1.2
145.5
23.9
23.9
338.0
338.0
361.9
361.9
1.1
2.5
1.7
1.7
2.8
1.6
22.5
24.1
26.9
0.0
2.5
1.4
2.4
3.8
6.4
1 Includes but not limited to life insurance contracts, inventory, accounts receivable, patents, and copyrights. 2 Loans include a balance outstanding of USD 5.7 billion to the BlackRock fund. This loan is collateralized
by a portfolio of US residential mortgage-backed securities included within “Other collateral”. Refer to the “Risk, treasury and capital management” section of this report for more information. 3 Loans include mono-
line-protected assets which were reclassified from held-for-trading to loans and receivables in fourth quarter 2008. The remaining carrying value of these assets was CHF 5.3 billion as of 31 December 2010. The fair
value of credit default swap protection after credit valuation adjustments related to these assets was CHF 0.5 billion, which is not included in the column “Credit derivative contracts”. Refer to the “Risk, treasury and
capital management” section of this report for more information. 4 Included within cash collateral receivables on derivative instruments are margin balances due from exchanges or clearing houses. The amount shown
in the netting column represents the netting with related negative replacement values in accordance with Swiss Federal Banking Law. 5 The amount shown in the netting column represents the netting with related
negative replacement values and cash collateral payables in accordance with Swiss Federal Banking Law. 6 These positions are generally managed under the market risk framework and are included in VaR. For the
purpose of this disclosure, collateral and credit enhancements were not considered. 7 Does not include debt instruments held for unit-linked investment contracts and investment fund units.
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373
Financial information
Notes to the consolidated fi nancial statements
Note 28 Measurement categories of financial assets and financial liabilities (continued)
Financial assets subject to credit risk by rating category
CHF billion
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 – debt instruments 2
Financial investments available-for-sale – debt instruments
Other financial instruments
Financial instruments not recognized on the balance sheet 3
Guarantees
Loan commitments
Forward starting reverse repurchase agreements
Forward starting securities borrowing agreements
Total
CHF billion
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 – debt instruments 2
Financial investments available-for-sale – debt instruments
Other financial instruments
Financial instruments not recognized on the balance sheet 3
Guarantees
Loan commitments
Forward starting reverse repurchase agreements
Forward starting securities borrowing agreements
0–1
27.3
0.4
6.9
1.3
11.9
7.0
45.6
43.3
0.1
2.0
0.3
0.1
146.2
0–1
14.6
0.3
11.8
59.4
15.2
6.2
52.5
66.8
0.1
0.1
0.7
2–3
11.2
16.0
78.6
215.9
400.6
25.8
36.5
9.0
5.8
9.9
31.7
26.1
0.5
867.6
2–3
9.8
11.7
75.6
112.9
331.7
22.6
59.4
6.6
6.1
7.2
32.8
4–5
0.0
3.5
110.6
29.2
53.4
3.8
8.0
0.0
3.0
3.2
13.2
0.6
0.0
228.5
4–5
0.0
2.6
76.2
23.1
38.4
4.5
10.2
3.7
4.5
10.3
31.12.11
6–8
0.0
3.0
57.4
22.7
17.4
4.6
3.8
0.0
7.9
2.7
5.8
0.4
9–13
defaulted
not rated
0.2
11.9
3.1
2.5
0.1
5.2
0.0
2.7
1.1
7.1
0.0
1.1
0.0
0.7
0.0
0.1
0.3
0.1
Total
38.6
23.2
266.6
272.3
486.6
41.3
99.2
52.3
19.9
18.8
58.2
27.1
0.5
125.7
34.0
2.4
0.0
1,404.5
31.12.10
6–8
9–13
defaulted
not rated 4
2.3
79.8
8.2
12.6
4.5
5.5
0.0
16.3
3.1
4.8
0.2
16.2
1.7
2.2
0.3
6.4
0.0
1.6
1.4
8.1
0.0
1.6
0.0
1.1
0.0
0.3
0.3
0.0
0.1
39.0
0.5
39.5
Total
24.5
17.1
261.3
205.2
401.1
38.1
134.3
73.4
28.2
16.4
56.9
39.0
0.5
1,296.0
Total
227.9
676.4
173.4
137.3
38.1
3.4
1 Refer to the “UBS internal rating scale and mapping of external ratings” table in the “Risk, treasury and capital management” section of this report for more information on rating categories. 2 Does not include debt
instruments held for unit-linked investment contracts and investment fund units. 3 Commitments to acquire ARS of CHF 0.0 billion as of 31 December 2011 (31 December 2010: CHF 0.1 billion) are excluded. 4 These
ratings were not available for 2010.
374
Note 29 Pension and other post-employment benefit plans
The following table provides information relating to pension costs for defi ned benefi t plans and defi ned contribution plans. These costs
are part of Personnel expenses.
CHF million
Net periodic pension cost for defined benefit plans
of which: related to major pension plans 1
of which: related to post-retirement medical and life insurance plans 2
of which: related to remaining plans
of which: related to accrued pension costs not yet paid 3
Pension cost for defined contribution plans 4
Total pension and other post-employment benefit plans
31.12.11
31.12.10
31.12.09
534
461
13
36
24
254
788
477
430
22
25
0
246
724
742
694
9
39
0
246
988
1 Refer to “Note 29a Defined benefit pension plans” for more information. 2 Refer to “Note 29b Post-retirement medical and life insurance plans” for more information. 3 Accrued pension costs not yet paid in rela-
tion to the restructuring program communicated in 2011, included in provision for restructuring. Refer to “Note 37 Reorganizations and disposals” and “Note 21 Provisions and contingent liabilities” for more informa-
tion. 4 Refer to “Note 29c Defined contribution plans” for more information.
The following table provides information relating to deferred pension expenses and accrued pension and post-employment
benefi t liability. These are recognized on the balance sheet within Other assets and Other liabilities, respectively.
Deferred pension expenses
CHF million
Major pension plans 1
Total deferred pension expenses
Accrued pension and post-employment benefit liability
CHF million
Major pension plans 1
Post-retirement medical and life insurance plans 2
Remaining plans
Total accrued pension and post-employment benefit liability
31.12.11
31.12.10
31.12.09
3,300
3,300
3,174
3,174
3,053
3,053
31.12.11
31.12.10
31.12.09
(224)
(166)
(16)
(406)
(220)
(158)
(17)
(395)
(251)
(163)
(25)
(439)
1 Refer to “Note 29a Defined benefit pension plans” for more information. 2 Refer to “Note 29b Post-retirement medical and life insurance plans” for more information.
a) Defined benefit pension 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 for the
plans in these countries are performed as required.
The overall investment policy and strategy for UBS’s defi ned
benefi t pension plans are guided by the objective of achieving an
investment return which, together with the contributions paid, is
suffi cient 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 and expected economic and
market conditions and in consideration of specifi c asset class risk,
the risk profi le and the maturity pattern of the plan.
The expected long-term rates of return on plan assets are
based on long-term expected infl ation, interest rates, risk premi-
ums and targeted asset class allocations. These estimates take
into consideration historical asset class returns and are deter-
mined 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 benefi t 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
benefi ts which are based on annual contributions as a percentage
of salary and accrue at an interest rate that is defi ned annually by
the Pension Foundation Board. Although the Swiss pension plan is
a defi ned contribution plan under Swiss pension law, it is account-
ed for as a defi ned benefi t plan under IAS 19 Employee benefi ts.
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 depend on age and vary between 1%
and 13.5% of covered base salary and 0% and 9% of covered
variable compensation. The employer pays a contribution that
ranges between 1% and 27.5% of covered salary. The benefi ts
covered include retirement benefi ts; disability, death and survivor
pensions; and employment termination benefi ts.
375
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Financial information
Notes to the consolidated fi nancial statements
Note 29 Pension and other post-employment benefit plans (continued)
A key assumption in determining the defi ned benefi t obliga-
tion is life expectancy. In 2011 the Swiss pension plan adopted the
new BVG 2010 generational mortality table, replacing the BVG
2005 periodic table. This contributed signifi cantly to the overall
increase to the defi ned benefi t obligation relating to the Swiss
pension plan. The BVG 2010 generational table takes into ac-
count longer life expectancies.
The employer contributions expected to be made to the Swiss
pension plan in 2012 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 defi ned benefi t plans of a signifi cant nature are the UK, the
US and Germany. The UK and the US defi ned benefi t plans are
closed to new entrants, who are covered by defi ned contribution
plans. The amounts shown for international plans refl ect the net
funded positions of the signifi cant international plans.
The pension plans provide benefi ts in the event of retirement,
death or disability. The level of benefi ts provided depends on
the defi ned rate of benefi t accrual and level of compensation.
The plans are funded entirely by UBS. The employer contributions
expected to be made to these pension plans in 2012 are CHF 108
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) 24).
Defined benefit pension plans
CHF million
For the year ended
Swiss
International
31.12.11
31.12.10
31.12.09
31.12.11
31.12.10
31.12.09
Defined benefit obligation at the beginning of the year
(21,299)
(21,119)
(21,311)
(4,053)
(4,353)
(3,642)
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
Fair value of plan assets at the end of the year
Surplus / (deficit)
Unrecognized net actuarial (gains) / losses
Deferred pension expenses / (Accrued pension liability)
Movement in the net (liability) or asset
Deferred pension expenses / (Accrued pension liability) at the beginning of the year
Net periodic pension cost
Employer contributions
Employer contributions – termination benefits
Foreign currency translation
(410)
(569)
(211)
(1,452)
985
(11)
0
(22,967)
20,690
715
(523)
495
11
211
(985)
0
20,614
(2,353)
4,916
2,562
2,418
(362)
495
11
0
(384)
(657)
(197)
(149)
(432)
(672)
(195)
231
1,252
1,314
(45)
0
(21,299)
20,286
850
54
510
45
197
(54)
0
(21,119)
19,029
846
963
513
54
195
(1,252)
(1,314)
0
0
20,690
20,286
(609)
3,028
2,418
2,163
(300)
510
45
0
(833)
2,996
2,163
2,123
(527)
513
54
0
Deferred pension expenses / (Accrued pension liability)
2,562
2,418
2,163
(33)
(210)
0
(259)
145
0
(4)
(4,414)
3,406
217
(94)
71
0
0
(145)
3
3,458
(956)
1,470
514
536
(99)
71
0
6
514
(41)
(237)
0
(119)
148
0
549
(4,053)
3,517
237
163
86
0
0
(148)
(449)
3,406
(647)
1,183
536
639
(130)
86
0
(59)
536
(41)
(230)
0
(471)
153
0
(122)
(4,353)
2,866
202
266
232
0
0
(153)
104
3,517
(836)
1,475
639
548
(167)
232
0
26
639
376
Note 29 Pension and other post-employment benefit plans (continued)
Defined benefit pension plans (continued)
Amounts recognized in the balance sheet
CHF million
For the year ended
Deferred pension expenses
Accrued pension liability
Deferred pension expenses / (Accrued pension liability)
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
Swiss funded plan
CHF million
Defined benefit obligation
Plan assets
Surplus / (deficit)
Experience gains / (losses) on plan liabilities
Experience gains / (losses) on plan assets
International funded and unfunded plans
CHF million
Defined benefit obligation from funded plans
Defined benefit obligation from unfunded plans
Plan assets from funded plans
Surplus / (deficit)
Experience gains / (losses) on plan liabilities
Experience gains / (losses) on plan assets
Swiss
International
31.12.11
31.12.10
31.12.09
31.12.11
31.12.10
31.12.09
2,562
0
2,562
410
569
(715)
87
0
11
0
362
2,418
0
2,418
384
657
(850)
64
0
45
0
300
2,163
0
2,163
432
672
(846)
215
0
54
0
527
738
(224)
514
33
210
(217)
73
0
0
0
99
756
(220)
536
41
237
(237)
89
0
0
0
890
(251)
639
41
230
(202)
98
0
0
0
130
167
31.12.11
31.12.10
31.12.09
31.12.08
31.12.07
(22,967)
20,614
(2,353)
0
(523)
(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
0
(250)
31.12.11
31.12.10
31.12.09
31.12.08
31.12.07
(4,174)
(240)
3,458
(956)
(46)
(94)
(3,813)
(240)
3,406
(647)
(17)
163
Swiss
(4,078)
(275)
3,517
(836)
(12)
266
(3,402)
(240)
2,866
(776)
62
(1,027)
(4,654)
(274)
4,579
(349)
(32)
(97)
International
31.12.11
31.12.10
31.12.09
31.12.11
31.12.10
31.12.09
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 recognized during the year
Discount rate
Expected rate of return on plan assets
Expected rate of salary increase
Rate of pension increase
2.3
2.5
0.0
2.8
3.5
2.5
0.3
2.8
2.5
0.3
3.3
4.3
2.5
0.5
3.3
2.5
0.5
3.3
4.5
2.5
0.5
4.8
4.1
2.1
5.4
6.5
4.9
2.3
5.4
4.9
2.3
5.7
6.9
5.0
2.5
5.7
5.0
2.5
6.0
6.6
4.5
1.9
377
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Financial information
Notes to the consolidated financial statements
Note 29 Pension and other post-employment benefit plans (continued)
Defined benefit pension plans (continued)
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 on 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
Swiss
International
31.12.11
31.12.10
31.12.09
31.12.11
31.12.10
31.12.09
39
46
3
12
100
39–42
43–45
3–5
10–13
3.8
45
38
3
14
100
40–42
38–44
3–6
11–15
11.7
46
35
3
16
100
42–45
37–44
3–7
11–12
15.5
31
53
14
2
100
18–44
46–70
10–18
0–5
1.0
516
23
20
157
32
54
13
1
100
15–39
44–68
10–18
0–5
4.6
258
25
298
188
35
51
13
1
100
18–44
41–65
9–17
0–5
9.7
205
66
25
193
1 The number of UBS AG shares was 2,014,000, 1,638,000 and 4,095,850 as of 31 December 2011, 31 December 2010 and 31 December 2009, respectively.
Mortality tables and life expectancies for major plans
Country
Switzerland
UK
Germany
US
Country
Switzerland
UK
Germany
US
Mortality table
BVG 2010 G 1
S1NA_L CMI 2010 G, with projections 2
Dr. K. Heubeck 2005 G
PPA mandated mortality table per IRC 1.430(h)(3) 3
Mortality table
BVG 2010 G 1
S1NA_L CMI 2010 G, with projections 2
Dr. K. Heubeck 2005 G
PPA mandated mortality table per IRC 1.430(h)(3) 3
Life expectancy at age 65 for a male member currently
aged 65
31.12.10
17.9
23.0
19.3
19.0
31.12.09
31.12.11
aged 45
31.12.10
31.12.09
17.9
22.8
19.1
18.4
22.8
27.3
22.1
19.1
17.9
25.9
22.0
19.0
17.9
25.7
21.9
18.4
Life expectancy at age 65 for a female member currently
aged 65
31.12.10
21.0
24.7
23.4
20.9
31.12.09
31.12.11
aged 45
31.12.10
31.12.09
21.0
24.6
23.3
20.6
25.3
27.8
26.1
21.0
21.0
26.6
26.0
20.9
21.0
26.5
25.8
20.6
31.12.11
21.1
24.3
19.4
19.1
31.12.11
23.6
25.5
23.5
21.0
1 In 2010 and 2009 the mortality table BVG 2005 was used; the mortality tables are updated every five years. 2 In 2010 and 2009 the mortality table PA 2000 G, medium cohort with adjustment was used. 3 In 2009
the mortality table RP 2000 with projections was used.
378
Note 29 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 benefi ts that
contribute to the health care coverage of certain employees and
benefi ciaries after retirement. The UK plan is closed to new en-
trants. In addition to retiree medical benefi ts, UBS in the US also
provides retiree life insurance benefi ts to certain employees. The
benefi t obligation for these plans amounts to CHF 219 million as
of 31 December 2011 (31 December 2010: CHF 209 million;
31 December 2009: CHF 186 million). There are no retained plan
assets for these plans. The total accrued post-retirement cost
amounts to CHF 166 million as of 31 December 2011 (31 Decem-
ber 2010: CHF 158 million; 31 December 2009: CHF 163 million).
The periodic post-retirement costs for the years ended 31 Decem-
ber 2011, 31 December 2010 and 31 December 2009 were CHF
13 million (net of a curtailment gain of CHF 9 million), CHF 22
million and CHF 9 million (net of a curtailment gain of CHF 8 mil-
lion), respectively.
The employer contributions expected to be made to the post-
retirement medical and life insurance plans in 2012 are CHF 7 million.
Post-retirement medical and life insurance plans
CHF million
31.12.11
Post-retirement benefit obligation at the beginning of the year
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 assets
Surplus / (deficit)
Experience gains / (losses) on plan liabilities
(209)
0 1
(11)
(2)
(17)
9
13
(2)
(219)
0
7
2
(9)
0
31.12.10
(186)
31.12.09
(159)
(9)
(11)
(2)
(35)
10
0
24
(7)
(10)
(2)
(31)
10
9
4
(209)
(186)
0
8
2
(10)
0
0
8
2
(10)
0
31.12.11
31.12.10
31.12.09
31.12.08
31.12.07
(219)
0
(219)
0
(209)
0
(209)
6
(186)
0
(186)
8
(159)
0
(159)
3
(190)
0
(190)
8
1 Current service cost of CHF 9 million in 2011 was offset by a plan amendment which resulted in a negative past service cost of CHF 9 million.
The post-retirement benefi t expense is determined by using the
assumed average health care cost trend rate. The rate for 2012 is
assumed to be 8% and is assumed to decrease gradually to 5%
by 2023. On a country-by-country basis, the same discount rate is
used for the calculation of the post-retirement benefi t obligation
from medical and life plans as for the defi ned benefi t 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 benefi t obligation and
the total service and interest cost components of the periodic
post-retirement benefi t costs as follows:
CHF million
Effect on total service and interest cost
Effect on the post-retirement benefit obligation
1% increase
1% decrease
4
38
(3)
(30)
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379
Financial information
Notes to the consolidated fi nancial statements
Note 29 Pension and other post-employment benefit plans (continued)
c) Defined contribution plans
UBS also sponsors a number of defi ned contribution plans in its
international locations. The locations with defi ned contribution
plans of a signifi cant nature are 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 an expense for the years ended 31 December
2011, 31 December 2010 and 31 December 2009 were CHF 254
million, CHF 246 million and CHF 246 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 on 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
AG shares and / or securities.
In 2008, UBS sold certain bank-occupied properties to the
Swiss pension fund. Simultaneously, UBS and the Swiss pension
fund entered 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 2011, the minimum commitment towards
the Swiss pension fund under the related leases is approximately
CHF 16 million (31 December 2010: CHF 21 million).
The following amounts have been received or paid by UBS
from and to the pension funds in respect of these activities and
arrangements:
Related party disclosure
CHF million
Received by UBS
Fees
Paid by UBS
Rent
Interest
The transaction volumes in UBS AG 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
31.12.11
31.12.10
31.12.09
24
10
3
21
11
3
34
12
2
For the year ended
31.12.11
31.12.10
31.12.09
2,713
7
2,374
18
2,684
40
4,735
10
3,869
35
4,116
14
Details of the fair value of the plan assets of the defi ned pension
plans are disclosed in “Note 29a Defi ned benefi t pension plans”.
Furthermore, UBS defi ned contribution pension funds hold
17,628,845 UBS AG shares with a market value of CHF 196 mil-
lion as of 31 December 2011 (31 December 2010: 17,665,621
UBS AG shares with a market value of CHF 272 million; 31 De-
cember 2009: 17,259,203 UBS AG shares with a market value
of CHF 278 million).
380
Note 30 Equity participation and other compensation plans
a) Plans offered
UBS operates several equity participation and other compensation
plans to further align the interests of executives, managers and
staff with the interests of shareholders. Some plans (e.g. Equity Plus
and EOP) are offered to eligible employees in approximately 50
countries and are designed to meet the legal, tax and regulatory
requirements of each country in which they are offered. Some plans
are used in specifi c countries (e.g. awards granted to Wealth Man-
agement Americas fi nancial advisors) or only offered to members
of the Group Executive Board (GEB) (e.g. PEP). UBS’s compensa-
tion plans are mandatory, discretionary or voluntary. The explana-
tions below provide a general description of the terms of the most
signifi cant plans operated for 2011 and those from prior years
that are partly expensed in 2011. Refer to Note 1a) 25) for a de-
scription of the accounting policy related to equity participation
and other compensation 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 or UBS performance shares (i.e. notional
shares which are subject to performance conditions). Since 2011
(for performance year 2010), performance shares have been
granted to EOP participants who are risk-takers, Group Managing
Directors or employees whose incentive exceeds a certain thresh-
old. These performance shares will only vest in full if the partici-
pant’s business division is profi table (for Corporate Center partici-
pants, the Group as a whole needs to be profi table) in the fi nancial
year preceding scheduled vesting. Adjustments to reported profi t-
ability may be made based on considerations relating to risk, qual-
ity and reliability of earnings, as well as achievement of specifi c
targets. To align their compensation with the performance of the
funds that they manage, the majority of Global Asset Manage-
ment employees receive their EOP awards in the form of cash but
the amount depends on the value of the relevant underlying
Global Asset Management funds at the time of vesting (Alterna-
tive Investment Vehicles, or AIVs). Awards of UBS shares allow for
voting and dividend rights during the vesting period, whereas no-
tional and performance shares represent a promise to receive UBS
shares at vesting and do not allow for voting rights or dividends
during the vesting period. Awards granted in the form of UBS
shares, notional UBS shares and performance shares are settled by
delivering UBS shares at vesting, 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, notional UBS shares, or performance
shares. EOP awards generally vest in increments over a three-year
vesting period. The awards are generally forfeitable upon volun-
tary termination of employment with UBS. Compensation ex-
pense is recognized in the performance year if the employee
meets the retirement eligibility requirements at the date of grant.
Otherwise, compensation expense is recognized from the grant
date to the earlier of the vesting date or the retirement eligibility
date of the employee, on a tiered basis.
Senior Executive Equity Ownership Plan (SEEOP): GEB members
receive a portion of their mandatory deferral in UBS shares or
notional shares, which vest in one-fi fth increments over a fi ve-
year vesting period and are forfeitable if certain conditions are not
met. Awards granted since 2011 are subject to the same perfor-
mance conditions as performance shares granted under the EOP,
i.e. will only vest in full if the participant’s business division is prof-
itable (for Corporate Center participants, the Group as a whole
must be profi table) in the fi nancial year preceding scheduled vest-
ing. During 2010 UBS only granted SEEOP awards to certain se-
nior executives to whom it had a contractual commitment.
Awards granted under SEEOP are settled by delivering UBS shares
at vesting. Compensation expense is recognized on the same ba-
sis as for share-settled EOP awards.
Incentive Performance Plan (IPP): In 2010 GEB members and
certain other senior employees received part of their annual in-
centive in the form of performance shares granted under the IPP.
Each performance share granted is a contingent right to receive
between one and three UBS shares at vesting, depending on the
achievement of share price targets. The IPP awards vest after fi ve
years in 2015 and are subject to continued 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 eli-
gibility date of the employee. IPP was a forward looking one-time
plan granted in 2010 only.
Performance Equity Plan (PEP): In 2011 and 2010 GEB members
received part of their annual incentive in the form of performance
shares granted under the PEP. Each performance share is a contin-
gent right to receive between zero and two UBS shares at vesting,
depending on the achievement of Economic Profi t (EP) and Total
Shareholder Return (TSR) targets. PEP awards vest after three
years. EP is a risk-adjusted profi t measure that takes into account
the cost of risk capital. TSR measures the total return to UBS share-
holders (in the form of share price appreciation and dividends) as
compared to the constituents of a banking index. Vesting is subject
to continued 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 part of their incentive in the form of a manda-
tory deferred cash award that vests in increments over a three-
year vesting period subject to performance conditions. The award
consists of a contingent right to receive cash payments at vesting.
The awards are forfeitable upon voluntary termination of employ-
381
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Notes to the consolidated fi nancial statements
Note 30 Equity participation and other compensation plans (continued)
ment. Compensation expense is recognized over the individual
performance periods. Compensation expense is accelerated to
the retirement eligibility date for those employees who are, or
become retirement eligible during the service period. CVCP was a
one-time plan granted in 2009.
Cash Balance Plan (CBP): In 2011 and 2010 Group Executive
Board (GEB) members received part of their annual incentive in
the form of a mandatory deferred cash award. CBP awards are
paid out in two equal installments during the two years follow-
ing the year of grant, subject to performance conditions. Awards
granted since 2011 (for performance year 2010) are subject to a
Group return on equity performance conditions, whereas awards
granted in 2010 (for performance year 2009) are subject to prof-
itability hurdles. After a GEB member has left the fi rm, the de-
ferred portion of the CBP award continues to be at risk of forfei-
ture and awards granted under the CBP from 2011 onwards are
forfeited if a GEB member voluntarily terminates his or her em-
ployment and joins another fi nancial services organization.
Compensation expense is recognized in the performance year,
which is generally the fi nancial year prior to the grant date.
Deferred Cash Plan (DCP): In 2011, DCP awards were granted
to Investment Bank employees whose total compensation ex-
ceeded a certain threshold (CHF 1 million). DCP awards vest in
one-third increments over a three-year vesting period following
the grant date. Compensation expense is recognized ratably over
the vesting period. DCP was a one-time plan granted in 2011.
Long-Term Deferred Retention Senior
Incentive Scheme
(LTDRSIS): Awards granted under the LTDRSIS are granted to em-
ployees in Australia only and represent a profi t share amount based
on the profi tability of the Australian business. Awards vest and are
paid in equal installments over three years and include an arrange-
ment which allows for unpaid installments to be reduced if the
business has a loss during the calendar year preceding vesting. The
awards are generally forfeitable upon voluntary termination of em-
ployment with UBS. Compensation expense is recognized in the
performance year if the employee meets the retirement eligibility
requirements at the date of the grant. Otherwise, compensation
expense is recognized ratably from the grant date to the earlier of
the vesting date or the retirement eligibility date of the employee.
Wealth Management Americas fi nancial advisor compensation
Financial advisor compensation – cash payments consist primarily
of a formula-based compensation plan, which fl uctuates in pro-
portion to the level of business activity.
UBS enters into compensation arrangements with fi nancial ad-
visors primarily as a recruitment incentive and to incentivize fi nan-
cial advisors to achieve certain production and other performance
thresholds. The compensation is earned and paid to the employee
during a period of continued employment and may be forfeited
under certain circumstances. In certain cases, UBS makes loans to
fi nancial advisors in connection with these compensation ar-
rangements.
GrowthPlus is a program for fi nancial advisors who were hired
before 1 January 2005 and whose production exceeds defi ned
thresholds from 2009 through 2012. Compensation arrange-
ments were granted in 2010 and 2011 with potential arrange-
ments to be granted in 2015 and 2018. Expense is recognized
over seven years with the exception of the 2018 commitment
which will be expensed over fi ve years commencing upon grant.
In certain cases, UBS makes loans to fi nancial advisors in connec-
tion with this program.
PartnerPlus is a mandatory deferred cash compensation plan
for selected employees. Awards (UBS contributions) are based
on a predefi ned formula during the performance year. Partici-
pants are also allowed to voluntarily contribute additional
amounts earned during the year, up to a percentage of UBS’s
contributions. Awards and voluntary contributions earn an
above-market rate of interest during 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. Awards and
interest earned on both UBS and voluntary contributions are for-
feitable under certain circumstances. Compensation expense is
recognized in the performance year if the employee meets the
retirement eligibility requirements at the date of grant. Other-
wise, compensation expense is recognized ratably commencing
in the performance year to the earlier of the vesting date or the
retirement eligibility date of the employee.
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 was granted. A SAR gives employees the
right to receive a 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. SARs and
options are settled by delivering UBS shares, except in countries
where this is not permitted for legal reasons. 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 earlier of the vesting date or the retirement eli-
gibility date of the employee. No KESAP or KESOP awards were
granted in 2011 and 2010.
Voluntary share-based compensation plans
Equity Plus Plan (Equity Plus): Equity Plus is a voluntary plan that
provides eligible employees with the opportunity to purchase UBS
shares at market value and receive at no additional cost one free
notional UBS share for every three shares purchased, up to a max-
imum annual limit. Share purchases may be made annually from
bonus compensation and / or quarterly through regular deduc-
382
Note 30 Equity participation and other compensation plans (continued)
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. Equity Plus awards vest after up to three years. Prior to
2010, instead of notional shares participants received two UBS
options for each share they purchased under this plan. The op-
tions had a strike price equal to the fair market value of a UBS
share on the grant date, 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 permitted for legal reasons.
Compensation expense for the Equity Plus plan is recognized from
the grant date to the earliest of the vesting date or the retirement
eligibility date of the employee.
UBS satisfi es share delivery obligations under its share-based
plans either by purchasing UBS shares in the market or through
the issuance of new shares. As of 31 December 2011, UBS was
holding approximately 77 million shares in treasury and approxi-
mately 149 million unissued shares in conditional share capital,
which are available and can be used to satisfy the exercising of
options and SAR awards by employees. The shares available cover
all vested and in-the-money (i.e. exercisable) employee options,
SARs and notional shares.
b) Effect on income statement
Effect on income statement for the fi nancial year and future periods
The following table summarizes the compensation expenses rec-
ognized for the year ended 31 December 2011 and the compen-
sation expenses, that will be recognized as an expense in the in-
come statements for 2012 and later. The deferred compensation
expenses in the table also include non-vested awards granted in
February and March 2012, which relate to the compensation core
cycle 2011.
Personnel expenses – recognized and deferred 1
Personnel expenses for the year 2011
Personnel expenses deferred to 2012 and later
CHF million
Variable bonus awards
Cash discretionary bonus
Conditional Variable Compensation Plan (CVCP)
Cash Balance Plan (CBP) 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
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas: Financial advisor compensation 3
Total
Expenses
relating to
awards for
2011
1,514
0
34
34
231
3
0
234
0
25
1,807
335
1,695
37
90
20
1,842
3,984
Expenses
relating to
awards for
prior years
(88)
204
105
309
1,069
5
97
1,171
100
93
1,585
(19)
0
499
89
88
676
2,242
Relating to
awards for
2011
Relating to
awards for
prior years
0
0
3
3
625
10
0
635
0
69
707
247
0
561
377
86
1,024
1,978
0
42
137
179
641
4
134
779
15
48
1,021
190
0
2,131
422
261
2,814
4,025
Total
1,426
204
139
343
1,300
8
97
1,405
100
118
3,392
316
1,695
536
179
108
2,518
6,226
Total
0
42
140
182
1,266
14
134
1,414
15
117
1,728
437
0
2,692
799
347
3,838
6,003
1 Total share-based personnel expenses recognized for the year ended 31 December 2011 of CHF 1,789 million comprise UBS share plans of CHF 1,405 million, UBS share option plans of CHF 100 million, Equity Own-
ership Plan – AIVs of CHF 118 million, related social security costs of CHF 39 million and Variable compensation – other of CHF 127 million. 2 Includes replacement payments of CHF 121 million, forfeiture credits of
negative CHF 215 million, guarantees for new hires of CHF 173 million, severance payments of CHF 216 million and retention plan payments of CHF 21 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, assets 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. Amounts reflected as deferred expenses represent
the maximum deferred exposure as of the balance sheet date.
383
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Notes to the consolidated fi nancial statements
Note 30 Equity participation and other compensation plans (continued)
Personnel expenses – recognized and deferred 1
Personnel expenses for the year 2010
Personnel expenses deferred to 2011 and later
CHF million
Variable bonus awards
Cash discretionary bonus
Conditional Variable Compensation Plan (CVCP)
Cash Balance Plan (CBP) 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
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas: Financial advisor compensation 3
Total
Expenses
relating to
awards for
2010
2,079
0
64
64
434
6
0
440
0
28
Expenses
relating to
awards for
prior years
5
179
71
250
852
5
131
988
145
83
2,611
1,471
399
1,813
29
127
11
1,980
4,990
(169)
0
570
35
82
687
1,989
Relating to
awards for
2010
Relating to
awards for
prior years
0
0
236
236
1,249
16
6
1,271
0
67
1,574
337
0
388
221
89
698
2,609
0
292
19
311
515
2
221
738
114
57
1,220
0
0
2,186
302
266
2,754
3,974
Total
2,084
179
135
314
1,286
11
131
1,428
145
111
4,082
230
1,813
599
162
93
2,667
6,979
Total
0
292
255
547
1,764
18
227
2,009
114
124
2,794
337
0
2,574
523
355
3,452
6,583
1 1 Total share-based personnel expenses recognized for the year ended 31 December 2010 of CHF 1,843 million comprise UBS share plans of CHF 1,428 million, UBS share option plans of CHF 145 million, Equity Own-
ership Plan – AIVs of CHF 111 million, related social security costs of CHF 90 million and Variable compensation – other of CHF 69 million. In 2011, we reclassified the costs related to our voluntary employee share own-
ership plan (Equity Plus) from Variable compensation – other to Other personnel expenses. Prior periods were adjusted for this change. Refer to “Note 1b) Changes in accounting policies, comparability and other adjust-
ments for more information. 2 Includes replacement payments of CHF 107 million, forfeiture credits of negative CHF 167 million, guarantees for new hires of CHF 135 million, severance payments of CHF 69 million
and retention plan payments of CHF 85 million. 3 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental com-
pensation calculated based on financial advisor productivity, firm tenure, assets 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. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date.
384
Note 30 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 Plan (CBP) 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
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas: Financial advisor compensation 3
Total
Personnel expenses for the year 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
(117)
0
471
(7)
95
559
619
19
44
63
559
0
0
559
56
55
2,809
699
1,712
598
21
95
2,426
5,934
0
0
45
45
1,352
8
467
1,827
34
134
2,040
0
0
1,198
124
110
1,432
3,472
0
558
12
570
97
0
0
97
286
13
966
0
0
1,744
241
236
2,221
3,187
Total
0
558
57
615
1,449
8
467
1,924
320
147
3,006
0
0
2,942
365
346
3,653
6,659
1 Total share-based personnel expenses recognized for the year ended 31 December 2009 of CHF 913 million comprise 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 Variable compensation – other of CHF 227 million. In 2011, we reclassified the costs related to our voluntary employee share ownership plan (Eq-
uity Plus) from Variable compensation – other to Other personnel expenses. Prior periods were adjusted for this change. Refer to “Note 1b) Changes in accounting policies, comparability and other adjustments for more in-
formation. 2 Includes replacement payments of CHF 41 million, forfeiture credits of CHF negative 81 million, guarantees for new hires of CHF 56 million, severance payments of CHF 433 million and retention plan payments
of CHF 250 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, assets 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. Amounts reflected as deferred expenses represent the maximum deferred exposure as of the balance sheet date.
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 2011, 2010 and 2009 were CHF 1,789 million,
CHF 1,843 million, and CHF 913 million, respectively. This includes
the current period expense amortization and related social security
costs for awards issued in prior periods and performance year ex-
pensing for awards granted to retirement eligible employees where
the terms of the awards do not require the employee to provide
future services.
The total compensation expenses for non-vested share-based
awards granted up to 31 December 2011 relating to prior years to
be recognized in future periods is CHF 1,319 million and will be
recognized in Personnel expenses over a weighted average period
of 2.1 years. This includes UBS share plans, UBS share option
plans, the Equity Ownership Plan (AIVs), other variable compensa-
tion and the Equity Plus Plan. Total deferred compensation
amounts included in the 2011 table differ from this amount as the
deferred compensation amounts also include non-vested awards
granted in February and March 2012 related to the compensation
core cycle 2011.
Actual payments to participants in cash-settled share-based
plans, including amounts granted as AIVs issued under the EOP,
for the years ended 31 December 2011, 2010 and 2009 were CHF
93 million, CHF 79 million and CHF 83 million, respectively. The
total carrying amount of the liability related to these plans was
CHF 262 million at 31 December 2011.
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Financial information
Notes to the consolidated fi nancial statements
Note 30 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
18
18
21
18
17
Number of
shares
2011
171,085,140
111,254,968
(54,443,660)
(13,197,909)
214,698,539
59,154,235
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
31
15
42
21
18
Number of
shares
2009
84,736,935
39,067,130
(31,293,824)
(5,621,615)
86,888,626
40,148,461
Weighted
average grant
date fair
value CHF
53
12
66
38
31
The market value of shares that became legally vested and were distributed (i.e. all restrictions were fulfi lled) during the years ended
31 December 2011, 2010 and 2009 was CHF 980 million, CHF 421 million and CHF 346 million, respectively.
Movements in performance shares granted under the IPP are as follows:
Incentive Performance 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
Number of
performance
shares
2011
18,157,242
31,848
0
(2,051,624)
N/A
16,137,466
of which: performance shares vested for accounting purposes
6,727,398
Weighted
average fair
value of IPP
performance
shares at grant
date CHF 1
22
Representative
of UBS shares
2011 2
18,157,242
Number of
performance
shares
2010
0
Weighted average
fair value of IPP
performance
shares at grant
date CHF 1
0
21
0
22
N/A
22
31,848
19,629,916
0
0
(2,051,624)
(1,472,674)
0
16,137,466
6,727,398
N/A
18,157,242
4,073,546
22
0
22
N/A
22
Representative
of UBS shares
2010 2
0
19,629,916
0
(1,472,674)
0
18,157,242
4,073,546
1 Valuations take into account the relevant performance conditions, targets set, and the range of possible outcomes. 2 Based on conditions existing at the relevant balance sheet date.
386
Note 30 Equity participation and other compensation plans (continued)
Movements in performance shares granted under the PEP 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
Weighted
average fair
value of PEP
performance
shares at grant
date CHF 1
16
19
0
19
N/A
18
Number of
performance
shares
2011
518,837
754,530
0
(62,769)
N/A
1,210,598
594,235
Representative
of UBS shares
2011 2
518,837
754,530
0
(62,769)
(732,364)
478,234
244,332
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
16
0
16
N/A
16
Representative
of UBS shares
2010 2
0
545,642
0
(26,805)
(251,636)
267,201
114,143
1 Valuations take into account the relevant performance conditions, targets set, and the range of possible outcomes. 2 Based on conditions existing at the relevant balance sheet date.
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
2011
205,545,575
Weighted
average exercise
price CHF 1
42
0
(1,306,764)
(810,094)
(23,436,356)
179,992,361
178,008,644
0
12
24
42
43
43
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 1
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 1
47
13
16
37
48
43
51
1 Some of the options in this table have exercise prices denominated in USD which have been converted into CHF at the year-end spot exchange rate for the purposes of this table.
The following table provides additional information about option exercises, grants and intrinsic values:
For the year ended
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)
31.12.11
31.12.10
31.12.09
17
7.5
N/A
16
0.1
N/A
18
0.2
6.0
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387
Financial information
Notes to the consolidated fi nancial statements
Note 30 Equity participation and other compensation plans (continued)
The following table provides additional information about options outstanding and options exercisable as of 31 December 2011:
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)
15,990,737
10,393,029
36,676,438
15,668,285
17,649,676
4,720,736
52,941,724
154,040,625
9,300,906
6,442,441
7,720,186
2,488,203
25,951,736
11.33
18.76
31.00
39.90
49.32
60.15
67.65
20.30
31.87
37.73
42.14
9.8
0.0
0.0
0.0
0.0
0.0
0.0
9.8
0.0
0.0
0.0
0.0
0.0
7.1
7.3
5.4
2.1
3.5
5.0
4.7
0.8
2.3
3.0
3.4
13,757,437
10,348,029
36,649,903
15,720,190
17,612,701
4,720,736
53,280,727
152,089,723
9,280,906
6,436,795
7,713,017
2,488,203
25,918,921
11.33
18.76
30.98
39.89
49.32
60.15
67.69
20.30
31.87
37.73
42.14
9.8
0.0
0.0
0.0
0.0
0.0
0.0
9.8
0.0
0.0
0.0
0.0
0.0
7.1
7.3
5.4
2.1
3.5
5.0
4.7
0.8
2.3
3.0
3.4
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
15.58–25.00
25.01–35.00
35.01–40.00
40.01–47.12
15.58–47.12
UBS SAR awards
Movements in SAR awards were 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
2011
58,015,041
0
(44,333)
(2,946,350)
(3,120)
55,021,238
4,018,634
Weighted
average exercise
price CHF
12
0
15
11
16
12
10
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:
For the year ended
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)
31.12.11
31.12.10
31.12.09
18
0.1
N/A
16
0.6
N/A
N/A
N/A
5.0
388
Note 30 Equity participation and other compensation plans (continued)
The following table provides additional information about SARs outstanding as of 31 December 2011:
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)
53,508,855
47,000
181,783
378,600
905,000
55,021,238
11.25
14.53
16.63
19.25
40.00
4.4
0.0
0.0
0.0
0.0
6.8
7.5
7.4
7.7
7.2
4,007,400
0
10,634
600
0
4,018,634
10.10
0.00
16.80
19.27
0.00
4.3
0.0
0.0
0.0
0.0
2.2
0.0
7.4
7.7
0.0
Range of exercise prices
CHF
9.35–12.50
12.51–15.00
15.01–17.50
17.51–20.00
20.01–40.00
9.35–40.00
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 taking into consideration post-vesting sale and hedge re-
strictions, non-vesting conditions and market conditions where ap-
plicable. The fair value of the share awards subject to post-vesting
sale and hedge restrictions is discounted based upon the duration
of the post-vesting restriction and is referenced to the cost of pur-
chasing an at-the-money European put option for the term of the
transfer restriction. The weighted average discount for share and
performance share awards granted during 2011 is approximately
13.9 % 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 divi-
dends to be paid between the grant date and distribution.
UBS options and SARs awards
Since 2010, the fair values of options and SARs have been deter-
mined using a standard closed-formula option valuation model.
The expected term of each instrument is calculated based on his-
torical employee exercise behavior patterns, taking into account
the share price, strike price, vesting period and the contractual
life of the instrument. The term structure of volatility is derived
from the implied volatilities of traded UBS options in combination
with the observed long-term historical share price volatility. Ex-
pected future dividends are derived from traded UBS options or
from the historical dividend pattern. No options or SARs were
granted in 2010 and 2011.
In 2009 the fair value of options and SARs was determined by
means of a Monte Carlo simulation. The simulation technique
used a mix of implied and historical volatility and specifi c em-
ployee exercise behavior patterns based on statistical data, taking
into account the specifi c terms and conditions under which the
instrument was granted, such as the vesting period, forced exer-
cises during the lifetime, and gain- and time-dependent exercise
behavior. 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. Ex-
pected future dividends were derived from traded UBS options or
from the historical dividend pattern. The fair values of options and
SARs granted during 2009 were determined using the following
assumptions:
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
31.12.09
Range low
40.91
1.50
0.00
9.35
9.35
Range high
53.47
2.57
0.29
40.00
19.27
389
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Financial information
Notes to the consolidated fi nancial statements
Note 30 Equity participation and other compensation plans (continued)
Incentive Performance Plan (IPP) and Performance Equity Plan (PEP)
For performance share awards granted in 2011 and 2010, UBS
obtained independent third-party valuations based on the
market conditions at the date of grant. The valuation method-
ology applied was a Monte Carlo simulation. The approach to
determining input parameters and valuing the post-vesting
transfer restriction is in line with that used for options. The fair
value of IPP units granted in 2010 and PEP units granted in
2011 and 2010 was determined using the following assump-
tions:
31.12.11
PEP CHF awards
62.00
52.00
0.62
0.03
18.43
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
Expected TSR volatility (%)
Expected EP volatility (%)
Risk-free interest rate (%)
Expected dividend (CHF)
Share price (CHF)
Expected TSR volatility (%)
Expected EP volatility (%)
Risk-free interest rate (%)
Expected dividend (CHF)
Share price (CHF)
390
Note 31 Related parties
The Group defi nes related parties as associated companies (enti-
ties which are signifi cantly infl uenced by UBS), post-employment
benefi t plans for the benefi t 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 defi ned as members of
the Board of Directors (BoD) and Group Executive Board (GEB).
This defi nition 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 benefi ts upon retire-
ment. Total remuneration of the non-independent members of the BoD and GEB members, including those who stepped down during
20111, 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
31.12.11
31.12.10
31.12.09
21
22 3
1
16
30 3
1
16
64
2
Benefits in kind, fringe benefits (at market value)
Equity compensation benefits 2
Total
1 During 2011, John Cryan, Oswald J. Grübel and Maureen Miskovic 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 2011 and 2010, incentive awards include immediate and deferred cash. 4 In 2011 and 2010, equity compensation benefits include PEP, SEEOP and blocked shares due
to applicable UK FSA regulations.
1
33 4
79
1
48 4
96
112
29
1
The independent members of the BoD do not have employment
or service contracts with UBS, and thus are not entitled to benefi ts
upon termination of their service on the BoD. Payments to these
individuals for their services as external board members amount-
ed to CHF 7.0 million in 2011, CHF 6.7 million in 2010 and CHF
6.4 million in 2009.
b) Equity holdings
Number of stock options from equity participation plans held by non-independent members of the BoD and the GEB members 1
Number of shares held by members of the BoD, GEB and parties closely linked to them 2
31.12.11
4,800,170
3,562,771
31.12.10
9,085,194
4,850,196
31.12.09
9,410,280
4,180,154
1 Refer to “Note 30 Equity participation and other compensation plans” for more information. 2 Excludes shares granted under variable compensation plans with forfeiture provisions.
Of the share totals above, as of 31 December 2011, 31 December
2010 and 31 December 2009, 5,597 shares, 5,597 shares and 0
shares respectively were held by close family members of key
management personnel. No shares were held by entities which
are directly or indirectly controlled or jointly controlled by key
management personnel or their close family members on 31 De-
cember 2011, 31 December 2010 and 31 December 2009. Refer
to “Note 30 Equity participation and other compensation plans”
in this section for more information. No member of the BoD or
GEB is the benefi cial owner of more than 1% of UBS AG’s shares
at 31 December 2011.
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391
Financial information
Notes to the consolidated fi nancial statements
Note 31 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, fi xed 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 personnel1
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year
2011
2010
22
0
(3)
192
18
8
(4)
22
1 All loans are secured loans, except for CHF 45,435 in 2011. 2 Includes a loan of CHF 3.3 million that will be forgiven in three equal installments over the next three years, subject to the GEB member’s continued full-
time employment with UBS and his performance being satisfactory and commensurate with his responsibilities.
d) Associated companies
All loans to associated companies are transacted at arm’s length:
Loans to associated companies
CHF million
Balance at the beginning of the year
Additions
Reductions
Credit loss (expense) / recovery
Foreign currency translation
Balance at the end of the year
of which: unsecured loans
of which: allowances for credit losses
Other transactions with associated companies are 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
2011
259
3
(33)
0
1
231
28
1
2010
373
2
(118)
0
2
259
39
1
2009
301
295
(222)
(1)
0
373
42
1
As of or for the year ended
31.12.11
31.12.10
31.12.09
131
1
9
139
1
68
130
2
156
Refer to “Note 33 Signifi cant subsidiaries and associates” for an overview of signifi cant associates.
392
Note 31 Related parties (continued)
e) Other related party transactions
During 2011 and 2010, 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 2011, these entities included H21
Macro Fund Ltd (Cayman Islands) and Immo Heudorf AG (Swit-
zerland). In 2010, UBS provided services for H21 Macro Fund Ltd
(Cayman Islands). In 2009, UBS did not enter into any such trans-
actions.
Other related party transactions
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year 1
2011
2010
2009
0
15
(4)
11
0
0
0
0
6
0
(6)
0
1 In 2011 includes loans and guarantees of CHF 11 million and unused committed facilities of CHF 0 million but excludes unused uncommitted working capital facilities and unused guarantees of CHF 0 million.
Other transactions with these related parties include:
CHF million
Goods sold and services provided to UBS
Fees received for services provided by UBS
f) Additional information
2011
0
3
2010
0
1
2009
0
0
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. These transactions are generally
entered into on arms length terms.
Note 32 Events after the reporting period
After the issuance of the unaudited fourth quarter 2011 fi nancial
report on 7 February 2012, management adjusted the 2011 results
to account for subsequent events. The net impact of these adjust-
ments on net profi t attributable to UBS shareholders was a loss of
CHF 74 million, which decreased basic and diluted earnings per
share by CHF 0.02.
The principal change arises due to an agreement in principle
that we entered into with a monoline insurer in March 2012 fol-
lowing discussions that commenced in December 2011. Under the
agreement, if consummated, certain credit default swap contracts
would be commuted in exchange for a net payment of cash. Based
on these discussions, UBS has increased its credit valuation adjust-
ments in respect of these derivative contracts, resulting in a reduc-
tion of Net trading income in 2011 of CHF 167 million and a re-
lated tax benefi t of CHF 28 million.
Other adjustments made to the income statement in 2011 in-
creased net profi t by CHF 65 million and included mutual fund fee
income (credit of CHF 45 million in Wealth Management Ameri-
cas), the amortization of debt issuance fees (credit of CHF 17 mil-
lion in Corporate Center); a credit to personnel expenses of CHF 2
million (credit of CHF 17 million in the Investment Bank and CHF 15
million charge in Wealth Management Americas) and a net tax
benefi t of CHF 1 million in relation to these other adjustments.
On 22 February 2012, UBS issued USD 2 billion loss-absorbing
subordinated tier 2 notes (the “Notes”) due in 2022. The Notes
carry a fi xed annual coupon of 7.25% for the fi rst fi ve years,
which will be reset at the initial credit spread of 606.1 bps plus the
5-year mid-market USD swap rate for the remaining 5 years. UBS
has the option to redeem the Notes at the fi fth anniversary, con-
ditional on approval from the Swiss regulator, FINMA.
Under Basel III capital rules, the Notes increase our tier 2 capital
and count towards the progressive capital component for systemi-
cally relevant institutions in Switzerland. Upon the occurrence of a
defi ned trigger event, the Notes will be written down to zero and
cancelled. The Notes will be classifi ed as debt instruments issued
and will be accounted for at amortized cost.
On 7 February 2012, UBS announced certain changes to its Swiss
pension plan. The main changes, being the reduction in conver-
393
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Financial information
Notes to the consolidated fi nancial statements
Note 32 Events after the reporting period (continued)
sion rate on retirement and an increase to the regular retirement
age, serve in part to offset the impact of the increased life expec-
tancy refl ected in the defi ned benefi t obligation as at 31 Decem-
ber 2011. However, unlike the increase to the defi ned benefi t
obligation, which is largely deferred as unrecognized actuarial
losses, the changes to the pension plan will result in a reduction
to personnel expenses in fi rst quarter 2012 of CHF 485 million
and a reduction to unrecognized actuarial losses of CHF 245 mil-
lion. If UBS were to early adopt IAS 19R, the full impact of CHF
730 million would be recognized as a reduction to personnel ex-
penses for the year ended 31 December 2012.
Note 33 Significant subsidiaries and associates
Significant subsidiaries as of 31 December 2011
Company
APPIA General Partner S.à.r.l.
CCR Asset Management S.A.
Fondcenter AG
ING Investment Management Limited
Luxembourg Financial Group A.G.
Luxembourg Financial Group Asset Management S.A.
OOO UBS Bank
PT UBS Securities Indonesia
Topcard Service AG
Trumbull Property Growth & Income Fund GP LLC
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 AFS Controlled Subsidiary 1 Ltd.
UBS AFS Controlled Subsidiary 2 Ltd
Registered office
Luxembourg, Luxembourg
Paris, France
Zurich, Switzerland
Sydney, Australia
Luxembourg, Luxembourg
Luxembourg, Luxembourg
Moscow, Russia
Jakarta, Indonesia
Glattbrugg, Switzerland
Wilmington, Delaware, USA
Nassau, Bahamas
Paris, France
George Town, Cayman Islands
Milan, Italy
Luxembourg, Luxembourg
Vienna, Austria
Monte Carlo, Monaco
George Town, Cayman Islands
George Town, Cayman Islands
UBS Alternative and Quantitative Investments Limited
London, Great Britain
UBS Alternative and Quantitative Investments LLC
UBS Americas Inc
UBS Asesores Mexico, S.A. de C.V.
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 Commercial Mortgage Securitization Corp.
UBS Custody Services Singapore Pte. Ltd.
UBS Derivatives Hong Kong Limited
UBS Deutschland AG
Wilmington, Delaware, USA
Wilmington, Delaware, USA
México City, México
Panama, Panama
Toronto, Canada
Amsterdam, the Netherlands
México City, México
Salt Lake City, Utah, USA
Madrid, Spain
Brussels, Belgium
São Paulo, Brazil
St. Helier, Jersey
Glattbrugg, Switzerland
México City, México
Wilmington, Delaware, USA
Singapore, Singapore
Hong Kong, China
Frankfurt am Main, Germany
Business division 1
Global AM
Global AM
Global AM
Global AM
IB
IB
IB
IB
WM&SB
Global AM
WM&SB
WM&SB
IB
WM&SB
WM&SB
WM&SB
WM&SB
Global AM
Global AM
Global AM
Global AM
IB
WM&SB
WM&SB
WMA
WM&SB
IB
WMA
WM&SB
WM&SB
WM&SB
CC
WM&SB
IB
IB
WM&SB
IB
WM&SB
EUR
EUR
CHF
AUD
EUR
EUR
RUB
IDR
CHF
USD
USD
EUR
USD
EUR
CHF
CHF
EUR
USD
USD
GBP
USD
USD
MXN
USD
CAD
EUR
MXN
USD
EUR
EUR
BRL
EUR
CHF
MXN
USD
SGD
HKD
EUR
Share capital
in million
Equity interest
accumulated in %
0.0
5.3
0.1
7.7
2.1
0.2
3 450.0
118 000.0
0.2
0.3
4.0
125.7
0.0
60.0
150.0
0.0
9.2
0.0
0.0
0.3
0.1
0.0
233.6
0.0
8.5
0.2
706.4
1 880.0 2
82.2
28.0
46.5
0.0
0.1
114.9
0.0
5.5
880.0
176.0
60.0
100.0
100.0
100.0
100.0
100.0
100.0
98.6
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
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.
394
Share capital
in million
Equity interest
accumulated in %
Note 33 Significant subsidiaries and associates (continued)
Significant subsidiaries as of 31 December 2011 (continued)
Company
UBS Fiduciaria S.p.A.
UBS Finance (Curação) N.V.
UBS Finance (Delaware) LLC
Registered office
Milan, Italy
Willemstad, Netherlands Antilles
Wilmington, Delaware, USA
UBS Financial Services (Uruguay) Sociedad de Responsabilidad Limitada Montevideo, Uruguay
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 Funds Australia Limited
UBS Futures Singapore Ltd.
UBS Global Asset Management (Americas) Inc
UBS Global Asset Management (Australia) Ltd
UBS Global Asset Management (Canada) Inc
UBS Global Asset Management (China) Limited
Wilmington, Delaware, USA
Hato Rey, Puerto Rico
Wilmington, Delaware, USA
Luxembourg, Luxembourg
Basel, Switzerland
George Town, Cayman Islands
Dublin, Ireland
Luxembourg, Luxembourg
Sydney, Australia
Singapore, Singapore
Wilmington, Delaware, USA
Sydney, Australia
Toronto, Canada
Beijing, China
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
UBS Investment Management Canada 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 IV
Milan, Italy
Tokyo, Japan
Singapore, Singapore
Taipei, Taiwan
London, Great Britain
Wilmington, 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
Toronto, Canada
Milan, Italy
Zurich, Switzerland
Zurich, Switzerland
Sacramento, California, USA
London, Great Britain
Wilmington, Delaware, USA
Istanbul, Turkey
Auckland, New Zealand
London, Great Britain
Dover, Delaware, USA
St. Helier, Jersey
Wilmington, Delaware, USA
Business division 1
WM&SB
CC
IB
WMA
WMA
WMA
WMA
Global AM
Global AM
Global AM
Global AM
Global AM
IB
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
Global AM
WM&SB
WM&SB
Global AM
WM&SB
CC
WMA
WM&SB
WMA
IB
WM&SB
WM&SB
WMA
IB
IB
IB
IB
Global AM
Global AM
CC
CC
EUR
USD
USD
UYU
USD
USD
USD
EUR
CHF
USD
EUR
CHF
AUD
USD
USD
AUD
CAD
CNY
EUR
HKD
EUR
JPY
SGD
TWD
GBP
USD
GBP
GBP
GBP
CHF
CAD
KRW
CHF
EUR
USD
EUR
CAD
EUR
CHF
CHF
USD
GBP
USD
TRY
NZD
GBP
USD
EUR
USD
0.2
0.1
37.3 2
0.1
4,172.52
31.0 2
0.0 2
10.0
1.0
5.6
1.3
2.5
5.0
39.8 2
0.0
40.0
117.0
20.5
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
0.0
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
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
51.0
98.0
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
395
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Financial information
Notes to the consolidated financial statements
Note 33 Significant subsidiaries and associates (continued)
Significant subsidiaries as of 31 December 2011 (continued)
Company
UBS Preferred Funding Company LLC V
UBS Private Equity Komplementär GmbH
UBS Real Estate Kapitalanlagegesellschaft mbH
UBS Real Estate Securities Inc
UBS Realty Investors LLC
UBS Saudi Arabia
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 Japan Preparation Co., 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 Australia Ltd
UBS Wealth Management Israel Ltd
Registered office
Wilmington, Delaware, USA
Bad Homburg, Germany
Munich, Germany
Wilmington, Delaware, USA
Business division 1
CC
WM&SB
Global AM
IB
Boston, Massachusetts, USA
Global AM
Riyadh, Saudi Arabia
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
Tokyo, Japan
Wilmington, Delaware, USA
Kuala Lumpur, Malaysia
Makati City, Philippines
Singapore, Singapore
Seoul, South Korea
Krakow, Poland
Sandton, South Africa
Zurich, Switzerland
Wilmington, Delaware, USA
Nassau, Bahamas
George Town, Cayman Islands
St. Helier, Jersey
Singapore, Singapore
London, Great Britain
Sydney, Australia
Herzliya Pituach, Israel
IB
IB
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
Share capital
in million
Equity interest
accumulated in %
USD
EUR
EUR
USD
USD
SAR
THB
HKD
AUD
CAD
EUR
EUR
HKD
INR
GBP
ILS
JPY
JPY
USD
MYR
PHP
SGD
KRW
PLN
ZAR
CHF
USD
USD
USD
GBP
SGD
GBP
AUD
ILS
0.0
0.0
7.5
1 300.4 2
9.3
110.0
500.0
20.0
209.8 2
10.0
15.0
22.9
430.0
140.0
18.0
0.0
60 000.0
8 505.0
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
53.9
3.5
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
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.
396
Note 33 Significant subsidiaries and associates (continued)
Changes in the consolidation scope 2011
New significant, fully consolidated companies
APPIA General Partner S.à.r.l.
ING Investment Management Limited
Luxembourg Financial Group A.G.
Luxembourg Financial Group Asset Management S.A.
Trumbull Property Growth & Income Fund GP LLC
UBS AFS Controlled Subsidiary 1 Ltd.
UBS AFS Controlled Subsidiary 2 Ltd.
UBS Commercial Mortgage Securitization Corp.
Registered office
Luxembourg, Luxembourg
Sydney, Australia
Business division 1
Global AM
Global AM
Luxembourg, Luxembourg
Luxembourg, Luxembourg
IB
IB
Wilmington, Delaware, USA
Global AM
George Town, Cayman Islands Global AM
George Town, Cayman Islands Global AM
Wilmington, Delaware, USA
IB
UBS Financial Services (Uruguay) Sociedad de Responsabilidad Limitada
Montevideo, Uruguay
UBS Funds Australia Limited – Sydney, Australia
UBS Global Asset Management (China) Limited
UBS Securities Japan Preparation Co., Ltd.
Sydney, Australia
Beijing, China
Tokyo, Japan
1 WMA: Wealth Management Americas, Global AM: Global Asset Management, IB: Investment Bank.
WMA
IB
Global AM
IB
Share capital
in million
Equity interest
accumulated in %
EUR
AUD
EUR
EUR
USD
USD
USD
USD
UYU
AUD
CNY
JPY
0.0
7.7
2.1
0.2
0.3
0.0
0.0
0.0
0.1
5.0
0.0
8 505.0
60.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Significant deconsolidated companies
UBS Fund Services (Luxembourg) S.A. Poland Branch
UBS Preferred Funding Company LLC II
Registered office
Zabierzow, Polen
Wilmington, Delaware, USA
Reason for deconsolidation
Liquidated
Liquidated
Significant associates as of 31 December 2011
Company
SIX Group AG 1
UBS Securities Co. Limited
1 UBS is represented in the Board of Directors.
Note 34 Invested assets and net new money
Registered office
Zurich, Switzerland
Beijing, China
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, fi duciary 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 defi ned 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 reporting period is the amount of invested
assets 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
infl ows and outfl ows to / from invested assets are determined at
the client level based on transactions. Interest and dividend in-
come from invested assets is not counted as net new money in-
fl ow. Market and currency movements as well as fees, commis-
sions and interest on loans charged are excluded from net new
money, as are the effects resulting from any acquisition or divest-
ment of a UBS subsidiary or business. Reclassifi cations between
invested assets and custody-only assets as a result of a change in
the service level delivered are treated as net new money fl ows.
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 division, this produces net new money
even though client assets were already with UBS. Net new money
for 2010 included infl ows of CHF 3.7 billion resulting from transfers
of Investment Bank clients to Wealth Management, as part of the
Global Family Offi ce initiative, compared with zero in 2011.
397
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Financial information
Notes to the consolidated fi nancial statements
Note 34 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)
Note 35 Business combinations
As of or for the year ended
31.12.11
31.12.10
270
619
1,278
2,167
216
24.6
42.4
282
596
1,274
2,152
225
0.0
(14.3)
Business combinations completed in 2011
Business combinations completed in 2009
In 2011, UBS completed acquisitions in Global Asset Manage-
ment and in the equities business of the Investment Bank. The
aggregated acquisition costs of these two acquisitions amounted
to approximately CHF 54 million of which CHF 11 million related
to goodwill, CHF 20 million to intangible assets, and CHF 23 mil-
lion to other net assets. Intangible assets from both business ac-
quisitions included customer relationships and benefi cial con-
tracts. The aggregated acquisition costs included cash payments
of CHF 44 million and contingent consideration of CHF 10 million,
including CHF 8 million in restricted UBS AG shares.
Business combinations in 2010
In 2010, no signifi cant business combinations were completed.
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
business comprises a product platform of commodity index swaps
and funded notes based on the benchmark Dow Jones-AIG Com-
modity Index (DJ-AIGCI). The cost of the business combination,
including directly attributable transaction costs, amounted to CHF
74 million (USD 65 million) of which CHF 17 million (USD 15 mil-
lion) 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 allocat-
ed to Intangible assets of CHF 40 million (USD 35 million) and
Goodwill of CHF 34 million (USD 30 million). The business of AIG
was integrated into UBS’s Investment Bank.
Note 36 Discontinued operations
2011
2009
In 2011, there were no discontinued operations.
2010
In 2009, private equity investments sold in prior years contributed
a subsequent loss of CHF 7 million to UBS’s net profi t from discon-
tinued operations.
In 2010, private equity investments sold in prior years contributed
a subsequent gain of CHF 2 million to UBS’s net profi t from dis-
continued operations.
398
Note 37 Reorganizations and disposals
Restructuring 2011
In 2011, we recognized restructuring charges of CHF 403 million
associated with our cost reduction program. These charges refl ect
costs related to both personnel and real estate. Further, 2011 in-
cludes restructuring charges of CHF 7 million in Global Asset
Management related to the ING Investment Management busi-
ness acquisition and the reversal of prior restructuring-related
provisions of CHF 30 million (whereof CHF 10 million in the
Investment Bank, CHF 9 million in Wealth Management Americas,
CHF 8 million in the Corporate Center, CHF 2 million in Wealth
Management and CHF 1 million in Global Asset Management).
The table below shows the detailed breakdown of restructuring
charges booked in 2011.
CHF million
For the year ended 31 December 2011
Personnel expenses
General and administrative expenses 1
Depreciation of property and equipment 2
Total
Wealth Management &
Swiss Bank
Wealth
Management
Retail &
Corporate
Wealth
Management
Americas
Global Asset
Management
Investment
Bank
Corporate
Center
64
16
2
82
29
3
0
32
5
2
2
10
19
6
1
26
143
55
18
216
2
12
1
15
UBS
261
93
26
380
1 Mainly reflecting real estate related provisions for onerous leases. 2 Reflecting the impairment of real estate assets.
Note 38 Currency translation rates
The following table shows the rates of the main currencies used to translate the fi nancial information of our foreign operations into
Swiss francs:
1 USD
1 EUR
1 GBP
100 JPY
Spot rate
As of
Average rate 1
Year ended
31.12.11
31.12.10
31.12.11
31.12.10
31.12.09
0.94
1.21
1.46
1.22
0.93
1.25
1.46
1.15
0.88
1.23
1.45
1.11
1.04
1.37
1.62
1.18
1.08
1.51
1.70
1.16
1 Monthly income statement items of foreign operations with a functional currency other than Swiss franc are translated with month-end rates into Swiss franc. Disclosed average rates for a year represent an average of
twelve month-end rates, weighted according to the income and expense volumes of all foreign operations with the same functional currency for each month.
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399
Financial information
Notes to the consolidated fi nancial statements
Note 39 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 fi nancial 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 signifi cant
differences in regard to recognition and measurement between
IFRS and the provisions of the Banking Ordinance and the Guide-
lines of the FINMA governing fi nancial 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 fi eld of
banking and fi nance and real estate entities are subject to con-
solidation. Entities which are held temporarily are generally re-
corded as fi nancial 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 profi t or loss for the period. On disposal of a fi nan-
cial investment available-for-sale, the cumulative unrecognized
gain or loss previously recognized in equity is recognized in the
income statement.
Under Swiss law, fi nancial 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-
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-
sifi ed on the balance sheet as Investments in subsidiaries and
other participations and are measured at cost less impairment
with impairment losses recorded in the income statement.
3. Cash fl ow hedges
When the hedged cash fl ows 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 fl ow exposures is
deferred on the balance sheet as other assets or other liabilities.
The deferred amounts are released to income when the hedged
cash fl ows 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 classifi ed as held for sale. Invest-
ment property classifi ed 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 fi nancial liabilities, mainly to hybrid debt instru-
ments. Instruments, for which the fair value option is applied, are
accounted for at fair value with changes in fair value refl ected in
Net trading income. Furthermore, UBS designated certain loans,
loan commitments and fund investments as fi nancial assets desig-
nated at fair value through profi t and loss.
Under Swiss accounting rules, the fair value option is not avail-
able except for issued structured products that consist of a debt
host contract and a bifurcatable embedded derivative(s). Howev-
er, changes in fair value attributable to changes in own credit are
not recognized in the income statement.
6. Goodwill and intangible assets
Under IFRS, goodwill acquired in a business combination is not
amortized but tested annually for impairment. Intangible assets
acquired in a business combination with an indefi nite useful life
are also not amortized but tested annually for impairment.
Under Swiss law, goodwill and intangible assets with indefi nite
useful lives are amortized over a period not exceeding fi ve years,
unless a longer useful life, which may not exceed twenty years,
can be justifi ed.
7. Discontinued operations
The Group uses derivative instruments to hedge the exposure
from varying cash fl ows. Under IFRS, when hedge accounting is
applied the fair value gain or loss on the effective portion of the
derivative designated as a cash fl ow hedge is recognized in equity.
Under certain conditions, IFRS requires that non-current assets or
disposal groups be classifi ed 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.
400
Note 39 Swiss banking law requirements (continued)
Under Swiss law, the concept of discontinued operations does
9. Netting of replacement values
not exist, therefore no such reclassifi cation takes place.
8. Extraordinary income and expense
Certain items of income and expense are classifi ed as extraordinary
items under Swiss law, whereas in the Group Income Statement
the amounts are classifi ed as operating income or expense or are
included in net profi t from discontinued operations, if required.
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.
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Financial information
Notes to the consolidated fi nancial statements
Note 40 Supplemental guarantor information required under SEC rules
Guarantee of PaineWebber securities
Following the acquisition of Paine Webber Group Inc. (“Paine-
Webber”), UBS AG entered into a full and unconditional guaran-
tee of the senior and subordinated notes and trust preferred
securities (“Debt Securities”) of PaineWebber. Prior to the acqui-
sition, PaineWebber was a SEC registrant. Upon the acquisition,
PaineWebber was merged into UBS Americas Inc., a wholly-
owned subsidiary of UBS AG.
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 AG without fi rst proceeding against UBS
Americas Inc. UBS AG’s obligations under the subordinated note
guarantee are subordinated to the prior payment in full of the
deposit and all other liabilities of UBS AG.
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 2011
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
15,311
(10,854)
4,457
(96)
4,361
6,351
4,155
659
1,427
16,954
8,712
2,577
564
0
26
11,879
5,075
917
4,159
0
4,159
0
4,159
2,910
(1,102)
1,808
18
1,826
5,757
(81)
0
728
8,230
5,216
2,283
117
0
80
7,696
534
61
473
0
473
2
471
2,952
(2,391)
561
(6)
555
3,128
269
0
(689)
3,263
1,664
1,099
81
0
21
2,864
399
(55)
454
0
454
266
188
(3,203)
3,203
0
0
0
0
0
(659)
0
(659)
0
0
0
0
0
0
(659)
0
(659)
0
(659)
0
(659)
17,969
(11,143)
6,826
(84)
6,742
15,236
4,343
0
1,467
27,788
15,591
5,959
761
0
127
22,439
5,350
923
4,426
0
4,427
268
4,159
1 UBS AG Parent Bank prepares its audited financial statements in accordance with Swiss banking law requirements. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS.
402
Note 40 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated balance sheet
CHF million
As of 31 December 2011
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
of which: 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 subsidiaries and 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
38,094
26,085
41,783
161,663
130,585
50,064
482,528
44,906
6,290
263,927
39,431
1,971
59,809
4,757
329
5,177
12,405
1,319,740
63,340
16,498
38,030
32,299
467,112
55,378
84,386
321,393
4,530
125,251
24,226
1,232,444
87,297
0
87,297
1,319,740
1,977
4,866
57,893
123,923
30,864
2,801
8,244
4,640
4,537
37,836
9,877
4,046
4
523
8,172
2,839
2,459
568
80,863
3,040
88,167
33,451
609
146,545
25,894
7,515
11,391
3,866
872
0
408
1,194
511
1,689
302,699
405,971
41,669
32,622
141,005
8,437
8,312
11,188
533
31,934
2,203
407
19,345
297,655
5,043
0
5,043
302,699
13,787
2,969
83,646
5,751
148,708
34,666
13,522
35,632
678
19,873
22,209
381,440
20,126
4,406
24,532
405,971
0
(88,596)
(43,953)
(160,252)
(13,374)
(13,537)
(150,732)
(34,118)
(8,005)
(46,549)
0
(561)
(59,018)
0
0
0
40,638
23,218
58,763
213,501
181,525
39,936
486,584
41,322
10,336
266,604
53,174
6,327
795
5,688
9,695
8,526
(4,089)
(609,248)
12,465
1,419,162
(88,596)
(43,953)
(160,252)
(7,007)
(150,732)
(34,118)
(9,459)
(46,549)
(561)
(4,914)
(4,089)
(550,230)
(59,017)
0
(59,017)
(609,248)
30,201
8,136
102,429
39,480
473,400
67,114
88,982
342,409
6,850
140,617
61,692
1,361,309
53,447
4,406
57,852
1,419,162
1 UBS AG Parent Bank prepares its audited financial statements in accordance with Swiss banking law requirements. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS.
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403
Financial information
Notes to the consolidated fi nancial statements
Note 40 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated statement of cash flows
CHF million
For the year ended 31 December 2011
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
Disposal of subsidiaries, associates and intangible assets
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 short-term debt issued / (repaid)
Net movements in treasury shares and own equity derivative activity
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: 2
Cash and balances with central banks
Money market paper 3
Due from banks 4
Total 2
UBS AG
Parent Bank 1
(12,251)
UBS
Americas Inc.
Subsidiaries
UBS Group
(933)
(1,057)
(14,241)
(58)
50
(917)
137
19,125
18,336
5,459
(1,885)
48,844
(55,668)
0
0
640
(2,610)
(2,587)
889
65,592
66,481
38,094
3,804
24,582
66,481
0
0
(114)
91
1,165
1,142
0
0
197
(8)
0
0
(366)
(177)
299
333
4,003
4,336
1,977
29
2,330
4,336
0
0
(98)
5
(9)
(101)
9,879
0
3,549
(6,950)
1
(748)
(274)
5,457
159
4,457
10,339
14,796
568
67
14,162
14,796
(58)
50
(1,129)
233
20,281
19,377
15,338
(1,885)
52,590
(62,626)
1
(749)
0
2,670
(2,129)
5,678
79,934
85,612
40,638
3,900
41,074
85,612
1 UBS AG Parent Bank prepares its audited financial statements in accordance with Swiss banking law requirements. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS.
2 In 2011, we have refined the definition of cash and cash equivalents. Prior periods have been adjusted accordingly. Refer to “Note 1 Summary of significant accounting policies” for more information. 3 Money
market paper is included in the balance sheet under Trading portfolio assets and Financial investments available-for-sale. 4 Includes positions recognized in the balance sheet under Due from banks and Cash col-
lateral receivables on derivative instruments.
404
Note 40 Supplemental guarantor information required under SEC rules (continued)
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2010
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
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)
0
(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 audited financial statements in accordance with Swiss banking law requirements. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS.
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405
Financial information
Notes to the consolidated fi nancial statements
Note 40 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
of which: 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 subsidiaries and 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
26,372
30,941
39,315
130,977
170,106
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
32,265
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
39,814
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)
(13,368)
(11,649)
(116,661)
(33,740)
(9,911)
(46,107)
0
(538)
(61,311)
0
0
0
(3,675)
(546,822)
(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)
26,939
17,133
62,454
142,790
228,815
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
1,265,384
46,820
5,043
51,863
1,317,247
1 UBS AG Parent Bank prepares its audited financial statements in accordance with Swiss banking law requirements. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS.
406
Note 40 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, associates and intangible assets
Disposal of subsidiaries, associates and intangible assets
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 short-term debt 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: 2
Cash and balances with central banks
Money market paper 3
Due from banks 4, 5
Total
UBS AG
Parent Bank 1
10,719
UBS
Americas Inc.
(2,772)
Subsidiaries
5,440
UBS Group
13,385
(75)
307
(367)
196
2,123
2,185
3,241
(1,456)
(113)
75,842
(65,968)
0
0
(122)
11,424
(10,218)
14,110
51,482
65,592
26,372
15,798
23,422
65,592
0
0
(88)
22
3,474
3,408
0
0
0
8
(82)
0
(6)
235
154
1,482
2,272
1,731
4,003
69
1,190
2,744
4,003
0
0
(86)
24
(1,433)
(1,497)
1,218
0
0
2,568
(11,447)
6
(2,047)
(113)
(9,815)
(3,444)
(9,315)
19,654
10,339
498
123
9,719
10,339
(75)
307
(541)
242
4,164
4,097
4,459
(1,456)
(113)
78,418
(77,497)
6
(2,053)
0
1,764
(12,181)
7,066
72,868
79,934
26,939
17,110
35,885
79,934
1 UBS AG Parent Bank prepares its audited financial statements in accordance with Swiss banking law requirements. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS.
2 In 2011, we have refined the definition of cash and cash equivalents. Prior periods have been adjusted accordingly. Refer to “Note 1 Summary of significant accounting policies” for more information. 3 Money
market paper is included in the balance sheet under Trading portfolio assets and Financial investments available-for-sale. CHF 9,941 million was pledged as of 31 December 2010. 4 Includes positions recognized
in the balance sheet under Due from banks and Cash collateral receivables on derivative instruments. 5 In 2011, we corrected the amounts presented for Due from banks with related changes impacting cash
flows from operating activities. Due from banks was increased by CHF 775 million and CHF 4,669 million for UBS AG Parent Bank and Subsidiaries, respectively, with a corresponding decrease in UBS Americas Inc.
of CHF 5,444 million. There was no change to amounts presented for UBS Group related to this correction.
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407
Financial information
Notes to the consolidated fi nancial statements
Note 40 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 audited financial statements in accordance with Swiss banking law requirements. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS.
408
Note 40 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, associates and intangible assets
Disposal of subsidiaries, associates and intangible assets
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 short-term debt 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: 2
Cash and balances with central banks
Money market paper 3
Due from banks 4
Total
UBS AG
Parent Bank 1
30,833
UBS
Americas Inc.
(1,716)
Subsidiaries
57,607
UBS Group
86,723
(42)
296
(656)
104
(63,535)
(63,832)
(7,020)
673
3,726
64,956
(55,616)
0
0
(4,032)
2,686
5,886
(24,426)
75,908
51,482
15,177
5,927
30,378
51,482
0
0
(124)
53
(15,228)
(15,299)
0
0
(75)
6
387
318
(1,596)
(51,424)
0
0
0
(1,548)
0
(8)
2,419
(733)
574
(17,174)
18,905
1,731
75
207
1,450
1,731
0
0
2,106
(7,861)
3
(576)
1,614
(56,136)
(933)
855
18,799
19,654
5,647
194
13,814
19,654
(42)
296
(854)
163
(78,376)
(78,812)
(60,040)
673
3,726
67,062
(65,024)
3
(583)
0
(54,183)
5,529
(40,744)
113,611
72,868
20,899
6,327
45,642
72,868
1 UBS AG Parent Bank prepares its audited financial statements in accordance with Swiss banking law requirements. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS.
2 In 2011, we have refined the definition of cash and cash equivalents. Prior periods have been adjusted accordingly. Refer to “Note 1 Summary of significant accounting policies” for more information. 3 Money
market paper is included in the balance sheet under Trading portfolio assets and Financial investments available-for-sale. CHF 4,841 million was pledged as of 31 December 2009. 4 Includes positions recognized
in the balance sheet under Due from banks and Cash collateral receivables on derivative instruments.
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409
Financial information
Notes to the consolidated fi nancial statements
Note 40 Supplemental guarantor information required under SEC rules (continued)
Guarantee of other securities
UBS AG, acting through wholly-owned US-domiciled fi nance subsidiaries, has issued the following outstanding trust preferred
securities:
Guarantee of other securities
USD billion, unless otherwise indicated
Issuing entity
Type of security
UBS Preferred Funding Trust IV
UBS Preferred Funding Trust V
Floating rate non-cumulative trust preferred securities
Trust preferred securities
Outstanding as of 31.12.11
Date issued
May 2003
May 2006
Interest (%)
one-month
LIBOR +0.7
6.243
Amount
0.3
1.0
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 and all
other liabilities of UBS. At 31 December 2011, the amount of se-
nior liabilities of UBS to which the holders of the subordinated
debt securities would be subordinated is approximately CHF
1,354 billion.
Guarantee to UBS Ltd.
UBS AG has issued a guarantee to each counterparty of UBS Ltd.
Under the guarantee UBS AG irrevocably and unconditionally
guarantees, for the benefi t of each counterparty, each and every
obligation that UBS Ltd. entered into. UBS AG promises to pay to
that counterparty on demand any unpaid balance of such liabili-
ties under the terms of the guarantee.
410
UBS AG (Parent Bank)
Parent Bank review
Income statement
Net profit for UBS AG (Parent Bank) was CHF 5,440 million, a
decrease of CHF 683 million from a profit of CHF 6,123 million in
2010.
Net interest income
Net interest income increased by CHF 1,171 million, or 34%, to
CHF 4,597 million. Interest and discount income increased by
CHF 234 million, or 2%, mainly attributable to higher interest
income from securities borrowing and reverse repurchase agree-
ments. Interest and dividend income from our trading portfolio
decreased by CHF 452 million, or 10%. Interest and dividend
income from financial investments increased by CHF 155 million,
or 50%, mainly relating to income from our strategic investment
portfolio in the first nine months of 2011.
Interest expense decreased by CHF 1,235 million, or 10%,
due to lower interest expenses on paper issued and on trading
liabilities.
Net fee and commission income
Net fee and commission income decreased by CHF 931 million, or
13%, to CHF 6,373 million.
Fee and commission income from securities and investment
business decreased by CHF 1,631 million, or 19%. Underwriting
fees decreased due to an overall market slowdown resulting from
volatility in the capital markets and a reduced market fee pool.
Portfolio management and advisory fees as well as investment
fund fees decreased mainly due to a lower average invested asset
base and the strengthening of the Swiss franc. A decrease in bro-
kerage fees resulted from an overall market slowdown, with low-
er transactional volumes and reduced levels of client activity.
These decreases were partly offset by an increase in merger and
acquisition and corporate finance fees, which reflected an im-
proved mergers and acquisitions environment including the com-
pletion of several large deals.
Fee and commission expense decreased by CHF 699 million, or
34%, mainly due to lower brokerage fees paid.
Net trading income
Net trading income was CHF 3,545 million compared with CHF
6,501 million in 2010. Investment Bank equities and investment
banking net trading income was negative CHF 53 million, com-
pared with positive CHF 1,890 million, mainly as we recorded a
loss of CHF 1,951 million related to the unauthorized trading
incident in 2011. Investment bank fixed income, currencies and
commodities net trading income was down CHF 14 million, or
1%, to CHF 2,312 million. Net trading income in other business
divisions and Corporate Center was CHF 1,286 million com-
pared with CHF 2,285 million, mainly because in 2011 we re-
corded a loss of CHF 102 million on the valuation of our option
to acquire the SNB StabFund’s equity compared with a gain of
CHF 745 million in 2010.
Other income from ordinary activities
Other income from ordinary activities was CHF 3,508 million,
up CHF 1,336 million, or 62%. Net income from disposals of
financial investments increased by CHF 605 million, mainly
due to a gain of CHF 652 million from the sale of our strategic
investment portfolio. Dividend income from investments in
subsidiaries and other participations decreased by CHF 945
million.
Sundry income from ordinary activities was up CHF 809 mil-
lion, or 22%, to CHF 4,441 million. Sundry income included
income received from subsidiaries for services rendered of
CHF 3,676 million, an increase of CHF 176 million, or 5%, com-
pared with the prior year. In addition, sundry income included
valuation gains from financial investments of CHF 464 million,
which mainly reflected the reversal of unrealized losses incurred
on the strategic investment portfolio in 2010 which were re-
corded as sundry ordinary expenses. Gains from disposals of
loans and receivables were CHF 233 million, up CHF 189 million
from the prior year.
Sundry ordinary expenses were down CHF 868 million,
or 25%, to CHF 2,554 million. Charges from subsidiaries for
services received were down CHF 283 million, or 10%, to
CHF 2,522 million. In addition, the prior year included unreal-
ized losses on financial investments of CHF 573 million, mainly
related to our strategic investment portfolio.
Operating expenses
Personnel expenses decreased by CHF 1,991 million, or 19%, to
CHF 8,309 million. Discretionary variable compensation decreased
by CHF 1,448 million to CHF 1,821 million. Expenses for social
security decreased by CHF 216 million as a result of the lower vari-
able compensation. Other personnel expenses decreased by CHF
239 million, mainly as the prior year included a charge of CHF 200
million for the UK bank payroll tax.
411
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Financial information
UBS AG (Parent Bank)
Impairment of investments in subsidiaries and other participations
Impairment of investments in subsidiaries and other participations
decreased by CHF 1,269 million, or 88%, to CHF 165 million.
Impairments in 2010 were mainly related to unfavorable foreign
currency impacts on US subsidiaries as well as subsidiaries in vari-
ous other countries.
Extraordinary income
Extraordinary income decreased by CHF 2,069 million, or 52%, to
CHF 1,888 million. Gains from sale of subsidiaries and other
participations decreased by CHF 409 million due to fewer dispos-
als in 2011. Reversals of impairments and provisions of subsidiar-
ies and other participations decreased to CHF 1,352 million in
2011 from CHF 2,337 million in 2010. In 2011, net impairment
reversals were to a large extent related to positive foreign cur-
rency impacts on the valuation of US subsidiaries. Prior period re-
lated income decreased to CHF 280 million from CHF 968 million
and mainly related to equity compensation plans, hedge account-
ing and financial liabilities designated at fair value.
Extraordinary expenses
Extraordinary expenses increased by CHF 471 million to CHF 649
million, mainly related to increased prior period related expenses,
which increased CHF 479 million and mainly related to hedge
accounting charges, valuation corrections on issued structured
products and investments in subsidiaries and other participations.
Tax expense
Tax expense for 2011 was CHF 232 million compared with CHF 25
million in the prior year and consisted of CHF 192 million in in-
come tax expenses, mainly related to prior years, and CHF 40 mil-
lion in capital tax expenses.
Deferred tax assets are not accounted for and reported in the
Parent Bank’s financial statements which are prepared in accor-
dance with Swiss Federal banking law. As a consequence, there is
no amortization of deferred tax assets for tax losses used against
profits arising from business operations.
Balance sheet
Assets
Total assets of the UBS AG (Parent Bank) stood at CHF 846 billion
on 31 December 2011, down CHF 17 billion from CHF 863 billion
on 31 December 2010. This decrease mainly reflected lower mon-
ey market paper and trading instruments held, as well as the sale
of the strategic investment portfolio which was held as a financial
investment. These decreases were partially offset by increased re-
verse repurchase agreements with banks and other customers as
well as higher liquid assets held at the Swiss National Bank (SNB).
Liquid assets and money market paper
Liquid assets increased by CHF 12 billion to CHF 38 billion on 31
December 2011, predominantly reflecting higher balances with
the SNB. Money market paper decreased by CHF 32 billion to CHF
41 billion on 31 December 2011, primarily due to decreases in
Swiss, Japanese and US government bills.
Due from banks and due from customers
Total due from banks increased by CHF 25 billion to CHF 231 bil-
lion on 31 December 2011, mainly reflecting increased reverse
repurchase agreements with UBS bank subsidiaries, in particular
in the Americas and Asia. This was partly offset by lower bank
deposits, predominantly with UBS bank subsidiaries in the Ameri-
cas and Asia.
Due from customers increased by CHF 6 billion to CHF 148 bil-
lion, due to an increase of CHF 7 billion in the loan book (excluding
mortgage loans) as a result of higher demand from Asian and Amer-
ican clients. Reverse repurchase agreements and securities borrow-
ings with customers increased by CHF 6 billion, equally across all
regions. These increases were partially offset by client-driven lower
prime brokerage loan balances, which were down CHF 7 billion,
mainly in the Americas and to a lesser extent in Europe.
Trading balances and financial investments
Trading balances in securities and precious metals decreased by
CHF 19 billion to CHF 120 billion on 31 December 2011, with
debt instruments down by CHF 12 billion. Equity instruments
were down by CHF 3 billion.
Financial investments declined by CHF 15 billion to CHF 20 bil-
lion on 31 December 2011, primarily due to the sale of our stra-
tegic investment portfolio.
Investment in subsidiaries
Investments in subsidiaries increased by CHF 2.9 billion to
CHF 24.0 billion on 31 December 2011. This was mainly due to
net capital injections of CHF 2.4 billion, as well as reversals of
impairments of CHF 1.4 billion which were attributable to positive
foreign currency translation impacts. These increases were partly
offset by reductions of CHF 0.8 billion as a result of foreign cur-
rency translation losses recorded in net trading income on bor-
rowings used to fund the respective investments, and the impair-
ment of investments in subsidiaries of CHF 0.2 billion. The
termination of the match-funding concept as of 31 October 2011
and the change in accounting policy with regard to the foreign
currency translation of investments in subsidiaries resulted in an
increase of CHF 0.2 billion.
Positive replacement values
Positive replacement values, which are reported on a net basis
provided the master netting and the related collateral agreements
are legally enforceable, were stable at CHF 65 billion.
Liabilities
Money market paper issued increased by CHF 6 billion to CHF 57
billion on 31 December 2011, mainly on higher yield enhance-
ment products for our wealth management clients. Due to
banks decreased by CHF 22 billion to CHF 125 billion on 31
December 2011, and reflected lower unsecured interbank-bor-
412
rowing of CHF 14 billion as well as reduced securities lending of
CHF 4 billion.
Trading portfolio liabilities declined by CHF 13 billion to CHF 33
billion, mainly related to debt instruments. Total due to customers
increased by CHF 25 billion to CHF 363 billion, mostly due to
higher balances on current, savings and personal accounts. Finan-
cial liabilities designated at fair value fell by CHF 17 billion.
Equity
Total equity attributable to shareholders stood at CHF 40.2 billion
at year-end 2011, compared with CHF 34.7 billion at year-end
2010, due to the 2011 Parent Bank profit of CHF 5.4 billion. The
general statutory reserve increased by CHF 5.0 billion to CHF 32.4
billion as of 31 December 2011, reflecting the appropriation of
2010 earnings of CHF 4.5 billion as well as a transfer of CHF 0.4
billion in capital contribution reserves from the reserve for own
shares.
The reserve for own shares increased by CHF 0.6 billion to
CHF 1.1 billion, due to the net purchase of 46 million treasury
shares in order to meet future delivery obligations related to
share-based compensation awards. CHF 0.4 billion in capital
contribution reserves were transferred from the reserve for
own shares to the general statutory reserve. Other reserves in-
creased by CHF 0.5 billion, reflecting the appropriation of 2010
earnings of CHF 1.6 billion, partly offset by a CHF 1.1 billion
transfer to the reserve for own shares.
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413
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
Dividend income from investments in subsidiaries and other participations
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
Impairment of investments in subsidiaries and other participations
Depreciation of fixed assets
Allowances, provisions and losses
Profit before extraordinary items and taxes
Extraordinary income
Extraordinary expenses
Tax expense
Profit / (loss) for the period
414
For the year ended
% change from
Note
31.12.11
11,087
3,989
467
(10,946)
31.12.10
10,853
4,441
312
(12,181)
4,597
326
6,802
616
(1,371)
6,373
3,545
833
758
30
4,441
(2,554)
3,508
18,023
8,309
4,380
12,690
5,333
165
581
153
4,434
1,888
(649)
(232)
5,440
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
1,434
617
181
2,369
3,957
(178)
(25)
6,123
3
4
4
31.12.10
2
(10)
50
(10)
34
11
(19)
(4)
(34)
(13)
(45)
265
(55)
(3)
22
(25)
62
(7)
(19)
(3)
(14)
16
(88)
(6)
(15)
87
(52)
265
828
(11)
Balance sheet
CHF million
Assets
Liquid assets
Money market paper
Due from banks
Due from customers
Mortgage loans
Trading balances in securities and precious metals
Financial investments
Investments in subsidiaries and other participations
Fixed assets
Accrued income and prepaid expenses
Positive replacement values
Other assets
Total assets
of which: subordinated assets
of which: amounts receivable from subsidiaries
Liabilities
Money market paper issued
Due to banks
Trading portfolio liabilities
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
Total liabilities
Equity
Share capital
General statutory reserve
thereof capital contribution reserves
thereof retained earnings
Reserve for own shares
thereof capital contribution reserves
thereof retained earnings
Other reserves
Profit / (loss) for the period
Equity attributable to shareholders
Total liabilities and equity
of which: subordinated liabilities
of which: amounts payable to subsidiaries
Note
31.12.11
31.12.10
% change from
31.12.10
38,094
41,222
231,401
148,474
144,346
120,312
20,193
23,990
4,807
2,114
64,580
6,552
846,085
1,894
288,870
56,788
124,625
32,522
85,393
278,096
1,951
89,361
62,976
6,671
58,994
7,122
1,412
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
146,961
45,550
78,322
260,404
2,605
89,860
79,847
7,634
60,723
4,717
1,424
805,911
828,776
383
32,350
42,537
(10,187)
1,066
1,066
934
5,440
40,174
846,085
12,339
133,696
383
27,379
42,091
(14,712)
432
432
402
6,123
34,719
863,495
14,689
129,243
13
5
13
5
8
9,10
9
44
(44)
12
4
2
(14)
(42)
14
5
29
(1)
3
(2)
(17)
13
12
(15)
(29)
9
7
(25)
(1)
(21)
(13)
(3)
51
(1)
(3)
0
18
1
(31)
147
132
(11)
16
(2)
(16)
3
415
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Financial information
UBS AG (Parent Bank)
Statement of appropriation of retained earnings
Proposed appropriation of retained earnings
The Board of Directors proposes that the Annual General Meeting (AGM) on 3 May 2012 approves the following appropriation of
retained earnings.
CHF million
Profit for the period
Total available for appropriation
Appropriation to other reserves
Total appropriation
For the year ended
31.12.11
5,440
5,440
5,440
5,440
Proposed distribution of capital contribution reserves
The Board of Directors proposes that the AGM on 3 May 2012 approves the pay-out of CHF 0.10 per share of CHF 0.10 par value out of
capital contribution reserves. Provided that the pay-out is approved, the payment of CHF 0.10 per share would be made on 10 May 2012
to holders of record on 9 May 2012. The shares will be traded ex-dividend as of 7 May 2012, and accordingly the last trading day on which
the shares may be traded with entitlement to receive a pay-out will be 4 May 2012.
CHF million, except where indicated
Total capital contribution reserves before proposed distribution
Proposed distribution of capital contribution reserves within general statutory reserves: CHF 0.10 per dividend-bearing share 3
Total capital contribution reserves after proposed distribution
For the year ended
31.12.11
42,537 1, 2
(383)
42,154
1 As presented on the balance sheet, the capital contribution reserves of CHF 42,537 million are a component of the general statutory reserves of CHF 32,350 million after taking into account negative retained earnings
of CHF 10,187 million. 2 Effective 1 January 2011, the Swiss withholding tax law provides that payments out of capital contribution reserves are not subject to withholding tax. The new law has led to interpretational
differences between the Swiss Federal Tax Authorities and companies about the qualifying amounts of capital contribution reserves and the disclosure in the financial statements. In view of this, the Swiss Federal Tax Au-
thorities have confirmed that UBS would be able to repay to shareholders CHF 27.4 billion of disclosed capital contribution reserves without being subject to the withholding tax deduction that applies to dividends paid
out of retained earnings. The decision about the remaining amount has been deferred to a future point in time. 3 Dividend-bearing shares are all shares issued except for treasury shares held by UBS AG on the record
date 9 May 2012.
416
Notes to the Parent Bank financial statements
Note 1 Business activities, risk assessment, outsourcing and personnel
Business Activities
Outsourcing
The business activities of UBS AG are described in the context of
the description of the activities of the UBS Group in the “Operat-
ing environment and strategy” section of this report.
Outsourcing of IT and other services through agreements with
external service providers is in compliance with FINMA circular
08 / 7 “Outsourcing banks”.
Risk assessment
Personnel
UBS AG, as the ultimate parent company of UBS Group, is fully
integrated into the group wide internal risk assessment process
described in the audited part of the “Risk, treasury and capital
management” section of this report.
The Parent Bank employed 36,693 personnel on a full time equiv-
alent basis 31 December 2011 compared with 36,381 personnel
on 31 December 2010.
Note 2 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 39 Swiss banking law requirements” to the consolidated
financial statements. The accounting policies applied for the stat-
utory accounts of the Parent Bank are discussed below. The risk
management of UBS AG is described in the context of the risk
management of UBS Group.
Treasury shares
Treasury shares are own equity instruments held by an entity.
Under Swiss law, treasury shares are recognized in the balance
sheet as trading balances or as Financial investments. Short po-
sitions in treasury shares are presented as Trading portfolio lia-
bilities. 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 val-
ue included in the income statement. Treasury shares recog-
nized as Financial investments are valued according to the prin-
ciples of lower of cost or market value. Realized gains and
losses on the sale or acquisition of treasury shares are recog-
nized in the income statement.
A reserve for own shares held for other than trading pur-
poses must be created in equity through reclassification of free
reserves equal to the cost value of the treasury shares held. Re-
purchases of treasury shares held for other than trading pur-
poses can be made to the extent sufficient free reserves are
available. The Reserve for own shares is not available for distri-
bution 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. All exchange differences are recognized in the in-
come statement.
The main currency translation rates used by the Parent Bank
can be found in “Note 38 Currency translation rates” to the con-
solidated financial statements.
Investments in subsidiaries and other participations
Investments in subsidiaries and other participations are equity in-
terests which are held for the purpose of the Parent Bank’s busi-
ness activities or for strategic reasons. They include all directly
held subsidiaries through which UBS AG conducts its 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 op-
erating losses or a severe depreciation of the currency in which
the investment is denominated. If an investment in subsidiary is
impaired, its value is generally written down to the net asset val-
ue. Subsequent recoveries in value are recognized up to the origi-
417
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Financial information
UBS AG (Parent Bank)
Note 2 Accounting policies (continued)
nal cost value based on either the increased 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 supported. Management
may exercise its discretion as to what extent and in which period
a recovery in value is recognized.
penses mainly include costs for hard revenue transfers between
UBS AG Parent Bank and its subsidiaries and expenses from
lower of cost or market accounting of financial investments.
Hard transfers of costs and revenues are performed on an arm’s
length basis and are settled in cash between UBS AG and its
subsidiaries.
Reversals of impairments are presented as Extraordinary in-
come in the income statement. Impairments of investments
are presented in Profit before extraordinary items and taxes
under Impairment of investments in subsidiaries and other
participations, except for prior period related amounts which
are presented as Extraordinary income or expense. The classi-
fication as extraordinary income or expense of prior period
related amounts is dependent on whether the investment in
the respective subsidiary, on a net basis, is a partial or full re-
versal of impairment (extraordinary income) or an impairment
(extraordinary expenses).
Deferred taxes
Deferred tax assets are not recognized in the Parent Bank financial
statements under Swiss Federal banking law. However, deferred
tax liabilities may be recognized for taxable temporary differenc-
es. The change in the deferred tax liability balance is recognized in
profit or loss.
Equity participation and other compensation plans
Equity participation plans
Under Swiss law, employee share and option awards are recog-
nized as compensation expense and accrued over the perfor-
mance year, which is generally the financial year prior to the grant
date. Equity- and cash-settled 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, no
compensation expense is recognized in the income statement as
these awards are not a liability of UBS. Upon exercise of employee
options, cash received for payment of the strike price is credited
against share capital and general statutory reserve.
Other compensation plans
Fixed and variable deferred cash compensation is recognized as
compensation expenses over the performance year.
Sundry income from ordinary activities and sundry
ordinary expenses
Sundry income from ordinary activities mainly includes income
from hard cost and revenue transfers between UBS AG Parent
Bank and its subsidiaries and income from lower of cost or mar-
ket accounting of financial investments. Sundry ordinary ex-
418
Dispensations in statutory financial statements
As UBS Group prepares consolidated financial statements in ac-
cordance with IFRS, UBS AG (Parent Bank) is dispensed from vari-
ous disclosures in the statutory financial statements. Refer to the
IFRS “Consolidated financial statements” in the “Financial Infor-
mation” section of this report for more information.
Changes in accounting policies, comparability and other
adjustments
Termination of the match funding concept
Match funding was a concept employed by UBS to offset the cur-
rency risk from subsidiaries denominated in a foreign currency by
borrowing the invested amount in that foreign currency. As of
31 October 2011, UBS has terminated this concept and started to
make the borrowings in Swiss francs for subsidiaries denominated
in a foreign currency.
Under the match funding concept, UBS has translated the
match funded foreign investments at the spot exchange rate at
the balance sheet date into Swiss francs. The related foreign cur-
rency gains and losses were reflected in the balance sheet line
Investment in subsidiaries and other participations and recognized
in the income statement; the foreign currency gains and losses of
the borrowing in a foreign currency were also reflected in the in-
come statement.
After the termination of the match funding concept UBS
changed the accounting policy for the foreign currency transla-
tion of investments in subsidiaries. Under the revised policy, the
investments in subsidiaries are reported at cost less impairment
and any life-to-date foreign currency gains and losses are no lon-
ger reflected in the investment in subsidiaries account unless the
investment is considered impaired.
At transition date, the difference between the reversal of the
life-to-date foreign currency gains and losses on investments in
subsidiaries and the consequential and largely offsetting effects
from increased impairments of investment values was recognized
in a deferral account and reported in the balance sheet lines Oth-
er asset (for losses) and Other liabilities (for gains). A small popula-
tion of investments in subsidiaries was written up to cost values
based on historical foreign currency rates in a prior year. Respec-
tive prior year write-ups resulted in a reclassification from the in-
come statement to the deferral accounts.
This change in accounting policy resulted in the following
effects on the balance sheet: an increase of CHF 121 million in
Note 2 Accounting policies (continued)
Investments in subsidiaries and other participations, an in-
crease of CHF 15 million in Other assets and an increase of
CHF 176 million in Other liabilities. The impact to the income
statement for 2011 was CHF 41 million additional expenses
presented as Impairment of investments in subsidiaries and
other participations.
Performance based equity awards
In 2011, UBS changed the accounting policy for the recogni-
tion of compensation expense for performance-based awards
which contain substantive future service / vesting conditions.
Compensation expense for these awards is no longer recog-
nized over the future service period, but is recognized in the
performance year, which is generally the financial year prior to
grant date. The change in accounting policy resulted in the
following effects on the balance sheet and income statement
for 31 December 2011: an increase of CHF 101 million in
Other Liabilities and a corresponding increase of Personnel
Expenses.
Change in the presentation of the Balance sheet – Trading
portfolio liabilities and comparison period
From 2011 onwards, UBS has changed the presentation of Trad-
ing portfolio liabilities to improve transparency. Trading portfolio
liabilities are presented in a separate balance sheet line by trans-
ferring the amounts out of Due to Banks. The presentation of
comparative figures was adjusted accordingly. This change in pre-
sentation impacted neither the income statement nor total assets
and liabilities.
Change in the presentation of the Income statement
From 2011 onwards, UBS has split the income statement line
Depreciation and write-offs on investments in associated compa-
nies and fixed asset into two separate income statement lines Im-
pairment of investments in subsidiaries and other participations
and Depreciation of fixed assets to improve transparency. The pre-
sentation of comparative figures was adjusted accordingly. This
change in presentation impacted neither the income statement
nor total assets and liabilities.
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419
Financial information
UBS AG (Parent Bank)
Additional income statement information
Note 3 Net trading income
CHF million
Investment Bank equities and investment banking
Investment Bank fixed income, currencies and commodities
Other business divisions and Corporate Center
Total
Note 4 Extraordinary income and expenses
CHF million
Gains from sale of subsidiaries and other participations
Reversal of impairments and provisions of subsidiaries and other participations 1
Prior period related income 2
Other extraordinary income
Total extraordinary income
Losses on the disposal of subsidiaries and other participations
Prior period related expenses 3
Total extraordinary expenses
For the year ended
% change from
31.12.11
31.12.10
31.12.10
(53)
2,312
1,286
3,545
1,890
2,326
2,285
6,501
(1)
(44)
(45)
For the year ended
% change from
31.12.11
31.12.10
31.12.10
192
1,352
280
64
1,888
(10)
(639)
(649)
601
2,337
968
51
3,957
(18)
(160)
(178)
(68)
(42)
(71)
25
(52)
(44)
299
265
1 2011 includes prior period related adjustments. 2 In 2011 mainly related to equity compensation plans, hedge accounting and financial liabilities designated at fair value. 3 In 2011 mainly related to valuation cor-
rections on issued structured products, investments in subsidiaries and other participations, hedge accounting and other valuation adjustments, as well as a release of amounts recognized in other liabilities.
420
Additional balance sheet information
Note 5 Other assets and other liabilities
CHF million
Other assets
Deferred pension expenses
Settlement and clearing accounts
VAT and other tax receivables
Other receivables
Total other assets
Other liabilities
Deferral position for hedging instruments
Settlement and clearing accounts
VAT and other tax payables
Other payables
Total other liabilities
31.12.11
31.12.10
2,980
376
99
3,096
6,552
4,400
600
360
1,762
7,122
2,839
499
203
2,832
6,373
1,443
581
444
2,250
4,717
Note 6 Assets pledged or assigned as security for own obligations and assets subject to reservation of title
CHF million
Money market paper 1
Mortgage loans 2
Securities 1
Other
Total
31.12.11
31.12.10
Change in %
Book value
Effective liability
Book value
Effective liability
Book value
Effective liability
10,034
27,841
54,869
4,897
97,640
788
16,966
21,027
0
38,781
31,575
27,119
60,989
5,790
125,473
7,876
15,706
26,308
0
49,890
(68)
3
(10)
(15)
(22)
(90)
8
(20)
(22)
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 trans-
actions, under collateralized credit lines with central banks,
against loans from mortgage institutions, in connection with de-
rivative transactions, as security deposits for stock exchanges and
clearinghouse memberships or transferred for security purposes in
connection with the issuance of covered bonds.
Note 7 Due to UBS pension plans
CHF million
Obligations due to UBS pension plans
For the year ended
% change from
31.12.11
650
31.12.10
682
31.12.10
(5)
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421
Financial information
UBS AG (Parent Bank)
Note 8 Allowances and provisions
CHF million
Default risks
Litigation risks
Operational risks
Retirement benefit plans
Restructuring provisions
Deferred taxes
Other provisions 1
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
31.12.10
Provisions released
to income
New provisions
charged to income
Balance at
31.12.11
(212)
(144)
(14)
(43)
(49)
(59)
(522)
18
5
2
3
(9)
0
4
23
(211)
(34)
(9)
0
(40)
(153)
(447)
243
122
17
48
210
2
158
801
964
151
25
90
80
4
982
2,296
872
1,424
802
101
22
98
191
6
931
2,150
738
1,412
1 Includes provisions of CHF 258 million as of 31 December 2011 (31 December 2010: CHF 230 million) related to parental support provided by UBS AG to subsidiaries in the form of indemnities, letters of support, letters
of undertaking and similar arrangements. Also includes reinstatement cost provisions for leasehold improvements of CHF 70 million as of 31 December 2011 (31 December 2010: CHF 83 million), provisions for onerous
lease contracts and for employee benefits (service anniversaries and sabbatical leave).
Note 9 Statement of shareholders’ equity
CHF million
As of 31.12.09 and 1.1.10
Capital increase
Capital increase related to Mandatory Convert-
ible Notes (MCNs)
Profit / (loss) allocation
Prior year dividend
Profit / (loss) for the period
Changes in reserves for own shares
As of 31.12.10 and 1.1.11
Capital increase
Profit / (loss) allocation
Prior year dividend
Profit / (loss) for the period
Changes in reserves for own shares1
As of 31.12.11
Share
capital
General statutory
reserves
356
27
383
383
30,377
1
(2,999)
27,379
14
4,525
432
32,350
Reserves for
own shares
835
Other
reserves
2,042
Profit / (loss)
for the year
(5,041)
Total shareholders’
equity (before
distribution of profit)
28,569
(402)
432
(2,042)
402
402
5,041
6,123
6,123
1,598
(6,123)
634
1,066
(1,066)
934
5,440
5,440
1
27
0
0
6,123
0
34,719
14
0
0
5,440
0
40,174
1 The reserve for own shares of CHF 432 million at 31 December 2010 consisting of capital contribution reserves was transferred to general statutory reserves following the issue of own shares to settle employee share
awards. Purchases of new shares during 2011 required the transfer of CHF 1,066 million from other reserves to reserves for own shares.
422
Note 10 Share capital and significant shareholders
As of 31.12.11
Issued and paid up
of which: shares outstanding
of which: treasury shares held by UBS AG
Par value
Dividend bearing
No. of shares
Capital in CHF
No. of shares
Capital in CHF
3,832,121,899
383,212,190
3,747,166,348
374,716,635
3,747,166,348
374,716,635
84,751,096
8,475,110
of which: treasury shares held by subsidiaries of UBS AG
204,455
20,446
204,455
20,446
Conditional share capital
As of 31.12.10
Issued and paid up
of which: shares outstanding
of which: treasury shares held by UBS AG
of which: treasury shares held by subsidiaries of UBS AG
Conditional share capital
Conditional share capital
On 31 December 2011, additional 148,639,326 shares could
have been issued to fund UBS‘s employee share option programs.
Further conditional capital of up to 100,000,000 shares was avail-
able in connection with an arrangement with the Swiss National
Bank (SNB). The SNB provided a loan to a fund owned and con-
trolled by the SNB (the SNB StabFund), to which UBS transferred
certain illiquid securities and other positions. As part of this ar-
rangement, UBS granted warrants on shares to the SNB and these
warrants become exercisable if the SNB incurs a loss on its loan to
the SNB StabFund. On 14 April 2010 the annual general meeting
of UBS AG shareholders approved the creation of conditional
capital to a maximum amount of 380,000,000 shares for conver-
sion rights / warrants granted in connection with the issuance of
bonds or similar financial instruments.
Significant shareholders
According to disclosure notifications filed with UBS AG and the
SIX, on 30 September 2011, Norges Bank (the Central Bank of
Norway), Oslo, disclosed under the Swiss Stock Exchange Act, a
holding of 3.04% of the total share capital of UBS AG. On 16
April 2011, the Capital Group Companies, Inc., Los Angeles, dis-
628,639,326
62,863,933
3,830,840,513
383,084,051
3,791,948,482
379,194,848
3,791,948,482
379,194,848
38,487,074
404,957
3,848,707
40,496
629,920,712
62,992,071
404,957
40,496
closed under the Swiss Stock Exchange Act, that their holding of
4.90% of the total share capital of UBS AG, disclosed on 8 June
2010, fell below the threshold of 3%. On 12 March 2010, the
Government of Singapore as beneficial owner, disclosed under
the Swiss Stock Exchange Act, a holding by the Government of
Singapore Investment Corp. of 6.45% of the total share capital of
UBS AG. On 17 December 2009, BlackRock Inc., New York, dis-
closed under the Swiss Stock Exchange Act a holding of 3.45% of
the total share capital of UBS AG. In accordance with the Swiss
Stock Exchange Act, the percentages indicated above were calcu-
lated 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 follow-
ing website of the SIX: http://www.six-exchange-regulation.com/
obligations/disclosure/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 2011 and 2010.
➔ Refer to the “Corporate governance” section of this report for
more information on significant shareholders’ and shareholders
participation rights
Shareholders registered in the UBS shares register with 3% or more of shares issued
31.12.11
Total nominal
Quantity
value CHF million
Chase Nominees Ltd, London
DTC (Cede & Co.), New York 1
Government of Singapore Investment Corp., Singapore
Nortrust Nominees Ltd, London
419,533,402
270,808,806
245,481,682
160,917,513
42
27
25
16
1 DTC (Cede & Co.), New York, “The Depository Trust Company”, is a US securities clearing organization.
Share %
10.95
7.07
6.41
4.20
Quantity
409,822,353
280,355,684
245,481,682
145,038,407
31.12.10
Total nominal
value CHF million
41
28
25
15
Share %
10.70
7.32
6.41
3.79
423
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Financial information
UBS AG (Parent Bank)
Note 11 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.
424
Off-balance-sheet and other information
Note 12 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
31.12.11
131,510
90,102
23,279
126
6,151
31.12.10
102,820
106,304
27,215
168
4,278
% change from
31.12.10
28
(15)
(14)
(25)
44
The table above includes 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 minimum
capitalization of a subsidiary, and therefore no amount is included
in the table above.
irrevocable commitments include cash payment obligations from
forward starting reverse repurchase agreements and securities
borrowing transactions. Irrevocable securities delivery obligations
related to forward-starting repos and securities lending transac-
tions 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.
Note 13 Derivative instruments 1
CHF million
Interest rate contracts
Credit derivative contracts
Foreign exchange contracts
Precious metal contracts
Equity / Index contracts
Commodities contracts, excluding precious metal contracts
Total derivative instruments
Replacement value netting
Replacement values after netting
31.12.11
NRV 3
252,725
62,704
106,117
3,924
18,105
1,012
444,587
385,593
58,994
Notional
amount
CHF billion
36,209
2,737
6,323
99
416
110
45,894
PRV 2
264,146
67,364
97,158
4,193
16,538
775
450,173
385,593
64,580
31.12.10
NRV 3
166,919
50,578
122,843
3,755
19,455
927
364,477
303,754
60,723
Notional
amount
CHF billion
32,963
2,345
6,561
71
483
41
42,463
PRV 2
176,918
57,812
113,514
3,784
16,281
894
369,203
303,754
65,449
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.
Note 14 Fiduciary transactions
CHF million
Deposits:
with third-party banks
with subsidiaries
Total
31.12.11
31.12.10
% change from
31.12.10
9,375
2,346
11,721
11,529
1,740
13,269
(19)
35
(12)
425
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Financial information
UBS AG (Parent Bank)
Compensation of the members of the Board of Directors
and the Group Executive Board
Total compensation for GEB members
CHF, except where indicated a
Variable cash
compensation under CBP
Name, function
Sergio P. Ermotti, Group CEO 1
Oswald J. Grübel, former Group CEO 2
Oswald J. Grübel, former Group CEO
Robert J. McCann, CEO Wealth Management
Americas (highest-paid)
Carsten Kengeter, CEO Investment Bank
(highest-paid)
Aggregate of all GEB members who
were in office on 31 December 2011 3
Aggregate of all GEB members who
were in office on 31 December 2010 3
Aggregate of all GEB members who
stepped down during 2011 4
Aggregate of all GEB members who
stepped down during 2010 4
2011
2011
2010
2011
2010
2011
2010
2011
2010
For the year
Base salary
Immediate
cash b
553,200
Deferred
cash 5, b
1,290,800
Annual
bonus
under PEP c
922,000
Annual
bonus under
SEEOP d
1,844,000
0
0
0
0
0
0
0
0
Benefits
in kind e
195,450
35,971
25,600
Contributions
to retirement
benefit plans f
150,816
0
0
Total
6,350,711
2,227,638
3,025,600
1,394,445
2,191,667
3,000,000
1,321,538
1,869,233
1,246,155
1,557,694
3,115,388
67,053
6,264
9,183,325
874,626
1,002,496
2,339,158
1,670,827
3,341,654
92,547
0
9,321,308
15,962,737
11,929,365
8,874,910
10,402,137
20,804,274
1,165,601
995,290
70,134,314
14,705,894
15,588,145
14,451,756
15,019,951
30,039,901
381,851
843,402
91,030,900
4,155,602
509,201
1,166,759
755,950
1,380,000
920,000
0
0
962,768
171,954
80,499
7,046,783
0
78,817
118,334
3,253,101
1 Sergio P. Ermotti was appointed on 1 April 2011 as GEB member and regional CEO of Europe, the Middle East and Africa. He was appointed on 24 September 2011 the new Group CEO ad interim and confirmed on
15 November 2011. 2 Oswald J. Grübel stepped down on 24 September 2011 as Group CEO. 3 Number and distribution of GEB members: 12 GEB members were in office on 31 December 2011, 13 GEB members
were in office on 31 December 2010. 4 Number and distribution of former GEB members: 2011: includes five months in office as a GEB member for John Cryan, nine months for Oswald J. Grübel and 11 months for
Maureen Miskovic. 2010: includes three months in office as a GEB member for Francesco Morra. 5 In 2011, for Sergio P. Ermotti, due to applicable UK FSA regulations, deferred cash includes blocked shares. In 2010,
for John Cryan, Carsten Kengeter and Alexander Wilmot-Sitwell, due to applicable UK FSA regulations, deferred cash includes blocked shares.
Explanation of the tables outlining compensation details for GEB and BoD members
a. Local currencies are converted into CHF using the exchange rates as detailed in Note 38 “Currency translation rates” to the consolidated financial state-
ments.
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 13.26 for PEP awards granted in 2012 relating to the performance year 2011; CHF 18.70 for PEP awards
granted in 2011 relating to the performance year 2010. These values are based on valuations for accounting purposes which take into account the per-
formance conditions and the range of possible outcomes for these conditions.
d. SEEOP awards vest in equal installments over five years and are subject to forfeiture. The grant date accounting value per share granted under SEEOP is:
CHF 12.76 or USD 14.14 (actual shares) and CHF 12.36 or USD 13.70 (notional shares) for SEEOP awards granted in 2012 relating to the performance
year 2011; CHF 18.43 or USD 19.94 (actual shares) and CHF 18.30 or USD 19.80 (notional shares) for SEEOP awards granted in 2011 relating to the
performance year 2010.
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 compen-
sation of up to CHF 835,200. 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 attrib-
uted to the employer’s portion of the legal BVG requirement. The employee contribution is included in the base salary and annual incentive award com-
ponents. 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:
grandfathered plans and principal 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 com-
pensation limited to USD 250,000 (or USD 150,000 for Wealth Management Americas employees). The principal plans for new hires are defined contribu-
tion plans. In the defined contribution plans, UBS makes contributions to the plan based on compensation and limited to USD 245,000 (USD 250,000 as
from 1 January 2012). 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. As from 2 January 2012 the match is not available anymore for Wealth Management
Americas employees with compensation in excess of USD 250,000. In the UK, management participates in either the principal pension plan, which oper-
ates on a defined contribution basis and is limited to an earnings cap of GBP 100,000, or a grandfathered defined benefit plan which provides a pension
upon retirement based on career average base salary (individual caps introduced as of 1 July 2010).
426
Share and option ownership / entitlements of GEB members on 31 December 2010 / 2011 1
Number of
vested shares
Total number
of shares
Potentially
conferred voting
rights in %
Name, function
For the year
Sergio P. Ermotti, Group Chief Executive Offcier
Oswald J. Grübel, former Group Chief Executive Officer 5
John Cryan, former Group Chief Financial Officer 5
Markus U. Diethelm, Group General Counsel
2011
2010
2011
2010
2011
2010
2011
2010
John A. Fraser, Chairman and CEO Global Asset Management 2011
Lukas Gähwiler, CEO UBS Switzerland and co-CEO
Wealth Management & Swiss Bank
Carsten Kengeter, Chairman and 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
Maureen Miskovic, former Group Chief Risk Officer 5
Tom Naratil, Group Chief Financial Officer
Alexander Wilmot-Sitwell, co-Chairman and co-CEO
Group Asia Pacific
Robert Wolf, former 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
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
Number of
unvested
shares / at risk 2
0
–
–
0
–
221,879
358,042
178,619
460,707
326,702
252,293
110,000
971,575
916,201
389,090
177,592
377,614
200,009
330,047
138,598
–
–
0
–
–
0
–
185,975
91,506
75,700
280,414
316,541
37,517
850
556,016
363,047
95,597
95,597
150,772
144,603
0
540,866
–
–
0
–
–
0
–
407,854
449,548
254,319
741,121
643,243
289,810
110,850
1,527,591
1,279,248
484,687
273,189
528,386
344,612
330,047
679,464
–
–
221,238
193,836
415,074
–
495,553
274,739
–
242,805
306,515
184,858
306,487
113,609
–
220,955
213,613
–
635,382
350,311
318,332
11,756
9,405
–
716,508
488,352
–
878,187
656,826
503,190
318,243
123,014
Number of
options 3
0
Potentially
conferred voting
rights in % 4
0.000
–
–
4,000,000
–
382,673
0
0
1,088,795
1,088,795
0
0
905,000
905,000
0
0
577,723
577,723
0
0
–
–
1,046,122
–
353,807
353,807
–
948,473
623,253
623,253
205,470
205,470
–
–
0.181
–
0.017
0.000
0.000
0.050
0.049
0.000
0.000
0.041
0.041
0.000
0.000
0.026
0.026
0.000
0.000
–
–
0.048
–
0.016
0.016
–
0.043
0.029
0.028
0.009
0.009
0.000
–
–
0.000
–
0.018
0.021
0.012
0.034
0.029
0.013
0.005
0.070
0.058
0.022
0.012
0.024
0.016
0.015
0.031
–
–
0.019
–
0.033
0.022
–
0.040
0.030
0.023
0.015
0.006
1 This table includes all vested and unvested shares and options of GEB members, including related parties. 2 Includes shares granted under variable compensation plans with forfeiture provisions. 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 the plans. 3 Refer to “Note 30 Equity participa-
tion and other compensation plans” to the consolidated financial statements for more information. 4 No conversion rights are outstanding. 5 GEB members who stepped down during 2011.
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427
Financial information
UBS AG (Parent Bank)
Compensation details and additional information for non-independent BoD members
CHF, except where indicated a
Name, function 1
Kaspar Villiger, Chairman
For the year
Base salary
2011
2010
850,000
850,000
Annual bonus
(cash)
0
0
Annual
share award
500,000 2
500,000 2
Benefits in kind e
144,568
141,308
Contributions
to retirement
benefit plans f
0
0
Total
1,494,568
1,491,308
1 Kaspar Villiger was the only non-independent member in office on 31 December 2011 and 31 December 2010, respectively. 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
M
C
C
&
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
e
e
t
t
i
m
m
o
C
k
s
i
R
For the
period
AGM to
AGM
Base fee
Committee
retainer(s)
Benefits
in kind
M
M
M
M
M
M
M
C
M
M
C
M
M
M
M
2011 / 2012 325,000
2010 / 2011 325,000
C 2011 / 2012 325,000
C 2010 / 2011 325,000
2011 / 2012
–
M
2010 / 2011 325,000
M 2011 / 2012 325,000
M 2010 / 2011 325,000
M
M
C
M
2011 / 2012 325,000
2010 / 2011 325,000
2011 / 2012 325,000
2010 / 2011 325,000
M 2011 / 2012 325,000
M 2010 / 2011 325,000
2011 / 2012 325,000
2010 / 2011 325,000
M 2011 / 2012 325,000
M 2010 / 2011 325,000
2011 / 2012 325,000
2010 / 2011 325,000
M
M 2011 / 2012 325,000
2010 / 2011
–
300,000
300,000
500,000
400,000
–
450,000
400,000
400,000
200,000
200,000
550,000
250,000
250,000
200,000
200,000
150,000
300,000
300,000
300,000
300,000
250,000
–
Name, function 1
Michel Demaré, Vice Chairman
David Sidwell,
Senior Independent Director
Sally Bott, former member
Rainer-Marc Frey, member
Bruno Gehrig, member
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member
Joseph Yam, member
Total 2011
Total 2010
Share
percen-
tage 2
50
100
50
50
–
50
100
100
50
50
50
50
100
100
50
50
50
50
50
50
50
–
Number of
shares 3, 4
39,845
52,631
48,952
30,893
–
24,556
62,635
43,583
23,907
16,634
39,845
18,219
49,632
31,519
23,907
15,050
28,460
19,803
28,460
19,803
26,183
–
Total
875,000
Additional
payments
250,000 5
250,000 5
875,000
250,000 5 1,075,000
250,000 5
975,000
–
775,000
725,000
725,000
525,000
525,000
875,000
575,000
575,000
525,000
525,000
475,000
625,000
625,000
625,000
625,000
575,000
–
7,000,000
6,700,000
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 2011. Joseph Yam was appointed at the AGM on 28 April 2011 and Sally Bott stepped down on 11 February 2011. 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. 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 2011, shares valued at CHF 12.92 (average
price of UBS shares at SIX Swiss Exchange over the last 10 trading days of February 2012), included a price discount of 15%, for a new value of discount price CHF 10.98. These shares are blocked for four years. 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 of CHF 15.78.
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 / with-
holding tax. 5 This payment is associated with the Vice Chairman or the Senior Independent Director function, respectively.
428
Total payments to BoD members
CHF, except where indicated a
Aggregate of all BoD members
For the year
2011
2010
Total
8,494,568
8,191,310
Number of shares of BoD members on 31 December 2010 / 2011 1
Name, function
Kaspar Villiger, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Sally Bott, former member 2
Rainer-Marc Frey, member
Bruno Gehrig, member
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member
Joseph Yam, member
For the year
Number of shares held
Voting rights in %
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
49,440
22,500
76,334
23,703
100,247
69,354
–
39,542
100,042
56,459
54,409
37,775
41,441
23,222
89,971
58,452
15,050
0
109,332
89,529
62,618
42,815
0
–
0.002
0.001
0.003
0.001
0.005
0.003
–
0.002
0.005
0.003
0.002
0.002
0.002
0.001
0.004
0.003
0.001
0.000
0.005
0.004
0.003
0.002
0.000
–
1 This table includes blocked and unblocked shares held by BoD members, including related parties. No options were granted in 2010 and 2011. 2 Sally Bott stepped down on 11 February 2011 as BoD member.
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429
Financial information
UBS AG (Parent Bank)
Compensation paid to former BoD and GEB members1
CHF, except where indicated a
Name, function
Alberto Togni, former BoD member
Aggregate of all former GEB members 2
Aggregate of all former BoD and GEB members
For the year
Compensation
Benefits in kind
2011
2010
2011
2010
2011
2010
0
0
0
0
0
0
0
20,493
0
57,229
0
77,722
Total
0
20,493
0
57,229
0
77,722
1 Compensation or remuneration connected with the former member’s activity on the BoD or GEB that is not at market conditions. 2 Includes zero former GEB member in 2011 and one former GEB member in 2010.
Total of all vested and unvested shares of GEB members 1, 2
Shares on 31 December 2011
2,863,887
1,988,680
408,037
290,631
Total
Of which
vested
2012
2013
Of which vesting
2014
88,269
2015
88,269
2011
2012
2013
2014
2016
0
2015
Shares on 31 December 2010
4,409,345 3
2,922,411 3
582,787
411,339
282,754
105,027
105,027
1 Includes related parties. 2 Excludes shares granted under variable compensation plans with forfeiture provisions. 3 Includes 22,500 vested shares of the Chairman.
No individual GEB member holds 1% or more of all shares issued.
Total of all blocked and unblocked shares of BoD members 1
Shares on 31 December 2011
Total
Of which
unblocked
698,884
72,775
Shares on 31 December 2010
440,851 2
46,010 2
1 Includes related parties. 2 Excludes 22,500 vested shares of the Chairman.
No individual BoD member holds 1% or more of all shares issued.
2012
9,349
2011
4,266
Of which blocked until
2013
2014
2015
115,690
225,995
275,075
2012
9,349
2013
2014
127,970
253,256
430
Vested and unvested options of GEB members on 31 December 2010 / 2011 1
For the
year
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Sergio P. Ermotti, Group Chief Executive Officer
John A. Fraser, Chairman and CEO Global Asset Management (continued)
2011
2010
0
–
Oswald J. Grübel, former Group Chief Executive Officer 4
2011
–
2010
4,000,000
4,000,000
2009 26/02/2009 25/02/2014
CHF 10.10
John Cryan, former Group Chief Financial Officer 4
2011
–
2010
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
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
2011
2010
0
0
2010
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
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
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
Markus U. Diethelm, Group General Counsel
2011
2010
0
0
John A. Fraser, Chairman and CEO Global Asset Management
2011
1,088,795
76,380
2002 31/01/2005 31/01/2012
USD 21.24
Carsten Kengeter, Chairman and CEO Investment Bank
2011
2010
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
2011
2010
0
0
Philip J. Lofts, Group Chief Risk Officer
2011
577,723
11,445
2002 31/01/2003 31/01/2012
CHF 36.49
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
117,090
117,227
85,256
74,599
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
2005 01/03/2008 28/02/2015
CHF 52.32
2006 01/03/2009 28/02/2016
CHF 72.57
2007 01/03/2010 28/02/2017
CHF 73.67
2008 01/03/2011 28/02/2018
CHF 35.66
127,884
2002 28/06/2005 28/06/2012
CHF 37.90
2010
577,723
11,445
2002 31/01/2003 31/01/2012
CHF 36.49
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
11,104
11,098
1,240
5,464
1,199
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 all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 30 Equity participation and other compensation plans” to the consolidated finan-
cial statements for more information. 4 GEB members who stepped down during 2011.
431
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Financial information
UBS AG (Parent Bank)
Vested and unvested options of GEB members on 31 December 2010 / 2011 1 (continued)
For the
year
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year
Total
number of
options 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 and co-CEO Group Asia Pacific (cont.)
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
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
2011
2010
0
0
Maureen Miskovic, former Group Chief Risk Officer 4
2011
–
2010
–
Tom Naratil, Group Chief Financial Officer
2011
1,046,122
35,524
35,524
35,521
2002 31/01/2003 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
4,262
2002 29/02/2004 28/02/2012
USD 21.70
63,942
2003 31/01/2006 31/01/2013
USD 22.53
4,262
2003 28/02/2005 28/02/2013
USD 19.53
145,962
2004 01/03/2007 27/02/2014
USD 38.13
166,010
2005 01/03/2008 28/02/2015
USD 44.81
142,198
2006 01/03/2009 28/02/2016
CHF 72.57
131,277
2007 01/03/2010 28/02.2017
CHF 73.67
181,640
2008 01/03/2011 28/02/2018
CHF 35.66
100,000
2009 01/03/2012 27/02/2019
CHF 11.35
35,524
35,521
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
Robert Wolf, former Chairman and CEO, UBS Group Americas /
President Investment Bank
2011
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
Chi-Won Yoon, co-Chairman and co-CEO Group Asia Pacific
2011
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
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
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
2002 28/02/2002 28/02/2012
USD 21.70
2010
–
Alexander Wilmot-Sitwell, co-Chairman and co-CEO Group Asia Pacific
2011
353,807
53,282
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
2010
353,807
85,256
53,282
2008 01/03/2011 28/02/2018
CHF 35.66
2010
623,253
2005 01/03/2008 28/02/2015
CHF 47.58
2,130
2005 04/03/2007 04/03/2015
CHF 47.89
35,524
2006 01/03/2007 28/02/2016
CHF 65.97
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 30 Equity participation and other compensation plans” to the consolidated finan-
cial statements for more information. 4 GEB members who stepped down during 2011.
432
Vested and unvested options of GEB members on 31 December 2010 / 2011 1 (continued)
For the
year
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
For the
year
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Chi-Won Yoon, co-Chairman and co-CEO Group Asia Pacific (continued)
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 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
2011
205,470
809
784
784
4,972
7,106
7,103
7,103
93
161
149
127
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
Jürg Zeltner, CEO UBS Wealth Management and
co-CEO Wealth Management & Swiss Bank (continued)
2010
205,470
7,106
7,103
7,103
110
242
230
221
7,105
7,105
7,103
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
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 30 Equity participation and other compensation plans” to the consolidated finan-
cial statements for more information. 4 GEB members who stepped down during 2011.
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433
Financial information
UBS AG (Parent Bank)
Loans granted to GEB members on 31 December 2010 / 2011 1
CHF, except where indicated a
Name, function
Jürg Zeltner, CEO UBS Wealth Management, co-CEO of Wealth Management & Swiss Bank 3
Jürg Zeltner, CEO UBS Wealth Management, co-CEO of Wealth Management & Swiss Bank 3
Aggregate of all GEB members
For the year
2011
2010
2011
2010
Loans 2
5,387,500
5,739,862
17,539,601 4
20,696,569
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, except for CHF 45,435 in 2011. 3 GEB member with the high-
est loan granted. 4 Includes a loan of CHF 3.3 million that will be forgiven in three equal installments over the next three years, subject to the GEB member’s continued full-time employment with UBS and his perfor-
mance being satisfactory and commensurate with his responsibilities.
Loans granted to BoD members on 31 December 2010 / 2011 1
CHF, except where indicated a
Name, function
Kaspar Villiger, Chairman
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Sally Bott, former member 3
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
Joseph Yam, member
Aggregate of all BoD members
For the year
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
Loans 2
0
0
850,000
850,000
0
0
–
0
0
0
798,000
798,000
0
0
0
0
0
0
0
0
0
0
0
–
1,648,000
1,648,000
1 No loans have been granted to related parties of the BoD members at conditions not customary in the market. 2 All loans granted are secured loans. 3 Sally Bott stepped down on 11 February 2011 as BoD member.
4 Secured loan granted prior to his election to the BoD.
434
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435
Financial information
UBS AG (Parent Bank)
436
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437
Additional disclosure required
under SEC regulations
A – Introduction
The following pages contain additional disclosures about the UBS
Group which are required under SEC regulations. UBS’s consoli-
dated 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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439
Financial information
Additional disclosure required under SEC regulations
B – Selected financial data
The tables below provide information concerning the noon pur-
chase rate for the Swiss franc, expressed in United States dollars,
or USD, 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 29 February 2012, the noon purchase rate was 1.1083 USD
per 1 CHF.
Year ended 31 December
2007
2008
2009
2010
2011
Month
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
1 The average of the noon purchase rates on the last business day of each full month during the relevant period.
Average rate 1
(USD per 1 CHF)
At period end
0.8381
0.9298
0.9260
0.9670
1.1398
0.8827
0.9369
0.9654
1.0673
1.0668
High
0.9087
1.0142
1.0016
1.0673
1.3706
High
1.2719
1.1616
1.1353
1.0947
1.0939
1.1174
Low
0.7978
0.8171
0.8408
0.8610
1.0251
Low
1.1022
1.0837
1.0765
1.0493
1.0466
1.0842
440
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
Capital strength
BIS tier 1 ratio, Basel 2.5 (%) 1
BIS tier 1 ratio, Basel II (%) 1
BIS total ratio, Basel 2.5 (%) 1
BIS total ratio, Basel II (%) 1
BIS risk-weighted assets, Basel 2.5 1
BIS risk-weighted assets, Basel II 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
31.12.11
31.12.10
31.12.09
31.12.08
31.12.07
As of or for the year ended
1,419,162
1,317,247
1,340,538
2,014,815
2,274,891
53,447
3.5
42,843
46,820
3.0
58,803
41,013
1.9
57,108
32,531
1.5
43,519
36,875
1.8
108,654
3,832,121,899
3,830,840,513
3,558,112,753
2,932,580,549
2,073,547,344
84,955,551
38,892,031
37,553,872
61,903,121
158,105,524
15.9
19.6
17.2
21.6
240,962
198,494
2,167
23,188
6,674
4,182
162
21,746
1,177
7,690
64,820
17.8
20.4
15.4
19.8
11.0
15.0
9.1
12.2
198,875
2,152
206,525
2,233
302,273
2,174
374,421
3,189
23,284
6,634
4,122
137
22,031
1,147
7,263
64,617
24,050
6,204
4,145
134
22,702
1,132
6,865
65,233
26,406
7,071
4,817
145
27,362
1,984
9,998
77,783
27,884
8,813
4,776
139
29,921
2,054
9,973
83,560
1 Capital management data as of 31 December 2011 is disclosed in accordance with the Basel 2.5 framework. Comparative data under the new framework is not available for the prior periods. The comparative information
under the Basel II framework is therefore provided. Refer to “Capital management” in the “Risk, treasury and capital management” section of this report for more information. The calculation as of 31 December 2007 is
based on the Basel I approach.
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441
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
Cash dividends declared per share (CHF) 3,4
Cash dividends 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
31.12.11
17,969
(11,143)
6,826
(84)
6,742
15,236
4,343
1,467
27,788
22,439
5,350
923
4,426
0
4,427
268
4,159
80.5
1.10
1.08
0.10
9.1
8.5
8.5
0.3
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
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)
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)
N/A
N/A
N/A
(58.7)
(60.6)
(0.9)
31.12.07
109,112
(103,775)
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)
N/A
N/A
N/A
(10.5)
(10.6)
(0.2)
1 Operating expenses / operating income before credit loss expense. 2 For EPS calculation, refer to "Note 8 Earnings per share" in the consolidated Financial Statements. 3 Distributions paid in the form of dividends
or capital contributions reserves are normally approved and paid in the year subsequent to the reporting period. 4 For the year 2011, an amount of CHF 0.10 per share will be paid out of capital contribution reserves
on 10 May 2012, subject to approval by shareholders at the Annual General Meeting on 3 May 2012. The USD amount per share will be determined on 7 May 2012. For the 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. The
calculation excludes expected deductions for distributions paid in form of dividends or capital contribution reserves.
442
Balance sheet data
CHF million
Assets
Total assets
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
of which: 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
31.12.11
31.12.10
31.12.09
31.12.08
31.12.07
1,419,162
1,317,247
1,340,538
2,014,815
2,274,891
23,218
58,763
213,501
181,525
39,936
486,584
41,322
266,604
53,174
12,465
30,201
8,136
102,429
39,480
473,400
67,114
88,982
342,409
140,617
61,692
53,447
17,133
62,454
142,790
228,815
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
232,258
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
312,054
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
774,372
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
The following table sets forth UBS’s ratio of earnings to fi xed charges on an IFRS basis for the periods indicated. The ratios are cal-
culated based on earnings from continuing operations. Ratios of earnings to combined fi xed charges and preferred stock dividend
requirements are not presented as there were no preferred share dividends in any of the periods indicated.
31.12.11
1.43
31.12.10
1.53
31.12.09
0.82
31.12.08
0.53
31.12.07
0.96
For the year ended
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443
Financial information
Additional disclosure required under SEC regulations
C – Information on the company
Property, plant and equipment
At 31 December 2011, UBS operated about 877 business and
banking locations worldwide, of which about 42% were in Swit-
zerland, 42% 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 upgrading and are con-
sidered suitable and adequate for current and anticipated opera-
tions.
444
D – Information required by industry guide 3
Selected statistical information
The following tables set forth selected statistical information re-
garding the Group’s banking operations extracted from the Finan-
cial Statements. Unless otherwise indicated, average balances for
the years ended 31 December 2011, 31 December 2010 and
31 December 2009 are calculated from monthly data. The distinc-
tion between domestic and foreign is generally based on the
booking location. For loans, this method is not significantly differ-
ent from an analysis based on the domicile of the borrower.
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445
Financial information
Additional disclosure required under SEC regulations
Average balances and interest rates
The following table sets forth average interest-earning assets and average interest-bearing liabilities, along with the average yield, for
the years ended
31.12.11
31.12.10
31.12.09
Average
balance
Interest
income
Average
yield (%)
Average
balance
Interest
income
Average
yield (%)
Average
balance
Interest
income
Average
yield (%)
3,465
17,623
22
142
8,025
281,544
12,821
189,861
1,313
191,174
21
37,696
493
8,262
15
1,485
299
5,163
4
5,167
0
324
0
248
182,125
82,755
4,604
2,409
4
611
611
501
15,830
1,923
216
17,969
3,465
60,026
60,026
12,001
901,496
901,496
410,839
5,420
88,900
1,406,655
13
60
8
1,221
231
5,769
15
5,784
306
0
262
18
539
539
0
484
16,431
2,234
207
18,872
0.6
0.8
0.2
0.5
2.3
2.7
0.3
2.7
3,037
14,280
11,277
296,252
14,150
212,430
2,033
214,463
0.9
49,095
568
9,128
1,712
74,821
3.0
2.5
2.9
0.1
1.0
1.0
74,821
0
15,227
973,206
4.2
1.8
2.0
973,206
471,046
5,884
81,876
1,532,012
56
260
30
2,385
228
6,915
7
6,922
282
0
316
21
143
143
0
517
21,044
2,203
214
23,461
0.4
0.4
0.1
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
179,164
90,032
4,921
2,584
179,680
105,791
5,676
4,208
1.6
1.6
0.3
0.6
2.1
2.6
0.3
2.5
0.4
2.7
3.2
4.0
2.1
0.5
0.5
3.8
1.9
2.1
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 income on swaps
Interest income on off-balance sheet securities
Interest income and average interest-earning assets
Non-interest-earning assets
Positive replacement values
Fixed assets
Other
Total average assets
446
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
Interest expense on off-balance sheet securities
Interest expense and average 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
1 Due to customers in foreign offices consists mainly of time deposits.
31.12.11
31.12.10
31.12.09
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
25,672
10,250
8,836
168,429
1,095
52,373
357
58,731
1,548
91,920
95,679
82,004
6,672
184,355
145,772
1,303
57,873
12,705
57,830
36,926
915,975
259
93
12
969
26
2,826
281
10
1,982
132
422
41
595
696
4
382
126
2,394
116
10,772
371
1.0
0.9
0.1
0.6
2.3
5.4
0.5
0.7
2.2
0.1
0.5
0.6
0.3
0.5
0.3
0.7
1.0
4.1
0.3
1.2
29,400
10,318
12,089
176,098
1,068
59,672
361
69,223
878
108,405
85,838
75,802
7,977
169,617
168,099
1,140
53,454
13,462
68,267
0
37,996
979,547
253
99
8
893
37
3,757
0
242
3
2,389
106
409
49
564
756
9
394
142
2,661
0
69
12,276
381
0.9
1.0
0.1
0.5
3.5
6.3
0.3
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
36,248
34,205
11,321
195,991
1,411
58,091
30
84,747
934
106,690
64,872
68,042
13,075
145,989
220,860
971
85,904
11,152
76,961
219
245
37
1,760
55
3,823
0
278
17
2,838
98
521
451
1,070
1,971
27
1,280
153
2,771
0
41,139
1,112,644
0
90
16,634
382
0.6
0.7
0.3
0.9
3.9
6.6
0.3
1.8
2.7
0.2
0.8
3.4
0.7
0.9
2.8
1.5
1.4
3.6
0.2
1.5
915,975
11,143
979,547
12,657
1,112,644
17,016
402,535
34,590
1,353,100
53,555
1,406,655
459,987
40,418
1,479,952
52,060
1,532,012
641,028
54,720
1,808,392
42,749
1,851,141
6,826
6,215
6,446
0.8
0.6
0.6
The percentage of total average interest-earning assets attrib-
utable to foreign activities was 77% for 2011 (78% for 2010
and 81% for 2009). The percentage of total average interest-
bearing liabilities attributable to foreign activities was 74% for
2011 (77% for 2010 and 81% for 2009). All assets and liabili-
ties are translated into CHF at uniform month-end rates. Inter-
est 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 in-
cluded 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.
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Financial information
Additional disclosure required under SEC regulations
Analysis of changes in interest income and expense
The following tables allocate, by categories of interest-earning
assets and interest-bearing liabilities, the changes in interest in-
come and expense due to changes in volume and interest rates
for the year ended 31 December 2011 compared with the year
ended 31 December 2010, and for the year ended 31 Decem-
ber 2010 compared with the year ended 31 December 2009.
Volume and rate variances have been calculated on movements
in average balances and changes in interest rates. Changes due
to a combination of volume and rates have been allocated pro-
portionally. Refer to the appropriate section of Industry Guide 3
for a discussion of the treatment of impaired and non-perform-
ing loans.
2011 compared with 2010
2010 compared with 2009
Increase / (decrease)
due to changes in
Increase / (decrease)
due to changes in
Average
volume
Average
interest rate
Net
change
Average
volume
Average
interest rate
Net
change
2
13
(3)
(59)
(21)
(609)
(5)
(614)
0
(68)
0
(25)
80
(211)
19
(104)
0
(104)
0
(103)
77
(1,171)
(1,094)
7
69
10
323
89
3
(6)
(3)
0
86
0
11
(397)
36
(33)
176
0
176
0
120
(325)
818
493
(6)
(31)
4
(509)
67
(1,514)
0
(1,514)
0
(78)
0
(69)
(17)
(630)
15
233
0
233
0
55
63
(2,543)
(2,480)
(37)
(169)
(26)
(655)
(64)
368
8
376
0
102
0
15
(738)
(994)
(18)
163
0
163
0
(88)
(883)
(1,250)
(2,133)
9
82
7
264
68
(606)
(11)
(617)
0
18
0
(14)
(317)
(175)
(14)
72
0
72
0
17
(248)
(353)
(601)
(311)
9
(903)
(43)
(200)
(22)
(1,164)
3
(1,146)
8
(1,138)
0
24
0
(54)
(755)
(1,624)
(3)
396
0
396
0
(33)
(820)
(3,793)
(4,613)
31
(7)
(4,589)
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
Interest income on off-balance sheet securities
Total interest income
448
Analysis of changes in interest income and expense (continued)
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-bearing liabilities
Interest expense on off-balance sheet securities
Total interest expense
2011 compared with 2010
2010 compared with 2009
Increase / (decrease)
due to changes in
Increase / (decrease)
due to changes in
Average
volume
Average
interest rate
Net
change
Average
volume
Average
interest rate
Net
change
(34)
(1)
(3)
(38)
1
(460)
0
(31)
2
(363)
10
31
(8)
33
(89)
1
31
(8)
(407)
0
(2)
(8)
(1,360)
(1,368)
40
(5)
7
114
(12)
(471)
0
70
5
(44)
16
(18)
0
(2)
29
(6)
(43)
(8)
140
0
49
25
(161)
(136)
6
(6)
4
76
(11)
(931)
0
39
7
(407)
26
13
(8)
31
(60)
(5)
(12)
(16)
(267)
0
47
17
(1,521)
(1,504)
(10)
(1,514)
(41)
(167)
2
(179)
(13)
104
0
(47)
(1)
46
42
62
(173)
(69)
(475)
5
(487)
32
(313)
0
(6)
75
21
(31)
(688)
(5)
(170)
0
11
(13)
(495)
(34)
(174)
(229)
(437)
(740)
(23)
(399)
(43)
203
0
(15)
(85)
(1,524)
(1,609)
(477)
(2,272)
(2,749)
34
(146)
(29)
(867)
(18)
(66)
0
(36)
(14)
(449)
8
(112)
(402)
(506)
(1,215)
(18)
(886)
(11)
(110)
0
(21)
(562)
(3,796)
(4,358)
(1)
(4,359)
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449
Financial information
Additional disclosure required under SEC regulations
Deposits
The following table analyzes average deposits and average
rates on each deposit category listed below for the years ended
31 December 2011, 2010 and 2009. 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 66,540 million, CHF 63,953 million and CHF 54,957 million
at 31 December 2011, 31 December 2010 and 31 December
2009, 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 2
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
31.12.11
31.12.10
31.12.09
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
1,402
2,063
3,465
17,623
21,088
95,679
82,004
6,672
184,355
34,414
111,358
145,772
330,127
0.0
2.8
1.6
1.0
1.1
0.1
0.5
0.6
0.3
0.1
0.6
0.5
0.4
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
1 Mainly time deposits. 2 Due to banks is considered to represent short-term borrowings to the extent these liabilities exceed Due from banks. The remainder of Due to banks is considered to represent deposits for the
purpose of this disclosure.
At 31 December 2011, the maturity of time deposits was as follows:
Domestic
6,479
1,066
437
285
103
Foreign
80,330
5,870
2,971
972
96
8,370
90,239
CHF million
Within 3 months
3 to 6 months
6 to 12 months
1 to 5 years
Over 5 years
Total time deposits
450
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 2011, 2010 and 2009.
Short-term debt
CHF million, except where indicated
31.12.11
31.12.10
31.12.09
31.12.11
Period-end balance
Average balance
Maximum month-end balance
Average interest rate during the period (%)
Average interest rate at period-end (%)
71,377
59,175
71,377
0.7
0.7
56,039
54,594
64,941
0.7
0.7
51,579
86,875
125,812
1.5
0.9
6,966
14,834
20,080
1.0
1.0
Due to banks 1
31.12.10
24,332
22,401
37,886
0.9
1.0
31.12.09
15,086
50,838
70,985
0.7
0.6
Repurchase agreements 2
31.12.10
31.12.11
31.12.09
152,121
170,442
194,684
0.4
0.3
150,024
178,458
207,828
0.4
0.4
136,811
195,613
272,443
0.7
0.3
1 Presented net of Due from banks to reflect short-term borrowings. The difference between the gross Due to banks amount and the amount disclosed here is presented as deposits from banks on the preceding page.
2 Repurchase agreements are presented on a gross basis, and therefore, for the purpose of this disclosure, do not reflect the effect of netting permitted under IFRS.
Contractual maturities of investments in debt instruments available-for-sale 1, 2
CHF million, except percentages
31 December 2011
Swiss national government and agencies
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities
Mortgage-backed securities
Other debt instruments
Total fair value 3
CHF million, except percentages
31 December 2010
Swiss national government and agencies
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities 4
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 4
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 (%)
226
10,082
18,751
3,267
32,326
0.21
0.24
0.42
0.73
130
5,891
2,338
1,592
9,951
0.88
0.21
0.83
1.47
0.76
3.04
10.87
4.47
1,157
2
6
1
1,166
4.00
6.76
10.54
2.42
1
24
7
8,540
8,573
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
8,792
4,552
1
1
13,345
1.62
3.28
5.38
13.09
4.00
5.20
15.84
3.04
1
28
4
4,089
4,122
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
1 Debt instruments without fixed maturities are not disclosed in this table. 2 Average yields are calculated on an amortized cost basis. 3 Includes CHF 25,677 million of investments in debt instruments issued by US
government and government agencies and CHF 8,854 million of investments in debt instruments issued by Japanese government and government agencies as of 31 December 2011. 4 Absolute Return Bonds (ARBs)
had been purchased below par and therefore generated a yield of 15.8% in 2010 (21.8% in 2009).
451
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Additional disclosure required under SEC regulations
Due from banks and loans (gross)
The Group’s lending portfolio is widely diversified across indus-
try sectors with no significant concentrations of credit risk. CHF
161.7 billion (55.6% of the total) consists of loans to thou-
sands of private households, predominantly in Switzerland,
and mostly secured by mortgages, financial collateral or other
assets. Exposure to Banks and Financial institutions amounted
to CHF 66.3 billion (22.8% 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 2011 is CHF 14.3 billion (4.9%
of the total) to Services. For further discussion of the loan port-
folio, refer to the “Risk management and control” section of
this report.
The following table illustrates the diversification of the loan
portfolio among industry sectors at 31 December 2011, 2010,
2009, 2008 and 2007. 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. Loans designated at fair value and loans held in the trad-
ing portfolio are excluded from the tables below.
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
31.12.11
31.12.10
31.12.09
31.12.08
31.12.07
566
1,292
4,257
1,831
3,252
120,671
2,992
13,169
4,433
5,770
3,131
1,130
1,356
3,735
1,803
3,192
119,796
4,908
12,252
4,101
5,718
3,117
609
1,381
4,370
1,882
3,374
119,432
3,785
11,745
4,288
5,702
3,423
1,056
1,554
5,984
1,811
3,739
119,285
4,042
11,921
4,781
5,935
3,523
735
1,594
5,322
1,824
3,768
121,536
4,734
11,489
4,647
5,875
3,712
161,364
161,108
159,991
163,632
165,235
22,669
16,028
392
750
746
38,802
1,955
1,979
41,045
5,459
2,158
2,044
8,529
2,068
703
129,300
290,664
351
952
525
41,307
2,010
2,463
31,361
9,858
1,420
1,711
9,534
1,652
841
120,014
281,121
16,227
2,358
741
653
43,345
2,547
2,217
33,166
10,781
1,110
1,438
8,180
2,474
734
16,659
2,765
566
1,064
60,198
4,126
2,859
33,216
8,075
3,821
1,873
9,530
3,115
577
25,269
635
848
789
36,389
3,743
3,412
42,219
2,739
4,595
1,807
8,502
1,345
970
125,969
285,960
148,444
312,076
133,263
298,498
1 Includes Due from banks and Loans from Industrial Holdings of CHF 27 million at 31 December 2007. 2 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply.
3 Includes food and beverages, hotels and restaurants.
452
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
2011, 2010, 2009, 2008 and 2007. 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
31.12.11
31.12.10
31.12.09
31.12.08
31.12.07
138,204
8,818
147,022
125,775
21,247
147,022
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
Due from banks and loan maturities (gross)
CHF million
Domestic
Banks
Mortgages
Other loans
Total domestic
Foreign
Banks
Mortgages
Other loans
Total foreign
Total gross
Within 1 year
1to 5 years
Over 5 years
Total
520
56,619
17,474
74,613
21,894
6,214
69,237
97,345
171,958
27
56,473
3,890
60,390
716
1,598
16,354
18,668
79,058
19
25,112
1,230
26,361
59
1,006
12,222
13,287
39,648
566
138,204
22,594
161,364
22,669
8,818
97,813
129,300
290,664
At 31 December 2011, 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
71,884
7,174
79,058
28,232
11,416
39,648
Total
100,116
18,590
118,706
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453
Financial information
Additional disclosure required under SEC regulations
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 evi-
dence that it will be made good by later payments or the liqui-
dation of col lateral; 2) when insolvency proceedings have com-
menced; or 3) when obligations have been restructured on
concessionary terms.
The table below provides an analysis of the Group’s non-per-
forming loans. For further information, see “Credit risk” in the
“Risk, treasury and capital management” section of this report.
CHF million
Non-performing loans:
Domestic
Foreign
Total non-performing loans
CHF million
Gross interest income that would have been recorded on non-performing loans:
Domestic
Foreign
Interest income included in Net profit for non-performing loans:
Domestic
Foreign
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. Refer to the
“Credit risk” section of this report for more information. Instead,
specific loan allowances are established as necessary. Unrecog-
nized interest related to restructured loans was not material to the
results of operations in 2011, 2010, 2009, 2008 or 2007.
In addition to the non-performing loans shown above, the
Group has CHF 626 million, CHF 2,466 million, CHF 1,463 mil-
lion, CHF 4,442 million and CHF 911 million in “other impaired
loans” for the years ended 31 December 2011, 2010, 2009, 2008
and 2007, respectively.
31.12.11
31.12.10
31.12.09
31.12.08
31.12.07
1,199
329
1,529
1,164
563
1,727
1,462
3,940
5,402
1,431
3,272
4,703
1,349
132
1,481
31.12.11
31.12.10
31.12.09
31.12.08
31.12.07
10
9
29
6
11
35
35
19
13
89
41
30
16
7
32
6
39
6
40
2
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 2011, 2010,
2009, 2008 and 2007, they are loans not considered “non-per-
forming” in accordance with Swiss regulatory guidelines. As of
31 December 2011, 31 December 2010, 31 December 2009,
31 December 2008 and 31 December 2007, specific allowances
of CHF 308 million, CHF 536 million, CHF 410 million, CHF 941
million and CHF 124 million, respectively, had been established
against these loans.
454
Cross-border outstandings
Cross-border outstandings consist of balances with central banks
and other financial institutions, loans, reverse repurchase agree-
ments and cash collateral on securities borrowed with counter-
parties domiciled outside Switzerland. Guarantees and commit-
ments are provided separately in the table below.
Effective 2011, UBS has revised its basis for the disclosure of
cross-border outstandings. Cross-border outstandings presented
below generally reflect our gross exposure. Previously, our disclo-
sures were based on UBS’s internal risk view, which considered the
risk-reducing effect of collateral and other credit enhancements. In
previous years, cross-border outstandings also included exposures
in relation to over-the-counter (OTC) derivatives and exchange-
traded (ETD) derivatives, which were represented as a credit equiva-
lent based on UBS’s internal risk measures, as well as exposures
related to debt securities. UBS revised these disclosures in order to
better align with the financial statement presentation. Prior periods
have been restated to reflect the new basis for disclosure.
The following tables list those countries for which cross-border
outstandings exceeded 0.75% of total IFRS assets at 31 December
2011, 2010 and 2009. As of 31 December 2011, there were no
outstandings that exceeded 0.75% of total IFRS assets in any coun-
try currently facing debt restructuring or liquidity problems that the
Group expects would materially impact the country’s ability to ser-
vice its obligations. Aggregate country risk exposures are moni-
tored and reported on an ongoing basis by the risk control organi-
zation, based on an internal framework. The internal risk view is
not directly comparable to the cross-border outstandings in the ta-
ble below due to different approaches to netting, differing trade
populations and differing approach to allocation of exposures to
countries. For more information on the country framework within
risk control, refer to the “Credit risk” section of this report.
CHF million
United States
United Kingdom
Japan
France
CHF million
United States
United Kingdom
Japan
France
Canada
Germany
CHF million
United States
United Kingdom
Germany
France
Private sector
Public sector
outstandings
% of total assets
31.12.11
Total
107,132
37,945
13,566
12,830
10,000
6,116
3,020
72
31.12.10
232,084
57,740
20,385
18,122
16.4
4.1
1.4
1.3
Private sector
Public sector
Total outstandings
% of total assets
88,297
36,044
3,467
8,245
2,049
5,883
11,879
3,635
9,299
71
0
195
31.12.09
158,326
60,529
17,049
12,223
11,332
10,506
12.0
4.6
1.3
0.9
0.9
0.8
Private sector
Public sector
Total outstandings
% of total assets
100,098
37,363
5,542
4,170
16,978
1,931
5,120
226
158,370
55,917
14,660
14,230
11.8
4.2
1.1
1.1
Guarantees and
Commitments1
46,285
13,487
7,090
8,034
Guarantees and
Commitments2
40,606
4,010
94
2,140
1,336
2,463
Guarantees and
Commitments2
38,140
5,088
4,045
2,659
Banks
114,952
13,679
3,799
5,220
Banks
58,151
20,850
4,284
3,907
9,283
4,427
Banks
41,295
16,622
3,997
9,834
1 Includes forward starting transactions (reverse repurchase agreements and securities borrowing agreements). 2 Excludes forward starting transactions.
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455
Financial information
Additional disclosure required under SEC regulations
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 the case of debt forgiveness. Under Swiss law, a credi-
tor 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
31.12.11
1,287
31.12.10
2,820
31.12.09
3,070
31.12.08
1,164
31.12.07
1,332
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 gross 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 gross foreign write-offs
Total usage of provisions
Total write-offs / usage of provisions
Recoveries
Domestic
Foreign
Total recoveries
(8)
(17)
0
(31)
(59)
0
(3)
(37)
(21)
(6)
(183)
(8)
0
0
(39)
0
0
(72)
(175)
(7)
0
(1)
0
0
(303)
(14)
(501)
50
1
51
(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
Total net write-offs / usage of provisions
(450)
(1,427)
Increase / (decrease) in specific allowances and provisions recognized
in the incomestatement
Increase / (decrease) in collective loan loss allowances recognized
in the income statement
Foreign currency transaction
Other adjustments recognized in the income statement
Balance at end of year 4
0
84
17
0
938
67
(2)
(173)
0
1,287
(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
(37)
(51) 3
2,820
(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)
(43)
(223) 3
3,070
(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)
(9)
(131)
1,164
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. 4 Included allowances for cash collateral on securities borrowed.
456
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 2011, 2010, 2009, 2008
and 2007. For a description of procedures with respect to allow-
ances and provisions for credit losses, refer to the “Risk manage-
ment and control” section of this report.
CHF million
Domestic
Banks
Construction
Financial services
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 1
Total domestic specific allowances
Foreign
Banks 2
Chemicals
Construction
Electricity, gas and water supply
Financial services
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 3
Total foreign specific allowances
Collective loan loss allowances
Provisions for loan commitments and guarantees
Total allowances and provisions for credit losses 4
31.12.11
31.12.10
31.12.09
31.12.08
31.12.07
1
15
19
6
65
77
0
14
131
24
28
379
16
8
6
1
96
23
0
60
33
10
15
28
39
0
335
131
93
938
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
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Counterparty allowances only. 3 Includes food and beverages, hotels and restaurants. 4 Includes allow-
ances for cash collateral on securities borrowed.
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457
Financial information
Additional disclosure required under SEC regulations
Due from banks and loans by industry sector (gross)
The following table presents the percentage of loans in each industry sector and geographic location to total loans. This table can be
read in conjunction with the preceding table showing the breakdown of the allowances and provisions for credit losses by industry
sectors to evaluate the credit risks in each of the categories.
In %
Domestic
Banks 1
Construction
Financial services
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 services
Manufacturing
Mining
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Transport, storage and communication
Other 3
Total foreign
Total gross
31.12.11
31.12.10
31.12.09
31.12.08
31.12.07
0.2
0.4
1.5
0.6
1.1
41.5
1.0
4.5
1.5
2.0
1.1
55.5
7.8
0.1
0.3
0.3
13.3
0.7
0.7
14.1
1.9
0.7
0.7
2.9
0.7
0.2
0.4
0.5
1.3
0.6
1.1
42.6
1.7
4.4
1.5
2.0
1.1
57.3
5.7
0.1
0.3
0.2
14.7
0.7
0.9
11.2
3.5
0.5
0.6
3.4
0.6
0.3
0.2
0.5
1.5
0.7
1.2
41.8
1.3
4.1
1.5
2.0
1.2
55.9
5.7
0.8
0.3
0.2
15.2
0.9
0.8
11.6
3.8
0.4
0.5
2.9
0.9
0.3
0.3
0.5
1.9
0.6
1.2
38.2
1.3
3.8
1.5
1.9
1.1
52.4
5.3
0.9
0.2
0.3
19.3
1.3
0.9
10.6
2.6
1.2
0.6
3.1
1.0
0.2
0.2
0.5
1.8
0.6
1.3
40.7
1.6
3.8
1.6
2.0
1.2
55.4
8.5
0.2
0.3
0.3
12.2
1.3
1.1
14.1
0.9
1.5
0.6
2.8
0.5
0.3
44.5
100.0
42.7
100.0
44.1
100.0
47.6
100.0
44.6
100.0
1 Includes Due from banks and Loans from industrial holdings of CHF 27 million at 31 December 2007. 2 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply.
3 Includes food and beverages, hotels and restaurants.
458
Loss history statistics
CHF million, except where indicated
Due from banks and loans (gross)
Impaired loans (including due from banks)
Non-performing loans (including due from banks)
Allowances and provisions for credit losses 1, 2
of which: allowances for due from banks and loans 1
Net write-offs 3
of which: net write-offs for due from banks and loans
Credit loss (expense) / recovery 4
of which: credit loss (expense) / recovery for due from banks and loans
Ratios
Impaired loans as a percentage of due from banks and loans (gross)
Non-performing loans as a percentage of due from banks and loans (gross)
Allowances as a percentage of due from banks and loans (gross)
Net write-offs as a percentage of average due from banks and loans (gross)
outstanding during the period
31.12.11
290,664
2,155
1,529
938
842
449
413
(84)
(126)
0.7
0.5
0.3
0.1
31.12.10
281,121
31.12.09
285,960
31.12.08
312,076
31.12.07
298,498
4,193
1,727
1,287
1,111
1,427
1,428
(66)
(24)
1.5
0.6
0.4
0.5
6,865
5,402
2,820
2,680
1,994
1,882
(1,832)
(1,776)
2.4
1.9
0.9
0.6
9,145
4,703
3,070
2,927
824
212
(2,996)
(2,329)
2.9
1.5
0.9
0.1
2,392
1,481
1,164
1,031
266
266
(238)
(172)
0.8
0.5
0.3
0.1
1 Includes collective loan loss allowances. 2 Includes provisions for loan commitments and allowances for securities borrowing transactions. 3 Includes net write-offs for loan commitments and securities borrowing
transactions. 4 Includes credit loss (expense) / recovery for loan commitments and securities borrowing transactions.
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459
UBS registered shares
(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:27)(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:19)
(cid:19)(cid:23)(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: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:19)(cid:51)(cid:19)(cid:19)
(cid:20)(cid:51)(cid:19)(cid:19)
(cid:21)(cid:51)(cid:19)(cid:19)
(cid:22)(cid:51)(cid:19)(cid:19)
(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 and market capitalization
Share price (CHF)
Market capitalization (CHF million) 1
31.12.11
11.18
42,843
As of
31.12.10
15.35
58,803
31.12.09
16.05
57,108
% change from
31.12.10
(27)
(27)
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 mandatory convertible notes placed with two investors in March 2008 and converted in March 2010. Refer to “Note 8 Earnings per share (EPS) and shares
outstanding” in the “Financial information” section of this report for more information.
UBS ordinary shares are registered shares with a par value of CHF
0.10 per share. They are issued in the form of global registered
shares. A global registered share is a security that provides direct
and equal ownership for all shareholders. It can be traded and
transferred across applicable borders without the need for con-
version, with identical shares traded on different stock exchanges
in different currencies. The shares are currently listed on the SIX
Swiss Exchange and the New York Stock Exchange.
➔ Refer to the “Capital structure” section of this report for more
information on our shares, including par value, type and rights
of security
Over the course of 2011, UBS shares declined 27% on the SIX
and 28% in US dollar terms on the NYSE. The global banking sec-
tor as measured by the Dow Jones Banks Titans 30 Index declined
24% in Swiss franc terms and 25% in US dollar terms.
Ticker symbols
Trading exchange
SIX
NYSE
Bloomberg
UBSN VX
UBS UN
Reuters
UBSN.VX
UBS.N
Security identification codes
ISIN
Valoren
Cusip
CH0024899483
2 489 948
CINS H89231 33 8
461
(cid:19)(cid:23)(cid:18)(cid:16)(cid:18)(cid:18)
(cid:19)(cid:19)(cid:26)(cid:16)(cid:25)(cid:23)
(cid:26)(cid:25)(cid:16)(cid:23)(cid:18)
(cid:23)(cid:24)(cid:16)(cid:20)(cid:23)
(cid:20)(cid:23)(cid:16)(cid:18)(cid:18)
Result presentations:
Our quarterly results presentations are webcast live. A playback of
most presentations is downloadable at www.ubs.com/presenta-
tions.
Messaging service / UBS news alert:
On the www.ubs.com/newsalerts website, it is possible to sub-
scribe to receive news alerts about UBS via SMS or e-mail. Mes-
sages are sent in English, German, French or Italian and it is pos-
sible to state theme preferences for the alerts received.
Form 20-F and other submissions to the US Securities and
Exchange Commission:
We file periodic reports and submit other information about
UBS to the US Securities and Exchange Commission (SEC). Prin-
cipal among these filings is the annual report on Form 20-F, filed
pursuant to the US Securities Exchange Act of 1934. The filing
of Form 20-F is structured as a “wrap-around” document. Most
sections of the filing can be satisfied by referring to parts of the
annual report. However, there is a small amount of additional
information in Form 20-F which is not presented elsewhere, and
is particularly targeted at readers in the US. Readers are encour-
aged to refer to this additional disclosure. Any document that
we file with the SEC is available to read and copy on the SEC’s
website, www.sec.gov, or at the SEC’s public reference room at
100 F Street, N.E., Room 1580, Washington, DC, 20549. Please
call the SEC by dialing +1-800-SEC-0330 for further informa-
tion on the operation of its public reference room. Please visit
http://www.ubs.com/investors for more information.
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 and performance; the strategy and perfor-
mance of the business divisions and the Corporate Center; risk,
treasury and capital management; corporate governance, respon-
sibility and senior management and Board of Directors compensa-
tion; 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 English, German,
French and Italian. Compensation Report (SAP no. 82307): The
report discusses compensation for senior management and the
Board of Directors (non-independent and independent). It is pub-
lished in English and German.
Quarterly publications:
Letter to shareholders: The letter provides a quarterly update from
executive management on our strategy and performance. The let-
ter is published in English, German, French and Italian. Financial
report (SAP no. 80834): The quarterly financial report provides an
update on our strategy and performance for the respective quar-
ter. 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 in the “Financial infor-
mation” section. Printed copies can be ordered from the same
website by accessing the “Order print publications” 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, F4UK–AUL, P.O. Box, CH-8098 Zurich,
Switzerland.
Other information
Website
The “Investor Relations” website at www.ubs.com/investors pro-
vides the following information on UBS: press releases; financial
information (including results-related filings with the US Securities
and Exchange Commission); corporate information, including
UBS share price charts and data and dividend information; the
UBS corporate calendar; and presentations by management for
investors and financial analysts. Information on the internet is
available in English and German.
462
Annual Report 2011 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 Aktieng-
esellschaft, 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
www.ubs.com/contact
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.
Computershare
480 Washington Boulevard
Jersey City, NJ 07310-1900, USA
sh-relations@melloninvestor.com
www.bnymellon.com/shareowner/equityaccess
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 2012 results
Wednesday, 2 May 2012
Publisher: UBS AG, Zurich and Basel, Switzerland | www.ubs.com
Languages: English / German | SAP-No. 80531E
Annual General Meeting
Thursday, 3 May 2012
Publication of second quarter 2012 results
Tuesday, 31 July 2012
Publication of third quarter 2012 results
Tuesday, 30 October 2012
© UBS 2012. The key symbol and UBS are among the registered and
unregistered trademarks of UBS. All rights reserved.
www.multiclimate.ch
463
Annual Report 2011
Cautionary Statement Regarding Forward-Looking Statements | This report contains statements that constitute “forward-looking statements”, including
but not limited to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives
on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters
described, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations.
These factors include, but are not limited to: (1) 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 reduce its Basel III risk-weighted assets in order to comply with future Swiss capital requirements without materially ad-
versely affecting its profitability; (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; (5) possible constraints or sanctions that regulatory authorities
might impose on UBS, including as a consequence of the unauthorized trading incident announced in September 2011; (6) changes in UBS’s competitive position,
including whether differences in regulatory capital and other requirements among the major financial centers will adversely affect UBS’s ability to compete in
certain lines of business, (7) the liability to which UBS may be exposed due to litigation, contractual claims and regulatory investigations, some of which stem from
the market events and losses incurred by clients and counterparties during the financial crisis of 2007–2009; (8) the effects on UBS’s cross-border banking business
of international tax treaties recently negotiated by Switzerland and future tax or regulatory developments; (9) 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; (10) UBS’s ability to retain and
attract the employees necessary to generate revenues and to manage, support and control its businesses; (11) changes in accounting standards or policies, and
accounting determinations affecting the recognition of gain or loss, the valuation of goodwill and other matters; (12) limitations on the effectiveness of UBS’s
internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (13) whether UBS will be successful in keep-
ing pace with competitors in updating its technology, particularly in trading businesses; and (14) the occurrence of operational failures, such as fraud, unauthor-
ized 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 2011. UBS is not under any obliga-
tion to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as a result of new information, future events, or oth-
erwise.
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