Annual Report 2012
Our performance in 2012
Contents
Letter to shareholders
2
6 Key figures
8 UBS and its businesses
10 Our Board of Directors
12 Our Group Executive Board
14 The making of UBS
1. Operating environment
and strategy
18 Current market climate and industry drivers
21 Regulatory developments
24 Our strategy
32 Measurement of performance
35 Wealth Management
38 Wealth Management Americas
41
44 Global Asset Management
48 Retail & Corporate
50 Corporate Center
52 Regulation and supervision
55 Risk factors
Investment Bank
2. Financial and
operating performance
66 Critical accounting policies
70 Significant accounting and financial reporting
structure changes
72 UBS results
84 Balance sheet
88 Off-balance sheet
92 Cash flows
94 Wealth Management
100 Wealth Management Americas
106
112 Global Asset Management
119 Retail & Corporate
123 Corporate Center
Investment Bank
3. Risk, treasury and
capital management
132 Risk management and control
136 Credit risk
154 Market risk
161 Operational risk
164 Treasury management
165
Liquidity and funding management
Interest rate and currency management
172
174 Capital management
184 Basel 2.5 Pillar 3
4. Corporate governance, responsibility
and compensation
222 Corporate governance
249 Corporate responsibility
263 Our employees
270 Compensation
5. Financial
information
317 Consolidated financial statements
331 Notes to the consolidated financial statements
457 UBS AG (Parent Bank)
487 Additional disclosure required under
SEC regulations (including industry guide 3)
Appendix
509 UBS shares
510
511 Cautionary statement
Information sources
Annual Report 2012
Letter to shareholders
Dear shareholders,
2012 was an important milestone in our firm’s history. We cele-
brated our 150th anniversary and also began executing our strat-
egy to position the bank for sustainable success amidst the on-
going changes in our industry. Our anniversary gave us the
opportunity to reflect on our strong heritage together with clients
and other stakeholders around the globe, deepening existing rela-
tionships and establishing new ones. UBS has a long tradition of
adapting successfully to change while maintaining the qualities of
excellence and client focus which have always been our hallmarks.
2012 was such a year of adaptation, during which we took deci-
sive action to prepare the bank for the future.
At the end of 2011, we defined a clear strategic direction for our
firm designed to address the challenges of an operating and regu-
latory environment that is fundamentally changing. Our strategy
is shaped by the firm’s guiding principles that place our clients’
interests first and demands we aim for excellence in everything
we do in order to deliver sustainable performance. We believe our
capital strength, enhanced risk controls and efforts to drive opera-
tional efficiency are also prerequisites for success in the changed
environment.
Our strategy focuses on our pre-eminent wealth management
businesses and leading universal bank in Switzerland, comple-
mented by Global Asset Management and the Investment Bank. In
2012, we made excellent progress in further building our industry-
leading capital position and exceeded our targets for risk-weight-
ed asset reduction. We continued to implement Group-wide cost
reduction and efficiency measures, and strengthened our opera-
tional risk controls significantly. In October, from a position of
strength, we announced the acceleration of the implementation
of our strategy in two crucial areas: significantly reducing the risk,
complexity and balance sheet usage associated with our Invest-
ment Bank’s activities; and implementing firm-wide programs to
enhance operational excellence and efficiency. We are pleased that
our actions have been well received by our clients, shareholders
and bondholders.
As the world’s leading wealth management firm we consider capi-
tal strength to be crucial for future success and, on a Basel III fully
applied basis, we believe we are the best-capitalized global bank.
Our fully applied Basel III common equity tier 1 ratio¹ increased by
310 basis points to end the year at 9.8%, already very close to our
regulator’s minimum 2019 requirement of 10%. On a phase-in
basis, our Basel III common equity tier 1 ratio¹ increased 460 basis
points to 15.3%. Another notable achievement during the year
was the successful issuance of USD 4 billion of Basel III-compliant,
low-trigger, loss-absorbing capital bonds. Reducing risk-weighted
assets and our balance sheet size is crucial to our plans to further
strengthen our capital ratios. We reduced our Basel III fully applied
risk-weighted assets significantly, finishing the year 32% lower
than at the end of 2011. We were particularly effective in reducing
risk-weighted assets in the Investment Bank and our Legacy Port-
folio. The vast majority of the reductions achieved in our Invest-
ment Bank and in our Legacy Portfolio resulted from sales and
other reductions of exposures. Over the year we reduced our bal-
ance sheet by CHF 158 billion, which we expect will lower our
funding costs in future. We maintained our strong liquidity and
funding positions, ending 2012 with a Basel III estimated pro-for-
ma liquidity coverage ratio of 113% and an estimated pro-forma
net stable funding ratio of 108%. Both ratios are comfortably
above the regulatory requirements of 100%. Our increased finan-
cial strength allowed us the flexibility to execute our strategy, pro-
vided reassurance for our clients, shareholders and other stake-
holders, and enabled us to address issues of the past, both those
specific to UBS and others that apply to the industry as a whole.
Maintaining cost discipline and ensuring we operate as effectively
as possible is also critical to the long-term success of the firm. As
previously announced, we are targeting total cost savings of CHF
5.4 billion, including incremental cost savings of CHF 3.4 billion in
addition to the CHF 2 billion cost-savings program announced in
August 2011. In 2012, we continued to make progress in reduc-
ing our underlying cost base, and have achieved CHF 1.4 billion of
effective run-rate cost-reductions since mid-2011, excluding for-
eign exchange movements and the increase in legal expenses in
2012. Over the next three years we expect to make significant
investments that will enable us to serve our clients with greater
agility, improving quality and speed to market.
Strong operational risk controls enable us to deploy appropriate
levels of risk in order to better serve our clients and generate sus-
tainable financial performance. During the year we strengthened
these controls further and stepped up our efforts to reinforce a
culture of accountability and responsibility. Nevertheless, there is
no room for complacency and we will remain vigilant to ensure
that the appropriate checks and balances are in place. As a result
of our success in building our capital ratios and our efforts to re-
1 The pro-forma Basel III information is not required to be presented because Basel III requirements were not in effect on 31 December 2012. Such measures are non-GAAP financial measures
as defined by SEC regulations. We nevertheless include information on the basis of Basel III requirements because they are effective as of 1 January 2013 and significantly impact our RWA and
eligible capital. The calculation of our pro-forma Basel III RWA combines existing Basel 2.5 RWA, a revised treatment for low-rated securitization exposures that are no longer deducted from
capital but are risk-weighted at 1250%, and new model-based capital charges. Some of these new models require final regulatory approval and therefore our pro-forma calculations include
estimates (discussed with our primary regulator) of the effect of these new capital charges which will be refined as models and the associated systems are enhanced.
2
Axel A. Weber Chairman of the Board of Directors Sergio P. Ermotti Group Chief Executive Officer
3
Annual Report 2012
Letter to shareholders
duce costs and operational risks we will be better able to focus
our energies and resources on driving growth in our businesses.
In 2012, we made substantial progress towards achieving our
strategic objectives and recorded a resilient underlying perfor-
mance. However, our overall results for the year were affected by
the costs involved in shaping the business for future success and
in connection with litigation and regulatory matters to address
issues from the past, including the settlements reached in relation
to LIBOR. Consequently, we reported a pre-tax loss of CHF 1,774
million and a net loss attributable to UBS shareholders of CHF
2,511 million. Diluted earnings per share for the year were nega-
tive CHF 0.67. Adjusted for the effects of own credit, restructur-
ing charges, goodwill impairments, and credits related to changes
in benefit and pension plans, we recorded a pre-tax profit of CHF
3.0 billion.
We made solid progress across all businesses in 2012. Notably,
our Wealth Management business continued to see success in the
fastest growing global markets while adapting to the new cross-
border paradigm. Together, our wealth management businesses
attracted strong net new money inflows totaling almost CHF 47
billion, an increase of over CHF 11 billion on 2011 and an illustra-
tion of our clients’ trust. Wealth Management Americas contin-
ued to make strong progress and achieved a record pre-tax profit
of USD 873 million, an increase of 40% on 2011. Our Retail &
Corporate business delivered a resilient pre-tax performance and
continued to regain market share. It performed exceptionally well
in relation to net new business volume growth, which reached
almost 5%, and recorded deposit inflows of CHF 14 billion, in-
cluding the highest net new client assets for retail clients in Swit-
zerland since 2001. Global Asset Management achieved an in-
creased pre-tax profit in a difficult year for the asset management
industry, as it delivered stronger investment performance to its
clients. The Investment Bank beat our targets in relation to risk-
weighted asset and balance-sheet reductions, allowing the firm to
reach its current industry-leading capital ratios. It performed well
in many of its traditional areas of competitive strength, expanding
in equity and debt capital markets and global syndicated finance.
Its foreign exchange business continued to benefit from the in-
vestments we made in cutting edge e-trading systems, enabling it
to grow volumes significantly.
As a result of our achievements in 2012, particularly in relation to
capital, and as a sign of confidence in our continued ability to
execute our strategy in a disciplined manner, we are recommend-
ing a 50% increase in our dividend for our shareholders for 2012
to CHF 0.15 per share.
As a firm, we believe that it is important that we play an active
and constructive role within the communities in which we do
business. Throughout 2012, our employee volunteering and com-
munity affairs programs contributed to a wide variety of commu-
nity-based projects around the world. We remained focused on
supporting education and entrepreneurship alongside efforts to
promote sustainable business practices, including environmental
practices. In 2012, we supported educational and entrepreneur-
ship activities around the world, investing over CHF 40 million. A
large part of this investment was allocated to the new UBS Inter-
national Center of Economics in Society at the University of Zu-
rich, which we set up to commemorate the firm’s 150th anniver-
sary. The center facilitates top-quality international economic
research that examines interrelationships between society and the
economy and promotes the transfer of knowledge. On the envi-
ronmental front, we continue to take our responsibilities very seri-
ously and are pleased to report that we met our ambitious CO2
emissions reduction target. External experts from the most signifi-
cant climate change-focused investors’ initiative, the Carbon Dis-
closure Project, ranked UBS as the industry leader in the banking
sector and among the top 10 companies worldwide for our mea-
sures to combat climate change. Shareholders can also help us to
achieve our environmental ambitions by opting to read our finan-
cial publications electronically through our Investor Relations
website instead of taking delivery of printed copies.
4
During the year, the Board of Directors ensured that UBS re-
mained focused on its priorities. It successfully oversaw the con-
tinued implementation of our strategy designed to create a firm
that will thrive in the new banking environment. It ensured that
we made progress in addressing the issues of the past while
driving measures to reinforce a culture of accountability and
responsibility. It also continued to engage in dialogue with
stakeholders on a broad range of issues important to the firm
and its future. Together with the bank’s management, the
Board initiated in-depth discussions with our larger sharehold-
ers to gain a better understanding of their views with regard to
improving the firm’s compensation plans and disclosures. As
part of this report, you will see we took this feedback into ac-
count in developing our best practice compensation structures
for 2012. We believe the changes we implemented better align
the interests of our shareholders, bondholders, regulators and
other stakeholders with those of the firm, specifically its need to
continue executing its strategy successfully going forward. To
strengthen our corporate governance, we have established an
integrated shareholder portal which will be operational from
the end of March 2013. Our registered shareholders will be able
to use the portal to issue instructions for the exercise of their
voting rights after having provided a written appointment of an
independent proxy. In addition, the Board has decided that the
firm will no longer act as a corporate proxy and will no longer
represent the voting rights carried by deposited shares at the
next annual general meeting.
In other Board-related developments, Wolfgang Mayrhuber has
announced his decision not to stand for re-election to the Board
of Directors at the firm’s Annual General Meeting (AGM) of
Shareholders on 2 May 2013. We would like to express our grat-
itude to Wolfgang for his dedication and commitment to UBS
and the valuable expertise he brought to the firm as a member of
the Board of Directors, Chair of the Corporate Responsibility
Committee and member of the Human Resources and Compen-
sation Committee. The Board has announced that it will nomi-
nate Reto Francioni for election to the Board at the AGM in May.
Reto has been Chief Executive Officer of the Deutsche Börse AG
since 2005. Prior to this he was President and Chairman of the
SWX Group in Zurich and is an internationally acknowledged
expert with a long track record in international capital markets
and banking. Subject to his election at the AGM, we believe Reto
Francioni will further strengthen the Board bringing his unique
experience and insights to the firm.
Ultimately the firm’s success rests upon the endeavors of all our
employees. We would both like to take this opportunity to thank
our employees for their continued hard work, dedication and
professionalism throughout what was a challenging year. In
2012, our employees continued to put our clients’ interests first
while adapting to and implementing the transformation of the
firm. Through their efforts we made demonstrable progress in
executing our strategy, putting our firm in a far stronger position
than it was a year ago. We are convinced our strategy is the
right one for UBS, and are determined to maintain our track re-
cord of successful execution in 2013 for the benefit of all our
stakeholders.
14 March 2013
Yours sincerely,
UBS
Axel A. Weber
Chairman of the
Board of Directors
Sergio P. Ermotti
Group Chief Executive Officer
5
Annual Report 2012
Key figures
CHF million, except where indicated
Group results
Operating income
Operating expenses
Operating profit / (loss) from continuing operations before tax
Net profit / (loss) attributable to UBS shareholders
Diluted earnings per share (CHF) 1
Key performance indicators 2, balance sheet and capital management, and additional information
Performance
Return on equity (RoE) (%)
Return on tangible equity (%) 3
Return on risk-weighted assets, gross (%) 4
Return on assets, gross (%)
Growth
Net profit growth (%) 5
Net new money growth (%) 6
Efficiency
Cost / income ratio (%)
Capital strength
BIS tier 1 capital ratio (%) 7
FINMA leverage ratio (%) 7
Balance sheet and capital management
Total assets
Equity attributable to UBS shareholders
Total book value per share (CHF) 8
Tangible book value per share (CHF) 8
BIS core tier 1 capital ratio (%) 7
BIS total capital ratio (%) 7
BIS risk-weighted assets 7
BIS tier 1 capital 7
Additional information
Invested assets (CHF billion) 9
Personnel (full-time equivalents)
Market capitalization 10
As of or for the year ended
31.12.12
31.12.11
31.12.10
25,443
27,216
(1,774)
(2,511)
(0.67)
(5.2)
1.6
12.0
1.9
N/A
1.6
106.5
21.3
6.3
1,259,232
45,895
12.25
10.52
19.0
25.2
192,505
40,982
2,230
62,628
54,729
27,788
22,482
5,307
4,138
1.08
9.1
11.9
13.7
2.1
(44.5)
1.9
80.7
15.9
5.4
1,416,962
48,530
12.95
10.36
14.1
17.2
240,962
38,370
2,088
64,820
42,843
31,994
24,650
7,345
7,452
1.94
18.0
24.7
15.5
2.3
N/A
(0.8)
76.9
17.8
4.5
1,314,813
43,728
11.53
8.94
15.3
20.4
198,875
35,323
2,075
64,617
58,803
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 “Measure-
ment of performance” section of this report. 3 Net profit attributable to UBS shareholders before amortization and impairment of goodwill and intangible assets / average equity attributable to UBS shareholders less average
goodwill and intangible assets. 4 Based on Basel 2.5 risk-weighted assets for 2012. Based on Basel II risk-weighted assets for 2011 and 2010. 5 Not meaningful and not included if either the reporting period or the com-
parison period is a loss period. 6 Group net new money includes net new money for Retail & Corporate and excludes interest and dividend income. 7 Capital management data is disclosed in accordance with the Basel
2.5 framework for 31 December 2012 and 31 December 2011, and in accordance with the Basel II framework for 31 December 2010. Refer to the “Capital management” section of this report for more information.
8 Refer to the “Capital management” section of this report for more information. 9 In 2012, we refined our definition of invested assets. Refer to “Note 35 Invested assets and net new money” in the “Financial information”
section of this report for more information. Group invested assets includes invested assets for Retail & Corporate. 10 Refer to the appendix “UBS shares” of this report for more information.
6
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 AG.
UBS AG is incorporated and domiciled in
Switzerland and operates under Swiss Company
Law and Swiss Federal Banking Law as an
Aktien gesellschaft, a corporation that has issued
shares of common stock to investors.
The addresses and telephone numbers of our two
registered offices are: Bahnhofstrasse 45, CH-8001
Zurich, Switzerland, phone +41-44-234 11 11;
and Aeschenvorstadt 1, CH-4051 Basel,
Switzerland, phone +41-61-288 50 50.
UBS AG shares are currently listed on the SIX Swiss
Exchange and the New York Stock Exchange.
Contacts
Switchboards
For all general queries.
Zurich +41-44-234 1111
London +44-20-7568 0000
New York +1-212-821 3000
Hong Kong +852-2971 8888
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, 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
UBS AG, Office of the Company Secretary
P.O. Box, CH-8098 Zurich, Switzerland
Calls from the US +866-541 9689
Calls from outside the US +1-201-680 6578
sh-company-secretary@ubs.com
Fax +1-201-680 4675
Hotline +41-44-234 3628
Fax +41-44-234 6603
Corporate calendar
Imprint
Publication of the first quarter 2013 report
Tuesday, 30 April 2013
Publisher: UBS AG, Zurich and Basel, Switzerland | www.ubs.com
Language: English | SAP-No. 80531E
Annual General Meeting
Thursday, 2 May 2013
Publication of the second quarter 2013 report
Tuesday, 30 July 2013
Publication of the third quarter 2013 report
Tuesday, 29 October 2013
© UBS 2013. The key symbol and UBS are among the registered and
unregistered trademarks of UBS. All rights reserved.
Printed in Switzerland on chlorine-free paper with mineral oil-reduced inks.
Paper production from socially responsible and ecologically sound forestry
practices.
7
Annual Report 2012
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 leading universal bank in Switzerland. Together with a client-focused Investment Bank and a strong, well-diversified
Global Asset Management business, we will expand our premier wealth management franchise and drive further
growth across the Group. Headquartered in Zurich and Basel, Switzerland, we have offices in more than 50 countries,
including all major financial centers, and approximately 63,000 employees. UBS AG is the parent company of the UBS
Group (Group). Under Swiss company law, UBS AG is organized as an Aktiengesellschaft, a corporation that has issued
shares of common stock to investors. The operational structure of the Group comprises the Corporate Center and five
business divisions: Wealth Management, Wealth Management Americas, the Investment Bank, Global Asset Manage-
ment and Retail & Corporate.
Wealth Management provides comprehensive financial services to
wealthy private clients around the world – except those served by
Wealth Management Americas. Its clients benefit from the entire
spectrum of UBS resources, ranging from investment manage-
ment to estate planning and corporate finance advice, in addition
to specific wealth management products and services. An open
product platform provides clients with access to a wide array of
products from third-party providers that complement our own
product lines.
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.
The Investment Bank provides a range of products and services in
equities, fixed income, foreign exchange and commodities to cor-
porate and institutional clients, sovereign and government bod-
ies, financial intermediaries, alternative asset managers and UBS’s
wealth management clients. The Investment Bank is an active par-
ticipant in capital markets flow activities, including sales, trading
and market-making across a range of securities. It provides finan-
cial solutions to its clients, and offers advisory and analytics ser-
vices in all major capital markets.
Starting with reporting for the first quarter of 2013, it offers
investment banking and capital markets, research, equities, for-
eign exchange, precious metals and tailored fixed income services
in rates and credit through its two business units, Corporate
Client Solutions and Investor Client Services.
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, currencies, hedge funds, real estate, infrastructure
and private equity that can also be combined into multi-asset
strategies. The fund services unit provides professional services,
including fund set-up, accounting and reporting for traditional
investment funds and alternative funds.
8
Retail & Corporate provides comprehensive financial products and
services to our retail, corporate and institutional clients in Switzer-
land and maintains a leading position in these client segments. It
constitutes a central building block of our universal bank model in
Switzerland, delivering growth to our other businesses. It sup-
ports them by cross-selling products and services provided by our
asset-gathering and investment banking businesses, by referring
clients to them and by transferring private clients to Wealth Man-
agement due to increased client wealth.
The Corporate Center provides control functions for the business
divisions and the Group in such areas as risk control, legal and
compliance as well as finance including treasury services, fund-
ing, balance sheet and capital management. The Corporate
Center – Core Functions provides all logistics and support func-
tions including information technology, human resources, corpo-
rate development, Group regulatory relations and strategic initia-
tives, communications and branding, corporate real estate and
administrative services, procurement, physical and information
security, offshoring as well as Group-wide operations. It allocates
most of its treasury income, operating expenses and personnel
associated with these activities to the businesses based on capital
and service consumption levels. The Corporate Center also en-
compasses certain centrally managed positions, including the
SNB StabFund option, the Legacy Portfolio and, starting with re-
porting for the first quarter of 2013, non-core businesses previ-
ously part of the Investment Bank.
9
Annual Report 2012
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, Axel A. Weber, all members of the BoD are independent.
1
5
9
2
6
10
3
7
11
4
8
12
10
1 Axel A. Weber Chairman of the Board of Directors, Chairperson of the Governance and Nominating Committee and member of the Corporate
Responsibility Committee 2 Isabelle Romy 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 Beatrice Weder di Mauro Member
of the Audit Committee and Corporate Responsibility Committee 5 William G. Parrett Chairperson of the Audit Committee and member of the Corporate
Responsibility Committee 6 Wolfgang Mayrhuber Chairperson of the Corporate Responsibility Committee and member of the Human Resources and
Com pensation Committee 7 Michel Demaré Independent Vice Chairman, member of the Audit Committee and the Governance and Nominating Commit-
tee 8 Axel P. Lehmann Member of the Governance and Nominating Committee and the Risk Committee 9 Ann F. Godbehere Chairperson of the
Human Resources and Compensation Committee and member of the Audit Committee 10 Rainer-Marc Frey Member of the Human Resources and
Compensation Committee and the Risk Committee 11 Joseph Yam Member of the Corporate Responsibility Committee and the Risk Commit-
tee 12 Helmut Panke Member of the Human Resources and Compensation Committee and the Risk Committee
11
Annual Report 2012
Our Group Executive Board
The management of the firm is delegated by the Board of Directors to the Group Executive Board.
Under the leadership of the Group Chief Executive Officer, the Group Executive Board 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.
1
5
9
2
6
10
3
7
11
4
8
12
1 Sergio P. Ermotti Group CEO 2 Lukas Gähwiler CEO UBS Switzerland and CEO Retail & Corporate 3 Ulrich Körner Group Chief Operating Officer
and CEO UBS Group Europe, Middle East and Africa 4 Philip J. Lofts Group Chief Risk Officer 5 Robert J. McCann CEO Wealth Management Americas
and CEO UBS Group Americas 6 Jürg Zeltner CEO UBS Wealth Management 7 Tom Naratil Group CFO 8 Chi-Won Yoon CEO UBS Group Asia Pacific
9 Andrea Orcel CEO Investment Bank 10 John A. Fraser Chairman and CEO Global Asset Management 11 Markus U. Diethelm Group General Counsel
13
Annual Report 2012
The making of UBS
UBS has played a pivotal role in the development and growth of Switzerland’s banking tradition since the firm’s origins
in the mid-19th century. In 2012, the year of our 150th anniversary, we accelerated our strategic transformation of the
firm to create a business model that is better adapted to the new regulatory and market circumstances and that we
believe will result in more consistent and high-quality returns.
The origins of the banking industry in Switzerland can be traced
back to medieval times. This long history may help explain the
widespread impression, reinforced in popular fiction, that Swit-
zerland 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 Swit-
zerland 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
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14
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the Bank in Winterthur. SBC marked its centenary in 1972 with
celebrations in honor of its founding forebear, the Basler Bank-
verein. The historical roots of Paine-Webber, acquired by UBS in 2000,
go back to 1879, while S.G. Warburg, the central pillar upon which
UBS’s Investment Bank was built, commenced operations in 1946.
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 Switzerland.
tive culture, its meritocracy and its team-oriented approach.
O’Connor brought state-of-the-art risk management and deriva-
tives technology to SBC, and in 1992 SBC moved to fully acquire
O’Connor. In 1994, SBC added to its capabilities when it ac-
quired Brinson Partners, a leading US-based institutional 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.
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-larg-
est 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 innova-
The 1998 merger of SBC and Union Bank of Switzerland into
the firm we know today created a world-class wealth manager and
the largest 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.
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(cid:19)(cid:27)(cid:27)(cid:25)
(cid:19)(cid:27)(cid:26)(cid:25)
(cid:19)(cid:27)(cid:27)(cid:23)
(cid:19)(cid:27)(cid:26)(cid:27)
(cid:36)(cid:84)(cid:75)(cid:80)(cid:85)(cid:81)(cid:80)(cid:2)
(cid:50)(cid:67)(cid:84)(cid:86)(cid:80)(cid:71)(cid:84)(cid:85)
(cid:19)(cid:27)(cid:27)(cid:22)
(cid:19)(cid:27)(cid:25)(cid:25)
(cid:49)(cid:111)(cid:37)(cid:81)(cid:80)(cid:80)(cid:81)(cid:84)(cid:2)(cid:8)(cid:2)(cid:35)(cid:85)(cid:85)(cid:81)(cid:69)(cid:75)(cid:67)(cid:86)(cid:71)(cid:85)
(cid:19)(cid:27)(cid:27)(cid:20)
(cid:19)(cid:27)(cid:27)(cid:25)
(cid:19)(cid:27)(cid:26)(cid:24)
(cid:19)(cid:27)(cid:27)(cid:26)
(cid:19)(cid:27)(cid:22)(cid:20)(cid:2)
(cid:50)(cid:67)(cid:75)(cid:80)(cid:71)(cid:14)(cid:2)(cid:57)(cid:71)(cid:68)(cid:68)(cid:71)(cid:84)(cid:14)(cid:2)(cid:44)(cid:67)(cid:69)(cid:77)(cid:85)(cid:81)(cid:80)(cid:2)(cid:8)(cid:2)(cid:37)(cid:87)(cid:84)(cid:86)(cid:75)(cid:85)
(cid:19)(cid:27)(cid:25)(cid:22)(cid:2)(cid:50)(cid:67)(cid:75)(cid:80)(cid:71)(cid:57)(cid:71)(cid:68)(cid:68)(cid:71)(cid:84)(cid:14)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16)
(cid:20)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:27)(cid:25)(cid:27)
(cid:19)(cid:27)(cid:25)(cid:25)
15
Annual Report 2012
Since 2000, UBS has established a strong footprint in the Asia-
Pacific region and the emerging markets based on a presence in
many of these countries going back decades. Our new global reach
found expression through our new global UBS brand identity, intro-
duced in 2003.
The firm’s progress was evident in 2006, the most successful
year in its history. However, in 2007 the effects of the global fi-
nancial crisis started to be felt across the financial industry. This
crisis had its origins in the securitized financial product business
linked to the US residential real estate market. Between the third
quarter of 2007 and the fourth quarter of 2009, UBS incurred
significant losses on these assets. The firm responded with deci-
sive action designed to reduce risk exposures and stabilize its busi-
nesses, including raising capital on multiple occasions.
More recently, UBS continued to improve its capital strength to
meet new and enhanced industry-wide regulatory requirements.
Our position as one the world’s best-capitalized banks, together
with our stable funding and sound liquidity positions, provide us
with a solid foundation for our success. In October 2012, from
this position of strength, we announced a significant acceleration
in the implementation of our strategy. This announcement under-
lined our commitment to transform UBS into a less capital- and
balance-sheet-intensive business that is more focused on serving
clients and more capable of maximizing value for shareholders.
We are well prepared for the future with a clear strategy and a
solid financial foundation.
➔ Refer to www.ubs.com/history for more detailed information on
UBS’s 150 years of history
Our 150th anniversary: an occasion to build and deepen relationships
In 2012, we celebrated our firm’s 150th
anniversary, marking the occasion by
redoubling efforts to enhance our social
and charitable commitments around
the world. Throughout our anniversary
year, we connected with thousands
of our clients worldwide through celebra-
tions in Switzerland and at our major
business locations. All business regions
organized and undertook events and
other activities focused on our employees.
In October 2012, a global volunteering
recognition program gave awards to
individual employees and groups of
employees for outstanding community
involvement.
In Switzerland, our anniversary activities
leveraged existing marketing and sponsor-
ship programs such as our collaboration
with Switzerland Tourism, the UBS
KeyClub bonus program and the UBS
Kids Cup, which had nearly 100,000
participants in 2012. On 25 June 2012,
we distributed more than one million
vouchers to clients and the general
public for boat trips on Swiss lakes.
We also launched a key education initiative
in April 2012 as part of our anniversary
celebrations. Consisting of six sub-proj-
ects, the UBS Education Initiative centers
on the UBS International Center of
Economics in Society at the University
of Zurich. The initiative will enable the
creation of up to five professorships
in coming years, starting in 2013, to
stimulate cutting-edge international
research into the economic sector.
Other sub-projects go beyond academia.
One example is Explore-it, which aims
to encourage school children’s interest in
science and technology. We also sup-
port Young Enterprise Switzerland,
an initiative which helps school children
learn how the business world works.
Other organizations we work with include
Genilem, which helps young entrepre-
neurs and start-up companies to establish
their businesses, and KMU Next, an
organization for entrepreneurs who
are planning their succession. As part of
a lifelong learning project, we aim to
support employees of all age groups on
their career paths. UBS is also continuing
to invest in the next generation of
talented individuals with the creation of
150 extra apprenticeships over the next
five years and 150 extra internships over
the next three years.
To convey these initiatives and events to
our stakeholders, we launched a special
150th anniversary microsite. We also
distributed a 38-page UBS history brochure
entitled “150 years of banking” to our
employees, pensioners and clients world-
wide, and we published additional feature
articles on UBS’s history that appeared in
our internal media.
Our activities throughout 2012 signaled
our optimism and confidence in the future.
For the remainder of 2013 and beyond, we
will continue to build on our heritage by
strengthening and deepening our business
relationships, and by helping the commu-
nities in which we live and work through
long-lasting and valuable programs.
➔ Refer to the corporate responsibility
section for more information on UBS’s
social and charitable commitments
16
Operating
environment
and strategy
Operating environment and strategy
Current market climate and industry drivers
Current market climate and industry drivers
Global stock markets rebounded strongly in 2012, supported by confidence-boosting measures in Europe and expansive
monetary policy. However, the macroeconomic environment worsened, especially in Europe, as the sovereign debt crisis
spilled over to eurozone core countries in the second half of the year. The resulting eurozone recession weakened global
economic activity.
Subdued recovery despite expansive monetary measures
While a series of interventions from central banks gave confi-
dence to stock markets over the year, the macroeconomic envi-
ronment in Europe deteriorated, especially in the second half of
2012, as the unresolved sovereign debt and banking crisis spread
beyond peripheral countries and began to affect core countries
such as France and Germany. The situation worsened with public
spending in eurozone countries contracting as a result of the nec-
essary fiscal consolidation of public finances and as a decline in
consumers’ expenditure reduced the pace of economic activity. At
the same time, the macroeconomic environment and stricter reg-
ulatory requirements prompted banks to speed up deleveraging,
putting an additional dampening effect on economic growth.
In the US, some sectors of the economy, especially housing and
the labor market showed signs of improvement, predominantly in
the second half of the year. However, overall economic perfor-
mance remained lackluster and continued to be subject to uncer-
tainty primarily surrounding fiscal policy, despite a last-minute
compromise at the turn of the year to avoid the fiscal cliff.
Emerging economies remained the global drivers of growth,
but their improvement, particularly China’s, lagged behind that of
previous recoveries, as structural advantages that benefited
emerging economies in the past are gradually fading. Further-
more, growth in emerging countries was also slowed by spillover
effects from recessionary developments in Europe and the slow
recovery of the US. In addition, China was negatively affected by
uncertainty surrounding domestic political developments prior to
the formation of its new government.
Euro crisis persists
In 2012, the European sovereign debt crisis continued to be among
the most significant factors influencing the global economy, de-
spite a series of policy actions aimed at resolving it.
At the beginning of 2012, the rating agency Standard & Poor’s
downgraded the credit ratings of nine eurozone governments,
including France and Austria, both previously AAA-rated coun-
tries. Shortly afterwards, Standard & Poor’s also downgraded the
rating of the European Financial Stability Facility (EFSF). Measures
initiated by the European Central Bank (ECB) to calm markets,
such as the second tranche of its longer-term refinancing opera-
tion, only resulted in short-term relief. The unresolved sovereign
debt and banking crises in peripheral countries threatened to af-
18
fect larger nations like Italy and Spain, and as a result more fun-
damental measures were introduced aimed toward a sustainable
crisis resolution. In June, the European Stability Mechanism (ESM)
was granted additional powers, which provided the ESM with
the flexibility to purchase government bonds directly in the pri-
mary market as well as to recapitalize banks directly. In Septem-
ber, the ECB announced the technical framework for its outright
monetary transactions program that allows the ECB unlimited
purchases of government bonds, provided the issuing countries
meet certain conditions regarding their economic policies associ-
ated with the EFSF / ESM.
The economic environment in Greece deteriorated during
2012 and at the end of the first quarter, the eurozone finance
ministers agreed on a further rescue package, which included a
writedown of 53% of the face value of Greek government bonds.
This measure proved insufficient to stabilize the economic situa-
tion in Greece, making a further support program necessary,
which was agreed at the end of the year.
Toward the end of the year, financial conditions in Europe im-
proved and sovereign credit default swap spreads narrowed sig-
nificantly. Nevertheless, the financial stability of the eurozone
continues to be fragile, and significant challenges lie ahead, in-
cluding large-scale bond issuance in Spain during 2013.
The Swiss economy, despite outperforming its European
peers, was also affected by recessionary tendencies in the euro-
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(cid:43)(cid:86)(cid:67)(cid:78)(cid:91)
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(cid:19)(cid:2)(cid:35)(cid:72)(cid:86)(cid:71)(cid:84)(cid:2)(cid:19)(cid:22)(cid:2)(cid:53)(cid:71)(cid:82)(cid:86)(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:80)(cid:81)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:23)(cid:15)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:37)(cid:38)(cid:53)(cid:2)(cid:82)(cid:84)(cid:75)(cid:69)(cid:71)(cid:85)(cid:2)(cid:69)(cid:81)(cid:87)(cid:78)(cid:70)(cid:2)(cid:68)(cid:71)(cid:2)(cid:81)(cid:68)(cid:85)(cid:71)(cid:84)(cid:88)(cid:71)(cid:70)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:41)(cid:84)(cid:71)(cid:71)(cid:69)(cid:71)(cid:16)(cid:2)
zone, given its strong economic links. As a consequence, eco-
nomic growth in Switzerland declined to 1% in 2012, from 1.9%
in 2011.
the implementation of the Volcker Rule in the US, for which sev-
eral key elements have yet to be fully defined.
Outlook for 2013
While long-term structural issues such as high debts across ad-
vanced economies and unbalanced growth models in emerging
economies remain unsettled, 2013 could mark the dawn of the
post-crisis era. We expect global economic growth to increase
modestly to 3.0% in 2013 from 2.7% in 2012. In the US, head-
winds of private sector deleveraging are receding and recession in
several of the peripheral eurozone countries is expected to be less
significant than previously projected. However, considerable un-
certainties related to the debt crisis, fiscal austerity and wide-
spread deleveraging remain, potentially resulting in only slightly
positive growth in the eurozone in 2013. As we expect global in-
flationary pressures to remain limited, monetary policy in ad-
vanced economies will probably remain accommodative.
Industry drivers
Despite strong share price performance within the financial indus-
try during the year, banks faced a number of challenges.
Regulatory developments remain the main driver behind
structural changes in the industry
Regulators and legislators in 2012 continued to put pressure on the
financial industry to become simpler and more transparent, more
risk-averse and less leveraged. The year was characterized on one
hand by progress in implementing existing regulations, such as Ba-
sel III and recovery and resolution planning. The year was also char-
acterized on the other hand by new, far-reaching reform proposals
such as the recommendations of the European Commission’s High-
level Expert Group on reforming the structure of the EU banking
sector. These suggested, amongst others, that deposit-taking op-
erations should be separated from large trading activities at Euro-
pean banks. Discussions on the issue are ongoing in Europe, and
the European Commission may propose legislation in 2013.
Over the course of 2012, the financial industry continued to
adjust to new, stricter capital and liquidity rules related to Basel III,
which became effective in Switzerland on 1 January 2013. Over
time, these rules may lead to a fundamental change in the finan-
cial industry’s structure, discouraging many investment banking
and trading strategies. As a consequence, financial institutions are
expected to focus even more on fee-generating business that re-
quires less capital and funding, with increased competition in
these businesses also likely to put pressure on returns.
Despite progress in the implementation of many regulatory
initiatives in 2012, the financial industry continued to face regu-
latory uncertainties on multiple fronts that weigh on the growth
appetite and earning power of the sector. Examples include dis-
crepancies in the way Basel III has been incorporated into na-
tional rules and its postponed implementation in a number of
participating countries. Uncertainty also remains with regard to
Macroeconomic environment impacting the industry
The macroeconomic environment remained extremely challenging
for the financial industry. While top-line growth was constrained by
stricter regulatory requirements, especially around capital and liquid-
ity standards, the prevailing low-yield environment and flat yield
curve put further pressure on net interest margins and revenues. Ad-
ditionally, credit demand was low, also as a result of spillover effects
following the overall economic downturn. The weak revenue envi-
ronment prompted the industry to focus on increasing operational
efficiency, resulting in widespread cost-saving initiatives, which in-
cluded personnel reductions, branch optimization, and other mea-
sures to realign cost structures with the subdued revenue levels.
From funding challenge to capital challenge in the eurozone
While obtaining sufficient medium- and long-term funding to
maintain a cost-efficient and balanced liquidity and funding posi-
tion was a key challenge in 2011, a series of central bank mea-
sures, such as the ECB’s longer-term refinancing operation, have
somewhat eased funding pressure on EU banks. In 2012, the
challenge was rather meeting minimum capital requirements de-
fined by regulators and policy makers. For example the European
Banking Authority required banks to build up additional capital
buffers to reach a level of 9% core tier 1 capital ratio by the end
of June 2012. Following this recommendation an EU-wide recapi-
talization exercise was initiated to close the capital requirements
of certain banks. This exercise resulted in an increase in banks’
capital positions in Europe of more than EUR 115 billion by means
of multiple recapitalization measures. The majority of the required
recapitalization was achieved through direct capital measures,
which included the issuance of new ordinary shares, the payment
of dividends in shares, retained earnings and the conversion of
hybrid capital into common capital. Further measures included a
reduction of risk-weighted assets, for instance through the dis-
posal of assets and continued deleveraging.
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(cid:53)(cid:81)(cid:87)(cid:84)(cid:69)(cid:71)(cid:28)(cid:2)(cid:39)(cid:36)(cid:35)(cid:2)(cid:40)(cid:75)(cid:80)(cid:67)(cid:78)(cid:2)(cid:52)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:75)(cid:79)(cid:82)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:50)(cid:78)(cid:67)(cid:80)(cid:85)(cid:14)(cid:2)(cid:49)(cid:69)(cid:86)(cid:81)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:20)
19
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Operating environment and strategy Operating environment and strategy
Current market climate and industry drivers
In Switzerland, the two largest banks face new capital require-
ments, which were defined as part of the revisions of the capital
adequacy and banking ordinances, issued on 1 June 2012 to im-
plement the “too-big-to-fail” law and Basel III.
➔ Refer to the “Regulatory developments” section of this report
for more information
Continued pressure on client confidentiality
Pressure on client confidentiality continued to increase worldwide.
In this context, Switzerland’s bilateral withholding tax agreements
with the United Kingdom and Austria came into force on 1 Janu-
ary 2013. Under these agreements, residents of both countries can
have their existing banking relationships in Switzerland retrospec-
tively treated as declared either by making a one-time tax payment
or by disclosing their accounts. Future investment income and
capital gains of residents of Austria and the United Kingdom with
undisclosed accounts in Switzerland will be subject to a final with-
holding tax, with Switzerland transferring the proceeds to the re-
spective authorities. While additional withholding tax negotiations
between Switzerland and other EU countries are ongoing, Switzer-
land’s bilateral tax treaty with Germany was rejected by the Ger-
man Bundesrat in November 2012 and a specially appointed me-
diation committee within the German parliament was unable to
reach agreement on the treaty in December 2012.
Furthermore, the Swiss Federal Council announced the overall
direction regarding the new financial integrity strategy (Weiss-
geldstrategie), which foresees that by implementing enhanced
due diligence requirements, banks and other financial intermedi-
aries should be prevented from accepting assets that are not tax-
compliant.
Pressure on client confidentiality will have an impact on the
business of banks serving cross-border clients, particularly in Swit-
zerland. As a consequence, the financial services industry will
need to adapt to new client demands, rethink its cross-border
value propositions and make significant efforts to ensure opera-
tional readiness and compliance. This is likely to be a challenge,
particularly for smaller banks, and is expected to lead to further
consolidation in the sector.
20
Regulatory developments
In 2012, many regulatory initiatives, launched following the 2007–2009 financial crisis, progressed toward implementation.
In particular, changes to capital adequacy and banking ordinances to implement the “too-big-to-fail” law and Basel III in
Switzerland were finalized and entered into force on 1 January 2013.
Regulatory developments in Switzerland
The Swiss “too-big-to-fail” (TBTF) law, a revision of the Swiss
banking law, or Bankengesetz, was adopted on 30 September
2011. Related changes to Swiss capital adequacy and banking
ordinances were issued on 1 June 2012, which also supported the
implementation of Basel III. Following the revision of the Capital
Adequacy Ordinance, Swiss banks have to comply with the Basel
III-related requirements based on a transitional timetable, accord-
ing to which requirements are phased in from 1 January 2013 and
will take effect on a fully applied basis on 1 January 2019.
On top of the Basel III requirements, specific TBTF rules apply
for systemically relevant banks in Switzerland (currently defined as
UBS and Credit Suisse by the Swiss National Bank). These institu-
tions will have to fulfill the following capital requirements: (i) a
minimum of 4.5% of risk-weighted assets (RWA) in the form of
Basel III common equity tier 1 (CET1) capital, (ii) a buffer of 8.5%
composed of a minimum of 5.5% of RWA in the form of Basel III
CET1 capital and up to 3% of RWA in the form of high-trigger
loss-absorbing capital, which can also be substituted by Basel III
CET1 capital, and (iii) a progressive component that depends on
the total exposure and market share of the bank and that should
be fulfilled with low-trigger loss-absorbing capital. We expect our
requirement for this progressive component in 2019 to fall to
4.5% from 6.0% due to our planned reduction in balance sheet
size related to the accelerated implementation of our strategy
announced in October 2012 and the resulting reduction in total
exposure. We expect this to reduce our total capital requirement
to 17.5% by 2019.
Furthermore, the Capital Adequacy Ordinance introduces a
new minimum leverage ratio. The leverage ratio requirement is set
at a level of 24% of the minimum capital ratio requirement for the
capital base, the buffer capital and the progressive component.
Based on our expected total capital requirement of 17.5%, we
estimate that this leverage ratio will be approximately 4.2% as of
1 January 2019.
In addition, systemically relevant banks are required to produce
recovery plans and resolution planning materials, including an emer-
gency plan which demonstrates how systemically important func-
tions in Switzerland are to be maintained in the event of impending
insolvency. UBS submitted the plans and planning materials to the
Swiss Financial Market Supervisory Authority (FINMA) in 2012. UBS
was also required to submit initial recovery and resolution planning
documentation to authorities in the UK, the US and Germany.
Under the new Swiss TBTF regulation, systemically relevant
banks are eligible for a capital rebate on the progressive compo-
nent if they take actions that facilitate recovery and resolvability
beyond the minimum requirements to ensure the integrity of sys-
temically important functions in the case of impending insolvency.
The regulation does not specify what actions would be sufficient
to justify a rebate or the magnitude of any rebate, both of which
would be determined by FINMA.
Finally, with the revision of the Capital Adequacy Ordinance, a
mechanism for activating a countercyclical capital buffer was intro-
duced. If activated, banks would be required to fulfill additional
capital requirements of up to 2.5% of RWA on some or all risk ex-
posures in Switzerland in the form of Basel III CET1 capital. The
Swiss National Bank can, after consulting with FINMA and inform-
ing the Federal Department of Finance, formally propose the activa-
tion of the buffer to the Federal Council, which decides on its activa-
tion on a case-by-case basis, depending on credit growth and the
systemic risk situation in Switzerland. In February 2013, following
such a proposal by the Swiss National Bank, the Federal Council
decided to activate the countercyclical capital buffer with respect to
mortgage loans financing residential property located in Switzer-
land. The buffer has been set at 1% of associated RWA. Banks in
Switzerland must fulfill this additional requirement by 30 September
2013. The effect of the activation of the countercyclical buffer on
our capital requirements is not material.
A further important development in Switzerland was FINMA’s
decision to apply a bank-specific multiplier for banks using the
internal ratings-based (IRB) approach when calculating RWA for
Swiss residential mortgages. The purpose of the multiplier is to
reduce the difference in RWA between the IRB and the standard-
ized approach as well as to improve resilience to periods of stress
in the Swiss real estate market. This multiplier is designed to be
applied to new and renewed mortgages starting on 1 January
2013 and as a result, the entire Swiss residential mortgage port-
folio will become subject to this multiplier over several years.
Starting 1 January 2013, we apply a multiplier to the portfolio,
phasing in the effect over the next seven years. Assuming no
change in the portfolio size or other characteristics, we expect this
multiplier to result in increased RWA of CHF 2–3 billion each year
from 2013 through 2019.
With regard to the Basel III liquidity framework, the Group of
Governors and Heads of Supervision, the oversight body of the
Basel Committee on Banking Supervision, announced a summary
of amendments to the liquidity coverage ratio (LCR). These revi-
21
Operating environment and strategy Operating environment and strategy
Regulatory developments
sions include a broadening of the range of assets eligible as high-
quality liquid assets as well as some amendments to the assumed
outflow rates to reflect actual experience in periods of stress more
accurately. In addition, banks were given more time to build up re-
quired liquidity as the implementation of the LCR will be staggered,
starting at 60% in 2015 and rising in annual steps to meet the
100% minimum standard by 2019. The impact of these changes
on UBS will depend on whether and to what degree FINMA makes
corresponding changes to its Basel III liquidity ratio rules.
➔ Refer to the “Our strategy” and the “Risk, treasury and capital
management” sections of this report for more information
In a referendum in March 2013, the Swiss cantons and voters
accepted an initiative to give shareholders of Swiss listed compa-
nies more influence over board and management compensation.
The Federal Council must issue an ordinance within one year of the
vote, and parliament must subsequently enact legislation to imple-
ment the requirements of the constitutional provisions. It will only
be possible to assess the impact of the vote on UBS once concrete
legislation and implementation measures are in place. UBS, togeth-
er with the Swiss Business Federation, will play a constructive part
in the process of developing implementation measures, with the
aim of maintaining Switzerland’s competitiveness as an interna-
tional business location.
A number of key initiatives continue to be delayed in the EU
In 2012, the European Commission initiated a number of regula-
tory initiatives, forming part of the EU response to the 2007–2009
financial crisis. Key new legislative proposals included (i) a pro-
posal for a banking union, which includes a single supervisory
mechanism that would provide the ECB with supervisory powers
over large EU banks, (ii) the Crisis Management Directive, which
addresses recovery and resolution of banks and investment firms,
and (iii) the Undertakings for Collective Investment in Transferable
Securities V Directive, which provides new requirements for de-
positaries and fund managers.
An agreement was reached on the European Markets Infrastruc-
ture Regulation, which fulfills the G20’s commitment to clear stan-
dardized over-the-counter (OTC) derivative contracts through a
central counterparty and to report derivative transactions to trade
repositories. However, political agreement on the Capital Require-
ments Directives IV, implementing Basel III in the EU, was not
reached before the end of 2012. Therefore, the implementation of
Basel III is being delayed in the EU. In addition, the review of the
Markets in Financial Instruments Directive was another high priority
dossier on which no political agreement was reached in 2012.
The financial transaction tax is another topic likely to shape the
political agenda in 2013. Following an agreement among Austria,
Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slova-
kia, Slovenia and Spain to implement such a tax, the European
Commission published its legislative proposal in February 2013.
The text will now be discussed in the Council, while the Parlia-
ment will provide a non-binding opinion. Furthermore, in October
2012, the European Commission’s High-level Expert Group on re-
forming the structure of the EU banking sector issued its recom-
mendations in the so-called Liikanen report, including the manda-
tory separation of significant trading activities. The European
Commission may now decide whether to legislate on further
structural reforms of the banking sector following these recom-
mendations. In the UK, work continues on the recommendations
of the Independent Commission on Banking (ICB), which pro-
posed in particular the ring-fencing of large retail operations in
the UK. To give effect to the ICB’s recommendations, on 4 Febru-
ary 2013 the Financial Services (Banking Reform) Bill was intro-
duced in the country’s parliament.
In the US significant progress was made on the implemen-
tation of Dodd-Frank
Developments in US regulatory initiatives related primarily to rule-
making stemming from the Dodd-Frank Act passed in July 2010.
Regulators made significant progress and many rules were issued
in final form during 2012.
22
UBS AG registered as a swap dealer in the US at the end of
2012 enabling the continuation of swaps business with US per-
sons. Regulations issued by the Commodity Futures Trading
Commission (CFTC) impose substantial new requirements on
registered swap dealers for clearing, trade execution, transac-
tion reporting, recordkeeping, risk management and business
conduct. The CFTC has granted time-limited relief to initially
limit the scope of new requirements to transactions with US per-
sons. Certain of the CFTC’s regulations, including those relating
to swap data reporting, recordkeeping, compliance and supervi-
sion, are expected to apply to UBS AG globally once this time-
limited relief expires. Application of these requirements to UBS’s
swaps business with non-US persons will present a substantial
implementation burden, will likely duplicate or conflict with le-
gal requirements applicable to UBS outside of the United States
and may place UBS at a competitive disadvantage to firms that
are not CFTC-registered swap dealers. The Securities and Ex-
change Commission (SEC) is expected to propose rules for the
extraterritorial application of its regulation of securities-based
swaps in the first half of 2013, and to require registration of
securities-based swap dealers in the US following adoption of
such rules. SEC regulation of securities-based swaps may pre-
sent similar risks to CFTC rules.
Another key topic remains the Volcker Rule, which would pro-
hibit banking entities from engaging in proprietary trading, sub-
ject to permitted exceptions, including market-making, hedging
and underwriting activities. The rule would also limit banking en-
tities from investing in hedge funds, private equity funds and
other similar “covered funds” except under limited circumstanc-
es, and broadly limit investments and other trans actional activities
between banks and covered funds. The two-year transition period
to comply with the Volcker Rule’s prohibition commenced in July
2012. US regulators proposed regulations to further implement
the Volcker Rule, and additional regulations are expected in the
first half of 2013. It is unclear if the next issuance of Volcker regu-
lations will be proposed or final. 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 liquid-
ity and the economics of market-making. We are not able to esti-
mate the effect of the implementation of the Volcker Rule compli-
ance program on permitted trading activities until regulations,
including the required metrics, are finalized and these required
metrics are calculated and calibrated.
The regulation of foreign banking organizations within the US
became a key Dodd-Frank Act topic at the end of 2012. The
Federal Reserve Board issued proposed rules for foreign banking
organizations in the US (under sections 165 and 166 of Dodd-
Frank Act) that include (i) a requirement for an intermediate hold-
ing company to hold US subsidiary operations, (ii) risk-based
capital and leverage requirements, (iii) liquidity requirements
(both substantive and procedural), (iv) single-counterparty credit
limits, (v) risk management and risk committee requirements, (vi)
stress test requirements, including public disclosure of the results,
(vii) a debt-to-equity limit, and (viii) a framework for early reme-
diation of financial weaknesses. Requirements differ based on
the overall size of the foreign banking organization and the size
of its US-based assets. UBS will be subject to the most stringent
requirements based on the current size of its global and US op-
erations.
The Dodd-Frank Act and the Foreign Account Tax Compliance
Act both require UBS to look at the activities conducted through
all legal entities across the UBS Group to determine the applicabil-
ity of the rules. These regulatory regimes impose registration and
ongoing reporting obligations. UBS will need to implement a
comprehensive compliance program to address these require-
ments, which will extend to all business divisions and legal enti-
ties, not just those based in the US.
Other important regulations in the US include mortgage lend-
ing and consumer finance reform as well as changes to the re-
quirements for financial advisors.
Finally, while initial proposals on Basel III rules were issued for
consultation in June 2012 in the US, final rules are still pending
and implementation is being delayed beyond the internationally
agreed timetable.
23
Operating environment and strategy Operating environment and strategy
Our strategy
Our strategy
We are committed to providing clients with superior financial advice and solutions while generating attractive and
sustainable returns for shareholders. Our strategy centers on our Wealth Management and Wealth Management Americas
businesses and our leading universal bank in Switzerland, supported by our Global Asset Management business and
our Investment Bank. Our strategy builds on the strengths of all of our businesses. It focuses our efforts on areas in which
we excel and seeks to capitalize on the compelling growth prospects in the businesses and regions in which we operate.
Acceleration of our strategic transformation
Since presenting our strategy at our Investor Day in November
2011, we have successfully executed on our plans to improve our
already strong capital position and reduce Basel III risk-weighted
assets (RWA) and costs. Just over one year into the transformation
of our firm, our Basel III capital ratios remain among the highest
in our peer group, and we have reduced Basel III RWA 1 by 35%.
Furthermore, we are on track with our CHF 2.0 billion cost reduc-
tion program announced in August 2011.
In October 2012, from this position of strength, we announced
a significant acceleration in the implementation of our strategy.
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This announcement underlined our commitment to transform our
Group into a less capital- and balance-sheet-intensive business
that is more focused on serving clients and capable of maximizing
value for shareholders. We are transforming our Investment Bank,
focusing on its traditional strengths in advisory, research, equities,
foreign exchange and precious metals, and we are taking addi-
tional action to reduce costs and improve efficiency across the
Group.
We are exiting certain business lines, predominantly those in
fixed income, that have been rendered less attractive by changes
in regulation and market developments. After transferring the
non-core businesses and positions to be exited to the Corporate
Center, we have retained limited credit and rates trading in our
Investment Bank, along with structured financing capabilities, to
support its solutions-focused businesses. Our leading equities and
foreign exchange businesses, including our emerging markets for-
eign exchange capabilities, continue to be cornerstones of our
Investment Bank’s services. We have not significantly altered our
advisory and capital markets businesses, but have reorganized our
existing business functions to better serve our clients. As a result
of the abovementioned transfers and additional RWA reductions,
our Investment Bank started 2013 operating with approximately
CHF 64 billion of Basel III RWA, within its target RWA of CHF 70
billion or less. We are convinced that our new Investment Bank is
capable of delivering returns well in excess of its cost of capital,
and we are targeting a pre-tax return on attributed equity of
greater than 15% starting in 2013 in this division.
(cid:19)(cid:41)(cid:53)(cid:18)(cid:20)(cid:18)(cid:65)(cid:71)
Our Corporate Center is tasked with managing non-core as-
sets, previously part of the Investment Bank, in the most value-
accretive way for shareholders. These diversified assets will be re-
ported within our “Non-core and Legacy Portfolio” unit within
the Corporate Center from the first quarter of 2013. At the end
of 2012, this portfolio represented approximately CHF 105 billion
in Basel III RWA, which we aim to reduce progressively to ap-
proximately CHF 25 billion by the end of 2017. As a result, we are
targeting Group RWA of less than CHF 200 billion on a fully ap-
plied Basel III basis by the end of 2017.
1 The pro-forma Basel III information is not required to be presented because Basel III requirements were not in effect on 31 December 2012. Such measures are non-GAAP financial measures as defined by SEC regula-
tions. We nevertheless include information on the basis of Basel III requirements because they are effective as of 1 January 2013 and significantly impact our RWA and eligible capital. The calculation of our pro-forma
Basel III RWA combines existing Basel 2.5 RWA, a revised treatment for low-rated securitization exposures that are no longer deducted from capital but are risk-weighted at 1250%, and new model-based capital charges.
Some of these new models require final regulatory approval and therefore our pro-forma calculations include estimates (discussed with our primary regulator) of the effect of these new capital charges, which will be
refined as models and the associated systems are enhanced.
24
400
300
200
100
0
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Maintaining cost discipline is critical to our long-term success
and is a key element of the cost reduction plans we announced in
October 2012. To this end, we announced measures to achieve
additional annual costs savings of CHF 3.4 billion by 2015 that
include reducing our Investment Bank’s complexity and size, im-
proving organizational effectiveness, primarily in our Corporate
Center, and introducing lean front-to-back processes across our
Group. These savings come in addition to the CHF 2.0 billion an-
nual cost reduction program that we announced in 2011 and ex-
pect to complete by the end of 2013. As a consequence of our
measures to support the long-term efficiency of our firm, we ex-
pect our headcount to be around 54,000 in 2015 compared with
approximately 63,000 at the end of 2012. Our investment in
these initiatives is reflected in restructuring charges of CHF 258
million in the fourth quarter of 2012 and expectations of further
incremental charges of approximately CHF 1.1 billion in 2013,
CHF 0.9 billion in 2014 and CHF 0.8 billion in 2015.
Our efficiency programs will free up resources to make invest-
ments over the next three years to support growth across our firm
and enable us to service our clients with greater agility and effec-
tiveness, improving quality and speed to market. These investments
are expected to reach CHF 1.5 billion over the next three years.
2013 and 2014 will be key years of transition for our Investment
Bank and our Group as we work through our plans to restructure
our businesses and reduce our cost base. As a result, during these
years we expect our Group to deliver a return on equity in the mid-
single digits as we transform our business. We believe the changes
we are making will enable us to deliver improved returns and thus
we have set a Group return on equity target of more than 15%
from 2015 onwards. We are also targeting a Group cost / income
ratio of 60% to 70% from 2015 onwards.
We are well prepared for the future with a clear strategy and a
solid financial foundation. We are firmly committed to returning
capital to our shareholders and plan to continue our program of
progressive returns to shareholders with a proposed 50% increase
in dividends to CHF 0.15 per share for the financial year 2012.
Once we have achieved our capital targets, we are aiming for a
total payout ratio of 50%, consisting of a baseline dividend and
supplementary returns. We intend to set a baseline dividend at a
sustainable level, taking into account normal economic fluctua-
tions. The supplementary capital returns will be balanced with our
need for investment and any buffer we choose to maintain for a
more challenging economic environment or other stress scenari-
os. Through the successful implementation of our strategy, we
believe we can sustain and grow our business and maintain a
prudent capital position.
Our business divisions
Our Wealth Management business provides comprehensive finan-
cial services to high net worth and ultra high net worth individuals
in over 40 countries. We will continue to strengthen Wealth Man-
agement’s industry-leading position, particularly in growth mar-
kets such as Asia-Pacific and the emerging markets. This will en-
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able us to capitalize on wealth generation growth rates that are
expected to continue outstripping economic growth. We are de-
veloping our business model as a dynamic wealth manager with
investment management capabilities at its core. We are trans-
forming our European operating model to reflect our clients’ con-
verging needs, to increase efficiency and to anticipate the chang-
ing regulatory environment in this market. Our clients continue to
benefit from our global research, superior investment advice and
solutions, execution competencies and access to global financial
markets. To this end, and with the ultimate goal of improving our
clients’ investment performance, our Chief Investment Officer or-
ganization synthesizes the research and expertise of our global
network of economists, strategists, analysts and investment spe-
cialists from across all business divisions and asset classes. Wealth
Management aims to achieve a net new money growth rate of
3% to 5%, a gross margin of 95 to 105 basis points and a cost / in-
come ratio of 60% to 70%.
Wealth Management Americas provides advice-based solu-
tions through financial advisors who deliver a fully-integrated set
of products and services to individuals and families mainly in the
25
Operating environment and strategy Operating environment and strategy
Our strategy
United States and Canada. We remain committed to our client-
focused and advisor-centric strategy and consider ourselves
uniquely positioned to serve high net worth and ultra high net
worth individuals and families in the world’s largest wealth mar-
ket. We believe the long-term growth prospects of wealth man-
agement are attractive in the Americas, with our target high net
worth and ultra high net worth markets expected to be the fast-
est-growing segments in terms of invested assets. We will con-
tinue our strategic banking initiatives, including mortgage and
securities-based lending initiatives, to ensure continued growth in
balances from our target client base. Our Wealth Management
Americas business targets a net new money growth rate of 2% to
4%, a gross margin of 75 to 85 basis points and a cost / income
ratio of 80% to 90%.
Our Investment Bank is among the global market leaders in its
core businesses of advisory, research, equities, foreign exchange
and precious metals. We will continue to invest in these areas and
compete to increase market share. In order to align the delivery of
our services and the execution of our strategy with the needs of
our core clients, the Investment Bank has been reorganized into
two segments, Corporate Client Solutions and Investor Client Ser-
vices, effective from the beginning of 2013. Corporate Client So-
lutions includes all advisory and solutions businesses and execu-
tion for corporate, financial institutions and sponsor clients.
Investor Client Solutions includes execution, distribution and trad-
ing for institutional investors, and will provide support to our
Group’s wealth management businesses. We aim to capitalize on
attractive opportunities in less capital-intensive businesses by fo-
cusing on delivering best-in-class expertise, solutions-led advisory,
thought leadership and global execution capabilities. Operating
with under CHF 70 billion of Basel III RWA and less than CHF 200
billion of funded assets, our Investment Bank aims to deliver a
pre-tax return on attributed equity in excess of 15%, with a
cost / income ratio of 65% to 85%.
Our Global Asset Management business is a large-scale asset
manager with businesses well-diversified across regions, capabili-
ties and distribution channels. We work closely with our clients in
pursuit of their investment goals with long-term performance as
our focus. 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 opportunities aris-
ing from savings and pensions growth. We will continue investing
in our fast-growing passive capabilities and expanding our strong
third-party institutional business while also expanding third-party
wholesale distribution and remaining committed to delivering dis-
tinctive products and solutions to the clients of our Group’s wealth
management businesses. We also continue to expand our suc-
cessful alternatives platform, building on our established positions
in real estate and fund of hedge funds businesses. These mea-
sures will support us as we seek to deliver a net new money
growth rate of 3% to 5%, a gross margin of 32 to 38 basis points
and a cost / income ratio of 60% to 70% in Global Asset Manage-
ment.
Retail & Corporate maintains a leading position across its cli-
ent segments in Switzerland and constitutes a central building
block of our universal bank model in Switzerland. We aim to
provide comprehensive financial products and services to our re-
tail, corporate and institutional clients in Switzerland. We will
continue to enhance the range of life cycle products and services
we offer our clients, while capitalizing on additional growth op-
portunities in advisory and execution. From a financial perspec-
tive, we expect this business to continue to provide a stable and
substantial source of profits and funding for our Group and to
generate revenue growth opportunities for other businesses
within our Group. Our Retail & Corporate business aims to
achieve new business volume growth of 1% to 4%, a net inter-
est margin of 140 to 180 basis points and a cost / income ratio of
50% to 60%.
26
UBS Switzerland
UBS is the preeminent universal bank in
Switzerland, the only country where
we operate and maintain leading
positions in all five of our business areas
of retail, wealth management, corporate
and institutional banking, asset manage-
ment and investment banking. We are
fully committed to our home market as
our leading position in Switzerland is
crucial in terms of profit stability, sustain-
ing our global brand and growing our
global core business. Drawing on our
network of around 300 branches and
our 4,700 client-facing staff, comple-
mented by state-of-the-art electronic and
mobile banking services and customer
service centers open to our clients around
the clock seven days a week, we are
able to reach approximately 80% of Swiss
wealth, one in three households, one in
three wealthy individuals and almost half
of all Swiss companies. Euromoney and
The Banker, two of the world’s leading
financial markets magazines, acknow-
ledged our preeminent position in
Switzerland with their prestigious “Best
Bank in Switzerland 2012” and “Bank
of the Year 2012 in Switzerland” awards,
respectively.
We strive to be the strongest bank in
Switzerland and our unique universal
bank model is central to our success. Our
dedicated Swiss management team has
representatives from all five business areas
and ensures we apply a consistent
approach to the market when offering
our full range of banking products,
expertise and services. Our cross-divisional
management approach allows us to utilize
our existing resources efficiently, promotes
cross-divisional thinking and enables
seamless collaboration across all business
areas. As a result, we are in a unique
position to serve our clients efficiently
with a comprehensive range of banking
products and services to fit their needs.
We are able to differentiate ourselves by
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 consistently provides a
substantial part of the Group’s revenues.
Given the strength of the economy and
the stable political environment in
Switzerland, the country remains an
attractive financial market. This inherent
stability and growth has been the basis
for UBS Switzerland’s success and its
contribution to the Group’s financial
performance. Thanks to our universal
bank model, broad client base and
seamless multi-channel offering, we are
well-positioned to capture future market
growth and to strengthen our leading
position in our home market.
27
Operating environment and strategy Operating environment and strategy
Our strategy
UBS – leading the way on Basel III
Our position as one the world’s best-capitalized banks under
Basel III, together with our stable funding and sound liquidity
positions, provides us with a solid foundation for our success.
We have a proven track record of Basel III RWA reduction,
surpassing our 2012 Basel III RWA targets ahead of schedule.
At the end of 2012, our Basel III pro-forma common equity tier
1 (CET1) ratio was 15.3% calculated on a phase-in basis and
9.8% on a fully applied basis, while our Basel 2.5 capital ratio
was 21.3%, giving us one of the highest capital ratios in our
peer group. We are committed to continuing to improve these
ratios through a combination of retained earnings and efforts
to reduce Basel III RWA. By the end of 2012, our pro-forma
fully applied Basel III RWA had decreased to CHF 258 billion, a
reduction of 35% from the level recorded at the end of the
third quarter of 2011, prior to our announcing our strategy at
our Investor Day in November of that year. Our goal of
reducing Basel III RWA to less than CHF 200 billion by 2017
means that we plan to operate with less than half of the Basel
III RWA we had at the end of September 2011.
We are targeting fully applied Basel III CET1 ratios of 11.5% and
13% in 2013 and 2014, respectively. By achieving our targets,
we will exceed the regulatory requirements both under FINMA
and Basel Committee on Banking Supervision rules. We believe
this will provide even greater comfort to our clients and further
increase confidence in the firm.
Our progress towards meeting FINMA’s capital requirements,
which are stricter than Basel Committee on Banking Supervision
requirements, was evidenced in February and again in August
2012 by our issuance of Basel III-compliant tier 2 loss-absorbing
notes in a nominal amount of USD 2 billion on each occasion.
These issuances qualify as tier 2 capital under Basel III rules and
as progressive capital buffer in compliance with the “too-big-to-
fail” law under Swiss regulations for systemically important
banks, and contribute to our targeted loss-absorbing capital. For
2012, the significant changes we made to our compensation
framework included the introduction of a deferred contingent
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(cid:22)(cid:18)(cid:18)
(cid:21)(cid:18)(cid:18)
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(cid:19)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
28
UBS – leading the way on Basel III
capital plan, under which employees will forfeit deferred
compensation balances if a 7% Basel III CET1 ratio level is
breached or if a non-viability event occurs during the five-year
period after the award date. These new high-trigger loss-absorb-
ing instruments will be counted towards our tier 2 capital by our
primary regulator. Over the next five years, we could build
approximately 100 basis points of such high-trigger loss-absorb-
ing capital from this program.
Our Investment Bank started 2013 with approximately CHF 64
billion in Basel III RWA. Having fully adapted its business to Basel
III, it will continue to operate with RWA of less than CHF 70
billion. In line with our strategy to deploy capital efficiently, RWA
will continue to grow both in our wealth management busi-
nesses and in Retail & Corporate as we deliver attractive lending
and mortgage opportunities to our clients.
The non-core assets previously in our Investment Bank have been
transferred to our Corporate Center, where they will be reported
from the first quarter of 2013 within our Non-core and Legacy
Portfolio unit. Our Corporate Center is tasked with managing
these diversified assets in the most value-accretive way for
shareholders and within the same robust oversight structure that
has successfully supported our RWA reduction in our Legacy
Portfolio. In total, our Corporate Center manages approximately
CHF 105 billion of pro-forma Basel III RWA in our Non-core and
Legacy Portfolio unit. We aim to reduce these to around CHF
85 billion by the end of 2013, CHF 55 billion by the end of 2015
and CHF 25 billion by the end of 2017.
In addition to our leading position on capital ratios, our
liquidity and funding positions are strong and will be further
enhanced as we work to improve our leverage ratio. Our
estimated pro-forma regulatory Basel III liquidity coverage ratio
(LCR) of 113% and estimated pro-forma net stable funding
ratio (NSFR) of 108% at the end of 2012 (both based on
current regulatory guidance) exceeded our future minimum
regulatory requirement of 100% for both LCR and NSFR for
2019 and 2018, respectively. Our pro-forma FINMA Basel III
leverage ratio on a phase-in total capital requirement basis
was 3.6% at the end of 2012 compared with an estimated
target requirement of 4.2% on 1 January 2019. We have
a stable mix of funding sources that is well-diversified by
market, product and currency, with client deposits providing
the single largest source of funding for our firm. We plan
to reduce our Group’s funded balance sheet by around a third
by the end of 2015 from approximately CHF 900 billion
at the end of the third quarter of 2012. This smaller funded
balance sheet will improve our leverage ratios substantially
and increase the proportion of deposits as a funding source.
Reducing our balance sheet will also lower our funding
requirements, enabling us to continue buying back debt
selectively, following our cash tender offer in February 2013 in
which we bought back approximately CHF 5 billion in certain
outstanding bonds. In addition, we expect our FINMA total
capital requirement in 2019 to fall to 17.5% from 19% due to
our planned decrease in total exposure.
29
Operating environment and strategy Operating environment and strategy
Our strategy
Basel III / “too-big-to-fail” at a glance
The Basel III global regulatory rules were agreed upon by the
Basel Committee on Banking Supervision between 2010
and 2011, mainly in response to the 2007 to 2009 financial
crisis. Swiss banks are required to comply with the Basel
III-related requirements, as implemented by the revised Capital
Adequacy Ordinance, based on a transitional timetable. The
capital requirements under the Basel III framework are being
phased in from 1 January 2013 and will take effect on a fully
applied basis on 1 January 2019. The changes made by the
Basel III framework will have an increasing impact on the
calculation of our phase-in capital ratios during this transition
period, mainly due to the deduction of deferred tax assets on
net operating losses, the inclusion of the effects of changes to
the accounting standard relating to pension liabilities and the
phasing out of hybrid tier 1 capital instruments for the calcula-
tion of common equity. Further, tier 2 capital instruments that
are not compliant with Basel III will be gradually excluded from
phase-in total capital. Systemically relevant banks in Switzerland
(currently UBS and Credit Suisse) have to comply with the
so-called “too-big-to-fail” (TBTF)-specific rules, which come on
the top of the Basel III requirements. This means that we have to
fulfill stricter regulatory requirements than most other banks in
the world.
Key Basel III elements:
– Increased quality of regulatory capital base
– New capital buffers including capital conservation buffer
and countercyclical buffer
– Enhanced risk coverage with stricter market and counter-
party credit risk requirements
– Minimum leverage ratio requirement to constrain excess
leverage, independent of risk levels
– Increased liquidity requirements such as liquidity coverage
ratio and net stable funding ratio
Key regulatory requirements for us on a Basel III
fully applied basis1:
Capital and buffers 2
We have total projected minimum capital requirements of
17.5% to 19.0% 3, consisting of the following elements:
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(cid:75)(cid:79)(cid:82)(cid:81)(cid:84)(cid:86)(cid:67)(cid:80)(cid:86)(cid:2)(cid:72)(cid:87)(cid:80)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:67)(cid:85)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:75)(cid:79)(cid:82)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:85)(cid:81)(cid:78)(cid:88)(cid:71)(cid:80)(cid:69)(cid:91)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(cid:2)(cid:37)(cid:67)(cid:80)(cid:2)(cid:68)(cid:71)(cid:2)(cid:85)(cid:87)(cid:68)(cid:85)(cid:86)(cid:75)(cid:86)(cid:87)(cid:86)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:16)
– 4.5% Basel III common equity tier 1 (CET1) capital
– 8.5% capital buffer (5.5% Basel III CET1 capital and up to
3% high-trigger loss-absorbing capital4)
– 4.5% to 6.0% 3 projected low-trigger loss-absorbing capital as
a progressive buffer, depending on our total exposure and
market share in Switzerland.
In addition, the Swiss National Bank5 (SNB) can (after consulting
with FINMA and informing the Federal Department of Finance)
30
(cid:19)(cid:41)(cid:53)(cid:18)(cid:23)(cid:18)
Basel III / “too-big-to-fail” at a glance
formally propose the activation of a countercyclical buffer of up
to 2.5% Basel III CET1 capital, to be applied to RWA on some or
all risk exposures in Switzerland. The proposal must be made to
the Federal Council, which decides on its activation on a
case-by-case basis, depending on credit growth and the
systemic risk situation in Switzerland. In February 2013,
following such a proposal by the SNB, the Federal Council
decided to activate the countercyclical capital buffer in Switzer-
land with respect to mortgage loans financing residential
property located in Switzerland. The buffer has been set at 1%
of associated Basel III RWA. Banks in Switzerland must fulfill this
additional requirement by 30 September 2013. The effect of the
activation of the countercyclical buffer on our capital require-
ments is not material.
(cid:37)(cid:67)(cid:78)(cid:69)(cid:87)(cid:78)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:40)(cid:43)(cid:48)(cid:47)(cid:35)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:49)(cid:87)(cid:84)(cid:2)(cid:40)(cid:43)(cid:48)(cid:47)(cid:35)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:89)(cid:67)(cid:85)(cid:2)(cid:21)(cid:16)(cid:24)(cid:7)(cid:2)(cid:81)(cid:80)(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:20)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:50)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)(cid:2)(cid:37)(cid:39)(cid:54)(cid:19)(cid:2)
(cid:13)(cid:2)
(cid:78)(cid:81)(cid:85)(cid:85)(cid:15)(cid:67)(cid:68)(cid:85)(cid:81)(cid:84)(cid:68)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:19)
(cid:124)(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:43)(cid:40)(cid:52)(cid:53)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:13)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:124)
=
(cid:40)(cid:43)(cid:48)(cid:47)(cid:35)
(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)
(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)
(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
=
(cid:37)(cid:42)(cid:40)(cid:2)(cid:22)(cid:22)(cid:16)(cid:20)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:22)(cid:18)(cid:16)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:13)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:22)(cid:16)(cid:20)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:14)(cid:20)(cid:19)(cid:24)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:31)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:14)(cid:20)(cid:25)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:115)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:23)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
= (cid:21)(cid:16)(cid:24)(cid:7)
(cid:38)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:25)(cid:23)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:28)(cid:2)(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)(cid:2)(cid:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:21)(cid:20)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)(cid:14)(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:2)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:71)(cid:78)(cid:75)(cid:73)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)
(cid:80)(cid:71)(cid:86)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)(cid:2)(cid:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:72)(cid:67)(cid:69)(cid:86)(cid:81)(cid:84)(cid:85)(cid:2)(cid:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:20)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)
(cid:35)(cid:70)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:20)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:28)(cid:2)(cid:49)(cid:54)(cid:37)(cid:2)(cid:70)(cid:71)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)(cid:2)(cid:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:26)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)(cid:14)(cid:2)(cid:81)(cid:72)(cid:72)(cid:15)(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:69)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:69)(cid:81)(cid:80)(cid:86)(cid:75)(cid:80)(cid:73)(cid:71)(cid:80)(cid:86)(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:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:18)(cid:20)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:72)(cid:67)(cid:69)(cid:86)(cid:81)(cid:84)(cid:85)(cid:2)(cid:10)(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)
(cid:124)(cid:19)(cid:2)(cid:21)(cid:15)(cid:79)(cid:81)(cid:80)(cid:86)(cid:74)(cid:2)(cid:67)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:16)(cid:2)(cid:43)(cid:40)(cid:52)(cid:53)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:14)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:67)(cid:70)(cid:71)(cid:83)(cid:87)(cid:67)(cid:69)(cid:91)(cid:2)(cid:85)(cid:69)(cid:81)(cid:82)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:81)(cid:78)(cid:75)(cid:70)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:72)(cid:81)(cid:84)(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:2)(cid:80)(cid:71)(cid:86)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(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:81)(cid:72)(cid:72)(cid:15)(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:75)(cid:86)(cid:71)(cid:79)(cid:85)(cid:16)(cid:2)(cid:35)(cid:85)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:70)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)
(cid:40)(cid:43)(cid:48)(cid:47)(cid:35)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:40)(cid:43)(cid:48)(cid:47)(cid:35)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:70)(cid:71)(cid:80)(cid:81)(cid:79)(cid:75)(cid:80)(cid:67)(cid:86)(cid:81)(cid:84)(cid:2)(cid:86)(cid:71)(cid:79)(cid:82)(cid:81)(cid:84)(cid:67)(cid:84)(cid:75)(cid:78)(cid:91)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:85)(cid:86)(cid:67)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(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:75)(cid:80)(cid:70)(cid:71)(cid:79)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:79)(cid:71)(cid:86)(cid:74)(cid:81)(cid:70)(cid:2)(cid:10)(cid:37)(cid:39)(cid:47)(cid:11)(cid:2)(cid:67)(cid:70)(cid:70)(cid:15)(cid:81)(cid:80)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:39)(cid:54)(cid:38)(cid:85)(cid:2)(cid:10)(cid:82)(cid:84)(cid:81)(cid:82)(cid:84)(cid:75)(cid:71)(cid:86)(cid:67)(cid:84)(cid:91)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:73)(cid:71)(cid:80)(cid:69)(cid:91)(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:11)(cid:2)(cid:87)(cid:80)(cid:86)(cid:75)(cid:78)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:70)(cid:71)(cid:386)(cid:80)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:68)(cid:71)(cid:71)(cid:80)(cid:2)(cid:386)(cid:80)(cid:67)(cid:78)(cid:75)(cid:92)(cid:71)(cid:70)(cid:16)
(cid:124)
Leverage ratio (non-risk-based)
As of 1 January 2013, FINMA has established a new FINMA
Basel III minimum leverage ratio for systemically important
banks (FINMA Basel III leverage ratio). The ratio consists of
three components (capital base, buffer capital and progressive
component) and is broadly calculated by dividing the relevant
capital basis by IFRS assets, based on a capital adequacy scope
of consolidation, adjusted for replacement value netting and
other adjustments, including off-balance sheet items. The
leverage ratio requirement is set at a level of 24% of the
minimum capital ratio requirement for the capital base, the
buffer capital and the progressive component. As a result, the
minimum leverage ratio applying to us will depend on our
future total capital requirements and vice versa. Two possible
outcomes could be as follows:
– 4.2% assuming total capital requirements of 17.5%3
– 4.6% assuming total capital requirements of 19.0%3
Liquidity 6
– The liquidity coverage ratio (LCR) ensures that banks hold
sufficient high-quality liquid assets to survive short-term
(30-day) severe general market and firm-specific stress.
Under Basel III, the LCR will be phased in gradually, starting
at 60% in 2015 and rising in annual steps to meet the
100% minimum standard by 2019.
– The net stable funding ratio (NSFR), intended for preventing
liquidity mismatch, assigns a required stable funding
factor to assets (representing the illiquid part of the assets)
and assigns all liabilities an available stable funding factor
(representing the stickiness of a liability) in order to ensure
that banks are not overly reliant on short-term funding
and have sufficient long-term funding for illiquid assets. The
NSFR is expected to become fully effective with a minimum
requirement of 100% on 1 January 2018.
➔ Refer to the “Regulatory developments” section of this report
(cid:19)(cid:41)(cid:53)(cid:18)(cid:24)(cid:18)
for more information on Basel III and TBTF rules
1 All numbers are valid from 1 January 2019, except where indicated. 2 All percentage amounts are expressed in terms of risk-weighted assets. 3 We expect our requirement for the progressive buffer in 2019 to fall to
4.5% from 6.0% due to our planned reduction in balance sheet related to the accelerated implementation of our strategy announced in October 2012 and the resulting reduction in total exposure. We expect this to reduce
our total capital requirement to 17.5% by 2019. Systemically relevant banks are eligible for a capital rebate on the progressive buffer if they take actions that facilitate recovery and resolvability beyond the minimum re-
quirements to ensure the integrity of systemically important functions in the case of impending insolvency. 4 This can be substituted by Basel III CET1 capital. 5 The countercyclical buffer can not only be triggered by
the Swiss National Bank but by any regulator for the credit risk in its jurisdiction. 6 The final implementation of these rules is subject to the interpretation of national supervisors.
31
Operating environment and strategy Operating environment and strategy
Our strategy
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 in terms of both the dividend yield and the
capital appreciation of the share price. The KPI framework is re-
viewed by our senior management on a regular basis to ensure
that it is always aligned with changing business conditions. The
KPI are disclosed consistently in our quarterly and annual report-
ing to facilitate comparison of our performance over the reporting
periods.
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 fo-
cus. Both Group and business division KPI are taken into ac-
count in determining variable compensation of executives and
personnel.
➔ Refer to the “Compensation” section for more information on
performance criteria for compensation
In addition to the KPI, we also disclose performance targets.
These performance targets may include the KPI as well as addi-
tional balance sheet and capital management performance mea-
sures to track the achievements of our strategy. The performance
targets are outside the scope of our KPI framework.
➔ Refer to the the discussion about the “Acceleration of our
strategic transformation” in the “Our Strategy” section for
more information on performance targets
The Group and business division KPI are explained in the
“Group / business division key performance indicators” table.
In keeping with our focus on the key performance metrics of
growth, profitability and efficiency, we made the following en-
hancements to the KPI framework in 2012:
– We introduced two new KPI for our Retail & Corporate busi-
ness division. “Net new business volume growth (%)” mea-
sures our success in expanding Retail & Corporate’s business
volume from lending to clients, as well as acquiring client as-
sets. “Net interest margin (%)” measures Retail & Corporate’s
ability to generate net interest income in relation to the aver-
age loan volume. While this measure is currently under struc-
tural pressure given the continued low interest environment, it
is supported by active management of the balance sheet and
pricing measures.
– For the Wealth Management Americas business division, we
implemented a new KPI “Share of recurring revenue (%)”.
– We replaced our “Net new money (CHF billion)” KPI with “Net
new money growth (%)”, as we consider the rate of growth a
more meaningful measurement of performance in terms of net
new money than a measurement of absolute change. This new
KPI applies to the Group as well as our Wealth Management,
Wealth Management Americas and Global Asset Management
business divisions.
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.
– The measure “invested assets” is more restrictive and includes
only client assets managed by or deposited with us for invest-
ment 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 custody-only purposes, as we only administer
the assets and do not offer advice on how these assets should be
invested. Non-bankable assets (for example, art collections) and
deposits from third-party banks for funding or trading purposes
are excluded from both measures.
Net new money in a reported period is the 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 in line with the historical
32
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Group / business division key performance indicators
Key performance indicators
Definition
Net profit growth (%)
Pre-tax profit growth (%)
Cost / income ratio (%)
Return on equity (RoE) (%)
Return on attributed equity
(RoaE) (%)
Return on assets, gross (%)
Return on risk-weighted assets,
gross (%)
FINMA leverage ratio (%)
Change in net profit attributable to UBS shareholders from
continuing operations between current and comparison
periods / net profit attributable to UBS shareholders from
continuing operations of comparison period
Change in business division performance before tax between
current and comparison periods / business division performance
before tax of comparison period
Operating expenses / operating income before credit loss
(expense) or recovery
Net profit attributable to UBS shareholders on a year-to-date
basis (annualized as applicable) / average equity attributable to
UBS shareholders (year-to-date basis)
Business division performance before tax on a year-to-date
basis (annualized as applicable) / average attributed equity
(year-to-date basis)
Operating income before credit loss (expense) or recovery on
a year-to-date basis (annualized as applicable) / average total
assets (year-to-date basis)
Operating income before credit loss (expense) or recovery on
a year-to-date basis (annualized as applicable) / average risk-
weighted assets (year-to-date basis)
BIS tier 1 capital / average adjusted assets as per definition
by the Swiss Financial Market Supervisory Authority (FINMA)
BIS tier 1 ratio (%)
BIS tier 1 capital / BIS risk-weighted assets
Net new money growth (%)
Net new money for the period (annualized as applicable) /
invested assets at the beginning of the period
Gross margin on invested assets
(bps)
Operating income before credit loss (expense) or recovery
(annualized as applicable) / average invested assets
Net new business volume growth
(%)
Net interest margin (%)
Share of recurring revenue (%)
Impaired loans portfolio as a %
of total loans portfolio, gross (%)
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)
Total recurring fees and net interest income / total operating
income
Impaired loans portfolio, gross / total loans portfolio, gross
Average VaR (1-day, 95%
confidence, five years of
historical data)
Value at Risk (VaR) expresses maximum potential loss measured
to a 95% confidence level, over a 1-day time horizon and based
on five years of historical data
33
Operating environment and strategy
Operating environment and strategy
Our strategy
US methodology customary in that market. 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. Re-
classifications between invested assets and custody-only assets as
a result of a change in the service level delivered are generally
treated as net new money flows; however, where such change in
service level directly results from a new externally-imposed regula-
tion, the one-time net effect of the implementation is reported as
an asset reclassification without net new money impact. The In-
vestment 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 with-
in our total invested assets, as both units provide an independent
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 and
Wealth Management Americas. The business divisions involved
count these funds as invested assets. This approach is in line with
both finance industry practices and our open architecture strategy,
and allows us to accurately reflect the performance of each indi-
vidual business. Overall, CHF 172 billion of invested assets were
double-counted as of 31 December 2012 (CHF 183 billion as of
31 December 2011).
In the course of implementing the new KPI “Net new business
volume growth (%)” for Retail & Corporate, we refined our defi-
nition of invested assets and client assets for Retail & Corporate.
Assets from third-party banks and brokers are no longer counted
as client assets and pension fund assets are no longer counted as
invested assets. Retail & Corporate client assets were restated as
of 31 December 2011 from CHF 848 billion to CHF 333 billion
and the Group’s invested assets were restated from CHF 2,167
billion to CHF 2,088 billion.
➔ Refer to “Note 35 Invested assets and net new money” in the
“Financial information” section of this report for more information
Seasonal characteristics
Our main businesses may show seasonal patterns. The Investment
Bank’s revenues have been affected in some years by the seasonal
characteristics of general financial market activity and deal flows
in investment banking. Other business divisions may also be im-
pacted by seasonal components, such as annual income tax pay-
ments which, for example, arise in the second quarter in the US,
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.
Changes to key performance indicators in 2013
With effect from the first quarter of 2013,
we will replace “BIS tier 1 ratio (%)”
and “FINMA leverage ratio (%)” at Group
level with “Basel III common equity tier 1
capital ratio (%)” and “FINMA Basel III
leverage ratio (%)” respectively.
“Basel III common equity tier 1 capital
ratio (%)” will be shown on a phase-in
and fully applied basis. The information
provided on a fully applied basis does
not consider the effects of the transition
period from 2013 to 2019, during which
new capital deductions are phased in and
ineligible capital instruments are phased
out. “FINMA Basel III leverage ratio (%)”
will consider total capital, which includes
Basel III common equity tier 1 capital on a
phase-in basis and loss-absorbing capital,
divided by total exposure, which is equal
to IFRS assets, based on a capital adequa-
cy scope of consolidation, adjusted for
replacement value netting and other
adjustments, including off-balance sheet
items.
The above changes are intended to align
our KPI framework to the new Basel III
requirements, which are effective from
1 January 2013.
Group / business division key performance indicators
Key performance indicators
Definition
Basel III common equity tier 1 capital ratio (%)
(Fully applied 1 / Phase-in)
Basel III common equity tier 1 capital / Basel III risk-weighted assets
p
u
o
r
G
FINMA Basel III leverage ratio (%)
Total capital / IFRS assets, based on a capital adequacy scope of consolidation, adjusted for replacement
value netting and other adjustments, including off-balance sheet items
1 The information provided on a fully applied basis does not consider the effects of the transition period from 2013 to 2019, during which new capital deductions are phased in and ineligible capital instruments are
phased out.
34
Wealth Management
With a presence in over 40 countries, Wealth Management provides wealthy private clients with investment advice and
solutions to fit their individual needs.
Business
With more than CHF 820 billion of invested assets at the end of
2012, Wealth Management provides comprehensive financial ser-
vices to wealthy private clients around the world – except those
served by Wealth Management Americas. Our clients benefit from
the entire spectrum of UBS resources, ranging from investment
management solutions to wealth planning and corporate finance
advice, in addition to the specific offerings 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 objective is to be the pre-eminent wealth manager globally,
providing superior investment advice and solutions to private
clients, particularly in the high net worth (generally considered
to be, among other factors, clients with CHF 2 million to CHF
50 million in investable assets) and ultra high net worth (gener-
ally considered to be, among other factors, clients with more
than CHF 50 million in investable assets) spaces. In addition, we
provide wealth management solutions, products and services to
financial intermediaries.
The wealth management business has long-term growth
prospects and we expect the wealth management market to
grow faster than the gross domestic product in all regions of the
globe despite the current macro economic environment. From a
client segment perspective, the global ultra high net worth mar-
ket, including family offices, has the highest growth potential,
followed by the high net worth market. Our broad client base
and strong global footprint put us in an excellent position to
take advantage of the substantial growth opportunities this ex-
pected wealth creation presents. In the key onshore locations in
which we are expanding, 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 capabilities across the Group to identify investment op-
portunities in all market conditions and tailor solutions to individu-
al client needs. Our global booking centers give us a strong local
presence that enable us to book client assets in multiple locations.
In Asia Pacific we aim to accelerate our growth. We continue
to focus on Hong Kong and Singapore – the leading financial
centers in the region – as well as on a selective presence in the
major onshore markets, such as Japan and Taiwan. We continue
to invest in our local presence in China to support us in capturing
long-term growth opportunities.
In the emerging markets, we focus on Brazil, Mexico, Israel,
Turkey, Russia and Saudi Arabia. As many of our clients from
emerging markets prefer to book their assets in established fi-
nancial centers, we are strengthening our coverage for them
through our booking centers in the US, the UK and Switzer land.
In Europe, we combined our European 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 and fiscal
requirements. Our growth ambition is underpinned by an estab-
lished European footprint in all major booking centers.
In Switzerland, our wealth management operations’ close
collaboration with our retail, corporate, asset management and
Invested assets by client domicile(cid:15)
In %, except where indicated
Total: CHF 821 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:26)(cid:20)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
As of 31.12.12
21
9
46
(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:20)
(cid:19)(cid:21)
Americas
Asia Pacific
24
Europe, Middle East and Africa
Switzerland
(cid:23)(cid:23)
(cid:30)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:115)(cid:23)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:115)(cid:19)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:32)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:20)(cid:20)
(cid:19)(cid:18)
1BD014_e
(cid:19)(cid:36)(cid:38)(cid:18)(cid:19)(cid:23)(cid:65)(cid:71)
35
Operating environment and strategy Operating environment and strategy
Our strategy
investment banking businesses gives us the foundation to ex-
pand our business, and provides our clients access to investment
insight and research, products, capital markets and execution as
well as to advisory capabilities. Our extensive branch network,
including over 100 wealth management offices, fosters referrals
from the Swiss corporate 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 remains one of our biggest
growth contributors, by focusing on our clients’ individual goals
and providing them with access to the infrastructure offered to
our institutional clients – for example, direct access to the Invest-
ment Bank’s trading platforms. Also, within this segment, our
Global Family Office Group provides this highly sophisticated cli-
ent group with dedicated institutional coverage and global execu-
tion via dedicated specialist teams from both Wealth Manage-
ment and the Investment Bank.
Our Global Financial Intermediaries (Global FIM) business sup-
ports more than 2,500 financial intermediaries in all major finan-
cial centers as a strategic business partner, offering professional
investment advisory services, a global banking infrastructure and
tailored solutions that enable them to advise their end-clients
more effectively.
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. As of the end of 2012, Wealth Management em-
ployed roughly 16,200 people worldwide, of whom approximate-
ly 4,100 were client advisors. The Wealth Management business
unit is governed by executive, operating and risk committees and
is primarily organized along regional lines with the business areas
Asia Pacific, Europe, Global Emerging Markets, Switzerland and
Global Ultra High Net Worth. Our business is supported by the
Chief Investment Officer and a global Investment Products & Ser-
vices 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
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 be-
come increasingly focused on protecting their assets and expect
strong advisory support for their investment decisions. We are,
therefore, continuing to develop our business model as a dynam-
ic wealth manager with investment management capabilities at
its core. This implies active relationships between our highly qual-
ified client advisors and their clients. Systematic client profiling,
suitable and well-performing investment ideas, portfolio moni-
toring and fast, focused communication are critical for our cli-
ents’ success. To this end, and with the ultimate goal of improv-
ing our clients’ investment performance, our global Chief
Investment Office synthesizes the research and expertise of our
global network of economists, strategists, analysts and invest-
ment specialists from across all business divisions and asset class-
es. They are present in many locations around the globe, closely
monitoring financial developments as they occur. This enables us
(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:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:69)(cid:78)(cid:67)(cid:85)(cid:85)(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: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:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:69)(cid:91)(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:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:19)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:18)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:19)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:24)(cid:26)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(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)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:20)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:24)(cid:26)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(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)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:20)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:27)
(cid:19)(cid:23)
(cid:20)(cid:22)
(cid:19)(cid:21)
(cid:19)(cid:25)
(cid:20)(cid:20)
(cid:19)(cid:18)
(cid:19)(cid:23)
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36
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to deliver insights faster and to bring local knowledge to our in-
vestment process. Using their analyses, the Chief Investment Of-
ficer establishes a UBS house view, which is vetted by our exter-
nal partner network of some of the most successful money
managers around the globe.
arrangements to the current legal and regulatory environment.
These include switching fund and structured product holdings
within our discretionary mandates into holdings that do not carry
distribution fees and designing a new flat-fee offering for advi-
sory clients.
Our Investment Products & Services unit ensures our offerings
are consistently adapted to market conditions by aligning our dis-
cretionary and advisory products with our Chief Investment Offi-
cer’s house view. Clients receive investment proposals directly re-
lated to this view, as well as solutions for alternative scenarios if
they have different views on market trends. Those who opt for a
discretionary mandate delegate the management of their assets
to a team of professional portfolio managers. Clients who prefer
to be actively involved in the management of their assets can
choose an advisory mandate, in which investment professionals
provide analysis and monitoring of portfolios, together with tailor-
made proposals to support investment decisions. Our clients can
also trade the full range of financial instruments from single secu-
rities, such as equities and bonds, to various investment funds,
structured products and alternative investments. Additionally, we
offer structured lending, corporate finance and wealth-planning
advice on client needs such as funding for education, inheritance
and succession.
Wealth Management’s products are aimed at delivering per-
formance in various market scenarios and are developed from a
wide range of sources including Investment Products & Services,
Global Asset Management, the Investment Bank and third par-
ties, as we operate with an open product platform. By aggregat-
ing private investment 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 institu-
tional clients.
Our integrated client service model allows client advisors to
analyze our clients’ financial situation, and develop and imple-
ment systematic, tailored investment strategies. These strategies
are regularly reviewed and are based on individual client profiles,
which comprise all important investment criteria, including a giv-
en 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 discretion-
ary and advisory solutions to our clients.
We have also launched a number of initiatives to further im-
prove our product offering, to enhance our solutions and to
better align our fund and manager selection process and fee
As a global, integrated firm, we provide our clients with the
investment advice, solutions and tools across all asset classes that
best fit their individual needs.
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37
Operating environment and strategy Operating environment and strategy
Our strategy
Wealth Management Americas
Wealth Management Americas develops 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 the leading wealth manager 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
2012, the business division had USD 843 billion in invested assets.
Strategy and clients
Our goal is to be the best wealth management business in the
Americas. As we continuously strive to achieve this, we must be
both client-focused and advisor-centric. We deliver a fully inte-
grated set of advice-based wealth management solutions and
banking services through our financial advisors in key metropoli-
tan markets to meet the needs of our target client segments: high
net worth clients (USD 1 million to USD 10 million in investable
assets) and ultra high net worth clients (more than USD 10 million
in investable assets), while also serving the needs of the core af-
fluent (USD 250,000 to USD 1 million in investable assets). We are
committed 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 over 7,000 financial advisors and USD
843 billion in invested assets, we are large enough to be relevant,
but focused enough to be nimble, enabling us to combine the
advantages of 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
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38
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enabling our financial advisors to leverage the full resources of
UBS, including unique access to wealth management research, a
global Chief Investment Office, and solutions from our asset-
gathering businesses and the Investment Bank. These resources
are augmented by our commitment to an open architecture and
our partnerships with many of the world’s leading third-party in-
stitutions. Moreover, our wealth management offerings are com-
plemented 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
2012, 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, while remaining disciplined on cost. We expect these ef-
forts to enable us to achieve higher levels of client satisfaction,
strengthen our client relationships, and lead to greater revenue
productivity among our financial advisors and a more profitable
business.
Organizational structure
Wealth Management Americas consists of branch networks in the
US, Puerto Rico and Canada, with 7,059 financial advisors as of
31 December 2012. Most corporate and operational functions of
the business division are located in the Wealth Management
Americas home office in Weehawken, New Jersey.
In the US and Puerto Rico, Wealth Management Americas op-
erates through direct and indirect subsidiaries of UBS AG. Securi-
ties and operations activities are conducted primarily through two
registered broker-dealers, UBS Financial Services Inc. and UBS Fi-
nancial Services Incorporated of Puerto Rico. Our banking services
in the US include those conducted through the UBS AG branches
and UBS Bank USA, a federally-regulated bank in Utah, which
provides Federal Deposit Insurance Corporation (FDIC)-insured
deposit accounts, collateralized lending services, mortgages and
credit cards.
Canadian wealth management and banking operations are
conducted through UBS Bank (Canada).
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-
ment advisors, trust companies and other financial services firms
offering wealth management services to US and Canadian private
clients, as well as foreign non-resident clients seeking wealth
management services within the US. Our main competitors in-
clude the wealth management businesses of Bank of America,
Morgan Stanley and Wells Fargo.
Products and services
Wealth Management Americas offers clients a full array of solu-
tions that focus on the individual financial needs of each client.
Comprehensive planning supports clients through the various
stages of their lives, including education funding, charitable giv-
ing, estate strategies, insurance, retirement and trusts and foun-
dations with corresponding product offerings for each stage. Our
advisors work closely with internal consultants in areas such as
wealth planning, portfolio strategy, retirement and annuities, al-
ternative investments, managed accounts, structured products,
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39
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Operating environment and strategy Operating environment and strategy
Our strategy
banking and lending, equities and fixed income. Clients also ben-
efit from our dedicated Wealth Management Research team,
which provides research guidance to help support our clients’ in-
vestment 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 ac-
cess to both discretionary and non-discretionary investment advi-
sory programs. Non-discretionary advisory programs enable the
client to maintain control over all account transactions, while cli-
ents with discretionary advisory programs direct investment pro-
fessionals to manage a portfolio on their behalf. Depending on
the type of discretionary program, the client can give investment
discretion to a qualified financial advisor, a team of our invest-
ment professionals or a third-party investment manager. Sepa-
rately, mutual fund advisory programs are also offered, whereby a
financial advisor works with the client to create a diversified port-
folio 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, qual-
ified clients may take advantage of structured products and al-
ternative 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.
40
Investment Bank
The Investment Bank provides corporate, institutional and wealth management clients with expert advice, innovative
solutions, outstanding execution and comprehensive access to the world’s capital markets. We offer investment banking
and capital markets, research, equities, foreign exchange, precious metals and tailored fixed income services in rates and
credit through our two business units, Corporate Client Solutions and Investor Client Services.
Business and clients
In October 2012, we announced a significant acceleration of the
implementation of our strategy presented in November 2011. As
part of this acceleration, starting from first quarter 2013 the In-
vestment Bank has been reorganized into two distinct business
units, Corporate Client Solutions and Investor Client Services, in
order to align the delivery of our services and the execution of our
strategy with the needs of our clients.
Corporate Client Solutions includes all advisory and financing
solutions businesses, origination, structuring and execution, in-
cluding equity and debt capital markets in service of corporate,
financial and sponsor clients.
Investor Client Services includes execution, distribution and
trading for institutional investors and provides support to Corpo-
rate Client Solutions and UBS’s wealth management businesses. It
comprises our equities businesses, including prime brokerage,
cross-asset class research capabilities and our foreign exchange
franchise, precious metals, rates and credit businesses. The Inves-
tor Client Services unit also provides distribution and risk manage-
ment capabilities required to support all of our businesses.
Our organizational model and strategy have been shaped to
focus on the long-term strategic relationship with our clients, who
will benefit from an integrated, solutions-led approach, combined
with deep market insight, intellectual capital and global coverage
and execution.
Strategy
We believe that current industry trends and the impact of the new
regulatory environment reflect secular changes in our industry,
which require a fundamental adjustment of our business mix and
scale. Therefore the strategic transformation of our business will
differentiate our franchise by satisfying our clients’ needs thanks
to our focus on superior advice and execution. In this context we
have re-focused our rates and credit platform while we continue
to strengthen our advisory, capital markets, equities and foreign
exchange businesses. The changes we have made will capitalize
on our traditional strengths, while our clients will continue to ben-
efit from our expertise, intellectual capital and global execution
capabilities. To ensure the successful execution of our strategy, we
will continue to invest in technology and hire talent selectively in
key areas across the business.
To support our goal of earning attractive returns on capital, and
to contribute to the improvement of the Group as a whole, we
have decided to exit products and services in our fixed-income
businesses that are capital-intensive, exhibit higher operational
complexity and are not required for serving the clients of our Cor-
porate Client Solutions franchise or our wealth management cli-
ents.
Consistent with the accelerated implementation of our strate-
gy, the scope of our advisory and capital markets businesses re-
mains unchanged, including our debt capital markets franchise.
However, the existing business functions are being reorganized to
focus on those industries and geographies that offer the best op-
portunities. Our foreign exchange business, including our emerg-
ing markets foreign exchange offering and our precious metals
business, will continue to be a cornerstone of our services. We
have refocused our credit and rates trading capabilities to support
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41
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Operating environment and strategy Operating environment and strategy
Our strategy
our capital markets business on the basis of an intermediation
model, much like in our equities and foreign exchange platforms.
While we have transferred to the Corporate Center with the aim
of exiting the most complex and capital-intensive products, we
retain a comprehensive offering targeted at the clients of our core
business. A franchise organized around intermediation will be
well positioned to capture new trends in fast-changing markets
which are posing challenges to traditional business models.
At the end of 2012 the Investment Bank, including the busi-
nesses we intend to exit, had pro-forma Basel III RWA of CHF
131 billion, representing a decrease of CHF 81 billion since the
end of 2011. The accompanying reduction in our funded bal-
ance sheet was CHF 163 billion, a reduction of approximately
37% during 2012. As a result of the strategic changes and
additional risk-weighted assets reductions, the Investment
Bank started 2013 operating with approximately CHF 64 billion
of pro-forma Basel III RWA. Operating with under CHF 70 bil-
lion of Basel III RWA and less than CHF 200 billion of funded
assets, our Investment Bank aims to deliver a pre-tax return on
attributed equity in excess of 15%, with a cost / income ratio of
65% to 85%.
As part of our strategy, we will continue to invest in technol-
ogy while optimizing internal efficiencies: we have a comprehen-
sive and targeted technology plan based on a long-term portfolio
approach across businesses aiming at enhancing the effective-
ness of our platform for clients. Our technology investment is
focused on change-the-bank programs mainly in our Institutional
Client Services business, while we continue to simplify all our
platforms across business areas.
These structural changes will also lower our operating costs
substantially by 2015 as part of a Group-wide effort to increase
efficiency. Alongside the business exits, we are undertaking spe-
cific initiatives to simplify our product portfolio and production
processes, achieve leaner front-to-back processes, and operate
with a reduced real-estate footprint.
➔ Please refer to the discussion about the “Acceleration of our
strategic transformation” in the “Our strategy” section of this
report for more information
Organizational structure
As of the end of 2012, we employed approximately 15,900 per-
sonnel in over 30 countries. We operate through branches and
subsidiaries of UBS AG. Securities activities in the US are conduct-
ed through UBS Securities LLC, a registered broker-dealer.
Significant recent acquisitions
In February 2013, after receiving the required regulatory approv-
als from the Brazilian government, UBS finalized its acquisition of
Link Investimentos, a Brazilian financial services firm. UBS entered
into an agreement to acquire Link Investimentos in 2010, in order
to strengthen our commitment to the emerging markets by pro-
viding wealth management and investment banking services to
private and institutional clients in Brazil, one of the world’s fastest
growing economies.
Competitors
Our Investment Bank’s strategy and scope is unique, but other
competing firms are active in many of the businesses and markets
in which we still participate. For our leading equities, foreign ex-
change and corporate advisory businesses, our main competitors
remain the major global investment banks, including Bank of
America / Merrill Lynch, Barclays Capital, Citigroup, Credit Suisse,
Deutsche Bank, Goldman Sachs, JP Morgan Chase and Morgan
Stanley.
Products and services
Corporate Client Solutions
This business unit includes client coverage, advisory, debt and eq-
uity capital market solutions and financing solutions for corpo-
rate, financial institution and sponsor clients. Corporate Client
Solutions works closely with Investor Client Services in the distri-
bution and risk management of capital markets products. With a
presence in all major financial markets, Corporate Client Solutions
is managed by region and is organized on a matrix of country,
industry sector and product banking professionals. Its main busi-
ness lines are as follows:
– The advisory group provides bespoke solutions to our clients’
most-complex strategic problems. This includes mergers and
acquisitions advice and execution, as well as refinancing, spin-
offs, exchange offers, leveraged buyouts, joint ventures, take-
over defense, corporate broking and other advisory services.
– Equity capital markets offers equity capital-raising services, as
well as related derivative products and risk management solu-
tions. The services include managing initial public offerings,
follow-ons including rights issues and block trades, equity-
linked transactions and other strategic equities solutions.
– Debt capital markets helps corporate and financial institution
clients in raising debt capital including investment grade and
emerging market bonds, high-yield bonds, subordinated debt
and hybrid capital. We also provide leveraged capital services,
which include event-driven (acquisition, leveraged buy-out)
loans, bonds and mezzanine financing. All debt products are
provided alongside risk management solutions, including de-
rivatives in close collaboration with our foreign exchange, rates
and credit businesses.
– Financing solutions works seamlessly in serving corporate and
investor clients across the globe by providing customized solu-
tions across asset classes via a wide range of financing capa-
bilities including structured financing, real estate finance, spe-
cial situations group and corporate lending, which aims to
support our advisory-driven businesses.
42
Investor Client Services
The businesses in Investor Client Services, which include our equi-
ties business and our foreign exchange, rates and credit business,
provide a comprehensive distribution platform with enhanced
cross-asset delivery as well as specialist skills to our corporate, in-
stitutional and wealth management clients.
Equities
We are one of the world’s largest equities houses and a leading
participant in the primary and secondary markets for cash equities
and equity derivatives. We provide a full front-to-back product
suite globally, including financing, execution, clearing and custo-
dy services. Our franchise employs a client-centric approach to
serve hedge funds, asset managers, wealth management advi-
sors, financial institutions and sponsors, pension funds, sovereign
wealth funds and corporations globally. We distribute, structure,
execute, finance and clear cash equity and equity derivative prod-
ucts. Our research franchise provides in-depth investment analysis
on companies, sectors, regions, macroeconomic trends, public
policy and asset-allocation strategies. The main business lines of
the equities unit are as follows:
– Cash equities provides clients with liquidity, investment advisory,
trade execution and consultancy services, together with compre-
hensive access to primary and secondary markets, corporate
management and subject matter experts. We offer full-service
trade execution for single stocks and portfolios, including capital
commitment, block trading, small cap execution and commission
management services. In addition, we provide clients with a full
suite of advanced electronic trading products, direct market ac-
cess to over 150 venues worldwide, including low-latency execu-
tion, innovative algorithms and pre, post and real–time analytical
tools. Our broker and intermediary services franchise offers exe-
cution and price improvement to retail wholesalers.
– Equity derivatives provides a full range of flow and structured
products, convertible bonds and strategic equity solutions with
global access to primary and secondary markets. The franchise
enables clients to manage risk and meet funding requirements
through a wide range of listed, OTC, securitized and fund-
wrapped products. We create and distribute structured prod-
ucts and notes for institutional and retail investors with invest-
ment returns linked to companies, sectors and indices across
multiple asset classes, including commodities.
– Financing services provides a fully-integrated platform for
hedge fund clients, including prime brokerage, capital intro-
duction, clearing and custody, synthetic financing and securi-
ties lending. In addition, we execute and clear exchange–trad-
ed derivatives across equities, fixed income and commodities in
more than 60 markets globally.
Foreign exchange, rates and credit
This unit consists of our premier foreign exchange franchise and
our market-leading precious metals business, as well as our rates
and credit businesses. These businesses support the execution,
distribution and risk management related to corporate and insti-
tutional client businesses, and also meet the needs of private
wealth management clients via targeted intermediaries. The main
business lines are as follows:
– Foreign exchange provides a full range of G10 and emerging
markets currency and precious metals services globally. We are
a leading foreign exchange market-maker in the professional
spot, forwards and options markets. We provide clients world-
wide with first-class execution facilities (voice, electronic, algo-
rithmic) coupled with premier advisory and structuring capa-
bilities when tailored solutions best fit our clients’ positioning,
hedging or liquidity management. Our presence in physical
and non-physical precious metals markets has endured for al-
most a century. UBS’s award-winning teams provide quality,
security and competitive pricing supported by a client-centric,
one-stop shop approach that offers trading, investing and
hedging across the spectrum of gold-, silver-, platinum- and
palladium-related offerings.
– Rates and credit encompasses sales and trading in a selected
number of credit and rates products, such as standardized
rates-driven products, interest-rate swaps and medium-term
notes as well as government and corporate bonds. Our offer-
ing includes market-making capabilities in areas required to
support our franchises in foreign exchange, equities, and our
corporate and investor client base.
43
Operating environment and strategy 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 is a global fund administration busi-
ness. Invested assets totaled CHF 581 billion and assets under
administration by fund services were CHF 410 billion on 31 De-
cember 2012. 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
We offer a broad range of investment capabilities and styles
across all major traditional and alternative asset classes. Over the
past few years we have developed our indexed (or passive) capa-
bilities, including exchange-traded funds, to meet growing de-
mand for these strategies from both institutional and individual
investors. Around one-fifth of our invested assets now fall into
this category.
We continue to expand our successful alternatives platform,
building on our established positions in real estate and fund of
hedge funds businesses.
The current environment and near-term outlook are character-
ized by market uncertainty, investor risk appetite that remains vul-
nerable to macro-economic developments, and low interest rates.
The diversification of our business places us in a good position to
benefit from shifting market dynamics and provides a solid foun-
dation for capturing industry growth opportunities.
We work closely with our clients in pursuit of their investment
goals with long-term performance as our focus. We continue to
expand our strong third-party institutional business while also
growing third-party wholesale distribution. We also remain com-
mitted to delivering distinctive products and solutions to the cli-
ents of UBS’s wealth management businesses.
The long-term outlook for the asset management industry re-
mains good, with three main drivers indicating inflows into the
industry: (i) the global economic downturn in recent years has
reduced the assets of both working and retired people, thus in-
creasing future savings requirements; (ii) governments are con-
tinuing to reduce support for pensions and benefits leading to a
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44
need for greater private provision; and (iii) emerging markets are
becoming an ever more important asset pool.
Organizational structure
BlackRock, JP Morgan Asset Management and Goldman Sachs
Asset Management. Most of our other competitors are more re-
gional or local niche players that focus mainly on one asset class,
particularly in the real estate, hedge fund, infrastructure or private
equity investment areas.
The “Business structure” chart shows the investment, distribution
and support structure of the business division. We employ around
3,800 personnel in 24 countries, and have our principal offices in
London, Chicago, Frankfurt, Hartford, Hong Kong, New York,
Paris, Singapore, Sydney, Tokyo and Zurich.
Significant recent acquisitions and business transfers
– In December 2012, Global Asset Management announced the
sale of its book of Canadian domestic business to Fiera Capital
Corporation. The transaction was completed in January 2013.
– In January 2012, the Jersey-based fund services business was
transferred from Wealth Management to Global Asset Manage-
ment.
– In October 2011, Global Asset Management completed the
acquisition of the ING Investment Management Limited busi-
ness in Australia. This initially operated as a subsidiary of UBS
Global Asset Management (Australia) Ltd and, following the
sale of parts of the business, was fully integrated during 2012.
– In October 2010, UBS increased its holding in UBS Real Estate
Kapitalanlagegesellschaft mbH (KAG), a Global Asset Manage-
ment joint venture with Siemens in Munich, Germany, to
94.9% from 51.0%.
Competitors
Our competitors include global firms with wide-ranging capabili-
ties, such as Fidelity Investments, AllianceBernstein Investments,
Clients and markets
Global Asset Management serves third-party institutional and
wholesale clients, and the clients of UBS’s wealth management
businesses. As shown in the “Invested assets by channel” chart,
at 31 December 2012 approximately 68% of invested assets orig-
inated from third-party clients, including institutional clients (e.g.
corporate and public pension plans, governments and their cen-
tral banks) and wholesale clients (e.g. financial intermediaries
and distribution partners). A further 32% originated from UBS’s
wealth management businesses.
Products and services
Global Asset Management’s business lines are: traditional invest-
ments (equities, fixed income and global investment solutions);
alternative and quantitative investments; global real estate; in-
frastructure and private equity; and fund services. Revenues and
key performance indicators are reported according to these
business lines and a breakdown is shown in the “Invested assets
by business line” chart.
The investment teams operate in a boutique-like structure and
the “Investment capabilities and services” chart illustrates their
distinct offerings. These can be delivered in the form of segre-
gated, pooled and advisory mandates, along with a very large
range of registered investment funds, exchange-traded funds and
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45
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Operating environment and strategy Operating environment and strategy
Our strategy
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other investment vehicles in a wide variety of jurisdictions and
across all major asset classes.
– Equities offers a wide spectrum of investment strategies with
varying risk and return objectives. These are delivered by dis-
tinct investment teams, each with dedicated research and
portfolio construction resources, which are organized around
regional capabilities and styles: global, US, Europe, APAC &
emerging markets, growth, and structured beta & indexing.
Strategies include core, unconstrained, long-short, small cap,
sector, thematic, indexed, rules-based and other specialized
strategies.
– 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, the team supports clients in a wide range of
investment-related functions.
– Alternative and quantitative investments has two primary busi-
ness 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 Pacific, Europe and 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.
– Infrastructure and private equity manages direct infrastruc-
ture investment and multi-manager infrastructure and private
equity strategies for both institutional and high net worth
investors. Infrastructure asset management manages direct
investments in core infrastructure assets globally. Alternative
Funds Advisory (AFA) infrastructure and AFA private equity
construct broadly diversified fund of funds portfolios across
the infrastructure and private equity asset classes, respec-
tively.
– Fund services, our global fund administration business, offers a
comprehensive range of flexible solutions including fund set-
up, reporting and accounting for traditional investment funds,
managed accounts, hedge funds, private equity funds and
other alternative structures.
46
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 “Invested
assets by region” 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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47
Operating environment and strategy Operating environment and strategy
Our strategy
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 provides 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 generates stable profits which contribute sub-
stantially to the overall financial performance of the Group. We
are amongst the leading players in the retail and corporate loan
market in Switzerland, with a highly collateralized lending portfo-
lio of CHF 137 billion on 31 December 2012, as shown in the
“Loans, gross” chart. This portfolio is managed conservatively,
focusing on profitability and credit quality rather than market
share.
Our Retail & Corporate unit constitutes a central building block
for the universal bank model of UBS Switzerland. It 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 trans-
fer them to our Wealth Management unit. Together, these actions
contribute significantly to Group profitability. Furthermore, Retail
& Corporate leverages the cross-selling potential of products and
services provided by our asset-gathering and investment banking
businesses. In addition, Retail & Corporate manages a substantial
part of our Swiss infrastructure and Swiss banking product plat-
form, which are both leveraged by our other businesses.
We aspire to be the bank of choice for retail clients in Switzerland
by delivering value-added services. Currently, we serve every third
Swiss household. Our distributional network comprises nearly
300 branches, 1,250 automated teller machines including self-
service terminals, and four customer service centers as well as
state-of-the-art electronic and mobile banking services. In order
to further improve our clients’ experience, we continue to invest
in our distribution network by refurbishing our branches and add-
ing new functionalities to our electronic and mobile banking ser-
vice offering. Moreover, we are continuously refining our suite of
life-cycle-based products to provide our clients with tailored solu-
tions to meet their particular needs in their different stages of life.
With regard to execution, we ensure a client-focused and efficient
sales process.
Our size in Switzerland and the diversity of businesses we op-
erate put us in an advantageous position to serve all our clients’
complex financial needs in an integrated and efficient way. We
aim to be the main bank of corporate and institutional clients
ranging from small and medium-size enterprises to multination-
als, 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
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48
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largest 100. We strive to further expand and leverage our trans-
action banking capabilities (e.g. payment and cash management
services, custody solutions, trade and export finance). In addi-
tion, we plan to increase our presence and grow in the com-
modities 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 capabilities.
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. We have successfully implemented
structures and processes to simplify our service commitments
across the business, including streamlining our processes, reduc-
ing the administrative burden on our client advisors and enhanc-
ing their long-term productivity 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 ex-
pertise of the entire bank to our Swiss retail, corporate and insti-
tutional clients. Switzerland is the only country where we operate
in retail, corporate and institutional banking, wealth and asset
management as well as investment banking.
To ensure consistent delivery throughout Switzerland, the Swiss
network is organized into ten geographical regions. Dedicated
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 Raif-
feisen, the cantonal banks, Credit Suisse, Postfinance, and 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, comprising easy-to-understand products including
cash accounts, payments, savings and retirement solutions, in-
vestment fund products, residential mortgages, a bonus pro-
gram and advisory services. We provide financing solutions to
our corporate clients, offering access to equity and debt capital
markets, syndicated and structured credit, private placements,
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. Close collaboration with our
client-centric Investment Bank is a key building block in our uni-
versal bank strategy that enables us to offer capital market prod-
ucts, foreign exchange products, hedging strategies (currency,
interest rates, and commodities) and trading (equities and fixed
income, currencies and commodities), as well as to provide cor-
porate finance advice in fields such as mid-market mergers and
acquisitions, corporate 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.
49
Operating environment and strategy Operating environment and strategy
Our strategy
Corporate Center
The Corporate Center enables UBS to operate cohesively and effectively by providing and managing support and
control functions for the business divisions and the Group.
Objectives
The Corporate Center provides the business divisions with Group-
level control in the areas of finance, risk, legal and compliance,
and Group-wide shared service functions comprising support and
logistics functions. We strive to maintain effective corporate gov-
ernance processes, including compliance with relevant regula-
tions, ensuring an appropriate balance between risk and return.
The Corporate Center also encompasses certain centrally man-
aged positions, including the SNB StabFund option and the Lega-
cy Portfolio.
In 2012, the Group-wide shared service functions in the Corpo-
rate Center – Core Functions, comprising information technology,
human resources, corporate development, Group regulatory rela-
tions and strategic initiatives, communications and branding, cor-
porate real estate and administrative services, procurement, physi-
cal security as well as information security and offshoring, were
extended by the integration of all Group-wide operations under the
leadership of the Group Chief Operating Officer (Group COO).
The Corporate Center – Legacy Portfolio encompasses certain
centrally managed positions, including the SNB StabFund option
and a portfolio of legacy assets. It is overseen by a committee
consisting of the Group Chief Executive Officer, Group Chief Fi-
nancial Officer and the Group Chief Risk Officer. Starting with
reporting for the first quarter of 2013, non-core businesses previ-
ously part of the Investment Bank will also be reported in the
Corporate Center – Legacy Portfolio. As a result, from 2013 this
unit will be known as Corporate Center – Non-core and Legacy
Portfolio.
At the end of 2012, there were 25,255 employees across all
Corporate Center functions. The majority of the treasury income,
operating expenses and personnel associated with the activities
within Corporate Center – Core Functions are re-allocated to the
business divisions for which the respective services are performed.
In 2012, the Corporate Center focused on increasing opera-
tional efficiency, optimizing organizational design related to the
accelerated implementation of our strategy announced in Octo-
ber 2012 and responding to the evolving regulatory environment.
We implemented a new integrated approach to governing regula-
tory and strategic change initiatives and introduced a new Opera-
tional Risk Control Framework that encompasses all control re-
quirements, front-to-back responsibilities and strengthens the
supervisory framework. Overall, the integrated structure helps us
to maintain independent control functions and a core platform
from which we continually create synergies and enhance share-
holder value.
Organizational structure
Corporate Center – Core Functions consists of the control func-
tions Group Finance, Group Risk, and Group General Counsel, in
addition to the shared services functions.
Group Chief Financial Officer
The Group Chief Financial Officer (Group CFO) is responsible for
ensuring transparency in, and assessment of, the financial perfor-
mance of UBS Group and its business divisions, for UBS Group’s
financial reporting, forecasting, planning and controlling process-
es. He also provides advice on financial aspects of strategic proj-
ects and transactions. The Group CFO has management responsi-
bility over the divisional and the UBS Group financial control
functions. The Group CFO is responsible for the management and
control of UBS’s tax affairs and for treasury and capital manage-
ment, including management and control of funding and liquidity
risk and UBS’s regulatory capital ratios. After consultation with the
Audit Committee of the Board of Directors (BoD), the Group CFO
makes proposals to the BoD regarding the standards for account-
ing adopted by UBS and defines the standards for financial report-
ing and disclosure. Together with the Group Chief Executive Of-
ficer (Group CEO), the Group CFO provides external certifications
50
under sections 302 and 404 of the Sarbanes-Oxley Act 2002, and,
in coordination with the Group CEO, manages relations with ana-
lysts and investors.
Group Chief Operating Officer
The Group COO manages the shared service functions of the
Group, including the management and control of Group-wide
operations, information technology, human resources, corporate
development, Group regulatory relations and strategic initiatives,
communications and branding, corporate real estate and admin-
istrative services, procurement, physical as well as information
security and offshoring. In addition, the Group COO supports the
Group CEO in developing our strategy and addressing regulatory
and strategic issues. The Group COO also oversees the business
and strategic planning of shared services.
Group Chief Risk Officer
The Group Chief Risk Officer (Group CRO) develops and imple-
ments principles and appropriate independent control frame-
works for credit, market, country and operational risks within the
Group. In particular, the Group CRO formulates and implements
the frameworks for risk capacity and appetite, risk measurement,
portfolio controls and risk reporting, and has management re-
sponsibility over the divisional and Group risk control functions.
He implements the risk control mechanisms as determined by the
BoD, the BoD Risk Committee or the Group CEO. In addition, the
Group CRO approves transactions, positions, exposures, portfolio
limits and provisions in accordance with the delegated risk con-
trol authorities, and monitors and challenges the firm’s risk-tak-
ing activities.
Group General Counsel
The Group General Counsel (Group GC) is responsible for legal
and compliance matters, policies and processes, and for manag-
ing the legal and compliance function for the UBS Group. The
Group GC is 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
legal requirements and regulatory standards in the conduct of our
business. The Group GC also assumes responsibility for establish-
ing a Group-wide management and control process for our rela-
tionship with regulators, in close cooperation with the Group
CRO and the Group CFO where relevant, and for maintaining the
relationships with our key regulators with respect to legal and
compliance matters.
51
Operating environment and strategy Operating environment and strategy
Regulation and supervision
Regulation and supervision
The Swiss Financial Market Supervisory Authority (FINMA) is UBS’s home country regulator and consolidated supervisor.
As a financial services provider with a global footprint, we are also regulated and supervised by the relevant authorities
in each of the jurisdictions in which we conduct business. The following sections describe the regulation and supervision
of our business in Switzerland and the regulatory and supervisory environments in the US and the UK, our next two
largest areas of operation.
Regulation and supervision in Switzerland
The Swiss Federal Law on Banks and Savings Banks of 8 Novem-
ber 1934, as amended (Banking Act), and the related Swiss Fed-
eral Ordinance on Banks and Savings Bank of 17 May 1972, as
amended (Banking Ordinance), provide the legal basis for banking
in Switzerland. Based on the license obtained under this frame-
work, we may engage in a full range of financial service activities,
including retail banking, commercial banking, investment bank-
ing and asset management in Switzerland. The Banking Act,
Banking Ordinance and the Financial Market Supervision Act of
22 June 2007, as amended, establish a framework for supervision
by FINMA, empowering it to issue its own ordinances and circular
letters, which contribute to shaping the Swiss legislative frame-
work for banks.
In 2010, the Swiss Federal Council and FINMA incorporated the
enhancements to the Basel Capital Accord issued by the Basel Com-
mittee on Banking Supervision on 13 July 2009 (so-called Basel 2.5)
into the Capital Adequacy Ordinance of 29 September 2006 (and
related circular letters). The enhanced ca pital adequacy rules became
effective on 1 January 2011. In autumn 2011, the Swiss Parliament
amended the legal framework for banks to address the lessons
learned from the financial crisis and, in particular, 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 ensure that systemically relevant functions can be
maintained in case of insolvency. In addition, and in line with global
requirements, we are required to produce and update recovery
and resolution plans aimed at increasing the firm’s resilience further
in the case of a crisis, and provide FINMA and other regulators
with information on how the firm could be resolved in the event of
an unsuccessful recovery. These new sections entered into force on 1
March 2012. Switzerland implemented the Basel III Accord by means
of a complete review of the Capital Adequacy Ordinance and related
FINMA rules. In addition, a number of other amendments have been
made to the Banking Ordinance and the Capital Adequacy Ordi-
nance, which came into effect on 1 January 2013.
➔ Refer to the “Capital management” section of this report for
more information about capital requirements
The Federal Act of 10 October 1997 on the Prevention of Mon-
ey Laundering in the Financial Sector defines a common standard
for due diligence obligations to prevent money laundering for the
whole financial sector.
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. FINMA, as supervisory author-
ity for investment funds in Switzerland, is responsible for the
authorization and supervision of the institutions and investment
funds subject to its control.
In our capacity as a securities broker and as an issuer of shares
listed in Switzerland, we are governed by the Federal Act on Stock
Exchanges and Securities Trading of 24 March 1995. FINMA is the
competent supervisory authority with respect to securities brokering.
FINMA fulfills its statutory supervisory responsibilities through
the instruments of licensing, regulation, monitoring, and enforce-
ment. Generally, prudential supervision in Switzerland is based on
a division of tasks between FINMA and 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.
The responsibilities of external auditors encompass the audit of
financial statements, the review of banks’ compliance with all
prudential requirements and on-site audits.
We are classified as a “big bank” due to our size, complexity,
organization and business activities, as well as our importance to
the financial system. As a big bank, we are subject to more rigor-
ous supervision than other banks. We are directly supervised by
the FINMA group “Supervision of UBS,” which is supported by
teams specifically monitoring investment banking activities, risk
management, as well as solvency and capital aspects. Supervisory
tools include numerous meetings with management and informa-
tion exchange encompassing all control and business areas, inde-
pendent assessments through review activities, and a regular ex-
change of views with internal audit functions, external auditors
and important host supervisors. In recent years, FINMA has imple-
mented the recommendations issued by the Financial Stability
Board and the Basel Committee on Banking Supervision, and
complemented the Supervisory College with the UK Financial Ser-
vices Authority (FSA) and the Federal Reserve Bank of New York
(FRBNY), established in 1998 to promote supervisory cooperation
and coordination, with a General Supervisory College – including
more than a dozen of UBS host regulatory agencies – and a Crisis
52
Management College (which is also attended by representatives
from the Swiss National Bank [SNB] and the Bank of England).
The SNB contributes to the stability of the financial system
through macro-prudential measures and monetary policy, provid-
ing also liquidity to the banking system. It does not exercise any
banking supervision and is not responsible for enforcing banking
legislation, but works together with FINMA 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 sound-
ness of the banking sector and systemically important 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 request information directly
from the banks. In addition, the SNB has been tasked by parlia-
ment with the designation of systemically relevant banks and their
systemically relevant functions in Switzerland.
➔ Refer to the “Regulatory developments” and “Risk factors”
sections of this report for more information
Regulation and supervision in the US
Our operations in the US are subject to a variety of regulatory re-
gimes. We maintain branches in several states, including Con-
necticut, Illinois, New York and Florida. These branches are li-
censed either by the Office of the Comptroller of the Currency or
the state banking authority of the state in which the branch is
located. Each US branch is subject to regulation and examination
by its licensing authority. We also maintain state and federally
chartered trust companies and other limited purpose banks,
which are regulated by state regulators or the Office of the Comp-
troller of the Currency. In addition, the Board of Governors of the
Federal Reserve System exercises examination and regulatory au-
thority over our state-licensed US branches. Only the deposits of
our subsidiary bank located in the state of Utah are insured by the
Federal Deposit Insurance Corporation. The regulation of our US
branches and subsidiaries imposes restrictions on the activities of
those branches and subsidiaries, as well as prudential restrictions
on their operations, such as limits on extensions of credit to a
single borrower, including UBS subsidiaries and affiliates.
The licensing authority of each state-licensed US branch of
UBS AG has the authority, in certain circumstances, to take pos-
session of the business and property of UBS located in the state
of the office it licenses. Such circumstances generally include vio-
lations 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 pos-
session of all the US operations of UBS under broadly similar cir-
cumstances, as well as in the event that a judgment against a
federally licensed branch remains unsatisfied. This federal power
may pre-empt the state insolvency regimes that would otherwise
be applicable to our state-licensed branches. As a result, if the
Office of the Comptroller of the Currency exercised its authority
over the US branches of UBS pursuant to federal law in the event
of a UBS insolvency, all US assets of UBS would generally be ap-
plied first to satisfy creditors of these US branches as a group,
and then made available for application pursuant to any Swiss
insolvency proceeding.
In addition to the direct regulation of our US banking offices,
because we operate US branches, we are subject to oversight
regulation by the Board of Governors of the Federal Reserve
System under various laws (including the International Banking
Act of 1978 and the Bank Holding Company Act of 1956). On
10 April 2000, UBS was designated a “financial holding com-
pany” 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) the Group, our US subsidiary feder-
ally 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 subsidiary bank located in Utah are required to meet
certain examination ratings, and (iii) our subsidiary bank in Utah
is required to maintain a rating of at least “satisfactory” under
the Community Reinvestment Act of 1997.
A major focus of US governmental policy relating to financial
institutions in recent years has been fighting money laundering
and terrorist financing. Regulations applicable to UBS and our
subsidiaries impose obligations to maintain effective policies,
procedures and controls to detect, prevent and report money
laundering and terrorist financing, and to verify the identity of
their clients. Failure to maintain and implement adequate pro-
grams to combat money laundering and terrorist financing could
have serious consequences, both in legal terms and in terms of
our reputation.
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
Securities and Exchange Commission (SEC) and the Financial In-
dustry Regulatory Authority (FINRA). Each entity is also regulated
by some or all of the following: the New York Stock Exchange
(NYSE), the Municipal Securities Rulemaking Board, the US De-
partment of the Treasury, the Commodities Futures Trading Com-
mission and other exchanges of which it may be a member, de-
pending on the specific nature of the respective broker-dealer’s
business. In addition, the US states, provinces and territories have
53
Operating environment and strategy Operating environment and strategy
Regulation and supervision
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 admin-
istrative proceedings that can result in censure, fines, the issuance
of cease-and-desist orders or the suspension or expulsion of the
broker-dealer or its 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 matters, including: registering and educat-
ing industry participants, examining securities firms, writing rules,
enforcing those rules and the federal securities laws, informing
and educating the investing public, providing trade reporting and
other industry utilities, and administering a dispute resolution fo-
rum for investors and registered firms. It also performs market
regulation under contract for the NASDAQ Stock Market, the
NYSE, the American Stock Exchange and the Chicago Climate
Exchange. The SEC’s mission is to protect investors, maintain fair,
orderly, and efficient markets, and facilitate capital formation. The
SEC oversees the key participants in the securities world, includ-
ing securities exchanges, securities brokers and dealers, invest-
ment advisors, and mutual funds.
The Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (Dodd-Frank Act) impacts the financial services indus-
try by addressing, among other issues, the following: (i) systemic
risk oversight, (ii) bank capital standards, (iii) the liquidation of fail-
ing systemically significant financial institutions, (iv) OTC deriva-
tives, (v) the ability of deposit-taking banks to engage in proprie-
tary trading activities and invest in hedge funds and private equity
(the so-called Volcker rule), (vi) consumer and investor protection,
(vii) hedge fund registration, (viii) securitization, (ix) investment ad-
visors, (x) shareholder “say on pay,” and (xi) the role of credit-rat-
ing agencies. Many of the provisions of the Dodd-Frank Act will
affect the operation of UBS’s US banking operations as well as our
non-banking entities. The details of the legislation and its impact
on UBS’s operations depend on the final regulations being adopt-
ed by various agencies and oversight boards.
Regulation and supervision in the UK
Our operations in the UK are mainly regulated by the FSA, which
establishes a regime of rules and guidance 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,
compliance with certain capital adequacy standards, client pro-
tection requirements and conduct of business rules (such as the
Markets in Financial Instruments Directive). These directives apply
throughout the EU and are reflected in the regulatory regimes of
the various member states.
The UK government has committed to changing the current
regulatory structures, including splitting responsibility for pru-
dential regulation and conduct of business regulation and the
replacement of the FSA with new regulatory bodies, namely the
Prudential Regulation Authority (reporting to the Bank of Eng-
land) and the Financial Conduct Authority (the legal continua-
tion of the FSA). This split will take effect in early 2013, formal-
izing the existing internal separation of supervisory responsibility
for prudential and conduct business regulation, implemented in
April 2012.
➔ Refer to the “Regulatory developments” and “Risk factors”
➔ Refer to the “Regulatory developments” and “Risk factors”
sections of this report for more information
sections of this report for more information
54
Risk factors
Certain risks, including those described below, may impact our
ability to execute our strategy and affect our business activities,
financial condition, results of operations and prospects. Because
the business of a broad-based international financial services firm
such as UBS is inherently exposed to risks that become apparent
only with the benefit of hindsight, risks of which we are not pres-
ently aware or which we currently do not consider to be material
could also impact our ability to execute our strategy and affect
our business activities, financial condition, results of operations
and prospects. The sequence in which the risk factors are pre-
sented 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 finan-
cial institutions could have a material and adverse effect on our
business. In the wake of the 2007–2009 financial crisis and the
continuing instability in global financial markets, regulators and
legislators have proposed, have adopted, or are actively consider-
ing, a wide range of changes to these laws and regulations. These
measures are generally designed to address the perceived causes
of the crisis and to limit the systemic risks posed by major financial
insti tutions. They include the following:
– significantly higher regulatory capital requirements;
– changes in the definition and calculation of regulatory capital;
– changes in the calculation of risk-weighted assets (RWA);
– the introduction of a more demanding leverage ratio;
– new or significantly enhanced liquidity requirements;
– requirements to maintain liquidity and capital in jurisdictions in
which 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 balance
sheet growth or reduce the profitability of trading and other ac-
tivities;
– a variety of measures constraining, taxing or imposing addi-
tional requirements relating to compensation;
– adoption of new liquidation regimes intended to prioritize the
preservation of systemically significant functions;
– requirements to adopt structural and other changes designed
to reduce systemic risk and to make major financial institutions
easier to manage, restructure, disassemble or liquidate; and
– requirements to adopt risk governance structures at a local
jurisdiction level.
A number of measures have been adopted and will be imple-
mented over 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 whether (or the form in which) they will be adopted, the
timing and content of implementing regulations and interpreta-
tions and / or the dates of their effectiveness.
Notwithstanding attempts by regulators to coordinate their ef-
forts, the measures adopted or proposed differ significantly across
the major jurisdictions, making it increasingly difficult to manage a
global institution. The absence of a coordinated approach, more-
over, disadvantages institutions headquartered in jurisdictions that
impose relatively more stringent standards. Switzerland has ad-
opted capital and liquidity requirements for its major international
banks that are the strictest among the major financial centers. This
could disadvantage Swiss banks such as UBS when they compete
with peer financial institutions subject to more lenient regulation
or with unregulated non-bank competitors.
Regulatory and legislative changes in Switzerland
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 regulatory
change efforts have generally proceeded more quickly than those
in other major jurisdictions, and the Swiss Financial Market Super-
visory Authority (FINMA), the Swiss National Bank (SNB) and the
Swiss Federal Council are implementing requirements that are sig-
nificantly more onerous and restrictive for major Swiss banks,
such as UBS, than those adopted or proposed by regulatory au-
thorities in other major global financial centers.
The provisions of the revised banking ordinance and capital
adequacy ordinance implementing the Swiss “too-big-to-fail” law
became effective on 1 January 2013. These ordinances implement
capital requirements that increase or decrease in proportion to
UBS’s (i) market share in Switzerland and (ii) total exposure, a met-
ric that measures balance sheet size. This could in effect result in
higher or lower capital adequacy requirements than the 19% of
Basel III RWA that has been publicly discussed. As we have previ-
ously announced, our total capital requirements are expected to
fall to 17.5% reflecting the planned decrease in total exposure as
part of the acceleration of our strategy announced in October
2012. Actions and interpretations of governmental authorities
may affect the calculation of our capital ratios and increase our
effective capital requirements. For example, we expect approxi-
mately CHF 2–3 billion to be added to our RWA each year from
2013 through 2019 as a result of FINMA’s decision to apply a
55
Operating environment and strategy Operating environment and strategy
Risk factors
bank-specific multiplier for banks using the internal ratings-based
approach when calculating RWA for Swiss retail mortgages. In
addition, a 1% countercyclical buffer on RWA arising from Swiss
residential mortgages will be effective from September 2013.
The new banking and capital adequacy ordinances also con-
tain, among other things, provisions regarding emergency plans
for systemically important functions, recovery and resolution plan-
ning and intervention measures that may be triggered when cer-
tain 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 specific Swiss require-
ments.
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
or indirectly, for example, to alter our legal structure (e.g. to sepa-
rate lines of business into dedicated entities, with limitations on
intra-group funding and certain guarantees), or in some manner
to further reduce business risk levels. The law also provides that
the largest banks will be eligible for a capital rebate if they take
actions that facilitate recovery and resolvability beyond ensuring
that the systematically important functions are maintained in case
of insolvency. Such actions would likely include an alteration of
the legal structure of a bank group in a manner that would insu-
late parts of the group from exposure to risks arising from other
parts of the group, thereby making it easier to dispose of certain
parts of the group in a recovery scenario, or to liquidate or dispose
of certain parts of the group in a resolution scenario, without
necessarily adversely affecting other parts.
Due to recent changes in Swiss regulatory requirements, and
due to liquidity requirements imposed by certain other jurisdic-
tions in which we operate, we have been required to maintain
substantially higher levels of liquidity overall than had been our
usual practice in the past. Like increased capital requirements,
higher liquidity requirements make certain lines of business, par-
ticularly in the Investment Bank, less attractive and may reduce
our overall ability to generate profits.
Regulatory and legislative changes outside Switzerland
Regulatory and legislative changes in other locations in which we
operate may subject us to a wide range of new restrictions both
in individual jurisdictions and, in some cases, globally.
Some of these regulatory and legislative changes may subject
us to requirements to move activities from UBS AG branches into
subsidiaries. Such “subsidiarization” can create operational, capi-
tal and tax inefficiencies, increase our aggregate credit exposure
to counterparties as they transact with multiple UBS AG affiliates,
expose our businesses to higher local capital requirements, and
potentially give rise to client and counterparty concerns about the
credit quality of the subsidiary. Such changes could also nega-
tively impact our funding model and severely limit our booking
flexibility. For example, we have significant operations in the UK
and use UBS AG’s London branch as a global booking center for
many types of products. We are being required by the UK Finan-
cial Services Authority and by FINMA to increase very substantially
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 ongoing business of the Investment
Bank. In addition, the UK Independent Commission on Banking
has re commended structural and non-structural reforms of the
banking sector, most of which have been endorsed by the UK
government. 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 issu-
ance of debt subject to “bail-in” provisions. The applicability and
implications of such changes to offices and subsidiaries of foreign
banks are not yet entirely clear, but they could have a material
effect on our businesses located or booked in the UK.
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 exiting equities proprietary trading business
segments within the Investment Bank. For other trading activity,
we expect that we will be required to implement a compliance
regime, including the calculation of detailed metrics for each
trading book, and may be required to implement a compliance
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 eco-
nomics of market-making activities. The Volcker Rule also broad-
ly 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. Moreover,
at the end of 2012, the Federal Reserve issued proposed rules for
foreign banking organizations in the US (sections 165 and 166 of
Dodd-Frank Act) that include (i) a requirement for an intermedi-
ate holding company to hold US subsidiary operations, (ii) risk-
based capital and leverage requirements, (iii) liquidity require-
ments (both substantive and procedural), (iv) single-counterparty
credit limits, (v) risk management and risk committee require-
ments, (vi) stress test requirements, including public disclosure of
the results, (vii) a debt-to-equity limit, and (viii) a framework for
early remediation of financial weaknesses. The proposal would
impose different requirements based on the overall size of the
foreign banking organization and the size of its US-based assets.
If the rules are adopted as proposed, UBS would be subject to the
most stringent requirements based on the current size of its glob-
al and US operations.
In addition, in 2009 the G20 countries committed to require all
standardized over-the-counter (OTC) derivative contracts to be
traded on exchanges or trading facilities and cleared through cen-
56
tral counterparties by the end of 2012. This commitment is being
implemented through the Dodd-Frank Act in the US and corre-
sponding legislation in the European Union and other jurisdic-
tions, and will have a significant impact on our OTC derivatives
business, primarily in the Investment Bank. For example, we ex-
pect that, as a rule, the shift of OTC derivatives trading to a cen-
tral clearing model will tend to reduce profit margins in these
products, although some market participants may be able to off-
set this effect with higher trading volumes in commoditized prod-
ucts. 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.
UBS AG registered as a swap dealer in the US at the end of
2012 enabling the continuation of swaps business with US per-
sons. Regulations issued by the Commodity Futures Trading Com-
mission (CFTC) impose substantial new requirements on regis-
tered swap dealers for clearing, trade execution, transaction
reporting, recordkeeping, risk management and business con-
duct. The CFTC has granted time-limited relief to initially limit the
scope of new requirements to transactions with US persons. Cer-
tain of the CFTC’s regulations, including those relating to swap
data reporting, recordkeeping, compliance and supervision, are
expected to apply to UBS AG globally once this time-limited relief
expires. Application of these requirements to UBS’s swaps busi-
ness with non-US persons will present a substantial implementa-
tion burden, will likely duplicate or conflict with legal require-
ments applicable to UBS outside of the United States and may
place UBS at a competitive disadvantage to firms that are not
CFTC-registered swap dealers. The Securities and Exchange Com-
mission (SEC) is expected to propose rules for the extraterritorial
application of its regulation of securities-based swaps in the first
half of 2013, and to require registration of securities-based swap
dealers in the US following adoption of such rules. SEC regulation
of securities-based swaps may present similar risks to CFTC rules.
The effect on business booked or conducted by UBS in whole
or in part outside the US cannot yet be determined fully because
many of the regulations that must be adopted to implement the
Dodd-Frank Act have not yet been finalized.
In many instances, UBS provides services on a cross-border ba-
sis. Efforts in the European Union (EU) to harmonize the regime for
third-country firms to access the European market may have the
effect of creating new barriers that adversely affect our ability to
conduct business in these jurisdictions from Switzerland. For in-
stance, the proposed harmonization of third-country access provi-
sions under the revised European MiFID II/MiFIR framework would
make it materially more difficult for UBS to service wealth manage-
ment clients in Europe. As these requirements are still being devel-
oped and revised, the effect on our business with clients domiciled
or booked in the EU is difficult to predict.
Resolution and recovery; bail-in
We are currently required to produce recovery and resolution
plans in the US, UK, Switzerland and Germany and are likely to
face similar requirements for our operations in other jurisdictions,
including our operations in the EU as a whole as part of the pro-
posed EU Recovery and Resolution Directive. Resolution plans may
increase the pressure for structural change if our analysis identi-
fies impediments that are not acceptable to regulators. Such
structural changes may negatively impact our ability to benefit
from synergies between business units, and if they include the
creation of separate legal entities may have the other negative
consequences mentioned above with respect to “subsidiariza-
tion”.
In addition a number of jurisdictions, including Switzerland,
the US, the UK and the EU, have implemented or are considering
implementing changes that would allow resolution authorities to
convert debt into equity in a so-called “bail-in”. The scope of bail-
in authority and the legal mechanisms that would be utilized for
the purpose are subject to a great deal of development and inter-
pretation. Depending upon the outcome, bail-in authority may
have a significant effect on UBS’s funding costs.
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
certain business lines globally or in particular locations, and in
some cases on our ability to compete with other financial institu-
tions. 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 or the implementation of leg-
islative and regulatory changes may have a negative impact on
our relationships with clients and our success in attracting client
business.
Our capital strength is important in supporting our
strategy, client franchise and competitive position
Our capital position, as measured by the BIS tier 1, core and total
capital ratios and the common equity tier 1 ratio under Basel III
requirements, is determined by (i) RWA (credit, non-counterparty
related, market and operational risk positions, measured and
risk-weighted according to regulatory criteria) and (ii) eligible
capital. Both RWA and eligible capital are subject to change. Eli-
gible capital would be reduced if we experience net losses or
losses through the other comprehensive income account, as de-
termined for the purpose of the regulatory capital calculation,
which may also render it more difficult or more costly for us to
raise new capital. Eligible capital can also be reduced for a num-
ber of other reasons, including certain reductions in the ratings of
securitization exposures, adverse currency movements affecting
the value of equity, prudential adjustments that may be required
due to the valuation uncertainty associated with certain types of
positions, and changes in the value of certain pension fund assets
recognized in other comprehensive income. RWA, on the other
hand, are driven by our business activities and by changes in the
risk profile of our exposures. For instance, substantial market
57
Operating environment and strategy Operating environment and strategy
Risk factors
volatility, a widening of credit spreads (the major driver of our
value-at-risk), adverse currency movements, increased counter-
party risk, a deterioration in the economic environment, or in-
creased operational risk could result in a rise in RWA. Any such
reduction in eligible capital or increase in RWA could materially
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 the Basel III guidelines
as adopted by the Bank for International Settlements. The changes
in the calculation of RWA under Basel III and FINMA requirements
(such as the revised treatment of certain securitization exposures
under the Basel III framework) have significantly increased the level
of our RWA and, therefore, have adversely affected our capital ra-
tios. We have announced plans to reduce RWA very substantially
and to mitigate the effects of the changes in the RWA calculation.
However, there is a risk that we will not be successful in pursuing
our plans, either because we are unable to carry out fully the ac-
tions we have planned or because other business or regulatory de-
velopments to some degree counteract the benefit of our actions.
In addition to the risk-based capital requirements, we are subject
to a minimum leverage ratio requirement for systemically important
banks introduced by FINMA. 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
leverage ratios, whether pertaining to the minimum levels re-
quired for large Swiss banks or to the calculation thereof (includ-
ing changes of the banking law under the “too-big-to-fail” mea-
sures), could have a material adverse effect on our business and
could affect our competitive position internationally compared
with institutions that are regulated under different regimes.
We may not be successful in executing our announced
strategic plans
In October 2012, we announced a significant acceleration in the
implementation of our strategy. The strategy includes transform-
ing our Investment Bank to focus it on its traditional strengths,
very significantly reducing Basel III RWA and further strengthening
our capital position, and significantly reducing costs and improv-
ing efficiency across the Group. There is a risk that we will not be
successful in pursuing our plans, including because we are unable
to carry out fully the actions we have planned, or that even if we
are able to implement our strategy as planned its effects may dif-
fer from those intended.
As part of our strategy, we are exiting certain business lines,
predominantly those formerly in the fixed income area of our In-
vestment Bank that have been rendered less attractive by changes
in regulation and market developments. Our Corporate Center is
tasked with managing down the non-core assets previously in the
Investment Bank in the most value-accretive way for shareholders.
As we wind down these positions and those in the Legacy Portfo-
lio previously transferred to Corporate Center, we will incur losses
if exit values are lower than the carrying values of these positions.
This could be the result of market price declines or illiquid or vola-
tile market conditions, or the result of other institutions seeking to
dispose of similar assets contemporaneously. These same factors
may make it impossible or inadvisable for us to effect the wind-
downs and the corresponding reduction in RWA and balance
sheet size as quickly as we have planned.
We also announced that we intend to achieve incremental cost
savings of CHF 3.4 billion above the CHF 2 billion cost savings
program announced in August 2011 as a result of the actions we
are taking in the Investment Bank and through further Group-
wide efficiency measures. The success of our strategy and our
ability to reach certain of the targets we have announced depends
heavily on the effectiveness of the cost-saving and efficiency mea-
sures we are able to carry out. As is often the case with major
cost-reduction and efficiency programs, our plans involve signifi-
cant risks. Included among these are the risks that restructuring
costs may be higher and may be recognized sooner than we have
projected and that we may not be able to identify feasible cost-
saving opportunities at the level of our savings objective that are
also consistent with our business goals. In addition, when we
implement our cost-saving and efficiency programs we may expe-
rience unintended consequences such as the loss or degradation
of capabilities that we need in order to maintain our competitive
position and achieve our targeted returns.
Our reputation is critical to the success of our business
Our reputation is critical to the success of our strategic plans. Dam-
age to our reputation can have fundamental negative effects on
our business and prospects. Reputational damage is difficult to
reverse, and improvements tend to be slow and difficult to mea-
sure. This was demonstrated in recent years as our very large loss-
es during 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 difficulty in attracting staff, in 2008 and 2009. These devel-
opments had short-term and also more lasting adverse effects on
our financial performance, and 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. More recently, the unauthorized trading inci-
dent announced in September 2011, and our involvement in the
LIBOR scandal also adversely affected our reputation. Any further
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 in our annual report for 2011 for more information
on the unauthorized trading incident
58
Material legal and regulatory risks arise in the conduct of
our business
charges associated with legal, regulatory and similar matters to
remain at elevated levels at least through 2013.
The nature of our business subjects us to significant regulatory
oversight and liability risk. As a global financial services firm
operating in more than 50 countries, we are subject to many
different legal, tax and regulatory regimes. We are involved in a
variety of claims, disputes, legal proceedings and government
investigations in jurisdictions where we are active. These pro-
ceedings expose us to substantial monetary damages and legal
defense costs, injunctive relief and criminal and civil penalties,
in addition to potential regulatory restrictions on our business-
es. The outcome of most of these matters, and their potential
effect on our future business or financial results, is extremely
difficult to predict.
We continue to be subject to government inquiries and inves-
tigations, and are involved in a number of litigations and disputes,
which arose out of the financial crisis of 2007–2009. We are also
subject to a large number of claims, disputes, legal proceedings
and government investigations unrelated to the financial crisis,
and expect that our ongoing business activities will continue to
give rise to such matters in the future. Potentially material matters
to which we are currently subject include claims relating to US
RMBS and mortgage loan sales, Swiss retrocessions, LIBOR-relat-
ed matters and the Banco UBS Pactual tax indemnity.
In December 2012, we announced settlements totaling approx-
imately CHF 1.4 billion in fines by and disgorgements to US, UK
and Swiss authorities to resolve LIBOR-related investigations with
those authorities. UBS Securities Japan Co. Ltd. also pled guilty to
one count of wire fraud relating to the manipulation of certain
benchmark interest rates. The settlements do not resolve investi-
gations by other authorities or civil claims that have been or may
in the future be asserted by private and governmental claimants
with respect to submissions for LIBOR or other benchmark interest
rates. The extent of our financial exposure to these remaining mat-
ters is extremely difficult to estimate and could be material.
The LIBOR-related settlements starkly illustrate the much-in-
creased level of financial risk now associated with regulatory
matters and regulatory enforcement in major jurisdictions, par-
ticularly in the US and UK. These very large amounts were as-
sessed, and the guilty plea of a UBS subsidiary was required, in
spite of our full cooperation with the authorities in their investi-
gations, as a result of which we were granted conditional leni-
ency or conditional immunity with respect to certain benchmark
interest rates by antitrust authorities in a number of jurisdictions
including the US and Switzerland. We understand that, in deter-
mining the consequences to UBS, the US authorities took into
account the fact that UBS has in the recent past been determined
to have engaged in serious misconduct in a number of other
matters. As a result of this history and regulatory perception,
UBS’s level of risk with respect to regulatory enforcement may be
greater than that of peer institutions.
Considering our overall exposures and the current regulatory
and political climate affecting financial institutions, we expect
UBS is determined to address the issues that have arisen in
the above and other matters in a thorough and constructive
manner. We are in active dialogue with our regulators concern-
ing the actions that we are taking to improve our operational
risk management and control framework. Ever since our losses
in 2007 and 2008, we have been subject to a very high level of
regulatory scrutiny and to certain regulatory measures that con-
strain our strategic flexibility. While we believe that we have
remediated the deficiencies that led to the material losses dur-
ing the 2007–2009 financial crisis, the unauthorized trading
incident announced in September 2011 and the LIBOR-related
settlements, the effects of these matters on our reputation and
relationships with regulatory authorities have proven to be
more difficult to overcome. For example, following the unau-
thorized trading incident FINMA informed us that we would not
be permitted to undertake acquisitions in our Investment Bank
unit (unless FINMA granted an exception), and that material
new business initiatives in that unit would be subject to FINMA
oversight. Although we have significantly enhanced our opera-
tional risk management and control framework in general and
specifically addressed the deficiencies highlighted by the unau-
thorized trading incident in particular, these special restrictions
have not been withdrawn by FINMA to date, pending indepen-
dent confirmation of the effectiveness of these enhancements
to FINMA’s satis faction. As this example illustrates, difficulties
associated with our relationships with regulatory authorities
have the potential to adversely affect the execution of our busi-
ness strategy.
➔ Refer to “Note 23 Provisions and contingent liabilities”
in the “Financial information” section of this report for more
information on litigation, regulatory and similar matters
Performance in the financial services industry is affected
by market conditions and the macroeconomic 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, continued low interest rates or a severe finan-
cial crisis can negatively affect our revenues and ultimately our
capital base.
A market downturn and weak macroeconomic conditions 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. Be-
cause financial markets are global and highly interconnected,
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 mar-
kets as well as developed markets that are susceptible to macro-
economic and political developments, or as a result of the failure
of a major market participant. We have material exposures to a
59
Operating environment and strategy Operating environment and strategy
Risk factors
number of these markets, both as a wealth manager and as an
investment bank. Moreover, our strategic plans depend more
heavily upon our ability to generate growth and revenue in the
emerging markets, causing us to be more exposed to the risks
associated with them. The ongoing eurozone crisis and the
unresolved US fiscal issues demonstrate that macroeconomic and
political developments can have unpredictable and destabilizing
effects. Adverse developments of these kinds have affected our
businesses in a number of ways, and may continue to have fur-
ther adverse effects on our businesses as follows:
– a general reduction in business activity and market volumes, as
we have experienced in the last two years, 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 in-
dustry concerns, could also have an effect on us;
– 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;
– a further extended period of low interest rates will continue to
erode interest margins in several of our businesses;
– reduced market liquidity limits trading and arbitrage opportu-
nities and impedes our ability to manage risks, impacting both
trading income and performance-based fees;
– assets we own and account for as investments or trading 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
ultimately our financial condition. As discussed below, 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 affect-
ed by the financial crisis that began in 2007. The deterioration of
financial 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 2009.
Although we have very significantly reduced our risk exposures
starting in 2008, and more recently as we implement our strate-
gy and focus on complying with Basel III capital standards, we
continue to hold substantial legacy risk positions. In many cases
these risk positions continue to be illiquid, and we remain ex-
posed to the risk that the remaining positions may again deterio-
rate in value. In the fourth quarter of 2008 and the first quarter
of 2009, certain of these positions were reclassified for account-
ing 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 are carrying out plans to reduce
drastically the RWA associated with our non-core and legacy risk
positions. There can be no assurance that we will be able to liq-
uidate them as quickly as our plans suggest, or that we will not
incur significant losses in doing so. The continued illiquidity and
complexity of many of the legacy risk positions in particular could
make it difficult to sell or otherwise liquidate these positions. At
the same time, our strategy rests heavily on our ability to reduce
sharply the RWA associated with these exposures in order to
meet our future capital targets and requirements without incur-
ring unacceptable losses. In addition, if in the future we exercise
our option to acquire the equity of the SNB StabFund from sub-
sidiaries of the Swiss National Bank, any positions remaining in
that fund could augment our risk exposure and RWA until they
can be liquidated.
We hold positions related to real estate in various countries,
and we could suffer losses on these positions. These positions
include a very substantial Swiss mortgage portfolio. Although
management believes that this portfolio has been very prudently
managed, we could nevertheless be exposed to losses if the con-
cerns expressed by the Swiss National Bank and others about
unsustainable price escalation in the Swiss real estate market
come to fruition.
In addition, we are exposed to risk in our prime brokerage,
reverse repo and Lombard lending activities, as the value or liquid-
ity of the assets against which we provide financing may decline
rapidly.
Our global presence subjects us to risk from currency
fluctuations
We prepare our consolidated financial statements in Swiss francs.
However, a substantial portion of our assets, liabilities, invested
assets, revenues and expenses are denominated in other curren-
cies, particularly the US dollar, the euro and the British pound.
Accordingly, changes in foreign exchange rates, particularly be-
tween the Swiss franc and the US dollar (US dollar revenues ac-
count for the largest portion of our non-Swiss franc revenues)
have an effect on our reported income and expenses, and on
other reported figures such as invested assets, balance sheet as-
sets, RWA and tier 1 capital. For example, in 2011 the strengthen-
ing of the Swiss franc, especially against the US dollar and euro,
60
had an adverse effect on our revenues and invested assets. Be-
cause exchange rates are subject to constant change, sometimes
for completely unpredictable reasons, our results are subject to
risks associated with changes in the relative values of currencies.
the performance of their assets held with us is not in line with
relevant benchmarks against which clients assess investment per-
formance, we may suffer reduced fee income and a decline in
assets under management, or withdrawal of mandates.
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, cor-
porate, wealth management and Investment Bank activities. This
includes lending, underwriting and derivatives activities. Changes
in interest rates, credit spreads, equity prices, market volatility and
liquidity, foreign exchange levels and other market fluctuations
can adversely 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 develop under more extreme (stressed) conditions, when
concentrations 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 sud-
den market events that are not anticipated by our risk measures
and systems. Value-at-risk, a statistical measure for market risk, is
derived from historical market data, and thus by definition could
not have anticipated the losses suffered in the stressed conditions
of the financial crisis. Moreover, stress loss and concentration con-
trols 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 framework, we could suffer further
losses in the future if, for example:
– we do not fully identify the risks in our portfolio, in particular
risk concentrations and correlated risks;
– our assessment of the risks identified or our response to nega-
tive trends proves to be inadequate, insufficient or incorrect;
– markets move in ways that we do not expect – in terms of their
speed, direction, severity or correlation – and our ability to
manage risks in the resultant environment is, therefore, af-
fected;
– 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
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 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 fac-
tors. These investments are often not liquid and generally are in-
tended or required to be held beyond a normal trading horizon.
They are subject to a distinct control framework. Deteriorations in
the fair value of these positions would have a negative impact on
our earnings.
Valuations of certain positions rely on models; models
have inherent limitations and may use inputs which have
no observable source
Where possible, we mark our trading book assets and other posi-
tions 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 instru-
ments. Valuation techniques use “market observable inputs”
where available, derived from similar instruments in similar and
active markets, from recent transaction prices for comparable
items or from other observable market data. In the case of posi-
tions for which some or all of the inputs required for the valuation
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
models have inherent limitations; different assumptions and in-
puts would generate different results, and these differences could
have a significant impact on our financial results. We regularly
review and update our valuation models to incorporate all factors
that market participants would consider in setting a price, includ-
ing factoring in current market conditions. Judgment is an impor-
tant component of this process. Changes in model inputs or in the
models themselves, or failure to make the changes necessary to
reflect evolving market conditions, could have a material adverse
effect on our financial results.
We are exposed to possible outflows of client assets in our
asset-gathering businesses and to changes affecting the
profitability of our Wealth Management business division
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 reputa-
tion, the loss of client advisors, difficulty in recruiting qualified client
61
Operating environment and strategy Operating environment and strategy
Risk factors
advisors and developments concerning our cross-border private
banking business. Many of these factors have been successfully ad-
dressed. Our Wealth Management and Wealth Management
Americas business divisions recorded substantial net new money
inflows in 2012. Long-term changes affecting the cross-border pri-
vate banking business model will, however, continue to affect cli-
ent flows in our Wealth Management business division for an ex-
tended period of time. One of the important drivers behind the
longer-term reduction in the amount of cross-border private bank-
ing assets, particularly in Europe, is the heightened focus of fiscal
authorities on cross-border investments. Changes in local 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. In 2012, we experienced net
withdrawals in our Swiss booking center from clients domiciled
elsewhere in Europe, in many cases related to the negotiation of
tax treaties between Switzerland and other countries, including the
treaty with Germany that was ultimately not ratified by Germany.
The net new money inflows in recent years in our Wealth
Management business division have come predominantly from
clients in Asia-Pacific and in the emerging markets and in the
high net worth segment globally. Over time, inflows from these
lower-margin segments and markets have been replacing out-
flows from higher-margin segments and markets, in particular
cross-border European clients. This dynamic, combined with
changes in client product preferences as a result of which low-
margin products account for a larger share of our revenues than
in the past, put downward pressure on our return on invested
assets. There can be no assurance that efforts by the business to
overcome the effects of the changes in the business mix on
gross margin, such as through service improvements and prod-
uct offerings, will be sufficiently successful to counteract those
effects. We are also making changes to our business offerings
and pricing practices in line with emerging industry trends favor-
ing price transparency and recent legal and regulatory develop-
ments, including the Swiss Supreme Court case concerning “ret-
rocessions”. There can be no assurance that we will be successful
in our efforts to offset the adverse impact of these trends and
developments.
In 2012, Global Asset Management experienced a net outflow
of client assets. Further net outflows of client assets are likely over
time to adversely affect the results of the business division.
Liquidity and funding management are critical to our
ongoing performance
The viability of our business depends upon the availability of fund-
ing sources, and its success depends upon our ability to obtain
funding at times, in amounts, for tenors and at rates that enable
us to efficiently 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 deposits and the regular issuance of money market se-
curities. The volume of our funding sources has generally been
stable, but could change in the future due to, among other things,
general market disruptions or widening credit spreads, which
could also influence the cost of funding. A change in the avail-
ability 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 unse-
cured sources, and can affect the availability of certain kinds of
funding. In addition, as we experienced recently in connection
with Moody’s downgrading of our long-term rating in June 2012,
ratings downgrades can require us to post additional collateral or
make additional cash payments under master trading agree-
ments relating to our derivatives businesses. Our credit ratings,
together with our capital strength and reputation, also contrib-
ute 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
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 di-
verse markets in different currencies, to comply with require-
ments of many different legal and regulatory regimes to which
we are subject and to prevent, or promptly detect and stop, un-
authorized, fictitious or fraudulent transactions. Our operational
risk management and control systems and processes are de-
signed to help ensure that the risks associated with our activi-
ties, including those arising from process error, failed execution,
unauthorized trading, fraud, system failures, cyber-attacks,
breaches of information security and failure of security and
physical protection, are appropriately controlled.
For example, cyber crime is a fast growing threat to large orga-
nizations that rely on technology to support its business, like UBS.
Cyber crime can range from internet based attacks that interfere
with the organizations’ internet websites, to more sophisticated
crimes that target the organizations, as well as their clients, and
seek to gain unauthorized access to technology systems in efforts
to disrupt business, steal money or obtain sensitive information.
A major focus of US governmental policy relating to financial
institutions in recent years has been fighting money laundering
and terrorist financing. Regulations applicable to us and our sub-
sidiaries impose obligations to maintain effective policies, proce-
dures and controls to detect, prevent and report money laundering
and terrorist financing, and to verify the identity of their clients.
Failure to maintain and implement adequate programs to combat
money laundering and terrorist financing could have serious con-
sequences, both in legal terms and in terms of our reputation.
62
Although we are continuously adapting our capability to de-
tect and respond to the risks described above, if our internal con-
trols fail or prove ineffective in identifying and remedying them
we could suffer operational failures that might result in material
losses, such as the loss from the unauthorized trading incident
announced in September 2011.
Participation in high-volume and high-frequency trading ac-
tivities, even in the execution of client-driven business, can also
expose us to operational risks. Our loss in the second quarter of
2012 relating to the Facebook initial public offering illustrates the
exposure participants in these activities have to unexpected re-
sults arising not only from their own systems and processes but
also from the behavior of exchanges, clearing systems and other
third parties and from the performance of third party systems.
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.
In addition, despite the contingency plans we have in place, our
ability to conduct business may be adversely affected by a disrup-
tion in the infrastructure that supports our businesses and the com-
munities in which we are located. This may include a disruption due
to natural disasters, pandemics, civil unrest, war or terrorism and
involve electrical, communications, transportation or other services
used by us or third parties with whom we conduct business.
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 and pric-
ing levels 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, adequately developing or updating our tech-
nology, particularly in trading businesses, 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
or structure of employee compensation, higher levels of deferral,
performance conditions and other circumstances triggering the
forfeiture of unvested awards may adversely affect our ability to
retain and attract key employees, and may in turn negatively affect
our business performance. Reductions in the amount of variable
compensation awarded for performance year 2012 have caused
our total compensation for certain categories of employees, main-
ly in the Investment Bank and the Corporate Center, to be lower
than is the case for peer institutions. In addition, changes that we
have made to the terms of compensation awards may place us
ahead of peers in adjusting compensation terms to the demands
of various stakeholders, including regulatory authorities and share-
holders. These terms include the introduction of a deferred contin-
gent capital plan with many of the features of the loss-absorbing
capital that we have issued in the market but with a higher capital
ratio writedown trigger, increased average deferral periods for
stock awards, and expanded forfeiture provisions for certain
awards linked to business performance. These changes, while in-
tended to better align the interests of our staff with those of other
stakeholders, increase the risk that key employees will be attracted
by competitors and decide to leave UBS, and that we may be less
successful than our competitors in attracting qualified employees.
The loss of key staff and inability to attract qualified replacements,
depending upon which and how many roles are affected, could
seriously compromise our ability to execute our strategy and to
successfully improve our operating and control environment.
➔ Refer to the “Corporate governance, responsibility and
compensation” section of this report for more information on
our compensation awards and programs
Our financial results may be negatively affected by
changes to accounting standards
We report our results and financial position in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). Changes to IFRS
or interpretations thereof may cause our future reported results
and financial position to differ from current expectations. Such
changes also may affect our regulatory capital and ratios. For ex-
ample, in 2012 UBS adopted the revised international accounting
standard IAS 19 Employee Benefits, which affected both our fi-
nancial position and our regulatory capital. UBS monitors poten-
tial accounting changes and when these are finalized by the IASB,
UBS determines the potential impact and discloses significant fu-
ture changes in its financial statements. Currently, there are a
number of issued but not yet effective IFRS changes, as well as
potential IFRS 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 the respective balance sheets
of our operating segments is tested for impairment at least annu-
ally. Our impairment test in respect of the assets recognized as of
63
Operating environment and strategy Operating environment and strategy
Risk factors
31 December 2012 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 esti-
mates 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. In the third quarter of 2012, for
example, the recognition by the Investment Bank of a full impair-
ment of goodwill and of an impairment of other non-financial
assets resulted in a charge of almost CHF 3.1 billion against UBS’s
operating profit before tax.
The effects of taxes on our financial results are signifi-
cantly influenced by changes in our deferred tax assets
and final determinations on audits by tax authorities
The deferred tax assets we have recognized on our balance sheet
as of 31 December 2012 in respect of prior years’ tax losses are
based on future profitability as indicated by the business plans. If
the business plan earnings and assumptions in future periods sub-
stantially deviate from current forecasts, the amount of recog-
nized deferred tax assets may need to be adjusted in the future.
This could include writeoffs of deferred tax assets through the
income statement.
In the coming years, our effective tax rate will be highly sensi-
tive both to our performance and to the accuracy of new business
plan forecasts. 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 the Group’s per-
formance is strong, particularly in the US, UK and Switzerland, we
could be expected to recognize additional deferred tax assets in
the coming years. The effect of doing so would be to significantly
reduce the Group’s effective tax rate in years in which additional
deferred tax assets are recognized. Conversely, if our performance
in those countries is weaker than expected, we may be required
to write off all or a portion of currently recognized deferred tax
assets through the income statement. This would have the effect
of increasing the Group’s effective tax rate in the year in which
any write offs are taken.
In the first half of 2013, we expect the tax rate to be in the
region of 25–30%. The expected tax rate is higher than the
normal expected effective tax rate of 20–25% because the net
profit for the group in 2013 may reflect losses for some legal
entities or parent bank branches for which we may not obtain a
tax benefit. In addition, the actual tax rate may fall outside the
aforementioned tax rate range to the extent that there are sig-
nificant book tax adjustments that affect taxable profits. Also,
the full year tax rate may depend on the extent to which de-
ferred tax assets are revalued during 2013 and the level of prof-
itability for the year.
Our effective tax rate is also sensitive to any future reductions
in statutory tax rates, particularly in the US and Switzerland. Re-
ductions in the statutory tax rate would cause the expected future
tax benefit from items such as tax loss carry-forwards in the af-
fected locations to diminish in value. This in turn would cause a
writedown of the associated deferred tax assets.
In addition, statutory and regulatory changes, as well as
changes to the way in which courts and tax authorities interpret
tax laws could cause the amount of taxes ultimately paid by UBS
to materially differ from the amount accrued.
Separately, 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 124 million has been rec-
ognized in operating expenses (within pre-tax profit) in the fourth
quarter of 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.
This expense will likely increase if, for example, we change our
booking practices to reduce or eliminate our utilization of UBS AG
London branch as a global booking center for the ongoing busi-
ness of the Investment Bank and consequently book more liabili-
ties into our UK bank subsidiary, UBS Limited. We expect that
the annual bank levy expense will continue to be recognized for
IFRS purposes as a 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.
64
Financial and
operating
performance
Financial and operating performance
Critical accounting policies
Critical accounting policies
Basis of preparation and selection of policies
We prepare our consolidated financial statements in accordance
with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB). The applica-
tion of certain of these accounting standards requires considerable
judgment based upon estimates and assumptions that involve sig-
nificant uncertainty at the time they are made. Estimates and judg-
ments are regularly evaluated and are based on historical experi-
ence and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
The application of assumptions and estimates means that any
selection of different assumptions could cause the reported re-
sults to differ. Changes in assumptions may have a significant im-
pact on the financial statements in the periods when assumptions
are changed.
We believe that the assumptions we have made are appro-
priate, and that our financial statements therefore present the fi-
nancial position and results fairly in all material respects. The alter-
native outcomes discussed below are presented solely to assist
the reader in understanding the uncertainty inherent in the esti-
mates and assumptions used in our financial statements. They are
not intended to suggest that other assumptions would be more
appropriate.
Accounting policies that are deemed critical to our results and
financial position, 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 de-
tailed description of our significant accounting policies is included
in “Note 1 Summary of significant accounting policies” in the
“Financial information” section of this report.
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, includ-
ing allowing clients to obtain or be exposed to specific risk and
reward profiles, to provide funding or to sell or purchase credit
risk. In accordance with IFRS, we do not consolidate special pur-
pose entities that we do not control. In determining 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 ac-
tivities of the SPE, or we have delegated 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, considered 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 expo-
sure to volatility in profits and the absorption of risks and rewards,
as well as the ability to make operational decisions for the SPE in
question, are generally the factors to which most weight is given
in reaching a conclusion.
With effect from 1 January 2013, UBS will adopt IFRS 10 Con-
solidated Financial Statements, issued by the IASB in May 2011.
IFRS 10 applies to all types of entities and is based on the existing
principle that an entity should consolidate all other entities that it
controls. The definition of control in IFRS 10 focuses on the pres-
ence of power, exposure to variable returns and the ability to uti-
lize power to affect an entity’s own returns. IFRS 10 will continue
to require a significant degree of judgment in determining wheth-
er or not another entity should be consolidated.
➔ Refer to “Note 1a) 3) Subsidiaries” in the “Financial information”
section of this report for more information
Fair value of financial instruments
UBS carries a significant portion of its assets and liabilities at fair
value. Under IFRS the relative uncertainty associated with the
measurement of fair value is represented by a three-level valua-
tion hierarchy. The best evidence of fair value is a quoted price in
an actively traded market (Level 1). In the event that the market
for a financial instrument is not active, or where quoted prices are
not otherwise available, a valuation technique is used. In these
cases, fair value is estimated using observable data in respect of
similar financial instruments, as well as financial models. Level 2
of the hierarchy pertains to instruments for which inputs to a
valuation technique are principally based on observable market
data. Level 3 applies to instruments that are measured by a valua-
tion technique that incorporates one or more significant unob-
servable inputs. Valuation techniques that rely to a greater extent
on unobservable inputs require a higher level of management
judgment to calculate a fair value than those based wholly on
observable inputs.
Where valuation techniques or models are used to determine
fair values, they are periodically reviewed and validated by quali-
fied personnel independent of those who sourced them. Models
are calibrated to ensure that outputs reflect actual data and com-
parable market prices. Models use observable data where avail-
able so as to minimize the use of unobservable inputs, but judg-
ment is required in selecting inputs for which observable data is
less readily available.
66
The valuation techniques or models employed may not fully
reflect all the factors relevant to the positions we hold. Valuations
are therefore adjusted, where appropriate, to allow for addition-
al factors, including model risk, liquidity risk and credit risk. We
use different approaches to calculate the credit risk, depending
on the nature of the instrument. A credit valuation adjustment
approach based on an expected exposure profile is used to adjust
the fair value of Positive replacement values to reflect counter-
party credit risk. Correspondingly, a debit valuation adjustment
approach is applied to incorporate own credit risk in the fair val-
ue of Negative replacement values. Own credit risk for Financial
liabilities designated at fair value is calculated using the funds
transfer price curve.
As at 31 December 2012, financial assets and financial liabili-
ties for which valuation techniques or models are used and whose
inputs are considered observable (level 2) amounted to CHF 475
billion and CHF 485 billion, respectively. Financial assets and fi-
nancial liabilities whose valuations include significant unobserv-
able inputs (level 3) amounted to CHF 20 billion and CHF 21 bil-
lion, respectively.
Imprecision in estimating unobservable market inputs can af-
fect the amount of gain or loss recorded for a particular position.
While the Group believes its valuation methods are appropriate
and consistent with those of other market participants, the use of
different methodologies or assumptions to determine the fair
value of certain financial instruments could result in a different
estimate of fair value at the reporting date.
If management had used reasonably possible alternative
assumptions for our level 3 instruments accounted for through
profit or loss, the net fair value of non-derivative instruments
would have been up to CHF 0.6 billion higher or lower than
the amounts recognized on our balance sheet on 31 December
2012. Similarly, the net fair value of derivative instruments would
have been up to CHF 0.6 billion higher or lower at 31 Decem-
ber 2012.
➔ Refer to “Note 27 Fair value of financial instruments”
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 reclas-
sified 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. Under
this incurred loss model, a financial asset or group of financial as-
sets is impaired only if there is objective evidence that a loss has
occurred by the balance sheet date. 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 for a loan is the excess of the carrying
value of the financial asset over the estimated recoverable
amount. The estimated recoverable amount is the present value,
using the loan’s original effective interest rate, of expected future
cash flows, including amounts that may result from restructuring
or the liquidation 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 reduction of the carrying value of the financial asset
on the balance sheet.
Our collective loan loss allowances are calculated for each ho-
mogeneous portfolio, taking into account historical loss experi-
ence and current conditions. The methodology and assumptions
used are reviewed regularly to reduce any differences between
estimated and actual loss experience. For all of our portfolios we
also assess whether there have been any unforeseen develop-
ments which might result in impairments but which are not im-
mediately observable. To determine whether an event-driven
collective loan loss allowance is required, we consider global eco-
nomic drivers to assess the most vulnerable countries and indus-
tries. Our current event-based collective loan loss allowance
methodology considers the heightened credit risk arising from
corporate clients in industries exposed to the recessionary effects
in certain countries, combined with the strength of the Swiss
franc.
Estimated cash flows associated with financial assets reclas-
sified from Held for trading to Loans and receivables in accor-
dance with the requirements in “Note 1a) 10) Loans and receiv-
ables” in the “Financial information” section of this report and
other similar assets acquired subsequently are revised periodi-
cally. Adverse revisions in cash flow estimates related to credit
events are recognized in profit or loss as credit loss expenses.
For reclassified securities, increases in estimated future cash re-
ceipts (above those originally forecast at the date of reclassifica-
tion) 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 9 Due from banks and loans”,
“Note 11 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 2012, our gross loan portfolio was CHF 281
billion and the related allowances amounted to CHF 0.7 billion, of
which CHF 33 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
67
Financial and operating performance Financial and operating performance
Critical accounting policies
Goodwill impairment test
UBS performs an impairment test on its goodwill assets on an
annual basis, or when indicators of a potential impairment exist.
Our segments are each considered cash-generating units; the im-
pairment test is performed for each segment to which goodwill
is allocated and compares the recoverable amount and the carry-
ing amount of the segment. An impairment charge is recognized
if the carrying amount exceeds the recoverable amount. The im-
pairment test is based on a number of assumptions, as described
below.
The recoverable amount is determined using a discounted cash
flow model, which incorporates inputs relevant to the banking
business and its regulatory environment. The recoverable amount
of a segment is the sum of the discounted earnings attributable
to shareholders from the first five forecasted years and the termi-
nal 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 ref-
erence to the equity attribution framework. Within this frame-
work, which is described in the “Capital management” section
of this report, management attributes equity to the businesses
after considering 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. At-
tributed 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 seg-
ments. 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-
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. Recognition of any impairment of goodwill
would reduce IFRS equity attributable to UBS shareholders and
net profit. It would not impact cash flows and, as goodwill is re-
68
quired to be deducted from capital under the Basel capital frame-
work, no impact is expected on the Group capital ratios.
Following the full impairment of the CHF 3.0 billion of
Investment Bank goodwill in the third quarter of 2012, as of
31 December 2012, only the following three segments carried
goodwill: Wealth Management (CHF 1.3 billion), Wealth Manage-
ment Americas (CHF 3.2 billion) and Global Asset Management
(CHF 1.4 billion). On the basis of the impairment testing meth-
odology described above, UBS concluded that the year-end
2012 balances of goodwill allocated to its segments remain recov-
erable.
➔ Refer to “Note 1a) 21) Goodwill and intangible assets” and “Note
17 Goodwill and intangible assets” in the “Financial information”
section of this report for more information
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 IAS 12
Income Taxes. The level of deferred tax asset recognition is influ-
enced by management’s assessment of our future profitability
based on relevant business plan forecasts. Existing assessments
are reviewed and, if necessary, revised to reflect changed circum-
stances. This review is conducted annually, in the second half of
each year, but adjustments may be made at other times, if re-
quired. In a situation where recent losses have been incurred, IAS
12 requires 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 2012 have been based on future profitability assump-
tions, adjusted to take into account the recognition criteria of IAS
12. 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 2012, the deferred tax
assets amounted to CHF 8.1 billion, which included CHF 5.7 bil-
lion 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 1a) 22) Income taxes” and “Note 24 Income taxes”
in the “Financial information” section of this report for more
information
Provisions
Provisions are liabilities of uncertain timing or amount, and are
recognized when UBS has a present obligation as a result of a past
event, it is probable that an outflow of resources will be required
to settle the obligation and a reliable estimate of the amount of
the obligation can be made. Provisions are recognized for the best
estimate of the consideration required to settle the present obli-
gation at the balance sheet date.
Recognition of provisions often involves significant judgment
in assessing the existence of an obligation resulting from past
events and in estimating the probability, timing and amount of
any outflows of resources. This is particularly the case with litiga-
tion, regulatory and similar matters which, because of their na-
ture, are subject to many uncertainties making their outcome
difficult to predict. Such matters may involve unique fact pat-
terns or novel legal theories, proceedings which have not yet
been initiated or are at early stages of adjudication, or as to
which alleged damages have not been quantified by the claim-
ants. Determining whether an obligation exists as a result of a
past event and estimating the probability, timing and amount of
any potential outflows is based on a variety of assumptions, vari-
ables, and known and unknown uncertainties. The amount of
any provision recognized can be very sensitive to the assump-
tions used and there could be a wide range of possible outcomes
for any particular matter. Statistical or other quantitative analyti-
cal tools are of limited use in the case of litigation, regulatory or
similar matters. Furthermore, information currently available to
management may be incomplete or inaccurate increasing the
risk of erroneous assumptions with regards to the future devel-
opments of such matters. Management regularly reviews all the
available information regarding such matters, including advice
from legal advisors, to assess whether the recognition criteria for
provisions have been satisfied for those matters and, if not, to
evaluate whether such matters represent contingent liabilities.
Legal advice is a significant consideration in determining wheth-
er it is more likely than not that an obligation exists as a result of
a past event and in assessing the probability, timing and amount
of any potential outflows.
At 31 December 2012, the aggregate amount provisioned for
litigation, regulatory and similar matters as a class was CHF
1,432 million. Since the future outflow of resources in respect of
these matters cannot be determined with certainty based on
currently available information, the actual outflows may ulti-
mately prove to be substantially greater (or less) than the pro-
visions recognized.
➔ Refer to “Note 1a) 27) Provisions” and “Note 23 Provisions
and contingent liabilities” in the “Financial information” section
of this report for more information
Pension and other post-employment benefit plans
During 2012, UBS adopted revisions to IAS 19 Employee Benefits
(“IAS 19R”) issued by the IASB in June 2011. IAS 19R eliminates
the “corridor method”, under which the recognition of actuarial
gains and losses was deferred. Instead, the full defined benefit
obligation net of plan assets is now recorded on the balance
sheet, with changes resulting from remeasurements recognized
immediately in other comprehensive income. The net defined
benefit liability at the end of the year and the related Personnel
expense depend on the expected future benefits to be provided,
determined using a number of economic and demographic as-
sumptions. The most significant assumptions include life expec-
tancy, the discount rate, expected salary increases, pension rates,
and for the Swiss plan, interest credits on retirement savings ac-
count balances.
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
currency and term at the measurement date. The assumption for
salary increases reflects the long-term expectations for salary
growth and takes into account inflation, seniority, promotion and
other relevant factors such as supply and demand in the labor
market.
The most significant plan is the Swiss pension plan. Consistent
with 2011, life expectancy for this plan has been based on the
2010 BVG generational mortality tables. The assumption for the
discount rate has changed from 2.3% in the prior year, to 1,9%.
➔ Refer to “Note 1a) 24) Pension and other post-employment
benefit plans” and “Note 30 Pension and other post-employment
benefit plans” 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
reference 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 perfor-
mance 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. Several recognized valuation models
exist. The models we apply have been selected because they are
able to accommodate the specific features included in the vari-
ous instruments granted to our employees. If we were to use
different models, the values produced would differ, even if the
same inputs were used.
The models we use 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 ob-
servable 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 com-
pensation expense.
➔ Refer to “Note 1a) 25) Equity participation and other compen-
sation plans” and “Note 31 Equity participation and other
compensation plans” in the “Financial information” section of
this report for more information
69
Financial and operating performance Financial and operating performance
Significant accounting and financial reporting structure changes
Significant accounting and financial reporting
structure changes
Significant accounting changes
Changes to reporting segments
IAS 19 (revised) Employee Benefits
During 2012, UBS adopted revisions to the International Account-
ing Standard 19 Employee Benefits (“IAS 19R”) retrospectively in
accordance with the transitional provisions set out in the account-
ing standard. IAS 19R introduces changes to the recognition,
measurement, presentation and disclosure of post-employment
benefits. The full defined benefit obligation net of plan assets is
now recorded on the balance sheet, with changes resulting from
remeasurements recognized immediately in other comprehensive
income. As a result, we have adjusted the opening balances as of
1 January 2010 for the cumulative effect of applying the revised
standard and all comparative information included in this report,
except where otherwise indicated, has been presented as if IAS
19R had been applied from that date.
Under the Basel III framework, the regulatory capital effect of
the adoption of IAS 19R, together with related changes in future
periods, will be phased in annually from 1 January 2014 on an
after-tax basis, such that it becomes fully adjusted on 1 January
2018. We expect the volatility of our Basel III common equity tier
1 capital ratio to increase due to the adoption of IAS 19R.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Financial information” section
for more information
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank’s two reportable segments –
Wealth Management and Retail & Corporate – became separate
business divisions at the start of 2012. As these business divisions
were already considered separate reportable segments, no adjust-
ments were required to reported segment results.
Investment Bank
On 30 December 2011, a portfolio of legacy positions was trans-
ferred from the Investment Bank to the Corporate Center. Com-
mencing in the first quarter of 2012, this portfolio, together with
the option to acquire the equity of the SNB StabFund, has been
considered a separate reportable segment within the Corporate
Center and designated as the Legacy Portfolio. Prior periods have
been restated.
In conjunction with the accelerated implementation of our
strategy announced in October 2012, the Asset Liability Manage-
ment unit was transferred from the Investment Bank to Group
Treasury within the Corporate Center in the fourth quarter of
2012. Prior periods have been restated to reflect this transfer and
profit and loss amounts associated with the ongoing business ac-
tivities of Asset Liability Management are being fully allocated
back to the Investment Bank.
70
Own credit
Effective 2012, the measurement of the performance of the busi-
ness divisions excludes own credit gains and losses on financial
liabilities designated at fair value. This reflects the fact that these
gains and losses are not managed at a business division level and
are not necessarily indicative of any business division’s perfor-
mance. In line with these internal reporting changes, own credit
gains and losses are now reported as part of Corporate Center –
Core Functions. Prior periods have been restated to conform to
this presentation.
Group Treasury managed assets
In 2012, management changed the methodology used to allocate
certain financial assets and their corresponding costs managed by
Group Treasury. Prior periods were not restated for this change
and the impact from the change in cost allocation methodology
was not material to the reported segment results.
Centralization of operations units in the Corporate Center
In 2012, operations units from the business divisions were central-
ized in the Corporate Center as part of our ongoing efforts to im-
prove our operational effectiveness and heighten our cost efficien-
cy across the firm. Prior to this centralization, charges for operations
support provided from one division to another were shown in the
respective division’s income statement as services to / from other
business divisions without any allocation of the related headcount.
With effect from 1 July 2012 on a prospective basis, charges from
the centralized operations units have been allocated to the busi-
ness divisions and shown in the respective expense lines of the re-
portable segments and the related headcount has been allocated
to the business divisions. Prior to the transfer to the Corporate
Center, Retail & Corporate operations staff provided significant
support to other business divisions in Switzerland. Accordingly, the
transfer had the effect of increasing personnel and non-personnel
expenses as well as decreasing charges for services from other busi-
ness divisions at Wealth Management, the Investment Bank and
Global Asset Management, and of decreasing personnel and non-
personnel expenses as well as income from services provided to
other divisions at Retail & Corporate. As a result of the centraliza-
tion, as of 1 July 2012, allocations of personnel increased by ap-
proximately 800 in Wealth Management, 250 in the Investment
Bank and 50 in Global Asset Management, with a corresponding
decrease of 1,100 in Retail & Corporate.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Financial information” section
for more information
Changes to the reporting structure in 2013
Corporate Center – Non-core and
Legacy Portfolio
In line with our strategy to focus the
Investment Bank’s business on its
traditional strengths, we are exiting
many business lines which are capital
and balance sheet intensive or are
in areas with high operational complexity
or long tail risks. Beginning in the
first quarter of 2013, these non-core
activities and positions formerly in the
Investment Bank have been transferred
to and will be managed and reported
in the Corporate Center. These non-core
activities and positions, together with
the Legacy Portfolio and the option to
acquire the equity of the SNB StabFund,
will be reported as a separate reportable
segment called “Non-core and Legacy
Portfolio” starting with the first quarter
of 2013, when all necessary internal
reporting changes will have been put
into place.
In summary, with effect from the first
quarter of 2013, UBS’s segment reporting,
which is in line with our internal report-
ing, will present five business divisions
and the Corporate Center, consisting of
Non-core and Legacy Portfolio, as well
as Core Functions.
71
Financial and operating performance Financial and operating performance
UBS results
UBS results
Net loss attributable to UBS shareholders in 2012 was CHF 2,511 million compared with a profit of CHF 4,138 million in
2011. The pre-tax loss was CHF 1,774 million compared with a profit of CHF 5,307 million in the prior year. The 2012 loss
was primarily due to impairment losses of CHF 3,064 million on goodwill and other non-financial assets in the Invest-
ment Bank, net charges for provisions for litigation, regulatory and similar matters of CHF 2,549 million, an own credit
loss on financial liabilities designated at fair value of CHF 2,202 million and net restructuring charges of CHF 371 million.
In 2012, we recorded a tax expense of CHF 461 million compared with CHF 901 million in 2011. Net profit attributable
to non-controlling interests was CHF 276 million in 2012 compared with CHF 268 million.
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
of which: net trading income excluding own credit
of which: own credit on financial liabilities designated at fair value
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) from continuing operations before tax
Tax expense / (benefit)
Net profit / (loss) from continuing operations
Discontinued operations
Profit from discontinued operations before tax
Tax expense
Net profit from discontinued operations
Net profit / (loss)
Net profit attributable to non-controlling interests
from continuing operations
from discontinued operations
Net profit / (loss) 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
72
For the year ended
31.12.12
31.12.11
31.12.10
% change from
31.12.11
15,968
(9,974)
5,994
(118)
5,875
15,405
3,480
5,682
(2,202)
682
25,443
14,737
8,653
689
3,030
106
27,216
(1,774)
461
(2,235)
0
0
0
(2,235)
276
276
0
(2,511)
(2,511)
0
(1,766)
243
(2,009)
17,969
(11,143)
6,826
(84)
6,742
15,236
4,343
2,806
1,537
1,467
27,788
15,634
5,959
761
0
127
22,482
5,307
901
4,406
0
0
0
4,406
268
268
0
4,138
4,138
0
5,632
560
5,071
18,872
(12,657)
6,215
(66)
6,149
17,160
7,471
8,019
(548)
1,214
31,994
17,031
6,585
918
0
117
24,650
7,345
(409)
7,754
2
0
2
7,756
304
303
1
7,452
7,451
1
6,701
609
6,092
(11)
(10)
(12)
40
(13)
1
(20)
102
(54)
(8)
(6)
45
(9)
(17)
21
(49)
3
3
(57)
2012
Performance before tax
Performance before tax was a loss of CHF 1,774 million in 2012
compared with a profit of CHF 5,307 million in the prior year.
The 2012 loss was primarily due to impairment losses of CHF
3,064 million on goodwill and other non-financial assets in the
Investment Bank and net charges for provisions for litigation,
regulatory and similar matters of CHF 2,549 million, including
charges for provisions arising from fines and disgorgement re-
sulting from regulatory investigations concerning LIBOR and
other benchmark rates, as well as claims related to sales of resi-
dential mortgage backed-securities. The full year 2012 result
also included an own credit loss on financial liabilities designated
at fair value of CHF 2,202 million and net restructuring charges
of CHF 371 million.
We calculate adjusted results that exclude items considered
non-recurring or that management believes are not representative
of the underlying performance of our business (such adjusted re-
sults are non-GAAP financial measures as defined by SEC regula-
tions). For 2012, these adjustments are the abovementioned im-
pairment losses of CHF 3,064 million, the own credit loss of CHF
2,202 million, a credit to personnel expenses of CHF 730 million
related to changes to our Swiss pension plan, net restructuring
charges of CHF 371 million, and a credit to personnel expenses of
CHF 116 million related to changes to our retiree medical and life
insurance plan in the US. The adjustments in 2011 were an own
credit gain of CHF 1,537 million, a gain of CHF 722 million on the
sale of our strategic investment portfolio and net restructuring
charges of CHF 380 million.
On this adjusted basis, the 2012 pre-tax profit was CHF 3,017
million compared with CHF 3,428 million in 2011, mainly as net
charges for provisions for litigation, regulatory and similar matters
increased by CHF 2,273 million to CHF 2,549 million, while 2011
included a loss of CHF 1,849 million related to the unauthorized
trading incident announced in September of that year.
➔ Refer to the “Certain items affecting our results in 2012”
sidebar in this section for more information on LIBOR-related
settlements
Operating income
Total operating income was CHF 25,443 million in 2012 compared
with CHF 27,788 million in 2011. Excluding the impact of own
credit in both years and the gain on the sale of our strategic invest-
ment portfolio in 2011, operating income increased by CHF 2,116
million to CHF 27,645 million.
lion, primarily reflecting the tightening of our credit spreads, com-
pared with an own credit gain of CHF 1,537 million in 2011. Ex-
cluding the impact of own credit, net interest and trading income
increased by CHF 2,044 million, reflecting an increase of CHF
1,404 million in the Corporate Center and an increase of CHF 862
million in the Investment Bank.
Excluding own credit, net interest and trading revenues in the
Corporate Center increased by CHF 1,404 million, partly as the
revaluation of our option to acquire the SNB StabFund’s equity
was a gain of CHF 526 million in 2012 compared with a loss of
CHF 133 million in 2011. Furthermore, 2011 saw losses from the
net impact of credit valuation adjustments on monolines.
Equities net interest and trading revenues increased by CHF
1,114 million in 2012. The prior year included a loss of CHF 1,849
million due to the unauthorized trading incident. In 2012, we in-
curred a loss of CHF 349 million related to the Facebook initial
public offering. In addition, derivatives and equity-linked revenues
declined as client activity was lower across all regions, and trading
revenues particularly in Europe and Asia Pacific were affected by
lower volatility levels. Proprietary trading revenues were also low-
er as we continued to exit the business.
Fixed income, currencies and commodities (FICC) net interest
and trading income decreased by CHF 224 million, primarily as
2012 included a negative debit valuation adjustment of CHF 383
million on our derivatives portfolio as credit default swap spreads
tightened compared with positive CHF 244 million in 2011 when
spreads widened. Credit revenues increased as revenues in 2011
were negatively affected by mark-to-market trading losses mainly
in the second half of the year as trading conditions were challeng-
ing due to uncertainty surrounding the eurozone and the global
economic outlook. Revenues in loan trading, flow trading, real
estate finance and structured credit improved in 2012. Macro rev-
enues declined as a result of lower foreign exchange revenues as
volatility decreased from the high levels seen in 2011 resulting
from the eurozone uncertainty. Rates revenues were broadly un-
changed, with improved performances in non-linear and long-
end interest rates, partially offset by lower short-end interest rates
revenues.
Net interest and trading income in Wealth Management de-
clined by CHF 118 million, mainly as the previous year included
CHF 103 million of interest income stemming from the above-
mentioned strategic investment portfolio. Moreover, net interest
income was negatively affected by increased costs of CHF 69 mil-
lion related to assets managed centrally by Group Treasury. Fur-
thermore, trading revenues declined as a result of lower treasury-
related income and lower client activity following the reduced
volatility in the foreign exchange market. These factors were
partly offset by CHF 180 million higher product-related interest
income, reflecting the beneficial effects of increases in client de-
posit and lending volumes.
Net interest and trading income
Net interest and trading income decreased by CHF 1,695 million
to CHF 9,474 million. Full year 2012 included an own credit loss
on financial liabilities designated at fair value of CHF 2,202 mil-
In Wealth Management Americas, net interest and trading in-
come increased by CHF 86 million, reflecting favorable currency
effects and higher client balances in securities-based lending and
mortgages.
73
Financial and operating performance 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
Wealth Management
Wealth Management Americas
Investment Bank
Global Asset Management
Retail & Corporate
Corporate Center
of which: own credit on financial liabilities designated at fair value
Total net interest and trading income
Credit loss (expense) / recovery
CHF million
Wealth Management
Wealth Management Americas
Investment Bank
Retail & Corporate
Corporate Center
of which: related to Legacy Portfolio
Total
For the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
5,994
3,480
9,474
2,728
1,265
4,872
12
2,467
(1,870)
(2,202)
9,474
6,826
4,343
11,169
2,846
1,179
4,010
8
2,661
465
1,537
11,169
6,215
7,471
13,686
2,384
1,266
6,847
22
2,670
497
(548)
13,686
(12)
(20)
(15)
(4)
7
21
50
(7)
(15)
For the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
1
(14)
34
(27)
(112)
(112)
(118)
11
(6)
(13)
(101)
24
25
(84)
11
(1)
155
(76)
(155)
(155)
(66)
(91)
133
(73)
40
Retail & Corporate net interest and trading income declined
by CHF 194 million, partly as the previous year included interest
income of CHF 68 million related to our strategic investment
portfolio. Net interest income was also negatively affected by
increased costs related to assets managed centrally by Group
Treasury and lower allocations related to investment proceeds
from the firm’s equity. The loan margin was stable, but histori-
cally low interest rates continued to negatively affect the deposit
margin. This was partly offset by growth in average deposit and,
to a lesser extent, loan volumes as well as a number of pricing
adjustments.
Credit loss expense / recovery
In 2012, we recorded a net credit loss expense of CHF 118 million
compared with a net credit loss expense of CHF 84 million in
2011. In 2012, we recorded a net credit loss expense of CHF 112
million in Corporate Center – Legacy Portfolio, mainly related to
student loan auction rate securities, and a net credit loss expense
of CHF 27 million in Retail & Corporate, partly offset by a net
credit loss recovery of CHF 34 million in the Investment Bank.
➔ Refer to the discussions of credit loss expense / recovery in the
“Wealth Management”, “Wealth Management Americas”,
“Investment Bank”, “Retail & Corporate” and “Legacy Portfolio”
➔ Refer to “Note 3 Net interest and trading income” in the
sections of this report for more information
“Financial information” section of this report for more informa-
➔ Refer to the “Risk management and control section” section of
tion
this report for more information on our risk management
➔ Refer to “Note 27 Fair value of financial instruments” in the
approach, method of credit risk measurement and the develop-
“Financial information” section of this report for more informa-
ment of credit risk exposures
tion on own credit
➔ Refer to the “Non-trading portfolios – valuation and sensitivity
information by instrument category” section 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
Net fee and commission income
Net fee and commission income increased by CHF 169 million to
CHF 15,405 million.
Underwriting fees increased by CHF 359 million to CHF 1,539
million, reflecting an increase in both equity and debt underwriting
74
fees. The increase in underwriting fees corresponded to increased
market share in both equity underwriting and debt underwriting.
In addition, we increased our participation in private and struc-
tured transactions.
Portfolio management and advisory fees increased by CHF 341
million to CHF 5,892 million, mainly reflecting an increase in
Wealth Management Americas.
Net brokerage fees fell by CHF 271 million, primarily in the In-
vestment Bank due to a lower level of client activity.
Merger and acquisition and corporate finance fees decreased
by CHF 313 million due to a lower volume of transactions.
➔ Refer to “Note 4 Net fee and commission income” in
the “Financial information” section of this report for more
information
Other income
Other income was CHF 682 million compared with CHF 1,467 mil-
lion in the previous year.
In 2012, net revenues from financial investments available-
for-sale were CHF 329 million, which included CHF 219 million
in gains from the Wealth Management Americas’ available-for-
sale portfolio, as well as a gain of CHF 88 million on the sale of
an equity investment in the Investment Bank. In 2011, net rev-
enues from financial investments available-for-sale were CHF
887 million, which included a gain of CHF 722 million from the
sale of our strategic investment portfolio and gains of CHF 81
million from Wealth Management Americas’ available-for-sale
portfolio.
Other income from associates and subsidiaries was CHF 81
million compared with CHF 44 million, mainly related to higher
revenues from our investment in the SIX Group.
Other income in 2012 further included gains of CHF 112 mil-
lion on sales of Swiss real estate compared with a gain of CHF
78 million on sale of a property in Switzerland in 2011. Other
income in 2011 included net gains of CHF 344 million from the
sale of loans and receivables.
➔ Refer to “Note 5 Other income” in the “Financial information”
section of this report for more information
Operating expenses
Total operating expenses increased by CHF 4,734 million to CHF
27,216 million, mainly due to impairment losses of CHF 3,064
million on goodwill and other non-financial assets in the Invest-
ment Bank and CHF 2,273 million higher net charges for provi-
sions for litigation, regulatory and similar matters. The apprecia-
tion of the US dollar and British pound against the Swiss franc
also contributed to the overall increase. These increases were
partly offset by a credit to personnel expenses of CHF 730 million
related to changes to our Swiss pension plan and a credit to per-
sonnel expenses of CHF 116 million related to changes to our re-
tiree medical and life insurance plan in the US. Net restructuring
charges were CHF 371 million in 2012 compared with CHF 380
million in 2011.
Personnel expenses
Personnel expenses decreased by CHF 897 million to CHF 14,737
million. In 2012, personnel expenses included a credit of CHF 730
million related to changes to our Swiss pension plan and a credit
of CHF 116 million related to changes to our retiree medical and
life insurance plan in the US. Net personnel-related restructuring
charges were CHF 358 million in 2012 compared with CHF 261
million in 2011. Excluding the effects of restructuring and the
credits related to the Swiss and US benefit plans, personnel ex-
penses decreased by CHF 148 million, despite the appreciation of
the US dollar and British pound against the Swiss franc.
On this adjusted basis, expenses for performance awards de-
clined by CHF 577 million to CHF 2,885 million. Expenses relating
to 2012 performance awards recognized in the performance year
2012 were CHF 1,724 million, down CHF 123 million from the
prior year, reflecting a 7% decrease in the overall performance
award pool for the 2012 performance year. The amortization of
deferred compensation awards from prior years decreased by CHF
454 million to CHF 1,161 million.
Other variable compensation excluding restructuring charges
increased by CHF 51 million, reflecting increased expenses for em-
ployee retention, including costs related to the special plan award
program in the Investment Bank.
Salary expenses, excluding restructuring, decreased by CHF 78
million, partly related to a one-time net credit of CHF 31 million
from changes to the rules for the Swiss long-service and sabbati-
cal awards.
Financial advisor compensation in Wealth Management Ameri-
cas increased by CHF 354 million excluding restructuring reflect-
ing higher revenue production and higher compensation commit-
ments and advances related to recruited financial advisors.
➔ Refer to “Note 6 Personnel expenses” and “Note 31 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 8,653 million in
2012 compared with CHF 5,959 million in 2011.
Net charges for provisions for litigation, regulatory and similar
matters increased by CHF 2,273 million, primarily as a result of
charges for provisions arising from fines and disgorgement result-
ing from regulatory investigations concerning LIBOR and other
benchmark rates and claims related to sales of residential mort-
gage backed-securities.
Based on relevant facts and circumstances, our provisions are
adequate. Nevertheless, in view of the current regulatory and po-
litical climate affecting financial institutions, and because we con-
tinue to be exposed to a number of claims and regulatory matters
arising from the financial crisis of 2007–2009 and other matters,
we expect charges associated with litigation, regulatory and simi-
lar matters to remain at elevated levels at least through 2013.
Costs for outsourcing of IT and other services increased by
CHF 206 million due to higher business demand.
75
Financial and operating performance Financial and operating performance
UBS results
Expenses for marketing and public relations increased by
CHF 135 million, partly due to expenditures related to our 150th
anniversary, and professional fees increased by CHF 86 million.
In 2012, no general and administrative restructuring charges
were recorded compared with net charges of CHF 93 million in
2011.
the full year tax rate may depend on the extent to which deferred
tax assets are revalued during 2013 and the level of profitability
for the year.
➔ Refer to “Note 24 Income taxes” in the “Financial information”
section of this report for more information
➔ Refer to “Note 7 General and administrative expenses”
Net profit attributable to non-controlling interests
in the “Financial information” section of this report for more
information
Depreciation, impairment and amortization
Depreciation and impairment of property and equipment was
CHF 689 million, a decrease of CHF 72 million from the prior year,
mainly reflecting lower depreciation of IT equipment.
Impairment of goodwill was CHF 3,030 million in 2012, reflect-
ing the full impairment of goodwill carried by the Investment Bank.
Amortization and impairment of intangible assets was CHF
106 million compared with CHF 127 million. In 2012, we record-
ed impairment charges of CHF 17 million, mainly in the Invest-
ment Bank. In 2011, impairment charges were CHF 37 million,
mainly related to a past acquisition in the UK.
➔ Refer to “Note 17 Goodwill and intangible assets” in
the “Financial information” section of this report for more
information
Income tax
We recognized a net income tax expense in the income state-
ment for the year of CHF 461 million. This includes a Swiss cur-
rent tax expense of CHF 95 million, which relates to taxable prof-
its, against which no losses were available to offset, earned by
Swiss subsidiaries and also from the sale of real estate. The net
income tax expense for the year also includes a Swiss deferred tax
expense of CHF 23 million, which relates to a decrease in recog-
nized deferred tax assets due to Swiss pre-tax profits earned dur-
ing the year, offset by Swiss tax relief for the impairment of good-
will. In addition, it includes a foreign net current tax expense of
CHF 72 million, which relates to a tax expense in respect of tax-
able profits earned by non-Swiss subsidiaries and branches,
against which no losses were available to offset, which were
partly offset by a tax benefit from the release of provisions in re-
spect of tax positions which were previously uncertain. Finally,
the net income tax expense for the year includes a foreign de-
ferred tax expense of CHF 271 million, which mainly reflects a tax
expense for the amortization of deferred tax assets, as tax losses
were used against taxable profits.
In the first half of 2013, we expect the tax rate to be in the
region of 25% to 30%. The expected tax rate is higher than the
normal expected effective tax rate of 20% to 25% because the
net profit for the group in 2013 may reflect losses for some legal
entities or parent bank branches for which we may not obtain a
tax benefit. In addition, the actual tax rate may fall outside the
aforementioned tax rate range to the extent that there are sig-
nificant book tax adjustments that affect taxable profits. Also,
76
Net profit attributable to non-controlling interests for 2012 was
CHF 276 million, compared with CHF 268 million in 2011. In both
years, this almost entirely reflected dividends on preferred securities.
Total comprehensive income attributable to
UBS shareholders
Total comprehensive income attributable to UBS shareholders
includes all changes in equity (including net profit) attributed to
UBS shareholders during a period, except those resulting from
investments by and distributions to shareholders as well as equity-
settled share-based payments. Items included in comprehensive
income, but not in net profit, are reported under other compre-
hensive income (OCI). These items will be recognized in net profit
when the underlying item is sold or realized, with the exception of
gains and losses on defined benefit plans.
In 2012, total comprehensive income attributable to UBS
shareholders was negative CHF 2,009 million, reflecting the net
loss attributable to UBS shareholders of CHF 2,511 million, partly
offset by positive other comprehensive income (OCI) attributable
to UBS shareholders of CHF 502 million (net of tax).
OCI in 2012 included gains of CHF 609 million on defined
benefit plans (net of tax). This reflected pre-tax gains of CHF
1,023 million, which were almost entirely due to an increase in
the fair value of plan assets of the Swiss pension plan, partly
offset by an income tax expense of CHF 413 million. Cash flow
hedge OCI was positive CHF 384 million (net of tax), mainly re-
flecting decreases in long-term interest rates across all major
currencies, partly offset by the reclassification of net gains as-
sociated with the effective portion of changes in fair value of
hedging derivatives to the income statement. Financial invest-
ments available-for-sale OCI was positive CHF 14 million (net
of tax). Foreign currency translation OCI was a loss of CHF
511 million (net of tax), predominantly related to the 2% weak-
ening of the US dollar against the Swiss franc.
➔ Refer to the “Statement of comprehensive income” in
the “Financial information” section of this report for more
information
➔ Refer to “Note 30 Pension and other post-employment
benefit plans” in the “Financial 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.
Operating profit before tax by business divisions and Corporate Center
CHF million
Wealth Management
Wealth Management Americas
Investment Bank
Global Asset Management
Retail & Corporate
Corporate Center
Operating profit from continuing operations before tax
For the year ended
% change from
31.12.12
2,407
816
(2,734)
570
1,827
(4,661)
(1,774)
31.12.11
2,633
544
(631)
430
1,884
446
5,307
31.12.10
31.12.11
(9)
50
333
33
(3)
2,233
(121)
2,731
515
1,710
277
7,345
Key figures and personnel
Cost / income ratio
The cost / income ratio was 106.5% in 2012 compared with 80.7%
in 2011. On an adjusted basis excluding own credit and net restruc-
turing charges in both years, the credits to personnel expenses
related to changes to our Swiss pension plan and a retiree benefit
plan in the US in 2012, and the gain on the sale of our strategic
investment portfolio in 2011, the cost / income ratio increased to
88.7% from 86.3%.
BIS risk-weighted assets
On 31 December 2012, our Basel 2.5 RWA were CHF 192.5 bil-
lion compared with CHF 241.0 billion at the end of 2011, a de-
crease of CHF 48.5 billion, predominantly due to a decline in mar-
ket risk RWA of CHF 22.1 billion, in credit risk RWA of CHF 21.0
billion and, to a lesser extent, in operational risk RWA of CHF 5.6
billion. The decline in credit risk RWA of CHF 21.0 billion occurred
predominately in the fourth quarter of 2012 and was mainly at-
tributable to the accelerated implementation of our strategy,
hedging activity and sales of certain student loan auction rate
securities in the Corporate Center – Legacy Portfolio. These ac-
tivities impacted derivative, repo-style and drawn and undrawn
loan exposures, partly offset by increased residential mortgage
exposures due to the recalibration of risk parameters on residen-
tial mortgages in the third quarter.
Market risk RWA decreased by CHF 22.1 billion, mainly due to
the reduction in incremental risk charge RWA on reduced expo-
sures, a model update for sovereign debt in the first quarter, and
hedging activity. VaR and stressed VaR declined due to reduced
risk positions and reduced credit spread risk.
Operational risk RWA decreased by CHF 5.6 billion. The de-
crease reflected the implementation, following our annual model
parameter review in March 2012, of all advanced measurement
approach parameter updates that had been approved by FINMA
up to that time.
Our estimated pro-forma Basel III1 RWA on a fully applied basis
were CHF 258 billion at the end of 2012, declining CHF 122 bil-
lion compared with the end of 2011. The decline was mainly due
to the same factors that caused a decrease in Basel 2.5 RWA,
lower RWA on low-rated securitization exposures and a lower
credit valuation adjustment charge. We are targeting Group RWA
on a fully applied Basel III basis to fall to less than CHF 200 billion
by the end of 2017.
➔ Refer to the “Investment Bank”, “Legacy Portfolio” and “Capital
management” sections of this report for more information
➔ Refer to the “Our strategy” section of this report for more
information
Net new money
In Wealth Management, net new money inflows were CHF 26.3
billion in 2012 compared with CHF 23.5 billion in 2011. The stron-
gest net inflows were recorded in Asia Pacific and emerging mar-
kets as well as globally from ultra high net worth clients. Europe
reported net outflows in the offshore business, mainly related to
clients from countries neighboring Switzerland. This was partly
offset by net inflows from the European onshore business. Swiss
wealth management reported increased net inflows.
Wealth Management Americas recorded net new money in-
flows of CHF 20.6 billion or USD 22.1 billion in 2012, compared
with net new money inflows of CHF 12.1 billion or USD 14.1 bil-
lion in 2011 due to stronger inflows from net recruiting of finan-
cial advisors as well as financial advisors employed with UBS for
more than one year.
Excluding money market flows, Global Asset Management re-
corded net new money outflows of CHF 5.9 billion in 2012 com-
pared with net inflows of CHF 9.0 billion in the prior year. Net
new money from third parties was a net outflow of CHF 0.6 bil-
1 Basel III information provided throughout this report is not required to be presented because Basel III requirements were not in effect on 31 December 2012. Such measures are non-GAAP
financial measures as defined by SEC regulations. We nevertheless include information on the basis of Basel III requirements because they are effective as of 1 January 2013 and significantly
impact our RWA and eligible capital. The calculation of our pro-forma Basel III RWA combines existing Basel 2.5 RWA, a revised treatment for low-rated securitization exposures that are no
longer deducted from capital but are risk-weighted at 1250%, and new model-based capital charges. Some of these new models require final regulatory approval and therefore our pro-forma
calculations include estimates (discussed with our primary regulator) of the effect of these new capital charges which will be refined as models and the associated systems are enhanced.
77
Financial and operating performance Financial and operating performance
UBS results
Net new money 1
CHF billion
Wealth Management
Wealth Management Americas
Global Asset Management
of which: non-money market flows
of which: money market flows
1 Net new money excludes interest and dividend income.
Invested assets
CHF billion
Wealth Management
Wealth Management Americas
Global Asset Management
lion compared with a net inflow of CHF 12.2 billion. Net new
money from clients of UBS’s wealth management businesses was
a net outflow of CHF 5.2 billion compared with a net outflow of
CHF 3.1 billion.
➔ Refer to the “Wealth Management”, “Wealth Management
Americas” and “Global Asset Management” sections of this
report for more information
Invested assets
Invested assets in Wealth Management rose by CHF 71 billion to
CHF 821 billion during the year. Positive market performance and
net new money inflows were partially offset by negative currency
effects.
In Wealth Management Americas, invested assets increased by
CHF 63 billion to CHF 772 billion, reflecting positive market per-
formance and strong net new money inflows.
For the year ended
31.12.12
31.12.11
31.12.10
26.3
20.6
(13.3)
(5.9)
(7.4)
23.5
12.1
4.3
9.0
(4.7)
(12.1)
(6.1)
1.8
8.2
(6.4)
31.12.12
821
772
581
As of
31.12.11
750
709
574
% change from
31.12.10
31.12.11
768
689
559
9
9
1
Global Asset Management invested assets increased by CHF
7 billion to CHF 581 billion, mainly due to positive market
movements, partly offset by net new money outflows and nega-
tive currency effects. The sale, as agreed prior to the acquisition,
of parts of the ING Investment Management business acquired
in Australia in 2011 resulted in a net divestment of CHF 14 bil-
lion of invested assets in 2012.
➔ Refer to the “Wealth Management”, “Wealth Management
Americas” and “Global Asset Management” sections of this
report for more information
Personnel
We employed 62,628 personnel as of 31 December 2012, a re-
duction of 2,192 compared with 64,820 personnel as of 31 De-
cember 2011, largely reflecting the cost reduction program an-
nounced in July 2011 and the accelerated implementation of our
strategy announced in October 2012.
➔ Refer to the “Our employees” section within the “Corporate
governance, responsibility and compensation” section of this
report for more information
78
Certain items affecting our results in 2012
LIBOR-related settlements
On 19 December 2012, we announced
that the Board of Directors had autho-
rized total settlements of approximately
CHF 1.4 billion in fines and disgorge-
ment to US, UK and Swiss authorities to
resolve LIBOR-related investigations with
those regulators. The payments that
were agreed with authorities consisted
of fines totaling USD 1.2 billion to the
US Department of Justice and Commod-
ity Futures Trading Commission, GBP
160 million in fines to the UK Financial
Services Authority and CHF 59 million as
disgorgement of estimated profits to
the Swiss Financial Market Supervisory
Authority (FINMA). In addition, UBS
Securities Japan Co. Ltd. entered into
a plea agreement with respect to
one count of wire fraud relating to the
manipulation of certain benchmark
interest rates, including Yen LIBOR. The
settlements stemmed from industry-wide
investigations into the setting of
certain benchmark rates across a range
of currencies. These investigations
focused on whether there were improp-
er attempts by banks, acting either on
their own or with others, to manipulate
LIBOR and other benchmark rates at
certain times. UBS cooperated fully with
the authorities in their investigations
and, as a result of the investigations,
has significantly enhanced its control
framework for its submissions process
for LIBOR and other benchmark interest
rates.
Impairment of Investment Bank
goodwill and other non-financial
assets
Enhancements included changes made
throughout 2012 to the governance
framework to first combine all compo-
nents of this submissions process into
one functional area within the Investment
Bank, to next move the governance and,
in November, to move the operation
of this process into a new independent
function within Group Treasury. In
accordance with our segment reporting
principles, under which we report
performance consistent with the way
in which it is evaluated by senior man-
agement, the charge booked in the
fourth quarter was reported in Corporate
Center – Core Functions because the
management of the submissions process
resides within Group Treasury.
➔ Refer to “Note 23b Litigation,
regulatory and similar matters” in the
“Financial information” section
of this report for more information
An impairment test was performed as of
30 September 2012 with respect to the
Investment Bank because indicators of
impairment were present. These indica-
tors included negative variances from
planned performance, preliminary
discussions regarding changes in strategy
for the Investment Bank and revised
business plan information taking into
account changes in market conditions
and the global economic outlook. The
impairment test was based on the
business plan approved by the Board of
Directors on 29 October 2012. As a result
of this impairment test, losses were
recognized in the income statement
relating to a full impairment of
CHF 3,030 million for goodwill in the
third quarter of 2012. Additional assets
were examined to determine whether
their carrying values exceeded their recov-
erable amounts. Impairment losses of
CHF 15 million were recognized in the
income statement for other intangible
assets and CHF 19 million for property
and equipment, both in the third quarter
of 2012.
➔ Refer to “Note 17 Goodwill and
intangible assets” in the “ Financial
information” section of this report
for more information
79
Financial and operating performance Financial and operating performance
UBS results
2011
Performance before tax
Performance before tax was CHF 5,307 million down from CHF
7,345 million, mainly due to a decline in operating income of CHF
4,206 million, partly offset by cost reductions of CHF 2,168 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, a decline in
asset-based fees, and lower trading revenues in our equities and
FICC businesses, partly due to the loss of CHF 1,849 million re-
lated to the unauthorized trading incident. These declines were
partly offset by an own credit gain on financial liabilities desig-
nated at fair value of CHF 1,537 million, compared with a loss of
CHF 548 million in the prior year. In addition, in 2011 we in-
curred a loss of CHF 133 million on the valuation 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.
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 that year.
Net interest and trading income in FICC was down by CHF 498
million, primarily due to the strengthening of the Swiss franc. In
credit, revenues decreased 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 trading, partly offset by an improved performance by credit
solutions. In macro, revenues increased across all interest rates
business 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 as increased foreign exchange reve-
nues 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. In 2011, we recorded posi-
tive debit valuation adjustments of CHF 244 million on our deriva-
tives portfolio compared with positive debit valuation adjustments
of CHF 155 million in 2010.
80
Equities interest and trading revenues declined by CHF 2,372
million, mainly due to the loss of CHF 1,849 million related to
the unauthorized trading incident, the strengthening of the
Swiss franc, and lower revenues in the derivatives and equity-
linked businesses. Within derivatives, revenues in Europe, the
Middle East and Africa declined and more than offset higher
revenues in Asia Pacific and the Americas. In addition, trading
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.
Net interest income in Wealth Management increased by CHF
231 million, reflecting higher treasury-related income, partially
due to interest income resulting from the strategic investment
portfolio (which was acquired in late 2010). Further, net interest
income benefited from 10% higher average lending volumes.
This was offset by margin pressure as a result of low market inter-
est rates. Net trading income in Wealth Management also in-
creased by CHF 231 million, benefiting from higher income linked
to foreign exchange and precious metal client trading activities as
well as higher treasury-related revenues.
Net interest income in Wealth Management Americas increased
by CHF 34 million, due to higher client balances in securities-based
lending and mortgages, as well as from higher yields on lending
products. This was partially offset by adverse currency impacts.
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.
Net interest income in Retail & Corporate declined by CHF 94
million, primarily 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. Low market interest rates also im-
pacted income from our replication portfolio, resulting in lower
net interest income. These effects more than offset higher interest
income derived from the strategic investment portfolio which was
acquired in late 2010. Net trading income in Retail & Corporate
increased by CHF 84 million, mainly reflecting higher treasury-re-
lated income and higher foreign exchange income linked to client
trading activities.
Corporate Center net interest and trading revenues were down
CHF 32 million. In 2011, we recorded an own credit gain of CHF
1,537 million 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. Revenues in 2011 included a
loss of CHF 133 million on the valuation of our option to acquire
the SNB StabFund’s equity compared with a gain of CHF 745 mil-
lion in 2010. Furthermore, 2011 included losses of CHF 284 mil-
lion related to CVA for monoline credit protection compared with
a gain of CHF 667 million in 2010.
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 strengthening
Swiss franc on their financial position. In 2010, we reported net
credit loss expenses of CHF 66 million, which included CHF 155
million of impairment charges related to the Corporate Center –
Legacy Portfolio.
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
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.
fice space in New York. Other income in 2010 further included a
CHF 69 million demutualization gain from our stake in the Chi-
cago Board Options Exchange.
Operating expenses
Total operating expenses were CHF 22,482 million in 2011 com-
pared with CHF 24,650 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 1,397 million, or 8%,
to CHF 15,634 million due to strengthening of the Swiss franc. In
2011, we recorded CHF 261 million in personnel-related net re-
structuring charges, compared with a net release of CHF 2 million
in the prior year.
Salary costs decreased by CHF 174 million, or 2%, as a result
of the strengthening of the Swiss franc.
Expenses for performance awards were CHF 3,516 million, a
decrease of CHF 655 million, or 16%, from the prior year. Ex-
penses relating to 2011 performance awards recognized in the
performance year 2011 were CHF 1,847 million, down CHF 853
million, reflecting a 37% decrease in the overall performance
award pool for the 2011 performance year. The amortization of
deferred compensation awards from prior years increased by CHF
198 million, or 13%, to CHF 1,669 million.
Other variable compensation increased by CHF 50 million, main-
ly reflecting an increase in restructuring-related severance charges.
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.
Other income
Other income was CHF 1,467 million compared with CHF 1,214
million in the previous year.
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.
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.
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 previously
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 mil-
lion on sale of a property in Switzerland, compared with a gain of
CHF 158 million on sale of a property in Switzerland in 2010.
General and administrative expenses
General and administrative expenses were CHF 5,959 million in
2011 compared with CHF 6,585 million in 2010. The strengthening
of the Swiss franc contributed substantially to the overall decrease.
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.
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 of-
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
81
Financial and operating performance Financial and operating performance
UBS results
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.
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.
Expenses for litigation, regulatory and similar matters de-
creased by CHF 355 million, or 56%.
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 estate-related restructuring charges
which were CHF 93 million in 2011 compared with CHF 79 million
in the prior year.
Depreciation, impairment and amortization
Depreciation and impairment 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 sub-
stantially to the overall decrease.
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 in
impairment charges related to restructuring in Wealth Manage-
ment Americas.
Amortization and impairment of intangible assets was CHF
127 million compared with CHF 117 million in 2010. Higher im-
pairment charges on intangible assets, mainly resulting from the
impairment of intangible 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 state-
ment for the year of CHF 901 million. This includes a Swiss net
deferred tax expense of CHF 1,041 million, which reflects a tax
expense of CHF 927 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 up-
dated profit forecast assumptions including the expected geo-
graphical mix) partly offset by a CHF 131 million tax effect relat-
ing 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 previ-
ous 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, following
a change in statutory tax rates and loss offset rules, and a tax
expense of CHF 113 million 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 409 million. This reflected a deferred
tax benefit mainly relating to the recognition of additional de-
ferred tax assets in respect of tax losses, partly offset by current
tax expenses relating to taxable profits of Group entities.
Net profit attributable to non-controlling interests
Net profit attributable to non-controlling interests for 2011 was
CHF 268 million, compared with CHF 304 million in 2010. This
mainly reflected dividends paid on preferred securities and dividend
accruals triggered by the call of a hybrid tier 1 instrument in 2011.
Total comprehensive income attributable to UBS share-
holders
Comprehensive income attributable to UBS shareholders in 2011
was CHF 5,071 million, including net profit attributable to UBS
shareholders of CHF 4,138 million, and other comprehensive in-
come attributable to UBS shareholders of CHF 934 million.
OCI attributable to UBS shareholders included foreign currency
translation gains of CHF 722 million, fair value gains on financial
investments available-for-sale of CHF 495 million, and positive
cash flow hedge OCI of CHF 1,537 million. These gains were part-
ly offset by losses of CHF 1,820 million on defined benefit plans
(net of tax).
Foreign currency translation gains of CHF 722 million were
predominantly related to net investments in US foreign opera-
tions, which led to gains as the US dollar appreciated in the
second half of 2011. Fair value gains of CHF 495 million on fi-
nancial investments available-for-sale were almost entirely driv-
en by net gains of CHF 545 million related to the strategic invest-
ment portfolio. Declining market interest rates resulted in an
increase in fair values of CHF 1,267 million and other compre-
hensive 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 recognized in the income statement
within other income, which reduced other comprehensive in-
come accordingly. Fair value gains of CHF 1,537 million on net
fixed receiver interest rate swaps designated as cash flow hedges
resulted from declining long-term interest rates across all major
currencies. Losses of CHF 1,820 million on defined benefit plans
82
(net of tax) mainly related to the remeasurement of the defined
benefit obligation of the Swiss and international pension plans
and, to a lesser exent, a decline in the fair value of pension plan
assets.
OCI attributable to UBS shareholders in 2010 was negative
CHF 1,360 million, mainly reflecting foreign currency translation
losses of CHF 731 million and fair value losses on financial invest-
ments available-for-sale of CHF 607 million.
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. The strongest net inflows were re-
corded 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 neighbor-
ing Switzerland partly offset by net inflows from the European
onshore business. Swiss wealth management reported increased
net inflows in 2011 compared with the prior year.
Net new money inflows in Wealth Management Americas
were CHF 12.1 billion compared with outflows of CHF 6.1 billion
in 2010. This turnaround was due to improved inflows from net
recruiting of financial advisors, which was primarily due to lower
outflows from financial advisor attrition. Net new money from fi-
nancial advisors employed with UBS for more than one year re-
mained 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 busi-
nesses 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 to Global Asset Man-
agement: a CHF 1.8 billion 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 equity. It should be noted that these
assets are reported as invested assets in both business divisions,
as Wealth Management continued to advise the clients of the
funds.
Invested assets
Total invested assets were CHF 2,088 billion on 31 December
2011, up slightly from CHF 2,075 billion on 31 December 2010.
Net new money inflows of CHF 40 billion and the addition of CHF
25 billion in invested assets related to the ING Investment Man-
agement acquisition were largely offset by adverse market im-
pacts.
Personnel
We employed 64,820 personnel as of 31 December 2011, an in-
crease of 203 compared with 64,617 personnel as of 31 Decem-
ber 2010.
83
Financial and operating performance 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: assets pledged as collateral which may be sold or repledged by counterparties
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
Provisions
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
84
31.12.12
31.12.11
31.12.10
31.12.11
% change from
66,383
21,230
37,372
130,941
160,861
44,698
418,029
30,413
9,106
279,901
66,383
6,093
858
6,004
6,461
8,143
11,055
1,259,232
23,024
9,203
37,639
34,154
395,070
71,148
92,878
371,892
6,881
104,656
2,536
59,902
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
9,627
9,165
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
10,262
19,506
1,416,962
1,314,813
30,201
8,136
102,429
39,480
473,400
67,114
88,982
342,409
6,850
140,617
1,626
62,784
41,490
6,651
74,796
54,975
393,762
58,924
100,756
332,301
7,738
130,271
1,704
62,674
1,208,983
1,364,027
1,266,042
384
33,898
(1,071)
(37)
21,231
(8,509)
45,895
4,353
50,249
383
34,614
(1,160)
(39)
23,742
(9,011)
48,530
4,406
52,935
383
34,393
(654)
(54)
19,604
(9,945)
43,728
5,043
48,770
1,259,232
1,416,962
1,314,813
63
(9)
(36)
(39)
(11)
12
(14)
(26)
(12)
5
25
(4)
8
6
(33)
(15)
21
(11)
(24)
13
(63)
(13)
(17)
6
4
9
0
(26)
56
(5)
(11)
0
(2)
(8)
(5)
(11)
(6)
(5)
(1)
(5)
(11)
Assets: development during 2012
CHF billion
(cid:36)(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:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:115)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
1,417
(104)
1,500
1,400
1,300
1,200
0
(69)
(21)
(14)
26
13
10
1,259
31.12.11 Collateral
trading1
Trading
portfolio
Positive
replace-
ment
values
Lending2
31.12.12
Other
Cash
and
balances
with
central banks
Financial
investments
available-
for-sale
1 Consists of reverse repurchase agreements and cash collateral on securities borrowed.
2 Consists of due from banks, financial assets designated at fair value and loans.
(cid:26)
(cid:18)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:20)(cid:14)(cid:18)(cid:19)(cid:21)
(cid:21)(cid:19)(cid:20)
(cid:21)(cid:22)(cid:26)
(cid:21)(cid:20)(cid:20)
(cid:21)(cid:21)
(cid:20)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:24)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:20)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:26)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:22)(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)
(cid:21)
(cid:18)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:19)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:20)
(cid:19)
(cid:16)
(cid:21)
(cid:16)
(cid:19)
(cid:21)
(cid:20)
(cid:19)
(cid:16)
(cid:24)
(cid:16)
(cid:18)
(cid:21)
(cid:20)
(cid:19)
(cid:16)
(cid:27)
(cid:16)
(cid:18)
(cid:21)
(cid:19)(cid:14)(cid:21)(cid:21)(cid:26)
(cid:19)(cid:14)(cid:21)(cid:19)(cid:23)
(cid:19)(cid:14)(cid:22)(cid:19)(cid:25)
(cid:19)(cid:14)(cid:21)(cid:24)(cid:21)
(cid:19)(cid:14)(cid:22)(cid:18)(cid:27)
(cid:19)(cid:14)(cid:21)(cid:24)(cid:24)
(cid:19)(cid:14)(cid:19)(cid:23)(cid:27)(cid:149)
(cid:20)(cid:21)(cid:20)
(cid:19)(cid:26)(cid:18)
(cid:20)(cid:27)(cid:22)
(cid:20)(cid:19)
(cid:27)(cid:19)(cid:25)(cid:149)
(cid:27)(cid:19)(cid:22)(cid:149)
(cid:27)(cid:21)(cid:18)(cid:149)
(cid:27)(cid:22)(cid:23)(cid:149)
(cid:27)(cid:23)(cid:19)(cid:149)
(cid:27)(cid:19)(cid:25)(cid:149)
(cid:20)(cid:20)(cid:27)
(cid:19)(cid:26)(cid:20)
(cid:19)(cid:26)(cid:26)
(cid:19)(cid:25)(cid:27)
(cid:19)(cid:26)(cid:20)
(cid:20)(cid:21)(cid:20)
2BS031_2012_Assets_development
(cid:20)(cid:18)(cid:23)
(cid:20)(cid:25)(cid:20)
(cid:19)(cid:27)(cid:21)
(cid:20)(cid:19)(cid:19)
(cid:20)(cid:26)(cid:27)
(cid:20)(cid:25)
(cid:21)(cid:18)(cid:18)
(cid:22)(cid:19)
(cid:21)(cid:18)(cid:23)
(cid:26)(cid:21)
(cid:21)(cid:20)(cid:20)
(cid:27)(cid:24)
(cid:21)(cid:19)(cid:21)
(cid:26)(cid:26)
(cid:37)(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: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:21)
(cid:20)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:19)(cid:14)(cid:20)(cid:23)(cid:27)
(cid:19)(cid:24)(cid:19)
(cid:19)(cid:24)(cid:26)
(cid:21)(cid:19)(cid:18)
(cid:24)(cid:24)
(cid:26)(cid:22)(cid:19)(cid:149)
(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:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:88)(cid:67)(cid:75)(cid:78)(cid:67)(cid:68)(cid:78)(cid:71)(cid:15)(cid:72)(cid:81)(cid:84)(cid:15)(cid:85)(cid:67)(cid:78)(cid:71)
1
g
n
2
g
n
(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)
2
1
.
6
.
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3
l
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C
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(cid:19)(cid:2)(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(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:37)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)(cid:14)(cid:2)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(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:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:78)(cid:81)(cid:67)(cid:80)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(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:84)(cid:71)(cid:88)(cid:71)(cid:84)(cid:85)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid: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:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:71)(cid:70)(cid:16)
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(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)
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9
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T
Balance sheet development
31 December 2012 vs 31 December 2011
As of 31 December 2012, our balance sheet stood at CHF 1,259
billion, a decrease of CHF 158 billion or 11% from 31 December
2011, primarily due to a decline in collateral trading of CHF 104
billion and a reduction in positive replacement values of CHF 69
billion, predominantly relating to the accelerated implementation
of our strategy announced in October 2012.
Our funded assets, which represent total assets excluding pos-
itive replacement values, were reduced by CHF 89 billion to CHF
841 billion, primarily due to the abovementioned decline in col-
lateral trading and a reduction in trading portfolio assets. These
decreases were offset by higher balances with central banks, as
well as increased financial investments available-for-sale and lend-
ing activities. Currency movements between 31 December 2011
and 31 December 2012 had only a small effect on our funded
balance sheet assets.
Most of the total asset reduction occurred within the Invest-
ment Bank, mainly in FICC, primarily due to the abovementioned
accelerated implementation of our strategy, as well as a change in
the methodology used to allocate certain financial assets man-
aged by Group Treasury in 2012, which reduced Investment Bank
total assets by CHF 75 billion. Overall, the Investment Bank’s bal-
ance sheet decreased by CHF 224 billion, or 25%, to CHF 672
billion. The Investment Bank’s funded assets decreased by CHF
163 billion, or 37%, to CHF 275 billion. Legacy portfolio assets
decreased by CHF 19 billion to CHF 38 billion, resulting mainly
from position sales, redemptions and loan amortization. The in-
crease in Corporate Center – Core Functions total assets of CHF
74 billion to CHF 223 billion was primarily the result of the above-
mentioned change in methodology used to allocate certain finan-
i
F
cial assets. The average size of our multi-currency portfolio of
unencumbered, high-quality, short-term assets remained stable.
Wealth Management and Wealth Management Americas total
assets increased to CHF 105 billion and CHF 64 billion, respec-
tively, mainly resulting from increased lending activities totaling
CHF 15 billion. Retail & Corporate and Global Asset Management
total assets were broadly unchanged at CHF 145 billion and
CHF 13 billion, respectively.
Cash and balances with central banks
Cash and balances with central banks totaled CHF 66 billion as of
31 December 2012, an increase of CHF 26 billion, mainly due to
the re-balancing of our multi-currency portfolio of unencum-
bered, high-quality, short-term assets.
Lending
Interbank lending (due from banks) decreased by CHF 2 billion to
CHF 21 billion, primarily reflecting lower short-term lending ac-
tivities within Equities in the Investment Bank. Loans increased by
CHF 13 billion to CHF 280 billion, predominantly in our wealth
management businesses, which contributed CHF 15 billion of
growth across several products, including fixed term, LIBOR-based
mortgage and call loans. Financial assets designated at fair value
were broadly unchanged at CHF 9 billion.
Collateral trading
Collateral trading assets (reverse repurchase agreements and cash
collateral on securities borrowed) decreased by CHF 104 billion to
CHF 168 billion, primarily reflecting deleveraging within the In-
85
(cid:20)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:24)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:18)(cid:18)
(cid:26)(cid:18)(cid:18)
(cid:22)(cid:18)(cid:18)
(cid:18)
Financial and operating performance
Financial and operating performance
UBS results
vestment Bank of CHF 74 billion, combined with a CHF 27 billion
decrease related to the re-balancing of our multi-currency portfo-
lio of unencumbered, high-quality, short-term assets.
Collateral trading liabilities (repurchase agreements and cash
collateral on securities lent) were lower by CHF 64 billion, re flecting
a CHF 65 billion deleveraging-related reduction in the Investment
Bank, consistent with the decrease in collateral trading assets.
Trading portfolio
Trading portfolio assets were lower by CHF 21 billion to CHF 161
billion, mainly due to a CHF 30 billion reduction in debt instru-
ments held, which reflected lower government debt, corporate
bonds and mortgage-backed securities, primarily resulting from
the abovementioned accelerated implementation of our strategy.
The decrease in debt holdings was partly offset by a CHF 12 billion
increase in equity instruments.
Trading portfolio liabilities were lower by CHF 5 billion, reflect-
ing reduced government debt and corporate bonds short sales,
proportionally consistent with the total decrease in trading port-
folio assets.
Replacement values
Positive and negative replacement values declined on both sides
of the balance sheet, decreasing by CHF 69 billion (14%) and CHF
78 billion (17%) to CHF 418 billion and CHF 395 billion, respec-
tively. Decreases in positive replacement values primarily occurred
in interest rate contracts, which declined by CHF 28 billion due to
reduced volumes and upward shifts in interest rate curves across
most currencies, and credit derivative contracts, which declined
by CHF 31 billion, mainly due to a reduction in notional volumes.
Similarly, decreases in negative replacement values also occurred
in interest rate and credit deri vative contracts, which declined by
CHF 35 billion and CHF 29 billion, respectively.
Financial investments available-for-sale
Financial investments available-for-sale increased by CHF 13 bil-
lion to CHF 66 billion, primarily due to increased holdings of high-
quality government debt in our multi-currency portfolio of unen-
cumbered, high-quality, short-term assets.
Short-term borrowings
Short-term borrowings (short-term debt issued and due to banks)
decreased by CHF 46 billion to CHF 56 billion, primarily due to
reduced funding requirements and to a lesser extent the negative
interest charge imposed on financial institutions for Swiss franc
clearing accounts, effective 21 December 2012. The reduction in
short-term debt issued occurred across product types, primarily in
certificates of deposit, which declined by CHF 20 billion, and com-
mercial paper, which declined by CHF 14 billion.
Due to customers
Customer deposits increased by CHF 29 billion to CHF 372 billion
as Wealth Management, Wealth Management Americas and Re-
tail & Corporate all continued to attract client money into both
current and deposit accounts.
Liabilities: development during 2012
CHF billion
(cid:36)(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:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:115)(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:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
1,400
1,300
1,200
1,100
0
86
1,364
(78)
(64)
(46)
(3)
29
7
1,209
31.12.11
Negative
replacement
values
Collateral
trading1
Short-term
borrowings2
Other
Due to
customers
Long-term
debt3
31.12.12
1 Consists of repurchase agreements and cash collateral on securities lent.
2 Consists of short-term debt issued and due to banks.
3 Consists of long-term debt issued and financial liabilities designated at fair value.
(cid:20)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:24)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:20)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:26)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:22)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:26)
(cid:18)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:20)(cid:14)(cid:18)(cid:19)(cid:21)
(cid:27)
(cid:18)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:18)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:16)
(cid:19)
(cid:19)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:20)
(cid:19)
(cid:16)
(cid:21)
(cid:16)
(cid:19)
(cid:21)
(cid:20)
(cid:19)
(cid:16)
(cid:24)
(cid:16)
(cid:18)
(cid:21)
(cid:20)
(cid:19)
(cid:16)
(cid:27)
(cid:16)
(cid:18)
(cid:21)
(cid:19)(cid:14)(cid:21)(cid:21)(cid:26)
(cid:19)(cid:14)(cid:21)(cid:19)(cid:23)
(cid:19)(cid:14)(cid:22)(cid:19)(cid:25)
(cid:19)(cid:14)(cid:21)(cid:24)(cid:21)
(cid:19)(cid:14)(cid:22)(cid:18)(cid:27)
(cid:19)(cid:14)(cid:21)(cid:24)(cid:24)
(cid:20)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:19)
(cid:21)
(cid:16)
(cid:19)(cid:14)(cid:20)(cid:23)(cid:27)
(cid:19)(cid:14)(cid:19)(cid:24)(cid:19)(cid:149)
(cid:21)(cid:19)(cid:7)
(cid:19)(cid:24)(cid:7)
(cid:21)(cid:25)(cid:7)
(cid:20)(cid:19)(cid:7)
(cid:27)(cid:20)(cid:26)(cid:149)
(cid:27)(cid:20)(cid:19)(cid:149)
(cid:27)(cid:22)(cid:22)(cid:149)
(cid:27)(cid:23)(cid:27)(cid:149)
(cid:27)(cid:24)(cid:21)(cid:149)
(cid:27)(cid:21)(cid:27)(cid:149)
(cid:26)(cid:24)(cid:22)(cid:149)
2BS032_2012_Liabilities_development
(cid:21)(cid:24)(cid:7)
(cid:21)(cid:26)(cid:7)
(cid:21)(cid:27)(cid:7)
(cid:21)(cid:24)(cid:7)
(cid:21)(cid:24)(cid:7)
(cid:22)(cid:21)(cid:7)
(cid:19)(cid:27)(cid:7)
(cid:19)(cid:25)(cid:7)
(cid:19)(cid:25)(cid:7)
(cid:19)(cid:25)(cid:7)
(cid:19)(cid:26)(cid:7)
(cid:19)(cid:27)(cid:7)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:20)
(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:21)(cid:14)(cid:2)(cid:22)
(cid:38)(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:21)
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(cid:55)(cid:36)(cid:53)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:74)(cid:81)(cid:78)(cid:70)(cid:71)(cid:84)(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:67)(cid:86)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:78)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:71)(cid:85)(cid:86)(cid:85)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(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: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: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:22)(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: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:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
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(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)(cid:2)(cid:2)(cid:2)(cid:23)(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: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: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)
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(cid:20)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:24)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:18)(cid:18)
(cid:26)(cid:18)(cid:18)
(cid:22)(cid:18)(cid:18)
(cid:18)
Long-term debt
Long-term debt increased by CHF 7 billion to CHF 165 billion,
primarily due to several issuances of covered bonds as well as
two separate issuances of loss-absorbing notes. These issuances
were partly offset by the maturity of several straight senior issu-
ances.
➔ Refer to the “Liquidity and funding management” section for
more information on long-term debt issuances
Other assets / Other liabilities
Other assets declined by CHF 14 billion to CHF 69 billion, mainly
reflecting a CHF 11 billion decrease in cash collateral receivables
on derivative instruments as well as a CHF 3 billion reduction in
goodwill in the Investment Bank. Other liabilities were broadly
unchanged at CHF 140 billion.
Equity
Equity attributable to UBS shareholders decreased by CHF 2,635
million to CHF 45,895 million as of 31 December 2012 from CHF
48,530 million a year earlier. Total comprehensive income attrib-
utable to UBS shareholders was negative CHF 2,009 million, re-
flecting the net loss attributable to UBS shareholders of CHF
2,511 million, partly offset by other comprehensive income (OCI)
attributable to UBS shareholders of CHF 502 million (net of tax).
OCI primarily included gains on defined benefit plans and positive
cash flow hedge OCI of CHF 609 million and CHF 384 million,
respectively, partly offset by foreign currency translation losses of
CHF 511 million. Share premium decreased by CHF 716 million,
mainly reflecting a tax expense of CHF 457 million and the divi-
dend distribution of CHF 379 million, partly offset by an increase
of CHF 126 million related to employee share and share option
plans. Net treasury share activity increased equity attributable to
UBS shareholders by CHF 89 million.
➔ Refer to the “Statement of changes in equity” in the “Financial
information” section, and to “Comprehensive income attribut-
able to UBS shareholders” in this section for more information
Intra-period balances
Balance sheet positions disclosed in this section represent year-
end positions. Intra-period balance sheet positions fluctuate in
the ordinary course of business and may differ from quarter-end
and year-end positions.
➔ Refer to the table “FINMA leverage ratio calculation” in the “Ca-
pital management” section of this report for our average month-
end balance sheet size for the fourth quarter of 2012 and 2011
Equity attributable to UBS shareholders:
development during 2012
CHF million
49,000
48,000
47,000
46,000
0
48,530
(2,511)
31.12.11 Net loss
502
126
89
(457)
(379)
(3)
45,895
Dividends
Other
31.12.12
Other
compre-
hensive
income
(OCI)
Employee
share and
share
option plans
(share
premium)
Tax
recognized
in
share
premium
Trea-
sury
shares
2BS033_2012_Equity
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87
Financial and operating performance
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 Inter-
national Financial Reporting Standards (IFRS) because we have ei-
ther transferred or have not assumed the related risks and rewards,
and / or because we did not become party to the contractual provi-
sions of the financial instruments. These off-balance sheet arrange-
ments are transacted to either meet the financial needs of clients or
offer investment opportunities through entities that are not con-
trolled by us. These transactions include derivative instruments,
guarantees and similar arrangements, as well as purchased and
retained interests in assets transferred to non-consolidated entities.
When we, through these arrangements, incur an obligation or
become entitled to an asset, we recognize these 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
reconsideration of the consolidation conclusions made at the in-
ception of our involvement with special purpose entities (SPE).
➔ Refer to “Note 1a) 3) Subsidiaries” and “Note 1a) 5) Recognition
and derecognition of financial instruments” in the “Financial
information” section of this report for more information on
accounting policies regarding consolidation and deconsolidation
of subsidiaries, including SPE, and recognition and derecogni-
tion 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 23 Provisions and
contingent liabilities”, “Note 25 Derivative instruments and hedge
accounting” and “Note 26 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 involvement.
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 collat-
eralized debt obligations (CDO) is outlined within the table on the
following page under the column “Involvement in non-consoli-
dated SPE held by UBS”. As of 31 December 2012, the carrying
value of our purchased and retained interests relating to non-
consolidated SPE and CDO totaled CHF 5.5 billion, of which
CHF 4.3 billion was held in Trading portfolio assets and measured
at fair value and CHF 1.2 billion was held at amortized cost within
Loans. In addition, we had involvement in SPE in the form of net
Negative replacement values, mainly total return swaps and cred-
it default swaps, of CHF 0.2 billion as of 31 December 2012. 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 indicative of our risk of loss.
Our maximum loss potential is generally limited to the carrying
amount of purchased and retained interests. Our exposure with
respect to credit derivatives is based on the notional value of
those instruments. Maximum loss related to total return swaps
cannot be quantified, however, fair value is generally considered
to be the best approximation of this risk.
During 2012 we sponsored the creation of a limited number of
special purpose entities that principally facilitated the securitiza-
tion of commercial mortgage loans. These securitization transac-
tions generally involved the transfer of assets into a trust or cor-
poration, which in turn issued beneficial interests in the form of
securities. Financial assets transferred to such trusts and corpora-
tions are no longer reported in our consolidated financial state-
ments once the accounting requirements for derecognition are
met, including the transfer of substantially all of the risks and re-
wards related to such assets. UBS retained certain involvement in
some of these SPE, which are included in the disclosure on the
next page.
➔ 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 SPE from 2012 secu-
ritization activities, we also continue to retain interests in earlier
securitization issuances, primarily in the Legacy Portfolio, which
were originated by UBS or by third parties. The volume and size of
these positions, the majority of which are linked to the US mort-
gage market, have been further reduced as of 31 December 2012
when compared with the prior year.
Our involvement in non-consolidated securitization vehicles
and collateralized debt obligations disclosed in this section is typi-
cally managed on a portfolio basis alongside hedges and other
offsetting financial instruments. The numbers presented do not
include these offsetting factors.
88
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, instru-
mentality or government-sponsored enterprise, as well as assets
which were previously Held for trading and later reclassified to
Loans and receivables, including monoline-protected assets, US
reference linked notes and other assets. Our loan to the RMBS
Opportunities Master Fund, LP, a special purpose entity managed
by BlackRock, Inc. is also not included in the table below.
➔ Refer to “Note 28 Pledged and transferred financial assets” in
the “Financial information” section and to the “Risk, treasury
and capital management” section of this report for more
information on our loan to the BlackRock fund
➔ Refer to “Note 29b Reclassified financial assets” in the “Financial
information” section of this report for more information on
reclassified financial assets.
The numbers outlined in the table below deviate from the secu-
ritization positions presented in the “Basel 2.5 Pillar 3” section of
this report, primarily due to: (i) different scope, mainly exclusion of
certain government-backed and synthetic securitization transac-
tions from the table below, (ii) a different measurement basis in
certain cases (e.g. IFRS carrying value within the table below com-
pared with net exposure amount at default for Basel 2.5 Pillar 3
disclosures), and (iii) different classification of originated and spon-
sored activities. “Originated by UBS” amounts presented below in-
clude both securitization activities which we originated and those in
which we acted as the lead manager (including joint or co-lead
roles) for the transaction. For Basel 2.5 Pillar 3 disclosures, originated
and sponsored activities are presented separately.
Liquidity facilities and similar obligations
On 31 December 2012 and 2011, we had no significant exposure
through liquidity facilities and guarantees to structured investment
vehicles, conduits and other similar types of SPE.
Non-consolidated securitization vehicles and collateralized debt obligations
CHF billion
Involvement in non-consolidated SPE
held by UBS
Purchased and
retained interests
held by UBS 1
Derivatives held by UBS
Total SPE assets 2
As of 31 December 2012
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
0.2
0.7
0.1
0.4
0.4
1.8
0.0
0.1
0.9
0.7
1.0
1.0
3.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
(0.3)
0.0
0.0
(0.2)
0.2
0.0
0.0
1.3
0.0
0.0
1.5
0.0
0.0
0.3
1.7
0.1
0.0
2.1
5.3
0.9
16.0
102.1
80.9
9.6
214.8
92.3
4.7
53.0
388.7
358.3
32.3
929.3
1.3
0.9
8.3
26.0
63.7
5.3
105.5
78.9
2.9
36.0
122.6
248.1
18.4
506.9
0.0
0.0
0.0
2.9
5.8
0.0
8.7
0.0
0.0
0.0
42.5
25.7
0.0
68.2
1 Includes loans and receivables measured at amortized cost in the amount of CHF 0.8 billion originated by UBS and CHF 0.4 billion not originated by UBS as well as trading assets measured at fair value in the amount
of CHF 1.0 billion originated by UBS and CHF 3.3 billion not originated by UBS. Excludes CHF 11.0 billion of asset backed securities, of which CHF 7.3 billion were held in Wealth Management Americas’ available-for-
sale portfolio (refer to “Note 14 Financial investments available-for-sale” in the “Financial information” section of this report for more information) and CHF 3.7 billion were held in the trading portfolio of the Investment
Bank, and CHF 3.5 billion of student loan auction rate securities were held as Loans in Corporate Center – Legacy Portfolio as of 31 December 2012, all of which were backed by a US government agency, instrumental-
ity or government-sponsored enterprise. These securities have been excluded due to the comprehensive involvement of the US government in these organizations and, consequently, their significantly lower risk pro-
file. 2 “Total SPE assets” includes information which UBS could gather after making exhaustive efforts, but excludes data which UBS was unable to obtain (in sufficient quality), especially for structures originated by
third parties.
89
Financial and operating performance Financial and operating performance
UBS results
Support provided to non-consolidated investment funds
In the ordinary course of business, we issue investment certificates
to third parties that are linked to the performance of non-consol-
idated investment funds. Such investment funds are originated
either by us or by third parties. For hedging purposes, we gener-
ally invest in the funds to which our obligations from the certifi-
cates are linked. Risks resulting from these contracts are consid-
ered 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 crisis, UBS has provided support to certain non-consolidat-
ed investment funds in the form of collateralized financing, 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 it was neces-
sary due to regulatory or legal requirements or other exceptional
circumstances. Throughout 2012 we have continued to reduce our
positions in these acquired fund units or other assets, and as of
31 December 2012 the carrying value of fund units acquired and
other assets purchased from such funds totaled CHF 0.2 billion.
Purchases of assets from the funds that we manage, direct
acquisition of fund units and guarantees granted to third parties
in the context of such non-consolidated funds were not material
in 2012. Collateralized financing provided in the ordinary course
of business to non-consolidated investment funds was CHF 0.6
billion as of 31 December 2012. Net losses incurred on fund
units, which are generally accounted for as financial investments
available-for-sale, were not material in 2012.
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 facili-
ties did not result in any losses in 2012.
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 2012, the exposure (gross values less sub-
participations) from guarantees and similar instruments was CHF
17.8 billion, compared with CHF 17.4 billion as of 31 December
2011. Fee income from issuing guarantees was not significant to
total revenues in 2012.
Guarantees represent irrevocable assurances, subject to the sat-
isfaction of certain conditions, that we will make a payment in the
event that clients fail to fulfill their obligations to third parties. We
also enter into commitments to extend credit in the form of credit
lines that are available to secure the liquidity needs of clients. The
majority of these unutilized credit lines range in maturity from one
month to five years. If customers fail to meet their obligations, our
maximum exposure to credit risk is the contractual amount of
these instruments. The risk is similar to the risk involved in extend-
ing loan facilities and is subject to the same risk management and
control framework. For the year ended 31 December 2012, we
recognized net credit loss recoveries of CHF 16 million, compared
with net credit loss recoveries of CHF 22 million for the year ended
31 December 2011, related to obligations incurred for guarantees
and loan commitments. Provisions recognized for guarantees and
loan commitments were CHF 64 million as of 31 December 2012
and CHF 93 million as of 31 December 2011.
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 facil-
ity. 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 obligor.
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 exchanges
and clearinghouses. In connection with some of those member-
ships, we may be required to pay a share of the financial obligations
of another member who defaults, or we may be otherwise exposed
to additional financial obligations. While the membership rules vary,
obligations generally would arise only if the exchange or clearing-
house 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 2012 to 30 June 2013, the Swiss Financial Market
Supervisory Authority (FINMA) estimates our share in the deposit
insurance system to be CHF 1.0 billion. The deposit insurance is a
guarantee and exposes us to additional risk. This is not reflected
in the table on the following page due to its unique characteris-
tics. As of 31 December 2012, we consider the probability of a
material loss from our obligation to be remote.
Underwriting commitments
Gross equity underwriting commitments on 31 December 2012 and
31 December 2011 amounted to CHF 0.2 billion and CHF 1.1 billion,
respectively. Gross debt and private equity underwriting commitments
on 31 December 2012 and 31 December 2011 were not material.
Purchase commitments
As of 31 December 2012, UBS had a firm commitment to acquire
Link Investimentos, a Brazilian financial services firm for an acqui-
90
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
1 Cash to be paid in the future by either UBS or the counterparty.
31.12.12
Gross
Sub-
participations
Net
Gross
31.12.11
Sub-
participations
(734)
(829)
(660)
(2,223)
(867)
(167)
(1,034)
7,579
2,844
7,412
17,835
58,950
0
58,951
8,313
3,673
8,072
20,058
59,818
167
59,985
18,576
249
9,993
(315)
(493)
(737)
(1,545)
(1,640)
(278)
(1,918)
8,671
3,337
6,897
18,905
58,192
1,160
59,352
27,113
502
21,134
Net
8,356
2,845
6,160
17,360
56,552
882
57,434
sition cost of approximately CHF 90 million. The acquisition closed
in the first quarter of 2013.
Contractual obligations
The table below summarizes payments due by period under con-
tractual obligations as of 31 December 2012.
All contracts included in this table, with the exception of pur-
chase obligations (those in which we are committed to purchas-
ing determined volumes of goods and services), are either recog-
nized as liabilities on our balance sheet or, in the case of operating
leases, disclosed in “Note 26 Operating lease commitments” in
the “Financial information” section of this report.
Long-term debt obligations as of 31 December 2012 were CHF
182 billion and consisted of long-term debt issued (CHF 86 billion)
and financial liabilities designated at fair value (CHF 96 billion) and
represent both estimated future interest and principal payments
on an undiscounted basis. Refer to the “Maturity analysis of finan-
cial liabilities” table in the “Risk, treasury and capital manage-
ment” section of this report for more information. Approximately
half of total long-term debt obligations had a variable rate of inter-
est. Amounts due on interest rate swaps used to hedge interest
rate risk inherent in fixed-rate debt issued, and designated in fair
value hedge accounting relationships, are not included in the table
below. The notional amount of these interest rate swaps was CHF
38 billion as of 31 December 2012. Financial liabilities designated
at fair value (CHF 96 billion on an undiscounted cash flow basis)
mostly consist of structured notes and are generally economically
hedged but it would not be practicable to estimate the amount
and / or timing of the payments on interest swaps used to hedge
these instruments, as interest rate risk inherent in respective liabili-
ties is generally risk managed on a portfolio level.
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).
Our obligations recognized on the balance sheet as Due to
banks, Cash collateral on securities lent, Repurchase agreements,
Trading portfolio liabilities, Negative replacement values, Cash
collateral payables on derivative instruments, Due to customers,
Provisions and Other liabilities are excluded from the table below.
Refer to the respective Notes in the “Financial information” sec-
tion of this report for more information on these liabilities.
Contractual obligations
CHF million
Long-term debt obligations
Finance lease obligations
Operating lease obligations
Purchase obligations
Total
Payment due by period
< 1 year
48,430
35
808
1,139
50,412
1–3 years
45,420
67
1,408
1,182
48,077
3–5 years
36,712
3
1,085
337
38,137
> 5 years
51,376
104
2,409
287
54,176
91
Financial and operating performance 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 2012, the estimation of the effects of foreign currency
translation on the statement of cash flows was refined. In con-
junction with this change in estimate, the presentation of
amounts within Net cash flows from / (used in) operating activi-
ties has been enhanced by eliminating the estimated foreign cur-
rency effects from individual balance sheet movements presented
under Net (increase) / decrease in operating assets and liabilities
and reflecting these within Other net adjustments, for which
comparatives have been restated.
In 2012, net cash inflows of CHF 56.1 billion were generated by
the overall decrease in operating assets and liabilities. Gross cash
inflows of CHF 131.6 billion primary resulted from the reduction of
reverse repurchase agreements and cash collateral on securities
borrowed assets of CHF 102.4 billion. A key component of the
gross cash outflows of CHF 75.5 billion was the reduction of the
repurchase agreements and cash collateral on securities lent liabil-
ities of CHF 66.1 billion.
Investing activities
Net cash flow used in investing activities was CHF 14.8 billion
compared with net cash flow generated of CHF 19.4 billion in
2011. The 2012 cash outflow primarily reflected the net invest-
ment in financial investments available-for-sale of CHF 13.9 bil-
lion. This includes gross cash inflows from sales and maturities of
CHF 8,796 million and gross cash outflows from purchases of
CHF 7,422 million related to the Wealth Management Americas
available-for-sale portfolio. The remaining net cash outflow of
CHF 15,320 million almost entirely related to our multi-currency
portfolio of unencumbered, high-quality, short-term assets.
2012
Financing activities
As of 31 December 2012, cash and cash equivalents totaled CHF
99.1 billion, an increase of CHF 13.5 billion from 31 December 2011.
Operating activities
For the year ended 31 December 2012, net cash flow generated
from operating activities was CHF 67.1 billion, primarily reflecting
deleveraging of our balance sheet, compared with net cash flow
used in operating activities of CHF 14.2 billion in 2011. Net oper-
ating cash inflows (before changes in operating assets and liabili-
ties and income taxes paid, net of refunds) totaled CHF 11.2 bil-
lion in 2012 compared with net operating cash outflows of CHF
3.0 billion in 2011.
Net cash flow used in funding activities was CHF 38.0 billion in
2012, primarily reflecting net repayment of short-term debt issu-
ances of CHF 38.0 billion. The net acquisition of treasury shares
and own equity derivative activity of CHF 1.2 billion, dividends
paid to UBS shareholders of CHF 0.4 billion and dividends paid on
preferred securities reflected in non-controlling interests of CHF
0.3 billion also resulted in cash outflows, which were partly offset
by the net issuance of long-term debt (issuances less redemptions)
of CHF 1.8 billion. In 2011, financing activities generated net cash
inflows of CHF 2.7 billion.
92
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.
Operating 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 generated (before changes in op-
erating assets and liabilities and income taxes paid, net of refunds)
totaled CHF 3.0 billion in 2011, compared with net cash flow
generated in 2010 of CHF 24.0 billion.
In 2011, net cash of CHF 16.9 billion was utilized by an overall
increase in operating assets and liabilities. Gross cash generation
of CHF 66.4 billion primarily resulted from an increase of repur-
chase agreements and cash collateral on securities lent liabilities
of CHF 27.1 billion and from a decrease of net trading balances of
CHF 17.2 billion. The gross cash consumption was mainly due to
an increase of reverse repurchase agreements and cash collateral
on securities borrowed assets of CHF 67.3 billion and an increase
in net due from / to banks of CHF 14.6 billion.
Investing activities
Net cash flow generated from investing activities was CHF 19.4
billion compared with CHF 4.1 billion in 2010. The 2011 cash
inflow 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 port-
folio.
Financing activities
Net cash inflow from UBS’s funding activities was CHF 2.7 billion,
reflecting net cash inflow from net 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 activ-
ity of CHF 1.9 billion and redemptions and dividends paid on pre-
ferred securities reflected in non-controlling interests of CHF 0.7
billion. In 2010, financing activities generated net cash inflows of
CHF 1.8 billion.
93
Financial and operating performance Financial and operating performance
Wealth Management
Wealth Management
Business division reporting 1
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 and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 2
Business division performance before tax
Key performance indicators 3
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth (%) 4
Gross margin on invested assets (bps) 5
Additional information
Average attributed equity (CHF billion) 6
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (CHF billion) 7
Return on risk-weighted assets, gross (%) 8
Goodwill and intangible assets (CHF billion)
Net new money (CHF billion) 4
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)
As of or for the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
1,951
4,275
778
37
7,040
1
7,041
2,865
1,360
243
159
7
4,634
2,407
(8.6)
65.8
3.5
89
4.0
60.9
17.3
41.4
1.4
26.3
821
951
86.6
1,968
4,363
878
425
7,634
11
7,645
3,300
1,192
318
165
37
5,012
2,633
17.9
65.7
3.1
101
5.0
52.7
16.6
45.7
1.4
23.5
750
875
75.1
1,737
4,964
647
(3)
7,345
11
7,356
3,228
1,264
449
163
19
5,123
2,233
(1.3)
69.7
(1.5)
92
4.4
50.8
16.9
41.4
1.5
(12.1)
768
920
67.1
180.2
16,210
4,128
170.2
15,904
4,202
156.8
15,663
4,172
(1)
(2)
(11)
(91)
(8)
(91)
(8)
(13)
14
(24)
(4)
(81)
(8)
(9)
(12)
(20)
4
0
9
9
15
6
2
(2)
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for more information on the adoption of IAS 19R and changes to reporting
segments. 2 Refer to “Note 37 Changes in organization” in the “Financial information” section of this report for information on restructuring charges. 3 For the definitions of our key performance indi cators,
refer to the “Measurement of performance” section of this report. 4 Net new money excludes interest and dividend income. 5 Excludes any effect on profit or loss from a property fund (2012: gain of CHF 4 mil-
lion, 2011: loss of CHF 22 million, 2010: loss of CHF 45 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 2012 and 31 December 2011 are disclosed in accordance with the Basel 2.5 framework. Comparative data under the new framework is not available for 31 December 2010. The com parative
information under the Basel II framework is therefore provided. Refer to the “Capital management” section of this report for more information. 8 Based on Basel 2.5 risk-weighted assets for 2012. Based on
Basel II risk-weighted assets for 2011 and 2010.
94
Regional breakdown of key figures 1, 2
As of or for the year ended 31.12.12
Net new money (CHF billion) 4
Net new money growth (%) 4
Invested assets (CHF billion)
Gross margin on invested assets (bps)
Client advisors (full-time equivalents)
Europe
Asia Pacific
Switzerland
(5.2)
(1.6)
344
89
1,620
18.4
11.3
196
76
987
4.2
3.1
145
101
782
Emerging
Markets
of which:
ultra high
net worth
8.9
7.7
127
96
668
19.9
6.3
362
52
815 6
of which:
Global Family
Office 3
(0.2)
(0.6)
43
37 5
N/A
1 For the definitions of our key performance indicators, refer to the “Measurement of performance” section of this report. 2 Based on the Wealth Management business area structure, and excluding minor functions
with 71 client advisors, and CHF 9 billion of invested assets, and CHF 0.0 billion of net new money inflows, which are mainly attributable to the employee share and option plan service provided to corporate clients and
their employees. 3 Joint venture between Wealth Management and the Investment Bank. Since June 2012, Global Family Office is reported as a sub-segment of ultra high net worth and is included in the ultra high net
worth figures. 4 Net new money excludes interest and dividend income. 5 Gross margin includes income booked in the Investment Bank. Gross margin only based on income booked in Wealth Management is 19
basis points. 6 Dedicated ultra high net worth units: 597 client advisors. Non-dedicated ultra high net worth units: 218 client advisors.
95
Financial and operating performance Financial and operating performance
Wealth Management
Business performance
2012
Results
Pre-tax profit was CHF 2,407 million in 2012 compared with CHF
2,633 million in the previous year, which included a gain of CHF
433 million from the sale of our strategic investment portfolio in
the third quarter of 2011. Operating expenses in 2012 included a
credit to personnel expenses of CHF 358 million related to changes
to our pension plans. Adjusted for these two items and restructur-
ing costs, pre-tax profit decreased by CHF 207 million to CHF
2,075 million, partly reflecting the fact that the previous year ben-
efited from CHF 103 million of accrued interest from the afore-
mentioned strategic investment portfolio. Net new money was
CHF 26.3 billion compared with CHF 23.5 billion in the prior year.
Operating income
Total operating income in 2012 was CHF 7,041 million compared
with CHF 7,645 million in 2011. Adjusted for the gain on the sale
of our strategic investment portfolio, total operating income de-
clined by CHF 171 million, mainly because 2011 included CHF 103
million of interest income stemming from the abovementioned
strategic investment portfolio.
➔ Refer to the “Certain items affecting our results in 2011” sidebar
in our Annual Report 2011 for more information on the sale of
our strategic investment portfolio
Net interest income decreased by CHF 17 million to CHF 1,951
million, mainly as the previous year included CHF 103 million of
interest income stemming from the abovementioned strategic in-
vestment portfolio. Moreover, net interest income was negatively
affected by increased costs of CHF 69 million related to assets
managed centrally by Group Treasury and CHF 22 million lower
allocations related to investment proceeds from the firm’s equity.
These factors were largely offset by CHF 180 million higher prod-
uct-related interest income, reflecting the beneficial effects of in-
creases in client deposit and lending volumes.
Net fee and commission income declined by CHF 88 million
to CHF 4,275 million, mainly reflecting lower recurring fees on
discretionary business, investment funds and non-asset based
fees, primarily resulting from the business transformation in Eu-
rope. This was partly offset by 4% higher transaction-based fees
due to increased client activity levels in Asia Pacific throughout
the year.
Trading income decreased by CHF 100 million to CHF 778 mil-
lion, primarily due to lower treasury-related income and lower cli-
ent activity following the reduced volatility on the foreign ex-
change market.
Other income was CHF 37 million compared with CHF 425 mil-
lion in 2011, mainly as the prior year included the abovemen-
tioned gain on the sale of our strategic investment portfolio.
Operating expenses
Total operating expenses were CHF 4,634 million, down CHF 378
million from the prior year. Restructuring charges were CHF 26
million in 2012, down from CHF 82 million in the previous year.
Adjusted for these restructuring costs and the abovementioned
credit related to changes to our pension plans, costs increased by
CHF 36 million to CHF 4,966 million.
Personnel expenses decreased to CHF 2,865 million from CHF
3,300 million in the previous year. Excluding the abovementioned
factors, personnel expenses decreased by CHF 38 million, primarily
reflecting lower accruals for variable compensation as well as re-
duced personnel expenses related to technology and operations
costs. This was partially offset by higher personnel expenses of
96
CHF 129 million due to the centralization of operations units from
the business divisions in the Corporate Center on 1 July 2012. As
Wealth Management previously obtained significant support from
Retail & Corporate, the centralization and subsequent reallocation
of operations units had the effect of reducing net charges from
other business divisions and increasing personnel and non-person-
nel costs in 2012.
inflows were recorded in Asia Pacific and emerging markets as
well as globally from ultra high net worth clients. Europe re-
ported net outflows in the offshore business, mainly related to
clients from countries neighboring Switzerland. This was partly
offset by net inflows in the European onshore business. Swiss
wealth management reported increased net inflows compared
with the prior year.
➔ Refer to the “Significant accounting and financial reporting
structure changes” section of this report for more information
on changes related to the centralization of operations units
General and administrative expenses were CHF 1,360 million
compared with CHF 1,192 million in 2011. This included higher
investments in marketing and branding and increased charges for
provisions for litigation, regulatory and similar matters. Further,
the aforementioned centralization of operations units in 2012 led
to increased expenses of CHF 45 million in 2012.
Charges for services from other business divisions decreased to
CHF 243 million from CHF 318 million, mainly due to the afore-
mentioned lower allocations of CHF 175 million from the central-
ization of operations units, partially offset by higher allocations
from other business transfers.
Depreciation was CHF 159 million compared with CHF 165 mil-
lion in the prior year. Amortization of intangible assets was CHF 7
million, down from CHF 37 million in 2011, which included the im-
pairment of intangible assets related to a past acquisition in the UK.
Invested assets
Invested assets were CHF 821 billion on 31 December 2012, rep-
resenting an increase of CHF 71 billion from 31 December 2011.
Positive market performance as well as net new money inflows
were partially offset by negative currency effects, mainly resulting
from a slight strengthening of the Swiss franc against the US dol-
lar and the euro.
Gross margin on invested assets
In 2012, the gross margin on invested assets decreased 12 basis
points to 89 basis points. Adjusted for the aforementioned gain
on the sale of the strategic investment portfolio in the previous
year, the gross margin declined 7 basis points to 89 basis points
and was outside our target range of 95 to 105 basis points. The
gross margin calculation excludes any effect on profit or loss from
a property fund.
Personnel
Cost / income ratio
The cost / income ratio in 2012 was 65.8%. On an adjusted basis
excluding restructuring charges, the effect from the credit related
to changes to our pension plans in 2012 and the gain from the
sale of the strategic investment portfolio in 2011, the cost / income
ratio increased 2.0 percentage points to 70.5% and was outside
our target range of 60% to 70%.
Net new money growth
The net new money growth rate increased from 3.1% to 3.5%
and was within our target range of 3% to 5%. The strongest net
Wealth Management employed 16,210 personnel on 31 Decem-
ber 2012 compared with 15,904 on 31 December 2011. The
abovementioned centralization and subsequent reallocation of
personnel from operations units led to an increase of personnel.
Excluding this effect, non-client-advisor staff and client advisors
decreased mainly reflecting measures taken as a part of our cost
reduction program announced in July 2011.
The number of client advisors decreased to 4,128 from 4,202
in the prior year due to reductions in more established markets,
partly offset by further increases in the strategic growth areas of
Asia Pacific and emerging markets.
97
Financial and operating performance Financial and operating performance
Wealth Management
2011
Results
Pre-tax profit was CHF 2,633 million in 2011 compared with CHF
2,233 million in 2010, and included a gain of CHF 433 million
from the sale of our strategic investment portfolio and CHF 82
million of restructuring charges. When adjusted for these two
items, pre-tax profit was CHF 2,282 million, slightly up from the
previous year as adverse currency effects and reduced client activ-
ity were more than offset by ongoing cost management.
➔ Refer to the “Certain items affecting our results in 2011” sidebar
in our Annual Report 2011 for more information on our cost
reduction program and the sale of our strategic investment
portfolio
Operating income
Total operating income was CHF 7,645 million compared with
CHF 7,356 million. When adjusted for the gain on the sale of our
strategic investment portfolio, total operating income declined
2% to CHF 7,212 million.
Net interest income increased 13% to CHF 1,968 million which
included higher treasury-related income, partially due to interest
income resulting 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
& Corporate. Further, net interest income benefited from 10%
higher average lending volumes. This was offset by margin pres-
sure as a result of low market interest rates.
Net fee and commission income declined 12% to CHF 4,363
million. This was mainly due to lower asset-based fees, reflecting
a CHF 44 billion lower average invested asset base, primarily as a
result of the strengthening Swiss franc and negative equity mar-
ket performance. Deterioration in client activity, primarily in the
second half of the year, impacted fee income further.
Trading income increased 36% to CHF 878 million, due to
higher income linked to foreign exchange and precious metal cli-
ent 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 above-
mentioned gain on the sale of our strategic investment portfolio.
Operating expenses
Total operating expenses were CHF 5,012 million, down 2% from
the prior year, or down 4% when adjusted for restructuring costs.
Personnel expenses were CHF 3,300 million, an increase of 2%
compared with CHF 3,228 million in 2010. Excluding restructur-
ing costs, personnel expenses were stable, primarily reflecting
lower accruals for variable compensation and a 4% increase in
average headcount.
General and administrative expenses were CHF 1,192 million
compared with CHF 1,264 million, which included a charge of CHF
40 million for provisions for litigation, regulatory and similar matters
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. Amortization of intangible assets was CHF
37 million, up from CHF 19 million, mainly due to the impairment
of intangible assets related to a past acquisition in the UK.
Cost / income ratio
The cost / income ratio in 2011 was 65.7%, down 4.0 percentage
points versus the previous year. If adjusted for the gain of the sale
of the strategic investment portfolio and restructuring charges,
the cost / income ratio was 68.5%.
Net new money growth
Net new money growth rate for 2011 was 3.1% compared with
negative 1.5% in the prior year. Total wealth management net
new money improved significantly, with net inflows of CHF 23.5
98
billion compared with net outflows of CHF 12.1 billion in 2010.
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 off-
shore business with countries neighboring Switzerland partly off-
set by net inflows from the European onshore business. Swiss
wealth management reported increased net inflows in 2011 com-
pared with the prior year.
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
ad justed for the abovementioned gain on the sale of our strategic
investment portfolio, the gross margin was 96 basis points, an im-
provement of 4 basis points from the prior year. The gross margin
calculation excludes any effect on profit or loss from a property fund.
Personnel
Wealth Management employed 15,904 personnel on 31 Decem-
ber 2011 compared with 15,663 on 31 December 2010, reflect-
ing an increase of 30 client advisors and 211 non-client-advisors.
The number of client advisors increased to 4,202 from 4,172
in the prior year as client-facing staff increased in the strategic
growth areas of Asia Pacific and emerging markets, partly offset
by reductions in more established markets. The increase in non-
client-advisors reflects the transfer of approximately 400 per-
sonnel from the Investment Bank and Retail & Corporate to
Wealth Management, as part of forming the Investment Prod-
ucts & Services unit in 2011. This was partly offset by a lower
allocation of Corporate Center shared services personnel.
99
Financial and operating performance Financial and operating performance
Wealth Management Americas
Wealth Management Americas
Business division reporting – in US dollars 1
USD 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 2
Compensation commitments and advances related to recruited financial advisors 3
Salaries and other personnel costs
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 4
Business division performance before tax
Key performance indicators 5
Pre-tax profit growth (%) 6
Cost / income ratio (%)
Share of recurring revenues (%)
Net new money growth (%) 7
Gross margin on invested assets (bps)
Additional information
Recurring income
Average attributed equity (USD billion) 8
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (USD billion) 9
Return on risk-weighted assets, gross (%) 10
Goodwill and intangible assets (USD billion)
Net new money (USD billion) 7
Net new money including interest and dividend income (USD billion) 11
Invested assets (USD billion)
Client assets (USD billion)
Loans, gross (USD billion)
Due to customers (USD billion)
of which: deposit accounts (USD billion)
Personnel (full-time equivalents)
Financial advisors (full-time equivalents)
31.12.12
849
4,925
507
266
6,547
(15)
6,532
4,556
2,399
679
1,477
958
(16)
107
55
5,659
873
As of or for the year ended
31.12.11
828
4,559
509
121
6,017
(6)
6,011
4,348
2,249
609
1,490
887
(11)
112
54
5,389
622
40.4
86.4
65.3
2.9
81
4,265
6.6
13.2
24.9
25.4
3.9
22.1
44.8
843
885
34.1
56.6
43.6
16,094
7,059
N/A
89.6
65.2
1.9
80
3,921
9.1
6.8
27.8
22.8
3.9
14.1
34.7
756
795
29.7
41.4
30.4
16,207
6,967
31.12.10
671
4,093
549
55
5,368
(1)
5,367
4,062
1,996
577
1,489
1,189
(5)
189
53
5,489
(122)
N/A
102.3
62.9
(0.8)
79
3,377
7.7
(1.6)
25.5
23.4
4.0
(5.4)
13.2
738
790
24.1
38.3
27.9
16,330
6,796
% change from
31.12.11
3
8
0
120
9
150
9
5
7
11
(1)
8
45
(4)
2
5
40
1
9
(27)
(10)
0
12
11
15
37
43
(1)
1
Business division reporting excluding PaineWebber acquisition costs 12
Business division performance before tax
Cost / income ratio (%)
Average attributed equity (USD billion) 8
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for more information on the adoption of IAS 19R and changes to reporting
segments. 2 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. 3 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. 4 Refer to “Note 37 Changes in organization” in the “Financial information” section of this report for information.
5 For the definitions of our key performance indicators, refer to the “Measurement of performance” section of this report. 6 Not meaningful and not included if either the reporting period or the comparison period is a
loss period. 7 Net new money excludes interest and dividend income. 8 Refer to the “Capital management” section of this report for more information about the equity attribution framework. 9 Capital manage-
ment data as of 31 December 2012 and 31 December 2011 are disclosed in accordance with the Basel 2.5 framework. Comparative data under the new framework is not available for 31 December 2010. The compara-
tive information under the Basel II framework is therefore provided. Refer to the “Capital management” section of this report for more information. 10 Based on Basel 2.5 risk-weighted assets for 2012. Based on
Basel II risk-weighted assets for 2011 and 2010. 11 Presented in line with the historical US methodology. 12 Acquisition costs represent goodwill and intangible assets funding costs and intangible asset amortization
costs primarily related to UBS’s 2000 acquisition of the PaineWebber retail brokerage business.
(17)
100.3
4.5
982
84.9
3.4
718
88.1
5.8
(41)
37
100
Business division reporting – in Swiss francs 1
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 2
Compensation commitments and advances related to recruited financial advisors 3
Salaries and other personnel costs
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 4
Business division performance before tax
Key performance indicators 5
Pre-tax profit growth (%) 6
Cost / income ratio (%)
Share of recurring revenues (%)
Net new money growth (%) 7
Gross margin on invested assets (bps)
Additional information
Recurring income
Average attributed equity (CHF billion) 8
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (CHF billion) 9
Return on risk-weighted assets, gross (%) 10
Goodwill and intangible assets (CHF billion)
Net new money (CHF billion) 7
Net new money including interest and dividend income (CHF billion) 11
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)
31.12.12
792
4,597
473
249
6,110
(14)
6,097
4,252
2,239
634
1,379
893
(15)
100
51
5,281
816
As of or for the year ended
31.12.11
729
4,018
450
103
5,300
(6)
5,295
3,830
1,982
536
1,313
783
(9)
99
48
4,750
544
50.0
86.4
65.3
2.9
81
3,980
6.2
13.3
22.8
25.6
3.5
20.6
41.7
772
810
31.2
51.8
39.9
16,094
7,059
N/A
89.6
65.2
1.8
79
3,454
8.0
6.8
26.1
22.3
3.7
12.1
30.4
709
746
27.9
38.9
28.5
16,207
6,967
31.12.10
695
4,244
570
56
5,565
(1)
5,564
4,216
2,068
599
1,548
1,223
(6)
198
55
5,685
(121)
N/A
102.2
62.9
(0.9)
80
3,502
8.0
(1.5)
23.8
23.8
3.7
(6.1)
13.0
689
738
22.5
35.8
26.0
16,330
6,796
% change from
31.12.11
9
14
5
142
15
133
15
11
13
18
5
14
67
1
6
11
50
3
15
(23)
(13)
(5)
9
9
12
33
40
(1)
1
Business division reporting excluding PaineWebber acquisition costs 12
Business division performance before tax
Cost / income ratio (%)
Average attributed equity (CHF billion) 8
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for more information on the adoption of IAS 19R and changes to reporting
segments. 2 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. 3 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. 4 Refer to “Note 37 Changes in organization” in the “Financial information” section of this report for information on
restructuring charges. 5 For the definitions of our key performance indicators, refer to the “Measurement of performance” section of this report. 6 Not meaningful and not included if either the reporting period or the
comparison period is a loss period. 7 Net new money excludes interest and dividend income. 8 Refer to the “Capital management” section of this report for more information about the equity attribution frame-
work. 9 Capital management data as of 31 December 2012 and 31 December 2011 are disclosed in accordance with the Basel 2.5 framework. Comparative data under the new framework is not available for 31 De-
cember 2010. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital management” section of this report for more information. 10 Based on Basel 2.5 risk-weighted as-
sets for 2012. Based on Basel II risk-weighted assets for 2011 and 2010. 11 Presented in line with the historical US methodology. 12 Acquisition costs represent goodwill and intangible assets funding costs and
intangible asset amortization costs primarily related to UBS’s 2000 acquisition of the PaineWebber retail brokerage business.
(12)
100.2
4.6
918
84.9
3.2
629
88.1
5.1
(37)
46
101
Financial and operating performance Financial and operating performance
Wealth Management Americas
Business performance
2012
Results
Wealth Management Americas reported a record pre-tax profit of
USD 873 million in 2012 compared with USD 622 million in 2011.
This improved performance resulted from a 9% increase in revenue
due to increases in fees and commissions as well as realized gains
on financial investments in our available-for-sale portfolio. Operat-
ing expenses increased 5% due to higher financial advisor related
compensation and higher charges for provisions for litigation, regu-
latory and similar matters, partially offset by lower restructuring
charges. In addition, 2012 included a pre-tax gain of USD 53 million
net of compensation charges related to a change in accounting
estimates for certain mutual fund and annuity fee income, com-
pared with USD 32 million related to a change in accounting esti-
mates for certain mutual fund fees in 2011. Net new money inflows
of USD 22.1 billion were the highest full year total since 2007.
Operating income
Total operating income increased 9% to USD 6,532 million from
USD 6,011 million in 2011.
Net fee and commission income increased by USD 366 million
to USD 4,925 million. Recurring fees increased 10% due to higher
fees on managed accounts corresponding to higher invested asset
levels. In addition, recurring fees included USD 59 million related
to a change to accrual-based accounting estimates from a cash
basis for certain mutual fund and annuity fee income, compared
with USD 48 million related to the prior year. Transaction-based
revenues increased 3%, primarily due to higher income from tax-
able fixed income products.
Interest income increased by USD 21 million to USD 849 mil-
lion primarily due to higher client balances in securities-based
lending and mortgages. Average securities-backed lending bal-
ances increased 12% and average mortgage balances nearly dou-
bled from 2011. In addition, 2012 included lower income from
mortgage-backed securities in the available-for-sale portfolio due
to yield adjustments arising from updated cash flow estimates
compared with an upward adjustment reclassifying USD 22 mil-
lion from other comprehensive income in 2011.
Trading income decreased USD 2 million to USD 507 million
due to lower municipal securities trading mostly offset by higher
income derived from taxable fixed income, unit investment trusts
and emerging market products.
Other income increased by USD 145 million to USD 266 million
as realized gains on sales of financial investments held in the avail-
able-for-sale portfolio increased to USD 234 million from USD 96
102
million in the prior year. These gains resulted from the rebalancing
of the investment portfolio risk profile as guided by the portfolio’s
investment policy. This rebalancing, which addresses faster pre-
payment speeds on agency mortgage-backed securities arising
from a lower yield curve, may reduce the level of interest income
on the portfolio going forward. Because this rebalancing is pri-
marily driven by the interest rate environment, future gains from
portfolio sales are not predictable.
Recurring income, the combination of recurring fees and net
interest income, increased by USD 344 million to USD 4,265 mil-
lion due to higher managed account and annuity fees as well as
higher interest income. Recurring income for 2012 comprised
65% of operating income, broadly unchanged from 2011. Non-
recurring income increased by USD 186 million to USD 2,282 mil-
lion, primarily due to higher realized gains on the sale of financial
investments in the available-for-sale portfolio and higher trans-
action-based activity.
Operating expenses
Operating expenses increased by USD 270 million to USD 5,659
million from USD 5,389 million due to higher financial advisor
compensation corresponding to higher revenues. In 2012, Wealth
Management Americas recognized restructuring provision releas-
es of USD 1 million, while 2011 included restructuring charges of
USD 10 million.
Personnel expenses were USD 4,556 million, up USD 208 mil-
lion from USD 4,348 million due to a 7% increase in financial advi-
sor compensation corresponding to higher revenue production,
and an 11% increase in expenses for compensation commitments
and advances related to recruited financial advisors. Salaries and
other personnel costs declined 1%. Compensation advance bal-
ances were USD 3,830 million as of 31 December 2012, up USD
10 million from 31 December 2011.
Non-personnel expenses increased USD 62 million to USD
1,103 million from USD 1,042 million. General and administrative
costs increased 8% to USD 958 million from USD 887 million in
2011 due to higher Corporate Center shared services expense
and higher charges for provisions for litigation, regulatory and
similar matters. This increase was partly offset by lower profes-
sional legal fees. Depreciation expenses declined USD 5 million to
USD 107 million compared with USD 112 million in 2011.
Cost / income ratio
The cost / income ratio improved to 86.4% from 89.6% in 2011.
On an adjusted basis excluding restructuring provision releases in
2012 and charges in 2011, the cost / income ratio was 86.5%
compared with 89.4% in 2011 and remained within the target
range of 80% to 90%.
Net new money growth
Net new money growth rate for 2012 improved to 2.9% from
1.9% in 2011, moving within the target range of 2% to 4%. Net
new money inflows improved to USD 22.1 billion compared with
USD 14.1 billion in 2011 due to stronger inflows from net recruit-
ing of financial advisors as well as financial advisors employed
with UBS for more than one year. Including interest and dividend
income, Wealth Management Americas had net new money in-
flows of USD 44.8 billion in 2012 compared with USD 34.7 billion
in 2011.
Invested assets
Wealth Management Americas had USD 843 billion in invested
assets on 31 December 2012, up 12% from USD 756 billion on
31 December 2011, reflecting positive market performance and
strong net new money inflows. As of 31 December 2012, man-
aged account assets had increased by USD 40 billion to USD 248
billion, and comprised 29% of invested assets compared with
28% on 31 December 2011.
Gross margin on invested assets
The gross margin on invested assets was 81 basis points in 2012,
up one basis point from 80 basis points in 2011 and remained
within our target range of 75 to 85 basis points. This reflected a
9% increase in income compared with an 8% increase in average
invested assets. The gross margin from recurring income increased
by 1 basis point driven by higher managed account fees and high-
er annuities fees, while the gross margin from non-recurring in-
come remained unchanged from 2011.
Personnel
As of 31 December 2012, Wealth Management Americas em-
ployed 16,094 personnel, including 7,059 financial advisors,
down 113 from 31 December 2011. Financial advisor headcount
increased by 92 from the prior year, mainly reflecting the hiring of
experienced financial advisors and continued low financial advisor
attrition. The number of non-financial advisor employees de-
creased by 205 to 9,035, reflecting staff reductions related to our
cost reduction program.
103
Financial and operating performance Financial and operating performance
Wealth Management Americas
2011
Results
Wealth Management Americas reported a pre-tax profit of USD
622 million in 2011 compared with a pre-tax loss of USD 122 mil-
lion in 2010. This improved performance resulted from a 12%
increase in revenue due to increases in fees and commissions, in-
terest income and realized gains on investments in our available-
for-sale portfolio. Operating expenses declined 2% as a result of
significantly lower charges for provisions for litigation, regulatory
and similar matters and lower restructuring charges. In 2011,
Wealth Management Americas incurred restructuring charges of
USD 10 million, while 2010 included restructuring charges of USD
150 million. In addition, 2011 included a pre-tax gain of USD 32
million, net of compensation charges, related to a change to ac-
crual-based accounting estimates from a cash basis for certain
mutual fund income.
Operating income
Total operating income increased by USD 644 million to USD
6,011 million from USD 5,367 million in 2010.
Net fee and commission income increased 11% or USD 466
million to USD 4,559 million. Recurring fees increased 14% due
to higher fees on managed accounts and mutual funds corre-
sponding to higher invested asset levels. In addition, recurring
fees included USD 48 million related to the abovementioned
change to accrual-based accounting estimates from a cash basis
for certain mutual fund income. Transaction-based revenues in-
creased 6% primarily due to higher income from alternative in-
vestments and equities products.
Interest income increased by USD 157 million to USD 828
million due to higher client balances in securities-based lending
and mortgages, as well as from higher yields on lending prod-
ucts. In addition, 2011 included an upward adjustment reclas-
sifying USD 22 million from other comprehensive income relat-
ing 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 7% or USD 40 million due to lower
taxable fixed income and municipal trading income, partly offset
by higher trading income from structured notes.
Other income increased by USD 66 million to USD 121 mil-
lion due to a USD 91 million increase in realized gains on sales
of financial investments held in the available-for-sale portfolio,
as realized gains were USD 96 million in 2011 compared with
USD 4 million in the prior year. These gains resulted from rebal-
ancing of the investment portfolio risk profile as guided by the
portfolio’s investment policy. In addition, other income in 2010
included a USD 6 million demutualization gain from Wealth
Management Americas’ stake in the Chicago Board of Options
Exchange.
104
Operating expenses
Operating expenses decreased by USD 100 million to USD 5,389
million from USD 5,489 million, due to lower non-personnel ex-
penses. In 2011, operating expenses included USD 10 million in
restructuring charges compared with USD 150 million in restruc-
turing charges in 2010.
Personnel expenses were USD 4,348 million, up USD 286 mil-
lion from USD 4,062 million due to a 13% increase in financial
advisor compensation corresponding to higher revenue produc-
tion, and a 6% increase in expenses for compensation commit-
ments and advances related to recruited financial advisors. In ad-
dition, personnel expenses included USD 5 million in restructuring
charges compared with USD 32 million in 2010. Salaries and
other personnel costs were broadly flat. Compensation advance
balances were USD 3,820 million as of 31 December 2011, up
15% from 31 December 2010. This increase included scheduled
payments in early 2011 related to the second tranche of the
GrowthPlus program.
Non-personnel expenses decreased by USD 384 million to USD
1,042 million from USD 1,426 million. Non-personnel-related re-
structuring charges were USD 5 million compared with USD 118
million in 2010. General and administrative costs declined 25%
due to lower charges for provisions for litigation, regulatory and
similar matters, which decreased to USD 78 million from USD 322
million, as well as lower restructuring charges related to real es-
tate writedowns. This decline was partly offset by higher profes-
sional legal and consulting fees. Depreciation expenses declined
41% to USD 112 million from USD 189 million in 2010 due to
lower restructuring charges related to the impairment of real es-
tate assets and lower allocations from shared services areas in the
Corporate Center.
Cost / income ratio
The cost / income ratio improved to 89.6% from 102.3% in 2010,
primarily due to lower restructuring charges and charges for pro-
visions for litigation, regulatory and similar matters.
Net new money growth
Net new money growth rate for 2011 improved to positive 1.9%
from negative 0.8% in 2010. Net new money inflows were USD
14.1 billion compared with outflows of USD 5.4 billion in 2010.
This turnaround was due to improved inflows from net recruiting of
financial advisors, which was primarily due to lower outflows from
financial advisors attrition. Net new money from financial advisors
employed with UBS for more than one year remained positive, but
declined from 2010. Including interest and dividend income,
Wealth Management Americas had net new money inflows of USD
34.7 billion in 2011 compared with USD 13.2 billion in 2010.
Invested assets
Wealth Management Americas had USD 756 billion in invested
assets on 31 December 2011, up 2% from USD 738 billion on 31
December 2010 due to net new money inflows and slightly posi-
tive total market performance. As of 31 December 2011, man-
aged account assets were USD 208 billion, a 7% increase from
one year earlier at USD 195 billion and comprised 28% of in-
vested assets compared with 26% on 31 December 2010.
Gross margin on invested assets
The gross margin on invested assets increased by 1 basis point to
80 basis points in 2011, reflecting a 12% increase in income com-
pared with a 10% increase in average invested assets. The gross
margin from recurring income increased by 2 basis points due to
higher managed account fees and mutual fund fees, while the
gross margin from non-recurring income decreased 1 basis point
from 2010.
Personnel
As of 31 December 2011, Wealth Management Americas em-
ployed 16,207 personnel, including 6,967 financial advisors,
down 123 from 31 December 2010. Financial advisor headcount
increased by 171 from the prior year, mainly reflecting the hiring
of experienced financial advisors. The number of non-financial
advisor employees decreased by 294 to 9,240, primarily due to
reduction in the shared services personnel.
105
Financial and operating performance Financial and operating performance
Investment Bank
Investment Bank
Business division reporting 1
CHF million, except where indicated
31.12.12
31.12.11
Excluding
unauthorized
trading incident
31.12.11 2
31.12.10
31.12.11
As of or for the year ended
% change from
Investment banking
Advisory revenues
Capital market revenues
Equities
Fixed income, currencies and commodities
Other fee income and risk management
Securities (excluding unauthorized trading incident)
Equities
Fixed income, currencies and commodities
Total income (excluding unauthorized trading incident)
Credit loss (expense) / recovery
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 and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses 3
Business division performance before tax
Key performance indicators 4
Pre-tax profit growth (%) 5
Cost / income ratio (%)
Return on attributed equity (RoaE) (%)
Return on assets, gross (%)
Average VaR (1-day, 95% confidence, 5 years of historical data)
1,593
638
1,727
777
951
(773)
6,971
2,614
4,357
8,564
34
8,598
8,598
5,141
2,730
132
257
3,030
41
11,331
(2,734)
N/A
132.3
(11.5)
1.1
30
1,371
964
1,329
574
755
(921)
8,459
3,698
4,761
9,830
(13)
9,817
(1,849)
7,968
5,716
2,490
108
251
0
34
8,599
(631)
N/A
107.7
(2.4)
1.0
75
2,414
846
1,994
1,020
974
(426)
9,534
4,469
5,064
11,947
155
12,102
12,102
6,605
2,486
(27)
273
0
34
9,371
2,731
44.2
78.4
13.7
1.4
56
9,817
8,599
1,218
87.5
4.6
1.2
N/A
16
(34)
30
35
26
(16)
(18)
(29)
(8)
(13)
(12)
8
(10)
10
22
2
21
32
333
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for more information on the adoption of IAS 19R and changes to reporting
segments. 2 Excludes the impact from the unauthorized trading incident of CHF 1,849 million in the income statement on an absolute basis and its impact on risk-weighted assets. 3 Refer to “Note 37 Changes in
organization” in the “Financial information” section of this report for information on restructuring charges. 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.
106
Business division reporting (continued) 1
As of or for the year ended
% change from
CHF million, except where indicated
31.12.12
31.12.11
Additional information
Total assets (CHF billion) 3
Average attributed equity (CHF billion) 4
BIS risk-weighted assets (CHF billion) 5
Return on risk-weighted assets, gross (%) 6
Goodwill and intangible assets (CHF billion)
Compensation ratio (%)
Impaired loan portfolio as a % of total loan portfolio, gross (%) 7
Personnel (full-time equivalents)
672.3
23.7
88.6
7.9
0.1
60.0
3.3
896.2
26.4
128.1
8.0
3.2
71.6
4.2
15,866
17,007
Excluding
unauthorized
trading incident
31.12.11 2
118.0
10.3
31.12.10
31.12.11
797.5
19.9
89.9
13.3
3.2
55.3
7.0
16,488
(25)
(10)
(31)
(97)
(7)
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for more information on the adoption of IAS 19R and changes to reporting
segments. 2 Excludes the impact from the unauthorized trading incident of CHF 1,849 million in the income statement on an absolute basis and its impact on risk-weighted assets. 3 Based on third-party view, i.e. with-
out intercompany balances. Refer to “Note 2a Segment Reporting” in the “Financial Information” section of this report for more information. 4 Refer to the “Capital management” section of this report for more infor-
mation about the equity attribution framework. 5 Capital management data as of 31 December 2012 and 31 December 2011 are disclosed in accordance with the Basel 2.5 framework. Comparative data under the new
framework is not available for 31 December 2010. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital management” section of this report for more information. 6 Based
on Basel 2.5 risk-weighted assets for 2012. Based on Basel II risk-weighted assets for 2011 and 2010. 7 Refer to the “Risk management and control” section of this report for more information on impairment ratios.
107
Financial and operating performance Financial and operating performance
Investment Bank
Business performance
2012
Results
The Investment Bank recorded a pre-tax loss of CHF 2,734 million
in 2012 compared with a pre-tax loss of CHF 631 million in 2011,
mainly reflecting impairment losses of CHF 3,064 million on good-
will and other non-financial assets in 2012. 2011 was adversely
affected by the loss relating to the unauthorized trading incident of
CHF 1,849 million. Excluding impairment losses, restructuring
charges of CHF 331 million in 2012 and of CHF 216 million in
2011, a credit of CHF 98 million related to changes to a retiree
benefit plan in the US and a credit of CHF 56 million related to
changes to our Swiss pension plan, both in 2012, we recorded an
adjusted pre-tax profit of CHF 507 million compared with an ad-
justed pre-tax loss of CHF 415 million. Pro-forma Basel III risk-
weighted assets were reduced by CHF 81 billion to CHF 131 billion.
Operating income
Total operating income was CHF 8,598 million compared with
CHF 7,968 million in the prior year, an increase of 8%. In US
dollar terms, revenues increased 3%. Excluding the loss of CHF
1,849 million relating to the unauthorized trading incident, to-
tal operating income decreased 12% to CHF 8,598 million from
CHF 9,817 million. This decline was mainly due to lower reve-
nues in our equities business which was affected by lower client
activity and reduced volatility levels, as well as the loss of CHF
349 million in 2012 related to the Facebook initial public offer-
ing. Revenues in the fixed income, currencies and commodities
(FICC) business declined due to negative debit valuation adjust-
ments on our derivatives portfolio, partly offset by an increase in
credit revenues. Investment banking revenues improved due to
higher capital market revenues and lower risk management pre-
miums. In 2012 we recorded net credit loss recoveries of CHF 34
million, due to recoveries on corporate loans and other claims,
compared with net credit loss expenses, mainly on corporate
loans, of CHF 13 million in 2011.
➔ Refer to the “Risk management and control” section of this
report for more information on credit risk
Operating expenses
Total operating expenses increased to CHF 11,331 million com-
pared with CHF 8,599 million, an increase of 32%, largely due to
impairment losses of CHF 3,064 million on goodwill and other
non-financial assets in 2012. In US dollar terms, operating ex-
penses increased 24%. Excluding impairment losses, restructuring
charges, a credit related to changes to a retiree benefit plan in the
US and a credit related to changes to our Swiss pension plan,
108
operating expenses declined 3% to CHF 8,090 million from CHF
8,383 million. On an adjusted basis, in US dollar terms, operating
expenses decreased 9%.
Personnel expenses decreased to CHF 5,141 million from CHF
5,716 million. On an adjusted basis, excluding restructuring
charges of CHF 312 million compared to CHF 143 million in the
prior year, a credit related to changes to a retiree benefit plan in
the US and a credit related to changes to our Swiss pension plan,
personnel expenses declined to CHF 4,983 million from CHF
5,573 million, mainly due to reduced variable compensation ac-
cruals and savings associated with our cost reduction programs.
General and administrative expenses increased to CHF 2,730
million from CHF 2,490 million due to higher charges for provi-
sions for litigation, regulatory and similar matters and profession-
al fees, partly offset by savings associated with our cost reduction
programs and lower restructuring charges. In 2012, we reported
a charge of CHF 120 million for the annual UK bank levy com-
pared with a charge of CHF 106 million in 2011.
Depreciation increased 2% from CHF 251 million to CHF 257
million.
An impairment of goodwill of CHF 3,030 million was recog-
nized in 2012.
➔ Refer to “Note 17 Goodwill and intangible assets” in
the “Financial information” section of this report for more
information
Cost / income ratio
The cost / income ratio deteriorated to 132.3% from 107.7%. On
an adjusted basis, excluding the abovementioned impairment
losses, restructuring charges, a credit related to changes to a re-
tiree benefit plan in the US and a credit related to changes to our
Swiss pension plan, the cost / income ratio improved to 94.5%
from 105.0%, against the target range of 70% to 80%.
BIS risk-weighted assets
Risk-weighted assets (RWA) measured on a Basel 2.5 basis de-
creased by CHF 39 billion to CHF 89 billion at the end of 2012.
Credit risk RWA decreased by CHF 26 billion mainly as a result of
reduced exposures on over-the-counter derivatives and additional
hedging. Market risk RWA were reduced by CHF 12 billion as a
result of de-risking activities. Our pro-forma Basel III RWA mea-
sured on a fully applied basis decreased by CHF 81 billion to CHF
131 billion mainly as credit risk RWA reduced by CHF 54 billion
and market risk RWA declined by CHF 13 billion, as well as due to
a transfer from the Investment Bank to the Legacy Portfolio of
CHF 11 billion of risk-weighted assets for the Basel III CVA charge
attributable to the Legacy Portfolio.
➔ Refer to the “Capital management” section of this report for
more information
Operating income by business area
Investment banking
Investment banking revenues improved 16% to CHF 1,593 mil-
lion from CHF 1,371 million due to an increase in global capital
markets activity and lower risk management premiums. In US dol-
lar terms, revenues improved 11%.
Advisory revenues decreased 34% to CHF 638 million from
CHF 964 million as our market share declined against a 7% reduc-
tion in the fee pool in US dollar terms.
Capital market revenues were CHF 1,727 million compared
with CHF 1,329 million, an increase of 30%. Equities capital mar-
ket revenues increased 35% to CHF 777 million compared with
CHF 574 million in 2011 as our market share improved against a
15% decline in the fee pool in US dollar terms. In addition, we
increased our participation in private and structured transactions.
Fixed income capital market revenues increased to CHF 951 mil-
lion from CHF 755 million, an increase of 26%, as our market
share improved in both debt and leveraged capital markets, while
the global fee pool increased 6% in US dollar terms.
Other fee income and risk management revenues were nega-
tive CHF 773 million compared with negative CHF 921 million,
primarily due to a decrease in risk management premiums.
Securities
Securities revenues decreased 18% to CHF 6,971 million from
CHF 8,459 million. In US dollar terms, revenues decreased 21%.
Equities
Equities revenues declined 29% to CHF 2,614 million compared
with CHF 3,698 million. This decline was primarily due to lower
revenues in cash and derivatives. The year 2012 was characterized
by lower client activity and reduced volatility levels, with increases
in major equity indices. In US dollar terms, equities revenues de-
creased 33%.
Fixed income, currencies and commodities
FICC revenues decreased 8% to CHF 4,357 million from CHF
4,761 million largely due to higher negative debit valuation ad-
justments on our derivatives portfolio. In addition, revenues de-
clined in the businesses that we were preparing to transfer to the
Corporate Center and ultimately exit following the announce-
ment of the accelerated implementation of our strategy in Octo-
ber 2012. In US dollar terms, revenues declined 12%. Combined
revenues from credit, macro and emerging markets rose 5% to
CHF 5,132 million from CHF 4,888 million.
Credit revenues increased to CHF 2,054 million from CHF
1,613 million as revenues in 2011 were negatively affected by
mark-to-market trading losses mainly in the second half of the
year as trading conditions were challenging due to uncertainty
surrounding the eurozone and the global economic outlook. Rev-
enues in loan trading, flow trading, real estate finance and struc-
tured credit improved in 2012.
In macro, revenues decreased to CHF 2,673 million from CHF
2,886 million. Foreign exchange revenues declined as volatility de-
creased from the high levels seen in 2011 resulting from the euro-
zone uncertainty. Rates revenues were broadly unchanged, with
improved performances in non-linear and long-end interest rates,
partially offset by lower short-end interest rates revenues.
Emerging markets revenues rose to CHF 405 million from CHF
389 million. Revenues improved across all regions, mainly as a
result of higher credit revenues. The second half of 2011 was
significantly impacted by the eurozone crisis, which resulted in
reduced client activity, primarily in credit.
Other FICC revenues including funding and hedging costs were
negative CHF 776 million compared with negative CHF 129 million.
Revenues in 2012 included negative debit valuation adjustments on
our derivatives portfolio of CHF 383 million as credit default swap
spreads tightened compared with positive debit valuation adjust-
ments of CHF 244 million in 2011 as spreads widened.
Cash revenues were CHF 820 million compared with CHF
1,480 million due to lower commission revenues resulting from
lower market activity as well as a CHF 349 million loss related to
the Facebook initial public offering.
Personnel
The Investment Bank employed 15,866 personnel on 31 Decem-
ber 2012, a decrease of 1,141 from 17,007 on 31 December
2011.
Derivatives and equity-linked revenues were CHF 780 million
compared with CHF 1,035 million. During the year client activity
was lower across all regions, and trading revenues particularly in
Europe and Asia Pacific were affected by lower volatility levels.
On 1 July 2012 operations units from the business divisions were
centralized in the Corporate Center. This centralization and subse-
quent reallocation of operations units led to an increase in person-
nel of 250.
In the prime services business, revenues increased to CHF
1,050 million from CHF 1,009 million, as an improvement in fund-
ing revenues more than offset a reduction in revenues in the clear-
ing business due to lower client activity.
Other equities revenues were negative CHF 36 million compared
with CHF 175 million, primarily reflecting a reduced contribution
from proprietary trading as we continued to exit the business.
Excluding the abovementioned effect from the centralization of
operations units, personnel decreased by 1,391 due to the acceler-
ated implementation of our strategy announced in October 2012
and as we continued to adapt our cost base to the challenging
business environment. This decline was partially offset by the an-
nual graduate intake.
➔ Refer to the “Significant accounting and financial reporting
structure changes” section of this report for more information
on changes related to the centralization of operations units
109
Financial and operating performance Financial and operating performance
Investment Bank
2011
Results
A pre-tax loss of CHF 631 million was recorded in 2011 compared
with a pre-tax profit of CHF 2,731 million in 2010. Excluding re-
structuring charges of CHF 216 million in 2011 and restructuring
provision releases of CHF 25 million in 2010, we recorded an ad-
justed pre-tax loss of CHF 415 million in 2011 compared with an
adjusted pre-tax profit of CHF 2,706 million in 2010. This was due
to the loss relating to the unauthorized trading incident of CHF
1,849 million reported in 2011, lower revenues across all business
areas and the strengthening of the Swiss franc.
Operating income
Total operating income was CHF 7,968 million compared with
CHF 12,102 million in the prior year, a decrease of 34%, or 22%
in US dollar terms. During the year, we incurred a loss from the
unauthorized trading incident of CHF 1,849 million in the equi-
ties business area. After a strong start to the year, increasing in-
stability in the eurozone and the US government debt rating
downgrade contributed to lack of liquidity, impacting the credit
business, while the macro businesses benefited from increased
volatility. In addition, subdued volumes and lower client activity
affected the equities business. Net credit loss expenses in 2011
were CHF 13 million, mainly related to corporate loans. In 2010,
net credit loss recoveries were CHF 155 million, mainly related to
certain legacy leveraged finance and asset backed loan positions.
Operating expenses
Total operating expenses decreased 8% to CHF 8,599 million
from CHF 9,371 million, mostly due to the strengthening of the
Swiss franc. In US dollar terms, operating expenses increased 8%.
Excluding restructuring costs of CHF 216 million in 2011 and a
release of CHF 25 million in 2010 associated with our cost reduc-
tion program, operating expenses decreased 11%.
Personnel expenses decreased 13% to CHF 5,716 million from
CHF 6,605 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 increased to CHF 2,490
million from CHF 2,486 million mainly due to a charge for 2011
for the UK bank levy of CHF 106 million and higher professional
fees, partially offset by the strengthening Swiss franc and UK val-
ue added tax releases.
Net charges from other business divisions were CHF 108 mil-
lion compared with negative CHF 27 million due to the transfer of
approximately 280 personnel to Wealth Management as part of
forming the Investment Products & Services unit in early 2011.
Depreciation decreased 8% to CHF 251 million from CHF 273
million, largely due to lower charges for IT hardware.
Amortization of intangible assets was in line with 2010 at
CHF 34 million.
110
Operating income by business area
In 2011, we implemented two structural changes in our business
division: allocating risk management premiums from equities and
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 chang-
es where relevant 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 34%.
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 sov-
ereign 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
revenues 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 nega-
tive CHF 921 million compared with negative CHF 426 million,
primarily due to an increase in risk management premiums and
the effect of their revised allocation to investment banking.
Securities
Securities revenues were CHF 8,459 million compared with CHF
9,534 million in 2010. In US dollar terms, revenues increased 5%.
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 cli-
ent 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
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 equi-
ty-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 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 in 2010.
Fixed income, currencies and commodities
FICC revenues decreased 6% to CHF 4,761 million in 2011 from
CHF 5,064 million in 2010, primarily due to the strengthening of
the Swiss franc. In US dollar terms, revenues increased 11%.
In credit, revenues decreased to CHF 1,613 million from CHF
2,262 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 trading, partly offset by an improved performance by credit
solutions.
In macro, revenues rose to CHF 2,886 million from CHF 2,369
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 389 million from
CHF 558 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.
Other FICC revenues including funding and hedging costs
were negative CHF 129 million in 2011 compared with negative
CHF 126 million in 2010. In 2011, we recorded positive debit
valuation adjustments of CHF 244 million on our derivatives port-
folio compared with positive debit valuation adjustments of CHF
155 million in 2010, as UBS’s credit default swap spreads wid-
ened in both periods. This improvement was more than offset by
higher funding charges in 2011.
Personnel
The Investment Bank employed 17,007 personnel on 31 Decem-
ber 2011, an increase of 519 from 16,488 on 31 December
2010. This increase was mainly due to the revised allocation
methodology for the Corporate Center personnel implemented
in 2011 and new hires, partly offset by attrition and the transfer
of approximately 280 personnel to Wealth Management as part
of forming the Investment Products & Services unit in 2011.
111
Financial and operating performance Financial and operating performance
Global Asset Management
Global Asset Management
Business division reporting 1
CHF million, except where indicated
Net management fees 2
Performance fees
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 3
Business division performance before tax
Key performance indicators 4
Pre-tax profit growth (%)
Cost / income ratio (%)
Net new money growth (%) 5
Information by business line
Operating income
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure and private equity
Fund services
Total operating income
Gross margin on invested assets (bps)
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure and private equity
Total gross margin
Net new money (CHF billion) 5
Traditional investments
Alternative and quantitative investments
Global real estate
Infrastructure and private equity
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
As of or for the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
1
64
4
(7)
5
900
(3)
0
(4)
33
2
6
11
46
2
4
0
20
3
(47)
0
1,722
162
1,884
885
395
(10)
37
8
1,314
570
32.6
69.7
(2.3)
1,120
268
293
35
169
1,884
23
91
74
44
33
(11.6)
(2.7)
1.3
(0.2)
(13.3)
(5.9)
(0.6)
(5.2)
(7.4)
0.9
(8.3)
1,704
99
1,803
954
375
(1)
38
8
1,373
430
(16.5)
76.2
0.8
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
1,097
400
(5)
43
8
1,543
515
15.5
75.0
0.3
1,259
325
258
14
202
2,058
25
88
69
140
36
4.2
(3.2)
0.6
0.1
1.8
8.2
16.2
(8.1)
(6.4)
2.0
(8.3)
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for more information on the adoption of IAS 19R and changes to reporting
segments. 2 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 offer-
ing), gains or losses from seed money and co-investments, funding costs and other items that are not performance fees. 3 Refer to “Note 37 Changes in organization” in the “Financial information” section of this
report for information on restructuring charges. 4 For the definitions of our key performance indicators, refer to the “Measurement of performance” section of this report. 5 Net new money excludes interest and
dividend income.
112
Business division reporting (continued) 1
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
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 (CHF billion) 5
Return on risk-weighted assets, gross (%) 6
Goodwill and intangible assets (CHF billion)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
504
83
28
40
8
581
410
7.7
4
2.2
25.9
3.5
54.4
1.5
3,781
497
92
31
38
8
574
375
(5.5)
4
2.5
17.2
3.6
50.6
1.5
3,750
487
96
34
36
1
559
390
(0.8)
5
2.5
20.6
3.5
56.8
1.5
3,481
1
(10)
(10)
5
0
1
9
0
(12)
(3)
0
1
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for more information on the adoption of IAS 19R and changes to reporting
segments. 2 This includes UBS and third-party fund assets, for which the fund services unit provides professional services, including fund set-up, accounting and reporting for traditional investment funds and alter native
funds. 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 2012 and 31 December 2011 are disclosed in accordance with the Basel 2.5 framework. Comparative data under the new framework is
not available for 31 December 2010. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital management” section of this report for more information. 6 Based on
Basel 2.5 risk-weighted assets for 2012. Based on Basel II risk-weighted assets for 2011 and 2010.
113
Financial and operating performance Financial and operating performance
Global Asset Management
Business performance
2012
Results
Pre-tax profit for 2012 was CHF 570 million compared with CHF
430 million in 2011. Performance fees were significantly higher,
mainly in alternative and quantitative investments. Net manage-
ment fees were also higher. Operating expenses were lower due
to lower personnel costs, which resulted from lower variable com-
pensation and from credits related to changes to pension and
benefit plans.
Operating income
Total operating income was CHF 1,884 million in 2012 compared
with CHF 1,803 million in 2011. Performance fees were significant-
ly higher at CHF 162 million compared with CHF 99 million, mainly
driven by stronger investment performance in alternative and
quantitative investments as well as in traditional investments. Net
management fees were also higher, notably in global real estate.
Operating expenses
Total operating expenses were CHF 1,314 million in 2012 com-
pared with CHF 1,373 million in 2011. Lower personnel costs
were partially offset by higher general and administrative expens-
es. Restructuring costs were CHF 20 million in 2012, mainly as-
sociated with our cost reduction program but also including CHF
3 million related to the acquisition of the ING Investment Man-
agement business in Australia, which was completed in late 2011
and fully integrated in early 2012. The prior year’s restructuring
costs were CHF 26 million, of which CHF 7 million related to the
same acquisition.
After adjusting for restructuring costs in 2012 and 2011, as
well as credits of CHF 30 million and CHF 16 million in 2012 re-
lated to changes to our Swiss pension plan and a retiree benefit
plan in the US respectively, operating expenses were marginally
lower at CHF 1,340 million in 2012 compared with CHF 1,347
million in 2011.
Personnel expenses were CHF 885 million in 2012 compared
with CHF 954 million in 2011. The decrease was mainly due to
lower variable compensation, partly offset by higher base salaries,
and the abovementioned pension and benefit-related credits.
General and administrative expenses were CHF 395 million
in 2012 compared with CHF 375 million in 2011. CHF 5 million
of the increase related to a charge for provisions for litigation,
regulatory and similar matters, and although 2012 included a
reversal of previously recognized expenses related to a past
business closure of CHF 5 million, there was also a similar rever-
sal of CHF 9 million in 2011.
114
Net charges to other business divisions increased to CHF
10 million in 2012 from CHF 1 million in 2011. The increase was
mainly due to the centralization of operations units from the busi-
ness divisions in the Corporate Center during the year, which also
had the effect of increasing personnel costs by CHF 4 million and
general and administrative expenses by CHF 2 million.
➔ Refer to the “Significant accounting and financial reporting
structure changes” section of this report for more information
on changes related to the centralization of operations units
Cost / income ratio
The cost / income ratio was 69.7% in 2012 compared with 76.2%
in 2011. On an adjusted basis, the cost / income ratio was 71.1%
compared with 74.7%. Our target cost / income ratio range is
60% to 70%.
Net new money growth
The net new money growth rate was negative 2.3% in 2012 com-
pared with positive 0.8% in 2011. Our target net new money
growth rate range is 3% to 5%.
Excluding money market flows, net new money outflows from
third parties were CHF 0.6 billion in 2012 compared with net in-
flows of CHF 12.2 billion in 2011. Net inflows, notably from sov-
ereign clients, were more than offset by net outflows, particularly
from clients in the Americas and Asia Pacific.
Excluding money market flows, net new money outflows from
clients of UBS’s wealth management businesses were CHF 5.2 bil-
lion compared with CHF 3.1 billion in 2011. The net outflows in
2012 were mainly from clients booked in Switzerland and from
alternative and quantitative investments.
Money market net inflows from third parties were CHF 0.9 bil-
lion compared with CHF 0.2 billion in 2011 and were mainly from
sovereign clients.
Money market net outflows from clients of UBS’s wealth man-
agement businesses were CHF 8.3 billion compared with CHF 5.0
billion in 2011. The net outflows in 2012 were mainly from clients
in the Americas and Switzerland. An initiative by Wealth Manage-
ment Americas to deposit client cash in UBS Bank USA reduced in-
flows into money market funds managed by Global Asset Manage-
ment and accounted for net outflows of CHF 6.2 billion in 2012.
Invested assets
Invested assets increased to CHF 581 billion on 31 December 2012
from CHF 574 billion on 31 December 2011, mainly due to posi-
tive market movements, partly offset by net new money outflows
and negative currency effects. The sale, as agreed prior to the ac-
quisition, of parts of the ING Investment Management business
acquired in Australia in 2011 resulted in a net divestment of CHF
14 billion of invested assets in 2012.
Gross margin on invested assets
The gross margin of 33 basis points in 2012 was in line with 2011
and within our target range of 32 to 38 basis points.
Invested assets were CHF 40 billion on 31 December 2012
compared with CHF 38 billion on 31 December 2011, the increase
was mainly due to positive market movements.
Results by business line
Traditional investments
Revenues increased to CHF 1,120 million in 2012 from CHF 1,097
million in 2011, mainly due to higher performance fees as a result
of stronger investment performance.
The gross margin of 23 basis points was in line with 2011.
Net new money outflows were CHF 11.6 billion compared
with zero in the prior year. Excluding money market flows, net
new money outflows were CHF 4.3 billion compared with net in-
flows of CHF 4.7 billion. Equities net outflows were CHF 1.3 bil-
lion compared with net inflows of CHF 4.7 billion. Fixed income
net inflows were CHF 2.4 billion compared with CHF 5.7 billion.
Multi-asset net outflows (which included flows related to alter-
native investments not managed by the alternative and quantita-
tive investments, global real estate or infrastructure and private
equity investment areas) were CHF 5.4 billion compared with CHF
5.7 billion.
Invested assets were CHF 504 billion on 31 December 2012
compared with CHF 497 billion on 31 December 2011. By man-
date type, CHF 163 billion of invested assets related to equities,
CHF 154 billion to fixed income, CHF 83 billion to money markets
and CHF 103 billion to multi-asset mandates (including CHF 7 bil-
lion 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 268 million compared with CHF 253 million.
Higher performance fees as a result of strong investment perfor-
mance, notably in O’Connor single manager funds, were partially
offset by the full year impact of the transfer of the infrastructure
and private equity fund of funds businesses to infrastructure and
private equity in mid-2011.
The gross margin increased from 76 basis points to 91 basis
Infrastructure and private equity
Revenues were CHF 35 million compared with CHF 24 million
with the increase reflecting the full year impact of the transfer of
the infrastructure and private equity fund of funds businesses
from alternative and quantitative investments in mid-2011.
Net new money outflows were CHF 0.2 billion compared with
CHF 3.5 billion inflows in 2011.
Invested assets were CHF 8 billion on 31 December 2012, in
line with the previous year.
Fund services
Revenues were CHF 169 million compared with CHF 165 million,
mainly due to higher administrative fees resulting from higher av-
erage assets under administration.
The gross margin on assets under administration was 4 basis
points, in line with the previous year.
Net new assets under administration inflows were CHF 7.7 bil-
lion compared with CHF 5.5 billion outflows in 2011.
Total assets under administration increased to CHF 410 billion
from CHF 375 billion mainly due to positive market performance
and net new assets under administration inflows.
Personnel
Global Asset Management employed 3,781 personnel on 31 De-
cember 2012 compared with 3,750 on 31 December 2011, a
net increase of 31 personnel. Increases in personnel resulted
from an increased allocation from the Corporate Center follow-
ing the centralization of operations units (approximately 50 per-
sonnel) and the transfer of the Jersey fund services business
from Wealth Management to Global Asset Management. These
increases were partially offset by restructuring actions, mainly
in the business acquired from ING Investment Management in
Australia.
points, primarily due to the higher performance fees.
Investment performance
Net new money outflows were CHF 2.7 billion compared with
CHF 0.8 billion in 2011.
Invested assets were CHF 28 billion on 31 December 2012
compared with CHF 31 billion on 31 December 2011, mainly due
to the net new money outflows.
Global real estate
Revenues were CHF 293 million compared with CHF 263 million,
mainly due to higher net management and performance fees.
The gross margin increased to 74 basis points compared with 72
basis points in 2011, primarily due to the higher performance fees.
Net new money inflows were CHF 1.3 billion compared with
CHF 1.6 billion in 2011.
Both traditional and alternative strategies generally delivered
strong performance in 2012 as they were well positioned for the
volatile markets and continued macro-economic uncertainty ex-
perienced during the year.
A large majority of our active equities strategies performed in
line with or above their benchmarks in 2012, as equity market
focus shifted away from political and macro-economic concerns
towards company fundamentals. Across global, non-US and Euro-
pean equity strategies, performance was generally strong versus
benchmarks and ahead of peer averages. Among US strategies,
the flagship US large cap growth select strongly outperformed its
benchmark and peer average. While US core equity large cap fin-
115
Financial and operating performance Financial and operating performance
Global Asset Management
ished behind its benchmark, its wholesale fund outperformed its
peer group average, illustrating that it was a difficult year for most
active US managers. Across Asia and emerging markets strate-
gies, performance was mixed, but the emerging markets oppor-
tunity and Asian consumption strategies had outstanding perfor-
mance. Our small cap equity range was also mixed but notably
strong performance was achieved by our non-US growth, Swiss,
German and Australian small cap equity strategies. In our non-
traditional equities products, strong performance was delivered
by several long-short unconstrained, hedged and market neutral
funds, and global sustainable equity. Our range of equity index-
tracking (passive) strategies met their objectives in 2012 by pro-
ducing close tracking to benchmarks. On a longer-term basis,
three-year performance records of our active strategies were im-
pacted versus a year ago as a very strong 2009 dropped out of the
three-year period. However, on a five-year basis a solid majority of
our equities strategies outperformed their benchmarks and peer
averages.
2012 was a strong year for our fixed income strategies with
almost all of our key strategies outperforming their respective
benchmarks. Longer-term track records also continued to
strengthen. The environment was dominated by continued uncer-
tainty around peripheral eurozone sovereigns, though towards
the end of the year the focus shifted to the US fiscal cliff and debt
ceiling negotiations. Traditional global and local bond strategies
(such as Australian, euro, Swiss, UK and US), and also higher al-
pha strategies (such as euro high yield) outperformed their bench-
marks. Extended sectors (such as emerging markets, Asian bonds
and total return strategies) also performed strongly in the volatile
market environment. Money market funds continued to achieve
their capital preservation objectives.
Key multi-asset strategies managed by global investment solu-
tions performed strongly in 2012. All key strategies achieved
positive absolute returns, while most outperformed their bench-
marks and ranked in the top quartile relative to peers. Over three
and five years, the majority of key multi-asset strategies have sig-
nificantly outperformed their peer group averages. The peer-rel-
ative performance of the Dynamic Alpha strategy in the US
ranked in the first percentile for 2012, and the third percentile
over five years.
In alternative and quantitative investments, hedge funds
produced consistent positive returns in 2012 while remaining
generally hedged to rallying global risk markets. The O’Connor
core single manager funds posted positive returns and outper-
formed many peers on an absolute and risk-adjusted basis. In
the multi-manager business, returns for the year were positive
across core products and particularly fixed income and credit-
oriented products.
The majority of global real estate’s direct strategies covering
Europe and Germany generated positive absolute returns in 2012.
While the UK core fund produced a negative absolute return, the
UK value-add fund was the best-performing balanced / specialist
unlisted real estate fund in the UK for 2012. The Swiss composite
outperformed its benchmark for the year. US real estate and farm-
land strategies delivered strong positive absolute returns in 2012.
In Japan, both J-REITs strongly outperformed their benchmarks in
2012 and produced very strong absolute returns. The Swiss real
estate securities composite performance was positive relative to
benchmark for the year. Multi-manager strategies had positive
absolute returns for 2012.
In infrastructure and private equity, the direct infrastructure
portfolio continued to deliver stable cash flows and performance
in line with target return objectives. Within our multi-manager
area, the infrastructure fund of funds strategies showed improv-
ing returns and increased dividend yield. Private equity fund of
funds strategies performed broadly in line with expectations.
116
2011
Results
Pre-tax profit for 2011 was CHF 430 million compared with CHF
515 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 in-
cluded CHF 26 million in restructuring charges associated with
both our cost reduction program and the acquisition of the ING
Investment 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
market performance and the strengthening of the Swiss franc
over most of the year leading to lower average invested assets.
Performance fees were also lower, primarily in alternative and
quantitative investments.
Operating expenses
Total operating expenses were CHF 1,373 million in 2011 com-
pared with CHF 1,543 million in 2010, mainly due to lower per-
sonnel costs as well as lower general and administrative expens-
es, both partly due to the strengthening of the Swiss franc and
savings associated with our cost reduction program. A total of
CHF 26 million 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 busi-
ness acquisition.
Personnel expenses were CHF 954 million in 2011 compared
with CHF 1,097 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.
Cost / income ratio
The cost/income ratio was 76.2% in 2011 compared with 75.0%
in 2010. On an adjusted basis, excluding restructuring charges,
the cost/income ratio was 74.7% compared with 75.0%.
Net new money growth
The net new money growth rate was positive 0.8% in 2011 com-
pared with 0.3% in 2010.
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 Manage-
ment to Global Asset Management: a CHF 1.8 billion multi-man-
ager alternative fund was transferred to alternative and quantita-
tive investments, and CHF 2.9 billion in private equity funds of
funds were transferred to infrastructure and private equity. It
should be noted that these assets were reported as invested as-
sets in both business divisions, as Wealth Management continued
to advise the clients of the funds.
Money market net inflows from third parties were CHF 0.2
billion compared with CHF 2.0 billion in 2010, and money mar-
ket net outflows from clients of UBS’s wealth management
businesses 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.
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
points in 2010, mainly due to changes in the asset mix.
Net new money inflows were zero compared with CHF 4.2 bil-
lion inflows in the prior year. Excluding money market flows, net
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
117
Financial and operating performance Financial and operating performance
Global Asset Management
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).
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
businesses from alternative and quantitative investments. As a re-
sult of this transfer, the name of this business line changed to in-
frastructure 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.
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.
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 and to the transfer within Global Asset Management of
infrastructure and private equity fund of funds businesses from
alternative and quantitative investments.
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 bil-
lion inflow related to the transfer of investment management and
research responsibility for a multi-manager alternative fund from
Wealth Management.
Invested assets were CHF 31 billion on 31 December 2011
compared with CHF 34 billion on 31 December 2010. The transfer
within Global Asset Management of infrastructure and private eq-
uity fund of funds businesses to infrastructure and private equity
was partially offset by the abovementioned transfer from Wealth
Management.
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 69 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.
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
billion 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.
Personnel
Global Asset Management employed 3,750 personnel on 31 De-
cember 2011 compared with 3,481 on 31 December 2010, a net
increase of 269 personnel. Increases in personnel resulted from a
refined headcount allocation methodology for the Corporate
Center (275 personnel) and the acquisition of the ING Investment
Management business in Australia. These increases were partially
offset by headcount reductions as part of our cost reduction
program.
118
Retail & Corporate
Business division reporting 1
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 and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 2
Business division performance before tax
Key performance indicators 3
Pre-tax profit growth (%)
Cost / income ratio (%)
Net interest margin (%)
Net new business volume growth (%)
Impaired loan portfolio as a % of total loan portfolio, gross (%) 4
Additional information
Average attributed equity (CHF billion) 5
Return on attributed equity (RoaE) (%)
BIS risk-weighted assets (CHF billion) 6
Return on risk-weighted assets, gross (%) 7
Goodwill and intangible assets (CHF billion)
Business volume (CHF billion)
Client assets (CHF billion) 8
Loans, gross (CHF billion)
Due to customers (CHF billion)
Secured loan portfolio as a % of total loan portfolio, gross (%)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
2,186
1,198
281
90
3,756
(27)
3,728
1,287
857
(370)
128
0
1,901
1,827
(3.0)
50.6
1.60
4.9
0.7
4.5
40.6
30.6
13.8
0.0
518
381
137.3
131.1
91.7
10,156
2,328
1,175
333
350
4,186
(101)
4,085
1,702
834
(470)
136
0
2,201
1,884
10.2
52.6
1.71
3.5
0.7
5.0
37.7
25.2
16.5
0.0
468
333
135.3
117.9
90.9
11,430
2,422
1,178
249
97
3,946
(76)
3,870
1,687
836
(509)
146
0
2,160
1,710
6.0
54.7
1.79
3.9
0.9
4.6
37.2
26.5
13.7
0.0
464
329
134.8
111.7
90.3
12,089
(6)
2
(16)
(74)
(10)
(73)
(9)
(24)
3
(21)
(6)
(14)
(3)
(10)
21
11
14
1
11
(11)
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for more information on the adoption of IAS 19R and changes to reporting
segments. 2 Refer to “Note 37 Changes in organization” in the “Financial information” section of this report for information on restructuring charges. 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” sec-
tion of this report for more information about the equity attribution framework. 6 Capital management data as of 31 December 2012 and December 2011 are disclosed in accordance with the Basel 2.5 framework.
Comparative data under the new framework is not available for 31 December 2010. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital management” section of this
report for more information. 7 Based on Basel 2.5 risk-weighted assets for 2012. Based on Basel II risk-weighted assets for 2011 and 2010. 8 In 2012, the definition of client assets was refined. Prior periods have
been adjusted accordingly. Refer to “Note 35 Invested assets and net new money” in the “Financial information” section of this report for more information.
119
Financial and operating performance Financial and operating performance
Retail & Corporate
Business performance
2012
Results
Pre-tax profit decreased by CHF 57 million to CHF 1,827 million
from CHF 1,884 million in the prior year. In 2012, personnel ex-
penses benefited from a CHF 287 million credit related to chang-
es to our Swiss pension plan. In 2011, there was a gain of CHF
289 million from the sale of our strategic investment portfolio.
Adjusted for these items and restructuring charges of CHF 3 mil-
lion in 2012 and CHF 32 million in 2011, pre-tax profit decreased
by CHF 84 million to CHF 1,543 million, mainly as the previous
year benefited from CHF 68 million of accrued interest from the
abovementioned strategic investment portfolio sold in the third
quarter of 2011.
➔ Refer to the “Certain items affecting our results in 2011” sidebar
in our Annual Report 2011 for more information on the sale of
our strategic investment portfolio
Operating income
Total operating income decreased by CHF 357 million to CHF
3,728 million, mainly reflecting the abovementioned gain from
the sale of our strategic investment portfolio in 2011. Adjusted
for this gain, operating income decreased by CHF 68 million to
CHF 3,728 million from CHF 3,796 million.
Net interest income decreased by CHF 142 million to CHF
2,186 million as the previous year included interest income of
CHF 68 million related to our strategic investment portfolio. Net
interest income was also negatively affected by increased costs
related to assets managed centrally by Group Treasury and low-
er allocations related to investment proceeds from the firm’s
equity. The loan margin was stable, but historically low interest
rates continued to negatively affect the deposit margin. This
was partly offset by growth in average deposit and, to a lesser
extent, loan volumes as well as a number of pricing adjust-
ments.
Net fee and commission income was CHF 1,198 million, up
CHF 23 million from CHF 1,175 million in 2011 reflecting strong
corporate finance activity related to our continued focus on our
fee-based advisory offering.
Net trading income decreased to CHF 281 million from CHF
333 million due to lower treasury-related income and lower valu-
ation income in 2012 related to credit default swaps to hedge
certain loans.
Other income decreased to CHF 90 million from CHF 350 mil-
lion reflecting the abovementioned gain of CHF 289 million from
the sale of our strategic investment portfolio in 2011, partly offset
by higher income in 2012 related to our SIX participation.
120
Credit loss expenses were CHF 27 million in 2012 compared
with CHF 101 million in 2011, mainly reflecting a CHF 82 million
increase in 2011 and a CHF 16 million decrease in 2012 in collec-
tive loan loss allowances.
➔ 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
Operating expenses
Total operating expenses were CHF 1,901 million compared with
CHF 2,201 million, mainly reflecting the CHF 287 million credit
related to changes to our Swiss pension plan in 2012. Excluding
this credit and restructuring charges, adjusted operating expenses
increased by CHF 16 million to CHF 2,185 million.
Personnel expenses decreased to CHF 1,287 million from
CHF 1,702 million. Excluding the abovementioned credit and
restructuring charges, adjusted personnel expenses were CHF 1,571
million, down CHF 102 million from CHF 1,673 million in 2011 due
to the centralization of operations units at the beginning of the third
quarter of 2012, which decreased personnel expenses by CHF 176
million. As Retail & Corporate previously provided significant opera-
tions support to other business divisions, this centralization and sub-
sequent reallocation of operations units had the effect of reducing
personnel costs and non-personnel costs and decreasing net charg-
es to other business divisions. This was partially offset by higher
personnel expenses resulting from other business transfers.
➔ Refer to the “Significant accounting and financial reporting
structure changes” section of this report for more information
on changes related to the centralization of operations units
General and administrative expenses were CHF 857 million
compared with CHF 834 million in 2011, reflecting higher net
charges for provisions for litigation, regulatory and similar matters
as well as increased marketing expenses related to our 150th an-
niversary in 2012. The abovementioned centralization of opera-
tions units led to a decrease in costs, which was partially offset by
the effects of other business transfers.
Net charges to other business divisions were CHF 370 million,
down from CHF 470 million in the previous year, primarily as a
result of the impact from the abovementioned centralization of
operations units in 2012, which reduced net charges out for ser-
vices provided to other business divisions. This was partially offset
by the effects of other business transfers.
Depreciation was CHF 128 million compared with CHF 136
million, reflecting a change in the depreciation period of certain IT
equipment.
Cost / income ratio
The cost / income ratio improved to 50.6% from 52.6%, reflect-
ing lower expenses partly offset by lower income. On an ad-
justed basis excluding the credit related to changes to our Swiss
pension plan in 2012, the gain from the sale of our strategic
investment portfolio as well as restructuring charges, the
cost / income ratio was 58.2% compared with 55.7% and was
within of our target range of 50% to 60%.
businesses recorded strong net inflows reflecting high net new
client assets. Net new loan inflows were also slightly positive in
line with our strategy to grow our business selectively in high-
quality loans. Net new business volume growth exceeded the tar-
get range of 1% to 4%.
Net interest margin
The net interest margin decreased 11 basis points to 160 basis
points, reflecting lower interest income as detailed above and a
slightly higher average loan volume. The net interest margin re-
mained within the target range of 140 to 180 basis points.
Net new business volume growth
The growth rate for net new business volume was 4.9% com-
pared with 3.5% in the prior year. Both our retail and corporate
Personnel
Retail & Corporate employed 10,156 personnel on 31 December
2012 compared with 11,430 on 31 December 2011 mainly reflect-
ing the abovementioned centralization and subsequent realloca-
tion of operations units personnel. We continued to adapt our cost
base to the challenging business environment. In addition, the
personnel number includes the annual intake of more than 100
apprentices, which took place in the third quarter of 2012.
121
Financial and operating performance Financial and operating performance
Retail & Corporate
2011
Results
Pre-tax profit for 2011 was CHF 1,884 million compared with
CHF 1,710 million and included a CHF 289 million gain on the
sale of our strategic investment portfolio as well as CHF 32 mil-
lion in restructuring charges associated with our cost reduction
program compared with CHF 3 million in restructuring provision
releases in 2010. When adjusted for these items, pre-tax profit
was CHF 1,627 million, down from CHF 1,707 million in 2010,
primarily as a result of lower interest income due to the ongoing
low interest rate environment.
➔ Refer to the “Certain items affecting our results in 2011”
sidebar in our Annual Report 2011 for more information on
our cost reduction program and the sale of our strategic
investment portfolio
Operating income
Total operating income increased to CHF 4,085 million from CHF
3,870 million, and included the abovementioned gain on the sale
of our strategic 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 negatively
affected by an adjustment to the allocation of treasury-related
income between Wealth Management and Retail & Corporate.
Low market interest rates also impacted income from our replica-
tion portfolio, resulting in lower net interest income. These effects
more than offset higher interest income derived from the strategic
investment portfolio which was acquired in late 2010.
Net fee and commission income was CHF 1,175 million, virtu-
ally unchanged from CHF 1,178 million in 2010, as lower fees
related to investment funds were mostly offset by higher credit
related fees and increased transaction-based revenues.
Net trading income increased to CHF 333 million from CHF
249 million, mainly reflecting higher treasury-related income and
higher foreign exchange income linked to client trading activities.
Other income was CHF 350 million compared with CHF 97 mil-
lion in 2010 due to the abovementioned gain on the sale of our
strategic investment portfolio.
Credit loss expenses 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 booked mainly
in the third quarter of 2011.
➔ Refer to the “Interest rate and currency management” section of
our Annual Report 2011 for more information on our replication
portfolio
122
Operating expenses
Total operating expenses were CHF 2,201 million compared with
CHF 2,160 million, partially due to the abovementioned restruc-
turing charges. Excluding the effects of restructuring, operating
expenses increased by CHF 6 million to CHF 2,169 million. Per-
sonnel expenses increased to CHF 1,702 million from CHF 1,687
million. Excluding the effects of restructuring, personnel ex-
penses were CHF 1,673 million, down 1% from 2010 as a 4%
reduction in average personnel during 2011 and lower variable
compensation accruals compared with 2010 more than offset
salary increases.
General and administrative expenses 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 ser-
vice level agreements and allocations between Retail & Corporate,
Wealth Management and other parts of the organization.
Depreciation was CHF 136 million compared with CHF 146
million.
Cost / income ratio
The cost / income ratio improved to 52.6% from 54.7%, reflecting
the gain of CHF 289 million from the sale of our strategic invest-
ment portfolio partly offset by slightly higher expenses. On an
adjusted basis excluding this gain as well as the effects of restruc-
turing, the cost / income ratio was 55.7% compared with 54.8%.
Net interest margin
The net interest margin decreased from 179 basis points to 171
basis points, reflecting the abovementioned lower interest income
and a slightly higher average loan volume.
Net new business volume growth
The growth rate for net new business volume was 3.5% com-
pared with 3.9% in the previous year. Our retail and corporate
businesses both recorded strong net inflows, resulting from high
net new client assets and, to a lesser extent, net new loan inflows
reflecting our strategy to grow our business selectively in high-
quality loans.
Personnel
Retail & Corporate employed 11,430 personnel on 31 December
2011 compared with 12,089 on 31 December 2010 reflecting a
lower allocation of Corporate Center shared services personnel,
and a shift of approximately 100 personnel to Wealth Manage-
ment in connection with the Investment Products & Services unit
in first quarter of 2011. In addition, the personnel number in-
cludes the annual intake of more than 100 apprentices, which
took place in the third quarter of 2011.
Corporate Center
Corporate Center – Total 1
CHF million, except where indicated
Income
Credit loss (expense) / recovery 2
Total operating income excluding own credit
Own credit 3
Total operating income
Personnel expenses
General and administrative expenses
Services to / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 4
Performance before tax
Performance before tax excluding own credit
Additional information 5
Total assets (CHF billion) 6
BIS risk-weighted assets (CHF billion) 7
Personnel before allocations (full-time equivalents)
Allocations to business divisions (full-time equivalents)
Personnel after allocations (full-time equivalents)
As of or for the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
409
(112)
297
(2,202)
(1,905)
308
2,419
21
7
0
2,756
(4,661)
(2,458)
260.1
29.7
25,255
(24,733)
522
(569)
24
(545)
1,537
992
132
286
55
74
0
547
446
(1,091)
204.2
41.3
26,269
(25,746)
523
1,746
(155)
1,591
(548)
1,043
197
376
99
94
0
766
277
825
206.3
38.2
26,565
(25,999)
566
133
746
(62)
(91)
404
125
27
(28)
(4)
(4)
0
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for more information on the adoption of IAS 19R and changes to report-
ing segments. 2 Includes credit loss (expense) / recovery mainly due to reclassified and acquired securities. 3 Represents own credit changes on financial liabilities designated at fair value through profit or loss. The
cumulative own credit loss for such debt held on 31 December 2012 amounts to CHF 0.3 billion. This loss has increased the fair value of financial liabilities designated at fair value through profit or loss recognized on
our balance sheet. Refer to “Note 13 Financial assets designated at fair value” in the “Financial information” section of this report for more information. 4 Refer to “Note 37 Changes in organization” in the “Finan-
cial information” section of this report for information on restructuring charges. 5 Comparative figures in this table may differ from those originally published in quarterly and annual reports (for example due to ad-
justments following organizational changes). 6 Based on third-party view, i.e. without intercompany balances. Refer to “Note 2a Segment reporting” in the “Financial information” section of this report for more in-
formation. 7 Capital management data as of 31 December 2012 and 31 December 2011 are disclosed in accordance with the Basel 2.5 framework. Comparative data under the new framework is not available for 31
December 2010. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital management” section of this report for more information.
123
Financial and operating performance Financial and operating performance
Corporate Center
Corporate Center – Core Functions
Corporate Center reporting – Core Functions 1
CHF million, except where indicated
Income
Credit loss (expense) / recovery
Total operating income excluding own credit
Own credit 2
Total operating income as reported
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses 3
Performance before tax
Performance before tax excluding own credit
Additional information 4
Total assets (CHF billion) 5
BIS risk-weighted assets (CHF billion) 6
Personnel before allocations (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 and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses before service allocation to business divisions
Net allocations to business divisions
Total operating expenses 3
As of or for the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
29
0
29
(2,202)
(2,173)
240
1,648
2
6
0
1,895
(4,068)
(1,866)
222.5
8.5
25,203
(24,964)
238
4,079
5,272
647
2
10,000
(8,105)
1,895
47
(1)
46
1,537
1,583
64
137
(1)
70
0
271
1,312
(225)
148.1
21.0
26,217
(25,995)
222
4,611
3,599
731
0
8,941
(8,670)
271
390
0
390
(548)
(158)
78
167
8
89
0
342
(500)
48
134.6
11.6
26,565
(26,371)
194
4,835
3,805
813
0
9,453
(9,111)
342
(38)
(100)
(37)
275
(91)
599
729
50
(60)
(4)
(4)
7
(12)
46
(11)
12
(7)
599
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for more information on the adoption of IAS 19R and changes to reporting
segments. 2 Represents own credit changes on financial liabilities designated at fair value through profit or loss. The cumulative own credit loss for such debt held on 31 December 2012 amounts to CHF 0.3 billion. This
loss has increased the fair value of financial liabilities designated at fair value through profit or loss recognized on our balance sheet. Refer to “Note 13 Financial assets designated at fair value” in the “Financial informa-
tion” section of this report for more information. 3 Refer to “Note 37 Changes in organization” in the “Financial information” section of this report for information on restructuring charges. 4 Comparative figures in
this table may differ from those originally published in quarterly and annual reports (for example due to adjustments following organizational changes). 5 Based on third-party view, i.e. without intercompany balances.
Refer to “Note 2a Segment reporting” in the “Financial information” section of this report for more information. 6 Capital management data as of 31 December 2012 and 31 December 2011 are disclosed in accordance
with the Basel 2.5 framework. Comparative data under the new framework is not available for 31 December 2010. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital
management” section of this report for more information.
124
Business performance
2012
Results
The pre-tax result was a loss of CHF 4,068 million in 2012 compared
with a gain of CHF 1,312 million in 2011. 2012 included charges for
provisions for litigation, regulatory and similar matters of CHF 1,470
million, mainly arising from fines and disgorgement resulting from
regulatory investigations concerning LIBOR and other benchmark
rates, and an own credit loss of CHF 2,202 million compared with a
gain of CHF 1,537 million in 2011. Treasury income remaining in
Corporate Center – Core Functions after allocations to the business
divisions was CHF 204 million compared with CHF 38 million in 2011.
Operating income
Total operating income was negative CHF 2,173 million in 2012
compared with positive CHF 1,583 million in 2011. On an ad-
justed basis excluding own credit, operating income was CHF 29
million in 2012 compared with CHF 46 million in the prior year.
Total operating income excluding own credit decreased by CHF
17 million, largely due to higher charges related to our multi-cur-
rency portfolio of unencumbered high-quality, short-term assets
managed centrally by Group Treasury. Treasury income remaining
in Corporate Center – Core Functions after allocations to the busi-
ness divisions was CHF 204 million compared with CHF 38 million
in the prior year. This increase was mainly due to a gain of CHF 134
million related to hedge ineffectiveness arising from the basis risk
inherent within our macro cash flow hedge accounting model.
Furthermore, 2012 operating income included a gain of CHF
112 million related to the sale of properties in Switzerland com-
pared with a gain of CHF 78 million from the sale of a property in
Switzerland in 2011.
Own credit
An own credit loss on financial liabilities designated at fair value
of CHF 2,202 million was recorded in 2012, primarily due to a
tightening of our credit spreads. An own credit gain of CHF 1,537
million was recorded in 2011.
➔ Refer to “Note 27 Fair value of financial instruments” in the
“Financial information” section of this report for more informa-
tion on own credit
Operating expenses
On a gross basis before service allocations to the business divisions,
total operating expenses were CHF 10,000 million, up from CHF
8,941 million in the prior year, mainly due to charges for provisions
for litigation, regulatory and similar matters of CHF 1,470 million,
higher marketing costs and unfavorable currency effects. These in-
creases were partly offset by the effect of changes to our Swiss pen-
sion plan, the effect related to the capitalization of internally gener-
ated software, reduced personnel expenses associated with our cost
reduction program and lower restructuring charges in 2012.
Personnel expenses decreased by CHF 532 million to CHF 4,079
million, mainly due to changes to our Swiss pension plan, the effect
related to the capitalization of internally generated software in 2012,
reduced personnel expenses associated with our cost reduction pro-
gram, a one-time net credit from changes to the rules for the Swiss
long-service and sabbatical awards announced in the third quarter of
2012 as well as lower restructuring charges and variable compensa-
tion accruals in 2012.
General and administrative expenses increased by CHF 1,673
million to CHF 5,272 million, mainly due to charges of CHF 1,470
million for provisions for litigation, regulatory and similar matters
arising from fines and disgorgement resulting from regulatory in-
vestigations concerning LIBOR and other benchmark rates, higher
marketing costs and increased business demand for IT infrastruc-
ture services, partly offset by the effect of the capitalization of
internally generated software in 2012.
➔ Refer to the “Certain items affecting our results in 2012” sidebar
for more information on LIBOR-related settlements
Depreciation expenses decreased by CHF 84 million to CHF
647 million, mainly due to restructuring charges and amortization
of software costs in 2011.
The business divisions were charged CHF 8,105 million for
shared services costs, a decrease of CHF 565 million from the pre-
vious year, primarily reflecting the aforementioned decreases.
Total operating expenses remaining after allocations to the
business divisions increased to CHF 1,891 million from CHF 271
million in the prior year. This mainly reflects the charges for provi-
sions for litigation, regulatory and similar matters of CHF 1,470
million as well as higher marketing costs in relation to our 150th
anniversary including expenses related to the education initiative
we launched to mark the occasion in 2012.
Personnel
At the end of 2012, Corporate Center – Core Functions employed
25,203 personnel, with 24,964 allocated to the business divisions
and the Legacy Portfolio unit, based on services consumed. The
decrease of 1,014 personnel from the prior year mainly reflected
staff reductions related to our cost reduction program and the
accelerated implementation of our strategy announced in Octo-
ber 2012. The 238 personnel remaining in Corporate Center –
Core Functions after allocations were related to Group gover-
nance functions and other corporate activities.
125
Financial and operating performance Financial and operating performance
Corporate Center
2011
Results
The pre-tax result was a gain of CHF 1,312 million in 2011 com-
pared with a loss of CHF 500 million in 2010. The year 2011 in-
cluded an own credit gain of CHF 1,537 million compared with a
loss of CHF 548 million in 2010. Treasury income remaining in
Corporate Center – Core Functions, after allocations to the busi-
ness divisions, was CHF 38 million compared with CHF 152 mil-
lion in 2010.
Operating income
Total operating income was positive CHF 1,583 million in 2011
compared with negative CHF 158 million in 2010. On an adjusted
basis excluding own credit, operating income was CHF 46 million
in 2012 compared with CHF 390 million in the prior year.
Treasury income remaining in Corporate Center – Core Func-
tions, after allocations to the business divisions, was CHF 38 mil-
lion compared with CHF 152 million in 2010.
Furthermore, 2011 operating income 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.
Own credit
An own credit gain on financial liabilities designated at fair
value of CHF 1,537 million was recorded in 2011, primarily due to
a widening of our credit spreads. An own credit loss of CHF 548
million was recorded in 2010.
Operating expenses
On a gross basis before service allocations to the business divi-
sions, total operating expenses were CHF 8,941 million, down
from CHF 9,453 million in 2010, mainly due to favorable cur-
rency effects resulting from the depreciation of the US dollar
and British pound against the Swiss franc, as well as the effects
of efficiency initiatives and other cost reductions resulting from
the execution of the UBS real estate consolidation strategy and
lower IT costs. This was partially offset by restructuring charges
as well as an increase in expenses due to focused investments in
technology, capacity expansion needed for control functions to
be able to satisfy increased regulatory requirements, and the
continuing consolidation of services in the Corporate Center.
Personnel expenses decreased by CHF 224 million to CHF
4,611 million, primarily due to favorable currency effects, partially
offset by personnel-related restructuring expenses associated
with our cost reduction program in the second half of 2011, ca-
pacity increases for regulatory requirements and personnel trans-
fers from other business divisions.
General and administrative expenses decreased by CHF 206
million to CHF 3,599 million, mainly due to favorable currency
effects, partly offset by restructuring charges due to the consoli-
dation of our real estate portfolio as part of our cost reduction
program. Furthermore, the effects of efficiency initiatives and
other cost reductions were offset by the abovementioned in-
creased business demand affecting Group Technology and the
consolidation of services in the Corporate Center.
Depreciation expenses decreased by CHF 82 million to CHF
731 million, primarily due to favorable currency effects and the
reversal of an impairment loss. These decreases were partly offset
by restructuring charges, mainly related to the abovementioned
real estate consolidation in 2011.
The business divisions were charged CHF 8,670 million for
shared services costs, a decrease of CHF 441 million from 2010,
primarily reflecting the aforementioned changes.
Total operating expenses remaining after allocations to the
business divisions were CHF 271 million compared with CHF 342
million in 2010. This decrease was due to a value added tax provi-
sion release of CHF 22 million and a variable compensation ac-
crual release of CHF 19 million in 2011. Furthermore, 2011 in-
cluded lower charges for provisions for litigation, regulatory and
similar matters.
Personnel
At the end of 2011, Corporate Center – Core Functions employed
26,217 personnel, with 25,995 allocated to the business divisions
and the Legacy Portfolio unit, based on services consumed. The
decrease of 348 personnel from 2010 related mainly to the above-
mentioned cost reduction program in the second half of 2011,
partly offset by higher personnel required to meet additional reg-
ulatory requirements, and further consolidation of services in the
Corporate Center. The 222 personnel remaining in Corporate
Center – Core Functions after allocations were related to Group
governance functions and other corporate activities.
126
Legacy Portfolio
Corporate Center reporting – Legacy Portfolio 1
CHF million, except where indicated
SNB StabFund option
Legacy Portfolio excluding SNB StabFund option
Total income
Credit loss (expense) / recovery 2
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property and equipment
Amortization and impairment of intangible assets
Total operating expenses
Performance before tax
Additional information
Total assets (CHF billion) 3
BIS risk-weighted assets (CHF billion) 4
Personnel before allocations (full-time equivalents)
Allocations from business divisions (full-time equivalents)
Personnel after allocations (full-time equivalents)
As of or for the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
539
(158)
381
(112)
268
68
771
19
2
0
861
(592)
37.6
21.2
52
231
283
(126)
(489)
(616)
25
(591)
68
148
56
3
0
276
(866)
56.1
20.3
52
249
301
745
611
1,356
(155)
1,201
119
209
91
5
0
424
777
71.8
26.6
372
372
(68)
0
421
(66)
(33)
212
(32)
(33)
4
0
(7)
(6)
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for more information on the adoption of IAS 19R and changes to reporting
segments. 2 Includes credit loss (expense) / recovery mainly due to reclassified and acquired securities. 3 Based on third-party view, i.e. without intercompany balances. Refer to “Note 2a Segment reporting” in the
“Financial information” section of this report for more information. 4 Capital management data as of 31 December 2012 and 31 December 2011 are disclosed in accordance with the Basel 2.5 framework. Compara-
tive data under the new framework is not available for 31 December 2010. The comparative information under the Basel II framework is therefore provided. Refer to the “Capital management” section of this report for
more information.
127
Financial and operating performance Financial and operating performance
Corporate Center
Business performance
2012
Results
The pre-tax result was a loss of CHF 592 million in 2012 compared
with a loss of CHF 866 million in the previous year. This was pri-
marily due to a gain from the revaluation of our option to acquire
the SNB StabFund’s equity, partly offset by a credit loss expense
and higher charges for provisions for litigation, regulatory and
similar matters in 2012.
Operating income
Total operating income was CHF 268 million in 2012 compared with
negative CHF 591 million in 2011. The revaluation of our option to
acquire the SNB StabFund’s equity resulted in a gain of CHF 526
million in 2012, primarily due to higher market valuation of the
fund’s assets, compared with a loss of CHF 133 million in 2011.
➔ 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
Excluding the SNB StabFund option, total operating income
from the Legacy Portfolio was negative CHF 271 million com-
pared with negative CHF 465 million in 2011. The year 2012 in-
cluded losses in collateralized debt obligations (CDO) and related
swap hedging of CHF 174 million as we exited certain CDO posi-
tions to reduce Basel III risk-weighted assets (RWA) compared
with losses in the previous year of CHF 416 million predominant-
ly resulting from the net impact of credit valuation adjustments
(CVA) on monolines, including adjustments taken for commuta-
tions, and mark-to-market losses for securities. In addition, 2012
recorded improved performance in reference linked notes of CHF
147 million and real estate assets of CHF 35 million compared
with 2011. These increases were partly offset by higher losses on
municipal swaps and options of CHF 101 million. 2012 included
a credit loss expense of CHF 112 million mainly reflecting an im-
pairment charge related to certain student loan auction rate se-
curities, subsequently sold to reduce Basel III RWA, compared
with a credit loss recovery of CHF 25 million in 2011.
Operating expenses
Total operating expenses increased to CHF 861 million from CHF
276 million in the prior year, entirely due to higher charges for
provisions for litigation, regulatory and similar matters in 2012.
BIS risk-weighted assets
RWA measured on a Basel 2.5 basis increased by CHF 1 billion to
CHF 21 billion at the end of 2012, mainly resulting from rating
downgrades on certain portfolio positions, almost offset by sales
of certain student loan auction rate securities. Our pro-forma Ba-
sel III RWA decreased to CHF 38 billion as of 31 December 2012
from CHF 62 billion as of 31 December 2011, largely related to a
CHF 15 billion reduction due to the sale or liquidation of certain
CDO positions, a reduction of CHF 6 billion related to the sale of
student loan auction rate securities as well as exposure reductions
combined with model changes. This was partly offset by a transfer
from the Investment Bank to the Legacy Portfolio of CHF 11 bil-
lion of RWA for the Basel III CVA charge attributable to the Legacy
Portfolio.
Personnel
At the end of 2012, a total of 283 personnel were employed with-
in the SNB StabFund investment management team and the man-
agement team for the remainder of the Legacy Portfolio, com-
pared with 301 a year earlier.
128
2011
Results
The pre-tax result was a loss of CHF 866 million in 2011 com-
pared with a gain of CHF 777 million in 2010. This was primarily
due to a loss from the revaluation of our option to acquire the
SNB StabFund’s equity as well as a significant difference in the
net impact of CVA in the remainder of the Legacy Portfolio.
Operating income
Total operating income was negative CHF 591 million in 2011
compared with positive CHF 1,201 million in 2010. The revalua-
tion of our option to acquire the SNB StabFund’s equity resulted
in a loss of CHF 133 million in 2011 compared with a gain of
CHF 745 million in 2010.
Excluding the SNB StabFund option, total operating income
from the Legacy Portfolio was negative CHF 465 million com-
pared with positive CHF 456 million in 2010. In 2011 we recorded
a loss of CHF 284 million related to CVA for monoline credit pro-
tection compared with a gain of CHF 667 million in 2010. 2011
saw further losses in CDO. This movement was partly offset by a
positive variance in credit loss expense as 2011 included a credit
loss recovery of CHF 25 million compared with a credit loss ex-
pense of CHF 155 million in 2010, mainly due to reclassified and
acquired securities primarily related to impairments on our stu-
dent loan auction rate securities inventory.
Operating expenses
Total operating expenses decreased to CHF 276 million from CHF
424 million in 2010, predominantly due to lower personnel costs
following reduced staff levels, lower charges for services received
and decreased charges for provisions for litigation, regulatory and
similar matters.
Personnel
At the end of the year 2011, a total of 301 personnel were em-
ployed within the SNB StabFund investment management team
and the management team for the remainder of the Legacy
Portfolio compared with 372 a year earlier. The decrease of 71
personnel was mainly associated with the reduction of assets in
the unit.
129
Financial and operating performance Risk, treasury
and capital
management
Audited information according to IFRS 7 and IAS 1
Risk disclosures provided in line with the requirements of the International Financial Reporting Standard 7 (IFRS 7) Financial Instru-
ments: Disclosures, and disclosures on capital required by the International Accounting Standard 1 (IAS 1) Financial Statements:
Presentation form part of the financial statements audited by our independent registered public accounting firm Ernst & Young Ltd.,
Basel. This information (the audited texts, tables and graphs) is marked by a bar on the left-hand side 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, treasury and capital management
Risk management and control
Risk management and control
In line with the strategy of the firm, the structure of our risk profile has continued to shift during 2012. Having achieved
a significant decrease in the level of market risk in the past few years, looking forward we see our risk focus being
primarily on credit risk, operational risk and treasury-related risks.
– Credit risk comprises the vast majority of Basel III risk-weighted
assets. Our lending exposure arises mainly from our Swiss do-
mestic business, which offers corporate loans and mortgage
loans secured against residential properties and income-produc-
ing real estate, and is therefore tied to the health of the Swiss
economy (refer to page 140). Within the Investment Bank, our
credit exposure is predominantly investment grade, but includes
loan underwriting characterized by concentrated exposure to
lower-rated credits, albeit of a temporary nature (refer to page
141). Credit risk also arises from derivative activities, a signifi-
cant portion of which has been determined to be non-core and
therefore is being transferred to the Corporate Center and will
be run down. Credit risks within the Legacy Portfolio have been
significantly reduced and the remainder largely relates to deriva-
tives and securitized positions that we will continue to reduce.
– Operational risk, including the risk from pending or potential
litigation (refer to “Note 23 Provisions and contingent liabili-
ties” and “Risk factors” sections), remains a key focus, particu-
larly the delivery of remediation of identified operational risk
issues (refer to page 162).
– Treasury-related risks are associated with potential imbalances
in our asset and liability structure, including liquidity and fund-
ing risks arising from stressed market conditions or from firm-
specific factors.
Summary of key developments in 2012
The key developments that took place in 2012 with regard to risk
management and control include the following:
– The overall level of market risk decreased significantly and value-
at-risk halved to CHF 18 million at year-end. This was in line with
the implementation of our strategy to make the Investment
Bank more focused, less complex and less capital-intensive. The
remaining market risks predominantly arose from the Invest-
ment Bank Core activities, which may increase over time, and
non-core trading positions, which we will continue to reduce.
– Our credit portfolios saw net credit loss expenses totaling CHF
118 million, mainly related to sales of student loan auction rate
securities as part of the run-down of the Legacy Portfolio. Our
impaired loan portfolio decreased by CHF 0.6 billion to CHF
1.6 billion, mainly as a result of these sales. Although we envis-
age growth within our core lending businesses, credit risks aris-
ing from non-core positions will roll off or be reduced over
time and the preparations to transfer these risks to the Corpo-
rate Center were initiated.
– The implementation of the enhanced Operational Risk Frame-
work remained a primary focus. Reporting of significant risk
issues and the operational effectiveness of controls was
strengthened and substantial progress was made across our
risk remediation programs.
– Further progress was made in reducing our legacy positions.
This mainly resulted from commutations of monoline insur-
ance and sales of student loan auction rate securities. Net ex-
posure to monoline insurers after credit valuation adjustments
reduced from USD 1.2 billion to USD 0.6 billion. The remaining
exposure is hedged via single-name credit default swaps. Our
student loan auction rate securities portfolio reduced from
USD 5.7 billion to USD 4.1 billion.
– We maintained our strong liquidity and funding positions, end-
ing 2012 with a Basel III estimated pro-forma liquidity coverage
ratio and an estimated pro-forma net stable funding ratio com-
fortably above the regulatory requirements of 100%.
➔ Refer to the “Credit risk“, “Market risk“, “Operational risk“ and
“Liquidity and funding management“ sections of this report for
more information
Risk management and control principles
d
e
t
i
d
u
A
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
individual exposure levels, at specific portfolio levels and at an
aggregate firm-wide level across all risk types.
2. Protecting our reputation through a sound risk culture character-
ized by a holistic and integrated view of risk, performance and
reward, and through full compliance with our standards and
principles, particularly our Code of Business Conduct and Ethics.
3. Ensuring management accountability, whereby business man-
agement, as opposed to Risk Control, owns all risks assumed
throughout the firm and is responsible for the continuous and
active management 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
activities.
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5. Disclosure of risks to senior management, the Board of Direc-
tors (BoD), shareholders, regulators, rating agencies and other
stakeholders with an appropriate level of comprehensiveness
and transparency.
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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.
– 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 re-
sponsible for the management and control of UBS’s tax affairs
and for treasury and capital management, including manage-
ment and control of funding and liquidity risk and UBS’s regu-
latory capital ratios. Responsibility for implementation of the
control framework for tax resides with the Group CFO whereas
responsibility for implementation of the control framework for
treasury activities is with Risk Control.
– The Group General Counsel is responsible for implementing
the firm’s risk management and control principles for legal and
compliance matters.
Risk management and control responsibilities
Risk categories
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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 prin-
ciples, risk appetite and major portfolio limits, including their
allocation to the business divisions. The risk assessment and
oversight of management performed by the BoD considers
evolving best practices and is intended to conform to statutory
requirements, as is the related disclosure in this section. The
BoD 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
Committee also assesses and approves the firm’s key risk mea-
surement 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, as well as the head of
our Non-core and Legacy Portfolio, are accountable for the re-
sults of their business divisions. This includes actively managing
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 Control
throughout the firm. Risk Control provides independent over-
sight of risk and is responsible for implementing the risk control
processes for credit, country, market, investment, treasury and
operational risk. 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 risks faced by our businesses can be broken down into three
different categories: primary risks, operational risks and business
risks. All three categories may impact the firm’s reputation.
Primary and operational risks result from our business activities
and are subject to independent risk control, whereas business
risks are managed by divisional and firm-wide management. Pri-
mary risks are credit risk, market risk and treasury risk, as well as
country risk and issuer risk. Operational risks include legal, com-
pliance and tax risk and other risk categories. Business risks may
arise from the commercial, strategic and economic risks inherent
in our business activities.
Primary and operational risks are defined as follows:
– Credit risk – the risk of loss resulting from the failure of a client
or counterparty to meet its contractual obligations.
– Issuer risk – the potential total loss that would occur on a trad-
able name (position or group of tradable positions) if an issuer
or issuer group to which UBS is exposed were subject to a
credit event. The potential loss arises not only from the value of
securities issued by the name but also from any other obliga-
tions in tradable form which are referenced to the name (in-
cluding derivatives and basket securities).
– Market risk – the risk of loss resulting from changes in market
variables, whether to our trading positions or financial invest-
ments.
– Treasury risk – the risk that the firm fails to manage its funding,
balance sheet, capital and liquidity resources as well as the
market and issuer risk arising from treasury activities.
– 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.
– Operational risk – the risk resulting from inadequate or failed
internal processes, people and systems, or from external causes.
Events may cause direct financial losses or indirect consequences
in the form of revenue forgone as a result of business suspen-
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sion. They may also result in damage to our reputation and to
our franchise, which have longer-term financial consequences.
Risk measurement
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 Chief Risk Officer and Group
Chief Financial Officer organizations.
The base measures are position level market risk sensitivities
and credit risk exposures which, in aggregate, provide an over-
view of our risk across positions. These measures are supplement-
ed with portfolio level statistical and stress loss measures, which
are two complementary types of risk measures we use to assess
potential 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 pe-
riod at an established level of confidence, and is comprised of core
statistical measures complemented by management assessment.
➔ Refer to the “Credit risk”, “Market risk” and “Operational risk”
sections of this report for a description of our key statistical loss
measures
Stress loss
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 informed by past events but also include
forward-looking elements. The stress scenarios for trading risks
capture the liquidity characteristics of different markets and posi-
tions. For example, our stress frameworks include 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
euro zone crisis and a severe global recession triggered by severe
market events similar to those observed in 2008. These stress tests
are based on forward-looking market events and macroeconomic
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 risks, operational risks, other consequential risks (e.g.
structural foreign exchange risk) and business risks is assessed
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 should be applied to a
firm’s positions. Consequently, comparisons of stress results be-
tween 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
that we seek to maintain, even after experiencing severe losses
over a defined time horizon. The risk appetite objectives are ap-
proved by the BoD.
In order to monitor our risk profile against our risk appetite, we
use two complementary firm-wide risk measurement frameworks:
one statistical, comprising the metrics earnings-at-risk (EaR) and
capital-at–risk (CaR), and the other a scenario-based combined
stress test (CST). Both frameworks seek to capture risks across all
of our business divisions and from all major risk categories, includ-
ing primary risks, operational risks, other consequential risks (e.g.
structural foreign exchange risk) and business risks. The firm-wide
risk metrics have a central place in our risk control, capital man-
agement and business planning processes, and can be summa-
rized as follows:
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– 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.
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– CaR extends EaR to consider the impact on BIS tier 1 capital of
a more severe earnings shortfall and is measured at confidence
levels from 95% to 99.9%.
– CST evaluates the potential impact of specific stress scenarios
across our risk portfolios, as described in the “Stress loss” sec-
tion above, from which the impact on our earnings and capital
is assessed.
For each risk appetite objective, aggregate risk exposure as
measured by our firm-wide risk metrics is compared to risk capac-
ity, which is based on our capital and forecasted earnings. Overall
risk appetite is expressed through a defined risk capacity for each
objective, which thus sets an upper limit on aggregate risk expo-
sure. The comparison of risk exposure to risk capacity is a key
consideration in management decisions on potential adjustments
to the risk profile of our firm. The risk appetite objectives are eval-
uated each year in the context of the prospective business plans.
The risk limit framework reflects the risk appetite as expressed
through the approved risk appetite objectives, but also takes pre-
vailing operating conditions into account.
As of 1 January 2013 the risk appetite objectives consider the
impact of our specified stress events on Basel III CET1 capital. Spe-
cifically, we have set as an objective that the Basel III CET1 phase-
in capital ratio remains at 10% or above if a severe stress event
were to occur, for which we consider both the prevailing CST
stress scenarios and the statistical CaR metric at a 95% confi-
dence level. In both cases, we apply a one-year time horizon dur-
ing which we model how the risks, earnings and costs of the firm
will evolve. All elements that impact income, regulatory capital
(including planned dividends and other capital distributions) and
RWA are included in the assessment. In addition, we have set as
an objective that available Basel III CET1 capital plus outstanding
loss-absorbing notes are sufficient to absorb losses from an ex-
treme 99.9% worst-case CaR stress event. The strategic plan ap-
proved by the BoD on 29 October 2012 is consistent with the
achievement of these objectives. It is our intention to use fully
applied Basel III CET1 as the capital measure for the purpose of
the risk appetite framework by 2015.
➔ Refer to the “Capital” section of this report for more information
Risk concentrations
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A risk concentration exists where (i) a position in financial instru-
ments is affected by changes in a group of correlated factors, or a
group of positions are affected by changes in the same risk factor
or a group of correlated factors, and (ii) the exposure could, in the
event of large but plausible adverse developments, result in sig-
nificant losses.
The identification of risk concentrations requires judgment, as
potential future developments cannot be predicted and may vary
from period to period. In determining whether we have a risk
concentration, we consider a number of elements, both individu-
ally and collectively. These elements include: the shared character-
istics of the instruments and counterparties; the size of the posi-
tion or group of positions; the sensitivity of the position or group
of positions to changes in risk factors; and the volatility and cor-
relations of those factors. Also important in our assessment is the
liquidity of the markets where the instruments are traded, and the
availability and effectiveness of hedges or other potential risk-
mitigating factors. The value of a hedge instrument may not al-
ways move in line with the position being hedged, and this mis-
match is referred to as basis risk.
Risk concentrations are subject to increased monitoring by
Risk Control and assessed to determine whether they should be
reduced or mitigated depending on the available means to do so.
It is possible that material losses could occur on asset classes,
positions and hedges, particularly if the correlations that emerge
in a stressed environment differ markedly from those we antici-
pated. We are exposed to price risk, basis risk, credit spread risk
and default risk as well as other idiosyncratic and correlation risks
on both our equities and fixed income inventories. In addition,
we have lending, counterparty and country risk exposures that
could result in significant losses if economic conditions were to
change.
➔ Refer to the “Credit risk”, “Market risk” and “Operational risk”
sections of this report for more information on the risks to which
we are exposed
Risk disclosures
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 determination
of our required regulatory capital
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Risk management and control
Credit risk
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Credit risk is the risk of loss resulting from the failure of a client or
counterparty to meet its contractual obligations. This includes
settlement risk, an example of which would be a counterparty
failing to deliver the counter-value of a foreign exchange trans-
action 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
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 de-
rivatives, as well as securities financing transactions such as re-
purchase agreements (repos and reverse repos), securities
borrowing and lending transactions. The same general risk con-
trol processes are applied to these products, although the ac-
counting treatment may vary, as products may be carried at am-
ortized cost (loans and receivables), at fair value through profit
and loss (instruments held for trading, instruments designated at
fair value) or at fair value through other comprehensive income
(available-for-sale instruments) depending on the product type
and the nature of the exposure. Securities and other obligations
in tradable form also pose credit risk, as their fair values are af-
fected by changing expectations regarding the probability of is-
suers failing to meet these obligations or when issuers actually
fail to meet these obligations. Where these securities and obliga-
tions are held in connection with a trading activity, we view the
risk as an issuer risk. Debt securities 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, Wealth Management Americas, Retail &
Corporate, the Investment Bank and the Corporate Center –
Legacy Portfolio expose us to credit risk. Credit risk exposures
also arise from our Global Asset Management business, albeit to
a lesser extent.
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.
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In the Investment Bank, a distinction is made between expo-
sures intended to be held to maturity (take-and-hold exposures)
and those which are intended to be held for a short term, pending
distribution or risk transfer (temporary exposures).
Credit risk concentrations can arise if clients are engaged in
similar activities, are located in the same geographical region or
have comparable economic characteristics, for example if their
ability to meet contractual obligations would be similarly affected
by changes in economic, political or other conditions. To avoid
credit risk concentrations, we establish limits and / or operational
controls 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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Risk mitigation
We actively manage the credit risk in our portfolios by taking col-
lateral against exposures and utilizing credit hedging. In Wealth
Management, Wealth Management Americas and Retail & Cor-
porate, 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 mort-
gages on business premises or other real estate. We apply mea-
sures 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 mar-
ket value of the collateral reflecting the quality, liquidity and vola-
tility of the underlying collateral. Exposure and collateral values
are continuously monitored, and margin calls or close-out proce-
dures are enforced when the market value of collateral falls below
a predefined trigger level. Concentrations within individual col-
lateral 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 IS-
DA-equivalent master netting agreements, which allow for the
close-out and netting of all transactions in the event of default.
For certain major market participant counterparties like hedge
funds, we may also use two-way collateral agreements 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. 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 rele-
vant jurisdictions in the case of insolvency.
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Primarily in the Investment Bank and for the Corporate Center
– Legacy Portfolio, we actively manage the credit risk of our port-
folios with the aim of reducing concentrations of risk from spe-
cific 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 un-
der bilateral netting and collateral agreements with high-grade
market counterparties. We observe strict standards for recogniz-
ing credit hedges. For example, when monitoring exposures
against limits, we do not usually recognize credit risk mitigants
such as proxy hedges (credit protection on a correlated but differ-
ent name) or index CDS. Buying credit protection creates credit
exposure against the hedge provider. We monitor our exposures
to credit protection providers and the effectiveness of credit
hedges as part of our overall credit exposures to the relevant
counterparties. In addition, we identify and monitor positions
where we believe there is significant exposure and correlation
between 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 benefits within counterparty limits and
capital calculations.
➔ 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.
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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
categories of counterparties. These categories are also calibrated
to our internal credit rating scale (masterscale), which is designed
to ensure a consistent assessment of default probabilities across
counterparties. We regularly assess the performance of our rat-
ing tools and adjust our model parameters as necessary. In addi-
tion to using ratings for credit risk measurement, we use them
as an important input for determining credit risk approval au-
thorities.
In the Investment Bank and for the Corporate Center – Legacy
Portfolio, rating tools are applied to broad segments including
banks, sovereigns, corporates, funds, hedge funds and commer-
cial real estate. We determine our choice of the relevant assess-
ment criteria, for example, financial ratios and qualitative factors,
for the rating tools on the basis of various statistical analyses, ex-
ternally available information and expert judgment.
Within Retail & Corporate, we rate our business and corporate
clients in the small to medium enterprise segment using statisti-
cally developed scorecards. The underlying data used in our score-
cards is predominantly based on a combination of clients’ finan-
cial information, qualitative criteria and credit loss history over
several years. To rate our large corporate clients domiciled in Swit-
zerland, Retail & Corporate 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 into account loan-to-value ra-
tios and debt service capacity of the obligor. 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 be-
come 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.
During the third quarter of 2012 we recalibrated the internal
ratings for counterparties in several of our portfolios, extending
the sample of historical defaults to take into account observations
further back in time than had been considered previously. The
extension of the sample reduces the pro-cyclicality of the rating
tools. This resulted in some internal ratings changing, a generally
downward shift in the ratings of counterparties within our Swiss
mortgage portfolio and a generally upward shift in the ratings of
counterparties within the corporate portfolio.
The ratings of the major credit rating agencies, and their map-
ping to our internal rating masterscale, are shown in the “Internal
UBS rating scale and mapping of external ratings” table. The
Internal UBS rating scale and mapping of external ratings
Internal
UBS rating
Moody’s Investors
Service mapping
Standard & Poor’s
mapping
Description
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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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 with our internal
default probability bands to derive a mapping to our internal rat-
ing scale. Our internal rating of a counterparty may, therefore,
diverge 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.
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 de-
rive 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
securities financing transactions, we assess the net amount that
may be owed to us or that we may owe to others, taking into ac-
count 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 margins. 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 collater-
alized 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 with 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 mitigate 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 aver-
age annual costs we expect to experience from positions in our
current credit portfolio that become impaired. The expected loss
for a given credit facility is a function of the three components
described above: probability of default, EaD and LGD. We aggre-
gate the expected loss for individual 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.
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 to the
statistical uncertainty on the defaulting counterparties and to sys-
tematic default relationships among counterparties within and
between segments. The statistical measure is sensitive to concen-
tration risks on individual counterparties and groups of counter-
parties. 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 to monitor
and limit the potential impact of extreme, but nevertheless plau-
sible events on our portfolios and apply limits on this basis.
138
Composition of credit risk – 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 and Corporate Cen-
ter” table shows a breakdown of our banking and traded product
exposures before and after allowances and provisions for credit
losses, credit valuation adjustments (CVA) on traded products and
single-name credit hedges. The effect of portfolio hedges, such as
index CDS, is not reflected in this analysis. Banking product expo-
sures are shown on an amortized cost-basis, guarantees and loan
commitments on a notional basis, without applying credit conver-
sion factors. Exposures to OTC derivatives are generally shown in
the tables as net positive replacement values (RV) after the appli-
cation of legally enforceable netting agreements and the deduc-
tion 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 financing exposures are shown
net of the collateral received.
Our lending businesses saw increased levels of exposure in
2012. Total gross credit exposure amounted to CHF 496 billion on
31 December 2012 compared with CHF 476 billion at the end of
2011. Our banking product exposures increased to CHF 440 bil-
lion from CHF 394 billion, mainly due to increases in the balances
with central banks and in the loan books of Wealth Management
and Wealth Management Americas. Our traded products expo-
sures, which arise largely in our Investment Bank, declined by CHF
26 billion to CHF 56 billion.
Additional information on the composition and credit quality
of our Wealth Management and Retail & Corporate loan port-
folios and the Investment Bank’s banking products and OTC de-
rivatives portfolios is provided further on in this section.
➔ 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 25 Derivative instruments and hedge accounting“
and “Note 29a Measurement categories of financial assets
and liabilities“ in the “Financial information” section of this
report for the IFRS required disclosures on derivatives and
credit risk
d
e
t
i
d
u
A
Credit exposure by business division and Corporate Center
Wealth Management
Wealth Management
Americas
Investment Bank
Global Asset
Management
Retail & Corporate
Corporate Center 1
Group
CHF million
31.12.12 31.12.11 31.12.12 31.12.11 31.12.12 31.12.11 31.12.12 31.12.11 31.12.12 31.12.11 31.12.12 31.12.11 31.12.12 31.12.11
Balances with
central banks
Due from banks
Loans 2
Guarantees
Loan commitments
Banking products 3
OTC derivatives
Exchange-traded
derivatives
Securities financing
transactions
413
1,039
1,165
11,260
555
2,298
2,161
1,594
86,581
75,056
31,250
27,894
2,326
1,574
2,641
1,220
406
1,214
406
21,049
15,521
16,288
6,074
31,743
18,182
13,942
5,551
1,076
48,755
46,763
91,932
80,637
46,428
33,131 107,686 116,181
2,884
3,869
57
74
23,848
38,748
779
817
814
877
5,545
7,938
Traded products
3,663
4,686
154
1,025
155
1,106
14,462
43,855
20,051
66,737
Total credit
exposure
Total credit
exposure, net 4
95,595
85,323
47,453
34,238 151,541 182,918
95,554
85,278
47,436
34,235 128,197 154,349
155
317
2,173
2,713
2,205
3,840
141 137,344 135,320
29,224
599
4,420
1,135
338
64,119
22,513
38,565
24,826
4,625 275,973 256,977
10,042
6,787
9,156
6,735
12
39
129
164
18,860
58,369
17,884
55,958
613 159,059 157,256
34,295
6,390 439,834 394,209
330
1,406
1,839
4,306
7,011
32,787
51,871
61
167
7,199
9,799
330
1,467
2,006
1,072
5,377
3
7,014
15,687
55,673
20,209
81,880
943 160,526 159,262
39,672
13,404 495,506 476,088
943 159,826 158,198
38,547
10,328 470,279 443,331
343
91
433
286
286
719
719
1 Includes the Legacy Portfolio. 2 Does not include reclassified securities and similar acquired securities in our Legacy Portfolio. 3 Excludes loans designated at fair value. 4 Net of allowances, provisions, CVA and
hedges.
139
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Swiss residential mortgage loans
Our largest loan portfolio is our mortgage loan portfolio, which
principally comprises loans within Switzerland which are secured
by residential and commercial real estate. These mortgage loans
mainly originate from our Retail & Corporate business but also
include mortgage loans originating from our Wealth Manage-
ment business. The majority of these mortgage loans relate to
residential properties that the borrower either occupies or rents
out and are full recourse to the borrower.
We use a scoring model as part of a standardized front-to-back
process to support credit decisions for the origination or modifica-
tion of all Swiss mortgage loans. The two key factors within this
model are an affordability calculation relative to gross income and
the loan-to-value ratio (LTV). The calculation of affordability takes
into account interest payments, minimum amortization require-
ments, potential property maintenance costs and, in the case of
properties expected to be rented out, the level of rental income.
Interest payments are estimated using a predefined framework,
which takes into account the potential for significant increases in
interest rates during the lifetime of the loan.
Approximately 70% of the Swiss residential mortgage loan
portfolio relates to properties occupied by the borrower. For such
mortgage loans, the maximum LTV allowed within the standard
approval process is 80%. This is reduced to 60% in the case of
vacation properties and luxury real estate. The value assigned by
UBS to each property is based on the lowest value determined
based on an internal valuation, the purchase price and, in some
cases, an additional external valuation. Valuations of owner-occu-
pied real estate are reviewed and updated throughout the lifetime
of the loan, typically using real estate price indices. The average
LTV ratio of this portfolio was approximately 55% at 31 Decem-
ber 2012 compared with 58% at 31 December 2011. Over 99%
of the aggregate amount of mortgage loans within this portfolio
would continue to be covered by the real estate collateral even if
the value assigned to that collateral were to decrease by 20%.
Furthermore, these loans are full recourse to the borrower. The
average LTV for 2012 of newly originated loans in this portfolio
was 63%.
Approximately 30% of the Swiss residential mortgage loan
portfolio relates to properties rented out by the borrower. For
such mortgage loans, the maximum LTV allowed within the stan-
dard approval process ranges from 60% to 80%, depending on
the type of property, the age of the property and the amount of
any renovation work required. LTVs are reviewed and updated
periodically throughout the lifetime of the loan. The rental income
from properties is reviewed, at a minimum, once every three
years, but indications of significant changes in the amount of
rental income or the level of vacancy rate can trigger an interim
reappraisal. The average LTV ratio of this portfolio was approxi-
mately 58% at 31 December 2012 compared with 59% at 31 De-
cember 2011. Over 99% of the aggregate amount of mortgage
loans within this portfolio would continue to be covered by the
real estate collateral even if the value assigned to that collateral
were to decrease by 20%. Furthermore, these loans are full re-
course to the borrower. The average LTV for 2012 of newly origi-
nated loans in this portfolio was 56%.
Composition of credit risk – business divisions and
Corporate Center
Wealth Management
The total gross banking products exposure of Wealth Manage-
ment increased to CHF 92 billion on 31 December 2012 com-
pared with CHF 81 billion on 31 December 2011, in line with our
strategy.
Our Wealth Management loan portfolio is mainly secured by
marketable securities, residential property and cash (including cer-
tain fiduciary investments) as outlined in the table “Wealth Manage-
ment and Retail & Corporate: composition of loan portfolio, gross”.
The majority of loans secured by securities were of high quality, with
91% (94% on 31 December 2011) rated investment grade.
Wealth Management Americas
The total gross banking products exposure of Wealth Manage-
ment Americas increased to CHF 46 billion on 31 December 2012
compared with CHF 33 billion on 31 December 2011. This expo-
sure largely relates to loans secured by marketable securities (CHF
27.6 billion), residential mortgage loans (CHF 3.5 billion) and
credit cards (CHF 0.2 billion).
The majority of loans secured by marketable securities were of
high quality, with 87% (88% in 2011) 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 3.5 billion as of 31 December
2012 from CHF 1.8 billion the prior year. The overall quality of this
portfolio remains high with an average loan-to-value ratio (LTV) of
58% 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 152 million on 31 December
2012 compared with CHF 135 million in the prior year.
Investment Bank
The table “Investment Bank: banking products and OTC deriva-
tives exposure” shows the Investment Bank’s banking products
(loans, guarantees and loan commitments) and OTC derivatives
portfolios, gross and net of allowances, provisions, credit valua-
tion adjustments (CVA) and single-name credit hedges based on
our internal risk view. The effect of portfolio hedges, such as
index CDS, is not reflected in this analysis. The gross banking
product exposures shown in this table exclude exposure to central
banks, due from banks, nostro accounts and money market bal-
ances, which are included in the “Credit exposure by business
division and Corporate Center” table. The Investment Bank’s net
banking products exposure increased to CHF 56.0 billion as of
31 December 2012 from CHF 47.6 billion at the end of 2011. The
Investment Bank continued to actively manage the credit risk of
this portfolio and, as of 31 December 2012, held CHF 20.6 billion
of single-name CDS hedges against its exposures to corporates
140
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
31.12.12
76,673 2
(51)
31.12.11
70,606 2
(75)
(20,619)
(22,886)
56,003
47,645
31.12.12
31.12.11
23,848
(559)
(2,005)
21,285
38,748
(981)
(4,513)
33,254
1 Banking products: risk view, excludes balances with central banks, due from banks and internal risk adjustments; OTC derivatives: net replacement value includes the impact of netting agreements (including cash
collateral) in accordance with Swiss federal banking law. 2 Banking products including money market and nostro accounts amount to CHF 107,686 million (31 December 2011: CHF 116,181 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 rating
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
BB+ to B+
B2 to Caa
B to CCC
of which:13 and defaulted
Ca and lower CC and lower
Net banking products exposure,
after application of credit hedges 1
31.12.12
LGD buckets
Exposure
0–25%
26–50%
51–75% 76–100%
35,075
20,928
14,139
6,590
199
9,875
12,017
9,104
2,805
108
17,035
6,632
3,937
2,621
75
2,679
1,573
847
710
16
5,486
705
251
454
0
56,003
21,892
23,667
4,252
6,191
31.12.11
Weighted
average
LGD (%)
47
31
35
27
20
42
Exposure
30,326
17,318
9,686
7,112
520
47,645
Weighted
average
LGD (%)
44
25
22
32
21
37
1 Banking products: risk view, excludes balances with central banks, due from banks 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 rating
Investment grade
Sub-investment grade
of which: 6–9
of which: 10–12
Moody’s
Investors
Service
mapping
Standard &
Poor’s
mapping
31.12.12
LGD buckets
Exposure
0–25%
26–50%
51–75% 76–100%
Aaa to Baa3 AAA to BBB-
20,008
5,210
12,609
1,339
Ba1 to B1
BB+ to B+
B2 to Caa
B to CCC
1,276
1,131
41
104
649
600
4
45
375
289
31
55
51
44
5
2
850
201
198
1
2
of which:13 and defaulted
Ca and lower CC and lower
Net OTC derivatives exposure,
after application of credit hedges 1
21,285
5,859
12,984
1,390
1,051
1 OTC derivatives: net replacement value includes the impact of netting agreements (including cash collateral) in accordance with Swiss federal banking law.
31.12.11
Weighted
average
LGD (%)
32
53
59
45
31
34
Exposure
31,374
1,879
1,464
117
297
33,254
Weighted
average
LGD (%)
34
34
34
41
30
34
141
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
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
31.12.12
31.12.11
31.12.12
5,540
1,336
3,944
16,211
8,127
5,959
2,841
2,046
3,543
6,456
5,082
1,866
3,760
13,145
6,307
5,990
1,264
1,791
4,041
4,398
7,947
224
463
8,823
331
114
1,992
54
601
736
31.12.11
10,935
188
252
15,764
626
211
3,585
43
943
707
56,003
47,645
21,285
33,254
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 collat-
eral) in accordance with Swiss federal banking law.
Investment Bank: net banking products and OTC derivatives exposure by geographical region
CHF million
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Total
Banking products
OTC derivatives
31.12.12
31.12.11
31.12.12
31.12.11
4,158
210
278
40,798
257
10,301
56,003
4,259
653
271
33,771
758
7,932
47,645
3,499
186
755
6,524
864
9,457
21,285
3,345
201
433
9,293
1,263
18,718
33,254
and other non-banks down from CHF 22.9 billion at the end of
2011. In addition the Investment Bank held CHF 403 million of loss
protection from the subordinated tranches of structured credit
protection which is not reflected in the table.
Further breakdowns are provided within the table “Investment
Bank: distribution of net banking products exposure, across inter-
nal UBS ratings and loss given default (LGD) buckets”. At the end
of the year, and based on internal ratings, approximately 63% of
the Investment Bank’s net banking products exposure was classi-
fied as investment grade compared with 64% at the end of the
prior year. The majority of the Investment Bank’s net banking prod-
ucts exposure had estimated loss given defaults of between 0% to
50%. The Investment Bank’s lending activities are largely associat-
ed with corporates and other non-banks, which is broadly diversi-
fied across industry sectors, but concentrated in North America.
The Investment Bank’s net OTC exposure decreased to CHF
21.3 billion as of 31 December 2012 from CHF 33.3 billion at
the end of 2011. Approximately 94% of the Investment Bank’s
net OTC derivatives portfolio was traded with counterparties
rated investment grade, the vast majority of which were banks
and regulated financial institutions with which trading was con-
ducted primarily on a collateralized basis. The tables shown on
the previous and on this page provide additional analysis of the
portfolio by our internal rating and LGD, by industry sector and
by geographical region.
➔ Refer to “Note 29b) Reclassification of financial assets” in the
“Financial information” section of this report for more informa-
tion on reclassified securities
Retail & Corporate
The total gross banking products exposure of Retail & Corporate
was CHF 159 billion on 31 December 2012 compared with CHF
157 billion on 31 December 2011. Approximately 70% of Retail &
Corporate’s banking product portfolio is rated investment grade,
with over 80% of this portion categorized in the lowest LGD
bucket of 0–25%.
Retail & Corporate’s gross loan portfolio increased to CHF
137 billion, from CHF 135 billion in the prior year. The composi-
tion of the Retail & Corporate loan portfolio was largely un-
changed over the year. At year-end 2012, 92% of this portfolio
was secured by collateral and, based on our internal ratings,
54% of the unsecured loan portfolio was rated investment grade.
Furthermore, 60% of the unsecured portfolio related to cash
flow-based lending to corporate counterparties compared with
61% on 31 December 2011, and 22% to lending to public au-
thorities compared with 23% on 31 December 2011.
142
Wealth Management and Retail & Corporate: composition of loan portfolio, gross
CHF million, except where indicated
31.12.12 1
31.12.11
31.12.12
31.12.11
Wealth Management
Retail & Corporate
Secured by residential property
Secured by commercial / industrial property
Secured by cash
Secured by securities
Secured by guarantees and other collateral
Unsecured loans
Total loans, gross
Total loans, net of allowances and credit hedges
30,829
1,972
12,235
34,973
6,265
307
86,581
86,540
%
35.6
2.3
14.1
40.4
7.2
0.4
100.0
28,467
1,805
10,000
26,718
8,010
55
75,056
75,011
%
37.9
2.4
13.3
35.6
10.7
0.1
100.0
98,681
19,861
173
1,414
5,875
11,340
137,344
136,770
%
71.8
14.5
0.1
1.0
4.3
8.3
100.0
96,172
19,542
637
1,327
5,285
12,356
135,320
134,561
%
71.1
14.4
0.5
1.0
3.9
9.1
100.0
1 Exposures as of 31 December 2012 reflect a refined reporting process for allocating Wealth Management loans to the secured and unsecured categories and are therefore not directly comparable to the prior period
exposures.
Retail & Corporate: distribution of net banking products exposure across internal UBS ratings and
loss given default (LGD) buckets
CHF million, except where indicated
Internal UBS rating
Investment grade
Sub-investment grade
of which: 6–9
of which: 10–12
of which: 13
Total non-defaulted
Defaulted 1
Net banking products exposure 2
Moody’s
Investors
Service
mapping
Standard &
Poor’s
mapping
Exposure
Aaa to Baa3
AAA to BBB-
109,221
Ba1 to B1
B2 to Caa
BB+ to B+
B to CCC
Ca and lower CC and lower
47,971
45,704
1,916
351
31.12.12
LGD buckets
0–25%
92,245
38,557
36,614
1,598
345
26–50%
51–75% 76–100%
15,953
7,067
6,764
297
5
1,014
1,283
1,264
18
0
9
1,064
1,062
2
0
157,192
130,802
23,020
2,297
1,073
1,168
158,359
Weighted
average
LGD (%)
10
15
16
14
6
12
31.12.11
Weighted
average
LGD (%)
10
15
15
15
6
12
Exposure
104,748
50,314
47,922
2,132
261
155,062
1,130
156,192
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 610 million (31 December 2011:
CHF 665 million) and credit hedges of CHF 90 million (31 December 2011: CHF 400 million) is CHF 159,059 million (31 December 2011: CHF 157,256 million).
Retail & Corporate: unsecured loans by industry sector
CHF million
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other
Total
31.12.12
31.12.11
108
1,106
51
1,921
1,578
2,562
430
1,818
1,289
478
120
882
252
2,165
1,730
2,906
1,110
1,520
1,454
218
11,340
12,356
143
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Corporate Center – Legacy Portfolio
The loans of CHF 11.7 billion in our Legacy Portfolio predomi-
nantly comprise assets that were reclassified in the fourth quarter
of 2008 and in the first quarter 2009 from Held for trading to
Loans and receivables, student loan auction rate securities and
our loan to the RMBS Opportunities Master Fund, LP, a special
purpose entity managed by BlackRock Financial Management Inc.
The net replacement value of our OTC contracts within the
Legacy Portfolio after application of master netting agreements,
hedges, allowances and credit valuation adjustments was CHF 3.2
billion at year-end 2012.
Loan to BlackRock fund
In the second quarter of 2008, we sold a portfolio of US residen-
tial mortgage-backed securities (RMBS) for USD 15 billion to the
RMBS Opportunities Master Fund, LP (RMBS fund), a special pur-
pose entity managed by BlackRock Financial Management, Inc.
The RMBS fund was capitalized with approximately USD 3.75 bil-
lion in equity raised by BlackRock from third-party investors and
an eight-year amortizing USD 11.25 billion senior secured loan
provided by UBS.
The RMBS fund amortizes the loan through monthly pay-
ments 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 portfolio, and we may assume control of the underlying as-
sets in the event of a further specified decline in the notional
balance.
As of 31 December 2012, the loan had a balance outstanding
of USD 3.6 billion compared with USD 4.7 billion on 31 December
2011, taking into account amounts held in escrow. The aggregate
notional balance of the RMBS fund’s assets collateralizing the loan
on 31 December 2012 was USD 9.7 billion. By notional balance,
the portfolio is primarily comprised of Alt-A (53%) and sub-prime
(34%) credit grades. In terms of priority, the portfolio was domi-
nated by senior positions (97%).
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
the equity investors in the fund no longer control it. We also con-
tinue to assess the loan to the RMBS fund to determine whether
it has been impaired. Developments through the year ended
31 December 2012 have not altered our conclusion that the loan
is not impaired and that consolidation is not required.
d
e
t
i
d
u
A
Exposure to student loan auction rate securities
Our overall exposure to student loan auction rate securities (ARS)
was reduced by USD 1.6 billion to USD 4.1 billion on 31 Decem-
ber 2012 following sales during the year.
At the end of 2012, 88% 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.
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
31.12.12
4,110 1
4,062
47
31.12.11
5,683
5,154
529
1 Includes USD 1.8 billion (CHF 1.6 billion) at carrying value of student loan ARS that were reclassified to Loans and receivables from Held for trading in the fourth quarter of 2008. Refer to “Note 29b) Reclassification
of financial assets” in the “Financial information” section of this report for more information.
Exposure to monoline insurers, by rating 1
USD million
Credit protection bought from monoline insurers, by rating 3
of which: from monolines rated investment grade (BBB and above)
of which: from monolines rated sub-investment grade (BB and below)
Total 31.12.12
Total 31.12.11
31.12.12
Notional amount 2
Column 1
Fair value of CDS
CVA
Fair value of CDS
after CVA
Column 2
Column 3
Column 4 (=2–3)
1,130
4,599
5,729
7,714
291
684
975
2,825
66
277
343
1,597
225
407
633
1,228
1 Excludes the benefit of credit protection purchased from unrelated third parties. 2 Represents gross notional amount of credit default swaps (CDS) purchased as credit protection. 3 Categorization based on the lowest
insurance financial strength rating assigned by external rating agencies.
144
d
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i
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Exposure to monoline insurers
All our exposure to monoline insurers is within the Legacy Port-
folio and arises from credit default swap (CDS) protection pur-
chased to hedge specific positions. The table “Exposure to mono-
line insurers, by rating” shows the CDS protection purchased
from monoline insurers, calculated as the sum of the fair values of
individual CDS after credit valuation adjustments (CVA).
d
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i
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The total fair value of CDS protection purchased from mono-
line insurers decreased from USD 1.2 billion to USD 0.6 billion
after cumulative CVA of USD 0.3 billion. This reduction was
largely a result of trade commutation on monoline exposures. This
exposure is materially hedged with single-name credit default
swaps.
➔ Refer to the “Non-trading portfolios – valuation and sensitivity
information by instrument category” section below for more
information
d
e
t
i
d
u
A
d
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t
i
d
u
A
Impairment and default – distressed claims
With respect to distressed claims resulting from banking products,
we distinguish between loans that are “past due” and those that
are “impaired”. We also assess claims from securities financing
transactions for default and impairment using the same principles
and processes we use for banking products.
We consider a loan to be past due when a contractual pay-
ment has not been received by its contractual due date. Past due
but not impaired loans are those that have suffered missed pay-
ments, 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.
A loan is considered impaired when management determines
that it is probable that we will not be able to collect all amounts
due (or the equivalent value thereof) based on the original con-
tractual terms. Individual credit exposures are evaluated based on
the borrower’s character, overall financial condition, resources
and payment record; the prospects for support from any finan-
cially responsible guarantors; and, where applicable, the realiz-
able value of any collateral.
Loans in arrears for 90 days are evaluated individually for im-
pairment. 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. Any event that
impacts current and future cash flows may be an indication of
impairment and trigger an assessment by the risk officer. Such
events may be: (i) past due and non-performing status of credit
exposures, (ii) significant collateral shortfalls due to a fall in lend-
ing values (securities and real estate), (iii) increase in loan or de-
rivative exposures, (iv) significant financial difficulties of a client,
(v) high probability of bankruptcy, (vi) debt moratorium, (vii) finan-
cial restructuring including granting of preferential interest rates
and (viii) extension of maturity or even partial forgiveness to pre-
vent a credit default.
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 in accord-
ance with our credit authorities.
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
claims that cannot yet be identified. 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 allowances based on the estimated
loss for the portfolio over the average period between trigger
events and the identification of individual impairment. Collective
loan loss allowances of this kind typically apply to our retail and
corporate portfolio.
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 this section.
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 glob-
al economic drivers to assess the most vulnerable countries and
review the impact of any potential impairment event.
The recognition of impairment in our financial statements de-
pends on the accounting treatment of the claim. For products
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 1 Significant accounting policies” and “Note 27a)
Valuation principles” in the “Financial information” section of
this report for more information on credit valuation adjustments
Impaired loans, allowances and provisions
The credit risk exposures reported in the 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 114 mil-
145
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Allowances and provisions for credit losses 1
CHF million, except where indicated
Group
Balances with central banks
Due from banks
Loans
of which: related to Legacy Portfolio 4
of which: related to other loans
Guarantees
Loan commitments
Banking products
Wealth Management
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Banking products
Wealth Management Americas
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Banking products
Investment Bank
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Banking products
Global Asset 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
Corporate Center
Balances with central banks
Due from banks
Loans
of which: related to Legacy Portfolio 4
Guarantees
Loan commitments
Banking products
IFRS exposure, gross
31.12.11
31.12.12
Impaired exposure 2
31.12.12
31.12.11
Specific allowances and
provisions for credit losses 3
31.12.11
31.12.12
Estimated liquidation
proceeds of collateral
31.12.11
31.12.12
Impairment ratio (%)
31.12.11
31.12.12
56
1,550
113
1,437
76
68
1,749
20
2,135
572
1,563
94
70
2,318
55
55
15
15
11
412
49
61
533
45
45
0
11
542
52
67
672
22
591
38
553
56
8
677
38
38
15
15
2
36
48
85
17
694
86
607
87
6
804
42
42
437
74
363
6
443
20
20
893
483
411
3
1
897
6
6
0
0
0
5
71
46
1
122
99
99
159
159
64,119
21,252
280,606
11,718
268,888
20,058
59,818
445,852
413
1,039
86,581
2,326
1,574
91,932
11,260
2,298
31,250
406
1,214
46,428
21,049
14,260
12,646
7,271
50,206
105,432
343
91
38,565
23,235
267,429
16,048
251,381
18,905
58,192
406,326
1,165
555
75,056
2,641
1,220
80,637
2,161
1,594
27,894
406
1,076
33,131
31,743
16,397
12,957
6,571
48,999
116,666
155
317
141
433
613
0
0
0
0
0
0
2,173
2,713
137,344
10,042
6,787
159,059
29,224
599
12,695
11,718
12
37
42,568
2,205
3,840
135,320
9,156
6,735
157,256
1,135
532
16,063
16,048
130
163
18,023
45
955
27
7
1,033
113
113
113
9
975
25
3
1,012
572
572
17
589
20
464
8
8
500
38
38
38
12
495
26
5
539
86
86
15
101
244
6
251
74
74
74
246
3
1
250
483
483
483
0.0
0.3
0.6
1.0
0.5
0.4
0.1
0.4
0.0
0.0
0.1
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
3.3
0.7
0.1
0.5
0.0
0.0
0.0
0.0
1.6
0.7
0.3
0.1
0.6
0.0
0.0
0.9
1.0
0.0
0.0
0.3
0.0
0.1
0.8
3.6
0.6
0.5
0.1
0.6
0.0
0.0
0.1
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
4.2
0.8
0.1
0.6
0.0
0.0
0.0
0.0
0.0
0.2
0.7
0.3
0.0
0.6
0.0
0.0
3.6
3.6
13.1
0.0
3.3
1 Excludes allowances for securities borrowed. 2 Excludes reclassified securities that are not considered impaired. 3 Excludes CHF 114 million collective loan loss allowances (31 December 2011: CHF 131 million).
4 Refer to “Note 29b Reclassification of financial assets” in the “Financial information” section of this report.
146
lion, decreased 16% to CHF 677 million on 31 December 2012
from CHF 804 million (excluding collective loan loss allowances of
CHF 131 million) at the end of 2011.
d
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i
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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 1,550 mil-
lion as of 31 December 2012 from CHF 2,135 million at the end
of the prior year.
The ratio of the impaired loan portfolio to the total loan port-
folio (both measured gross) reduced to 0.6% compared with
0.8% on 31 December 2011, mainly due to sales of impaired re-
classified assets. For loans excluding securities the ratio decreased
to 0.5% compared with 0.6% in the prior year.
We reclassified loans and receivables with carrying amounts of
CHF 79 million and CHF 186 million from impaired to performing
during 2012 and 2011, respectively. These reclassifications oc-
curred because the loans had either been renegotiated and the
new terms and conditions met normal market criteria for the
quality of the obligor and type of loan, or because the financial
position of the obligor improved, enabling it to repay any overdue
amounts such that we deemed future principal and interest to be
fully collectible in accordance with the original contractual terms.
d
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Collateral held against our impaired loan portfolio mainly con-
sisted of real estate and securities on 31 December 2012.
It is our policy to dispose of foreclosed real estate as soon as
practicable. The carrying amount of foreclosed property recorded
in our balance sheet under Other assets at the end of 2012 and
2011 amounted to CHF 47 million and CHF 58 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 guarantees and loan commit-
ments, and defaulted derivative and securities financing trans-
actions, which are subject to the same workout and recovery
processes. Our impaired assets decreased by CHF 2.0 billion to
CHF 2.5 billion on 31 December 2012, largely as a result of trade
commutation on monoline exposures. After deducting allocated
specific allowances, provisions and CVA of CHF 1.1 billion and
the estimated liquidation proceeds of collateral of CHF 0.4 billion,
net impaired assets amounted to CHF 0.9 billion as of 31 Decem-
ber 2012.
➔ Refer to “Note 9 Due from banks and loans” in the “Financial
information” section of this report for more information
Impaired assets by type of financial instrument
d
e
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i
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A
CHF million
Impaired loans (incl. due from banks)
Impaired guarantees and loan commitments
Defaulted derivatives contracts
Defaulted securities financing transactions
Total
Impaired exposure
Specific allowances,
provisions and CVA
Estimated liquidation
proceeds of collateral
Net impaired exposure
31.12.12
31.12.11
31.12.12
31.12.11
31.12.12
31.12.11
31.12.12
31.12.11
1,605
144
716
2
2,467
2,155
164
2,143
3
4,465
(613) 1
(64)
(438)
(2)
(711) 1
(93)
(1,457)
(3)
(437)
(6)
(893)
(4)
(1,117)
(2,263)
(443)
(897)
555
73
278
906
1 Excludes CHF 114 million collective loan loss allowances (31 December 2011: CHF 131 million).
551
67
686
1,304
147
Risk, treasury and capital management d
e
t
i
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A
d
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t
i
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A
Risk, treasury and capital management
Risk management and control
Past due but not impaired loans
CHF million
1–10 days
11–30 days
31–60 days
61–90 days
>90 days
of which: mortgage loans
Total
31.12.12
31.12.11
104
30
44
14
793
639
986
105
54
57
9
670
486
895
Past due but not impaired mortgage loans
CHF million
Total
31.12.12
31.12.11
Total mortgage
exposure
144,667
of which:
past due > 90 days
but not impaired
639
Total mortgage
exposure
139,356 1
of which:
past due > 90 days
but not impaired
486
1 Restated prior-year number includes CHF 4,119 million related to Wealth Management and Wealth Management Americas.
Past due but not impaired loans
The table above 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 all amounts due under the
contractual terms of the loans or the equivalent value from liqui-
dation of collateral. The loan balances in the table relate entirely
to our Wealth Management and Retail & Corporate divisions,
where delayed payments are routinely observed. We currently
have no past due but not impaired loans in Wealth Management
Americas, the Investment Bank and our Corporate Center –
Legacy Portfolio.
The increase in our past due but not impaired loan exposures
resulted primarily from mortgage loans that were past due over
90 days but not impaired. Our overall past due but not impaired
levels on mortgage loans were not significant 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
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
exchange transactions. UBS is a member of Continuous Linked
Settlement, a foreign exchange clearing house which allows
transactions to be settled on a delivery-versus-payment basis,
thereby significantly reducing foreign exchange-related settle-
ment risk relative to the volume of business.
The mitigation of settlement risk through 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 framework
Country risk includes all country-specific events that occur within
a sovereign’s jurisdiction and may lead to an impairment of UBS’s
exposures. Country risk can take the form of either sovereign risk,
which refers to the ability and willingness of a government to
honor its financial commitments, or transfer risk, which would
arise if an issuer or counterparty could not acquire foreign curren-
cies following a moratorium of a central bank on foreign ex-
change transfers, or “other” country risk that may manifest itself
through increased and multiple counterparty and issuer default
risk (systemic risk) on the one hand, and by events that may affect
the standing of a country (e.g. political stability, institutional and
legal framework) on the other hand. We have a well-established
risk control framework through which we assess the risk profile of
all countries where we have exposure.
We attribute to each country a sovereign rating, which ex-
presses the probability of the sovereign defaulting on its own
financial obligations in foreign currency. Our ratings are expressed
by statistically derived default probabilities as described in the
“Probability of default” section above. Based on this internal
analysis we also define the probability of a transfer event occur-
ring and establish rules as to how the aspects of “other” country
risk should be incorporated into the analysis of the counterparty
rating of incorporated entities that are domiciled in the respective
country.
We ensure that our exposure to all countries is commensurate
with the credit ratings we assign to them, and that it is not dis-
proportionate to the respective country risk profile. For all coun-
148
tries rated 3 and below we set country risk ceilings, which are
approved either by the Board of Directors or under delegated au-
thority by the Group Chief Executive Officer or Group Chief Risk
Officer, depending on the size of the limit and the country rating.
A country risk ceiling applies to all our exposures to counterpar-
ties or issuers of securities and financial investments in the respec-
tive country. We may limit the extension of credit, transactions in
traded products or positions in securities based on a country ceil-
ing, even if our exposure to a counterparty is otherwise accept-
able.
For internal measurement and control of country risk, we also
consider the financial impact of market disruptions arising prior
to, during and following a country crisis. These may take the form
of a severe deterioration in a country’s debt, equity or other asset
markets or of a sharp depreciation of the currency. We use stress
testing to assess the potential financial impact of a severe country
and / or sovereign crisis. This involves the development of plausible
stress scenarios for combined stress testing and the identification
of countries that may potentially be subject to a crisis event, de-
termining potential losses and making assumptions about recov-
ery rates depending on the types of credit transactions involved
and their economic importance to the affected countries.
Our exposures to market risks are also subject to regular stress
tests that cover major global scenarios, which are used for com-
bined stress testing as well, 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
increased the monitoring and focus on the quality of collateral
we hold.
Country risk exposure
Country risk exposure measure
The presentation of country risk follows our internal risk view,
whereby the basis for measurement of exposures depends on the
product category into which we have classified our exposures:
– Banking products are loans (at amortized cost), loan commit-
ments (notional basis) and guarantees (notional basis), and in-
clude an immaterial amount of available-for-sale debt and eq-
uity 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.
As we manage the trading inventory on a net basis, we net the
value of long positions against short positions with the same
underlying issuer. Net exposures are, however, floored at zero per
issuer in the figures presented. We therefore do not recognize the
potentially offsetting benefit of certain hedges and short positions
across issuers.
We do not recognize any expected recovery values when
reporting country exposures as “Exposure before hedges” except
for the risk-reducing effects of master netting agreements and
collateral held in the form of either cash or portfolios of diversified
marketable securities, which we deduct from the basic positive
exposure values. Within banking products and traded products,
the risk-reducing effect of any credit protection is taken into ac-
count on a notional basis when determining the “Net of hedges”
exposures.
Country risk exposure allocation
In general, exposures are shown against the country of domicile
of the contractual counterparty or the issuer of the security. For
some counterparties whose economic substance in terms of as-
sets or source of revenues is primarily located in a different coun-
try, the exposure is allocated to the risk domicile of that different
country.
This is the case, for example, with legal entities incorporated in
financial offshore centers, which have their main assets and rev-
enue streams outside the country of domicile. The same principle
applies to exposures for which we hold third-party guarantees or
collateral, where 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.
We apply a specific approach to banking products exposures to
branches of financial institutions which are located in a country
other than that of the domicile of the legal entity. In such cases,
exposures are recorded in full against the country of domicile of
the counterparty and additionally in full against the country in
which the branch is located.
In the case of derivatives, we show the counterparty risk asso-
ciated with the positive replacement value against the country of
domicile of the counterparty (presented within “Traded prod-
ucts”). In addition, the risk associated with the instantaneous fall
in value of the underlying reference asset to zero (assuming no
recovery) is shown against the country of domicile of the issuer of
the reference asset (presented within “Trading inventory”). This
approach ensures that we capture both the counterparty and,
where applicable, issuer elements of risk arising from derivatives
and applies comprehensively for all derivatives, including single-
name CDS and other credit derivatives.
As a basic example: if a CDS protection for a notional value of
100 bought from a counterparty domiciled in country X referenc-
ing debt of an issuer domiciled in country Y has a positive replace-
ment 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
149
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Exposures to selected eurozone countries
CHF million
31.12.12
France
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Italy
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Spain
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Austria
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Ireland 4
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Belgium
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Portugal
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Greece
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Other
Total
Banking products
(loans, loan commitments, guarantees)
Traded products
(counterparty risk from deriva-
tives and securities financing)
after master netting agreements
and net of collateral
Trading inventory
(securities and potential
benefits / remaining ex-
posure from derivatives)
Exposure
Net of hedges 1
8,777
before hedges Net of hedges 1
2,403
3,462
of which:
unfunded
Exposure
before hedges Net of hedges
Net long per issuer
9,990
4,656
48
1,719
3,567
5,897
2,361
141
715
2,679
4,567
180
20
2,667
1,701
2,060
1,609
11
238
202
1,391
15
441
936
573
344
1
91
137
160
12
31
117
48
35
0
12
212
4,448
48
1,719
2,562
4,389
1,471
141
715
2,061
3,712
180
20
2,667
846
1,927
1,476
11
238
202
1,391
15
441
936
558
329
1
91
137
63
12
31
20
48
35
0
12
212
190
10
1,285
1,976
1,647
28
438
1,181
3,325
15
2,580 3
729
175
12
16
148
399
381
18
103
3
36
64
118
21
97
4
0
0
3
103
10
1,285
1,005
1,065
28
438
598
2,680
15
2,580
85
175
12
16
148
399
381
18
103
3
36
64
22
21
0
4
0
0
3
899
1,817
1,663
705
101
341
4
400
1,072
1,973
1,315
141
264
253
408
14
85
310
54
1,054
3
32
21
3
921
7
120
5
855
3
28
824
391
316
44
31
8
8
0
1
1
0
220
4
400
1,038
1,048
424
141
264
218
198
14
85
99
920
787
7
120
5
855
3
28
824
376
302
44
31
8
8
0
1
1
0
4,711
4,125
34
33
519
2,276
1,019
0
13
1,244
834
164
6
2
662
831
676
4
101
49
137
12
32
93
79
24
1
11
42
34
12
2
20
43
34
9
14
146
146
25
51
51
1 Not deducted are total allowances and provisions of CHF 35 million (of which: Austria CHF 13 million, Malta CHF 8 million and France CHF 7 million). 2 Includes corporates, insurance companies and funds. 3 The
majority of the banking products exposure shown to Spanish banks relates to secured facilities that are collateralized by non-European sovereign debt securities 4 The majority of the Ireland exposure relates to funds
and foreign bank subsidiaries.
150
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. In the case of derivatives
referencing a basket of assets, the issuer risk against each refer-
ence entity is calculated as the expected change in fair value of
the derivative given an instantaneous fall in value to zero of the
corresponding reference asset (or assets) issued by that entity. Ex-
posures are then aggregated by country across issuers, floored at
zero per issuer.
Exposures to selected eurozone countries
We continue to monitor and manage our exposure to peripheral
European countries closely, and our direct exposure to Greece, It-
aly, Ireland, Portugal and Spain remains limited.
In addition to monitoring direct exposure, we actively consider
the inter-linkages among eurozone countries and institutions. We
monitor and evaluate the policy responses of key EU institutions
and the International Monetary Fund. In addition, we evaluate the
implications of these developments for a broad range of countries
and institutions beyond Europe when calibrating our eurozone-
focused stress scenarios and making assumptions about the be-
havior of a variety of factors, including currencies, GDP, equity
markets, consumer price index, corporate spreads, sovereign CDS
and interest rates, for a number of key countries and regions. We
apply these stress scenarios to our risk portfolios as part of our
firm-wide stress testing framework. Furthermore, we subject our
OTC exposures with a wide range of counterparties to these stress
scenarios to gain an understanding of potential adverse impacts
on our counterparty exposures, as well as to help identify so-
called wrong-way risks.
The table “Exposures to selected eurozone countries” provides
an overview of our exposure to 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 governments, banks and other counter-
parties. The sovereign category includes agencies and central
banks. Corporates, insurance companies and funds are included
in the “Other” category. The exposures to Andorra, Cyprus,
Estonia, Malta, Monaco, Montenegro, San Marino, Slovakia and
Slovenia are grouped in “Other”.
CDS are primarily bought and sold in relation to our trading
businesses, but are also used to hedge parts of our risk exposure,
including that related to selected eurozone countries. At 31 De-
cember 2012, and not taking into account the risk-reducing ef-
fect of master netting agreements, we had purchased approxi-
mately CHF 91 billion gross notional of single name CDS protection
on issuers domiciled in Greece, Italy, Ireland, Portugal or Spain
(GIIPS) and had sold CHF 88 billion gross notional of single name
CDS protection. On a net basis, taking into account the risk reduc-
ing effect of master netting agreements, this equates to approxi-
mately CHF 18 billion notional purchased and CHF 15 billion no-
tional sold. More than 99% of gross protection purchased was
from investment grade counterparties (based on internal ratings)
and on a collateralized basis. The vast majority of this was from
financial institutions domiciled outside the eurozone. Less than
CHF 1 billion of the gross protection purchased was from counter-
parties domiciled in a GIIPS country and less than CHF 0.5 billion
was with counterparties domiciled in the same country as the ref-
erence entity.
Holding CDS for credit default protection does not necessarily
protect the buyer of protection against losses, as the contracts will
only pay out under certain scenarios. The effectiveness of our CDS
protection as a hedge of default risk is influenced by a number of
factors, including the contractual terms under which the CDS was
written. Generally, only the occurrence of a credit event as de-
fined by the CDS terms (which may include among other events,
failure to pay, restructuring or bankruptcy) results in a payment
under the purchased credit protection contracts. For CDS con-
tracts on sovereign obligations, repudiation can also be deemed
as a default event. The determination as to whether a credit event
has occurred is made by the relevant International Swaps and De-
rivatives Association (ISDA) determination committees (comprised
of various ISDA member firms) based on the terms of the CDS and
the facts and circumstances surrounding the event.
Exposure from single-name credit default swaps referencing Greece, Italy, Ireland, Portugal and Spain
31.12.12
Protection bought
Protection sold
of which: counterparty
domiciled in GIIPS country
of which: counterparty
domicile is the same as the
reference entity domicile
Net position
(after application of counterparty master netting
agreements)
CHF million
Notional
Greece
Italy
Ireland
Portugal
Spain
Total
1,405
47,884
6,363
7,163
27,702
90,516
RV
155
2,285
32
387
968
3,828
Notional
550
22
71
289
933
RV
26
0
9
6
42
Notional
RV
Notional
226
7
129
362
(1,388)
(46,406)
(6,446)
(7,110)
(26,994)
(88,343)
3
0
4
7
RV
(162)
(2,460)
(84)
(430)
(990)
Buy
notional
Sell
notional
346
8,024
1,442
1,702
6,355
(329)
(6,394)
(1,526)
(1,622)
(5,395)
(4,126)
17,869
(15,266)
PRV
54
365
70
124
320
933
NRV
(62)
(539)
(121)
(167)
(342)
(1,231)
151
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Emerging markets net exposure 1 by internal UBS country rating category
CHF million
Investment grade
Sub-investment grade
Total
31.12.12
31.12.11
16,953
1,428
18,381
19,341
3,053
22,394
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 73 million are not deducted (31 Decem-
ber 2011: CHF 61 million).
Emerging market exposures by major geographical region
CHF million
Emerging Americas
Brazil
Chile
Mexico
Colombia
Venezuela
Other
Emerging Asia
China
India
Hong Kong
South Korea
Taiwan
Other
Emerging Europe
Russia
Turkey
Ukraine
Hungary
Poland
Other
Middle East and Africa
Saudi Arabia
South Africa
United Arab Emirates
Kuwait
Israel
Other
Total
Banking products
(loans, loan commitments,
guarantees)
Net of hedges 1
Traded products
(counterparty risk from deriva-
tives and securities financing)
after master netting agreements
and net of collateral
Trading inventory
(securities and potential
benefits / remaining exposure
from derivatives)
Net of hedges
Net long per issuer
Total
Net of hedges 1
31.12.12
31.12.11
31.12.12
31.12.11
31.12.12
31.12.11
31.12.12
31.12.11
2,498
1,353
322
214
192
141
276
3,692
1,538
258
487
597
226
586
11,184
13,671
3,163
2,155
1,557
1,532
1,072
1,704
1,833
1,061
264
121
112
64
210
2,978
2,620
3,048
2,037
1,459
1,529
2,500
905
843
140
159
110
343
2,867
2,531
599
559
525
309
299
575
649
526
451
104
149
652
707
185
200
97
124
0
101
4,341
838
1,156
674
447
299
926
864
489
204
37
18
115
1,006
107
114
196
16
190
383
18,381
22,394
6,918
656
168
154
125
122
0
87
5,240
1,373
1,158
983
513
458
754
939
355
310
61
3
29
182
1,094
170
137
214
20
85
468
7,929
489
305
82
75
23
4
1,846
245
254
510
462
247
127
247
174
23
0
8
30
12
1,105
473
31
217
293
4
86
791
527
75
134
37
18
2,390
733
172
602
432
310
142
337
117
45
0
95
52
28
807
438
61
142
84
10
72
1,302
863
40
43
44
141
171
4,998
2,080
744
374
623
526
651
722
398
38
84
104
16
83
756
19
414
112
0
105
107
3,686
4,325
7,777
2,245
842
29
228
438
226
482
6,041
872
1,290
1,462
1,091
692
634
1,224
433
488
79
61
30
133
630
41
328
95
0
55
111
10,140
1 Not deducted are total allowances and provisions of CHF 73 million (31 December 2011: CHF 61 million).
152
Exposure to emerging market countries
The table “Emerging markets net exposure by major geographical
region” shows the five largest emerging market country expo-
sures in each major geographical area by product type on 31 De-
cember 2012 compared with 31 December 2011. Based on the
main country rating categories, on 31 December 2012, 92% of
our emerging market country exposure was rated investment
grade compared with 86% on 31 December 2011.
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Debt investments
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Debt investments classified according to IFRS as Financial invest-
ments available-for-sale are measured at fair value with changes
in fair value recorded through equity, and can be broadly catego-
rized as money market instruments and debt securities primarily
held for statutory, regulatory or liquidity reasons. Debt invest-
ments available-for-sale may also include non-performing loans
purchased in the secondary market by the Investment Bank.
The risk control framework applied to debt instruments classi-
fied as Financial investments available-for-sale depends on the
nature of the instruments and the purpose for which we hold
them. Our exposures may be included in market risk limits or be
subject to specific monitoring such as interest rate sensitivity anal-
ysis, firm-wide earnings-at-risk, capital-at-risk and combined
stress test metrics.
Composition of debt investments
Debt instruments classified as Financial investments available-for-
sale were CHF 65.7 billion on 31 December 2012 compared with
CHF 52.5 billion on 31 December 2011. These instruments primar-
ily comprised highly liquid short-term securities issued by govern-
ments and government-controlled institutions. The increase was
mainly due to an increase in government bills / bonds.
➔ Refer to “Note 14 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
153
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Market risk
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Market risk is the risk of loss resulting from changes in market
variables. There are two broad categories of market variables:
general market risk factors and specific components. General
market risk factors include interest rates, equity index levels, ex-
change 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 fac-
tors and events particular to individual companies or entities.
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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
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
Sources of market risk
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We take general and specific market risks both in our trading ac-
tivities and in some non-trading businesses.
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Trading portfolios
In 2012, most of our market risk originated from the Investment
Bank’s trading activities, including the non-core assets that have
been transferred to Corporate Center in the first quarter of 2013
as part of the accelerated implementation of our strategy an-
nounced in October 2012. In addition, the Group Treasury func-
tion (part of Corporate Center) assumes foreign-exchange and
interest-rate risk in connection with its balance sheet, profit and
loss and capital management responsibilities. Market risk also
arises within our Legacy Portfolio within Corporate Center and
our wealth and asset management operations also take limited
market risk in relation to client business.
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 actively man-
age such basis risks. Management and Risk Control may also give
instructions to reduce the risk, even when limits are not exceeded.
Our asset management and wealth management businesses
carry small trading positions, principally to support client activity.
The market risk from these positions is not material to UBS as a
whole.
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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.
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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 Board of Directors.
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 approved
under delegated risk management and risk control authorities. 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 risk disclosure, the 1-day 95% confidence
level value-at-risk (VaR) is used to quantify market risk exposures
in our trading portfolios. This measure is also used for internal
management purposes and applies to the market risk position
population, that group of portfolios for which positions are gen-
154
erally marked to market on a daily basis and that are actively man-
aged under market risk trading limits. Any material market risks
that arise from positions outside of this population (e.g. the op-
tion to acquire equity of the SNB StabFund) are discussed sepa-
rately either via sensitivity analysis within the “Non-trading port-
folios – valuation and sensitivity information by instrument
category” section, as part of our disclosure of sensitivity of “Inter-
est rate risk in the banking book”, or by other means for example
the composition of equity investments in this section.
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Value-at-risk definition
VaR is a statistical measure of market risk, representing the market
risk losses that could potentially be realized over a set time horizon
at an established level of confidence. This assumes no change in
the firm’s trading positions over the relevant time period.
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. We use a single VaR mod-
el for both internal management purposes and for determining
market risk regulatory capital requirements, although the confi-
dence levels and time horizons differ. For internal management
purposes we measure VaR at the 95% confidence level using a
1-day holding period. The regulatory measure of risk used to un-
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derpin the market risk capital requirement under the Basel accord,
by contrast, requires a measure equivalent to a 99% confidence
level and using a 10-day holding horizon.
Our VaR model is approved by FINMA and significant revisions
of our VaR methodology and model, certain of which are ongo-
ing, are also subject to regulatory approval.
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Value-at-risk limitations
Actual realized market risk losses may differ from those implied by
our VaR for a variety of reasons. All VaR measures are subject to
limitations and must be interpreted accordingly and used in con-
junction with other risk measures. 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 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.
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Group: management value-at-risk (1-day, 95% confidence, 5 years of historical data)
by business division and Corporate Center
CHF million, except where indicated
Min.
Max.
Average
31.12.12
Min.
Max.
Average
31.12.11
For the year ended 31.12.12
For the year ended 31.12.11
Wealth Management
Wealth Management Americas
Investment Bank 1
Global Asset Management
Retail & Corporate
Corporate Center 1
Diversification effect
Total management VaR, Group
Diversification effect (%)
0
1
15
0
0
3
– 2
18
0
2
164
0
0
17
– 2
167
0
2
30
0
0
11
(10)
33
(23)
0
2
15
0
0
10
(9)
18
(34)
1
30
0
4
– 2
31
2
219
0
14
– 2
222
1
75
0
7
(7)
76
(8)
0
2
34
0
0
4
(4)
36
(9)
1 The prior period has not been restated for the transfer of legacy positions from the Investment Bank to the Corporate Center. 2 As the minimum and maximum occur on different days for different business divisions,
it is not meaningful to calculate a portfolio diversification effect.
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Group: management value-at-risk (1-day, 95% confidence, 5 years of historical data) by risk type
For the year ended 31.12.12
For the year ended 31.12.11
Average
31.12.12
Min.
Max.
Average
31.12.11
CHF million, except where indicated
Equities
Interest rates
Credit spreads
Foreign exchange
Energy, metals and commodities
Diversification effect
Total management VaR, Group
Diversification effect (%)
Min.
7
11
23
3
1
– 1
18
Max.
160
33
42
13
7
– 1
167
12
19
31
6
3
(38)
33
(54)
8
12
26
5
3
(37)
18
(68)
10
14
29
3
2
– 1
31
76
35
84
17
10
– 1
222
15
24
56
8
4
(31)
76
(29)
1 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
13
18
29
5
3
(32)
36
(47)
155
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:28)(cid:2)(cid:70)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:19)(cid:2)
(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:10)(cid:19)(cid:15)(cid:70)(cid:67)(cid:91)(cid:14)(cid:2)(cid:27)(cid:27)(cid:7)(cid:2)(cid:69)(cid:81)(cid:80)(cid:386)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:11)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
d
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complementary characteristics in order to create a holistic frame-
work which ensures material completeness of risk identification
and measurement.
(cid:44)
(cid:40)
(cid:47)
(cid:35)
(cid:47)
(cid:44)
(cid:44)
(cid:35)
(cid:53)
(cid:49)
(cid:48)
(cid:38)
(cid:19)(cid:18)(cid:18)
(cid:23)(cid:18)
(cid:18)
(cid:10)(cid:23)(cid:18)(cid:11)
(cid:10)(cid:19)(cid:18)(cid:18)(cid:11)
(cid:10)(cid:19)(cid:23)(cid:18)(cid:11)
(cid:10)(cid:20)(cid:18)(cid:18)(cid:11)
(cid:30)(cid:10)(cid:20)(cid:18)(cid:18)(cid:11)
(cid:20)
(cid:36)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)
(cid:56)(cid:67)(cid:78)(cid:87)(cid:71)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:10)(cid:19)(cid:15)(cid:70)(cid:67)(cid:91)(cid:14)(cid:2)(cid:27)(cid:27)(cid:7)(cid:2)(cid:69)(cid:81)(cid:80)(cid:386)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:14)(cid:2)(cid:23)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:74)(cid:75)(cid:85)(cid:86)(cid:81)(cid:84)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:70)(cid:67)(cid:86)(cid:67)(cid:11)
(cid:19)(cid:2)(cid:39)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:14)(cid:2)(cid:85)(cid:87)(cid:69)(cid:74)(cid:2)(cid:67)(cid:85)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:72)(cid:71)(cid:71)(cid:85)(cid:14)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:75)(cid:80)(cid:86)(cid:84)(cid:67)(cid:70)(cid:67)(cid:91)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
(cid:20)(cid:2)(cid:38)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:82)(cid:84)(cid:71)(cid:88)(cid:75)(cid:81)(cid:87)(cid:85)(cid:78)(cid:91)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:78)(cid:81)(cid:85)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:69)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:2)(cid:84)(cid:71)(cid:78)(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:40)(cid:67)(cid:69)(cid:71)(cid:68)(cid:81)(cid:81)(cid:77)(cid:2)(cid:75)(cid:80)(cid:75)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:82)(cid:87)(cid:68)(cid:78)(cid:75)(cid:69)(cid:2)(cid:81)(cid:72)(cid:72)(cid:71)(cid:84)(cid:75)(cid:80)(cid:73)(cid:16)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:28)(cid:2)(cid:67)(cid:78)(cid:78)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:149)
(cid:40)(cid:84)(cid:71)(cid:83)(cid:87)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:75)(cid:80)(cid:2)(cid:80)(cid:87)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)
(cid:19)(cid:2)(cid:44)(cid:67)(cid:80)(cid:87)(cid:67)(cid:84)(cid:91)(cid:2)(cid:20)(cid:18)(cid:19)(cid:20)(cid:115) (cid:21)(cid:19)(cid:2)(cid:38)(cid:71)(cid:69)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:20)
(cid:26)(cid:18)
(cid:24)(cid:18)
(cid:22)(cid:18)
(cid:20)(cid:18)
(cid:2)(cid:2)(cid:18)
(cid:11)
(cid:18)
(cid:18)
(cid:20)
(cid:10)
(cid:30)
(cid:11)
(cid:18)
(cid:26)
(cid:19)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:18)
(cid:20)
(cid:10)
(cid:11)
(cid:18)
(cid:24)
(cid:19)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:26)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:22)
(cid:19)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:24)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:20)
(cid:19)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:22)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:18)
(cid:19)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:20)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:26)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:18)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:24)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:26)
(cid:10)
(cid:11)
(cid:18)
(cid:22)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:24)
(cid:10)
(cid:11)
(cid:18)
(cid:20)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:22)
(cid:10)
(cid:18)
(cid:115)
(cid:11)
(cid:18)
(cid:20)
(cid:10)
(cid:18)
(cid:20)
(cid:115)
(cid:18)
(cid:18)
(cid:22)
(cid:115)
(cid:18)
(cid:20)
(cid:18)
(cid:24)
(cid:115)
(cid:18)
(cid:22)
(cid:18)
(cid:26)
(cid:115)
(cid:18)
(cid:24)
(cid:18)
(cid:18)
(cid:19)
(cid:115)
(cid:18)
(cid:26)
(cid:18)
(cid:20)
(cid:19)
(cid:115)
(cid:18)
(cid:18)
(cid:19)
(cid:18)
(cid:22)
(cid:19)
(cid:115)
(cid:18)
(cid:20)
(cid:19)
(cid:18)
(cid:24)
(cid:19)
(cid:115)
(cid:18)
(cid:22)
(cid:19)
(cid:18)
(cid:26)
(cid:19)
(cid:115)
(cid:18)
(cid:24)
(cid:19)
(cid:18)
(cid:18)
(cid:20)
(cid:115)
(cid:18)
(cid:26)
(cid:19)
(cid:18)
(cid:18)
(cid:20)
(cid:32)
(cid:19)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:67)(cid:78)(cid:78)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:67)(cid:85)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71)(cid:2)(cid:86)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:88)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:16)
(cid:52)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
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– In certain cases, VaR calculations approximate the impact of
changes in risk factors on the values of positions and port-
folios. This may happen because the number of risk factors
included in the VaR model is necessarily limited; for example,
yield curve risk factors do not exist for all future dates.
– The effect of extreme market 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 lev-
els to differ from assumptions implicit in the VaR calculations.
We recognize that no single measure may encompass the en-
tirety of risks associated with a position or portfolio. Consequent-
ly, we employ a suite of various metrics with both overlapping and
156
As a statistical aggregate risk measure, VaR is supplemented by
a comprehensive framework of non-statistical measures and cor-
responding limits. This includes an extensive series of stress tests
and scenario analyses that undergo continuous evaluation to en-
sure that, were an extreme but nevertheless plausible event to oc-
cur, the resulting losses would not exceed our appetite for losses.
Furthermore, we have an established framework to identify
and quantify potential risks that are not adequately captured by
our VaR model.
(cid:21)(cid:52)(cid:47)(cid:19)(cid:20)(cid:25)(cid:65)(cid:71)
Starting in the fourth quarter of 2012, this framework is used
as the basis for underpinning such risks with regulatory capital by
means of a methodology approved by FINMA. The resulting risk-
weighted-assets (RWA) add-on does not reflect any diversification
benefits across risks capitalized through VaR and those subject to
this additional capital underpinning. As at 31 December 2012,
the add-on amounted to approximately one-third of the sum of
RWA from VaR and stressed VaR.
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Value-at-risk developments in 2012
The Group’s management VaR decreased to CHF 18 million on
31 December 2012 from CHF 36 million on 31 December 2011. This
decrease was mainly due to active steps taken by the Investment
Bank to reduce trading risks following the announcement in Octo-
ber 2012 regarding the accelerated implementation of our strategy.
Average management VaR was CHF 33 million for 2012 compared
with CHF 60 million in 2011 (excluding the effects of the 2011 unau-
thorized trading incident). The main contributors to Group VaR con-
tinue to be credit spread risk and, to a lesser extent, interest rate risk.
In the fourth quarter 2012, we improved the component of
our VaR model used to calculate equity price risk by replacing the
existing single-factor model with a multi-factor model, which bet-
ter captures the correlations among equity returns. The effects of
this model change on Group management, regulatory and
stressed VaR figures, prior to and at the time of implementation,
were reductions of between 10% and 20%.
(cid:21)(cid:52)(cid:47)(cid:19)(cid:20)(cid:23)(cid:65)(cid:71)
Backtesting
Backtesting compares 1-day 99% confidence level regulatory VaR
calculated on positions at the close of each business day with the
revenues generated by those positions on the following business
day. Backtesting revenues exclude non-trading revenues, such as
fees and commissions, and estimated revenues from intraday
trading. A backtesting exception occurs when backtesting reve-
nues are negative and the absolute value of those revenues is
greater than the previous day’s VaR.
We had one backtesting exception at Group level in 2012
compared with three in the prior year. We investigate all backtest-
ing 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
the business divisions’ chief risk officers.
100
-50
-125
-200
(cid:26)(cid:18)
(cid:24)(cid:18)
(cid:22)(cid:18)
(cid:20)(cid:18)
(cid:18)
25
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Backtesting exceptions are also reported to internal and exter-
nal auditors and to the relevant regulators.
The chart “Group: development of backtesting revenues
against value-at-risk” shows the 12-month development of 1-day
99% VaR against backtesting revenues of the Group for the
whole year of 2012. The histogram “Investment Bank: all revenue
distribution” shows the Investment Bank’s full trading revenues
distribution in 2012.
Market risk – stress loss
VaR is supplemented by a comprehensive framework of non-sta-
tistical measures and corresponding limits. This includes an exten-
sive series of stress tests and scenario analyses that undergo con-
tinuous evaluation to ensure that, were an extreme but
nevertheless plausible event to occur, the resulting losses would
not exceed our appetite for losses.
Our scenarios capture the liquidity characteristics of different
markets, asset classes and positions.
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
representatives 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 more
information
Non-trading portfolios
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This section includes an overview of interest rate risk in the bank-
ing book and a description of the valuation of certain significant
product categories and related valuation techniques and models.
In addition, sensitivity information is provided for certain signifi-
cant instrument categories that are not included, or not fully cap-
tured, in management VaR.
Interest rate risk in the banking book
The banking book consists of Available-for-sale instruments,
Loans and receivables, certain Instruments designated at fair val-
ue through profit or loss, derivatives measured at fair value
through profit or loss and derivatives employed for cash flow
hedge accounting purposes, as well as related funding transac-
tions. These positions may impact Other comprehensive income
or profit or loss, due to differences in accounting treatment.
All interest rate risk is subject to independent risk control.
When not included in our VaR measure, interest rate risk is subject
to specific monitoring, which may include interest rate sensitivity
analysis, earnings-at-risk, capital-at-risk and combined stress test
metrics.
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The interest sensitivity of non-contractual maturity products is
modeled using historical behavior patterns from a complete inter-
est rate cycle.
Our largest banking book interest rate risk exposures arise pri-
marily from loans and deposits in our Wealth Management, Retail
& Corporate and Wealth Management Americas divisions, as well
as our treasury activities.
Interest rate risks arising in the majority of Wealth Manage-
ment and Retail & Corporate locations 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 originating business into Group
Treasury where they are netted against interest rate risks from
other sources. Residual interest rate risks in Wealth Management
and Retail & Corporate locations that are not transferred to Group
Treasury are managed locally and subject to independent moni-
toring and control both in the locations by local risk control units
as well as centrally by Treasury Risk Control.
Group Treasury manages two main types of interest rate risk
positions. One type is the risk transferred from Wealth Manage-
ment and Retail & Corporate banking operations (mentioned
above). The other type arises from investing or funding non-mon-
etary corporate balance sheet items that have indefinite maturi-
ties, such as equity and goodwill. For these items senior manage-
ment has defined specific target durations based on which we
fund and invest as applicable. These targets are defined by repli-
cation portfolios, which establish rolling benchmarks to execute
against. The table on the next page includes any residual risk in
the Group Treasury books against these benchmarks. This activity
and associated sensitivities of these replication portfolios are fur-
ther discussed in the Group Treasury section.
In addition to its regular risk management activities, Group
Treasury may execute 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-generating fixed receiver swaps.
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 mutually offset interest rate
risk. The Corporate Center Legacy Portfolio assets that were re-
classified to Loans and receivables from Held for trading in the
fourth quarter of 2008 and the first quarter of 2009, and certain
other debt securities held as Loans and receivables, also give rise
to nontrading interest rate risk.
➔ Refer to the “Interest rate and currency management” section of
this report for more information
The interest rate risk sensitivity figures presented in the table
“Interest rate sensitivity – banking book” represent the impacts of
+1, ± 100 and ±200-basis-point parallel moves in yield curves on
present values of future cash flows, irrespective of accounting
157
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
treatment. For some portfolios, the +1-basis-point sensitivity has
been estimated by dividing the +100-basis-point sensitivity by
100. Due to the low level of interest rates, the downward moves
by 100 / 200 basis-points sensitivities are floored at zero to ensure
that the resulting interest rates are not negative. This effect, com-
bined with pre-payment risk on US mortgage products, results in
nonlinear behavior of the sensitivity.
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funds accounted for as available-for-sale) to a 1-basis-point paral-
lel increase in the yields of the respective instruments is approxi-
mately negative CHF 8.2 million, which would be recorded in
other comprehensive income if such change occurred. The interest
rate sensitivity of this position including the associated hedges is
included within the table “Interest rate sensitivity – banking book”,
some elements of which are additionally included in VaR.
During the second quarter of 2012, we modified our calcula-
tion approach. Client rate durations are no longer assumed to be
responsive to the applied instantaneous yield curve changes, with
the exception of those products contractually referencing market
rates. The figures for 31 December 2011 have been restated to
reflect these changes.
The impact of an adverse parallel shift in interest rates of 200
basis points on our non-trading interest rate risk exposures is sig-
nificantly below the threshold of 20% of eligible capital set by
regulators.
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As part of its management of interest rate risk, Group Treasury
has managed portfolios that aimed to economically hedge nega-
tive effects on the firm’s interest income stemming from the un-
usually low yield environment, as discussed in the “Interest rate
and currency management” section of this report. The risk posi-
tions in these portfolios were closed during the third quarter
2012, largely explaining the change in the overall banking book
sensitivity profile compared with the prior year-end.
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Interest rate sensitivity of available-for-sale debt investments
Debt investments classified as Financial investments available-for-
sale amounted to CHF 65.7 billion on 31 December 2012 com-
pared with CHF 52.5 billion on 31 December 2011. The sensitivity
of these positions (excluding hedges and excluding investments in
➔ Refer to “Note 14 Financial investments available-for-sale”
in the “Financial information” section of this report for more
information
➔ Refer to “Debt investments” in the “Credit risk” section of
this report for more information
Interest rate sensitivity of interest rate swaps designated in cash
flow hedges
Fair value gains or losses associated with the effective portion of
interest rate swaps designated as cash flow hedges for cash flow
repricing risk are recognized initially in Equity. When the hedged
forecast cash flows affect profit or loss, the associated gains or
losses on the hedging derivatives are reclassified from Equity to
profit or loss. 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 2012, the fair value of these
interest rate swaps amounted to CHF 7.8 billion (positive replace-
ment values) and CHF 3.0 billion (negative replacement values).
The impact on other comprehensive income under IFRS of a 1-ba-
sis-point increase of underlying LIBOR curves would have de-
creased equity by approximately CHF 23.7 million. The interest
rate sensitivity of these swaps is included in the table below
“Interest rate sensitivity – banking book” some elements of which
are additionally included in VaR disclosure.
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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
CHF million
CHF
EUR
GBP
USD
Other
Total impact on interest rate-sensitive banking book positions
–200 bps
–100 bps
(22.4)
21.0
(0.5)
(197.3)
(8.3)
(207.4)
(13.4)
13.3
2.3
(138.3)
(10.5)
(146.7)
–200 bps
–100 bps
14.3
316.8
(6.9)
153.5
17.2
494.9
17.5
169.6
(9.4)
117.3
3.5
298.5
31.12.12
+1 bp
(0.3)
(0.5)
(0.1)
4.1
0.2
3.3
31.12.11
+1 bp
(0.7)
(1.6)
0.1
(1.6)
(0.2)
(4.0)
+100 bps
+200 bps
(27.5)
(48.5)
(14.3)
412.6
20.2
342.5
(51.0)
(94.1)
(29.5)
793.7
40.3
659.4
+100 bps
+200 bps
(66.9)
(160.3)
13.2
(157.0)
(13.4)
(384.2)
(130.2)
(314.1)
25.6
(385.4)
(25.2)
(829.3)
1 Does not include interest rate sensitivities for credit valuation adjustments on monoline credit protection, US and non-US reference-linked notes and the 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 auction rate securities, as from an economic perspective these exposures are not
materially affected by parallel shifts in US dollar interest rates, holding other factors constant.
158
Non-trading portfolios – valuation and sensitivity
information by instrument category
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Credit valuation adjustments on monoline credit protection
Included in our Legacy Portfolio are trades whereby we purchased
credit default swaps (CDS) protection from monoline insurers
against UBS-held underlyings, including residential mortgage-
backed securities (RMBS) collateralized debt obligations (CDO)
and commercial mortgage-backed securities (CMBS) CDO, trans-
actions with collateralized loan obligations (CLO) and asset-
backed securities (ABS) 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 mar-
ket illiquidity and the contractual terms of these exposures relative
to other monoline-related instruments.
CVA amounts related to monoline credit protection are based
on a methodology that uses CDS spreads on the monolines as a
key input in determining an implied level of expected loss. Where
a monoline has no observable CDS spread, a judgment is made on
the most comparable monoline or combination of monolines, and
the corresponding spreads are used instead. For RMBS CDO,
CMBS CDO and CLO asset categories, cash flow projections are
used in conjunction with current fair values of the underlying as-
sets to provide estimates of expected future exposure levels. For
other asset categories, future exposure is derived from current
exposure levels.
the model include correlations and recovery rates. We apply fair
value adjustments related to potential uncertainty in each of these
parameters, which are only partly observable. In addition, we ap-
ply fair value adjustments for uncertainties associated with the
use of observed spread levels as the primary inputs. These fair
value adjustments are calculated by applying shocks to the rele-
vant parameters and revaluing the credit protection. These shocks
for correlation, recovery and spreads are set to various levels de-
pending on the asset type and / or region and may vary over time
depending on the best judgment of the relevant trading and con-
trol personnel. Correlation and recovery shocks are generally in
the reasonably possible range of 5 to 15 percentage points.
Spread shocks vary more widely and depend on whether the un-
derlying protection is funded or unfunded to reflect cash or syn-
thetic basis effects. These fair value adjustments may also be con-
sidered a measurement of sensitivity.
On 31 December 2012, the fair value of the US RLN credit
protection was USD 120 million (CHF 110 million) including ad-
justments described above of USD 11 million (CHF 10 million).
This compares with USD 319 million (CHF 299 million) on 31 De-
cember 2011, which included an adjustment of USD 22 million
(CHF 21 million). The reduction in the fair value was largely due
to writedowns in the reference pool assets which led to reduc-
tions in the notional exposure and corresponding fair values
changes.
To assess the sensitivity of the monoline CVA calculation to al-
ternative assumptions, the impact of a 10% increase in monoline
CDS spreads (e.g. from 1,000 basis points to 1,100 basis points
for a specific monoline) was considered. On 31 December 2012,
such an increase would have resulted in a USD 15 million (CHF
13 million) increase in the reported monoline CVA compared with
USD 39 million (CHF 37 million) on 31 December 2011.
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The sensitivity of the monoline CVA to a decrease of 1 percent-
age point in the monoline recovery rate assumptions (e.g. from
30% to 29% for a specific monoline, conditional on default oc-
curring) is estimated to increase the reported figures by approxi-
mately USD 3 million (CHF 2 million) compared with USD 11 mil-
lion (CHF 10 million) on 31 December 2011. The sensitivity to
credit spreads and recovery rates is substantially linear.
Non-US reference-linked notes
The same valuation model and the same approach to the calcula-
tion of fair value adjustments are applied to the non-US RLN cred-
it 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 2012, the fair value of the non-US RLN
credit protection was USD 214 million (CHF 195 million) including
adjustments of USD 42 million (CHF 39 million). This compares
with a fair value of USD 468 million (CHF 439 million) on 31 De-
cember 2011, which included adjustments of USD 46 million (CHF
43 million). The reduction of the fair value exposure was mainly
due to mark-to-market changes and buybacks.
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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 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
embodied in the RLN is fair valued using a market standard ap-
proach to the valuation of portfolio credit protection (Gaussian
copula). This approach is intended to effectively simulate corre-
lated defaults within the portfolio, where the expected losses and
defaults of the individual assets are closely linked to the observed
market prices (spread levels) of those assets. Key assumptions of
Option to acquire equity of the SNB StabFund
Our call option to purchase the SNB StabFund’s equity is recog-
nized on the balance sheet as a derivative at fair value (positive
replacement values) with changes to fair value recognized in prof-
it or loss. On 31 December 2012, the fair value of the call option
(after reserves) was USD 2,297 million (CHF 2,103 million). This
compares with USD 1,736 million (CHF 1,629 million) on 31 De-
cember 2011. The increase in the value of the option is primarily
attributable to an increase in the market value of the underlying
SNB StabFund assets.
The option valuation model utilizes cash flow projections for
assets within the SNB StabFund across various economic scenari-
os. This model is calibrated to market levels by setting the spread
above the one-month LIBOR rates used to discount future cash
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Risk management and control
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flows, such that the model-generated price of the underlying
asset pool equals our assessed fair value of the asset pool. The
model incorporates a model reserve (fair value adjustment) to ad-
dress the inherent valuation uncertainty associated with the fore-
casting process. On 31 December 2012, this adjustment was USD
173 million (CHF 158 million) compared with USD 131 million
(CHF 123 million) on 31 December 2011.
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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.
On 31 December 2012, a 100-basis-point increase in the
discount rate would have decreased the option value by USD
181 million (CHF 166 million) compared with USD 139 million
(CHF 130 million) on 31 December 2011. A 100-basis-point de-
crease would have increased the option value by approximately
USD 201 million (CHF 184 million) compared with USD 155 mil-
lion (CHF 145 million) on 31 December 2011.
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 may make direct investments in a variety of entities or buy
equity holdings in both listed and unlisted companies for a variety
of purposes, including revenue generation or as part of strategic
initiatives. Other investments, such as exchange and clearing
house memberships, are held to support our business activities.
We may also make investments in funds that we manage, in order
to fund or “seed” them at 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. The fair value of equity invest-
ments tends to be dominated by factors specific to the individual
stocks, and our equity investments are generally intended to be
held for the medium or long term and may be subject to lockup
agreements. For these reasons, we generally do not control these
exposures using the market risk measures applied to trading ac-
tivities. Such equity investments are, however, subject to a differ-
ent range of controls, including pre-approval of new investments
by business management and Risk Control and regular monitoring
and reporting. They are also included in our firm-wide earnings-at-
risk, capital-at-risk and combined stress test frameworks.
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Composition of equity investments
On 31 December 2012, we held equity investments totaling CHF
1.6 billion, of which CHF 0.7 billion were classified as Financial
investments available-for-sale, and CHF 0.9 billion as Investments
in associates.
This compares with 31 December 2011, when we held equity
investments totaling CHF 1.5 billion, of which CHF 0.7 billion
were classified as Financial investments available-for-sale and CHF
0.8 billion as Investments in associates.
➔ Refer to “Note 14 Financial investments available-for-sale” and
“Note 15 Investments in associates” in the “Financial informa-
tion” section of this report for more information
Treasury risk control
Treasury assumes risks in the process of managing interest rate
and structural foreign exchange risks and the funding and liquid-
ity profile of the bank. Our treasury risk control function applies a
holistic risk framework which sets the appetite for treasury-relat-
ed risk-taking activities across the firm. This ensures that the risks
remain within parameters defined by the Board of Directors (BoD)
and the Group Asset and Liability Management Committee. A key
element of the framework is an overarching economic value sen-
sitivity limit, set by the BoD. This limit is linked to the level of Basel
III common equity tier 1 capital (CET1) and takes into account
risks arising from interest rates, foreign exchange and credit
spread risks. In addition, the sensitivity of Net interest income to
changes in interest rates is monitored against targets set by the
Group Chief Executive Officer in order to analyze the outlook and
volatility of Net interest income based on market expected inter-
est rates. Limits are also set by the BoD to balance the impact of
foreign exchange movements on our common equity and tier 1
ratio.
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Operational risk
Operational risk is the risk resulting from inadequate or failed
internal processes, human error and systems failure, or from
external 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, lead-
ing to longer-term financial implications.
Operational risk is an inevitable consequence of being in busi-
ness, and managing it is a core element of our business activities.
Our aim is to provide a framework that supports the identification
and assessment of material operational risks and their potential
concentrations in order to achieve an appropriate balance be-
tween risk and reward. We seek to foster a strong firm-wide risk
and control culture, which is a pre-requisite for sustainable and
improved performance.
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
our operational risk framework. Responsibility for the front-to-
back control environment in the business divisions is the responsi-
bility of the respective business divisions’ Chief Executive Officers
but is delegated to the respective business divisions’ Chief Operat-
ing Officers. Management in all functions (business, logistics and
control functions) is responsible for establishing an appropriate
operational risk management environment, including the estab-
lishment and maintenance of robust internal controls, effective
supervision and a strong risk culture. Controls must be regularly
assessed, utilizing evidence to confirm design and operating ef-
fectiveness.
Operational risk control provides an independent and objective
view on the adequacy of operational risk management in the
firm. It is governed by the Operational Risk Management Com-
mittee, which is chaired by the Global Head of Operational Risk
Control, who reports to the Group Chief Risk Officer and is a
member of the Risk Executive Committee. The Operational Risk
Management Committee oversees operational risk activities and
work streams, ensures oversight of the implementation of the op-
erational risk framework, and provides an effective and indepen-
dent assessment of the operational risk profile.
Operational risk framework
The operational risk framework describes general requirements for
managing and controlling operational risk at UBS. The implemen-
tation of the enhanced operational risk framework remained a key
focus during 2012. The framework is built on four main pillars:
1. Classification of inherent risks through the operational risk tax-
onomy
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 provides a clear and logical clas-
sification of our inherent operational risks across all business divi-
sions. The operational risk framework requires that for each cat-
egory of the operational risk taxonomy, core controls are defined.
Core controls are the critical controls that, if designed and operat-
ing effectively, will materially ensure that our operational risk pro-
file stays within acceptable boundaries. The completeness of core
controls is tested using scenarios through which the inherent risk,
including stress and tail risk, may materialize. Functions are re-
quired to identify key procedural controls relevant to their activi-
ties that support the core controls. Full implementation and inte-
gration of scenarios, core and key procedural controls and their
periodic review is key to ensuring a comprehensive view of the
residual risk in the organization. The periodic review is achieved
through a quarterly internal control assessment process that re-
quires functions to assess and evidence operating and design ef-
fectiveness of their key procedural controls. This also forms the
basis for the assessment and testing of controls over financial re-
porting as required by the Sarbanes-Oxley Act, Section 404 (SOX
404). The enhanced framework facilitates the identification of
SOX 404 relevant controls for independent testing and functional
assessments, gathering of evidence, management affirmation
and remediation tracking. Significant control deficiencies surfaced
during the operational risk assessment process must be reported
in the operational risk inventory and sustainable remediation insti-
gated. All significant issues are assigned to owners at senior man-
agement level and must be reflected in the respective employees’
annual performance measurement and management objectives
and evaluation to ensure effective remediation.
The aggregated impact of the control deficiencies and the ad-
equacy 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 internal expert opinion, provides a
transparent assessment of the current operational risk exposure
for residual operational risk against agreed risk appetite state-
ments and measures.
Risk appetite measures indicate a breach of appetite limits,
which requires management to adapt their business activities or
adjust the internal control environment accordingly. Risk appetite
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Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
can be expressed through the establishment of quantitative con-
straints such as operating limits or qualitative statements in the
form of policies. In the third quarter of 2012, Group Internal Audit
implemented an enhanced assurance process for issue closure to
promote stronger management discipline for identifying, mitigat-
ing and sustainably remediating risk control issues. To assist with
prioritization of all known operational risk issues irrespective of
origin, a common rating methodology was adopted by all internal
control functions and both internal and external audit. Assess-
ment of all known issues irrespective of source against the same
rating scale supports clear prioritization and appropriate manage-
ment focus on the key issues. An operational risk communications
program was launched in July 2012 to reemphasize the impor-
tance of a strong risk control culture and individual responsibility
across all levels of the firm to generate sustainable financial per-
formance.
Reporting of significant risk issues and operational effective-
ness was extended and strengthened through 2012. Where a par-
ticular operational risk issue is considered of strategic concern to
the firm it is categorized as a ‘Group Significant Operational Risk
Issue’. Remediation programs related to these issues are led by
members of the Group Executive Board and is subject to indepen-
dent quality assurance. Completion is assessed against clearly de-
fined success criteria to confirm that an adequate and sustainable
standard of control has been achieved. The Group Executive
Board members have confirmed their personal and collective
commitment to the timely and sustainable remediation of Group
Significant Operational Risk Issues.
Remediation of known issues and control deficiencies is a focus
of the operational risk framework. In 2012 material progress was
made in relation to a number of key remediation activities.
The Investment Bank’s unauthorized trading incident (UTI) re-
mediation programme is running to plan and the key issues have
been remediated, with all remaining items on plan for implemen-
tation by the second quarter 2013. A series of immediate reme-
diation steps were taken, including senior management changes
and the remediation of the SOX material weakness.
On 19 December 2012, UBS entered into regulatory settle-
ments concerning LIBOR and other benchmark interest rates. On
the same day FINMA issued an order concluding proceedings
against UBS concerning the same issues. These settlements and
the FINMA order required UBS to pay a total of approximately
CHF 1.4 billion in fines and disgorgement. The conduct encom-
passed by the regulatory settlements and order includes certain
UBS personnel engaging in efforts to manipulate submissions for
certain benchmark rates to benefit trading positions, colluding
with employees at other banks and cash brokers to influence cer-
tain benchmark rates to benefit their trading positions, and giving
inappropriate directions to UBS submitters. We have undertaken
remedial steps that are designed to guard against a recurrence of
this conduct, such as strengthening our benchmark submission
process, making organizational changes that include transferring
responsibility for that process principally to Group Treasury within
the Corporate Center, and enhancing applicable policies and pro-
cedures.
Operational risk quantification
The enhanced operational risk framework is aligned to the calcu-
lation of capital, representing a major step forward in our ap-
proach to quantifying operational risk and setting effective man-
agement incentives. The processes detailed above are integral to
the quantification of operational risk reinforcing integration and
alignment of the operational risk framework and the calculation
of capital.
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.
162
Advanced measurement approach model
The AMA model is a hybrid consisting of two main components.
The historical component is a retrospective view based on our
history of operational risk losses since January 2002, excluding
extreme internal losses, which are assigned to the scenario com-
ponent to avoid duplication. The key assumption within this com-
ponent is that past events form a reasonable proxy for future
events. A distribution of aggregated losses over one year is de-
rived by modeling severities and frequencies separately and then
combining them. This is referred to as a loss distribution approach
and is used to project future total losses based on historical expe-
rience and determine the expected loss portion of our capital re-
quirement.
The scenario component is a forward-looking view of potential
operational losses that may occur based on the operational risk
issues facing the bank. The aim is to reach a reasonable estimate
of unexpected or tail loss exposure (corresponding to a low fre-
(cid:35)(cid:47)(cid:35)(cid:2)(cid:79)(cid:81)(cid:70)(cid:71)(cid:78)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:81)(cid:80)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:82)(cid:87)(cid:86)(cid:85)
(cid:42)(cid:75)(cid:85)(cid:86)(cid:81)(cid:84)(cid:75)(cid:69)(cid:67)(cid:78)
(cid:69)(cid:81)(cid:79)(cid:82)(cid:81)(cid:80)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:78)(cid:81)(cid:85)(cid:85)(cid:71)(cid:85)
(cid:52)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)
(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:53)(cid:69)(cid:71)(cid:80)(cid:67)(cid:84)(cid:75)(cid:81)
(cid:67)(cid:80)(cid:67)(cid:78)(cid:91)(cid:85)(cid:75)(cid:85)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)
(cid:71)(cid:90)(cid:86)(cid:84)(cid:71)(cid:79)(cid:71)(cid:2)
(cid:78)(cid:81)(cid:85)(cid:85)(cid:71)(cid:85)
(cid:36)(cid:39)(cid:43)(cid:37)(cid:40)(cid:19)
(cid:39)(cid:90)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)
(cid:75)(cid:80)(cid:70)(cid:87)(cid:85)(cid:86)(cid:84)(cid:91)(cid:2)
(cid:78)(cid:81)(cid:85)(cid:85)(cid:71)(cid:85)
(cid:53)(cid:69)(cid:71)(cid:80)(cid:67)(cid:84)(cid:75)(cid:81)
(cid:69)(cid:81)(cid:79)(cid:82)(cid:81)(cid:80)(cid:71)(cid:80)(cid:86)
(cid:19)(cid:2)(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:80)(cid:88)(cid:75)(cid:84)(cid:81)(cid:80)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:2)(cid:72)(cid:67)(cid:69)(cid:86)(cid:81)(cid:84)(cid:85)(cid:16)
quency / high severity event). We use twenty AMA taxonomy cat-
egories which are closely aligned to the operational risk taxonomy.
For each of these categories three frequency / severity pairs are
defined, representing the base, stress and worst case. Calibration
is based on internal extreme losses, loss data from peer banks,
business environment and internal control factors, as well as ex-
tensive annual verification by internal subject matter experts based
on their view of our particular exposure to these risk taxonomies.
The following chart provides a high-level overview of the model
components and their respective inputs into the calculation:
The AMA model adds the sampled losses from the historical
and the scenario component to derive the regulatory capital fig-
ure which equals the 99.9% quantile of the overall loss distribu-
tion. Currently, we do not reflect mitigation through insurance or
any other risk transfer mechanism in our AMA model.
Following qualitative and quantitative model-related enhance-
ments, in 2012 we focused on further strengthening the integra-
tion of the output of the operational risk framework into the
AMA model to ensure efficient leverage of operational risk man-
agement and control processes. The AMA taxonomy categories
used in the scenario component have been aligned with the op-
erational risk taxonomy. Qualitative adjustments to the parame-
ters of the scenario component utilize the assessments of opera-
tional risk exposure resulting from the operational risk assessment
process as well as control deficiencies, scenarios and core con-
trols.
Operational risk regulatory capital is allocated to the business
divisions based on historical operational risk-related losses. In
2013 we will focus on enhancing the allocation approach to
strengthen the linkage between the quality of operational risk
management and the resulting capital allocation with the aim of
promoting and incentivizing excellence in risk management be-
havior. Increased leverage of available qualitative indicators and
elements will play an integral role for capital allocation purposes
and increase the risk sensitivity of the capital allocation approach
overall.
➔ Refer to the “Capital management” section of this report for
more information on the development of risk-weighted assets
for operational risk
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Treasury management
Treasury management
Group Treasury oversees the balance sheet and the usage of our critical financial resources. Included in Group Treasury’s
mandate is responsibility for managing the capital, liquidity, and funding position of the firm. Additionally, Group
Treasury manages interest rate, currency and counterparty risks that arise from franchise, balance sheet and capital
management activities.
Treasury management
The responsibility for performing treasury activities was evaluated
and then reorganized in 2012. Previously, Group Treasury primar-
ily performed a governance role that included forecasting capital,
liquidity and funding requirements and establishing and monitor-
ing group and divisional limits and targets. Divisional treasury
functions performed intra divisional governance. Within the In-
vestment Bank, the Asset Liability Management unit managed the
short-term asset / liability position as well as the firm’s counter-
party risk exposure.
In conjunction with the accelerated implementation of our
strategy announced in October 2012, the Asset Liability Manage-
ment unit was transferred from the Investment Bank to Group
Treasury within the Corporate Center in the fourth quarter of
2012. Group Treasury now performs complete front-to-back gov-
ernance and planning activities and executes funding and risk
management transactions as a service to the Group and the busi-
ness divisions. The new organization and mandate of Group Trea-
sury enables greater control over financial resources and enhanced
efficiency in sourcing and distributing resources to the operating
businesses. Responsibility for implementation of the control
framework for Treasury activities, besides liquidity and funding risk
which are under the responsibility of Treasury, is with Risk Control.
Financial resource governance
The Group Asset and Liability Management Committee (Group
ALCO) ensures that our assets and liabilities are managed in line
with our overall Group strategy as defined by the Board of Direc-
tors (BoD) and the Group Executive Board (GEB), as well as our
regulatory commitments, and the interests of shareholders and
other stakeholders.
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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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.
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 oper-
ating environment, whether widespread or relatively small. An
institution that is unable to meet its liabilities when they fall
due may fail even if its assets exceed its liabilities, because it is
unable to borrow sufficient funds on an unsecured basis, has
insufficient high-quality assets to borrow against or has insuf-
ficient liquid assets it can sell to raise the cash it needs immedi-
ately.
➔ 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 the Group Asset and Liability Management Commit-
tee (Group ALCO) and overseen by the Board of Directors Risk
Committee. 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 Finan-
cial 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 li-
quidity and funding policies including limits, and reports the
bank’s overall liquidity and funding position at least monthly to
the Group ALCO and the Board of Directors Risk Committee.
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exposures of the firm under a variety of potential scenarios that
encompass normal and stressed market conditions.
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.
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.
➔ Refer to “Transfer of capital and funding within UBS Group” in
the “Capital management” section for more information
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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 currency. This reduces our exposure to individual funding
sources and provides a broad range of investment opportunities,
reducing liquidity 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 by Group Treasury by managing operation-
al cash and collateral within a control framework set by Treasury
Risk Control. This permits close control of both our cash position
and our portfolio of high-quality liquid securities.
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.
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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.
d
e
t
i
d
u
A
We monitor both the contractual and behavioral maturity pro-
file of the balance sheet (as described under “Liquidity model-
ing“). In the behavioral maturity profile, we model the liquidity
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 the Group
ALCO, the Group CFO and the Group Treasurer. This cumula-
tive cash ladder shows the projected daily funding position –
the net cumulative funding requirement for a specific day –
from the current day to three months forward.
– 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.
165
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
d
e
t
i
d
u
A
– 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.
d
e
t
i
d
u
A
– 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.
A breakdown of the contractual maturities of our assets and
liabilities serves as the starting point for stress testing analyses.
This contractual view is adjusted to include behavioral compo-
nents as well as a more detailed breakdown of asset and liability
types.
d
e
t
i
d
u
A
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.
Based on UBS’s credit ratings as of 31 December 2012, con-
tractual liquidity outflows of approximately CHF 5.2 billion, CHF
8.2 billion and CHF 8.4 billion would have been required in the
event of a one-notch, two-notch and three-notch reduction, re-
spectively. In evaluating UBS’s liquidity requirements, UBS consid-
ers the potential impact of a reduction in UBS’s long-term credit
ratings, and a corresponding reduction in short-term ratings. Of
these outflows, the portion related to derivative instruments is
approximately CHF 2.9 billion, CHF 5.8 billion and CHF 6.0 billion
in the event of a one-notch, two-notch and three-notch reduc-
tion, respectively.
d
e
t
i
d
u
A
Contingency planning
Liquidity crisis scenario analysis and contingency planning support
the liquidity management process, which ensures that immediate
corrective measures to absorb potential sudden liquidity shortfalls
166
can be put into effect. Since a liquidity crisis could have a myriad
of causes, we focus on a scenario that encompasses potential
stress effects across all markets, currencies and products. The li-
quidity status indicators combine internal metrics from the liquid-
ity stress models with market data to provide a dashboard of
early warning indicators reflecting the current liquidity situation.
The liquidity status indicators are used on a Group level to assess
both the overall global and regional situations.
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 man-
aged centrally by Group Treasury, available and unutilized liquidity
facilities at several major central banks, and contingent reductions
of liquid trading portfolio assets.
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 monitors 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 enhance our internal funds transfer pric-
ing system.
Liquidity regulation
At the end of 2012, we continued to maintain a sound liquidity
position with a liquid asset buffer as per regulatory guidance for
Basel III liquidity coverage ratio (LCR) of CHF 153 billion and ad-
ditional contingent funding sources of CHF 64 billion. In aggre-
gate, these sources of available liquidity represented 26% of our
funded balance sheet assets.
Throughout 2012, UBS was in compliance with Swiss Financial
Market Supervisory Authority (FINMA) liquidity requirements.
In December 2010, the Basel Committee on Banking Supervi-
sion published the “International framework for liquidity risk
measurement, standards and monitoring” (Basel III Liquidity). The
framework comprises two liquidity ratios: the liquidity coverage
ratio (LCR) and the net stable funding ratio (NSFR).
Currently, banks employ a wide range of interpretations to cal-
culate the Basel III LCR and NSFR. LCR ensures that banks hold
enough highly liquid assets to survive short-term (30-day) severe
general market and firm-specific stress. NSFR assigns a required
stable funding factor to assets (representing the illiquid part of the
assets) and assigns all liabilities an available stable funding factor
(representing the stickiness of a liability) in order to ensure that
banks are not overly reliant on short-term funding and have suf-
ficient long-term funding for illiquid assets. The future minimum
regulatory requirement is 100% for both LCR (as of 2019) and
NSFR (as of 2018). On 6 January 2013, the Group of Governors
and Heads of Supervision, the oversight body of the Basel Com-
mittee on Banking Supervision, endorsed amendments to the LCR
to allow, among others, a phasing-in of the minimum LCR re-
quirement from 60% in 2015 to 100% by 2019.
On 31 December 2012, our estimated pro-forma regulatory
Basel III LCR was 113%, based on current supervisory guidance
from FINMA. We also calculate a management LCR that includes
additional high-quality and unencumbered contingent funding
sources not eligible in the regulatory Basel III liquidity framework
such as dedicated local liquidity reserves and additional unutilized
borrowing capacity. At the end of 2012, the management LCR
stood at 159%. On 31 December 2012, our estimated pro-forma
NSFR was 108%, based on current regulatory guidance. The cal-
culation of our pro-forma Basel III liquidity ratios includes esti-
mates of the impact of the rules and interpretation and will be
refined as regulatory interpretations evolve and as new models
and the associated systems are enhanced.
➔ Refer to the “Regulatory developments“ section of this report
for more information
Funding management
With the implementation of the revised Treasury Operating mod-
el, funding processes that had previously been undertaken by the
treasury trading and the short term interest rate units in the In-
vestment Bank’s fixed income, currencies and commodities (FICC)
business were transferred and consolidated in Group Treasury.
Group Treasury manages operational cash and collateral within
established limits and controls defined by Treasury Risk. This permits
close control of both our cash position and our stock of high-quality
liquid securities and ensures that the firm’s general access to whole-
d
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t
i
d
u
A
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(cid:23)(cid:23)(cid:18)
(cid:26)(cid:20)(cid:23)
(cid:20)(cid:25)(cid:23)
(cid:18)
(cid:19)(cid:19)(cid:18)(cid:18)
(cid:26)(cid:20)(cid:23)
(cid:23)(cid:23)(cid:18)
(cid:20)(cid:25)(cid:23)
(cid:18)
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
sale cash markets is centralized in Group Treasury. Group Treasury in
turn meets 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
d
e
t
i
d
u
A
Our funding activities are planned by analyzing the overall
liquidity and funding profile of our balance sheet, taking into ac-
count 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 and Retail &
Corporate represent significant, cost-efficient and reliable sources
of funding. In addition, we have numerous short-, medium- and
long-term funding programs under which we issue senior unse-
cured 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. We also generate long-term fund-
ing by pledging a portion of our portfolio of Swiss residential mort-
gages 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. Collec-
tively, these broad product offerings and the global scope of our
business activities underpin our funding stability. We expect to have
lower funding needs in the future as we continue to implement our
strategy. Accordingly, we intend to repurchase debt selectively, as
illustrated by our announcement in February 2013 of cash tender
offers for various issues of outstanding notes. Group Treasury regu-
larly monitors our funding status including concentration risks to
ensure we maintain a well-balanced and diversified liability struc-
ture and reports its findings on a monthly basis to the Group ALCO.
Funding position and diversification
The composition of our funding sources shifted in 2012 from se-
cured to unsecured funding and within our unsecured funding
sources from short-term wholesale products into client deposits
from our wealth management and Retail & Corporate businesses
and long-term debt issued.
Overall our customer deposits increased by CHF 29 billion to
CHF 372 billion, or 50% of our total funding sources compared
with 42% at year-end 2011. Deposits from our wealth manage-
ment businesses and from Retail & Corporate contributed 98%,
or CHF 363 billion, of the total customer deposits (shown in the
“UBS asset funding” graph) compared with 95% at year-end
2011. Our outstanding long-term debt, including financial liabili-
ties at fair value, increased by CHF 7 billion during the year to CHF
165 billion. Long-term debt represented 22% of our funding
sources as shown in the “UBS: funding by product and currency”
table, up from 19% at prior year-end. During the year, we raised
CHF 2.7 billion equivalent of public benchmark bonds with an
average maturity of 3.3 years while CHF 6.4 billion matured. In
addition, we issued CHF 5.0 billion equivalent of covered bonds
with an average maturity of 4.4 years and Swiss Pfandbriefe of
CHF 1.7 billion. Furthermore, we continued to raise medium- and
long-term funds through medium-term notes and private place-
ments throughout the year. In 2012, we executed two issuances
168
of loss-absorbing notes which qualify as tier 2 capital under
Basel III rules, and count as progressive buffer capital in compli-
ance with the “too-big-to-fail” law under Swiss regulations for
systemically important banks, as well as contributing to our tar-
geted loss-absorbing capital. On 22 February 2012, we issued
USD 2.0 billion of tier 2 notes, and on 17 August 2012 we issued
a further USD 2.0 billion of tier 2 loss-absorbing notes. Both issu-
ances have a maturity of 10 years.
Our short-term interbank deposits (due to banks) and out-
standing short-term debt, as a percentage of total funding sources,
decreased from 12.4% to 7.5%, mainly reflecting reduced fund-
ing requirements as a result of the continued deleveraging of our
balance sheet, but also due to the effects of the negative interest
charge imposed on financial institutions for Swiss franc clearing
accounts effective 21 December 2012.
The secured financing (repurchase agreements and securities
lent against cash collateral received) percentage of our funding
sources decreased to 6.2% from 13.5%, as shown in the “UBS:
funding by product and currency” table. At the end of the year,
we borrowed CHF 121 billion less cash on a collateralized basis
than we lent, lower than the previous year-end net balance of
(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:20)
(cid:22)(cid:18)(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:18)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:20)(cid:20)(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:24)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:18)
(cid:24)
(cid:20)
(cid:22)(cid:24)
(cid:19)(cid:21)(cid:18)
(cid:22)(cid:20)
(cid:20)(cid:18)
(cid:23)
(cid:22)(cid:27)
(cid:20)(cid:26)
(cid:24)(cid:26)
(cid:20)(cid:22)(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:26)(cid:20)(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:18)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:20)(cid:22)
(cid:21)
(cid:21)
(cid:20)(cid:19)
(cid:24)
(cid:23)
(cid:19)(cid:20)
(cid:19)(cid:21)
(cid:19)(cid:22)(cid:27)
(cid:20)(cid:20)
(cid:23)(cid:23)
(cid:22)(cid:24)
(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)
(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: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: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:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(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:25)(cid:22)(cid:24)(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:20)(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: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:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:80)(cid:86)(cid: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:85)(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: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:14)(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: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)
(cid:21)(cid:41)(cid:54)(cid:18)(cid:20)(cid:20)(cid:65)(cid:71)
(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)
(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)
UBS: funding by product and currency
In % 1
Securities lending
Repurchase agreements
Due to banks
Short-term debt issued
Retail savings / deposits
Demand deposits
Fiduciary deposits
Time deposits
Long-term debt issued
Cash collateral payables on derivative instruments
Prime brokerage payables
Total
All currencies
CHF
EUR
USD
Others
31.12.12
31.12.11
31.12.12
31.12.11
31.12.12
31.12.11
31.12.12
31.12.11
31.12.12
31.12.11
1.2
5.0
3.1
4.4
18.0
21.6
3.3
6.9
22.1
9.5
4.8
1.0
12.5
3.7
8.7
14.0
16.7
3.5
7.8
19.4
8.2
4.5
0.4
0.0
0.5
0.3
11.8
7.8
0.1
0.2
2.8
0.3
0.1
0.0
0.0
0.7
0.2
9.7
6.2
0.1
0.3
2.4
0.3
0.1
0.2
1.1
0.2
0.8
0.8
4.2
0.8
0.5
7.3
5.0
0.5
0.2
1.7
0.5
1.4
0.7
2.9
1.0
1.4
7.1
3.7
0.5
0.5
3.3
0.7
2.7
5.4
6.4
2.0
3.7
9.1
3.2
3.3
0.6
10.0
0.9
6.0
3.5
5.0
1.9
3.5
7.1
3.4
3.0
0.2
0.6
1.6
0.6
0.0
3.2
0.5
2.5
2.9
0.9
0.8
0.2
0.9
1.7
1.0
0.0
2.6
0.5
2.7
2.7
0.9
0.9
100.0
100.0
24.4
20.1
21.5
21.1
40.2
44.8
13.9
14.0
1 As a percent of total funding sources defined as the CHF 746 billion and the CHF 817 billion respectively on the balance sheet as of 31 December 2012 and 31 December 2011, comprising repurchase agreements,
cash collateral on securities lent, due to banks, short-term debt issued, due to customers, long-term debt (including financial liabilities at fair value), cash collateral payables on derivative transactions and prime broker-
age payables.
CHF 162 billion. The decrease in secured funding and lending was
mainly related to the ongoing deleveraging of our balance sheet.
As of 31 December 2012, our coverage ratio of customer deposits
to our outstanding loan balance was 133%, compared with
128% at the prior year-end.
d
e
t
i
d
u
A
Due to our progress in reducing balance sheet assets, we have
generated capacity within our liquidity and funding position to be
able to execute tender offers which will lower our interest ex-
pense in the future and will allow for liability structure optimiza-
tion. We executed the 5 February 2013 announced cash tender
offers with respect to 14 senior unsecured note issuances, de-
nominated in US dollar, euro and Italian lira, with tenors between
June 2013 and January 2027 and set a total repurchase value of
CHF 5.1 billion.
Maturity breakdown of long-term straight debt portfolio
The “Long-term straight debt – contractual maturities” graph
shows a contractual maturity breakdown of our long-term straight
debt portfolio, and therefore excludes all structured debt, which
is predominantly booked as financial liabilities designated at fair
value. The long-term straight debt portfolio amounted to CHF
71.6 billion on 31 December 2012. It is composed of CHF 61.0
billion of senior debt including both publicly and privately placed
notes and bonds, as well as Swiss cash bonds, and CHF 10.6 bil-
lion of subordinated debt. Of the positions shown in the graph,
CHF 13.9 billion, or 19%, will mature within one year. In addition,
there are CHF 0.9 billion equivalent subordinated debt positions
with an early-call date during 2013.
The long-term straight debt forms part of the CHF 105 billion
shown on the Debt issued line on the balance sheet.
➔ Refer to “Note 20 Financial liabilities designated at fair value
and debt issued” and “Note 21 Debt issued held at amortized
cost” in the “Financial information” section of this report for
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 2012 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 2011. Derivative positions and trading
liabilities, predominantly made up of short sale transactions, are
assigned to the column “On demand”, as this provides a conser-
vative reflection of the nature of these trading activities. The con-
tractual maturities may extend over significantly longer periods.
(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:20)
(cid:20)(cid:22)
(cid:19)(cid:26)
(cid:19)(cid:20)
(cid:2)(cid:24)
(cid:2)(cid:2)(cid:2)
(cid:2)(cid:18)
(cid:20)(cid:18)(cid:19)(cid:21)
(cid:20)(cid:18)(cid:19)(cid:22)
(cid:20)(cid:18)(cid:19)(cid:23)
(cid:20)(cid:18)(cid:19)(cid:24)(cid:115)(cid:20)(cid:18)(cid:19)(cid:25) (cid:20)(cid:18)(cid:19)(cid:26)(cid:115)(cid:20)(cid:18)(cid:20)(cid:20) (cid:20)(cid:18)(cid:20)(cid:21)(cid:115)(cid:20)(cid:18)(cid:21)(cid:20)
(cid:67)(cid:72)(cid:86)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:21)(cid:20)
(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)
more information
(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)
169
(cid:20)(cid:22)
(cid:19)(cid:26)
(cid:19)(cid:20)
(cid:24)
(cid:18)
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
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 5
Due to customers
Accrued expenses
Debt issued 5
Other liabilities
Total 31.12.12
Total 31.12.11
Financial liabilities not recognized on balance sheet 6
Commitments
Loan commitments
Underwriting commitments
Total commitments
Guarantees
Forward starting transactions
Reverse repurchase agreements
Securities borrowing agreements
Total 31.12.12
Total 31.12.11
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
15.6
7.6
4.5
34.2
395.1
71.1
297.2
0.3
51.0
876.5
902.4
57.5
57.5
19.4
77.0
75.3
3.6
0.5
23.8
0.0
3.8
60.3
2.5
14.7
4.9
1.2
0.5
6.8
5.0
6.0
8.6
114.1
236.1
28.0
52.4
1.9
0.2
2.1
0.0
18.6
0.2
21.0
29.2
0.1
0.1
0.1
0.2
1.1
1.6
0.6
2.3
22.7
7.9
26.1
61.2
44.7
0.2
0.2
0.1
0.3
0.2
1.1
0.1
41.4
0.5
41.3
84.4
80.7
0.0
0.3
0.3
0.1
0.0
0.1
23.5
0.1
27.9
51.7
57.5
0.0
0.1
0.1
0.0
Total
23.1
9.2
37.7
34.2
395.1
71.1
96.4
372.1
2.8
118.5
55.8
1,215.9
1,374.1
59.8
0.2
60.0
20.1
18.6
0.2
98.8
105.9
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
replacement values (see footnote 3), the amounts presented generally represent undiscounted cash flows of future interest and principal payments. 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 25 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 32.3 billion due within one month (2011: CHF 36.7 billion),
CHF 0.5 billion due between one month and one year (2011: CHF 2.8 billion), and CHF 1.3 billion due between 1 and 5 years (2011: CHF 0 billion). 5 Future interest payments on variable rate liabilities are determined
by reference to the applicable interest rate prevailing as of the reporting date. Future principal payments which are variable are determined by reference to the conditions existing at the reporting date. 6 Comprises the
maximum irrevocable amount of guarantees, commitments and forward starting transactions.
170
Credit ratings
Credit ratings can affect the cost and availability of funding,
especially funding from wholesale unsecured sources. Our credit
ratings can also influence the performance of some of our busi-
nesses and levels of client and counterparty confidence. Rating
agencies take into account a range of factors when assessing cred-
itworthiness and setting credit ratings. These include the compa-
ny’s strategy, its business position and franchise value, stability and
quality of earnings, capital adequacy, risk profile and manage-
ment, liquidity management, diversification of funding sources,
asset quality and corporate governance. Credit ratings reflect the
opinions of the rating agencies and can change at any time.
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 down-
grade.
On 21 June 2012, Moody’s announced its decision to lower the
ratings of 15 global financial institutions with large capital mar-
kets activities. UBS AG’s deposit and senior debt ratings were
downgraded by two notches from “Aa3“ to “A2“ and the firm’s
“Prime-1“ short-term rating was confirmed. As a result of this
review, the outlook on our Moody’s ratings is stable.
On 16 August 2012, Standard & Poor’s affirmed UBS’s “A” /
“A-1” long- and short-term counterparty credit ratings and re-
vised the outlook to stable from negative. On 20 December 2012,
Standard & Poor’s affirmed UBS’s long-term rating of “A“ and
stable outlook.
On 1 November 2012, Fitch affirmed UBS’s long-term rating of
“A“ (stable outlook) and put UBS’s “Viability Rating” of “a-“ on
“Rating Watch Positive“.
The abovementioned ratings actions 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
additional collateral or other ratings-based requirements.
➔ Refer to the “Liquidity modeling” section and “Note 25 Deriva-
tive instruments and hedge accounting” in the “Financial
information” section of this report for more information relating
to one or two notch downgrades
171
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
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 both
our wealth management businesses and Retail & Corporate. With
the exception of Wealth Management Americas, the inherent in-
terest rate risk exposures are transferred from the originating
business into Group Treasury, which manages the risks on an inte-
grated basis allowing for netting across different sources.
➔ 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 and Retail & Corporate transactions
executed in the majority of locations. The fixed-rate products do
not contain embedded options, such as early prepayment, which
would allow clients to prepay at par. All prepayments are there-
fore subject to market-based unwinding costs.
Current and savings accounts as well as many other retail prod-
ucts of Wealth Management and Retail & Corporate have no con-
tractual maturity date or direct market-linked rate, and therefore
their interest rate risk cannot be transferred by simple back-to-
back transactions. Instead, they are managed on a pooled basis by
replicating portfolios 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
behavioral interest rate cash flow and repricing characteristics
through simple back-to-back transactions. The portfolios are re-
balanced monthly. Their structure and parameters are based on
long-term market observations and client behavior, and are regu-
larly reviewed and adjusted as necessary.
A significant amount of interest rate risk also arises from the
financing of non-monetary-related balance sheet items, such as
the financing of bank property and equity investments in associ-
ated companies. These risks are generally transferred to Group
Treasury through replicating portfolios, which in this case are
aligned with the tenor mandated by senior management.
Group Treasury manages its residual open interest rate ex-
posures, taking advantage of any offsets that arise between
positions from different sources within its approved market risk
limits, which include value-at-risk (VaR) and liquidity-adjusted
stress (LAS). The preferred risk management instruments are in-
terest rate swaps, for which there is a liquid and flexible mar-
ket. All transactions are executed through the Investment
Bank. Group Treasury does not directly access the external
market for swap transactions.
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In addition to its regular risk management activities, Group
Treasury may execute 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-generating fixed receiver swaps.
In the third quarter of 2012, we decided to offset certain posi-
tions following further declining interest rate levels which limited
the potential for additional hedging benefits. We expect the net
interest income impact from these actions to be limited. While we
recognize that this would increase our exposure to future interest
rate margin compression, our assessment concluded that main-
taining these hedges was no longer economical on a risk-return
basis.
➔ 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. Significant depreciation of the Swiss franc
against these currencies can adversely affect our key ratios and
Group Treasury is mandated with the task of minimizing such
effects. Consolidated RWA increase or decrease relative to our
capital as the Swiss franc depreciates or appreciates against
these currencies. These currency fluctuations also lead to foreign
currency translation gains or losses on consolidation, which im-
pact IFRS 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 predominantly in Swiss francs in order
to avoid any significant effects of currency fluctuations on its
standalone financial results. The Group Asset and Liability Man-
agement Committee (Group ALCO) can adjust the currency mix
in capital within limits set by the Board of Directors, to balance
the impact of foreign exchange movements on both the Basel III
common equity tier 1 (CET1) capital ratio and the Basel III CET1
capital (fully applied). Limits are in place, both for the sensitivity
of the Basel III CET1 capital ratio and the Basel III CET1 capital, to
a ±10% change in the Swiss franc against other currencies. As
of 31 December 2012, the estimated sensitivities of the Basel III
CET1 capital ratio and Basel III CET1 capital (fully applied) to a
10% appreciation or depreciation of the Swiss franc against
other currencies were 30 basis points and CHF 764 million, re-
spectively.
172
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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 cur-
rency. The effective investment positions created by both internal
cash deposits and interest rate swaps are then measured against
this benchmark tenor replication portfolio. Mismatches between
the two are measured, together with other non-trading interest
rate risk positions, against Group Treasury’s market risk limits (VaR
and stress loss).
On 31 December 2012, 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 11.0 million per basis point;
in US dollars with an average duration of approximately four and
a half years and a sensitivity of CHF 7.5 million per basis point; in
euros with an average duration of approximately three years and
a sensitivity of CHF 0.5 million per basis point; and in British
pounds with a duration of approximately three years and a sensi-
tivity of CHF 0.2 million per basis point. The sensitivities directly
relate to the chosen durations.
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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 typically off-
set 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.
Net investment hedge accounting is applied to core invest-
ments in foreign currency to reduce exposures exceeding the level
needed to provide the desired off-set to currency fluctuations in
our key-capital ratios.
➔ Refer to “Note 1a Significant accounting policies“ and “Note 25
Derivative instruments and hedge accounting” in the “Financial
information” section of this report for more information
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 the 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.
173
Risk, treasury and capital management Risk, treasury and capital management
Capital management
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.
In addition, we have set as an objective that the Basel III CET1
phase-in capital ratio remains at 10% or above if a severe stress
event were to occur.
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).
Capital adequacy management
➔ Refer to the “Group risk appetite framework” section of this
report for more information
➔ Refer to the “Our strategy” section of this report for more
information about Basel III / TBTF implications for UBS
➔ Refer to “Note 1c International Financial Reporting Standards and
Interpretations to be adopted in 2013 and later” in the “Financial
information” section of this report for more information
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Ongoing compliance with regulatory capital requirements and tar-
get capital ratios is central to our capital adequacy management.
During 2012, we managed our capital according to various Basel
2.5 capital ratio targets, while also considering the changes that
came into effect under Basel III on 1 January 2013. These include
the establishment of new Basel III capital ratio targets and the issu-
ance of Basel III-compliant loss-absorbing capital. In the target-
setting process, we take into account the current and future mini-
mum requirements set by regulators as well as their buffer
expectations. Furthermore, we consider our own internal assess-
ment of aggregate risk exposure in terms of capital-at-risk, the
views of rating agencies and comparisons with peer institutions, as
well as the impact of expected accounting policy changes.
Regulatory requirements
We have published our 31 December 2012 capital and RWA in
accordance with the Basel 2.5 framework. However, for supervi-
sory purposes our RWA are based on FINMA regulations.
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FINMA regulatory capital requirements result in higher RWA
than under the Bank for International Settlements (BIS) guide-
lines. There were no differences in eligible capital between BIS
guidelines and FINMA regulations as of 31 December 2012. Dur-
ing 2012, we complied with all externally imposed capital require-
ments.
The Basel III framework which came into effect on 1 January
2013 will have an impact on capital. The main deferred effects are
Capital ratios and RWA
CHF billion
Ratio in %
Basel II
Basel 2.5
0
1
.
3
.
1
3
20.0
209
16.0
0
1
.
6
.
0
3
20.4
205
16.4
0
1
.
9
.
0
3
20.2
208
16.7
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
19.4
2
1
.
3
.
1
3
21.1
18.7
211
2
1
.
6
.
0
3
21.8
19.2
215
2
1
.
9
.
0
3
23.6
20.2
210
2
1
.
2
1
.
1
3
25.2
21.3
193
4.1
4.1
4.4
4.5
4.6
4.8
5.4
5.4
5.4
5.4
5.6
5.6
6.1
6.3
25
20
15
10
5
0
Credit risk
Non-counterparty related risk
Market risk
Operational risk
BIS total capital ratio
BIS tier 1 ratio
FINMA leverage ratio
300
240
180
120
60
0
174
the deduction of deferred tax assets on net operating losses and
the inclusion of the effects of IAS19R relating to pension liabilities.
These impacts are phased in between 2014 and 2018 for the cal-
culation of common equity. Furthermore, hybrid tier 1 capital in-
struments will be phased out from 2013 to 2022. The Basel III
framework will also result in significantly higher RWA as the cal-
culation of our pro-forma Basel III RWA combines existing Basel
2.5 RWA, the revised treatment for low-rated securitization expo-
sures, meaning such exposures are no longer deducted from cap-
ital but are risk-weighted at 1250%, and new model-based capi-
tal charges. Some of these new models still require regulatory
approval and therefore our pro-forma calculations include esti-
mates (discussed with our primary regulator) of the effect of these
new capital charges which will be refined as models and the as-
sociated systems are enhanced. Consequently, our 31 December
2012 Basel III common equity tier 1 (CET1) capital ratio would
have been materially lower than our Basel 2.5 tier 1 capital ratio,
if those requirements had been effective on that date.
We continue to manage toward the 19% Swiss total capital
requirement applicable in 2019 (although we currently expect this
requirement to decline to 17.5%), with a target capital structure
consisting of 13% Basel III CET1 capital and the remainder in loss-
absorbing debt.
As of 31 December 2012, our estimated Basel III CET1 capital
ratio was 9.8% on a fully applied basis and 15.3% on a phase-in
basis compared with 6.7% and 10.7%, respectively, on 31 De-
cember 2011. We are committed to continuing to improve these
ratios through a combination of earnings retention and efforts to
reduce our RWA.
In 2012, we made two issuances of low-trigger loss-absorbing
notes which qualify as tier 2 capital under Basel III rules, and count
as progressive buffer capital in compliance with the “too-big-to-
fail” law under Swiss regulations for systemically important banks,
as well as contributing to our targeted loss-absorbing capital. On
22 February 2012, we issued USD 2.0 billion of tier 2 notes, and
on 17 August 2012 we issued a further USD 2.0 billion of tier 2
loss-absorbing notes. Both issuances have a maturity of 10 years.
In addition to the low-trigger loss-absorbing notes issued, we
are issuing deferred compensation awards with a high-trigger
writedown feature. These awards are treated by our regulator as
loss-absorbing tier 2 capital.
A further significant development in Switzerland was FINMA’s
requirement to apply a bank-specific multiplier for banks using
the internal ratings-based (IRB) approach when calculating RWA
for Swiss residential mortgages starting from 1 January 2013.
Also, in February 2013, the Swiss Federal Council decided to
activate the countercyclical capital buffer with respect to mort-
gage loans financing residential property located in Switzerland,
effective 30 September 2013.
➔ Refer to the “Regulatory developments“ section of this report
for more information
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Basel 2.5 Capital ratios
BIS capital ratios compare eligible capital with total RWA. On 31
December 2012, our Basel 2.5 tier 1 capital ratio was 21.3%
compared with 15.9% a year earlier. Our core tier 1 capital ratio
increased to 19.0% from 14.1% over the same period. Our tier 1
capital rose by CHF 2.6 billion to CHF 41.0 billion and RWA de-
creased by CHF 48.5 billion to CHF 192.5 billion. Our total capital
ratio increased to 25.2% from 17.2%.
➔ 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 2012, our Basel 2.5 RWA were CHF 192.5
billion compared with CHF 241.0 billion at the end of 2011, a
decrease in RWA of CHF 48.5 billion. This decrease was predomi-
nantly due to the decline in market risk RWA of CHF 22.1 billion,
in credit risk RWA of CHF 21.0 billion and, to a lesser extent, op-
erational risk RWA of CHF 5.6 billion.
Credit risk
The Basel 2.5 RWA for credit risk amounted to CHF 105.8 billion
on 31 December 2012 compared with Basel 2.5 RWA of CHF
126.8 billion on 31 December 2011. This decrease occurred
predominately in the fourth quarter of 2012 and was mainly at-
tributable to the accelerated implementation of our strategy,
hedging activity and sales of certain student loan auction rate
securities in the Legacy Portfolio. These activities impacted de-
rivative, repo-style and drawn and undrawn loan exposures. This
was partly offset in the third quarter by increased residential
mortgage exposures due to the recalibration of risk parameters
on residential mortgages.
➔ Refer to the “Credit risk” section of this report for more
information
Non-counterparty related assets
The Basel 2.5 RWA for non-counterparty related assets remained
stable and amounted to CHF 6.2 billion on 31 December 2012
compared with CHF 6.1 billion on 31 December 2011.
175
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Basel 2.5 capital information
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
31.12.12
31.12.11
36,666
40,982
48,498
19.0
21.3
25.2
192,505
105,807
6,248
27,173
53,277
34,014
38,370
41,564
14.1
15.9
17.2
240,962
126,804
6,050
49,241
58,867
1 Includes securitization exposures and equity exposures not part of the trading book and capital requirements for settlement risk (failed trades).
Market risk
The Basel 2.5 market risk RWA decreased by CHF 22.1 billion to
CHF 27.2 billion on 31 December 2012. The decrease was mainly
due to the reduction in incremental risk charge RWA on reduced
exposures, a model update for sovereign debt in the first quarter
and hedging activity. VaR and stressed VaR declined due to re-
duced risk positions and reduced credit spread risk.
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➔ Refer to the “Market risk” section of this report for more
information
the goodwill impairment in the Investment Bank and Legacy Port-
folio asset sales, reversal of own credit losses for the purpose of the
capital calculation and own-share-related components. These posi-
tive capital effects were partially offset by the 2012 net loss of CHF
2.5 billion and other deduction items, including negative foreign
currency effects and a dividend accrual.
The adoption of IAS 19R had no effect on tier 1 capital. The
regulatory capital effect of the adoption will be phased in annu-
ally from 1 January 2014 under Basel III.
Operational risk
Basel 2.5 RWA for operational risk was CHF 53.3 billion on 31 De-
cember 2012 compared with CHF 58.9 billion on 31 December
2011. This decrease was due to the annual model parameter re-
view whereby all advanced measurement approach parameter
updates that were approved by FINMA at the end of March 2012
were subsequently implemented.
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➔ Refer to the “Operational risk” section of this report for more
information
Basel 2.5 Eligible capital
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Eligible capital, the capital available to support RWA, consists of
tier 1 and tier 2 capital. To determine eligible capital, specific
adjustments must be made to equity attributable to our share-
holders as defined by IFRS. The most notable adjustments are the
deductions for goodwill, intangible assets, investments in uncon-
solidated entities engaged in banking and financial activities and
own credit effects on liabilities designated at fair value (see further
details in the “Reconciliation of IFRS equity to Basel 2.5 BIS capi-
tal” table).
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Basel 2.5 tier 1 capital
Our tier 1 capital amounted to CHF 41.0 billion on 31 December
2012, compared with CHF 38.4 billion on 31 December 2011, an
increase of CHF 2.6 billion. The positive contributors to this increase
were lower capital deductions of CHF 5.1 billion, driven mainly by
176
Basel 2.5 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.
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 2012, our hybrid tier 1 instruments amount-
ed to CHF 4.3 billion, slightly down from CHF 4.4 billion as of
31 December 2011, mainly due to negative foreign currency effects.
We intend to call the EUR 995 million hybrid tier 1 instrument
with a first call date on 11 April 2013. Hybrid tier 1 instruments
outstanding will continue to count towards regulatory capital (i.e.
, Basel III phase-in capital), but the eligibility is reduced over time in
line with the Basel III transition rules.
Basel 2.5 tier 2 capital
The major element in tier 2 capital is subordinated long-term
debt. Tier 2 instruments have been issued in various currencies
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Reconciliation of IFRS equity to Basel 2.5 BIS capital
CHF million
IFRS Equity attributable to UBS Shareholders
of which: effect of the adoption of IAS 19R 1
Reversal of the effect of the adoption of IAS 19R 1
Treasury shares at cost / Equity classified as obligation to purchase own shares
Own credit, net of tax 2
Unrealized gains from Financial investments available-for-sale, net of tax 2
Unrealized (gains) / losses from Cash flow hedges, net of tax 2
Other 3
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 4
Less: goodwill & intangible assets
Less: securitization exposures 5
Less: other deduction items 6
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 5
Less: other deduction items 6
BIS total capital
31.12.12
31.12.11
45,895
(3,948)
3,948
1,108
292
(232)
(2,983)
(1,286)
46,742
384
46,358
(1,460)
(6,461)
(1,469)
(685)
36,666
4,316
1,476
2,839
40,982
127
9,544
(1,469)
(685)
48,498
48,530
(4,917)
4,917
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
1 Refer to “Note 1 Summary of significant accounting policies” in the “Financial information” section of this report for more information on the adoption of IAS 19R. 2 IFRS equity components which are not recognized
for capital purposes, adjusted for changes in foreign exchange. 3 Consists of: i) qualifying non-controlling interests; ii) the netted impact of the change in scope of consolidation; iii) other adjustments due to reclassifica-
tions and revaluations of participations, prudential valuation, accrued dividend payment and the charge for compensation related increase in Basel III-compliant loss-absorbing tier 2 capital. 4 Consists of: i) net long po-
sition in own shares held for trading purposes; ii) own shares bought for unvested or upcoming share awards and iii) accruals built for upcoming share awards. 5 Includes a 50% deduction of the fair value of our option
to acquire the SNB StabFund’s equity (CHF 2,103 million on 31 December 2012 and CHF 1,629 million on 31 December 2011). 6 Positions to be deducted at 50% from tier 1 and 50% from total capital mainly consist
of: i) net long position of non-consolidated participations in the finance sector; ii) expected loss on advanced internal ratings-based portfolio less general provisions (if difference is positive); iii) expected losses on non-
trading equity exposures (simple risk weight method).
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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.
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.
In 2012, we had two issuances of USD 2 billion of loss-absorb-
ing notes which qualify as tier 2 capital under Basel III rules, and
count as progressive buffer capital in compliance with the “too-
big-to-fail” law under Swiss regulations for systemically impor-
tant banks as well as contribute to our targeted loss-absorbing
capital.
Our tier 2 capital, net of tier 2 deductions, amounted to CHF
7.5 billion on 31 December 2012 compared with CHF 3.2 billion
on 31 December 2011, an increase of CHF 4.3 billion. This in-
crease was mainly due to the issuances of the aforementioned tier
2 loss-absorbing notes and lower capital deductions of CHF 1.2
billion resulting mainly from Legacy Portfolio asset sales. These
positive effects of lower tier 2 deductions were mainly offset by a
reduction in the eligibility of existing tier 2 notes.
➔ Refer to the “Regulatory developments” section of this report
for more information with regard to regulation on systemically
important banks
Pro-forma Basel III common equity and
risk-weighted assets
The following pro-forma Basel III information is a voluntary disclo-
sure as Basel III requirements were not in effect on 31 December
2012. Such measures are non-GAAP financial measures as defined
by SEC regulations. We nevertheless include information on the ba-
sis of Basel III requirements because they became effective on 1 Jan-
uary 2013 and significantly impact our RWA and eligible capital.
177
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Pro-forma BIS Basel III capital information
CHF billion
Basel 2.5 tier 1 capital
Hybrid tier 1 capital
Deferred tax assets related to net operating losses
Deferred pension expenses
Effect of the implementation of IAS 19R
SNB StabFund option
Low-rated securitization exposures
Other adjustments 2
Basel III common equity tier 1 capital (fully applied)
Basel III loss-absorbing capital
Basel III total capital (fully applied)
Basel III common equity tier 1 capital (phase-in) 3
Basel III loss-absorbing capital
Basel III tier 2 capital (phase-in)
Basel III total capital (phase-in)
Basel 2.5 risk-weighted assets
Basel III uplift 4
Basel III risk-weighted assets (fully applied)
Basel III risk-weighted assets (phase-in) 5
Basel III common equity tier 1 capital ratio % (fully applied)
Basel III common equity tier 1 capital ratio % (phase-in)
Basel III total capital ratio % (fully applied)
Basel III total capital ratio % (phase-in)
31.12.12
41.0
(4.3)
(5.9)
(4.6)
(1.1)
0.4
(0.3)
25.2
4.2
29.3
40.0
4.2
5.4
49.6
193
66
258
262
9.8
15.3
11.4
18.9
31.12.11 1
38.4
(4.4)
(8.0)
(3.3)
0.8
1.8
0.1
25.3
0.0
25.3
41.0
0.0
6.1
47.1
241
139
380
383
6.7
10.7
6.7
12.3
1 Does not include the effect of the implementation of IAS 19R and calculation refinements affecting 31 December 2012 figures. 2 Includes the following deductions: qualifying non-controlling interests, own shares held
by the Investment Bank, own credit on replacement values (DVA), expected losses on non-trading equity exposures, goodwill related to investments in associates and shortfall of general provisions vs. expected losses. Also
includes the following additions: investments in non-consolidated entities, failed trades, goodwill-related deferred tax liabilities and unrealized gains on financial investments available-for-sale (only relevant for 31 Decem-
ber 2011). 3 Basel III phase-in rules applied on goodwill covered by hybrid tier 1 capital, deferred tax assets on net operating losses and effects of pension accounting related components. 4 The Basel III RWA uplift
consists mainly of revised treatment of low rated securitization exposures, credit valuation adjustments and other changes. 5 Includes the RWA effect of pension accounting related components, which are phased in.
We provide information on pro-forma Basel III RWA and capital,
both on a phase-in and on a fully applied basis. The information
provided on a fully applied basis does not consider the effects of the
transition period, during which new capital deductions are phased
in and ineligible Basel 2.5 capital instruments are phased out.
On 31 December 2012, our Basel III CET1 capital on a fully
applied basis was CHF 25.2 billion, remaining relatively stable com-
pared with the CHF 25.3 billion on 31 December 2011. The 2012
net loss, the impact of adopting IAS 19R and other negative effects
including the deduction of the fair value of the option to purchase
the SNB StabFund’s equity which was previously risk-weighted at
1250%, were almost offset by the reversal of own credit losses for
the purpose of capital calculation and a lower deduction for de-
ferred tax assets.
Pro-forma Basel III RWA were estimated to be CHF 258 bil-
lion on a fully applied basis on 31 December 2012, CHF 122
billion lower than a year earlier. CHF 48 billion of the decline in
Basel III RWA was due to the same factors that caused a de-
crease in Basel 2.5 RWA, and CHF 20 billion was associated
with a change in the treatment of UBS’s option to purchase the
SNB StabFund’s equity (now fully deducted from CET1 capital).
The remainder of the decline was mostly attributable to RWA
reductions in the Investment Bank and the Legacy Portfolio, re-
sulting from sales and other reductions of exposures and from
the net effect of changes in models and methodologies. The
vast majority of the overall reductions achieved in the Invest-
ment Bank and in the Legacy Portfolio resulted from sales and
other reductions of exposures. We are targeting Group RWA on
a fully applied Basel III basis of less than CHF 200 billion by the
end of 2017.
The resulting Basel III CET1 capital ratio stood at 9.8% on
31 December 2012 on a fully applied basis, an increase of 3.1 per-
centage points from 6.7% on 31 December 2011. We are target-
ing a CET1 fully applied ratio of 11.5% by the end of 2013 and
13% by the end of 2014. On a phase-in basis, our estimated Basel
III CET1 capital ratio was 15.3% on 31 December 2012 compared
with 10.7% on 31 December 2011. The regulatory capital effect
of the adoption of IAS 19R, together with related changes in
future periods, will be phased in annually from 1 January 2014
on an after-tax basis, such that regulatory capital becomes fully
adjusted on 1 January 2018.
➔ Refer to the ”Our strategy” section of this report for more
information about Basel III / TBTF implications for UBS and to
“Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Financial information” section
of this report for more information
178
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 4Q12
Average 4Q11
1,287.0
1,390.7
(395.4)
(166.2)
(68.3)
(8.7)
648.4
41.0
6.3
(436.6)
(163.6)
(65.8)
(12.8)
711.9
38.4
5.4
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 Fed-
eral 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 IFRS equity to Basel 2.5 BIS capital”
table for more information on deductions of assets from FINMA tier 1 capital. 5 FINMA tier 1 capital corresponds to Basel 2.5 tier 1 capital.
Transfer of capital and funding within UBS Group
Under Swiss company law, UBS is organized as an “Aktiengesell-
schaft”, a corporation that has issued shares of common stock to
investors. UBS AG is the parent company of the Group. The legal
entity structure of the Group is designed to support our busi-
nesses within an efficient legal, tax, regulatory and funding
framework. We enter into intragroup transactions to provide
funding and capital to individual UBS entities. As of 31 December
2012, 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 Group level,
with the expectation that the ratio will exceed this level during
normal times. On 31 December 2012, our leverage ratio was
6.3%, an increase of 0.9 percentage points compared with the
prior year-end.
In the first quarter of 2013, the existing FINMA leverage ratio
will be replaced by a FINMA Basel III minimum leverage ratio for
systemically important banks (FINMA Basel III leverage ratio). The
leverage ratio requirement is set at a level of 24% of the minimum
capital ratio requirement for the capital base, the buffer capital and
the progressive component. Our pro-forma FINMA Basel III leverage
ratio on a phase-in total capital requirement basis was 3.6% on 31
December 2012 compared with an estimated target requirement
of 4.2% on 1 January 2019.
Equity attribution framework
The equity attribution framework reflects our objectives of main-
taining a strong capital base and guiding businesses toward ac-
tivities that appropriately balance profit potential, risk and capital
usage.
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Within this framework, the Board of Directors (BoD) attributes
equity to the business divisions (including the Corporate Center)
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after considering their risk exposure, Basel III RWA usage, Basel III
leverage ratio denominator 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
– integrate Group-wide capital management activities with
those at business division and business unit levels
– measure current period and historical performance in a consis-
tent manner across business divisions and business units
– make better comparisons between our businesses and those of
our competitors
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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 Asset and Liability Management Committee may recom-
mend and the BoD may make discretionary adjustments 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 at-
tributed to the business divisions differs from the Group’s actual
equity during a given period, the difference (positive or negative)
is reflected as a separate line item.
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.
179
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Our equity allocation methodology is intended to measure the
RoAE of each business in a way which is comparable to the busi-
ness segments of international competitors and reflects the returns
generated by businesses on resources under their direct control.
In the second quarter of 2012, we refined our methodology for
risk-based capital, which is one of the drivers in our equity attribu-
tion framework, by expanding the risk capture and refining the
parameters used for risk-based capital. Potential losses are now
calculated across a broader set of risks at a very high confidence
level of 99.97%.
As outlined in the table “Average attributed equity”, the
amount of average equity attributed to the business divisions de-
creased by CHF 11 billion during 2012, including a decrease of
CHF 9 billion in the Investment Bank. The decline in the Invest-
ment Bank was mainly due to decreases in Basel III RWA, the Basel
III leverage ratio denominator, and risk-based capital following the
accelerated implementation of our strategy announced in Octo-
ber 2012, as well as the goodwill impairment recorded at the end
of the third quarter of 2012.
From 1 January 2013, attributed equity required to underpin re-
maining goodwill and intangible assets that arose from the Paine-
Webber acquisition has been transferred to the Corporate Center.
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Starting with reporting for the first quarter of 2013, the Cor-
porate Center also includes attributed equity related to non-core
businesses transferred from the Investment Bank following the
accelerated implementation of our strategy announced in Octo-
ber 2012.
On a pro-forma basis (as if these non-core businesses had been
fully transferred from the Investment Bank to the Corporate Cen-
ter), the average equity attributed to these non-core businesses
would have amounted to CHF 10.5 billion during the fourth
quarter of 2012. On the same pro-forma basis, the Investment
Bank’s attributed equity would have amounted to CHF 8.0 billion.
UBS shares
The majority of our tier 1 capital comprises share premium and
retained earnings attributed to UBS shareholders. As of 31 Decem-
ber 2012, total IFRS equity attributable to our shareholders
amounted to CHF 45,895 million, and was represented by a total
of 3,835,250,233 shares issued, of which 2.3% were held by UBS.
In 2012, shares issued were increased by a total of 3,128,334
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
Average attributed equity
CHF billion
Wealth Management
Wealth Management Americas
Investment Bank1
Global Asset Management
Retail & Corporate
Corporate Center
of which: Core Functions
of which: Legacy Portfolio
of which: Central items 2
Average equity attributed to the business divisions and Corporate Center
Difference
Average equity attributable to UBS shareholders
4Q12
4.3
5.9
18.5
2.1
4.4
10.3
2.9
5.4
2.0
45.5
1.5
47.0
4Q11
5.0
8.0
27.5
2.5
5.0
8.5
4.0
4.5
56.5
(8.5)3
48.0
1 Starting with reporting for the first quarter of 2013, the Corporate Center also includes attributed equity related to non-core businesses transferred from the Investment Bank following the accelerated implementation
of our strategy announced in October 2012. On a pro-forma basis, the average equity attributed to these non-core businesses would have amounted to CHF 10.5 billion during the fourth quarter of 2012. Therefore, on
the same pro-forma basis, the fourth quarter 2012 attributed equity for the Investment Bank amounts to CHF 8.0 billion of the 18.5 billion of attributed equity shown in the table above. 2 Central items within the Cor-
porate Center carries common equity not allocated to the business divisions, reflecting, with respect to the risk-weighted assets driver, excess equity that we have targeted above a 10% Basel III common equity
tier 1 ratio. 3 During the fourth quarter of 2012, UBS adopted IAS 19R retrospectively in accordance with the transitional provisions set out in the standard and prior periods have been restated. Refer to “Note 1
Significant accounting policies” in the “Financial information” section of this report for more information.
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
180
Maximum number of
shares to be issued
Year approved by
shareholder general
meeting
% of shares issued
31.12.12
100,000,000
145,510,992
380,000,000
625,510,992
2009
2006
2010
2.61%
3.79%
9.91%
16.31%
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the shareholders’ meeting as well as a proportionate share of dis-
tributed dividends. As per the articles of association of UBS, there
are no other classes of shares and no preferential rights for share-
holders.
➔ Refer to the “Shareholders’ participation rights” section of this
report for more information
Under Swiss company law, shareholders must approve in a
shareholders’ meeting any increase in the total number of issued
shares, which may arise from an ordinary share capital increase or
the creation of conditional or authorized capital. The table below
lists all shareholder-approved issuances of shares at year-end 2012.
Holding of UBS shares
We hold our own shares primarily to hedge employee share and
option participation plans. A smaller number are held by the In-
vestment Bank for hedging related derivatives and for market
making in UBS shares.
The holding of treasury shares on 31 December 2012 increased
to 87,879,601, or 2.3% of shares issued, from 84,955,551, or
2.2%, on the same date one year prior.
As of 31 December 2012, employee options and stock appre-
ciation rights to receive 17.8 million shares were exercisable.
Shares held in treasury or newly issued shares are delivered to the
31.12.12
31.12.11
3,835,250,233
3,832,121,899
3,128,334
87,879,601
1,281,386
84,955,551
3,747,370,632
3,747,166,348
45,895
6,461
39,434
12.25
10.52
48,530
9,695
38,835
12.95
10.36
UBS shares
Shares outstanding
Shares issued
of which: issuance of shares related to 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
Treasury share activities
Month of purchase
January 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
August 2012
September 2012
October 2012
November 2012
December 2012
Treasury shares purchased for employee share
and option participation plans and acquisitions 1
Number of shares
Average price in CHF
Number of shares (Cumulative)
Average price in CHF
Total number of shares
0
0
20,371,525
5,628,475
46,450,000
0
1,250,000
0
0
0
0
0
0.00
0.00
12.56
12.64
11.18
0.00
10.76
0.00
0.00
0.00
0.00
0.00
0
0
20,371,525
26,000,000
72,450,000
72,450,000
73,700,000
73,700,000
73,700,000
73,700,000
73,700,000
73,700,000
0.00
0.00
12.56
12.58
11.68
11.68
11.66
11.66
11.66
11.66
11.66
11.66
1 This table excludes market-making and related hedging purchases by the Investment Bank and reallocated UBS shares from the employee share-based compensation awards. 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 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 635,500 UBS shares during the year and held 2,234,500 UBS shares as of 31 December 2012.
181
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Trading volumes
1000 shares
SIX Swiss Exchange total
SIX Swiss Exchange daily average
NYSE total
NYSE daily average
Source: Reuters
31.12.12
3,046,539
12,186
156,152
625
For the year ended
31.12.11
3,974,639
15,648
239,713
951
31.12.10
4,166,417
16,403
296,517
1,177
employee at exercise. On 31 December 2012, 74.1 million treasury
shares were available for this purpose, and an additional 145.5
million unissued shares in conditional share capital were assigned
to cover future employee option exercises. At the end of 2012, 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.
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 (EPS) and shares outstand-
ing” for more information
Distributions to shareholders
The decision whether to pay a dividend, and the level of the divi-
dend, are dependent on our progress to reach our targeted capi-
tal ratios and cash flow generation. The decision on dividend pay-
ments is proposed by the BoD to the shareholders and is subject
to their approval at the Annual General Meeting in May 2013. We
intend to propose a distribution of CHF 0.15 per share against
reserves from capital contribution to the shareholders in 2012.
This is a 50% increase from last year.
Share liquidity
During 2012, the average daily volume traded in UBS shares on
the SIX Swiss Exchange (SIX) was 12.2 million shares. On the New
York Stock Exchange (NYSE), it was 0.6 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.
182
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)
2012
Fourth quarter 2012
December
November
October
Third quarter 2012
September
August
July
Second quarter 2012
June
May
April
First quarter 2012
March
February
January
2011
Fourth quarter 2011
Third quarter 2011
Second quarter 2011
First quarter 2011
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
1 Historical share price adjusted for the rights issue and stock dividend 2008.
15.62
15.62
15.62
14.94
14.04
12.60
12.60
11.19
11.35
12.79
11.56
12.09
12.79
13.60
13.35
13.60
13.00
19.13
12.23
15.75
17.60
19.13
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
9.69
11.39
14.27
13.89
11.39
9.69
10.55
10.08
9.69
10.55
10.59
10.55
11.10
10.64
12.05
12.52
10.64
9.34
9.80
9.34
14.37
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
14.27
14.27
14.27
14.50
13.96
11.45
11.45
10.68
10.29
11.05
11.05
10.95
11.33
12.65
12.65
12.65
12.53
11.18
11.18
10.54
15.33
16.48
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
16.99
16.99
16.99
15.89
15.05
13.57
13.57
11.52
11.88
14.15
12.18
12.97
14.15
14.77
14.65
14.77
14.19
20.08
14.21
18.63
20.03
20.08
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
9.78
12.32
15.46
14.63
12.32
9.78
11.01
10.15
9.78
10.96
10.96
11.19
12.11
11.17
13.05
13.83
11.17
10.42
10.47
10.42
17.20
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
15.74
15.74
15.74
15.71
15.02
12.18
12.18
11.15
10.60
11.71
11.71
11.38
12.37
14.02
14.02
14.03
13.59
11.83
11.83
11.43
18.26
18.05
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
183
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
184
Basel 2.5 Pillar 3186Introduction186Table 1: Overview of disclosures186Risk exposure measures and derivation of risk-weighted assets187Scope of regulatory consolidation188Risk-weighted assets188Table 2: Detailed segmentation of BIS Basel 2.5 risk-weighted assets189Credit risk189Table 3: Credit risk exposures and RWA190Table 4: Regulatory gross credit exposure by geographical region190Table 5: Regulatory gross credit exposure by counterparty type191Table 6: Regulatory gross credit exposure by residual contractual maturity192Table 7: Derivation of regulatory net credit exposure193Table 8: Regulatory gross credit exposure covered by guarantees and credit derivatives194Advanced internal ratings-based approach194Table 9: Regulatory net credit exposure by internal UBS ratings194Table 10: Regulatory net exposure-weighted average loss given default by internal UBS ratings195Table 11: Regulatory net exposure-weighted average risk weight by internal UBS ratings195Standardized approach196Table 12: Regulatory gross and net credit exposure by risk weight under the standardized approach196Table 13: Eligible financial collateral recognized under the standardized approach197Impairment, default and credit loss197Table 14: Impaired assets by region197Table 15: Impaired assets by exposure segment198Table 16: Changes in allowances, provisions and specific credit valuation adjustments198Table 17: Total expected loss and actual credit loss199Other credit risk information199Table 18: Credit exposure of derivative instruments200Table 19: Credit derivatives200Table 20: Credit derivatives by counterparty201Investment positions201Table 21: Equity instruments for banking book positions202Market risk202Table 22: Group: regulatory value-at-risk (10-day, 99% confidence, 5 years of historical data) by business division and Corporate Center203Table 23: Group: regulatory value-at-risk (10-day, 99% confidence, 5 years of historical data) by risk type203Table 24: Group: regulatory value-at-risk (1-day, 99% confidence, 5 years of historical data) backtesting204Stressed value-at-risk204Table 25: Group: stressed value-at-risk (10-day, 99% confidence, 5 years of historical data) by business division and Corporate Center204Table 26: Group: stressed value-at-risk (10-day, 99% confidence, 5 years of historical data) by risk type205Incremental risk charge205Table 27: Group: incremental risk charge by business division and Corporate Center205Comprehensive risk charge205Table 28: Group: comprehensive risk charge206Securitization206Objectives, roles and involvement 208
208
209
210
211
211
212
213
214
214
215
215
216
217
218
218
219
Securitization in the banking and trading book
Table 29: Securitization activity of the year in the
banking book
Table 30: Securitization activity of the year in the trading
book
Table 31: Outstanding securitized exposures
Table 32: Impaired or past due securitized exposures and
losses related to securitized exposures in the banking
book
Table 33: Exposures intended to be securitized in the
banking and trading book
Table 34: Securitization positions retained or purchased
in the banking book
Table 35: Securitization positions retained or purchased
in the trading book
Table 36: Capital requirement for securitization /
re-securitization positions retained or purchased
in the banking book
Table 37: Positions deducted from BIS tier 1 and
BIS tier 2 capital
Securitization exposures subject to early amortizations in
the banking book and trading book
Table 38: Re-securitization positions retained or purchased
in the banking book
Table 39: Re-securitization positions retained or purchased
in the trading book
Table 40: Aggregated amount of securitized exposures
subject to the market risk approach
Table 41: Correlation products subject to the
comprehensive risk measure or the securitization
framework for specific risk
Table 42: Securitization positions and capital requirement
for trading book positions subject to the securitization
framework
Table 43: Capital requirement / Deductions for
securitization positions related to correlation products
185
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Introduction
Risk exposure measures and derivation of
risk-weighted assets
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. Pillar 3 aims to encourage market discipline by requiring
banks to publish a range of disclosures on risk and capital.
The Swiss Financial Market Supervisory Authority (FINMA) re-
quires us to publish comprehensive quantitative and qualitative
Pillar 3 disclosures at least annually, as well as an update of quan-
titative disclosures and any significant changes to qualitative in-
formation at least semi-annually.
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 other sections of this annual report.
Measures of risk exposure may differ depending on whether the
exposures are calculated for financial accounting under Interna-
tional Financial Reporting Standards (IFRS), for determining our
regulatory capital or for internal management of the firm. Our
Basel 2.5 Pillar 3 disclosures are generally based on the measures
of risk exposure used to calculate the regulatory capital required
to underpin those risks.
The table on the next page provides a more detailed summary
of the approaches we use for the main risk categories for deter-
mining regulatory capital.
The naming conventions for the exposure segments used in
the following tables are based on Bank for International Settle-
ments (BIS) rules and differ from those under Swiss and EU regula-
tions. For example, “sovereigns” under the BIS naming conven-
tion equate to what are termed “central governments and central
banks” under the Swiss and EU regulations. Similarly, “banks”
equate to “institutions” and “residential mortgages” to “claims
secured on residential real estate”.
Although we use BIS guidelines to determine risk-weighted as-
sets (RWA) in this report, our calculation of the regulatory capital
requirement is based on FINMA regulations, which are more con-
servative and result in higher RWA.
Table 1: Overview of disclosures
The following table provides an overview of our Basel 2.5 Pillar 3 disclosures in our Annual Report 2012.
Basel 2.5 Pillar 3 requirement
Scope of consolidation
Capital structure
Capital adequacy
Risk management objectives, policies and methodologies
(qualitative disclosures)
Credit risk
Investment positions
Market risk
Operational risk
Interest rate risk in the banking book
Securitization
Remuneration
186
Disclosure in the Annual Report 2012
“Note 1”, “Note 34” in the “Financial information” section
and Basel 2.5 Pillar 3 section
“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” sections
“Basel 2.5 Pillar 3” section
“Risk management and control” and “Basel 2.5 Pillar 3” sections
“Risk management and control” section
“Risk management and control” section
“Basel 2.5 Pillar 3” section
“Compensation” section and “Note 31” in the “Financial information” section
Scope of regulatory consolidation
Generally, the scope for consolidation when calculating regulato-
ry capital requirements follows the IFRS consolidation rules for
subsidiaries directly or indirectly controlled by UBS AG that are
active in the banking and finance business, but excludes subsid-
iaries in other sectors. The significant operating subsidiaries in the
UBS Group (Group) consolidated for IFRS purposes and significant
changes to the scope are listed in “Note 34 Significant subsidiar-
ies and associates” in the “Financial information” section of this
report.
➔ Refer to “Note 1” in the “Financial information” section of this
report for more information
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. As of 31 De-
cember 2012:
– 175 real estate and commercial companies and investment
schemes are not consolidated for regulatory capital purposes,
but are risk-weighted.
– 10 insurance companies are not consolidated for regulatory
capital purposes, but are deducted from capital.
– 2 joint ventures controlled by two ventures are fully consoli-
dated for regulatory capital purposes, and are accounted for
under the equity method for IFRS.
– Securitization vehicles are not consolidated for regulatory capi-
tal purposes but are treated under the securitization framework.
Subsidiaries which are not included in the regulatory consoli-
dation did not report any capital deficiencies in 2012. 109 entities
are neither consolidated under IFRS nor consolidated under the
regulatory scope of consolidation. These entities are deducted
from eligible capital. This category mainly covers infrastructure
holdings and joint operations (e.g. settlement and clearing institu-
tions, stock and financial futures exchanges).
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, approved by FINMA, 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 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 value-at-risk (VaR), which is approved by FINMA. 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 and is approved by FINMA.
Securitization exposures in the banking book are assessed using the advanced internal ratings-based approach, ap-
plying risk weights based on external ratings. Securitization exposures in the trading book are assessed for their gen-
eral market risk as well as for their specific risk. The capital charged for general market risk is determined by the VaR
method, whereas the capital charge for specific risk is determined using the “comprehensive risk measure” method
or the internal ratings-based approach applying risk weights based on external ratings.
187
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Risk-weighted assets
The “Detailed segmentation of BIS Basel 2.5 risk-weighted as-
sets” 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
Table 2: Detailed segmentation of BIS Basel 2.5 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
Settlement risk (failed trades)
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
Net EAD
566,505
142,150
54,580
154,433
215,342
128,676
82,271
4,396
21,448
14,995
6,453
26,610
141
798
31.12.12
RWA
Advanced IRB
approach
Standardized
approach
21,733
222
2,083
16,312
3,116
1,362
1,754
6,248
91
73,847
3,205
8,654
43,250
18,737
13,888
4,111
739
7,136
5,497
1,639
28
2,972
27,173
5,686
7,367
5,192
8,928
615,501
53,277
164,434
28,071
31.12.11
RWA
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
Total
95,580
3,427
10,737
59,562
21,854
15,250
4,111
2,493
7,136
5,497
1,639
6,248
118
2,972
27,173
5,686
7,367
5,192
8,928
53,277
192,505
15,190
207,695
1 On 31 December 2012, CHF 2.9 billion of the securitization exposures, including CHF 2.1 billion for the option to acquire the SNB StabFund’s equity, were deducted from capital and therefore did not generate RWA
(on 31 December 2011, a total of CHF 5.3 billion of securitization exposures were deducted from capital, which included CHF 1.6 billion for the option to acquire the equity of the SNB StabFund). 2 Simple risk weight
method. 3 Advanced measurement approach. 4 Reflects an additional charge of 10% on credit risk RWA for exposures treated under the standardized approach, a surcharge of 200% for RWA of non-counterparty
related assets and additional requirements for market risk. 5 As of 31 December 2012, the FINMA tier 1 ratio amounts to 19.7% (15.0% for 31 December 2011) and the FINMA total capital ratio to 23.4% (16.2%
for 31 December 2011).
188
Credit risk
The tables in this section provide details on the exposures used to
determine the firm’s credit risk regulatory capital. The parameters
applied under the advanced internal ratings-based approach are
generally based on the same methodologies, data and systems
we use for internal credit risk quantification, except where certain
treatments are specified by regulatory requirements. These in-
clude, 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 therefore differs from that disclosed in the “Risk man-
agement and control” section of this report. Similarly, the regula-
tory capital prescribed measure of credit risk exposure also differs
from that required under IFRS.
➔ Refer to “Note 29c Maximum exposure to credit risk and credit
quality information” in the “Financial information” section of
this report for more information
For the majority of our derivative exposures we determine
our required regulatory capital by applying the effective expected
positive exposure as defined in Annex 4 of the Basel framework.
For a small portion of the derivatives portfolio we instead apply
the current exposure method based on the replacement value of
derivatives in combination with a regulatory prescribed add-on.
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 by segmentation which is con-
sistent with the regulatory capital calculation.
Table 3: Credit risk exposures and RWA
This table shows the derivation of RWA from the regulatory gross credit exposure, broken down by major types of credit exposure
according to classes of financial instruments.
Exposure
Average regulatory
risk-weighting
RWA 1
Average regulatory
gross credit
exposure
Regulatory gross
credit exposure
Less: regulatory
credit risk offsets
and adjustments
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
Banking products
Derivatives
Cash collateral receivables on derivative instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 2
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.12
Total 31.12.11
81,614
26,874
267,708
5,737
40,625
422,558
59,733
5,794
50,306
115,833
7,027
62,320
6,299
13,105
88,751
627,142
601,644
64,102
19,668
273,988
3,786
36,866
398,411
53,576
2,922
40,937
97,436
6,341
65,324
6,183
11,268
89,116
584,963
585,364
(6,833)
(4,257)
(1,852)
(371)
(13,312)
(52)
(58)
(5,036)
(5,145)
(18,458)
(28,786)
64,102
12,835
269,731
1,934
36,496
385,098
53,576
2,922
40,937
97,436
6,290
65,324
6,125
6,232
83,971
566,505
556,577
0%
21%
15%
38%
26%
14%
42%
29%
7%
27%
63%
1%
77%
94%
18%
17%
21%
1 The derivation of RWA is based on the various credit risk parameters of the advanced IRB approach and the standardized approach, respectively. 2 Excludes equity positions.
226
2,758
40,644
742
9,493
53,862
22,383
836
3,049
26,268
3,955
870
4,741
5,885
15,450
95,580
116,129
189
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Table 4: 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 geographical distribution is based on the legal domicile of the counterparty or issuer.
CHF million
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Off-balance sheet
Banking products
Derivatives
Cash collateral receivables on derivative instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 1
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.12
Total 31.12.11
1 Excludes equity positions.
Switzerland
Rest of
Europe
North
America
Latin
America Asia Pacific
Middle East
and Africa
24,142
529
163,590
94
7,313
4,891
10,484
23,106
1,216
7,594
30,166
4,071
62,004
2,099
19,823
4,903
4,305
78
5,263
15,969
52
469
36
1,302
200
4,056
288
366
195,669
47,291
118,163
5,861
26,515
4,910
5,406
70
2,523
7,999
1,436
374
4,634
6,444
23,861
1,752
21,013
46,626
2,592
24,328
1,269
3,136
17,282
649
13,730
31,661
2,452
34,952
4,323
3,006
31,325
44,733
210,112
125,242
194,557
210,181
120,612
189,198
519
26
272
817
72
21
17
9
119
6,798
7,582
5,802
215
2,767
8,784
1,184
4,556
187
462
6,390
41,690
51,312
706
209
633
1,549
40
31
12
22
105
6,564
6,479
Total regulatory
gross credit
exposure
Total regulatory
net credit
exposure
64,102
19,668
273,988
3,786
36,866
398,411
53,576
2,922
40,937
97,436
6,341
65,324
6,183
11,268
89,116
584,963
585,364
64,102
12,835
269,731
1,934
36,496
385,098
53,576
2,922
40,937
97,436
6,290
65,324
6,125
6,232
83,971
566,505
556,577
Table 5: 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
Banking products
Derivatives
Cash collateral receivables on derivative financial instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 2
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.12
Total 31.12.11
1 Also includes non-bank financial institutions. 2 Excludes equity positions.
190
Private
individuals
Corporates 1
3
173,982
2,362
176,344
1,041
2
270
1,313
4,046
1,164
5,210
182,867
175,361
95,485
2,872
32,836
131,195
25,240
1,126
30,383
56,749
4,810
9,420
1,330
9,532
25,093
213,037
240,229
Public entities
(including
sovereigns and
central banks)
Banks and
multilateral
institutions
Total
regulatory
gross credit
exposure
Total
regulatory
net credit
exposure
63,812
633
4,521
67
201
69,235
9,831
280
4,627
14,738
1,194
49,555
160
346
51,255
135,228
105,319
288
19,035
847
1,468
21,637
17,464
1,514
5,657
24,636
337
6,348
646
226
7,558
53,830
64,454
64,102
19,668
273,988
3,786
36,866
398,411
53,576
2,922
40,937
97,436
6,341
65,324
6,183
11,268
89,116
584,963
585,364
64,102
12,835
269,731
1,934
36,496
385,098
53,576
2,922
40,937
97,436
6,290
65,324
6,125
6,232
83,971
566,505
556,577
Table 6: 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 residual contractual maturity.
CHF million
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Off-balance sheet
Banking products
Derivatives
Cash collateral receivables on derivative financial instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale 2
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.12
Total 31.12.11
Due in
1 year or less
Due between
1 year and
5 years
Due over
5 years
6,063
95,381
727
7,730
109,901
19,711
1
8,327
28,039
1,534
36,651
38,185
176,125
205,337
144
71,671
2,492
26,451
100,758
11,985
610
12,595
2,761
20,511
23,272
136,625
139,807
25
35,199
552
2,566
38,343
21,875
23
21,898
1,988
8,162
10,150
70,391
81,024
Other 1
64,102
13,435
71,737
15
119
149,409
6
2,921
31,978
34,905
58
6,183
11,268
17,509
201,822
159,196
Total
regulatory
gross credit
exposure
Total
regulatory
net credit
exposure
64,102
19,668
273,988
3,786
36,866
398,411
53,576
2,922
40,937
97,436
6,341
65,324
6,183
11,268
89,116
584,963
585,364
64,102
12,835
269,731
1,934
36,496
385,098
53,576
2,922
40,937
97,436
6,290
65,324
6,125
6,232
83,971
566,505
556,577
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 Excludes equity positions.
191
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Table 7: Derivation of regulatory net credit exposure
This table provides a derivation of the regulatory net credit expo-
sure 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 exposure segments as follows:
– Corporates, consisting of all exposures that do not fit into any
of the other exposure segments listed below. This segment in-
cludes private commercial entities such as corporations, part-
nerships or proprietorships, insurance companies, funds, ex-
changes and clearing houses.
– Sovereigns (central governments and central banks as defined
under Swiss and EU regulations), consisting of exposures relat-
ing to sovereign states and their central banks, the BIS, the In-
ternational Monetary Fund, the EU (including the European
Central Bank) and eligible multilateral development banks.
– Banks (as defined under Swiss and EU regulations), consisting
of exposures to legal entities holding a banking license. This
segment also includes securities firms subject to supervisory
and regulatory arrangements, including risk-based capital re-
quirements, which are comparable to those applied to banks
according to the framework. The BIS regulation also includes
exposures to public sector entities with tax-raising power or
entities whose liabilities are fully guaranteed by a public entity
in this segment.
– Residential mortgages (claims secured on residential real
estate as defined under Swiss and EU regulations), consisting
of residential mortgages, regardless of exposure size, if the
obligor owns and occupies or rents out the mortgaged
property.
– Lombard lending, consisting of loans made against the pledge
of eligible marketable securities or cash.
– Other retail, consisting of exposures to small businesses, pri-
vate clients and other retail customers without mortgage fi-
nancing.
CHF million
Total regulatory gross credit exposure
Less: regulatory credit risk offsets and adjustments 1
Total regulatory net credit exposure
Total 31.12.11
Breakdown of the regulatory net credit exposure by exposure segment
Corporates
Sovereigns 1
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total regulatory net credit exposure
Total 31.12.11
Advanced IRB
approach
Standardized
approach
Total 31.12.12
Total 31.12.11
441,859
(13,345)
428,513
468,796
132,829
37,796
48,506
125,051
82,271
2,060
428,513
468,796
143,104
(5,112)
137,992
87,781
21,604
104,354
6,073
3,625
2,336
137,992
87,781
584,963
(18,458)
566,505
154,433
142,150
54,580
128,676
82,271
4,396
566,505
585,364
(28,786)
556,577
183,816
107,479
63,651
123,650
73,681
4,300
556,577
1 Includes high-quality liquid short-term securities issued by governments, government-controlled institutions, and central banks.
192
Table 8: Regulatory gross credit exposure covered by guarantees and credit derivatives
This table provides a breakdown of exposures covered by guaran-
tees as well as those covered by credit derivatives, according to
Basel-defined exposure segments.
The amounts in the table reflect the values used for determin-
ing regulatory capital to the extent collateral is eligible under the
Basel framework.
CHF million
Exposure segment
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.12
Total 31.12.11
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
5,923
59
363
7
408
52
6,813
7,003
16,147
87
97
16,331
17,297
193
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Advanced internal ratings-based approach
Table 9: Advanced internal ratings-based 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 rating
Regulatory net credit
exposure-weighted average
probability of default
Regulatory net credit exposure
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.12
of which: loan commitments
Total 31.12.11
of which: loan commitments
Internal UBS rating
Investment
grade
Sub-investment
grade
Defaulted 1
Total
regulatory
net credit
exposure
of which:
loan
commitments
Total
regulatory
net credit
exposure
of which:
loan
commitments
0 / 1
2 / 3
4 / 5
6–8
9–13
31.12.12
31.12.11
0.005%
0.055%
0.301%
0.965%
5.385%
0.470%
7,780
32,360
1,111
54,790
3,043
36,839
2,001
70,868
130
27,488
2,303
8,095
95,736
6,718
80
41,251
167,672
140,420
104
41,555
201
17,370
196,225
17,982
3,304
146,031
5,517
31,238
54
1,923
23,663
3,382
491
60,752
2,356
64,353
2,244
10,412
1,120
132,829
9
461
3,212
1,289
1,349
16,732
2,674
18,151
3,268
27
76
440
14
9
37,796
48,506
125,051
82,271
2,060
1,686
428,513
15
2,482
56
13,069
122
12,057
273
300
2
25,824
0.471%
159,853
58,727
55,953
119,565
73,681
1,018
468,796
16,005
237
12,509
255
262
1
29,269
1 Values of defaulted derivative contracts (CHF 716 million) are based on replacement values including “add-ons” used in the calculation of regulatory capital.
Table 10: Advanced internal ratings-based approach: Regulatory net exposure-weighted average loss given
default by internal UBS ratings
This table provides a breakdown of the net exposure-weighted average loss given default (LGD) for our credit portfolio exposures
calculated using the advanced internal ratings-based approach, according to our internal rating classes.
in %
Internal UBS rating
Regulatory net credit exposure-weighted average LGD
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Average 31.12.12
Average 31.12.11
194
Internal UBS rating
Investment
grade
Sub-investment
grade
Regulatory net credit
exposure-weighted
average LGD
0 / 1
2 / 3
4 / 5
6–8
9–13
31.12.12
31.12.11
23
26
32
26
21
24
41
29
22
20
20
24
26
31
67
29
13
20
7
19
19
25
26
25
17
20
38
21
22
24
27
32
15
20
40
23
25
26
30
29
14
20
37
22
28
34
31
10
20
38
23
Table 11: Advanced internal ratings-based 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 rating
Regulatory net credit exposure-weighted average risk weight
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Average 31.12.12
Average 31.12.11
Internal UBS rating
Investment
grade
Sub-investment
grade
Regulatory net credit
exposure-weighted average
risk weight
0 / 1
2 / 3
4 / 5
6–8
9–13
31.12.12
31.12.11
6
1
11
2
2
10
20
12
3
3
3
8
9
46
94
26
7
10
4
17
20
43
49
42
17
18
48
32
37
72
103
159
48
30
33
64
77
31
8
17
10
5
34
16
35
14
20
7
4
42
19
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 ex-
ternal credit assessment institutions (ECAI) or export credit agen-
cies to determine the risk weightings applied to rated counter-
parties. We use FINMA-recognized ECAI risk assessments to
determine the risk weightings for certain counterparties in 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:
Standard & Poor’s Ratings Group, Moody’s Investors Service and
Fitch Group. The mapping of external ratings to the standardized
approach risk weights is determined by FINMA and published on
its website.
195
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Table 12: 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 Basel-defined exposure segments.
CHF million
Risk weight
Regulatory gross credit exposure
Corporates
Sovereigns 1
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.12
Total 31.12.11
Regulatory net credit exposure 2
Corporates
Sovereigns 1
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.12
Total 31.12.11
Total exposure
Total exposure
0%
>0–35%
36–75%
76–100%
150%
31.12.12
31.12.11
24
104,080
6,260
4
3,271
776
97
2,779
3,023
613
104,104
48,315
12,558
15,838
24
104,080
6,260
4
3,266
2,337
6,601
9,015
776
97
2,779
3,009
613
104,104
48,315
12,540
15,838
2,336
6,601
8,935
18,431
172
3
970
19,576
19,877
14,320
172
3
3
14,498
14,479
240
25
25,730
104,354
6,078
28,241
48,761
7,749
4,606
5,240
2,337
143,104
21,604
104,354
6,073
3,285
93,275
23,963
48,752
7,698
3,625
4,085
2,336
137,992
3,283
87,781
265
229
224
25
249
215
1 Includes high-quality liquid short-term securities issued by governments, government-controlled institutions and central banks. 2 For traded products, the regulatory gross credit exposure is equal to the regulatory net
credit exposure.
Table 13: Eligible financial collateral recognized under the standardized approach
This table provides a breakdown of the financial collateral eligible for recognition in the regulatory capital calculation under the
standardized approach, according to Basel-defined exposure segments.
CHF million
Exposure segment
Corporates
Sovereigns 2
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Total
Regulatory net credit exposure
under standardized approach
Eligible financial collateral recognized
in capital calculation 1
31.12.12
31.12.11
31.12.12
31.12.11
21,604
104,354
6,073
23,963
48,752
7,698
3,625
4,085
2,336
137,992
3,283
87,781
6,223
26
1,412
981
8,643
5,211
40
1,188
1,155
3
7,596
1 Reflects the impact of the application of regulatory haircuts. For traded products, it is the difference between the IFRS reported values and the regulatory net credit exposure. 2 Includes high-quality liquid short-term
securities issued by governments, government-controlled institutions and central banks.
196
Impairment, default and credit loss
As illustrated in the tables below, our impaired assets were 45% lower on 31 December 2012 compared with 31 December 2011,
mainly due to a reduction in defaulted derivatives contracts with monolines as a result of trade commutations.
Table 14: Impaired assets by region
This table shows a breakdown of credit exposures arising from impaired assets, as well as allowances and provisions by region. Impaired
asset exposures include loans, off-balance sheet claims, securities financing transactions and derivative transactions.
Regulatory gross
credit exposure
41,690
6,798
6,564
194,557
210,112
125,242
584,963
585,364
Impaired assets 1
58
49
65
721
837
737
2,467
4,465
Specific allowances,
provisions and
credit valuation
adjustments
Impaired assets
net of specific
allowances,
provisions and
credit valuation
adjustments
(58)
(43)
(35)
(346)
(426)
(209)
(1,117)
(2,263)
6
30
374
411
528
1,349
2,201
Collective
loan loss
allowances 2
Total allowances,
provisions and
specific credit
valuation
adjustments 2
(58)
(43)
(35)
(348)
(539)
(209)
(1,232)
(2)
(113)
(114)
(131)
Total allowances,
provisions and
specific credit
valuation
adjustments
31.12.11
(45)
(27)
(34)
(1,465)
(604)
(220)
(2,395)
CHF million
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Total 31.12.12
Total 31.12.11
1 Values of defaulted derivative contracts (CHF 716 million; 31 December 2011: CHF 2,143 million) are based on replacement values and do not include “add-ons” used in the calculation of regulatory capital. 2 Col-
lective credit valuation adjustments of CHF 736 million (31 December 2011: CHF 1,073 million) are partially included in the upper tier 2 capital and therefore not included in this table.
Table 15: Impaired assets by exposure segment
This table provides a breakdown of credit exposures arising from impaired assets as well as allowances and provisions in accordance
with Basel-defined exposure segments.
Regulatory gross
credit exposure
162,925
142,271
63,443
0
129,657
82,271
4,396
584,963
585,364
Impaired assets 1
2,077
14
64
186
66
60
2,467
4,465
Specific allowances,
provisions and
credit valuation
adjustments
(937)
(10)
(26)
(51)
(49)
(43)
(1,117)
(2,263)
Collective
loan loss
allowances 2
Total allowances,
provisions and
specific credit
valuation
adjustments 2
(937)
(10)
(26)
(51)
(49)
(45)
(113)
(1,232)
(114)
(114)
(131)
Total allowances,
provisions and
specific credit
valuation
adjustments
31.12.11
Writeoffs for the
year ended
31.12.12
(134)
(1)
0
(26)
(162)
(299) 4
(2,081)
(10)
(15)
(66)
(37)
(54)
(131)
(2,395)
CHF million
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Not allocated segment 3
Total 31.12.12
Total 31.12.11
1 Values of defaulted derivative contracts (CHF 716 million; 31 December 2011: CHF 2,143 million) are based on replacement values and do not include “add-ons” used in the calculation of regulatory capital. 2 Col-
lective credit valuation adjustments of CHF 736 million (31 December 2011: CHF 1,073 million) are partially included in the upper tier 2 capital and therefore not included in this table. 3 Collective loan loss allow-
ances are not allocated to individual counterparties and thus also not to exposure segments. 4 Does not include CHF 152 million securitization-related writeoffs (31 December 2011: CHF 202 million).
197
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Table 16: 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 adjustments for defaulted derivatives.
Specific allowances
and provisions
for banking products
and securities
financing
807
(312)
63
133
(11)
Specific credit
valuation
adjustments for
derivatives
1,457
(1,018)
Total specific
allowances,
provisions and
credit valuation
adjustments
2,263
(312)
63
(885)
(11)
CHF million
Opening balance as of 1.1.12
Write-offs/usage of provisions
Recoveries (on written-off positions)
Increase / (decrease) in allowances,
provisions and specific credit valuation
adjustments 2
Foreign currency translations and
other adjustments
Transfers
Collective
loan loss
allowances 1
For the
year ended
31.12.12
For the
year ended
31.12.11
Opening balance
as of 1.1.11
131
(2)
(15)
-0
2,395
(313)
63
(899)
(12)
2,418
(501)
51
387
73
(32)
2,395
Closing balance as of 31.12.12
680 3
439
1,119
114
1,233
Closing balance
as of 31.12.11
1 Collective credit valuation adjustments of CHF 736 million (31 December 2011: CHF 2,143 million) are partially included in the upper tier 2 capital and therefore not included in this table. 2 Total actual credit loss
(credit loss expense and changes in specific credit valuation adjustments recognized in net trading income). 3 Includes CHF 2 million allowances for securities financing.
Table 17: Total expected loss and actual credit loss
This table provides a breakdown of the one-year expected loss
estimate on our credit portfolios (including lending, derivative
and securities financing portfolios) calculated as of 31 Decem-
ber 2011, and the actual IFRS credit loss amount (including
credit valuation adjustments on derivatives) charged against our
income statement in 2012, according to Basel-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 2012.
Expected loss
Actual credit (loss) / recovery and credit valuation adjustments
CHF million
31.12.11
Corporates 1
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Not allocated segment 2
Total
Total expected loss
Actual credit
(loss) / recovery
(322)
(19)
(35)
(59)
(24)
(5)
(463)
(133)
0
(1)
15
(12)
(11)
24
(118)
For the year ended
31.12.12
Specific credit
valuation adjust-
ments for defaulted
derivatives
1,018
1,018
For the year ended
31.12.11
Total actual credit
(loss) / recovery
and specific credit
valuation
adjustments
Total actual credit
(loss) / recovery and
specific credit
valuation adjustments
884
0
(1)
15
(12)
(11)
24
899
(321)
(1)
3
12
(5)
(75)
(387)
1 Includes actual credit loss from Legacy Portfolio, which amounted to CHF 112 million. 2 Includes changes in collective loan loss allowances and provisions.
198
Other credit risk information
Our credit derivatives trading is predominantly on a collateralized
basis. This means that our credit exposures arising from our de-
rivatives activities with collateralized counterparties are typically
closed out in full or reduced to nominal levels on a regular basis
by the use of collateral.
Derivatives trading with counterparties with high credit ratings
(for example a large bank or broker-dealer) is typically under an
International Swaps and Derivatives Association (ISDA) master
netting agreement. Credit exposures to those counterparties from
credit default swaps (CDS), together with exposures from other
over-the-counter (OTC) derivatives, are netted and included in the
calculation of the collateral that is required to be posted. Trading
with lower-rated counterparties such as hedge funds would gen-
erally require an initial margin to be posted by the counterparty.
We receive collateral from or post collateral to our counterpar-
ties based on our open net receivable or net payable from OTC
derivative activities. Under the terms of the ISDA master netting
agreement and similar agreements, this collateral, which gener-
ally takes the form of cash or highly liquid debt securities, is avail-
able to cover any amounts due under those derivative trans-
actions.
Settlement risk, including payment risk of CDS, has been miti-
gated 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 refer-
ence entity. We had no experience of any significant losses from
failed settlements of CDS contracts in 2012.
The vast majority of our CDS trading activity is conducted by
the Investment Bank. The “Credit derivatives by counterparty
category” table on the next page provides further analysis of
the Investment Bank’s CDS counterparties based on the notional
amount of CDS protection purchased and sold. The analysis
shows that the vast majority of the Investment Bank’s CDS coun-
terparties were market professionals. Based on the same notional
measure, approximately 98% of these counter parties were rated
investment grade and approximately 99% of the CDS activity was
traded on a collateralized basis.
Table 18: Credit exposure of derivative instruments
This table provides an overview of our credit exposures arising
from derivatives. Exposures are provided based on the balance
sheet carrying values of derivatives as well as regulatory net credit
exposures. The net balance sheet credit exposure differs from the
regulatory net credit exposures because of differences in valuation
methods and the netting and collateral deductions used for
accounting and regulatory capital purposes. Net current credit
exposure is derived from gross positive replacement values,
whereas regulatory net credit exposure is calculated using our
internal credit valuation models.
CHF million
Gross positive replacement values
Netting benefits recognized
Collateral held
Net current credit exposure
Regulatory net credit exposure (total counterparty credit risk)
of which: treated with internal models (effective expected positive exposure [EPE])
of which: treated with supervisory approaches (current exposure method)
Breakdown of the collateral held
Cash collateral
Securities collateral and debt instruments collateral (excluding equity)
Equity instruments collateral
Other collateral
Total collateral held
31.12.12
418,029
(327,320)
(55,890)
34,818
53,576
44,135
9,441
49,382
6,236
101
171
55,890
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
199
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Table 19: Credit derivatives 1, 2
This table provides an overview of our credit derivative portfolio by product group using notional amounts. 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 31.12.12
Total 31.12.11
Regulatory banking book
Regulatory trading book
Total
Protection
bought
13,711
Protection
sold
Total
Protection
bought
Protection
sold
Total
31.12.12
31.12.11
119
13,831
1,068,447
1,059,970
2,128,417
2,142,248
2,541,632
13,711
22,348
119
3,719
4,212
1,524
5,736
13,831
1,072,659
1,061,494
2,134,153
5,736
2,147,984 3
4,403
26,067
1,283,606
1,236,362
2,519,968
2,546,035
1 Notional amounts of credit derivatives are based on accounting definitions and do not include any netting benefits. For capital underpinning of the counterparty credit risk of derivative positions, the effective expected
positive exposure (or exposure according to current exposure method) is taken. 2 Notional amounts are reported based on regulatory scope of consolidation and do not include options and warrants. 3 Does not
include notionals for credit derivatives traded via a central clearing counterparty of CHF 236.4 billion on December 2012 and CHF 172.4 billion on December 2011.
Table 20: Credit derivatives by counterparty 1
Developed markets commercial banks
Broker-dealers, investment and merchant banks
Hedge funds
All other
% of total notional
% of buy notional
% of sell notional
31.12.12
31.12.11
31.12.12
31.12.11
31.12.12
31.12.11
60
24
3
13
60
23
1
16
60
23
2
15
59
23
1
18
61
24
4
11
61
23
2
14
1 Counterparty analysis based on notional CDS exposures of the Investment Bank sourced from credit risk systems.
200
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 cap-
ital. Tradable assets, for example, are treated under market
risk value-at-risk (VaR).
(iii) Differences in the scope of consolidation. Certain special pur-
pose entities, for example, are consolidated for IFRS but not
for regulatory capital.
Table 21: Equity instruments for banking book positions
The table below shows the three different equity instrument cat-
egories 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 resulting in the total equity instruments exposure under BIS
framework, the corresponding RWA and capital charge.
The table also shows net realized gains and losses and unreal-
ized revaluation gains relating to the equity investments.
CHF million
Equity instruments
Financial investments available-for-sale
Financial assets designated at fair value 1
Investments in associates
Total equity instruments under IFRS
Regulatory capital adjustment
Total equity instruments under BIS
of which: to be risk-weighted
publicly traded
privately held 2
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 equity instruments
Net realized gains / (losses) from disposals
Unrealized revaluation gains
of which: included in tier 2 capital
Book value
31.12.12
31.12.11
725
25
858
1,608
1,071
2,678
184
1,198
1,297
2,972
238
1,535
122
41
18
699
730
795
2,223
778
3,001
173
1,427
1,402
3,310
265
1,667
(9)
49
22
1 Decrease was mainly due to a reclassification of investment fund units from equity to debt investments. For regulatory purposes, these investments are classified as equity and were included in the line “Regulatory
capital adjustments”. 2 Includes CHF 584 million exposure booked in trust entities that did not generate risk-weighted assets (CHF 717 million on 31 December 2011).
201
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Market risk
Risk-weighted assets (RWA) attributable to market risk decreased
to CHF 27.2 billion as of 31 December 2012 compared with CHF
49.2 billion as of 31 December 2011. The decrease was mainly
due to the reduction in incremental risk charge RWA on reduced
exposures and a model update for sovereign debt in the first
quarter and hedging activity. VaR and stressed VaR declined due
to reduced risk positions and reduced credit spread risk. The mar-
ket risk regulatory capital requirement is 8% of the respective
RWA. Market risk regulatory capital and risk-weighted assets are
based on our VaR model and subject to regulatory determined
multipliers.
The population of the portfolio within management and regu-
latory VaR is slightly different. Management VaR includes all posi-
tions subject to internal management VaR limits. The population
within regulatory VaR is a subset of this total population that meets
minimum regulatory requirements for inclusion in regulatory VaR.
The following VaR tables include the market risks arising from
the incident related to the Facebook initial public offering in the
second quarter 2012. This affected the maximum and average
VaR of Equities and the Investment Bank as a whole.
➔ Refer to the “Risk management and control” sections of this
report for more information on market risk
Table 22: Group: regulatory value-at-risk (10-day, 99% confidence, 5 years of historical data)
by business division and Corporate Center
This table provides a breakdown of the Group’s minimum, maximum, average and period-end regulatory VaR by business division.
CHF million, except where indicated
Wealth Management
Wealth Management Americas
Investment Bank 2
Global Asset Management
Retail & Corporate
Corporate Center 2
Diversification effect
Total regulatory VaR, Group
Diversification effect (%)
For the year ended 31.12.12
Min.
0
14
58
0
0
8
– 3
56
Max.
0
25
769
1
1
117
– 3
776
Average
31.12.12
0
18
131
0
0
37
(54)
133
(29)
0
17
61
0
0
43
(58)
63
(48)
For the year ended
31.12.11 1
0
24
132
0
0
9
(24)
142
(14)
1 The Basel 2.5 enhancements became effective as of 31 December 2011, therefore the minimum, maximum and average valued for the year ended 31 December 2011 are not shown. 2 Prior periods have not been
restated for the transfer of legacy positions from the Investment Bank to the Corporate Center. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate
a portfolio diversification effect.
202
Table 23: Group: regulatory value-at-risk (10-day, 99% confidence, 5 years of historical data) by risk type
This table provides a breakdown of the Group’s minimum, maximum, average and period-end regulatory VaR by risk type.
CHF million, except where indicated
Min.
Max.
Average
31.12.12
For the year ended 31.12.12
Equities
Interest rates
Credit spreads
Foreign exchange
Energy, metals and commodities
Diversification effect
Total regulatory VaR, Group
Diversification effect (%)
24
40
99
21
6
– 2
56
713
162
296
149
75
– 2
776
52
79
186
51
17
(252)
133
(65)
27
40
104
38
21
(166)
63
(72)
For the year ended
31.12.11 1
52
61
220
60
17
(269)
142
(65)
1 The Basel 2.5 enhancements became effective as of 31 December 2011, therefore the minimum, maximum and average values for the year ended 31 December 2011 are not shown. 2 As the minimum and maximum
occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
Table 24: Group: regulatory value-at-risk (1-day, 99% confidence, 5 years of historical data) 1
This table provides a breakdown of the Group and Investment Bank’s minimum, maximum, average and period-end regulatory back-
testing VaR.
CHF million
Investment Bank 3
Group 3
Min.
24
23
For the year ended 31.12.12
Max.
239
239
Average
31.12.12
47
47
24
25
For the year ended
31.12.11 2
55
58
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 The Basel 2.5 enhance-
ments became effective as of 31 December 2011, therefore the minimum, maximum and average values for the year ended 31 December 2011 are not shown. 3 Backtesting is based on 1-day 99% regulatory VaR.
203
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Stressed value-at-risk
Stressed VaR is a 10-day 99% measure calibrated to a one-year period of significant financial stress relevant to the current portfolio of
the Group. Stressed VaR adopts broadly the same methodology as VaR with modifications as required to calibrate the model to a his-
torical stress period.
Table 25: Group: stressed value-at-risk (10-day, 99% confidence, 5 years of historical data)
by business division and Corporate Center
This table provides a breakdown of the Group’s period-end regulatory stressed VaR by business division.
CHF million, except where indicated
Wealth Management
Wealth Management Americas
Investment Bank 2
Global Asset Management
Retail & Corporate
Corporate Center 2
Diversification effect
Total stressed VaR, Group
Diversification effect (%)
For the year ended 31.12.12
Min.
0
18
100
0
0
12
– 3
105
Max.
1
31
1,111
1
0
200
– 3
1,127
Average
31.12.12
0
24
184
1
0
58
(78)
189
(29)
0
23
118
1
0
77
(94)
125
(43)
For the year ended
31.12.11 1
0
31
173
0
0
14
(39)
181
(18)
1 The Basel 2.5 enhancements became effective as of 31 December 2011, therefore the minimum, maximum and average values for the year ended 31 December 2011 are not shown. 2 Prior periods have not been
restated for the transfer of legacy positions from the Investment Bank to the Corporate Center. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate
a portfolio diversification effect.
Table 26: Group: stressed value-at-risk (10-day, 99% confidence, 5 years of historical data) by risk type
This table provides a breakdown of the Group’s period-end regulatory stressed VaR by risk type.
CHF million, except where indicated
Equities
Interest rates
Credit spreads
Foreign exchange
Energy, metals and commodities
Diversification effect
Total stressed VaR, Group
Diversification effect (%)
For the year ended 31.12.12
Min.
20
43
159
28
7
– 2
105
Max.
1,015
285
528
222
110
– 2
1,127
Average
31.12.12
76
93
326
83
23
(413)
189
(69)
38
43
163
61
40
(220)
125
(64)
For the year ended
31.12.11 1
65
54
399
88
22
(446)
181
(71)
1 The Basel 2.5 enhancements became effective as of 31 December 2011, therefore the minimum, maximum and average values for the year ended 31 December 2011 are not shown. 2 As the minimum and maximum
occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
204
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 one-year time horizon at a
99.9% confidence level. To capture the risk over a one-year
period, the calculation of the measure assumes all positions in the
IRC portfolio have a one-year liquidity horizon and are kept un-
changed over this period.
The portfolio default and credit migrations loss distribution is
estimated using a Monte Carlo simulation of correlated credit mi-
gration 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 immedi-
ate default event and assuming zero recovery) and a random recov-
ery concept. To account for the default basis risk, different recovery
values may be generated for different instruments even if they be-
long 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 corre-
sponding 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.
Table 27: Group: incremental risk charge by business division and Corporate Center
This table provides a breakdown of the Group’s period-end regulatory incremental risk charge by business division.
CHF million, except where indicated
Wealth Management
Wealth Management Americas
Investment Bank 2
Global Asset Management
Retail & Corporate
Corporate Center 2
Diversification effect
Total incremental risk charge, Group
Diversification effect (%)
Min.
0
5
109
0
0
143
– 3
131
For the year ended 31.12.12
Max.
2
32
1,074
0
0
258
– 3
1,045
Average
0
13
706
0
0
196
(212)
703
(23)
31.12.12
0
10
109
0
0
183
(168)
135
(56)
For the year ended
31.12.11 1
0
82
1,349
0
306
(303)
1,435
(17)
1 The Basel 2.5 enhancements became effective as of 31 December 2011, therefore the minimum, maximum and average values for the year ended 31 December 2011 are not shown. 2 Prior periods have not been
restated for the transfer of legacy positions from the Investment Bank to the Corporate Center. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate
a portfolio diversification effect.
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, cor-
relation and recovery, measured over a one-year time horizon at a
99.9% confidence level. To capture the risk over a one-year peri-
od, the calculation of the measure assumes that all positions in
the CRM portfolio have a one-year liquidity horizon and are kept
unchanged over this time period.
The CRM loss distribution is estimated using Monte Carlo sim-
ulation 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 per-
centile is then taken from the resulting profit or loss distribution,
to give 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 mea-
sure for regulatory capital purposes is subject to a floor calculation
equal to 8% of the equivalent capital charge under a the securiti-
zation framework.
Table 28: Group: comprehensive risk charge
This table provides a breakdown of the Group’s period-end regulatory comprehensive risk charge for the Investment Bank.
CHF million
Investment Bank
Group
Min.
594
594
For the year ended 31.12.12
Max.
770
770
Average
31.12.12
675
675
604
604
1 The Basel 2.5 enhancements became effective as of 31 December 2011, therefore the minimum, maximum and average values for the year ended 31 December 2011 are not shown.
For the year ended
31.12.11 1
636
636
205
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Securitization
This section provides details of traditional and synthetic securitiza-
tion exposures in the banking and trading book. It also provides
details of the regulatory capital associated with these exposures,
based on the enhancements made to the Basel II framework as
well as the revised Basel II market risk framework, commonly re-
ferred 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 that has been established to own the loan pool
and to issue tranched securities to third-party investors referenc-
ing this pool of loans. In a synthetic securitization, legal owner-
ship of securitized pools of assets is typically retained, but associ-
ated credit risk is transferred to a special purpose entity typically
through guarantees, credit derivatives or credit-linked notes. Hy-
brid structures with a mix of traditional and synthetic features are
disclosed as synthetic securitizations.
We act in different roles in securitization transactions. As origi-
nator, we create or purchase financial assets, which are then secu-
ritized in traditional or synthetic securitization transactions, en-
abling us to transfer significant risk to third-party investors. As
sponsor, we manage or advise securitization programs. In line
with the Basel framework, this sponsoring includes underwriting,
that is, placing securities into the market. In all other cases, we act
in the role of investor by taking securitization positions.
Risk-weighted assets attributable to securitization positions
decreased to CHF 7.1 billion as of 31 December 2012 from CHF
7.3 billion a year earlier. Ratings downgrades and new synthetic
securitization transactions in the banking book contributed to in-
creased risk-weighted assets of CHF 1.6 billion. This increase was
more than offset by a CHF 1.8 billion reduction in risk-weighted
assets related to the sale of student loan auction rate securities
and commercial mortgage-backed securities mainly during the
second half of the year.
Objectives, roles and involvement
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 a) reclassified under IFRS from Held for trading to Loans
and receivables in the fourth quarter of 2008 and the first quar-
ter of 2009, or b) classified as Loans and receivables when ac-
quiring student loan auction rate securities from clients. As of
31 December 2012, this portfolio included mainly student loan
auction rate securities, and to a lesser extent collateralized debt
obligations and collateralized loan obligations some of which
have credit default swap protection purchased from monoline
insurers, as well as commercial mortgage-backed securities, resi-
dential mortgage-backed securities and reference-linked note
programs. New credit-risk hedging transactions in 2012 in-
creased our position in synthetic securitizations of portfolios of
counterparty credit risk in over-the-counter derivatives and loan
exposures. These transactions are primarily used to reduce our
credit risk by synthetically transferring counterparty risk.
In 2012, we acted in the roles of both originator and sponsor.
As originator, we sold originated commercial mortgage loans into
securitization programs. Furthermore, we synthetically securitized
portfolios of counterparty credit risk inherent in over-the-counter
derivatives and loan exposures. As sponsor, we managed or ad-
vised securitization programs and helped to place the securities
into the market. The table “Table 29: Securitization activity of the
year in the banking book” provides an overview of our originating
and sponsoring activities in 2012 and 2011 respectively. With re-
turning liquidity in the markets for commercial mortgage-backed
securities, residential mortgage-backed securities as well as col-
lateralized debt obligations, and in line with our market risk poli-
cies, certain legacy risk positions were moved from the banking
book to the trading book during 2012.
Securitization and re-securitization positions in the banking
book are measured either at fair value or at amortized cost less
impairment. The impairment assessment is generally based on the
net present value of future cash flows expected from a certain
instrument that are derived from the underlying pool of assets.
Securitization in the trading book
Securitizations (including correlation products) held in the trading
book are part of the trading activities, which typically include
market-making and client facilitation. During 2012, certain legacy
risk positions were moved from the banking book to the trading
book, as liquidity returned to the markets. We were also involved
in the placement of securitizations of assets originated by other
institutions in the market, that is, we acted in the role of a spon-
sor. In certain cases we provided warehouse financing to collater-
alized loan obligation (CLO) managers. The table “Table 30: Secu-
ritization activity of the year in the trading book” provides an
overview of our originating and sponsoring activities in 2012 and
2011 respectively. Included in the trading book are positions in
our correlation book and legacy positions in leveraged super se-
nior tranches. In the trading book, securitization and re-securitiza-
tion positions are measured at fair value reflecting market prices
where available or are based on our internal pricing models.
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 entity employed is selected as appropriate based on the
type of transaction undertaken. Examples of this include limited
liability corporations, common law trusts and depositor entities.
We manage or advise significant groups of affiliated entities
that invest in exposures we have securitized or in special purpose
entities we sponsor. Significant groups of affiliated entities include
206
North Street, Brooklands / ELM, and East Street, which are in-
volved in the US, European and Asia Pacific reference-linked note
programs, respectively.
the-counter derivatives and loan exposures for which an external
rating was not sought. The supervisory formula approach is also
applied to leveraged super senior tranches.
➔ Refer to the “Market risk” section of this report for more
information on reference-linked notes and to “Note 1 a) 3)
Special purpose entities” in the “Financial information” section
of this report
Managing and monitoring of the credit and
market risk of securitization positions
The banking book securitization portfolio is subject to specific risk
monitoring, which may include interest rate and credit spread
sensitivity analysis, as well as inclusion in firm-wide earnings-at-
risk, capital-at-risk and combined stress test metrics.
The trading book securitization positions are also subject to
multiple risk limits, in the Investment Bank, such as management
VaR and stress limits as well as market value limits. As part of
managing risks within the pre-defined risk limits, traders may uti-
lize hedging and risk mitigation strategies. Hedging may however
expose the firm to basis risks as the hedging instrument and the
position being hedged may not always move in parallel. Such ba-
sis risks are managed within the overall limits. Any retained secu-
ritization from origination activities and any purchased securitiza-
tion positions are governed by risk limits together with any other
trading positions.
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 secu-
ritization positions using ratings, if available, from Standard &
Poor’s, Moody’s and Fitch for all securitization and re-securitization
exposures. If two of these rating agencies have issued a rating for
a particular position, we would apply the worst credit rating of the
two. If all three rating agencies have issued a rating for a particular
position, we would apply the second worst credit rating of the
three. 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 par-
ticular to the US and European reference-linked note programs.
For the purposes of determining regulatory capital and the Pillar 3
disclosure for these positions, the underlying exposures are re-
ported under the standardized approach, the advanced internal
ratings-based approach or the securitization approach, depend-
ing on the category of the underlying security. If the underlying
security is reported under the standardized approach or the ad-
vanced internal ratings-based approach, the related positions are
excluded from the tables on the following pages.
The supervisory formula approach is applied to synthetic secu-
ritizations of portfolios of counterparty credit risk inherent in over-
In the trading book, the comprehensive risk measure is used for
the correlation portfolio as defined by Basel 2.5 requirements. This
measure broadly covers securitizations of liquid corporate underly-
ing assets as well as associated hedges that are not necessarily se-
curitizations, for example, single name credit default swaps and
credit default swaps on indices.
We do not apply the concentration ratio approach or the inter-
nal assessment approach to 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 our 2012 Annual Report
for information on our accounting policies that relate to our se-
curitization activities, primarily “Note 1 a) 3) Special purpose en-
tities” and “Note 1a) 12) Securitization structures set up by
UBS”. We disclose our intention to securitize exposures as an
originator if assets are designated for securitization and a tenta-
tive pricing date for a transaction is known as of the balance
sheet date or if a pricing of a transaction has been fixed. In 2012,
for the first time we included assets intended to be securitized
for which a tentative transaction pricing date was set at the bal-
ance sheet date. This scope change did not affect disclosed 2011
numbers. Exposures intended to be securitized continue to be
valued in the same way until such time as the securitization
transaction takes place.
Presentation principles
It is our policy to present Pillar 3 disclosures for securitization
transactions and balances in line with the capital adequacy treat-
ments which were applied under Pillar 1 in the respective period
presented.
We do not amend comparative prior period numbers for pre-
sentational changes triggered by new and revised information
from third-party data providers, as long as the updated informa-
tion 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 Savings
Banks Group and the European Association of Public Banks and
Funding Agencies published the “Industry good practice guide-
lines on Pillar 3 disclosure requirement for securitization”. These
guidelines were slightly revised in 2009 / 2010, and this report
complies with that publication in all material respects.
207
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Securitization in the banking and trading book
These tables outline the exposures, that is, the transaction size at
inception we securitized in the banking and trading book in the
years 2012 and 2011. The activity is further broken down by our
role (originator / sponsor) and by type (traditional / synthetic).
Amounts disclosed under the “Traditional” column of these
tables reflect the total outstanding notes at par value issued by
the securitization vehicle at issuance. For synthetic securitization
transactions, the amounts disclosed generally reflect the balance
sheet carrying values of the securitized exposures at issuance.
For securitization transactions where we acted as originator, ex-
posures are split into two parts, those in which we have retained
securitization positions and / or continue to be involved on an on-
going basis (e.g. credit enhancement, implicit support), and those
in which we have no retained securitization positions and / or have
no further involvement.
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 un-
der “Sponsor”. As a result, as of 31 December 2012 and 31 De-
cember 2011, amounts of CHF 3.8 billion and CHF 2.8 billion,
respectively, were included in the banking book table under both,
“Originator” and “Sponsor”.
Table 29: Securitization activity of the year in the banking book
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
3,768
166
7,189
3,768
0
6,735
6,735
0
166
7,189
0
2,789
80
6,232
2,789
0
0
0
80
6,232
0
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other 1
Total 31.12.12
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.11
1 New credit risk hedging transactions increased our position in synthetic securitizations in over-the-counter derivatives and loan exposures. These transactions are primarily used to reduce our credit risk by synthetically
transferring counterparty risk.
208
Table 30: Securitization activity of the year in the trading book
Originator
Sponsor 1
Traditional
Synthetic
Securitization
positions retained
No securitization
positions retained
Securitization
positions retained
No securitization
positions retained
Realized
gains / (losses)
on traditional
securitizations
Traditional
Synthetic
0
0
0
0
0
0
1,033
1,033
495
422
0
0
0
0
0
917
0
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.12
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.11
1 In 2012, we adjusted the scope of this disclosure such that we do not include sponsor-only activity where we do not retain a position. In these cases we advised the originator or placed securities in the market for a
fee, and did not otherwise impact our capital. 31 December 2011 comparatives are presented on this adjusted basis. This better reflects the objective of the disclosure to provide transparency on the use of securitization
transactions for risk management or funding purposes.
209
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Table 31: Outstanding securitized exposures
This table outlines exposures (i.e. outstanding transaction size) in
which we have originated and / or retained securitization positions
at the balance sheet date in the banking or trading book and / or
are otherwise involved on an ongoing basis (e.g. credit enhance-
ment, implicit support).
Amounts disclosed under the “Traditional” column in this ta-
ble reflect the total outstanding notes at par value issued by the
securitization vehicle. For synthetic securitization transactions, we
generally disclose the balance sheet carrying values of the expo-
sures securitized or, for hybrid structures, the outstanding notes at
par value issued by the securitization vehicle.
The table also includes securitization activities conducted in
2012 and 2011 in which we retained / purchased positions. These
can also be found in the tables “Banking book / trading book –
securitization activity of the year”. Where no positions were re-
tained, the outstanding transaction size is only disclosed in the
year of inception for originator transactions.
All values in this table are as of the balance sheet date.
Banking Book
Trading Book 1
Originator
Sponsor
Originator
Sponsor
Traditional
Synthetic
Traditional
Synthetic
Traditional
Synthetic
554
Synthetic
Traditional 2
7,578
17,989
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.12
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.11
1,288
3,768
840
5,896
2,589
2,767
782
8,590
9,372
150
5,034
597
10,987
3,594
1,861
5,605
2,474
14,772
0
306
394
0
13,296
0
3,489
2,801
37,532
6,071
22,210
341
872
20,295
3,210
1,760
54,759
1,779
976
908
2,604
1,236
0
2,333
976
30,315
0
897
14,223
14,955
282
920
0
897
0
4,595
34,975
0
1 Until 31 December 2013 the higher of the net long or the net short securitization positions in the trading book are to be underpinned for the regulatory capital purposes. In line with our disclosure principles we disclose
the UBS originated and sponsored deals only where the positions result in RWA or a capital deduction under Pillar 1. 2 In 2012, we have adjusted the scope of this disclosure such that we do not include sponsor-only
activity where we do not retain a position. In these cases we advised the originator or placed securities in the market for a fee, and did not otherwise impact our capital. 31 December 2011 comparatives are presented on
this adjusted basis. This better reflects the objective of the disclosure to provide transparency on the use of securitization transactions for risk management or funding purposes.
210
Table 32: Impaired or past due securitized exposures and losses related to securitized exposures in the banking book
This table provides a breakdown of the outstanding impaired or
past due exposures at the balance sheet date and 2012 losses
recognized in our income statement for transactions in which
we acted as originator or sponsor 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
positions.
Where we did not retain positions, impaired or past due infor-
mation is only reported in the year of inception of a transaction.
Where available, past due information was derived from investor
reports. Past due is generally defined as delinquency above 60
days. Where investor reports do not provide this information, al-
ternative methods have been applied, which may include an as-
sessment 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 small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 1
31.12.12
31.12.11
Originator
Sponsor
Originator
Sponsor
Impaired or
past due in
securitized
exposures
Recognized
losses in
income
statement
Impaired or
past due in
securitized
exposures
Recognized
losses in
income
statement
Impaired or
past due in
securitized
exposures
Recognized
losses in
income
statement
Impaired or
past due in
securitized
exposures
Recognized
losses in
income
statement
791
373
67
1,232
0
1
1
67
68
468
761
0
787
2,016
0
0
8
0
1
9
1,531
43
5,547
1,010
8,131
2
4
1
7
1,486
975
1,122
30
3,613
1
11
1
4
5
4
26
1 Year-on-year reduction is mainly due to principal repayment / losses from underlying loans in retained positions, sales and the move of certain re-securitization positions to the trading book.
Table 33: Exposures intended to be securitized in the banking and trading book
This table provides the amount of exposures by exposure type we
intend to securitize in the banking and trading book. We disclose
our intention to securitize exposures as an originator if assets are
designated for securitization and a tentative pricing date for a
transaction is known at the balance sheet date or if a pricing of a
transaction has been fixed.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and
medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total
31.12.12
31.12.11
Banking Book
Trading Book
Banking Book
Trading Book
447
447
0
0
0
211
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Table 34: Securitization positions retained or purchased in the banking book
This table provides a breakdown of securitization positions we retained or purchased in the banking book, irrespective of our role in
the securitization transaction. The increase in the “Other” line is mainly due to new synthetic hedging transactions entered into in
2012. The value disclosed is either the net exposure amount at default subject to risk-weighting or the carrying value subject to capital
deduction according to the Basel 2.5 framework at the balance sheet date.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 1
31.12.12
31.12.11
On balance sheet
Off balance sheet
On balance sheet
Off balance sheet
600
553
47
240
1
3,892
800
9,334
15,466
810
584
62
331
1
5,468
1,632
3,303
12,189
1,000
1,000
147
33
180
1 Amounts presented for 31 December 2012 include CHF 0.7 billion which were deducted from capital – refer to “Table 37: Positions deducted from BIS tier 1 and BIS tier 2 capital”. The exposure excluding items deducted
from capital (approximately CHF 15 billion) is also disclosed in the “Securitization / Re-securitization exposures” line of “Table 2: Detailed segmentation of BIS Basel 2.5 risk-weighted assets”.
212
Table 35: Securitization positions retained or purchased in the trading book
This table provides a breakdown of securitization positions we
purchased or retained in the trading book subject to the securi-
tization framework for specific market risk, 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 offsetting cash and derivative positions to the
extent eligible under Basel 2.5. The amounts disclosed are either
the fair value or, in the case of derivative positions, the aggre-
gate of the notional amount and the associated replacement
value at the balance sheet date.
Cash positions
Derivative positions
Total
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.12 1
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.11 1
Gross long
Gross short
Gross long
Gross short
49
869
3
7
1
411
15
1,355
212
482
3
4
6
1
4
4
395
299
1,410
25
3
1
29
2
12
4
14
8
40
1,066
5,871
1,175
6,704
235
7,172
807
6,467
551
8,430
1,068 3
7,059 3
939
84
17
7,376
150
200
9,416
Net long 2
141
923
3
7
1
168
14
1,257
526
1,317
3
3
5
1
3
4
480
199
2,542
Net short
125
926
81
1
1,134
549
2,125
469
4
163
197
3,506
1 Leveraged super senior tranches and re-securitized corporate credit exposure (both subject to the securitization framework) are not included in this table, but disclosed in “Table 41: Correlation products subject to the
comprehensive risk measure or the securitization framework for specific risk” (re-securitized corporate credit exposure only for 2011). 2 31 December 2012 includes CHF 0.2 billion (CHF 0.6 billion as of 31 December
2011) which is deducted from capital and disclosed in “Table 37: Positions deducted from BIS tier 1 and BIS tier 2 capital”. The net exposure at default of CHF 6.5 billion as of 31 December 2012 disclosed in “Table 2:
Detailed segmentation of BIS Basel 2.5 risk-weighted assets” (line “Securitization / re-securitization exposures”) comprises of the total net long position of CHF 1.3 billion (included in this table) and CHF 5.4 billion for
leveraged super senior tranches less securitizations subject to capital deductions of CHF 0.2 billion (“Table 37: Positions deducted from BIS tier 1 and BIS tier 2 capital”). 3 In 2012, 31 December 2011 figures have
been restated due to a reclassification of positions from Residential mortgages to Commercial mortgages. The reclassification did neither impact our risk-weighted assets nor our eligible capital.
213
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Table 36: Capital requirement for securitization / re-securitization positions retained or purchased in the banking book
The table provides the capital requirements for securitization and
re-securitization positions we purchased or retained in the bank-
ing book, irrespective of our role in the securitization transaction,
split by risk weight bands and regulatory capital approach. The
tables below exclude securitization and re-securitization positions
deducted from capital.
31.12.12
31.12.11
Ratings-based approach
Supervisory formula approach
Ratings-based approach
Supervisory formula approach
Securitization
Re-securitization
Securitization
Re-securitization
Securitization
Re-securitization
Securitization
Re-securitization
4
40
10
7
4
17
23
44
114
263
5
9
1
23
65
103
49
2
45
27
7
4
7
10
47
87
49
0
237
1
1
38
2
1
4
14
61
15
15
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 1
1 Refer to “Table 2: Detailed segmentation of BIS Basel 2.5 risk-weighted assets”; on 31 December 2012, CHF 5.5 billion (on 31 December 2011, CHF 4.1 billion) banking book securitization exposures translate to a
capital requirement of overall CHF 0.4 billion (on 31 December 2011, CHF 0.3 billion) without applying a scaling factor of 1.06.
Table 37: Positions deducted from BIS tier 1 and BIS tier 2 capital
This table outlines the capital deductions related to securitization
positions we retained or purchased in the banking- and trading
book, irrespective of our role in the securitization transaction.
The significant reduction at year end 2012 compared to 2011
year end is mainly due to sales of retained or purchased securitiza-
tion positions which were subject to a capital deduction. As of
31 December 2012, we did not have securitization positions or
credit-enhancing interest-only strips that were required to be de-
ducted entirely from BIS tier 1 capital.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total
31.12.12
31.12.11
Banking Book
deductions
Trading Book
deductions
Banking Book
deductions
147
201
27
14
1
43
154
65
652
19
71
93
183
672
242
38
27
1
496
432
1,116
3,024
Trading Book
deductions
87 1
264 1
4
1
230
6
591
1 In 2012, December 2011 figures have been restated due to a reclassification of positions from Residential mortgages to Commercial mortgages. The reclassification did neither impact our risk-weighted assets nor our
eligible capital.
214
Securitization exposures subject to early amortizations in the banking and trading book
In 2012 and 2011, we had no securitization structures in the banking and trading book that are subject to early amortization treat-
ment.
Table 38: Re-securitization positions retained or purchased in the banking book
The upper part of this table shows the total of re-securitization
positions (cash as well as synthetic) held in the banking book, bro-
ken down into positions for which credit risk mitigation has been
recognized and those for which no credit risk mitigation has been
recognized. Credit risk mitigation includes protection bought by
entering into credit derivatives with third-party protection sellers,
as well as financial collateral received. Both bought credit protec-
tion and financial collateral must be eligible under Basel 2.5 regu-
lations.
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.
CHF million
Total 31.12.12
Total 31.12.11
With credit risk
mitigation
Without credit risk
mitigation
0
0
947
1,632
Re-securitization positions with integrated insurance wrapper broken down according to guarantor credit worthiness categories 1
CHF million
0–5
6–13
14
Total 31.12.12
0–5
6–13
14
Total 31.12.11
1 Internal UBS rating.
Investment grade
Sub-investment grade
Defaulted
Investment grade
Sub-investment grade
Defaulted
Total
947
1,632
22
22
6
34
16
57
215
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Table 39: Re-securitization positions retained or purchased in the trading book
The upper part of the table below outlines re-securitization posi-
tions retained or purchased subject to the securitization frame-
work for specific market risk held in the trading book on a gross
long and gross short basis, including synthetic long and short po-
sitions resulting from derivative transactions. It also includes posi-
tions on a net long and net short basis, that is, gross long and
short positions after offsetting to the extent it is eligible under
Basel 2.5. The lower part of the table discloses the total re-securi-
tization positions which have an integrated insurance wrapper,
split by positions with investment grade, sub-investment grade
and defaulted insurance.
CHF million
Total 31.12.12
Total 31.12.11
Gross long
Gross short
Net long
Net short
646
480
554
163
168
480
Re-securitization positions with integrated insurance wrapper broken down according to guarantor credit worthiness categories 1
CHF million
0–5
6–13
14
Total 31.12.12
CHF million
0–5
6–13
14
Total 31.12.11
1 Internal UBS rating.
Investment grade
Sub-investment grade
Defaulted
Investment grade
Sub-investment grade
Defaulted
42
2
25
69
3
3
46
0
18
64
31
31
3
2
10
15
3
3
216
81
163
7
3
10
31
31
Table 40: Aggregated amount of securitized exposures subject to the market risk approach
This table provides a split of the total outstanding exposures 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.
Originator
Sponsor
Synthetic
Traditional
Synthetic
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Traditional
554
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.12 1
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.11 1
1,779
2,333
897
976
976
897
0
7,578
17,989
908
2,604
1,236
30,315
14,223
14,955
282
920
4,595
34,975
0
0
1 Until 31 December 2013, the higher of the net long or the net short securitization positions in the trading book are to be underpinned for the regulatory capital purposes. In line with our disclosure principles, we disclose
the UBS originated and sponsored deals only where the positions result in RWA or a capital deduction under Pillar 1.
217
Risk, treasury and capital management Risk, treasury and capital management
Basel 2.5 Pillar 3
Table 41: Correlation products subject to the comprehensive risk measure or the securitization framework for specific risk
This table outlines products in the correlation portfolio that 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 positions. The values dis-
closed are market values for cash positions, replacement values
and notional values for derivative positions. Derivatives are split by
positive replacement value and negative replacement value which
is a change from the “Basel 2.5 Pillar 3” section of the Annual
Report 2011 where derivative positions were split by long and
short positions. This aligns the format of the disclosure with the
presentation of derivatives in the Financial statements. Compara-
tives as of 31 December 2011 are presented on this changed basis.
CHF million
31.12.12
Positions subject to comprehensive risk measure
Positions subject to securitization framework 1
31.12.11
Positions subject to comprehensive risk measure
Positions subject to securitization framework 1
Cash positions
Derivative positions
Assets
Liabilities
Assets
Liabilities
Market value
Market value
Positive
replacement
value
Positive
replacement
value notionals
Negative
replacement
value
Negative
replacement
value notionals
191
1,748
167
44
1,067
4,518
152
8,742
432
110,653
12,316
113,842
24,757
4,949
52
9,377
376
91,266
20,810
98,182
10,690
1 Includes leveraged super senior tranches and for 31 December 2011 additionally re-securitized corporate credit exposure.
Table 42: Securitization positions and capital requirement for trading book positions subject to the securitization framework
This table outlines securitization positions we purchased or retained and the capital charge in the trading book subject to the securiti-
zation framework for specific market risk, irrespective of our role in the securitization transaction, broken down by risk weight bands
and regulatory capital approach. The amounts disclosed for securitization positions are market values at the balance sheet date after
eligible netting under Basel 2.5. This table does not contain capital deductions.
Ratings-based approach
Supervisory formula approach
Ratings-based approach
Supervisory formula approach
31.12.12
31.12.11
Capital
require-
ment
Net long Net short
Capital
require-
ment
Net long
Net short
2,998 1
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 2
Net long Net short
987 1
7
442
293
135
38
93
20
29
1,057
987
0
0
7
7
5
2
7
4
12
45
332
80
348
372
118
139
297
78
185
Capital
require-
ment
Net long
Net short
Capital
require-
ment
2
6
9
4
8
13
12
75
130
0
0
0
0
0
0
1,950
2,998
1 As per FINMA Circular “Market-risk Banks”, only the higher of the net long or the net short securitization positions in the trading book are to be underpinned for the regulatory capital purposes. 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% risk weight was ap-
plied. 2 Leveraged super senior tranches (subject to the securitization framework) are not included in this table, but disclosed in “Table 41: Correlation products subject to the comprehensive risk measure or the secu-
ritization framework for specific risk”.
218
Table 43: Capital requirement / Deductions for securitization positions related to correlation products
This table outlines the capital requirement for securitization positions in the trading book for correlation products, including positions
subject to comprehensive risk measure and positions related to leveraged super senior positions and certain re-securitized corporate
credit exposures 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
31.12.12
31.12.11
Capital
requirement
Capital
deduction
Capital
requirement
Capital
deduction
714
86
690
121
9
1 Leveraged super senior tranches and and for 31 December 2011 additionally re-securitized corporate credit exposure.
219
Risk, treasury and capital management Corporate
governance,
responsibility and
compensation
Audited information according to the Swiss Code of Obligations and applicable
regulatory 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 UBS AG (Parent Bank) in the “Financial information”
section 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 www.ubs.com/
global/en/about_ubs/corporate_responsibility/commitment_strategy/reporting_assurance.html. The assurance by Ernst & Young
also covered other relevant text and data in the Annual Report 2012 and on the website of UBS which is referenced in the GRI Index
(www.ubs.com/gri)
Corporate governance, responsibility and compensation 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 other 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 act in compliance with, all relevant Swiss
legal and regulatory requirements regarding corporate gover-
nance, including the SIX Swiss Exchange’s (SIX) Directive on Infor-
mation Relating to Corporate Governance, as well as the stan-
dards established in the Swiss Code of Best Practice for Corporate
Governance, including the appendix on executive compensation.
In addition, as a foreign company with shares listed on the
New York Stock Exchange (NYSE), we are in compliance with all
relevant corporate governance standards applicable to foreign
listed companies.
Based on article 716b of the Swiss Code of Obligations and ar-
ticles 24 and 26 of the Articles of Association of UBS AG (Articles
of Association), the Board of Directors (BoD) has adopted the Orga-
nization Regulations of UBS AG (Organization Regulations), which
constitute our corporate governance guidelines. The currently ap-
plicable Organization Regulations date from 1 January 2013. The
BoD has also adopted the currently applicable UBS Code of Busi-
ness Conduct and Ethics (the Code) in September 2012.
➔ Refer to www.ubs.com/governance for the Articles of
Association, 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, compen-
sation, retention and oversight of the independent auditors
The Audit Committee has been assigned all the abovementioned
responsibilities, except for appointment of the independent audi-
tors, who are elected by the shareholders as per Swiss company
law. The Audit Committee assesses the performance and qualifi-
cation of the external auditors and submits its proposal for ap-
pointment, reappointment or removal to the full BoD, which
brings its proposal 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 Committee
has the authority to define our risk principles and risk capacity. The
Risk Committee is responsible for monitoring our adherence to those
risk principles and for monitoring whether business divisions and con-
trol units run appropriate systems for risk management and control.
Supervision of the internal audit function
The Chairman of the BoD (Chairman), the Risk Committee and
the Audit Committee share responsibility for and authority to su-
pervise 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 members, are completed by the Chairman and the Hu-
man Resources and Compensation Committee, and are reported
to the full BoD.
Responsibility of the Governance and Nominating Committee for
the evaluation of the Board of Directors
The BoD has direct responsibility and authority to evaluate its own
performance, with preparation by the Governance and Nomi-
nating Committee. All BoD committees perform a self-assessment
of their activities and report back to the full BoD.
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 share-
holders as part of the AGM, it requires that Swiss companies deter-
mine the nature and components of capital in their articles of as-
sociation, and each increase in capital is required to be submitted
for shareholder approval. This means that, if equity-based compen-
sation plans result in a need for an increase in capital, AGM ap-
proval is mandatory. If, however, shares for such plans are pur-
chased in the market, shareholders do not have approval authority.
➔ Refer to the “Board of Directors” section for more information
about the Board of Directors’ committees
➔ Refer to the “Capital structure” section for more information on
capital
222
Group structure and shareholders
UBS Group legal entity structure
Listed and non-listed companies belonging to the Group
Under Swiss company law, UBS AG is organized as an Aktien-
gesellschaft (AG), a corporation that has issued shares of common
stock to investors. UBS AG is the parent bank (Parent Bank or
UBS) of the UBS Group (Group).
Our legal entity structure is designed to support our businesses
with an efficient legal, tax and funding framework considering
regulatory restrictions in the countries where we operate. Neither
our business divisions nor the Corporate Center are separate legal
entities; they primarily operate out of the Parent Bank, UBS AG,
through its branches worldwide. This structure is designed to
capitalize on the increased business opportunities and cost effi-
ciencies offered by the use of a single legal platform, and to en-
able the flexible and efficient use of capital. Where it is neither
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 legal
entities join the Group through acquisition.
Operational Group structure
On 31 December 2012, the operational structure of the Group
comprised five business divisions: Wealth Management, Wealth
Management Americas, Investment Bank, Global Asset Manage-
ment and Retail & Corporate, as well as the Corporate Center
with its components, Core Functions and Legacy Portfolio.
➔ Refer to the “Financial and operating performance” section
and “Note 2a Segment Reporting” in the “Financial information”
section of this report for more information
The Group includes a number of consolidated entities, none of
which, however, are listed companies on the stock exchange,
other than UBS AG.
➔ Refer to “Note 34 Significant subsidiaries and associates” in
the “Financial information” section of this report for details of
the significant subsidiaries of the Group
Significant shareholders
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
holding derivative rights related to shares of such a company,
must notify the company and the SIX Swiss Exchange (SIX), if the
holding 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 exercisable or not. The
detailed disclosure requirements and the methodology for calcu-
lating the thresholds are defined in the Swiss Financial Market
Supervisory Authority (FINMA) Ordinance on Stock Exchanges
and Securities Trading (SESTO-FINMA). In particular, the SESTO-
FINMA sets forth that all future potential share obligations irre-
spective of their possible contingent nature must be taken into
account, and prohibits the netting of acquisition positions (in
particular shares, conversion rights and acquisition rights or obli-
gations) with disposal positions (i.e. rights or obligations to sell).
It also requires that each such position be calculated separately
and reported as soon as it reaches one of the abovementioned
d
e
t
i
d
u
A
Shareholders registered in the UBS share register with 3% or more of total share capital
% of share capital
Chase Nominees Ltd., London
Government of Singapore Investment Corp., Singapore
DTC (Cede & Co.), New York 1
Nortrust Nominees Ltd., London
1 DTC (Cede & Co.), New York, “The Depository Trust Company”, is a US securities clearing organization.
31.12.12
11.94
6.40
5.28
3.84
31.12.11
10.95
6.41
7.07
4.20
31.12.10
10.70
6.41
7.32
3.79
223
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
thresholds. Nominee companies which cannot autonomously de-
cide how voting rights are exercised are not obligated to notify
UBS and SIX if they reach, exceed or fall below the threshold
percentages.
In addition, pursuant to the Swiss Code of Obligations, UBS
must disclose in the notes to its 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 under the Swiss Stock Exchange Act, on 30 September 2011,
Norges Bank (the Central Bank of Norway), Oslo, disclosed a hold-
ing of 3.04%. On 12 March 2010, the Government of Singapore
Investment Corp., Singapore, as beneficial owner, disclosed a hold-
ing by the Government of Singapore Investment Corp. of 6.45%.
On 17 December 2009, BlackRock Inc., New York, disclosed a hold-
ing of 3.45%. In accordance with the Swiss Stock Exchange Act,
the percentages indicated above were calculated in relation to the
total UBS share capital reflected in the Articles of Association at the
time of the respective disclosure notification. Information on disclo-
sures under the Swiss Stock Exchange Act can be found on the
following website of the SIX: 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 2012, 2011 and 2010.
Cross-shareholdings
We have no cross-shareholdings in excess of a reciprocal 5% of
capital or voting rights with any other company.
224
Capital structure
Capital
Under Swiss company law, shareholders must approve in a share-
holders’ meeting any increase in the total number of issued
shares, which may arise from an ordinary share capital increase, or
the creation of conditional or authorized capital. At year-end
2012, 3,835,250,233 shares were issued with a par value of CHF
0.10 each, leading to a share capital of CHF 383,525,023.30.
Conditional share capital
At year-end 2012, the following conditional share capital was
available to the Board of Directors (BoD):
– At the Annual General Meeting of Shareholders (AGM) held in
2006, shareholders approved conditional capital in the maxi-
mum amount of 150,000,000 fully paid regis tered 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-
emptive rights. In 2012, options on 3,128,334 shares were
exercised under the option plans with a total of 145,510,992
conditional capital shares being available to satisfy further ex-
ercises 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. Sharehold-
ers have no pre-emptive rights. The SNB as owner of the war-
rants shall be entitled to subscribe for the new shares.
– 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, for the
exercise of conversion rights and / or warrants granted in con-
nection with the issuance of bonds or similar financial instru-
ments by UBS or one of its group companies. 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 2012, the BoD had not made use of the
allowance to issue bonds or warrants with conversion rights
covered by conditional share capital.
➔ 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),
Group equity attributable to UBS shareholders amounted to CHF
45.9 billion on 31 December 2012 (2011: CHF 48.5 billion; 2010:
CHF 43.7 billion). UBS Group shareholders’ equity was represent-
ed by 3,835,250,233 issued shares on 31 December 2012 (2011:
3,832,121,899; 2010: 3,830,840,513).
➔ Refer to the “Statement of changes in equity” in the “Financial
information” section of this report for more information on
changes in shareholders’ equity over the last three years
Shares 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
following page provide information about the distribution of our
shareholders by category and geographical location. This informa-
tion relates only to registered shareholders and cannot be as-
sumed 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
On 31 December 2012, 2,093,113,878 shares carried voting
rights, 425,566,918 shares were entered in the share register
without voting rights, and 1,316,569,437 shares were not regis-
tered. All 3,835,250,233 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.
At year-end 2012, we owned UBS registered shares corre-
sponding to 2.3% of the total share capital of UBS AG. At the
same time, we had disposal positions relating to 422,236,769
225
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
d
e
t
i
d
u
A
Distribution of UBS shares
On 31 December 2012
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
5,000,001–38,352,502 (1%)
1–2%
2–3%
3–4%
4–5%
Over 5%
Total registered
Unregistered 3
Total shares issued
Shareholders registered
Shares registered
Number
36,523
175,175
96,582
9,932
831
97
25
0
2
1
0
3 1
319,171
%
11.4
54.9
30.3
3.1
0.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
100.0
Number % of shares issued
2,094,363
80,703,313
268,211,534
254,257,984
205,015,248
205,566,885
253,469,711
0
196,546,584
147,144,758
0
905,670,416
2,518,680,796 2
1,316,569,437
3,835,250,233
0.1
2.2
7.0
6.6
5.3
5.4
6.6
0.0
5.1
3.8
0.0
23.6
65.7
34.3
100.0
1 On 31 December 2012, Chase Nominees Ltd., London, entered as a trustee / nominee, was registered with 11.94% of all UBS shares issued. However, according to the provisions of UBS, voting rights of a trustee / nominee
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 5.28% of all UBS shares issued and is not subject to this 5% voting limit as
securities clearing organization. The same applies to the Government of Singapore Investment Corp., Singapore, which is registered as beneficial owner with 6.40% of all UBS shares issued. 2 Of the total shares registered,
425,566,918 shares did not carry voting rights. 3 Shares not entered in the share register on 31 December 2012.
Shareholders: type and geographical distribution
d
e
t
i
d
u
A
On 31 December 2012
Individual shareholders
Legal entities
Nominees, fiduciaries
Unregistered
Total
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
of which: Germany
of which: UK
of which: Rest of Europe
of which: Middle East and Africa
Switzerland
Unregistered
Total
Share capital
d
e
t
i
d
u
A
On 31 December 2010
Issue of shares out of conditional capital due to employee options exercised
On 31 December 2011
Issue of shares out of conditional capital due to employee options exercised
On 31 December 2012
226
Shareholders registered
Shares registered
Number
311,923
6,722
526
%
97.7
2.1
0.2
Number
645,899,792
715,669,363
1,157,111,641
1,316,569,437
%
16.8
18.7
30.2
34.3
319,171
100.0
3,835,250,233
100.0
10,508
9,228
6,755
17,734
5,417
6,126
5,855
336
3.3
2.9
2.1
5.6
1.8
1.9
1.8
0.1
442,964,426
436,853,595
337,130,466
948,286,653
27,657,258
723,850,149
195,478,601
1,300,645
284,174
89.0
790,299,251
1,316,569,437
11.5
11.4
8.9
24.7
0.7
18.9
5.1
0.0
20.6
34.3
319,171
100.0
3,835,250,233
100.0
Share capital in CHF Number of shares
Par value in CHF
383,084,051
3,830,840,513
128,139
1,281,386
383,212,190
3,832,121,899
312,833
3,128,334
383,525,023
3,835,250,233
0.10
0.10
0.10
0.10
0.10
voting rights of UBS AG, corresponding to 11.02% of the total
voting rights of UBS AG. 8.20% of this consisted of voting rights
on shares deliverable in respect of employee awards. The calcula-
tion methodology for the disposal position is based on the SESTO-
FINMA, which sets forth that all future potential share delivery
obligations irrespective of the contingent nature of the delivery
must be taken into account.
We have no participation certificates outstanding.
Transferability, voting rights and nominee registration
We do not apply any restrictions or limitations on the transfer-
ability of shares. Voting rights may be exercised without any re-
strictions by shareholders entered into the share register, if they
expressly render a declaration of beneficial ownership according
to the provisions of the Articles of Association.
We have special provisions for the registration of fiduciaries
and nominees. Fiduciaries and nominees are entered in the share
register with voting rights up to a total of 5% of all issued UBS
shares, if they agree to disclose upon our request, beneficial own-
ers holding 0.3% or more of all issued UBS shares. An exception
to the 5% voting limit rule exists for securities clearing organiza-
tions, such as The Depository Trust Company in New York.
➔ Refer to the “Shareholders’ participation rights” section of
Convertible bonds and options
On 31 December 2012, there were no contingent capital securi-
ties or convertible bonds outstanding requiring the issuance of
new shares.
➔ Refer to the “Capital management” section for information on
our outstanding capital instruments
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 2012, there were 191,230,290 employee op-
tions outstanding, including stock appreciation rights. Delivery
obligations equivalent to 17,831,904 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 2012, 74,085,342
treasury shares were available for this purpose, and an additional
145,510,992 unissued shares in conditional share capital were as-
signed to future employee option exercises. At year-end 2012, the
shares available covered all exercisable employee obligations.
➔ Refer to the discussion of “UBS shares” in the ”Capital manage-
this report for more information
ment” section of this report for more information
227
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Shareholders’ participation rights
We are committed to shareholder participation in our decision-
making process. Around 320,000 directly registered shareholders,
as well as some 90,000 US shareholders registered via nominee
companies, are regularly informed about our activities and perfor-
mance as well as personally invited to shareholder meetings.
Since March 2013, our shareholder portal (www.ubs.com/
shareholderportal) allows our registered shareholders to access
personalized services and important information about share
register entries and our shareholder meetings year-round. The
shareholder portal enables registered shareholders to enter
their voting instructions electronically ahead of our shareholder
meetings. Shareholders can verify their voting instructions be-
fore and after shareholder meetings using an encryption meth-
od (crypto graphy). This method of encryption ensures that the
voting instructions remain secret throughout the entire voting
process. In addition, shareholders can order admission cards
and register changes to their address details. It also enables
them to manage their subscriptions to shareholder-related pub-
lications and to communicate directly with UBS Shareholder
Services via a secure channel. The shareholder portal is fully
integrated into our internet platform.
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 this 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 UBS 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 or by ap-
pointing another bank or another registered shareholder of their
choice to vote on their behalf. Alternatively, registered sharehold-
ers can issue their voting instructions to the independent proxy
electronically using our shareholder portal. Nominee companies
normally submit the proxy material to the beneficial owners and
transmit the collected votes to the independent proxy.
➔ Refer to the “Information policy” section of this report for more
Statutory quorums
information
Relationships with shareholders
We fully subscribe to the principle of equal treatment of all share-
holders, who range from large institutions to individual investors,
and regularly inform them about the development of the com-
pany.
The Annual General Meeting of Shareholders (AGM) offers
shareholders the opportunity to raise any questions regarding our
development and the events of the year that are under review.
Members of both the Board of Directors (BoD) and Group Execu-
tive Board (GEB), as well as our internal and external auditors, are
present to answer these questions.
Voting rights, restrictions and representation
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 for it to be approved. These issues include the creation of
shares with privileged voting rights, the introduction of restric-
tions on the transferability of registered shares, conditional and
authorized capital increases, and restrictions or exclusions of
shareholders’ pre-emptive rights.
The Articles of Association also require a two-thirds majority of
votes represented for approval of any change to its provisions re-
garding the number of BoD members, and any decision to remove
a quarter or more of the BoD members.
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 all issued UBS shares to avoid the risk of unknown
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
representing at least 3% of the votes represented may request that
a vote or election takes place electronically or by written ballot. In
228
order to allow shareholders to clearly express their views on all indi-
vidual topics, each item on the agenda is put to a vote separately
and BoD elections are made on a person-by-person basis.
Convocation of general meetings of shareholders
The AGM must occur within six months of the close of the finan-
cial year and normally takes place in late April or early May.
A personal invitation including a detailed agenda and explana-
tion of each motion is sent to every registered shareholder at
least 20 days ahead of the scheduled 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 auditors consider it necessary. Shareholders indi-
vidually or jointly representing at least 10% of the share capital
may at any time ask in writing for an Extraordinary General Meet-
ing to be convened to address a specific issue put forward by them.
Such a request may also be brought forward during the AGM.
Placing of items on the agenda
Pursuant to our Articles of Association, shareholders individually
or jointly representing shares with an aggregate par value of CHF
62,500 may submit proposals for matters to be placed on the
agenda for consideration at the 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 entry with voting rights into our Swiss share
register also apply before shareholder meetings. The same rules
apply for our US transfer agent that operates the US share register
for all UBS shares in a custodian account in the US. There is no
closing of the share register in the days before the shareholder
meeting. Registrations, including the transfer of voting rights, are
processed for as long as technically possible, normally until two
days before the shareholder meeting.
229
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Board of Directors
The Board of Directors (BoD), under the leadership of the
Chairman, decides on the strategy of the Group upon recom-
mendation 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 approves all financial statements for issue. Shareholders
elect each member of the BoD, which in turn appoints its
Chairman, Vice Chairmen, Senior Independent Director, mem-
bers of BoD committees, their respective Chairpersons and the
Company Secretary.
Members of the Board of Directors
At the Annual General Meeting of Shareholders (AGM) held on
3 May 2012, Michel Demaré, David Sidwell, Rainer-Marc Frey,
Ann F. God behere, Axel P. Lehmann, Wolfgang Mayrhuber,
Helmut Panke, William G. Parrett and Joseph Yam were reelected
as their terms of office expired. Kaspar Villiger and Bruno Gehrig
did not stand for reelection. Isabelle Romy, Axel A. Weber and
Beatrice Weder di Mauro were elected to their first term on the
BoD. Following their election, Axel A. Weber replaced Kaspar Vil-
liger as full-time Chairman of the BoD and the BoD appointed
Michel Demaré as Vice Chairman and David Sidwell as Senior In-
dependent Director.
The following biographies provide information on the BoD mem-
bers and the Company Secretary.
Axel A. Weber
German, born 8 March 1957
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Functions in UBS
Chairman of the Board of Directors / Chairperson of
the Governance and Nominating Committee /
member of the Corporate Responsibility Committee
Year of initial appointment: 2012
Professional history and education
Axel A. Weber was elected to the Board of Directors (BoD) at the 2012 AGM and was thereafter appointed Chairman of the
BoD. He chairs the Governance and Nominating Committee and became a member of the Corporate Responsibility
Committee in 2012. Mr. Weber was president of the German Bundesbank between 2004 and 2011, during which time he
also served as a member of the Governing Council of the European Central Bank, a member of the Board of Directors of the
Bank for International Settlements, German governor of the International Monetary Fund, and as a member of the G7 and
G20 Ministers and Governors. He was a member of the steering committees of the European Systemic Risk Board in 2011
and the Financial Stability Board from 2010 to 2011. On leave from the University of Cologne from 2004 to 2012, he was a
visiting professor at the University of Chicago Booth School of Business from 2011 to 2012. From 2002 to 2004 Mr. Weber
served as a member of the German Council of Economic Experts. He was a professor of international economics and Director
of the Center for Financial Research at the University of Cologne from 2001 to 2004, and a professor of monetary econom-
ics and Director of the Center for Financial Studies at the Goethe University in Frankfurt/Main from 1998 to 2001. Mr. Weber
holds a PhD in economics from the University of Siegen, where he also received his habilitation. He graduated with a mas-
ter’s degree in economics at the University of Constance and holds honorary doctorates from the universities of Duisburg-
Essen and Constance.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Weber is a member of the Group of Thirty, Washington, D.C., and a research fellow at the Center for Economic Policy
Research in London and at the Center for Financial Research in Cologne. He is a member of the board of the International
Institute of Finance, a senior research fellow at the Center for Financial Studies in Frankfurt/Main and a member of the
Monetary Economics and International Economics Councils of the leading association of German-speaking economists, the
Verein für Socialpolitik. In addition, he is a member of the Advisory Board of the German Market Economy Foundation and
a member of the Advisory Council (Hochschulrat) of the Goethe University in Frankfurt/Main.
230
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.
He stepped down from his function in ABB in January 2013. Between February and August 2008 he acted as the interim
CEO of ABB. From September 2008 to March 2011 he combined his role as CFO with that 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, 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 officer 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 economics from the Université Catholique de Louvain, Belgium.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Demaré is a member of the board of Syngenta, of the IMD Foundation in Lausanne and of SwissHoldings in Berne.
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,
including controller and, from 2000 to 2004, CFO of the Investment Bank. Prior to this, he was with Price Waterhouse in
both London and New York. Mr. Sidwell graduated from Cambridge University and qualified as a chartered accountant 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 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 Human Resources and Compensation Committee since 2012 and of the Risk Committee since 2008. Mr. Frey is the
founder of the investment management company Horizon21 AG. He is Chairman of Horizon21 AG as well as 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.
Michel Demaré
Belgian, born 31 August 1956
UBS AG, Bahnhofstrasse 45, CH-8098 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 Human Resources and Compensation
Committee / member of the Risk Committee
Year of initial appointment: 2008
231
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
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 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 until 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 its 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. Between
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, and chairs the
audit committee. She is also a member of the boards of Arden Holdings Ltd., Bermuda, and 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 of the Risk Committee since 2009. He is a member of the Group Executive Committee of Zurich
Insurance Group (Zurich) and has been Group Chief Risk Officer since January 2008 and Regional Chairman Europe since
October 2011. In July 2011, he was appointed Chairman of the Board of Farmers Group, Inc., and was responsible for Group
IT from 2008 to 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 was in 2004 responsible for integrating it with
UK, Ireland and South Africa. In 2001, he took over responsibility for Northern, Central and Eastern Europe and was ap-
pointed CEO of Zurich Group Germany. In 2000, Mr. Lehmann became a member of the Group Management Board with
responsibility for group-wide business development functions. Mr. Lehmann holds a PhD and a master’s degree in business
administration and economics from the University of St. Gallen. He is also a graduate of the Wharton Advanced Management
Program and an honorary professor of business administration and service management at the University of St. Gallen.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Lehmann is Chairman of the Board of the Institute of Insurance Economics at the University of St. Gallen, and is a
member of the Chief Risk Officer Forum and a board member of Economiesuisse.
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 MIT.
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, and the executive board of Acatech (Deutsche Akademie der Technikwissenschaften).
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
Year of initial appointment: 2009
Axel P. Lehmann
Swiss, born 23 March 1959
Zurich Insurance Group, 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
Wolfgang Mayrhuber
Austrian, born 22 March 1947
Deutsche Lufthansa AG, Aviation Center,
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
232
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 after becoming a member of BMW’s Board of Management in 1996. Between 1993 and 1996
he was Chairman and CEO of BMW Holding Corporation in the US. Subsequent to joining BMW as Head of Planning and
Controlling, Research and Development in 1982, he assumed management functions in corporate planning, organization
and corporate strategy. Prior to this, he worked as a consultant at McKinsey & Company in both Düsseldorf and Munich.
Mr. Panke graduated from the University of Munich with a PhD in physics, and undertook research work at both the
University of Munich and the Swiss Institute for Nuclear Research.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Panke is a member of the boards of Microsoft Corporation (Chairperson of the Regulatory and Public Policy Committee) and
Singapore Airlines Ltd. (Chairperson of the 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. He has chaired the Audit
Committee since 2009 and has been a member of the Corporate Responsibility Committee since 2012. 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 profes-
sional services, Mr. Parrett served public, private, governmental, and state-owned clients worldwide. Mr. Parrett has a
bachelor’s degree in accounting from St. Francis College, New York, and is a certified public accountant.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Parrett is on the boards of the Eastman Kodak Company, the Blackstone Group LP, and Thermo Fisher Scientific Inc., and
chairs each company’s audit committee. He is also Past Chairman of the Board of the United States Council for International
Business and United Way Worldwide, and a Carnegie Hall Board of Trustees member.
Professional history and education
Isabelle Romy was elected to the BoD at the 2012 AGM. She has been a member of the Audit Committee and the
Governance and Nominating Committee since 2012. Ms. Romy is a partner at Froriep Renggli, a large Swiss business law
firm. From 1995 to 2012 she worked for another major Swiss law firm based in Zurich, where she was a partner from 2003
to 2012. Her legal practice includes litigation and arbitration in cross-border cases. Ms. Romy has been an associate profes-
sor at the University of Fribourg and at the Federal Institute of Technology in Lausanne (EPFL) since 1996. Between 2003
and 2008 she served as a deputy judge at the Swiss Federal Supreme Court. From 1999 to 2006 she was a member of the
Ethics Commission at the EPFL. Ms. Romy completed her PhD (Dr. iur.) at the University of Lausanne in 1990 and has been
a qualified attorney-at-law admitted to the bar since 1991. From 1992 to 1994 she was a visiting scholar at Boalt Hall
School of Law, University of California, Berkeley, and completed her professorial thesis at the University of Fribourg in 1996.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Ms. Romy has been a member of the sanction commission of SIX Swiss Exchange since 2002, serving as Vice Chairman since
2008.
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
Functions in UBS
Chairperson of the Audit Committee / member of
the Corporate Responsibility Committee
Year of initial appointment: 2008
Isabelle Romy
Swiss, born 4 January 1965
Froriep Renggli, Bellerivestrasse 201, CH-8034 Zurich
Functions in UBS
Member of the Audit Committee / member of the
Governance and Nominating Committee
Year of initial appointment: 2012
233
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Professional history and education
Beatrice Weder di Mauro was elected to the BoD at the 2012 AGM. She has been a member of the Audit Committee and
Corporate Responsibility Committee since 2012. She has been a professor of economics, economic policy and international
macroeconomics at the Johannes Gutenberg University of Mainz since 2001. Ms. Weder di Mauro was a member of the
German Council of Economic Experts from 2004 to 2012. In 2010, she was a resident scholar at the International Monetary
Fund (IMF) in Washington, D.C., and in 2006 a visiting scholar at the National Bureau of Economic Research, Cambridge,
MA. Since 2003 Ms. Weder di Mauro has been a research fellow of the Center for Economic Policy Research in London. She
was an associate professor of economics at the University of Basel between 1998 and 2001 and a research fellow at the
United Nations University in Tokyo from 1997 to 1998. Prior to this she worked as an economist for the World Bank and the
IMF in Washington, D.C. Ms. Weder di Mauro completed her PhD in economics at the University of Basel in 1993 and
received her habilitation there in 1999.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Ms. Weder di Mauro is on the board of Roche Holding Ltd., Basel, and on the supervisory boards of ThyssenKrupp AG, Essen,
and the Deutsche Investitions- und Entwicklungsgesellschaft, Cologne.
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. Mr. Yam was instrumental in the establishment
of the Hong Kong Monetary Authority and served as 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 several
positions such as Director of the Office of the Exchange Fund from 1991, Deputy Secretary for Monetary Affairs from 1985
and Principal Assistant Secretary for Monetary Affairs from 1982. Mr. Yam graduated from the University of Hong Kong in
1970 with first class honors in social sciences. He holds honorary doctorate degrees and professorships from a number of
universities in Hong Kong and overseas. Mr. Yam 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 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 boards of Johnson Electric Holdings
Limited and UnionPay International Co., Ltd.
Professional history and education
Luzius Cameron was appointed Company Secretary by the BoD for the first time 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 out in Corporate Controlling before assuming a number of senior roles at Warburg Dillon Read,
including 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.
Beatrice Weder di Mauro
Italian and Swiss, born 3 August 1965
Johannes Gutenberg-University Mainz,
Jakob Welder-Weg 4, D-55099 Mainz
Functions in UBS
Member of the Audit Committee / member of
the Corporate Responsibility Committee
Year of initial appointment: 2012
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
234
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 2 May 2013.
BoD members are normally expected to serve for a minimum
of three years. No BoD member can serve for more than 10 con-
secutive terms of office or continue to serve beyond the AGM
held in the calendar year following his 70th birthday; in excep-
tional circumstances the BoD can extend both these limits.
Organizational principles and structure
The Organization Regulations were revised during 2012 and are
valid as of 1 January 2013. The main changes made included
reflecting “Wealth Management” and “Retail & Corporate” as sep-
arate business divisions, the joint responsibility assigned to the Audit
Committee and the Risk Committee with regard to Group Internal
Audit, the transfer of the succession planning for all GEB members
from the Human Resources and Compensation Committee to the
Governance and Nominating Committee and the introduction of a
new section regarding “Global Recovery and Resolution Planning”.
Following each AGM, the BoD meets to appoint its Chairman,
Vice Chairmen, 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
often as business requires, but must meet at least six times a year.
In 2012, a total of 27 meetings were held, eight times with the
presence of GEB members and 19 times for meetings and calls
without GEB participation. On average, 90% of BoD members
were present at BoD meetings without GEB participation, and
91% at meetings with GEB participation. The average duration of
these meetings and calls was two and a half hours. In addition,
the BoD met for a one-day seminar.
At every BoD meeting, each committee chairperson provides
the BoD with 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
the BoD and its committees are functioning effectively and effi-
ciently. The last self-assessment was completed in spring 2012
and the BoD found that it is operating effectively. In spring 2013,
the assessment will be conducted by an external company.
The committees listed below assist the BoD in the performance
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 comprises five BoD members, with all
members having been determined by the BoD to be fully indepen-
dent and financially literate. On 31 December 2012, William
G. Parrett chaired the Audit Committee with Michel Demaré, Ann
F. Godbehere, Isabelle Romy and Beatrice Weder di Mauro as
additional members. All members have accounting or related
financial management expertise and the majority qualify as
“financial expert” in terms of the rules established pursuant to
the US Sarbanes-Oxley Act of 2002.
The Audit Committee itself does not perform audits, but moni-
tors 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 annual financial statements and for reviewing the
quarterly financial statements.
The function of the Audit Committee is to serve as an indepen-
dent and objective body with oversight of: (i) the UBS 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) the senior management’s approach to internal controls with
respect to the production and integrity of the financial statements
and disclosure of the financial performance; and (v) the perfor-
mance of Group Internal Audit in conjunction with the Chairman
and the Risk Committee. For these purposes, the Audit Commit-
tee has the authority to meet with regulators and external bodies
in consultation with the Group CEO. Senior management is re-
sponsible for the preparation, presentation and integrity of the
financial statements.
The Audit Committee reviews the annual and quarterly finan-
cial statements of UBS and the Group, as proposed by manage-
ment, with the external auditors and Group Internal Audit in or-
der to recommend their approval (including any adjustments the
Audit Committee considers appropriate) to the BoD.
Periodically, and at least annually, the Audit Committee as-
sesses the qualifications, expertise, effectiveness, independence
and performance of the external auditors and their lead audit
partner, in order to support the BoD in reaching a decision in rela-
tion to the appointment or dismissal of the external auditors and
the rotation of the lead audit partner. The BoD then submits these
proposals for approval at the AGM.
During 2012, the Audit Committee held a total of 10 meetings
and 15 telephone conferences. The meetings had an average du-
ration of three hours and the telephone conferences lasted ap-
proximately one hour. Participation was 93%. Also present at the
meetings were the Group Chief Financial Officer (Group CFO), the
Head Group Internal Audit, the Group Finance Chief Operating
Officer, the Head of Group Controlling & Accounting and Ernst &
Young. The conference calls were conducted in the presence of
the Audit Committee members, the Group CFO and selected
management members. Joint Audit Committee / Risk Committee
sessions were held at least every quarter. In addition, the Audit
Committee held one session with FINMA.
The Audit Committee reports back to the BoD about its discus-
235
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
sions with our external auditors. Once per year, the lead represen-
tatives of our external auditors present their long-form report to
the BoD, as required by FINMA.
The NYSE listing standards on corporate governance set more
stringent independence requirements for members of audit com-
mittees than for the other members of the BoD. Each of the five
members of our Audit Committee is an external BoD member
who, in addition to satisfying our independence criteria, does not
receive, directly or indirectly, any consulting, advisory or other
compensatory fees from UBS other than in his or her capacity as a
BoD member; does not hold, directly or indirectly, UBS shares in
excess of 5% of the outstanding capital; and (except as noted
below) does not serve on the audit committees of more than two
other public companies. The NYSE listing standards on corporate
governance allow for an exemption for audit committee members
to serve on more than three audit committees of public compa-
nies, 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 Ann F. God-
behere, the BoD has granted this exemption in their cases.
Corporate Responsibility Committee
The Corporate Responsibility Committee 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 majority of the Cor-
porate Responsibility Committee’s members must be indepen-
dent. The Corporate Responsibility Committee comprises four
independent BoD members and, on 31 December 2012, was
chaired by Wolfgang Mayrhuber with Axel A. Weber, William G.
Parrett, Beatrice Weder di Mauro and Joseph Yam as additional
members. The Corporate Responsibility Committee is advised
and supported by a number of senior business representatives. It
met twice for approximately one and a half hours on average in
2012, and 90% of Corporate Responsibility Committee mem-
bers were present.
➔ Refer to the “Corporate responsibility” section of this report for
more information
Governance and Nominating Committee
The Governance and Nominating Committee supports the BoD
in fulfilling its duty to establish best practices in corporate gover-
nance across the Group, to conduct a BoD annual self-assess-
ment, to establish and maintain a process for appointing new
BoD and GEB members (in the latter case, upon proposal by the
Group CEO), and to manage the succession planning of all GEB
members. The Governance and Nominating Committee compris-
es four independent BoD members and, on 31 December 2012,
Axel A. Weber chaired the Governance and Nominating Commit-
tee, with Michel Demaré, Axel P. Lehmann, Isabelle Romy and
David Sidwell as additional members. In 2012, eight meetings
were held with an average participation of 85% of members and
a duration averaging one hour. One meeting was held with exter-
nal advisors.
Human Resources and Compensation Committee
The Human Resources and Compensation Committee is respon-
sible for the following functions: (i) supporting the BoD in its du-
ties to set guidelines on compensation and benefits; (ii) approving
the total compensation for the Chairman and the non-indepen-
dent 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 Human
Resources and Compensation Committee also reviews the com-
pensation disclosure included in this report.
The Human Resources and Compensation Committee com-
prises four independent BoD members and, on 31 December
2012, Ann F. Godbehere chaired it with Rainer-Marc Frey, Wolf-
gang Mayrhuber and Helmut Panke as additional members. In
2012, six meetings and seven telephone conferences were held
with an average duration of 100 minutes and participation rate of
85%. Of those meetings and calls, 11 were held with external
advisors and 13 with the Chairman and Group CEO.
➔ Refer to the “Compensation governance” section of this report
for more information on the Human Resources and Compensa-
tion Committee’s decision-making procedures
Risk Committee
The Risk Committee is responsible for overseeing and supporting
the BoD in fulfilling its duty to supervise and set appropriate risk
management and control principles in the following areas: (i) risk
management and control, including credit, market, country, legal
and operational risks; (ii) treasury and capital management, includ-
ing funding, liquidity and equity attribution; and (iii) balance sheet
management. The Risk Committee considers the potential effects
of the aforementioned risks on the Group’s reputation. For these
purposes, the Risk Committee receives all relevant information from
the GEB and has the authority to meet with regulators and external
bodies in consultation with the Group CEO. On 31 December 2012,
the Risk Committee comprised five independent BoD members.
David Sidwell chaired the Risk Committee with Rainer-Marc Frey,
Axel P. Lehmann, Helmut Panke and Joseph Yam as additional
members. During 2012, the Risk Committee held a total of eight
meetings and six calls, with an average participation rate of 87% of
members. The average meeting duration was five and a half hours
and the calls lasted approximately one hour and a quarter.
The Audit Committee Chairperson regularly attended part or
all of the Risk Committee meetings. In 2012, the Chairman, the
Group CEO, the Group CFO, the Group Chief Risk Officer, the
Group General Counsel, the co-CEOs or the CEO of the Invest-
ment Bank, the Group Treasurer, the Head Group Internal Audit
and Ernst & Young were also regularly present. In addition, the
Risk Committee and Human Resources and Compensation Com-
mittee met jointly to discuss topics on which they have shared
236
responsibility. Annually, one session is held with the Governing
Board of the SNB and one with FINMA. Two meetings were held
with the Federal Reserve Bank of New York and the Connecticut
Department of Banking and one meeting was held with the UK
Financial Services Authority.
Ad-hoc Strategy Committee
In 2012, an ad-hoc committee on strategy (the Strategy Commit-
tee) was created to discuss details of the acceleration of UBS’s
strategy with the senior management. On 31 December 2012,
the Strategy Committee comprised four BoD members. Axel
A. Weber chaired the Strategy Committee with Michel Demaré,
Rainer-Marc Frey and David Sidwell as additional members. Two
telephone conferences and one meeting were held with an aver-
age duration of 60 minutes and participation of 92%. All these
events were attended by the Group CEO, the Group CFO and the
Group Chief Operating Officer.
Special Committee conducting an independent internal
investigation
In light of the unauthorized trading incident announced in Sep-
tember 2011, the BoD in the same month created a Special Com-
mittee comprised of three independent Risk Committee and Au-
dit Committee members. Its role was, with assistance from Group
Internal Audit, to conduct an independent internal investigation
into the event, its causes, disciplinary consequences and proposed
remedial actions, and to report its findings to the BoD.
David Sidwell chaired the Special Committee with Ann F. God-
behere and Joseph Yam as additional members. In 2012, the com-
mittee held five conference calls and one meeting. All of the Spe-
cial Committee members were present and the meetings lasted
for one hour on average. In June the committee decided that, for
the time being, no further Special Committee meetings or actions
were required and that the Special Committee would going for-
ward be convened if necessary.
Roles and responsibilities of the Chairman of
the Board of Directors
Axel A. Weber, the Chairman of the BoD (Chairman), has entered
into a full-time employment contract with UBS in connection with
his service on the BoD.
The Chairman coordinates the tasks within the BoD, calls BoD
meetings and sets their agendas. Under the leadership of the
Chairman, the BoD decides on the strategy of the Group upon the
recommendation of the Group CEO, exercises the ultimate super-
vision over management and appoints all GEB members.
The Chairman presides over all our shareholders’ meetings,
and works with the committee chairpersons to coordinate the
work of all BoD committees. Together with the Group CEO, the
Chairman is responsible for ensuring effective communication
with shareholders and other stakeholders, including government
officials, regulators and public organizations. This is in addition to
establishing and maintaining a close working relationship with
the Group CEO and the other GEB members, providing advice
and support while respecting the fact that day-to-day manage-
ment 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. Michel Demaré has been
appointed as Vice Chairman and David Sidwell has been appointed
as Senior Independent Director. A Vice Chairman is required 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 Inde-
pendent Director organizes and leads a meeting of the indepen-
dent BoD members in the absence of the Chairman. In 2012, three
independent BoD meetings were held for a duration of one 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 stakeholders wishing
to engage in discussions with an independent BoD member.
Important business connections of independent members
of the Board of Directors with UBS
As a global financial services provider and a major bank in Swit-
zerland, we have business relationships with many large compa-
nies, including those in which our BoD members assume manage-
ment or independent board responsibilities. The Governance and
Nominating Committee determines if the nature of the relation-
ships between UBS and the companies whose chair, chief execu-
tive or other officer is a member of our BoD does not compromise
his or her capacity for independent judgment.
Our Organization Regulations require three-quarters of the
BoD members to be independent. As a general rule, for a BoD
member to be considered independent, he or she may not have a
material relationship with UBS, either directly or as a partner, con-
trolling shareholder or executive officer of a company that has a
relationship with UBS. In addition, in order to be considered inde-
pendent, our BoD members have to fulfill the additional criteria
our BoD has established based on the requirements set forth in
the NYSE listing standards on corporate governance, the FINMA
Circular 08 / 24 on the supervision and internal controls at banks
and the standards established in the Swiss Code of Best Practice
for Corporate Governance. These criteria, together with a defini-
tion of what constitutes a material relationship, are published on
our website under www.ubs.com/governance.
Based thereupon, on 31 December 2012, all our BoD members
were considered independent by the BoD, with the exception of
our Chairman Axel A. Weber. In accordance with the abovemen-
tioned independence criteria and due to our Chairman’s full-time
employment by UBS AG, he is not considered independent.
All relationships and transactions with UBS’s independent BoD
members are conducted in the ordinary course of business, and
237
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
are on the same terms as those prevailing at the time for compa-
rable transactions with non-affiliated persons. All relationships
and transactions with UBS BoD members’ associated companies
are conducted at arm’s length.
➔ Refer to “Note 32 Related parties” in the “Financial information”
section of this report for more information
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, ensuring a separation of power. This structure establishes
checks and balances and preserves the institutional indepen-
dence of the BoD from the day-to-day management of the firm,
for which responsibility is delegated to the GEB under the leader-
ship of the Group CEO. No member of one board may be a mem-
ber 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”.
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 has a func-
tional reporting line to the Risk Committee and the Audit Com-
mittee in line with their responsibilities as set forth in our Organi-
zation Regulations. The Risk Committee and the Audit Committee
must be informed of the results of the annual internal audit plan
and status of annual internal audit objectives and must be in reg-
ular contact with the Head Group Internal Audit.
Our compliance function provided an annual compliance re-
port to the BoD in March 2012. This report is required by sections
109 and 112 of the FINMA Circular 08 / 24 on the supervision and
internal controls at banks.
➔ Refer to the “Risk management and control” section of this
➔ Refer to www.ubs.com/governance for more details on checks
report for more information
and balances for the BoD and GEB
238
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).
Members of the Group Executive Board and
changes in 2012
Since the first quarter of 2012, UBS has reported Wealth Manage-
ment and Retail & Corporate as separate business divisions, with
Wealth Management & Swiss Bank ceasing to exist as a business
division. Lukas Gähwiler became CEO of Retail & Corporate in
addition to his position as CEO of UBS Switzerland, and Jürg
Zeltner became CEO of UBS Wealth Management. On 22 March
2012, the Board appointed Andrea Orcel as co-CEO of the Invest-
ment Bank alongside Carsten Kengeter, effective 1 July 2012. On
1 April 2012, Alexander Wilmot-Sitwell stepped down as co-CEO
of UBS Group Asia Pacific and GEB member. As a consequence
Chi-Won Yoon became sole CEO of UBS Group Asia Pacific on
that date. On 1 November 2012, Andrea Orcel became sole CEO
of the Investment Bank and Carsten Kengeter stepped down from
the GEB to lead the management of the businesses and positions
to be exited by the Investment Bank.
In spring 2013, the GEB decided that all responsibilities and
authorities of the Corporate Center CEO are assumed by the
Group Chief Operating Officer and to eliminate the role of the
Corporate Center CEO.
The following biographies provide information on the GEB
members.
Professional history and education
Sergio P. Ermotti was appointed Group CEO in November 2011, having 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 Group Deputy Chief Executive
Officer at UniCredit, Milan, and was responsible for the strategic business areas of Corporate and Investment Banking, and
Private Banking. He joined UniCredit in 2005 as Head of Markets & Investment Banking Division. Between 2001 and 2003
he worked at Merrill Lynch, serving 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 to 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 to 1992 he practiced at Shearman & Sterling in New York, specializing in mergers and acquisitions. In 1988,
he worked at Paul, Weiss, Rifkind, Wharton & Garrison in New York, after starting his career in 1983 with Bär & Karrer.
Mr. Diethelm holds a law degree from the University of Zurich and a master’s degree and PhD from Stanford Law School.
Mr. Diethelm is a qualified attorney-at-law admitted to the bar in Zurich and in New York State.
Other activities and functions
Mandates on boards of important corporations, organizations and foundations or interest groups:
Mr. Diethelm is Chairman of the Swiss-American Chamber of Commerce’s legal committee, and a member of the Swiss
Advisory Council of the American Swiss Foundation, of the UBS Foundation of Economics in Society and of the Conseil de
Fondation du Musée International de la Croix-Rouge et du Croissant-Rouge.
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
239
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Professional history and education
John A. Fraser was appointed Chairman and CEO of Global Asset Management in December 2001, and became a member
of the GEB in July 2002. Since 2008 he has been 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, subsequently, 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 Advisory Council of AccountAbility 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 in April 2010. In his role as CEO
of UBS Switzerland he is responsible for all businesses – retail, wealth management, corporate and institutional, investment
banking and asset management – in UBS’s home market. Since January 2012 he has also been CEO of Retail & Corporate.
Between April 2010 and January 2012 he combined the position of CEO of UBS Switzerland with the role of co-CEO of UBS
Wealth Management & Swiss Bank. 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 Chief of Staff to the CEO of Credit Suisse’s Private and Corporate business unit and, previous to that, 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 Economiesuisse, the Zurich Chamber of Commerce and Opernhaus Zurich. He is
Vice Chairman of the Swiss Finance Institute, as well as a member of the Foundation Board of the UBS pension fund and of
the UBS Foundation of Economics in Society.
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. In addition 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 in business
administration from the University of St. Gallen, and for several years was an auditor at Price Waterhouse and a manage-
ment consultant at 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 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, a member of the Advisory Board of the Department
of Banking and Finance at the University of Zurich and a member of the business advisory council of the Laureus Foundation
Switzerland.
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 CEO Retail & Corporate
Year of initial appointment: 2010
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
240
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,
who began his career with UBS over 25 years ago, became Group Risk Chief Operating Officer in 2008 after three years
serving as Group Chief Credit Officer. 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. Mr. 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.
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 of 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 Head of Global Securities Research and Economics. In 2000, he
was appointed Chief Operating Officer of Global Markets and Investment Banking. From 1998 to 2000 he was 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 Clearing House Advisory Board, a member of the Presidents Circle of No Greater Sacrifice in
Washington, D.C., a member of the Committee Encouraging Corporate Philanthropy and a member of the board of the
Catholic Charities of the Archdiocese of New York.
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 cri-
sis 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.
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
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
241
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Professional history and education
Andrea Orcel was appointed CEO of the Investment Bank in November 2012. He had been appointed co-CEO of the
Investment Bank and a member of the GEB in July 2012. He joined UBS from Bank of America Merrill Lynch, where he had
been Executive Chairman since 2009, President of Emerging Markets (ex Asia) since 2010 and CEO of European Card Services
since 2011. Prior to Merrill Lynch’s acquisition by Bank of America, Mr. Orcel was a member of Merrill Lynch’s global manage-
ment committee and Head of Global Origination, which combined Investment Banking and Capital Markets. He held a
number of other leadership positions, including President of Global Markets & Investment Banking for Europe, Middle East
and Africa (EMEA) and Head of EMEA Origination beginning in 2004. Between 2003 and 2007 he led the Global Financial
Institutions Group, of which he had been part since joining Merrill Lynch in 1992. Prior to this, he worked at Goldman Sachs
and the Boston Consulting Group. Mr. Orcel holds an MBA from INSEAD and a degree in economics and commerce, summa
cum laude, from the University of Rome.
Professional history and education
Chi-Won Yoon was appointed CEO of UBS Group Asia Pacific in April 2012 and has been a member of the GEB since
June 2009. He held the position of co-Chairman and co-CEO of UBS Group Asia Pacific from November 2010 to March 2012.
From June 2009 to November 2010 he served as sole Chairman and CEO of UBS AG, Asia Pacific. 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 Fixed Income, Currencies and Commodities, which he led from 2009. When he first joined the firm in 1997, 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 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 board of UBS Securities Co. Ltd. and a member of the Asian Executive Board of MIT’s Sloan School of
Management.
Professional history and education
Jürg Zeltner became a member of the GEB in February 2009 and is CEO of UBS Wealth Management. Between February 2009
and January 2012 he served as co-CEO of UBS Wealth Management & Swiss Bank. 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 divi-
sion in Berne, New York and Zurich. Mr. Zeltner holds a diploma in business administration from the College of Higher
Vocational Education in Berne and is a graduate of 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 Chairman of the UBS Optimus Foundation
Board.
Andrea Orcel
Italian, born 14 May 1963
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
CEO Investment Bank
Year of initial appointment: 2012
Chi-Won Yoon
Korean, born 2 June 1959
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
CEO UBS Group Asia Pacific
Year of initial appointment: 2009
Jürg Zeltner
Swiss, born 4 May 1967
UBS AG, Bahnhofstrasse 45, CH-8098 Zurich
Function in UBS
CEO UBS Wealth Management
Year of initial appointment: 2009
242
Responsibilities, authorities and organizational principles
of the Group Executive Board
Responsibilities and authorities of the Group Asset and
Liability Management Committee
Under the leadership of the Group CEO, the GEB has executive
management responsibility for the Group and its business. It as-
sumes overall responsibility for the development of the Group and
business division strategies and the implementation of approved
strategies. The GEB constitutes itself as the risk council of the
Group. In this function, the GEB has overall responsibility for the
following: establishing and supervising the implementation of risk
management and control principles; approving major risk policies
as proposed primarily by the Group Chief Risk Officer; and con-
trolling the risk profile of the Group as a whole as determined by
the BoD and the Risk Committee. In 2012, the GEB held a total 22
meetings, not including two GEB offsite meetings and two ad hoc
conference calls.
➔ 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, is responsible for setting strate-
gies 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 bal-
ance sheet of the business divisions through allocation and moni-
toring of limits as well as managing capital, liquidity and funding;
and promoting a one-firm financial management culture. The Or-
ganization Regulations additionally specify which powers of the
GEB are delegated to the Group ALCO. In 2012, the Group ALCO
held nine meetings.
Management contracts
We have not entered into management contracts with any third
parties.
243
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Change of control and defense measures
We refrain from restrictions that would hinder developments initi-
ated in, or supported by, the financial markets. We also do not
have any specific defenses in place to prevent hostile takeovers.
Duty to make an offer
An investor who acquired more than 33 % of all voting rights of
UBS AG (directly, indirectly or in concert with third parties),
whether they are exercisable or not, would be required to submit
a takeover offer for all shares outstanding, according to the Swiss
Stock Exchange Act. 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
BoD, nor the employment contracts with the Group Executive
Board (GEB) members and employees holding key functions with-
in the company (Group Managing Directors), contains 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 ben-
efits.
In case of a change of control, UBS may, at its discretion, ac-
celerate the vesting of and / or relax applicable forfeiture provi-
sions of employees’ awards, and defer lapse date of options or
stock appreciation rights.
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 StabFund at its
outstanding principal amount plus accrued interest, and that we
purchase the SNB StabFund’s equity at 50% of its value at the
time.
244
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 (GIA). The Audit Com-
mittee, 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 2012 Annual General Meeting of Shareholders (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 according to laws, regulatory requests and the Articles of
Association. The Ernst & Young lead partner in charge of the UBS
financial audit has been Jonathan Bourne since 2010 and his in-
cumbency is limited to five years. The co-signing partner for the fi-
nancial statement audit is Troy J. Butner who has been on the audit
since 2011 and his incumbency is limited to seven years. The Lead
Auditor to FINMA is Iqbal Khan; he has been in charge of auditing
UBS since 2011. The co-signing partner for the FINMA audit was
Marc Ryser since 2012 with an incumbency of seven years.
Fees paid to external independent auditors
The fees (including expenses) paid to our auditors Ernst & Young
are set forth in the table below. In addition, Ernst & Young re-
ceived CHF 33,327,000 in 2012 (CHF 30,106,000 in 2011) 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 auditing
standards, as well as other assurance services that conventionally
only the auditor can provide. These include statutory and regula-
tory audits, attest services, and the review of documents to be filed
with regulatory bodies. The additional services classified as audit in
2012 included several engagements for which Ernst & Young were
mandated at the request of FINMA to review new or remediated
processes, whether in response to regulatory changes, such as Ba-
sel III, or as a result of control deficiency remediation, for example,
in connection with the 2011 unauthorized trading incident.
Audit-related work comprises assurance and related services
that traditionally are performed by the auditor, such as attest ser-
vices related to financial reporting, internal control reviews, per-
formance standard reviews, consultation concerning financial ac-
counting and reporting standards and due diligence investigations
on transactions in which we propose to engage.
Special auditor for capital increase
At the 2012 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.
Tax work involves services performed by professional staff in
Ernst & Young’s tax division, and includes tax compliance, tax con-
sultation and tax planning with respect to our own affairs.
“Other” services are permitted services which comprise on-call
advisory services and in 2012 also an assessment of the opera-
Fees paid to external auditors
d
e
t
i
d
u
A
UBS paid the following fees (including expenses) to its external auditors Ernst & Young Ltd.:
CHF thousand
Audit
Global audit fees
Additional services classified as audit (services required by law or statute, including work of a non-recurring nature mandated by regulators)
Total audit
Non-audit
Audit-related fees
of which assurance and attest services
of which control and performance reports
of which advisory on accounting standards, transaction consulting including due diligence, other
Tax services
Other
Total non-audit
31.12.12
31.12.11
53,900
23,648
77,548
8,401
3,427
4,134
840
817
1,990
11,208
52,600
5,240
57,840
8,190
3,123
4,626
441
1,021
1,483
10,694
245
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
tional risk framework. In addition, 2012 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 Audit Committee. A pre-
approval may be granted either for a specific mandate, or in the
form of a blanket pre-approval authorizing a limited and well-
defined type and amount of services.
The Audit Committee has delegated pre-approval authority to
its Chairperson, and the Group Chief Financial Officer (Group CFO)
submits all proposals for services by Ernst & Young to the Chairper-
son of the Audit Committee for approval, unless there is a blanket
pre-approval in place. At each quarterly meeting, the Audit Com-
mittee is informed of the approvals granted by its Chairperson and
of services authorized under blanket pre-approvals.
Group Internal Audit
With 357 personnel worldwide on 31 December 2012, GIA per-
forms the internal auditing function for the entire Group. GIA is
an independent and objective function that supports the firm in
achieving its defined strategic, operational, financial and compli-
ance objectives, and the BoD and its committees in discharging
their governance responsibilities. GIA provides assurance by as-
sessing the reliability of financial and operational information, as
well as compliance with legal, regulatory and statutory require-
ments. All reports with key issues are provided to the Group CEO,
the Group Executive Board members responsible for the business
divisions and other responsible management. In addition, the
Chairman, the Risk Committee and the Audit Committee are reg-
ularly informed about important issues. GIA further assures the
closure and successful remediation of issues, irrespective of the
function which identified them (issues identified by GIA, local in-
ternal audit functions, external auditors, legal and compliance,
regulators, as well as self-identified issues raised by management).
GIA closely cooperates with internal and external legal advisors
and risk control units on investigations into major control issues.
To maximize its independence from management, the Head of
GIA, James P. Oates, reports directly to the Chairman of the BoD
as well as to the Risk Committee and the Audit Committee. GIA
has unrestricted access to all accounts, books, records, systems,
property and personnel, and must be provided with all informa-
tion and data needed to fulfill its auditing duties. The Risk Com-
mittee and the Audit Committee may order special audits to be
conducted. Other BoD members, committees or the Group CEO
may request such audits with the approval of the Audit Commit-
tee or the Risk Committee.
Coordination and close cooperation with the external auditors
enhance the efficiency of GIA’s work.
246
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 2013
Second quarter 2013
Third quarter 2013
30 April 2013
30 July 2013
29 October 2013
The Annual General Meeting of shareholders will take
place as follows
2013
2014
2 May 2013
7 May 2014
We meet with institutional investors worldwide throughout the
year and regularly hold results presentations, special investor
seminars as well as deal-related and non-deal road shows.
Meetings include members of the investor relations team and,
where possible, senior management. We make use of diverse
technologies such as webcasting, audio links and cross-location
video-conferencing to widen our audience and maintain con-
tact with shareholders around the world.
Registered shareholders may opt to receive our annual report
or review booklet, which reflects on specific 2012 initiatives and
achievements of the firm and provides an overview of our activi-
ties during the year as well as some key financial information.
Each quarter, shareholders have the option to receive a brief
mailed update on our quarterly financial performance. Sharehold-
ers can also request our complete financial reports, produced on
a quarterly and annual basis.
We make our publications available to all shareholders simultane-
ously to ensure they have equal access to our financial information.
Shareholders can help us to achieve our environmental ambi-
tions by opting to read our financial publications electronically
through our Investor Relations website instead of taking delivery of
printed copies. We have reviewed and shortened our distribution
lists to internal and external stakeholders and reduced stocks,
yielding significant annual savings in terms of both paper and
costs. In addition, shareholders can change their subscription pref-
erences at any time using our shareholder portal (www.ubs.com/
shareholderportal).
➔ Refer to www.ubs.com/investors for a complete set of published
reporting documents and a selection of senior management
Based on discussions with analysts, investors, regulators and other
stakeholders, we believe the market rewards companies that pro-
vide clear, consistent and informative disclosure about their busi-
ness. Therefore, we aim to communicate our strategy and results
in a manner that allows stakeholders to gain an understanding of
how our firm works, what our growth prospects are and what risks
our strategy entails. We continually assess feedback from analysts
and investors and, where appropriate, reflect this in our quarterly
and annual reports. To continue achieving these goals, we apply
the following principles in our financial reporting and disclosure:
– Transparency in disclosure that enhances understanding of the
economic drivers and builds trust and credibility
– Consistency in disclosure within each reporting period and be-
tween reporting periods
– Simplicity in disclosure that allows readers to gain an under-
standing of the performance of our businesses
– Relevance in disclosure that prevents information overload by
focusing on what is required by regulation or statute and what
is relevant to our stakeholders
– Best practice, leading the way to improved standards
We endorse the work of the Enhanced Disclosure Task Force
(EDTF) and the recommendations issued by the EDTF on 29 Octo-
ber 2012 in its report “Enhancing the Risk Disclosures of Banks.”
Our Annual Report for 2011 contained disclosures consistent with
many of the recommendations of the EDTF, including some refer-
enced in their report as “leading practice.” We have incorporated
further changes to our disclosures in our Annual Report for 2012
in light of these recommendations and will further enhance our
Annual Report in 2013.
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 consolidated financial statements are prepared according
to International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board.
➔ Refer to “Note 1 Summary of significant accounting policies” in
the “Financial information” section of this report for a detailed
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 and other key dates
We are committed to maintaining the transparency of our re-
ported results and to ensuring that analysts and investors can
make meaningful comparisons with previous periods. If there is a
247
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
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 previ-
ous periods, when required by applicable accounting standards.
These restatements show how results would have been reported
according to the new basis and provide clear explanations of all
relevant changes.
US regulatory disclosure requirements
As a “foreign private issuer”, we must file reports and other 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 shareholders’
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 man-
agement including the Group CEO and the Group CFO, of the
effectiveness of our disclosure controls and procedures (as de-
fined in Rule 13a–15e) under the US Securities Exchange Act of
1934. Based upon that evaluation, the Group CEO and Group
CFO concluded that our disclosure controls and procedures were
effective as of 31 December 2012. No significant changes have
been made to our internal controls or to other factors that could
significantly affect these controls subsequent to the date of their
evaluation.
In accordance with Section 404 of the US Sarbanes-Oxley Act
of 2002, our management is responsible for establishing and
maintaining adequate internal control over financial reporting.
The financial information of this report contain the management’s
assessment of the effectiveness of internal control over financial
reporting as of 31 December 2012. The external auditors’ report
on this assessment is also included in this report.
➔ Refer to the “Financial information” section of this report
248
Corporate responsibility
Our firm’s commitment to corporate responsibility demands careful management of our relationships with our stake-
holders. Our engagement with them makes a critical contribution to our understanding and management of
topics relevant to our firm and to advancing our corporate responsibility strategy. In 2012, we directed our efforts at
key societal topics, met key corporate responsibility objectives and delivered on our external corporate responsibility
commitments to the benefit of our firm and its stakeholders.
The successful delivery of our corporate responsibility commitments
and activities is founded on the firm conviction that, above all, our
firm must conduct its business in a sustainable way. We have made
good on this belief over the course of our 150-year history and
have demonstrated resilience in the face of the many political, eco-
nomic and regulatory changes and challenges that came to pass
during this period. As shown in detail elsewhere in this report, 2012
was a milestone year for UBS in more ways than one. Historically,
we celebrated the firm’s 150th anniversary together with clients
and others around the globe. We continued to successfully execute
our plans to improve our already strong capital position and reduce
risk-weighted assets and costs. In October, from this position of
strength, we announced a significant acceleration in the implemen-
tation of our strategy that will define the future of UBS.
We aim to conduct our business in a sustainable way by com-
plying with all our policies, guidelines and procedures relating to
appropriate and responsible corporate behavior. Our definition of
corporate responsibility encompasses the legal, ethical and social
responsibilities that we as a company and as employees have to-
wards our stakeholders. These responsibilities are reflected in our
Code of Business Conduct and Ethics.
By adhering to this code, we demonstrate our commitment to
being a responsible corporate institution and acting with integrity
in all our interactions with our stakeholders. Proper implementa-
tion of the Code of Business Conduct and Ethics contributes to
the wider societal goal of sustainable development. Policies and
guidelines as well as associated objectives related to this aspira-
tion are guided and supervised at the highest level of our firm. We
demonstrate accountability for our corporate responsibility com-
mitments and activities at both Board of Directors (BoD) and
Group Executive Board (GEB) level.
(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:86)(cid:2)(cid:55)(cid:36)(cid:53)
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(cid:84)(cid:87)(cid:78)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:32)(cid:2)(cid:37)(cid:81)(cid:79)(cid:68)(cid:67)(cid:86)(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:69)(cid:84)(cid:75)(cid:79)(cid:71)
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(cid:32)(cid:2)(cid:49)(cid:87)(cid:84)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)
(cid:32)(cid:2)(cid:40)(cid:67)(cid:75)(cid:84)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:73)(cid:84)(cid:75)(cid:86)(cid:91)(cid:2)
(cid:75)(cid:80)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:84)(cid:71)(cid:78)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:32)(cid:2)(cid:52)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:71)(cid:79)(cid:82)(cid:78)(cid:81)(cid:91)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:82)(cid:84)(cid:67)(cid:69)(cid:86)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:32)(cid:2)(cid:38)(cid:75)(cid:88)(cid:71)(cid:84)(cid:85)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:67)(cid:78)(cid:2)(cid:81)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:87)(cid:80)(cid:75)(cid:86)(cid:91)
(cid:32)(cid:2)(cid:42)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:67)(cid:72)(cid:71)(cid:86)(cid:91)
(cid:32)(cid:2)(cid:39)(cid:80)(cid:88)(cid:75)(cid:84)(cid:81)(cid:80)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:32)(cid:2)(cid:42)(cid:87)(cid:79)(cid:67)(cid:80)(cid:2)(cid:84)(cid:75)(cid:73)(cid:74)(cid:86)(cid:85)
(cid:32)(cid:2)(cid:52)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:85)(cid:87)(cid:82)(cid:82)(cid:78)(cid:91)(cid:2)(cid:69)(cid:74)(cid:67)(cid:75)(cid:80)
(cid:32)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:87)(cid:80)(cid:75)(cid:86)(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:37)(cid:81)(cid:79)(cid:79)(cid:87)(cid:80)(cid:75)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:14)(cid:2)(cid:86)(cid:84)(cid:67)(cid:75)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:71)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:84)(cid:67)(cid:75)(cid:85)(cid:75)(cid:80)(cid:73)
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249
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
Key corporate responsibility developments in 2012
In 2012, we continued to support our
clients in understanding key societal
opportunities and challenges and acted
as a trusted financial advisor on sustain-
ability issues. We did so by expanding
our comprehensive range of sustainabil-
ity products and services, including
impact investing, sustainable real estate
funds, socially responsible investment
products and advisory on sustainability
challenges.
We have established a leading position in
values-based investing and providing
environmental, social and governance
(ESG) research. In 2012, we demonstrat-
ed this, for example, through the global
roll-out of our Investment Bank’s ESG
Analyzer and through the honors we
received in the annual Thomson Reuters
Extel/UKSIF Socially Responsible Investing
& Sustainability survey. Our firm’s efforts
also received external recognition in the
S&P Carbon Disclosure Project report.
We apply a robust framework to manage
environmental and social risk in our
businesses. In 2012, we continued to
strengthen the implementation of
key policies and standards, including our
Position on Controversial Activities,
supported by a sustained roll-out of
training and awareness-raising activities
for client-facing staff. In doing so, we
were able to draw from an industry-lead-
ing environmental and social risk
screening process, which we established
through a successful collaboration
between our risk and compliance
functions in 2011.
Our compliance function is a significant
contributor to ensuring that our corpo-
rate responsibility commitments are met
and plays a key role in protecting our firm
from reputational, business or financial
damage. At the same time, it makes a
valuable and significant contribution to
the fight against financial crime, in
particular by deploying our global
sanctions, anti-money laundering and
anti-bribery programs to deny rogue
states, suspected criminals and terrorists
access to the financial system via UBS or
its products and services. A comprehen-
sive legal and compliance risk assessment
in 2011 did not identify any significant
incidents of non-compliance with our
anti-corruption policy and other regula-
tions related to anti-corruption. Nonethe-
less, in 2012 an anti-corruption initiative
was put in place to strengthen our
defenses against corruption involving the
firm.
Our environmental and social risk
management and our global sanctions,
anti-money laundering and anti-bribery
programs are important examples of the
need for effective outreach and internal
collaboration between our business
divisions and external collaboration with
our stakeholder community. In 2012, we
once again demonstrated our commit-
ment to engaging with various initiatives
and partners to develop and, where
appropriate, enhance our standards. We
joined the Roundtable on Sustainable
Palm Oil as part of its “Banks & Inves-
tors” membership category. We also
joined other organizations focused on
topics of major relevance to society,
including the European Venture Philan-
thropy Association and the World
Demographic & Ageing Forum. We are
among the thought leaders in corporate
responsibility in banking and participate
actively in key international corporate
responsibility initiatives. These include the
Wolfsberg Group (on anti-money
laundering), the UN Principles for
Responsible Investment (on responsible
investing), the UN Global Compact and
the UN Environment Program (UNEP)
Finance Initiative.
Our long-standing involvement in the
UNEP Finance Initiative reflects our
commitment to managing our environ-
mental footprint. Our worldwide
environmental management system
covers in-house operations, risk man-
agement and products and services. In
2012, UBS successfully passed its ISO
14001 surveillance audit. We accom-
plished our Group-wide CO2 emission
reduction target of 40% below 2004
levels, as originally decided by the GEB in
February 2006. In addition, we renewed
our climate change strategy and are
determined to prepare our clients for
success in an increasingly carbon-con-
strained world.
Our well-established and vigorous
community investment program formed
an integral part of our firm’s 150th
anniversary celebrations. UBS Community
Affairs teams around the world imple-
mented an Employee Recognition Award,
recognizing 150 UBS employees or teams
of employees for their outstanding
community involvement. In Switzerland,
we launched a major education initiative,
consisting of six sub-projects centering on
the UBS International Center of Econom-
ics in Society at the University of Zurich.
This initiative will benefit the entire Swiss
population notably by providing support
to projects aimed at apprentices, young
entrepreneurs, start-up companies and
employees of all age groups.
➔ Refer to www.ubs.com/responsibility
for more information on the contents
of this section
250
Governance, strategy and commitments
Corporate responsibility governance
The BoD is responsible for formulating our firm’s values and stan-
dards and ensuring we meet our obligations to our stakeholders.
Both the Chairman of the BoD and the Group Chief Executive
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 creat-
ing sustainable value. Of the five BoD committees, the Corporate
Responsibility Committee shoulders the main undertaking for cor-
porate responsibility. As set out in the committee’s charter, the
Corporate Responsibility Committee actively 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 responsibility activities and com-
mitments. Moreover, it regularly reviews the Code of Business
Conduct and Ethics. In 2012, an external review of this code, un-
dertaken at the behest of the BoD, praised the high quality of the
document. The reviewers proposed various minor modifications
which were subsequently implemented and a revised version of
the Code of Business Conduct and Ethics was published.
➔ Refer to www.ubs.com/code for a copy of the UBS Code of
Business Conduct and Ethics
➔ Refer to the Organization Regulations of UBS for the
Charter of the Corporate Responsibility Committee
In 2012, the Corporate Responsibility Committee continued to
be chaired by Wolfgang Mayrhuber. The committee has four ad-
ditional members, including the Chairman of the BoD, and is ad-
vised by a panel of ten members mainly from the GEB, including
the Group CEO and all regional CEOs. The members of the advi-
sory panel participate in Corporate Responsibility Committee
meetings and are responsible for implementing its recommenda-
tions. The advisory panel benefits from direct connections to op-
erational corporate responsibility activities such as anti-money
laundering (through the membership of the Group General Coun-
sel) and environmental & social risk management (through the
membership of the Group Chief Risk Officer, who also holds the
role of Group Environmental Representative).
The GEB is responsible for the development and implementation
of our Group and business division strategies, including those per-
taining 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 responsibility,
including the Global Environmental & Social Risk Committee chaired
by the Group Chief Risk Officer. Additionally, our Environmental &
Human Rights Committee oversees the operational execution of
UBS’s Environmental Policy and Statement on Human Rights.
➔ Refer to www.ubs.com/environment for more information on
our environmental and human rights governance
The GEB monitors our efforts to combat money laundering,
corruption and terrorist financing. These efforts are led by the
Head of Global AML (anti-money laundering) Compliance and
supported by a network of expert global business teams. The GEB
also monitors the implementation of our diversity and inclusion-
related strategies and plans for each business division. Our global
diversity and inclusion team supports senior management and
Human Resources business partners in developing these plans.
Our global head of Human Resources is also a member of the
Corporate Responsibility Committee’s advisory panel.
➔ Refer to the “Our employees” section of this report for more
information on labor standards and diversity programs
The Global Community Affairs Steering Committee is chaired
by the Group CEO and composed of several members of our se-
nior management. This GEB-level committee sets the overall stra-
tegic direction and aims of our community affairs. In addition, it is
ultimately responsible for determining our response to worldwide
disasters.
➔ Refer to the discussion on community investment below for
more information on our charitable and related activities
(cid:49)(cid:87)(cid:84)(cid:2)(cid:69)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:73)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:69)(cid:71)(cid:85)(cid:85)(cid:2)
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(cid:38)(cid:81)(cid:69)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
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(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:71)(cid:2)(cid:52)(cid:71)(cid:85)(cid:82)(cid:81)(cid:80)(cid:85)(cid:75)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)(cid:2)(cid:67)(cid:70)(cid:88)(cid:75)(cid:85)(cid:81)(cid:84)(cid:91)(cid:2)(cid:82)(cid:67)(cid:80)(cid:71)(cid:78)
(cid:48)(cid:71)(cid:86)(cid:89)(cid:81)(cid:84)(cid:77)(cid:2)(cid:81)(cid:72)(cid:2)
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(cid:35)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)
(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: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:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:36)(cid:67)(cid:80)(cid:77)
(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: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: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:19)(cid:37)(cid:52)(cid:18)(cid:18)(cid:20)(cid:65)(cid:71)
251
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
Our commitment to responsible banking requires us to under-
take regular and critical assessments of our policies and practices.
This in turn requires the careful consideration and assessment of
societal issues of potential relevance to UBS. With committees
focused on corporate responsibility topics and issues both at BoD
and GEB level, we demonstrate that we have firmly established
responsibility for the oversight of this important and complex task
at the highest level of the firm.
External commitments and initiatives
We are committed to engaging in external corporate responsibil-
ity initiatives. These support us in our efforts to advance in areas
that are already mandated by government and regulators as well
as in areas that, while still largely voluntary, are nonetheless of
significance to strengthening our corporate responsibility agenda.
In 2012, UBS joined the Roundtable on Sustainable Palm Oil
(RSPO), thereby reinforcing our commitment to responsible palm
oil production. As part of the RSPO’s “Banks & Investors” mem-
bership category, UBS actively promotes RSPO in its business rela-
tionships in the palm oil sector, for example by requiring that our
clients are members in good standing of the RSPO and by actively
seeking to enhance certification of their palm oil production.
In May 2011, directly prior to the United Nations’ endorsement
of the Guiding Principles for the Implementation of the “Protect,
Respect and Remedy” Framework on business and human rights
(the Guiding Principles), UBS convened a meeting in Thun, Swit-
zerland, with a number of universal banks (subsequently referred
to as the Thun Group) to consider the Guiding Principles. In 2012,
a discussion document setting out the challenges and best prac-
tice examples of operationalizing the Guiding Principles in univer-
sal banks was drafted and developed. Work is currently ongoing
in order to finalize the document.
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.
As one of the top 10 companies worldwide in the 2012 Carbon
Disclosure Project, UBS was ranked as excellent in its measures to
combat climate change.
We are included in the Carbon Performance Leadership Index,
which is produced by the Carbon Disclosure Project and features
companies that have distinguished themselves through their ef-
forts to reduce emissions and their strategies for combating cli-
mate change. We are also represented in the Carbon Disclosure
Leadership Index, putting us among the companies which are set-
ting the standards in reporting on the risks and opportunities aris-
ing for businesses in connection with climate change. We are
among the few financial sector companies represented in both
Carbon Disclosure Project indices.
We have been a member of the FTSE4Good index series since
its inception and obtained a top ranking in 2012. We are, how-
ever, disappointed that we were removed from the Dow Jones
Sustainability Index World (DJSI World). Our overall assessment
had risen to 76 points in 2011, a score we maintained throughout
2012, but as the benchmark was raised in 2012, we no longer
qualified for inclusion in the index.
We received several honors in the 10th annual Thomson Re-
uters Extel/UKSIF Socially Responsible Investing & Sustainability
Survey of over 500 investment professionals from 27 countries.
We were named the leading brokerage firm for renewable energy
research and our head of global sustainability research in the In-
vestment Bank was honored as the leading brokerage individual
for thematic research. UBS was ranked second in the leading bro-
kerage firm for thematic research and leading brokerage individ-
ual for renewable energy research categories, as well as third in
the leading brokerage firm for integrated research on climate
change and leading brokerage firm for SRI & sustainability overall
categories.
Furthermore, we were ranked third in Lundquist’s CSR Online
Awards Switzerland 2012, maintaining our top-three ranking for
the fourth consecutive year. These awards consider how well cor-
porate websites are used as a platform for corporate social re-
sponsibility communications and stakeholder engagement.
Stakeholder dialogue
We regularly engage with our stakeholders on a wide range of
topics, yielding important information on their expectations and
concerns. This provides a critical contribution to our understand-
ing and management of issues relevant to our firm. Our relation-
ships with stakeholders are multi-faceted and include major single
interactions with large groups (e.g. the 2012 employee survey),
regular communications throughout the year with representatives
from a particular group (e.g. media), as well as dialogue meetings
with single individuals (e.g. client enquiries).
In 2012, we engaged with experts and stakeholders on a range
of topics. These included discussions with clients on values-based
investing, including those taking place at the 2012 UBS Philan-
thropy Forum. At the annual UBS Q-Series® conference, global
thought leaders were joined by nearly 200 clients and investors.
The conference featured 40 speakers from some of the world’s
leading academic and business institutions, who identified inflec-
tion points – ranging from current environmental, social and gov-
ernance issues to the impact of changing dynamics – and dis-
cussed how these can affect a company’s business objectives and
ultimate profitability.
Discussions with employees covered various sustainability top-
ics, including energy. Working together with investors and rating
agencies, we considered key environmental, social and gover-
nance topics such as climate change, while discussions with non-
governmental organizations focused on the subjects of deforesta-
tion, mining, controversial weapons, and climate change,
particularly in relation to coal. In addition, we sought input from
our employees regarding our corporate responsibility strategy and
associated activities. An internal, cross-divisional and cross-re-
gional network of experts continues to play a particularly impor-
tant role, with its members providing critical input on stakeholder
expectations and concerns. These contributions are relayed back
to the Corporate Responsibility Committee and provide a very
252
valuable addition to information gathered through other monitor-
ing channels.
We believe it is crucial that we keep our stakeholders informed
about our sustainability commitments and activities. To this end,
we include sections in our Annual Report 2012 dedicated to
“Corporate responsibility” and “Our employees”. The content of
these sections, other relevant Annual Report text and data and
information on the UBS website are reviewed by Ernst & Young
Ltd according to the Global Reporting Initiative’s Sustainability Re-
porting Guidelines.
➔ Refer to www.ubs.com/gri for more information
Training and awareness-raising
We actively engage in internal and external education and aware-
ness-raising on corporate responsibility topics and issues. Through
induction, education and broader awareness-raising activities we en-
sure that our employees are in no doubt as to the importance of our
societal commitments. General information is published on our in-
tranet and on our corporate responsibility website. In 2012, training
and awareness-raising activities for employees continued to embrace
the Code of Business Conduct and Ethics, notably through induction
events for all new employees. Employees were also made aware of
the firm’s corporate responsibility strategy and activities through
other training and awareness-raising activities. Some 4,514 employ-
ees received training on environmental issues, of which, 3,548 re-
ceived a general education on our environmental policy and pro-
grams and 966 participated in specialist training targeted within
their area of expertise and influence. Employee speaker sessions,
exhibitions and lunchtime training sessions were delivered in all re-
gions alongside specific technical training for the regional environ-
mental teams. Employees are also required to undergo regular re-
fresher training in anti-money laundering-related issues. This includes
online training, awareness campaigns and seminars.
➔ Refer to the “Education and talent development” section of this
report for more information
Corporate responsibility in 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. We are aligned with the
demands of our shareholders, clients, employees and society in
general and our banking activities are undertaken in a responsible
manner. In addition, we are constantly striving to ensure that our
products and services are suited to the needs and requirements of
our clients. Through our corporate responsibility efforts we dem-
onstrate that we are not only listening to our stakeholders, but
also aiming to be in an industry-leading position and meet their
expectations.
lustrated by the way we take responsibility in our own operations
for preserving the integrity of the financial system. We employ a
rigorous risk-based approach to ensure our policies and proce-
dures are able to detect risks and that relationships which are
classified as higher risk are dealt with appropriately. We adhere to
strict know-your-client regulations without undermining clients’
legitimate right to privacy. Ongoing due diligence and monitor-
ing, including the use of advanced technology to help identify
transaction patterns or unusual dealings, assists in the identifica-
tion of suspicious activities. If suspicious activities are discovered,
they are promptly escalated to management or control functions.
During 2012, Global AML (anti-money laundering) Compli-
ance 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 with regards to
potential issues relating to environmental and social risk.
In 2011, all business divisions were required to perform a legal
and compliance risk assessment. This comprehensive process, which
included an assessment of corruption, sanction and anti-money
laundering risks, is also forward-looking with follow-up actions to
highlight the priorities and objectives for each business division. This
risk assessment did not identify any significant incidents of non-
compliance with our anti-corruption policy and other anti-corrup-
tion regulations. Nonetheless, in 2012 an anti-corruption initiative
was put in place to strengthen our defenses against corruption.
As part of our extensive and ongoing efforts to prevent money
laundering, corruption and terrorist financing, our internal global
anti-money laundering policies were reviewed in 2011 and en-
hancements to address more specific risks in relation to corrup-
tion and terrorist financing were implemented globally. We have
also reviewed and amended our approach to controversial weap-
ons in order to comply with the Swiss law that came into effect on
1 February 2013. This law implements the Oslo Convention ban
on the use, stockpiling, production and transfer of cluster muni-
tions and the ban on the use, stockpiling, production and transfer
of anti-personnel mines and on their destruction.
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
(cid:49)(cid:87)(cid:84)(cid:2)(cid:71)(cid:80)(cid:88)(cid:75)(cid:84)(cid:81)(cid:80)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:78)(cid:2)(cid:82)(cid:81)(cid:78)(cid:75)(cid:69)(cid:91)
(cid:39)(cid:80)(cid:88)(cid:75)(cid:84)(cid:81)(cid:80)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:78)(cid:2)(cid:82)(cid:81)(cid:78)(cid:75)(cid:69)(cid:91)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:81)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:87)(cid:80)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:43)(cid:80)(cid:15)(cid:74)(cid:81)(cid:87)(cid:85)(cid:71)(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:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:87)(cid:82)(cid:82)(cid:78)(cid:91)(cid:2)(cid:69)(cid:74)(cid:67)(cid:75)(cid:80)
Combating financial crime
We continue to further strengthen our efforts to prevent and
combat financial crime. Our commitment to assisting in the fight
against money laundering, corruption and terrorist financing is il-
(cid:37)(cid:71)(cid:84)(cid:86)(cid:75)(cid:386)(cid:71)(cid:70)(cid:2)(cid:71)(cid:80)(cid:88)(cid:75)(cid:84)(cid:81)(cid:80)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:78)(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:85)(cid:91)(cid:85)(cid:86)(cid:71)(cid:79)
(cid:54)(cid:84)(cid:67)(cid:75)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:87)(cid:80)(cid:75)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:22)(cid:37)(cid:52)(cid:18)(cid:18)(cid:21)(cid:65)(cid:71)
253
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
for know-your-client, anti-money laundering and counter-terrorist
financing policies. Together with the other members of the group,
we continue to work closely with the Financial Action Task Force,
an inter-governmental body that develops and promotes national
and international policies to combat money laundering and ter-
rorist financing through consultation with the private sector.
We will always act decisively to prevent potentially irresponsi-
ble or harmful actions by individuals. First and foremost, this
means that our employees must uphold the law, adhere to rele-
vant regulations, and behave in a responsible and principled man-
ner. To this effect, our business processes and control mechanisms
are constantly reviewed to enhance our prevention capabilities.
Managing environmental and social risks
UBS applies a risk framework to all transactions, products, services
and activities in order to identify, assess and manage environmen-
tal and social risks. Environmental and social (including human
rights) risks are broadly defined as the possibility of UBS suffering
reputational or financial harm from transactions, products, servic-
es or activities such as lending, capital raising, advisory services or
investments that involve a party associated with environmentally
or socially sensitive activities. For products, services and activities
identified as having significant environmental and social risk po-
tential, procedures and tools for the timely identification, assess-
ment, escalation and monitoring of such risks are applied and in-
tegrated into standard risk, compliance and operations processes.
– Client on-boarding or conflict clearance: new corporate clients
are assessed for environmental 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.
– Product development: new financial products and services are
reviewed before launch to assess their compatibility and con-
sistency with UBS’s environmental and human rights principles.
– 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.
– In-house environmental management: our operational activi-
ties and employees, or contractors working on UBS premises,
are assessed for compliance with relevant environmental regu-
lations.
Business or control functions are responsible for identifying
and assessing environmental and social risks as part of the client,
supplier or transaction due diligence process. Where these func-
tions determine the existence of potential material risk, they refer
the client, supplier or transaction to a specialized environmental
and social risk unit for enhanced due diligence. To support the
consistent identification and assessment of such risks, we devel-
oped internal industry sector guidelines in 2009. These guidelines
provide an overview of key environmental and human rights is-
sues that arise in the various life cycles of the sector, and summa-
rize industry standards in dealing with them. The guidelines cur-
rently cover six sectors: chemicals; forestry products and biofuels;
infrastructure; metals and mining; oil and gas; and utilities. If
identified risks are determined to create significant potential repu-
tational risk, they are escalated for approval to senior manage-
ment, at divisional, regional, or group level, depending on the
significance of the risk.
In 2011, we strengthened our environmental and social (in-
cluding human rights) risks framework by defining controversial
activities that we will not engage in, or will only engage in under
stringent pre-established guidelines.
➔ Refer to the “UBS position on relationships with clients and
suppliers associated with controversial activities” section below
for more information
Environmental and social risk assessments
Cases referred to environmental and social risk functions 2
by region
Americas
Asia Pacific
Europe, Middle East and Africa
Switzerland
by business division
Investment Bank
Wealth Management
Retail & Corporate
Wealth Management Americas
Global Asset Management
Corporate Center 3
GRI 1
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
31.12.12
1,039
288
222
225
304
533
157
223
5
12
109
For the year ended
31.12.11
416
111
136
119
50
330
59
22
5
n / a
n / a
31.12.10
194
48
84
32
30
147
20
24
3
n / a
n / a
% change from
31.12.11
150
159
63
89
508
62
166
914
0
n / a
n / a
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
and assessed by environmental and social risk functions. 3 Relates to procurement / sourcing of products and services.
254
Clients, transactions or suppliers potentially in breach of UBS’s
position, or otherwise subject to significant environmental and
human rights controversies, are identified as part of UBS’s know-
your-client compliance processes. This was made possible by inte-
grating advanced data analytics on companies associated with
such risks into the web-based compliance tool used by UBS staff
before they enter into a client or supplier relationship, or a trans-
action. The systematic nature of this tool vastly enhances our abil-
ity to identify potential reputational risk, and is evidenced by the
increasing number of cases referred for assessment to our envi-
ronmental and social risk units in 2012.
➔ Refer to the “Environmental and social risk assessments” table
above for more information
Sustainable products and services
By integrating environmental and social considerations into our
advisory, research, investment, finance and ownership processes
across all our businesses, we provide financial products and ser-
vices which help our clients benefit from environmentally and so-
cially related business opportunities.
philanthropy and sustainable investing teams have continued to
develop the holistic service offered within our wealth manage-
ment business. These teams provide thought leadership, advice,
products and solutions to existing and prospective private clients
who wish to make investments in accordance with their own per-
sonal values. These services also extend to aiding philanthropic or
investment decisions intended to effect positive change. For
example, UBS Portfolio Screening Services help Wealth Manage-
ment clients align their portfolios to their sustainability values by
assessing client portfolios using specific sustainability criteria.
Based on increased interest among our clients, we screened CHF
1.2 billion of client assets in 2012. In 2012, we also developed a
prototype UBS Sustainability Health Check which highlights any
discrepancies between clients’ sustainability preferences and the
actual composition of their portfolio. We plan to develop this ad-
visory service in 2013 with planned roll out to clients in 2014. Also
in 2012, the Arbor Group within Wealth Management Americas
established a new program by which UBS donates a portion of
their standard management fee to the Conservation Agreement
Fund for all interested investors. Our services also include
– mission-related investing for donor-advised funds and private
Investment advisory
UBS offers investment advisory services for wealth management
clients helping them to consider the potential social and environ-
mental impacts of their investments as well as the potential
financial returns when selecting an investment opportunity. Our
foundations
– sustainable portfolio management, such as mandate solutions
and separately managed accounts for private clients and insti-
tutions with a strong focus on sustainability across all asset
classes
UBS position on relationships with clients and suppliers associated with
controversial activities
This position stipulates activities that we
will not engage in, or will only engage
in under stringent pre-established
guidelines. We will not knowingly
provide financial services to corporate
clients, or purchase goods or services
from suppliers, where the use of
proceeds or primary business activity of
the client, supplier or acquisition target
involves environ mental and social risks,
defined as follows:
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
United Nations Educational, Scientific
and Cultural Organization (UNESCO)
– high-conservation-value forests as
defined by the six categories of the
Forest Stewardship Council
– uncontrolled and / or illegal use of fire
for land clearance
– illegal logging, including the purchase
of illegally 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
All commercial activities that:
– engage in child labor as defined by the
International Labor Organization’s
Conventions 138 (minimum age) and
182 (worst forms)
– engage in forced labor as defined by
the International Labor Organization’s
Convention 29
– threaten indigenous peoples’ rights
as defined by the International
Finance Corporation’s Performance
Standard 7
– wetlands on the Ramsar List of
– engage in diamond mining and
Wetlands of International Importance
– world heritage sites as classified by the
trading of rough diamonds unless
Kimberley Process-certified
255
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
– managed accounts with environmental, social and governance
criteria (sourced from third-party data provider MSCI) embed-
ded into private clients’ fundamental investment process,
enabling them to identify and exclude securities based on is-
sue-oriented screens (offered in the US).
For institutional clients, Global Asset Management offers cus-
tomized portfolios in the form of segregated mandates and insti-
tutional accounts that allow clients to define and exclude certain
controversial stocks or sectors due to their perceived social or en-
vironmental impact.
Research
UBS produces award-wining research into the impact of environ-
mental, social and governance issues on sectors and companies.
Our specialized teams have published research regularly into topics
that will shape our future, including climate change, energy effi-
ciency, resource scarcity and demographics. Our experience and
sector knowledge helps us to determine what is material by raising
questions about the effect environmental, social and governance
issues are having on the competitive landscape for the global sec-
tors we cover as well as about how companies are affected in rela-
tive terms. Increasing client demand for integrating sustainability
issues into fundamental investment analysis, in a systematic man-
ner, is reflected in our publications and client conferences:
– Our UBS Q-series® reports focus on thought-provoking discus-
sions on pivotal investment questions, and on making clear
investment conclusions, leading to a firm-wide drive for more
thoughtful, proprietary and valuable research. Examples of
Q-series® reports published in 2012 include “Global Pharma-
ceuticals – Will vaccines transform pharma growth?”, “Global
Marine Sector: Is green shipping just a storm in a teacup?” and
“What is ‘Integrated Reporting’? – How good disclosure con-
nects to value”.
– The Investment Bank’s UBS Q-series® ESG Analyzer seeks to
answer one of the most frequently asked questions in the field
of sustainability, namely which environmental, social and gov-
ernance issues are material in the context of a typical invest-
ment portfolio? The ESG Analyzer identifies top-positioned
stocks for sustainability themes and identifies environmental,
social and governance issues in more than 30 sectors and
across close to 500 stocks. This comprehensive view is made
possible by the input of more than 80 UBS sector analysts
worldwide.
– The Investment Bank hosted the UBS Q-series® conference,
which this year focused on “Inflection Points Towards Sustain-
ability” and joined global thought leaders with nearly 200 cli-
ents and investors. The Investment Bank also hosted the UBS
European Conference “Sustainability Track”, which featured
sessions on food provision and on corporate governance.
– In 2012, one of the flagship publications of UBS Wealth Man-
agement, UBS research focus (”Investing in the future with
energy”), discussed how sustainable energy sources are in-
creasing in importance and identified the key implications of
this trend for private investors. Sustainable investment topics
are also covered in the UBS CIO Monthly Letter, which is avail-
able in ten languages.
– We also offer our bundled expertise for example in summits for
family offices and young successors where clients can meet our
experts from all businesses across the firm, including research,
advisory and investment.
Our outreach and dialogue programs include a partnership
with the Smith School of Enterprise and the Environment at the
University of Oxford, with which UBS hosts a series of events,
open to both UBS clients and employees, and feature thought
leaders from around the globe. Sir David King, who was the
founding director of the Smith School, is a Senior Scientific Advi-
sor to UBS and, in this capacity, advises UBS’s clients on all scien-
tific matters with specific emphasis on climate change and the
challenges it poses to sustainable economic growth.
Investment products
Global Asset Management is committed to environmental, social
and governance integration and has been a signatory to the UN
Principles for Responsible Investment since 2009. These Principles
provide a voluntary framework according to which all investors
can incorporate environmental, social and governance issues into
their decision-making and ownership practices and align their ob-
jectives with those of society at large.
Global Asset Management offers a range of sustainable invest-
ment funds that integrate material sustainability factors with a
rigorous fundamental investment process. Their focus is on inno-
vative companies, referred to as sustainability champions, which
provide solutions to sustainability challenges. Our investment
themes include energy savings, environment, social and health
care and demographics. Our objective is to identify winning sus-
tainable business models at attractive valuations, providing our
investors with strong excess returns. We also manage four Ex-
change Traded Funds which track MSCI’s Socially Responsible
Indices and are listed on the Deutsche Börse (Xetra), SIX Swiss
Exchange and the London Stock Exchange.
Global Asset Management launched UBS Clean Energy Infra-
structure Switzerland at the end of 2012. This investment solution
for institutional investors offers unprecedented access to a diversi-
fied portfolio of Swiss infrastructure facilities and companies in
the field of renewable energies and energy efficiency. By the first
closing date for subscriptions, on 31 December 2012, capital
commitments had reached some CHF 250 million from 18 institu-
tional investors.
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.
Through our open architecture, we also offer our wealth man-
agement clients the opportunity to invest in socially responsible
256
investment bonds, equity and microfinance products from leading
third-party providers. As of 31 December 2012, invested assets
held in socially responsible investments (SRI) totaled USD 253.73
billion, representing 11.38% of our total invested assets. The in-
crease in our reported SRI invested assets in 2012 is largely due to
growing demand for screening services and the expansion of the
Sustainability and Responsible Property Investment strategy to an
increased number of investment funds.
➔ Refer to the “Socially responsible investments invested assets”
table below for more information
Corporate and private clients finance and advisory
UBS 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. Our Renewable Energy & Clean
Technology team (RE&CT) within the Investment Bank includes
senior employees on four continents. In 2012, the team raised
approximately USD 5.7 billion from 12 transactions, further
establishing RE&CT as one of the leading clean technology
practices globally. Transactions we supported included the USD
350 million initial public offering (IPO) of Borregaard SA – the first
internationally book-run IPO in the Nordic region since May 2011
– and the USD 220 million convertible bond transaction for GT
Solar, which was the largest offering of its kind for a solar com-
pany in 2012. We also supported the USD 319 million H share
IPO of Huadian Fuxin – the third-largest IPO in Hong Kong in
2012 – and the USD 72 million IPO of Renewable Energy Group,
which is the largest independent biodiesel producer in the United
States.
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.
In Switzerland, our home market, we reward energy-efficient
renovations and support the goals of the Swiss nationwide build-
ing efficiency program. Our Swiss private clients benefit from the
UBS “eco” Mortgage when building energy-efficient homes and
a cash benefit (funded by proceeds from the Swiss CO2 levy re-
fund) when renovating their homes sustainably.
From 2013 onward, we will incentivize Swiss SMEs to save en-
ergy by promoting the Swiss Energy Agency’s SME Model. Clients
will profit from the “Energy check-up for SMEs” at reduced costs
and, in addition, we will offer a cash premium to clients who com-
mit to an energy reduction plan within this scheme.
Voting rights
We believe that voting rights have economic value and should be
treated accordingly. Where Global Asset Management has been
given the discretion to vote on behalf of our clients, we will exer-
cise our delegated fiduciary responsibility by voting in the manner
we believe will be most favorable to the value of their invest-
ments. We are strongly supportive of the Stewardship Code pub-
lished by the Financial Reporting Council of the United Kingdom
in 2010. This aims to enhance engagement between institutional
investors and companies. Good corporate governance should, in
the long term, lead towards both better corporate performance
and improved value for shareholders and other stakeholders. In
2012, we voted on more than 59,000 separate resolutions at
5,945 company meetings. Our approach to corporate gover-
nance is an active one and is integral to our investment process.
We are an active member of a number of collaborative share-
holder bodies.
Socially responsible investments invested assets 1
For the year ended
% change
from
CHF billion, except where indicated
GRI 2
31.12.12
31.12.11
31.12.10
31.12.11
UBS total invested assets
UBS SRI products and mandates
positive criteria
positive criteria / RPI
exclusion criteria 3
exclusion criteria / policy-based restrictions 4
Third-party 5
Total SRI invested assets
Proportion of total invested assets (%) 7
2,230
2,167
2,152
FS11
FS11
FS11
FS11
FS11
FS11
1.60
32.15
35.68
181.64
2.66
253.73
11.38
1.84
28.19
27.46
180.85 6
2.58
240.92
11.12
2.00
na
21.27
na
2.40
25.67
1.19
3
(13)
14
30
0
3
5
1 All figures are based on the level of knowledge as of January 2013. 2 FS stands for the performance indicators defined in the Global
Reporting Initiative Financial Services Sector Supplement. 3 Includes customized screening services (single or multiple exclusion criteria).
4 Assets subject to restrictions under UBS policy on the prohibition of investments in companies related to anti-personnel mines and cluster
munitions. 5 SRI products from third-party providers apply either positive and exclusion criteria or a combination thereof. 6 Invested assets
subject to policy-based restrictions in 2011 has been restated. 7 Total SRI / UBS’s invested assets.
Socially responsible investments (SRI) 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 or
gambling, or companies with high negative environmen-
tal impacts. This also includes faith-based investing
consistent with principles and values of a particular
religion.
257
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
(cid:55)(cid:36)(cid:53)(cid:111)(cid:85)(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)
greenhouse gas emissions data externally verified according to
ISO 14064 standards.
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(cid:21)(cid:24)(cid:18)(cid:14)(cid:23)(cid:18)(cid:20)
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(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:21) (cid:20)(cid:19)(cid:23)(cid:14)(cid:20)(cid:25)(cid:27)
(cid:22)(cid:26)
(cid:23)(cid:19)
(cid:22)(cid:23)
(cid:22)(cid:21)
(cid:22)(cid:23)
(cid:22)(cid:20)
(cid:21)(cid:22)
(cid:20)(cid:22)
(cid:20)(cid:21)
(cid:20)(cid:18)(cid:18)(cid:22)
(cid:20)(cid:18)(cid:18)(cid:23)
(cid:20)(cid:18)(cid:18)(cid:24)
(cid:20)(cid:18)(cid:18)(cid:25)
(cid:20)(cid:18)(cid:18)(cid:26)
(cid:20)(cid:18)(cid:18)(cid:27)
(cid:20)(cid:18)(cid:19)(cid:18)
(cid:20)(cid:18)(cid:19)(cid:19)
(cid:20)(cid:18)(cid:19)(cid:20)
(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:2)(cid:2)(cid:2)(cid:2)(cid:18)
Climate change strategy
In 2006, the GEB endorsed a firm-wide CO2 emission reduction
target of 40% below 2004 levels by 2012 which was achieved in
the reporting year. Steps taken towards achieving this target in-
cluded adopting internal efficiency measures, increasing the pro-
portion of renewable energy used and offsetting emissions we
cannot avoid, such as business air travel.
(cid:19)(cid:19)(cid:19)(cid:14)(cid:25)(cid:25)(cid:21)
(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:20)(cid:23)(cid:14)(cid:26)(cid:23)(cid:22)
We have set a new target as part of our renewed climate
change strategy and will aim to reduce our CO2 emissions by a
further 15% by 2016, resulting in an overall reduction of 50%
below 2004 levels.
(cid:22)(cid:19)(cid:14)(cid:26)(cid:23)(cid:26)
➔ Refer to “Our climate change commitment” in this section of the
(cid:22)(cid:37)(cid:52)(cid:18)(cid:18)(cid:24)(cid:65)(cid:71)
report for more information
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(cid:21)(cid:22)(cid:14)(cid:23)(cid:23)(cid:24)
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 shareholders’
meetings of major Swiss corporations. This allows additional
shareholder input into the voting decisions of the funds’ manage-
ment company. More than 40% of invested assets for which UBS
Voice is offered participate in this service.
Corporate responsibility in operations
Reducing our environmental impact
We have been managing our internal environmental impact for
decades. Since the 1970s, we have focused on improving energy
efficiency, reducing consumption of paper and other resources,
actively managing waste volumes and encouraging our employ-
ees to replace air travel with more sustainable options. We man-
age the UBS Environmental Program through an Environmental
Management System in accordance with ISO 14001 and have
Energy consumption and efficiency
Energy consumption has a significant environmental impact and is
the biggest contributor to our overall greenhouse gas emissions.
Since baseline year 2009, we have reduced our energy consump-
tion by 21%. This reduction comes as the result of, for example,
engineering teams ensuring that heating, air-conditioning and
lighting controls of buildings we occupy are optimized. In addi-
tion, we apply externally verified standards to validate building
performance.
Information technology (IT) consumes half of the electricity
used by the global business and our IT-driven initiatives contrib-
uted significantly to these energy savings. Consolidation and vir-
tualization have reduced average IT server energy consumption by
22% since 2011. The Desktop Transformation Program initiated
in 2010 and continued through 2012 is designed to reduce the
number of personal computers by 14% whilst ensuring that new
computers and monitors are more energy-efficient than the
equipment they replace.
Environmental targets and performance in our operations 1
Total net greenhouse gas (GHG) emissions (GHG footprint) in t CO2e 3
Energy consumption in GWh
Share of renewable energy
GHG offsetting (business air travel) in t CO2e
Paper consumption in kg per FTE
Share of recycled and FSC paper
Waste in kg per FTE
Waste recycling ratio
Water consumption in m m3
2012
Target 2012
215,279
761
42%
73,024
122
55.8%
230
54.2%
1.95
–40%
–10%
increase
100%
stabilize
50%
stabilize
70%
–5%
Baseline 4
360,501 5
957
24% 5
0 5
130
33.8%
265
54.4%
2.55
Change from
baseline Achievement 6
2011
2010
–40%
–21%
73%
100%
–6%
65%
–13%
–0.3%
–23%
220,593
239,624
827
45%
88,867
122
44.3%
242
54.2%
2.00
859
43%
69,152
119
42.8%
251
53.7%
2.27
Legend: CO2e = CO2 equivalents; FTE = full-time employee; GWh = gigawatt hour; kWh = kilowatt hour; km = kilometer; kg = kilogram; m m3 = million cubic meter; t = tonne
1 Detailed environmental indicators according to the Global Reporting Initiative are available on the internet at www.ubs.com/environment. 2 Gross GHG emissions include: direct GHG emissions by UBS; indirect GHG
emissions associated with the generation of imported / purchased electricity (grid average emission factor), heat or steam and other indirect GHG emissions associated with business travel, paper consumption and waste
disposal. 3 GHG footprint equals gross GHG emissions minus GHG reductions from renewable energy and GHG offsets. 4 Baseline year 2009 if not indicated otherwise. 5 Baseline year 2004. 6 Green: target
achieved / red: target not achieved.
258
500000
437500
375000
312500
250000
187500
125000
62500
0
Renewable energy
We are reducing our use of carbon-intensive energy by including
a high proportion of renewable energy. In 2004, we sourced 24%
of our energy consumption from renewable energy and district
heating, increasing this to 42% by 2012.
– Our water consumption decreased 23% compared with 2009
levels, exceeding our target of 5%.
➔ Refer to http://www.ubs.com/global/en/about_ubs/corporate_
responsibility/cr_in_operations/ecology.html for information on
our new targets aiming to reduce our environmental footprint
Business travel and offsetting CO2 emissions
We try to minimize our CO2 emissions and encourage our em-
ployees to choose alternatives to air travel such as high-speed
rail, recording an 8% reduction in the number of flights taken
and a 5.7% increase in global employee rail travel in 2012. Our
investments in video conferencing solutions contributed to this
reduction and we also recorded a 31% increase in video confer-
ence volumes compared with the previous year. The marketing
and events team adopted environmental guidelines for client
conferences and considered the impact of delegate travel, ho-
tels, venue facilities and catering as part of their logistics and
planning.
Over the past six years, we have offset all CO2 emissions result-
ing from agency booked business air travel and client events and
conferences. We neutralized over 600,000 metric tons of CO2
emissions and thereby supported renewable energy and other
projects reducing CO2 emissions with an amount of CHF 5.3 mil-
lion. Projects we selected meet the requirements of the Gold
Standard for voluntary emissions reductions while providing posi-
tive community benefits. Schemes selected include a wind power
project in Turkey and community biofuel projects in China, South
Africa and India.
Paper, waste and water targets
To complement our climate change strategy, we are committed
to further reducing our environmental footprint and set targets
to reduce paper consumption, waste generation and water us-
age. In 2012, we surpassed all of these targets, except for the
one set for waste recycling, as evidenced by the data provided in
the table “Environmental targets & performance in our opera-
tions”.
– The amount of paper used per employee decreased 6% com-
pared with baseline year 2009. Double-sided printing and
copying, now the default setting for printers used by the ma-
jority of our employees, combined with an ongoing shift to-
wards the distribution of electronic documents, contributed to
our surpassing the target to stabilize paper use. We increased
the percentage of office paper from Forest Stewardship Coun-
cil (FSC) or recycled sources from 34% in 2009 to 56% in
2012, surpassing our 50% target.
– The continued implementation of bin-less offices in many larg-
er locations has reduced the waste per employee by 13% since
2009, surpassing the target to stabilize this at 2009 levels.
However, our waste recycling ratio has stabilized at 54%, fall-
ing short of our target of 70%. Paradoxically, this is due to our
success in reducing annual paper consumption, a significant
recyclable waste stream, from 130 kg to 122 kg per full-time
employee.
further
Engaging our employees
By educating, increasing awareness among and offering incen-
tives to employees on environmental matters, we hope to help
them behave in a sustainable way both at work and at home. As
part of our commitment to reducing CO2 emissions, we continued
to support Earth Hour in March 2012, switching off lights in UBS
offices in 58 cities around the world, for one hour. This was also
the starting signal for our annual internal and external environ-
mental awareness campaign. The theme in 2012 was ‘Less is
more’ and focused on energy efficiency, with activities including
environmental fairs, an online environmental quiz and video mes-
sages from experts, as well as articles and interviews with senior
management posted on our internal and external websites.
Responsible supply chain management
We purchase products and services ranging from office mainte-
nance services across information technology infrastructure to
items such as stationery. Responsible supply chain management
principles serve to embed our ethics and values with our suppliers,
contractors, service partners and project teams. As part of this
commitment, we have implemented a framework to identify, as-
sess and monitor supplier practices in the areas of human and la-
bor rights, the environment and corruption. In 2012, we refined
our risk rating concept and initiated training with our procure-
ment and sourcing specialists. All our significant active suppliers
have been screened for existing environmental and human rights
issues. These screenings identified no critical issues according to
UBS’s requirements. In addition, over 400 suppliers completed a
responsible supply chain questionnaire assessing environmental
and social management practices.
Community investment
We continued our well-established tradition of supporting the ad-
vancement and empowerment of organizations and individuals
within the communities in which we do business. Our initial focus
was centered on direct cash donations, but our community invest-
ment program now encompasses employee volunteering,
matched-giving schemes, in-kind donations, disaster relief efforts
and partnerships with community groups, educational institutions
and cultural organizations in all of our business regions.
Community Affairs
In 2012, UBS and our affiliated foundations made direct cash do-
nations totaling CHF 27.5 million to carefully selected non-profit
partner organizations and charities, compared with CHF 31.1 mil-
lion in 2011. Additionally, spending on the UBS Anniversary Edu-
259
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
cation Initiative amounted to CHF 16.7 million. These donations
were primarily aimed at our Community Affairs key themes of
education and entrepreneurship. Contributions were also made
to other causes, in particular disaster relief, including a commit-
ment of more than USD 1.2 million in total financial contributions
to long-term relief and rebuilding efforts in response to the devas-
tation caused by Hurricane Sandy in the United States. These do-
nations, combined with other significant activities, notably the
volunteering activities of employees, have continued to provide
substantial benefits to projects and people around the world, as
demonstrated by the examples provided 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 2012, 12,563 em-
ployees spent 110,065 hours volunteering, an increase of 8%
and 5%, respectively, compared with 2011. We support their
commitment by offering up to two working days a year for vol-
unteering efforts, and also match employee donations to select-
ed 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 A Helping Hand from UBS
Our climate change commitment
Climate change is one of the most
significant challenges of our time. The
world’s key environmental and social
challenges, such as population growth,
energy security, loss of biodiversity and
access to drinking water and food are all
closely intertwined with climate change.
This makes the transition to a low-carbon
economy vital.
We recognize that financial institutions
are increasingly expected to play a
key role in the transition to a low-car-
bon economy, and we are determined
to support our clients in preparing
for success in an increasingly carbon-
constrained world. As one of the
leading wealth management firms
worldwide, and the leading universal
bank in Switzerland backed by a top
asset management business and a
client-centered investment bank, our
climate change strategy focuses on
the following areas. It is in these areas
where we believe we can make
the greatest contribution to the
transition towards a low-carbon
economy:
– Risk management: seeking to
protect our clients’, and our own,
assets from climate change risks,
within our sphere of influence.
Recognizing that the transition to a
low-carbon economy will take time
and that fossil fuels will continue to
dominate energy production for
decades to come, we are determined
to understand the risks that our
clients’, and our own, assets are
exposed to in the context of uncertain
policy and technology developments
addressing climate change. This
includes developing a metrics-based
approach to measure our exposure to
climate change risks in high-risk
sectors such as real estate and energy.
– Investments: helping to mobilize
private and institutional capital
towards investments facilitating
climate change mitigation and
adaptation. Our clients will continue
to look for investment opportunities
and some will increasingly focus on
investments facilitating climate change
mitigation and adaptation.
– Finance: supporting this transition
as corporate advisor, and/or with
our lending capacity. We are helping
corporate clients raise capital on
domestic/international capital markets
in order to meet the high investment
levels required for the transition to a
low-carbon economy. In Switzerland,
we are also supporting private clients
in renovating their private homes
sustainably and innovative small and
medium-sized enterprises (SMEs) in
providing solutions for climate change
mitigation and adaptation.
– Research: offering world-class
research capacity to our clients on
climate change issues. Building on
our renowned expertise, we act as a
thought leader and expert advisor to
our clients on financial impacts of, and
solutions for, climate change.
– In-house operations: reducing our
own greenhouse gas emissions.
We are positioning our in-house
operations in support of a low-carbon
economy by further investing in
260
Our climate change commitment
Employees association. In 2012, these organizations made valu-
able contributions to important social causes, including fostering
the humanities and the creative arts, supporting communities in
need, and helping disabled and disadvantaged people.
its establishment, the Foundation has received more than 18,000
donations totaling over CHF 175 million, enabling it to support
275 projects in 75 countries. Because UBS bears all administrative
costs related to the UBS Optimus Foundation, 100% of every do-
nation goes directly towards the projects funded.
Client foundation
Established in 1999, the UBS Optimus Foundation works to break
down the barriers that prevent children from reaching their po-
tential. The Foundation works with carefully selected partners
globally on projects which help children in the areas of health,
education and protection against violence and sexual abuse. Since
In 2012, we published the Optimus Study, the most compre-
hensive research ever conducted in Switzerland into the extent of
sexual assault on children and adolescents. The study’s findings
are helping the government and child protection agencies to im-
prove in delivering child protection services for children and in
turn, reduce the incidence of child sexual victimization.
sustainable real estate and efficient IT
infrastructure and limiting business
travel-related CO2 emissions.
– Engagement & disclosure: report-
ing and communicating transpar-
ently about the progress of our
strategy. We are engaging with our
stakeholders on climate change issues
and continue to raise awareness
among our employees. In addition, we
will continue to disclose progress we
make in executing our climate change
strategy through established standards,
such as the Global Reporting Initiative
and the Carbon Disclosure Project.
These efforts build on a history and
strong track record of reducing our
environmental footprint in a consistent
and transparent manner. In the reporting
year 2012, we reached our ambitious
goal set in 2006 to reduce CO2 emissions
by 40% compared with 2004 baseline
levels. A target on which we delivered
successfully by adopting energy efficiency
measures to reduce the energy consump-
tion of the buildings we occupy, and of
critical facilities such as the data centers
we use, while increasing the proportion
of renewable energy used. Emissions that
cannot be reduced by other means (e.g.
business air travel) are offset. Our
achievements have been recognized by
external experts, in particular by the most
significant climate-change-focused
investors’ initiative, the Carbon Disclosure
Project, which in 2012 ranked UBS as one
of the top 10 companies worldwide for
excellence in transparency and achieve-
ment in combating climate change.
We will regularly report on the progress
we make in executing our new climate
change strategy which, in 2013, will
focus on the following elements:
– Participating in an industry-wide
initiative to develop accounting
metrics for CO2 emissions associated
with lending and investments;
– Reducing the environmental impact of
our Global Real Estate investment
portfolios;
– Offering the “Energy check-up for
SMEs” to Swiss SMEs in partnership
with the Swiss Private Sector Energy
Agency and renewing the cash bonus
to support private clients in renovating
their private homes sustainably;
– Launching UBS Clean Energy Infra-
structure Switzerland for institutional
clients to invest in renewable energy
infrastructure;
– Continuing to support renewable
energy and clean technology financing
through our Investment Bank;
– Developing the UBS Sustainability
Health Check, which will allow Wealth
Management clients to identify
discrepancies between their sustain-
ability preferences (including climate
change) and the composition of their
portfolio; and
– Reducing our greenhouse gas
footprint by 50% compared with
2004 baseline levels, another 15%
below 2012 levels, and reducing our
overall energy consumption by 10%
compared with 2012 levels by 2016.
261
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
Key examples of UBS’s community investment activities across the globe
Switzerland
To mark UBS’s 150th anniversary, UBS
Employee Volunteering teamed up with
the Swiss Foundation for Landscape
Conservation for 10 jubilee projects.
More than 330 UBS volunteers worked
for more than 3,300 hours across all UBS
regions helping to restore the Swiss
landscape. One of the projects took place
on an alpine pasture in Gantrisch nature
reserve where employees helped to
preserve the species-rich meadows and
alpine pastures as well as other important
landscape features. Another of these
projects took place in Liddes where UBS
employees had the opportunity to work
on the historic irrigation canal “Bisse de
la Tour”, under expert supervision.
Americas
In 2012, Community Affairs Americas
expanded the Elevating Entrepreneurs
program and teamed up with lenders in
two new locations, Chicago and Los
Angeles, to provide USD 15 million in
financing solutions for qualified small
businesses. Through a variety of student
mentoring programs sponsored by UBS,
we also contributed 8,148 volunteer hours
to supporting children and young adults
in developing their career and computer
skills and providing them with work
experience to help them achieve academic
success and economic empowerment.
Additionally, we launched Season of
Service, a community impact initiative
which resulted in approximately 161
different volunteer activities being
undertaken from October to December
and 4,473 volunteer hours logged by UBS
employees across the Americas region.
In response to the devastation caused by
Hurricane Sandy in late October, Com-
munity Affairs Americas announced that
UBS is committing more than USD
1.2 million in total financial contributions
to aid in the long-term relief and
rebuilding efforts.
Asia Pacific
In March 2011, an earthquake and
resulting tsunamis devastated Kamaishi
City in the Tohoku region of northeast
Japan, causing the deaths of 1,250
residents. In response, UBS initiated the
UBS Tohoku Project; a five-year strategy
to bring relief to the disaster-struck
region. In 2012, UBS and Japanese
partner organization RCF Tohoku
Earthquake Consulting Team, a recon-
struction support organization, imple-
mented the second phase of this strategy
to help regenerate and rebuild the local
community. Asia Pacific volunteers were
first introduced to the work of RCF
Tohoku Earthquake Consulting Team and
the local rebuilding strategy Create-Play-
Learn-Eat, allowing them to learn about
the situation in Kamaishi before working
on respective proposals for each of the
focus areas to support the regeneration
and rebuilding efforts.
UBS volunteers also spent a day harvest-
ing rice at the UBS RICE Project paddy
field. The UBS RICE Project aims to
improve the water quality and bio-
diversity of Lake Kasumigaura, north
of Tokyo, and it is part of a larger
program led by UBS’s community
partner, Asaza Fund, to provide local
children with the opportunity to learn
about ecosystems and develop environ-
mental awareness. Through UBS’s
investment, the environment around the
previously abandoned paddy field has
been enriched and continues to thrive.
Europe, Middle East and Africa
UBS was given the 25th Anniversary Lord
Mayor of London’s Dragon Award in
recognition of the achievements of the
firm’s community affairs program in
London over the past 25 years.
Some 90 young performers from
On-track, UBS’s community partnership
with the London Symphony Orchestra,
performed at the opening ceremony of
the Olympics.
Across the region, rapidly increasing
numbers of UBS employees are sharing
their business skills through strategic
volunteering in their local communities:
In Israel 90% of employees are support-
ing young social entrepreneurs in partner-
ship with Ashoka Ventures, and in Turkey
40% of employees are supporting
students in developing their science and
math skills.
➔ Refer to www.ubs.com/community for
more information
262
Our employees
Our employees’ drive, ability, insight and experience are key to meeting the needs of our clients and building our
businesses. We are committed to attracting, developing and retaining the best in their field of expertise and to further-
ing our reputation as a leading employer. We promote a culture that is centered around our principles of client focus,
excellence and sustainable performance. This helps maximize opportunities to create value for all of our stakeholders
on the basis of our employees’ development and success.
Our workforce
Our competitive strength depends on the quality of our people.
We want to be the best in all the businesses that we choose to be
in. Therefore, hiring, developing and retaining high-caliber em-
ployees are fundamental priorities. On 30 October 2012, we an-
nounced a significant acceleration in the implementation of our
strategy to transform the firm. This involves further sharpening
our focus in the Investment Bank, reducing costs significantly and
implementing further efficiencies more rapidly. Specifically, we
announced that we would concentrate on our core strengths in
advisory, research, equities and foreign exchange and that we
would exit uneconomical business lines, predominantly in fixed
income. As a result, by 2015, we are likely to have a full-time
equivalent headcount of around 54,000 compared with 62,628
at the end of 2012. We will continue to act as a responsible em-
ployer during the process of reducing headcount, making use of
our internal labor market and career transition support services.
As of 31 December 2012, we employed 62,628 people, 2,192
fewer than a year earlier. In 2012, our employees worked in 56
countries, with approximately 36% of our staff employed in Swit-
zerland, 35% in the Americas, 17% in Europe, Middle East and
Africa and 12% in Asia Pacific. Employee turnover, as a percent-
age of average overall headcount, was 12.9% in 2012 compared
with 13.2% in 2011. Employee-initiated turnover was 6.7%,
down 1.1% from 2011.
Internal mobility encourages cross-divisional collaboration and
innovation, as well as individual career development. In 2012, we
supported employee mobility across business divisions and re-
gions. Opportunities for internal movement declined in 2012 due
Personnel by region
Full-time equivalents
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
of which: UK
of which: Rest of Europe
of which: Middle East and Africa
Switzerland
Total
Personnel by business divisions and Corporate Center
Full-time equivalents
Wealth Management
Wealth Management Americas
Investment Bank
Global Asset Management
Retail & Corporate
Corporate Center
Total
of which: Corporate Center personnel (before allocations) 1
31.12.12
21,995
20,833
7,426
10,829
6,459
4,202
167
22,378
62,628
31.12.12
16,210
16,094
15,866
3,781
10,156
522
62,628
25,255
1 Comparative figures in this table may differ from those published in quarterly and annual reports (for example due to adjustments following organizational changes).
As of
31.12.11
% change from
31.12.10
31.12.11
22,924
21,746
7,690
11,019
6,674
4,182
162
23,188
64,820
As of
31.12.11
15,904
16,207
17,007
3,750
11,430
523
64,820
26,269
23,178
22,031
7,263
10,892
6,634
4,122
137
23,284
64,617
(4)
(4)
(3)
(2)
(3)
0
3
(3)
(3)
% change from
31.12.10
31.12.11
15,663
16,330
16,488
3,481
12,089
566
64,617
26,565
2
(1)
(7)
1
(11)
0
(3)
(4)
263
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Our employees
to personnel reductions and cost focus. However, 906 employees
still transferred between business divisions compared with 1,228
in 2011 and 366 moved to roles in a different region compared
with 472 in 2011.
Recruiting new employees
Our recruitment of new talent in 2012 generally was more re-
strained than in 2011. Ongoing challenges in our operating envi-
ronment dampened demand in several business areas throughout
2012, and our announcement in October of a significant accel-
eration of the implementation of our strategy curbed recruitment
further. While one of our primary goals in 2012 was to retain and,
where necessary, redeploy employees to other functions, we were
still committed to hiring the best available talent to sustain and
grow our core businesses. One priority was to continue recruiting
experienced client advisors in our asset-gathering businesses. We
also invested in our future by hiring graduates and interns in each
of our operating regions, as well as apprentices in Switzerland.
Existing staff were a key source of hiring in 2012, with 41% of all
positions being filled by internal talent compared with 28% in
2011. Recruitment using agencies was reduced to 9% in 2012
from 16% in the previous year.
In 2012, we filled 5,381 positions across the firm, with lower
than usual hiring in the Investment Bank. Our wealth manage-
ment businesses continued to hire steadily, with UBS Wealth Man-
agement recruiting 275 client advisors and Wealth Management
Americas hiring 620 financial advisors.
Throughout 2012 we worked to ensure that we had a continu-
ous and visible presence on our target campuses, consistent with
our commitment to graduate hiring. Senior leaders from across
the firm were actively present on campus and at UBS recruiting
events, underscoring UBS’s commitment to recruiting and devel-
oping young talent. Furthermore, targeted programs such as
“Unlock Your Potential” were held globally to attract diverse
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(cid:67)(cid:86)(cid:2)(cid:20)(cid:18)(cid:25)(cid:16)(cid:2)(cid:54)(cid:74)(cid:75)(cid:85)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:71)(cid:80)(cid:70)(cid:15)(cid:20)(cid:18)(cid:19)(cid:20)(cid:2)(cid:71)(cid:79)(cid:82)(cid:78)(cid:81)(cid:91)(cid:71)(cid:71)(cid:2)(cid:80)(cid:87)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)(cid:81)(cid:72)(cid:2)(cid:24)(cid:22)(cid:14)(cid:22)(cid:21)(cid:20)(cid:14)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(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)
264
graduate talent. Our graduate trainees continued to benefit from
unique educational opportunities and business-specific activities
as part of a structured Graduate Training Program. In 2012, 782
university graduates were hired into one of UBS’s undergraduate
or MBA graduate training programs. An additional 968 interns
were hired globally over the course of the year. Our apprentice-
ship program in Switzerland continued to be strong in 2012, hir-
ing 247 business and 38 IT apprentices.
Despite the relatively challenging conditions, we continued to
be seen as an attractive employer. Globally, 95% of candidates
accepted our offer of employment in 2012, with 97% of individu-
als in Switzerland accepting. Notably, UBS ranked fourth, among
both business students and experienced business professionals, in
global employer branding firm Universum’s 2012 Ideal Employer
surveys in Switzerland. Globally, UBS ranked in the top 50 in Uni-
versum’s 2012 World’s Most Attractive Employers list.
➔ Refer to “www.ubs.com/awards” for additional information
regarding UBS’s standing as an employer
Strengthening and sustaining our diverse workforce and
inclusive work environment
We believe it is essential to have a workforce of individuals from
widely diverse backgrounds, cultures and life experiences. A var-
ied and inclusive workforce results in a more innovative, dynamic
and, ultimately, more successful company. Additionally, diversity
in elements such as gender, ethnicity, business experience, educa-
tion, nationality, religion, age, disability and sexual orientation
help us to further understand and meet the needs of our diverse
client base.
We are committed to increasing the diversity of our workforce
by attracting, developing and retaining employees who promote
the diverse culture we seek. At the same time, we are building an
inclusive work environment that encourages development and
collaboration and is focused on enhancing client relationships.
Our workforce is truly global. We have 891 offices in 56 coun-
tries, and our employees are citizens of 145 countries. In 2012,
the average age of our employees was 39 years and the average
length of employment with the firm was 8.9 years. In Switzerland,
more than 51% of employees have worked at UBS for more than
10 years.
Our global diversity strategy is realized through action plans for
each business division, integration into all our people processes
and a range of regional initiatives. In 2012, we expanded our
strategy to focus on new business development, particularly
among underserved client groups. For example, Wealth Manage-
ment Americas launched a program called “Elevating Entrepre-
neurs”. This program matches small business owners in under-
served communities with a UBS financial advisor and a client who
mentor the entrepreneur, providing strategic financial and busi-
ness advice.
(cid:22)(cid:42)(cid:52)(cid:18)(cid:18)(cid:24)(cid:65)(cid:71)
We continued to integrate diversity aspects into our workforce
management and development processes during 2012, incorpo-
rating concepts like recognizing and avoiding unconscious bias
into our leadership development offering. Business areas such as
(cid:20)(cid:22)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:26)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:18)(cid:18)(cid:18)
(cid:24)(cid:18)(cid:18)(cid:18)
(cid:18)
Gender distribution by employee category 1
As of 31.12.12
Male
Female
Total
Officers
(Director and above)
Officers
(other officers)
Non-officers
Total
Number
18,189
4,974
23,163
%
78.5
21.5
100.0
Number
13,724
8,108
21,832
%
62.9
37.1
100.0
Number
8,220
11,217
19,437
%
42.3
57.7
100.0
Number
40,133
24,299
64,432
%
62.3
37.7
100.0
1 Calculated on the basis that a person (working full-time or part-time) is considered one headcount (in this table only). This accounts for the total UBS end-2012 employee number of 64,432, which excludes staff from
UBS Card Center, Hotel Seepark Thun, Wolfsberg and Hotel Widder.
Finance sponsored training sessions for all of their employees
aimed at avoiding unconscious bias.
In 2012, regional diversity teams worked with business and
human resource leaders on diversity initiatives that were closely
linked to regional talent strategies. As examples, a mentoring pro-
gram in Switzerland that helps women Associate Directors and
Directors focus on career progression was extended to include
more women in our IT organization. Several business areas in
Switzerland piloted “TeilzeitMann”, a federally-funded project
promoting gender equality and helping to remove barriers to
part-time roles for men. The UK hosted its third annual Diversity &
Inclusion Week to raise awareness among employees about the
value of a diverse and inclusive workplace. We piloted mentoring
programs for senior-level women in Hong Kong and Japan during
2012 to increase their career development and networking op-
portunities. In Singapore and Beijing, we held a series of events
for female undergraduates to help them prepare for a successful
job search upon graduation. In the US, an ongoing recruitment
initiative hired diverse financial advisors to provide access to un-
derserved markets. We also engaged with a number of colleges
and workforce development programs like “Year Up” and
“NPower” to give diverse talent from underserved communities
professional experience. In 2012, 20 of these students were hired
as UBS interns, enabling them to be coached and mentored while
gaining work experience in a financial services organization.
In 2012, approximately 14,000 employees across UBS were
members of 21 employee networks. These networks, represent-
ing affinities such as gender, culture, life stage or sexual orienta-
tion, help build relationships across our businesses and an open
climate where employees feel their values are welcomed in a pro-
fessional capacity. Our global network guidelines enable employ-
ees 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 a
non-discriminating, harassment-free workplace and equal oppor-
tunities for all employees.
Managing performance
We are committed to ensuring that employees are clear on their
goals, and we provide the support they need to be effective in
their jobs as well as to advance their careers. Our performance
management framework features regular opportunities for em-
ployee-manager dialogue throughout the yearly cycle, consistent
and transparent assessment processes, and a clear link between
performance, demonstrated achievements and compensation.
In 2012, we streamlined our performance management pro-
cess and timetable considerably. This helped employees and man-
agers focus on it appropriately during an extremely active part of
their business cycle. Our overarching goal for performance man-
agement remains the same: to strengthen our performance cul-
ture and focus on our strategy so we can achieve long-term, sus-
tainable 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. Risk objectives were integrated
for all employees in 2012 as part of a concerted effort to raise risk
awareness and incorporate it into performance and reward deci-
sions. In 2012, 99% of the employees eligible to participate in the
firm’s global performance assessment cycle received a perfor-
mance review.
Performance management for our senior executives and cer-
tain other key employees is especially rigorous. Senior leaders re-
ceive a comprehensive evaluation based on key achievements
relative to their objectives, including business performance, risk
management, leadership and change impact. A thorough assess-
ment includes feedback from peers as well as direct reports.
Employees identified as “Key Risk Takers” continue to be sub-
ject to extended performance management procedures. These
individuals may work in front-office, logistics or control functions.
(cid:49)(cid:87)(cid:84)(cid:2)(cid:67)(cid:82)(cid:82)(cid:84)(cid:81)(cid:67)(cid:69)(cid:74)(cid:2)(cid:86)(cid:81)(cid:2)(cid:82)(cid:71)(cid:81)(cid:82)(cid:78)(cid:71)(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:2)
(cid:40)(cid:81)(cid:69)(cid:87)(cid:85)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:80)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:82)(cid:84)(cid:75)(cid:81)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:14)(cid:2)(cid:84)(cid:75)(cid:73)(cid:81)(cid:84)(cid:81)(cid:87)(cid:85)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(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:67)(cid:80)(cid:70)(cid:2)(cid:68)(cid:87)(cid:75)(cid:78)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:78)(cid:71)(cid:67)(cid:70)(cid:71)(cid:84)(cid:85)(cid:74)(cid:75)(cid:82)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:80)(cid:73)(cid:86)(cid:74)
(cid:80) (cid:80) (cid:75) (cid:80) (cid:73)
(cid:75) (cid:80) (cid:73)
(cid:69)
(cid:52)(cid:71)(cid:85)(cid:81) (cid:87)(cid:84)(cid:69) (cid:71) (cid:2) (cid:82) (cid:78) (cid:67)
(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)
(cid:81)
(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)
(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)
265
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Our employees
Due to their role, they are able to materially commit, use or con-
trol the firm’s resources and exert significant influence over our
risk profile. In addition to self, manager and relevant 360-degree
reviews, at least one person in a control function such as risk, fi-
nance or compliance must critically review the Key Risk Taker’s
performance to attest to the person’s attitudes and actions to-
ward managing risk.
As part of our overarching people management processes, we
have Group-wide ranks and salary ranges that are applicable to all
employees, as well as a standardized role classification model.
Many human resource processes are based on these global role
profiles that provide a foundation for more clearly defined career
paths and development plans for all employees.
Education and talent development
We take a structured and integrated approach to our talent, lead-
ership and development practices. Our goal is to give our employ-
ees and leaders what they need to excel in their roles, progress in
their careers, and ultimately create value for our stakeholders.
The UBS Business University manages all of UBS’s learning and
development activities, aligning them with Group-wide, divisional
and regional business strategies. In 2012, our employees partici-
pated in a total of 599,763 development activities, averaging 9.6
training experiences per employee (FTE), which equates to an av-
erage investment of 2.1 training days.
One of the Business University’s primary objectives is to help
our senior leaders and key talent to lead people in line with our
principles and leadership culture. Our leadership and talent devel-
opment offerings were enhanced in 2012 to better support them
and this training, along with a comprehensive suite of manage-
ment skills training and new hire programs, provides current and
future leaders with the necessary skills to lead UBS forward.
We introduced Client Leadership Experience workshops in
2008 that bring together client-facing employees from all busi-
ness divisions to build the knowledge, skills and networks needed
to deliver the best solutions from across the firm to our clients. In
2012, 25 workshops were held in 10 cities in the Americas, Eu-
rope, Asia Pacific and Switzerland and attended by over 800 Di-
rectors, Executive Directors and Managing Directors. Since incep-
tion, 3,700 employees have participated in a Client Leadership
Experience workshop.
A comprehensive business education offering is provided
through more than 110 role-specific learning pathways. These
pathways, covering topics such as risk, compliance, sales, advisory
and markets, are a series of activities, events and experiences that
help ensure consistent training across similar job roles worldwide.
Client-facing staff participate in tailored advisory and sales train-
ing programs. As an example, in 2012, UBS launched a compre-
hensive certification program for all client advisors in our Private
Clients, Wealth Management Switzerland and Corporate & Insti-
tutional Clients areas. This rigorous training, examination and cer-
tification process has been externally accredited by the State Sec-
retariat for Economic Affairs (SECO) in Switzerland. We expect
over 5,000 UBS client advisors in Switzerland to undergo the cer-
tification process over the next three years.
All employees can access a broad range of development
and training as part of their daily work and through various
programs. Our eLearning portfolio consists of more than 2,000
courses. In 2012, around 18,000 employees participated in volun-
tary online learning on topics such as communication skills, man-
agement and leadership, financial markets and IT. As an example,
more than 6,000 employees completed one or more Understanding
our Business modules in 2012 to broaden their understanding of
our business divisions and their primary activities. Other learning
modules on risk, general finance and compliance topics help em-
ployees develop the skills they need to work effectively in their
roles and within the evolving business and regulatory environ-
ments. Mandatory online training helps ensure that compliance
and regulatory requirements are met by the relevant employees.
In 2012, employees across all business divisions completed more
than 378,000 mandatory training sessions.
All employees are expected to consider career and skill develop-
ment opportunities as part of the firm’s continuous performance
management process. To support this, we give employees an over-
arching structure, tools and individual development opportunities
within an integrated talent management framework. In addition,
we invest in talent development and succession planning for the
most critical roles across the firm. An annual firm-wide talent re-
view helps to identify and build the skills and competencies of
employees who are identified as having leadership potential. Pos-
sible successors for senior leadership roles are identified and
tracked on a firm-wide basis, and they are offered specialized de-
velopment opportunities in addition to on-the-job training.
UBS Wealth Management Master
Launched in late 2012, the UBS Wealth
Management Master is the highest
internal certification available to client-
facing staff in Wealth Management. It
enables senior professionals to acquire
in-depth expertise in account, investment
and relationship management. Combining
structured training with on-the-job
development, the two-year program
enables participants to deepen their skill
sets and learn how to accelerate profit-
able growth for both clients and the firm.
The teaching staff comprises notable
academics from leading universities and
business schools, senior consultants,
industry experts, and UBS subject matter
experts. These specialists share cutting-
edge business views and financial market
expertise, as well as best practices to help
participants attain the highest level of
professional excellence.
266
Compensation
We strive to offer our employees competitive pay and incentives,
while carefully considering our obligations to shareholders and
regulators. Our approach recognizes the need to compensate in-
dividuals for their performance within the context of market con-
ditions, a fast-changing commercial environment and evolving
regulatory oversight. Our foremost priority is to encourage and
reward behavior that contributes to sustainable profitability and
the firm’s long-term success. In 2012, we continued to actively
consider risk and account for risk-adjusted profitability in our
compensation approach.
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. Employee compensation is viewed within a
total reward framework that takes into account base salary, dis-
cretionary 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 performance award pool funding. They
reflect our long-standing focus on pay for performance, sustained
profitability, risk awareness and sound governance.
➔ Refer to “Our deferred variable compensation plans” in the
“Compensation” section of this report for more information
Employee share ownership
We support employee share ownership because we believe per-
sonal accountability for business actions and decisions can be en-
couraged through equity-based awards. Our employee share pur-
chase plan, Equity Plus, is a voluntary equity-based program
whereby eligible employees can purchase UBS shares at market
price and receive one free share for every three shares purchased.
These shares vest in three years, subject to continued employment
at UBS and retention of the purchased shares. We also use UBS
equity as a significant component in our performance award de-
ferral programs. On 31 December 2012, current employees held
an estimated 6% of UBS shares outstanding (including approxi-
mately 4% in unvested/blocked shares from our compensation
programs), based on all known shareholdings from employee par-
ticipation plans, personal holdings and individual retirement
plans. At the end of 2012, an estimated 50% of all employees
held UBS shares, while an estimated 36% held UBS stock options.
➔ Refer to the “Compensation” section of this report for more
information
Our identity and 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 demonstrates the impor-
tance we place on responsible workplace behavior. This code sets
out the principles and practices employees are expected to follow
and forms the basis for all UBS employee policies and guidelines.
The UBS Identity outlines what we strive to be – the choice of
clients worldwide – and how we intend to fulfill that vision. The
firm’s guiding principles, confirmed to employees in mid-2012,
characterize the way we work together and the promises we make
to our clients that shape how we are perceived. Unrivaled client fo-
cus is at the heart of our business model, and we strive for excel-
lence in everything we do. We aim to deliver sustainable perfor-
mance by strengthening our reputation and by delivering consistent
returns to our shareholders. These principles are integrated into our
corporate decision-making and people management processes, and
they are intended to shape the daily actions of our employees.
Our vision
Our principles
We want to become:
To achieve this, our actions are driven by three principles:
Our attitude
And we promise that:
The choice of
clients –
worldwide
Client focus
Excellence
Sustainable
performance
“We will not
rest, until …”
We demonstrate an
unrivalled client focus at
every level of our business,
building relationships that
create long-term value.
We strive for excellence
in everything we do, from
the products and services
we develop to the way
we collaborate across the
firm to deliver the best
of what UBS has to offer.
We work continuously to
strengthen our reputation
as a rock-solid firm and
provide consistent returns
to our shareholders.
… we’ve helped our clients
reach their goals.
We’re relentless in our
efforts to do the best for
our clients.
267
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Our employees
Listening to the voice of our employees
In June and July 2012, we conducted a Group-wide survey to get
employees’ views on where we stand in relation to living up to our
principles, achieving our strategy and providing a work environ-
ment where employees can succeed. These elements are prereq-
uisites to achieving our vision to be the choice of clients world-
wide. We openly communicated the findings to our employees
and will use these year-one results as a benchmark for continuous
improvement.
Globally, 39,142 employees participated in the survey. Overall
the results conveyed a largely positive picture of the firm relative to
our external benchmark, especially around client focus (with an
80% positive rating). UBS outperformed a benchmark of more
than 50 banks, mutual fund companies and insurers in overall sat-
isfaction with the firm as a place to work and with regard to op-
portunities for employees to have challenging and interesting work.
We were encouraged to learn that our employees appreciate
the high quality of our solutions and services and the value we
place on cross-business collaboration. Results for employee en-
gagement showed that our employees are highly motivated to
contribute in their jobs beyond what is expected (significantly
higher than the benchmark), but pride in the firm was below ex-
pectations. We fully recognize that we need to rebuild employees’
trust and confidence.
Feedback on measures of respect and recognition were en-
couraging. These elements are essential for effective cooperation
across the firm and they have a positive effect on client service
and sustainable results. The survey also provided insights into
areas in need of improvement such as the communication of our
strategy. We have already taken action to change this view, start-
ing with the announcement in October 2012 of the acceleration
of the implementation of our strategy. In addition, we are ad-
dressing feedback on our talent management and recruiting pro-
cesses as well as suggestions of ways to increase efficiency.
Following the conclusion of the survey, the GEB, as well as busi-
ness divisions and functions, had numerous follow-up discussions
and agreed on specific action plans to reinforce our strengths and
address the most significant areas of perceived weakness. Regular,
targeted “check-in” surveys will help us measure progress and
keep us on track as we continue to build our corporate culture.
Benefits and well-being
We strive to be a responsible employer and invest in all of our
employees, whether full- or part-time, by offering a comprehen-
Engagement1
Enablement1
Overall I am very satisfied
with UBS as a place to work
There are no significant barriers
at work to doing my job well
Given your choice, how long
are you likely to work for UBS?
I am highly motivated to
contribute in my job beyond
what is expected of me
90
80
70
60
50
40
I am proud to tell others that
I work for UBS
I would recommend UBS to family
or friends as a place to work
Source: UBS
UBS motivates me to contribute
more than is required
90
80
70
60
50
My job provides me with the
opportunity to do challenging
and interesting work
Conditions in my job allow me
to be about as productive as
I can be
UBS makes good use of my skills
and abilities
Global Financial
UBS
Global Financial
UBS
1 The 2012 survey of UBS employees and development of the Global Financial benchmark was conducted
by Hay Group. The scale ranges from “strongly agree” to “strongly disagree”. The results shown in the
graph above are the percentage of responses that were “strongly agree” or “agree”. For the question
“Given your choice, how long are you likely to work for UBS?”, the scale ranges from “less than 1 year”,
“1–2 years”, “3–5 years”, and “more than 5 years / until retirement”. The graph above shows the
percentage of people who answered “more than 5 years / until retirement”.
1 The 2012 survey of UBS employees and development of the Global Financial benchmark was conducted
by Hay Group. The results shown in the graph above are the percentage of responses that were “strongly
agree” or “agree”.
268
sive suite of benefits such as insurance, pension, retirement and
time off that are competitive in our markets. We also offer addi-
tional benefits, such as flexible working arrangements, to employ-
ees in many of our major markets. As examples, in Switzerland,
employees who are part of a “Workplace for the Future” (WFF)
initiative can work at their desk or any other WFF-equipped space
in or out of their office building. An open layout and enhanced IT
infrastructure increase productivity and collaboration, while desk
sharing and standardization reduce the firm’s rental and operat-
ing costs. WFF was expanded to the UK in 2012 and is intended
to be rolled out worldwide in the coming years. In addition, in
2012 we revised our “teleworking” policy in order to make it
easier for employees in Switzerland to work outside UBS premis-
es. We also encourage and support employee volunteering in the
many communities in which we operate.
To help employees manage life and work issues, we offer
employee assistance programs in a number of locations. In the
UK, employee assistance programs provide access to specialist
support on topics such as finances, family, bereavement and
legal/consumer rights. A health and well-being program pro-
vides an on-site general practitioner, physiotherapist and den-
tist, as well as occupational health services. Emergency child
care, emergency home care for elderly or disabled adults and a
booking service for out-of-school care are provided by an exter-
nal provider.
In the US, the Work/Life Assistance Program offers around-the-
clock online and telephone counseling and referral services to em-
ployees and their families to help resolve issues that may affect
their health, personal life, or job performance. Counselors are
available to address issues such as emotional conflicts, depression,
marital issues, grief and work performance. The program also of-
fers referral services for child care, prenatal care, adoption, aca-
demic services and adult care. In addition, UBS provides on-site
child care 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 provider help employees and
their immediate family members manage work and life stress,
family, mental health, grief or trauma, and other challenges. In
Japan, these services are available through another outside team
of consultants trained in fields such as counseling, law, account-
ing 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
counseling for personal issues, difficulties in the workplace, sick-
ness or disability, financial difficulties and retirement. Employees
also have access to an internal ombudsman’s office and a child-
care referral service. An HR Health Care function considers local
health and safety matters. In Switzerland, work days lost to ac-
cident or illness are tracked, with 18,619 and 117,226 days re-
spectively in 2012. This amounts to five work days per employee
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 restructuring. COACH advi-
sors provide support and assistance in finding a new job by work-
ing closely with our internal recruitment center and outside em-
ployment services. During the process, employees retain full salary
and benefits, and financial assistance is available for job-related
training, if needed.
In Switzerland, employees below the level of Director partici-
pate in a social plan that covers employees whose jobs are subject
to the Agreement on Conditions of Employment for Bank Staff.
This plan lays out the terms and conditions for any necessary re-
dundancies. It also governs the requirements 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 our health and safety
statement
Employee representation
As part of our commitment to being a responsible employer, we
work with all of our employee representation groups to maintain
an active dialogue between employees and management.
The UBS Employee Forum was established in 2002 and has
representatives from 18 countries across Europe. It facilitates an
open exchange of views and information on pan-European issues
that can affect our regional performance, prospects or opera-
tions. Additionally, local forums address issues such as health and
safety, changes to workplace conditions, pension arrangements
and consultation on collective redundancies and business trans-
fers. In Switzerland, for example, the Employee Representation
Committee partners with UBS management in annual salary ne-
gotiations and represents employee interests on specific topics
outlined in the collaboration and co-determination clauses of staff
policies. Employee Representation Committee representatives are
elected to represent employees whose work contracts are gov-
erned by Swiss law and the Agreement on Conditions of Employ-
ment for Bank Staff. The UK Employee Forum, which is formed by
elected representatives from all of our UK businesses and appoint-
ed management representatives, focuses on local economic, fi-
nancial and social activities concerning UK employees. It may also
be used to develop workforce agreements affecting UK employ-
ees. Collectively, the UBS Employee Forum, including the Employ-
ee Representation Committee and UK Employee Forum, repre-
sents about 50% of our global workforce.
269
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Compensation
Letter from the Human Resources and Compensation Committee of the Board of Directors
Dear shareholders,
Following the advisory vote on UBS’s
Compensation Report at last year’s
Annual General Meeting (AGM), we
consulted widely with our shareholders to
better understand your views with regard
to improving our compensation plans and
disclosures. We incorporated the findings
from these consultations into our review
process and have implemented wide-
ranging changes for 2012. I and the rest
of the Board of Directors (BoD) are
convinced that the revamped compensa-
tion framework will help us achieve our
primary objective of delivering attractive
and sustainable returns over the medium
to longer-term to our shareholders.
Our compensation philosophy is to provide
our employees with compensation that
recognizes their individual contributions
and that clearly links their pay not just to
the delivery of business targets but also to
demonstrating the right behaviors. It is
also important to recognize that UBS is
undergoing a fundamental transformation
which takes time to achieve and it remains
critical that we continue to attract,
motivate and retain the right people in
order to execute our strategy.
employees, by having just two deferred
variable compensation plans – a deferred
share plan and a new deferred contingent
capital plan (DCCP). These instruments
incorporate:
– longer deferral periods (share plan with
three to five years for full vesting and
DCCP with five-year cliff vesting);
– more challenging multi-year perfor-
mance conditions and forfeiture
triggers;
– enhanced “harmful acts” provisions;
and
– no leverage.
Furthermore, in relation to Group
Executive Board (GEB) members specifi-
cally, we have:
– increased the UBS share retention
requirement by 67% for the Group
CEO, and 75% for other GEB members;
– introduced a cap on the GEB perfor-
mance award pool of up to 2.5% of
adjusted pre-tax profit – for 2012 the
actual size of the award pool was well
below the cap at 1.7% of the adjusted
pre-tax profit; and
– introduced additional performance
conditions such that 100% of GEB
deferred compensation is subject to
forfeiture if performance conditions are
not met.
link between compensation and the firm’s
medium to longer-term performance.
Put simply, we believe our new compen-
sation structure will help to promote a
stronger pay-for-performance culture and
will discourage excessive risk-taking.
With regard to the actual awards for
2012, the HRCC and the BoD have tried
to balance the many positive develop-
ments during the year, including:
– the firm’s strong share price perfor-
mance, which was up 28% over the
year;
– significant progress in building our
industry-leading capital ratios;
– the target for reducing risk-weighted
assets being exceeded;
– substantial net new money inflows;
and
– sufficient progress in executing the
firm’s strategy set out in 2011 to
enable UBS to announce an accelera-
tion of its implementation in October
2012,
with the disappointing loss for the year,
which was primarily driven by goodwill
impairment charges, increased charges for
litigation and regulatory matters, includ-
ing the cost of the LIBOR settlement, as
well as own credit losses.
The 2012 changes to our compensation
framework start with the elimination of all
plans with upside leverage and a com-
plete alignment of our model for all
The far-reaching changes to our compen-
sation framework and the alignment of
our plans to our strategy strengthen the
Taking all these factors into consideration
and recognizing the tremendous efforts of
our people to make progress towards
achieving the firm’s targets, we have
270
Advisory vote Letter from the Human Resources and Compensation Committee of the Board of Directors
reduced the overall performance award
pool to CHF 2.5 billion (a 7% decrease on
2011 and a 42% decrease on 2010).
The performance award pools for
individual business areas reflect their
particular performance. In some business
areas within the Investment Bank and the
Corporate Center, pool funding has
shrunk by as much as 20%, while other
business areas have seen modest rises in
the size of their pools.
The BoD and I would like to thank our
shareholders for the time they took to
meet with us and share their views on
compensation. Over the following pages
you will find the details on UBS’s compen-
sation for 2012, for which we will seek
your support at our AGM in May 2013.
The BoD and I are committed to continu-
ally improving our reporting to you on
compensation matters and we welcome
your feedback on this report.
Ann F. Godbehere
Chair of the Human Resources
and Compensation Committee of
the Board of Directors
In addition, we determined that the GEB
would receive no part of their 2012
performance awards in cash. Therefore
100% of every GEB member’s perfor-
mance award for 2012 is deferred and
subject to forfeiture if performance
conditions are not achieved.
Taken together, we believe 2012’s
reduced performance award pool and the
significant adjustments we have made to
UBS’s compensation plans demonstrate
our commitment to strengthen employee
focus on and accountability for longer-
term performance. We recognize that
certain features in our plans such as the
longer deferrals are more demanding
when compared with others in the
industry. However, we are convinced that
the framework is the right one for the
firm and provides a balanced approach
whereby we reward employees who
execute the firm’s strategy successfully
and responsibly.
271
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Our compensation governance
Ensuring we have strong governance and oversight of our compensation process is the responsibility of the Human
Resources and Compensation Committee. Such governance is crucial to ensure that our compensation processes
are transparent and fair, that we set appropriate incentives to attract and retain the best people, and that we support
and reward sustainable value creation in the longer-term interests of our shareholders.
The Human Resources and Compensation Committee (HRCC) is
a committee of the Board of Directors (BoD) and consists of four
independent BoD members. On 31 December 2012, the HRCC
members were Ann F. Godbehere, who chairs the committee,
Rainer-Marc Frey, Wolfgang Mayrhuber and Helmut Panke.
➔ Refer to the “Board of Directors” section of this report for
further information about the Human Resources and Compensa-
tion Committee
Overview of the HRCC’s work
The HRCC meets regularly and works closely with the Risk Com-
mittee to ensure that risk considerations are embedded in our
compensation framework and processes. Helmut Panke and
Rainer-Marc Frey are members of both the HRCC and the Risk
Committee and this affords the HRCC an invaluable risk perspec-
tive when considering compensation-related issues. The HRCC
also appoints external advisors to provide impartial advice on
compensation-related matters as well as data on market trends
and benchmarks, including in relation to Group Executive Board
(GEB) and BoD compensation.
Among its other responsibilities, the HRCC, on behalf of
the BoD:
– reviews our Total Reward Principles;
– reviews and approves annually the design of the total compen-
sation framework, including compensation strategy, programs
and plans;
– reviews performance award funding throughout the year and
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
Communicated by
HRCC
Independent BoD members
(remuneration system and fees)
Chairman of the BoD and HRCC
BoD
Chairman of the BoD
Group CEO
Chairman of the BoD and HRCC
GEB members
HRCC and Group CEO
BoD
BoD
Key Risk Takers
Responsible GEB member together with
functional management team
Divisional pools: HRCC
Overall pool: BoD
Recipients
Employees
272
Variable compensation
recommendations developed by
Approved by
Responsible GEB member together with
functional management team
Divisional pools: HRCC
Overall pool: BoD
Chairman of the BoD
Group CEO
Line manager
Communicated by
Line manager
Advisory vote
proposes the final performance award pool to the full BoD for
approval;
– together with the Group Chief Executive Officer (Group CEO),
proposes base salaries and annual performance awards for
GEB members to the BoD, which approves the total compensa-
tion of the GEB;
– together with the Chairman of the BoD, proposes the compen-
sation for the Group CEO;
– approves the total compensation for the Chairman of the BoD;
– together with the Chairman, proposes the total individual
compensation for independent BoD members for approval by
the BoD; and
– ensures that there is an appropriate focus on talent develop-
ment and management with respect to our business heads and
key senior leaders.
It is important to note that the Group CEO and the Chairman
of the BoD may not attend any parts of committee meetings at
which specific decisions are made about their own individual
compensation. These decisions are at the discretion of the HRCC
and the BoD. Base fees and committee retainers received by inde-
pendent BoD members are subject to an annual review. A pro-
posal is submitted by the Chairman of the BoD to the HRCC,
which then submits a recommendation to the BoD.
If you would like more information regarding the responsibili-
ties and authorities for compensation-related decisions illustrated
in the table “Compensation authorities” on the previous page,
please see “Annex B – Responsibilities and authorities” and “An-
nex C – Charter of the Committees of the Board of Directors of
UBS AG” of the Organization Regulations of UBS AG. These can
be found at www.ubs.com.
The Risk Committee’s input is critical to ensuring our
compensation plans continue to fully reflect our approach
to risk management and control
Ours is a risk management business and our success depends on
prudent risk-taking. We will not tolerate inappropriate behavior
that can harm the firm, its reputation or the interests of our many
stakeholders. The Risk Committee works closely with the HRCC to
ensure our compensation plans reflect our approach to risk man-
agement and control. The Risk Committee supervises and sets ap-
propriate risk management and control principles and receives
regular briefings on how risk is factored into the compensation
process. It also monitors Group Risk Control’s involvement in com-
pensation programs and reviews whether the risk-related aspects
of the compensation process have been adhered to.
Human Resources and Compensation Committee –
additional information
The HRCC held 13 meetings in 2012. Each meeting had an aver-
age attendance of 85%. External advisors attended 11 of those
meetings. The Chairman of the BoD and the Group CEO were
present at all 13 of those meetings, although they were absent
during discussions related to their own compensation. During the
year, the HRCC reappointed Hostettler, Kramarsch & Partner to
provide impartial external advice on compensation-related mat-
ters. The company has no other mandates with UBS. The HRCC
reviewed the company’s certification of its independence based
on the factors outlined in the New York Stock Exchange listing
rules. Compensation consulting firm Towers Watson, appointed
by Group Human Resources, continued to provide the HRCC
with data on market trends and benchmarks, including in rela-
tion to GEB and BoD compensation. Various subsidiaries of Tow-
ers Watson provide similar data to Group Human Resources in
relation to compensation at lower levels of the organization.
Towers Watson has no other compensation-related mandates
with UBS.
273
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Our Total Reward Principles
Our compensation philosophy and objectives are embodied in our Total Reward Principles. They influence how we
structure compensation and provide funding for our performance award pool. They reflect our focus on pay for
performance, sustainable profitability, sound governance and risk awareness, and support the firm’s strategy by pro-
moting and rewarding behavior that enhances the firm’s position and reputation. The Total Reward Principles were
reconfirmed by the Human Resources and Compensation Committee on 24 October 2012.
Ensuring we attract and engage a diverse, talented
workforce
How we foster effective individual performance manage-
ment and communication
The success of the business is dependent upon attracting and re-
taining talented people who will help us successfully execute our
strategy in a responsible manner and thus create longer-term, sus-
tainable value for our shareholders. We aim to offer market-com-
petitive compensation that strikes an appropriate balance be-
tween fixed and variable elements. We believe base salaries need
to be sufficient to allow for a flexible policy when it comes to
performance awards. We set performance award levels that en-
courage our employees to perform and to be entrepreneurial,
while at the same time placing an emphasis on strong risk man-
agement and measured risk-taking.
Throughout the firm, sustainable performance is the key factor in
determining compensation. Our assessment of an employee’s
performance goes beyond the achievement of financial objectives
and takes account of the longer-term risk impact of an employee’s
actions and any relevant reputational issues. In determining an
employee’s performance award, we not only consider their contri-
bution to UBS’s Group or business division results and whether
they have achieved their individual performance objectives, but
also take into account whether they:
– adhere to our corporate values and principles;
– implement our strategic goals of client focus, excellence and
➔ Refer to the “Overview of our compensation model” section of
sustainable performance;
this report for more information about our compensation system
– demonstrate leadership when it comes to our clients, business,
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 performance award
pool. These principles apply to all employees, but may vary in certain locations due to local laws and regulations.
Attract and engage
a diverse, talented
workforce
Foster effective
individual performance
management
and communication
Total
Reward
Principles
people and change;
– lead or support effective collaboration and teamwork;
– operate with a high level of integrity and ensure compliance
with UBS policies;
– actively manage risk, including reducing operational risk, and
strike an appropriate balance between risk and reward; and
– exhibit professional and ethical behavior.
Employees are assessed not just against defined objectives,
but also on a relative basis against their peers within the firm.
This enables us to fairly differentiate performance, and conse-
quently compensation, in an objective, transparent and disci-
plined manner.
➔ Refer to the “Our employees” section of this report for more
information on our performance management processes
Support
appropriate
and controlled
risk-taking
Align reward
with sustainable
performance
Ensuring rewards are aligned with sustainable
performance
Funding based on
profitability
Allocation of per-
formance award based
on performance
At least 60% of performance
award deferred and at risk of
forfeiture for senior employees
Throughout the firm, sustainable performance is the key factor in
determining compensation. Refer to the following sections of this
report for more details.
274
Advisory vote How we support and promote appropriate and controlled
risk-taking
We place a strong emphasis on sound risk control in our compen-
sation policies.
Our performance reviews recognize that different businesses
have different risk profiles, and that additional factors should be
considered, including the fact that earnings may vary in quality
over time based on the risks taken, the full impact of which may
only emerge in subsequent years. Employees are required to dem-
onstrate an appropriate understanding of the nature of their busi-
ness and its associated risks, including operational risks, to con-
sider their actions in light of UBS’s reputation and risk appetite,
and to accept responsibility for all risks that arise, which includes
taking steps to manage and mitigate them. As part of their com-
pliance training, employees are required to certify annually that
they are compliant with various UBS policies.
In determining performance award funding, whether on a
Group, divisional or business area level, we take the following key
risks into account, where applicable: credit risk; market risk; trea-
sury risk; operational risk, including legal and compliance risks;
and reputational risk. The quantitative risk measures we consider
when determining performance awards include, but are not lim-
ited to, the liquidity-adjusted stress ratio, the number of days on
which the daily value-at-risk is exceeded, and the number of op-
erational risks and audit recommendations that are effectively
resolved. Our risk measures are reinforced by qualitative assess-
ments conducted by Risk and Legal & Compliance relating to how
the businesses manage such matters.
To keep our employees focused on the longer-term profitability
of the firm, we require that a significant part of their performance
award be deferred for up to five years if their total compensation
exceeds CHF / USD 250,000. Part, or all, of the unvested deferred
portion may be forfeited in certain cases. Examples include where
an employee has acted contrary to the firm’s interests by contrib-
uting to significant financial losses or restatements; causing repu-
tational harm; or breaching risk policy, legal or regulatory require-
ments, all of which constitute harmful acts.
In addition, we take specific measures regarding the compen-
sation of our Key Risk Takers. 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
specific regulatory guidance and best practice in the industry. Dur-
ing 2012, the number of individuals identified as Key Risk Takers
increased to more than 500. Key Risk Takers are subject to more
rigorous scrutiny, which they receive in the form of performance
evaluations from the control functions, and part of their compen-
sation is subject to performance conditions.
To monitor risk effectively, our control functions, primarily Le-
gal & Compliance, Risk Control and Finance, must be indepen-
dent. To support this, their compensation is determined indepen-
dently from the revenue producers that they oversee, supervise or
support. Their performance award pool is not based on the per-
formance of these businesses, but instead reflects the perfor-
mance of the firm as a whole. In addition, we consider other fac-
tors such as how well the function has performed, together with
our market positioning. Decisions regarding individual compensa-
tion for the leaders of these control functions are made by the
function heads and approved by the Group CEO.
Additionally, we have an internal disciplinary process which is
relevant to all employees, the Incident & Consequences Process,
that evaluates the behavior of employees involved in disciplinary
events, incidents in which controls have been violated and cases
of financial loss each year, and imposes compensation-related
sanctions on the employees concerned.
➔ Refer to the “Overview of our compensation model” section of
this report for more information about key performance
indicators and Key Risk Takers
275
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Updated benchmarking against peers
We benchmark GEB compensation and
benefit levels against those of our peers by
referring to a peer group of companies
selected based on the comparability of their
size, business mix, geographic mix, and the
extent to which they are our competitors
for talent. We also consider the regulatory
environment, and the culture and practices
of these peers that may have an impact on
their pay strategy and pay levels. These
companies, which are predominantly large
European and US banks operating interna-
tionally, are our main competitors when it
comes to hiring.
In 2012, the HRCC reviewed our peer
benchmarking process. The committee
decided that to improve comparability, it
was appropriate to expand our peer
comparison group by adding BNP Paribas,
Goldman Sachs, Julius Baer, and Nomura.
Consequently, our peer comparison group
now consists of the following companies:
Bank of America, Barclays, BNP Paribas,
Citigroup, Credit Suisse, Deutsche Bank,
Goldman Sachs, HSBC, JP Morgan Chase,
Julius Baer, Morgan Stanley and Nomura.
The committee decided that a more
diverse comparison group is appropriate
given the wider variation in business
models that is emerging across financial
services and thus the broader array of
competitors, particularly for talent.
In the view of the HRCC and the BoD,
our executive compensation structure is
appropriate relative to this peer group.
It will continue to review the peer group
regularly to ensure that the firms that
constitute it remain relevant benchmarks for
the purposes of determining GEB compen-
sation.
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, additional
large Swiss private banks, private equity
firms, hedge funds and non-financial
firms. Furthermore, we also benchmark
employee compensation internally for
comparable roles within and across
business divisions and locations.
We believe that the extended length of
our deferral periods and the scope of
employees subject to the DCCP five-
year cliff-vesting will go further than
comparable requirements at many firms
in our peer group. While these changes,
coupled with reduced performance
award pools in certain business areas, will
require close management focus, we are
confident that our compensation
framework is right for the firm and
reinforces our focus on medium- and
longer-term performance.
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
Business
mix3
Geographic
mix4
Competitors
for talent5
HQ location:
regulatory6
HQ location:
geography7
Firm
Bank of America
BNP Paribas
Barclays
Citigroup
Credit Suisse
Deutsche Bank
Goldman Sachs
HSBC
JP Morgan Chase
Julius Baer
Morgan Stanley
Nomura
Less comparable
Moderately comparable
Comparable
1 Source: Group Corporate Development assessed the criteria Size, Business and Geographic Mix and Group HR assessed the criteria Competitors for Talent and HQ locations. 2 Size: evaluated in terms of revenue, prof-
itability, assets and employee size. This would potentially impact management complexity outside of the impact of product mix and geography. 3 Business mix in terms of type and size of major businesses would impact
pay strategy, pay levels and approach and, importantly, risk profile. 4 Geographic mix: evaluated not only in terms of mix, but also from a European HQ perspective. Impacts executive role definition and management
complexity. 5 Competitors for talent: firms from which UBS recruits and / or firms which recruit from UBS. 6 HQ location / regulatory: impact of the regulatory environment based on home regulator. 7 HQ location / ge-
ography: culture and practice that impacts pay strategy, levels.
276
Advisory vote Overview of our compensation model
Our strategy places our clients’ best interests at the center of everything we do and is designed to help us deliver
attractive and sustainable returns to our shareholders. Our success in doing so will ultimately depend on the efforts
of our employees and we believe it is essential to provide them with the opportunity to participate in the firm’s
longer-term success. However, we must clearly link pay with performance. To reinforce this link, the key performance
indicators we use to measure our progress in executing our strategy are taken into account when determining the
size of each divisional performance award pool and used as a basis for setting the performance conditions of our com-
pensation plans.
Overview of key changes to compensation framework for performance year 20121
Group Executive Board (GEB)
All other employees with total compensation
above CHF / USD 250,000
– GEB overall performance award pool capped at 2.5% of the firm’s adjust-
– Cap on immediate cash paid as part of performance award reduced to
ed pre-tax profit for each year.
CHF / USD 1 million (down from CHF / USD 2 million).
– Minimum number of UBS shares to be held up from 200,000 to 350,000
shares for each member, and from 300,000 to 500,000 shares for the
Group CEO.
– Cap on immediate cash paid as part of performance award reduced to
CHF / USD 1 million (down from CHF / USD 2 million).
– Deferred compensation mix now half in form of Equity Ownership Plan
(EOP) awards and half in form of new Deferred Contingent Capital Plan
(DCCP) awards. Total percentage of deferred compensation increased to
at least 80%, from at least 76%.
– Deferred compensation mix now half in form of EOP awards and half in
form of new DCCP awards.
– DCCP awards consist of a notional bond which replicates many of the
features of UBS contingent loss-absorbing bond placed in the market in
2012, with annual interest payments. Awards vest in their entirety after
five years, provided no trigger or viability event occurs. Interest will only
be awarded for each year in which the firm achieves an adjusted pre-tax
profit.
– Vesting for EOP awards occurs in years 2 and 3, previously in years 1 to 3.
– DCCP awards consist of a notional bond which replicates many of the
– New compensation framework increases the average deferral period to
features of UBS contingent loss-absorbing bond placed in the market in
2012, with annual interest payments. Awards vest in their entirety after
five years, provided no trigger or viability event occurs. 20% of the award
may be forfeited for each year the firm does not achieve an adjusted pre-
tax profit. 100% of award at risk of forfeiture. Interest will only be award-
ed for each year in which the firm achieves an adjusted pre-tax profit.
– Vesting of EOP awards occurs in years 3 to 5, previously in years 1 to 5.
– New compensation framework increases average deferral period for the
GEB to 4.5 years (from 2.7 years for 2011).
– More stringent performance conditions for EOP awards based on Group
and divisional performance, so that 100% of the award is at risk of
forfeiture (previously up to 50% at risk).
– Discontinuation of Cash Balance Plan and Performance Equity Plan.
– Enhanced harmful acts provisions.
1 There are variations in plans for Global Asset Management employees, which are not reflected in this table.
3.8 years (from 2.0 years for 2011).
– More stringent performance conditions for EOP awards based on Group
and divisional performance apply to Group Managing Directors,
Key Risk Takers and Highly Paid Employees (i.e employees with a perfor-
mance award of CHF / USD 2 million or more), so that 100% of their
awards are at risk of forfeiture (previously up to 50% at risk).
– Enhanced harmful acts provisions.
How we determine an individual’s pay
We focus on an employee’s total compensation, which consists of
two elements: a fixed element, generally the base salary; and an
annual discretionary performance award. The level of perfor-
mance award depends on several factors, including the firm’s
overall performance, the performance of the employee’s business
division, and the individual’s performance.
To safeguard against excessive pay in 2012, we introduced a
cap on the size of the GEB performance award pool of up to
2.5% of the Group adjusted operating profit. We also capped
the amount of immediate cash that can be paid as part of
the total performance award granted to any employee at
CHF / USD 1 million, which is a 50% reduction on the previous
cash cap.
Base salary
The base salary reflects an employee’s skills, role and experience
while taking local market practices into consideration. It is fixed
and usually paid monthly or semi-monthly. We review base sala-
ries every year to ensure they remain competitive, comparing
them with relevant internal and external benchmarks. Adjust-
277
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Compensation overview 1
A balanced mix of fixed and variable compensation ensures appropriate risk-taking and behavior that produces sustainable business
results.
Chairman of
the BoD
Board
of Directors
Group
Executive Board
Key Risk Takers
Other
employees
Base salary 2
Cash performance award
Equity Ownership Plan (EOP) 3, 4
Deferred Contingent Capital Plan (DCCP) 3, 5
Base fee and committee retainer(s) 6
1 All monetary figures stated in the “Compensation” section are gross figures (compensation before applicable withholdings and deductions).” 2 The base salary of the Chairman of the BoD consists of a cash amount
and a fixed number of shares. 3 All employees with a total compensation of CHF / USD 250,000 or more are eligible. 4 Additional profitability performance condition for GEB members, Key Risk Takers, Group Manag-
ing Directors and other employees with a total performance award exceeding CHF / USD 2 million. 5 Additional performance condition if our Basel III common equity tier 1 ratio falls below 7% or if a viability event
occurs. 6 At least 50% of the base fee is paid in blocked UBS shares.
ments are made when there is a significant change in job respon-
sibility, and we may make annual adjustments to reflect perfor-
mance and respond to movements in the marketplace.
In 2011, we made very limited salary increases, and we con-
tinued this approach in 2012 to keep our fixed-cost base down.
With effect from March 2013, base salaries were increased
by a total of CHF 62 million or 1% of the monthly salary run
rate for February 2013. This compares with a base salary in-
crease made for the 2012 performance year of approximately
1.5%. The increases for 2013 apply primarily to employees
who were promoted and those whose base salary fell signifi-
cantly short of the market benchmark for their role. Our total
salary expense for 2012 was CHF 6,814 million, down 1%
from 2011 and down 3% from 2010.
Performance award
The majority of our permanent employees are considered for an
annual discretionary performance award. The amount of any per-
formance award depends on the factors, including, but not limited
to, those mentioned at the start of this section, and is at the com-
plete discretion of the firm.
As previously stated, performance awards are fully discretionary.
For the 2012 performance year, for employees across the Group,
the performance award was, on average, approximately 37% of
the base salary. Among GEB members in office at the end of 2012,
it was, on average, 321% of a GEB member’s base salary. For 2011,
the comparable figures were 40% and 331%, respectively.
For example:
– we assess the performance of business areas in our wealth
management businesses using criteria such as the level of net
new money over the year;
– in the Investment Bank, we consider factors such as revenue
and profitability, the cost-income ratio and return on risk-
weighted assets;
– the financial performance of business areas in Global Asset
Management is assessed using criteria such as the level of as-
sets under management and investment performance.
Risk-related objectives also vary between businesses and include:
– the client credit documentation and operational costs in our
wealth management businesses;
– the number of days during which the daily value-at-risk limit is
exceeded in the Investment Bank;
– whether risk investment guidelines and Group and risk policies
have been adhered to, and whether significant risk events oc-
cur in Global Asset Management; and
– broader qualitative indicators taking into account our market
position for a large part of the Corporate Center.
For the Group as a whole, we consider progress against our
strategic initiatives, including, but not limited to, risk-weighted
asset reduction, balance sheet reduction, delivery of cost efficien-
cies and capital accretion.
Key performance indicators
The performance of the Group is assessed using criteria such as
risk-adjusted profits, performance relative to the industry and
general market competitiveness.
In addition, we look at the organization’s risk profile and cul-
ture, including the extent to which operational risks and audit is-
sues are identified and resolved and the quality of its engagement
in risk initiatives.
In addition to the key performance metric of risk-adjusted prof-
itability, we use a number of additional criteria to assess the per-
formance of each of our business divisions.
On a business area level, the size of the pool depends on its
performance and that of the business division to which it belongs.
This means an individual’s performance award depends on the
278
Advisory vote available funding for their business area and business division, as
well as on their personal achievements. However, any perfor-
mance award is made at UBS’s sole discretion and we do not ap-
ply a formula or assign weightings to specific performance indica-
tors in determining individual performance awards. Performance
award levels can fluctuate significantly from year to year and it is
possible that an individual receives no performance award in a
given year.
We evaluate performance on an ongoing basis. If performance
is weak, we reduce our performance award pool accruals accord-
ingly.
➔ Refer to the “Compensation funding and expenses” section of
this report for more information
Deferral of performance awards
A significant part of our performance awards is deferred over
several years. The unvested deferred amounts are forfeited or
reduced if any applicable performance conditions are not met
or if employees commit harmful acts. Employees with a total
compensation of CHF / USD 250,000 or more receive 40% of
their performance awards in cash, subject to the cash cap of
CHF / USD 1 million. Above the total compensation threshold of
CHF / USD 250,000, a minimum of 60% of their annual perfor-
mance awards are deferred, with 30% in UBS shares that are
deferred under the Equity Ownership Plan (EOP) with the re-
maining 30% granted under the Deferred Contingent Capital
Plan (DCCP). Global Asset Management employees receive
45% of their performance awards in cash-settled notional
funds under the EOP and the remaining 15% under the DCCP.
A high-level overview of the framework is provided on the fol-
lowing page.
➔ Refer to the “Deferred variable compensation plans” section of
this report for more information about the terms of our deferred
variable compensation plans, including the forfeiture provisions
to which they are subject, and the terms applicable to Global
Asset Management employees
➔ Refer to “Note 31 Equity participation and other compensation
plans” in the “Financial information” section of this report
for details of specific local plans with deferral provisions that
differ from those described here
Other variable compensation
To support hiring or retention, particularly at senior levels, we may
offer certain incentives. These include the following:
– replacement payments to compensate employees for deferred
awards forfeited as a result of joining UBS. Such payments are
standard industry practice and are often necessary to attract se-
nior candidates who generally have a significant portion of their
awards deferred at their current employer and where continued
employment is required to avoid forfeiture. As a general principle,
these “forfeited equity replacements” take into account the terms
and features of any deferred award that an individual has forfeit-
ed upon joining UBS. As such, if, by joining UBS, an employee has
forfeited deferred equity compensation, this will be replaced by an
award under the EOP. Replacement awards are not considered
part of an employee’s total compensation although they consti-
tute costs that the bank must incur to hire such employees.
– on a very limited basis, guarantees may be required to attract
individuals with certain skills and experience. These awards,
which are fixed incentives either in cash or in equity awarded
under a plan, are paid regardless of future events, but are lim-
ited to the first performance year.
– sign-on payments are occasionally offered to important top-level
candidates to increase the chances of their accepting an offer.
Awards made to employees hired at the end of the year to re-
place performance awards that they have forfeited, as well as
those offered to certain graduate hires, are also reported as sign-
on payments.
– 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
generally agreed at the time of hiring. The table on page 282
shows the amount of such payments made in 2012, together
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 reduction in the work-
force. These are governed by location-specific severance policies.
At a minimum, we offer severance terms which comply with the
applicable local laws (“legally obligated severance”). In certain lo-
cations, we may provide severance packages that are negotiated
with our local social partners that go beyond these minimum legal
requirements (“standard severance”). In addition, we may make
severance payments that exceed legally obligated or standard sev-
erance payments (“supplemental severance”) where we believe
that they are appropriate under the circumstances. For example,
we may grant a performance award on a pro-rated basis to em-
ployees 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 circumstances described
above, or where substantial severance payments are made, a fur-
ther stringent approval process applies.
With the exception of severance payments made in redundan-
cy cases, all the payments described above, though typical in our
industry, are only offered in special circumstances. They are highly
restricted, take into account the specific circumstances of each
case and are normally one-time payments with substantial defer-
ral. They generally require the approval of the divisional CEO and
Human Resources heads, and, in certain circumstances, the Group
Head of Human Resources, the Group CEO or the HRCC. Further-
more, such payments may be forfeited or reduced should an em-
ployee subsequently act in a manner detrimental to the interests
of the firm.
279
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
2012 compensation framework for all employees with total compensation of
CHF /USD 250,000 or more, except GEB members 1
The graph below provides an illustrative overview of the 2012 compensation framework for all employees with total compensation of CHF/USD 250,000 or more, excluding GEB members and Global Asset
Management employees. It also provides a comparison with the framework for 2011.
Of the annual performance award, 40% is paid immediately in cash, 30% under the EOP and 30% under the DCCP.²
Shares awarded.
Award vests in equal installments in years 2 and 3.
Subject to forfeiture in the event of a harmful act or termination of
employment.
For GMDs, Key Risk Takers and Highly Paid Employees, the award is
subject to both Group and divisional performance over the financial
years during the vesting period. The amount forfeited may be up to
100% of the award installment due to vest.
Replicates the features of loss-absorbing bonds.
Award cliff vests in in year 5, subject to forfeiture if a capital ratio trigger
or a viability event occurs.
Notional interest payments will be awarded annually in years where
adjusted pre-tax profit is achieved.
Awards are subject to continued employment and harmful acts
provisions.
40% paid out immediately, subject to a cash cap of
CHF /USD 1 million, down from CHF/USD 2 million for 2011.
e
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6
30%
Payout of performance award
15%
15%
40%
2012
EOP
30%
DCCP
30%
Cash
40%
Base
salary
Payout of performance award
20%
20%
20%
40%
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2011
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40%
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2012
2013
2014
2015
2016
2017
2018
2011
2012
2013
2014
2015
2016
2017
1 Except for Global Asset Management employees and employees in certain locations subject to specific local plans with different
deferral provisions. 2 Code Staff receive 50% in the form of blocked UBS shares.
Pensions and benefits
We offer certain benefits such as health insurance and retirement
benefits. These benefits vary depending on the location, but are
competitive within each of the markets in which we operate.
Pensions give employees and their dependents a level of secu-
rity after their retirement or in the event of disability or death.
While pension plans may vary across locations in accordance with
local requirements, pension plan rules in any one location are gen-
erally the same for all employees in that location, including man-
agement.
➔ Refer to “Note 30 Pension and other post-employment benefit
plans” in the “Financial Information” section of this report for
more information
Employee share purchase program
We believe it is important that all our employees have the oppor-
tunity to take a personal stake in the success of the firm. Our em-
ployee share purchase program, the Equity Plus Plan, allows em-
ployees to contribute up to 30% of their base salary and / or up to
35% of their performance award toward the purchase of UBS
shares. All employees below the rank of Managing Director are
eligible to participate. Employees can purchase UBS shares at mar-
ket price, and receive one free share for every three purchased
through the program. Shares purchased under the Equity Plus Plan
are generally restricted from disposal for a maximum of three years
from the time of purchase. The free shares vest after three years,
with vesting subject to continued employment with the firm.
Compensation for financial advisors in
Wealth Management Americas
In line with market practice in the US for brokerage businesses,
the compensation system for financial advisors in Wealth Man-
agement Americas is based on commissions. The commissions,
paid monthly, are based on revenue and other strategic perfor-
mance measures and objectives. We reduce payout rates if finan-
cial advisors make repeated or significant client account or trans-
280
Advisory vote
action errors. In addition to these commissions, advisors may also
qualify for year-end awards, most of which are deferred over ei-
ther a six- or 10-year period. The size of these awards may be
based on length of service, coupled with the amount of net new
money brought in, or the amount of revenue generated from
wealth management-based services or products. For 2012, we
paid a total of CHF 2,793 million in compensation to financial
advisors in Wealth Management Americas. These amounts are
neither part of nor expensed in our discretionary performance
award pools and are categorized as “Wealth Management Amer-
icas financial advisor compensation”.
conditions to which Key Risk Takers are subject. Furthermore, any
immediate cash award in excess of the CHF / USD 1 million cap is
deferred as shares under the EOP.
➔ Refer to the discussion “Support appropriate and controlled
risk-taking” in the “Total Reward Principles” section of this
report for more information
We believe that we are fully compliant with the relevant Swiss Fi-
nancial Market Supervisory Authority (FINMA) requirements regarding
risk-takers, and we also consult with our other regulators around the
globe on the topic. We make separate disclosures about risk takers
in our local annual reports in line with local disclosure requirements.
Identifying our Key Risk Takers
Identifying Key Risk Takers is important to ensure we incentivize
only appropriate risk-taking. Key Risk Takers are defined as those
employees who can materially set, commit or control significant
amounts of the firm’s resources and / or exert significant influence
over its risk profile. This includes employees who work in front-
office roles, logistics or control functions. There are currently
more than 500 individuals classified as Key Risk Takers, including
GEB members. We also include employees with a performance
award exceeding CHF / USD 2 million (Highly Paid Employees) in
this category if they have not already been identified as Key Risk
Takers. All GEB members are Key Risk Takers, but disclosed sepa-
rately in this report.
Compensation measures for Key Risk Takers and
Highly Paid Employees
Key Risk Takers identified at the beginning of the performance
year are subject to a performance evaluation by the control func-
tions. Additionally, the vesting of their deferred awards is partially
contingent on the profitability of the business division in which
they work, or, in the case of Corporate Center employees, on the
profitability of the Group as a whole. Like all other employees,
they also face forfeiture or reduction of the deferred portion of
their compensation if they commit harmful acts.
Equivalent compensation measures for Group Managing
Directors
The same compensation measures apply to all Group Managing
Directors (GMDs) regardless of whether they are determined to be
Key Risk Takers or not. They receive part of their annual perfor-
mance award under the EOP and the DCCP, with the vesting of
their deferred EOP awards contingent on the same performance
Identifying our UK Code Staff
In accordance with guidance from the UK Financial Services Au-
thority (UK FSA), we have identified 185 employees, consisting of
senior management and employees whose professional activities
could have a material impact on the firm’s risk profile in the UK,
as so-called “Code Staff”. Compensation measures that apply to
Code Staff are generally similar to those applied to Key Risk Tak-
ers. However, due to specific UK FSA requirements, 50% of Code
Staff performance awards that are paid out immediately are de-
livered in UBS shares. Furthermore, any shares granted to Code
Staff under the EOP for their performance in 2012 will be subject
to an additional six-month blocking period upon vesting.
Identifying our Covered Employees
In the US, the Federal Reserve has recommended a more expan-
sive approach for identifying employees who expose their firms to
material amounts of risk. Based on guidance from the Federal
Reserve Bank of New York, we have identified those employees,
known as “Covered Employees”. For 2012 there are 805 senior
executives, employees who manage revenue-producing lines of
business and revenue producers in the US who individually or col-
lectively expose the firm to material amounts of risk.
Group Executive Board (GEB)
Performance objectives for GEB members are linked to Group and
divisional key performance indicators. The Group CEO’s perfor-
mance award 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.
Key Risk Takers1
Classification
GEB members
Key Risk Takers
Location
Number of employees
Global
Global
11
501, excluding GEB members
1 Includes employees with a performance award exceeding CHF / USD 2 million (Highly Paid Employees).
281
Corporate governance, responsibility and compensationAdvisory vote d
e
t
i
d
u
A
Corporate governance, responsibility and compensation
Compensation
Sign-on payments, replacement payments, severance payments and guarantees
CHF million, except where indicated
Total sign-on payments 1
Amount
Number of beneficiaries
of which Group Executive Board (GEB) members
Amount
Number of beneficiaries
of which Key Risk Takers 2
Amount
Number of beneficiaries
Total replacement payments 1
Amount
Number of beneficiaries
of which GEB members 2
Amount
Number of beneficiaries
of which Key Risk Takers 2
Amount
Number of beneficiaries
Total guarantees
Amount
Number of beneficiaries
of which GEB members
Amount
Number of beneficiaries
of which Key Risk Takers 2
Amount
Number of beneficiaries
Total severance payments 3
Amount
Number of beneficiaries
of which GEB members
Amount
Number of beneficiaries
of which Key Risk Takers 2
Amount
Number of beneficiaries
Total
2012
Of which expenses
recognized in 2012 4
Of which expenses
to be recognized
in 2013 and later
Total 2011 1
17
182
–
–
4
5
96
203
25
1
32
16
40
68
–
–
20
10
319
2,321
–
–
0.2
1
11
–
2
23
10
6
15
–
6
314
–
0.2
6
–
2
72
15
26
26
–
14
5
–
–
29
342
–
–
3
2
154
518
–
–
59
35
237
359
–
–
84
34
239
1,530
–
–
5
4
1 In 2011 sign-on payments and replacement payments were reported together. Total 2011 was restated correspondingly. 2 Expenses for Key Risk Takers are full-year amounts for individuals in office on 31 December
2012. Key Risk Takers include employees with a performance award of CHF / USD 2 million or more (Highly Paid Employees). 3 Severance payments include legally obligated and standard severance , as well as supple-
mental severance payments of CHF 16 million. 4 Expenses before post vesting transfer restrictions.
282
Advisory vote 2012 compensation framework for GEB members
The graph below provides an illustrative overview of the 2012 compensation for GEB members, comparing it with the framework in 2011.
Of the annual performance award, up to 20% is paid immediately in cash, a minimum of 40% is deferred under the EOP and another 40% under the DCCP.
2012
EOP
40%
DCCP
40%
Cash
Up to
20%
Base
salary
Payout of performance award
13%
13%
14%
40%
Shares awarded.
Award vests in equal installments in years 3, 4 and 5, subject to
both Group and divisional performance over the three financial
years before vesting. The amount forfeited may be up to 100%
of the installment due to vest.
Subject to forfeiture in the event of financial loss, harmful acts
or termination of employment.
Replicates many of the features of loss-absorbing bonds.
Award cliff vests in year 5, subject to forfeiture if a capital ratio
trigger or a viability event occurs. Awards are subject to 20%
forfeiture if UBS does not achieve an adjusted pre-tax profit.
Notional interest will be awarded annually in years where the firm
achieves an adjusted pre-tax profit.
Awards are also subject to continued employment and harmful
acts provisions.
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p
d
r
a
w
a
1
h
s
a
c
n
i
Up to 20% paid out immediately, subject to a cash cap of
CHF /USD 1 million (down from CHF /USD 2 million for 2011).
To the extent that less than 20% is paid in immediate cash,
that amount will be delivered in EOP.
Payout of performance award
8%
8%
8%
8%
8%
0–
40%
8%
8%
e
r
u
t
i
e
f
r
o
f
f
o
k
s
i
r
t
a
d
r
a
w
a
e
c
n
a
m
r
o
f
r
e
p
f
o
%
6
7
24%
n
i
y
l
e
t
a
i
d
e
m
m
i
e
c
n
a
m
r
o
f
r
e
p
d
i
a
p
d
r
a
w
a
f
o
%
4
2
h
s
a
c
2011
SEEOP
40%
PEP
20%
CBP
40%
Base
salary
2012
2013
2014
2015
2016
2017
2018
Share
retention
500,000 shares for Group CEO
350,000 shares for other GEB members
1 Code Staff receive 50% in the form of blocked UBS shares.
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.
2011
2012
2013
2014
2015
2016
2017
Share
retention
300,000 shares for Group CEO
200,000 shares for other GEB members
Those who lead Group control functions or who are regional
CEOs 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
talent. GEB members are also assessed on how effectively they
adhere to our strategic principles and apply our values.
➔ Refer to the “2012 compensation for the Group Executive Board
and Board of Directors” section of this report for more information
Base salary and performance awards
GEB members receive a base salary and are eligible to receive an an-
nual discretionary performance award. While GEB awards are at the
discretion of the BoD, they take into account the overall performance
of the Group and are dependent on the available performance
award pool funding. Overall, the GEB performance award pool is
limited to up to 2.5% of the Group’s adjusted pre-tax profit.
➔ Refer to the discussion in the “2012 compensation for the Group
Executive Board and Board of Directors” and “Compensation
fund ing and expenses” sections of this report for more information
At least 80% of a GEB member’s performance award is deferred
in line with our focus on sustainable performance. Of this, 40% is
awarded under the Deferred Contingent Capital Plan (DCCP), a
minimum of 40% is awarded under the Equity Ownership Plan
(EOP) and a maximum of 20% is paid out immediately, subject to a
cash cap of CHF / USD 1 million (any amount above the cash cap is
paid in UBS shares or notional shares under the EOP). For GEB
members, EOP awards vest from year 3 to 5 in three equal install-
ments, subject to the applicable performance conditions being
met. DCCP awards vest in their entirety in year 5, although no-
283
Corporate governance, responsibility and compensationAdvisory vote
Corporate governance, responsibility and compensation
Compensation
tional interest is awarded annually, provided that the firm achieves
an adjusted pre-tax profit for that year. In addition to the capital
ratio trigger of 7%, DCCP awards for GEB members will be subject
to an additional performance condition. If UBS does not achieve an
adjusted pre-tax profit during the vesting period, GEB members
would forfeit 20% of the award for each loss-making year. As such,
100% of the award is at additional risk of forfeiture.
By discontinuing our previous deferred variable compensation
plans, we have eliminated all leverage from our compensation
plans, thereby further discouraging excessive risk-taking.
➔ Refer to the “Deferred variable compensation plans” section of
this report for more information
➔ A high-level overview of the 2012 compensation framework for
GEB members is provided on the following page, which includes
the 2011 framework (shaded) for comparison purposes
To further align their interests with those of our shareholders,
as well as to further ensure that they remain focused on the
longer-term success of the firm, we operate a formal share own-
ership requirement, under which GEB members must hold a
minimum number of UBS shares. In 2012, the minimum holding
requirement levels were increased. Each GEB member must now
hold a minimum of 350,000 shares compared with the previous
requirement of 200,000 shares. The Group CEO is now required
to hold 500,000 shares compared with the previous minimum of
300,000 shares. These shareholdings must 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 pri-
vately held shares. GEB members are not permitted to sell their
UBS shares until the abovementioned thresholds have been
reached.
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.
If a GEB member leaves the firm before the end of a performance
year, he or she may be considered for a discretionary performance
award based on his or her contribution during the time worked in
that performance year. Such awards are at the full discretion of
the firm, which may decide not to grant any awards.
Benefits
Benefits for GEB members are in line with local practices for other
employees.
➔ Refer to the “2012 compensation for the Group Executive Board
and the Board of Directors” section of this report for more
information
Fixed and variable compensation 1
d
e
t
i
d
u
A
Total for the year
ended 2012
Not deferred
Deferred 3
CHF million, except where indicated
amount
%
amount
%
amount
%
Total for the
year ended
2011 4
Group Executive Board (GEB) members 2
Total compensation
Amount
Number of beneficiaries
Fixed compensation
Base salary
Variable compensation
Immediate cash
Equity Ownership Plan
Deferred Contingent Capital Plan
Discontinued deferred compensation plans 5
Key Risk Takers 6
Total compensation
Amount
Number of beneficiaries
Fixed compensation
Base salary
Variable compensation
100
25
75
70
13
18
52
0
31
21
18
18
0
0
0
0
25
100
0
0
0
0
52
0
52
0
31
21
N/A
N/A
N/A
N/A
N/A
790
501
218
572
100
403
51
387
28
72
218
185
100
32
0
387
75
0
100
0
100
100
N/A
49
0
68
75
15
20
55
N/A
N/A
N/A
55
656
448
194
462
1 The compensation of GEB members who assumed their roles in 2012 is reflected in the GEB and Key Risk Taker numbers in this table on a pro-rated basis. 2 The figures refer to all GEB members in office in 2012 and
all GEB members who stepped down during 2012. 3 This is based on the specific plan vesting which may differ from the accounting expensing. 4 Year 2011 as reported in Annual Report 2011. 5 Cash Balance Plan,
Senior Executive Equity Ownership Plan and Performance Equity Plan. 6 Includes employees with a performance award of CHF / USD 2 million or more (Highly Paid Employees).
284
Advisory vote How the LIBOR-related settlements and fines have impacted our compensation for 2012
In December 2012, UBS reached a
settlement with the UK Financial Services
Authority (FSA), the US Department of
Justice (DOJ) and the Commodity Futures
Trading Commission (CFTC) resolving
LIBOR and other benchmark-related
investigations, under which UBS agreed to
pay fines totaling approximately CHF 1.4
billion. At the same time, the Swiss
Financial Market Supervisory Authority
(FINMA) issued an order concluding its
formal proceedings with respect to UBS,
requiring UBS to pay CHF 59 million in
disgorgements.
Shareholders, clients and our employees
are understandably concerned about the
conduct identified in the LIBOR investi-
gations. From the time management
discovered the wrongdoing and promptly
reported it to regulators, we have fully
cooperated with these regulators
and taken significant remedial action to
improve policies, protocols and controls.
Termination of employment and
other disciplinary measures
We took disciplinary measures against
those employees who were found to have
been involved in the misconduct or who
failed in their supervisory duties, including
terminating their employment. 26 employ-
ees left UBS before disciplinary action could
be taken. 25 employees had their employ-
ment terminated, either by separation
agreement or termination for cause.
27 individuals were sanctioned with various
warnings, reductions in their compensation
and forfeiture of part of their deferred
compensation, and by not being consid-
ered for promotions. We continue to assess
whether sanctions against other current
and former employees should be taken
based on our ongoing reviews or informa-
tion we receive from regulators.
Forfeiture of unvested deferred
performance awards
In addition to the reduction or elimination
of performance awards paid to individuals
for 2011 and 2012, we estimate that
approximately CHF 60 million of unvested
deferred performance awards has been
forfeited. These forfeitures were principally
due to the following:
– terminations
– resignations
– performance conditions in our deferred
variable compensation plans being
deemed not to have been met
– the application of the harmful acts
forfeiture provisions
Performance award pool funding
Given the serious nature of the matter
and the financial and reputational impact
that it had on the firm, the cost of the
LIBOR-related settlements was taken fully
into account in determining the size of
the overall performance award pool for
2012. In addition, the HRCC recommend-
ed to the BoD that the performance
award pools for the Investment Bank and
the Corporate Center should be reduced
to reflect the gravity of the matter. In
doing so, they considered both the direct
actions of those who attempted to
influence LIBOR rates and the fact that
UBS’s controls and procedures did not
detect or prevent these actions.
Investment Bank
In determining the size of the perfor-
mance award pool for the Investment
Bank, the HRCC considered the division’s
financial performance for the year,
adjusted for items such as goodwill
impairment and restructuring charges. To
assist in its thinking, it factored in a
discretionary adjustment equivalent to
approximately 50% of the LIBOR-related
costs for the year. Finally, the HRCC also
took into account the Investment Bank’s
significant achievements in reducing its
risk-weighted assets and balance sheet
and accelerating the implementation of
the firm’s strategy. Taking all these
factors into consideration, the HRCC
determined that the Investment Bank’s
overall performance award pool should
be reduced by approximately 20%
compared to the level of performance
awards for the division for 2011. In
addition, unlike in 2012, no special
awards will be granted to Investment
Bank employees in 2013. The HRCC
also determined that performance
awards subject to performance condi-
tions that were due to vest in March
2013 for the Investment Bank should be
reduced by 10%. This 10% forfeiture,
amounting to over CHF 14 million at the
time of forfeiture, applied to over 300
individuals.
Corporate Center
The Corporate Center performance
award pool was also reduced as a
result of the LIBOR matter. However,
no forfeiture of performance awards
with performance-linked vesting condi-
tions was deemed appropriate in the
Corporate Center as the relevant
performance condition, that is, the firm’s
overall profitability, as measured on an
adjusted performance basis, was met.
285
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Our deferred variable compensation plans
To ensure our employees’ and shareholders’ interests are aligned, we pay part of our performance awards in UBS
shares. To keep our employees focused on the medium and longer-term profitability of the firm, all variable compensa-
tion plans require a significant part of an employee’s performance award to be deferred for up to five years and include
forfeiture provisions.
In 2012, we simplified and at the same time strengthened our
compensation framework by eliminating a number of plans and
introducing two universal plans that apply to all employees with a
total compensation above CHF / USD 250,000 – the revised Equity
Ownership Plan (EOP) and the new Deferred Contingent Capital
Plan (DCCP). We have also extended the deferral period for our
performance award plans. The introduction of the DCCP and
changes to vesting conditions for the EOP have resulted in the
average deferral period for the GEB increasing to 4.5 years (from
2.7 years for 2011) and to 3.8 years for other employees (from 2.0
years for 2011). The previous plans for members of the GEB,
namely the Cash Balance Plan (CBP), Senior Executive Equity
Ownership Plan (SEEOP) and the Performance Equity Plan (PEP)
have been discontinued.
The forfeiture provisions in our deferred variable compensa-
tion plans, which have been enhanced, enable the firm to forfeit
some, or all, of the unvested deferred portion if an employee
commits certain harmful acts.
Generally, we regard the following as harmful acts:
– contributing substantially to a significant downward restate-
ment of the Group’s or a business division’s results or to the
Group incurring significant financial losses
– engaging in conduct and / or failing to discharge supervisory or
managerial responsibilities that results in detriment to UBS, in-
cluding reputational harm
– engaging in conduct that materially violates legal and regula-
tory requirements or internal policies and procedures
– disclosing confidential or proprietary information
– soliciting UBS employees or clients
As a result of the changes described above we believe we
have the largest proportion of deferred compensation in our peer
group, and that our employees would have more deferred com-
pensation at risk than at any other competitor firm. Thus we pro-
vide greater protection to our stakeholders in the event of poor
performance or harmful acts.
➔ Refer to “Note 31 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 longer-term sustainable performance. All of our variable compensation plans feature performance
conditions for certain employees. A substantial part of variable compensation is deferred and at risk of forfeiture for several years.
Beneficiaries
Vesting schedule
Share price 2
Forfeiture clauses
Harmful acts
Performance conditions
s
n
o
i
t
i
d
n
o
C
g
n
i
c
n
e
u
fl
n
i
t
u
o
y
a
p
Profitability as funding driver
Equity Ownership Plan
Deferred Contingent Capital Plan
GEB members, Key Risk Takers and all employees with total
compensation greater than CHF / USD 250,000
GEB members, Key Risk Takers and all employees with total
compensation greater than CHF / USD 250,000
Vests in equal installments in years 3 to 5 for GEB members and in
equal installments in years 2 and 3 for all other employees 1
Vests in full in year 5
For GEB members, GMDs, Key Risk Takers and Highly Paid Employ-
ees, the number of UBS shares delivered at vesting depends on the
achievement of both Group and divisional performance conditions
Depends on whether a trigger event or viability event has occurred
Awards for GEB members are also subject to 20% forfeiture for
any year where UBS does not achieve an adjusted pre-tax profit
Instrument
UBS shares or notional shares 2
Notional bond and interest
1 Except for Global Asset Management employees, whose awards vest in equal installments in years 2, 3 and 5, and employees in certain locations subject to specific local plans with different deferral provisions.
2 Cash-settled notional funds for Global Asset Management employees.
286
Advisory vote
Equity Ownership Plan (EOP)
We have extended the vesting period and revised the perfor-
mance conditions for the EOP. Awards granted for the perfor-
mance year 2012 and onwards will vest in two equal installments
in years 2 and 3 for all employees other than GEB members, and
in three equal installments in years 3 to 5 for GEB members. For
GMDs, Key Risk Takers and Highly Paid Employees, vesting is now
also subject to multi-year performance conditions. In addition,
the harmful act provisions have been enhanced to better ensure
that awards can also be forfeited in the event that an employee
fails to discharge his or her supervisory or managerial responsi-
bilities. Up to 100% of the award due to vest may be forfeited.
This plan provides no leverage.
Description
The EOP is a mandatory performance award deferral plan for all
employees with total compensation of CHF / USD 250,000 or
more. Such employees receive 30% of their performance award
above that level in deferred UBS shares or notional shares under
the EOP. GEB members receive at least 40% of their performance
awards under the EOP. Global Asset Management employees re-
ceive 45% of their performance awards above the total compen-
sation threshold under the EOP, the amount of which is linked to
the value of designated underlying Global Asset Management
funds (notional funds) at the time of vesting. Their EOP awards
vest in three equal installments in years 2, 3 and 5. The EOP in-
stallments vesting in years 2 and 3 which were granted to Global
Asset Management employees who are GMDs, Key Risk Takers or
Highly Paid Employees are subject to the same performance con-
ditions as those for other such employees.
For 2012, an estimated 6,372 employees received EOP awards.
EOP awards are granted annually. Although the forfeiture provi-
sions are the same for all EOP awards, the other terms of these
awards vary depending on the category an employee falls into, as
summarized in the table on the right.
Minimum
percentage of
performance
award deferred
under EOP
EOP
vesting
period
EOP
performance
conditions
40%
30%
30% 3
Vests in equal
installments
in years 3 to 5
Vests in equal
installments in
years 2 and 3
Vests in equal
installments in
years 2 and 3
Employee categories1
GEB members
Group Managing Directors,
Key Risk Takers
and Highly Paid Employees2
All other employees with
total compensation of
more than CHF / USD 250,000
1 Excluding Global Asset Management employees and employees subject to different plans in certain loca-
tions. 2 Employees with a performance award of more than CHF / USD 2 million. 3 At least 30% of the
performance award that is above CHF / USD 250,000 is deferred under the EOP.
EOP vesting schedule for GEB members
EOP vesting schedule for all employees except GEB members
EOP
(minimum
40% of
perfor-
mance
award)
13%
13%
EOP
(minimum
30% of
perfor-
mance
award)
– Shares awarded.
– Award vests in equal installments
in years 3, 4 and 5, subject to both
Group and divisional performance
over the performance period.
The amount forfeited may be up
to 100% of the installment
due to vest.
– Award subject to forfeiture in the
event of harmful acts or
termination of employment.
14%
15%
15%
2013
2014
2015
2016
2017
2018
2013
2014
2015
2016
– Shares awarded.
– Award vests in equal install-
ments in years 2 and 3 during
the performance period.
– For GMDs, Key Risk Takers and
Highly Paid Employees, vesting
of awards is subject to both
Group and divisional perfor-
mance conditions during the
performance period. The
amount forfeited may be up
to 100% of the installment
due to vest.
– Award subject to forfeiture in
the event of harmful acts or
termination of employment.
287
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
EOP performance conditions for GEB members, GMDs, Key Risk
Takers and Highly Paid Employees: The vesting of an EOP award
depends on both Group performance and divisional performance.
Group performance is measured by the average adjusted Group
return on tangible equity (RoTE) and divisional performance by the
average adjusted divisional return on attributed equity (RoAE), or,
for Corporate Center employees, the average of the RoAE for all
business divisions, which excludes Corporate Center (Front Office
RoAE). The percentage of an EOP award that vests is determined
as follows.
If the average adjusted Group RoTE achieved is greater than or
equal to the 6% threshold, the award will vest in full, subject to
the relevant divisional threshold also being met. If the Group RoTE
is 0% or negative, the installment will be fully forfeited for the
entire Group regardless of any division’s particular performance. If
the Group RoTE falls between 0% and 6%, the award will vest on
a linear basis between 0% and 100%, again subject to the rele-
vant divisional threshold being met.
The purpose of the divisional threshold is to reduce the amount
of the EOP award that vests for any division that does not meet its
divisional performance target. Therefore, if the divisional RoAE
threshold (see table below) is met, no adjustment is made to the EOP
award. If, however, the RoAE falls below the threshold but is above
0% for any division, a downward adjustment will be applied to the
percentage of shares that would otherwise vest for that division. The
extent of this downward adjustment depends on how much the
actual RoAE falls below the threshold for that division, and will be up
to 40%. If the actual RoAE for a division is 0% or negative, the in-
stallment will be fully forfeited for that division. The achievement of
the performance conditions will be assessed by the HRCC.
An illustrative example of how we determine the percentage of
shares that vest is provided below.
GEB members, GMDs, Key Risk Takers and Highly Paid Employees: EOP performance conditions
Group performance
Divisional performance
Illustrative example (assuming constant share price)
% vesting
based on
Group RoTE
100% vesting at a
Group RoTE of ≥ 6%
Adjustment
based on
Divisional/
Front Office
RoAE
0% forfeiture if RoAE is
at or above threshold
Partial forfeiture of up to
40% determined on
a linear basis if RoAE between
threshold and > 0%
Partial forfeiture determined on
a linear basis if Group RoTE
between 0% and 6%
100% forfeiture at a
Group RoTE of ≤ 0%
100% forfeiture if
RoAE ≤ 0%
Assume an EOP award of CHF 100,000 granted to an Investment Bank employee due
to vest in 2016, and an actual average adjusted Group RoTE and Investment Bank RoAE
(averaged over the performance years 2013 to 2015) of 3% and 5%, respectively.
To determine the percentage of shares that vest:
–50%
of 100K
(50)
1. The award is reduced by 50% due to Group
performance (as a 3% Group RoTE is 50% of the
Group RoTE threshold).
2. The award is reduced by a further 20% due to the
Investment Bank’s divisional performance (the 5%
RoAE represents half of the 10% Investment Bank
RoAE threshold).
100
–20%
of 50K
(10)
50
40
Installment about
to vest
Adjustment
due to Group
performance
Vesting based
on Group
performance
Adjustment due
to divisional
performance
Amount vesting
(cid:38)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:52)(cid:81)(cid:35)(cid:39)(cid:2)(cid:86)(cid:74)(cid:84)(cid:71)(cid:85)(cid:74)(cid:81)(cid:78)(cid:70)(cid:85)(cid:2)(cid:10)(cid:81)(cid:84)(cid:14)(cid:2)(cid:72)(cid:81)(cid:84)(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:71)(cid:79)(cid:82)(cid:78)(cid:81)(cid:91)(cid:71)(cid:71)(cid:85)(cid:14)(cid:2)(cid:40)(cid:84)(cid:81)(cid:80)(cid:86)(cid:2)(cid:49)(cid:72)(cid:386)(cid:69)(cid:71)(cid:2)(cid:52)(cid:81)(cid:35)(cid:39)(cid:2)(cid:86)(cid:74)(cid:84)(cid:71)(cid:85)(cid:74)(cid:81)(cid:78)(cid:70)(cid:85)(cid:11)
Performance periods for EOP awards granted
in March 2013
(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:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
≥ (cid:22)(cid:18)(cid:7)
≥ (cid:19)(cid:23)(cid:7)
≥ (cid:20)(cid:18)(cid:7)
(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: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: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:19)(cid:18)(cid:7)
≥ (cid:20)(cid:18)(cid:7)
≥ (cid:19)(cid:18)(cid:7)
GEB
GMDs, Key Risk Takers
and Highly Paid Employees
Installment vesting
after
Applicable performance period
3 years
4 years
5 years
2 years
3 years
2013, 2014 and 2015
2014, 2015 and 2016
2015, 2016 and 2017
2013 and 2014
2013, 2014 and 2015
288
100
80
60
40
20
0
(cid:19)(cid:36)(cid:38)(cid:19)(cid:18)(cid:20)(cid:65)(cid:71)
Advisory vote (cid:52)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:67)(cid:80)(cid:73)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:115)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:67)(cid:84)(cid:75)(cid:85)(cid:81)(cid:80)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:39)(cid:49)(cid:50)(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:86)(cid:74)(cid:84)(cid:71)(cid:85)(cid:74)(cid:81)(cid:78)(cid:70)(cid:85)(cid:2)
(cid:43)(cid:80)(cid:2)(cid:7)
(cid:19)(cid:26)
(cid:19)(cid:22)
(cid:19)(cid:18)
(cid:24)
(cid:20)
(cid:26)
(cid:369)(cid:24)
(cid:369)(cid:24)
(cid:369)(cid:24)
(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:52)(cid:81)(cid:54)(cid:39)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:16)(cid:2)(cid:80)(cid:71)(cid:86)(cid:2)(cid:84)(cid:71)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:75)(cid:80)(cid:73)(cid:14)(cid:2)(cid:67)(cid:79)(cid:81)(cid:84)(cid:86)(cid:75)(cid:92)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:17)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:89)(cid:80)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)
(cid:39)(cid:49)(cid:50)(cid:2)(cid:52)(cid:81)(cid:54)(cid:39)(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:86)(cid:74)(cid:84)(cid:71)(cid:85)(cid:74)(cid:81)(cid:78)(cid:70)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:69)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:47)(cid:67)(cid:84)(cid:69)(cid:74)(cid:2)(cid:20)(cid:18)(cid:19)(cid:21)(cid:2)(cid:73)(cid:84)(cid:67)(cid:80)(cid:86)(cid:85)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:52)(cid:81)(cid:39)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:85)(cid:2)(cid:115)(cid:2)(cid:52)(cid:81)(cid:54)(cid:39)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:88)(cid:67)(cid:78)(cid:71)(cid:80)(cid:86)
The objective of linking the vesting of EOP awards with a return
on equity over a two- to five-year time horizon is to focus our
employees on developing and managing the business in a way
that delivers sustainable returns. We believe that Group return on
tangible equity (RoTE) is a better performance measure than the
Group’s return on total equity (RoE). The difference between the
two is that tangible equity includes only shareholders’ equity and
excludes goodwill and intangibles and thus provides a more con-
sistent basis to measure performance.
The Group’s published RoE targets can be converted into RoTE
targets by deducting the current balance of goodwill and intan-
gibles from the Group’s total equity base. On this basis, the
Group’s reported RoE target of mid-single digits for 2013 and
2014 would be approximately 1–2 percentage points higher in
terms of RoTE. Our 2015 RoE target of more than 15% is the
equivalent of RoTE of more than 17%, calculated based on our
estimated tangible equity.
UBS began to report Group RoTE in its fourth-quarter 2012 re-
port and will continue to do so on a quarterly and annual basis. UBS
has reported RoAE for each business division (except the Corporate
Center) for some time. This information is available in this report
and will be included in subsequent quarterly and annual reports.
In determining the RoTE performance threshold for any year it
will be important to set the threshold such that employees do not
have to earn a performance award twice (once when granted and
again during the vesting period). In establishing a threshold of 6%
for the Group RoTE for the 2012 performance year we acknowl-
edge that the bank is still in a transformational phase and take
into consideration the financial effects of restructuring the bank
during 2013 and 2014.
(cid:20)(cid:22)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:26)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:18)(cid:18)(cid:18)
(cid:24)(cid:18)(cid:18)(cid:18)
(cid:18)
289
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Deferred Contingent Capital Plan (DCCP)
The introduction of the DCCP as a key component of our com-
pensation framework better aligns the interests of our senior em-
ployees with those of our stakeholders as the plan replicates many
of the features of the loss-absorbing bonds that we issued to in-
vestors in 2012. It is subject to standard forfeiture and harmful
acts provisions and provides no leverage.
We anticipate that over the next five years, we could build up
to 100 basis points of high-trigger loss-absorbing capital from this
program, which would act as an additional buffer against declines
in capital.
Eligible employees: The DCCP is a mandatory performance award
deferral plan for all employees with total compensation of
CHF / USD 250,000 or more. Such employees receive 30% of their
performance award above that level under the DCCP, with the
exception of Global Asset Management employees, who receive
15% of their performance awards under the plan. GEB members
receive 40% of their performance awards under the DCCP. For
2012, an estimated 6,317 employees received DCCP awards.
DCCP awards are intended to be granted annually.
Deferred Contingent Capital Plan
DCCP
(minimum
30% of
perfor-
mance
award)
30%1
– Awards in the form of
notional bonds.
– Awards cliff vest in year 5
provided that no trigger or
viability event occurs.
– Awards for GEB members
subject to 20% forfeiture in
years during the vesting period
where the firm does not
achieve an adjusted pre-tax
profit.
– Notional interest is paid annual-
ly, but only for the performance
years in which the firm gene-
rates an adjusted pre-tax profit.
2013
2014
2015
2016
2017
2018
Notional interest payments
1(cid:31)40% for GEB members.
Description: Employees are awarded notional bonds with annual
interest payments. UBS will only pay interest for the performance
years in which the firm generates an adjusted pre-tax profit. For
years in which UBS does not achieve an adjusted pre-tax profit no
notional interest will be paid. Once paid, notional interest is not
subject to clawback. The notional interest rate is set based on the
yield to maturity of a market-traded loss-absorbing bond ob-
served from 1 to 15 February 2013 for the awards granted on 15
March 2013. The notional interest rate is 6.25% for awards de-
nominated in USD and 5.40% for awards denominated in CHF.
These interest rates are lower than the rates paid to the holders of
our loss-absorbing bonds issued in February 2012 and August
2012, which have coupons of 7.25% and 7.625%, respectively.
Awards vest in full after five years, subject to the restrictions out-
lined in the following paragraph.
Restrictions: Awards granted under the DCCP forfeit if our Basel III
common equity tier 1 (CET1) ratio falls below 7%. This is a higher
trigger than for our bondholders who would only see their bonds
written down if our Basel III CET1 ratio falls to 5%. In addition,
awards are also forfeited if a viability event occurs, that is, if FINMA
provides a written notice to UBS that the DCCP must be written
down to prevent the insolvency, bankruptcy or failure of UBS, or if
UBS receives a commitment of extraordinary support from the
public sector that is necessary to prevent such insolvency, bank-
ruptcy or failure.
Furthermore, DCCP awards for GEB members are subject to an
additional performance condition. In any years during the vesting
period where UBS does not achieve an adjusted pre-tax profit,
GEB members would forfeit 20% of the award. As such, 100% of
GEB DCCP awards are at additional risk of forfeiture.
290
Advisory vote Vesting of outstanding awards granted in prior years
impacted by performance conditions
The following provides an overview of the impact of the financial
performance in 2012 on the vesting of outstanding awards grant-
ed in prior years which were due to vest in 2013.
Vesting of Performance Equity Plan awards granted in 2010
The vesting of awards granted under the Performance Equity Plan
(PEP) depends on the cumulative economic profit (EP) over
2010 – 2012 and the relative total shareholder return (TSR) over
the same period as compared to the constituent banks in the Dow
Jones Banks Titans 30 Index at the time of grant. Based on the
actual cumulative EP and relative TSR ranking over the perfor-
mance period, and following validation by PricewaterhouseCoo-
pers, the HRCC has determined that 52% of the performance
shares granted to GEB members in 2010 have vested, that is,
48% has been forfeited.
Vesting of Senior Executive Equity Ownership Plan and Perfor-
mance Equity Ownership Plan 2010 / 11 and 2011 / 12 awards
The vesting in 2013 of installments of the Senior Executive Equity
Ownership Plan (SEEOP) and Performance Equity Ownership Plan
(Performance EOP) 2010 / 11 and 2011 / 12 awards is dependent
on the adjusted operating profit before tax of the business divi-
sion or, for Corporate Center employees, adjusted Group operat-
ing profit before tax. Performance EOP awards vested in full for all
business divisions, except for the Investment Bank.
Although the Investment Bank generated an adjusted operat-
ing profit in 2012, the HRCC determined that the number of
shares due to vest on 1 March 2013 would be reduced by 10%
for Investment Bank employees. The HRCC’s determination was
based on the profitability of the Investment Bank, including ad-
justments for goodwill impairment, restructuring charges and
own credit losses, as defined in the plan rules. The HRCC, at its
discretion, took into consideration approximately 50% of the
fines and related costs in connection with the LIBOR matter. The
HRCC’s intention in applying its discretion is to ensure that the
mechanistic outcome of performance conditions relating to
awards will be subject to review to avoid outcomes which could
be seen as contrary to the intention of the plans and to sharehold-
ers’ interests. Accordingly, Investment Bank employees received
90% of the shares awarded under the Performance EOP that
were due to vest on 1 March 2013. The same determination was
also made regarding the outstanding SEEOP award in the Invest-
ment Bank for Carsten Kengeter, that is, 10% of the second in-
stallment of the SEEOP award granted to him in 2011 was for-
feited.
Vesting of Cash Balance Plan 2011 and 2012 awards
The outstanding unvested amounts of Cash Balance Plan (CBP)
awards granted in February 2011 and February 2012 are adjusted
based on the Group RoE during the financial years prior to vest-
ing. If Group RoE is below 0%, the actual Group RoE determines
the extent of the downward adjustment. If Group RoE is between
0% and 6%, no adjustment will be made. Should Group RoE ex-
ceed 6%, the unvested amount is adjusted upwards in line with
the actual Group RoE, up to a maximum of 20% (that is, any up-
side adjustment is capped at 20%).
For Cash Balance Plan (CBP) awards granted in February 2011,
the last installment which vested in 2013 was adjusted in line with
the actual Group RoE over 2011 and 2012. As such, the award
was adjusted upwards by 9.1% (reflecting 2011 performance)
and then downwards by 5.2% (reflecting 2012 performance). For
the CBP awards granted in February 2012, the first installment
that vested in 2013 was adjusted downwards by 5.2% (reflecting
2012 performance). The last installment which is due to vest in
2014 will be adjusted based on the actual Group RoE over 2012
and 2013.
291
Corporate governance, responsibility and compensationAdvisory 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. No grants were made for the 2012 performance year under the
discontinued plans (see below).
➔ Refer to “Note 31 Equity participation and other compensation plans” in the “Financial Information” section of this report for more information
Plan
Cash Balance
Plan (CBP)
Performance
Equity Plan
(PEP)
Senior Execu-
tive Equity
Ownership
Plan (SEEOP)
Special Plan
Award
Program
(SPAP)
Deferred Cash
Plan (DCP)
Incentive
Performance
Plan (IPP)
Key Employee
Stock Appreci-
ation Rights
Plan (KESAP)
and Key
Employee
Stock Option
Plan (KESOP)
Senior
Executive
Stock Appreci-
ation Rights
Plan (SESAP)
and Senior
Executive
Stock Option
Plan (SESOP)
Years
granted
Eligible
employees
2010–2012
2010–2012
2010–2012
2012 only
2011 only
2010 only
2002–2009
2002–2009
GEB members
GEB members
GEB members
and Group
Managing Board
Selected Manag-
ing Directors and
Group Managing
Directors in the
Investment Bank
Investment Bank
employees whose
total compensa-
tion exceeded
CHF 1 million
GEB members
and other senior
employees
(approximately
900 employees)
Selected employ-
ees (approximate-
ly 17,000 em-
ployees between
2002 and 2009)
GEB members
and Group
Managing Board
Instrument
Cash
Performance
shares
Shares
Shares
Cash
Performance
shares
None
Dependent on
share price at the
end of the five-
year period
Perfor-
mance
conditions
CBP 2011 and
2012: dependent
on the return on
equity
CBP 2010: de-
pendent on UBS
being profitable
Dependent on
whether the
business division
makes a loss (the
amount forfeited
depends on the
extent of the loss
and generally
ranges from
10% – 50% of
the award portion
due to vest)
Dependent 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
The number of
UBS shares deliv-
ered can be be-
tween zero and
two times the
number of perfor-
mance shares
granted, depend-
ing on whether
performance tar-
gets relating to
economic profit
(EP) and relative
total shareholder
return (TSR) have
been achieved
Restric-
tions / other
conditions
Subject to
continued
employment and
harmful act
provisions
Subject to
continued
employment and
harmful act
provisions
Subject to
continued
employment
and harmful act
provisions
Subject to
continued
employment and
harmful act
provisions
Subject to
continued
employment and
harmful act
provisions
Subject to
continued
employment and
harmful act
provisions
Vesting
period
Vests in equal
installments over
a two-year period
Vests in full three
years after grant
Vests in equal
installments over
a five-year period
Vests in full three
years after grant
Vests in one-
third installments
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 perfor-
mance shares ini-
tially granted
292
Share-settled
stock apprecia-
tion rights (SAR)
or stock options
with a strike price
not less than the
fair market value
of a UBS share on
the date of grant
Share-settled
stock apprecia-
tion rights (SAR)
or stock options
with a strike price
not less than the
fair market value
of a UBS share on
the date of grant
None
None
Subject to contin-
ued employment,
non-solicitation
of clients and
employees and
non-disclosure of
proprietary infor-
mation
Subject to contin-
ued employment,
non-solicitation
of clients and
employees and
non-disclosure of
proprietary infor-
mation
Vests in full three
years after 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
Advisory vote 2012 performance summary
The Group reported an overall loss last year, in part reflecting our decision to accelerate the firm’s strategy, which con-
tributed to a significant goodwill impairment and restructuring costs. The results were also impacted by legal and
regulatory costs, including the costs of the LIBOR settlement. However, we made substantial progress towards achieving
our strategic objectives, including building our capital ratios, reducing costs and remediating operational risk events.
Further progress was made in many areas of the business as we continued to address the challenges of the past.
As a Swiss bank, UBS is subject to the most stringent regulatory
requirements in the world. In 2012, we exceeded the capital tar-
gets we set ourselves for the year and enhanced our position as
one of the world’s best capitalized banks. On a fully applied basis,
our Basel III common equity tier 1 (CET1) capital ratio rose by 310
basis points to 9.8%, meaning we have almost achieved our regu-
lator’s minimum 2019 requirement of 10%. Our Basel III phase-in
CET1 capital ratio increased by 460 basis points to finish the year at
15.3%. We achieved these increases primarily through reductions
in risk-weighted assets, with total reductions of over CHF 120 bil-
lion, or 32% for the year. We also made good progress in relation
to our balance sheet, which was reduced by CHF 158 billion over
the year. Our Basel III funding and liquidity ratios remain above our
regulator’s 100% requirements and place us ahead of our peers.
We firmly believe that capital strength is the foundation of our
success. It allows us the flexibility to execute our strategy and it
reinforces client confidence while allowing us to address the chal-
lenges of the past. As a sign of that strength and of our confi-
dence in our continued ability to execute our strategy in a disci-
plined manner, the BoD is recommending a 50% increase in the
dividend for shareholders for the year to CHF 0.15 per share.
On costs, we experienced higher than expected legal costs and
adverse foreign exchange movements, but our underlying prog-
ress on cost reduction is on track.
Our performance in 2012
We made solid progress across all businesses in 2012. Notably,
our Wealth Management business continued to see success in the
fastest growing global markets while adapting to the new cross-
border paradigm. Together, our wealth management businesses
attracted strong net new money inflows totaling almost CHF 47
billion, an increase of over CHF 11 billion on 2011 and a demon-
stration of our clients’ continued trust. Wealth Management
Americas continued to make strong progress and achieved a re-
cord pre-tax profit of USD 873 million, an increase of 40% on
2011. Our Retail & Corporate business delivered a resilient pre-tax
performance in difficult markets and continued to regain market
share. It performed exceptionally well in relation to net new busi-
ness volume growth, which reached almost 5%, and recorded
deposit inflows of CHF 14 billion, including the highest net new
client assets for retail clients in Switzerland since 2001. Global
Asset Management recorded an increased pre-tax profit as it de-
livered stronger investment performance to its clients. The Invest-
ment Bank beat our targets in relation to risk-weighted asset and
balance-sheet reduction, allowing the firm to reach its current
industry-leading capital ratios. It performed well in many of its
traditional areas of competitive strength, expanding in equity and
debt capital markets and global syndicated finance where reve-
nues increased 16%. Its foreign exchange business continued to
benefit from the investments we made in cutting edge e-trading
systems, enabling it to grow volumes significantly.
Overall for 2012, the Group reported a disappointing pre-tax
loss of CHF 1,774 million, a net loss attributable to UBS share-
holders of CHF 2,511 million and diluted earnings per share of
negative CHF 0.67. The result includes a number of items relating
to the acceleration of our strategy, which we announced in Octo-
ber 2012. We recorded CHF 3.1 billion of goodwill impairments
Basel III CET1 ratio
CHF billion
phase-in
fully applied
~10.7%
+460 bps
Phase-in Basel III CET1 ratio up ~460 bps
Basel III RWA
CHF billion
~15.3%
~380
Basel III RWA reduced by ~32%
(32%)
~258
+310 bps
~9.8%
~6.7%
31.12.11
31.12.12
31.12.11
31.12.12
293
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
and CHF 0.4 billion of restructuring costs. In addition we recorded
own credit charges of CHF 2.2 billion which resulted from the
tightening of our credit spreads as the perceived creditworthiness
of our debt improved, partly in reaction to the accelerated imple-
mentation of our strategy. We also had positive effects of CHF
846 million related to changes to our Swiss pension plan and to
our retiree medical and life insurance plan in the US. Adjusting for
the items listed above (all of which are outside the control of divi-
sional management or result from strategic decisions), one can
get a clearer picture of our underlying performance. On this basis,
the Group would have recorded a pre-tax profit of CHF 3.0 billion,
which includes fines and disgorgements of CHF 1.4 billion in rela-
tion to LIBOR.
UBS’s performance award pool was reduced to CHF 2.5 bil-
lion, a 7% decrease compared with 2011, and a 42% decrease
compared with 2010. The overall decrease in the performance
award pool year-on-year puts it at the lowest level since the
financial crisis. The reduction in the pool must also be viewed in
the context of the wide-ranging changes we have made to our
new compensation plans, including increased deferral periods,
the elimination of leveraged plans, the introduction of the De-
ferred Contingent Capital Plan, which has a five-year vesting
period, and the halving of the maximum immediate cash com-
ponent of any performance award. Taken in conjunction with
the firm’s achievements in building its industry-leading capital
ratios and the proposed 50% increase in dividend payments to
shareholders for 2012, it illustrates the continuing shift in the
relationship between compensation, capital and dividends.
Summary of financial performance for 2012 and 2011
CHF billion
Pre-tax profit/(loss) as reported
Impairment of goodwill, intangibles and PPE
Own credit
Net restructuring charges
Other
Adjusted pre-tax profit
2012
(1.8)
3.1
2.2
0.4
(0.8)1
3.0
2011
5.3
0.0
(1.5)
0.4
(0.7)2
3.4
1 Includes credit for changes to a US retiree medical life insurance benefit plan of CHF 116 million and
credit for changes to the UBS’s Swiss pension plan of CHF 730 million. 2 Includes gain on the sale of our
strategic investment portfolio (SIPF).
(cid:35)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:82)(cid:84)(cid:71)(cid:15)(cid:86)(cid:67)(cid:90)(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:19)(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: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:85)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:20)(cid:14)(cid:20)(cid:26)(cid:20)
(cid:20)(cid:14)(cid:18)(cid:25)(cid:23)
(cid:19)(cid:14)(cid:24)(cid:20)(cid:25) (cid:19)(cid:14)(cid:23)(cid:22)(cid:21)
(cid:26)(cid:19)(cid:21)
(cid:23)(cid:23)(cid:22)
(cid:23)(cid:18)(cid:25)
(cid:22)(cid:23)(cid:24) (cid:23)(cid:22)(cid:22)
(cid:10)(cid:22)(cid:19)(cid:23)(cid:11)
(cid:21)(cid:14)(cid:22)(cid:20)(cid:26)
(cid:21)(cid:14)(cid:18)(cid:19)(cid:25)
(cid:10)(cid:19)(cid:14)(cid:18)(cid:25)(cid:24)(cid:11)
(cid:10)(cid:20)(cid:14)(cid:22)(cid:24)(cid:25)(cid:11)
(cid:21)(cid:14)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:25)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:19)(cid:14)(cid:25)(cid:23)(cid:18)
(cid:21)(cid:14)(cid:23)(cid:18)(cid:18)
(cid:57)(cid:47)
(cid:57)(cid:47)(cid:35)
(cid:43)(cid:36)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:35)(cid:47)
(cid:52)(cid:8)(cid:37)
(cid:37)(cid:37)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)
(cid:20)(cid:18)(cid:19)(cid:19)
(cid:20)(cid:18)(cid:19)(cid:20)
(cid:19)(cid:2)(cid:39)(cid:67)(cid:69)(cid:74)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:72)(cid:81)(cid:78)(cid:78)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:86)(cid:71)(cid:79)(cid:85)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:68)(cid:71)(cid:71)(cid:80)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:78)(cid:71)(cid:88)(cid:67)(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:81)(cid:84)(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:78)(cid:71)(cid:88)(cid:71)(cid:78)(cid:28)(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:78)(cid:81)(cid:85)(cid:85)(cid:2)(cid:81)(cid:80)(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: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:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:14)(cid:20)(cid:18)(cid:20)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:20)(cid:2)(cid:10)(cid:81)(cid:89)(cid:80)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:73)(cid:67)(cid:75)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:14)(cid:23)(cid:21)(cid:25)(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:11)(cid:14)(cid:2)(cid:84)(cid:71)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:74)(cid:67)(cid:84)(cid:73)(cid:71)(cid:85)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:25)(cid:19)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(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:75)(cid:80)(cid:2)(cid:20)(cid:18)(cid:19)(cid:20)(cid:2)(cid:10)(cid:80)(cid:71)(cid:86)(cid:2)(cid:69)(cid:74)(cid:67)(cid:84)(cid:73)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:26)(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:11)(cid:14)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:78)(cid:81)(cid:85)(cid:85)(cid:71)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:14)(cid:18)(cid:24)(cid:22)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:73)(cid:81)(cid:81)(cid:70)(cid:89)(cid:75)(cid:78)(cid:78)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(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:2)(cid:75)(cid:80)(cid:2)(cid:21)(cid:51)(cid:19)(cid:20)(cid:14)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:82)(cid:71)(cid:84)(cid:85)(cid:81)(cid:80)(cid:80)(cid:71)(cid:78)(cid:2)(cid:71)(cid:90)(cid:82)(cid:71)(cid:80)(cid:85)(cid:71)(cid:85)(cid:2)(cid:84)(cid:71)(cid:78)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:85)(cid:2)
(cid:86)(cid:81)(cid:2)(cid:67)(cid:2)(cid:55)(cid:53)(cid:2)(cid:84)(cid:71)(cid:86)(cid:75)(cid:84)(cid:71)(cid:71)(cid:2)(cid:79)(cid:71)(cid:70)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:78)(cid:75)(cid:72)(cid:71)(cid:15)(cid:75)(cid:80)(cid:85)(cid:87)(cid:84)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:68)(cid:71)(cid:80)(cid:71)(cid:386)(cid:86)(cid:2)(cid:82)(cid:78)(cid:67)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:19)(cid:24)(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:51)(cid:19)(cid:20)(cid:14)(cid:2)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)
(cid:82)(cid:71)(cid:80)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:82)(cid:78)(cid:67)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:21)(cid:18)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(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:75)(cid:80)(cid:2)(cid:19)(cid:51)(cid:19)(cid:20)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:73)(cid:67)(cid:75)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:67)(cid:78)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:75)(cid:69)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:81)(cid:72)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:22)(cid:21)(cid:21)(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: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:67)(cid:80)(cid:70)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:26)(cid:27)(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: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:2)(cid:75)(cid:80)(cid:2)(cid:21)(cid:51)(cid:19)(cid:19)(cid:16)
294
(cid:21)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:25)(cid:23)(cid:18)
(cid:18)
(cid:15)(cid:19)(cid:25)(cid:23)(cid:18)
(cid:15)(cid:21)(cid:23)(cid:18)(cid:18)
Advisory vote Our compensation funding and expenses for 2012
The performance award pool for 2012 is CHF 2.5 billion, 7% lower than for 2011 and 42% lower than 2010.
Business performance is the basis of our compensation funding
framework and we measure our business divisions’ performance
in various ways, including profitability, quality of earnings, contri-
bution before performance award and economic contribution be-
fore performance award. The latter is calculated by deducting the
cost of capital based on equity allocated to the business and re-
flects the relative risks of each business.
Funding rates are linked to a division’s level of profitability and
reflect factors such as changes in performance during the year,
affordability and the need to remain attractive as an employer.
If a business division’s profits increase, the proportion of profits
we allocate to pay performance awards is reduced. This approach
has several benefits. In good years it helps to prevent excessive
compensation and allows us to return capital to shareholders. In
lean years, it provides management with the flexibility to ensure
we can make adequate provisions to retain key employees.
We believe it is important that our management can exercise
its judgment and make recommendations, which are then re-
viewed by the HRCC. If management feels a division’s perfor-
mance award pool does not fully reflect its performance, the
Group CEO can recommend a change to the size of the pool. For
example, if a division is restructuring or investing significantly in its
business this would have a material short-term financial impact,
but it may also be seen as contributing to the firm’s longer term
goal of delivering sustainable performance. In the case of variable
compensation funding, management may make recommenda-
tions to ensure the firm remains attractive as an employer. Such
recommendations would take into account the firm’s market posi-
tion from a performance and compensation perspective, and in-
dustry compensation trends, including at senior management
levels, based on peer comparisons. This year, we have broadened
the scope of our peer benchmarking to ensure as far as possible
that it provides like-for-like comparisons to aid the decision-mak-
ing process.
To the extent that discretion is exercised in any year, the HRCC
undertakes to UBS’s shareholders that it will be applied judiciously
and in a manner that is aligned with our strategy to create sus-
tainable shareholder value.
Sustainable profitability is key to compensation funding
The primary basis for funding across UBS is profitability. The following describes how we determine our performance award pools.
HRCC provides independent oversight
Contribution before
performance award as
the main basis for
business division pool
funding
Includes charge for cost of
equity capital
Compensation funding
rates applied to contri-
bution before perfor-
mance award at business
division level
Initial business division
performance award
pools proposed
Management discretion
applied in determining
divisional performance
award pools
Adjustments for relative business
performance, risk factors, quality of
earnings and market compensation
Risk is assessed at each phase of the process
Proposed pools
reviewed by the Group
CEO and HRCC
Final approval by the
BoD
295
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Performance awards granted for the 2012 performance year
Our performance award pool for 2012 is CHF 2,522 million, 7%
lower than for 2011. This reflects our overall profitability, quality
of earnings, and our progress towards achieving our strategic ob-
jectives, including strengthening our capital ratios and reducing
risk-weighted assets.
The “Total variable compensation” table shows the amount of
variable compensation awarded to employees for the perfor-
mance year 2012, together with the number of beneficiaries for
each type of award granted. We define variable compensation as
the discretionary, performance-based award pool for the given
year. In the case of deferred awards, the final amount paid to an
employee is dependent on performance conditions to which
these awards are subject and consideration of relevant forfeiture
provisions. The deferred share award amount is based on the fair
value of these awards on the date of grant.
The “Deferred compensation” table on the following page
shows the current intrinsic value of unvested outstanding de-
ferred variable compensation awards subject to ex-post adjust-
ments. For share-based plans, the intrinsic value is determined
based on the closing share price on 30 December 2012. For no-
tional funds, it is determined 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 variable
Total variable compensation 1
d
e
t
i
d
u
A
CHF million, except where indicated
Cash performance awards
Deferred Contingent Capital Plan
Deferred cash plans 4
UBS share plans
UBS share option plans
Equity Ownership Plan – notional funds
Total performance award pool
Expenses
2012
1,411
2011 3
1,554
145
5
135
0
28
0
34
234
0
25
1,724
1,847
Expenses deferred to
future periods
2012
0
361
10
383
0
20
774
2011 3
0
0
3
750
0
69
822
Adjustments 2
2012
2011 3
0
Total
Number of
beneficiaries
2012
1,411
506
15
542
0
48
2011 3
1,554
0
37
2012
46,709
6,317
58
2011
50,620
0
62
1,038
5,866
6,514
0
94
0
506
0
515
2,522
2,723
46,732
50,635
0
0
54
0
0
54
0
0
0
24
0
0
24
CHF million, except where indicated
Total variable compensation – other 5
Expenses
Expenses deferred to
future periods
2012
424
2011 3
295
2012
494
2011 3
132
Adjustments 2
2012
(137) 6
2011 3
0
Total
2012
781
2011 3
427
CHF million, except where indicated
Total WMA financial advisor compensation 7
2012
2,087
2011 3
1,842
2012
706
2011 3
1,024
Expenses
Expenses deferred to
future periods
Adjustments 2
2012
0
2011 3
0
Total
Number of
beneficiaries
2012
2,793
2011 3
2,866
2012
7,059
2011
6,967
1 The total “performance award” paid to employees for the performance years 2012 (CHF 2,522 million) and 2011 (CHF 2,723 million). Expenses under “Total variable compensation – other” and “Total WMA financial
advisor compensation” are not part of UBS’s performance award pool. 2 Adjustments relating to post-vesting transfer restrictions. 3 In 2012, costs related to guarantees for new hires were reclassified from “Total
variable compensation – other” to “Total variable compensation – performance award”. In addition, costs related to both supplemental severance and certain retention payments were reclassified from “Total variable
compensation – performance award” to “Total variable compensation – other”. 2011 was restated. 4 Deferred cash plans include specific regional deferred cash plan which is not part of the Group’s compensation
delivery framework. 5 Replacement payments and retention plan payments including the Special Plan Award Program. 6 Included in expenses deferred to future periods is an amount of CHF 137 million relating to
future interest on the Deferred Contingent Capital Plan. As the amount recognized as performance award represents the present value of the award at the date granted to the employee, this interest amount is adjusted
out in the analysis. 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 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 vest-
ing requirements.
296
Advisory vote Deferred compensation 1, 2
d
e
t
i
d
u
A
CHF million, except where indicated
Deferred Contingent Capital Plan
Equity Ownership Plan
Equity Ownership Plan – notional funds
Discontinued deferred compensation plans 5
Total
Relating to awards
for 2012
506
542
48
0
1,096
Relating to awards for
prior years 3
0
3,383
534
420
4,337
of which exposed to
ex-post adjustments
100%
100%
100%
100%
Total
506
3,925
582
420
5,433
Total deferred compen-
sation year end 2011 4
0
3,182
670
698
4,550
1 This is based on specific plan vesting which may differ from the accounting expensing. 2 For more information, refer to “Note 31 Equity participation and other compensation plans”. 3 This takes into account the
ex-post implicit adjustments, given the share price movements since grant. 4 Year 2011 as reported in Annual Report 2011 adjusted for discontinued deferred compensation plans. 5 Cash Balance Plan (CBP), Senior
Executive Equity Ownership Plan (SEEOP), Performance Equity Plan (PEP), Incentive Performance Plan (IPP), Deferred Cash Plan (DCP).
compensation plans listed in the “Deferred compensation” table
are subject to ex-post adjustments, whether implicitly, through
exposure to share price movements, or explicitly, for example,
through forfeitures instigated by the firm. Accordingly, their val-
ue can change over time. The amounts shown in the column
“Relating to awards for prior years” already takes into account
ex-post implicit adjustments that have occurred as a result of
share price movements between the respective dates on which
these awards were granted and 30 December 2012.
➔ Refer to “Note 31 Equity participation and other compensation
plans” in the “Financial Information” section of the Annual
Report 2012 for more information.
Performance award expenses in the 2012 performance year
The performance award pool includes all discretionary, perfor-
mance-based variable awards for 2012. Certain awards that form
part of the performance award pool, mainly discretionary cash
awards, are already expensed in the same year while deferred
awards are largely expensed in subsequent years. The “Perfor-
mance award expenses” chart illustrates how the performance
award pool for the 2012 performance year reconciles with the
performance award expense in the financial year 2012. The per-
formance award expense includes all immediate expenses related
to 2012 compensation awards and ex penses related to awards
Performance award expenses
Amortization of deferred compensation1
23% reduction in awards to be amortized over future periods
(42%)1
CHF billion
2010 per-
formance
award pool
~4.3
0.9
2011 per-
formance
award pool
2.7
(7%)1
2011 IFRS
expense
3.5
Amor-
tization of
prior year
awards
1.74
Awards for
2011 perfor-
mance year
deferred to
future peri-
ods2 and PVTR
and other3
Awards
expense
for 2011
perfor-
mance year
1.8
2012 IFRS
expense
3.0
Amor-
tization of
prior year
awards
1.34
Awards
expense
for 2012
perfor-
mance year
1.7
2012 per-
formance
award
pool
2.5
0.8
Awards for
2012 perfor-
mance year
deferred to
future periods2
and PVTR
and other3
CHF billion
of which Investment Bank
IFRS expense down 15% YoY
(down 17% excluding restructuring costs)
Unrecog-
nized
awards
to be
amor-
tized3
2.2
31.12.11
Including awards
granted in
1Q12 for the
performance
year 2011
(23%)
Amortized
and forfeited
1.3
Expected
amortization
of prior year
awards
in 2013
0.6
Unrecog-
nized
awards
to be
amor-
tized2, 3
1.7
Annual
awards
granted
0.8
Including
awards to be
granted in
1Q13 for the
performance
year 2012
31.12.12
Including awards
to be granted in
1Q13 for the
performance
year 2012
CHF (0.7) billion
1 Excluding add-ons such as social security. 2 Estimate. The actual amount to be expensed in future
periods may vary, for example due to forfeitures. 3 Post vesting transfer restrictions and adjustments
related to performance conditions of CHF 54 million in 2011 and CHF 24 million in 2012. 4 Includes
restructuring costs of CHF 54 million in 2011 and CHF 115 million in 2012.
1 This graph reflects improvements in estimates compared with the numbers included in our fourth
quarter 2012 results presentation on 5 February 2013. 2 Estimate. The actual amount to be expensed
in future periods may vary, for example due to forfeitures. 3 Related to performance award pool.
297
2.5
2.0
1.5
1.0
0.5
0.0
Corporate governance, responsibility and compensationAdvisory vote
Corporate governance, responsibility and compensation
Compensation
d
e
t
i
d
u
A
Ex-post explicit and implicit adjustments to deferred compensation in 2012 1
CHF million
UBS shares (EOP, IPP, PEP, SEEOP) 2
UBS options (KESOP) and SARs (KESAP) 2
UBS notional funds (EOP) 3
Ex-post explicit adjustments 4
2011
2012
Ex-post implicit adjustments
to unvested awards 5
2011
2012
31.12.12
31.12.11
31.12.12
(211)
(16)
(8)
(171)
(22)
(11)
(178)
0
52
31.12.11
(1,432)
(290)
(50)
1 Compensation (discretionary performance award and other variable compensation) relating to awards for previous performance years. Cash deferred plans (i.e. CBP Cash Balance Plan) are not included in this analy-
sis. 2 IPP, PEP, SEEOP, KESOP and KESAP are discontinued deferred compensation plans. 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 28 December 2012 (CHF 14.27) and on 30 December 2011 (CHF 11.18) for UBS shares and valued with the fair value at grant
for UBS options. For the notional funds awarded to Global Asset Management employees under the EOP, this represents the forfeiture credits recognized in 2012 and 2011. 5 Ex-post implicit adjustments for UBS shares
are calculated based on the difference between the weighted average grant date fair value and the share price at year end. For UBS options they are calculated based on the difference between the fair value at grant
and the aggregated intrinsic value at year end. The value of notional funds is calculated using the mark-to-market change during 2012 and 2011.
made in prior years. As illustrated in the chart, the performance
award pool declined by CHF 201 million or 7% in 2012, while the
2012 performance award expense under the IFRS accounting
rules declined by CHF 516 million or 15%.
At the end of 2012, the amount of unrecognized awards to be
amortized in subsequent years was CHF 1.7 billion, compared
with CHF 2.2 billion at the end of 2011. The “Amortization of
deferred compensation” chart shows that this reduction is due to
the reduction in unamortized awards and lower new awards
granted for 2012 as well as lower unamortized balances from
previous years carried forward.
The table above shows the value of actual ex-post explicit and
implicit adjustments to outstanding deferred compensation in the
2012 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 taken 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 shares in 2012, based on the approximately 15 million
shares forfeited during 2012, is negative CHF 211 million. The
total value of ex-post explicit adjustments made to UBS options
and share-settled stock appreciation rights (SARs) in 2012, based
on the approximately 2 million options / SARs forfeited during
2012, is negative CHF 16 million. (The size of implicit 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).
Total personnel expenses for 2012
The table on the following page shows our total personnel ex-
penses in 2012 for our 62,628 employees and includes salaries,
pension and other personnel costs, social security contributions
and variable compensation. Variable compensation includes discre-
tionary cash performance awards to be paid in 2013 for the 2012
performance year, the amortization of unvested deferred awards
granted in previous years and the cost of deferred awards granted
to employees who are eligible for retirement at the date of grant.
The performance award pool reflects the value of discretionary
performance awards granted relating to the 2012 performance
year, including awards that are paid out immediately and those
that are deferred. To determine our variable compensation ex-
pense, the following adjustments are required in order to recon-
cile the performance award pool to the accounting costs recog-
nized in the Group’s financial statements prepared under IFRS:
– reduction for the unrecognized future amortization of unvest-
ed deferred awards granted in 2013 for the performance year
2012; 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 2011 and 2012 account-
ing costs.
➔ Refer to “Note 31 Equity participation and other compensation
plans” in the “Financial information” section of this report for
more information
298
Advisory vote Personnel expenses
d
e
t
i
d
u
A
CHF million
Salaries
Cash performance awards
Deferred Contingent Capital Plan
Deferred cash plans
UBS share plans
UBS share option plans
Equity Ownership Plan – notional funds
Total variable compensation – performance award 1, 2
of which guarantees for new hire 2
Variable compensation – other 1, 2
of which replacement payments 3
of which forfeiture credits
of which severance payments 2, 4
of which retention plan and other payments 2
Contractors
Social security
Pension and other post-employment benefit plans 5
Wealth Management Americas: financial advisor
compensation 1, 6
Other personnel expenses
Total personnel expenses 7
Relating to awards
for 2012
Relating to awards for
prior years
Total 2012
Expenses
6,814
1,411
145
5
135
0
28
1,724
15
424
15
0
303
107
214
729
18
2,087
659
12,670
0
(38)
0
149
1,067
14
84
1,276
119
(57)
94
(174)
0
21
0
39
0
786
23
2,067
6,814
1,373
145
154
1,202
14
112
3,000
134
367
109
(174)
303
128
214
768
18
2,873
682
14,737
2011
6,859
1,466
0
343
1,490
100
118
3,516
173
191
121
(215)
239
46
217
743
831
2,518
758
15,634
2010
7,033
2,173
0
314
1,428
145
111
4,171
135
141
107
(167)
80
121
232
826
834
2,667
1,127
17,031
1 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial information” section of this report for more information. 2 In 2012, costs related to guarantees for new hires were reclassified
from “Total variable compensation – other” to “Total variable compensation – performance award”. In addition, costs related to both supplemental severance and certain retention payments were reclassified from “Total
variable compensation – performance award”to “Total variable compensation – other”. Prior periods were adjusted for these changes. The combined impact of these changes resulted in a net increase to “Total variable
compensation – performance award” of CHF 125 million and CHF 89 million for the year ended 31 December 2011 and for the year ended 31 December 2010, respectively, with a corresponding net decrease to “Total
variable compensation – other”. 3 Replacement payments are payments made to compensate employees for deferred awards forfeited as a result of joining UBS. This table includes the expenses recognized in the fi-
nancial year (mainly the amortization of the award). 4 Includes legally obligated and standard severance payments, as well as supplemental severance payments. 5 Refer to “Note 30 Pension and other post-employ-
ment benefit plans” of the “Financial information” section of this report for more information. 6 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues gener-
ated 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. 7 Includes restructuring charges of CHF 358 million for the year ended 31 December 2012 and CHF 261
million for the year ended 31 December 2011. Refer to “Note 37 Changes in organization” in the “Financial information” section of this report for more information.
299
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
2012 compensation for the Group Executive Board
and Board of Directors
How we set compensation levels for our
Group Executive Board (GEB)
The HRCC reviews the Group CEO’s recommendations for GEB
members’ compensation. It makes its final compensation recom-
mendations for individual GEB compensation based on an assess-
ment of these management recommendations together with an
independent assessment of overall performance of the individual
and their respective businesses. The HRCC’s recommendations are
then reviewed and approved by the BoD.
In setting total compensation levels for GEB members for 2012,
the HRCC and the BoD considered the following factors:
– the performance of each individual in the context of each busi-
ness division’s operating performance for 2012 on an absolute
and relative basis
– specific key performance indicators for each individual relevant
to their role, including risk-adjusted profitability, management of
risk-weighted assets, the strengthening of capital ratios, growth
in net new money, operating effectiveness and cost efficiency
– the impact each individual and, if applicable, his respective busi-
ness, has had on our clients globally
– the overall progress of the Group towards our medium and
longer-term strategic goals
– each individual’s contribution to safeguarding and enhancing
our reputation, effecting change, promoting delivery of the
integrated bank and building and retaining high-performing
teams
– the degree to which the individual anticipates and effectively
manages risk
– balancing employee interests with the need to ensure an ap-
propriate return to our shareholders
– our compensation structures and our overall market position-
ing from a competitiveness perspective
To ensure that overall GEB compensation is sufficiently tied to
the firm’s profitability, we have introduced a cap on the total GEB
performance award pool. The pool will not exceed 2.5% of the
firm’s adjusted pre-tax profit. As the Group adjusted pre-tax prof-
it for 2012 was CHF 3.0 billion, the GEB performance award pool
is capped at CHF 75 million for the 2012 performance year. The
actual award pool for 2012 (included in the overall pool) was CHF
52 million, representing 1.7% of the adjusted pre-tax profit. Fur-
thermore, 100% of a GEB member’s deferred compensation is
subject to performance conditions. Under the Equity Ownership
Plan (EOP), GEB awards will be fully forfeited if the Group and / or
relevant business division does not make an average adjusted pre-
tax profit during the performance period. Further, performance
below specific thresholds will also cause partial forfeiture. Awards
granted under the new Deferred Contingent Capital Plan (DCCP)
will be forfeited if our Basel III CET1 ratio falls below 7% or if a
viability event occurs. In addition, 20% of DCCP awards, includ-
ing the relevant notional interest, will be forfeited for each year in
which UBS does not achieve an adjusted pre-tax profit. Thus, GEB
members’ full DCCP awards are at additional risk of forfeiture.
For GEB members who were in office for both the full year
2011 and 2012, performance awards were down 10% and total
compensation was down 7% year on year.
While the firm’s compensation framework provides for up to
20% of the performance award to be paid immediately in cash, in
light of the firm’s overall results for the year, and based on a rec-
ommendation from the Group CEO, it was deemed appropriate
that performance awards for the firm’s most senior leaders be
fully deferred. Consequently, the cash component of the award
was delivered in the form of deferred equity under the EOP, and
makes up 60% of GEB performance awards for 2012. Therefore,
100% of the GEB’s 2012 performance award is deferred over
three to five years.
We have reserved judgment on the introduction of fixed caps
on the proportion of fixed to variable pay as important regulatory
debates have not been concluded.
Group Chief Executive Officer (Group CEO)
Sergio P. Ermotti joined UBS in April 2011, initially as Regional
CEO for EMEA. In November 2011, he was appointed Group
CEO with immediate effect. In determining his compensation for
2012, the HRCC and the BoD considered his performance objec-
tives to implement the firm’s strategy, namely driving financial
performance, strengthening capital ratios, managing costs and
improving the operational risk environment. The Group’s overall
financial loss for 2012 was disappointing, but was clearly im-
pacted by significant goodwill impairments related to our deci-
sion to accelerate the Group’s strategy, the LIBOR settlement and
own credit. Despite these developments, the Group made
significant progress under Mr. Ermotti’s leadership. He success-
fully led the firm in the implementation of its strategy, enabling
it to accelerate the implementation of the strategy as announced
in October 2012 (see 2012 performance summary for more de-
tails on the firm’s success in 2012). Mr. Ermotti has also navi-
gated the challenges the firm faced during the year, while still
achieving strong results in many business divisions. The firm con-
tinued to strengthen its industry-leading capital ratios and is on
300
Advisory vote track to achieve its capital targets. Risk-weighted assets on a
Basel III fully applied basis were reduced 32% compared to the
end of 2011. The firm’s wealth management businesses attract-
ed net new money inflows of approximately CHF 47 billion, an
increase of over CHF 11 billion and a sign of clients’ continued
trust in the firm. The firm also continues its efforts to reduce
costs and drive efficiencies and delivered underlying reductions
in the run rate of costs compared to mid-2011. UBS has also
strengthened its operational risk control framework, which al-
lows it to better manage and deploy risk to serve our clients.
These achievements, particularly in relation to capital, have al-
lowed the BoD to recommend a 50% increase in the Group’s
dividend for 2012 to CHF 0.15 per share. Overall, the progress
made by the firm during the year is reflected in the 28% in-
crease in its share price, up from CHF 11.18 at the end of 2011
to CHF 14.27 at the end of 2012.
For the performance year 2012, reflecting his achievements in
his first full year as Group CEO and at the firm, Mr. Ermotti was
granted a performance award of CHF 6.1 million, making his total
compensation for the year CHF 8.9 million. Consistent with other
GEB members, for the performance year 2012, 100% of his per-
formance award was deferred, with 40% under the DCCP and
60% under the EOP. (For 2011, in which Mr. Ermotti joined the
firm, the HRCC and BoD determined his overall compensation for
the eight months he was at the firm by deciding the appropriate
compensation for each of the two roles he performed during that
year. The table “Total compensation for GEB members” shows his
compensation for 2011.)
➔ Refer to the “2012 performance summary” section of this report
for more information
Highest paid GEB member
The highest paid GEB member in 2012, apart from the Group
CEO, was Robert J. McCann, with total compensation of CHF 8.6
million. As shown in the “Total compensation for GEB members”
table, 100% of his performance award for 2012 is deferred, with
40% under the DCCP and 60% under the EOP.
In 2012, Mr. McCann continued to drive the successful devel-
opment of. Wealth Management Americas. The business made
strong progress throughout 2012 and achieved a record pre-tax
profit for the year of USD 873 million, an increase of 40% on
2011. The improved performance resulted from a 9% increase
in revenues compared with 2011. Clients have recognized the
business’s achievements and continued to entrust it with their
assets, with full year net new money inflows of over USD 22 bil-
lion, the highest recorded since 2007. Low advisor attrition rates
illustrate the continued confidence that industry professionals
have in the business and the progress it is making, and its finan-
cial advisor force delivered record levels of productivity in 2012.
The business has also made strong progress in its lending initia-
tives. It performed well in relation to its cost / income ratio, gross
margin and annualized net new money growth rate perfor-
mance targets.
➔ Refer to the table “Total compensation for GEB members for the
performance years 2011 and 2012” for more information
Notes on replacement awards
During 2012, Andrea Orcel joined UBS after a 20-year career with
Bank of America / Merrill (BAC), and was appointed to the GEB on
1 July 2012 as co-head of the Investment Bank. On 1 November, he
became sole CEO of the division. In line with market practice, he
received awards as a replacement for deferred compensation and
benefits forfeited by his previous employer as a result of his joining
UBS. As a general principle, in making such replacement awards,
we aim to match the terms and conditions of the awards granted
by an employee’s previous employer which are forfeited upon the
employee joining UBS. Given his most recent roles at BAC, he was
subject to high effective deferral rates. Mr. Orcel’s replacement
award consisted of a deferred cash award in the amount of USD
6.364 million, and an award of 1,755,691 UBS shares (denomi-
nated in CHF) deferred under the EOP with a grant date total fair
market value of CHF 18.5 million. Both the deferred cash and de-
ferred share awards vest in installments in 2013, 2014 and 2015.
All these awards are subject to the firm’s harmful acts provisions.
Base salary
Base salaries are fixed for all GEB members and reviewed annu-
ally by the HRCC. GEB salaries were not changed from the level
set by the BoD in early 2011. Thus the annual level of salary for
GEB members, with the exception of the Group CEO, will remain
at CHF 1.5 million or the equivalent in the relevant local currency.
With respect to the Group CEO, the HRCC reviewed his base sal-
ary level upon his appointment and set it at an annual level of
CHF 2.5 million. Following a further review at the beginning of
2013, the HRCC determined that the level previously set remains
appropriate. Base salaries received over the year by GEB mem-
bers are fully taken into account when considering their total
compensation levels.
Benefits
There were no changes to the terms of GEB benefits.
➔ Refer to “Note 30 Pension and other post-employment benefit
plans” in the “Financial Information” section of this report
for details on the various post-employment benefit plans
established in Switzerland and other major markets
➔ Refer to the “Compensation funding and expenses” and
“Overview of our compensation model” sections for information
concerning the Human Resources and Compensation Committee’s
determination of the discretionary performance award for 2012,
and to the “Deferred variable compensation plans” section for
details of the compensation plans awarded to Group Executive
Board members
301
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Board of Directors compensation
Chairman of the Board of Directors
Our compensation framework provides for the Chairman of the
BoD, Axel A. Weber, who was elected at the AGM in May 2012,
to receive annually a base salary of CHF 2 million and 200,000
UBS shares, blocked for four years, as well as benefits in kind.
Such shares are not designed or intended as variable compensa-
tion. The number of shares that Mr. Weber received for 2012 was
pro-rated to take into account that he assumed the role of Chair-
man in May. At grant, the pro-rated number of shares he re-
ceived (133,333) was valued at CHF 2,003,995. Accordingly, his
total compensation, including benefits in kind and pension fund
contribution for his services as Chairman from May to December
2012, amounted to CHF 3,568,341.
The share component ensures that the Chairman of the BoD’s
pay is aligned with the longer-term performance of the firm. The
Chairman’s employment agreement does not provide for special
severance terms, including supplementary contributions to pen-
sion plans. Benefits for the Chairman of the BoD are in line with
local practices for other employees. Determining the Chairman’s
compensation is the responsibility of the HRCC, which conducts
an annual assessment and takes into consideration fee and/or
compensation levels for comparable roles outside of UBS.
Highest paid member of the BoD
As Chairman of the BoD, Mr. Weber is the highest paid BoD mem-
ber. As previously announced, the BoD approved a one-time pay-
ment to Mr. Weber upon his election to the BoD at the 2012
AGM. This payment, equivalent to one year’s total compensation,
consisted of CHF 2 million in cash and 200,000 UBS shares that
are blocked for one year. At grant, these shares were valued at
CHF 2,268,000.
Remuneration for the former Chairman of the BoD
Kaspar Villiger, former Chairman of the BoD, did not stand for
reelection at the AGM in May 2012, and retired from UBS at the
end of May 2012. As in previous years, Mr. Villiger chose to waive
a substantial part of his share award and decided to maintain the
voluntary reduction in his annual base salary, that is, to only ac-
cept CHF 850,000 of the CHF 2 million to which he was entitled.
On a pro-rated basis (from 1 January – 31 May), the base salary he
received for 2012 consisted of CHF 354,167 in cash, and a limited
number of 12,762 UBS shares with a fair value of CHF 200,000.
Independent BoD members
With the exception of the Chairman, all BoD members are
deemed to be independent directors and receive fixed base fees
for their services, with 50% of their fees in cash and the other
50% in blocked UBS shares that are restricted from sale for four
years. Alternatively, they may choose to have 100% of their re-
muneration paid in blocked UBS shares. In all cases, the number
of shares that independent directors are entitled to receive is cal-
culated using a discount of 15% below the prevailing market
price. In addition to the base fee, independent BoD members
receive fees known as committee retainers that reflect their
workload in serving on the firm’s various board committees. The
Senior Independent Director and the Vice Chairman of the BoD
each also receive an additional payment of CHF 250,000. In ac-
cordance with their role, independent BoD members do not re-
ceive performance awards, severance payments or benefits. Base
fees, committee retainers and any other payments 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 BoD.
The “Remuneration details and additional information for inde-
pendent BoD members” table shows the remuneration received
by independent BoD members between the 2012 and 2013
AGM. Fees for 2012 to 2013 remained unchanged. Remunera-
tion levels for BoD members, other than the Chairman, ranged
from CHF 525,000 to CHF 1,075,000. Total remuneration for
the independent BoD members for the period between the
2012 to 2013 AGM was CHF 7.6 million, up from CHF 7.0 mil-
lion for the prior period. This increase is due to the number of
BoD members, which increased from 11 to 12, and also due to
increasing the membership of the Audit Committee by two new
BoD members.
302
Advisory vote Compensation for former Board of Directors and
Group Executive Board members
List of tables
Total compensation for GEB members for the performance years 2011 and 2012
Share and option ownership / entitlements of GEB members on 31 December 2011 / 2012
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 2011 / 2012
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 2011 / 2012
Loans granted to GEB members on 31 December 2011 / 2012
Loans granted to BoD members on 31 December 2011 / 2012
Page
304
305
306
306
307
307
308
308
308
309
312
312
Generally, no compensation or benefits in kind were paid to for-
mer BoD and GEB members for 2012. The only exception was a
payment to compensate one former GEB member for benefits
agreed in his original employment agreement. The value of this
payment amounts to CHF 25,465.
Transactions in 2012
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 2012, no share sales were
disclosed.
In accordance with normal practice, two BoD members chose
to receive 100% of their fees in UBS shares. These shares, repre-
senting a value of CHF 625,000, will be allocated in March 2013.
Loans
BoD and GEB members may be granted loans, fixed advances and
mortgages. Such loans are made in the ordinary course of business
on substantially the same terms as those granted to other employ-
ees, including interest rates and collateral, and do not involve more
than the normal risk of collectability or contain other unfavorable
features.
➔ Refer to “Note 32 Related parties” in the “Financial information”
section of this report for information concerning loans granted
to current and former key management personnel
303
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
d
e
t
i
d
u
A
Total compensation for GEB members for the performance years 2011 and 2012
CHF, except where indicated a
Name, function
For the year
Base salary
Sergio P. Ermotti, Group CEO 2012
Sergio P. Ermotti, Group CEO 2 2011
Oswald J. Grübel,
former Group CEO 3
Robert J. McCann,
CEO Wealth Management
Americas (highest-paid
after Group CEO)
2011
2012
Immediate
cash
(for 2011
under CBP) b
0
553,200
2,500,000
1,394,445
2,191,667
0
Annual
performance
award
under
EOP c
3,660,000
Annual
performance
award
under
DCCP d
2,440,000
Annual
performance
award
under
PEP e
–
Annual
performance
award
under
SEEOP f
–
Deferred
cash under
CBP 1, b
–
Contribu-
tions to
retirement
benefit
plans h
201,088
Benefits
in kind g
69,500
Total
8,870,588
–
–
–
–
1,290,800
922,000
1,844,000
195,450
150,816
6,350,711
0
–
0
–
0
–
35,971
0
2,227,638
45,004
6,110
8,555,366
1,373,130
0
4,278,673
2,852,449
Robert J. McCann,
CEO Wealth Management
Americas (highest-paid)
Aggregate of all GEB
members who were in office
at the end of the year 4
Aggregate of all GEB
members who stepped
down during the year 5
2011
2012
2011
2012
2011
1,321,538
1,869,233
–
–
1,246,155
1,557,694
3,115,388
67,053
6,264
9,183,325
16,273,460
0
31,355,592
20,903,728
–
–
–
640,683
1,233,719
70,407,181
15,962,737
11,929,365
1,593,288
4,155,602
0
509,201
–
0
–
–
0
–
8,874,910
10,402,137
20,804,274
1,165,601
995,290
70,134,314
–
1,166,759
–
0
–
962,768
105,865
171,954
14,799
80,499
1,713,952
7,046,783
1 In 2011, for Sergio P. Ermotti, due to applicable UK FSA regulations, deferred cash includes blocked shares. 2 Sergio P. Ermotti was appointed on 1 April 2011 as GEB member and Regional CEO of Europe, Middle
East and Africa. He was appointed as the new Group CEO ad interim on 24 September 2011 and confirmed as Group CEO on 15 November 2011. 3 Oswald J. Grübel stepped down on 24 September 2011 as Group
CEO. 4 Number and distribution of GEB members: 11 GEB members were in office on 31 December 2012 and 12 GEB members were in office on 31 December 2011. 5 Number and distribution of former GEB mem-
bers: 2012: includes three months in office as a GEB member for Alexander Wilmot-Sitwell and 10 months in office as a GEB member for Carsten Kengeter. 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.
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. For performance year 2012, no immediate cash was paid. For performance year 2011, 40% of the 2011 performance award was granted in the form of
Cash Balance Plan awards, of which 60% is paid out immediately (representing 24% of a GEB member’s performance award). The balance is paid out
in equal installments of 20%, each over the subsequent two years, and is subject to performance adjustments.
c. For EOP awards for the performance year 2012, the number of shares allocated at grant will be determined by dividing the amount communicated with
the average price of UBS shares over the 10 trading days prior to and including the grant date (15 March 2013), which for notional shares is adjusted
for the estimated value of dividends paid on UBS shares over the vesting period. As the grant date occurs after publication, no share price is yet available
at the time of publication.
d. DCCP awards vest in full after year 5 of the five-year vesting period. The amount reflects the amount of the notional bond excluding future notional inter-
est. The notional interest rate is set at 6.25% for awards denominated in USD and 5.40% for awards denominated in CHF.
e. For PEP awards for the performance year 2011, the number of performance shares allocated at grant has been determined by dividing the amount com-
municated with CHF 12.52 or USD 13.75 (based on the average price of UBS shares over the last 10 trading days of February 2012 adjusted for the esti-
mated value of dividends paid on UBS shares over the vesting period).
For SEEOP awards for the performance year 2011, the number of shares allocated at grant has been determined by dividing the amount communicated
with CHF 12.92 or USD 14.19 (for actual shares) and with CHF 12.52 or USD 13.75 (notional shares), based on the average closing price of UBS shares
over the last 10 trading days of February 2012, which for notional shares is adjusted for the estimated value of dividends paid on UBS shares over the
vesting period.
f.
g. Benefits in kind are all valued at market price, for example, health and welfare benefits and general expense allowances.
h. 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 (CHF 842,400 as from 1 January 2013). The retirement benefits consist of a pension, a bridging pension and a one-off payout
of accumulated capital. Employees must also contribute to the plan. This figure excludes the mandatory employer’s social security contributions (AHV, ALV),
but includes the portion attributed to the employer’s portion of the legal BVG requirement. The employee contribution is included in the base salary and
annual incentive award components. In both the US and the UK, senior management participates in the same pension plans as all other employees. In the
US, there are separate pension plans for Wealth Management Americas compared with the other business divisions. There are generally two different types
of pension plans: 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 compensation limited to USD 250,000 (or USD 150,000 for Wealth Management Americas employees). The principal plans for new hires are defined
contribution plans. In the defined contribution plans, UBS makes contributions to the plan based on compensation and limited to USD 250,000 (USD
255,000 as from 1 January 2013). US management may also participate in a 401(k) defined contribution plan (open to all employees), which provides a
limited company matching contribution for employee contributions. In 2012, Wealth Management Americas employees with a compensation in excess of
USD 250,000 did not receive a company match. Effective 1 January 2013, the match was reinstated for these employees. In the UK, management partici-
pates in either the principal pension plan, which operates on a defined contribution basis and is limited to an earnings cap of GBP 100,000, or a grandfa-
thered defined benefit plan which provides a pension upon retirement based on career average base salary (individual caps introduced as of 1 July 2010).
304
Advisory vote d
e
t
i
d
u
A
Share and option ownership / entitlements of GEB members on 31 December 2011 / 2012 1
Name, function
For the year
Sergio P. Ermotti, Group Chief Executive Officer
Markus U. Diethelm, Group General Counsel
John A. Fraser, Chairman and CEO Global Asset Management
Lukas Gähwiler, CEO UBS Switzerland and
CEO Retail & Corporate
Carsten Kengeter, former co-CEO Investment Bank 5
Ulrich Körner, Group Chief Operating Officer,
CEO Corporate Center and CEO Group EMEA
Philip J. Lofts, Group Chief Risk Officer
Robert J. McCann, CEO Group Americas and
CEO Wealth Management Americas
Tom Naratil, Group Chief Financial Officer
Andrea Orcel, CEO Investment Bank
Alexander Wilmot-Sitwell, former co-Chairman and
co-CEO Group Asia Pacific 5
Chi-Won Yoon, CEO Group Asia Pacific
Jürg Zeltner, CEO UBS Wealth Management
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2012
2011
2012
2011
2012
2011
Number of
unvested
shares / at risk 2
220,928
Number of
vested shares
Total number
of shares
41,960
262,888
0
506,132
358,042
617,529
460,707
412,199
252,293
–
971,575
605,284
389,090
542,402
377,614
658,470
330,047
340,757
221,238
1,755,691
–
–
495,553
478,986
306,515
522,500
306,487
0
126,098
91,506
315,270
280,414
95,537
37,517
–
556,016
121,837
95,597
169,789
150,772
18,112
0
233,603
193,836
0
–
–
220,955
370,760
350,311
38,329
11,756
0
632,230
449,548
932,799
741,121
507,736
289,810
–
1,527,591
727,121
484,687
712,191
528,386
676,582
330,047
574,360
415,074
1,755,691
–
–
716,508
849,746
656,826
560,829
318,243
Potentially
conferred voting
rights in %
0.013
0.000
0.030
0.021
0.045
0.034
0.024
0.013
–
0.070
0.035
0.022
0.034
0.024
0.032
0.015
0.027
0.019
0.084
–
–
0.033
0.041
0.030
0.027
0.015
Number of
options 3
0
Potentially
conferred voting
rights in % 4
0.000
0
0
0
884,531
1,088,795
0
0
–
905,000
0
0
536,173
577,723
0
0
935,291
1,046,122
0
–
–
353,807
578,338
623,253
203,093
205,470
0.000
0.000
0.000
0.042
0.050
0.000
0.000
–
0.041
0.000
0.000
0.026
0.026
0.000
0.000
0.045
0.048
0.000
–
–
0.016
0.028
0.029
0.010
0.009
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 the “Deferred variable compensation plans” section in this report for more information on the plans. 3 Refer to “Note 31 Equity
participation and other compensation plans” in the “Financial information” section of this report for more information. 4 No conversion rights are outstanding. 5 GEB members who stepped down during 2012.
305
Corporate governance, responsibility and compensationAdvisory vote d
e
t
i
d
u
A
d
e
t
i
d
u
A
Corporate governance, responsibility and compensation
Compensation
Compensation details and additional information for non-independent BoD members
CHF, except where indicated a
Name, function 1
Axel A. Weber, Chairman
Kaspar Villiger, former Chairman
For the year
2012
2011
2012
2011
Base salary
1,322,581
–
354,167
850,000
Annual
performance
award (cash)
–
–
–
0
Annual
share award
2,003,9952
–
200,000 2
500,000 2
Benefits in kind g
69,867
–
54,926
144,568
Contributions
to retirement
benefit plans h
171,898
–
–
0
Total
3,568,341
–
609,093
1,494,568
1 Axel A. Weber was the only non-independent member in office on 31 December 2012; Kaspar Villiger did not stand for reelection at the AGM on 3 May 2012. Kaspar Villiger was the only non-independent member in
office on 31 December 2011. 2 These shares are blocked for four years.
Remuneration details and additional information for independent BoD members
CHF, except where indicated a
e
e
t
t
i
m
m
o
C
t
i
d
u
A
M
M
M
M
M
C
C
M
M
&
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
M
M
M
C
C
M
M
M
M
2012/2013 325,000
2011/2012 325,000
C 2012/2013 325,000
C 2011/2012 325,000
M 2012/2013 325,000
M 2011/2012 325,000
2012/2013
–
2011/2012 325,000
2012/2013 325,000
2011/2012 325,000
M 2012/2013 325,000
M 2011/2012 325,000
2012/2013 325,000
2011/2012 325,000
M 2012/2013 325,000
M 2011/2012 325,000
2012/2013 325,000
2011/2012 325,000
2012/2013 325,000
2011/2012
–
300,000
300,000
500,000
500,000
300,000
400,000
–
200,000
500,000
550,000
300,000
250,000
200,000
200,000
300,000
300,000
350,000
300,000
300,000
–
2012/2013 325,000
250,000
2011/2012
–
M 2012/2013 325,000
M 2011/2012 325,000
–
250,000
250,000
M
C
C
M
M
M
M
Name, function 1
Michel Demaré,
Vice Chairman
David Sidwell,
Senior Independent Director
Rainer-Marc Frey,
member
Bruno Gehrig,
former member
Ann F. Godbehere,
member
Axel P. Lehmann,
member
Wolfgang Mayrhuber,
member
Helmut Panke,
member
William G. Parrett,
member
Isabelle Romy,
member
Beatrice Weder di Mauro,
member
Joseph Yam,
member
Total 2012
Total 2011
Total
875,000
Additional
payments
250,000 5
250,000 5
875,000
250,000 5 1,075,000
250,000 5 1,075,000
625,000
725,000
–
525,000
825,000
875,000
625,000
575,000
525,000
525,000
625,000
625,000
675,000
625,000
625,000
–
575,000
–
575,000
575,000
7,625,000
7,000,000
Share
percentage 2
50
Number of
shares 3, 4
34,233
50
50
50
100
100
50
50
50
100
100
50
50
50
50
50
50
50
50
50
50
39,845
42,057
48,952
46,367
62,635
23,907
32,276
39,845
46,367
49,632
20,539
23,907
24,452
28,460
26,408
28,460
24,452
22,496
22,496
26,183
Legend: C = Chairperson of the respective Committee; M = Member of the respective Committee
1 There were 11 independent BoD members in office on 31 December 2012. Isabelle Romy and Beatrice Weder di Mauro were appointed at the AGM on 3 May 2012 and Bruno Gehrig did not stand for reelection at the
AGM on 3 May 2012. 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. 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 2012, shares valued at CHF 15.03 (average
price of UBS shares at SIX Swiss Exchange over the last 10 trading days of February 2013), and were granted with a price discount of 15% for a new value of CHF 12.78. These shares are blocked for four years. 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), and were granted with a price discount of 15% for a new value of CHF 10.98. 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 subject to social security contributions / withholding
tax. 5 This payment is associated with the Vice Chairman or the Senior Independent Director function, respectively.
306
Advisory vote
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Total payments to BoD members
CHF, except where indicated a
Aggregate of all BoD members
Number of shares of BoD members on 31 December 2011 / 2012 1
Name, function
Axel A. Weber, Chairman 2
Kaspar Villiger, former Chairman 3
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Rainer-Marc Frey, member
Bruno Gehrig, former member 3
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member
Isabelle Romy, member 2
Beatrice Weder di Mauro, member 2
Joseph Yam, member
For the year
2012
2011
Total
11,802,434
8,494,568
For the year
Number of shares held
Voting rights in %
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
200,000
0.010
–
–
49,440
116,179
76,334
149,199
100,247
162,677
100,042
–
54,409
81,286
41,441
139,603
89,971
38,957
15,050
137,792
109,332
91,078
62,618
0
–
0
–
26,183
0
0.002
0.006
0.003
0.007
0.005
0.008
0.005
0.002
0.004
0.002
0.007
0.004
0.002
0.001
0.007
0.005
0.004
0.003
0.000
0.000
0.001
0.000
1 This table includes blocked and unblocked shares held by BoD members, including related parties. No options were granted in 2011 and 2012. 2 Axel A. Weber, Isabelle Romy and Beatrice Weder di Mauro were ap-
pointed at the AGM on 3 May 2012. 3 Kaspar Villiger and Bruno Gehrig did not stand for reelection at the AGM on 3 May 2012.
307
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
d
e
t
i
d
u
A
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Compensation paid to former BoD and GEB members1
CHF, except where indicated a
Name, function
Former BoD members
Aggregate of all former GEB members 2
Aggregate of all former BoD and GEB members
For the year
Compensation
Benefits in kind
2012
2011
2012
2011
2012
2011
0
0
0
0
0
0
0
0
25,465
0
25,465
0
Total
0
0
25,465
0
25,465
0
1 Compensation or remuneration that is connected with the former member’s activity on the BoD or GEB or that is not at market conditions. 2 Includes one former GEB member in 2012 and no former GEB member in
2011.
Total of all vested and unvested shares of GEB members 1, 2
Total
Of which
vested
Of which vesting
2013
2014
2015
Shares on 31 December 2012
3,414,568
1,531,295
952,668
583,281
347,324
Shares on 31 December 2011
2,863,887
1,988,680
408,037
290,631
1 Includes related parties. 2 Excludes shares granted under variable compensation plans with forfeiture provisions.
2012
2013
2014
88,269
2016
0
2015
88,269
2017
0
2016
0
Total of all blocked and unblocked shares of BoD members 1
Shares on 31 December 2012
1,142,954
56,624
302,118
204,792
231,501
347,919
Shares on 31 December 2011
1 Includes related parties.
698,884
72,775
2012
9,349
2013
2014
2015
115,690
225,995
275,075
Total
Of which
unblocked
Of which blocked until
2013
2014
2015
2016
308
Advisory vote Vested and unvested options of GEB members on 31 December 2011 / 2012 1
d
e
t
i
d
u
A
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
Philip J. Lofts, Group Chief Risk Officer (continued)
2012
2011
0
0
Markus U. Diethelm, Group General Counsel
2012
2011
0
0
John A. Fraser, Chairman and CEO Global Asset Management
2012
884,531
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
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
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 CEO Retail & Corporate
2012
2011
0
0
2011
577,723
117,090
2005
01.03.2008
28.02.2015
CHF 52.32
117,227
2006
01.03.2009
28.02.2016
CHF 72.57
85,256
2007
01.03.2010
28.02.2017
CHF 73.67
74 599
2008
01.03.2011
28.02.2018
CHF 35.66
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
2007
01.03.2010
28.02.2017
CHF 73.67
2008
01.03.2011
28.02.2018
CHF 35.66
Carsten Kengeter, former co-CEO Investment Bank 4
2012
–
2011
905,000
905,000
2009
01.03.2012
27.12.2019
CHF 40.00
Robert J. McCann, CEO Group Americas and
CEO Wealth Management Americas
2012
2011
0
0
Tom Naratil, Group Chief Financial Officer
2012
935,291
63,942
2003
31.01.2006
31.01.2013
USD 22.53
Ulrich Körner, Group Chief Operating Officer,
CEO Corporate Center and CEO Group EMEA
2012
2011
0
0
Philip J. Lofts, Group Chief Risk Officer
2012
536,173
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
2011
1,046,122
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
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
35,524
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
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial information”
section of this report for more information. 4 GEB member who stepped down during 2012.
309
Corporate governance, responsibility and compensationAdvisory vote Corporate governance, responsibility and compensation
Compensation
Vested and unvested options of GEB members on 31 December 2011 / 2012 1 (continued)
d
e
t
i
d
u
A
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
Tom Naratil, Group Chief Financial Officer (continued)
Chi-Won Yoon, CEO Group Asia Pacific (continued)
145,962
2004
01.03.2007
27.02.2014
USD 38.13
2011
623,253
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
Andrea Orcel, CEO Investment Bank
2012
2011
0
–
Alexander Wilmot-Sitwell, former co-Chairman and co-CEO Group Asia Pacific 4
2012
–
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
85,256
2008
01.03.2011
28.02.2018
CHF 35.66
Chi-Won Yoon, CEO Group Asia Pacific
2012
578,338
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
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
Jürg Zeltner, CEO UBS Wealth Management
2004
27.02.2006
27.02.2014
CHF 44.32
2012
203,093
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
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
31.01.2002
31.01.2012
USD 21.24
2002
31.01.2004
31.01.2012
USD 21.24
2002
31.01.2005
31.01.2012
USD 21.24
2002
28.02.2002
28.02.2012
USD 21.70
2002
29.02.2004
28.02.2012
USD 21.70
2002
28.02.2005
28.02.2012
USD 21.70
2003
01.03.2004
31.01.2013
USD 20.49
2003
01.03.2005
31.01.2013
USD 20.49
2003
01.03.2006
31.01.2013
USD 20.49
2003
28.02.2005
28.02.2013
USD 19.53
2003
01.03.2004
28.02.2013
USD 19.53
2003
01.03.2005
28.02.2013
USD 19.53
2003
01.03.2006
28.02.2013
USD 19.53
2004
01.03.2005
27.02.2014
CHF 44.32
2004
27.02.2006
27.02.2014
CHF 44.32
2004
01.03.2006
27.02.2014
CHF 44.32
2004
01.03.2007
27.02.2014
CHF 44.32
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
4,972
7,106
7,103
7,103
93
161
149
127
7,106
7,103
7,103
110
242
230
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
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial information”
section of this report for more information. 4 GEB member who stepped down during 2012.
310
Advisory vote Vested and unvested options of GEB members on 31 December 2011 / 2012 1 (continued)
d
e
t
i
d
u
A
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
Jürg Zeltner, CEO UBS Wealth Management (continued)
Jürg Zeltner, CEO UBS Wealth Management (continued)
2011
205,470
221
2006
08.12.2008
08.12.2016
CHF 67.63
7,105
7,105
7,103
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
2008
01.03.2011
28.02.2018
CHF 35.66
90,000
2009
01.03.2012
27.02.2019
CHF 11.35
809
784
784
4,972
7,106
7,103
7,103
93
161
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
149
127
7,106
7,103
7,103
110
242
230
221
7,105
7,105
7,103
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 31 Equity participation and other compensation plans” in the “Financial information”
section of this report for more information.
311
Corporate governance, responsibility and compensationAdvisory vote d
e
t
i
d
u
A
d
e
t
i
d
u
A
Corporate governance, responsibility and compensation
Compensation
Loans granted to GEB members on 31 December 2011 / 2012 1
CHF, except where indicated
Name, function
Markus U. Diethelm, Group General Counsel 3
Jürg Zeltner, CEO UBS Wealth Management 3
Aggregate of all GEB members
For the year
2012
2011
2012
2011
Loans 2
5,564,012
5,387,500
18,862,820
17,539,601 4
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 311,308 in 2012 and CHF 45,435 in 2011.
3 GEB member with the highest loan granted. 4 Includes a forgivable loan of CHF 3.3 million, subject to the GEB member’s continued full-time employment with UBS and a performance satisfactory and commensurate
with his responsibilities. The loan was fully repaid in 2012, as the GEB member stepped down during the year.
Loans granted to BoD members on 31 December 2011 / 2012 1
CHF, except where indicated a
Name, function
Axel A. Weber, Chairman 3
Kaspar Villiger, former Chairman 4
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Rainer-Marc Frey, member
Bruno Gehrig, former member 4, 5
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member
Isabelle Romy, member 3
Beatrice Weder di Mauro, member 3
Joseph Yam, member
Aggregate of all BoD members
For the year
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
Loans 2
0
–
–
0
500,000
850,000
0
0
0
0
–
798,000
0
0
0
0
0
0
0
0
0
0
0
–
0
–
0
0
500,000
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 Axel A. Weber, Isabelle Romy and Beatrice Weder di Mauro
were appointed at the AGM on 3 May 2012. 4 Kaspar Villiger and Bruno Gehrig did not stand for reelection at the AGM on 3 May 2012. 5 Secured loan granted prior to his election to the BoD.
312
Advisory vote Financial information Financial information
314
Table of contents316Introduction and accounting principles317Consolidated financial statements317Management’s report on internal control over financial reporting319Report of independent registered public accounting firm on internal control over financial reporting321Report of the statutory auditor and the independent registered public accounting firm on the consolidated financial statements323Income statement324Statement of comprehensive income325Balance sheet326Statement of changes in equity329Statement of cash flows331Notes to the consolidated financial statements3311 Summary of significant accounting policies3522a Segment reporting3562b Segment reporting by geographic location357Income statement notes3573 Net interest and trading income3584 Net fee and commission income3595 Other income3606 Personnel expenses3607 General and administrative expenses3618 Earnings per share (EPS) and shares outstanding362Balance sheet notes: assets 3629 Due from banks and loans (held at amortized cost)36210 Cash collateral on securities borrowed and lent, reverse repurchase and repurchase agreements, and derivative instruments36311 Allowances and provisions for credit losses36412 Trading portfolio36613 Financial assets designated at fair value36714 Financial investments available-for-sale36815 Investments in associates36816 Property and equipment36917 Goodwill and intangible assets37118 Other assets372Balance sheet notes: liabilities37219 Due to banks and customers37220 Financial liabilities designated at fair value37321 Debt issued held at amortized cost37422 Other liabilities37523 Provisions and contingent liabilities385Additional information38524 Income taxes38725 Derivative instruments and hedge accounting39526 Operating lease commitments39627 Fair value of financial instruments40728 Pledged and transferred assets41129 Measurement categories of financial assets and financial liabilities41630 Pension and other post-employment benefit plans42831 Equity participation and other compensation plans43832 Related parties44033 Events after the reporting period44134 Significant subsidiaries and associates44335 Invested assets and net new money44436 Business combinations44437 Changes in organization44538 Currency translation rates44539 Swiss banking law requirements44740 Supplemental guarantor information required under SEC rules
315
Financial information457UBS AG (Parent Bank)457Parent Bank review460Parent Bank financial statements460Income statement461Balance sheet462Statement of appropriation of retained earnings463Notes to the Parent Bank financial statements4631 Business activities, risk assessment, outsourcing and personnel4632 Accounting policies466Additional income statement information4663 Net trading income4664 Extraordinary income and expenses467Additional balance sheet information 4675 Other assets and other liabilities4676 Pledged assets4687 Swiss pension plan and International defined benefit plans4698 Allowances and provisions4709 Statement of shareholders’ equity47010 Share capital and significant shareholders47111 Transactions with related parties472Off-balance sheet and other information47212 Commitments and contingent liabilities47213 Derivative instruments47314 Fiduciary transactions474Compensation of the members of the Board of Directors and the Group Executive Board474Total compensation for GEB members for the performance years 2011 and 2012475Share and option ownership / entitlements of GEB members on 31 December 2011 / 2012476Compensation details and additional information for non-independent BoD members 476Remuneration details and additional information for independent BoD members477Total payments to BoD members477Number of shares of BoD members on 31 December 2011 / 2012478Compensation paid to former BoD and GEB members478Total of all vested and unvested shares of GEB members478Total of all blocked and unblocked shares of BoD members479Vested and unvested options of GEB members on 31 December 2011 / 2012482Loans granted to GEB members on 31 December 2011 / 2012482Loans granted to BoD members on 31 December 2011 / 2012483Report of the statutory auditor on the financial statements485Confirmation of the auditors concerning conditional capital increase487Additional disclosure required under SEC regulations487A – Introduction488B – Selected financial data489Key figures490Income statement data491Balance sheet data491Ratio of earnings to fixed charges492C – Information on the company492Property, plant and equipment493D – Information required by industry guide 3493Selected statistical information494Average balances and interest rates496Analysis of changes in interest income and expense498Deposits499Short-term borrowings499Contractual maturities of investments in debt instruments available-for-sale500Due from banks and loans (gross)501Due from banks and loan maturities (gross)502Impaired and non-performing loans503Cross-border outstandings504Summary of movements in allowances and provisions for credit losses505Allocation of the allowances and provisions for credit losses506Due from banks and loans by industry sector (gross)507Loss history statistics Financial information
316
Introduction and accounting principlesThe financial information section of UBS’s Annual Report 2012 comprises: a) the audited consolidated financial statements of UBS Group for 2012 prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), b) the audited financial state-ments of UBS AG (Parent Bank) for 2012, prepared in order to meet Swiss regulatory requirements and in compliance with Swiss Federal Banking Law, and c) additional disclosures required under US Securities and Exchange Commission (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 (Parent Bank) is incorporated in Switzerland, has branches worldwide and owns all the UBS Group companies, directly or indirectly. All references to 2012, 2011 and 2010 refer to the fiscal years ended 31 Decem-ber 2012, 2011 and 2010, respectively. The financial statements for the UBS Group and the Parent Bank have been audited by Ernst & Young Ltd.
Consolidated financial statements
Management’s report on internal control
over financial reporting
Management’s responsibility for internal control
over financial reporting
The Board of Directors reviews and approves the consolidated fi-
nancial statements prepared by management in accordance with
International Financial Reporting Standards (IFRS). The Board of
Directors and management of UBS are also responsible for estab-
lishing and maintaining adequate internal control over financial
reporting. UBS’s internal control over financial reporting is de-
signed to provide reasonable assurance regarding the preparation
and fair presentation of published financial statements in accor-
dance with IFRS as issued by the International Accounting Stan-
dards Board.
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
registrant’s financial statements will not be prevented or detected
on a timely basis.
Management’s assessment of internal control
over financial reporting at 31 December 2012
Following the discovery in September 2011 of unauthorized and
fictitious trading in our Global Synthetic Equity business unit in
London, management determined and reported that there was a
material weakness in UBS’s internal control over financial reporting
as certain controls designed to prevent or detect the use of unau-
thorized and fictitious transactions on a timely basis were not op-
erating effectively, and had not been operating effectively as of
31 December 2010. Specifically (i) the control requiring bilateral
confirmation with counterparties 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, rebooked 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 pro-
cess within the Investment Bank’s equities and fixed income, cur-
rencies and commodities businesses to ensure that internal trans-
actions 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 effectively. In its assessment of internal control over
financial reporting as of 31 December 2011, contained in the An-
nual Report 2011, management concluded that, while significant
progress had been made, given the relatively brief period since the
unauthorized trading incident was discovered, a longer period of
operational testing and further refinement would be necessary be-
fore it could conclude that the confirmation and reconciliation con-
trols referred to above were operating effectively. Based on this
assessment, management assessed UBS’s internal control over fi-
nancial reporting as ineffective as of 31 December 2011.
Remediation of identified control deficiencies
As soon as the control deficiencies referred to above were identi-
fied, work was initiated to remediate them. The confirmation con-
trol and the monitoring control over the validity of changes to
trades have been reactivated and refined, and front-to-back con-
trol processes have been extensively modified with a view to en-
suring, among other things, that the transactions identified by the
inter-desk reconciliation process referred to above are effectively
reviewed, investigated and resolved on a timely basis. New moni-
toring reports and processes have also been developed as part of
a broader program initiated to strengthen the effectiveness of su-
pervisory oversight. The confirmation control and the monitoring
317
Financial information Financial information
Consolidated financial statements
control over the validity of changes to trades were placed into
operation in the fourth quarter of 2011, and their operational ef-
fectiveness was tested in the succeeding months. As a result of
these measures, management concluded that the confirmation
and reconciliation controls referred to above had been fully reme-
diated. This conclusion was communicated in the Group’s first
quarter 2012 report issued on 2 May 2012, together with man-
agement’s conclusion that the material weakness previously iden-
tified in UBS’s internal control over financial reporting had been
remediated.
UBS management has assessed the effectiveness of UBS’s in-
ternal control over financial reporting as of 31 December 2012
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 believes that, as of 31 December 2012, UBS’s internal
control over financial reporting was effective.
The effectiveness of UBS’s internal control over financial
reporting as of 31 December 2012 has been audited by Ernst &
Young Ltd, UBS’s independent registered public accounting firm,
as stated in their report appearing on pages 319 to 320, which
expressed an unqualified opinion on the effectiveness of
UBS’s internal control over financial reporting as of 31 December
2012.
318
319
Financial information Financial information
Consolidated financial statements
320
321
Financial information Financial information
Consolidated financial statements
322
Income statement
CHF million, except per share data
Note
31.12.12
31.12.11
31.12.10
31.12.11
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 and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) from continuing operations before tax
Tax expense / (benefit)
Net profit / (loss) from continuing operations
Discontinued operations
Profit from discontinued operations before tax
Tax expense
Net profit from discontinued operations
Net profit / (loss)
Net profit attributable to non-controlling interests
from continuing operations
from discontinued operations
Net profit / (loss) attributable to UBS shareholders
from continuing operations
from discontinued operations
Earnings per share (CHF)
Basic earnings per share
Diluted earnings per share
3
3
3
11
4
3
5
6
7
16
17
17
24
24
8
8
15,968
(9,974)
5,994
(118)
5,875
15,405
3,480
682
25,443
14,737
8,653
689
3,030
106
27,216
(1,774)
461
(2,235)
0
0
0
(2,235)
276
276
0
(2,511)
(2,511)
0
(0.67)
(0.67)
17,969
(11,143)
6,826
(84)
6,742
15,236
4,343
1,467
27,788
15,634
5,959
761
0
127
22,482
5,307
901
4,406
0
0
0
4,406
268
268
0
4,138
4,138
0
1.10
1.08
18,872
(12,657)
6,215
(66)
6,149
17,160
7,471
1,214
31,994
17,031
6,585
918
0
117
24,650
7,345
(409)
7,754
2
0
2
7,756
304
303
1
7,452
7,451
1
1.97
1.94
(11)
(10)
(12)
40
(13)
1
(20)
(54)
(8)
(6)
45
(9)
(17)
21
(49)
3
3
323
Financial information Financial information
Consolidated financial statements
Statement of comprehensive income 1
CHF million
Net profit / (loss)
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 2
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 2
Cash flow hedges
Effective portion of changes in fair value of derivative instruments designated
as cash flow hedges, before tax
Net realized (gains) / losses reclassified to the income statement from equity
Income tax effects relating to cash flow hedges
Subtotal changes in fair value of derivative instruments designated
as cash flow hedges, net of tax 2
Defined benefit plans
Gains / (losses) on defined benefit plans, before tax
Income tax relating to gains / losses on defined benefit plans
Subtotal changes in gains / (losses) on defined benefit plans, net of tax 2
Property revaluation surplus
Gains on property revaluation, before tax
Income tax relating to gains on property revaluation
Subtotal changes in property revaluation surplus, net of tax 2
Total other comprehensive income
Total comprehensive income
Total comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to UBS shareholders
31.12.12
UBS
Total
shareholders
For the year ended
Non-controlling
interests
31.12.11
31.12.10
(2,235)
(2,511)
276
4,406
7,756
(395)
(58)
(91)
(544)
323
85
(433)
19
20
14
(362)
(58)
(91)
(511)
323
85
(433)
19
20
14
1,714
(1,235)
(95)
1,714
(1,235)
(95)
384
384
1,023
(413)
609
8
(2)
6
502
(2,009)
1,023
(413)
609
8
(2)
6
469
(1,766)
243
(2,009)
(33)
(33)
0
0
0
0
(33)
243
985
8
20
1,014
1,458
39
(950)
24
(76)
495
3,093
(1,140)
(417)
1,537
(2,141)
321
(1,820)
1,226
5,632
560
5,071
(740)
237
88
(415)
(499)
72
(357)
153
13
(618)
927
(1,108)
38
(143)
124
(3)
120
(1,055)
6,701
609
6,092
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information with regard to the adoption of IAS 19R. 2 Other comprehensive income attributable to UBS share holders
related to foreign currency translations was positive CHF 722 million in 2011 and negative CHF 731 million in 2010. Other comprehensive income attributable to UBS shareholders related to financial investments
available-for-sale was positive CHF 495 million in 2011 and negative CHF 607 million in 2010. Other comprehensive income related to cash flow hedges, defined benefit plans and property revaluation surplus was
wholly attributable to UBS shareholders for all periods presented.
324
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 which may be sold or repledged
by counterparties
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
Provisions
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
31.12.12
31.12.11
31.12.10
31.12.11
% change from
66,383
21,230
37,372
130,941
160,861
44,698
418,029
30,413
9,106
279,901
66,383
6,093
858
6,004
6,461
8,143
11,055
1,259,232
23,024
9,203
37,639
34,154
395,070
71,148
92,878
371,892
6,881
104,656
2,536
59,902
9
10
10
12
28
25
10
13
9
14
15
16
17
24
18
19
10
10
12
25
10
20
19
21
23
22
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
9,627
9,165
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
10,262
19,506
1,416,962
1,314,813
30,201
8,136
102,429
39,480
473,400
67,114
88,982
342,409
6,850
140,617
1,626
62,784
41,490
6,651
74,796
54,975
393,762
58,924
100,756
332,301
7,738
130,271
1,704
62,674
1,208,983
1,364,027
1,266,042
384
33,898
(1,071)
(37)
21,231
(8,509)
45,895
4,353
50,249
383
34,614
(1,160)
(39)
23,742
(9,011)
48,530
4,406
52,935
383
34,393
(654)
(54)
19,604
(9,945)
43,728
5,043
48,770
1,259,232
1,416,962
1,314,813
63
(9)
(36)
(39)
(11)
12
(14)
(26)
(12)
5
25
(4)
8
6
(33)
(15)
21
(11)
(24)
13
(63)
(13)
(17)
6
4
9
0
(26)
56
(5)
(11)
0
(2)
(8)
(5)
(11)
(6)
(5)
(1)
(5)
(11)
325
Financial information Financial information
Consolidated financial statements
Statement of changes in equity
CHF million
Balance as of 1 January 2010 before the adoption of IAS 19R
Effect of adoption of IAS 19R 1
Balance as of 1 January 2010 after the adoption of IAS 19R
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on
own equity derivative activity 2
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense)/benefit recognized in share premium 2
Transaction costs related to share issuances, net of tax
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred securities
New consolidations and other increases / (decrease)
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 share gains / (losses) and net premium / (discount) on
own equity derivative activity 2
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense)/benefit recognized in share premium 2
Transaction costs related to share issuances, net of tax
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred securities
New consolidations and other increases / (decrease)
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance as of 31 December 2011
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on
own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense)/benefit recognized in share premium
Transaction costs related to share issuances, net of tax
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred securities
New consolidations and other increases / (decrease)
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance as of 31 December 2012
Share capital
356
Share premium
34,824
Treasury shares
(1,040)
Equity classified
as obligation to
purchase own shares
(2)
356
27
34,824
(1,040)
(2)
Retained earnings
11,910
242
12,152
Cumulative net income
of which
of which Financial
recognized directly
Foreign currency
investments
in equity, net of tax
translation
available-for-sale
of which Cash
flow hedges
of which
Total equity
Property revalua-
attributable to
Non-controlling
benefit plans
tion surplus
UBS shareholders
Total equity
(5,034)
(3,551)
(8,585)
(6,604)
166
(6,438)
364
364
1,206
1,206
of which
Defined
0
(3,716)
(3,716)
(1,574)
1,960
(654)
(2,455)
1,949
(237)
(27)
(104)
186
(113)
(136)
383
34,393
(83)
10
19
280
(5)
(52)
(54)
15
7,452
19,604
(1,360)
(9,945)
(731)
(7,169)
(607)
(243)
(143)
1,063
120
(3,596)
34,614
(1,160)
(39)
4,138
23,742
934
(9,011)
722
(6,447)
495
252
1,537
2,600
(1,820)
(5,415)
383
0
(1,398)4
1,486
(9)
4
126
(457)
(379) 5
(1)
2
384
33,898
(1,071)
(37)
(2,511)
21,231
502
(8,509)
(511)
(6,958)
14
267
384
2,983
609
(4,806)
0
0
0
0
6
6
41,013
(3,309)
37,704
27
(1,574)
1,960
(237)
(27)
(104)
186
(113)
(52)
(136)
0
0
0
0
6,092
43,728
(2,455)
1,949
(83)
10
19
280
0
0
15
0
(5)
0
5,071
48,530
0
(1,398)
1,486
(9)
4
126
(457)
(379)
0
2
0
0
(1)
(2,009)
45,895
interests
7,620
7,620
(305) 3
(2,622)
6
(264)
609
5,043
(269) 3
(882)
1
(47)
560
4,406
(277) 3
(10)
(9)
243
4,353
48,633
(3,309)
45,324
27
(1,574)
1,960
(237)
(27)
(104)
186
(113)
(305)
(52)
(2,622)
(130)
(264)
6,701
48,770
0
(2,455)
1,949
(83)
10
19
280
0
(269)
15
(882)
(4)
(47)
5,632
52,935
0
(1,398)
1,486
(9)
4
126
(457)
(656)
0
2
0
(11)
(9)
(1,766)
50,249
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information with regard to the adoption of IAS 19R. 2 Presentational changes have been made in 2012. The line
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity is now shown gross of tax. Previously, this line was shown net of tax. All income tax related to share premium is reported on
the line Tax (expense) / benefit recognized in share premium. 3 Includes reclassifications from equity attributable to non-controlling interests to liabilities for preferred securities dividend payment obligations which were
accrued in the period. 4 Net acquisitions of 5 million treasury shares (CHF 92 million) related to market making and hedging activities of the Investment Bank are presented as acquisitions. 5 Reflects the payment of
CHF 0.10 per share of CHF 0.10 par value out of capital contribution reserve of UBS AG (Parent Bank).
326
Statement of changes in equity
CHF million
Effect of adoption of IAS 19R 1
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on
own equity derivative activity 2
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense)/benefit recognized in share premium 2
Transaction costs related to share issuances, net of tax
Dividends
Preferred securities
Equity classified as obligation to purchase own shares – movements
New consolidations and other increases / (decrease)
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 share gains / (losses) and net premium / (discount) on
own equity derivative activity 2
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense)/benefit recognized in share premium 2
Transaction costs related to share issuances, net of tax
Dividends
Preferred securities
Equity classified as obligation to purchase own shares – movements
New consolidations and other increases / (decrease)
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance as of 31 December 2011
Issuance of share capital
Acquisition of treasury shares
Disposition of treasury shares
Treasury share gains / (losses) and net premium / (discount) on
own equity derivative activity
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense)/benefit recognized in share premium
Transaction costs related to share issuances, net of tax
Equity classified as obligation to purchase own shares – movements
Dividends
Preferred securities
New consolidations and other increases / (decrease)
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance as of 31 December 2012
356
356
27
383
0
(1,574)
1,960
(654)
(2,455)
1,949
(1,398)4
1,486
(237)
(27)
(104)
186
(113)
(136)
(83)
10
19
280
(5)
(9)
4
126
(457)
(379) 5
(1)
(52)
(54)
15
2
Balance as of 1 January 2010 before the adoption of IAS 19R
34,824
(1,040)
Share capital
Share premium
Treasury shares
purchase own shares
Retained earnings
Balance as of 1 January 2010 after the adoption of IAS 19R
34,824
(1,040)
Equity classified
as obligation to
(2)
(2)
11,910
242
12,152
Cumulative net income
recognized directly
in equity, net of tax
(5,034)
(3,551)
(8,585)
of which
Foreign currency
translation
(6,604)
166
(6,438)
of which Financial
investments
available-for-sale
364
of which Cash
flow hedges
1,206
364
1,206
of which
Defined
benefit plans
0
(3,716)
(3,716)
383
34,393
7,452
19,604
(1,360)
(9,945)
(731)
(7,169)
(607)
(243)
(143)
1,063
120
(3,596)
34,614
(1,160)
(39)
4,138
23,742
934
(9,011)
722
(6,447)
495
252
1,537
2,600
(1,820)
(5,415)
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information with regard to the adoption of IAS 19R. 2 Presentational changes have been made in 2012. The line
Treasury share gains / (losses) and net premium / (discount) on own equity derivative activity is now shown gross of tax. Previously, this line was shown net of tax. All income tax related to share premium is reported on
the line Tax (expense) / benefit recognized in share premium. 3 Includes reclassifications from equity attributable to non-controlling interests to liabilities for preferred securities dividend payment obligations which were
accrued in the period. 4 Net acquisitions of 5 million treasury shares (CHF 92 million) related to market making and hedging activities of the Investment Bank are presented as acquisitions. 5 Reflects the payment of
CHF 0.10 per share of CHF 0.10 par value out of capital contribution reserve of UBS AG (Parent Bank).
384
33,898
(1,071)
(37)
(2,511)
21,231
502
(8,509)
(511)
(6,958)
14
267
384
2,983
609
(4,806)
of which
Property revalua-
tion surplus
0
0
0
0
6
6
Non-controlling
interests
7,620
7,620
Total equity
attributable to
UBS shareholders
41,013
(3,309)
37,704
27
(1,574)
1,960
Total equity
48,633
(3,309)
45,324
27
(1,574)
1,960
(237)
(27)
(104)
186
(113)
0
(52)
0
(136)
0
6,092
43,728
0
(2,455)
1,949
(83)
10
19
280
0
0
15
0
(5)
0
5,071
48,530
0
(1,398)
1,486
(9)
4
126
(457)
0
(379)
2
0
(1)
0
(2,009)
45,895
(305) 3
(2,622)
6
(264)
609
5,043
(269) 3
(882)
1
(47)
560
4,406
(277) 3
(10)
(9)
243
4,353
(237)
(27)
(104)
186
(113)
(305)
(52)
(2,622)
(130)
(264)
6,701
48,770
0
(2,455)
1,949
(83)
10
19
280
0
(269)
15
(882)
(4)
(47)
5,632
52,935
0
(1,398)
1,486
(9)
4
126
(457)
0
(656)
2
0
(11)
(9)
(1,766)
50,249
327
Financial information 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
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
31.12.12
31.12.11
31.12.10
4,359
0
(48)
4,311
42
4,353
4,907
(882)
334
4,359
47
4,406
7,254
(2,622)
275
4,907
136
5,043
1 Increases and offsetting decreases due to dividend payment obligations are excluded from this table. 2 Represents nominal amount translated at the historic currency exchange rate.
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
Dispositions
Balance at the end of the year
Conditional share capital
As of 31 December 2012, 145,510,992 additional shares (31 De-
cember 2011: 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 available in connection
with an arrangement with the Swiss National Bank (SNB). The
SNB provided a loan to a fund owned and controlled by the SNB
(the SNB StabFund), to which UBS transferred certain illiquid secu-
rities and other positions. As part of this arrangement, UBS grant-
For the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
3,832,121,899
3,830,840,513
3,558,112,753
3,128,334
1,281,386
272,727,760
3,835,250,233
3,832,121,899
3,830,840,513
84,955,551
38,892,031
37,553,872
114,292,481
155,636,639
105,824,816
(111,368,431)
(109,573,119)
(104,486,657)
87,879,601
84,955,551
38,892,031
0
144
0
118
(27)
2
3
ed warrants on shares to the SNB and these warrants become
exercisable if the SNB incurs a loss on its loan to the SNB Stab-
Fund.
Further on 14 April 2010, the Annual General Meeting of
UBS AG (Parent Bank) shareholders approved the creation of con-
ditional capital to a maximum amount of 380,000,000 shares for
conversion rights / warrants granted in connection with the issu-
ance of bonds or similar financial instruments. These positions are
shown as conditional share capital in UBS AG’s (Parent Bank)
disclosure.
328
Statement of cash flows 1
CHF million
Cash flow from / (used in) operating activities
Net profit / (loss)
Adjustments to reconcile net profit to cash flow from / (used in) operating activities
Non-cash items included in net profit and other adjustments:
Depreciation and impairment of property and equipment
Impairment of goodwill
Amortization and impairment 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
Other net adjustments
Net (increase) / decrease in operating assets and liabilities:
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
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 2
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
Dividends paid
Issuance of long-term debt, including financial liabilities designated at fair value
Repayment of long-term debt, including financial liabilities designated at fair value
Increase in non-controlling interests
Dividends paid to / decrease in non-controlling interests
Net cash flow from / (used in) financing activities
For the year ended
31.12.12
31.12.11
31.12.10
(2,235)
4,406
7,756
689
3,030
106
118
(88)
294
(507)
3,717
6,081
(7,686)
102,436
8,740
16,011
(889)
(66,111)
4,399
(794)
(261)
67,050
(11)
41
(1,118)
202
(13,946)3
(14,831)
(37,967)
(1,159)
0
(379)
55,747
(53,996)
0
(288)
(38,041)
761
0
127
84
(42)
795
(996)
(5,856)
3,703
(14,569)
(67,262)
17,225
6,068
9,648
27,116
6,330
(1,430)
(349)
(14,241)
(58)
50
(1,129)
233
20,281
19,377
15,338
(1,885)
0
0
52,590
(62,626)
1
(749)
2,670
918
0
117
66
(81)
(634)
(531)
1,125
15,298
10,046
(47,207)
6,635
(1,703)
(1,994)
17,588
5,239
1,246
(498)
13,385
(75)
307
(541)
242
4,164
4,097
4,459
(1,456)
(113)
0
78,418
(77,497)
6
(2,053)
1,764
1 In 2012, the estimation of the effects of foreign currency translation on the statement of cash flows was refined. This change in estimate resulted in Net cash flows from / (used in) operating activities being higher by CHF
1.8 billion (recorded in Other net adjustments), from / (used in) investing activities being higher by CHF 0.5 billion, from / (used in) financing activities being higher by CHF 1.4 billion and the amounts presented under the
line item Effects of exchange rate differences being lower by CHF 3.7 billion. In conjunction with this change in estimate, the presentation of amounts within Net cash flows from / (used in) operating activities has been
enhanced by eliminating the estimated foreign currency effects from individual balance sheet movements presented under Net (increase) / decrease in operating assets and liabilities and reflecting these within Other net
adjustments, for which comparatives have been restated. 2 Includes dividends received from associates. 3 Includes gross cash inflows from sales and maturities of CHF 8,796 million and gross cash outflows from pur-
chases of CHF 7,422 million related to the Wealth Management Americas’ available-for-sale portfolio. Other net cash outflows of CHF 15,320 million almost entirely related to our multi- currency port folio of unencumbered,
high-quality, short-term assets.
Table continues on the next page.
329
Financial information Financial information
Consolidated financial statements
Statement of cash flows (continued)
Table continued from previous page.
CHF million
Effects of exchange rate differences
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise:
Cash and balances with central banks
Money market paper 1
Due from banks 2
Total
Additional information
Net cash flow from / (used in) operating activities include:
Cash received as interest
Cash paid as interest
Cash received as dividends on equity investments, investment funds and associates 3
For the year ended
31.12.12
31.12.11
31.12.10
(673)
(2,129)
(12,181)
13,506
85,612
99,118
66,383
4,382
28,354
99,118
14,551
9,153
1,430
5,678
79,934
85,612
40,638
3,900
41,074
85,612
16,669
9,845
1,343
7,066
72,868
79,934
26,939
17,110
35,885
79,934
17,344
12,606
1,395
1 Money market paper is included in the balance sheet under Trading portfolio assets (31 December 2012: CHF 2,192 million, 31 December 2011: CHF 1,783 million) and Financial investments available-for-sale
(31 December 2012: CHF 2,190 million, 31 December 2011: CHF 2,117 million). 2 Includes positions recognized in the balance sheet under Due from banks (31 December 2012: CHF 15,961 million, 31 December
2011: CHF 18,733 million) and Cash collateral receivables on derivative instruments with bank counterparties (31 December 2012: CHF 12,393 million, 31 December 2011: CHF 22,341 million, refer to Note 10).
3 Includes dividends received from associates (2012: CHF 37 million, 2011: CHF 28 million, 2010: CHF 29 million) reported within cash flow from / (used in) investing activities.
Significant non-cash investing and financing activities
No significant items for 2012, 2011 and 2010.
330
331
Financial informationa) Significant accounting policiesThe significant accounting policies applied in the preparation of the consolidated financial statements of UBS (the “Financial State-ments”) are described in this note. These policies have been con-sistently applied in all the years presented unless otherwise stated.1) Basis of accountingUBS AG and its subsidiaries (“UBS” or the “Group”) provide a broad range of financial services including: advisory services, underwriting, financing, market-making, asset management and brokerage on a global level, and retail banking in Switzerland. The Group was formed on 29 June 1998 when Swiss Bank Corpora-tion and Union Bank of Switzerland merged.The Financial Statements are prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), and are pre-sented in Swiss francs (CHF), the currency of Switzerland where UBS AG is incorporated. On 7 March 2013, the Financial State-ments were authorized for issue by the Board of Directors. Con-solidated financial statements are prepared using uniform accounting policies for similar transactions and other events. Transactions and balances between Group companies are elimi-nated.Disclosures incorporated in the “Risk, treasury and capital management” section which are part of these financial state-ments are marked as audited. These disclosures relate to require-ments under IFRS 7 Financial Instruments: Disclosures and IAS 1 Presentation of Financial Statements and are not repeated in the “Financial information – consolidated financial statements” sec-tion.2) Use of estimates in the preparation of the Financial StatementsIn preparing the Financial Statements in conformity with IFRS, management is required to make estimates and assumptions that affect reported income, expenses, assets, liabilities and the disclo-sure of contingent assets and liabilities. Assessing available infor-mation and the application of judgment are necessary elements in making estimates. Actual results in the future could differ from such estimates, and such differences may be material to the Fi-nancial Statements. Estimates and their underlying assumptions are reviewed on an ongoing basis. Any revisions to estimates re-sulting from these reviews are recognized in the period in which such estimates are revised.The following notes to the Financial Statements contain infor-mation about those areas of estimation uncertainty considered to require critical judgment in applying those accounting policies that have the most significant effect on the amounts recognized in the Financial Statements: Note 11 Allowances and provisions for credit losses; Note 17 Goodwill and intangible assets; Note 23 Provisions and contingent liabilities; Note 24 Income taxes; Note 27 Fair value of financial instruments; Note 29a Measure-ment categories of financial assets and financial liabilities; Note 30 Pension and other post-employment benefit plans; and Note 31 Equity participation and other compensation plans.3) SubsidiariesThe 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 financial 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.Special purpose entitiesThe Group sponsors the formation of SPEs and interacts with non-sponsored SPEs for a variety of reasons in order to accomplish certain narrow and well-defined objectives. Many SPEs are estab-lished as bankruptcy remote, meaning that only the assets in the SPE are available for the benefit of the investors 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 con-trolled by the Group. The following circumstances may indicate a relationship in which, in substance, UBS controls and consequent-ly consolidates the SPE: –the activities of the SPE are being conducted on behalf of UBS according to its specific business needs, so that UBS obtains benefits from the SPE’s operations; –UBS has the decision-making powers to obtain the majority of the benefits of the activities of the SPE or, through setting up an “autopilot” mechanism, UBS has delegated these decision-making powers; –UBS has rights to obtain the majority of the benefits of the SPE and, therefore, may be exposed to risks associated with the activities of the SPE; orNotes to the consolidated financial statementsNote 1 Summary of significant accounting policies Financial information
Notes to the consolidated financial statements
– UBS retains the majority of the residual or ownership risks re-
lated to the SPE or its assets in order to obtain benefits from its
activities.
SPEs that are established to facilitate clients holding invest-
ments are structures that allow one or more clients to invest in
specific assets or risk and reward profiles. Typically, UBS will
receive service and commission fees for the creation of the SPEs,
or for its services as investment manager, custodian or in some
other capacity. Some of these SPEs are single-investor or family
trusts while others allow multiple investors to invest in a diversi-
fied asset base through shares, notes or certificates. The majority
of UBS’s SPEs created for client investment purposes are not
consolidated. However, 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 (for example, a portfolio of loans) to an SPE 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 significant gain or loss expo-
sure 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 so as to transfer
the credit risk on single names or portfolios, which may or may
not be held by UBS, to one or more investors. UBS generally con-
solidates SPEs that are used for credit protection when, for in-
stance, UBS receives funding from the SPE or has unilateral liqui-
dation rights.
Employee benefit trusts are used in connection with share-
based payment arrangements and deferred compensation
schemes. Such trusts are consolidated when the substance of the
relationship between UBS and the entity indicates that the entity
is controlled by UBS.
UBS continuously evaluates whether triggering events require
the reconsideration of consolidation decisions that were first
made at inception of its involvement with any particular SPE. This
is especially relevant for securitization vehicles. Triggering events
are usually caused by restructuring, the vesting of potential rights
and the acquisition, disposal or expiration of interests in the SPE.
SPEs may be consolidated or deconsolidated depending on the
facts and circumstances of any change.
Business combinations
Business combinations are accounted for using the acquisition
method. As of the acquisition date, UBS recognizes the identifi-
able assets acquired and the liabilities assumed at their acquisi-
tion-date fair values. For each business combination, UBS mea-
sures 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
identifiable 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 recog-
nized at fair value at the acquisition date. If the contingent consid-
eration is classified as an asset or liability, subsequent changes in
the fair value of the contingent consideration are recognized in the
income statement. If the contingent consideration is classified as
equity, it is not remeasured until it is finally settled.
Any excess of the aggregate of the consideration transferred
and the amount recognized for non-controlling interests over the
net identifiable 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.
4) Associates and jointly controlled entities
Investments in entities in which UBS has significant influence, but
not control, over the financial and operating policies of the entity
are classified as investments in associates and accounted for un-
der the equity method of accounting. Normally, significant influ-
ence is indicated when UBS owns between 20% and 50% of a
company’s voting rights. Investments in associates are initially re-
corded 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 profit or loss (including net profit 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 between
UBS and one or more third parties, which establishes joint control
over its economic activities. Interests in jointly controlled entities
are classified 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 financial state-
ments of the associate or joint venture are used to apply the eq-
uity method. Adjustments are made for effects of significant
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 classified as “held for sale” if their carrying amount will
be recovered principally through a sale transaction rather than
through continuing use – refer to item 29.
332
Note 1 Summary of significant accounting policies (continued) 5) Recognition and derecognition of financial instruments
UBS recognizes financial instruments on its balance sheet when
the Group becomes a party to the contractual provisions of the
instruments. UBS acts as trustee and in other fiduciary capacities
that result in the holding or placing of assets on behalf of indi-
viduals, trusts, retirement benefit plans and other institutions. Un-
less the recognition criteria for the assets are satisfied, these as-
sets and the related income are excluded from UBS’s financial
statements, as they are not assets of UBS.
Financial assets
UBS enters into certain transactions where it transfers financial assets
recognized on its balance sheet but retains either all or a portion of the
risks and rewards of the transferred financial assets. If all or substan-
tially all risks and rewards are retained, the transferred financial assets
are not derecognized from the balance sheet. Transactions where
transfers of financial assets result in UBS retaining all or substantially
all risks and rewards include securities lending and repurchase trans-
actions described under items 13) and 14). They also include trans-
actions where financial assets are sold to a third party together with a
total return swap that results in UBS retaining all or substantially all
risks and rewards of the transferred assets. These types of transactions
are accounted for as secured financing transactions.
In transactions where substantially all of the risks and rewards
of ownership of a financial asset are neither retained nor trans-
ferred, UBS derecognizes the financial asset if control over the as-
set is surrendered. The rights and obligations retained in the trans-
fer are recognized separately as assets and liabilities, respectively.
In transfers where control over the financial asset is retained, the
Group continues to recognize the asset to the extent of its con-
tinuing involvement, determined by the extent to which it is ex-
posed to changes in the value of the transferred asset. Examples of
such transactions include written put options, acquired call op-
tions, or other instruments linked to the performance of the asset.
For the purposes of the Group’s disclosures of transferred finan-
cial assets, a financial asset is typically considered to have been
transferred when the Group a) transfers the contractual rights to
receive the cash flows of the financial asset or b) retains the con-
tractual rights to receive the cash flows of that asset, but assumes
a contractual obligation to pay the cash flows.
Where financial assets have been pledged as collateral or in
similar arrangements, they are considered to have been trans-
ferred if the counterparty has received the contractual right to the
cash flows of the pledged assets, as may be evidenced, for ex-
ample by the counterparty’s right to sell or re-pledge the assets.
Where the counterparty to the pledged financial assets has not
received the contractual right to the cash flows, the assets are
considered pledged, but not transferred.
Financial liabilities
UBS derecognizes a financial liability from its balance sheet when
it is extinguished, i.e., when the obligation specified in the con-
tract is discharged, cancelled or expired. When an existing finan-
cial liability is exchanged for a new one from the same lender on
substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is
treated as the derecognition of the original liability and the recog-
nition of a new liability with any difference in the respective carry-
ing amounts being recognized in the income statement.
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
arm’s length transaction. Determination of fair value is considered
a critical accounting policy for the Group and further details are
disclosed in Note 27.
7) Trading portfolio assets and liabilities
Non-derivative financial assets and liabilities are classified 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 identified financial instruments that are managed together and
for which there is evidence of a recent actual pattern of short-
term profit-taking.
The trading portfolio includes non-derivative financial instru-
ments (including those with embedded derivatives) and 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 (refer
to item 15)). The trading portfolio includes recognized assets and
liabilities relating to proprietary-, hedging- and client-related busi-
ness (refer to Note 12 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 financial 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 profits and losses arising
from remeasuring the transaction to fair value in Net trading
income. The corresponding receivable or payable is presented on
333
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the consolidated financial statements
the balance sheet as a Positive replacement value or Negative
replacement value, respectively. On settlement date, the resulting
financial 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 profits and losses are no longer
recognized and, on settlement date, the asset is derecognized.
Trading portfolio assets transferred to external parties that do
not qualify for derecognition (refer to item 5)) and where the
transferee has obtained the right to sell or re-pledge the assets are
classified on the UBS balance sheet as Trading portfolio assets and
identified as Trading portfolio assets pledged as collateral. Such
assets continue to be measured at fair value.
8) Financial assets and Financial liabilities designated at fair value
through profit or loss (“Fair Value Option”)
A financial instrument may be designated at fair value through
profit or loss only at inception and this designation cannot be
changed subsequently. Financial assets (refer to Note 13) and
financial liabilities (refer to Note 20) 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 applied. The
conditions for applying the fair value option are met when:
– the financial instrument is a hybrid instrument which includes
an embedded derivative; or
– the financial 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 eliminates or signifi-
cantly reduces 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 profit or loss, on the basis that such financial
instruments include embedded derivatives or are managed on a
fair value basis. Such hybrid debt instruments predominantly in-
clude the following:
– 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 applied to certain loans and loan com-
mitments, otherwise accounted for at amortized cost, which are
hedged predominantly with credit derivatives. The application of
the fair value option to the loans and loan commitments reduces
an accounting mismatch, as the credit derivatives are accounted
for as derivative instruments at fair value through profit or loss.
In order to reduce an accounting mismatch, UBS has applied
the fair value option to certain structured loans and reverse repur-
chase and securities borrowing agreements which are part of
portfolios managed on a fair value basis.
Similarly, the fair value option is applied to assets held to hedge
deferred cash-settled employee compensation awards, in order to
reduce an accounting mismatch that would arise due to the liabil-
ity being measured on a fair value basis.
Fair value changes related to financial instruments designated
at fair value through profit or loss are recognized in Net trading
income. Interest income and interest expense on financial assets
and liabilities designated at fair value through profit or loss are
recognized in Interest income on financial assets designated at
fair value or Interest expense on financial liabilities designated at
fair value, respectively (refer to Note 3).
UBS applies the same recognition and derecognition principles
to financial instruments designated at fair value as to financial
instruments in the trading portfolio (refer to items 5) and 7)).
9) Financial investments available-for-sale
Financial investments available-for-sale are non-derivative finan-
cial assets that are not classified as held for trading, designated at
fair value through profit or loss, or loans and receivables. They are
recognized on a settlement date basis.
Financial investments available-for-sale include 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 and 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 before tax are
presented separately from unrealized losses before tax in Note 14.
For monetary instruments (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 and
losses associated with non-monetary instruments (such as equity
securities) are part of the overall fair value change of the in-
struments and are recognized directly in Other comprehensive
income.
Interest and dividend income on financial investments avail-
able-for-sale are included in Interest and dividend income from
financial investments available-for-sale; interest income is deter-
mined by reference to the instrument’s amortized cost basis using
the effective interest rate (EIR).
334
Note 1 Summary of significant accounting policies (continued) On disposal of an investment, any related accumulated unreal-
ized gains or losses included in Equity are transferred to the In-
come statement and reported in Other income; gains or losses on
disposal are determined using the average cost method.
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 flows from the investment have decreased. A significant or
prolonged decline in the fair value of an available-for-sale equity
instrument below its original cost is considered objective evidence
of an impairment. In the event of a significant decline in fair value
below its original cost (20%) or a prolonged decline (six months),
an impairment is recorded unless facts and circumstances clearly
indicate that this information, on its own, is not evidence of an
impairment.
For debt investments, objective evidence of impairment in-
cludes significant financial difficulty for the issuer or counterparty;
default or delinquency in interest or principal payments; or prob-
ability that the borrower will enter bankruptcy or financial reorga-
nization. If a financial investment available-for-sale is determined
to be impaired, the related cumulative net unrealized loss previ-
ously recognized in Equity is included in the income statement
within Other income. For equity instruments, any further loss is
recognized directly in the income statement, whereas for debt
instruments, any further loss is recognized in the income state-
ment only if there is additional objective evidence of impairment.
After the recognition of an impairment on a financial investment
available-for-sale, increases in the fair value of equity instruments
are reported in Equity and increases in the fair value of debt in-
struments up to amortized cost in original currency are recog-
nized in Other income, provided that the fair value increase is re-
lated to an event occurring after the impairment loss was
recorded.
– securities which are classified as loans and receivables at acqui-
sition date, such as auction rate securities;
– securities previously in the trading portfolio and reclassified to
loans and receivables (refer to Note 29b);
– loans such as leverage finance loans previously in the trading
portfolio and reclassified to loans and receivables (refer to
Note 29b).
For an overview of the accounting for financial assets classified
as loans and receivables, refer to the measurement category
Financial assets at amortized cost presented in Note 29.
Loans and receivables are recognized when UBS becomes a
party to the contractual provisions of the instrument, which is
when funding is advanced to borrowers. They are recorded ini-
tially at fair value, based on the amount provided to originate or
purchase the loan or receivable, together with any transaction
costs directly attributable to the acquisition. Subsequently, they
are measured at amortized cost using the EIR method, less allow-
ances for impairment (refer to item 11)).
Interest on loans and receivables is included in Interest earned
on loans and advances and is recognized on an accrual basis. Up-
front fees and direct costs relating to loan origination, refinancing
or restructuring as well as to loan commitments are generally de-
ferred 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 be advanced, any fees are recognized as follows:
– For loan commitments that are not expected to result in a loan
being advanced, the fees are recognized in Commission in-
come over the commitment period.
– For loan syndication fees where UBS does not retain a portion
of the syndicated loan, or where UBS does retain a portion of
the syndicated loan at the same effective yield for comparable
risk as other participants, fees are credited to Commission
income when the services have been provided.
UBS applies the same recognition and derecognition principles
to financial assets available-for-sale as to financial instruments in
the trading portfolio (refer to items 5) and 7)), except that unreal-
ized gains and losses between trade date and settlement date are
recognized in Equity rather than in the income statement.
Presentation of receivables from central banks
Deposits with central banks which are available on demand are
presented on the balance sheet as Cash and balances with central
banks. All longer dated receivables with central banks are pre-
sented under Due from banks.
10) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market, not classified as held-for-trading, not designated as at fair
value through profit and loss or available-for-sale, and are not
assets for which the Group may not recover substantially all of its
initial net investment, other than because of a credit deteriora-
tion. Financial assets classified as loans and receivables include:
– originated loans where funding is provided directly to the
borrower; participation in a loan from another lender and
purchased loans;
Financial assets reclassified to loans and receivables
When a financial asset is reclassified from held for trading to loans
and receivables, the financial asset is reclassified at its fair value on
the date of reclassification. Any gain or loss recognized in the in-
come statement before reclassification is not reversed. The fair
value of a financial asset on the date of reclassification becomes
its cost basis going forward. In 2008 and 2009, UBS determined
that certain financial assets classified 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 assets for the foreseeable future, considered to be a period
335
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the consolidated financial statements
of approximately twelve months from the reclassification. There-
fore, these assets were reclassified from held for trading to loans
and receivables. (Refer to Notes 12 and 29b).
Renegotiated loans
A renegotiated loan is defined as a loan that has been subject to
restructuring, or for which additional collateral has been request-
ed that was not contemplated in the original contract.
Typical key features of terms and conditions granted through
renegotiation to avoid default include the provision of special in-
terest rates, postponement of interest or amortization payments,
modification of the schedule of repayments or amendment of loan
maturity. There is no change in the EIR following a renegotiation.
If a loan is renegotiated with concessionary conditions (i.e.
new terms and conditions are agreed which do not meet the nor-
mal market criteria for the quality of the obligor and the type of
loan) the position is still classified as non-performing and is rated
as being in counterparty default. It will remain so until the loan is
collected or written off and will be assessed for impairment on an
individual basis.
If a loan is renegotiated on a non-concessionary basis (e.g. ad-
ditional collateral is provided by the client, or new terms and con-
ditions are agreed which meet the normal market criteria, for the
quality of the obligor and the type of loan), the loan will be re-
rated using the Group’s regular rating scale. In these circum-
stances, the loan is removed from impaired status and therefore
included in our collective assessment of loan loss allowances. For
the purposes of measuring credit losses, within the collective loan
loss assessment these loans are not segregated from other loans
which have not been renegotiated. Management regularly re-
views all loans to ensure that all criteria according to the loan
agreement continue to be met and that future payments are like-
ly to occur.
A restructuring of a loan could lead to a fundamental change
in the terms and conditions of a loan resulting in the original loan
being derecognized and a new loan being recognized. A change
is considered fundamental if the present value of the contractual
cash flows (as a proportion of notional) have been changed by
10% or more, or there has been a significant change in the risk
profile of the instrument.
If a loan is derecognized in these circumstances, the new loan
is measured at fair value at initial recognition. Any allowance tak-
en to date against the original loan is eliminated and is not attrib-
uted to the new loan. Consequently, the new loan is not consid-
ered impaired and is included within the general collective loan
assessment for the purpose of measuring credit losses.
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 thereof) on a claim based
on the original contractual terms (refer to Note 9b). A “claim”
means a loan or receivable carried at amortized cost, or a commit-
ment such as a letter of credit, a guarantee, or another similar
instrument. Objective evidence of impairment includes significant
financial difficulty for the issuer or counterparty; default or delin-
quency in interest or principal payments; or probability that the
borrower will enter bankruptcy or financial 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
reported in Other liabilities. Changes to allowances and provisions
for credit losses are recognized as a Credit loss expense.
Allowances and provisions for credit losses are evaluated at
both a counterparty-specific level and collectively based on the
following principles:
Counterparty-specific: A loan 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
thereof) based on the original contractual terms. Individual credit
exposures are evaluated based on the borrower’s character, over-
all financial condition, resources and payment record; the pros-
pects for support from any financially responsible guarantors;
and, where applicable, the realizable value of any collateral. The
estimated recoverable amount is the present value, using the
claim’s original EIR, of expected future cash flows including
amounts that may result from restructuring or the liquidation of
collateral. If a loan has a variable interest rate, the discount rate
for measuring any impairment loss is the current EIR. Impairment
is measured and allowances for credit losses are established based
on the difference between the carrying amount and the estimat-
ed recoverable amount. Upon impairment, the accrual of interest
income based on the original terms of the loan is discontinued.
The increase of the present value of the impaired loan due to the
passage of time is reported as Interest income.
All impaired loans are reviewed and analyzed at least annually.
Any subsequent changes to the amounts and timing of the ex-
pected future cash flows compared with prior estimates result in
a change in the allowance for credit losses and are charged or
credited to Credit loss expense / recovery. An allowance for impair-
ment is reversed only when the credit quality has improved to
such an extent that there is reasonable assurance of timely collec-
tion of principal and interest in accordance with the original con-
tractual terms of the claim, or the equivalent value thereof. 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 loan is classified as non-performing when the payment of
interest, principal or fees is overdue by more than 90 days and
there is no firm evidence that it will be made good by later pay-
336
Note 1 Summary of significant accounting policies (continued) ments or the liquidation of collateral; when insolvency proceed-
ings have commenced against the firm; or when obligations have
been restructured on concessionary terms. Loans are evaluated
individually for impairment when amounts have been overdue by
more than 90 days, or sooner if other objective evidence indicates
that a loan may be impaired.
Collectively: All loans for which no impairment is identified at a
counterparty-specific level are grouped on the basis of the bank’s
internal credit grading system that considers credit risk 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
flows for a group of financial 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 reflect the effects of current conditions
of the group of financial 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 flows for the group of financial assets
reflect, and are directionally consistent with, changes in related
observable data from year to year. The methodology and assump-
tions used for estimating future cash flows for the group of finan-
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 financial
assets assessed for impairment on a collective basis and is as-
sessed separately as a counterparty-specific claim.
Reclassified securities and acquired securities carried at amor-
tized cost: Estimated cash flows associated with financial assets
reclassified from the held for trading category to loans and receiv-
ables in accordance with the requirements in item 10) above and
other similar assets acquired subsequently, are revised periodically.
Adverse revisions in cash flow estimates related to credit events
are recognized in the income statement as Credit loss expense.
For reclassified securities, increases in estimated future cash re-
ceipts 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 12 and 29b).
solidated and those set out in item 5) in determining whether
derecognition of transferred financial assets is appropriate. The
following statements mainly apply to transfers of financial assets
which qualify for derecognition.
Gains or losses related to the sale of financial assets involving a
securitization are generally recognized when the derecognition
criteria are satisfied and the gain or loss is classified in Net trading
income.
Interests in the securitized financial assets may be retained in
the form of senior or subordinated tranches, interest-only strips or
other residual interests (“retained interests”). Retained interests
are primarily recorded in Trading portfolio assets and are carried at
fair value. Synthetic securitization structures typically involve de-
rivative financial instruments for which the principles set out in
item 15) apply.
UBS acts as structurer and placement agent in various 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 clients during the period
prior to securitization. UBS then typically sells the collateral into
designated trusts upon closing of the securitization. In other secu-
ritizations, UBS may only provide financing 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. Consistent with
the valuation of similar inventory, fair value of retained tranches is
initially and subsequently determined using market price quota-
tions where available or internal pricing models that utilize vari-
ables such as yield curves, prepayment speeds, default rates, loss
severity, interest rate volatilities and spreads. Where possible, as-
sumptions based on observable transactions are used to deter-
mine 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 borrows or lends 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 financial market participants and are under-
taken with counterparties subject to UBS’s normal credit risk con-
trol processes. UBS monitors on a daily basis the market value of
the securities received or delivered and requests or provides addi-
tional collateral or returns or recalls surplus collateral in accor-
dance with the underlying agreements.
12) Securitization structures set up by UBS
UBS securitizes certain financial assets, mostly in the form of sales
of these assets to special purpose entities which issue securities to
investors. UBS applies the policies set out in item 3) in determin-
ing whether the respective special purpose entity must be con-
Cash collateral received is recognized with a corresponding ob-
ligation to return it (Cash collateral on securities lent) and cash col-
lateral delivered is derecognized and a corresponding receivable
reflecting UBS’s right to receive it back is recorded (Cash collateral
on securities borrowed). The securities which have been transferred
337
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the consolidated financial statements
are not recognized on or derecognized from the balance sheet un-
less the risks and rewards of ownership are also transferred (refer to
item 5)). In those transactions where UBS transfers owned securi-
ties and where the borrower is granted the right to sell or re-pledge
the transferred securities, the securities are presented on the bal-
ance sheet as Trading portfolio assets, of which: assets pledged as
collateral. Securities received in a borrowing transaction are dis-
closed 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 (refer to Note 28). The sale of
securities which is settled by delivering securities received in a bor-
rowing or lending transaction generally triggers the recognition of
a trading liability (short sale). Where securities are either received or
paid in lieu of cash (“securities for securities” transactions), neither
the securities received (paid) nor the obligation to return (right to
receive) the securities are recognized on the balance sheet.
Interest receivable or payable for financing 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 repur-
chase (Repurchase agreements) are treated as collateralized fi-
nancing transactions. Nearly all reverse repurchase and repurchase
agreements involve debt instruments, such as bonds, notes or
money market paper. The transactions are normally conducted
under standard agreements employed by financial market partici-
pants and are undertaken with counterparties subject to UBS’s
normal credit risk control processes. UBS monitors on a daily basis
the market value of the securities received or delivered and re-
quests or provides additional collateral or returns or recalls surplus
collateral in accordance with the underlying agreements.
In a reverse repurchase agreement, the cash delivered is
derecognized and a corresponding receivable, including accrued
interest, 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 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 disclosure for
securities that UBS has actually resold or re-pledged (refer to Note
28). Additionally, the sale of securities which is settled by deliver-
ing securities received in reverse 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
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 on 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 classified as Cash collateral receivables
on derivative instruments or Cash collateral payables on derivative
instruments. They are not classified within replacement values be-
cause the change in fair value of these instruments is settled each
day through the cash payment of variation margin. Products that
receive this treatment are futures contracts, 100% daily margined
exchange traded options, interest rate swaps transacted with the
London Clearing House and certain credit derivative contracts.
Changes in the fair values of derivatives are recorded in Net trading
income, unless the derivatives are designated and effective as hedg-
ing instruments in certain types of hedge accounting relationships.
Hedge accounting
The Group uses derivative instruments as part of its asset and lia-
bility management activities to manage exposures particularly to
interest rate and foreign currency risks, including exposures aris-
ing from forecast transactions. If derivative and non-derivative
instruments meet certain criteria specified below, they may be
designated as hedging instruments in hedges of the change in fair
value of recognized assets or liabilities (“fair value hedges”);
hedges of the variability in future cash flows attributable to a rec-
ognized asset or liability, or highly probable forecast transactions
(“cash flow hedges”); or hedges of a net investment in a foreign
operation (“net investment hedges”).
At the time a financial 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
338
Note 1 Summary of significant accounting policies (continued) basis, whether the hedging instruments, primarily derivatives,
have been “highly effective” in offsetting changes in the fair val-
ue or cash flows associated with the designated risk of the hedged
items. A hedge is considered highly effective if the following crite-
ria are met: a) at inception of the hedge and throughout its life,
the hedge is expected to be highly effective in achieving offsetting
changes in fair value or cash flows attributable to the hedged risk,
and b) actual results of the hedge are within a range of 80% to
125%. In the case of hedging forecast transactions, the transac-
tion must have a high probability of occurring and must present
an exposure to variations in cash flows that could ultimately affect
the reported net profit or loss. The Group discontinues hedge ac-
counting voluntarily, or when the Group determines that a hedg-
ing instrument is not, or has ceased to be, highly effective as a
hedge; when the derivative expires or is sold, terminated or exer-
cised; when the hedged item matures, is sold or repaid; or when
forecast transactions are no longer deemed highly probable.
Hedge ineffectiveness represents the amount by which the
changes in the fair value of the hedging instrument differ from
changes in the fair value of the hedged item attributable to the
hedged risk, or the amount by which changes in the present value
of future cash flows of the hedging instrument exceed changes
(or expected changes) in the present value of future cash flows 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 attrib-
utable to the hedged risk. In fair value hedges of interest rate risk,
the fair value change of the hedged item attributable to the
hedged risk is reflected in the carrying value of the hedged item. If
the hedge accounting relationship is terminated for reasons other
than the derecognition of the hedged item, the difference be-
tween the carrying value of the hedged item at that point and the
value at which it would have been carried had the hedge never
existed (the “unamortized fair value adjustment”) is amortized to
the income statement over the remaining term of the original
hedge accounting relationship.
For a portfolio hedge of interest rate risk, the equivalent
change in fair value is reflected within Other assets or Other liabil-
ities. If the hedge relationship is terminated for reasons other than
the derecognition of the hedged item, the amount included in
Other assets or Other liabilities is amortized to the income state-
ment over the remaining term to maturity of the hedged items.
Cash flow hedges
Fair value gains or losses associated with the effective portion of
derivatives designated as cash flow hedges for cash flow repricing
risk are recognized initially in Equity. When the hedged forecast
cash flows affect profit or loss, the associated gains or losses on the
hedging derivatives are reclassified from Equity to profit or loss.
If a cash flow hedge for forecasted transactions is deemed to
be no longer effective, or if the hedge relationship is terminated,
the cumulative gains or losses on the hedging derivatives previ-
ously reported in Equity remain there until the committed or fore-
casted transactions occur. If the forecasted transactions are no
longer expected to occur, the deferred gains or losses are reclassi-
fied immediately to profit or loss.
Hedges of net investments in foreign operations
Hedges of net investments in foreign operations are accounted for
similarly to cash flow hedges. Gains or losses on the hedging instru-
ment relating to the effective portion of the hedge are recognized
directly in Equity (and presented in the statement of changes in
equity and statement of comprehensive income under Foreign cur-
rency translation), while any gains or losses relating to the ineffec-
tive and / or undesignated portion (for example, the interest ele-
ment of a forward contract) are recognized in the income statement.
On loss of control of the foreign operation, the cumulative value of
any such gains or losses associated with the entity and recognized
directly in Equity, is reclassified to the income statement.
Economic hedges which do not qualify for hedge accounting
Derivative instruments which are transacted as economic hedges
but do not qualify for hedge accounting are treated in the same
way as derivative instruments used for trading purposes (i.e. real-
ized and unrealized gains and losses are recognized in Net trading
income), except for the forward points on short duration foreign
exchange contracts, which are reported in Net interest income.
Refer to Note 25 for more information on “economic hedges”.
Embedded derivatives
Derivatives may be embedded in other financial instruments
(“host contracts”); for instance, the conversion feature embed-
ded in a convertible bond. Such combinations are known as
hybrid in struments and arise predominantly from the issuance of
certain structured debt instruments. An embedded derivative is
generally required to be separated from the host contract and
accounted for as a standalone derivative instrument at fair value
through profit or loss, if a) the host contract is not carried at fair
value with changes in fair value reported in the income statement,
b) the economic characteristics and risks of the embedded deriva-
tive are not closely related to the economic characteristics and
risks of the host contract, and c) the terms of the embedded de-
rivative would meet the definition of a stand-alone derivative
were they contained in a separate contract. Bifurcated 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, reflecting the measurement and recognition principles
applied.
339
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the consolidated financial statements
Typically, UBS applies the fair value option to hybrid instru-
ments (refer to item 8), in which case bifurcation of an embedded
derivative component is not required.
ment under the guarantee has become probable, the present
value of the expected payment. Any change in the liability relating
to probable expected payments resulting from guarantees is re-
corded in the income statement in Credit loss expense / recovery.
16) Loan commitments
Loan commitments are defined amounts (unutilized credit lines or
undrawn portions of credit lines) against which clients can borrow
money under defined terms and conditions.
Loan commitments that can be cancelled by UBS at any time
(without giving a reason) according to their general terms and
conditions, are not recognized on the balance sheet and are
not included in the off-balance-sheet disclosures. Upon a loan
drawdown by the counterparty, the amount of the loan is ac-
counted for in accordance with Loans and receivables (refer to
item 10)).
Irrevocable loan commitments (where UBS has no right to
withdraw the loan commitment once communicated to the
beneficiary, or which are revocable only due to automatic cancel-
lation upon deterioration in a borrower’s creditworthiness) are
classified into the following categories:
– Derivative loan commitments, being loan commitments that
can be settled net in cash or by delivering or issuing another
financial instrument, or loan commitments for which there is
evidence of selling loans resulting from similar loan commit-
ments before or shortly after origination (refer to item 15)).
– Loan commitments designated at fair value through profit and
loss (“Fair value option”) (refer to item 8)).
– All other loan commitments. These are not recorded in the bal-
ance sheet, but a provision is recognized if it is probable that a
loss has been incurred and a reliable estimate of the amount of
the obligation can be made. Other loan commitments include
irrevocable forward starting reverse repurchase and irrevocable
securities borrowing agreements. Any change in the liability
relating to these other loan commitments is recorded in the
income statement in Credit loss expense / recovery. (Refer to
items 11) and 27))
17) Financial guarantee contracts
Financial guarantee contracts are contracts that require the issuer
to make specified payments to reimburse the holder for an in-
curred loss because a specified debtor fails to make payments
when due in accordance with the terms of a specified debt instru-
ment. UBS issues such financial guarantees to banks, financial
institutions and other parties on behalf of clients to secure loans,
overdrafts and other banking facilities.
Certain written financial guarantees that are managed on a
fair value basis are designated at fair value through profit or loss
(refer to item 8)). Financial guarantees that are not managed on a
fair value basis are initially recognized in the financial statements
at fair value. Subsequent to initial recognition, these financial
guarantees are measured at the higher of the amount initially rec-
ognized less cumulative amortization, and to the extent a pay-
340
18) Cash and cash equivalents
For the purposes of the statement of cash flows, 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.
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-
ognized within 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 impairment losses, and is reviewed pe-
riodically for impairment.
Classification of own-used property
Own-used property is defined as property held by the Group for
use in the supply of services or for administrative purposes,
whereas investment property is defined as property held to earn
rental income and / or for capital appreciation. Where a property
of the Group includes an own-used portion and an investment
portion which can be sold separately, they are separately account-
ed for as own-used property and investment property. If the por-
tions cannot be sold separately, the whole property is classified as
own-used unless the portion used by the Group is minor. The
classification of property is reviewed on a regular basis. When the
use of a property changes from own-used to investment property,
the property is remeasured to fair value and reclassified as invest-
ment property. Any gain arising on remeasurement is recognized
in profit or loss to the extent that it reverses a previous impair-
ment loss on the specific property, with any remaining gain recog-
nized in other comprehensive income and presented in the revalu-
ation reserve in equity. Any loss is recognized immediately in
profit or loss. When an investment property is reclassified as own-
used property, its fair value at the date of reclassification becomes
its cost basis for subsequent measurement purposes.
Investment property
Investment property is carried at fair value with changes in fair
value recognized in the income statement in Other income in the
Note 1 Summary of significant accounting policies (continued) period of change. UBS uses internal or external real estate experts
to determine the fair value of investment property by applying
recognized valuation techniques. In cases where prices of recent
market transactions of comparable properties are available, fair
value is determined by reference to these transactions.
Leasehold improvements
Leasehold improvements are investments made to customize build-
ings and offices occupied under operating lease contracts to make
them suitable for their intended purpose. The present value of esti-
mated reinstatement costs required 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 reflect the obligation incurred. Reinstatement costs
are recognized in profit and loss through depreciation of the capi-
talized leasehold improvements over their estimated useful lives
and the liability is relieved as cash payments are applied.
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 twelve months, these assets are classified as
non-current assets held for sale and are reclassified to Other as-
sets. Upon classification as held for sale, they are no longer depre-
ciated and are carried at the lower of book value or fair value less
cost to sell.
Software
Software development costs are recognized only when the costs
can be measured reliably and it is probable that future economic
benefits will arise. Internally generated software that meets these
criteria is classified within IT hardware, software and communica-
tion assets, together with purchased software.
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 equipment
Not exceeding 67 years
Residual lease term
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 identifiable assets of the
acquired entity at the date of acquisition. Goodwill is not amor-
tized; it is tested annually for impairment and, additionally, when
an indication of impairment exists at the end of each reporting
period. For goodwill impairment testing purposes, UBS considers
the segments reported in Note 2a as separate cash-generating
units, since this is the level at which the performance of invest-
ments is reviewed and assessed by management. The recoverable
amount of a segment is determined on the basis of its value in
use. Refer to Note 17 for details.
Intangible assets comprise separately identifiable intangible
items arising from business combinations and certain purchased
trademarks and similar items. Intangible assets are recognized at
cost. The cost of an intangible asset acquired in a business combi-
nation is its fair value at the date of acquisition. Intangible assets
with a definite useful life are amortized using the straight-line
method over their estimated useful economic life, generally not
exceeding 20 years. Intangible assets with an indefinite useful life
are not amortized. In nearly all cases, identified intangible assets
have a definite useful life. At each balance sheet date, intangible
assets are reviewed for indications of impairment. If such indica-
tions exist, the intangible assets are analyzed to assess whether
their carrying amount is fully recoverable. An impairment loss
is recognized if the carrying amount exceeds the recoverable
amount.
Intangible assets are classified into two categories: a) infra-
structure, and b) customer relationships, contractual rights and
other. Infrastructure consists of a branch network intangible asset
recognized in connection with the acquisition of PaineWebber
Group, Inc. Client relationships, contractual rights and other in-
cludes mainly intangible assets for client relationships, non-com-
pete agreements, favorable contracts, trademarks and trade
names acquired in business combinations.
22) Income taxes
Income tax payable on profits is recognized as an expense based
on the applicable tax laws in each jurisdiction in the period in
which profits arise. The tax effects of income tax losses available
for carry forward are recognized as a deferred tax asset if it is
probable that future taxable profit (based on profit 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 sufficient taxable profits will
be available against which these differences can be utilized. De-
ferred tax liabilities are recognized for temporary differences be-
tween the carrying amounts of assets and liabilities in the balance
sheet and their amounts as measured for tax purposes, which will
result in taxable amounts in future periods.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply in the period in which the asset will be
realized or the liability will be settled based on enacted rates.
Tax assets and liabilities of the same type (current or deferred)
are offset when they arise from the same tax reporting group,
they relate to the same tax authority, the legal right to offset
exists, and they are intended to be settled net or realized simulta-
neously.
341
Financial informationNote 1 Summary of significant accounting policies (continued)
Financial information
Notes to the consolidated financial statements
Current and deferred taxes are recognized as income tax
benefit or expense in the income statement except for current
and deferred taxes recognized (i) upon the acquisition of a sub-
sidiary, (ii) for unrealized gains or losses on financial investments
available-for-sale, for changes in fair value of derivative instru-
ments designated as cash flow hedges, for remeasurements of
defined benefit plans, and for certain foreign currency transla-
tions of foreign operations, (iii) for certain tax benefits on de-
ferred compensation awards, and (iv) for gains and losses on the
sale of treasury shares. Deferred taxes recognized in a business
combination (point (i)) are considered when determining good-
will. Amounts relating to points (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 fixed-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. In most cases, structured
notes issued are designated at fair value through profit or loss us-
ing the fair value option, on the basis that they are managed on a
fair value basis and / or that the structured notes contain an em-
bedded derivative – refer to item 8) for further details on the fair
value option. The fair value option is not applied to certain struc-
tured notes that contain embedded derivatives that reference for-
eign exchange rates and precious metal prices. For these instru-
ments, the embedded derivative component is measured on a fair
value basis and the related underlying debt host component is
measured on an amortized cost basis, with both components pre-
sented together within Debt issued.
Debt issued and subsequently repurchased in relation to mar-
ket making or other activities is treated as redeemed. A gain or
loss on redemption is recorded in Other income depending on
whether the repurchase price of the bond is lower or higher than
its carrying value. A subsequent sale of own bonds in the market
is treated as a reissuance of debt. Interest expense on debt instru-
ments measured at amortized cost is included in Interest on debt
issued. Refer to Note 21 for further details on debt issued.
24) Pension and other post-employment benefit plans
UBS sponsors a number of post-employment benefit plans for its
employees worldwide, which include defined benefit and defined
contribution pension plans, and other post-employment benefits
such as medical and life insurance benefits that are payable after
the completion of employment.
Defined benefit pension plans
Defined benefit pension plans specify an amount of benefit that
an employee will receive, which is usually dependent on one or
more factors such as age, years of service and compensation.
The defined benefit liability recognized in the balance sheet is
the present value of the defined benefit obligation less the fair
value of the plan assets at the balance sheet date. If the fair value
of the plan assets is higher than the present value of the defined
benefit obligation, the measurement of the resulting defined
benefit asset is limited to the present value of economic benefits
available in the form of refunds from the plan or reductions in
future contributions to the plan. UBS applies the projected unit
credit method to determine the present value of its defined ben-
efit obligations, the related current service cost and, where ap-
plicable, past service cost. These amounts, which take into ac-
count the specific features of each plan including risk sharing
between the employee and employer, are calculated periodically
by independent qualified actuaries. Further information on the
plans and the principal actuarial assumptions used are set out in
Note 30.
Defined contribution plans
A defined contribution plan is a pension plan under which UBS
pays fixed contributions into a separate entity from which post-
employment and other benefits are paid. UBS has no legal or con-
structive obligation to pay further contributions if the plan does
not hold sufficient assets to pay employees the benefits relating to
employee service in the current and prior periods. UBS’s contribu-
tions 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 payments is
available.
Other post-retirement benefits
UBS also provides post-retirement medical and life insurance ben-
efits to certain retirees in the US and the UK. The expected costs
of these benefits are recognized over the period of employment
using the same accounting methodology used for defined benefit
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, including those employees who
meet full career retirement criteria, are considered vested at the
grant date. Compensation expense is fully recognized on the
342
Note 1 Summary of significant accounting policies (continued) grant date, or in a period prior to the grant date if it 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. Where no
future service is required, forfeiture events occurring after the
grant date do not result in a reversal of compensation expense
because the related services have been received.
Plans requiring future service have either a tiered vesting struc-
ture, which vest in increments over a specified period or a cliff vest-
ing structure, which vest at the end of a specified period. Compen-
sation expense is recognized over the service period on a tiered
basis for awards that have a tiered 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, compensation expense is recog-
nized over the period from grant date to the retirement eligibility or
redundancy date. Forfeiture of these awards that occurs during the
service period results in a reversal of compensation expense.
Awards settled in UBS shares or options are classified as equity
instruments. The fair value of an equity-settled award is deter-
mined at the date of grant and is not subsequently remeasured,
unless its terms are modified such that the fair value immediately
after modification exceeds the fair value immediately prior to
modification. Any increase in fair value resulting from a modifica-
tion is recognized as compensation expense, either over the re-
maining service period or, for vested awards, immediately.
Cash-settled awards are classified as liabilities and are remea-
sured to fair value at each balance sheet date as long as the award
is outstanding. Changes in fair value are reflected in compen sation
expense and, on a cumulative basis, no compensation expense is
recognized for awards that expire worthless or remain unexercised.
Details of the determination of fair value for equity participa-
tion plans are disclosed in Note 31.
Other compensation plans
UBS has established other fixed and variable deferred compensa-
tion plans, the values of which are not linked to UBS’s own eq-
uity. Deferred cash compensation plans are either mandatory or
discretionary plans and include awards based on a notional cash
amount, where ultimate payout is fixed or may vary based on
achievement of performance conditions. Compensation expense
is recognized over the period that the employee is required to
provide services in order to earn the award. If the employee is not
required to provide future services, such as for awards granted to
employees who are retirement eligible, including those employ-
ees who meet full career retirement criteria, compensation ex-
pense is recognized on or prior to the grant date. The amount
recognized during the service period is based on an estimate of
the amount expected to be paid out under the plan, such that
cumulative expense recognized ultimately equals the cash distrib-
uted to employees. For awards in the form of alternative invest-
ment vehicles or similar structures, which provide employees with
a payout based on the value of specified underlying assets, the
initial value is based on the fair value on the grant date of the
underlying assets (e.g. money market funds, UBS and non-UBS
mutual funds and other UBS-sponsored funds). This initial value
is recognized over the period that the employee provides service
to become entitled to the award. These awards are remeasured
to fair value at each reporting date until the award is distributed.
Changes in fair value, including increases and decreases in value,
are recognized proportionate to the elapsed service period. For-
feiture of these awards results in the reversal of compensation
expense.
➔ Refer to “Note 31 Equity participation and other compensation
plans” for more information
26) Amounts due under unit-linked investment contracts
Financial liabilities from unit-linked investment contracts are pre-
sented as Other liabilities on the balance sheet (refer to Note 22).
These contracts allow investors to invest in a pool of assets
through issued investment units. The unit holders receive all re-
wards and bear all risks associated with the reference asset pool.
The financial liability represents the amounts due to unit holders
and is equal to the fair value of the reference asset pool. Assets
held under unit-linked investment contracts are presented as
Trading portfolio assets (refer to Note 12).
27) Provisions
Provisions are liabilities of uncertain timing or amount, and are
recognized when UBS has a present obligation as a result of a past
event, it is probable that an outflow of resources will be required
to settle the obligation, and a reliable estimate of the amount of
the obligation can be made.
The majority of UBS’s provisions relate to litigation, regulatory
and similar matters, restructuring costs, employee benefits, real
estate and loan commitments and guarantees. Provisions that are
similar in nature are aggregated to form a class, while the remain-
ing provisions, including those of less significant amounts, are
presented under Other provisions. Provisions are presented sepa-
rately on the balance sheet and, when they are no longer consid-
ered uncertain in timing or amount, are reclassified to Other liabil-
ities-Other (refer to Note 22).
The Group recognizes provisions for litigation, regulatory and
similar matters when, in the opinion of management after seek-
ing legal advice, it is more likely than not that the Group has a
present legal or constructive obligation as a result of past events,
it is probable that an outflow of resources will be required, and
the amount can be reliably estimated.
Restructuring provisions are recognized when a detailed and
formal restructuring plan has been approved and a valid expecta-
tion has been raised that the restructuring will be carried out, ei-
ther through commencement of the plan or announcements to
affected employees.
343
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the consolidated financial statements
Provisions are recognized for lease contracts if the unavoidable
costs of a contract exceed the benefits expected to be received
under it (onerous lease contracts). For example, this may occur
when a significant portion of leased property is expected to be
vacant for an extended period.
Provisions for employee benefits are recognized mainly in re-
spect of service anniversaries and sabbatical leave.
Provisions are recognized at the best estimate of the consider-
ation required to settle the present obligation at the balance sheet
date. Such estimates are based on all available information and
are revised over time as more information becomes available. If
the effect of the time value of money is material, provisions are
discounted and measured at the present value of the expenditure
expected to settle or discharge the obligation, using a rate that
reflects the current market assessments of the time value of mon-
ey and the risks specific to the obligation.
A provision is not recognized when UBS has a present obliga-
tion that has arisen from past events but it is not probable that an
outflow of resources will be required to settle it, or a sufficiently
reliable estimate of the amount of the obligation cannot be made.
Instead, a contingent liability is disclosed. Contingent liabilities are
also disclosed for possible obligations that arise from past events
whose existence will be confirmed only by uncertain future events
not wholly within the control of UBS (refer to Note 23).
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 classi-
fied as equity instruments are recognized in and deducted from
Equity as “Transaction costs related to share issuances, net of tax”.
Non-controlling interests
Net profit and Equity are presented including non-controlling in-
terests. Net profit is split into Net profit attributable to UBS share-
holders and Net profit attributable to non-controlling interests.
Equity is split into Equity attributable to UBS shareholders and
Equity attributable to non-controlling interests.
UBS AG shares held (“treasury shares”)
UBS AG shares held by the Group are 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.
Net cash settlement contracts
Contracts on UBS AG shares that require net cash settlement, or
provide the counterparty or UBS with a settlement option which
includes a choice of settling net in cash, are classified as held for
trading, with changes in fair value reported in the income state-
ment as Net trading income.
Contracts with mandatory gross physical settlement
UBS issues contracts with mandatory gross physical settlement in
UBS AG shares where a fixed amount of shares is exchanged
against a fixed amount of cash or another financial asset.
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 financial liability booked against Equity. The financial liability
is subsequently accreted, using the EIR method, over the life of
the contract to the nominal purchase obligation with the amount
recognized in Interest expense. Upon settlement of the contract,
the liability is derecognized against the consideration paid, and
the amount of equity originally recognized as a liability is reclassi-
fied within Equity to Treasury shares. The premium received for
writing such put options is recognized directly in Share premium.
All other contracts with mandatory gross physical settlement in
UBS AG shares are presented in Equity as Share premium and ac-
counted 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.
Trust preferred securities issued
UBS has issued trust preferred securities through consolidated
preferred funding trusts which hold debt or equity issued by UBS
AG. UBS AG has fully and unconditionally guaranteed all contrac-
tual payments on these securities. UBS’s obligations under these
guarantees are subordinated to the full prior payment of the de-
posit liabilities of UBS and all other liabilities of UBS. The trust
preferred securities represent equity instruments which are held
by third parties and treated as non-controlling interests in UBS’s
consolidated financial statements. Once a coupon payment be-
comes mandatory, i.e., when it is triggered by a contractually de-
fined event, the full dividend payment obligation on these trust
preferred securities issued is reclassified from Equity to a corre-
sponding liability. In the income statement the full dividend pay-
ment is reclassified from Net profit attributable to UBS sharehold-
ers to Net profit attributable to non-controlling interests at that
time.
29) Discontinued operations and non-current assets held for sale
UBS presents discontinued operations in a separate line in the in-
come statement if an entity or a component of an entity has been
disposed of or is classified as held for sale and a) represents a
separate major line of business or geographical area of opera-
tions, b) is part of a single coordinated plan to dispose of a sepa-
rate major line of business or geographical area of operations, or
c) is a subsidiary acquired exclusively with a view to resale (e.g.
certain private equity investments). Net profit from discontinued
344
Note 1 Summary of significant accounting policies (continued) operations includes the net total of operating profit and loss be-
fore tax from discontinued operations (including net gain or loss
on sale before tax or measurement to fair value less costs to sell)
and discontinued operations tax expense. A component of an en-
tity comprises operations and cash flows that can be clearly distin-
guished, operationally and for financial reporting purposes, from
the rest of UBS’s operations and cash flows. If an entity or a com-
ponent of an entity is classified as a discontinued operation, UBS
restates prior periods in the income statement.
UBS classifies individual non-current assets and disposal groups
as held for sale if such assets or disposal groups are available for
immediate sale in their present condition subject to terms that are
usual and customary for sales of such assets or disposal groups
and their sale is considered highly probable. For a sale to be high-
ly probable, management must be committed to a plan to sell
such assets and must be actively looking for a buyer. Furthermore,
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. Non-current assets and liabilities of
subsidiaries are classified as held for sale if their carrying amount
will be recovered principally through a sale transaction rather than
through continuing use.
30) Leasing
UBS enters into lease contracts, or contracts that include lease
components, predominantly of premises and equipment, primar-
ily as lessee. Leases that transfer substantially all the risks and re-
wards incidental to the ownership of assets, but not necessarily
legal title, are classified as finance leases. All other leases are clas-
sified as operating leases.
Assets leased pursuant to finance leases are recognized on the
balance sheet in Property and equipment and are amortized over
the lesser of the useful life of the asset or the lease term, with
corresponding amounts payable included in Due to banks / cus-
tomers. Finance charges payable are recognized in Net interest
income over the period of the lease based on the interest rate
implicit in the lease on the basis of a constant yield.
Lease contracts classified as operating leases where UBS is the
lessee are disclosed in Note 26. These contracts include non-can-
cellable long-term leases of office 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 with
control of the physical use of the property. Lease incentives are
treated as a reduction of rental expense and are recognized on a
consistent basis over the lease term.
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 the incep-
tion of the arrangement whether the fulfillment of the arrange-
ment is dependent on the use of a specific asset or assets and, if
so, the arrangement is accounted for as a lease.
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 catego-
ries: fees earned from services that are provided over a certain
period of time (for example, investment fund fees, portfolio man-
agement and advisory fees) and fees earned from providing trans-
action-type services (for example, underwriting fees, corporate
finance fees and brokerage fees). 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 specific performance criteria. Such
fees are recognized when the performance criteria are fulfilled
and when collectability is reasonably assured. Fees earned from
providing transaction-type services are recognized when the ser-
vice has been completed.
Loan commitment fees on lending arrangements, where there
is an initial expectation that the facility will be drawn down, 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. Where the
initial expectation that the facility will be drawn down is remote,
the loan commitment fees are recognized on a straight line basis
over the commitment period. If, subsequently, the commitment is
actually exercised, the unamortized component of the loan com-
mitment fees are amortized as an adjustment to the effective yield
over the life of the loan.
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
monetary assets and liabilities denominated in foreign currency
are translated to the functional currency using the closing ex-
change rate. Non-monetary items measured at historical cost are
translated at the exchange rate on the date of the transaction.
Foreign exchange differences on financial investments available-
for-sale are recorded directly in Equity until the asset is sold or
becomes impaired, with the exception of translation differences
on the amortized cost of monetary financial investments avail-
able-for-sale which are reported in Net trading income, along
with all other foreign exchange differences on monetary assets
and liabilities.
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. The resulting foreign exchange differences are rec-
ognized directly in Foreign currency translation within Equity.
345
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the consolidated financial statements
When a foreign operation is disposed of such that control, sig-
nificant influence or joint control is lost, or the operation is liqui-
dated, the cumulative amount in Foreign currency translation
within Equity related to that foreign operation is reclassified to
profit or loss as part of the gain or loss on disposal. When UBS
disposes of a portion of its interest in a subsidiary that includes a
foreign operation but retains control, the related portion of the
cumulative currency translation balance is reclassified to Non-con-
trolling interests. When UBS disposes of a portion of its invest-
ment in an associate or joint venture that includes a foreign op-
eration while retaining significant influence or joint control, the
related portion of the cumulative currency translation balance is
reclassified to profit or loss.
33) Earnings per share (EPS)
Basic earnings per share are calculated by dividing the net profit
or loss for the period attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during
the period.
Diluted earnings per share are calculated using the same meth-
od as for basic EPS and adjusting the net profit or loss for the
period attributable to ordinary shareholders and the weighted av-
erage number of ordinary shares outstanding to reflect the poten-
tial dilution that could occur if options, warrants, convertible debt
securities or other contracts to issue ordinary shares were con-
verted or exercised into ordinary shares.
34) Segment reporting
UBS‘s businesses are organized globally into five business divi-
sions: Wealth Management, Wealth Management Americas, the
Investment Bank, Global Asset Management and Retail & Corpo-
rate, supported by the Corporate Center. The five business divi-
sions qualify as reportable segments for the purpose of segment
reporting and, together with the Corporate Center and its com-
ponents, reflect the management structure of the Group. Addi-
tionally, Legacy Portfolio and Core Functions are disclosed sepa-
rately under the Corporate Center. Legacy Portfolio meets the
definition of an operating segment and is disclosed as a report-
able segment. Financial information about the five business divi-
sions and the Corporate Center (with its components) is present-
ed separately in internal management reports to the Group
Executive Board, which is considered the “chief operating deci-
sion maker” within the context of IFRS 8 Operating Segments.
Fee arrangements between the Corporate Center – Core Func-
tions and the reportable segments are adjusted on a periodic basis
and differences may arise between actual costs incurred and
amounts recharged. These differences, together with own credit
gains and losses on financial liabilities designated at fair value
which are excluded from the measurement of performance of
the business divisions, are considered reconciling differences to
UBS Group results and are reported collectively under Corporate
Center – Core Functions. To increase transparency, the costs from
Corporate Center – Core Functions 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 internally determined allocation bases.
UBS’s internal accounting policies, which include management
accounting policies and service level agreements, determine the
revenues and expenses directly attributable to each reportable
segment. Internal charges and transfer pricing adjustments are
reflected in operating results of the reportable segments.
Revenue-sharing agreements are used to allocate external cli-
ent revenues to reportable segments where several reportable
segments are involved in the value-creation chain. Commissions
are credited to the reportable segments based on the correspond-
ing client relationship.
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 Group
Treasury, and the net interest margin is reflected in the results
of each reportable segment. Interest income earned from manag-
ing UBS’s consolidated equity is allocated to the reportable seg-
ments based on average attributed equity.
In line with internal management reporting, segment assets
are reported without intercompany balances on a third-party view
basis. Refer to Note 2a for further details. For the purpose of seg-
ment reporting under IFRS 8, the non-current assets consist of
investments in associates and joint ventures, goodwill, other in-
tangible assets and plant, property and equipment.
35) Netting
UBS nets financial assets and liabilities on its balance sheet if it has
a currently 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, for example, OTC interest rate swaps transacted with the
London Clearing House, netted by currency and across maturity
dates, repurchase and reverse repurchase transactions entered
into with the both the London Clearing House and the Fixed In-
come Clearing Corporation, netted by counterparty, currency,
central securities depository and maturity, as well as transactions
with various other counterparties, exchanges and clearinghouses.
346
Note 1 Summary of significant accounting policies (continued) Effective in 2012
IAS 19 (revised) Employee Benefits
In June 2011, the IASB issued revisions to IAS 19 Employee Bene-
fits (“IAS 19R” or “the revised standard”). During 2012, UBS ad-
opted IAS 19R retrospectively in accordance with the transitional
provisions set out in the standard. The revised standard introduces
changes to the recognition, measurement, presentation and dis-
closure of post-employment benefits. IAS 19R eliminates the
“corridor method”, under which the recognition of actuarial
gains and losses was deferred. Instead, the full defined benefit
obligation net of plan assets is now recorded on the balance
sheet, with changes resulting from remeasurements recognized
immediately in other comprehensive income. The measurement
of the defined benefit obligation takes into account risk sharing
features, such as those within our Swiss pension plan. In addition,
IAS 19R requires net interest expense / income to be calculated as
the product of the net defined benefit liability / asset and the dis-
count rate as determined at the beginning of the year. The effect
of this is to remove the previous concept of recognizing an ex-
pected return on plan assets. The revised standard also enhances
the disclosure requirements for defined benefit plans, requiring
more information about the characteristics of such plans and the
risks to which entities are exposed through participation in those
plans, as set out in Note 30.
The opening balance sheet as of 1 January 2010 and the com-
parative figures have been presented as if IAS 19R had always
been applied. The effect of adoption on prior periods is shown in
the tables below. Had UBS not adopted IAS 19R, total equity
would have been higher by CHF 3,948 million as of 31 December
2012, the amounts in other comprehensive income would not
have been recognized, and for the year ended 31 December 2012
profit before tax would have been CHF 320 million lower and basic
and diluted earnings per share would have been CHF 0.08 lower.
Effect on total comprehensive income
Effect on the income statement
Effect on other comprehensive income
CHF million
Personnel
expenses
Tax expense /
(benefit)
Net
profit /
(loss)
Gains / (losses)
on defined
benefit plans,
before tax
Income tax
relating to
gains / losses
on defined
benefit plans
Foreign
currency
translation
movements,
before tax
Income tax
relating to
foreign
currency
translation
movements
Other
com pre-
hensive
income
Total
compre-
hensive
income
Amount previously reported
for the year 2010
Change in reported figures for the year
Restated amount for the year 2010
Amount previously reported
for the year 2011
Change in reported figures for the year
16,920
111
17,031
15,591
43
Restated amount for the year 2011
15,634
(381)
(29)
(409)
923
(22)
901
7,838
(82)
7,756
4,427
(21)
4,406
0
124
124
0
(2,141)
(2,141)
0
(3)
(3)
0
321
321
(951)
211
(740)
995
(10)
985
121
(33)
88
(6)
26
20
(1,354)
299
(1,055)
3,030
(1,804)
1,226
6,484
217
6,701
7,457
(1,825)
5,632
Effect on earnings per share
CHF
For the year ended 31 December 2010
For the year ended 31 December 2011
Basic earnings per share
Diluted earnings per share
As originally
reported
Effect on basic
earnings per share
Restated basic
earnings per share
As originally
reported
Effect on diluted
earnings per share
Restated diluted
earnings per share
1.99
1.10
(0.02)
0.00
1.97
1.10
1.96
1.08
(0.02)
0.00
1.94
1.08
347
Financial informationNote 1 Summary of significant accounting policies (continued)b) Changes in accounting policies, comparability and other adjustments Financial information
Notes to the consolidated financial statements
Effect on the balance sheet
CHF million
Balance previously reported as of 31 December 2009 / 1 January 2010
Cumulative effect for prior periods
Restated balance as of 31 December 2009 / 1 January 2010
Balance previously reported as of 31 December 2010
Cumulative effect for prior periods
Change in reported figures for the year
Restated balance as of 31 December 2010
Balance previously reported as of 31 December 2011
Cumulative effect for prior periods
Change in reported figures for the year
Restated balance as of 31 December 2011
Other assets
Deferred
tax assets
Other liabilities 1
Total equity
23,682
(3,040)
20,642
22,681
(3,040)
(134)
19,506
12,465
(3,174)
(126)
9,165
8,868
741
9,609
9,522
741
(1)
10,262
8,526
740
361
9,627
69,943
1,010
70,954
62,015
1,010
(352)
62,674
60,066
658
2,060
62,784
48,633
(3,309)
45,324
51,863
(3,309)
217
48,770
57,852
(3,092)
(1,825)
52,935
1 “Balances previously reported” differ from those originally published in annual reports as provisions are now separately presented on the balance sheet and no longer as part of other liabilities.
Effect on personnel expense by business division and Corporate Center 1
CHF million
Amount previously reported for the year 2010
Change in reported figures for the year
Restated amount for the year 2010
Amount previously reported for the year 2011
Change in reported figures for the year
Restated amount for the year 2011
Wealth
Management
Wealth
Management
Americas
Investment
Bank
Global Asset
Management
Retail &
Corporate
Corporate
Center
UBS Group
3,153
75
3,228
3,258
43
3,300
4,225
(9)
4,216
3,840
(10)
3,830
6,623
(18)
6,605
5,740
(24)
5,716
1,096
1
1,097
955
(2)
954
1,625
62
1,687
1,666
35
1,702
197
0
197
132
0
132
16,920
111
17,031
15,591
43
15,634
1 “Amounts previously reported” differ from those originally published in annual reports (for example due to organizational changes) as provisions are now separately presented on the balance sheet and no longer as
part of Other liabilities.
Amendments to IFRS 7 Financial instruments: Disclosures
In October 2010, the IASB issued revised IFRS 7 Financial Instru-
ments: Disclosures to provide additional disclosures regarding
transfers of financial assets, including those transfers in which an
entity retains a continuing interest in the transferred asset(s) at
the reporting date. The amendments are intended to allow users
of financial statements to improve their understanding of transfer
transactions of financial 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 adopted the revisions to IFRS 7 as of 1 January 2012 in
accordance with the transitional provisions set out in the stan-
dard, and these disclosures are reflected in Note 28 of the finan-
cial statements. In conjunction with the implementation of the
revised standard, the Group has refined its definition of the term
“transfer” for disclosure purposes to exclude pledges and similar
arrangements where the counterparty does not receive rights to
sell or re-pledge the financial asset. As a result, the comparative
2011 figures have been restated for transferred financial assets in
Note 28b from CHF 118.5 billion to CHF 39.9 billion.
In Notes 28a and 28d, we have modified our presentation of
pledged assets in order to differentiate those which are executed
in association with liabilities and contingent liabilities and those
that are not. Additionally, financial assets held by the Group and
reserved for purposes of securing liquidity facilities from central
banks, but which are not associated with existing liabilities or
contingent liabilities, have been excluded from pledged financial
assets in Note 28a and 28d. As a result, the comparative figures
presented in Note 28a have been restated downwards by CHF
31 billion and the comparative figures in Note 28d have been
restated downwards by CHF 6 billion.
Annual Improvements to IFRSs 2009–2011
In May 2012, the IASB issued six amendments to five IFRS as part
of its annual improvements project. Of these amendments, the
amendment to IAS 1 clarifies the requirements for the presenta-
348
Note 1 Summary of significant accounting policies (continued) tion of comparative information when an entity presents an ad-
ditional comparative period. The Group has adopted the amend-
ment to IAS 1 in 2012, ahead of its mandatory effective date of
1 January 2013 in accordance with the transitional provisions of
the standard. Accordingly, due to the adoption of IAS 19R on a
retrospective basis, UBS has presented an additional comparative
period for the balance sheet as at the beginning of 2011, but
there is no information in the notes to the balance sheet for this
additional comparative period.
The remaining amendments will be adopted as of 1 January
2013. These amendments are not expected to have a material
effect on the financial statements.
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 the now withdrawn SIC Interpretation 21 Income Taxes – Re-
covery of Revalued Non-Depreciable Assets.
IAS 12 generally requires an entity to measure the deferred tax
related to assets reflecting the tax consequences that would follow
from the manner in which the entity expects to recover their carry-
ing 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 assets
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. UBS ad-
opted the amendments effective 1 January 2012 in accordance
with the transitional provisions of the standard. The adoption did
not have a material impact on the financial statements.
Interests in non-consolidated funds
In 2012, UBS changed its accounting policy for the recognition of
foreign currency translation gains and losses arising from certain
financial investments available-for-sale. All investments in funds
that are considered debt instruments under the requirements of
IAS 32 are now treated as monetary items and foreign currency
translation gains and losses on such investments are recorded in
the income statement, rather than in other comprehensive income
as would be the case for non-monetary items. This revised account-
ing policy is considered more relevant as it aligns the definition of
debt instruments in IAS 32 with the definition of monetary items in
IAS 21. The change in accounting policy was applied retrospec-
tively and due to the prior application of fair value hedges of for-
eign currency risk, had no effect on prior period amounts.
Changes to reporting segments
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank’s two reportable segments –
Wealth Management and Retail & Corporate – became separate
business divisions at the start of 2012. As these new business
divisions were already considered separate reportable segments,
no adjustments were required to segmental results.
Investment Bank
On 30 December 2011, a portfolio of legacy positions was trans-
ferred from the Investment Bank to the Corporate Center. Com-
mencing in the first quarter of 2012, this portfolio, together with
the option to buy the equity of the SNB StabFund, has been con-
sidered a separate reportable segment within the Corporate Cen-
ter and designated as the Legacy Portfolio. Prior periods have
been restated.
In conjunction with the accelerated implementation of UBS’s
strategy announced in October 2012, the Asset Liability Manage-
ment unit was transferred from the Investment Bank to Group
Treasury within the Corporate Center in the fourth quarter of
2012. Prior periods have been restated to reflect this transfer, and
profit and loss amounts associated with the ongoing business ac-
tivities of Asset Liability Management have been fully allocated
back to the Investment Bank.
Own credit
Effective 2012, the measurement of the performance of the business
divisions excludes own credit gains and losses on financial liabilities
designated at fair value. This reflects the fact that these gains and
losses are not managed at a business division level and are not neces-
sarily indicative of any business division’s performance. In line with
these internal reporting changes, own credit gains and losses are
now reported as part of Corporate Center – Core Functions. Prior
periods have been restated to conform to this presentation.
Group Treasury managed assets
In 2012, management changed the methodology used to allocate
certain financial assets and their corresponding costs managed by
Group Treasury. Prior periods were not restated for this change
and the impact from the change in cost allocation methodology
was not material to the reporting segment results.
Centralization of operations units in the Corporate Center
In 2012, operations units from the business divisions were central-
ized in the Corporate Center as part of UBS’s ongoing efforts to
improve our operational effectiveness and heighten our cost effi-
ciency across the firm. Prior to this centralization, charges for op-
erations support provided from one division to another were
shown in the respective division’s income statement as services
to / from other business divisions without any allocation of the re-
lated headcount. With effect from 1 July 2012 on a prospective
basis, charges from the centralized operations units have been
allocated to the business divisions and shown in the respective
expense lines of the reportable segments and the related head-
count has been allocated to the business divisions. Prior to the
transfer to the Corporate Center, Retail & Corporate operations
349
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the consolidated financial statements
staff provided significant support to other business divisions in
Switzerland. Accordingly, the transfer had the effect of increasing
personnel and non-personnel expenses as well as decreasing
charges for services from other business divisions at Wealth Man-
agement, the Investment Bank and Global Asset Management,
and of decreasing personnel and non-personnel expenses as well
as income from services provided to other divisions at Retail &
Corporate. As a result of the centralization, as of 1 July 2012, al-
locations of personnel increased by approximately 800 in Wealth
Management, 250 in the Investment Bank and 50 in Global Asset
Management, with a corresponding decrease of 1,100 in Retail &
Corporate.
IFRS 9 Financial Instruments
In November 2009, the IASB issued IFRS 9 Financial Instruments,
which includes revised guidance on the classification and mea-
surement of financial assets. In October 2010, the IASB updated
IFRS 9 to include guidance on financial liabilities and derecogni-
tion of financial instruments. The publication of IFRS 9 represent-
ed the completion of the first part of a multi-stage project to re-
place IAS 39 Financial Instruments: Recognition and Measurement.
The standard requires all financial assets to be classified as fair
value through profit or loss or at amortized cost on the basis of
the entity’s business model for managing the financial assets and
the contractual cash flow characteristics of the financial asset. If a
financial asset meets the criteria to be measured at amortized
cost, it can be designated at fair value through profit or loss under
the fair value option if doing so would significantly reduce or
eliminate an accounting mismatch. Equity instruments that are
not held for trading may be accounted for at fair value through
other comprehensive income (OCI).
The accounting guidance for financial liabilities is unchanged
with one exception: changes in fair value due to changes in an
entity’s own credit risk associated with financial liabilities desig-
nated at fair value through profit or loss are directly recognized in
OCI instead of in profit and loss. There is no subsequent recycling
of realized gains or losses from OCI to profit or loss.
In December 2011, the IASB issued amendments to IFRS 9
Financial Instruments that defer the mandatory effective date
from 1 January 2013 to 1 January 2015. The amendments also
provide relief from the requirement to restate comparative infor-
mation for the effect of applying IFRS 9. Early adoption of IFRS 9
is still permitted.
In 2012, the IASB issued additional exposure drafts, amending
IFRS 9 for hedge accounting and proposing extensive changes to
the classification and measurement model described including the
introduction of a new measurement category for financial assets
that are managed both in order to collect contractual cash flows
and for sale. This new measurement category will require the asset
to be measured at fair value, with fair value changes being recog-
nized in OCI. Additionally, the amendments propose that entities
may early adopt the own credit risk guidance discussed above.
UBS is currently assessing the impact of the new standard and
the related proposed amendments on the financial statements.
IFRS 10 Consolidated Financial Statements
In May 2011, the IASB issued IFRS 10 Consolidated Financial
Statements, 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 Consolida-
tion – Special Purpose Entities, and portions of IAS 27 Consoli-
dated and Separate Financial Statements. IFRS 10 is based on the
existing principle that an entity should consolidate all other enti-
ties that it controls. The definition of control in IFRS 10 focuses on
the presence of power, exposure to variable returns and the abil-
ity to utilize power to affect an entity’s own returns. The determi-
nation of control is based on current facts and circumstances and
is continuously assessed. IFRS 10 provides additional guidance to
assist in the determination of control in circumstances in which
this assessment is difficult to make. For example, IFRS 10 intro-
duces guidance on assessing whether an entity with decision-
making rights is a principal or an agent.
In October 2012, the IASB issued an amendment to IFRS 10,
providing an exception to consolidation for certain “investment
entities”. Investment entities are those whose business purpose is
to invest funds solely for returns from capital appreciation, invest-
ment income or both. As UBS Group does not itself meet the
definition of an investment entity, the amendments will have no
impact on UBS’s consolidated financial statements.
UBS will adopt IFRS 10 on its mandatory effective date of
1 January 2013 on a limited retrospective basis, as permitted by
the standard. At this time UBS will also early adopt the October
2012 amendments. Upon adoption, UBS will adjust its opening
equity as of 1 January 2012 and the reported figures for 2012 will
be presented as if IFRS 10 had always been applied. The reported
figures for 2011 will not be adjusted and will continue to be pre-
sented in accordance with IAS 27 and SIC 12.
Under IFRS 10, UBS expects a change in consolidation status
associated with certain entities. The Group will now consolidate
certain investment funds where UBS’s exposure to variability indi-
cates that its power as fund manager is in a principal capacity.
UBS will deconsolidate certain entities that were previously con-
solidated due to exposure to a majority of risk and rewards, but
where UBS does not have power over the relevant activities. We
will also deconsolidate certain entities where UBS’s involvement
does not expose it to variable returns from the entity. This includes
350
Note 1 Summary of significant accounting policies (continued)c) International Financial Reporting Standards and Interpretations to be adopted in 2013 and later entities associated with the issuance of trust preferred securities.
As a result, we estimate that had UBS applied IFRS 10 to its 2012
financial report, total assets would have been higher by approxi-
mately CHF 0.6 billion, and total liabilities would have been high-
er by approximately CHF 1.8 billion. Total equity would have been
lower by approximately CHF 1.2 billion. The effect on net profit is
not expected to be material.
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 classification of a joint arrangement under IFRS 11 depends
upon the rights and obligations of the arrangement, rather than
its legal form. The standard addresses inconsistencies in the re-
porting of joint arrangements by eliminating the proportionate
consolidation approach and requiring the equity method to ac-
count for interests in jointly controlled entities. UBS currently ap-
plies the equity method to account for it interests in joint ventures
under IAS 31. As a result, the new standard will not have an im-
pact on the financial statements. UBS will adopt IFRS 11 on its
mandatory effective date of 1 January 2013.
IFRS 12 Disclosure of Interest in Other Entities
In May 2011, the IASB issued IFRS 12 Disclosure of Interests in
Other Entities, which provides new and comprehensive guidance
on the annual disclosure requirements about entities with which
a reporting entity is involved. This includes specific disclosures for
investment entities. IFRS 12 replaces the disclosure requirements
currently included in IAS 28 Investment in Associates. The stan-
dard requires entities to disclose information that helps users to
evaluate the nature, risks and financial effects associated with a
reporting entity’s interests in subsidiaries, associates, joint ar-
rangements and, in particular, unconsolidated structured entities.
The effective date for mandatory adoption is 1 January 2013, with
early adoption permitted. UBS will provide disclosures under IFRS
12 in its 2013 Annual Report.
IFRS 13 Fair Value Measurement
In May 2011, the IASB issued IFRS 13 Fair Value Measurement,
which establishes a single source of guidance for all fair value
measurements under IFRS. It defines 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 mea-
surement date; i.e., an exit price. The standard emphasizes that
fair value is a market-based measurement, not an entity-specific
measurement. It clarifies that the unit of measurement is gener-
ally a particular asset or liability unless an entity manages and re-
ports its net risk exposures on a portfolio basis, in which case it
may elect to apply portfolio-level price adjustments under limited
circumstances. It also introduces new disclosure requirements and
enhancements to existing disclosures.
The effective date for mandatory adoption is 1 January 2013,
with early adoption permitted. IFRS 13 is required to be applied
prospectively from the effective date. UBS does not anticipate
that adoption of the standard will have a material impact on its
financial statements.
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 reclassified to profit
or loss in subsequent periods and those that may not be. The
revised standard reaffirms existing requirements that items in OCI
and profit or loss should be presented as either a single statement
or two consecutive statements. Historically, all items in our OCI
could be recycled to profit or loss, but this has changed with the
adoption of IAS 19 (revised) Employee Benefits and will also be
affected by IFRS 9 Financial Instruments, as both of these account-
ing standards will generate OCI items that will not be recycled to
profit or loss in subsequent periods. UBS will adopt the revised
standard on its mandatory effective date of 1 January 2013, re-
sulting in revised presentation in the statement of comprehensive
income.
IAS 32 Financial Instruments: Presentations and IFRS 7 Financial
Instruments: Disclosures
In December 2011, the IASB amended the presentation guidelines
and disclosures related to offsetting financial assets and financial
liabilities by issuing amendments to IAS 32 Financial Instruments:
Presentation and IFRS 7 Financial Instruments: Disclosures.
The amendments to IAS 32 change current practice by requir-
ing that, to achieve offsetting on the balance sheet, an arrange-
ment must be unconditional and legally enforceable, both in the
normal course of business and in the event of default, bankruptcy
or insolvency of the entity and all counterparties. The amend-
ments also provide incremental guidance for determining when
gross settlement systems achieve the functional equivalent of net
settlement.
The IASB simultaneously issued disclosure requirements in-
tended to enable users to assess the effect (or potential effect) of
offsetting arrangements on an entity’s financial position. The
amendments to IFRS 7 Financial Instruments: Disclosures require
that entities disclose both gross and net amounts associated with
master netting agreements and similar arrangements, including
the effects of financial collateral, whether or not presented net on
the face of the balance sheet.
UBS is currently assessing the impact of the revised standards
on its financial statements. The amendments to IAS 32 are effec-
tive for annual periods beginning on or after 1 January 2014, with
earlier adoption permitted. The amendments to IFRS 7 are effec-
tive from 1 January 2013. Both amendments are required to be
adopted retrospectively.
351
Financial informationNote 1 Summary of significant accounting policies (continued) Financial information
Notes to the consolidated financial statements
UBS AG is the parent company of the UBS Group (Group). The
operational structure of the Group comprises the Corporate
Center and five business divisions: Wealth Management, Wealth
Management Americas, the Investment Bank, Global Asset
Management and Retail & Corporate. The five business divisions
qualify as reportable segments for the purpose of segment re-
porting and, together with the Corporate Center and its compo-
nents, reflect the management structure of the Group. Addition-
ally, Legacy Portfolio and Core Functions are disclosed separately
under the Corporate Center. Legacy Portfolio meets the defini-
tion of an operating segment and is disclosed as a reportable
segment.
Wealth Management
Wealth Management provides comprehensive financial services to
wealthy private clients around the world – except those served by
Wealth Management Americas. Its clients benefit from the entire
spectrum of UBS resources, ranging from investment management
to estate planning and corporate finance advice, in addition to spe-
cific wealth management products and services. An open product
platform provides clients with access to a wide array of products
from third-party providers that complement UBS’s product lines.
Wealth Management Americas
Wealth Management Americas provides advice-based solutions
through financial advisors who deliver a fully integrated set of
products and services specifically designed to address the needs
of ultra high net worth 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.
Investment Bank
The Investment Bank provides a range of products and services in
equities, fixed income, foreign exchange and commodities to cor-
porate and institutional clients, sovereign and government bod-
ies, financial intermediaries, alternative asset managers and UBS’s
wealth management clients. The Investment Bank is an active par-
ticipant in capital markets flow activities, including sales, trading
and market-making across a range of securities. It provides finan-
cial solutions to its clients, and offers advisory and analytics ser-
vices in all major capital markets.
Global Asset Management
Global Asset Management is a large-scale asset manager with
businesses diversified across regions, capabilities and distribution
channels. It offers investment capabilities and styles across all ma-
jor traditional and alternative asset classes including equities,
fixed income, currencies, hedge funds, real estate, infrastructure
and private equity that can also be combined into multi-asset
strategies. The fund services unit provides professional services,
including fund set-up, accounting and reporting for traditional
investment funds and alternative funds.
Retail & Corporate
Retail & Corporate provides comprehensive financial products and
services to UBS’s retail, corporate and institutional clients in Swit-
zerland and maintains a leading position in these client segments.
It constitutes a central building block of UBS’s universal bank
model in Switzerland, delivering growth to UBS’s other business-
es. It supports them by cross-selling products and services pro-
vided by UBS’s asset-gathering and investment banking business-
es, by referring clients to them and by transferring clients to
Wealth Management due to increased client wealth.
Corporate Center
The Corporate Center provides control functions for the business
divisions and the Group in such areas as risk control, legal and
compliance as well as finance including treasury services, funding,
balance sheet and capital management. The Corporate Center –
Core Functions provides all logistics and support functions includ-
ing information technology, human resources, corporate develop-
initiatives,
ment, Group regulatory relations and strategic
communications and branding, corporate real estate and admin-
istrative services, procurement, physical and information security,
offshoring as well as Group-wide operations. It allocates most of
its 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 op-
tion and the Legacy Portfolio.
352
Note 2a Segment reporting Note 2a Segment reporting 1 (continued)
Transactions between the reportable segments are carried out at internally agreed rates or at arm’s length and are reflected in the per-
formance of each segment. Revenue-sharing agreements are used to allocate external client revenues to a segment and cost-allocation
agreements are used to allocate shared costs between the segments.
CHF million
For the year ended 31 December 2012
Net interest income
Non-interest income
Income 2, 3, 4
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property
and equipment
Impairment of goodwill 6
Amortization and impairment of intangible assets 6
Total operating expenses 7
Performance before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets 8
Additions to non-current assets
Wealth
Management
Wealth
Management
Americas
Investment
Bank
Global Asset
Management
Retail &
Corporate
Corporate Center
UBS
Core
Functions
Legacy
Portfolio
1,951
5,089
7,040
1
7,041
2,865
1,360
243
159
0
7
4,634
2,407
792
5,319
6,110
(14)
6,097
4,252
893
(15)
100
0
51
5,281
816
1,141
7,422
8,564
34
8,598
5,141
2,730
132
257
3,030
41
11,331
(2,734)
(21)
1,905
1,884
0
1,884
885
395
(10)
37
0
8
1,314
570
2,186
1,569
3,756
(27)
3,728
1,287
857
(370)
128
0
0
1,901
1,827
(171)
(2,003)
(2,173)
0
(2,173)
240
1,648 5
2
6
0
0
1,895
(4,068)
116
265
381
(112)
268
68
771
19
2
0
0
861
(592)
5,994
19,567
25,561
(118)
25,443
14,737
8,653
0
689
3,030
106
27,216
(1,774)
461
(2,235)
104,666
63,511
672,329
13,322
145,320
4
1
62
12
45
222,500
1,032
37,584
1,259,232
0
1,158
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information on the adoption of IAS 19R and changes to reporting segments. 2 Impairments of financial investments
available-for-sale for the year ended 31 December 2012 were as follows: Investment Bank CHF 56 million; Global Asset Management CHF 4 million; Corporate Center – Core Functions CHF 2 million; Corporate Center –
Legacy Portfolio CHF 24 million. 3 The total inter-segment revenues for the Group are immaterial as the majority of the revenues are allocated across the business divisions by means of revenue-sharing agree-
ments. 4 Refer to “Note 27 Fair value of financial instruments” for further information on own credit in Corporate Center – Core Functions. 5 Includes charges of approximately CHF 1.4 billion arising from fines and
disgorgement resulting from regulatory investigations concerning LIBOR and other benchmark rates. Refer to “Note 23 Provisions and contingent liabilities” for more information. 6 Refer to “Note 17 Goodwill and
intangible assets” for further information regarding goodwill and other intangible assets by business division. 7 Refer to “Note 37 Changes in organization” for information on restructuring charges. 8 The segment
assets are based on a third-party view, i.e. the amounts do not include inter-company balances. Certain assets managed centrally by the Corporate Center (including property and equipment and certain financial assets)
are allocated to the segments on a basis different to which the corresponding costs are allocated. Specifically, certain assets are reported in the Corporate Center whereas the corresponding costs are entirely or partially
allocated to the segments based on various internally determined allocations.
353
Financial information Financial information
Notes to the consolidated financial statements
Note 2a Segment reporting 1 (continued)
Transactions between the reportable segments are carried out at internally agreed rates or at arm’s length and are reflected in the per-
formance of each segment. Revenue-sharing agreements are used to allocate external client revenues to a segment and cost-allocation
agreements are used to allocate shared costs between the segments.
CHF million
For the year ended 31 December 2011
Net interest income
Non-interest income
Income 2, 3, 4
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property
and equipment
Amortization and impairment of intangible assets 5
Total operating expenses 6
Performance before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets 7
Additions to non-current assets
Wealth
Management
Wealth
Management
Americas
Investment
Bank
Global Asset
Management
Retail &
Corporate
Corporate Center
UBS
Core
Functions
Legacy
Portfolio
1,968
5,666
7,634
11
7,645
3,300
1,192
318
165
37
5,012
2,633
729
4,571
5,300
(6)
5,295
3,830
783
(9)
99
48
4,750
544
1,460
6,521
7,981
(13)
7,968
5,716
2,490
108
251
34
8,599
(631)
(15)
1,817
1,803
0
1,803
954
375
(1)
38
8
1,373
430
2,328
1,858
4,186
(101)
4,085
1,702
834
(470)
136
0
2,201
1,884
(118)
1,702
1,584
(1)
1,583
64
137
(1)
70
0
271
1,313
474
(1,090)
(616)
25
(591)
68
148
56
3
0
276
(866)
6,826
21,046
27,872
(84)
27,788
15,634
5,959
0
761
127
22,482
5,307
901
4,406
100,352
53,870
896,160
15,239
147,117
5
25
109
18
22
148,129
1,013
56,096
1,416,962
1
1,192
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information on the adoption of IAS 19R and changes to reporting segments. 2 Impairments of financial investments
available-for-sale for the year ended 31 December 2011 were as follows: Wealth Management CHF 28 million; Investment Bank CHF 4 million; Corporate Center – Legacy Portfolio CHF 8 million. 3 The total inter-segment
revenues for the Group are immaterial as the majority of the revenues are allocated across the business divisions by means of revenue-sharing agreements. 4 Refer to “Note 27 Fair value of financial instruments” for further
information on own credit in Corporate Center – Core Functions. 5 Refer to “Note 17 Goodwill and intangible assets” for further information regarding goodwill and other intangible assets by business division. 6 Refer
to “Note 37 Changes in organization” for information on restructuring charges. 7 The segment assets are based on a third-party view, i.e. the amounts do not include inter-company balances.
354
Note 2a Segment reporting 1 (continued)
Transactions between the reportable segments are carried out at internally agreed rates or at arm’s length and are reflected in the per-
formance of each segment. Revenue-sharing agreements are used to allocate external client revenues to a segment and cost-allocation
agreements are used to allocate shared costs between the segments.
CHF million
For the year ended 31 December 2010
Net interest income
Non-interest income
Income 2, 3, 4
Credit loss (expense) / recovery
Total operating income
Personnel expenses
General and administrative expenses
Services (to) / from other business divisions
Depreciation and impairment of property
and equipment
Amortization and impairment of intangible assets 5
Total operating expenses 6
Performance from continuing operations
before tax
Performance from discontinued operations
before tax
Performance before tax
Tax expense / (benefit) on continuing operations
Tax expense / (benefit) on discontinued operations
Net profit / (loss)
Additional Information
Total assets 7
Additions to non-current assets
Wealth
Management
Wealth
Management
Americas
Investment
Bank
Global Asset
Management
Retail &
Corporate
Corporate Center
UBS
Core
Functions
Legacy
Portfolio
1,737
5,608
7,345
11
7,356
3,228
1,264
449
163
19
5,123
2,233
0
2,233
695
4,870
5,565
(1)
5,564
4,216
1,223
(6)
198
55
5,685
1,554
10,393
11,947
155
12,102
6,605
2,486
(27)
273
34
9,371
(121)
2,731
0
(121)
0
2,731
(17)
2,075
2,058
0
2,058
1,097
400
(5)
43
8
1,543
515
0
515
2,422
1,524
3,946
(76)
3,870
1,687
836
(509)
146
0
2,160
1,710
0
1,710
(858)
700
(158)
0
(158)
78
167
8
89
0
342
(500)
2
(498)
681
675
1,356
(155)
1,201
119
209
91
5
0
424
777
0
777
6,215
25,845
32,060
(66)
31,994
17,031
6,585
0
918
117
24,650
7,345
2
7,346
(409)
0
7,756
93,847
25
49,777
797,497
15,787
151,563
134,574
71,768
1,314,813
48
27
8
12
467
5
593
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information on the adoption of IAS 19R and changes to reporting segments. 2 Impairments of financial investments
available-for-sale for the year ended 31 December 2010 were as follows: Wealth Management CHF 44 million; Investment Bank CHF 1 million; Global Asset Management CHF 2 million; Corporate Center – Core Functions
CHF (16) million; Corporate Center – Legacy Portfolio CHF 40 million. 3 The total inter-segment revenues for the Group are immaterial as the majority of the revenues are allocated across the business divisions by means
of revenue-sharing agreements. 4 Refer to “Note 27 Fair value of financial instruments” for further information on own credit in Corporate Center – Core Functions. 5 Refer to “Note 17 Goodwill and intangible assets”
for further information regarding goodwill and other intangible assets by business division. 6 Refer to “Note 37 Changes in organization” for information on restructuring charges. 7 The segment assets are based on
a third-party view, i.e. the amounts do not include inter-company balances.
355
Financial information Financial information
Notes to the consolidated financial statements
Note 2b Segment reporting by geographic location
The geographic analysis of operating income and non-current
assets is based on the location of the entity in which the trans-
actions and assets are recorded. The divisions of the Group are
managed on an autonomous basis worldwide, with a focus on
cross-divisional collaboration and the interest of 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.
Total operating income
Total non-current assets
CHF million
Share %
CHF million
Share %
9,668
9,214
3,094
1,639
118
1,456
66
11,041
25,443
38
36
12
6
0
6
0
43
100
6,171
5,752
367
1,494
647
840
7
5,292
13,324
46
43
3
11
5
6
0
40
100
Total operating income
Total non-current assets
CHF million
Share %
CHF million
Share %
9,491
9,324
3,689
3,115
1,385
1,638
92
11,494
27,788
34
34
13
11
5
6
0
41
100
9,038
8,617
407
1,687
653
1,026
8
5,045
16,177
56
53
3
10
4
6
0
31
100
Total operating income
Total non-current assets
CHF million
Share %
CHF million
Share %
11,205
10,752
3,796
4,323
2,791
1,514
17
12,670
31,994
35
34
12
14
9
5
0
40
100
9,082
8,673
394
1,682
594
1,078
10
4,922
16,080
56
54
2
10
4
7
0
31
100
For the year ended 31 December 2012
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
of which: United Kingdom
of which: Rest of Europe
of which: Middle East and Africa
Switzerland
Total
For the year ended 31 December 2011
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
of which: United Kingdom
of which: Rest of Europe
of which: Middle East and Africa
Switzerland
Total
For the year ended 31 December 2010
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
of which: United Kingdom
of which: Rest of Europe
of which: Middle East and Africa
Switzerland
Total
356
Income statement notes
Note 3 Net interest and trading income
CHF million
Net interest and trading income
Net interest income
Net trading income
Total net interest and trading income
Wealth Management
Wealth Management Americas
Investment Bank
of which: investment banking
of which: equities
of which: fixed income, currencies and commodities
Global Asset Management
Retail & Corporate
Corporate Center
of which: own credit on financial liabilities designated at fair value 1
Total net interest and trading income
Net interest income
Interest income
Interest earned on loans and advances 2
Interest earned on securities borrowed and reverse repurchase agreements
Interest and dividend income from trading portfolio
Interest income on financial assets designated at fair value
Interest and dividend income from financial investments available-for-sale
Total
Interest expense
Interest on amounts due to banks and customers
Interest on securities lent and repurchase agreements
Interest expense from trading portfolio 3
Interest on financial liabilities designated at fair value
Interest on debt issued
Total
Net interest income
For the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
5,994
3,480
9,474
2,728
1,265
4,872
16
1,263
3,593
12
2,467
(1,870)
(2,202)
9,474
9,323
1,413
4,482
369
381
15,968
1,413
1,206
2,391
1,762
3,202
9,974
5,994
6,826
4,343
11,169
2,846
1,179
4,010
44
149
3,817
8
2,661
465
1,537
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
2,384
1,266
6,847
11
2,521
4,315
22
2,670
497
(548)
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
(12)
(20)
(15)
(4)
7
21
(64)
748
(6)
50
(7)
(15)
(6)
(18)
(18)
49
(38)
(11)
(31)
(11)
(16)
(12)
10
(10)
(12)
1 For more information on own credit refer to “Note 27 Fair value of financial instruments”. 2 Includes interest income on impaired loans and advances of CHF 16 million for 2012, CHF 20 million for 2011 and
CHF 37 million for 2010. 3 Includes expense related to dividend payment obligations on trading liabilities.
357
Financial information Financial information
Notes to the consolidated financial statements
Note 3 Net interest and trading income (continued)
CHF million
Net trading income
Investment Bank investment banking
Investment Bank equities
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 1, 2
For the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
69
1,032
2,629
(250)
3,480
420
(6,492)
61
173
2,316
1,793
4,343
419
7,437
27
2,556
2,709
2,179
7,471
465
(1,001)
13
497
14
(20)
0
1 For more information on own credit refer to “Note 27 Fair value of financial instruments”. 2 Fair value changes of hedges related to financial liabilities designated at fair value are also reported in Net trading income.
Net trading income in 2012 included a gain of CHF 526 million
from the valuation of the option to acquire the SNB StabFund’s
equity, reflected on the line Other business divisions and Corpo-
rate Center, compared with a CHF 133 million loss in 2011.
➔ Refer to the “Risk management and control” section of this
report for more information on the valuation of the option to
acquire the SNB StabFund’s equity
Net trading income in 2011 included a loss of CHF 1,849 million
due to the unauthorized trading incident reflected in Investment
Bank equities.
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
358
For the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
807
732
1,539
679
3,836
3,626
5,892
451
16,023
414
833
17,270
871
994
1,865
15,405
2,965
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
29
32
30
(32)
(8)
1
6
23
1
(5)
1
1
(7)
7
0
1
(8)
Note 5 Other income
CHF million
Associates and subsidiaries
Net gains / (losses) from disposals of 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
Total other income
For the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
(7)
0
88
81
414
(85)
329
35
4
234
682
(18)
20
42
44
926
(39)
887
38
9
490
1,467
(7)
256
81
331
204
(72)
132
53
8
690
1,214
(61)
(100)
110
84
(55)
118
(63)
(8)
(56)
(52)
(54)
1 Includes foreign exchange gains / losses reclassified from other comprehensive income related to disposed or dormant 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.
Net gains from disposals of financial investments available-for-sale
in 2012 includes gains of CHF 219 million in Wealth Management
Americas’ available-for-sale portfolio as well as a gain of CHF
88 million on the sale of an equity investment in the Investment
Bank. 2011 included a gain of CHF 722 million from the sale of
the strategic investment portfolio, of which CHF 433 million was
allocated to Wealth Management and CHF 289 million to Retail &
Corporate, as well as gains of CHF 81 million in Wealth Manage-
ment Americas’ available-for-sale portfolio.
The line Other included net losses of CHF 11 million on sales of
loans and receivables in 2012, compared with net gains of CHF
344 million in 2011 and CHF 324 million in 2010. Additionally, it
included gains on sales of real estate of CHF 112 million in 2012,
CHF 78 million in 2011 and CHF 158 million in 2010.
Net gains from disposals of investments in associates in 2010
included a gain of CHF 180 million from the sale of investments in
associates owning office space in New York.
359
Financial information Financial information
Notes to the consolidated financial statements
Note 6 Personnel expenses
CHF million
Salaries
Variable compensation – performance awards 1, 2
of which: guarantees for new hires 2
Variable compensation – other 1, 2
of which: replacement payments 3
of which: forfeiture credits
of which: severance payments 2, 4
of which: retention plan and other payments 2
Contractors
Social security
Pension and other post-employment benefit plans 5
Wealth Management Americas: Financial advisor compensation 1, 6
Other personnel expenses
Total personnel expenses 7
For the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
6,814
3,000
134
367
109
(174)
303
128
214
768
18
2,873
682
14,737
6,859
3,516
173
191
121
(215)
239
46
217
743
831
2,518
758
15,634
7,033
4,171
135
141
107
(167)
80
121
232
826
834
2,667
1,127
17,031
(1)
(15)
(23)
92
(10)
(19)
27
178
(1)
3
(98)
14
(10)
(6)
1 Refer to “Note 31 Equity participation and other compensation plans” for more information. 2 In 2012, costs related to guarantees for new hires were reclassified from Variable compensation – other to Variable com-
pensation – performance awards. In addition, costs related to both supplemental severance and certain retention payments were reclassified from Variable compensation – performance awards to Variable compensation
– other. Prior periods were adjusted for these changes. The combined impact of these changes resulted in a net increase to Variable compensation – performance awards of CHF 125 million and CHF 89 million for the year
ended 31 December 2011 and for the year ended 31 December 2010, respectively, with a corresponding net decrease to Variable compensation – other. 3 Replacement payments are payments made to compensate em-
ployees for deferred awards forfeited as a result of joining UBS. 4 Includes legally obligated and standard severance payments, as well as supplemental severance payments. 5 Refer to “Note 30 Pension and other post-
employment benefit plans” for more information. 6 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. 7 Includes net restructuring charges of CHF 358 million for the year ended 31 December 2012 and CHF 261 million for the year ended 31 December 2011, and
includes net restructuring provisions releases of CHF 2 million for the year ended 31 December 2010. Refer to “Note 37 Changes in organization” for more information.
In 2012, IAS 19R was adopted. Prior period information for the
expense line Pension and other post-employment benefit plans
was restated accordingly. Refer to “Note 1b Changes in account-
ing policies, comparability and other adjustments” for more infor-
mation.
In the first quarter of 2012, UBS announced certain changes to
its Swiss pension plan. The main changes, being the reduction in
the conversion rate on retirement and an increase to the regular
retirement age, serve in part to offset the impact of the increased
life expectancy reflected in the defined benefit obligation. These
changes to the pension plan resulted in a credit of CHF 730 mil-
lion to the expense line Pension and other post-employment ben-
efit plans.
In the second quarter of 2012, UBS announced changes to its
retiree medical and life insurance benefit plan in the US. These
changes resulted in a credit of CHF 116 million to the expense line
Pension and other post-employment benefit plans.
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
Provisions for litigation, regulatory and similar matters 1, 2
Other 3
Total general and administrative expenses
For the year ended
31.12.12
1,074
31.12.11
1,059
31.12.10
1,252
473
632
636
528
450
908
1,357
2,549
47
8,653
429
616
621
393
470
822
1,151
276
122
5,959
555
664
669
339
466
754
1,078
631
175
6,585
% change from
31.12.11
1
10
3
2
34
(4)
10
18
824
(61)
45
1 Reflects the net increase / release of provisions for litigation, regulatory and similar matters recognized in the income statement. In addition, it includes recoveries from third parties of CHF 12 million, CHF 33 million
and CHF 2 million for the years ended 31 December 2012, 31 December 2011 and 31 December 2010, respectively. 2012 includes charges for provisions arising from fines and disgorgement resulting from regulatory
investigations concerning LIBOR and other benchmark rates. A portion (CHF 45 million) of the net increase / release recognized in the income statement for provisions for certain litigation, regulatory and similar matters
for 2012 as presented in “Note 23a Provisions” was recorded as negative other income rather than as general and administrative expenses. 2 Refer to “Note 23 Provisions and contingent liabilities” for more informa-
tion. 3 Includes net real estate related restructuring charges of CHF 0 million, CHF 93 million and CHF 79 million for the years ended 31 December 2012, 31 December 2011 and 31 December 2010, respectively. Refer
to “Note 37 Changes in organization” for more information.
360
Note 8 Earnings per share (EPS) and shares outstanding
Basic earnings (CHF million)
Net profit attributable to UBS shareholders
Diluted earnings (CHF million)
Net profit attributable to UBS shareholders
Less: (profit) / loss on UBS equity derivative contracts
Net profit attributable to UBS shareholders for diluted EPS
Weighted average shares outstanding
Weighted average shares outstanding for basic EPS
Effect of dilutive potential shares resulting from notional shares,
in-the-money options and warrants outstanding
Weighted average shares outstanding for diluted EPS
Earnings per share (CHF)
Basic
Diluted
Shares outstanding
Shares issued
Treasury shares
Shares outstanding
Exchangeable shares
Shares outstanding for EPS
As of or for the year ended
% change from
31.12.12
31.12.11
31.12.10
31.12.11
(2,511)
4,138
7,452
(2,511)
(1)
(2,512)
4,138
(3)
4,135
7,452
(2)
7,450
3,754,112,403
3,774,036,437
3,789,732,938
126,261
61,259,378
48,599,111
3,754,238,664
3,835,295,815
3,838,332,049
(0.67)
(0.67)
1.10
1.08
1.97
1.94
3,835,250,233
3,832,121,899
3,830,840,513
87,879,601
84,955,551
38,892,031
3,747,370,632
3,747,166,348
3,791,948,482
418,526
509,243
580,261
3,747,789,158
3,747,675,591
3,792,528,743
(67)
(1)
(100)
(2)
0
3
0
(18)
0
The table below outlines the potential shares which could potentially dilute basic earnings per share in the future, but were not dilutive
for the periods presented:
Potentially dilutive instruments
Number of shares
Employee share-based compensation awards
Other equity derivative contracts
SNB warrants 1
Total
31.12.12
31.12.11
31.12.10
233,256,208
219,744,203
189,567,472
15,386,605
100,000,000
348,642,813
24,407,443
100,000,000
344,151,646
51,752,713
100,000,000
341,320,185
1 These warrants relate to the SNB transaction. The SNB provided a loan to a fund owned and controlled by the SNB (the SNB StabFund), to which UBS transferred certain illiquid securities and other positions. As part of
this arrangement, UBS granted warrants on shares to the SNB, which become exercisable if the SNB incurs a loss on its loan to the SNB StabFund.
361
Financial information Financial information
Notes to the consolidated financial statements
Note 9 Due from banks and loans (held at amortized cost)
CHF million
By type of exposure
Due from banks, gross
of which: due from central banks
Allowance for credit losses
Due from banks, net
Loans, gross
Residential mortgages
Commercial mortgages
Lombard loans
Other loans 1, 2
Securities 3
31.12.12
31.12.11
21,252
638
(22)
21,230
23,235
317
(17)
23,218
132,033
22,421
77,579
40,407
8,166
280,606
(706)
279,901
301,130
125,775
21,247
68,083
40,804
11,520
267,429
(825)
266,604
289,822
Subtotal
Allowance for credit losses
Loans, net
Total due from banks and loans, net 4
1 1 Includes corporate loans. 2 Includes leveraged finance loans reclassified from held-for trading. Refer to “Note 1a) 10)” and “Note 29b Reclassification of financial assets” for more information. 3 Includes securities
reclassified from held-for-trading. Refer to “Note 1a) 10)” and “Note 29b Reclassification of financial assets” for more information. 4 Refer to “Note 29c Maximum exposure to credit risk” for information on collateral and
other credit enhancements.
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 manages
credit risk associated with these activities by monitoring counter-
party credit exposure and collateral values on a daily basis and
requiring additional collateral to be deposited with or returned to
the Group when deemed necessary.
Balance sheet assets
CHF million
By counterparty
Banks
Customers
Total
Balance sheet liabilities
CHF million
By counterparty
Banks
Customers
Total
362
Cash collateral
on securities
borrowed
31.12.12
Reverse
repurchase
agreements
31.12.12
Cash collateral
receivables
on derivative
instruments
31.12.12
Cash collateral on
securities borrowed
31.12.11
Reverse repurchase
agreements
31.12.11
15,977
21,396
37,372
56,775
74,165
130,941
12,393
18,021
30,413
17,236
41,527
58,763
133,010
80,491
213,501
Cash collateral
on securities lent
31.12.12
Repurchase
agreements
31.12.12
Cash collateral
payables
on derivative
instruments
31.12.12
Cash collateral on
securities lent
31.12.11
Repurchase
agreements
31.12.11
8,572
630
9,203
13,727
23,912
37,639
46,101
25,047
71,148
7,601
536
8,136
16,986
85,443
102,429
Cash collateral
receivables
on derivative
instruments
31.12.11
22,341
18,980
41,322
Cash collateral
payables
on derivative
instruments
31.12.11
38,890
28,224
67,114
Balance sheet notes: assets Note 11 Allowances and provisions for credit losses
CHF million
By movement
Balance at the beginning of the year
Write-offs / usage of provisions
Recoveries
Increase / (decrease) recognized in the income statement
Reclassifications
Foreign currency translation
Other
Balance at the end of the year
Specific
allowances
Collective
allowances
Total
allowances
714
(312)
63
149
13
(8)
(3)
616
131
(2)
0
(15)
0
0
0
114
845
(313)
63
134
13
(8)
(3)
730
Provisions 1
93
0
0
(16)
(13)
0
0
64
Total 31.12.12
Total 31.12.11
938
(313)
63
118
0
(8)
(3)
794
1,287
(501)
51
84
0
(1)
18
938
1 Represents provisions for loan commitments and guarantees, which are included in Other liabilities. Refer to “Note 23 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.
By balance sheet line
Due from banks
Loans
Cash collateral on securities borrowed
Provisions 1
Balance at the end of the year
1 Represents provisions for loan commitments and guarantees.
Specific
allowances
Collective
allowances
Total
allowances
Provisions
Total 31.12.12
Total 31.12.11
22
591
2
616
0
114
0
114
22
706
2
730
22
706
2
64
794
17
825
3
93
938
64
64
363
Financial information Financial information
Notes to the consolidated financial statements
Note 12 Trading portfolio
CHF million
Trading portfolio assets by issuer type
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: United Kingdom
of which: Australia
of which: Japan
of which: Germany
Banks
Corporates and other
Total debt instruments
Equity instruments
Financial assets for unit-linked investment contracts
Financial assets held for trading
Precious metals and other physical commodities
Total trading portfolio assets
Trading portfolio liabilities by issuer type
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: United Kingdom
of which: Australia
of which: Japan
of which: Germany
Banks
Corporates and other
Total debt instruments
Equity instruments
Total trading portfolio liabilities
31.12.12
31.12.11
37,594
492
16,377
3,123
2,249
2,174
1,930
8,547
34,911
81,052
47,438
15,277
143,767
17,093
160,861
16,115
280
7,387
979
568
2,059
1,610
1,475
2,943
20,533
13,621
34,154
62,118
418
22,958
3,709
3,540
14,258
3,547
10,611
38,420
111,149 1
35,296 1
16,376
162,821
18,704
181,525
18,913
261
5,634
1,946
756
3,894
2,492
1,913
4,716
25,542
13,937
39,480
1 In 2012, we corrected the classification of certain investment fund units which were previously classified as equity instruments rather than debt instruments. As a result, equity instruments were reduced by CHF 2,104
million as of 31 December 2011, and debt instruments were increased by CHF 2,104 million as of 31 December 2011.
364
Note 12 Trading portfolio (continued)
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
Asset-backed securities
of which: mortgage-backed securities
Total debt instruments
Equity instruments
Financial assets for unit-linked investment contracts
Financial assets held for trading
Precious metals and other physical commodities
Total trading portfolio assets
Trading portfolio liabilities by product type
Debt instruments
Government bills / bonds
Corporate bonds, municipal bonds, including bonds issued by financial institutions
Investment fund units
Asset-backed securities
of which: mortgage-backed securities
Total debt instruments
Equity instruments
Total trading portfolio liabilities
Level 1
Level 2
Level 3
Total
31.12.12 1
31.12.11
22,180
954
0
2,970
3,637
3,637
29,740
46,994
14,557
91,290
14,093
789
140
14
14
15,036
13,518
28,554
6,445
21,436
4,125
10,585
3,427
2,320
46,017
296
442
46,755
648
4,459
243
4
4
5,356
93
5,449
113
1,610
2,004
75
1,493
803
5,295
148
278
5,721
0
137
0
4
3
141
11
151
28,737
24,000
6,129
13,629
8,556
6,760
81,052
47,438
15,277
143,767
17,093
160,861
14,741
5,386
383
22
22
20,533
13,621
34,154
45,297
32,765
4,088
11,963 2
17,035
13,868
111,149 2
35,296 2
16,376
162,821
18,704
181,525
17,026
7,122
1,083
312
287
25,542
13,937
39,480
1 Refer to “Note 27 Fair value of financial instruments” for more information on the fair value hierarchy categorization. 2 In 2012, we corrected the classification of certain investment fund units which were previously
classified as equity instruments rather than debt instruments. As a result, equity instruments were reduced by CHF 2,104 million as of 31 December 2011, and investment fund units within debt instruments were increased
by CHF 2,104 million as of 31 December 2011.
365
Financial information Financial information
Notes to the consolidated financial statements
Note 13 Financial assets designated at fair value
CHF million
Loans
Structured loans
Reverse repurchase and securities borrowing agreements
of which: banks
of which: customers
Investment funds
Other debt instruments
Total financial assets designated at fair value
31.12.12
31.12.11
1,611
1,187
5,466
2,500
2,966
608
234
9,106
2,358
960
6,071
3,514
2,557
730
218
10,336
The maximum exposure to credit risk from financial assets desig-
nated at fair value is equal to the fair value for Loans, Structured
loans and reverse repurchase and securities borrowing agree-
ments. The maximum exposure is mitigated by collateral, which
mainly relates to structured loans and reverse repurchase and se-
curities borrowing agreements of CHF 6,694 million and CHF
6,919 million for 31 December 2012 and 31 December 2011, re-
spectively. These collateral values are capped at the maximum ex-
posure 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 4,237 million and CHF 4,423 mil-
lion as of 31 December 2012 and as of 31 December 2011,
respectively. The maximum exposure to credit risk of these instru-
ments is generally hedged through derivative transactions.
Investment fund units do not have a direct exposure 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 ex-
posure 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.
31.12.12
31.12.11
2,102
1,025
2
2,595
1,404
37
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 of loans and related credit derivatives 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
31.12.12
31.12.11
31.12.12
31.12.11
22
(18)
(15)
35
(10)
2
(49)
37
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 the derivatives which have been used to mitigate credit risk of these loans since designation at fair value. For loans reported under the fair
value option, changes in fair value due to changes in the credit standing of the borrower are calculated using counterparty credit information obtained from independent market sources.
366
Note 14 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: USA
of which: Germany
of which: United Kingdom
of which: Japan
of which: France
Banks
Corporates and other
Total debt instruments
Equity instruments
Total financial investments available-for-sale
Unrealized gains – before tax
Unrealized (losses) – before tax
Net unrealized gains / (losses) – before tax
Net unrealized gains / (losses) – after tax
31.12.12
31.12.11
58,973
156
31,740
6,669
5,042
4,221
3,593
4,200
2,486
65,659
725
66,383
447
(26)
421
270
47,144
357
25,677
1,991
3,477
8,854
2,170
4,271
1,060
52,475
699
53,174
477
(55)
422
250
CHF million
Level 1
Level 2
Level 3
Total
31.12.12 1
31.12.11
Financial investments available-for-sale by product type
Debt instruments
Government bills / bonds
Corporate bonds, municipal bonds, including bonds issued by financial institutions
Investment fund units
Asset-backed securities
of which: mortgage-backed securities
Total debt instruments
Equity instruments
Shares
Private equity investments
Total equity instruments
46,351
2,055
35
0
0
646
8,830
114
7,313
7,313
48,442
16,903
102
0
102
35
0
35
Total financial investments available-for-sale
48,543
16,939
1 Refer to “Note 27 Fair value of financial instruments” for more information on the fair value hierarchy categorization.
33
55
225
0
0
314
410
177
588
901
47,031
10,940
375
7,313
7,313
65,659
547
177
725
34,899
8,590
445
8,541
8,541
52,475
481
218
699
66,383
53,174
367
Financial information Financial information
Notes to the consolidated financial statements
Note 15 Investments in associates
CHF million
Carrying amount at the beginning of the year
Additions
Disposals
Share of net profits of associates
Share of other comprehensive income of associates
Dividends paid
Foreign currency translation
Carrying amount at the end of the year
31.12.12
795
4
(3)
88
25
(37)
(12)
858
31.12.11
790
1
(4)
42
(27)
(28)
21
795
Significant associated companies of the Group had the following balance sheet and income statement totals on an aggregated basis,
not adjusted for the Group’s proportionate interest. Refer to “Note 34 Significant subsidiaries and associates”.
CHF million
Assets
Liabilities
Revenues
Net profit
Note 16 Property and equipment
At historic cost less accumulated depreciation
As of or for the year ended
31.12.12
6,265
4,141
1,361
223
31.12.11
5,806
3,789
1,356
181
Own-used
properties
Leasehold
improvements
IT hardware,
software and
communication
Other machines
and equipment
Projects in
progress
31.12.11
31.12.12
8,679
75
0
(215)
(229)
(1)
8,307
2,674
56
0
(203)
192
(42)
2,677
4,049
194
0
(413)
27
(24)
3,833
CHF million
Historic cost
Balance at the beginning of the year
Additions
Additions from acquired companies
Disposals / write-offs 1
Reclassifications
Foreign currency translation
Balance at the end of the year
Accumulated depreciation
Balance at the beginning of the year
Depreciation and impairment 2
Disposals / write-offs 1
Reclassifications
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year 3, 4
1 Includes write-offs of fully depreciated assets. 2 In 2012, amounts presented include a CHF 1 million net reversal of impairments of own used property (31 December 2011: CHF 22 million), CHF 27 million net
impairments of leasehold improvements (31 December 2011: CHF 29 million), CHF 4 million impairments of IT, software and communication and CHF 5 million net impairments of other machines and equipment
(31 December 2011: CHF 3 million). 3 Fire insurance value of property and equipment is CHF 12,865 million (2011: CHF 13,075 million), predominantly related to real estate. 4 As of 31 December 2012, contrac-
tual commitments to purchase property in the future amounted to approximately CHF 0.5 billion. 5 Mainly reflects reclassifications to Investment properties at fair value (CHF 75 million on a net basis) presented in the
table below and to Properties held for sale (CHF 89 million on a net basis) reported within Other assets.
11,005
689
(850)
(255) 5
(65)
10,524
5,905
16,683
1,111
0
(859)
(420) 5
(88)
16,428
10,991
761
(752)
(12)
16
11,005
5,678
16,364
1,129
2
(791)
(40)
19
16,683
4,934
202
(215)
(260)
0
4,660
3,647
1,930
208
(195)
5
(35)
1,912
765
3,596
216
(412)
0
(22)
3,378
456
545
735
0
0
(452)
(10)
819
546
63
(27)
0
(8)
574
218
736
51
0
(28)
42
(10)
792
0
0
0
0
0
0
819
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
368
31.12.12
10
6
0
9
75
0
99
31.12.11
94
0
(87)
4
(1)
(1)
10
Introduction
Methodology for goodwill impairment testing
UBS performs an impairment test on its goodwill assets on an an-
nual basis, or when indicators of impairment exist. UBS considers
the segments as reported in “Note 2 Segment reporting” as sepa-
rate cash-generating units. The impairment test is performed for
each segment to which goodwill is allocated by comparing the
recoverable amount with the carrying amount of the respective
segment. An impairment charge is recognized if the carrying
amount exceeds the recoverable amount.
As of 31 December 2012, the following three segments carried
goodwill: Wealth Management (CHF 1.3 billion), Wealth Manage-
ment Americas (CHF 3.2 billion), and Global Asset Management
(CHF 1.4 billion). Based on the impairment testing methodology
described below, UBS concluded that the goodwill balances as of
31 December 2012 allocated to these segments remain recover-
able.
Impairment of Investment Bank goodwill and other
non-financial assets
An impairment test was performed as of 30 September 2012 with
respect to the Investment Bank because indicators of impairment
were present for that cash-generating unit. These indicators in-
cluded negative variances from planned performance, preliminary
discussions regarding changes in strategy for the Investment Bank
and revised business plan information taking into account chang-
es in market conditions and the global economic outlook. The
impairment test was based on the business plan approved by the
Board of Directors on 29 October 2012. As a result of this impair-
ment test, losses were recognized in the income statement relat-
ing to a full impairment of CHF 3,030 million for goodwill in the
third quarter of 2012. Additional assets were examined to deter-
mine whether their carrying values exceeded their recoverable
amounts. Impairment losses of CHF 15 million were recognized in
the income statement for other intangible assets and CHF 19 mil-
lion for property and equipment, both in the third quarter of
2012. These impairment losses were recognized in the Investment
Bank’s 2012 operating results as Impairment of goodwill, Amorti-
zation and impairment of intangible assets, and Depreciation and
impairment of property and equipment.
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 forecasted years and
the terminal value. The terminal value reflecting all periods be-
yond 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 Group’s equity attribution framework. Within this
framework, which is described in the “Capital Management” sec-
tion of this report, the Board of Directors (BoD) attributes equity
to the businesses after considering their risk exposure, pro-forma
Basel III RWA usage, asset size (pro-forma Basel III Leverage Ratio
denominator), goodwill and intangible assets. The framework is
primarily used for purposes of measuring the performance of the
businesses and includes certain management assumptions. At-
tributed 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 seg-
ments. 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.
➔ Refer to the “Capital Management” section of this report for
more information on the equity attribution framework
Assumptions
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 BoD. The discount rates are determined
369
Financial informationNote 17 Goodwill and intangible assets Financial information
Notes to the consolidated financial statements
by applying a capital-asset-pricing-model-based approach, as well
as considering quantitative and qualitative inputs from both inter-
nal and external analysts and the view of UBS’s management.
Key assumptions used to determine the recoverable amounts
of each segment are tested for sensitivity by applying a reasonably
possible change to those assumptions. Forecast earnings available
to shareholders were changed by 10%, the discount rates were
changed by 1% and the long-term growth rates were changed by
0.5%. Under all scenarios, the recoverable amounts for each seg-
ment exceeded the respective carrying amount, such that the rea-
sonably possible changes in key assumptions would not result in
impairment.
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. Recognition of any impairment of goodwill
would reduce IFRS equity attributable to UBS shareholders and
net profit. It would not impact cash flows and, as goodwill is re-
quired to be deducted from capital under the Basel capital frame-
work, no impact is expected on the Group capital ratios.
Discount and growth rates
In %
Wealth Management
Wealth Management Americas
Investment Bank
Global Asset Management
Discount rates
Growth rates
31.12.12
31.12.11
31.12.12
31.12.11
10.0
10.0
13.0 1
10.0
10.7
10.0
12.0
10.0
1.7
2.4
2.4
2.4
1.7
2.4
2.4
2.4
1 A discount rate of approximately 13% was used for the impairment test that was performed as of 30 September 2012 with respect to the Investment Bank. As the Investment Bank had no goodwill as of 31 Decem-
ber 2012, no impairment test was required at year end.
CHF million
Historic cost
Balance at the beginning of the year
Additions
Disposals
Write-offs
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
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year
Goodwill
Total
Infrastructure
Intangible assets
Customer
relationships,
contractual
rights and other
9,074
3
(3,030)
(98)
5,949
3,030
(3,030)
0
5,949
713
(17)
696
399
36
(10)
424
272
854
8
(1)
(79)
(9)
773
547
54
17
(79)
(7)
532
241
Total
31.12.12
31.12.11
1,567
10,641
10,634
8
(1)
(79)
(26)
1,469
946
89
17
0
(79)
(17)
956
513
11
(1)
(3,110)
(124)
7,417
946
89
3,047
0
(3,110)
(17)
956
6,461
40
(2)
0
(32)
10,641
812
90
37
0
0
8
946
9,695
370
Note 17 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 2012.
CHF million
Goodwill
Wealth
Management
Wealth
Management
Americas
Investment
Bank
Global Asset
Management
Corporate
Center
Balance at the beginning of the year
1,319
3,293
3,019
Additions
Disposals
Impairment
Foreign currency translation
Balance at the end of the year
Intangible assets
Balance at the beginning of the year
Additions
Disposals
Amortization
Impairment
Foreign currency translation
Balance at the end of the year
(15)
1,304
62
(4)
(2)
55
(80)
3,213
382
(51)
(8)
323
(3,030)
11
0
136
(1)
(25)
(15)
(1)
94
1,442
3
(13)
1,432
41
(8)
1
34
8
(2)
6
The estimated, aggregated amortization expenses for intangible assets are as follows:
CHF million
Estimated, aggregated amortization expenses for:
2013
2014
2015
2016
2017
2018 and thereafter
Not amortized due to indefinite useful life
Total
Note 18 Other assets
CHF million
Prime brokerage receivables
Settlement and clearing accounts
Properties and other non-current assets held for sale
VAT and other tax receivables
Other
Total other assets
UBS
9,074
3
0
(3,030)
(98)
5,949
621
8
(1)
(89)
(17)
(9)
513
Intangible assets
75
75
74
65
57
146
20
513
31.12.12
8,072
589
137
214
2,043
11,055
31.12.11
6,103
482
183
176
2,222
9,165
371
Financial informationNote 17 Goodwill and intangible assets (continued) Financial information
Notes to the consolidated financial statements
Note 19 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 20 Financial liabilities designated at fair value 1
CHF million
Non-structured fixed rate bonds
Structured debt instruments issued:
Equity linked
Credit linked
Rates linked 2
Other
Structured over-the-counter debt instruments:
Equity linked
Other
Repurchase agreements
Loan commitments 3
Total
of which: own credit on financial liabilities designated at fair value
31.12.12
23,024
134,255
237,637
371,892
394,916
31.12.11
30,201
114,079
228,330
342,409
372,610
31.12.12
4,967
31.12.11
4,114
39,924
11,186
18,606
4,672
3,536
8,154
1,672
161
92,878
292
37,809
9,345
19,853
4,767
5,556
6,615
477
445
88,982
(1,934)
1 In 2012, presentational changes were made to the disclosure of Financial liabilities designated at fair value. Non-structured fixed-rate bonds are now reported separately. Previously, these instruments were reported
as Structured debt instruments issued, Other. In addition, the classification within Structured debt instruments issued and Structured over-the-counter debt instruments was corrected for 31 December 2011. 2 Also
includes non-structured rates-linked debt instruments issued. 3 Loan commitments recognized as “Financial liabilities designated at fair value” until drawn and recognized as loans. See Note 1a) 8) for additional
information.
As of 31 December 2012, the contractual redemption amount at
maturity of Financial liabilities designated at fair value through
profit or loss was CHF 0.2 billion higher than the carrying value.
As of 31 December 2011, the contractual redemption amount at
maturity of such liabilities was CHF 6.1 billion higher than the
carrying value.
As of 31 December 2012 and 31 December 2011, the Group
had CHF 92,878 million and CHF 88,982 million, respectively, of
financial liabilities designated at fair value, comprised of both CHF
and non-CHF denominated fixed-rate and floating-rate debt.
The table on the following page shows the contractual matu-
rity of the carrying value of financial liabilities designated at fair
value, split between fixed-rate and floating-rate based on the
contractual terms and ignoring any early redemption features.
Interest rate ranges for future interest payments related to these
financial liabilities designated at fair value have not been includ-
ed in the table below as a majority of these liabilities are struc-
tured products, and therefore the future interest payments are
highly dependent upon the embedded derivative and prevailing
market conditions at the time each interest payment is made.
➔ Refer to the “Maturity analysis of financial liabilities” table in
the “Treasury management” section of this report for informa-
tion on maturities on an undiscounted cash flow basis.
372
Balance sheet notes: liabilities Contractual maturity of carrying value 1
CHF million, except where indicated
2013
2014
2015
2016
2017
2018–2022
Thereafter
Total
31.12.12
Total
31.12.11
UBS AG (Parent Bank)
Non-subordinated debt
Fixed rate
Floating rate
Subtotal
Subsidiaries
Non-subordinated debt
Fixed rate
Floating rate
Subtotal
Total
6,299
19,281
25,579
259
2,851
3,110
3,017
7,725
10,742
317
541
859
2,620
7,739
10,359
156
1,677
1,834
28,689
11,601
12,193
1,201
3,939
5,140
240
3,176
3,416
8,557
2,933
5,504
7,987
191
815
1,006
8,992
2,182
4,922
7,104
651
1,322
1,973
9,076
3,052
8,878
11,930
1,330
510
1,840
13,769
21,304
57,538
78,841
3,145
10,891
14,036
92,878
18,935
58,862
77,797
3,035
8,150
11,185
88,982
1 In 2012, presentational changes were made to the contractual maturity table. Financial liabilities designated at fair value are presented separately from Debt issued held at amortized cost. In 2011, the contractual ma-
turities of Financial liabilities designated at fair value and Debt issued held at amortized cost were presented on a combined basis. In addition, the classification between fixed rate and floating rate debt was corrected
for 31 December 2011.
Note 21 Debt issued held at amortized cost
CHF million
Certificates of deposit
Commercial paper
Other short-term debt
Short-term debt
Non-structured fixed rate bonds
Covered bonds
Subordinated debt
Debt issued through the central bond institutions of the Swiss regional or cantonal banks
Medium-term notes
Other long-term debt
Long-term debt
Total debt issued held at amortized cost 1
1 Net of bifurcated embedded derivatives with a net fair value of CHF 233 million as of 31 December 2012 (31 December 2011: CHF 955 million).
31.12.12
31.12.11
11,153
7,792
13,548
32,493
31,197
15,116
10,646
7,585
1,341
6,278
72,163
104,656
31,383
22,133
17,861
71,377
37,515
9,788
7,035
7,141
1,951
5,810
69,240
140,617
The Group uses interest rate and foreign exchange derivatives
to manage the risks inherent in certain debt instruments held
at amortized cost. In certain cases, the Group applies hedge
accounting for interest rate risk as discussed in Note 1a) 15)
and “Note 25 Derivative instruments and hedge accounting”.
As a result of applying hedge accounting, the carrying value of
debt issued increased by CHF 2,608 million and by CHF 2,051
million as of 31 December 2012 and 31 December 2011, re-
spectively, reflecting changes in fair value due to interest rate
movements.
Subordinated debt are unsecured obligations of the Group
that are subordinated in right of payment to all other present and
future indebtedness and also to certain other obligations of the
Group. As of 31 December 2012 and 31 December 2011, the
Group had CHF 10,646 million and CHF 7,035 million, respec-
tively, of subordinated debt, which included CHF 3,656 million
and CHF 0 million of loss-absorbing capital notes as of 31 Decem-
ber 2012 and 31 December 2011, respectively. A majority of the
subordinated debt outstanding as of 31 December 2012 were
fixed rate issuances, with the remainder paying floating rate inter-
est based on three-month or six-month London Interbank Offered
Rate (LIBOR). Both the fixed and floating rate instruments provide
for a single principal payment upon maturity.
As of 31 December 2012 and 31 December 2011, the Group
had CHF 94,009 million and CHF 133,581 million, respectively, of
non-subordinated debt issued held at amortized cost, comprised
of both CHF and non-CHF denominated fixed rate and floating
rate debt.
373
Financial informationNote 20 Financial liabilities designated at fair value (continued) Financial information
Notes to the consolidated financial statements
The following table shows the contractual maturity of the carry-
ing value of debt issued, split between fixed rate and floating
rate based on the contractual terms and ignoring any early
redemption features. The Group uses interest rate swaps to
hedge the majority of fixed-rate debt issued, which changes their
re-pricing characteristics into those similar to floating rate debt.
➔ Refer to the “Maturity analysis of financial liabilities” table in
the “Treasury management” section of this report for informa-
tion on maturities on an undiscounted cash flow basis.
Contractual maturity of carrying value 1
CHF million, except where indicated
2013
2014
2015
2016
2017
2018–2022
Thereafter
UBS AG (Parent Bank)
Non-subordinated debt
Fixed rate
Interest rates (range in %)
Floating rate
Subordinated debt
Fixed rate
Interest rates (range in %)
Floating rate
Subtotal
Subsidiaries
Non-subordinated debt
Fixed rate
Interest rates (range in %)
Floating rate
Subtotal
Total
33,841
0–6.3
4,832
3
4.3–7.2
0
38,676
5,225
0–0.8
54
5,278
43,954
7,414
0–5.6
1,614
398
3.1
0
9,427
172
0–7.6
0
172
9,599
7,178
0–3.9
18
1,059
2.4–7.4
0
8,255
3
0
0
3
8,258
4,974
0–6.4
0
1,379
3.1–5.9
0
6,353
557
0–8.3
0
557
6,910
8,631
0–5.9
0
673
4.1–7.4
0
9,305
105
0–8.1
0
105
9,409
13,875
0–6.6
0
5,432
4.1–7.6
692
19,998
28
0
2
30
20,029
1,504
0–2.8
2,733
1,010
6.4–8.8
0
5,248
11
0–6.2
1,238
1,249
6,497
Total
31.12.12
Total
31.12.11
77,417
99,818
9,198
13,739
9,955
6,350
692
685
97,261
120,593
6,100
18,551
1,294
7,394
1,473
20,024
104,656
140,617
1 In 2012, presentational changes were made to the contractual maturity table. Debt issued held at amortized cost is presented separately from Financial liabilities designated at fair value. In 2011, the contractual ma-
turities of Debt issued held at amortized cost and Financial liabilities designated at fair value were presented on a combined basis. In addition, the classification between fixed rate and floating rate debt was corrected
for 31 December 2011.
Note 22 Other liabilities
CHF million
Prime brokerage payables
Amounts due under unit-linked investment contracts
Deferred compensation plans
Net defined benefit pension and post-employment liability 1, 2
Third-party interest in consolidated limited partnerships
Settlement and clearing accounts
VAT and other tax payables
Current and deferred tax liabilities 3
Other
Total other liabilities
31.12.12
35,620
15,346
1,541
1,284
1,138
991
606
586
2,791 4
59,902
31.12.11
36,746
16,481
1,578
3,135
1,378
874
492
573
1,526
62,784
1 Refer to “Note 30 Pension and other post-employment benefit plans” for more information. 2 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information with regard
to the adoption of IAS 19R. 3 Refer to “Note 24 Income taxes” for more information. 4 Includes liabilities of CHF 1.4 billion arising from fines and disgorgement resulting from regulatory investigations concerning
LIBOR and other benchmark rates. Refer to “Note 23 Provisions and contingent liabilities” for more information.
374
Note 21 Debt issued held at amortized cost (continued) Note 23 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
Litigation,
regulatory
and similar
matters 2
482
Operational
risks 1
58
0
41
(9)
(37)
0
0
0
(1)
53
0
2,686
(81)
(1,685) 6
0
0
43
(13)
1,432
Loan com-
mitments
and guar-
antees
Restruc-
turing
467
0
438
(86)
(276)
0
0
(36) 4
3
511
93
0
4
(20)
0
0
0
(13)
0
64
Real
estate
Employee
benefits
Other
Total
31.12.12
Total
31.12.11
220
0
4
(6)
(37)
(4)
0
3
0
178 3
227
0
145
(67) 5
(59)
0
0
0
(2)
244
79
0
32
(5)
(9)
0
0
(43)
(2)
53
1,626
1,704
0
3,350
(273)
(2,102)
(4)
0
(47)
(14)
2
947
(288)
(716)
(2)
(1)
(52)
32
2,536
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. 3 Includes reinstatement costs for leasehold
improvements of CHF 97 million as of 31 December 2012 (31 December 2011: CHF 109 million) and provisions for onerous lease contracts of CHF 81 million as of 31 December 2012 (31 December 2011: CHF 111 mil-
lion). 4 Reflects a reclassification to share premium of restructuring provisions related to share-based compensation. 5 Includes the release of provisions for Swiss long-service and sabbatical awards. 6 Represents
amounts paid out for the intended purpose and amounts transferred to Other liabilities – Other, presented in “Note 22 Other liabilities” for liabilities, which are no longer uncertain in timing or amount.
Restructuring provisions primarily relate to onerous lease con-
tracts and severance amounts. The utilization of onerous lease
provisions is driven by the maturities of the underlying lease con-
tracts, which cover a period of up to 11 years. Severance related
provisions are utilized within a short time period, usually within six
months, but potential changes in amount may be triggered when
natural staff attrition reduces the number of people affected by a
restructuring and therefore the estimated costs.
Information on provisions and contingent liabilities in respect
of Litigation, regulatory and similar matters, as a class, is included
in Note 23b. Further information on the nominal principal amount
of Loan commitments and guarantees, representing our maxi-
mum exposure to credit risk, is disclosed in Note 29c. There are no
material contingent liabilities associated with the other classes of
provisions.
b) Litigation, regulatory and similar matters
The Group operates in a legal and regulatory environment that
exposes it to significant litigation and similar risks arising from
disputes and regulatory proceedings. 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 matters are subject to many uncertainties and the out-
come is often difficult to predict, particularly in the earlier stages
of a case. There are also situations where the Group may enter
into a settlement agreement. This may occur in order to avoid the
expense, management distraction or reputational implications of
continuing to contest liability, even for those matters for which
the Group believes it should be exonerated. The uncertainties in-
herent in all such matters affect the amount and timing of any
potential outflows for both matters with respect to which provi-
sions have been established and other contingent liabilities. The
Group makes provisions for such matters brought against it when,
in the opinion of management after seeking legal advice, it is
more likely than not that the Group has a present legal or con-
structive obligation as a result of past events, it is probable that an
outflow of resources will be required, and the amount can be reli-
ably estimated. If any of those conditions is not met, such matters
result in contingent liabilities.
Specific litigation, regulatory and other matters are described
below, including all such matters that management considers to
be material and others that management believes to be of signifi-
cance due to potential financial, reputational and other effects.
The amount of damages claimed, the size of a transaction or
other information is provided where available and appropriate in
order to assist users in considering the magnitude of potential
exposures.
In the case of certain matters below, we state that we have
established a provision, and for the other matters we make no
such statement. When we make this statement and we expect
disclosure of the amount of a provision to prejudice seriously our
position with other parties in the matter, because it would reveal
what UBS believes to be the probable and reliably estimable out-
flow, we do not disclose that amount. In some cases we are sub-
ject to confidentiality obligations that preclude such disclosure.
With respect to the matters for which we do not state whether
we have established a provision, either a) we have not established
375
Financial information Financial information
Notes to the consolidated financial statements
a provision, in which case the matter is treated as a contingent
liability under the applicable accounting standard or b) we have
established a provision but expect disclosure of that fact to preju-
dice seriously our position with other parties in the matter be-
cause it would reveal the fact that UBS believes an outflow of re-
sources to be probable and reliably estimable.
The aggregate amount provisioned for litigation, regulatory
and similar matters as a class is disclosed in Note 23a above. It
is not practicable to provide an aggregate estimate of liability
for our litigation, regulatory and similar matters as a class of
contingent liabilities. Doing so would require us to provide
speculative legal assessments as to claims and proceedings that
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 quantified by the
claimants.
Provisions for litigation, regulatory and similar matters by segment
CHF million
Balance at the beginning of the year
Increase in provisions recognized in the income statement
Release of provisions recognized in the income statement
Provisions used in conformity with designated purpose
Reclassifications
Foreign currency translation / unwind of discount
Balance at the end of the year
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
Investment
Bank
Global
Asset Man-
agement
Retail &
Corporate
Corporate
Center –
Core
Functions
Corporate
Center –
Legacy
Portfolio
Total
31.12.12
Total
31.12.11
96
90
(15)
(40)
0
0
130
206
133
(28)
(135)
0
(6)
170
132
304
(32)
(266)
(95)
(2)
40
4
6
(1)
(1)
0
0
7
17
19
(1)
(6)
0
0
29
2
1,518
(3)
(1,222)
44
(2)
338
26
616
0
(15)
95
(3)
720
482
2,686
(81)
(1,685)
43
(13)
1,432
618
396
(87)
(455)
0
10
482
1. Municipal bonds
In 2011, UBS announced a USD 140.3 million settlement with the
US Securities and Exchange Commission (SEC), the Antitrust Divi-
sion of the US Department of Justice (DOJ), the Internal Revenue
Service (IRS) and a group of state attorneys general relating 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. Sev-
eral related putative class actions, which were filed in Federal Dis-
trict Courts against UBS and numerous other firms, remain pend-
ing. Approximately USD 63 million of the regulatory settlement was
made available to potential claimants through a settlement fund,
the majority of which has been claimed, thereby reducing the total
monetary amount at issue in the class actions for UBS.
2. Auction rate securities
In 2008, UBS entered into settlements with the SEC, the New
York Attorney General (NYAG) and the Massachusetts Securities
Division whereby UBS agreed to offer to buy back Auction Rate
Securities (ARS) from eligible customers, and to pay penalties of
USD 150 million. UBS has since finalized settlements with all of
the states. The settlements resolved investigations following the
industry-wide disruption in the markets for ARS and related auc-
tion failures beginning in early 2008. The SEC continues to inves-
tigate individuals affiliated with UBS regarding the trading in ARS
and disclosures. UBS was also named in (i) several putative class
actions, which were thereafter dismissed by the court and / or
settled; (ii) arbitration and litigation claims asserted by investors
relating to ARS; and (iii) arbitration and litigation claims asserted
by ARS issuers, including a pending litigation under state com-
mon law and a state racketeering statute seeking at least USD 40
million in compensatory damages, plus exemplary and treble
damages, and several pending arbitration claims filed in 2012 and
2013 alleging violations of state and federal securities law that
seek compensatory and punitive damages, among other relief. In
November 2012, UBS settled a consequential damages claim
brought by a former customer for USD 45 million.
3. Inquiries regarding cross-border wealth management
businesses
Following the disclosure and the settlement of the US cross-
border matter, tax and regulatory authorities in a number of coun-
tries have made inquiries and served requests for information
located in their respective jurisdictions relating to the cross-border
wealth management services provided by UBS and other financial
institutions. In France, a criminal investigation into allegations of
illicit cross-border activity has been initiated with the appointment
of a “Juge d’instruction”. We have also received inquiries from
German authorities concerning certain matters relating to our
cross-border business. UBS is cooperating with these inquiries,
requests and investigations within the limits of financial privacy
obligations under Swiss and other applicable laws.
4. Matters related to the financial 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 financial crisis of 2007 to 2009 and in
particular mortgage-related securities and other structured trans-
376
Note 23 Provisions and contingent liabilities (continued) actions and derivatives. In February 2013, the SEC advised UBS
that it is terminating its investigation of UBS’s valuation of super
senior tranches of collateralized debt obligations (CDO) during
the third quarter of 2007 without recommending any enforce-
ment action. UBS is in discussions with the SEC concerning UBS’s
structuring and underwriting of one CDO in 2007. UBS has also
communicated with and has responded to other inquiries by vari-
ous governmental and regulatory authorities concerning various
matters related to the financial crisis. These matters concern,
among other things, UBS’s (i) disclosures and writedowns, (ii) in-
teractions with rating agencies, (iii) risk control, valuation, struc-
turing and marketing of mortgage-related instruments, and (iv)
role as underwriter in securities offerings for other issuers.
UBS is a defendant in several lawsuits filed by institutional pur-
chasers of CDOs structured by UBS in which plaintiffs allege, un-
der various legal theories, that UBS misrepresented the quality of
the collateral underlying the CDOs. Plaintiffs in these suits collec-
tively seek to recover several hundred million dollars in claimed
losses, including one case in which plaintiffs claim losses of at
least USD 331 million.
Our balance sheet at 31 December 2012 reflected a provision
with respect to matters described in this item 4 in an amount that
UBS believes to be appropriate under the applicable accounting
standard. As in the case of other matters for which we have es-
tablished provisions, the future outflow of resources in respect of
this matter cannot be determined with certainty based on cur-
rently available information, and accordingly may ultimately prove
to be substantially greater (or may be less) than the provision that
we have recognized.
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,”
reflecting 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. Based on its role as an underwriter of Lehman struc-
tured notes, UBSFS has been named as a defendant in a putative
class action asserting violations of disclosure provisions of the fed-
eral securities laws. In January 2013, plaintiffs’ motion to certify the
case as a class action, which UBS opposed, was granted with respect
to certain claims. UBS is filing for an appeal of that decision with the
Second Circuit. Firms that underwrote other non-structured Lehman
securities have been named as defendants in the same purported
class action, and those underwriters have entered into settlements.
In 2011, UBSFS entered into a settlement with the Financial Industry
Regulatory Authority (FINRA) related to the sale of these notes, pur-
suant to which UBSFS agreed to pay a USD 2.5 million fine and up
to USD 8.25 million in restitution and interest to a limited number of
investors in the US. UBSFS has also been named in numerous indi-
vidual civil suits and customer arbitrations, which proceedings are at
various stages. The individual customer claims, some of which have
resulted in awards payable by UBSFS, relate primarily to whether
UBSFS adequately disclosed the risks of these notes to its customers.
6. Claims related to sales of residential mortgage-backed
securities and mortgages
From 2002 through 2007, prior to the crisis in the US residential
loan market, UBS was a substantial issuer and underwriter of US
residential mortgage-backed securities (RMBS) and was a purchaser
and seller of US residential mortgages. A subsidiary of UBS, UBS Real
Estate Securities Inc. (UBS RESI), acquired pools of residential mort-
gage loans from originators and (through an affiliate) deposited
them into securitization trusts. In this manner, from 2004 through
2007, UBS RESI sponsored approximately USD 80 billion in RMBS,
based on the original principal balances of the securities issued.
UBS RESI also sold pools of loans acquired from originators to
third-party purchasers. These whole loan sales during the period
2004 through 2007 totaled approximately USD 19 billion in origi-
nal principal balance.
We were not a significant originator of US residential loans.
A subsidiary of UBS originated approximately USD 1.5 billion in US
residential mortgage loans during the period in which it was active
from 2006 to 2008, and securitized less than half of these loans.
Securities Lawsuits Concerning Disclosures in RMBS Offering
Documents: UBS has been named as a defendant relating to its
role as underwriter and issuer of RMBS in a large number of law-
suits relating to approximately USD 44 billion in original face
amount of RMBS underwritten or issued by UBS. Some of the law-
suits 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, ap-
proximately USD 11 billion was issued in offerings in which a UBS
subsidiary transferred underlying loans (the majority of which were
purchased from third-party originators) into a securitization trust
and made representations and warranties about those loans (UBS-
sponsored RMBS). The remaining USD 33 billion of RMBS to which
these cases relate was issued by third parties in securitizations in
which UBS acted as underwriter (third-party RMBS). In connection
with certain of these lawsuits, UBS has indemnification rights
against surviving third-party issuers or originators for losses or lia-
bilities incurred by UBS, but UBS cannot predict the extent to
which it will succeed in enforcing those rights.
These lawsuits include actions 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 UBS-sponsored RMBS and
USD 1.8 billion in original face amount of third-party RMBS. These
suits assert claims for damages and rescission under federal and
state securities laws and state common law and allege losses of at
377
Financial informationNote 23 Provisions and contingent liabilities (continued) Financial information
Notes to the consolidated financial statements
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
UBS’s indemnification rights against third-party originators
Demands resolved in litigation
Demands in litigation
Demands rebutted by UBS but not yet rescinded by counterparty
Demands rescinded by counterparty
Demands in review by UBS
Total
1 Loans submitted by multiple counterparties are counted only once.
2006–2008
11.7
0.6
110.2
122.5
2009
1.4
77.4
20.7
3.2
100.4
2.1
205.1
2011
2012
through
5 March
2013
2010
0.1
1.8
345.6
1.8
18.8
0.1
45.0
141.7
731.7
290.0
8.3
9.1
1,041.1
243.8
11.7
368.2
1,084.1
1,438.3
1.8
1.8
Total
13.2
265.9
21.3
2,118.5
538.7
237.7
24.8
3,220.1
least USD 1.2 billion plus interest. The court denied UBS’s motion
to dismiss in May 2012, but we are awaiting a decision from the
US Court of Appeals for the Second Circuit on an appeal with
respect to two legal issues that were the subject of UBS’s motion
to dismiss. The FHFA also filed suits in 2011 against UBS and other
financial institutions relating to their role as underwriters of third-
party RMBS purchased by the GSEs asserting claims under various
legal theories, including violations of the federal and state securi-
ties laws and state common law.
In July 2012 a federal court in New Jersey dismissed with pre-
judice on statute of limitations grounds a putative class action
lawsuit that asserted violations of the federal securities laws
against various UBS entities, among others, in connection with
USD 2.6 billion in original face amount of UBS-sponsored RMBS.
The named plaintiff’s appeal of the dismissal is pending.
Loan repurchase demands related to sales of mortgages and
RMBS: When UBS acted as an RMBS sponsor or mortgage seller,
we generally made certain representations relating to the charac-
teristics of the underlying loans. In the event of a material breach
of these representations, we were in certain circumstances con-
tractually obligated to repurchase the loans to which they related
or to indemnify certain parties against losses. UBS has received
demands to repurchase US residential mortgage loans as to which
UBS made certain representations at the time the loans were
transferred to the securitization trust. We have been notified by
certain institutional purchasers and insurers of mortgage loans
and RMBS, including Freddie Mac, of their contention that possi-
ble breaches of representations may entitle the purchasers to re-
quire that UBS repurchase the loans or to other relief. The table
above summarizes repurchase demands received by UBS and
UBS’s repurchase activity from 2006 through 5 March 2013. In the
table, repurchase demands characterized as Demands resolved in
litigation and Demands rescinded by counterparty are considered
to be finally resolved. Repurchase demands in all other categories
are not finally resolved.
chase demands totaling approximately USD 182 million in original
principal balance in November and December 2012, and it is not
clear when or to what extent additional demands may be made
by Assured Guaranty, Freddie Mac or others.
Payments that UBS has made or agreed to make to date to re-
solve repurchase demands equate to approximately 62% of the
original principal balance of the related loans. Most of the pay-
ments that UBS has made or agreed to make to date have related
to so-called “Option ARM” loans; severity rates may vary for other
types of loans or for Option ARMs with different characteristics.
Actual losses upon repurchase will reflect 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 losses upon
repurchase for reasons including timing and market uncertainties.
In most instances in which we would be required to repurchase
loans due to misrepresentations, we would be able to assert de-
mands against third-party loan originators who provided repre-
sentations 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 balance of loans sold or securi-
tized by UBS from 2004 through 2007, less than 50% was pur-
chased from surviving third-party originators. In connection with
approximately 60% of the loans (by original principal balance) for
which UBS has made payment or agreed to make payment in re-
sponse to demands received in 2010, UBS has asserted indemnity
or repurchase demands against originators. Since 2011, UBS has
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.
Assured Guaranty Municipal Corp. (Assured Guaranty), a fi-
nancial guaranty insurance company, made additional loan repur-
Lawsuits related to contractual representations and warranties
concerning mortgages and RMBS: In February 2012, Assured
378
Note 23 Provisions and contingent liabilities (continued) Guaranty filed suit against UBS RESI in New York State Court
asserting claims for breach of contract and declaratory relief based
on UBS RESI’s alleged failure to repurchase allegedly defective
mortgage loans with an original principal balance of at least USD
997 million that serve as collateral for UBS-sponsored RMBS in-
sured in part by Assured Guaranty. Assured Guaranty also claims
that UBS RESI breached representations and warranties concern-
ing the mortgage loans and breached certain obligations under
commitment letters. Assured Guaranty seeks unspecified damag-
es that include payments on current and future claims made un-
der Assured Guaranty insurance policies totaling approximately
USD 308 million at the time of the filing of the complaint, as well
as compensatory and consequential losses, fees, expenses and
pre-judgment interest. The case was removed to federal court,
and in August 2012, the Court granted UBS RESI’s motion to dis-
miss Assured Guaranty’s claims for breach of UBS RESI’s contrac-
tual repurchase obligations, holding that only the trustee for the
securitization trust has the contractual right to enforce those obli-
gations. The Court also granted UBS RESI’s motion to dismiss
Assured Guaranty’s claims for declaratory relief. The Court denied
UBS RESI’s motion to dismiss Assured Guaranty’s claims for breach
of representation and warranty and breach of the commitment
letters. The case is now in discovery.
In October 2012, following the Court’s holding that only the
trustee may assert claims seeking to enforce UBS RESI’s repurchase
obligations, the RMBS trusts at issue in the Assured Guaranty liti-
gation filed a related action in the Southern District of New York
seeking to enforce UBS RESI’s obligation to repurchase loans with
an original principal balance of approximately USD 2 billion for
which Assured Guaranty had previously demanded repurchase.
UBS’s motion to dismiss the suit filed by the trusts is pending. With
respect to the portion of the loans subject to the suits filed by As-
sured Guaranty and the trusts that were originated by institutions
still in existence, UBS is enforcing its indemnity rights against
those institutions. At this time, UBS does not expect that it will be
required to make payment for the majority of loan repurchase
demands at issue in the suit brought by the RMBS trusts for at
least the following reasons: (1) we reviewed the origination file
and / or servicing records for the loan and concluded that the al-
legations of breach of representations and warranties are un-
founded, or (2) a surviving originator is contractually liable for any
breaches of representations and warranties with respect to loans
that it originated. UBS has indemnification rights in connection
with approximately half of the USD 2 billion in original principal
balance of loans at issue in this suit (reflected in the “In litigation”
category in the accompanying table). Additionally, in its motion to
dismiss the suit filed by the trusts, UBS has asserted that, under
governing transaction documents, UBS is not required to repur-
chase liquidated loans that were the subject of repurchase de-
mands now at issue in this suit.
In April 2012, Freddie Mac filed a notice and summons in New
York Supreme Court initiating suit against UBS RESI for breach of
contract and declaratory relief arising from alleged breaches of
representations and warranties in connection with certain mort-
gage loans and UBS RESI’s alleged failure to repurchase such
mortgage loans. The complaint for this suit was filed in Septem-
ber 2012. Freddie Mac seeks, among other relief, specific perfor-
mance of UBS RESI’s alleged loan repurchase obligations for at
least USD 94 million in original principal balance of loans for
which Freddie Mac had previously demanded repurchase; no
damages are specified.
We also have tolling agreements with certain institutional pur-
chasers of RMBS concerning their potential claims related to sub-
stantial purchases of UBS-sponsored or third-party RMBS.
As reflected in the table below, our balance sheet as of 31 De-
cember 2012 included a provision of USD 658 million with respect
to matters described in this item 6. As in the case of other matters
for which we have established provisions, the future outflow of
resources in respect of this matter cannot be determined with
certainty based on currently available information, and accord-
ingly may ultimately prove to be substantially greater (or may be
less) than the provision that we have recognized.
7. Claims related to UBS disclosure
A putative consolidated class action has been filed in the United
States District Court for the Southern District of New York against
UBS, a number of current and former directors and senior officers
and certain banks that underwrote UBS’s May 2008 Rights Offer-
ing (including UBS Securities LLC) alleging violation of the US se-
curities laws in connection with UBS’s disclosures relating to UBS’s
positions and losses in mortgage-related securities, UBS’s posi-
tions and losses in auction rate securities, and UBS’s US cross-
border business. In 2011, the court dismissed all claims based on
purchases or sales of UBS ordinary shares made outside the US,
and, in September 2012, the court dismissed with prejudice the
remaining claims based on purchases or sales of UBS ordinary
Provision for claims related to sales of residential mortgage-backed securities and mortgages
USD million
Balance at the beginning of the year
Increase in provision recognized in the income statement
Release of provision recognized in the income statement
Provision used in conformity with designated purpose
Balance at the end of the year
31.12.12
104
554
0
0
658
379
Financial informationNote 23 Provisions and contingent liabilities (continued) Financial information
Notes to the consolidated financial statements
shares made in the US for failure to state a claim. Plaintiffs have
appealed the court’s decision. UBS, a number of senior officers
and employees and various UBS committees have also been sued
in a putative consolidated class action for breach of fiduciary du-
ties brought on behalf of current and former participants in two
UBS Employee Retirement Income Security Act (ERISA) retirement
plans in which there were purchases of UBS stock. In 2011, the
court dismissed the ERISA complaint. In March 2012, the court
denied plaintiffs’ motion for leave to file an amended complaint.
On appeal, the Second Circuit upheld the dismissal of all counts
relating to one of the retirement plans. With respect to the sec-
ond retirement plan, the Court upheld the dismissal of some of
the counts, and vacated and remanded for further proceedings
with regard to the counts alleging that defendants had violated
their fiduciary duty to prudently manage the plan’s investment
options, as well as the claims derivative of that duty.
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 the Swiss Financial Market Super-
visory Authority (FINMA) and the Luxembourg Commission de
Surveillance du Secteur Financier (CSSF). Those inquiries con-
cerned two third-party funds established under Luxembourg law,
substantially all assets of which were with BMIS, as well as certain
funds established in offshore jurisdictions with either direct or in-
direct exposure to BMIS. These funds now face severe losses, and
the Luxembourg funds are in liquidation. The last reported net
asset value of the two Luxembourg funds before revelation of the
Madoff scheme was approximately USD 1.7 billion in the aggre-
gate, although that figure likely includes fictitious profit reported
by BMIS. The documentation establishing both funds identifies
UBS entities in various roles including custodian, administrator,
manager, distributor and promoter, and indicates that UBS em-
ployees serve as board members. UBS (Luxembourg) SA and cer-
tain other UBS subsidiaries are responding to inquiries by Luxem-
bourg investigating authorities, without however being named as
parties in those investigations. In 2009 and 2010, the liquidators
of the two Luxembourg funds filed claims on behalf of the funds
against UBS entities, non-UBS entities and certain individuals in-
cluding current and former UBS employees. The amounts claimed
are approximately EUR 890 million and EUR 305 million, respec-
tively. The liquidators have filed supplementary claims for amounts
that the funds may possibly be held liable to pay the BMIS Trustee.
These amounts claimed by the liquidator are approximately EUR
564 million and EUR 370 million, respectively. In addition, a large
number of alleged beneficiaries have filed claims against UBS en-
tities (and non-UBS entities) for purported losses relating to
the Madoff scheme. The majority of these cases are pending in
Luxembourg, where appeals have been filed by the claimants
against the 2010 decisions of the court in which the claims in a
number of test cases were held to be inadmissible. In the US, the
BMIS Trustee has filed claims against UBS entities, among others,
in relation to the two Luxembourg funds and one of the offshore
funds. A claim was filed in 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 in this action was
not less than USD 2 billion. A second claim was filed in 2010
against 16 defendants including 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
2011 the District Court dismissed all of the BMIS 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 BMIS Trustee lacks standing to bring such
claims. The BMIS Trustee has appealed the District Court’s deci-
sion. In Germany, certain clients of UBS are exposed to Madoff-
managed positions through third-party funds and funds adminis-
tered by UBS entities in Germany. A small number of claims have
been filed with respect to such funds.
9. Transactions with Italian public sector entities
A number of transactions that UBS Limited and UBS AG respec-
tively entered into with public sector entity counterparties in Italy
have been called into question or become the subject of legal
proceedings and claims for damages and other awards. In 2009,
the City of Milan filed civil proceedings against UBS Limited, UBS
Italia SIM Spa and three other international banks in relation to a
2005 bond issue and associated derivatives transactions entered
into with Milan between 2005 and 2007. In addition, in 2010 a
criminal trial began against two current UBS employees and one
former employee, together with employees from the three other
banks, a former officer of Milan and a former adviser to Milan,
for alleged fraud against a public entity in relation to the same
bond issue and the execution, and subsequent restructuring, of
the related derivative transactions. UBS Limited was also the sub-
ject (as were the three other banks) of an administrative charge,
brought in the context of the criminal trial of the individuals, of
failing to have in place a business organizational model to avoid
the alleged misconduct by employees. In March 2012, UBS Lim-
ited and UBS Italia SIM Spa finalized a civil damages settlement
agreement with Milan without any admission of liability. The
settlement did not dispose of the ongoing criminal or administra-
tive proceedings, nor did it dispose of a civil consumer group
claim lodged in the criminal proceeding. In December 2012 the
Milan criminal court found UBS Limited liable for the administra-
tive offense and convicted the three UBS employees (two current
and one former) of fraud against a public entity. The sanctions
against UBS Limited, which are not effective until appeals are
exhausted, are confiscation of the alleged level of profit flowing
from the criminal findings (EUR 16.6 million), a fine in respect of
the finding of the administrative offense (EUR 1 million) and pay-
380
Note 23 Provisions and contingent liabilities (continued) ment of legal fees. UBS has previously provided for this potential
exposure in the amount of EUR 18.5 million. Convictions have
also been issued against six employees of the three other interna-
tional banks, and the banks themselves were also found liable for
the administrative offense.
Derivative transactions with the Regions of Calabria, Tuscany,
Lombardy and Lazio and the City of Florence have also been
called into question or become the subject of legal proceedings
and claims for damages and other awards. Florence and Tuscany
have also attempted to invoke Italian administrative law remedies
which purport to allow a public entity to challenge its own deci-
sion to enter into the relevant contracts and avoid their obliga-
tions thereunder. In April 2012, UBS AG and UBS Limited settled
the existing disputes with the Region of Tuscany without any ad-
mission of liability. In January 2013, the Tuscany criminal court
dismissed without further consequence a related criminal investi-
gation. In November 2012, UBS reached civil settlements with,
respectively, the Regions of Lombardy and Lazio (the latter settle-
ment is conditional upon Lazio making certain amendments to its
pleading in ongoing litigation against third parties), again without
any admission of liability. An in-principle agreement has also been
reached with the City of Florence. Provisions have been booked in
respect of these agreed or prospective settlements.
10. HSH Nordbank AG (HSH)
HSH has filed an action against UBS in New York State court relating
to USD 500 million of notes acquired by HSH in a synthetic CDO
transaction known as North Street Referenced Linked Notes, 2002-
4 Limited (NS4). The notes were linked through a credit default
swap between the NS4 issuer and UBS to a reference pool of corpo-
rate bonds and asset-backed securities. HSH alleges that UBS know-
ingly misrepresented the risk in the transaction, sold HSH notes with
“embedded losses”, and improperly profited at HSH’s expense by
misusing its right to substitute assets in the reference pool within
specified parameters. HSH is seeking USD 500 million in compensa-
tory damages plus pre-judgment interest. The case was initially filed
in 2008. In March 2012, a New York state appellate court dismissed
HSH’s fraud claim and affirmed the trial court’s dismissal of its neg-
ligent misrepresentation claim and punitive damages demand. As a
result, the claims remaining in the case were for breach of contract
and breach of the implied covenant of good faith and fair dealing.
HSH has sought permission to appeal the appellate court’s decision
to the New York Court of Appeals. In March 2013, the parties set-
tled the litigation. UBS had previously provided for this potential
exposure in an amount equal to the settlement amount.
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. UBS entered into back-to-back CDS transactions with
the other counterparties, Depfa Bank plc (Depfa) and Landesbank
Baden-Württemburg (LBBW), in relation to their respective swaps
with KWL. Under the CDS contracts between KWL and UBS, the
last of which were terminated by UBS in 2010, a net sum of ap-
proximately USD 138 million has fallen due from KWL but not
been paid. Earlier in 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 transaction be-
tween KWL and UBS is valid, binding and enforceable as against
KWL. The English court ruled in 2010 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 added its monetary claim to the pro-
ceedings. KWL is defending against UBS’s claims and has served a
counterclaim which also joins UBS Limited and Depfa to the pro-
ceedings. As part of its assertions, KWL claims damages of at least
USD 68 million in respect of UBS’s termination of some of the CDS
contracts, whilst disputing that any monies are owed to UBS pur-
suant to another CDS contract. UBS, UBS Limited and Depfa are
defending against KWL’s counterclaims, and Depfa has asserted
additional claims against UBS and UBS Limited.
In 2010, KWL issued proceedings in Leipzig, Germany against
UBS, Depfa and LBBW, 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 transactions and that the banks knew this. Upon
and as a consequence of KWL withdrawing its appeal on jurisdic-
tion in England, KWL also withdrew its civil claims against UBS and
Depfa in the German courts, and no civil claim will proceed against
either of them in Germany. The proceedings brought by KWL
against LBBW are now proceeding before the German courts. The
Leipzig court has 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 LBBW on UBS in the Leipzig proceedings.
The back-to-back CDS transactions were terminated in 2010.
In 2010, UBS and UBS Limited issued separate proceedings in the
English High Court against Depfa and LBBW seeking declarations
as to the parties’ obligations under the back-to-back CDS transac-
tions and monetary claims. UBS Limited contends that it is owed
USD 83.3 million, plus interest, by Depfa. UBS contends that it is
owed EUR 75.5 million, plus interest, by LBBW. Depfa and LBBW
respectively are defending against the claims and have also issued
counterclaims. Additionally Depfa has added a claim against KWL
to the proceedings against it and KWL has served a defense.
The former managing director of KWL and two financial advis-
ers were convicted on criminal charges of bribery, and are cur-
rently standing trial for related charges of embezzlement, in re-
spect of certain KWL transactions, including swap transactions
with UBS and other banks.
In 2011, the SEC commenced an inquiry regarding the KWL
transactions and UBS is providing information to the SEC relating
to those transactions.
381
Financial informationNote 23 Provisions and contingent liabilities (continued) Financial information
Notes to the consolidated financial statements
12. Puerto Rico
In 2011, a purported shareholder derivative action was filed on
behalf of the Employee Retirement System of the Commonwealth
of Puerto Rico (System) against over 40 defendants, including UBS
Financial Services Inc. of Puerto Rico (UBS PR) and other consul-
tants and underwriters, trustees of the System, and the President
and Board of the Government Development Bank of Puerto Rico.
The plaintiffs allege that defendants violated their purported fidu-
ciary duties and contractual obligations in connection with the
issuance and underwriting of approximately USD 3 billion of
bonds by the System in 2008. Plaintiffs seek damages of over USD
800 million, which represents plaintiffs’ estimate of the difference
between the interest rate the System will pay on the bonds prior
to their maturity between 2023 and 2058 and the return on the
investments the System will make with the proceeds of the bond
offerings before the proceeds are used to help the System meet a
portion of its obligations to pensioners. UBS is named in connec-
tion with its underwriting and consulting services. Defendants,
including UBS, have moved to dismiss and are awaiting a decision
on that motion. The case is pending in the Commonwealth of
Puerto Rico Court of First Instance. UBS is also cooperating with
an SEC investigation into the bond offerings. Separately, in late
2012, an SEC administrative hearing on securities law violation
charges against two UBS PR executives concluded, with a decision
expected in late 2013. The charges stemmed from the SEC’s in-
vestigation of UBS PR’s sale of closed-end funds in 2008 and
2009, which UBS PR settled in April 2012.
13. LIBOR and other benchmark rates
Numerous government agencies, including the SEC, the US Com-
modity Futures Trading Commission (CFTC), the DOJ, the UK Fi-
nancial Services Authority (FSA), the UK Serious Fraud Office
(SFO), the Monetary Authority of Singapore (MAS), the Hong
Kong Monetary Authority (HKMA), FINMA, the various state at-
torneys general in the US, and competition authorities in various
jurisdictions are conducting investigations regarding submissions
with respect to British Bankers’ Association LIBOR (London Inter-
bank Offered Rate) and other benchmark rates. These investiga-
tions focus on whether there were improper attempts by UBS
(among others), either acting on our own or together with others,
to manipulate LIBOR and other benchmark rates at certain times.
The UK Parliament is conducting an inquiry into “transparency,
conflicts of interest and the culture and professional standards of
the financial services industry including the interaction with the
criminal law”, and a narrower review by the FSA that concerns
the LIBOR process is also ongoing.
In December 2012, UBS reached settlements with the FSA, the
CFTC and the Criminal Division of the DOJ in connection with
their investigations of benchmark interest rates. At the same time
FINMA issued an order concluding its formal proceedings with
respect to UBS relating to benchmark interest rates. UBS will pay
a total of approximately CHF 1.4 billion in fines and disgorgement
– including GBP 160 million in fines to the FSA, USD 700 million
in fines to the CFTC, and CHF 59 million in disgorgement to FIN-
MA. Under a non-prosecution agreement (NPA) that UBS entered
into with the DOJ, UBS has agreed to pay a fine of USD 500 mil-
lion. Pursuant to a separate plea agreement between the DOJ and
UBS Securities Japan Co. Ltd. (UBSSJ), UBSSJ has entered a plea to
one count of wire fraud relating to the manipulation of certain
benchmark interest rates, including Yen LIBOR, and the DOJ and
UBSSJ have agreed to a sentence to be imposed on UBSSJ that
would include a fine of USD 100 million, which is subject to the
discretion of the sentencing court. The NPA requires UBS to pay
the USD 500 million fine to DOJ within 10 days of the sentencing
of UBSSJ, and provides that any criminal penalties imposed on
UBSSJ at sentencing, which currently is scheduled for 15 March
2013, will be deducted from the USD 500 million fine. The con-
duct described in the various settlements and the FINMA order
includes certain UBS personnel: engaging in efforts to manipulate
submissions for certain benchmark rates to benefit trading posi-
tions; colluding with employees at other banks and cash brokers
to influence certain benchmark rates to benefit their trading posi-
tions; and giving inappropriate directions to UBS submitters that
were in part motivated by a desire to avoid unfair and negative
market and media perceptions during the financial crisis. The
benchmark interest rates encompassed by these resolutions in-
clude Yen LIBOR, GBP LIBOR, CHF LIBOR, Euro LIBOR, USD LIBOR,
EURIBOR (Euro Interbank Offered Rate) and Euroyen TIBOR (Tokyo
Interbank Offered Rate). We have ongoing obligations to cooper-
ate with authorities with which we have reached resolutions and
to undertake certain remediation with respect to benchmark in-
terest rate submissions. Investigations by other government au-
thorities remain ongoing notwithstanding these resolutions.
UBS has been granted conditional leniency or conditional im-
munity from authorities in certain jurisdictions, including the Anti-
trust Division of the DOJ and the Swiss Competition Commission
(WEKO), in connection with potential antitrust or competition law
violations related to submissions for Yen LIBOR and Euroyen TIBOR.
WEKO has also granted UBS conditional immunity in connection
with potential competition law violations related to submissions for
Swiss franc LIBOR and certain transactions related to Swiss franc
LIBOR. The Canadian Competition Bureau has granted UBS condi-
tional immunity in connection with potential competition law viola-
tions related to submissions for Yen LIBOR. As a result of these
conditional grants, we will not be subject to prosecutions, fines or
other sanctions for antitrust or competition law violations in the
jurisdictions where we have conditional immunity or leniency in
connection with the matters covered by the conditional grants,
subject to our continuing cooperation. However, the conditional
leniency and conditional immunity grants we have received do not
bar government agencies from asserting other claims and imposing
sanctions against us, as evidenced by the settlements and ongoing
investigations referred to above. In addition, as a result of the con-
ditional leniency agreement with the DOJ, we are eligible for a
382
Note 23 Provisions and contingent liabilities (continued) 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 antitrust ac-
tion, subject to our satisfying the DOJ and the court presiding 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.
In 2011, the Japan Financial Services Agency (JFSA) commenced
administrative actions and issued orders against UBS Securities
Japan Ltd (UBS Securities Japan) and UBS AG, Tokyo Branch in
connection with their investigation of Yen LIBOR and Euroyen TI-
BOR. These actions were based on findings by the Japan Securities
and Exchange Surveillance Commission (SESC), and, in the case
of UBS AG, Tokyo Branch, the JFSA, that a former UBS Securities
Japan trader engaged in inappropriate conduct relating to Euroy-
en TIBOR 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 benefit-
ing trading positions.
A number of putative class actions and other actions are pend-
ing in the federal courts in New York and other jurisdictions
against UBS and numerous other banks on behalf of parties who
transacted in LIBOR-based derivatives linked directly or indirectly
to US dollar LIBOR, Yen LIBOR, Euroyen TIBOR and EURIBOR. Also
pending are actions asserting losses related to various products
whose interest rate was linked to US dollar LIBOR, including ad-
justable rate mortgages, preferred and debt securities, bonds
pledged as collateral, loans, depository accounts, investments and
other interest bearing instruments. There is a pending motion to
dismiss consolidated amended complaints which were filed by
certain parties. All of the complaints allege manipulation, through
various means, of various benchmark interest rates, including LI-
BOR, Euroyen TIBOR or EURIBOR rates and seek unspecified com-
pensatory and other damages, including treble and punitive dam-
ages, under varying legal theories that include violations of the US
Commodity Exchange Act, federal and state antitrust laws and
the federal racketeering statute.
With respect to additional matters and jurisdictions not en-
compassed by the settlements and order referred to above, our
balance sheet at 31 December 2012 reflected a provision in an
amount that UBS believes to be appropriate under the applicable
accounting standard. As in the case of other matters for which we
have established provisions, the future outflow of resources in re-
spect of such matters cannot be determined with certainty based
on currently available information, and accordingly may ultimate-
ly prove to be substantially greater (or may be less) than the provi-
sion that we have recognized.
14. SinoTech Energy Limited
Since 2011, multiple putative class action complaints have been
filed and consolidated in federal court in Manhattan, against Si-
noTech Energy Limited (SinoTech), its officers and directors, its
auditor at the time of its initial public offering (IPO), and its under-
writers, including UBS. The second amended complaint filed in
June 2012 alleges, with respect to the underwriters, that the reg-
istration statement and prospectus filed in connection with Sino-
Tech’s 2010 USD 168 million IPO of American Depositary Shares,
of which UBS underwrote 70%, contained materially misleading
statements and omissions, including allegations regarding the au-
thenticity and accuracy of certain asset purchase contracts pur-
portedly entered into between SinoTech and its vendors. Plaintiff
asserts violations of the US federal securities laws and seeks un-
specified compensatory damages, among other relief. UBS and
several other defendants have reached an agreement to settle the
lawsuit, which is subject to court approval.
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 financial 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 specific client con-
sent, surrendered to them. On appeal, the Swiss Supreme Court
ruled in October 2012 that distribution fees paid to UBS for dis-
tributing third party and intra-group investment funds and struc-
tured products must be disclosed and surrendered to clients who
have entered into a discretionary mandate agreement with the
bank, absent a valid waiver.
In November 2012, FINMA issued a supervisory note to all
Swiss banks in response to the Supreme Court decision. The note
sets forth the measures Swiss banks are to adopt, which include
informing all affected clients about the Supreme Court decision
and directing them to an internal bank contact for further details.
UBS has met the FINMA requirements and has notified all poten-
tially affected clients in the context of the mailing of the year-end
account statements.
It is expected that the Supreme Court decision will result in a
significant number of client requests for UBS to disclose and po-
tentially surrender retrocessions. Client requests will be assessed
on a case-by-case basis. Considerations to be taken into account
when assessing these cases include, among others, the existence
of a discretionary mandate and whether or not the client docu-
mentation contained a valid waiver with respect to distribution
fees.
Our balance sheet at 31 December 2012 reflected a provision
with respect to matters described in this item 15 in an amount
that UBS believes to be appropriate under the applicable account-
ing standard. The ultimate exposure will depend on client requests
and the resolution thereof, factors that are difficult to predict and
assess, particularly in view of the limited experience to date.
Hence as in the case of other matters for which we have estab-
lished provisions, the future outflow of resources in respect of
383
Financial informationNote 23 Provisions and contingent liabilities (continued) Financial information
Notes to the consolidated financial statements
such matters cannot be determined with certainty based on cur-
rently available information, and accordingly may ultimately prove
to be substantially greater (or may be less) than the provision that
we have recognized.
16. Unauthorized trading incident
The trial in connection with the unauthorized trading incident
that occurred in the Investment Bank and was announced in Sep-
tember 2011 concluded on 20 November 2012. The defendant
was found guilty on two counts of fraud and not guilty on four
counts of false accounting. On 26 November 2012, FINMA and
the FSA announced the findings of their joint investigation. They
also announced the actions they have taken, and the FSA im-
posed a fine of GBP 29.7 million on UBS.
In October 2012, a consolidated complaint was filed in a puta-
tive securities fraud class action pending in federal court in Man-
hattan against UBS AG and certain of its current and former offi-
cers relating to the unauthorized trading incident. The lawsuit
was filed on behalf of parties who purchased publicly traded UBS
securities on any US exchange, or where title passed within the
US, during the period 17 November 2009 through 15 September
2011. The complaint alleges that UBS misrepresented, through its
public statements and financial disclosures, that its risk controls
and procedures were effective, and that the falsity of these repre-
sentations became apparent when UBS disclosed the unauthor-
ized trading incident in September 2011, a disclosure that pur-
portedly caused UBS’s stock price to drop 10% in one day. The
plaintiff seeks unspecified damages and interest, among other
relief. UBS’s motion to dismiss the complaint is pending.
17. Banco UBS Pactual tax indemnity
Pursuant to the 2009 sale of Banco UBS Pactual S.A. (Pactual) by
UBS to BTG Investments, LP (BTG), BTG has submitted contractual
indemnification claims that UBS estimates amount to approxi-
mately USD 1.1 billion, including interest and penalties. The claims
pertain principally to several tax assessments issued by the Brazil-
ian tax authorities against Pactual relating to the period from De-
cember 2006 through March 2009, when UBS owned Pactual.
These assessments are being or will be challenged in administra-
tive proceedings. In February 2013, the Brazilian tax authority is-
sued a decision that reduced our potential exposure on an assess-
ment relating to deductions taken for goodwill amortization in
connection with the 2006 acquisition of Pactual. The remaining
assessment, net of this deduction, is being appealed to the next
level administrative court. BTG has also provided notice to UBS of
several additional Pactual-related inquiries by the Brazilian tax au-
thorities that relate to the period of UBS’s ownership of Pactual,
but involving substantially smaller amounts.
18. Greater Southwestern Funding
In June 2010, UBS was named as a defendant in a putative class
action complaint brought in federal court in Oklahoma relating to
its role as underwriter and seller in a bond offering of USD 182
million in zero coupon bonds originally issued in 1984 by Greater
Southwestern Funding Corporation (GSF). The complaint alleges
that GSF breached its contractual obligation to make payments
on the bonds and is liable for the principal and interest due on the
bonds, and that UBS is liable for GSF’s contract indebtedness un-
der equitable theories, including a corporate “veil-piercing” claim.
A class was certified in December 2011. UBS’s motion for sum-
mary judgment seeking dismissal of all claims against UBS is
pending. Trial is scheduled to begin as early as April 2013.
384
Note 23 Provisions and contingent liabilities (continued) Additional information
Note 24 Income taxes
CHF million
Tax expense / (benefit) from continuing operations
Swiss
Current
Deferred
Foreign
Current
Deferred
Total income tax expense / (benefit) from continuing operations
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information with regard to the adoption of IAS19R.
31.12.12
For the year ended
31.12.11 1
31.12.10 1
95
23
72
271
461
23
1,041
83
(246)
901
(75)
640
300
(1,273)
(409)
The Swiss current tax expense of CHF 95 million relates to tax-
able profits, against which no losses were available to offset,
earned by Swiss subsidiaries and also from the sale of real es-
tate. The Swiss deferred tax expense of CHF 23 million relates
to a decrease in recognized deferred tax assets, due to Swiss
pre-tax profits earned during the year, offset by Swiss tax relief
for the impairment of goodwill.
sions in respect of tax positions which were previously uncertain.
The foreign deferred tax expense of CHF 271 million mainly re-
flects a tax expense for the amortization of deferred tax assets, as
tax losses were used against taxable profits.
The Group made net corporate income tax payments, includ-
ing Swiss and foreign taxes, of CHF 261 million, CHF 349 million
and CHF 498 million in 2012, 2011, and 2010 respectively.
The foreign net current tax expense of CHF 72 million relates
to a tax expense in respect of taxable profits earned by non-Swiss
subsidiaries and branches, against which no losses were available
to offset, partly offset by a tax benefit from the release of provi-
The components of operating profit before tax, and the dif-
ferences 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 / (loss) from continuing operations before tax
of which: Swiss
of which: Foreign
Income taxes at Swiss tax rate of 21% for 2012, and 21.5% for 2011 and 2010
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 – current tax
Adjustments related to prior years – deferred tax
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
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information with regard to the adoption of IAS19R.
31.12.12
(1,774)
4,040
(5,814)
(373)
(684)
184
(1,342)
(417)
2,205
(216)
1
1,071
7
25
461
For the year ended
31.12.11 1
5,307
4,652
654
1,141
98
939
(8)
(1,189)
674
(171)
17
(680)
42
39
901
31.12.10 1
7,345
5,842
1,503
1,579
(60)
275
(1,225)
(889)
1,985
(261)
3
(1,813)
11
(14)
(409)
385
Financial information Financial information
Notes to the consolidated financial statements
Certain deferred tax asset and liability movements are recognized
directly in equity. In 2012 these include tax charges of CHF 581 mil-
lion recognized in other comprehensive income (2011: CHF 152
million) and CHF 457 million recognized in Share premium (2011:
benefit of CHF 280 million), which mainly relate to the lower valu-
ation of deferred tax assets for net Swiss tax losses arising in previ-
ous periods. These charges were more than offset by a tax credit of
CHF 1,119 million recognized in other comprehensive income re-
lated to previous years due to the retrospective adoption of IAS
19R. In addition, there were net foreign currency translation losses
related to the effects of exchange rate changes on tax assets and
liabilities denominated in currencies other than Swiss francs.
In the table below, the valuation allowance represents amounts
that are not expected to provide a future tax benefit due to insuf-
ficient projected future taxable profits.
UBS AG Switzerland and certain overseas branches and sub-
sidiaries of the Group have deferred tax assets related to tax
loss carry-forwards and other items as shown in the table be-
low. For entities that incurred losses in either the current or
preceding year, CHF 3,487 million was recognized as deferred
tax assets as of 31 December 2012 (CHF 564 million as of 31
December 2011).
CHF million
Deferred tax assets
Compensation and benefits
Tax loss carry-forwards
Trading assets
Other
Total deferred tax assets
Deferred tax liabilities
Goodwill and intangible assets
Trading assets
Property and equipment
Financial investments
Investments in associates and other
Total deferred tax liabilities
31.12.12 1
Valuation
allowance Recognized
(1,047)
(23,276)
(131)
(425)
651
5,746
936
809
Gross
1,698
29,022
1,067
1,235
33,021
(24,879)
8,143
31.12.11 2
Valuation
allowance
(1,995)
(19,226)
(813)
(1,447)
(23,481)
Recognized
1,317
8,049
67
194
9,627
Gross
3,312
27,275
880
1,641
33,108
17
5
2
2
26
52
37
1
1
11
17
68
1 The deferred tax assets recognized for compensation and benefits, trading assets and other temporary differences increased in the year by CHF 1.8 billion as a result of recognizing deferred tax assets for temporary dif-
ferences in advance of those on tax losses for locations where there is partial recognition of deferred tax assets. This had no impact on the overall amount of deferred tax assets recognized, as there was a corresponding
reduction in the amount of deferred tax assets recognized for tax loss carry-forwards. 2 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for more information with regard to the
adoption of IAS19R.
The deferred tax assets recognized as of 31 December 2012 in
respect of tax loss carry-forwards were based on expected profit-
ability using business plan assumptions, as adjusted to take into
account the recognition criteria of IAS 12 Income taxes. If the
business plan earnings and assumptions in future periods sub-
stantially deviate from the current assumptions, the amount of
deferred tax assets may need to be adjusted in the future.
As of 31 December 2012, tax loss carry-forwards totaling CHF
68,125 million, which are not recognized as deferred tax assets,
were available to be offset against future taxable profits. These
tax losses 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
31.12.12
31.12.11
0
7,912
461
43,866
15,886
68,125
3
29
85
38,647
13,309
52,073
In general, Swiss tax losses can be carried forward for seven years,
US federal tax losses for 20 years and UK and Jersey tax losses for
an unlimited period.
The Group provides for deferred income tax on undistributed
earnings of subsidiaries except to the extent that those earnings
are indefinitely invested. As of 31 December 2012, no such earn-
ings were considered indefinitely invested.
386
Note 24 Income taxes (continued) 387
Financial informationDerivatives: overviewA derivative is a financial instrument, the value of which is derived from the value of one or more variables (“underlyings”). Underly-ings may be indices, exchanges or interest rates, or the value of shares, commodities, bonds, or other financial instruments. A de-rivative commonly requires little or no initial net 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 financial instruments.Over-the-counter (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 exchange-traded derivatives (ETD) contracts. Ex-changes offer the benefits of pricing transparency, standardized daily settlement of changes in value, and consequently reduced credit risk. During 2012, 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 classified 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 classified as Cash collateral receivable or payable on de-rivative instruments. They are not classified 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 and forward rate agreements transacted with the Lon-don Clearing House and certain credit derivative contracts.Additionally, for presentation purposes, the Group is subject to the IFRS netting provisions for derivative contracts, if all the fol-lowing 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).Valuation principles and techniques applied in the measure-ment of derivative instruments are discussed in Note 27a. Posi-tive replacement values represent the estimated amount the Group would receive if the derivative contract were settled in full on the balance sheet date. Negative replacement values in-dicate the value at which the Group would extinguish its obliga-tions in respect of the underlying contract, were it required or entitled to do so on the balance sheet date.Derivatives embedded in other financial instruments are not included in the table “Derivative instruments” within this Note. Bifurcated embedded derivatives are presented on the same bal-ance sheet line as the host contract. In case where UBS applies the fair value option to hybrid instruments, bifurcation of an embed-ded derivative component is not required and as such, also not included in the table “Derivative instruments”. Refer to “Note 13 Financial asset designated at fair value” and “Note 20 Financial liabilities designated at fair value” for more information.Types of derivative instrumentsThe Group uses the following derivative financial instruments for both trading and hedging purposes. Through the use of the prod-ucts listed below, the Group is engaged in extensive high volume market-making and client facilitation trading referred to as the flow business. Measurement techniques applied to determine the fair value of each product type are described in Note 27c.The main types of derivative instruments used by the Group are:– Options and warrants: options and warrants are contractual agreements under which, typically, the seller (writer) grants the purchaser the right, but not the obligation, either to buy (call option), or to sell (put option) at, or before, a set date, a spec-ified quantity of a financial 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 flows on a specified notional amount for a predetermined period.– Forwards and futures: Forwards and futures are contractual obligations to buy or sell financial instruments or commodities on a future date at a specified price. Forward contracts are tailor-made agreements that are transacted between counter-parties in the OTC market, whereas futures are standardized contracts transacted on regulated exchanges.– Cross-currency swaps: Cross-currency swaps involve the exchange of interest payments based on two different currency principal balances and reference interest rates and generally also entail exchange of principal amounts at the start or end of the contract. Most cross-currency 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, forward rate agreements, swaptions and caps and floors.– Credit derivatives: Credit default swaps (CDSs) are the most common form of a credit derivative, under which the party Note 25 Derivative instruments and hedge accounting Financial information
Notes to the consolidated financial statements
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 defined credit event with respect to a specified
third-party 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. More information on credit derivatives is
included in a separate section below.
– Total return swaps (TRSs): TRSs are employed in both the In-
vestment Bank’s fixed income and equity trading businesses
with underlyings which are generally equity or fixed income
indices, loans or bonds. TRSs are structured with one party
making payments based on a set rate, either fixed or variable,
plus any negative changes in fair value of an underlying asset,
and the other party making payments based on the return of
the asset, which includes both income it generates and any
positive changes in its fair 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 defined by UBS. The product types traded
include vanilla listed derivatives, both options and futures, total
return swaps, forwards and exotic OTC contracts.
– Commodities contracts: The Group has an established com-
modity derivatives trading business, which includes the com-
modity index, the structured business and the flow 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 defined indices such as the UBS Bloomberg Constant
Maturity Commodity Index and the Dow Jones UBS Commod-
ity indices. The flow business is investor led and incorporates
both ETD and vanilla OTC products, for which the underlying
covers the agriculture, base metals and energy sectors. All of
the flow trading is cash settled with no physical delivery of the
underlying.
– Precious metals: The Group has an established precious metals
ability in both flow and non-vanilla OTC products incorporat-
ing both physical and non-physical trading. The flow business
is investor led and products include ETD, vanilla OTCs and cer-
tain non-vanilla OTCs. The vanilla OTCs are in forwards, swaps
and options. The non-vanilla OTC business relates to cash-set-
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 de-
rivatives. The market risk of derivatives is predominantly managed
and controlled as an integral part of the market risk of these port-
folios. The Group’s approach to market risk is described in the au-
dited 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 reflection 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 reflect 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), which is more restrictive than netting in accordance with
Swiss Federal Banking law. Swiss Federal Banking law netting is
generally based on close-out netting arrangements that are en-
forceable in case of insolvency. The positive and negative re-
placement 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 pages.
The notional amount of a derivative is generally the quantity of
the underlying instrument on which the derivative contract is
based and is the reference against which changes in the value of
the derivative are measured. Notional values, in themselves, are
generally not a direct indication of the values which are exchanged
between parties, and are therefore not a direct measure of risk or
financial exposure, but are viewed as an indication of the scale of
the different types of derivatives entered into by the Group.
388
Note 25 Derivative instruments and hedge accounting (continued) Derivative instruments 1
CHF billion
Interest rate contracts
Over-the-counter (OTC) contracts
Forward contracts 6
Swaps 7
Options
Exchange-traded contracts 8
Futures
Options
Agency transactions 9
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 9
Total
Equity / index contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts 8
Futures
Options
Agency transactions 9
Total
Table continues on the next page.
31.12.12
31.12.11
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
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
Total
NRV 4
0.8
223.3
43.6
481.0
3,933.5
1,210.5
0.8
196.1
44.6
443.8
1,329.6
2.0
1,610.0
2.3
1,637.4
0.0
3,789.2
14,276.3
247.3
5,264.5
226.1
5,162.2 18,568.1
1,200.2
0.0
46.7
1,173.2
48.0
1,185.2
0.0
0.0
0.0
3.0
0.0
0.0
759.0
725.5
0.0
124.0
0.0
0.1
127.8
0.0
0.1
924.3
526.2
267.8
5,628.0
241.5
5,433.2
17,090.4
296.1
8,171.7
276.4
8,112.6 20,018.6
36.3
1,090.8
33.9
1,043.3
238.9
66.6
1,292.2
62.9
1,238.0
172.4
0.4
0.0
2.4
3.1
0.4
0.0
3.3
0.5
0.0
0.0
0.6
0.1
2.4
3.6
0.5
0.1
2.0
4.6
0.0
0.0
36.7
1,096.3
34.3
1,047.1
238.9
67.3
1,298.1
63.5
1,244.6
172.4
11.6
76.9
5.1
690.3
2,382.0
395.1
12.4
80.9
5.2
689.6
2,193.2
329.3
0.0
0.0
0.6
0.0
0.0
0.6
0.0
0.0
0.0
13.8
0.0
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
0.1
0.0
0.0
0.6
0.0
0.0
0.0
0.0
0.0
12.2
0.0
93.5
3,467.9
98.5
3,212.7
13.8
97.2
3 193.7
106.3
3,123.0
12.2
2.7
8.4
2.4
2.4
15.9
41.7
84.8
3.3
7.4
47.0
98.3
94.9
221.4
3.3
2.4
16.4
106.8
0.0
0.0
16.6
17.7
38.3
69.0
84.6
2.8
8.7
3.3
3.9
3.0
8.9
3.7
4.2
39.0
86.9
85.2
0.0
0.0
10.6
4.1
252.1
34.3
18.8
191.8
19.8
211.1
14.7
389
Financial informationNote 25 Derivative instruments and hedge accounting (continued) Financial information
Notes to the consolidated financial statements
Derivative instruments 1 (continued)
Table continued from previous page.
CHF billion
Commodities contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts 8
Futures
Forward contracts
Options
Agency transactions 9
Total
Unsettled purchases of non-derivative financial assets 10
Unsettled sales of non-derivative financial assets 10
Total derivative instruments, based on IFRS netting
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
31.12.12
31.12.11
Notional
values
related
to PRVs 3
Total
PRV 2
Notional
values
related
to NRVs 3
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
Total
NRV 4
1.4
1.0
0.4
0.1
0.9
3.8
0.2
0.1
22.9
35.2
23.3
6.4
87.9
20.4
8.9
1.4
1.2
0.4
0.1
0.9
4.0
0.1
0.2
21.8
41.7
21.2
7.0
91.7
8.7
19.0
0.0
0.0
14.4
0.0
1.2
15.6
0.0
0.0
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
17.1
0.0
0.6
17.7
0.0
0.0
418.0
10,530.9
395.1
10,064.4
17,392.9
486.6 13,014.3
473.4 12,823.1 20,235.6
(327.3)
(49.4)
41.3
(327.3)
(17.4)
50.4
(383.3)
(45.6)
57.7
(383.3)
(28.0)
62.1
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 0.4 billion (2011: CHF 1.1 billion) (re-
lated notional values of CHF 3.9 billion [2011: CHF 24.8 billion]) and an NRV of CHF 0.2 billion (2011: CHF 0.2 billion) (related notional values of CHF 13.6 billion [2011: CHF 9.3 billion]). 2 PRV: Positive replacement
value. 3 In cases where replacement values are presented on a net basis on the balance sheet, the respective notional values of the netted replacement values are still presented on a gross basis. 4 NRV: Negative
replacement value. 5 Receivables resulting from these derivatives are recognized on our balance sheet under Cash collateral receivables on derivative instruments totaling CHF 3.3 billion (2011: CHF 2.4 billion). Pay-
ables resulting from these derivatives are recognized on our balance sheet under Cash collateral payables on derivative instruments totaling CHF 4.0 billion (2011: CHF 2.7 billion). 6 Negative replacement values as of
31 December 2012 include CHF 0.1 billion related to derivative loan commitments (31 December 2011: 0.2 billion). No notional amounts related to these replacement values are included the table. The maximum irre-
vocable amount related to these commitments was CHF 6.3 billion as of 31 December 2012 (31 December 2011: CHF 6.1 billion). 7 In 2012, we corrected the allocation of notional values for 31 December 2011.
Notional values related to positive replacement values for interest rate contracts (OTC swaps) were reduced by CHF 1,397 billion. Notional values related to negative replacement values for interest rate contracts (OTC
swaps) were reduced by CHF 1,399 billion. Correspondingly, Other notional values were increased by CHF 2,796 billion. 8 In 2012, the presentation of notional values of exchange traded daily-margined options was
changed. Notional values related to these instruments are now reported on the disclosure line options. Previously, notional values related to these instruments were reported on the disclosure line futures. The compara-
tive period was restated for this change. As a result, other notional values for exchange traded interest rate contracts – options for 31 December 2011 were changed from CHF 0.0 billion to CHF 526.2 billion, with a
corresponding decline to other notional values for exchange traded interest rate contracts – futures. Similarly, other notional values for exchange traded equity/index contracts – options for 31 December 2011 were
changed from CHF 0.0 billion to CHF 4.1 billion, with a corresponding decline to other notional values for exchange traded equity index contracts – futures. Lastly, other notional values for exchange traded commodities
contracts – options for 31 December 2011 were changed from CHF 0.0 billion to CHF 0.6 billion, with a corresponding decline to other notional values for exchange traded commodities contracts – futures. 9 Notion-
al values of exchange-traded agency transactions are not disclosed due to their significantly different risk profile. 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.
The maturity profile of OTC interest rate contracts held as of 31
December 2012, based on notional values, is as follows: approxi-
mately 37% (2011: 42%, 2010: 45%) mature within one year,
38% (2011: 35%, 2010: 33%) within 1 to 5 years and 25%
(2011: 23%, 2010: 22%) over 5 years. Notional values of interest
rate contracts cleared with The London Clearing House are pre-
sented under “other notional values” and are categorized into
maturity buckets on the basis of contractual maturities of the
cleared underlying derivative contracts.
Derivatives transacted for trading purposes
transfer, modify, or reduce, current or expected risks. Trading ac-
tivities include market making to directly support the facilitation
and execution of client activity. Market making involves quoting
bid and offer prices to other market participants with the inten-
tion of generating revenues based on spread and volume.
Credit derivatives
UBS is an active dealer in the fixed income market, including CDSs
and related products, with respect to a large number of issuers’
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.
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,
Market making activity consists of buying and selling single-
name CDSs, index CDSs, loan CDSs and related referenced cash
instruments to facilitate client trading activity. UBS also actively
390
Note 25 Derivative instruments and hedge accounting (continued) utilizes CDSs to economically hedge specific 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 specific portfolios.
➔ Refer to “Note 13 Financial assets designated at fair value”
➔ Refer to “Note 20 Financial liabilities designated at fair value”
➔ Refer to “Note 29c Maximum exposure to credit risk”
In addition, UBS actively utilizes CDSs to economically hedge
specific counterparty credit risks in its OTC derivative portfolios
including financial instruments which are designated at fair value
through profit or loss. During the fourth quarter of 2012, UBS
announced an Investment Bank strategy change which resulted in
a focus on certain types of client facilitation business and resulted
in reduced market making activity. As a result, CDS activity be-
came increasingly used for economic hedging purposes.
The tables below provide further details on credit protection
bought and sold, including replacement and notional value
information by instrument type and counterparty type. The val-
ue 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 collat-
eral arrangements in place. On a notional value basis, credit
protection bought and sold as of 31 December 2012 matures
in a range of approximately 22% (2011: 18%) within one year,
approximately 69% (2011: 69%) within 1 to 5 years and ap-
proximately 8% (2011: 13%) after 5 years.
Credit derivatives – by type of instrument
CHF billion
Single name credit default swaps
Multi-name index linked credit default swaps
Multi-name other credit default swaps
Total rate of return swaps
Options and warrants
Total 31 December 2012
of which: credit derivatives related to economic hedges
of which: credit derivatives related to market making
Total 31 December 2011
Credit derivatives by counterparty
CHF billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2012
Total 31 December 2011
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
14.7
6.1
0.8
0.4
0.0
21.9
21.8
0.1
63.2
11.0
1.5
1.2
0.3
0.0
13.9
13.4
0.5
2.9
813.8
376.7
17.7
4.2
3.1
1,215.5
1,166.4
48.9
1,392.6
11.1
2.7
1.0
0.0
0.0
14.8
14.3
0.5
4.0
13.1
6.0
1.2
0.1
0.0
20.4
20.3
0.1
60.5
781.7
369.4
13.7
1.5
0.5
1,166.7
1,117.3
49.4
1,322.5
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
5.1
12.8
0.0
4.0
21.9
63.2
3.0
10.1
0.0
0.8
13.9
2.9
255.4
752.3
132.6
75.2
1,215.5
1,392.6
3.1
10.8
0.0
0.8
14.8
4.0
5.5
13.8
0.0
1.1
20.4
60.5
254.7
741.3
106.3
64.5
1,166.7
1,322.5
391
Financial informationNote 25 Derivative instruments and hedge accounting (continued) Financial information
Notes to the consolidated financial statements
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 es-
tablish CCP solutions for OTC CDS contracts with the aim of re-
ducing counterparty risk. UBS, along with other dealer members,
has continued to participate in these initiatives during 2012.
A significant portion of UBS’s credit derivatives are traded under
an ISDA MTA between UBS and its counterparty. UBS’s CDS trades
are also documented using industry standard forms of documen-
tation published by ISDA or equivalent terms documented in a
bespoke (i.e. tailored) agreement. Those forms and agreements
use standardized terms that form the basis for market conventions
related to the types of credit events that would trigger perfor-
mance (i.e. payment default, bankruptcy, etc. – see below) under
a CDS. Those agreements and forms do not contain recourse pro-
visions 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 features of derivative liabilities
Certain derivative payables contain contingent collateral or termi-
nation features triggered upon a downgrade of the published
credit rating of the Group in the normal course of business. Based
on UBS’s credit ratings as of 31 December 2012, additional col-
lateral or termination payments pursuant to bilateral agreements
with certain counterparties of approximately CHF 2.9 billion, CHF
5.8 billion and CHF 6.0 billion would have been required in the
event of a one-notch, two-notch and three-notch reduction, re-
spectively, in UBS’s long-term credit ratings, and a corresponding
reduction in short-term ratings. In evaluating UBS’s liquidity re-
quirements, UBS considers additional collateral or termination
payments that would be required in the event of a reduction in
UBS’s long-term credit ratings, and a corresponding reduction in
short-term ratings.
Fair value hedges of interest rate risk related to debt issued
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
392
Derivatives transacted for hedging purposes
Derivatives used for structural hedging
The Group enters into derivative transactions for the purposes of
hedging risks inherent in assets, liabilities and forecast trans-
actions. The accounting treatment of hedge transactions varies
according to the nature of the instrument hedged and whether
the hedge qualifies as such for accounting purposes.
Derivative transactions that qualify and are designated as
hedges for accounting purposes are described under the corre-
sponding headings in this note (fair value hedges, cash flow
hedges and hedges of net investments in foreign operations).
The Group’s accounting policies for derivatives designated and
accounted for as hedging instruments are explained in Note 1a)
15), under which terms used in the following sections are ex-
plained.
The Group has also entered into various hedging strategies
utilizing derivatives for which hedge accounting has not been ap-
plied. These include interest rate swaps and other interest rate
derivatives (e.g. futures) for day-to-day economic interest rate risk
management purposes. In addition, the Group has used equity
futures, options and, to a lesser extent, swaps for economic hedg-
ing in a variety of equity trading strategies to offset underlying
equity and equity volatility exposure. The Group has also entered
into CDSs that provide economic hedges for credit risk exposures
(refer to the credit derivatives section). Fair value changes of de-
rivatives that are part of economic relationships, but do not qual-
ify for hedge accounting treatment, are reported in Net trading
income, except for forward points on short duration foreign ex-
change contracts which are reported in Net interest income.
Fair value hedges: interest rate risk related to debt issued
The Group’s fair value hedges principally consist of interest rate
swaps that are used to protect against changes in the fair value of
fixed-rate instruments (e.g. long-term fixed-rate debt issued) due
to movements in market interest rates. The fair values of out-
standing interest rate derivatives designated as fair value hedges
were assets of CHF 3,028 million as of 31 December 2012 and
assets of CHF 2,422 million and liabilities of CHF 16 million as of
31 December 2011.
For the year ended
31.12.12
31.12.11
31.12.10
537
(581)
(44)
1,203
(1,172)
31
402
(383)
19
Note 25 Derivative instruments and hedge accounting (continued) Fair value hedges: portfolio interest rate risk related to loans
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 derivatives designated for these hedges
as of 31 December 2012 were assets of CHF 1 million and liabili-
ties of CHF 1,208 million (31 December 2011: liabilities of CHF
1,389 million).
Fair value hedge of portfolio of interest rate risk related to loans
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
31.12.12
31.12.11
31.12.10
139
(159)
(20)
(461)
452
(9)
35
(60)
(25)
Cash flow hedges of forecasted transactions
The Group is exposed to variability in future interest cash flows
on non-trading financial assets, and liabilities that bear interest
at variable rates or are expected to be refunded or reinvested in
the future. The amounts and timing of future cash flows, repre-
senting both principal and interest flows, are projected for each
portfolio of financial assets and liabilities, based on contractual
terms and other relevant factors including estimates of prepay-
ments and defaults. The aggregate principal balances and inter-
est cash flows across all portfolios over time form the basis for
identifying the non-trading interest rate risk of the Group, which
is hedged with interest rate swaps, the maximum maturity of
which is 16 years. The table below shows forecasted principal
balances on which expected interest cash flows arise as of
31 December 2012. Amounts shown in the table below repre-
sent, by time bucket, average assets and liabilities subject to
forecasted cash flows designated as hedged items in cash flow
hedge accounting relationships.
Principal balances subject to cash flow forecasts
As of 31 December 2012, the fair values of outstanding deriva-
tives designated as cash flow hedges of forecasted transactions
were CHF 7,764 million assets and CHF 3,046 million liabilities
and as of 31 December 2011 the amounts were CHF 7,450 million
assets and CHF 3,583 million liabilities. In 2012, a gain of CHF
158 million was recognized in Net trading income due to hedge
ineffectiveness, compared with losses of CHF 38 million and CHF
22 million in 2011 and 2010, respectively.
At the end of 2012 and 2011, gains of CHF 3 million and CHF
7 million associated with de-designated interest rate swaps were
deferred in OCI. They will be removed from OCI when the pre-
viously hedged forecasted cash flows affect net profit or loss, or
when the forecasted cash flows are no longer expected to occur.
Amounts reclassified from OCI to Net interest income relating to
de-designated swaps was a CHF 4 million net gain in 2012, a
CHF 11 million net gain in 2011 and a CHF 28 million net gain in
2010.
CHF billion
Assets
Liabilities
Net balance
< 1 year
1–3 years
3–5 years
5–10 years
over 10 years
80
26
54
173
62
111
54
14
41
28
6
22
2
0
2
393
Financial informationNote 25 Derivative instruments and hedge accounting (continued) Financial information
Notes to the consolidated financial statements
Hedges of net investments in foreign operations
With effect from fourth quarter 2011, the Group started to apply
hedge accounting for certain net investments in foreign opera-
tions. As of 31 December 2012, the positive replacement values
and negative replacement values of FX derivatives (mainly FX
swaps) designated as hedging instruments in net investment
hedge accounting relationships were CHF 103 million and CHF 45
million, respectively (31 December 2011: positive replacement
values of CHF 10 million and negative replacement values of CHF
40 million). As of 31 December 2012, the underlying hedged
structural exposures in several currencies amounted to CHF 4.8
billion (31 December 2011: CHF 4.8 billion). Hedges of structural
FX exposures in currencies other than USD may be comprised of
two jointly designated derivatives as the foreign currency risk may
be hedged against USD first and then converted into Swiss francs,
the presentation currency of the Group, as part of a separate FX
derivative transaction. The aggregated notional amount of desig-
nated hedging derivatives as of 31 December 2012 was CHF 9.2
billion in total (31 December 2011: CHF 9.6 billion) including CHF
4.8 billion notional values related to USD versus CHF swaps and
CHF 4.4 billion notional values related to derivatives hedging for-
eign currencies (other than USD) versus the USD. The effective
portion of gains and losses of these FX swaps is transferred di-
rectly to OCI to offset foreign currency translation (FCT) gains and
losses on the net investments in foreign branches and subsidiar-
ies. As such, these FX swaps hedge the structural FX exposure
resulting in the accumulation of FCT on the level of individual
foreign branches and subsidiaries and hence on the total FCT OCI
of the Group.
Also with effect from the fourth quarter 2011, UBS began to
designate certain non-derivative foreign currency financial assets
and liabilities of foreign branches or subsidiaries as hedging in-
struments in net investment hedge accounting arrangements.
The FX translation difference recorded in FCT OCI of the non-de-
rivative hedging instrument of one foreign entity offsets the struc-
tural FX exposure of another foreign entity. Therefore, the aggre-
gated FCT OCI of the Group is unchanged from this hedge
designation. As of 31 December 2012, the nominal amount of
non-derivative financial assets and liabilities designated as hedg-
ing instruments in such net investment hedges was CHF 16.1 bil-
lion and CHF 16.1 billion, respectively (31 December 2011: CHF
16.9 billion non-derivative financial assets and CHF 16.9 billion
non-derivative financial liabilities). No material ineffectiveness of
hedges of net investments in foreign operations was recognized
in the income statement in 2012 and 2011.
Undiscounted cash flows
The table below provides undiscounted cash flows of all derivative
instruments designated in hedge accounting relationships. Inter-
est rate swap cash flows include cash inflows and cash outflows
of all interest rate swaps designated in hedge accounting relation-
ships, which are either assets or liabilities of UBS as of 31 Decem-
ber 2012.
Derivatives designated in hedge accounting relationships (undiscounted cash flows)
CHF billion
Interest rate swaps
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
9
9
0
0
0
0
3
2
1
10
6
4
3
3
0
0
Total
17
11
9
9
6
394
Note 25 Derivative instruments and hedge accounting (continued) Note 26 Operating lease commitments
As of 31 December 2012, UBS was obligated under a number of
non-cancellable operating leases for premises and equipment
used primarily for banking purposes. The significant premises
leases usually include renewal options and escalation clauses in
line with general office rental market conditions, as well as rent
adjustments based on price indices. However, the lease agree-
ments do not contain contingent rent payment clauses and pur-
chase options, nor do they impose any restrictions on UBS’s ability
to pay dividends, engage in debt financing transactions or enter
into further lease agreements.
The minimum commitments for non-cancellable leases of
premises and equipment are presented as follows:
CHF million
Expenses for operating leases to be recognized in:
2013
2014
2015
2016
2017
2018 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
31.12.12
808
744
664
546
539
2,409
5,710
432
5,278
CHF million
Gross operating lease expense recognized in the income statement
Sublease rental income
Net operating lease expense recognized in the income statement
31.12.12
31.12.11
31.12.10
860
87
773
837
84
754
1,057
97
960
395
Financial information Financial information
Notes to the consolidated financial statements
Fair value is the amount for which an asset could be exchanged,
or a liability settled, between knowledgeable, willing parties in an
arm’s length transaction. Financial instruments classified as held
for trading or designated at fair value through profit or loss, and
financial assets classified as available-for-sale are recognized in
the financial statements at fair value. All derivatives are measured
at fair value.
Fair values are determined from quoted prices in active mar-
kets for identical financial assets or financial liabilities where these
are available. Fair value of a financial asset or financial liability in
an active market is the current bid or offer price times the number
of units of the instrument held. Where a trading portfolio con-
tains both financial assets and financial liabilities with offsetting
market risks, fair value is estimated by valuing the gross long and
short positions at current mid-market prices, with an adjustment
at the portfolio level to the net open long or short position to
amend the valuation to bid or offer as appropriate.
Where the market for a financial instrument is not active, fair
value is established using a valuation technique or pricing model.
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, liquidity
and credit risks, which are not explicitly captured within the valu-
ation technique or model, but are nevertheless a component of
the market pricing for such products. Based on the established
fair value and model governance policies and related controls
and procedures applied, management believes that these valua-
tion adjustments are a necessary and appropriate component of
the valuation for financial instruments carried at fair value on the
balance sheet.
When entering into a transaction where model inputs are not
market observable, the financial instrument is initially recognized
at the transaction price, which is generally the best indicator of
fair value. This may differ from the value obtained from the valu-
ation model. Refer to “Note 27d Deferred day 1 profit or loss” for
more information. The timing of the recognition in profit and loss
of this initial difference in fair value depends on the individual
facts and circumstances of each transaction, but is never later
than when the market data become observable.
Valuation techniques and pricing models
UBS uses widely recognized valuation techniques for determining
fair values of less complex financial instruments. The most fre-
quently applied valuation techniques and pricing models include
discounted cash flow, relative value and option pricing models.
Discounted cash flow models determine the value by estimating
the expected future cash flows from assets or liabilities discounted
to their present value. Relative value models determine the value
based on the market prices of similar assets or liabilities. Option
pricing models use probability-based techniques that include bi-
nomial and Monte Carlo pricing. For more complex instruments
and instruments not traded in an active market, fair values may be
estimated using a combination of observed transaction prices,
consensus pricing services and relevant quotes. Consideration is
given to the nature of the quotes (e.g., indicative or firm) and the
relationship of recently evidenced market activity to the prices
provided from consensus pricing services. UBS also uses internally
developed models, which are typically based on valuation meth-
ods and techniques generally recognized as standard within the
industry.
Valuation models are used primarily to value derivatives trans-
acted 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 not
active. 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 where the trans-
actions are not orderly (i.e., distressed or forced). For positions
where observable inputs are not available for some or all parame-
ters, UBS determines these non-market-observable inputs to be
used in its valuation models based on a combination of historical
experience, derivation of parameter levels based upon similar prod-
ucts with observable price levels and knowledge of current market
conditions and modeling approaches. Assumptions and inputs
used in valuation techniques and models include benchmark inter-
est rate curves, credit spreads and other premiums used in estimat-
ing discount rates, bond and equity prices, equity index prices, for-
eign exchange rates, 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 reflect close-out
costs, credit exposure, model-driven-valuation adjustments, trad-
ing restrictions and other factors when such factors would be
considered by market participants.
Interest rate curves
UBS uses various market-derived interest rate curves for valuing its
financial instruments. The curves used for discounting cash flows
in the valuation of the collateralized derivatives reflect the funding
terms associated with the relevant collateral arrangement for the
instrument in question. Financial liabilities designated at fair value
are measured using UBS’s funds transfer price curve. Financial as-
sets designated at fair value are valued consistent with the curve
used for the particular product. Uncollateralized credit exposure is
evaluated under our credit risk control framework. For the valua-
tion of uncollateralized derivative instruments, UBS generally em-
ploys a LIBOR flat curve.
396
Note 27 Fair value of financial instrumentsa) Valuation principles 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 reflect the credit risk of the counterparty inherent
in OTC derivative instruments, 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 in traded
debt instruments. CVA depends on expected future exposures,
default probabilities and recovery rates, and also takes into con-
sideration collateral or netting arrangements, break clauses and
other contractual factors.
UBS’s own credit risk in the valuations of OTC derivative
instruments
The Group estimates debit valuation adjustments (DVA) to in-
corporate own credit in the valuation of derivatives, pre-
dominately to align it with the CVA methodology as described
in the preceding section. DVA represents the theoretical cost to
counterparties of hedging their UBS credit risk exposure or the
credit risk reserve that a counterparty could reasonably be ex-
pected to hold against their credit risk exposure to UBS. DVA
takes into account collateral, netting agreements, expected fu-
ture mark-to-market movements, and UBS’s credit default
spreads to determine the exposure from the perspective of the
counterparty.
As of 31 December 2012 and 2011, respectively, CVA and DVA
for derivative financial 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)
CVA 1
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.
31.12.12
31.12.11
(0.4)
0.4
1.1
0.2
0.1
0.8
(0.9)
(0.3)
(0.1)
(0.6)
0.2
0.8
(0.8)
(0.3)
(0.1)
(0.4)
(2.9)
(1.3)
(0.2)
(1.4)
397
Financial informationNote 27 Fair value of financial instruments (continued) Financial information
Notes to the consolidated financial statements
UBS’s own credit risk in the valuations of financial liabilities
designated at fair value
The Group’s own credit risk is reflected in the valuation of those
financial liabilities designated at fair value, if the Group’s own
credit risk would be considered by market participants. Own
credit effects are not reflected in the valuations of fully collater-
alized transactions and other instruments for which it is estab-
lished market practice not to include them.
arrive at the FTP curve, with the discount primarily reflecting the
differences between the spreads in the senior unsecured debt
market for UBS paper and the levels at which UBS medium-term
notes (MTNs) are currently issued. The FTP curve is used by UBS
to value uncollateralized funding transactions designated at fair
value and is considered to be representative of UBS credit risk,
reflecting the premium that market participants require to pur-
chase UBS MTNs.
Own credit changes are calculated based on a funds transfer
price (FTP) curve, which the Group uses to derive a single, mar-
ket-based level of discounting for uncollateralized funded instru-
ments. UBS senior debt curve spreads are discounted in order to
The effects of own credit adjustments related to Financial lia-
bilities designated at fair value (predominantly issued structured
products) as of 31 December 2012 and 2011, respectively, are
summarized in the table below.
Own credit on financial liabilities designated at fair value
CHF million
Gain / (loss) for the year ended
of which: credit spread related only
Life-to-date gain / (loss)
As of or for the year ended
31.12.12
31.12.11
31.12.10
(2,202)
(2,338)
(292)
1,537
1,526
1,934
(548)
(471)
237
Year-to-date amounts represent the change during the year and
life-to-date amounts reflect the cumulative change since initial
recognition. The change in own credit for the period can be ana-
lyzed in two components: (1) changes in fair value that are attrib-
utable to the change in UBS’s credit spreads during the period,
and (2) the effect of volume changes, which is the change in fair
values attributable to factors other than credit spreads, such as
redemptions, effects from time decay, changes in interest rates
and changes in the value of referenced instruments issued by
third parties. Own credit amounts are also impacted by foreign
currency movements.
During 2012, we improved our own credit calculation method-
ology through system changes that enabled us to produce a more
refined estimate of the impact of changes in our credit curve
spread since issuance. The improved methodology compares the
current valuation of the instrument using current market data
with the valuation using the same current market data but the
trade date FTP curve, either on a risk based or full revaluation
basis. Previously, the current impact of the full FTP spread over
LIBOR was compared with the unamortized impact of the full FTP
spread at trade date. This methodology change resulted in an
own credit gain on financial liabilities designated at fair value of
CHF 217 million. Valuation methodologies and systems used
across the market to estimate the own credit effects for both de-
rivatives and financial liabilities designated at fair value continue
to evolve. As such, we expect further enhancements to our own
credit calculation going forward.
As of 31 December 2012, a 1 basis point increase in the UBS
credit spread over LIBOR is expected to result in an own credit
gain of approximately CHF 15.6 million.
Reflection 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 exposure to a position or of a port-
folio by either liquidating the position or portfolio or establishing
an offsetting market risk position. A liquidity adjustment is there-
fore made to provide for the expected cost of covering open mar-
ket risk exposure within a portfolio or position. Liquidity adjust-
ments are bid / offer adjustments taken where a net open risk
position is retained and the model on which it is valued is cali-
brated 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.
Reflection of model uncertainty in fair value estimates
Uncertainties associated with the use of model-based valuations
are incorporated into the estimate of fair value through the use of
model reserves. These reserves reflect the amounts that UBS esti-
mates are appropriate to deduct from the valuations produced
directly by the models to reflect uncertainties in the relevant mod-
eling assumptions, inputs used, calibration of the output, or
choice of model. In arriving at these estimates, UBS considers a
range of market practices and how it believes other market par-
398
Note 27 Fair value of financial instruments (continued) ticipants would assess these uncertainties. Model reserves are pe-
riodically reassessed in light of information from market transac-
tions, consensus pricing services, and other relevant sources.
Valuation processes
UBS’s fair value and model governance structure includes numer-
ous controls and procedural safeguards that are intended to max-
imize the quality of fair value measurements reported in the finan-
cial statements. New products must be reviewed and approved by
all stakeholders relevant to risk and financial control. Responsibil-
ity for the ongoing measurement of financial instruments at fair
value resides with the business, but is independently validated by
risk and financial control functions. In carrying out their valuation
responsibilities, the businesses are required to consider the avail-
ability and quality of external market information and to provide
justification and rationale for their fair value estimates. Indepen-
dent price verification of financial instruments measured at fair
value is undertaken by the product control function, which is in-
dependent from the businesses. The objective of the indepen-
dent-price-verification process is to independently corroborate
the business’s estimates of fair value against available market in-
formation. By benchmarking the business’s fair value estimates
with observable market prices or other independent sources, the
degree of valuation uncertainty embedded in these measure-
ments can be assessed and managed as required in the gover-
nance framework. A critical aspect of the independent-price-veri-
fication process is the evaluation of the accuracy of modeling
approaches and input assumptions which yield fair value esti-
mates derived from valuation models. The output of modeling
approaches is compared to observed prices and market levels for
the specific instrument being priced if possible and appropriate.
This calibration analysis is performed to assess the ability of the
model and its inputs (which are frequently based upon a combi-
nation of price levels of observable hedge instruments and diffi-
cult to observe parameters) to price a specific product in its own
specific market. An independent model review group evaluates
UBS’s valuation models on a regular basis or if specific triggers
occur and approves them for valuing specific products. As a result
of the valuation controls employed, valuation adjustments may be
made to the business’s estimate of fair value to either align with
independent market information or financial accounting stan-
dards.
399
Financial informationNote 27 Fair value of financial instruments (continued) Financial information
Notes to the consolidated financial statements
All financial instruments at fair value are categorized into one of
three fair value hierarchy levels at year-end, based upon the low-
est level input that is significant to the product’s fair value mea-
surement in its entirety:
– Level 1 – quoted prices (unadjusted) in active markets for iden-
tical assets and liabilities;
– Level 2 – valuation techniques for which all significant inputs
are market observable, either directly or indirectly; and
– Level 3 – valuation techniques which include significant inputs
that are not based on observable market data.
Determination of fair values from quoted market prices or valuation techniques 1
31.12.12
CHF billion
Financial assets held for trading 2
of which: assets pledged as collateral which
may be sold or repledged by counterparties
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
Level 1
91.3
Level 2
46.8
38.7
2.9
0.0
0.0
0.3
2.2
0.1
0.1
48.5
142.8
28.6
2.9
0.0
0.0
0.3
2.2
0.1
0.0
0.0
31.4
5.8
407.0
267.3
33.0
92.0
10.9
3.8
4.1
16.9
474.9
5.4
385.7
241.1
31.0
96.7
12.9
3.9
78.2
15.3
484.7
Level 3
5.7
0.2
8.1
0.4
3.6
1.2
2.9
0.0
4.9
0.9
19.7
0.2
6.5
0.4
3.3
1.5
1.3
0.0
14.7
0.0
21.4
Total
143.8
44.7
418.0
267.8
36.7
93.5
15.9
3.8
9.1
66.4
637.3
34.2
395.1
241.5
34.3
98.5
16.4
4.0
92.9
15.3
537.4
Level 1
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
31.12.11
Level 2
55.7
Level 3
7.8
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
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
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 2012, net bifurcated embedded derivative assets held at
fair value, totaling CHF 0.2 billion (of which CHF 0.4 billion were net level 3 assets and CHF 0.1 billion net level 2 liabilities) were recognized on the balance sheet within Debt issued. 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. 2 Financial assets held for trading do not include precious metals and commodities.
Transfers between level 1 and level 2 in the fair value hierarchy
Trading assets and liabilities totaling approximately CHF 6.2 bil-
lion and CHF 4.1 billion, respectively, were transferred from level
2 to level 1 during 2012. These transfers mainly related to debt
instruments and were largely driven by improvements in the
Eurozone government debt markets.
Financial investments available-for-sale of approximately CHF
3.6 billion were transferred from level 2 to level 1 during 2012,
also driven by improvements in the Eurozone government debt
markets.
Trading assets of approximately CHF 4.7 billion and trading
liabilities of approximately CHF 1.7 billion were transferred from
level 1 to level 2 during 2012. These transfers mainly related to
debt instruments where volumes and frequency of trades de-
clined below the thresholds of an active market, as defined in
UBS’s valuation governance principles.
400
Note 27 Fair value of financial instruments (continued)b) Fair value hierarchy Movements of level 3 instruments
CHF billion
Balance as of 31 December 2010
Total gains / losses included in the income statement
Net trading income
Other
Purchases, sales, issuances and settlements
Purchases
Sales
Issuances
Settlements
Transfers into or out of level 3
Transfers into level 3
Transfers out of level 3
Foreign currency translation
Balance as of 31 December 2011
Balance as of 31 December 2011
Total gains / losses included in the income statement
Net trading income
of which: related to level 3 instruments held at the end of the reporting period
Other
of which: related to level 3 instruments held at the end of the reporting period
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 as of 31 December 2012
1 Includes assets pledged as collateral which may be sold or repledged by counterparties.
Financial assets
held for trading 1
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
7.8
(1.1)
(1.1)
(0.3)
0.0
0.0
(0.1)
1.0
(7.2)
6.1
0.0
(0.5)
2.4
(3.0)
(0.3)
5.7
Derivative instruments
Financial assets
designated
at fair value
Positive
replacement
values
Negative
replacement
values
Financial liabili-
ties designated
at fair value
0.5
0.0
0.0
0.0
2.1
0.0
0.0
2.3
(0.2)
0.1
0.1
0.0
0.0
2.7
2.7
0.1
0.1
0.0
0.0
0.0
1.7
0.0
0.0
2.7
(1.0)
0.6
0.6
0.0
(0.3)
4.9
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
13.9
(2.9)
(2.9)
(1.2)
0.0
0.0
(2.2)
0.0
0.0
1.2
(3.4)
(0.1)
2.1
(2.3)
(0.5)
8.1
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
10.8
(1.3)
(1.3)
(0.3)
0.0
0.0
(2.8)
0.0
0.0
1.1
(3.9)
0.4
2.7
(2.3)
(0.5)
6.5
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
12.1
12.1
1.4
1.9
1.1
(0.4)
0.0
0.0
0.0
0.0
5.9
(6.0)
0.6
5.9
(5.3)
0.6
14.7
401
Financial informationNote 27 Fair value of financial instruments (continued) Financial information
Notes to the consolidated financial statements
Material changes in level 3 instruments
As of 31 December 2012, financial instruments measured with
valuation techniques using significant non-market observable in-
puts (level 3) mainly included the following:
– structured rates and credit positions, including bespoke
collateralized debt obligations (CDO) and collateralized loan
obligations (CLO);
– reference-linked notes (RLN);
– financial instruments linked to the US and European residen-
tial and US and non-US commercial real estate markets;
– corporate bonds and corporate credit default swaps (CDS);
and
– lending-related products.
The significant movements in level 3 instruments during the year
ended 31 December 2012 are described below.
Financial assets held for trading
Financial assets held for trading decreased from CHF 7.8 billion to
CHF 5.7 billion during the year. Sales of CHF 7.2 billion, consisting
mainly of commercial mortgage loans, commercial loans, corpo-
rate bonds, US subprime super senior CDO and non-US RLN, were
partially offset by issuances of CHF 6.1 billion, which were primar-
ily comprised of commercial mortgage loans and commercial
loans, and purchases of CHF 1.0 billion, mainly corporate bonds.
Total net losses included in the income statement were CHF 1.1
billion. Transfers into and out of level 3 during the period amount-
ed to CHF 2.4 billion and CHF 3.0 billion, respectively. Transfers
into level 3 were comprised primarily of corporate bonds and
commercial loans due to the reduced observability of credit spread
inputs. Transfers out of level 3 were comprised primarily of corpo-
rate bonds due to an improvement in the availability of observable
credit spread data, equity related products as a reduction in in-
strument maturity moved volatility and dividend model inputs
into tenors for which a hedge market was observable, and CMBS
CDO as the availability of market-based price information im-
proved confidence around discount margin and pricing inputs.
Financial assets designated at fair value
Financial assets designated at fair value increased from CHF 2.7
billion to CHF 4.9 billion, mainly due to the issuance of CHF 2.7
billion of structured financing trades and transfers into level 3 of
CHF 0.6 billion. These increases were partially offset by settle-
ments, which were comprised mainly of structured financing
trades totaling CHF 1.0 billion.
Positive replacement values
Positive replacement values decreased from CHF 13.9 billion to CHF
8.1 billion during the year as issuances of CHF 1.2 billion, primarily
comprised of structured credit positions, were more than offset by
settlements of CHF 3.4 billion, which were comprised primarily of
structured credit positions, corporate CDS and US subprime super
senior CDO. Net trading losses included in the income statement
were CHF 2.9 billion. Transfers into and out of level 3 were CHF 2.1
billion and CHF 2.3 billion, respectively, and were comprised pri-
marily of corporate CDS, structured rates positions and structured
credit bespoke CDO, resulting from changes in the availability of
observable inputs for credit spread and rates volatility data and
changes in the correlation between the portfolio held and the repre-
sentative market portfolio used to independently verify market data.
Negative replacement values
Negative replacement values decreased from CHF 10.8 billion to
CHF 6.5 billion during the year primarily due to settlements of CHF
3.9 billion, which mainly included structured credit positions, corpo-
rate CDS and CMBS CDO, and net trading gains of CHF 1.3 billion.
This decrease was partially offset by issuances of structured credit
positions totaling CHF 1.1 billion. Transfers into and out of level 3
amounted to CHF 2.7 billion and CHF 2.3 billion, respectively, and
were comprised primarily of structured credit bespoke CDO, corpo-
rate CDS, index tranche CDS, structured rates and structured credit
positions, resulting from changes in the availability of observable
inputs for credit spread and rates volatility data and changes in the
correlation between the portfolio held and the representative mar-
ket portfolio used to independently verify market data.
Financial liabilities designated at fair value
Financial liabilities designated at fair value increased from CHF
12.1 billion to CHF 14.7 billion during the year due to issuances of
CHF 5.9 billion, which were comprised primarily of structured fi-
nancing trades, credit- and interest rate-linked notes, net losses of
CHF 1.4 billion and foreign currency movements of CHF 0.6 bil-
lion. These increases were partially offset by settlements of CHF
6.0 billion, comprised primarily of structured financing trades and
credit- and equity-linked notes. Transfers into and out of level 3
amounted to CHF 5.9 billion and CHF 5.3 billion, respectively.
Transfers into level 3 consisted primarily of equity- and interest
rate-linked notes as a reduction in observable volatility inputs im-
pacted the embedded options in these structures. Transfers out of
level 3 consisted primarily of credit-, equity- and interest rate-
linked notes and were driven in part by a reduction over time of
the maturity of the underlying notes such that volatility inputs
became observable, and also by improved observability of credit
spread, equity and rate volatility and equity dividend inputs.
402
Note 27 Fair value of financial instruments (continued) Note 27 Fair value of financial instruments (continued)
Sensitivity information
Included in the fair value estimates of financial instruments car-
ried at fair value on the balance sheet are financial instruments for
which fair value is estimated in full or in part using valuation tech-
niques based on assumptions that are not supported by market
observable prices, rates, or other inputs. Consequently, there may
be uncertainty about a valuation which results from the choice of
valuation technique or model used, the assumptions embedded
in those models, the extent to which inputs are not market ob-
servable, or from other elements affecting the valuation tech-
nique or model.
To estimate the effect of changing the unobservable inputs to
a reasonably possible alternative assumption, UBS performed a
sensitivity analysis on its level 3 financial instruments, which are
measured using valuation techniques, and for which significant
inputs are unobservable in the markets in which the underlying
products are transacted. The fair values of these financial instru-
ments were adjusted by zero to 25 percent. These adjustments
Sensitivity of level 3 financial assets and liabilities
CHF billion
Cash instruments
Mortgage securities
Debt securities
Equity securities
Traded loans
Total cash instruments
Derivative instruments
Equity derivatives 1
Interest rate derivatives
Credit derivatives
Total derivative instruments
were determined by product type based on the professional judg-
ment of control functions, which perform procedures to establish
the reasonableness of UBS’s valuation assertions as of the balance
sheet date.
Cash instruments referred to in the below table relate to long
and short inventory, if applicable, for the respective product type.
For presentation purposes, derivative instruments in the table be-
low include positive and negative replacement values, as well as
issued notes with embedded equity- or interest-rate derivative
features, which are presented on UBS’s balance sheet as financial
assets or liabilities designated at fair value. For all instruments,
favorable changes are increases to asset values and decreases to
liability values as a consequence of applying the relevant sensitiv-
ity percentage. Unfavorable changes are decreases in asset values
and increases in liability values as a consequence of applying the
relevant sensitivity percentage for the respective financial instru-
ments.
31.12.12
31.12.11
Favorable
changes
Unfavorable
changes
Favorable
changes
Unfavorable
changes
0.1
0.2
0.1
0.2
0.6
0.3
0.1
0.2
0.6
(0.1)
(0.2)
(0.1)
(0.2)
(0.6)
(0.3)
(0.1)
(0.2)
(0.6)
0.3
0.2
0.0
0.1
0.6
0.3
0.3
0.5
1.1
1 Includes UBS’s option to acquire the equity of the SNB StabFund. In 2011, this option was presented in Derivative instruments – other. The prior period was restated for this change in presentation.
(0.3)
(0.2)
0.0
(0.1)
(0.6)
(0.3)
(0.3)
(0.5)
(1.1)
403
Financial information Financial information
Notes to the consolidated financial statements
This section includes a description of main product categories and
related valuation techniques employed by UBS.
Government and corporate bonds, bills and loans
Government bonds and bills are generally actively traded with
quoted prices in liquid markets. Should market prices not be avail-
able, the securities are valued against yield curves implied from
similar issuances.
Corporate bonds are priced at market levels, which are based
on recent trades or broker and dealer quotes. In cases where no
directly comparable price is available, the bonds are tested against
yields derived from other securities by the same issuer or bench-
marked against similar securities adjusting for seniority, maturity
and liquidity. For illiquid securities, credit modeling may be used,
which considers the features of the security and discounts cash-
flows using observable or implied credit spreads and prevailing
interest rates.
Loans held at fair value are priced at market levels reflecting 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 for 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 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 the Group’s equity securities are traded on public
stock exchanges where quoted prices are readily and regularly
available.
Hedge funds are measured at fair value based on their pub-
lished net asset values (NAV), considering the availability of NAV
from the funds or restrictions imposed upon the redemption of
these funds.
Convertible bonds are mostly valued using observable pricing
sources, which are generally available given the frequency of trad-
ing 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 derivatives generally have observable
prices and UBS considers these market prices within the fair
value assessment. OTC derivatives are measured using either in-
dustry standard models or internally developed proprietary mod-
els. Inputs to these models include equity prices, equity dividend
and funding rates, equity volatilities, FX rates and correlations.
Residential Mortgage-Backed Securities (RMBS), Commercial
Mortgage-Backed Securities (CMBS), Asset-Backed Securities
(ABS) and Collateralized Debt Obligations (CDO)
Values of RMBS, CMBS, ABS and CDOs are estimated by refer-
ence to traded prices and independently verified market data
when available. In the absence of direct market data, values
are derived from traded and quoted prices on one or more se-
curities with similar characteristics or indices through bench-
marking or triangulation.
Securities with plain vanilla features, but limited observable
market data are valued using industry standard valuation models,
while those with complex structures are valued using proprietary
models and fundamental analysis. Key inputs to such models in-
clude management’s quantitative and qualitative assessment of
current and future economic conditions, the securities’ projected
performance under such conditions as well as liquidity in the mar-
ket, among other factors.
Credit derivatives related to RMBS, CMBS, ABS and CDO
Credit derivatives include credit default swaps, total return
swaps and balance guaranteed swaps either referencing an in-
dex, single-name securities or a basket of single-name securi-
ties. Single-name contracts are primarily priced using reliable
market data or are derived from traded and quoted securities
prices on similar exposures in order to estimate fair value. More
illiquid and bespoke credit derivatives are valued using propri-
etary models and inputs to such models are derived from mar-
ket data and calibration to similar transactions, reference indi-
ces and securities.
Credit derivatives
Single-name, index and portfolio credit default swaps, and any
derivation or combination which can be classified as complex
structured credit products are valued using market available cred-
it spreads and recovery rates from either consensus pricing ser-
vices or other market participants. This data is fed into industry-
standard models in order to derive fair value.
Complex structured credit products are valued using proprie-
tary models, which are calibrated to market-derived data. Inputs
to these models include single-name credit spreads, recovery
rates, implied correlations, credit volatilities, cash-synthetic basis
spreads and quanto basis spreads.
Interest rate swaps and forwards
OTC swap products include interest rate swaps, basis swaps,
cross currency swaps, inflation swaps and interest rate for-
wards, often referred to as forward rate agreements (FRA). All
of these products are valued by estimating future interest cash
flows (both fixed and future index levels) and then discounting
these cash flows using an interest rate that reflects the appro-
404
Note 27 Fair value of financial instruments (continued)c) Valuation techniques by product priate funding rate for that portion of the portfolio. Interest
rates and future index levels used in the respective calculations
are generated from observing current market interest rates as-
sociated with typical interest rate derivatives (considering swap
rates, basis swap spreads, futures prices and FRA rates) and
converting these into rates specific to the portfolio using mar-
ket standard yield curve models.
Interest rates options
Interest rate caps and floors, swaptions and other more complex
non-linear interest-rate products are valued using market standard
option models. These models use inputs that include (but are not
limited to) interest rate yield curves, inflation curves, interest rates
volatilities, FX rate volatilities, inflation volatilities and correlations
(between different interest rates or between rates and FX or infla-
tion). The models are calibrated 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. Inputs to these models 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 to recover market-observed prices for stan-
dard option instruments trading within the market and the cali-
brated model is then used to revalue the portfolio.
FX spot and forward
Open spot and settled FX positions are valued using the observed
market FX spot rate. Forward FX positions are valued using the
spot rate adjusted for forward pricing points observed from stan-
dard market sources.
➔ Refer to the “Risk, treasury and capital management” section of
this report for more information on certain financial instruments
with significant valuation uncertainty (CVA on monolines, US and
non-US reference-linked notes, and the option to acquire equity
of the SNB StabFund)
The table reflects the activity in deferred profit or loss for financial
instruments for which fair value is estimated using valuation mod-
els when not all significant inputs are market observable. Such fi-
nancial instruments are initially recognized at their transaction 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 re-
corded in Net trading income when product equivalent quotes be-
come available or the underlying parameters become observable,
the transaction is closed out or using an appropriate amortization
methodology. The following table shows the aggregate difference
yet to be recognized in the income statement at the beginning and
end of the period and a reconciliation of changes during the period.
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
31.12.12
31.12.11
433
424
(367)
(16)
474
565
221
(354)
1
433
As of 31 December 2012, deferred day 1 profit of CHF 0.5 billion
primarily consisted of CHF 0.2 billion related to OTC equity op-
tions (31 December 2011: CHF 0.3 billion), CHF 0.1 billion related
to credit default swaps (31 December 2011: CHF 0.1 billion)
and CHF 0.1 billion related to interest rate swaps (31 December
2011: CHF 0.1 billion).
405
Financial informationNote 27 Fair value of financial instruments (continued)d) Deferred day-1 profit or loss Financial information
Notes to the consolidated financial statements
The following table reflects the estimated fair values for UBS’s instruments accounted for at amortized cost. Refer to Note 29 for an
overview of financial assets classified as “loans and receivables” and financial liabilities accounted for at amortized cost.
Financial instruments accounted for at amortized cost
CHF billion
Assets
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
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Cash collateral payables on derivative instruments
Due to customers
Debt issued
Accrued expenses, other liabilities
Guarantees / Loan commitments
Guarantees 1
Loan commitments 2
31.12.12
31.12.11
Carrying value
Fair value
Carrying value
Fair value
66.4
21.2
37.4
130.9
30.4
279.9
12.1
23.0
9.2
37.6
71.1
371.9
104.9
45.0
0.1
0.0
66.4
21.2
37.4
131.1
30.4
282.9
12.1
23.1
9.2
37.6
71.1
371.9
107.8
45.0
(0.1)
0.3
40.6
23.2
58.8
213.5
41.3
266.6
10.2
30.2
8.1
102.4
67.1
342.4
141.6
47.2
0.1
0.0
40.6
23.2
58.8
213.3
41.3
268.2
10.2
30.2
8.1
102.4
67.1
342.4
140.6
47.2
0.1
0.7
1 The carrying value of guarantees represents a liability of CHF 0.1 billion as of 31 December 2012 and 31 December 2011, respectively. The estimated fair value of guarantees represents an asset of CHF 0.1 billion as
of 31 December 2012 and a liability of CHF 0.1 billion as of 31 December 2011. 2 The carrying value of loan commitments represents a liability of CHF 0.0 billion as of 31 December 2012 and 31 December 2011,
respectively. The estimated fair value of loan commitments represents a liability of CHF 0.3 billion as of 31 December 2012 and a liability of CHF 0.7 billion as of 31 December 2011.
Loans include Wealth Management and Retail & Corporate assets, mainly mortgage loans, where fair values exceeded related carrying
values by CHF 3.8 billion as of 31 December 2012 (31 December 2011: CHF 3.4 billion), and Legacy Portfolio assets reported in Cor-
porate Center where fair values were below related carrying values by CHF 0.6 billion as of 31 December 2012 (31 December 2011:
CHF 1.5 billion).
The fair values included in the table above were calculated for
disclosure purposes only. The fair value valuation techniques and
assumptions described below relate only to fair value of UBS’s fi-
nancial instruments accounted for at amortized cost. Other insti-
tutions may use different methods and assumptions for their fair
value estimation, therefore, such fair value disclosures cannot nec-
essarily be compared from one financial institution to another.
UBS applies significant judgments and assumptions to arrive at
these fair values, which are more holistic and less sophisticated
than UBS’s established fair value and model governance policies
and processes applied to financial instruments accounted for at
fair value whose fair values impact UBS’s balance sheet and net
profit. The following principles were applied when determining
fair value estimates for financial instruments accounted for at am-
ortized cost:
– For financial 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 flows using
current market interest rates or appropriate yield curves for in-
struments with similar credit risk and maturity. These estimates
generally include adjustments for counterparty credit or UBS’s
own credit.
– For short-term financial instruments with remaining maturities
of three months or less, the carrying amount, which is net of
credit loss allowances, is generally considered a reasonable
estimate of fair value. The following financial instruments
accounted for at amortized cost have remaining maturities of
three months or less: 100% of cash and balances with central
406
Note 27 Fair value of financial instruments (continued)e) Financial instruments accounted for at amortized cost banks; 82% of amounts due from banks; 98% of cash collat-
eral on securities borrowed; 95% of reverse repurchase agree-
ments; 100% of cash collateral receivables on derivatives;
51% of loans; 88% of amounts due to banks; 93% of cash
collateral on securities lent; 93% of repurchase agreements;
100% of cash collateral payable on derivatives; 98% of
amount due to customers; and 21% of debt issued.
quality of counterparties or UBS’s own credit movements.
– The fair value estimates for repurchase and reverse repurchase
agreements with variable and fixed interest rates, for all ma-
turities, include the valuation of the interest rate component of
these instruments. Credit and debit valuation adjustments
have not been included in the valuation due to the short-term
nature of these instruments.
– The fair value of variable interest-bearing financial instruments
accounted for at amortized cost is assumed to be approximat-
ed by their carrying amounts, which are net of credit loss al-
lowances, and does not reflect fair value changes in the credit
– The estimated fair values of off-balance sheet financial instru-
ments are based on market prices for similar facilities and guar-
antees. Where this information is not available, fair value is
estimated using discounted cash flow analysis.
This Note provides information about assets pledged as collateral for liabilities or contingent liabilities (Note 28a), transfers of finan-
cial assets (Note 28b and 28c), and financial assets which are received as collateral with the right to resell or re-pledge these assets
(Note 28d).
a) Financial assets pledged as collateral
The Group pledges financial assets mainly in securities lending transactions, in repurchase transactions, against loans from Swiss mort-
gage institutions, in connection with derivative transactions, as security deposits for stock exchanges and clearinghouse memberships,
and in connection with the issuance of covered bonds.
Financial assets pledged as collateral for liabilities or contingent liabilities
CHF million
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Loans
of which: mortgage loans 2
Total financial assets pledged as collateral 3
Carrying amount
31.12.12
53,656
44,698
34,005
33,928
87,661
31.12.11 1
56,162
39,936
27,884
27,841
84,047
1 Comparative data has been restated due to a change in the definition of financial assets pledged as collateral. Refer to “Note 1b Changes in accounting policies, comparability, and other adjustments” for more infor-
mation. 2 These pledged mortgage loans serve as collateral for existing liabilities against Swiss central mortgage institutions and for existing covered bond issuances. Of these pledged mortgage loans, approximately
CHF 7.5 billion for 31 December 2012 (31 December 2011: approximately CHF 5.7 billion) could be withdrawn or used for future liabilities or covered bond issuances without breaching existing collateral require-
ments. 3 Does not include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes (31 December 2012: CHF 4.8 billion, 31 December 2011: CHF 3.6 billion).
407
Financial informationNote 27 Fair value of financial instruments (continued)Note 28 Pledged and transferred financial assets Financial information
Notes to the consolidated financial statements
b) Transferred financial assets that are not derecognized in their entirety
The following table presents information for financial assets, which have been transferred but are subject to continued recognition
in full, as well as recognized liabilities associated with those transferred assets.
Transferred financial assets subject to continued recognition in full
CHF million
Trading portfolio assets transferred which may be sold or repledged by counterparties
relating to repurchase agreements in exchange for cash received
relating to securities lending agreements in exchange for cash received
relating to securities lending agreements in exchange for securities received
relating to other financial asset transfers
Total financial assets transferred
31.12.12
31.12.111, 2
Carrying value of
transferred assets
Carrying value of
associated liabili-
ties recognized
on-balance sheet
Carrying value of
transferred assets
8,305
15,268
18,258
2,868
44,698
8,287
14,063
0
152
22,502
15,481
12,309
10,248
1,899
39,936
1 Comparative data has been restated due to a change in the definition of transferred financial assets. Refer to “Note 1b Changes in accounting policies, comparability, and other adjustments” for more information.
2 The relationship between the carrying value of transferred assets and the associated liabilities as of 31 December 2011 was substantially the same as that in 2012.
Transactions whereby financial assets are transferred, but con-
tinue to be recognized in their entirety on UBS’ balance sheet
include securities lending and repurchase agreements as well as
other financial asset transfers. Repurchase agreements and se-
curities lending agreements are discussed in Notes 1a) 13) and
1a) 14). Repurchase and securities lending arrangements are,
for the most part, conducted under standard market agree-
ments, and are undertaken with counterparties subject to UBS’s
normal credit risk control processes. Other financial asset trans-
fers include securities transferred to collateralize derivative
transactions.
Approximately half of the transferred financial assets are trad-
ing portfolio assets transferred in exchange for cash, in which
case the associated recognized liability represents the amount to
be repaid to counterparties. For securities lending and repurchase
agreements, a haircut between 0% and 15% is generally applied
to the collateral, which results in associated liabilities having a car-
rying value below the carrying value of the transferred assets. The
counterparties to the associated liabilities presented in the table
above have full recourse to UBS.
In securities lending arrangements entered into in exchange
for the receipt of other securities as collateral, neither the securi-
ties received nor the obligation to return them are recognized on
UBS’s balance sheet as the risks and rewards of ownership are not
transferred to UBS. In cases where such financial assets received
are subsequently sold or re-pledged in another transaction, this is
not considered to be a transfer of financial assets.
Transferred assets other than trading portfolio assets which
may be sold or repledged by counterparties were not material in
2012 and 2011.
Transferred financial assets that are not subject to derecogni-
tion in full, but which remain on the balance sheet to the extent
of the Group’s continuing involvement, were not material in 2012
and 2011.
408
Note 28 Pledged and transferred financial assets (continued) c) Transferred financial assets that are derecognized in their entirety with continuing involvement
Continuing involvement in a transferred and fully derecognized
financial asset may result from contractual provisions in the trans-
fer agreement or in a separate agreement with the counterparty
or a third party entered into in connection with the transfer. Such
transactions include purchased call options on transferred finan-
cial assets, certain lending arrangements as well as interests pur-
chased and retained upon the transfer of assets into securitization
structures and special purpose entities. The table below provides
information on the Group’s continuing involvement in transferred
and fully derecognized financial assets.
Transferred financial assets that are derecognized in their entirety with continuing involvement
CHF million
31.12.12
Type of continuing involvement
Purchased call option
Lending arrangements
Purchased and retained interests
in securitization structures
Total
Balance sheet
line item
Carrying amount
of continuing
involvement
Fair value of
continuing
involvement
Gain/(loss) recog-
nized at the date
of transfer of the
financial assets
Gain/(loss) from continuing
involvement in transferred and
derecognized financial assets
For the year
ended 31.12.12
Life-to-date
Positive
replacement values
Loans
Trading portfolio assets /
Replacement values
2,103
3,342
205
5,650
2,103
3,271
205
5,579
(1,003)
0
0
(1,003)
526
61
0
587
(2,256)
651
(1,701)
(3,306)
There are a limited number of specific transactions for which UBS
has continuing involvement in derecognized financial assets, as
detailed below.
Purchased call option: UBS’s option to acquire the
SNB StabFund’s equity
In 2008 and 2009, UBS transferred assets to a fund owned and
controlled by the Swiss National Bank (SNB StabFund). The price at
which the SNB StabFund purchased the assets from UBS was CHF
1.0 billion below the fair value at which these assets were held by
UBS. The SNB has financed the fund with a loan in the amount of
90% of the purchase price, secured by the assets of the fund.
10% of the purchase price was financed through an equity contri-
bution by the SNB. The loan is non-recourse to UBS. The fund and
loan facility terminates in eight years from inception, but the ter-
mination date may be extended to 10 or 12 years. UBS has pur-
chased, for an amount equal to the SNB’s equity contribution, an
option to acquire the fund’s equity once the loan has been fully
repaid. This option to acquire the SNB StabFund’s equity represents
a continuing involvement in the assets transferred to the fund,
which is reflected in the table above. The option exercise price is
USD 1 billion plus 50% of the amount by which the fund’s equity
value exceeds USD 1 billion at the time of exercise. This option is
carried on UBS’s balance sheet at fair value, which is also the max-
imum exposure to loss. In the event of a change of control of UBS,
the SNB has the right, but not the obligation, to require UBS to
purchase the loan the SNB provided to the SNB StabFund at its
outstanding principal amount plus accrued interest and the fund’s
equity at 50% of its value at the time. If, upon the fund’s termina-
tion, the SNB incurs a loss on the loan it has made to the fund, the
SNB will be entitled to receive 100 million UBS ordinary shares
against payment of the par value of those shares.
➔ Refer to the “Risk, treasury and capital management”
section for more information on UBS’s option to acquire
the SNB StabFund’s equity
Lending arrangements: loan to BlackRock fund
In 2008, UBS sold a portfolio of US RMBSs for proceeds of USD 15
billion to the RMBS Opportunities Master Fund, LP (the “RMBS
fund”), a special purpose entity managed by BlackRock, Inc. The
USD 15 billion proceeds were approximately in line with the fair
value of the assets at the date of the transfer of the assets. 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 pro-
vided by UBS, which represents a continuing involvement in the
assets transferred to the fund and is reflected in the table above.
The maximum exposure to loss is equal to the carrying amount of
loan to the RMBS fund.
➔ Refer to the “Risk, treasury and capital management”
section of this report for more information on the management
of credit risk
409
Financial informationNote 28 Pledged and transferred financial assets (continued) Financial information
Notes to the consolidated financial statements
Purchased and retained interests in securitization structures
In securitization structures where UBS has transferred assets into
a third-party special purpose entity and retained or purchased
interests therein, UBS has a continuing involvement in those
transferred assets. The majority of our retained securitization po-
sitions held in the trading portfolio are collateralized debt obliga-
tions, US commercial mortgage-backed securities and residential
mortgage-backed securities. As a result of losses incurred in pre-
vious years, the majority of these positions have a carrying
amount of zero as of 31 December 2012. The maximum expo-
sure to loss was CHF 0.3 billion as of 31 December 2012. Life-to-
date losses presented in the table on the previous page only re-
late to retained interests held as of 31 December 2012.
d) Off-balance-sheet securities received
The following table presents the amounts of securities received from third parties that are not recognized on the balance sheet, but
that are held as collateral, including amounts that have been sold or repledged.
Off-balance sheet securities received
CHF million
Fair value of securities received which can be sold or repledged
received as collateral under reverse repurchase, securities borrowing and lending arrangements, derivative transactions and other transactions
received in unsecured borrowings
thereof sold or repledged as collateral for liabilities or contingent liabilities 1, 2
in connection with financing activities
to satisfy commitments under short sale transactions
in connection with derivative and other transactions
31.12.12
400,150
398,496
1,654
284,599
224,361
34,154
26,084
31.12.11
551,590
550,023
1,567
365,087
298,645
39,480
26,962
1 Comparative data has been restated due to a change in the definition of financial assets pledged as collateral. Refer to “Note 1b Changes in accounting policies, comparability, and other adjustments” for more infor-
mation 2 Does not include off-balance sheet securities (31 December 2012: CHF 29.4 billion, 31 December 2011: CHF 27.4 billion) placed with central banks related to undrawn credit lines and for payment, clearing
and settlement purposes for which there are no associated liabilities or contingent liabilities.
410
Note 28 Pledged and transferred financial assets (continued) a) Measurement categories of financial assets and financial liabilities
The following table provides information about the carrying
amounts of individual classes of financial instruments within the
measurement categories of financial assets and financial liabilities
as defined in IAS 39 Financial instruments: recognition and mea-
surement. Only those assets and liabilities which are financial in-
struments as defined in IAS 32 Financial instruments: presentation
are included in the table below, which causes certain balances to
differ from those presented on the balance sheet.
➔ Refer to “Note 27 Fair value of financial instruments” for
more information on how fair value of financial instruments
is determined
CHF million
Financial assets 1
Held for trading
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Debt issued 2
Positive replacement values
Total
Fair value through profit or loss
Financial assets designated at fair value
Financial assets at amortized cost
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments
Loans
Accrued income
Other assets
Total
Available-for-sale
Financial investments available-for-sale
Total financial assets
31.12.12
31.12.11
143,767
44,698
405
418,029
562,201
162,821
39,936
1,149
486,584
650,554
9,106
10,336
66,383
21,230
37,372
130,941
30,413
279,901
1,514
10,545
578,299
40,638
23,218
58,763
213,501
41,322
266,604
1,464
8,757
654,267
66,383
1,215,989
53,174
1,368,331
39,480
194
473,400
513,074
34,154
172
395,070
429,396
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
1 As of 31 December 2012, CHF 113 billion of Loans, CHF 0 billion of Due from banks, CHF 1 billion of Reverse repurchase agreements, CHF 29 billion of Financial investments available-for-sale and CHF 7 billion of Financial
assets designated at fair value are expected to be recovered or settled after twelve months. As of 31 December 2011, CHF 118 billion of Loans, CHF 1 billion of Due from banks, CHF 1 billion of Reverse repurchase agree-
ments, CHF 20 billion of Financial investments available-for-sale and CHF 8 billion of Financial assets designated at fair value were expected to be recovered or settled after twelve months. 2 Represents the embedded de-
rivative component of structured debt issued for which the fair value option has not been applied. The amounts shown here as positive and negative replacement values are presented within Debt issued on the balance sheet.
23,024
9,203
37,639
71,148
371,892
4,548
104,889
40,473
662,816
1,200,435
30,201
8,136
102,429
67,114
342,409
6,646
141,572
40,512
739,019
1,357,555
92,878
15,346
108,223
88,982
16,481
105,462
411
Financial informationNote 29 Measurement categories of financial assets and financial liabilities Financial information
Notes to the consolidated financial statements
b) Reclassification of financial assets
In the fourth quarter of 2008 and the first quarter of 2009, finan-
cial assets with fair values on their reclassification dates of CHF
26 billion and CHF 0.6 billion, respectively, were reclassified out
of Trading portfolio assets to Loans.
The reclassification of financial assets reflected UBS’s change
in intent and ability to hold these financial assets for the fore-
seeable future rather than for trading in the near term. The
foreseeable future is interpreted to mean a period of approxi-
mately 12 months following the date of reclassification. The fi-
nancial assets were reclassified using their fair value on the date
of the reclassification, which became their new cost basis at
that date.
Held-for-trading assets reclassified to loans and receivables
CHF billion
Carrying value
Fair value
Pro-forma fair value gain / (loss)
31.12.12
31.12.11
3.2
3.1
(0.1)
5.3
4.9
(0.4)
The following table provides notional values, fair values and carrying values by product category for the remaining reclassified finan-
cial assets.
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
31.12.12
Notional value
Fair value
Carrying value
2.0
0.6
0.3
0.1
0.5
3.6
1.7
0.6
0.3
0.1
0.5
3.1
1.9
0.5
0.3
0.1
0.4
3.2
Ratio of carry-
ing to notional
value (%)
94
91
85
73
83
90
In 2012, the carrying value of the remaining reclassified financial
assets decreased by CHF 2.1 billion, mainly due to sales of CHF 1.9
billion, of which CHF 0.9 billion related to sales of US student loan
auction rate securities and CHF 0.3 billion related to sales of mon-
oline-protected assets. The overall impact on operating profit be-
fore tax from the financial assets for the year ended 31 December
2012 was a profit of CHF 49 million (see table below). If the finan-
cial assets had not been reclassified, the impact on operating profit
before tax for the year ended 31 December 2012 would have been
a profit of approximately CHF 0.3 billion (2011: 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 / (losses) on the disposal of reclassified financial assets.
412
For the year ended
31.12.12
31.12.11
116
(73)
7
49
381
36
306
723
Note 29 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 financial instrument and the respective col-
lateral and other credit enhancements mitigating credit risk for
these classes of financial instruments. The maximum exposure to
credit risk includes the carrying amounts of financial instruments
recognized on the balance sheet subject to credit risk and the
notional amounts for off-balance sheet arrangements.
Where information is available, collateral is presented at fair
value; for other collateral such as real estate, a reasonable alterna-
tive value is used. Credit enhancements (credit derivative con-
tracts / guarantees) are included at their notional amounts. Both
are capped at the maximum 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 2
Loans 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 8
Financial investments available-for-sale – debt instruments 9
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
31.12.12
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
155.8
0.4
18.3
0.9
0.4
2.5
64.1
21.2
279.9
37.4
130.9
30.4
12.3
576.2
418.0
67.4
8.5
65.3
559.2
1,135.5
20.0
59.8
18.8
98.6
1,234.1
13.1
13.2
0.0
13.2
1.5
0.2
1.7
14.8
2.7
65.9
37.2
130.9
7.9
244.6
6.5
6.5
155.8
18.7
0.0
251.1
155.8
2.0
2.1
18.8
22.9
274.0
0.3
1.7
1.9
157.7
0.2
0.2
18.9
2.0
9.2
11.2
30.1
17.4
17.4
376.7
376.7
394.1
0.0
394.1
0.9
2.9
1.0
1.0
1.9
1.4
16.9
18.3
20.2
0.0
2.9
2.5
1.5
4.0
6.9
1 Includes but not limited to life insurance contracts, inventory, accounts receivable, patents, and copyrights. 2 Due from banks includes amounts held with 3rd party banks on behalf of clients. The credit risk associated
to these balances may be borne by those clients. 3 Loans include a balance outstanding of USD 3.6 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. 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. For the purpose of this disclosure, securities col-
lateral was not considered. 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 consid-
ered. 7 Does not include debt instruments held for unit-linked investment contracts and investment fund units. 8 Does not include investment fund units. 9 Does not include investment fund units.
413
Financial informationNote 29 Measurement categories of financial assets and financial liabilities (continued) Financial information
Notes to the consolidated financial statements
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 2
Loans 3, 4, 5
Cash collateral on securities borrowed
Reverse repurchase agreements
Cash collateral receivables on derivative instruments 6
Accrued income, other assets
Total financial assets measured at amortized cost
Financial assets measured at fair value
on the balance sheet
Positive replacement values 7
Trading portfolio assets – debt instruments 8, 9
Financial assets designated at fair value – debt instruments 10
Financial investments available-for-sale – debt instruments 11
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
Collateralized
by securities
Secured by
real estate
Other
collateral 1
Netting
Credit
derivative
contracts
Guarantees
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
341.8
1.9
0.4
27.6
29.9
371.7
148.2
0.5
18.9
0.6
0.6
2.6
148.2
19.3
0.2
0.2
19.5
1.5
8.8
10.3
29.9
0.0
148.2
0.2
1.1
1.3
149.5
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 Due from banks includes amounts held with 3rd party banks on behalf of clients. The credit risk associated
to these balances may be borne by those clients. 3 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. 4 Loans include monoline-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”. 5 In 2012, we corrected the classification of certain loans which were previously classified as
unsecured loans to secured loans. As a result, total loans secured by Other collateral were increased by CHF 2.4 billion as of 31 December 2011. 6 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. 7 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. For the purpose of this
disclosure, securities collateral received was not considered. 8 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. 9 Does not include debt instruments held for unit-linked investment contracts and investment fund units. 10 Does not include investment fund units. 11 Does not include invest-
ment fund units.
414
Note 29 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
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
Guarantees
Loan commitments
Forward starting reverse repurchase agreements
Forward starting securities borrowing agreements
Total
0–1
46.2
0.9
4.6
2.3
13.4
6.3
34.2
57.7
0.3
2.3
0.2
0.0
2–3
17.9
14.0
84.2
123.3
348.9
17.1
17.2
7.6
3.2
9.7
34.6
17.4
0.2
4–5
0.0
4.5
121.3
25.8
44.4
4.0
7.8
0.0
7.9
3.7
11.6
0.6
31.12.12
6–8
9–13
defaulted
1.6
57.2
14.9
9.9
2.9
3.4
0.0
8.8
3.3
6.7
0.5
0.1
11.5
2.0
1.4
0.1
4.8
0.0
0.4
0.9
6.7
0.0
1.1
0.0
0.2
0.0
0.2
0.2
0.0
0.1
Total
64.1
21.2
279.9
168.3
418.0
30.4
67.4
65.3
20.8
20.0
59.8
18.6
0.2
168.2
695.4
231.5
109.2
28.0
1.8
1,234.1
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
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
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
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
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
146.2
867.6
228.5
125.7
34.0
2.4
1,404.5
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.
415
Financial informationNote 29 Measurement categories of financial assets and financial liabilities (continued) Financial information
Notes to the consolidated financial statements
During the fourth quarter of 2012, UBS adopted revisions to
IAS19 Employee Benefits (“IAS 19R”) retrospectively in accor-
dance with the transitional provisions set out in IAS 19R and IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors.
IAS 19R introduces changes to the recognition, measurement,
presentation and disclosure of post-employment benefits. Refer
to “Note 1b Changes in accounting policies, comparability, and
other adjustments” for more information.
The following table provides information relating to pension
costs for defined benefit plans and defined contribution plans.
These costs are part of Personnel expenses.
Income statement – pension and other post-employment benefit plans
CHF million
Net periodic pension cost for defined benefit plans
of which: related to major pension plans 1
of which: Swiss plan
of which: International plans
of which: related to post-retirement medical and life insurance plans 2
of which: related to remaining plans and other costs 3
Pension cost for defined contribution plans 4
Total pension and other post-employment benefit plans 5
31.12.12
31.12.11
31.12.10
(222)
(116)
(198)
82
(102)
(3)
240
18
577
519
453
66
(2)
60
254
831
588
542
457
85
20
25
246
834
1 Refer to “Note 30a Defined benefit pension plans” for more information. 2 Refer to “Note 30b Post-retirement medical and life insurance plans” for more information. 3 Other costs include differences between
actual and estimated performance award accruals and net accrued pension costs related to restructuring. 4 Refer to “Note 30c Defined contribution plans” for more information. 5 Refer to “Note 6 Personnel
expenses”.
The following table provides information relating to amounts recognized in other comprehensive income for defined benefit plans.
Other comprehensive income – gains / (losses) on pension and other post-employment benefit plans
CHF million
Major pension plans 1
of which: Swiss plan
of which: International plans
Post-retirement medical and life insurance plans 2
Remaining plans
Gains / (losses) recognized in other comprehensive income, before tax
Tax (expense) / benefit relating to defined benefit plans recognized in other comprehensive income
Gains / (losses) recognized in other comprehensive income, after tax 3
Cumulative amount of gains / (losses) recognized in other comprehensive income, before tax
Cumulative tax (expense) / benefit relating to defined benefit plans recognized in other comprehensive income
Cumulative gains / (losses) recognized in other comprehensive income, after tax 4
31.12.12
31.12.11
31.12.10
1,053
1,095
(42)
(26)
(5)
1,023
(413)
609
(5,542)
736
(4,806)
(2,120)
(1,811)
(309)
(19)
0
(2,141)
321
(1,820)
(6,565)
1,149
(5,415)
160
117
42
(36)
0
124
(3)
120
(4,424)
828
(3,596)
1 Refer to “Note 30a Defined benefit pension plans” for more information. 2 Refer to “Note 30b Post-retirement medical and life insurance plans” for more information. 3 Refer to the “Statement of comprehensive
income”. 4 Refer to the “Statement of changes in equity”.
The following table provides information on UBS’s liabilities with respect to pension and post-employment benefit plans. These are
recognized on the balance sheet within Other liabilities. All major plans are currently in a net deficit situation.
Balance sheet – net defined benefit pension and post-employment liability
CHF million
Major pension plans 1
of which: Swiss plan
of which: International plans
Post-retirement medical and life insurance plans 2
Remaining plans
Total net defined benefit pension and post-employment liability 3
31.12.12
1,108
118
990
136
39
1,284
31.12.11
31.12.10
2,897
1,941
956
219
18
3,135
831
184
647
209
17
1,056
1 Refer to “Note 30a Defined benefit pension plans” for more information. 2 Refer to “Note 30b Post-retirement medical and life insurance plans” for more information. 3 Refer to “Note 22 Other liabilities”.
416
Note 30 Pension and other post-employment benefit plans a) Defined benefit pension plans
UBS has established pension plans for its employees in various
locations. 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 defined
benefit pension plans is guided by the objective of achieving an
investment return which, together with contributions, ensures
that there will be sufficient assets to pay pension benefits as they
fall due while also mitigating the various risks of the plans. For the
plans with assets (i.e. funded plans), the investment strategies for
the plans are generally managed under local laws and regulations
in each jurisdiction. The actual asset allocation is determined by
current and expected economic and market conditions and in
consideration of specific asset class risk in the risk profile. Within
this framework, UBS ensures that the fiduciaries consider how the
asset investment strategy correlates with the maturity profile of
the plan liabilities and the respective potential impact on the
funded status of the plans, including potential short term liquidity
requirements. Specific asset-liability matching strategies for each
pension plan are independently determined by the responsible
governance body in each country. The pension assets are invested
in a diversified portfolio of assets across geographic regions to
ensure diversified returns to the extent allowed under local pen-
sion laws.
Swiss pension plan
The Swiss pension plan covers nearly all UBS employees in Swit-
zerland and exceeds the minimum benefit requirements under
Swiss pension law. Contributions to the pension plan are paid by
the employees and the employer. The Swiss pension plan allows
employees a choice with regard to the level of annual contribu-
tions paid by the employee. Employee contributions are calcu-
lated as a percentage of contributory salary and are deducted
monthly. The percentages deducted from salary depend on age
and vary between 1% and 13.5% of contributory base salary
and between 0% and 9% of contributory variable compensa-
tion. Depending on the age of the employee, UBS pays a contri-
bution that ranges between 6.5% and 27.5% of contributory
base salary and between 3.6% and 9% of contributory variable
compensation for retirement credits. UBS also pays risk contribu-
tions which are used to finance benefits paid out in the event of
death and disability, as well as to finance the old age and survi-
vors’ bridging pensions. The benefits include retirement benefits
and disability, death and survivor pensions. The pension plan
provides a lifetime pension to members at the normal retirement
age of 62 for 2012. From 2013 onwards, the normal retirement
age is 64. Members can draw retirement benefits early from the
age of 58. A portion of the benefit, up to the full amount under
certain conditions, can be taken as a lump sum payment at retire-
ment. The amount of pension payable is a result of the conver-
sion rate applied on the accumulated balance of the individual
plan participant’s pension account at the retirement date. The
accumulated balance on the pension account is based on the
employee and employer contributions that have been made to
the pension account of each individual plan participant, as well
as the interest accrued on the accumulated balance. The interest
rate accrued is defined annually by the Pension Foundation
Board. Although the Swiss pension plan is a defined contribution
plan under Swiss pension law, it is accounted for as a defined
benefit plan under IAS 19R, primarily because of the need to
accrue interest on the pension accounts and the payment of
lifetime pensions. The Swiss pension plan is governed by the
Pension Foundation Board as required by the Swiss pension law.
The responsibilities of the Pension Foundation Board are defined
by Swiss pension law and by the plan rules. According to Swiss
pension law, a temporary limited underfunding is permitted.
However, the Pension Foundation Board is required to take the
necessary measures to ensure that full funding can be expected
to be restored within a period up to a maximum of ten years.
Under Swiss pension law, if the Swiss pension plan became sig-
nificantly underfunded on a Swiss pension law basis, additional
employer and employee contributions could be required. In these
situations, the risk is shared between employer and employees,
and the employer is not legally obliged to cover more than 50%
of the additional contributions required. The Swiss pension plan
has a technical funding ratio under Swiss pension law of 123.4%
as of 31 December 2012 (as of 31 December 2011: 117.3%), and
thus it is not expected that additional contributions will be re-
quired in the next year. The investment strategy of the Swiss plan
is in line with Swiss pension law, including the rules and regula-
tions relating to diversification of plan assets. The Pension Foun-
dation Board strives for a medium- and long-term consistency
and sustainability between assets and liabilities. Under IAS 19R,
volatility arises in the Swiss pension plan net liability because the
fair value of the plan assets is not directly correlated to move-
ments in the value of the plan’s defined benefit obligation in the
short-term.
There are ongoing discussions in the Swiss parliament on pos-
sible changes to Swiss pension law. The outcome of these discus-
sions and the timing of any resulting changes are uncertain.
In the first quarter of 2012, UBS announced certain changes to
its Swiss pension plan. The main changes were a reduction in con-
version rate on retirement and an increase of the normal retire-
ment age, which serve in part to offset the impact of the increased
life expectancy reflected in the defined benefit obligation due to
the adoption of the BVG 2010 generational table in 2011. This
plan amendment reduced the defined benefit obligation by CHF
730 million resulting in a gain in the first quarter of 2012. The
employer contributions expected to be made to the Swiss pension
plan in 2013 are estimated to be CHF 480 million. The actuarial
417
Financial informationNote 30 Pension and other post-employment benefit plans (continued) Financial information
Notes to the consolidated financial statements
assumptions used for the Swiss pension plan are based on the
local economic environment and are disclosed below. Refer also
to Note 1a) 24) for a description of the accounting policy for de-
fined benefit pension plans.
International pension plans
The international locations of UBS operate various pension plans in
accordance with local regulations and practices. The locations with
significant defined benefit plans are the UK, the US and Germany.
The remaining non-major plans are located mainly in Asia Pacific,
Europe and the Americas. As these other plans are not significant,
no further disclosure is given within this note. The amounts shown
for the international plans reflect the net funded positions of the
significant international plans. UBS’s general principle is to ensure
that the plans are appropriately funded under local pension regu-
lations in each country and this is the primary driver for determin-
ing when additional contributions are required. Similar to the
Swiss pension plan, volatility arises in the international pension
plans’ net liability because the fair value of the plan assets are not
directly correlated to movements in the value of the plans’ defined
benefit obligation. The pension plans provide benefits in the event
of retirement, death or disability. The level of benefits provided
depends on the specific rate of benefit accrual and the level of
employee compensation. The employer contributions expected to
be made to these pension plans in 2013 are estimated to be CHF
136 million. The funding policy for these plans is consistent with
local government regulations and tax requirements. The actuarial
assumptions used for the international plans are based on the local
economic environment and are disclosed below.
Refer also to Note 1a) 24) for a description of the accounting
policy for defined benefit pension plans.
UK
The UK plan is a career average revalued earnings scheme; bene-
fits increase automatically based on UK price inflation. Normal
retirement age for the UK plan is 60. The plan is closed to new
entrants, who instead can participate in a defined contribution
arrangement. There is a UK Pension Trustee Board which is re-
quired under local pension laws. The responsibility for governance
of the UK plan lies jointly with the Pension Trustee Board and UBS.
The employer contributions to the pension fund are determined
based on regular scheduled actuarial valuations. These actuarial
valuations are required to be conducted on assumptions deter-
mined by the Trustees and agreed by UBS. In the event of an un-
derfunding, UBS must agree a deficit recovery plan with the Pen-
sion Trustee Board within statutory deadlines. As the plan’s
obligation is to provide guaranteed lifetime pension benefits to
plan participants upon retirement, increases in life expectancy will
result in an increase in the plan’s liabilities. This is particularly sig-
nificant in the UK plan where inflationary increases result in high-
er sensitivity to changes in the life expectancy.
Based on the plan rules and due to local pension legislation there
418
are caps on the level of inflationary increase applied to plan ben-
efits. The plan assets are invested in a diversified class of assets
and a portion of the plan assets are invested in inflation-indexed
bonds, to provide a partial hedge against inflation. If inflation in-
creases, the plan obligation will likely increase more significantly
than any change in the fair value of plan assets; this would result
in an increase in the net pension plan liability.
US
There are two distinct major pension plans in the US. Normal re-
tirement age for the US plans is 65. The plans are closed to new
entrants, who instead can participate in defined contribution
plans. One plan is a contribution-based plan where each partici-
pant accrues a percentage of salary in a pension account. The
pension account is credited annually with interest based on a rate
which is linked to the yield on a US government bond. On retire-
ment, the plan participant can elect to receive the retirement
benefit as a lump sum or a lifetime pension. The other plan pro-
vides a lifetime pension which is based on the career average
earnings of each individual plan participant. There are pension
plan fiduciaries for both of the major pension plans as required
under local state pension laws. The fiduciaries, jointly with UBS,
are responsible for the governance of the plans. Actuarial valua-
tions are regularly completed for the plans and UBS has histori-
cally elected to make contributions to the plans to at least main-
tain a funded ratio of 80% as valued under local pension
regulations. The annual employer contributions are equal to the
present value of benefits accrued each year plus a rolling amorti-
zation of any prior underfunding. If the employer contributes
more than the minimum or the plan has assets exceeding the
liabilities, the excess can be used to offset minimum funding
requirements.
Germany
There are two different pension plans in Germany and both are
contribution-based plans. Normal retirement age for the German
plans is 65. The major pension plan is funded entirely by UBS,
and the contribution is based on the salary of the employee. On
an annual basis the accumulated account balance of the plan
participant is credited with guaranteed interest at a rate of 5%.
The other plan is a deferred compensation plan. The deferred
compensation plan has a guaranteed interest rate of 4% on con-
tributions paid after 2009. The German plans are regulated un-
der German pension law under which the responsibility to pay
pension benefits when they are due is entirely the responsibility
of UBS.
The following table provides an analysis of the movement in
the net asset / (liability) recognized on the balance sheet for de-
fined benefit pension plans between the beginning to the end of
the year, as well as an analysis of amounts recognized in net prof-
it and in other comprehensive income.
Note 30 Pension and other post-employment benefit plans (continued) Defined benefit pension plans
CHF million
For the year ended
Swiss
International
31.12.12
31.12.11
31.12.10
31.12.12
31.12.11
31.12.10
Defined benefit obligation at the beginning of the year
22,555
20,873
20,684
4,414
4,053
4,353
Current service cost
Interest expense
Plan participant contributions
Remeasurement of defined benefit obligation
of which: actuarial (gains) / losses arising from changes in demographic assumptions
of which: actuarial (gains) / losses arising from changes in financial assumptions
of which: experience (gains) / losses
Past service cost related to plan amendments
Curtailments
Benefit payments
Termination benefits
Foreign currency translation
Defined benefit obligation at the end of the year
of which: amounts owing to active members
of which: amounts owing to deferred members
of which: amounts owing to retirees
Fair value of plan assets at the beginning of the year
Return on plan assets excluding amounts included in interest income
Interest income
Employer contributions – excluding termination benefits
Employer contributions – termination benefits
Plan participant contributions
Benefit payments
Administration expenses, taxes and premiums paid
Foreign currency translation
Fair value of plan assets at the end of the year
Net defined benefit asset / (liability)
Movement in the net asset / (liability) recognized on the balance sheet
Net asset / (liability) recognized on the balance sheet at the beginning
of the year
Net periodic pension cost
Amounts recognized in other comprehensive income
Employer contributions – excluding termination benefits
Employer contributions – termination benefits
Foreign currency translation
531
462
205
29
0
20 1
9
(730)
(54)
(1,139)
43
0
21,901
10,602
0
11,299
20,614
1,124
460
486
43
205
(1,139)
(11)
0
21,783
(118)
(1,941)
198
1,095
486
43
0
435
557
211
1,452
838
614
0
0
0
407
643
197
149
(423)
825
(253)
0
0
33
211
0
258
(27)
269
17
0
0
(985)
(1,252)
(164)
11
0
22,555
12,269
0
10,286
20,690
(359)
562
495
11
211
(985)
(11)
0
20,614
(1,941)
(184)
(453)
(1,811)
495
11
0
45
0
20,873
11,418
0
9,455
20,286
266
650
510
45
197
(1,252)
(12)
0
20,690
(184)
(398)
(457)
117
510
45
0
0
20
4,773
713
2,378
1,682
3,458
216
167
84
0
0
(164)
(5)
26
3,783
(990)
(956)
(82)
(42)
84
0
5
33
210
0
260
87
219
(47)
0
0
(145)
0
3
4,414
644
2,188
1,582
3,406
(50)
180
71
0
0
(145)
(3)
(1)
3,458
(956)
(647)
(66)
(309)
71
0
(5)
Net asset / (liability) recognized on the balance sheet at the end of the year
(118)
(1,941)
(184)
(990)
(956)
Funded and unfunded plans
Defined benefit obligation from funded plans
Defined benefit obligation from unfunded plans
Plan assets
Surplus / (deficit)
21,901
22,555
20,873
0
21,783
(118)
0
20,614
(1,941)
0
20,690
(184)
4,472
301
3,783
(990)
4,174
240
3,458
(956)
41
237
0
141
28
95
18
0
0
(148)
0
(573)
4,053
792
1,986
1,275
3,517
184
198
86
0
0
(148)
(5)
(427)
3,406
(647)
(836)
(85)
42
86
0
146
(647)
3,813
240
3,406
(647)
1 During 2012, UBS revised its approach for calculating past service cost for certain members of the Swiss pension plan to consider not only age but also the initial employee contributions transferred to, or withdrawn
from, the plan. This affected the distribution between past and future service costs, resulting in a current period reduction in the defined benefit obligation of CHF 841 million. This amount is offset by other remeasure-
ment changes relating to changes in financial assumptions.
419
Financial informationNote 30 Pension and other post-employment benefit plans (continued) Financial information
Notes to the consolidated financial statements
Defined benefit pension plans (continued)
Analysis of amounts recognized in net profit
CHF million
For the year ended
Current service cost
Interest expense related to defined benefit obligation
Interest income related to plan assets
Administration expenses, taxes and premiums paid
Past service cost related to plan amendments
Curtailments
Termination benefits
Net periodic pension cost
Swiss
International
31.12.12
31.12.11
31.12.10
31.12.12
31.12.11
31.12.10
531
462
(460)
11
(730)
(54)
43
(198)
435
557
(562)
11
0
0
11
453
407
643
(650)
12
0
0
45
457
33
211
(167)
5
0
0
0
82
33
210
(180)
3
0
0
0
66
41
237
(198)
5
0
0
0
85
Analysis of gains / (losses) recognized in other comprehensive income
CHF million
For the year ended
Remeasurement of defined benefit obligation
Return on plan assets excluding amounts included in interest income
Total gains / (losses) recognized in other comprehensive income
Swiss
International
31.12.12
31.12.11
31.12.10
31.12.12
31.12.11
31.12.10
(29)
1,124
1,095
(1,452)
(359)
(1,811)
(149)
266
117
(258)
216
(42)
(260)
(50)
(309)
(141)
184
42
The following table provides information on the weighted average duration of the defined benefit pension obligations and the distri-
bution of the timing of benefit payments.
Duration of the defined benefit obligation
Maturity analysis of benefits expected to be paid
Benefits expected to be paid within 12 months
Benefits expected to be paid between 1 to 3 years
Benefits expected to be paid between 3 to 6 years
Benefits expected to be paid between 6 to 11 years
Benefits expected to be paid between 11 to 16 years
Benefits expected to be paid in more than 16 years
1 For international plans the duration is a weighted average duration.
Swiss
31.12.12
31.12.11
31.12.10
31.12.12
International 1
31.12.11
15.7
15.8
15.1
18.2
19.1
1,036
2,051
3,022
5,527
5,783
1,014
2,036
3,136
5,819
6,117
1,017
2,052
3,146
5,430
5,679
28,828
29,597
30,563
150
310
538
1,157
1,471
9,264
153
310
532
1,110
1,410
9,625
31.12.10
18.1
153
320
580
1,290
1,627
8,748
420
Note 30 Pension and other post-employment benefit plans (continued) The following tables show the principal actuarial assumptions used in calculating the defined benefit obligations.
Principal actuarial assumptions used (%)
Assumptions used to determine defined benefit obligations at the end of the year
Discount rate
Rate of salary increase
Rate of pension increase
Rate of interest credit on retirement savings
1 For the international plans the actuarial assumptions are weighted average assumptions.
Swiss
31.12.12
31.12.11
31.12.10
31.12.12
International 1
31.12.11
31.12.10
1.9
2.5
0.0
2.1
2.3
2.5
0.0
2.5
2.8
2.5
0.3
3.0
4.3
4.1
2.1
4.8
4.1
2.1
5.4
4.9
2.3
421
Financial informationNote 30 Pension and other post-employment benefit plans (continued)Mortality tables and life expectancies for major plansLife expectancy at age 65 for a male member currentlyaged 65aged 45CountryMortality table31.12.1231.12.1131.12.1031.12.1231.12.1131.12.10SwitzerlandBVG 2010 G 121.221.117.923.022.817.9UKS1NA_L CMI 2010 G, with projections 224.524.323.027.527.325.9GermanyDr. K. Heubeck 2005 G19.619.419.322.322.122.0USPPA mandated mortality table per IRC 1.430(h)(3)19.219.119.019.219.119.0Life expectancy at age 65 for a female member currentlyaged 65aged 45CountryMortality table31.12.1231.12.1131.12.1031.12.1231.12.1131.12.10SwitzerlandBVG 2010 G 123.723.621.025.425.321.0UKS1NA_L CMI 2010 G, with projections 225.625.524.727.927.826.6GermanyDr. K. Heubeck 2005 G23.723.523.426.226.126.0USPPA mandated mortality table per IRC 1.430(h)(3)21.021.020.921.021.020.91 In 2010 the mortality table BVG 2005 was used; the mortality tables are updated every five years. 2 In 2010 the mortality table PA 2000 G, medium cohort with adjustment was used. Financial information
Notes to the consolidated financial statements
The following table presents a sensitivity analysis for each significant actuarial assumption showing how the defined benefit obligation
would have been affected by changes in the relevant actuarial assumption that were reasonably possible at the balance sheet date.
This sensitivity analysis applies to the defined benefit obligation only and not to the net defined benefit pension liability in its entirety,
the measurement of which is driven by a number of factors including, in addition to the assumptions below, the fair value of plan
assets.
Sensitivity analysis of significant actuarial assumptions 1
CHF million
Discount rate
Increase by 50 basis points
Decrease by 50 basis points
Rate of salary increase
Increase by 50 basis points
Decrease by 50 basis points
Rate of pension increase
Increase by 50 basis points
Decrease by 50 basis points
Rate of interest credit on retirement savings
Increase by 50 basis points
Decrease by 50 basis points
Life expectancy
Increase in longevity by one additional year
Swiss plan:
increase / (decrease)
in defined benefit
obligation
International plans:
increase / (decrease)
in defined benefit
obligation
31.12.12
31.12.12
(1,438)
1,639
163
(155)
1,118
0 2
304
(286)
613
(410)
470
2
(2)
355
(281)
125
1 The sensitivity analyses are based on a change in one assumption while holding all other assumptions constant, so that interdependencies between the assumptions are excluded. The methodology applied is consistent
to that used to determine the recognized pension liability. 2 As the assumed rate of pension increase was 0% as of 31 December 2012, a downward change in assumption is not applicable.
422
Note 30 Pension and other post-employment benefit plans (continued) The following table provides information on the composition and fair value of plan assets of the Swiss pension plan and the interna-
tional pension plans.
Composition and fair value of plan assets
Swiss Plan
31.12.12
31.12.11
31.12.10
Fair value
Plan asset
allocation %
Fair value
Plan asset
allocation %
Fair value
Plan asset
allocation %
Quoted in
an active
market
602
Other
0
Total
602
0
2,377
2,377
597
5,210
3,492
0
7,060
615
0
593
0
0
824
0
0
0
0
138
259
16
597
6,034
3,492
0
7,060
615
138
853
16
Quoted in
an active
market
436
Other
0
0
2,312
477
4,423
2,543
0
8,385
0
133
649
0
0
804
0
0
0
0
158
274
20
3
11
3
28
16
0
32
3
1
4
0
Quoted in
an active
market
122
Other
0
0
2,249
432
4,772
1,019
0
10,197
0
141
521
0
0
768
0
0
0
0
134
313
20
2
11
2
26
12
0
41
0
1
4
0
1
11
2
27
5
0
49
0
1
4
0
18,169
3,614
21,783
100
17,047
3,567
100
17,205
3,485
100
CHF million
Cash and cash equivalents
Real estate / property
Domestic
Investment funds
Equity
Domestic
Foreign
Bonds 1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Foreign
Other
Other investments
Total
Total fair value of plan assets
of which:
UBS debt instruments and bank accounts
at UBS
UBS shares
Property occupied by UBS
Derivative financial instruments,
counterparty UBS
31.12.12
21,783
611
32
158
83
31.12.11
20,614
516
23
157
20
31.12.10
20,690
258
25
188
298
1 The bond credit ratings are primarily based on Standard and Poor’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit
ratings from other rating agencies were used, these were converted to the equivalent rating in the Standard & Poor’s rating classification.
423
Financial informationNote 30 Pension and other post-employment benefit plans (continued) Financial information
Notes to the consolidated financial statements
Composition and fair value of plan assets (continued)
International Plans
31.12.12
31.12.11
31.12.10
Fair value
Quoted in
an active
market
Other
95
121
121
19
23
0
624
874
1,082
219
125
132
0
0
61
0
8
3,503
0
0
0
0
0
0
4
0
0
0
0
0
95
0
163
15
4
280
Total
95
121
121
19
23
0
628
874
1,082
219
125
132
95
0
223
15
11
3,783
3,783
Weighted
average
plan asset
allocation %
Weighted
average
plan asset
allocation %
Fair value
Quoted in
an active
market
Other
Fair value
Quoted in
an active
market
Other
Weighted
average
plan asset
allocation %
3
3
3
1
1
0
16
23
29
6
3
4
3
0
6
0
0
83
118
118
17
21
0
543
771
1,152
62
201
59
0
0
31
0
10
100
3,185
0
0
0
0
0
3
0
0
0
0
0
93
0
163
14
0
273
3,458
2
3
3
1
1
0
16
22
33
2
6
2
3
0
6
0
0
27
129
72
7
14
0
708
814
964
58
140
99
0
0
34
0
14
100
3,079
0
0
0
0
0
3
3
0
0
0
0
0
92
0
215
14
0
327
3,046
1
4
2
0
0
0
21
24
28
2
4
3
3
0
7
0
0
100
CHF million
Cash and cash equivalents
Bonds 1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Private equity
Investment funds
Equity
Domestic
Foreign
Bonds 1
Domestic, AAA to BBB–
Domestic, below BBB–
Foreign, AAA to BBB–
Foreign, below BBB–
Real estate
Domestic
Foreign
Other
Insurance contracts
Other investments
Total
Total fair value of plan assets
1 The bond credit ratings are primarily based on Standard and Poor’s credit ratings. Ratings AAA to BBB– and below BBB– represent investment grade and non-investment grade ratings, respectively. In cases where credit
ratings from other rating agencies were used, these were converted to the equivalent rating in the Standard & Poor’s rating classification.
b) Post-retirement medical and life insurance plans
In the US and the UK, UBS offers retiree medical benefits that
contribute to the health care coverage of certain employees and
their beneficiaries after retirement. The UK medical plan is closed
to new entrants. In the US, in addition to retiree medical benefits,
UBS also provides retiree life insurance benefits to certain em-
ployees. The post-retirement medical benefits in the UK and the
US cover all types of medical expenses including, but not limited
to, cost of doctor visits, hospitalization, surgery and pharmaceu-
ticals. The retirees contribute to the cost of the post-retirement
medical benefits. These plans are not pre-funded plans; cost are
incurred as amounts are paid.
In the second quarter of 2012, UBS announced changes to the
retiree medical and life insurance benefit plans in the US. This
change reduced the defined benefit obligation by CHF 116 million
with a corresponding gain recognized in the income statement.
The employer contributions expected to be made to the post-
retirement medical and life insurance plans in 2013 are estimated
at CHF 7 million.
424
Note 30 Pension and other post-employment benefit plans (continued) Pension and other post-employment benefit plans
The following table provides an analysis of the net asset / (liability) recognized on the balance sheet for post-retirement medical and life
insurance plans between the beginning to the end of the year, as well as an analysis of amounts recognized in net profit and in other
comprehensive income.
Post-retirement medical and life insurance plans
CHF million
For the year ended
Defined benefit obligation at the beginning of the year
Current service cost
Interest expense
Plan participant contributions
Remeasurement of defined benefit obligation
of which: actuarial (gains) / losses arising from changes in demographic assumptions
of which: actuarial (gains) / losses arising from changes in financial assumptions
of which: experience (gains) / losses
Past service cost related to plan amendments
Curtailments
Benefit payments 1
Foreign currency translation
Defined benefit obligation at the end of the year
of which: amounts owing to active members
of which: amounts owing to deferred members
of which: amounts owing to retirees
Fair value of plan assets at the end of the year
Net defined benefit asset / (liability)
Analysis of amounts recognized in net profit
Current service cost
Interest expense related to defined benefit obligation
Past service cost related to plan amendments
Curtailments
Net periodic cost
Analysis of gains / (losses) recognized in other comprehensive income
Remeasurement of defined benefit obligation
Total gains / (losses) recognized in other comprehensive income
1 Benefits payments are funded by employer contribution and plan participant contributions.
31.12.12
219
6
9
3
26
0
10
16
(9)
(108)
(9)
(1)
136
27
0
109
0
(136)
6
9
(9)
(108)
(102)
(26)
(26)
31.12.11
209
9
11
2
19
0
19
0
(9)
(13)
(9)
1
219
122
0
97
0
(219)
9
11
(9)
(13)
(2)
(19)
(19)
31.12.10
186
9
11
2
36
8
21
6
0
0
(10)
(25)
209
112
0
97
0
(209)
9
11
0
0
20
(36)
(36)
The post-retirement benefit obligation is determined by using the
assumed average health care cost trend rate. On a country-by-
country basis, the same discount rate is used for the calculation of
the post-retirement benefit obligation from medical and life insur-
ance plans as for the defined benefit obligations arising from pen-
sion plans.
The discount rate and the assumed average health care cost
trend rates are presented in the following table. The calculation of
the post-retirement benefit obligation also uses life expectancy
rates, as disclosed in “Note 30a Defined benefit pension plans”
above.
Principal weighted average actuarial assumptions used (%) 1
Assumptions used to determine defined benefit obligations at the end of the year
CHF million
For the year ended
Discount rate
Average health care cost trend rate – initial
Average health care cost trend rate – ultimate
1 The assumptions for life expectancies are provided within “Note 30a Defined benefit pension plans”.
31.12.12
31.12.11
31.12.10
4.1
7.6
5.0
5.0
7.9
5.0
5.5
8.1
5.0
425
Financial informationNote 30 Pension and other post-employment benefit plans (continued) Financial information
Notes to the consolidated financial statements
The following table presents a sensitivity analysis for each significant actuarial assumption showing how the defined benefit obligation
would have been affected by changes in the relevant actuarial assumption that were reasonably possible at the balance sheet date.
Sensitivity analysis of significant actuarial assumptions 1
CHF million
Discount rate
Increase by 50 basis points
Decrease by 50 basis points
Average health care cost trend rate
Increase by 100 basis points
Decrease by 100 basis points
Life expectancy
Increase in longevity by one additional year
Increase / (decrease) in
defined benefit obligation
31.12.12
(8)
9
12
(10)
9
1 The sensitivity analyses are based on a change in one assumption while holding all other assumptions constant, so that interdependencies between the assumptions are excluded. The methodology applied is consistent
to that used to determine the recognized post-retirement benefit liability.
c) Defined contribution plans
UBS also sponsors a number of defined contribution plans in its
international locations. The locations with significant defined con-
tribution plans are the UK and the US. Certain plans permit em-
ployees to make contributions and earn matching or other contri-
butions from UBS. The employer contributions to these plans are
recognized as an expense which, for the years ended 31 December
2012, 31 December 2011 and 31 December 2010, amounted to
CHF 240 million, CHF 254 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 under arm’s length condi-
tions. The international UBS pension funds do not have a similar
banking relationship with UBS.
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
properties with 25-year lease terms and two renewal options for
ten years each. During 2009, UBS renegotiated one of the lease
contracts which reduced UBS’s remaining lease commitment. As
of 31 December 2012, the minimum commitment towards the
Swiss pension fund under the related leases is approximately
CHF 11 million (31 December 2011: CHF 16 million).
The following amounts have been received or paid by UBS
from and to the pension funds in respect of these banking activi-
ties and arrangements:
Related party disclosure
CHF million
Received by UBS
Fees
Paid by UBS
Rent
Interest
426
For the year ended
31.12.12
31.12.11
31.12.10
31
9
1
24
10
3
21
11
3
Note 30 Pension and other post-employment benefit plans (continued) The transaction volumes in UBS shares and other UBS securities are as follows:
Transaction volumes – related parties
Financial instruments bought by pension funds
UBS shares (in thousands of shares)
UBS debt instruments (par values in CHF million)
Financial instruments sold by pension funds or matured
UBS shares (in thousands of shares)
UBS debt instruments (par values in CHF million)
For the year ended
31.12.12
31.12.11
31.12.10
2,926
10
3,645
81
2,713
7
2,374
18
2,684
40
4,735
10
Details of the fair value of the plan assets of the defined pen-
sion plans are disclosed in “Note 30a Defined benefit pension
plans”. In addition, UBS defined contribution pension funds
held 16,690,174 UBS shares with a fair value of CHF 240 mil-
lion as of 31 December 2012 (31 December 2011: 17,628,845
UBS shares with a fair value of CHF 196 million; 31 December
2010: 17,665,621 UBS shares with a fair value of CHF 272 mil-
lion).
427
Financial informationNote 30 Pension and other post-employment benefit plans (continued) Financial information
Notes to the consolidated financial statements
a) Plans offered
UBS operates several equity participation and other compensation
plans to align the interests of executives, managers and staff with
the interests of shareholders. Some plans (e.g. Equity Plus and
EOP) are granted to eligible employees in approximately 50 coun-
tries and are designed to meet the legal, tax and regulatory re-
quirements of each country in which they are offered. Certain
plans are used in specific countries, business areas (e.g. awards
granted within Wealth Management Americas), or are offered to
members of the Group Executive Board (GEB) only. UBS operates
compensation plans on a mandatory, discretionary and voluntary
basis. The explanations below provide a general description of the
terms of the most significant plans which relate to the perfor-
mance year 2012 (granted in 2013) and those from prior years
that are partly expensed in 2012. 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 shares or UBS performance shares (i.e. notional shares
which are subject to performance conditions). Since 2011 (for the
performance year 2010), performance shares have been granted
to EOP participants who are risk-takers, Group Managing Direc-
tors or employees whose incentive exceeds a certain threshold. In
respect of an award granted in 2011 and 2012, these perfor-
mance shares will only vest in full if certain performance targets
are met, i.e. if the participant’s business division is profitable (for
Corporate Center participants, the Group as a whole needs to be
profitable) in the financial year preceding the relevant vesting
date. Adjustments to reported profitability may be made based on
considerations relating to risk, quality and reliability of earnings,
as well as achievement of specific targets. For performance shares
granted in respect of the performance year 2012, the perfor-
mance conditions are based on the Group return on tangible
equity and the divisional return on attributed equity. Replacement
awards (including sign-on payments) can be offered in deferred
cash under the EOP plan rules.
Awards of UBS shares allow for voting and dividend rights dur-
ing the vesting period, whereas notional 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 shares and
performance shares are settled by delivering UBS shares at vest-
ing, except in countries where this is not permitted for legal rea-
sons. EOP awards granted until 2012 generally vest in three equal
increments over a three-year vesting period and awards granted
since March 2013 generally vest in equal increments in years two
and three. The awards are generally forfeitable upon, among
other circumstances, voluntary termination of employment with
UBS. Compensation expense is recognized in the performance
year if the employee meets the retirement eligibility requirements
at the date of grant. Otherwise, compensation expense is recog-
nized from the grant date to the 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-fifth increments over a five-
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. they will only vest in full if the participant’s business division is
profitable (for Corporate Center participants, the Group as a
whole must be profitable) in the financial year preceding sched-
uled vesting. Awards granted under SEEOP are settled by deliver-
ing UBS shares at vesting. Compensation expense is recognized
on the same basis as for share-settled EOP awards. No SEEOP
awards are granted for the performance year 2012.
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 five
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 one-time plan granted in
2010 only.
Performance Equity Plan (PEP): From 2010 to 2012, GEB mem-
bers received part of their annual incentive in the form of perfor-
mance shares granted under the PEP. Each performance share is a
contingent right to receive between zero and two UBS shares at
vesting, depending on the achievement of Economic Profit (EP) and
Total Shareholder Return (TSR) targets. PEP awards vest after three
years. EP is a risk-adjusted profit 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 rec-
ognized on a tiered basis from the grant date to the earliest of the
vesting date or the retirement eligibility date of the employee. No
PEP awards are granted for the performance year 2012.
2012 Special Plan Award Program for the Investment Bank
(SPAP): In April 2012, certain Managing Directors and Group
Managing Directors of the Investment Bank were granted an
award of UBS shares which will vest three years after grant. Vest-
ing is subject to performance conditions, continued employment
with the firm and certain other conditions. The vesting of Special
428
Note 31 Equity participation and other compensation plans Plan awards is subject to performance conditions based on the
level of reduction in risk-weighted assets achieved and the aver-
age return on risk-weighted assets in the Investment Bank for
2012, 2013 and 2014. Compensation expense is recognized from
the grant date to the earlier of the vesting date or the retirement
eligibility date of the employee.
Mandatory deferred cash compensation plans
Global Asset Management Equity Ownership Plan: To align their
compensation with the performance of the funds that they man-
age, with effect from 2012, all Global Asset Management em-
ployees who receive EOP awards do so in the form of deferred
cash, the amount of which depends on the value of the relevant
underlying Global Asset Management funds at the time of vest-
ing. In prior years certain Global Asset Management employees
received EOP awards in a combination of shares and deferred
cash, the amount of which depends on the value of the underly-
ing Global Asset Management funds at the time of vesting.
Conditional Variable Compensation Plan (CVCP): In 2009, cer-
tain employees received part of their incentive in the form of a
mandatory 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
employment. Compensation expense is recognized over the indi-
vidual performance periods and accelerated to the retirement-eli-
gibility date for those employees who are, or become, retirement
eligible during the service period. CVCP was a one-time plan
granted in 2009. The last tranche of CVCP vested and was distrib-
uted in 2012.
Cash Balance Plan (CBP): From 2010 to 2012, 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 following the year of
grant, subject to certain performance conditions. Awards granted
in 2011 and 2012 (for performance years 2010 and 2011, respec-
tively) are subject to a Group return on equity performance condi-
tions, whereas awards granted in 2010 (for performance year
2009) are subject to profitability hurdles. After a GEB member has
left the firm, the deferred portion of the CBP award continues to be
at risk of forfeiture. Awards granted under the CBP from 2011 on-
wards are forfeited if a GEB member voluntarily terminates his or
her employment and joins another financial services organization.
Compensation expense is recognized in the performance year,
which is generally the financial year prior to the grant date. No CBP
awards are granted for the performance year 2012.
Deferred Cash Plan (DCP): In 2011, DCP awards were granted
to Investment Bank employees whose total compensation ex-
ceeded a certain threshold. DCP awards vest in one-third incre-
ments over a three-year vesting period following the grant date.
The awards are forfeitable upon voluntary termination of employ-
ment. Compensation expense is recognized ratably over the vest-
ing 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
employees in Australia only and represent a profit share amount
based on the profitability of the Australian business. Awards vest
and are paid in equal installments over three years and include an
arrangement which allows for unpaid installments to be reduced
if the business has a loss during the calendar year preceding vest-
ing. The awards are generally forfeitable upon voluntary termina-
tion of employment with UBS. Compensation expense is recog-
nized in the performance year if the employee meets the
retirement eligibility requirements at the date of the grant. Other-
wise, compensation expense is recognized ratably from the grant
date to the earlier of the vesting date or the retirement eligibility
date of the employee.
Deferred Contingent Capital Plan (DCCP): The DCCP is a man-
datory performance award deferral plan for all employees whose
total compensation exceeds a certain threshold. Such employees
receive part of their annual incentive in the form of notional bonds,
which are a right to receive a cash payment at vesting. DCCP
awards vest in full five years from grant and are forfeited if the
phase-in Basel III Common Equity Tier 1 Ratio of the Group falls
below 7%, if FINMA determines that the DCCP awards need to be
written down to prevent the insolvency, bankruptcy or failure of
UBS AG, or if UBS AG has received a commitment of extraordinary
support from the public sector that is necessary to prevent such
insolvency, bankruptcy or failure. Interest is paid annually for per-
formance years in which the firm generates an adjusted pre-tax
profit. In any years during the vesting period where UBS does not
achieve an adjusted pre-tax profit, GEB members would forfeit
20% of the award. The awards are subject to standard forfeiture
and harmful acts provisions, including voluntary termination of
employment with UBS. Compensation expense is recognized in
the performance year if the employee meets the retirement eligi-
bility 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.
Wealth Management Americas financial advisor compensation
Financial advisor compensation – cash payments consist primarily
of a formula-based compensation plan, which fluctuates in pro-
portion to the level of business activity.
UBS also may enter into compensation arrangements with cer-
tain financial advisors primarily as a recruitment incentive and to
incentivize financial advisors to achieve specified revenue produc-
tion 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 grants loans to financial advisors in connection
with these compensation arrangements.
GrowthPlus is a program for selected financial advisors whose
revenue production and length of service exceeds defined thresh-
429
Financial informationNote 31 Equity participation and other compensation plans (continued) Financial information
Notes to the consolidated financial statements
olds from 2010 through 2017. Compensation arrangements were
granted in 2010 and 2011 with potential arrangements to be
granted in 2015 and 2018. The awards vest ratably over seven
years from grant with the exception of the 2018 commitment,
which vests over five years.
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 Options or SARs awards have
been granted since 2009.
PartnerPlus is a mandatory deferred cash compensation plan
for selected employees. Awards (UBS contributions) are based on
a predefined formula during the performance year. Participants
are also allowed to voluntarily contribute additional amounts
earned during the year, up to a percentage of UBS’s contribution.
Awards earn an above-market rate of interest during the initial
four-year period and a market rate of interest thereafter. Volun-
tary contributions can earn an above-market rate of interest dur-
ing the initial four-year period and a market rate of interest there-
after, or alternatively be benchmarked to various mutual funds.
The awards vest in 20% increments six to ten years after the grant
date. Awards and interest earned on both UBS and voluntary con-
tributions are forfeitable under certain circumstances. Compensa-
tion expense for awards is recognized in the performance year if
the employee meets the retirement eligibility requirements at the
date of grant. Otherwise, compensation expenses for awards are
recognized ratably commencing in the performance year to the
earlier of the vesting date or the retirement eligibility date of the
employee. Compensation expenses for voluntary contributions
are recognized in the year of deferral.
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
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
the performance award and / or monthly through regular deduc-
tions from salary. Shares purchased under Equity Plus are restrict-
ed from sale for a maximum of three years from the time of pur-
chase. 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.
Share delivery obligations
UBS satisfies share delivery obligations under its share-based plans
either by purchasing UBS shares in the market or through the is-
suance of new shares. As of 31 December 2012, UBS held
approximately 74 million shares in treasury (31 December 2011:
approximately 77 million shares) and approximately 145 million
(31 December 2011: 149 million shares) unissued shares (out of
150 million approved in 2006) in conditional share capital. These
treasury shares and unissued shares are available to satisfy the
exercising of options and SAR awards by employees. The shares
available cover all vested and in-the-money (i.e. exercisable) em-
ployee options and SARs.
430
Note 31 Equity participation and other compensation plans (continued) b) Effect on income statement
Effect on the income statement for the financial year and future
periods
The following table summarizes the compensation expenses rec-
ognized for the year ended 31 December 2012 and deferred
compensation expenses that will be recognized as an expense in
the income statements for 2013 and later. The deferred compen-
sation expenses in the table also include vested and non-vested
awards granted mainly in March 2013, which relate to the per-
formance year 2012.
Personnel expenses – Recognized and deferred 1
Personnel expenses for the year ended 2012
Personnel expenses deferred to 2013 and later
CHF million
Performance awards
Cash performance awards
Deferred Contingent Capital Plan (DCCP)
Deferred cash plans (CBP, DCP and other 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 performance awards
Variable compensation
Variable compensation – other
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 2
Total
Expenses
relating to
awards for
2012
Expenses
relating to
awards for
prior years
1,411
145
5
135
0
0
135
0
28
1,724
424
1,957
54
54
21
2,087
4,235
(38)
0
149
995
10
62
1,067
14
84
1,276
(57)
0
579
129
78
786
2,005
Relating to
awards for
2012
Relating to
awards for
prior years
0
361
10
383
0
0
383
0
20
774
4944
0
587
54
66
706
1,974
0
0
87
495
4
82
581
0
46
714
71
0
2,115
620
216
2,951
3,736
Total
1,373
145
154
1,130
10
62
1,202
14
112
3,000
3673
1,957
634
183
99
2,873
6,240
Total
0
361
97
878
4
82
964
0
66
1,488
565
0
2,702
674
282
3,657
5,710
1 Total share-based personnel expenses recognized for the year ended 31 December 2012 were CHF 1,584 million and were comprised of UBS share plans of CHF 1,261 million, UBS share option plans of CHF 14 mil-
lion, Equity Ownership Plan – AIVs of CHF 112 million, related social security costs of CHF 89 million and other compensation plans (reported within Variable compensation – other) of CHF 108 million. 2 Financial ad-
visor 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. 3 Includes replacement payments of CHF 109 million (of which CHF 94 million related to prior years), forfeiture
credits of CHF 174 million (entirely related to prior years), severance payments and provisions of CHF 303 million (entirely related to the current year) and retention plan and other payments of CHF 128 million (of which
CHF 21 million related to prior years). 4 Includes interest expense of CHF 137 million related to DCCP.
431
Financial informationNote 31 Equity participation and other compensation plans (continued) Financial information
Notes to the consolidated financial statements
Personnel expenses – Recognized and deferred 1
Personnel expenses for the year ended 2011
Personnel expenses deferred to 2012 and later
CHF million
Performance awards
Cash performance awards
Deferred cash plans (CBP, DCP and other 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 performance awards
Variable compensation
Variable compensation – other
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 2
Total
Expenses
relating to
awards for
2011
Expenses
relating to
awards for
prior years
1,554
34
231
3
0
234
0
25
1,847
295
1,695
37
90
20
1,842
3,984
(88)
309
1,153
5
97
1,256
100
93
1,669
(104)
0
499
89
88
676
2,242
Relating to
awards for
2011
Relating to
awards for
prior years
0
3
740
10
0
750
0
69
822
132
0
561
377
86
1,024
1,978
0
179
720
4
134
858
15
48
1,100
111
0
2,131
422
261
2,814
4,025
Total
1,466
343
1,384
8
97
1,490
100
118
3,516
191 3
1,695
536
179
108
2,518
6,226
Total
0
182
1,460
14
134
1,608
15
117
1,922
243
0
2,692
799
347
3,838
6,003
1 Total share-based personnel expenses recognized for the year ended 31 December 2011 were CHF 1,789 million and were comprised of UBS share plans of CHF 1,490 million, UBS share option plans of CHF 100 mil-
lion, Equity Ownership Plan – AIVs of CHF 118 million, related social security costs of CHF 39 million and other compensation plans (reported within Variable compensation – other) of CHF 42 million. In 2012, costs
related to guarantees for new hires were reclassified from Variable compensation – other to Variable compensation – performance awards. In addition, costs related to both supplemental severance and certain retention
payments were reclassified from Variable compensation – performance awards to Variable compensation – other. Prior periods were adjusted for these changes. The combined impact of these changes resulted in a net
increase to Variable compensation – performance awards of CHF 125 million for the year ended 31 December 2011 with a corresponding net decrease to Variable compensation – other. 2 Financial advisor compen-
sation 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. 3 Includes replacement payments of CHF 121 million, forfeiture credits of CHF 215 million, severance payments of CHF 239
million and retention plan and other payments of CHF 46 million.
Additional disclosures on income statement
During 2012, UBS accelerated the recognition of expenses for cer-
tain deferred compensation arrangements relating to employees
that were made redundant as part of restructuring programs. Based
on the redundancy provisions of the plan rules, these employees
retain their deferred compensation awards, however, as the em-
ployees are not required to provide future service, compensation
expense relating to these awards was accelerated to the termina-
tion date based on the shortened service period. The amounts ac-
celerated and recognized in 2012 were CHF 63 million relating to
share-based payment awards and CHF 13 million related to de-
ferred cash awards. UBS also shortened the service period for cer-
tain employees in accordance with the mutually agreed termination
provisions of their deferred compensation awards. Expense recog-
nition was accelerated to the revised vesting date. The amounts
accelerated and recognized in 2012 were CHF 20 million relating to
share-based payment awards and CHF 2 million related to deferred
cash awards. These amounts are included in personnel expenses.
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 2012, 2011 and 2010 were CHF
432
Note 31 Equity participation and other compensation plans (continued) Personnel expenses – Recognized and deferred 1
Personal expenses for the year ended 2010
Personal expenses deferred to 2011 and later
CHF million
Performance awards
Cash performance awards
Deferred cash plans (CBP, DCP and other 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 performance awards
Variable compensation
Variable compensation – other
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 2
Total
Expenses
relating to
awards for
2010
Expenses
relating to
awards for
prior years
2,168
64
434
6
0
440
0
28
2,700
310
1,813
29
127
11
1,980
4,990
5
250
852
5
131
988
145
83
1,471
(169)
0
570
35
82
687
1,989
Relating to
awards for
2010
Relating to
awards for
prior years
(10)
236
1,249
16
6
1,271
0
67
1,564
347
0
388
221
89
698
2,609
0
311
515
2
221
738
114
57
1,220
0
0
2,186
302
266
2,754
3,974
Total
2,173
314
1,286
11
131
1,428
145
111
4,171
1413
1,813
599
162
93
2,667
6,979
Total
(10)
547
1,764
18
227
2,009
114
124
2,784
347
0
2,574
523
355
3,452
6,583
1 Total share-based personnel expenses recognized for the year ended 31 December 2010 were CHF 1,843 million and where comprised of UBS share plans of CHF 1,428 million, UBS share option plans of CHF 145
million, Equity Ownership Plan – AIVs of CHF 111 million, related social security costs of CHF 90 million and other compensation plans (reported within Variable compensation – other) of CHF 69 million. In 2012, costs
related to guarantees for new hires were reclassified from Variable compensation – other to Variable compensation – performance awards. In addition, costs related to both supplemental severance and certain retention
payments were reclassified from Variable compensation – performance awards to Variable compensation – other. Prior periods were adjusted for these changes. The combined impact of these changes resulted in a net
increase to Variable compensation – performance awards of CHF 89 million for the year ended 31 December 2010 with a corresponding net decrease to Variable compensation – other. 2 Financial advisor compen-
sation 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. 3 Includes replacement payments of CHF 107 million, forfeiture credits of CHF 167 million, severance payments of CHF 80
million and retention plan and other payments of CHF 121 million.
1,584 million, CHF 1,789 million, and CHF 1,843 million,
respectively. This includes the current period expense, amor-
tization and related social security costs for awards issued in
prior periods and performance year expensing for awards
granted to retirement-eligible employees where the terms of
the awards do not require the employee to provide future ser-
vices.
The total compensation expenses for non-vested share-based
awards granted up to 31 December 2012 relating to prior years
to be recognized in future periods is CHF 1,108 million and will
be recognized as personnel expenses over a weighted average
period of 2.4 years. This includes UBS share plans, UBS share op-
tion plans, the Equity Ownership Plan (AIVs), other variable com-
pensation and the Equity Plus Plan. Total deferred compensation
amounts included in the 2012 table differ from this amount as
the deferred compensation amounts also include non-vested
awards granted in March 2013 related to the performance year
2012.
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 2012, 2011 and 2010 were CHF
141 million, CHF 93 million and CHF 79 million, respectively. The
total carrying amount of the liability related to these plans was
CHF 249 million at 31 December 2012.
433
Financial informationNote 31 Equity participation and other compensation plans (continued) Financial information
Notes to the consolidated financial statements
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)
17
12
17
17
15
Number of
shares
2012
214,698,539
120,208,862
(72,997,669)
(12,850,203)
249,059,529
61,555,483
Number of
shares
2011
171,085,140
111,254,968
(54,443,660)
(13,197,909)
214,698,539
59,154,235
Weighted
average grant
date fair
value (CHF)
18
18
21
18
17
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
The fair value of shares that became legally vested and were distributed (i.e. all restrictions were fulfilled) during the years ended
31 December 2012, 2011 and 2010 was CHF 1,216 million, CHF 980 million and CHF 421 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
of which: performance shares vested for accounting purposes
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
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
2012
Weighted average
fair value of IPP
performance shares
at grant date (CHF) 1
22
0
22
22
N/A
22
22
21
0
22
N/A
22
0
22
0
22
N/A
22
2011
2010
Number of
performance shares
2012
16,137,466
0
(7,182)
(1,898,453)
N/A
14,231,831
8,965,917
18,157,242
31,848
0
(2,051,624)
N/A
16,137,466
6,727,398
0
19,629,916
0
(1,472,674)
N/A
18,157,242
4,073,546
Representative
of UBS shares
2012 2
16,137,466
0
(7,182)
(1,898,453)
N/A
14,231,831
8,965,917
18,157,242
31,848
0
(2,051,624)
0
16,137,466
6,727,398
0
19,629,916
0
(1,472,674)
N/A
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.
434
Note 31 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
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
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
2012
Weighted average
fair value of PEP
performance shares
at grant date (CHF) 1
18
13
0
13
N/A
16
Number of
performance shares
2012
1,210,598
845,580
0
(230,979)
N/A
1,825,199
1,160,836
Representative
of UBS shares
2012 2
1,210,598
845,580
0
(230,979)
(878,516)
946,683
587,828
518,837
754,530
0
(62,769)
N/A
1,210,598
594,235
0
545,642
0
(26,805)
N/A
518,837
221,638
2011
2010
16
19
0
19
N/A
18
0
16
0
16
N/A
16
518,837
754,530
0
(62,769)
(732,364)
478,234
244,332
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
2012
179,992,361
0
(992,180)
(1,283,626)
(19,625,991)
158,090,564
158,090,564
Weighted
average exercise
price (CHF) 1
43
0
11
44
40
43
43
Number of
options
2011
205,545,575
0
(1,306,764)
(810,094)
(23,436,356)
179,992,361
178,008,644
Weighted
average exercise
price (CHF) 1
42
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
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)
31.12.12
13
3.6
N/A
31.12.11
17
7.5
N/A
31.12.10
16
0.1
N/A
435
Financial informationNote 31 Equity participation and other compensation plans (continued) Financial information
Notes to the consolidated financial statements
The following table provides additional information about options outstanding and options exercisable as of 31 December 2012:
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)
14,801,336
10,306,684
34,383,941
8,768,140
16,679,077
4,589,852
48,336,965
137,865,995
5,312,270
6,809,592
5,772,639
2,330,068
20,224,569
11.38
18.75
30.97
41.98
49.36
60.10
67.59
19.51
31.69
37.27
41.12
43.8
0.0
0.0
0.0
0.0
0.0
0.0
43.8
0.0
0.0
0.0
0.0
0.0
6.1
6.3
4.4
2.0
2.5
4.0
3.7
0.2
1.4
2.2
2.5
14,801,336
10,306,684
34,383,941
8,768,140
16,679,077
4,589,852
48,336,965
137,865,995
5,312,270
6,809,592
5,772,639
2,330,068
20,224,569
11.38
18.75
30.97
41.98
49.36
60.10
67.59
19.51
31.69
37.27
41.12
43.8
0.0
0.0
0.0
0.0
0.0
0.0
43.8
0.0
0.0
0.0
0.0
0.0
6.1
6.3
4.4
2.0
2.5
4.0
3.7
0.2
1.4
2.2
2.5
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
17.88–25.00
25.01–35.00
35.01–40.00
40.01–45.96
17.88–45.96
UBS SAR awards
Movements in SAR awards were as follows:
UBS SARs 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
2012
55,021,238
0
(14,217,629)
(684,717)
(7,000,557)
33,118,335
33,118,335
Weighted
average exercise
price (CHF)
12
0
11
11
11
12
12
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)
12
0
12
11
11
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)
31.12.12
31.12.11
31.12.10
13
24.6
N/A
18
0.1
N/A
16
0.6
N/A
436
Note 31 Equity participation and other compensation plans (continued) The following table provides additional information about SARs outstanding as of 31 December 2012:
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)
31,704,385
32,000
110,950
366,000
905,000
33,118,335
11.34
14.51
16.80
19.25
40.00
92.7
0.0
0.0
0.0
0.0
92.7
6.2
6.5
6.4
6.7
6.2
31,704,385
32,000
110,950
366,000
905,000
33,118,335
11.34
14.51
16.80
19.25
40.00
92.7
0.0
0.0
0.0
0.0
92.7
6.2
6.5
6.4
6.7
6.2
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 purchas-
ing an at-the-money European put option for the term of the trans-
fer restriction. The weighted average discount for share and perfor-
mance share awards granted during 2012 is approximately 15.4%
(2011: 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 historical
employee exercise behavior patterns, taking into account the share
price, strike price, vesting period and the contractual life of the in-
strument. 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. Expected future dividends
are derived from traded UBS options or from the historical dividend
pattern. No options or SARs have been granted since 2009.
Incentive Performance Plan (IPP) and Performance Equity Plan (PEP)
For performance share awards granted in 2012, 2011 and 2010,
UBS obtained independent third-party valuations based on the
market conditions at the date of grant. The valuation methodol-
ogy applied was a Monte Carlo simulation. The approach to de-
termining 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 2012, 2011 and
2010 was determined using the following assumptions:
Expected total shareholder return volatility (%)
Expected economic profit volatility (%) 1
Risk-free interest rate (%)
Expected dividend (CHF)
Share price (CHF)
1 For the PEP award in 2012, the expected volatility of economic profit was determined prior to the cost of equity deduction, resulting in a lower volatility compared with prior periods when the expected volatility of eco-
nomic profit was determined after the cost of equity deduction. This refinement to the calculation did not have a significant impact on compensation expense for this award. Refer to the “Capital management” section
in this report for more information on economic profit.
31.12.12
PEP CHF awards
43.00
16.00
0.09
0.13
12.76
31.12.11
PEP CHF awards
62.00
52.00
0.62
0.03
18.43
31.12.10
PEP CHF awards
63.00
57.00
0.60
0.10
14.80
Expected total shareholder return volatility (%)
Expected economic profit volatility (%)
Risk-free interest rate (%)
Expected dividend (CHF)
Share price (CHF)
31.12.10
IPP CHF awards
38.07
N/A
1.06
0.12
14.80
437
Financial informationNote 31 Equity participation and other compensation plans (continued) Financial information
Notes to the consolidated financial statements
UBS defines related parties as associated companies (entities
which are significantly influenced by UBS), post-employment ben-
efit plans for the benefit of UBS employees, key management
personnel, close family members of key management personnel
and entities which are, directly or indirectly, controlled or jointly
controlled by key management personnel or their close family
members. Key management personnel is defined as members of
the Board of Directors (BoD) and Group Executive Board (GEB).
a) Remuneration of key management personnel
The non-independent members of the BoD have top management employment contracts and receive pension benefits upon retire-
ment. Total remuneration of the non-independent members of the BoD and GEB members, including those who stepped down during
2012 1, is as follows:
Remuneration of key management personnel
CHF million
Base salaries and other cash payments
Incentive awards – cash 2
Annual incentive award under DCCP
Employer’s contributions to retirement benefit plans
Benefits in kind, fringe benefits (at market value)
Equity-based compensation 3
Total
31.12.12
31.12.11
31.12.10
20
0
21
1
1
34
76
21
22
0
1
1
33
79
16
30
0
1
1
48
96
1 During 2012, Alexander Wilmot-Sitwell and Carsten Kengeter stepped down from the GEB. 2 Includes immediate and deferred cash. 3 Expenses for shares granted is measured at grant date and allocated over the
vesting period, generally for 5 years. In 2012, equity-based compensation was entirely comprised of EOP awards. In 2011 and 2010, equity-based compensation included PEP and SEEOP awards, as well as blocked shares
due to applicable UK FSA regulations.
The independent members of the BoD do not have employment
or service contracts with UBS, and thus are not entitled to bene-
fits upon termination of their service on the BoD. Payments to
these individuals for their services as external board members
amounted to CHF 7.6 million in 2012, CHF 7.0 million in 2011
and CHF 6.7 million in 2010.
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
31.12.12
3,137,426
4,557,522
31.12.11
4,800,170
3,562,771
31.12.10
9,085,194
4,850,196
1 Refer to “Note 31 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, 5,597 shares on 31 December 2012, 31
December 2011 and 31 December 2010, respectively, were held
by close family members of key management personnel. No
shares were held by entities that are directly or indirectly con-
trolled or jointly controlled by key management personnel or their
close family members on 31 December 2012, 31 December 2011
and 31 December 2010. Refer to “Note 31 Equity participation
and other compensation plans” for more information. No member
of the BoD or GEB is the beneficial owner of more than 1% of UBS
AG’s shares on 31 December 2012.
438
Note 32 Related parties c) Loans, advances and mortgages to key management personnel
Non-independent members of the BoD and GEB members have
been granted loans, fixed advances and mortgages on the same
terms and conditions that are available to other employees, based
on terms and conditions granted to third parties but adjusted for
reduced credit risk. Independent BoD members are granted loans
and mortgages under general market conditions.
Movements in the loan, advances and mortgage balances are
as follows:
Loans, advances and mortgages to key management personnel 1
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year
2012
2011
19
5
(5)
19
22
0
(3)
19 2
1 All loans are secured loans, except for CHF 311,308 in 2012 and CHF 45,435 in 2011. 2 Includes a forgivable loan of CHF 3.3 million, subject to the GEB member’s continued full-time employment with UBS and a
performance satisfactory and commensurate with his responsibilities. The loan has been fully repaid in 2012, as the GEB member stepped down during the year.
d) Associated companies
All transactions with associated companies are conducted at arm’s length:
Loans and receivables with 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
CHF million
Payments to associates for goods and services received
Fees received for services provided to associates
Commitments and contingent liabilities to associates
2012
231
251
(32)
0
1
450
276
1
2011
259
3
(33)
0
1
231
28
1
2010
373
2
(118)
0
2
259
39
1
As of or for the year ended
31.12.12
31.12.11
31.12.10
131
0
8
131
1
9
139
1
68
Refer to “Note 34 Significant subsidiaries and associates” for an overview of significant associates.
439
Financial informationNote 32 Related parties (continued) Financial information
Notes to the consolidated financial statements
e) Other related party transactions
During 2012 and 2011, 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 2012 and 2011, these entities included
H21 Macro Fund Ltd (Cayman Islands) and Immo Heudorf AG
(Switzerland). In 2010, UBS provided services for H21 Macro
Fund Ltd (Cayman Islands).
Other related party transactions
CHF million
Balance at the beginning of the year
Additions
Reductions
Balance at the end of the year
1 Comprised of loans.
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
2012
2011
2010
11
1
0
11 1
2012
0
0
0
15
4
11 1
2011
0
3
0
0
0
0
2010
0
1
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 at arm’s length terms.
There have been no material events after the reporting period which would require disclosure in or adjustment to the 31 Decem-
ber 2012 Financial Statements.
440
Note 32 Related parties (continued)Note 33 Events after the reporting period Note 34 Significant subsidiaries and associates
Significant subsidiaries as of 31 December 2012
Company
CCR Asset Management SA
OOO UBS Bank
Registered office
Paris, France
Moscow, Russia
Swiss Finance Corporation (Mauritius) Limited
Port Louis, Mauritius
Business division
Global Asset Management
Investment Bank
Investment Bank
Topcard Service AG
UBS (Bahamas) Ltd
UBS (China) Limited 1
UBS (France) SA
Glattbrugg, Switzerland
Retail & Corporate
Nassau, Bahamas
Beijing, China
Paris, France
Wealth Management
Investment Bank
Wealth Management
UBS (Grand Cayman) Limited
George Town, Cayman Islands
Investment Bank
UBS (Italia) SpA
UBS (Luxembourg) SA
UBS (Monaco) SA
Milan, Italy
Wealth Management
Luxembourg, Luxembourg
Wealth Management
Monte Carlo, Monaco
Wealth Management
UBS Alternative and Quantitative Investments LLC
Wilmington, Delaware, USA
Global Asset Management
UBS Americas Inc.
UBS Asesores Mexico, S.A. de C.V.
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, SA
UBS Belgium SA/NV
UBS Beteiligungs-GmbH & Co. KG
UBS Brasil Administradora de Valores Mobiliarios Ltda
São Paulo, Brazil
UBS Capital Securities (Jersey) Limited
UBS Card Center AG
St. Helier, Jersey
Glattbrugg, Switzerland
UBS Casa de Bolsa, S.A. de C.V., UBS Grupo Financiero
Mexico City, Mexico
UBS Derivatives Hong Kong Limited
UBS Deutschland AG
UBS Finance (Curaçao) NV
UBS Finance (Delaware) LLC
UBS Financial Services Inc.
Wilmington, Delaware, USA
Investment Bank
Mexico City, Mexico
Toronto, Canada
Wealth Management
Wealth Management Americas
Amsterdam, Netherlands
Wealth Management
Mexico City, Mexico
Investment Bank
Salt Lake City, Utah, USA
Wealth Management Americas
Madrid, Spain
Brussels, Belgium
Frankfurt, Germany
Hong Kong, China
Frankfurt, Germany
Willemstad, Curaçao
Wealth Management
Wealth Management
Wealth Management
Wealth Management
Corporate Center
Retail & Corporate
Investment Bank
Investment Bank
Wealth Management
Corporate Center
Wilmington, Delaware, USA
Investment Bank
Wilmington, Delaware, USA
Wealth Management Americas
UBS Financial Services Incorporated of Puerto Rico
San Juan, Puerto Rico
Wealth Management Americas
UBS Fund Advisor, L.L.C.
Wilmington, Delaware, USA
Wealth Management Americas
UBS Fund Management (Luxembourg) SA
Luxembourg, Luxembourg
Global Asset Management
UBS Fund Management (Switzerland) AG
Basel, Switzerland
Global Asset Management
UBS Fund Services (Cayman) Ltd
UBS Fund Services (Luxembourg) SA
UBS Futures Singapore Ltd
George Town, Cayman Islands
Global Asset Management
Luxembourg, Luxembourg
Global Asset Management
Singapore, Singapore
Investment Bank
UBS Global Asset Management (Americas) Inc.
Wilmington, Delaware, USA
Global Asset Management
UBS Global Asset Management (Australia) Ltd
UBS Global Asset Management (Canada) Inc.
UBS Global Asset Management (Japan) Ltd
Sydney, Australia
Toronto, Canada
Tokyo, Japan
UBS Global Asset Management (Singapore) Ltd
Singapore, Singapore
Global Asset Management
Global Asset Management
Global Asset Management
Global Asset Management
UBS Global Asset Management (UK) Ltd
London, United Kingdom
Global Asset Management
UBS Global Asset Management Holding Ltd
London, United Kingdom
Global Asset Management
UBS Global Life AG
UBS Grupo Financiero, S.A. de C.V.
UBS Hana Asset Management Company Ltd
UBS Holding (France) SA
1 Incorporated in 2012. 2 Share capital and share premium.
Vaduz, Liechtenstein
Mexico City, Mexico
Seoul, South Korea
Paris, France
Wealth Management
Investment Bank
Global Asset Management
Investment Bank
Share capital
in million
Equity interest
accumulated in %
EUR
RUB
USD
CHF
USD
CNY
EUR
USD
EUR
CHF
EUR
USD
USD
MXN
CAD
EUR
MXN
USD
EUR
EUR
EUR
BRL
EUR
CHF
MXN
HKD
EUR
USD
USD
USD
USD
USD
EUR
CHF
USD
CHF
USD
USD
AUD
CAD
JPY
SGD
GBP
GBP
CHF
MXN
KRW
EUR
5.3
3,450.0
0.0
0.2
4.0
2,000.0
125.7
0.0
60.0
150.0
9.2
0.1
0.0
303.6
8.5
0.2
706.4
1,880.0 2
82.2
28.0
568.8
114.2
0.0
0.1
114.9
880.0
176.0
0.1
37.3 2
4,522.5 2
56.0 2
0.0
10.0
1.0
5.6
2.5
35.1
0.0
19.9
117.0
2,200.0
4.0
125.0
151.4
5.0
918.8
45,000.0
418.9
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
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
100.0
441
Financial information Financial information
Notes to the consolidated financial statements
Note 34 Significant subsidiaries and associates (continued)
Significant subsidiaries as of 31 December 2012
Company
UBS Hypotheken AG
UBS International Holdings B.V.
UBS International Life Limited
UBS Italia SIM SpA
UBS Life AG
UBS Limited
UBS Loan Finance LLC
UBS O’Connor LLC
UBS Preferred Funding (Jersey) Limited
UBS Preferred Funding Company LLC IV
UBS Preferred Funding Company LLC V
Registered office
Zurich, Switzerland
Business division
Retail & Corporate
Amsterdam, Netherlands
Corporate Center
Dublin, Ireland
Milan, Italy
Zurich, Switzerland
Wealth Management
Investment Bank
Wealth Management
London, United Kingdom
Investment Bank
Wilmington, Delaware, USA
Investment Bank
Dover, Delaware, USA
Global Asset Management
St. Helier, Jersey
Corporate Center
Wilmington, Delaware, USA
Corporate Center
Wilmington, Delaware, USA
Corporate Center
UBS Real Estate Kapitalanlagegesellschaft mbH
Munich, Germany
Global Asset Management
UBS Real Estate Securities Inc.
UBS Realty Investors LLC
UBS Securities (Thailand) Ltd
UBS Securities Australia Ltd
UBS Securities Canada Inc.
UBS Securities España Sociedad de Valores SA
UBS Securities France SA
UBS Securities Hong Kong Limited
UBS Securities India Private Limited
UBS Securities Japan Co., Ltd
UBS Securities LLC
UBS Securities Pte. Ltd
UBS Securities Pte. Ltd Seoul Branch
UBS Securities Pte. Ltd Taipei Branch
UBS Service Centre (Poland) Sp. z o.o.
UBS South Africa (Proprietary) Limited
UBS Swiss Financial Advisers AG
UBS Trust Company of Puerto Rico
UBS UK Properties Limited
Wilmington, Delaware, USA
Investment Bank
Boston, Massachusetts, USA
Global Asset Management
Bangkok, Thailand
Sydney, Australia
Toronto, Canada
Madrid, Spain
Paris, France
Hong Kong, China
Mumbai, India
Tokyo, Japan
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Wilmington, Delaware, USA
Investment Bank
Singapore, Singapore
Seoul, South Korea
Taipei, Taiwan
Zabierzow, Poland
Sandton, South Africa
Zurich, Switzerland
Hato Rey, Puerto Rico
Investment Bank
Investment Bank
Investment Bank
Corporate Center
Investment Bank
Wealth Management
Wealth Management Americas
London, United Kingdom
Investment Bank
UBS Wealth Management Australia Ltd
Sydney, Australia
Wealth Management
1 Incorporated in 2012. 2 Share capital and share premium.
Significant subsidiaries deconsolidated during 2012
Significant deconsolidated companies
UBS Leasing AG
Registered office
Zurich, Switzerland
Significant associates as of 31 December 2012
Company
SIX Group AG 1
UBS Securities Co. Limited 1
1 UBS is represented on the Board of Directors.
Registered office
Zurich, Switzerland
Beijing, China
Industry
Financial
Financial
442
Share capital
in million
Equity interest
accumulated in %
CHF
EUR
EUR
EUR
CHF
GBP
USD
USD
EUR
USD
USD
EUR
USD
USD
THB
AUD
CAD
EUR
EUR
HKD
INR
JPY
USD
SGD
KRW
TWD
PLN
ZAR
CHF
USD
GBP
AUD
0.1
6.8
1.0
15.1
25.0
193.6
16.7 2
1.0
0.0
0.0
0.0
7.5
1,300.4 2
9.0
500.0
209.8 2
10.0
15.0
22.9
430.0
140.0
74,450.0
22,205.6 2
311.5
0.0
0.0
1.4
0.0
1.5
5.0 2
132.0
53.9
98.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
94.9
100.0
100.0
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
Reason for deconsolidation
Merger with UBS AG
Equity interest
in %
17.3
20.0
Invested assets
Invested assets include all client assets managed by or deposited
with UBS for investment purposes. Invested assets include man-
aged fund assets, managed institutional assets, discretionary
and advisory wealth management portfolios, fiduciary deposits,
time deposits, savings accounts and wealth management securi-
ties or brokerage accounts. All assets held for purely transac-
tional purposes and custody-only assets, including corporate cli-
ent assets held for cash management and transactional purposes,
are excluded from invested assets as the Group only administers
the assets and does not offer advice on how the assets should
be invested. Also excluded are non-bankable assets (e.g. art col-
lections) and deposits from third-party banks for funding or
trading purposes. In the first quarter 2012, the definition of in-
vested assets for Retail & Corporate was refined and hence pen-
sion fund assets are no longer counted as invested assets.
Accordingly, the Group’s invested assets were restated as of
31 December 2011 from CHF 2,167 billion to CHF 2,088 billion.
Discretionary assets are defined as client assets that 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
clients, and both add value and generate revenue.
Net new money
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, under
which inflows and outflows to / from invested assets are deter-
mined at the client level based on transactions. Interest and divi-
dend income from invested assets are not counted as net new
money inflows. Market and currency movements as well as fees,
commissions and interest on loans charged are excluded from net
new money, as are the effects resulting from any acquisition or
divestment of a UBS subsidiary or business. Reclassifications be-
tween invested assets and custody-only assets as a result of a
change in the service level delivered are generally treated as net
new money flows; however, where such change in service level
directly results from a new externally-imposed regulation, the
one-time net effect of the implementation is reported as an asset
reclassification without net new money impact.
The Investment Bank does not track invested assets and net
new money. However, when a client is transferred from the In-
vestment Bank to another business division, this produces net
new money even though client assets were already with UBS. Net
new money resulting from such transfers between business divi-
sions was zero in 2012 and 2011.
CHF billion
Fund assets managed by UBS
Discretionary assets
Other invested assets
Total invested assets (double counts included)
of which: double count
of which: acquisitions (divestments)
Net new money (double counts included)
As of or for the year ended
31.12.12
31.12.11
270
635
1,325
2,230
172
(13.8)
32.9
270
585
1,233
2,088
183
24.6
40.4
443
Financial informationNote 35 Invested assets and net new money Financial information
Notes to the consolidated financial statements
Business combinations in 2012
In 2012, no significant business combinations were completed.
Business combinations completed in 2011
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 beneficial 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 significant business combinations were completed.
For the year ended
31.12.12
31.12.11
31.12.10
26
(1)
331
20
3
(8)
371
358
0
14
82
10
216
26
32
15
380
261
93
26
(9)
162
(25)
1
(3)
(13)
113
(2)
79
37
For the year ended
31.12.12
31.12.11
31.12.10
64
115
247
0
(10)
(56)
0
(1)
358
31
54
122
0
20
30
(1)
6
261
0
3
(10)
0
1
0
2
2
(2)
Net restructuring charges by business division and Corporate Center
CHF million
Wealth Management
Wealth Management Americas
Investment Bank
Global Asset Management
Retail & Corporate
Corporate Center
Total net restructuring charges
of which: personnel expenses
of which: general and administrative expenses
of which: depreciation and impairment of property and equipment
Net restructuring charges by personnel expense category
CHF million
Salaries
Variable compensation – performance awards
Variable compensation – other
Contractors
Social security
Pension and other post-employment benefit plans
Wealth Management Americas: Financial advisor compensation
Other personnel expenses
Total net restructuring charges: personnel expenses
444
Note 36 Business combinationsNote 37 Changes in organization Note 38 Currency translation rates
The following table shows the rates of the main currencies used to translate the financial 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
31.12.12
31.12.11
31.12.12
31.12.11
31.12.10
0.92
1.21
1.49
1.05
0.94
1.21
1.46
1.22
0.92
1.21
1.50
1.07
0.88
1.23
1.45
1.11
1.04
1.37
1.62
1.18
1 Monthly income statement items of foreign operations with a functional currency other than Swiss franc are translated with month-end rates into Swiss francs. 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 of the Group with the same functional currency for each month. Weighted average rates for individual business
divisions may deviate from the weighted average rates for the Group.
The consolidated Financial Statements of UBS are prepared in ac-
cordance with International Financial Reporting Standards (IFRS).
The Swiss Financial Market Supervisory Authority (FINMA) requires
banks which present their financial statements under IFRS to pro-
vide a narrative explanation of the main differences between IFRS
and Swiss GAAP (FINMA Circular 2008 / 2 and the Banking Ordi-
nance). Included in this note are the significant differences in re-
gard to recognition and measurement between IFRS and the pro-
visions of the Banking Ordinance and the guidelines of the FINMA
governing financial statement reporting pursuant to Article 23
through Article 27 of the Banking Ordinance. The differences out-
lined in points two through eleven also apply to the Parent Bank
statutory accounts.
1. Consolidation
Under IFRS, all entities which are controlled by the Group are con-
solidated.
Under Swiss law, only entities that are active in the field of
banking and finance and real estate entities are subject to con-
solidation. Entities which are held temporarily are generally re-
corded as financial investments.
2. Financial investments available-for-sale
Under IFRS, financial investments available-for-sale are carried at
fair value. Changes in fair value are recorded directly in equity
until an investment is sold, collected or otherwise disposed of, or
until an investment is determined to be impaired. At the time an
available-for-sale investment is determined to be impaired, the
cumulative unrealized loss previously recognized in equity is in-
cluded in net profit or loss for the period. On disposal of a finan-
cial investment available-for-sale, the cumulative unrecognized
gain or loss previously recognized in equity is recognized in the
income statement.
Under Swiss law, financial investments are carried either at
the lower of cost or market or at amortized cost less impair-
ment with changes in measurement recorded in the income
statement. Reductions to market value below cost and reversals
of such reductions up to original cost as well as gains and losses
on disposal are included in Other income. Permanent equity in-
vestments are classified 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 flow hedges
The Group designates derivative instruments in cash flow
hedge accounting relationships. Under IFRS, when hedge ac-
counting is applied, the fair value gain or loss on the effective
portion of the derivative designated as a cash flow hedge is
recognized in equity. When the hedged cash flows materialize,
the accumulated unrecognized gain or loss is reclassified to in-
come.
Under Swiss law, the effective portion of the fair value change
of the derivative instrument used to hedge cash flow exposures is
deferred on the balance sheet as Other assets or Other liabilities.
The deferred amounts are released to income when the hedged
cash flows materialize.
4. Investment property
Under IFRS, investment property is carried at fair value, with
changes in fair value recognized in the income statement.
Under Swiss law, unless the investment property is classified as
held for sale, investment property is carried at amortized cost less
any accumulated depreciation and impairment losses. Investment
property classified as held for sale is carried at the lower of cost or
market value.
445
Financial informationNote 39 Swiss banking law requirements Financial information
Notes to the consolidated financial statements
5. Fair value option
Under IFRS, the Group applies the fair value option to certain fi-
nancial assets and financial liabilities. Instruments for which the
fair value option is applied are accounted for at fair value with
changes in fair value reflected in Net trading income. The fair
value option is applied primarily to hybrid debt instruments, cer-
tain loans and loan commitments and certain fund investments.
Under Swiss accounting rules, the fair value option can only be
applied to structured products issued that consist of a debt host
contract and an embedded derivative(s) that requires bifurcation.
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 indefinite useful life
are also not amortized but tested annually for impairment.
Under Swiss law, goodwill and intangible assets with indefinite
useful lives are amortized over a period not exceeding five years,
unless a longer useful life, which may not exceed twenty years,
can be justified.
7. Pension funds
Swiss law permits the use of IFRS or Swiss accounting standards
for pension funds, with the election made on a plan by plan basis.
UBS applies IFRS for its non-Swiss defined benefit plans and Swiss
accounting standards (FER 16) for the Swiss pension plan in the
Parent Bank. The requirements of FER 16 are better aligned with
the specific nature of Swiss pension plans, which are hybrid in
that they combine elements of defined contribution and defined
benefit plans, but are treated as defined benefit plans under IFRS.
Key differences between FER 16 / 26 and IAS 19R relate to the
treatment of future salary increases, which are not considered
under FER 16 / 26, and the determination of the discount rate.
For defined benefit plans, IFRS requires the full defined benefit
obligation net of the plan assets to be recorded on the balance
sheet, with changes resulting from remeasurements recognized
directly in equity. For plans for which IFRS is elected, Swiss law
requires that changes due to remeasurements are recognized in
the income statement.
Swiss accounting standards require that employer contribu-
tions to the pension fund are recognized as personnel expenses in
the income statement. Further, FER 16 requires an assessment as
to whether, based on the financial statements of the pension fund
prepared in accordance with Swiss accounting standards (FER 26),
an economic benefit or obligation for the employer arises from
the pension fund and is recognized in the balance sheet when
conditions are met. Conditions for recording a pension asset or
liability would be met if, for example, an employer contribution
reserve is available or the employer is required to contribute to the
reduction of a pension deficit (on a FER 26 basis).
8. Netting of replacement values
Under IFRS, replacement values are reported on a gross basis un-
less certain restrictive requirements are met. Under Swiss law, re-
placement values and the related cash collateral are reported on a
net basis, provided the master netting and the related collateral
agreements are legally enforceable.
9. Restructuring provisions
Under Swiss law, a provision for restructuring costs should be rec-
ognized when the governing body has authorized a plan for the
direction, supervision and control of restructuring measures. For
IFRS, in addition to a detailed formal plan for the restructuring, a
provision for restructuring costs is recognized only when the en-
tity also has raised a valid expectation in those affected that it will
carry out the restructuring by starting to implement the plan or
announcing its main features to those affected by it. Accordingly,
recognition of a provision for restructuring may occur earlier un-
der Swiss GAAP than under IFRS.
10. Discontinued operations
Under certain conditions, IFRS requires that non-current assets or
disposal groups be classified as held for sale. Disposal groups that
meet the criteria of discontinued operations are presented in the
income statement in a single line as net income from discontinued
operations.
Under Swiss law, the concept of discontinued operations does
not exist, therefore no such reclassification takes place.
11. Extraordinary income and expense
Certain items of non-recurring and non-operating income and ex-
pense are classified as extraordinary items under Swiss law. This
distinction is not available under IFRS.
446
Note 39 Swiss banking law requirements (continued) Guarantee of PaineWebber securities
Following the acquisition of Paine Webber Group Inc. (PaineWeb-
ber), UBS AG entered into a full and unconditional guarantee
of the senior notes, the subordinated notes and the trust pre-
ferred securities (“Debt Securities”) of PaineWebber. Prior to the
acquisition, PaineWebber was a SEC registrant. Upon the acquisi-
tion, Paine Webber 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 first proceeding
against UBS Americas Inc. UBS AG’s obligations under the sub-
ordinated note guarantee are subordinated to the prior pay-
ment in full of the deposit liabilities of UBS AG and all other
liabilities of UBS AG.
The information presented in this note is prepared in accordance
with IFRS and should be read in conjunction with the consolidated
financial statements of UBS of which this information is a part.
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2012
UBS AG
(Parent Bank) 1
UBS
Americas Inc.
Other
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 and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) from continuing operations before tax
Tax expense / (benefit)
Net profit / (loss) from continuing operations
Net profit from discontinued operations
Net profit / (loss)
Net profit attributable to non-controlling interests
Net profit / (loss) attributable to UBS shareholders
13,376
(9,615)
3,762
(7)
3,754
5,933
3,115
(4,009)
1,545
10,338
7,682
4,643
501
14
3
12,843
(2,505)
6
(2,511)
0
(2,511)
0
(2,511)
2,774
(1,153)
1,622
(112)
1,510
6,333
250
0
783
8,876
5,369
2,618
104
2,860
84
11,034
(2,158)
165
(2,323)
0
(2,323)
0
(2,323)
2,153
(1,542)
610
1
611
3,139
115
0
(1,646)
2,220
1,686
1,393
84
156
20
3,339
(1,119)
290
(1,409)
0
(1,409)
276
(1,686)
(2,336)
2,336
0
0
0
0
0
4,009
0
4,009
0
0
0
0
0
0
4,009
0
4,009
0
4,009
0
4,009
15,968
(9,974)
5,994
(118)
5,875
15,405
3,480
0
682
25,443
14,737
8,653
689
3,030
106
27,216
(1,774)
461
(2,235)
0
(2,235)
276
(2,511)
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.
447
Financial informationNote 40 Supplemental guarantor information required under SEC rules Financial information
Notes to the consolidated financial statements
Supplemental guarantor consolidated balance sheet
CHF million
For the year ended 31 December 2012
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 which may be sold
or repledged by counterparties
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
Provisions
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.
Other
subsidiaries
Consolidating
entries
UBS Group
54,192
29,107
35,749
105,197
117,337
47,226
416,098
32,740
7,007
279,038
51,041
1,954
64,807
5,034
323
5,132
8,969
11,395
7,875
35,172
60,659
21,786
5,467
5,695
4,045
3,037
38,663
10,637
3,994
2
593
5,116
2,643
3,718
796
68,713
3,126
60,880
33,072
2,466
129,090
28,331
10,535
11,765
4,706
590
1
376
1,023
368
1,233
1,213,726
215,030
354,604
0
(84,464)
(36,675)
(95,795)
(11,335)
(10,460)
(132,854)
(34,703)
(11,473)
(49,566)
0
(446)
(63,951)
0
0
0
66,383
21,230
37,372
130,941
160,861
44,698
418,029
30,413
9,106
279,901
66,383
6,093
858
6,004
6,461
8,143
(2,865)
(524,128)
11,055
1,259,232
54,795
19,704
24,540
24,996
391,863
58,650
88,775
330,271
4,731
102,015
1,166
24,622
1,126,129
87,597
0
87,597
1,213,726
46,014
22,105
51,057
8,892
5,856
10,907
988
45,107
2,047
353
1,023
18,642
212,993
2,037
0
2,037
215,030
6,680
4,069
57,837
6,137
(84,464)
(36,675)
(95,795)
(5,870)
130,204
(132,854)
36,294
15,154
46,079
549
7,186
347
19,503
330,038
20,213
4,353
24,566
354,604
(34,703)
(12,039)
(49,566)
(446)
(4,899)
0
(2,865)
(460,177)
(63,951)
0
(63,951)
(524,128)
23,024
9,203
37,639
34,154
395,070
71,148
92,878
371,892
6,881
104,656
2,536
59,902
1,208,983
45,895
4,353
50,249
1,259,232
1 UBS AG (Parent Bank) prepares its 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.
448
Note 40 Supplemental guarantor information required under SEC rules (continued) Supplemental guarantor consolidated statement of cash flows 1
CHF million
For the year ended 31 December 2012
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 3
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
Dividends paid
Issuance of long-term debt, including financial liabilities designated at fair value
Repayment of long-term debt, including financial liabilities designated at fair value
Dividends paid to / decrease in non-controlling interests
Net activity in investments in subsidiaries
Net cash flow from / (used in) financing activities
UBS AG
(Parent Bank) 2
49,070
UBS
Americas Inc.
Other
subsidiaries
10,795
7,186
UBS Group
67,050
(11)
41
(878)
194
(12,429)
(13,082)
(26,177)
(1,159)
(379)
49,885
(49,981)
0
(2,600)
(30,410)
0
0
(189)
5
(780)
(965)
0
0
0
575
(23)
0
(99)
452
0
0
(50)
3
(737)
(784)
(11,790)
0
0
5,287
(3,991)
(288)
2,698
(8,084)
(11)
41
(1,118)
202
(13,946)
(14,831)
(37,967)
(1,159)
(379)
55,747
(53,996)
(288)
0
(38,041)
Effects of exchange rate differences
(200)
(352)
(121)
(673)
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise:
Cash and balances with central banks
Money market paper 4
Due from banks 5
Total
5,377
66,481
71,858
54,192
4,279
13,387
71,858
9,930
4,336
14,266
11,395
47
2,824
14,266
(1,802)
14,796
12,994
796
56
12,142
12,994
13,506
85,612
99,118
66,383
4,382
28,354
99,118
1 In 2012, the estimation of the effects of foreign currency translation on the statement of cash flows was refined. This change in estimate resulted for UBS Group in Net cash flows from / (used in) operating activities
being higher by CHF 1.8 billion (recorded in Other net adjustments), from / (used in) investing activities being higher by CHF 0.5 billion, from / (used in) financing activities being higher by CHF 1.4 billion and the amounts
presented under the line item Effects of exchange rate differences being lower by CHF 3.7 billion. 2 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. 3 Includes dividends received from associates. 4 Money market paper is included in the balance sheet under
Trading portfolio assets and Financial investments available-for-sale. 5 Includes positions recognized in the balance sheet under Due from banks and Cash collateral receivables on derivative instruments.
449
Financial informationNote 40 Supplemental guarantor information required under SEC rules (continued) Financial information
Notes to the consolidated financial statements
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2011
UBS AG
(Parent Bank) 1
UBS
Americas Inc.
Other
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 and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) from continuing operations before tax
Tax expense / (benefit)
Net profit / (loss) from continuing operations
Net profit from discontinued operations
Net profit / (loss)
Net profit attributable to non-controlling interests
Net profit / (loss) attributable to UBS shareholders
15,311
(10,854)
4,457
(96)
4,361
6,351
4,155
677
1,427
16,972
8,772
2,577
564
0
26
11,940
5,032
895
4,138
0
4,138
0
4,138
2,910
(1,102)
1,808
18
1,826
5,757
(81)
0
728
8,230
5,199
2,283
117
0
80
7,679
551
61
490
0
490
2
488
2,952
(2,391)
561
(6)
555
3,128
269
0
(689)
3,263
1,663
1,099
81
0
21
2,864
399
(55)
454
0
454
266
189
(3,203)
3,203
0
0
0
0
0
(677)
0
(677)
0
0
0
0
0
0
(677)
0
(677)
0
(677)
0
(677)
17,969
(11,143)
6,826
(84)
6,742
15,236
4,343
0
1,467
27,788
15,634
5,959
761
0
127
22,482
5,307
901
4,406
0
4,406
268
4,138
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.
450
Note 40 Supplemental guarantor information required under SEC rules (continued) Supplemental guarantor consolidated balance sheet
CHF million
For the year ended 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: assets pledged as collateral which may be sold
or repledged by counterparties
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
Provisions
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.
Other
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
6,274
9,425
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
2,141
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
514
1,688
1,317,857
302,381
405,973
63,340
16,498
38,030
32,299
467,112
55,378
84,386
321,393
4,530
125,251
752
25,913
1,234,882
82,975
0
82,975
1,317,857
41,669
32,622
141,005
8,437
8,312
11,188
533
31,934
2,203
407
527
19,080
297,917
4,463
0
4,463
302,381
13,787
2,969
83,646
5,751
148,708
34,666
13,522
35,632
678
19,873
347
21,879
381,457
20,111
4,406
24,517
405,973
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
(4,089)
(609,248)
(88,596)
(43,953)
(160,252)
(7,007)
(150,732)
(34,118)
(9,459)
(46,549)
(561)
(4,914)
0
(4,089)
(550,230)
(59,017)
0
(59,017)
(609,248)
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
9,627
9,165
1,416,962
30,201
8,136
102,429
39,480
473,400
67,114
88,982
342,409
6,850
140,617
1,626
62,784
1,364,027
48,530
4,406
52,935
1,416,962
1 UBS AG (Parent Bank) prepares its 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.
451
Financial informationNote 40 Supplemental guarantor information required under SEC rules (continued) Financial information
Notes to the consolidated financial statements
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 2
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:
Cash and balances with central banks
Money market paper 3
Due from banks 4
Total
UBS AG
(Parent Bank) 1
(12,251)
UBS
Americas Inc.
(933)
Other
subsidiaries
(1,057)
UBS Group
(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
(58)
50
(1,129)
233
20,281
19,377
15,338
(1,885)
52,590
(62,626)
1
(749)
0
2,670
159
(2,129)
4,457
10,339
14,796
568
67
14,162
14,796
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 Includes dividends received from associates. 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 collateral receivables on derivative instruments.
452
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.
Other
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 and impairment of property and equipment
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) from continuing operations before tax
Tax expense / (benefit)
Net profit / (loss) from continuing operations
Net profit from discontinued operations
Net profit / (loss)
Net profit attributable to non-controlling interests
Net profit / (loss) attributable to UBS shareholders
15,732
(12,153)
3,579
(2)
3,577
7,293
6,979
1,392
1,515
20,757
9,339
2,729
628
0
3
12,700
8,057
605
7,452
0
7,452
0
7,452
3,388
(1,409)
1,980
(16)
1,964
6,465
(117)
0
1,296
9,608
5,842
2,691
172
0
90
8,796
812
(1,150)
1,962
0
1,962
0
1,962
2,723
(2,067)
656
(48)
608
3,401
609
0
(1,597)
3,022
1,849
1,164
117
0
24
3,154
(132)
136
(268)
2
(266)
304
(570)
(2,971)
2,971
0
0
0
0
0
(1,392)
0
(1,392)
0
0
0
0
0
0
(1,392)
0
(1,392)
0
(1,392)
0
(1,392)
18,872
(12,657)
6,215
(66)
6,149
17,160
7,471
0
1,214
31,994
17,031
6,585
918
0
117
24,650
7,345
(409)
7,754
2
7,756
304
7,452
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.
453
Financial informationNote 40 Supplemental guarantor information required under SEC rules (continued) Financial information
Notes to the consolidated financial statements
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 2
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:
Cash and balances with central banks
Money market paper 3
Due from banks 4
Total
UBS AG
(Parent Bank) 1
10,719
UBS
Americas Inc.
(2,772)
Other
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)
(75)
307
(541)
242
4,164
4,097
4,459
(1,456)
(113)
78,418
(77,497)
6
(2,053)
0
1,764
(3,444)
(12,181)
(9,315)
19,654
10,339
498
123
9,719
10,339
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 Includes dividends received from associates. 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 collateral receivables on derivative instruments.
454
Note 40 Supplemental guarantor information required under SEC rules (continued) Guarantee of other securities
UBS AG, acting through wholly-owned US-domiciled finance subsidiaries, has issued the following outstanding trust preferred
securities:
Guarantee of other securities
USD billion, unless otherwise indicated
As of 31.12.12
Issuing entity
Type of security
Date issued
Interest (%)
Amount
outstanding
UBS Preferred Funding Trust IV
UBS Preferred Funding Trust V
Non-cumulative trust preferred securities
Non-cumulative trust preferred securities
May 2003
May 2006
one-month USD
LIBOR + 0.7
6.243
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 2012, the amount of se-
nior liabilities of UBS to which the holders of the subordinated
debt securities would be subordinated is approximately CHF
1,198 billion.
Guarantee to UBS Ltd.
UBS AG has issued a guarantee for the benefit of each counter-
party of UBS Limited. Under this guarantee, UBS AG irrevocably
and unconditionally guarantees each and every obligation that
UBS Limited entered into. UBS AG promises to pay to that coun-
terparty on demand any unpaid balance of such liabilities under
the terms of the guarantee.
455
Financial informationNote 40 Supplemental guarantor information required under SEC rules (continued) UBS AG (Parent Bank)
Parent Bank review
The following review is based on changes in UBS AG’s (Parent
Bank) financial statements from 31 December 2011 to 31 Decem-
ber 2012.
Income statement
UBS AG (Parent Bank) recorded a net loss of CHF 6,645 million in
2012, compared with a net profit of CHF 5,440 million in 2011.
The loss before extraordinary items and tax was CHF 3,016 mil-
lion, compared with a profit of CHF 4,434 million in the prior year.
This was mainly a result of a CHF 649 million decline in operating
income, a CHF 1,214 million increase in operating expenses, and
as the impairment of investments in subsidiaries and other partici-
pations increased by CHF 4,045 million as the net asset values of
subsidiaries declined due to goodwill impairments and the adop-
tion of IAS 19R. Furthermore, expenses for allowances, provisions
and losses increased by CHF 1,582 million, mainly related to higher
charges for provisions for litigation, regulatory and similar matters.
Extraordinary expenses were CHF 4,117 million compared with
CHF 649 million, mainly related to changes in pension accounting
in 2012.
Net interest income
Net interest income decreased by CHF 736 million, or 16%, to
CHF 3,861 million, reflecting a CHF 1,996 million decline in inter-
est income, partly offset by CHF 1,260 million lower interest ex-
penses.
The CHF 1,996 million decline in interest income was driven by
CHF 1,040 million lower interest and discount income which
mainly reflected lower interest earned on loans and advances. In
addition, interest and dividend income from the trading portfolio
decreased by CHF 731 million. Interest and dividend income from
financial investments decreased by CHF 225 million, or 48%,
mainly as 2011 included interest income from our strategic invest-
ment portfolio, which was sold in the third quarter of 2011.
Interest expense decreased by CHF 1,260 million, mainly due
to lower interest expenses due to banks and customers. Interest
expenses on debt issued increased slightly.
Net fee and commission income
Net fee and commission income decreased by CHF 358 million to
CHF 6,015 million.
Fee and commission income from securities and investment
businesses decreased by CHF 532 million to CHF 6,270 million.
Portfolio management and advisory fees declined in Wealth Man-
agement and the Investment Bank. Investment fund fees de-
creased mainly in Global Asset Management. Brokerage fees de-
creased in the Investment Bank due to a lower level of client
activity. Merger and acquisition and corporate finance fees de-
creased in the Investment Bank due to a lower volume of transac-
tions. These decreases were partly offset by an increase in under-
writing fees in the Investment Bank.
Fee and commission expense decreased by CHF 104 million,
mainly due to lower brokerage fees paid.
Net trading income
Net trading income was CHF 5,097 million in 2012 compared
with CHF 3,545 million in 2011. Net trading income within
the equities business in the Investment Bank was positive CHF
1,427 million, compared with negative CHF 114 million in 2011
which included a loss of CHF 1,951 million related to the unau-
thorized trading incident. Investment Bank fixed income, cur-
rencies and commodities net trading income increased by CHF
86 million to CHF 2,398 million. Net trading income in other
business divisions and Corporate Center was CHF 1,177 million
compared with CHF 1,286 million in 2011.
Other income from ordinary activities
Other income from ordinary activities was CHF 2,401 million, a
decline of CHF 1,107 million.
Net income from the disposal of financial investments de-
creased by CHF 758 million, as 2011 included a gain of CHF 652
million from the sale of our strategic investment portfolio.
Dividend income from investments in subsidiaries and other
participations increased by CHF 147 million.
Sundry income from ordinary activities decreased by CHF 482
million to CHF 3,959 million, mainly as sundry income related to
financial investments was zero in 2012 compared with CHF 464
million in 2011, which reflected the reversal of unrealized losses
incurred on the strategic investment portfolio. In 2012, sundry
income included CHF 3,856 million of income received from sub-
sidiaries for services rendered, an increase of CHF 180 million
compared with the prior year. Gains on sales of loans and receiv-
ables were CHF 29 million, a decline of CHF 205 million from the
prior year.
Sundry ordinary expenses were largely unchanged at CHF
2,569 million. Charges from subsidiaries for services received
were down CHF 154 million to CHF 2,368 million, while unreal-
457
Financial information Financial information
UBS AG (Parent Bank)
ized losses on financial investments increased by CHF 97 million
and losses from disposals of loans and receivables increased by
CHF 80 million.
Operating expenses
Personnel expenses increased by CHF 579 million to CHF 8,888
million, mainly due to restructuring charges of CHF 1,364 million.
This was partly offset by a credit to personnel expenses of CHF
485 million related to changes to our Swiss pension plan as well
as lower accruals for variable compensation.
General and administrative expenses increased by CHF 636
million, mainly due to higher cost charges from subsidiaries, in-
creased expenses related to outsourcing of IT and other services
due to higher business demand, as well as higher marketing and
public relations costs, partly due to expenditures related to our
150th anniversary.
Impairment of investments in subsidiaries and
other participations
Impairment of investments in subsidiaries and other participations
increased by CHF 4,045 million to CHF 4,210 million, mainly as
the net asset value of subsidiaries which recorded a goodwill im-
pairment declined, resulting in an impairment of the investments
in those subsidiaries of CHF 2,951 million. In addition, the adop-
tion of IAS 19R by foreign subsidiaries also resulted in lower net
asset values, resulting in an impairment of CHF 620 million of the
respective investments.
Allowances, provisions and losses
Allowances, provisions and losses increased by CHF 1,582 million
to CHF 1,735 million.
Extraordinary expenses
Extraordinary expenses increased by CHF 3,468 million to CHF
4,117 million, mainly related to changes in the pension account-
ing, which resulted in extraordinary expenses of CHF 3,954 mil-
lion, of which 3,063 million related to the Swiss pension plan and
CHF 892 million related to the International defined benefit plans.
➔ Refer to “Note 2b Changes in accounting policies, comparability
and other adjustments” for more information on the pension
accounting changes
Tax expense / benefit
The net income tax benefit in 2012 was CHF 59 million compared
with a tax expense of CHF 232 million in 2011. The net income tax
benefit in 2012 was mainly due to a net release of prior year re-
lated tax risk provisions.
Deferred tax assets are not accounted for or reported in
UBS AG’s (Parent Bank) financial statements prepared under Swiss
GAAP. As a consequence, there is no amortization of deferred tax
assets for tax losses used against profits arising from business
operations. This is the main difference to the Group net income
tax expense of CHF 461 million for IFRS purposes, for which the
net amortization of deferred tax assets represents the most sig-
nificant element.
Balance sheet
Assets
Total assets stood at CHF 776 billion as of 31 December 2012, a
decrease of CHF 70 billion from 31 December 2011, predomi-
nantly relating to the accelerated implementation of our strategy
announced in October 2012.
The increase mainly related to higher charges for provisions for
litigation, regulatory and similar matters, which increased by CHF
1,368 million, primarily as a result of charges for provisions arising
from fines and disgorgement resulting from regulatory investiga-
tions concerning LIBOR and other benchmark rates. In addition,
restructuring charges of CHF 200 million were recorded in 2012.
Decreases were mainly seen in reverse repurchase agreements
with banks, holdings of money market paper and in positive re-
placement values. These decreases were partially offset by higher
liquid assets held at central banks, an increase in high-quality gov-
ernment debt held as financial investments and higher amounts
due from customers.
Extraordinary income
Extraordinary income decreased by CHF 1,459 million to CHF 429
million.
Reversals of impairments and provisions of subsidiaries and
other participations decreased by CHF 1,191 million, mainly as
2011 included significant net impairment reversals related to posi-
tive foreign currency impacts on the valuation of US subsidiaries.
Liquid assets and money market paper
Liquid assets increased by CHF 16 billion to CHF 54 billion on
31 December 2012, predominantly due to higher balances with
central banks. Money market paper held decreased by CHF 10
billion to CHF 31 billion, primarily due to reductions in Japanese,
British and Hong Kong government bills held, partly offset by a
net increase in German and Dutch government bills.
Gains from sale of subsidiaries and other participations de-
creased by CHF 155 million due to fewer disposals.
Prior period related income decreased to CHF 115 million from
CHF 280 million.
Due from banks and due from customers
Interbank lending (due from banks) decreased by CHF 64 billion
to CHF 167 billion, mainly reflecting reduced reverse repurchase
458
agreements with UBS subsidiaries, in particular in the Americas
and Europe.
Due from customers increased by CHF 13 billion to CHF 161
billion, mainly due to an increase in reverse repurchase agree-
ments with non-bank clients of CHF 5 billion, an increase in non-
mortgage loans of CHF 3 billion as well as an increase in current
accounts of CHF 2 billion, mainly in Switzerland.
Financial investments
Financial investments increased by CHF 11 billion to CHF 31 bil-
lion, primarily due to increased holdings of high-quality govern-
ment debt.
Investments in subsidiaries and other participations
Investments in subsidiaries decreased by CHF 3 billion to CHF 21
billion. This was mainly due to the abovementioned net write-
downs of investments in subsidiaries of CHF 4 billion.
An additional write-down of CHF 1 billion was due to dividend
payments. These decreases were partly offset by net capital injec-
tions of CHF 2 billion.
Positive replacement values
Positive replacement values, which are reported on a net basis, pro-
vided the master netting and the related collateral agreements are
legally enforceable, decreased by CHF 29 billion to CHF 35 billion,
mainly as replacement values for interest rate contracts fell due to
lower volumes. Further, credit derivative contracts fell due to the
tightening of credit spreads and reduced volumes. In addition, re-
placement values decreased due to increased netting with cash col-
lateral payables to subsidiaries (reported within due to banks).
Other assets
Other assets decreased by CHF 4 billion to CHF 3 billion, mainly
due to the early adoption of FER 16 for the Swiss pension plan
and IAS 19R for the International defined benefit plans, which
resulted in the derecognition of deferred pension expenses.
➔ Refer to “Note 2b Changes in accounting policies, comparability
and other adjustments” for more information on the pension
accounting changes
Liabilities
Money market paper issued
Money market paper issued decreased by CHF 36 billion to CHF
21 billion on 31 December 2012, mainly due to a reduction in
certificates of deposit outstanding as well as due to the change in
balance sheet presentation of certain structured liabilities, which
were reclassified from money market paper issued to bonds is-
sued and loans from central mortgage institutions.
Due to banks and due to customers
Due to banks decreased by CHF 22 billion to CHF 102 billion,
reflecting lower unsecured interbank borrowing of CHF 9 billion
and lower repurchase activity of CHF 7 billion. In addition, cash
collateral payables decreased by CHF 10 billion, mainly due to
increased netting with positive replacement values. These de-
creases were partly offset by increased securities lending of CHF
4 billion. Total amounts due to customers remained stable at CHF
364 billion.
Trading portfolio liabilities
Trading portfolio liabilities declined by CHF 7 billion to CHF 25
billion as of 31 December 2012, mainly related to a reduction in
debt instruments sold short.
Negative replacement values
Negative replacement values fell by CHF 15 billion to CHF 44 bil-
lion, primarily due to lower replacement values for credit deriva-
tive and interest rate contracts, partly due to reduced volumes.
Bonds issued and loans from central mortgage institutions
Bonds issued and loans from central mortgage institutions in-
creased by CHF 11 billion, mainly as a result of the aforemen-
tioned change in balance sheet presentation of certain structured
liabilities.
Other liabilities and allowances and provisions
Other liabilities increased by CHF 3 billion, mainly related to in-
creased deferrals for hedging instruments and also reflecting re-
classified provisions which are no longer uncertain in timing or
amount.
Allowances and provisions increased by CHF 2 billion, mainly
related to restructuring provisions.
Equity
Total equity attributable to shareholders stood at CHF 33,176 mil-
lion as of 31 December 2012, compared with CHF 40,174 million
at the end of 2011, mainly due to the 2012 loss of CHF 6,645
million. The general statutory reserve decreased by CHF 353 mil-
lion to CHF 31,997 million as of 31 December 2012, mainly re-
flecting the distribution out of the capital contribution reserve in
May 2012.
The reserve for own shares decreased by CHF 176 million to
CHF 889 million, reflecting the net disposal of treasury shares.
Other reserves increased by CHF 5,617 million, reflecting the ap-
propriation of 2011 earnings of CHF 5,440 million as well as the
net disposal of treasury shares, which increased other reserves by
CHF 176 million.
459
Financial information 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 / (loss) before extraordinary items and taxes
Extraordinary income
Extraordinary expenses
Tax (expense) / benefit
Profit / (loss) for the period
460
For the year ended
% change from
Note
31.12.12
10,047
3,258
242
(9,686)
3,861
378
6,270
634
(1,267)
6,015
5,097
75
905
31
3,959
(2,569)
2,401
17,374
8,888
5,016
13,904
3,470
4,210
541
1,735
(3,016)
429
(4,117)
59
(6,645)
3
4
4
31.12.11
(9)
(18)
(48)
(12)
(16)
16
(8)
3
(8)
(6)
44
(91)
19
3
(11)
1
(32)
(4)
7
15
10
(35)
(7)
(77)
534
31.12.11
11,087
3,989
467
(10,946)
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
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 due 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 notes
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 reserve
thereof retained earnings
Reserve for own shares
thereof capital contribution reserve
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 due to subsidiaries
Note
31.12.12
31.12.11
% change from
31.12.11
54,192
31,066
167,204
160,996
149,002
115,906
30,778
21,090
5,054
2,157
35,206
3,037
775,687
3,776
201,982
21,257
102,401
25,419
94,086
269,992
1,341
100,166
64,808
6,434
43,518
9,653
3,435
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
742,511
805,911
384
31,997
42,184
(10,187)
889
889
6,551
(6,645)
33,176
775,687
15,985
103,148
383
32,350
42,537
(10,187)
1,066
1,066
934
5,440
40,174
846,085
12,339
133,696
13
5
13
5
8
9,10
9
9
9
9
42
(25)
(28)
8
3
(4)
52
(12)
5
2
(45)
(54)
(8)
99
(30)
(63)
(18)
(22)
10
(3)
(31)
12
3
(4)
(26)
36
143
(8)
0
(1)
(1)
0
(17)
(17)
601
(17)
(8)
30
(23)
461
Financial information Financial information
UBS AG (Parent Bank)
Statement of appropriation of retained earnings
The Board of Directors proposes that the Annual General Meeting (AGM) on 2 May 2013 approves the following appropriation of
retained earnings:
Proposed appropriation of retained earnings
CHF million
Loss for the period
Total available for appropriation
Appropriation to other reserves
Appropriation to general statutory reserve: retained earnings
Total appropriation
Proposed distribution of capital contribution reserve
For the year ended
31.12.12
(6,645)
(6,645)
(1,751)
(4,894)
(6,645)
The Board of Directors proposes that the AGM on 2 May 2013
approves the pay-out of CHF 0.15 per share of CHF 0.10 par value
out of the capital contribution reserve. Provided that the pro-
posed distribution of the capital contribution reserve is approved,
the payment of CHF 0.15 per share would be made on 10 May
2013 to holders of shares on the record date 8 May 2013. The
shares will be traded ex-dividend as of 6 May 2013, and accord-
ingly the last day on which the shares may be traded with entitle-
ment to receive a pay-out will be 3 May 2013.
CHF million, except where indicated
Total capital contribution reserve before proposed distribution 1, 2
Proposed distribution of capital contribution reserve within general statutory reserve: CHF 0.15 per dividend bearing share 3
Total capital contribution reserve after proposed distribution
For the year ended
31.12.12
42,184
(575)
41,609
1 As presented on the balance sheet, the capital contribution reserve of CHF 42,184 million is a component of the general statutory reserve of CHF 31,997 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 the capital contribution reserve are not subject to withholding tax. This law has led to interpretational dif-
ferences between the Swiss Federal Tax Authorities and companies about the qualifying amounts of the capital contribution reserve and the disclosure in the financial statements. In view of this, the Swiss Federal Tax
Authorities have confirmed that UBS would be able to repay to shareholders CHF 27.4 billion of disclosed capital contribution reserve (status as of 1 January 2011) without being subject to the withholding tax deduction
that applies to dividends paid out of retained earnings. This amount reduced to CHF 27.0 billion as of 31 December 2012 subsequent to the distribution of CHF 379 million as approved by the Annual General Meet-
ing 2012. 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 (Parent Bank) as of the record
date 8 May 2013.
462
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 (Parent Bank) are described in
the context of the description of the activities of the UBS Group in
the “Operating 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
2008 / 7 “Outsourcing-banks”.
Risk assessment
Personnel
UBS AG (Parent Bank), as the ultimate parent company of UBS
Group, is fully integrated into the group wide internal risk assess-
ment process described in the audited part of the “Risk, treasury
and capital management” section of this report.
UBS AG (Parent Bank) employed 35,153 personnel on a full time
equivalent basis as of 31 December 2012, compared with 36,693
personnel on 31 December 2011.
Note 2 Accounting policies
a) Significant accounting policies
UBS AG’s (Parent Bank) financial statements are prepared in ac-
cordance with Swiss Federal banking law. The accounting policies
are principally the same as for the consolidated financial state-
ments outlined in “Note 1 Summary of significant accounting
policies”. Major differences 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 significant accounting
policies applied for the statutory accounts of UBS AG (Parent
Bank) are discussed below. In addition the presentation of the bal-
ance sheet and income statement under Swiss law differs from
the presentation under IFRS. The risk management of UBS AG
(Parent Bank) is described in the context of the risk management
of UBS Group.
statement. Treasury shares recognized as Financial investments
are valued according to the principles of lower of cost or market
value. Realized gains and losses on the sale or acquisition of trea-
sury shares are recognized in the income statement.
For treasury shares held as Financial investments or for non-
genuine trading purposes (e.g. treasury shares held to hedge eq-
uity compensation plans), a Reserve for own shares must be cre-
ated in equity through the reclassification of free reserves equal to
the cost value of the treasury shares held. Repurchases of shares
for the purpose of holding these as Financial investments or non-
genuine trading can be made to the extent that sufficient free re-
serves are available. The Reserve for own shares is not available for
distribution to shareholders. Total treasury shares held cannot ex-
ceed 10% of total issued shares.
Treasury shares
Foreign currency translation
Treasury shares are own equity instruments held by an entity. Un-
der Swiss law, treasury shares are recognized in the balance sheet
as Trading balances in securities and precious metals or as Finan-
cial investments. Short positions in treasury shares are presented
as Trading portfolio liabilities. Treasury shares recognized as trad-
ing balances (which include treasury shares held as economic
hedges of equity compensation plans) and short positions in trea-
sury shares are measured at fair value with unrealized gains or
losses from remeasurement to fair value included in the income
Assets and liabilities of foreign branches are translated into Swiss
francs at the spot exchange rate at the balance sheet date. In-
come and expense items are translated at weighted average
exchange rates for the period. All exchange differences are recog-
nized in the income statement.
The main currency translation rates used by UBS AG (Parent
Bank) can be found in “Note 38 Currency translation rates” to the
consolidated financial statements.
463
Financial information Financial information
UBS AG (Parent Bank)
Note 2 Accounting policies (continued)
Investments in subsidiaries and other participations
Investments in subsidiaries and other participations are equity in-
terests which are held for the purpose of UBS AG’s (Parent Bank)
business activities or for strategic reasons. They include all directly
held subsidiaries through which UBS AG (Parent Bank) 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 operating losses or a severe depreciation of the cur-
rency in which the investment is denominated. If an investment in
subsidiary is impaired, its value is generally written down to the
net asset value. Subsequent recoveries in value are recognized up
to the original cost value based on either the increased net asset
value or 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.
Reversals of impairments are presented as Extraordinary in-
come in the income statement. Impairments of investments are
presented in Profit / (loss) before extraordinary items and taxes un-
der Impairment of investments in subsidiaries and other participa-
tions. The classification as extraordinary income or expense of
prior period related amounts is dependent on whether the invest-
ment in the respective subsidiary, on a net basis, is a partial or full
reversal of impairment (extraordinary income) or an impairment
(extraordinary expenses).
Deferred taxes
Deferred tax assets are not recognized in UBS AG’s (Parent Bank)
financial statements under Swiss Federal banking law. However,
deferred tax liabilities may be recognized for taxable temporary
differ ences. The change in the deferred tax liability balance is rec-
ognized in profit or loss.
Equity participation and other compensation plans
Equity participation plans
Under Swiss law, employee share 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 the General statutory reserve.
464
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 expenses
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 (Parent Bank) and its subsid-
iaries.
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
consolidated financial statements for more information.
Accounting for pension funds
FINMA Circular 2008 / 2 “Accounting – banks” permits the use
of IAS 19 or Swiss GAAP FER 16 (“FER 16”) in the accounting for
the pension plan and defined benefit plans. Election of the ac-
counting standard may be done on a plan-by-plan basis. As of
1 October 2012, UBS AG (Parent Bank) elected to adopt FER 16
for the Swiss pension plan. FER 16 requires recognizing the em-
ployer contributions to the pension fund as personnel expenses.
The employer contributions to the Swiss pension fund are deter-
mined as a percentage of compensation. Under FER 16 it is peri-
odically assessed whether, from the point of view of UBS AG
(Parent Bank), an economic benefit or obligation arises from the
pension fund which, when conditions are met, is recorded on
the balance sheet. The financial statements of the pension fund
prepared in accordance with Swiss GAAP FER 26 (“FER 26”) are
used for the assessment.
UBS AG (Parent Bank) continues to apply IAS 19 to the Interna-
tional defined benefit plans. As of 1 October 2012, UBS AG
(Parent Bank) has adopted the revisions to IAS 19 issued by the
IASB in June 2011. For Swiss GAAP, remeasurements of the de-
fined benefit obligation and the plan assets are recognized in the
income statement rather than equity. Key differences between
FER 16 / 26 and IAS 19R include the treatment of future salary
increases, which are not considered under FER 16 / 26, and the
determination of the discount rate.
Note 2 Accounting policies (continued)
b) Changes in accounting policies, comparability and other adjustments
Presentation of certain structured liabilities
In 2012, UBS amended the balance sheet classification of certain
structured liabilities. As a consequence, financial liabilities of
CHF 10.8 billion as of 30 September 2012 were reclassified from
Money market paper issued to Bonds issued and loans from cen-
tral mortgage institutions. Had UBS not amended the balance
sheet classification of certain structured liabilities, Money market
paper issued would have been CHF 8.6 billion higher and Bonds
issued and loans from central mortgage institutions would have
been CHF 8.6 billion lower as of 31 December 2012.
Measurement of financial investments not held until maturity
Under Swiss federal banking law, financial investments are carried
either at the lower of cost or market value (LOCOM) or at amor-
tized cost less impairment. In July 2012, the Swiss Financial Mar-
ket Supervisory Authority (FINMA) issued a “Frequently Asked
Questions” document that allows the use of amortized cost for
the cost value when applying LOCOM. UBS adopted this account-
ing policy change prospectively as of 1 July 2012. The change in
accounting policy had no material impact on UBS AG’s (Parent
Bank) financial statements.
Accounting for pension funds
In the fourth quarter of 2012, UBS AG (Parent Bank) adopted the
revisions to IAS 19 issued by the IASB in June 2011 (“IAS 19R”) for
the International defined benefit plans, and at the same time ad-
opted FER 16 for the Swiss pension plan.
Further information on the changes introduced by IAS 19R can
be found in “Note 1 Summary of significant accounting policies”
to the consolidated financial statements. The key difference in
applying IAS 19R for Swiss GAAP purposes is that it is not permis-
sible to recognize amounts directly in equity. As a result, under
Swiss GAAP, all actuarial changes are recognized directly in the
income statement.
UBS AG (Parent Bank) has elected to apply FER 16 for the Swiss
pension plan as it is aligned with the Swiss pension framework.
Under FER 16 it is assessed periodically whether, from the point of
view of UBS AG (Parent Bank), an economic benefit or obligation
arises from the pension fund which, when conditions are met, is
recorded on the balance sheet. In addition, FER 16 requires that
employer contributions to the pension fund are recognized direct-
ly as personnel expenses in the income statement.
The cumulative effect of adopting these changes in accounting
policy as of 1 October 2012 was a debit to extraordinary expenses
in the income statement of CHF 3,063 million relating to the
Swiss pension plan and CHF 892 million relating to the Interna-
tional defined benefit plans.
465
Financial information Financial information
UBS AG (Parent Bank)
Additional income statement information
Note 3 Net trading income
CHF million
Investment Bank investment banking
Investment Bank equities
Investment Bank fixed income, currencies and commodities
Other business divisions and Corporate Center
Total
Note 4 Extraordinary income and expenses
CHF million
Gains from disposals of subsidiaries and other participations
Reversal of impairments and provisions of subsidiaries and other participations
Prior period related income
Other extraordinary income
Total extraordinary income
Losses from disposals of subsidiaries and other participations
Prior period related expenses
Expenses related to changes in pension accounting 1
Total extraordinary expenses
For the year ended
% change from
31.12.12
31.12.11
31.12.11
95
1,427
2,398
1,177
5,097
60
(114)
2,312
1,286
3,545
58
4
(8)
44
For the year ended
% change from
31.12.12
31.12.11
31.12.11
37
161
115
116
429
(67)
(96)
(3,954)
(4,117)
192
1 352
280
64
1 888
(10)
(639)
0
(649)
(81)
(88)
(59)
81
(77)
570
(85)
534
1 Refer to “Note 2 Accounting policies” for more information with regard to the adoption of FER16 for the Swiss pension plan and IAS 19R for International defined benefit plans.
466
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
Receivables from subsidiaries
Other receivables
Total other assets
Other liabilities
CHF million
Deferral position for hedging instruments
Settlement and clearing accounts
VAT and other tax payables
Payables to subsidiaries
Other payables 1
Total other liabilities
31.12.12
31.12.11
% change from
31.12.11
0
470
178
1,784
606
3,037
31.12.12
5,453
757
451
770
2,222
9,653
2,980
376
99
2,277
819
6,552
31.12.11
4,400
600
360
754
1,008
7,122
(100)
25
80
(22)
(26)
(54)
% change from
31.12.11
24
26
25
2
120
36
1 Includes liabilities of CHF 1.3 billion arising from fines and disgorgement resulting from regulatory investigations concerning LIBOR and other benchmark rates.
Note 6 Pledged assets
CHF million
Money market paper
Mortgage loans 1
Securities
Pledges of precious metals to subsidiaries
Total 2
31.12.12
31.12.11
Change in %
Carrying value of
pledged assets
Associated
liability
recognized on the
balance sheet
1,880
33,928
49,316
4,163
89,287
1,226
21,902
26,889
0
50,017
Carrying value of
pledged assets3
3,056
27,841
41,892
4,364
77,152
Associated
liability
recognized on the
balance sheet
Carrying value of
pledged assets
Associated
liability
recognized on the
balance sheet
788
16,966
21,027
0
38,781
(38)
22
18
(5)
16
56
29
28
29
1 These pledged mortgage loans serve as collateral for existing liabilities against Swiss central mortgage institutions and for existing covered bond issuances. Of these pledged mortgage loans, approximately CHF
7.5 billion for 31 December 2012 (31 December 2011: approximately CHF 5.7 billion) could be withdrawn or used for future liabilities or covered bond issuances without breaching existing collateral require-
ments. 2 Does not include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes (31 December 2012: CHF 3.5 billion, 31 December 2011: CHF 2.0 bil-
lion). 3 Comparative data has been restated due to a change in the definition of pledged assets. Refer to “Note 1b Changes in accounting policies, comparability, and other adjustments” in the consolidated financial
statements for more information.
UBS AG (Parent Bank) pledges assets mainly in securities lending
transactions, in repurchase transactions, against loans from
Swiss mortgage institutions, in connection with derivative trans-
actions, as security deposits for stock exchanges and clearing-
house memberships, and in connection with the issuance of
covered bonds.
467
Financial information Financial information
UBS AG (Parent Bank)
Note 7 Swiss pension plan and International defined benefit plans
a) Liabilities due to Swiss pension plan and International defined benefit plans
CHF million
Provisions for Swiss pension plan
Provisions for International defined benefit plans
Total provisions for Swiss pension plan and International defined benefit plans1
UBS debt instruments and bank accounts at UBS held by Swiss pension fund
UBS derivative financial instruments held by UBS Swiss pension fund
Total liabilities due to Swiss pension plan and International defined benefit plans
1 Refer to “Note 8 Allowances and provisions”.
b) Swiss pension plan 1
CHF million
Pension cost recognized in UBS’s income statement under IAS 19 until 30 September 2012
of which: current service cost
of which: past service cost related to plan amendment
Employer contributions for the period recognized in UBS’s income statement under FER 16 from 1 October 2012
Performance awards related employer contributions accrued
Total pension expense recognized in UBS’s income statement within Personnel expenses 2
For the year ended
31.12.12
31.12.11
0
510
510
611
98
1,219
0
98
98
516
36
650
As of or for the year ended
31.12.12
31.12.11
(128)
357
(485)
108
14
(6)
353
353
0
N/A
N/A
353
1 The pension plan surplus of CHF 4,115 million as of 31 December 2012 (CHF 4,023 million as of 1 October 2012) is determined in accordance with FER 26 and consists of the reserve for the fluctuation in asset value. The
surplus did not represent an economic benefit for UBS in accordance with FER 16 as of 31 December 2012 or 1 October 2012. 2 In addition, extraordinary expenses of CHF 3,063 million were recognized in the income state-
ment related to changes in accounting for the UBS Swiss pension plan. These extraordinary expenses included the reversal of the credit of CHF 485 million shown on the line Past service cost related to plan amendments.
The Swiss pension plan had no employer contribution reserve in 2012 or 2011. Details on the Swiss pension plan and International
defined benefit plans can be found in “Note 30 Pension and other post-employment benefit plans” to the consolidated financial state-
ments.
468
Note 8 Allowances and provisions
CHF million
Default risks
of which: specific allowances for due from customers and
mortgage loans
of which: specific allowances for due from banks
of which: collective loan loss allowances 1
of which: provisions for loan commitments and guarantees
Operational risks
Litigation risks 2
Restructuring
Real estate 6
Employee benefits
Defined benefit plans
Provisions related to parental support provided by
UBS AG (Parent Bank) to subsidiaries in the form of
indemnities, letter of support, letters of undertaking
and similar agreements
Deferred taxes
Other provisions 8
Total allowances and provisions
Allowances deducted from assets
Total allowances and provisions as per balance sheet
Provisions
applied in
accordance
with their
specified purpose
Recoveries, doubt-
ful interest, cur-
rency translation
differences and
reclassi fications
Balance at
31.12.11
Provisions
released
to income
New provisions
charged to income
Balance at
31.12.12
(129)
(129)
0
(12)
(1,152) 3,4
(161)
(19)
(58)
(34)
(249)
(8)
(1,821)
802
593
17
128
64
22
101
191
100
216
98
258
6
357
2,150
738
1,412
81
79
0
1
0
51
(14)
9
(3)
19
(8)
(42)
92
(220)
(165)
(7)
(28)
(20)
(6)
(47)
(53)
(4)
(61)
(222) 7
(8)
(3)
221
195
12
12
2
19
1,548 4
1,650 5
3
141
649 7
84
2
30
(625)
4,347
754
573
22
113
47
23
501
1,612
88
235
510
84
0
334
4,142
707
3,435
1 Mainly relates to due from customers. 2 Includes provisions for litigation resulting from security risks. 3 Represents amounts paid out for the intended purpose and amounts transferred to Other liabilities – Other
payables, presented in “Note 5 Other assets / Other liabilities” for liabilities, which are no longer uncertain in timing or amount. 4 Mainly relates to provisions arising from fines and disgorgement resulting from regula-
tory investigations concerning LIBOR and other benchmark rates. 5 Refer to “Note 39 Swiss banking law requirements” in the consolidated financial statements for more information with regard to differences between
IFRS and Swiss Federal Banking Law with respect to timing of recognizing restructuring provisions. 6 Includes provisions for onerous lease contracts of CHF 22 million as of 31 December 2012 (31 December 2011:
CHF 30 million) and reinstatement cost provisions for leasehold improvements of CHF 66 million as of 31 December 2012 (31 December 2011: CHF 70 million). 7 Of the total provision release of CHF (222) million,
CHF (119) million related to the adoption of IAS 19R for the International defined benefit plans. Of the total charge to income of CHF 649 million, CHF 610 million related to the adoption of IAS 19R for the Internation-
al defined benefit plans. The net expense of CHF 490 million (CHF 610 million charge less CHF 119 million release) was recorded as extraordinary expense. 8 Includes a reinvestment relief provision related to the sale
of UBS Pactual in 2009.
469
Financial information Financial information
UBS AG (Parent Bank)
Note 9 Statement of shareholders’ equity
CHF million
As of 31 December 2010 and 1 January 2011
Capital increase
Profit / (loss) appropriation
Prior year dividend
Profit / (loss) for the period
Changes in reserve for own shares
As of 31 December 2011 and 1 January 2012
Capital increase
Profit / (loss) appropriation
Prior year dividend
Profit / (loss) for the period
Changes in reserve for own shares
As of 31 December 2012
Share
capital
383
General statutory
reserve
27,379
14
4,525
383
0
432
32,350
26
(379)
384
31,997
Reserve for
own
shares
432
634
1,066
(176)
889
Other
reserves
402
Profit / (loss)
for the year
6,123
1,598
(6,123)
(1,066)
934
5,440
176
6,551
5,440
5,440
(5,440)
(6,645)
(6,645)
Total shareholders’
equity (before
distribution of capital
contribution reserve)
34,719
14
0
0
5,440
0
40,174
26
0
(379)
(6,645)
0
33,176
Note 10 Share capital and significant shareholders
As of 31 December 2012
Issued
of which: shares outstanding
of which: treasury shares held by UBS AG (Parent Bank) 1
of which: treasury shares held by subsidiaries of UBS AG (Parent Bank) 1
Conditional share capital
As of 31 December 2011
Issued
of which: shares outstanding
of which: treasury shares held by UBS AG (Parent Bank) 1
of which: treasury shares held by subsidiaries of UBS AG (Parent Bank) 1
Par value
Dividend bearing
No. of shares
Capital in CHF
No. of shares
Capital in CHF
3,835,250,233
3,747,370,632
87,786,359
93,242
625,510,992
383,525,023
374,737,063
8,778,636
9,324
62,551,099
3,747,463,874
3,747,370,632
374,746,387
374,737,063
93,242
9,324
3,832,121,899
3,747,166,348
84,751,096
204,455
628,639,326
383,212,190
374,716,635
8,475,110
20,446
62,863,933
3,747,370,803
3,747,166,348
374,737,080
374,716,635
204,455
20,446
Conditional share capital
1 During 2012, 114.3 million treasury shares were acquired at market prices and 111.4 million treasury shares were disposed of, mainly related to the delivery of shares under employee share based compensation plans.
Conditional share capital
As of 31 December 2012, 145,510,992 additional shares (31 De-
cember 2011: 148,639,326 shares) could have been issued to
fund UBS‘s employee share option programs. Further conditional
capital up to 100,000,000 shares was available in connection with
an arrangement with the Swiss National Bank (SNB). The SNB pro-
vided a loan to a fund owned and controlled by the SNB (the SNB
StabFund), to which UBS transferred certain illiquid securities and
other positions. As part of this arrangement, UBS granted war-
rants on shares to the SNB and these warrants become exercisable
if the SNB incurs a loss on its loan to the SNB StabFund.
Further on 14 April 2010, the Annual General Meeting of UBS
AG (Parent Bank) shareholders approved the creation of condi-
tional capital to a maximum amount of 380,000,000 shares for
conversion rights / warrants granted in connection with the issu-
ance of bonds or similar financial instruments.
470
Significant shareholders
According to disclosure notifications filed with UBS AG and the
SIX under the Swiss Stock Exchange Act, on 30 September 2011,
Norges Bank (the Central Bank of Norway), Oslo, disclosed a hold-
ing of 3.04%. On 12 March 2010, the Government of Singapore
Investment Corp., Singapore, as beneficial owner, disclosed a
holding by the Government of Singapore Investment Corp. of
6.45%. On 17 December 2009, BlackRock Inc., New York, dis-
closed a holding of 3.45%. In accordance with the Swiss Stock
Exchange Act, the percentages indicated above were calculated in
relation to the total UBS share capital reflected in the 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_share-
holders_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 ”Significant share-
holders” below were registered with 3% or more of the total
share capital on 31 December 2012, 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
31.12.12
Total nominal
Chase Nominees Ltd, London
DTC (Cede & Co.), New York 1
Government of Singapore Investment Corp., Singapore
Nortrust Nominees Ltd, London
Quantity
457,784,081
202,368,918
245,517,417
147,144,758
value (CHF million)
46
20
25
15
Share %
11.94
5.28
6.40
3.84
Quantity
419,533,402
270,808,806
245,481,682
160,917,513
1 DTC (Cede & Co.), New York, “The Depository Trust Company”, is a US securities clearing organization.
31.12.11
Total nominal
value (CHF million)
42
27
25
16
Share %
10.95
7.07
6.41
4.20
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. Refer to the “Compensation of the members of the Board of Di-
rectors and the Group Executive Board” section for information on loans granted to GEB and BoD members. Amounts due from / to
subsidiaries are disclosed on the “Balance sheet”.
471
Financial information Financial information
UBS AG (Parent Bank)
Off-balance sheet and other information
Note 12 Commitments and contingent liabilities
CHF million
Contingent liabilities
of which: Guarantees to third parties related to subsidiaries
of which: credit guarantees and similar instruments
of which: performance guarantees and similar instruments
of which: documentary credits
Irrevocable commitments
of which: loan commitments
of which: underwriting commitments
of which: payment commitment related to deposit insurance
Forward starting transactions 1
of which: reverse repurchase agreements
of which: securities borrowing agreements
of which: repurchase agreements
Liabilities for calls on shares and other equities
1 Cash to be paid in the future by either UBS or the counterparty.
31.12.12
115,254
97,335
7,676
2,847
7,397
68,420
67,448
0
972
33,510
22,321
249
10,940
63
31.12.11
137,661
121,072
7,595
2,843
6,151
66,107
64,302
850
955
47,273
23,491
503
23,279
126
% change from
31.12.11
(16)
(20)
1
0
20
3
5
(100)
2
(29)
(5)
(50)
(53)
(50)
The table above includes indemnities and guarantees issued by
UBS AG (Parent Bank) for the benefit of subsidiaries and creditors
of subsidiaries.
UBS AG has issued a guarantee for the benefit of each coun-
terparty of UBS Limited. Under this guarantee, UBS AG irrevocably
and unconditionally guarantees each and every obligation that
UBS Limited entered into. UBS AG promises to pay to that coun-
terparty on demand any unpaid balance of such liabilities under
the terms of the guarantee.
In instances in which the indemnity amount issued by UBS AG
(Parent Bank) is not specifically defined, the indemnity relates to
the solvency or minimum capitalization of a subsidiary, and there-
fore no amount is included in the table above.
In addition, UBS AG (Parent Bank) is jointly and severally liable
for the value added tax (VAT) liability of Swiss subsidiaries that
belong to its VAT group. This contingent liability is not included in
the table above.
Note 13 Derivative instruments 1
31.12.12
31.12.11
CHF million, unless indicated otherwise
Interest rate contracts
Credit derivative contracts
Foreign exchange contracts
Precious metal contracts
Equity / Index contracts
Commodities contracts, excluding precious metal contracts
Total before netting 4
Replacement value netting
Total after netting
PRV 2
238,567
31,935
83,808
1,789
13,397
797
370,293
335,087
35,206
NRV 3
234,016
33,152
93,450
2,118
15,018
852
378,606
335,087
43,518
Notional
amount
(CHF billion)
28,129
2,400
6,689
109
505
86
37,918
PRV 2
264,146
67,364
97,158
4,193
16,538
775
450,173
385,593
64,580
Notional amount
(CHF billion)
36,209
2,737
6,323
99
416
110
45,894
NRV 3
252,725
62,704
106,117
3,924
18,105
1,012
444,587
385,593
58,994
1 Bifurcated embedded derivatives are presented in the same balance sheet line as the host contract and are excluded from this table 2 PRV: Positive replacement value. 3 NRV: Negative replacement value.
4 Replacement values are presented net of cash collateral, where applicable.
472
Note 14 Fiduciary transactions
CHF million
Deposits:
with third-party banks
with subsidiaries
Total
31.12.12
31.12.11
31.12.11
% change from
6,175
2,261
8,436
9,375
2,346
11,721
(34)
(4)
(28)
Fiduciary transactions encompass transactions entered into or
granted by UBS that result in holding or placing assets on behalf
of individuals, trusts, defined benefit plans and other institutions.
Unless the recognition criteria for the assets are satisfied, these
assets and the related income are excluded from UBS AG’s (Parent
Bank) balance sheet and income statement, but disclosed in this
Note as off-balance sheet fiduciary transactions. Client deposits
which are initially placed as fiduciary transactions with UBS AG
(Parent Bank) may be recognized on UBS AG’s (Parent Bank) bal-
ance sheet in situations in which the deposit is subsequently
placed within UBS AG (Parent Bank). In such cases, these deposits
are not reported in the table above.
473
Financial information Financial information
UBS AG (Parent Bank)
Compensation of the members of the Board of Directors
and the Group Executive Board
d
e
t
i
d
u
A
Total compensation for GEB members for the performance years 2011 and 2012
CHF, except where indicated a
Name, function
For the year
Base salary
Sergio P. Ermotti, Group CEO 2012
Sergio P. Ermotti, Group CEO 2 2011
Oswald J. Grübel,
former Group CEO 3
Robert J. McCann,
CEO Wealth Management
Americas (highest-paid
after Group CEO)
2011
2012
Immediate
cash
(for 2011
under CBP) b
0
553,200
2,500,000
1,394,445
2,191,667
0
Annual
performance
award
under
EOP c
3,660,000
Annual
performance
award
under
DCCP d
2,440,000
Annual
performance
award
under
PEP e
–
Annual
performance
award
under
SEEOP f
–
Deferred
cash under
CBP 1, b
–
Contribu-
tions to
retirement
benefit
plans h
201,088
Benefits
in kind g
69,500
Total
8,870,588
–
–
–
–
1,290,800
922,000
1,844,000
195,450
150,816
6,350,711
0
–
0
–
0
–
35,971
0
2,227,638
45,004
6,110
8,555,366
1,373,130
0
4,278,673
2,852,449
Robert J. McCann,
CEO Wealth Management
Americas (highest-paid)
Aggregate of all GEB
members who were in office
at the end of the year 4
Aggregate of all GEB
members who stepped
down during the year 5
2011
2012
2011
2012
2011
1,321,538
1,869,233
–
–
1,246,155
1,557,694
3,115,388
67,053
6,264
9,183,325
16,273,460
0
31,355,592
20,903,728
–
–
–
640,683
1,233,719
70,407,181
15,962,737
11,929,365
1,593,288
4,155,602
0
509,201
–
0
–
–
0
–
8,874,910
10,402,137
20,804,274
1,165,601
995,290
70,134,314
–
1,166,759
–
0
–
962,768
105,865
171,954
14,799
80,499
1,713,952
7,046,783
1 In 2011, for Sergio P. Ermotti, due to applicable UK FSA regulations, deferred cash includes blocked shares. 2 Sergio P. Ermotti was appointed on 1 April 2011 as GEB member and Regional CEO of Europe, Middle
East and Africa. He was appointed as the new Group CEO ad interim on 24 September 2011 and confirmed as Group CEO on 15 November 2011. 3 Oswald J. Grübel stepped down on 24 September 2011 as Group
CEO. 4 Number and distribution of GEB members: 11 GEB members were in office on 31 December 2012 and 12 GEB members were in office on 31 December 2011. 5 Number and distribution of former GEB mem-
bers: 2012: includes three months in office as a GEB member for Alexander Wilmot-Sitwell and 10 months in office as a GEB member for Carsten Kengeter. 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.
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. For performance year 2012, no immediate cash was paid. For performance year 2011, 40% of the 2011 performance award was granted in the form of
Cash Balance Plan awards, of which 60% is paid out immediately (representing 24% of a GEB member’s performance award). The balance is paid out
in equal installments of 20%, each over the subsequent two years, and is subject to performance adjustments.
c. For EOP awards for the performance year 2012, the number of shares allocated at grant will be determined by dividing the amount communicated with
the average price of UBS shares over the 10 trading days prior to and including the grant date (15 March 2013), which for notional shares is adjusted
for the estimated value of dividends paid on UBS shares over the vesting period. As the grant date occurs after publication, no share price is yet available
at the time of publication.
d. DCCP awards vest in full after year 5 of the five-year vesting period. The amount reflects the amount of the notional bond excluding future notional inter-
est. The notional interest rate is set at 6.25% for awards denominated in USD and 5.40% for awards denominated in CHF.
e. For PEP awards for the performance year 2011, the number of performance shares allocated at grant has been determined by dividing the amount com-
municated with CHF 12.52 or USD 13.75 (based on the average price of UBS shares over the last 10 trading days of February 2012 adjusted for the esti-
mated value of dividends paid on UBS shares over the vesting period).
For SEEOP awards for the performance year 2011, the number of shares allocated at grant has been determined by dividing the amount communicated
with CHF 12.92 or USD 14.19 (for actual shares) and with CHF 12.52 or USD 13.75 (notional shares), based on the average closing price of UBS shares
over the last 10 trading days of February 2012, which for notional shares is adjusted for the estimated value of dividends paid on UBS shares over the
vesting period.
f.
g. Benefits in kind are all valued at market price, for example, health and welfare benefits and general expense allowances.
h. 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 (CHF 842,400 as from 1 January 2013). The retirement benefits consist of a pension, a bridging pension and a one-off payout
of accumulated capital. Employees must also contribute to the plan. This figure excludes the mandatory employer’s social security contributions (AHV, ALV),
but includes the portion attributed to the employer’s portion of the legal BVG requirement. The employee contribution is included in the base salary and
annual incentive award components. In both the US and the UK, senior management participates in the same pension plans as all other employees. In the
US, there are separate pension plans for Wealth Management Americas compared with the other business divisions. There are generally two different types
of pension plans: 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 compensation limited to USD 250,000 (or USD 150,000 for Wealth Management Americas employees). The principal plans for new hires are defined
contribution plans. In the defined contribution plans, UBS makes contributions to the plan based on compensation and limited to USD 250,000 (USD
255,000 as from 1 January 2013). US management may also participate in a 401(k) defined contribution plan (open to all employees), which provides a
limited company matching contribution for employee contributions. In 2012, Wealth Management Americas employees with a compensation in excess of
USD 250,000 did not receive a company match. Effective 1 January 2013, the match was reinstated for these employees. In the UK, management partici-
pates in either the principal pension plan, which operates on a defined contribution basis and is limited to an earnings cap of GBP 100,000, or a grandfa-
thered defined benefit plan which provides a pension upon retirement based on career average base salary (individual caps introduced as of 1 July 2010).
474
d
e
t
i
d
u
A
Share and option ownership / entitlements of GEB members on 31 December 2011 / 2012 1
Name, function
For the year
Sergio P. Ermotti, Group Chief Executive Officer
Markus U. Diethelm, Group General Counsel
John A. Fraser, Chairman and CEO Global Asset Management
Lukas Gähwiler, CEO UBS Switzerland and
CEO Retail & Corporate
Carsten Kengeter, former co-CEO Investment Bank 5
Ulrich Körner, Group Chief Operating Officer,
CEO Corporate Center and CEO Group EMEA
Philip J. Lofts, Group Chief Risk Officer
Robert J. McCann, CEO Group Americas and
CEO Wealth Management Americas
Tom Naratil, Group Chief Financial Officer
Andrea Orcel, CEO Investment Bank
Alexander Wilmot-Sitwell, former co-Chairman and
co-CEO Group Asia Pacific 5
Chi-Won Yoon, CEO Group Asia Pacific
Jürg Zeltner, CEO UBS Wealth Management
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2012
2011
2012
2011
2012
2011
Number of
unvested
shares / at risk 2
220,928
Number of
vested shares
Total number
of shares
41,960
262,888
0
506,132
358,042
617,529
460,707
412,199
252,293
–
971,575
605,284
389,090
542,402
377,614
658,470
330,047
340,757
221,238
1,755,691
–
–
495,553
478,986
306,515
522,500
306,487
0
126,098
91,506
315,270
280,414
95,537
37,517
–
556,016
121,837
95,597
169,789
150,772
18,112
0
233,603
193,836
0
–
–
220,955
370,760
350,311
38,329
11,756
0
632,230
449,548
932,799
741,121
507,736
289,810
–
1,527,591
727,121
484,687
712,191
528,386
676,582
330,047
574,360
415,074
1,755,691
–
–
716,508
849,746
656,826
560,829
318,243
Potentially
conferred voting
rights in %
0.013
0.000
0.030
0.021
0.045
0.034
0.024
0.013
–
0.070
0.035
0.022
0.034
0.024
0.032
0.015
0.027
0.019
0.084
–
–
0.033
0.041
0.030
0.027
0.015
Number of
options 3
0
Potentially
conferred voting
rights in % 4
0.000
0
0
0
884,531
1,088,795
0
0
–
905,000
0
0
536,173
577,723
0
0
935,291
1,046,122
0
–
–
353,807
578,338
623,253
203,093
205,470
0.000
0.000
0.000
0.042
0.050
0.000
0.000
–
0.041
0.000
0.000
0.026
0.026
0.000
0.000
0.045
0.048
0.000
–
–
0.016
0.028
0.029
0.010
0.009
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 the “Deferred variable compensation plans” section in this report for more information on the plans. 3 Refer to “Note 31 Equity
participation and other compensation plans” in the “Financial information” section of this report for more information. 4 No conversion rights are outstanding. 5 GEB members who stepped down during 2012.
475
Financial information d
e
t
i
d
u
A
d
e
t
i
d
u
A
Financial information
UBS AG (Parent Bank)
Compensation details and additional information for non-independent BoD members
CHF, except where indicated a
Name, function 1
Axel A. Weber, Chairman
Kaspar Villiger, former Chairman
For the year
2012
2011
2012
2011
Base salary
1,322,581
–
354,167
850,000
Annual
performance
award (cash)
–
–
–
0
Annual
share award
2,003,9952
–
200,000 2
500,000 2
Benefits in kind g
69,867
–
54,926
144,568
Contributions
to retirement
benefit plans h
171,898
–
–
0
Total
3,568,341
–
609,093
1,494,568
1 Axel A. Weber was the only non-independent member in office on 31 December 2012; Kaspar Villiger did not stand for reelection at the AGM on 3 May 2012. Kaspar Villiger was the only non-independent member in
office on 31 December 2011. 2 These shares are blocked for four years.
Remuneration details and additional information for independent BoD members
CHF, except where indicated a
e
e
t
t
i
m
m
o
C
t
i
d
u
A
M
M
M
M
M
C
C
M
M
&
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
M
M
M
C
C
M
M
M
M
2012/2013 325,000
2011/2012 325,000
C 2012/2013 325,000
C 2011/2012 325,000
M 2012/2013 325,000
M 2011/2012 325,000
2012/2013
–
2011/2012 325,000
2012/2013 325,000
2011/2012 325,000
M 2012/2013 325,000
M 2011/2012 325,000
2012/2013 325,000
2011/2012 325,000
M 2012/2013 325,000
M 2011/2012 325,000
2012/2013 325,000
2011/2012 325,000
2012/2013 325,000
2011/2012
–
300,000
300,000
500,000
500,000
300,000
400,000
–
200,000
500,000
550,000
300,000
250,000
200,000
200,000
300,000
300,000
350,000
300,000
300,000
–
2012/2013 325,000
250,000
2011/2012
–
M 2012/2013 325,000
M 2011/2012 325,000
–
250,000
250,000
M
C
C
M
M
M
M
Name, function 1
Michel Demaré,
Vice Chairman
David Sidwell,
Senior Independent Director
Rainer-Marc Frey,
member
Bruno Gehrig,
former member
Ann F. Godbehere,
member
Axel P. Lehmann,
member
Wolfgang Mayrhuber,
member
Helmut Panke,
member
William G. Parrett,
member
Isabelle Romy,
member
Beatrice Weder di Mauro,
member
Joseph Yam,
member
Total 2012
Total 2011
Total
875,000
Additional
payments
250,000 5
250,000 5
875,000
250,000 5 1,075,000
250,000 5 1,075,000
625,000
725,000
–
525,000
825,000
875,000
625,000
575,000
525,000
525,000
625,000
625,000
675,000
625,000
625,000
–
575,000
–
575,000
575,000
7,625,000
7,000,000
Share
percentage 2
50
Number of
shares 3, 4
34,233
50
50
50
100
100
50
50
50
100
100
50
50
50
50
50
50
50
50
50
50
39,845
42,057
48,952
46,367
62,635
23,907
32,276
39,845
46,367
49,632
20,539
23,907
24,452
28,460
26,408
28,460
24,452
22,496
22,496
26,183
Legend: C = Chairperson of the respective Committee; M = Member of the respective Committee
1 There were 11 independent BoD members in office on 31 December 2012. Isabelle Romy and Beatrice Weder di Mauro were appointed at the AGM on 3 May 2012 and Bruno Gehrig did not stand for reelection at the
AGM on 3 May 2012. 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. 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 2012, shares valued at CHF 15.03 (average
price of UBS shares at SIX Swiss Exchange over the last 10 trading days of February 2013), and were granted with a price discount of 15% for a new value of CHF 12.78. These shares are blocked for four years. 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), and were granted with a price discount of 15% for a new value of CHF 10.98. 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 subject to social security contributions / withholding
tax. 5 This payment is associated with the Vice Chairman or the Senior Independent Director function, respectively.
476
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Total payments to BoD members
CHF, except where indicated a
Aggregate of all BoD members
Number of shares of BoD members on 31 December 2011 / 2012 1
Name, function
Axel A. Weber, Chairman 2
Kaspar Villiger, former Chairman 3
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Rainer-Marc Frey, member
Bruno Gehrig, former member 3
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member
Isabelle Romy, member 2
Beatrice Weder di Mauro, member 2
Joseph Yam, member
For the year
2012
2011
Total
11,802,434
8,494,568
For the year
Number of shares held
Voting rights in %
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
200,000
0.010
–
–
49,440
116,179
76,334
149,199
100,247
162,677
100,042
–
54,409
81,286
41,441
139,603
89,971
38,957
15,050
137,792
109,332
91,078
62,618
0
–
0
–
26,183
0
0.002
0.006
0.003
0.007
0.005
0.008
0.005
0.002
0.004
0.002
0.007
0.004
0.002
0.001
0.007
0.005
0.004
0.003
0.000
0.000
0.001
0.000
1 This table includes blocked and unblocked shares held by BoD members, including related parties. No options were granted in 2011 and 2012. 2 Axel A. Weber, Isabelle Romy and Beatrice Weder di Mauro were ap-
pointed at the AGM on 3 May 2012. 3 Kaspar Villiger and Bruno Gehrig did not stand for reelection at the AGM on 3 May 2012.
477
Financial information Financial information
UBS AG (Parent Bank)
d
e
t
i
d
u
A
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Compensation paid to former BoD and GEB members1
CHF, except where indicated a
Name, function
Former BoD members
Aggregate of all former GEB members 2
Aggregate of all former BoD and GEB members
For the year
Compensation
Benefits in kind
2012
2011
2012
2011
2012
2011
0
0
0
0
0
0
0
0
25,465
0
25,465
0
Total
0
0
25,465
0
25,465
0
1 Compensation or remuneration that is connected with the former member’s activity on the BoD or GEB or that is not at market conditions. 2 Includes one former GEB member in 2012 and no former GEB member in
2011.
Total of all vested and unvested shares of GEB members 1, 2
Total
Of which
vested
Of which vesting
2013
2014
2015
Shares on 31 December 2012
3,414,568
1,531,295
952,668
583,281
347,324
Shares on 31 December 2011
2,863,887
1,988,680
408,037
290,631
1 Includes related parties. 2 Excludes shares granted under variable compensation plans with forfeiture provisions.
2012
2013
2014
88,269
2016
0
2015
88,269
2017
0
2016
0
Total of all blocked and unblocked shares of BoD members 1
Shares on 31 December 2012
1,142,954
56,624
302,118
204,792
231,501
347,919
Shares on 31 December 2011
1 Includes related parties.
698,884
72,775
2012
9,349
2013
2014
2015
115,690
225,995
275,075
Total
Of which
unblocked
Of which blocked until
2013
2014
2015
2016
478
Vested and unvested options of GEB members on 31 December 2011 / 2012 1
d
e
t
i
d
u
A
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
Philip J. Lofts, Group Chief Risk Officer (continued)
2012
2011
0
0
Markus U. Diethelm, Group General Counsel
2012
2011
0
0
John A. Fraser, Chairman and CEO Global Asset Management
2012
884,531
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
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
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 CEO Retail & Corporate
2012
2011
0
0
2011
577,723
117,090
2005
01.03.2008
28.02.2015
CHF 52.32
117,227
2006
01.03.2009
28.02.2016
CHF 72.57
85,256
2007
01.03.2010
28.02.2017
CHF 73.67
74 599
2008
01.03.2011
28.02.2018
CHF 35.66
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
2007
01.03.2010
28.02.2017
CHF 73.67
2008
01.03.2011
28.02.2018
CHF 35.66
Carsten Kengeter, former co-CEO Investment Bank 4
2012
–
2011
905,000
905,000
2009
01.03.2012
27.12.2019
CHF 40.00
Robert J. McCann, CEO Group Americas and
CEO Wealth Management Americas
2012
2011
0
0
Tom Naratil, Group Chief Financial Officer
2012
935,291
63,942
2003
31.01.2006
31.01.2013
USD 22.53
Ulrich Körner, Group Chief Operating Officer,
CEO Corporate Center and CEO Group EMEA
2012
2011
0
0
Philip J. Lofts, Group Chief Risk Officer
2012
536,173
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
2011
1,046,122
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
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
35,524
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
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial information”
section of this report for more information. 4 GEB member who stepped down during 2012.
479
Financial information Financial information
UBS AG (Parent Bank)
Vested and unvested options of GEB members on 31 December 2011 / 2012 1 (continued)
d
e
t
i
d
u
A
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
Tom Naratil, Group Chief Financial Officer (continued)
Chi-Won Yoon, CEO Group Asia Pacific (continued)
145,962
2004
01.03.2007
27.02.2014
USD 38.13
2011
623,253
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
Andrea Orcel, CEO Investment Bank
2012
2011
0
–
Alexander Wilmot-Sitwell, former co-Chairman and co-CEO Group Asia Pacific 4
2012
–
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
85,256
2008
01.03.2011
28.02.2018
CHF 35.66
Chi-Won Yoon, CEO Group Asia Pacific
2012
578,338
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
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
Jürg Zeltner, CEO UBS Wealth Management
2004
27.02.2006
27.02.2014
CHF 44.32
2012
203,093
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
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
4,972
7,106
7,103
7,103
93
161
149
127
7,106
7,103
7,103
110
242
230
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
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 31 Equity participation and other compensation plans” in the “Financial information”
section of this report for more information. 4 GEB member who stepped down during 2012.
480
Vested and unvested options of GEB members on 31 December 2011 / 2012 1 (continued)
d
e
t
i
d
u
A
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
Jürg Zeltner, CEO UBS Wealth Management (continued)
Jürg Zeltner, CEO UBS Wealth Management (continued)
2011
205,470
221
2006
08.12.2008
08.12.2016
CHF 67.63
7,105
7,105
7,103
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
2008
01.03.2011
28.02.2018
CHF 35.66
90,000
2009
01.03.2012
27.02.2019
CHF 11.35
809
784
784
4,972
7,106
7,103
7,103
93
161
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
149
127
7,106
7,103
7,103
110
242
230
221
7,105
7,105
7,103
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 31 Equity participation and other compensation plans” in the “Financial information”
section of this report for more information.
481
Financial information d
e
t
i
d
u
A
d
e
t
i
d
u
A
Financial information
UBS AG (Parent Bank)
Loans granted to GEB members on 31 December 2011 / 2012 1
CHF, except where indicated
Name, function
Markus U. Diethelm, Group General Counsel 3
Jürg Zeltner, CEO UBS Wealth Management 3
Aggregate of all GEB members
For the year
2012
2011
2012
2011
Loans 2
5,564,012
5,387,500
18,862,820
17,539,601 4
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 311,308 in 2012 and CHF 45,435 in 2011.
3 GEB member with the highest loan granted. 4 Includes a forgivable loan of CHF 3.3 million, subject to the GEB member’s continued full-time employment with UBS and a performance satisfactory and commensurate
with his responsibilities. The loan was fully repaid in 2012, as the GEB member stepped down during the year.
Loans granted to BoD members on 31 December 2011 / 2012 1
CHF, except where indicated a
Name, function
Axel A. Weber, Chairman 3
Kaspar Villiger, former Chairman 4
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Rainer-Marc Frey, member
Bruno Gehrig, former member 4, 5
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, member
Helmut Panke, member
William G. Parrett, member
Isabelle Romy, member 3
Beatrice Weder di Mauro, member 3
Joseph Yam, member
Aggregate of all BoD members
For the year
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
Loans 2
0
–
–
0
500,000
850,000
0
0
0
0
–
798,000
0
0
0
0
0
0
0
0
0
0
0
–
0
–
0
0
500,000
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 Axel A. Weber, Isabelle Romy and Beatrice Weder di Mauro
were appointed at the AGM on 3 May 2012. 4 Kaspar Villiger and Bruno Gehrig did not stand for reelection at the AGM on 3 May 2012. 5 Secured loan granted prior to his election to the BoD.
482
483
Financial information Financial information
UBS AG (Parent Bank)
484
485
Financial information A – Introduction
The following pages contain additional disclosures about 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.
487
Financial informationAdditional disclosure required under SEC regulations Financial information
Additional disclosure required under SEC regulations
The tables below provide information concerning the noon
purchase 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 for cable transfers in foreign currencies as
certified for customs purposes by the Federal Reserve Bank
of New York.
On 28 February 2013, the noon purchase rate was 1.0711
USD per 1 CHF.
Year ended 31 December
2008
2009
2010
2011
2012
Month
September 2012
October 2012
November 2012
December 2012
January 2013
February 2013
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
0.9298
0.9260
0.9670
1.1398
1.0724
0.9369
0.9654
1.0673
1.0668
1.0923
High
1.0142
1.0016
1.0673
1.3706
1.1174
High
1.0811
1.0850
1.0794
1.0971
1.0997
1.1074
Low
0.8171
0.8408
0.8610
1.0251
1.0043
Low
1.0462
1.0638
1.0545
1.0715
1.0700
1.0711
488
B – Selected financial data 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 core tier 1 capital ratio (%) 1
BIS total capital ratio (%) 1
BIS risk-weighted assets 1
Invested assets (CHF billion) 2
Personnel (full-time equivalents)
Americas
of which: USA
Asia Pacific
Europe, Middle East and Africa
of which: United Kingdom
of which: Rest of Europe
of which: Middle East and Africa
Switzerland
Total
31.12.12
31.12.11
31.12.10
31.12.09
31.12.08
As of or for the year ended
1,259,232
1,416,962
1,314,813
1,338,239
2,012,876
45,895
3.4
54,729
48,530
3.2
42,843
43,728
2.7
58,803
37,704
1.7
57,108
28,244
1.3
43,519
3,835,250,233
3,832,121,899
3,830,840,513
3,558,112,753
2,932,580,549
87,879,601
84,955,551
38,892,031
37,553,872
61,903,121
19.0
25.2
192,505
2,230
21,995
20,833
7,426
10,829
6,459
4,202
167
22,378
62,628
14.1
17.2
240,962
2,088
22,924
21,746
7,690
11,019
6,674
4,182
162
23,188
64,820
17.8
20.4
198,875
2,075
23,178
22,031
7,263
10,892
6,634
4,122
137
23,284
64,617
15.4
19.8
206,525
2,160
23,834
22,702
6,865
10,484
6,204
4,145
134
24,050
65,232
11.0
15.0
302,273
2,174
29,346
27,362
9,998
12,032
7,071
4,817
145
26,406
77,783
1 Capital management data as of 31 December 2012 and as of 31 December 2011 is disclosed in accordance with the Basel 2.5 framework. Capital management data as of 31 December 2010, 31 December 2009
and 31 December 2008 is disclosed in accordance with the Basel II framework. Refer to the “Capital management” section of this report for more information. 2 In 2012, the definition of invested assets was refined.
Prior period data were restated for this change, with the exception of data for 31 December 2008. Refer to “Note 35 Invested assets and net new money” within the Notes to the consolidated financial statements for
more information.
489
Financial information 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 / (loss) from continuing operations before tax
Tax expense / (benefit)
Net profit / (loss) from continuing operations
Net profit / (loss) from discontinued operations
Net profit / (loss)
Net profit attributable to non-controlling interests
Net profit / (loss) 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
31.12.12
15,968
(9,974)
5,994
(118)
5,875
15,405
3,480
682
25,443
27,216
(1,774)
461
(2,235)
0
(2,235)
276
(2,511)
106.5
(0.67)
(0.67)
0.15
(22.4)
(5.2)
(5.1)
(0.2)
31.12.11
17,969
(11,143)
6,826
(84)
6,742
15,236
4,343
1,467
27,788
22,482
5,307
901
4,406
0
4,406
268
4,138
80.7
1.10
1.08
0.10
0.11
9.1
9.1
9.1
0.3
For the year ended
31.12.10
18,872
(12,657)
6,215
(66)
6,149
17,160
7,471
1,214
31,994
24,650
7,345
(409)
7,754
2
7,756
304
7,452
76.9
1.97
1.94
N/A
N/A
N/A
18.0
17.9
0.5
31.12.09
31.12.08
23,461
(17,016)
6,446
(1,832)
4,614
17,712
(324)
599
22,601
25,128
(2,527)
(444)
(2,082)
(7)
(2,089)
610
(2,700)
102.8
(0.74)
(0.74)
N/A
N/A
N/A
(7.9)
(8.7)
(0.1)
65,679
(59,687)
5,992
(2,996)
2,996
22,929
(25,820)
692
796
28,290
(27,493)
(6,777)
(20,716)
198
(20,519)
568
(21,087)
746.0
(7.55)
(7.56)
N/A
N/A
N/A
(59.0)
(68.3)
(0.9)
1 Operating expenses / operating income before credit loss expense. 2 Refer to “Note 8 Earnings per share (EPS) and shares outstanding” in the consolidated financial statements for more information. 3 Dividends
and / or distribution of capital contribution reserve are normally approved and paid in the year subsequent to the reporting period. 4 For the year 2012, an amount of CHF 0.15 per share will be paid out of capital con-
tribution reserve on 10 May 2013, subject to approval by shareholders at the Annual General Meeting on 2 May 2013. The USD amount per share will be determined on 6 May 2013. 5 Net profit attributable to UBS
shareholders / average equity attributable to UBS shareholders. The calculation excludes expected deductions for dividends and distribution of capital contribution reserve.
490
Balance sheet data
CHF million
Assets
Total 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 which may be sold
or repledged by counterparties
Positive replacement values
Cash collateral receivables on derivative instruments
Loans
Financial investments available-for-sale
Other assets
Liabilities and equity
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
31.12.12
31.12.11
31.12.10
31.12.09
31.12.08
1,259,232
1,416,962
1,314,813
1,338,239
2,012,876
66,383
21,230
37,372
130,941
160,861
44,698
418,029
30,413
279,901
66,383
11,055
23,024
9,203
37,639
34,154
395,070
71,148
92,878
371,892
104,656
59,902
45,895
40,638
23,218
58,763
213,501
181,525
39,936
486,584
41,322
266,604
53,174
9,165
30,201
8,136
102,429
39,480
473,400
67,114
88,982
342,409
140,617
62,784
48,530
26,939
17,133
62,454
142,790
228,815
61,352
401,146
38,071
262,877
74,768
19,506
41,490
6,651
74,796
54,975
393,762
58,924
100,756
332,301
130,271
62,674
43,728
20,899
16,804
63,507
116,689
232,258
44,221
421,694
53,774
266,477
81,757
20,642
31,922
7,995
64,175
47,469
409,943
66,097
112,653
339,263
131,352
70,953
37,704
32,744
17,694
122,897
224,648
312,054
40,216
854,100
85,703
291,456
5,248
16,916
76,822
14,063
102,561
62,431
851,864
92,937
101,546
362,639
197,254
101,560
28,244
491
Financial informationRatio of earnings to fixed chargesThe following table sets forth UBS’s ratio of earnings to fixed charges on an IFRS basis for the periods indicated. The ratios are calculated based on earnings from continuing operations.For the year ended31.12.1231.12.1131.12.1031.12.0931.12.080.801.421.520.830.54 Financial information
Additional disclosure required under SEC regulations
492
C – Information on the companyAt 31 December 2012, UBS operated about 874 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, 35% were owned directly by UBS, Property, plant and equipmentwith 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. 493
Financial informationD – Information required by industry guide 3Selected statistical informationThe following tables set forth selected statistical information regarding the Group’s banking operations extracted from the Financial Statements. Unless otherwise indicated, average bal-ances for the years ended 31 December 2012, 31 December 2011 and 31 December 2010 are calculated from monthly data. The distinction between domestic and foreign is generally based on the booking location. For loans, this method is not significantly different from an analysis based on the domicile of the borrower. 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.
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 and other
31.12.12
Average
balance
Interest
income
Average
yield (%)
Average
balance
31.12.11
Interest
income
Average
yield (%)
Average
balance
31.12.10
Interest
income
Average
yield (%)
3,566
24,729
33
282
4,884
4
263,958
1,155
6,019
156,839
235
4,247
0.9
1.1
0.1
0.4
3.9
2.7
3,465
17,623
8,025
281,544
12,821
189,861
1,313
22
142
15
1,485
299
5,163
4
156,839
4,247
2.7
191,174
5,167
9
21
36,892
143
0.4
37,696
454
8,790
185,969
88,246
1,572
61,412
61,412
369
4,280
2,150
8
373
373
493
8,262
3,465
60,026
4.2
2.3
2.4
0.5
0.6
0.6
60,026
7,143
439
850,482
13,718
6.1
1.6
12,001
901,496
1,804
446
0
324
0
248
4
611
611
501
15,624
1,923
422
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
2.7
0.1
1.0
1.0
74,821
0
15,227
973,206
4.2
1.7
13
60
8
1,221
231
5,769
15
5,784
306
0
262
18
539
539
0
484
16,210
2,234
428
182,125
82,755
4,604
2,203
179,164
90,032
4,921
2,363
0.4
0.4
0.1
0.4
1.6
2.7
0.7
2.7
0.6
2.9
2.7
2.6
1.1
0.7
0.7
3.2
1.7
Interest income and average interest-earning assets
850,482
15,968
1.9
901,496
17,969
2.0
973,206
18,872
1.9
Non-interest-earning assets
Positive replacement values
Fixed assets
Other
Total average assets
459,582
5,859
130,901
1,446,824
410,839
5,420
86,469
1,404,224
471,046
5,884
79,585
1,529,721
494
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.
31.12.12
31.12.11
31.12.10
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
25,843
7,709
6,289
147,669
886
46,926
1,131
67,955
1,335
90,742
111,975
90,312
4,821
207,108
151,721
1,776
48,525
11,188
61,952
36,823
915,578
61
65
7
766
18
2,373
134
11
1,751
95
356
30
481
574
9
365
264
2,564
98
9,541
433
0.2
0.8
0.1
0.5
2.0
5.1
0.2
0.8
1.9
0.1
0.4
0.6
0.2
0.4
0.5
0.8
2.4
4.1
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
0.3
1.0
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
915,578
9,974
915,975
11,143
979,547
12,657
443,790
33,989
1,393,357
53,467
1,446,824
402,535
35,672
1,354,182
50,042
1,404,224
459,987
41,779
1,481,313
48,408
1,529,721
5,994
6,826
6,215
0.7
0.8
0.6
The percentage of total average interest-earning assets attrib-
utable to foreign activities was 76% for 2012 (77% for 2011
and 78% for 2010). The percentage of total average interest-
bearing liabilities attributable to foreign activities was 72% for
2012 (74% for 2011 and 77% for 2010). 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 included in the assets and liabilities. This is especially true for
foreign assets and liabilities. Tax-exempt income is not recorded
on a tax-equivalent basis. For all three years presented, tax- exempt
income is considered to be insignificant and the impact from such
income is therefore negligible.
495
Financial information 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 2012 compared with the year
ended 31 December 2011, and for the year ended 31 Decem-
ber 2011 compared with the year ended 31 December 2010.
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.
2012 compared with 2011
2011 compared with 2010
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
1
57
(6)
(88)
(156)
(892)
(4)
(896)
10
83
(5)
(242)
92
(24)
(24)
(7)
(174)
16
96
148
(2)
14
14
105
(420)
(201)
6
(252)
(252)
(204)
142
(67)
(960)
(1,027)
(316)
(563)
(879)
2
13
(3)
(59)
(21)
(609)
(5)
(614)
0
(68)
0
(25)
80
(189)
19
(104)
0
(104)
0
(103)
77
(1,149)
(1,072)
11
140
(11)
(330)
(64)
(916)
(4)
(920)
0
(181)
0
121
(324)
(53)
4
(238)
0
(238)
0
(62)
(383)
(1,523)
(1,906)
(119)
24
(2,001)
7
69
10
323
89
3
(6)
(3)
0
86
0
11
(397)
29
(33)
176
0
176
0
120
(325)
811
486
9
82
7
264
68
(606)
(11)
(617)
0
18
0
(14)
(317)
(160)
(14)
72
0
72
0
17
(248)
(338)
(586)
(311)
(6)
(903)
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 and other
Total interest income
496
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
2012 compared with 2011
2011 compared with 2010
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
(23)
(3)
(125)
(5)
(294)
46
(1)
(26)
16
42
(11)
47
30
1
(65)
(15)
169
26
(288)
(262)
(200)
(5)
(2)
(78)
(3)
(159)
(193)
2
(205)
(53)
(108)
0
(161)
(152)
4
48
153
1
(18)
(208)
(761)
(969)
(198)
(28)
(5)
(203)
(8)
(453)
0
(147)
1
(231)
(37)
(66)
(11)
(114)
(122)
5
(17)
138
170
0
(18)
(182)
(1,049)
(1,231)
62
(1,169)
(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)
497
Financial information 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 De-
cember 2012, 2011 and 2010. 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 74,252 million, CHF 66,540 million and CHF 63,953 million
at 31 December 2012, 31 December 2011 and 31 December 2010,
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
31.12.12
31.12.11
31.12.10
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
1,270
2,296
3,566
24,729
28,295
111,975
90,312
4,821
207,108
37,049
114,672
151,721
358,829
0.0
0.7
0.5
0.8
0.8
0.1
0.4
0.6
0.2
0.0
0.5
0.4
0.3
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 Mainly time deposits. 2 Due to banks is considered to represent short-term borrowings to the extent that 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 2012, the maturity of time deposits was as follows:
Domestic
4,410
616
258
243
18
Foreign
67,236
5,418
5,088
350
127
5,544
78,219
CHF million
Within 3 months
3 to 6 months
6 to 12 months
1 to 5 years
Over 5 years
Total time deposits
498
Short-term borrowings
The following table shows 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 2012, 2011 and 2010.
Short-term debt
CHF million, except where indicated
31.12.12
31.12.11
31.12.10
31.12.12
Period-end balance
Average balance
Maximum month-end balance
Average interest rate during the period (%)
Average interest rate at period-end (%)
32,493
50,301
72,432
0.7
0.7
71,377
59,175
71,377
0.7
0.7
56,039
54,594
64,941
0.7
0.7
1,773
5,256
13,541
0.4
0.2
Due to banks 1
31.12.11
6,966
14,834
20,080
1.0
1.0
31.12.10
24,332
22,401
37,886
0.9
1.0
Repurchase agreements 2
31.12.11
31.12.10
31.12.12
72,440
144,766
182,098
0.3
0.2
152,121
170,442
194,684
0.4
0.3
150,024
178,458
207,828
0.4
0.4
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-sale1, 2
CHF million, except percentages
31 December 2012
Swiss national government and agencies
US Treasury and agencies
Foreign governments and official institutions
Corporate debt securities
Mortgage-backed securities
Total fair value 3
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
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
Within 1 year
1 to 5 years
5 to 10 years
Over 10 years
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
110
11,152
23,189
2,030
36,482
0.13
0.20
0.27
0.69
45
12,397
3,869
4,154
20,464
0.44
0.25
0.74
0.93
877
2
113
0
993
1.34
3.11
4.76
4.62
1
18
3
7,313
7,335
4.00
8.15
8.83
1.51
Within 1 year
1 to 5 years
5 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
1,157
2
6
1
1,166
0.76
3.04
10.87
4.47
1
24
7
8,540
8,573
4.00
6.76
10.54
2.42
Within 1 year
1 to 5 years
5 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
1 Debt instruments without fixed maturities are not disclosed in this table. 2 Average yields are calculated on an amortized cost basis. 3 Includes investments in debt instruments as of 31 December 2012 issued by
US government and government agencies of CHF 31,740 million (31 December 2011: CHF 25,677 million), the German government of CHF 6,669 million (31 December 2011: CHF 1,991 million), and the UK govern-
ment of CHF 5,042 million (31 December 2011: CHF 3,477 million). 4 Absolute Return Bonds (ARBs) had been purchased below par and therefore generated a yield of 15.8% in 2010.
499
Financial information Financial information
Additional disclosure required under SEC regulations
Due from banks and loans (gross)
CHF million
Domestic
Banks
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 1
Total domestic
Foreign
Banks
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 2
Total foreign
Total gross
31.12.12
31.12.11
31.12.10
31.12.09
31.12.08
541
1,360
4,265
1,745
2,976
123,167
2,708
13,682
4,345
5,862
3,538
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
164,189
161,364
161,108
159,991
163,632
20,711
254
1,731
1,205
40,650
1,828
1,279
46,458
4,319
2,721
2,063
10,735
3,021
693
137,669
301,858
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
125,969
285,960
148,444
312,076
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Includes food and beverages, hotels and restaurants.
500
The Group’s lending portfolio is widely diversified across indus-try sectors. CHF 169.6 billion (56.2% of the total) consists of loans to thousands of private households, predominantly in Switzerland, and mostly secured by mortgages, financial collat-eral or other assets. Exposure to Banks and Financial institutions amounted to CHF 66.2 billion (21.9% of the total). Exposure to banks includes money market deposits with highly rated institu-tions. Excluding Banks and Financial institutions, the largest in-dustry sector exposure as of 31 December 2012 is CHF 16.6 billion (5.5% 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 2012, 2011, 2010, 2009 and 2008. The industry categories presented are con-sistent with the classification of loans for reporting to the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss Na-tional Bank. Loans designated at fair value and loans held in the trading portfolio are excluded from the tables below. 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
2012, 2011, 2010, 2009 and 2008. 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
31.12.12
31.12.11
31.12.10
31.12.09
31.12.08
142,143
12,311
154,454
132,033
22,421
154,454
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
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
1 to 5 years
Over 5 years
Total
505
63,077
17,110
80,692
20,556
8,885
78,507
107,947
188,639
36
51,523
3,232
54,791
128
1,976
16,201
18,305
73,096
0
27,542
1,163
28,706
27
1,450
9,940
11,417
40,123
541
142,143
21,505
164,189
20,711
12,311
104,648
137,669
301,858
At 31 December 2012, 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
63,715
9,381
73,096
31,780
8,343
40,123
Total
95,495
17,724
113,219
501
Financial information 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 evidence that
it will be made good by later payments or the liquidation of collat-
eral; 2) when insolvency proceedings have commenced; or 3) when
obligations have been restructured on concessionary terms. For IFRS
reporting purposes, the definition of impaired loans is more compre-
hensive, covering both non-performing loans and other situations
where objective evidence indicates that UBS may be unable to col-
lect all amounts due. Refer to “Impairment and default – distressed
claims” in the “Risk, treasury and capital management” section of
this report for comprehensive information about UBS’s impaired
loans, of which non-performing loans are a component. Also, see
“Note 1 Summary of significant accounting policies” to the consoli-
dated financial statements for more information on the various risk
factors that are considered to be indicative of impairment.
The table below provides an analysis of the Group’s non-per-
forming loans.
CHF million
Non-performing loans:
Domestic
Foreign
Total non-performing loans
31.12.12
31.12.11
31.12.10
31.12.09
31.12.08
1,121
395
1,516
1,199
329
1,529
1,164
563
1,727
1,462
3,940
5,402
1,431
3,272
4,703
CHF million
31.12.12
31.12.11
31.12.10
31.12.09
31.12.08
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
8
3
28
6
10
9
29
6
11
35
35
19
13
89
41
30
16
7
32
6
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 2012, 2011, 2010, 2009 or 2008.
502
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.
The following tables list those countries for which cross-border
outstandings exceeded 0.75% of total IFRS assets at 31 Decem-
ber 2012, 2011 and 2010. As of 31 December 2012, there were
no outstandings that exceeded 0.75% of total IFRS assets in any
country currently facing debt restructuring or liquidity problems
that the Group expects would materially impact the country’s abil-
ity to service its obligations. Aggregate country risk exposures are
monitored and reported on an ongoing basis by the risk control
organization, based on an internal framework. The internal risk
view is not directly comparable to the cross-border outstandings
in the table below due to different approaches to netting, differ-
ing trade populations and a different method used for the alloca-
tion of exposures to countries. For more information on the coun-
try framework within risk control, refer to the “Credit risk” section
of this report.
CHF million
USA
United Kingdom
Japan
France
CHF million
USA
United Kingdom
Japan
France
CHF million
USA
United Kingdom
Japan
France
Canada
Germany
Banks
Private sector
Public sector
outstandings % of total assets
31.12.12
Total
45,371
13,366
2,014
4,885
Banks
114,952
13,679
3,799
5,220
Banks
58,151
20,850
4,284
3,907
9,283
4,427
93,401
36,960
21,943
5,955
35,125
4,287
4,707
409
173,897
54,613
28,663
11,250
31.12.11
13.8
4.3
2.3
0.9
Private sector
Public sector
Total outstandings
% of total assets
107,132
37,945
13,566
12,830
10,000
6,116
3,020
72
232,084
57,740
20,385
18,122
31.12.10
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
158,326
60,529
17,049
12,223
11,332
10,506
12.0
4.6
1.3
0.9
0.9
0.8
Guarantees and
commitments 1
43,904
12,106
2,208
9,161
Guarantees and
commitments 1
46,285
13,487
7,090
8,034
Guarantees and
commitments 2
40,606
4,010
94
2,140
1,336
2,463
1 Includes forward starting transactions (reverse repurchase agreements and securities borrowing agreements). 2 Excludes forward starting transactions.
503
Financial information 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 creditor
can continue to collect from a debtor who has emerged from
bankruptcy, unless the debt has been forgiven through a formal
agreement.
CHF million
Balance at beginning of year
31.12.12
938
31.12.11
1,287
31.12.10
2,820
31.12.09
3,070
31.12.08
1,164
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
Total net write-offs / usage of provisions
Increase / (decrease) in specific allowances and provisions
recognized in the income statement
Increase / (decrease) in collective loan loss allowances recognized
in the income statement
Foreign currency translation
Other
Balance at end of year 4
(1)
0
(1)
(20)
(45)
0
(2)
(21)
(6)
(17)
(8)
(17)
0
(31)
(59)
0
(3)
(37)
(21)
(6)
(112)
(183)
(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
(8)
0
0
(39)
0
0
(72)
(175)
(7)
0
(1)
0
0
(303)
(14)
(501)
50
1
51
(450)
(1,427)
0
84
(1)
18
938
67
(2)
(175)
1
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
(61)
(26) 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)
(51)
(214) 3
3,070
0
0
0
(106)
0
0
(15)
(54)
0
0
(19)
(5)
(2)
(201)
0
(313)
43
21
63
(250)
133
(15)
(8)
(3)
794
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 Includes allowances for cash collateral on securities borrowed.
504
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 2012, 2011, 2010, 2009
and 2008. 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
31.12.12
31.12.11
31.12.10
31.12.09
31.12.08
3
16
21
9
44
60
0
10
123
24
16
326
19
1
20
1
37
23
0
45
39
4
39
35
27
0
290
114
64
794
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
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.
505
Financial information 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 in-
dustry 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
Construction
Financial services
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other 1
Total domestic
Foreign
Banks
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 2
Total foreign
Total gross
31.12.12
31.12.11
31.12.10
31.12.09
31.12.08
0.2
0.5
1.4
0.6
1.0
40.8
0.9
4.5
1.4
1.9
1.2
54.4
6.9
0.1
0.6
0.4
13.5
0.6
0.4
15.4
1.4
0.9
0.7
3.6
1.0
0.2
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
45.6
100.0
44.5
100.0
42.7
100.0
44.1
100.0
47.6
100.0
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Includes food and beverages, hotels and restaurants.
506
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
31.12.12
301,858
1,606
1,516
31.12.11
290,664
2,155
1,529
794
728
250
250
(118)
(134)
0.5
0.5
0.2
0.1
938
842
450
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
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
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.
507
Financial information UBS 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:44)(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: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:19)(cid:18)(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:20)
(cid:19)(cid:20)(cid:23)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:25)(cid:23)
(cid:2)(cid:2)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:19)(cid:51)(cid: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:19)(cid:51)(cid:19)(cid:20)
(cid:20)(cid:51)(cid:19)(cid:20)
(cid:21)(cid:51)(cid:19)(cid:20)
(cid:22)(cid:51)(cid:19)(cid:20)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:37)(cid:42)(cid:40)
(cid:38)(cid:44)(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: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
31.12.12
14.27
54,729
As of
31.12.11
11.18
42,843
31.12.10
15.35
58,803
% change from
31.12.11
28
28
1 Market capitalization is calculated based on the total UBS shares issued multiplied by the UBS share price at period end. Refer to “Note 8 Earnings per share (EPS) and shares outstanding” in the “Financial information”
section of this report for more information.
UBS shares are registered shares with a par value of CHF 0.10 per
share. They are traded and settled as global registered shares.
Global registered shares provide direct and equal ownership for all
shareholders, irrespective of the country and stock exchange on
which they are traded. UBS shares are currently listed on the SIX
Swiss Exchange and the New York Stock Exchange.
➔ Refer to the “Capital structure” and “Shareholders” participation
rights" sections of this report for more information on our shares
Over the course of 2012, UBS shares increased 28% on the SIX
and 33% in US dollar terms on the NYSE. The global banking sec-
tor as measured by the Dow Jones Banks Titans 30 Index increased
25% in Swiss franc terms and 28% in US dollar terms.
Ticker symbols
Trading exchange
SIX Swiss Exchange
New York Stock Exchange
Bloomberg
UBSN VX
UBS UN
Reuters
UBSN.VX
UBS.N
Security identification codes
ISIN
Valoren
Cusip
CH0024899483
2 489 948
CINS H89231 33 8
509
(cid:19)(cid:20)(cid:23)(cid:16)(cid:18)(cid:18)
(cid:27)(cid:21)(cid:16)(cid:25)(cid:23)
(cid:24)(cid:20)(cid:16)(cid:23)(cid:18)
(cid:21)(cid:19)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
Information sources
Reporting publications
Other information
Annual publications
Annual report (SAP no. 80531): Published in both English and
German, this single volume report provides a description of: our
operating environment and strategy; our financial and operating
performance; risk, treasury and capital management; corporate
governance, responsibility and compensation, including compen-
sation to the Board of Directors and the Group Executive Board
members; and financial information, including the financial state-
ments. Review (SAP no. 80530): The booklet contains key infor-
mation on our strategy and financials. It is published in English,
German, French and Italian. Compensation Report (SAP no.
82307): The report discusses our compensation framework and
provides information on compensation to the Board of Directors
and the Group Executive Board members. It is published in English
and German.
Quarterly publications
Letter to shareholders: The letter provides a quarterly update from
executive management on our strategy and performance. The
letter 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 ap-
plicable, from UBS AG, F4UK–AUL, P.O. Box, CH-8098 Zurich,
Switzerland.
Website
The “Investor Relations” website at www.ubs.com/investors pro-
vides the following information on UBS: news 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.
Result presentations
Our quarterly results presentations are webcast live. A playback
of most presentations is downloadable at www.ubs.com/presen-
tations.
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.
Messages are sent in English, German, French or Italian and it is
possible to state theme preferences for the alerts received.
Form 20-F and other submissions to the US Securities
and Exchange Commission
We file periodic reports and submit other information about UBS
to the US Securities and Exchange Commission (SEC). Principal
among these filings is the annual report on Form 20-F, filed pursu-
ant 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 informa-
tion in Form 20-F which is not presented elsewhere, and is par-
ticularly targeted at readers in the US. Readers are encouraged
to refer to this additional disclosure. Any document that we file
with the SEC is available to read and copy on the SEC’s website,
www.sec.gov, or at the SEC’s public reference room at 100
F Street, N.E., Room 1580, Washington, DC, 20549. Please call
the SEC by dialing +1-800-SEC-0330 for further information
on the operation of its public reference room. Please visit www.
ubs.com/investors for more information.
510
Annual Report 2012 Cautionary Statement Regarding Forward-Looking Statements | This report contains statements that constitute “forward-looking statements”, including
but not limited to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives
on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters de-
scribed, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations.
These factors include, but are not limited to: (1) the degree to which UBS is successful in executing its announced strategic plans and related organizational
changes, in particular its plans to transform its Investment Bank, its efficiency initiatives and its planned reduction in Basel III risk-weighted assets, and whether in
each case those plans and changes will, when implemented, have the effects intended; (2) 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; (3) changes in the availability of capital and funding,
including any changes in UBS’s credit spreads and ratings; (4) changes in financial legislation and regulation in Switzerland, the US, the UK and other major finan-
cial 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) 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; (6) the liability to which UBS may be exposed, or possible constraints or sanctions that regulatory authorities might
impose on UBS, due to litigation, contractual claims and regulatory investigations, including those that may arise from the ongoing investigations relating to the
setting of LIBOR and other benchmark rates, from market events and losses incurred by clients and counterparties during the financial crisis of 2007 to 2009, and
from Swiss retrocessions; (7) the effects on UBS’s cross-border banking business of tax treaties negotiated or under discussion between Switzerland and other
countries and future tax or regulatory developments; (8) UBS’s ability to retain and attract the employees necessary to generate revenues and to manage, support
and control its businesses, which may be affected by competitive factors including compensation practices; (9) changes in accounting standards or policies, and
accounting determinations or interpretations affecting the recognition of gain or loss, the valuation of goodwill and other matters; (10) limitations on the effec-
tiveness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (11) whether UBS will be
successful in keeping pace with competitors in updating its technology, particularly in trading businesses; (12) the occurrence of operational failures, such as
fraud, unauthorized trading and systems failures; and (13) the effect that these or other factors or unanticipated events may have on our reputation and the
additional consequences that this may have on our business and performance. Our business and financial performance could be affected by other factors identi-
fied 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 fur-
nished 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 2012. UBS is not under any
obligation to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as a result of new information, future events, or
otherwise.
Rounding | Numbers presented throughout this report may not add up precisely to the totals provided in the tables and text. Percentages and percent changes
are calculated based on rounded figures displayed in the tables and text and may not precisely reflect the percentages and percent changes that would be derived
based on figures that are not rounded.
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com