Annual Report 2013
Our performance in 2013
Table of contents
Letter to shareholders
2
6 UBS 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 and legal developments
26 Our strategy
30 Measurement of performance
33 Wealth Management
36 Wealth Management Americas
39 Retail & Corporate
41 Global Asset Management
Investment Bank
45
48 Corporate Center
50 Regulation and supervision
53 Risk factors
2. Financial and
operating performance
66 Critical accounting policies
71 Significant accounting and
financial reporting changes
75 Group performance
89 Balance sheet
94 Off-balance sheet
97 Cash flows
98 Wealth Management
104 Wealth Management Americas
111 Retail & Corporate
116 Global Asset Management
Investment Bank
123
129 Corporate Center
3. Risk, treasury and
capital management
142
Implementation of the recommendations
of the Enhanced Disclosure Task Force (EDTF)
148 Risk, treasury and capital management key developments
150 Risk management and control
216 Treasury management
226 Capital management
4. Corporate governance, responsibility
and compensation
254 Corporate governance
283 Corporate responsibility
296 Our employees
302 Compensation
5. Financial
information
345 Consolidated financial statements
359 Notes to the consolidated financial statements
507 UBS AG (Parent Bank) financial statements
537 Supplemental disclosures required under
SEC regulations (including industry guide 3)
559 Supplemental disclosures required under
Basel III Pillar 3 regulations
Appendix
607 Abbreviations frequently used in our financial reports
608
609 Cautionary statement
Information sources
Annual Report 2013
Letter to shareholders
Dear shareholders,
2013 was the first full year of execution following our announce-
ment of the accelerated implementation of our strategy. We
made excellent progress thanks to the dedication of our employ-
ees, the trust and confidence of our clients, and the support of
our shareholders. We accomplished our goals of further adapting
our business to better serve clients, reducing risk, delivering more
sustainable performance and enhancing shareholder returns. All
our businesses were profitable in every quarter, demonstrating
that the firm’s model has the flexibility to adapt and perform well
in a variety of market conditions. This enabled us to finish a trans-
formational year ahead of the majority of our strategic and finan-
cial targets.
We finished 2013 well ahead of our plan to manage down RWA
in our Non-core and Legacy Portfolio in Corporate Center, and
achieved this in a manner that protected shareholder value. Most
of the decline in Group RWA resulted from disposals and other
exposure reduction measures in these units. We also continued to
successfully deleverage our balance sheet, reducing total assets
by over CHF 400 billion since we announced our strategy. Our
Basel III funding and liquidity ratios and our Swiss SRB leverage
ratio remain comfortably above our regulatory requirements. We
implemented firm-wide programs to enhance operational excel-
lence and efficiency, taking gross cost savings measured against
the first half of 2011 to CHF 2.2 billion.
The financial strength we have created as a firm is the foundation
of our success as it gives us the flexibility to execute our strategy
effectively in the new operating environment. Additionally, it rein-
forces client confidence while allowing us to address the challeng-
es of the past and to absorb unexpected events. During the year,
we increased adjusted 1 profit before tax 44% to CHF 4.1 billion.
Most importantly, our progress was recognized by our clients,
who again entrusted us with more of their assets and business
than in the prior year, with our wealth management businesses
attracting a combined CHF 54 billion of net new money in 2013
alone, 14% more than in the prior year.
We operate in an environment still characterized by increased and
shifting regulation and with markets affected by the turbulence of
macroeconomic, geopolitical and unresolved fiscal issues. As a
Swiss bank, we are subject to some of the most stringent regula-
tory requirements in the world. We acted early and decisively to
prepare our business for the future with a clear strategy that
focused on building and maintaining our industry-leading capital
position. During 2013, we enhanced this position, exceeding our
own ambitious year-end capital targets. Since we announced our
strategy in the second half of 2011, we have more than doubled
our fully applied Basel III common equity tier 1 (CET1) ratio from
around 6% to 12.8%. We achieved this improvement primarily
through steady reductions in fully applied risk-weighted assets
(RWA) from around CHF 400 billion to CHF 225 billion at the end
of 2013, already meeting our 2015 target. We set a target of a
fully applied Basel III CET1 ratio of 13% by the end of 2014, com-
fortably above the regulatory minimum of 10% by 2019.
Our success enables us to continue delivering on our stated objec-
tive of progressive capital returns to shareholders with a recom-
mendation for a 67% increase in dividend to CHF 0.25 per share
for 2013. We are confident that we will achieve our target of a
fully applied Basel III CET1 ratio of 13% in 2014. After reaching
this, we aim for a total payout ratio of at least 50% of our profits.
Our wealth management businesses generated CHF 3.3 billion in
adjusted 1 profit before tax in 2013, 25% higher than in the prior
year. As the largest and fastest growing large-scale wealth manag-
er in the world 2, we are well positioned to gain from improving
macroeconomic conditions, a gradual recovery in interest rates
and any consequent improvement in client risk appetite. We were
awarded “Best Global Wealth Manager” by Euromoney for the
second consecutive year and Private Banker International named
us “Outstanding Global Private Bank 2013.” In Wealth Manage-
ment, growth and profitability were led by Asia Pacific, where, in
particular, the partnership between Wealth Management and the
Investment Bank is a key competitive advantage for us, delivering
holistic solutions and attracting new clients. Europe also recorded
positive net new money despite cross-border outflows. Wealth
Management Americas concluded a record year with the
achievement of our ambition of USD 1 billion in adjusted 1 profit
before tax for the year. With financial advisors who generate on
average USD 1 million in annual revenue, our Wealth Manage-
ment Americas team has built a business with USD 1 trillion in in-
vested assets. Our Retail & Corporate business in Switzerland
delivered stable adjusted 1 profit before tax despite ongoing pres-
sure on net interest margins. The business maintained its mar-
1 Please refer to “Group performance” in the “Financial and operating performance” section for more information on adjusted results. 2 Scorpio Partnership Global Private Banking Bench-
mark 2013, based on 2012 data for banks with assets under management of over USD 500 billion.
2
Axel A. Weber Chairman of the Board of Directors Sergio P. Ermotti Group Chief Executive Officer
3
Annual Report 2013
Letter to shareholders
ket-leading position as average client deposits grew faster than
the Swiss economy. Retail & Corporate remains an important
source of new business for Wealth Management, Global Asset
Management and the Investment Bank. The strong performance
of our Retail & Corporate business in our home market was a key
factor in Euromoney naming UBS “Best Bank in Switzerland” for
the second consecutive year. Global Asset Management deliv-
ered an 8% increase in adjusted 1 profit before tax and an adjust-
ed 1 return on attributed equity of 33%, despite negative net new
money. We transformed our Investment Bank, enabling it to
deliver an excellent performance while operating efficiently with
reduced RWA and funded assets. In 2013, the business significant-
ly outperformed its target of an adjusted 1 pre-tax return on at-
tributed equity of greater than 15%. We maintained strong posi-
tions globally in the key areas where we have decided to compete
and serve our clients with best-in-class capabilities. In addition to
being recognized as number one in cash equity globally in a lead-
ing private survey, our Investment Bank was awarded numerous
accolades including Derivatives Intelligence’s “Structured Products
House of the Year” and Euroweek’s “ECM Bank of the Year.” In
Corporate Center – Core Functions, we reduced total operating
expenses before cost allocations despite recording net restructur-
ing charges that were considerably higher than in 2012 as we
pushed ahead with measures to reduce costs for the longer term.
In Corporate Center – Non-core and Legacy Portfolio, fully
applied RWA decreased by CHF 39 billion to CHF 64 billion, signifi-
cantly better than our year-end 2013 target of CHF 85 billion.
Our clients increasingly want to use their wealth to drive positive
change in society. For a long time, we have been helping them to
invest according to sustainable and responsible criteria. Building
on this capability, in 2013 we made a significant commitment to
maximize these efforts through a dedicated, industry-leading
platform. This will deliver comprehensive research, advisory and
product capabilities in the areas of sustainable investments and
philanthropy. We also initiated and co-launched the Thun Group
of Banks’ discussion paper on banking and human rights based
on the United Nations’ Guiding Principles on Business and Human
Rights in the financial industry. In addition, UBS was named in the
Dow Jones Sustainability Indices, which track leading sustainabili-
ty-driven companies worldwide. As a firm, we remained focused
on educational and entrepreneurship projects globally, including
through our employee and community affairs programs. Our
clients and employees mobilized to contribute to the Typhoon
Haiyan relief efforts in the Philippines. We also maintained our
support of the arts through culturally enriching programs for our
clients, employees and the public. Highlights included becoming
the global partner of Art Basel and the inaugural exhibition in
New York of the Guggenheim UBS MAP project, which showcas-
es art from emerging markets. In Switzerland’s capital, UBS spon-
1 Please refer to “Group performance” in the “Financial and operating performance” section for more information on adjusted results.
4
sored the Bernisches Historisches Museum’s most-visited exhibi-
tion ever, featuring the well-known terracotta army of Qin, the
first Chinese emperor.
The firm’s success ultimately rests on the achievements of all our
employees and the trust placed in us by our clients and sharehold-
ers. We would like to thank them for their continued support. We
will continue to execute our strategy in a disciplined manner in
order to ensure the firm’s long-term success and deliver sustain-
able returns to our shareholders.
14 March 2014
Yours sincerely,
UBS
Axel A. Weber
Chairman of the
Board of Directors
Sergio P. Ermotti
Group Chief Executive Officer
5
Annual Report 2013
UBS key figures
CHF million, except where indicated
Group results
Operating income
Operating expenses
Operating profit / (loss) 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
Common equity tier 1 capital ratio (%, phase-in) 7
Common equity tier 1 capital ratio (%, fully applied) 7
Swiss SRB leverage ratio (%, phase-in) 8
Balance sheet and capital management
Total assets
Equity attributable to UBS shareholders
Total book value per share (CHF) 9
Tangible book value per share (CHF) 9
Common equity tier 1 capital (phase-in) 7
Common equity tier 1 capital (fully applied) 7
Risk-weighted assets (phase-in) 7
Risk-weighted assets (fully applied) 7
Total capital ratio (%, phase-in) 7
Total capital ratio (%, fully applied) 7
Additional information
Invested assets (CHF billion) 10
Personnel (full-time equivalents)
Market capitalization 9
As of or for the year ended
31.12.13
31.12.12
31.12.11
27,788
22,482
5,307
4,138
1.08
9.1
11.9
13.7
2.1
(44.5)
1.9
80.7
27,732
24,461
3,272
3,172
0.83
6.7
8.0
11.4
2.5
1.4
88.0
18.5
12.8
4.7
25,423
27,216
(1,794)
(2,480)
(0.66)
(5.1)
1.6
12.0
1.9
1.6
106.6
15.3
9.8
3.6
1,009,860
1,259,797
1,416,962
48,002
12.74
11.07
42,179
28,908
228,557
225,153
22.2
15.4
2,390
60,205
65,007
45,949
12.26
10.54
40,032
25,182
261,800
258,113
18.9
11.4
2,230
62,628
54,729
48,530
12.95
10.36
2,088
64,820
42,843
1 Refer to “Note 9 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 / loss attributable to UBS shareholders before amortization and impairment of goodwill and intangible assets (annualized as applicable) / average equity attributable
to UBS shareholders less average goodwill and intangible assets. 4 Based on Basel III risk-weighted assets (phase-in) for 2013. Based on Basel 2.5 risk-weighted assets for 2012. Based on Basel II risk-weighted assets for
2011. 5 Not meaningful and not included if either the reporting period or the comparison period is a loss period. 6 Group net new money includes net new money for Retail & Corporate and excludes interest and divi-
dend income. 7 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. 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 Refer to “UBS shares” in the “Capital management” section of this report for more information. 10 Group
invested assets includes invested assets for Retail & Corporate.
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 the Swiss Code
of Obligations and Swiss Federal Banking Law
as an Aktiengesellschaft, 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
institutional, professional and individual investors
from our offices in Zurich and New York.
UBS AG, Investor Relations,
P.O. Box, CH-8098 Zurich, Switzerland
investorrelations@ubs.com
www.ubs.com/investors
Hotline +41-44-234 4100
New York +1-212-882 5734
Fax (Zurich) +41-44-234 3415
Media Relations
UBS’s Media Relations team supports global media
and journalists from offices in Zurich, London,
New York and Hong Kong.
Shareholder Services
UBS’s Shareholder Services team, a unit of the
Company Secretary office, is responsible for
the registration of the global registered shares.
www.ubs.com/media
Zurich +41-44-234 8500
mediarelations@ubs.com
London +44-20-7567 4714
ubs-media-relations@ubs.com
New York +1-212-882 5857
mediarelations-ny@ubs.com
Hong Kong +852-2971 8200
sh-mediarelations-ap@ubs.com
Office of the Company Secretary
The Company Secretary receives queries on
compensation and related issues addressed
to members of the Board of Directors.
UBS AG, Office of the Company Secretary,
P.O. Box, CH-8098 Zurich, Switzerland
sh-company-secretary@ubs.com
Hotline +41-44-235 6652
Fax +41-44-235 8220
UBS AG, Shareholder Services,
P.O. Box, CH-8098 Zurich, Switzerland
sh-shareholder-services@ubs.com
Hotline +41-44-235 6652
Fax +41-44-235 8220
US Transfer Agent
For all global registered share-related queries
in the US.
Computershare,
P.O. Box 43006, Providence,
RI 02940-3006, USA
Shareholder online inquiries:
https://www-us.computershare.com/investor/
Contact
Shareholder website:
www.computershare.com/investor
Calls from the US +1 866-541 9689
Calls from outside the US +1-201-680 6578
Fax +1-201-680 4675
Corporate calendar
Imprint
Publication of the first quarter 2014 report
Tuesday, 6 May 2014
Annual General Meeting of Shareholders
Wednesday, 7 May 2014
Publication of the second quarter 2014 report
Tuesday, 29 July 2014
Publication of the third quarter 2014 report
Tuesday, 28 October 2014
Publisher: UBS AG, Zurich and Basel, Switzerland | www.ubs.com
Language: English | SAP-No. 80531E
© UBS 2014. 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 2013
UBS and its businesses
We draw on our over 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, complemented by our Global Asset Management business and our Investment
Bank, with a focus on capital efficiency and businesses that offer a superior structural growth and profita bility outlook.
Headquartered in Zurich and Basel, Switzerland, we have offices in more than 50 countries, including all major financial
centers, and approximately 60,000 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, Retail & Corporate, Global Asset Management and the Investment Bank.
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.
Wealth Management Americas provides advice-based solutions
and banking services through financial advisors who deliver a fully
integrated set of products and services specifically designed to ad-
dress the needs of ultra high net worth and high net worth individ-
uals and families. It includes the domestic US business, the domes-
tic Canadian business and international business booked in the US.
Retail & Corporate maintains a leading position across retail, cor-
porate and institutional client segments in Switzerland and consti-
tutes a central building block of UBS Switzerland’s pre-eminent
universal bank model. It provides comprehensive financial prod-
ucts and services embedded in a true multi-channel experience,
offering clients convenient access. It continues to enhance the
range of life-cycle products and services offered to clients, while
pursuing additional growth in advisory and execution services.
8
Global Asset Management is a large-scale asset manager with
diversified businesses across investment capabilities, regions 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, infra-
structure 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 both
traditional investment funds and alternative funds.
The Investment Bank provides corporate, institutional and wealth
management clients with expert advice, innovative financial solu-
tions, outstanding execution and comprehensive access to the
world’s capital markets. It offers financial advisory and capital
markets, research, equities, foreign exchange, precious metals
and tailored fixed income services in rates and credit through its
two business units, Corporate Client Solutions and Investor Client
Services. The Investment Bank is an active participant in capital
markets flow activities, including sales, trading and market-mak-
ing across a range of securities.
The Corporate Center comprises Corporate Center – Core Func-
tions and Corporate Center – Non-core and Legacy Portfolio. Cor-
porate Center – Core Functions provides Group-wide control
functions including finance, risk control (including compliance)
and legal. In addition, it provides all logistics and support func-
tions, including operations, information technology, human re-
sources, corporate development, regulatory relations and strate-
gic initiatives, communications and branding, corporate real
estate and administrative services, procurement, physical security,
information security, offshoring and treasury services such as
funding, balance sheet and capital management. Corporate Cen-
ter – Core Functions allocates most of its treasury income, operat-
ing expenses and personnel associated with the abovementioned
activities to the businesses based on capital and service consump-
tion levels. Corporate Center – Non-core and Legacy Portfolio
comprises the non-core businesses and legacy positions previous-
ly part of the Investment Bank.
9
Annual Report 2013
Our Board of Directors
The Board of Directors (BoD), under the leadership of the Chairman, decides on the strategy of the UBS Group
upon recommendation of the Group Chief Executive Officer (Group CEO), exercises ultimate supervision over
senior management, and appoints 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, members of BoD committees, their respective Chairpersons and the
Company Secretary. In 2013, our BoD met the standards of the Organization Regulations for the percentage of
directors that are considered 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 Corporate Responsibility Committee / Chairperson of the Governance and Nominating
Committee 2 William G. Parrett Chairperson of the Audit Committee / member of the Corporate Responsibility Committee 3 Reto Francioni Member of
the Corporate Responsibility Committee 4 Isabelle Romy Member of the Audit Committee / member of the Governance and Nominating Committee
5 Ann F. Godbehere Chairperson of the Human Resources and Compensation Committee / member of the Audit Committee 6 Beatrice Weder di Mauro
Member of the Audit Committee / member of the Risk Committee 7 Rainer-Marc Frey Member of the Human Resources and Compensation Committee /
member of the Risk Committee 8 Joseph Yam Member of the Corporate Responsibility Committee / member of the Risk Committee 9 Axel P. Lehmann
Member of the Risk Committee 10 Helmut Panke Member of the Human Resources and Compensation Committee / member of the Risk Committee
11 David Sidwell Senior Independent Director / Chairperson of the Risk Committee / member of the Governance and Nominating Committee 12 Michel Demaré
Independent Vice Chairman / member of the Audit Committee / member of the Governance and Nominating Committee / member of the Human Resources and
Compensation Committee
11
Annual Report 2013
Our Group Executive Board
The management of the business 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 UBS 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
4
8
12
➔ To read the full biographies of our Board members, visit
www.ubs.com/geb or refer to “Group Executive Board” in the
“Corporate governance” section of this report
1 Sergio P. Ermotti Group Chief Executive Officer 2 Lukas Gähwiler CEO UBS Switzerland and CEO Retail & Corporate 3 Markus U. Diethelm Group General
Counsel 4 Philip J. Lofts Group Chief Risk Officer 5 Tom Naratil Group CFO and Group Chief Operating Officer 6 Andrea Orcel CEO Investment Bank
7 Robert J. McCann CEO Wealth Management Americas and CEO UBS Group Americas 8 Chi-Won Yoon CEO UBS Group Asia Pacific 9 Jürg Zeltner CEO
UBS Wealth Management 10 Ulrich Körner CEO Global Asset Management and CEO UBS Group Europe, Middle East and Africa
All titles presented are as of 1 January 2014.
13
Annual Report 2013
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 ac-
celerated our strategic transformation of the firm to create a busi-
ness model that is better adapted to the new regulatory and
market circumstances and that we believe will result in more con-
sistent and high-quality returns. In 2013, we made substantial
progress in transforming our firm, further reinforcing its founda-
tions while focusing on our traditional strengths.
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
Switzerland has always possessed a strong financial sector. In re-
ality, 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 Switzer-
land and Swiss Bank Corporation (SBC), which merged to form
UBS in 1998.
At the time of the merger, both banks were already well-estab-
lished and successful in their own right. Union Bank of Switzerland
celebrated its 100th anniversary in 1962, tracing its origins back to
the Bank in Winterthur. SBC marked its centenary in 1972 with
celebrations in honor of its founding forebear, the Basler Bankv-
erein. The historical roots of PaineWebber, acquired by UBS in
(cid:19)(cid:26)(cid:21)(cid:18)
(cid:19)(cid:26)(cid:22)(cid:18)
(cid:19)(cid:26)(cid:23)(cid:18)
(cid:19)(cid:26)(cid:24)(cid:18)
(cid:19)(cid:26)(cid:25)(cid:18)
(cid:19)(cid:26)(cid:26)(cid:18)
(cid:19)(cid:26)(cid:27)(cid:18)
(cid:19)(cid:27)(cid:18)(cid:18)
(cid:19)(cid:27)(cid:19)(cid:18)
(cid:19)(cid:27)(cid:20)(cid:18)
(cid:19)(cid:27)(cid:21)(cid:18)
(cid:19)(cid:27)(cid:22)(cid:18)
(cid:19)(cid:27)(cid:23)(cid:18)
(cid:19)(cid:27)(cid:24)(cid:18)
(cid:19)(cid:27)(cid:25)(cid:18)
(cid:19)(cid:27)(cid:26)(cid:18)
(cid:19)(cid:27)(cid:27)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:19)(cid:18)
(cid:19)(cid:26)(cid:21)(cid:20)(cid:2)(cid:2)
(cid:38)(cid:75)(cid:78)(cid:78)(cid:81)(cid:80)(cid:2)(cid:52)(cid:71)(cid:67)(cid:70)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:26)(cid:21)(cid:20)
(cid:53)(cid:69)(cid:74)(cid:84)(cid:210)(cid:70)(cid:71)(cid:84)(cid:2)(cid:47)(cid:216)(cid:80)(cid:69)(cid:74)(cid:79)(cid:71)(cid:91)(cid:71)(cid:84)(cid:2)(cid:42)(cid:71)(cid:80)(cid:73)(cid:85)(cid:86)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:26)(cid:24)(cid:20)(cid:2)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:42)(cid:67)(cid:80)(cid:70)(cid:71)(cid:78)(cid:85)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:26)(cid:20)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)
(cid:38)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:71)(cid:80)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:23)(cid:24)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:25)(cid:20)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:27)(cid:23)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:8)(cid:2)(cid:60)(cid:216)(cid:84)(cid:69)(cid:74)(cid:71)(cid:84)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:27)(cid:25)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:26)(cid:26)(cid:27)
(cid:60)(cid:216)(cid:84)(cid:69)(cid:74)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:26)(cid:27)
(cid:53)(cid:69)(cid:74)(cid:89)(cid:71)(cid:75)(cid:92)(cid:16)
(cid:55)(cid:80)(cid:75)(cid:81)(cid:80)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:27)(cid:23)(cid:2)
(cid:50)(cid:74)(cid:75)(cid:78)(cid:78)(cid:75)(cid:82)(cid:85)(cid:2)(cid:8)(cid:2)(cid:38)(cid:84)(cid:71)(cid:89)
(cid:19)(cid:26)(cid:24)(cid:21)(cid:2)
(cid:39)(cid:75)(cid:70)(cid:73)(cid:71)(cid:80)(cid:210)(cid:85)(cid:85)(cid:75)(cid:85)(cid:69)(cid:74)(cid:71)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:24)(cid:21)
(cid:54)(cid:81)(cid:73)(cid:73)(cid:71)(cid:80)(cid:68)(cid:87)(cid:84)(cid:73)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:24)(cid:20)(cid:2)(cid:2)
(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:75)(cid:80)(cid:2)(cid:57)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:86)(cid:74)(cid:87)(cid:84)
(cid:19)(cid:26)(cid:25)(cid:20)(cid:2)
(cid:35)(cid:67)(cid:84)(cid:73)(cid:67)(cid:87)(cid:75)(cid:85)(cid:69)(cid:74)(cid:71)(cid:2)(cid:45)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:67)(cid:80)(cid:85)(cid:86)(cid:67)(cid:78)(cid:86)
(cid:19)(cid:26)(cid:24)(cid:21)(cid:2)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:75)(cid:80)(cid:2)(cid:36)(cid:67)(cid:70)(cid:71)(cid:80)
(cid:19)(cid:26)(cid:26)(cid:18)
(cid:50)(cid:67)(cid:75)(cid:80)(cid:71)(cid:2)(cid:8)(cid:2)(cid:57)(cid:71)(cid:68)(cid:68)(cid:71)(cid:84)
(cid:19)(cid:26)(cid:25)(cid:27)
(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)
14
(cid:19)(cid:27)(cid:19)(cid:20)(cid:2)(cid:55)(cid:80)(cid:75)(cid:81)(cid:80)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:81)(cid:72)(cid:2)(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:19)(cid:27)(cid:19)(cid:27)
(cid:19)(cid:27)(cid:19)(cid:23)
(cid:19)(cid:27)(cid:19)(cid:22)(cid:2)
(cid:36)(cid:78)(cid:91)(cid:86)(cid:74)(cid:14)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)(cid:79)(cid:67)(cid:80)(cid:2)(cid:38)(cid:75)(cid:78)(cid:78)(cid:81)(cid:80)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:27)(cid:19)(cid:27)
(cid:47)(cid:75)(cid:86)(cid:69)(cid:74)(cid:71)(cid:78)(cid:78)(cid:2)(cid:42)(cid:87)(cid:86)(cid:69)(cid:74)(cid:75)(cid:80)(cid:85)(cid:14)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16)
(cid:19)(cid:27)(cid:20)(cid:26)(cid:2)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:74)(cid:67)(cid:80)(cid:70)(cid:71)(cid:78)
(cid:19)(cid:27)(cid:24)(cid:25)
(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)
(cid:19)(cid:27)(cid:21)(cid:24)(cid:2)(cid:2)
(cid:50)(cid:81)(cid:86)(cid:86)(cid:71)(cid:84)(cid:2)(cid:50)(cid:67)(cid:84)(cid:86)(cid:80)(cid:71)(cid:84)(cid:85)
(cid:19)(cid:27)(cid:22)(cid:24)(cid:2)
(cid:53)(cid:16)(cid:41)(cid:16)(cid:2)(cid:57)(cid:67)(cid:84)(cid:68)(cid:87)(cid:84)(cid:73)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)
(cid:19)(cid:27)(cid:22)(cid:23)
(cid:19)(cid:27)(cid:22)(cid:23)
(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)
2000, go back to 1879, while S.G. Warburg, the central pillar
upon which UBS’s Investment Bank was built, commenced opera-
tions 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.
Union Bank of Switzerland, the largest and best-capitalized
Swiss bank of its time, pursued these goals primarily through a
strategy of organic growth. In contrast, SBC, then the third- largest
Swiss bank, grew through a combination of partnership and ac-
quisition. In 1989, SBC started a joint venture with O’Connor, a
leading US derivatives firm noted for its dynamic and innovative
culture, its meritocracy and its team-oriented approach. O’Con-
nor brought state-of-the-art risk management and derivatives
technology to SBC, and in 1992 SBC moved to fully acquire
O’Connor. In 1994, SBC added to its capabilities when it acquired
Brinson Partners, a leading US-based institutional asset manage-
ment firm.
The next major milestone was in 1995, when SBC acquired
S.G. Warburg, the British merchant bank. The deal helped SBC fill
a strategic gap in its corporate finance, brokerage, and research
capabilities and, most importantly, brought with it an institutional
client franchise that remains crucial to our equities business to
this day.
The 1998 merger of SBC and Union Bank of Switzerland into
the firm we know today created a world-class wealth manager
and the 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. UBS has established a strong footprint in the Asia Pacific
(cid:19)(cid:26)(cid:21)(cid:18)
(cid:19)(cid:26)(cid:22)(cid:18)
(cid:19)(cid:26)(cid:23)(cid:18)
(cid:19)(cid:26)(cid:24)(cid:18)
(cid:19)(cid:26)(cid:25)(cid:18)
(cid:19)(cid:26)(cid:26)(cid:18)
(cid:19)(cid:26)(cid:27)(cid:18)
(cid:19)(cid:27)(cid:18)(cid:18)
(cid:19)(cid:27)(cid:19)(cid:18)
(cid:19)(cid:27)(cid:20)(cid:18)
(cid:19)(cid:27)(cid:21)(cid:18)
(cid:19)(cid:27)(cid:22)(cid:18)
(cid:19)(cid:27)(cid:23)(cid:18)
(cid:19)(cid:27)(cid:24)(cid:18)
(cid:19)(cid:27)(cid:25)(cid:18)
(cid:19)(cid:27)(cid:26)(cid:18)
(cid:19)(cid:27)(cid:27)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:19)(cid:18)
(cid:19)(cid:26)(cid:21)(cid:20)(cid:2)(cid:2)
(cid:38)(cid:75)(cid:78)(cid:78)(cid:81)(cid:80)(cid:2)(cid:52)(cid:71)(cid:67)(cid:70)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:26)(cid:24)(cid:20)(cid:2)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:42)(cid:67)(cid:80)(cid:70)(cid:71)(cid:78)(cid:85)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:23)(cid:24)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:25)(cid:20)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:27)(cid:23)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)(cid:8)(cid:2)(cid:60)(cid:216)(cid:84)(cid:69)(cid:74)(cid:71)(cid:84)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:27)(cid:25)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:37)(cid:81)(cid:84)(cid:82)(cid:81)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:26)(cid:26)(cid:20)
(cid:36)(cid:67)(cid:85)(cid:78)(cid:71)(cid:84)(cid:2)
(cid:38)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:71)(cid:80)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:26)(cid:27)
(cid:60)(cid:216)(cid:84)(cid:69)(cid:74)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:80)
(cid:19)(cid:26)(cid:26)(cid:27)
(cid:53)(cid:69)(cid:74)(cid:89)(cid:71)(cid:75)(cid:92)(cid:16)
(cid:55)(cid:80)(cid:75)(cid:81)(cid:80)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:27)(cid:23)(cid:2)
(cid:50)(cid:74)(cid:75)(cid:78)(cid:78)(cid:75)(cid:82)(cid:85)(cid:2)(cid:8)(cid:2)(cid:38)(cid:84)(cid:71)(cid:89)
(cid:19)(cid:26)(cid:21)(cid:20)
(cid:53)(cid:69)(cid:74)(cid:84)(cid:210)(cid:70)(cid:71)(cid:84)(cid:2)(cid:47)(cid:216)(cid:80)(cid:69)(cid:74)(cid:79)(cid:71)(cid:91)(cid:71)(cid:84)(cid:2)(cid:42)(cid:71)(cid:80)(cid:73)(cid:85)(cid:86)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:26)(cid:24)(cid:21)(cid:2)
(cid:39)(cid:75)(cid:70)(cid:73)(cid:71)(cid:80)(cid:210)(cid:85)(cid:85)(cid:75)(cid:85)(cid:69)(cid:74)(cid:71)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:24)(cid:21)
(cid:54)(cid:81)(cid:73)(cid:73)(cid:71)(cid:80)(cid:68)(cid:87)(cid:84)(cid:73)(cid:71)(cid:84)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:19)(cid:26)(cid:24)(cid:20)(cid:2)(cid:2)
(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:75)(cid:80)(cid:2)(cid:57)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:86)(cid:74)(cid:87)(cid:84)
(cid:19)(cid:26)(cid:24)(cid:21)(cid:2)
(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:75)(cid:80)(cid:2)(cid:36)(cid:67)(cid:70)(cid:71)(cid:80)
(cid:19)(cid:26)(cid:25)(cid:20)(cid:2)
(cid:35)(cid:67)(cid:84)(cid:73)(cid:67)(cid:87)(cid:75)(cid:85)(cid:69)(cid:74)(cid:71)(cid:2)(cid:45)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:67)(cid:80)(cid:85)(cid:86)(cid:67)(cid:78)(cid:86)
(cid:19)(cid:26)(cid:26)(cid:18)
(cid:50)(cid:67)(cid:75)(cid:80)(cid:71)(cid:2)(cid:8)(cid:2)(cid:57)(cid:71)(cid:68)(cid:68)(cid:71)(cid:84)
(cid:19)(cid:26)(cid:25)(cid:27)
(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:19)(cid:20)(cid:2)(cid:55)(cid:80)(cid:75)(cid:81)(cid:80)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:81)(cid:72)(cid:2)(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:19)(cid:27)(cid:19)(cid:27)
(cid:19)(cid:27)(cid:19)(cid:23)
(cid:19)(cid:27)(cid:19)(cid:22)(cid:2)
(cid:36)(cid:78)(cid:91)(cid:86)(cid:74)(cid:14)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)(cid:79)(cid:67)(cid:80)(cid:2)(cid:38)(cid:75)(cid:78)(cid:78)(cid:81)(cid:80)(cid:2)(cid:8)(cid:2)(cid:37)(cid:81)(cid:16)
(cid:19)(cid:27)(cid:19)(cid:27)
(cid:47)(cid:75)(cid:86)(cid:69)(cid:74)(cid:71)(cid:78)(cid:78)(cid:2)(cid:42)(cid:87)(cid:86)(cid:69)(cid:74)(cid:75)(cid:80)(cid:85)(cid:14)(cid:2)(cid:43)(cid:80)(cid:69)(cid:16)
(cid:19)(cid:27)(cid:21)(cid:24)(cid:2)(cid:2)
(cid:50)(cid:81)(cid:86)(cid:86)(cid:71)(cid:84)(cid:2)(cid:50)(cid:67)(cid:84)(cid:86)(cid:80)(cid:71)(cid:84)(cid:85)
(cid:19)(cid:27)(cid:22)(cid:24)(cid:2)
(cid:53)(cid:16)(cid:41)(cid:16)(cid:2)(cid:57)(cid:67)(cid:84)(cid:68)(cid:87)(cid:84)(cid:73)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)
(cid:19)(cid:27)(cid:22)(cid:23)
(cid:19)(cid:27)(cid:22)(cid:23)
(cid:19)(cid:27)(cid:20)(cid:26)(cid:2)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:74)(cid:67)(cid:80)(cid:70)(cid:71)(cid:78)
(cid:19)(cid:27)(cid:24)(cid:25)
(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 2013
region and emerging markets based on a presence in many of
these countries going back decades.
In 2007, the effects of the global financial 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, we incurred significant losses on these
assets. We responded with decisive action designed to reduce risk
exposures and stabilize our businesses, including raising capital on
multiple occasions.
More recently, we continued to improve the firm’s capital
strength to meet new and enhanced industry-wide regulatory re-
quirements. Our position as one of the world’s best-capitalized
banks, together with our stable funding and sound liquidity posi-
tions, provides us with a solid foundation for our success. In 2012,
we announced a significant acceleration in the implementation of
our strategy communicated a year earlier. In 2013, we continued
to focus our activities on a set of highly synergistic, less capital-
and balance sheet-intensive businesses dedicated to serving cli-
ents and well-positioned to maximize value for shareholders.
➔ Refer to www.ubs.com/history for more information on UBS’s
more than 150 years of history
16
Operating
environment
and strategy
17
Operating environment and strategy Operating environment and strategy
Current market climate and industry drivers
Current market climate and industry drivers
While the overall global economic climate improved in 2013, the operating environment for the financial services
industry remained difficult. Profitability was affected by continued regulatory pressure, the ongoing low interest rate
environment and muted client activity levels.
Global economic and market climate
The global economic climate improved in 2013, although the
pace of recovery diverged across regions. Of the major econo-
mies, recovery was most advanced in the US. Growth momentum
in the euro area remained lackluster, despite the region’s exit from
recession in the second quarter of 2013. In Japan, significant
monetary policy stimulus and the government’s so-called
“three-arrow” strategy boosted confidence in the country’s eco-
nomic prospects. The gradual improvement in advanced econo-
mies was, however, counterbalanced by a slowdown in emerging
economies.
Central banks in advanced countries kept monetary policy
conditions highly accommodative as their economies continued
to struggle with headwinds from fiscal consolidation and fragile
financial sectors. However, concerns about the timing and speed
of the exit by the Federal Reserve System (Fed) from its highly
accommodative monetary policy led to a sharp rise in US bond
yields and heightened market volatility during the summer
months. Against the backdrop of strong correlations between
European and US bond yields, European long-term interest rates
also moved higher. Increases in long-term rates prompted the
European Central Bank (ECB) and the Bank of England to an-
nounce “forward guidance“ as an additional means of maintain-
ing accommodative policy stances. Improving fundamentals in
the US and expectations of the Fed “tapering“ its quantitative
easing led to financial outflows and currency depreciation in var-
ious emerging economies. Market concerns were further exacer-
bated by worries about a potential slowdown in China. Global
markets subsequently stabilized after the Fed postponed its “ta-
per“ decision in September. Even so, currencies and fixed income
markets in emerging countries with weak fundamentals re-
mained under pressure.
The US economic recovery, supported by the Fed’s accommo-
dative policy, became more broad-based, reflected by better
data on the housing market, credit standards, labor markets
and consumer confidence. Improved market sentiment resulted
in a rebalancing of portfolios towards riskier assets. US equity
market indices recorded substantial gains during the year,
spreads between corporate bonds and government bonds
narrowed, and corporate debt issuance reached record levels.
Disruptions related to another fiscal policy impasse in the au-
tumn were a cause of market volatility, but the bi-partisan bud-
get agreed in December reduced fiscal uncertainty for 2014.
Based on broadly improving fundamentals, in December the
Fed announced a “tapering“ of quantitative easing starting in
January 2014.
Euro area financial stress continued to recede during 2013
against the backdrop of the ECB’s Outright Monetary Transactions
(OMT) program and the establishment of the European Stability
Mechanism. Debt markets in vulnerable euro area countries con-
tinued their post-OMT improvements despite a temporary disrup-
tion during the summer. Ireland successfully exited the adjustment
program of the Troika (made up of the European Commission
(EC), the ECB and the International Monetary Fund) as of year-end
and re-established full market access. Portugal appeared more
vulnerable throughout the year, but its situation stabilized to-
wards year-end. The economic environment in Greece, while still
much more challenging than elsewhere, also showed tentative
signs of improvement during the year.
Although the euro area exited recession in the second quarter
of 2013, recovery remained lackluster. Unemployment levels in
distressed countries remained close to record highs, albeit with
lower unit labor costs leading to improvements in competitive-
ness. Fiscal targets became more flexible as the EC agreed to ex-
tend the deadlines for correcting excessive deficits in some coun-
tries. A subdued inflation outlook led the ECB to announce
historically unprecedented “forward guidance“ and to reduce key
ECB interest rates to all-time lows. Housing market conditions var-
ied significantly between countries, and prices continued to de-
cline in some distressed economies. However, the ongoing low
interest rate environment and rising disposable income provided a
boost to property prices in Germany. The Swiss economy contin-
ued to outperform most European peers, but highly accommoda-
tive monetary policy caused concerns about the country’s ongo-
ing property boom.
Growth in emerging economies disappointed throughout the
year as credit-led expansions slowed and capital inflows receded
or reversed. China recorded its slowest pace of growth since the
turn of the millennium as authorities attempted to rein in rapid
credit growth and rebalance the country’s economic growth mod-
el. A spike in interbank lending rates in June led to fears of a
sharper slowdown in growth, although intervention from the
People’s Bank of China ensured major financial distress was avoid-
ed. Among the other major emerging market economies, Brazil,
India, Indonesia, South Africa and Turkey were all beset by curren-
cy weakness following capital outflows stemming from expecta-
tions of tighter Fed policy. The associated higher funding costs
18
and uncertainty impeded growth in more vulnerable emerging
economies.
Economic and market outlook for 2014
Our economists currently expect global economic growth to ac-
celerate to 3.4% in 2014 from 2.5% in 2013. The pick-up in
growth during 2014 is expected to be driven by acceleration in
advanced economies, supported by still-accommodative mone-
tary policy and reduced fiscal drag. The US economy is expected
to grow more strongly at about 3%, while the euro area should
recover at a moderate pace, with growth forecasted at 1.1%. The
Swiss economy will benefit from the recovery in the euro area and
is expected to grow at about 2.1%.
For emerging economies, improved global growth should sup-
port external demand, but domestic demand is expected to be
restrained by the lack of fresh reforms, credit overhangs and on-
going structural rebalancing. Emerging economies with weaker
fundamentals, including a heavy reliance on short-term foreign
capital inflows, remain vulnerable to changing Fed policy and ris-
ing global interest rates.
Potential sources of economic or market risks include a nor-
malization of the Fed’s monetary policy, geopolitical risks in the
Ukraine, the Middle East and Far East, and a deceleration of
growth in China. While sovereign financial pressures in the euro-
zone have receded, a slowing of reform momentum, political op-
position to euro area integration and uncertainty over the ECB’s
comprehensive bank assessment remain further potential sources
of risk.
Industry drivers
Despite strong stock market performance throughout the
year, the operating environment for the financial services indus-
try remained difficult, reflecting a combination of regulatory
framework adjustments requiring further structural changes,
and a challenging market environment putting pressure on
revenues.
Regulatory developments remain a key driver of
structural change in the industry
Regulators and legislators continued to exert pressure on the fi-
nancial services industry to become simpler, more transparent and
more resilient. In this context, regulators and legislators in Europe
further advanced far-reaching reform proposals – for example,
agreements were reached on the Markets in Financial Instruments
Directive (MiFID) II and the Bank Recovery and Resolution Directive
– while in the US the Commodity Futures Trading Commission
approved cross-border guidance, defining the extraterritorial ap-
plication of its swaps regulations, and the five US financial regula-
tors approved the Volcker Rule.
The year was also characterized by regulatory authorities’ fo-
cus on reforming banks’ structures. In Germany, France, the UK
and the US, progress was made on legislation requiring, under
certain conditions, a structural separation or prohibition of certain
trading or wholesale activities from certain deposit-taking opera-
tions. While it is unclear how these individual measures in the
European Union (EU) would ultimately interact with the recent EC
proposed regulation on “Structural measures improving the resil-
ience of EU credit institutions,” these national regulatory initia-
tives highlight the lack of international coordination with regard
to structural developments in the banking sector.
Last but not least, reflecting their concerns about the adequacy
of banks’ risk-based exposures, regulatory authorities weighed
the introduction of more stringent leverage ratio requirements as
a credible supplementary measure to risk-based capital require-
ments.
As a consequence of the evolving regulatory environment,
some facets of which have been outlined above, financial institu-
tions are expected to (i) rethink their strategies and focus even
more on their core business and markets, in which they are able
to leverage their competitive advantages on a sustainable basis,
on both a local and to a certain extent a global level, (ii) focus
even more on fee-generating businesses that require less capital
and funding and (iii) reduce their “buy-and-hold“ activities, lead-
ing to a further increase in assets held outside the banking sys-
tem, in turn giving rise to a call to further strengthen regulatory
oversight of these sectors.
Bank capital and balance sheets stay in the spotlight
In the course of 2013, the financial services industry succeeded in
further improving its capital position with a view to complying
with capital requirements defined by regulators and policy mak-
ers. For example, the EU-wide Transparency Exercise led by the
European Banking Authority showed a continued improvement
of the capital position within the EU banking sector in 2013.
Similar trends were also observable in Switzerland for the largest
banks, as well as in the US. Despite such positive developments,
banks’ capitalization levels remained a key concern for the public
as well as regulators, as evidenced by the intense debate about
leverage ratios as a supplementary measure to risk-based capital
requirements.
As a step to further increase trust in the European banking sec-
tor, the ECB initiated a comprehensive review of European banks’
balance sheets and risk profiles. The assessment will consist of
three elements: (i) a supervisory risk assessment which reviews on
a quantitative and qualitative basis key risks, including liquidity,
leverage and funding, (ii) an asset quality review to enhance trans-
parency of banks’ exposures by reviewing their asset quality, in-
cluding the adequacy of asset and collateral valuation and related
provisions and (iii) a stress test to examine the resilience of banks’
balance sheets to stress scenarios. In such a review, banks will be
judged against a capital threshold of 8% based on Capital Re-
quirements Directive IV definitions as of 1 January 2014. If results
are unsatisfactory, corrective measures, such as recapitalization,
deleveraging or improving funding resilience, may be taken.
19
Operating environment and strategy Operating environment and strategy
Current market climate and industry drivers
Increased focus on costs to compensate for
subdued revenues
2013 remained a challenging year for the financial services indus-
try to grow its income levels. Aside from growth constraints due
to stricter regulatory requirements – especially related to capital
and liquidity standards – the macroeconomic environment, char-
acterized by the ongoing low interest rate environment and a flat
yield curve as well as muted client activity levels in the face of
continued macroeconomic uncertainty (in particular around mon-
etary stimulus reduction in the US), put pressure on net interest
margins and revenues.
As a result of this subdued revenue environment, banks inten-
sified their efforts to increase operational efficiency, either by en-
hancing targets of existing cost reduction programs or by launch-
ing new initiatives in order to realign cost structures with subdued
revenue levels.
Technological innovation opening new opportunities
While new technologies have already significantly affected vari-
ous sectors, pressure on the financial services industry to adapt to
a new digital reality continued to increase, reflecting inter alia
evolving client expectations, the need for increased efficiencies,
accelerating technological innovation and the emergence of new
competitors.
Changing client expectations (in particular related to personal-
ization, convenience and transparency), based on levels of service
and flexibility experienced in other sectors, presented a significant
challenge to the traditional business model of the financial ser-
vices industry. Although investments will be required to fully ad-
dress these expectations, technology is also expected to be a key
enabler in offering new, innovative banking services, satisfying
new customer expectations on one hand and supporting branch-
es and client advisors on the other. Digital capabilities are there-
fore expected not only to deepen individual customer relation-
ships, but also to facilitate a reduction of operating expenses and
complexity through automating systems and processes.
20
Regulatory and legal developments
In 2013 and early 2014, several important international regulatory and legal initiatives advanced, with key develop-
ments including political agreement in the European Union on the Markets in Financial Instruments Directive (MiFID) II
and the Bank Recovery and Resolution Directive, as well as the publication of final regulations implementing the
Volcker Rule and enhanced prudential standards for banking organizations in the US.
Developments in Switzerland
During the fourth quarter of 2013 and January of 2014, UBS and
the Swiss Financial Market Supervisory Authority (FINMA) reviewed
the temporary operational risk-related risk-weighted assets (RWA)
add-on that became effective on 1 October 2013. Following a re-
view of the advanced measurement approach (AMA) model, the
litigation exposures and contingent liabilities of UBS, provisioning
movements and methodologies, and progress on managing other
operational risks, UBS and FINMA mutually agreed that, effective
on 31 December 2013, a supplemental analysis will be used to
calculate the incremental operational risk capital required to be
held for litigation, regulatory and similar matters and other contin-
gent liabilities. The incremental RWA calculated based upon this
supplemental analysis has replaced the temporary operational RWA
add-on discussed in our report for the third quarter of 2013, and is
reflected in the 31 December 2013 RWA and capital ratio informa-
tion in this report. The incremental RWA calculated based upon this
supplemental analysis as of 31 December 2013 was CHF 22.5 bil-
lion.
On 20 December 2013, FINMA issued a decree primarily con-
cerning the regulatory capital requirements of UBS AG (Parent
Bank) on a standalone basis. The decree makes changes effective
1 January 2014 to parent bank capital requirements designed to
ensure that the capital underpinning of the parent’s investments
in subsidiaries does not cause a de facto increase in the total cap-
ital requirements of UBS Group. The decree also requires certain
additional disclosures concerning parent bank capital standards
that will be included in our report for the first quarter of 2014.
On 22 January 2014, following a proposal by the Swiss Nation-
al Bank (SNB), the Swiss Federal Council decided to increase the
countercyclical capital buffer in the form of common equity tier 1
(CET1) capital from 1% to 2% of risk-weighted positions secured
by residential property located in Switzerland. Banks are obliged
to comply as of 30 June 2014. Other loans, in particular those
provided to corporates, are not affected by this measure. The ef-
fect of the increase of the countercyclical buffer on our capital
requirements is not material.
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
(Minder Initiative). In November 2013, the Swiss Federal Council
issued the final transitional ordinance implementing the constitu-
tional amendments of this initiative, which came into force on
1 January 2014. The ordinance requires public companies to speci-
fy in their articles of association (AoA) the mechanism of a “say-on-
pay“ vote, setting out three requirements: (i) the vote on compen-
sation must be held annually, (ii) the vote on compensation must be
binding rather than advisory and (iii) the vote on compensation
must be held separately for the board of directors and members of
the executive board. In addition, shareholders will need to deter-
mine the details of the “say-on-pay“ vote in the AoA, in particular
the nature of the vote, timing aspects and the consequences of a
“no” vote. Each company affected by the Minder Initiative must
undertake a first binding vote on management compensation and
remuneration of the board of directors at its 2015 annual general
meeting (AGM), in accordance with the “say-on-pay“ regime pro-
vided for in the AoA. In addition, the first compensation report
pursuant to the ordinance must be prepared for financial year 2014
and made available to shareholders at the 2015 AGM. UBS is cur-
rently in the process of implementing these requirements.
The Federal Department of Finance took further steps towards
establishing a new Financial Services Act (FIDLEG). FIDLEG’s main
objectives include improving client protection, establishing a level
playing field and eliminating competitive distortions between ser-
vice providers. In this context, FIDLEG is expected to address a
number of regulations such as information obligations, require-
ments regarding conduct and organization of financial service
providers and the expansion of supervision, for example, to inde-
pendent asset managers. In addition, FIDLEG also seeks to harmo-
nize Swiss financial market law with the applicable international
standards, such as the Markets in Financial Instruments Directive
(MiFID) II, in order to facilitate European Union (EU) market access
for Swiss financial institutions. The proposed financial services
regulation will affect almost all financial market participants, in-
cluding UBS. However, given the early stages of the discussion, a
definite assessment is currently not possible.
The Financial Market Infrastructure Act, which was published
for consultation in December 2013 by the Swiss Federal Govern-
ment, governs the organization and operation of financial market
infrastructure, including implementation of over-the-counter de-
rivatives regulation in Switzerland and additional regulation of
multilateral trading facilities and other non-regulated exchange
trading venues. Another important development was the imple-
mentation of the Foreign Account Tax Compliance Act (FATCA) in
Switzerland. FATCA was introduced by the US government in
21
Operating environment and strategy Operating environment and strategy
Regulatory and legal developments
2010 in order to increase the transparency of investments by US
taxpayers outside the US, and requires financial institutions world-
wide to report US tax persons’ account information to the US In-
ternal Revenue Service (IRS). Switzerland and the US signed an
intergovernmental agreement in February 2013 concerning the
implementation of FATCA in Switzerland. This agreement and the
implementation of the corresponding FATCA law were subse-
quently approved by the two chambers of the Swiss Parliament in
June and September 2013, respectively. Both the FATCA agree-
ment and the implementing act are scheduled to come into force
in the first half of 2014. As the FATCA legislation adopted in the
US strongly affects UBS, we are closely monitoring any further
refinements made by the IRS as well as developments relating to
FATCA in the jurisdictions relevant to UBS and making the neces-
sary preparations for possible implementation.
Further, in Switzerland, the political discussion continued on
the structural reform of banks and leverage ratio requirements. In
September 2013, the Swiss National Council approved two mo-
tions from the year 2011 asking for a mandatory structural reform
of banks. After a hearing in January 2014, the Committee for
Economic Affairs and Taxation of the Swiss Council of States rec-
ommended that these motions be rejected. On 12 March 2014,
the Council of States rejected the two motions. Subsequently,
they were automatically discarded. Also in September 2013, two
new motions were put forward that not only require structural
measures but also suggest increasing leverage ratio requirements
in Switzerland to 6% and 10%, respectively. However, it is cur-
rently unclear if and when the two motions are to be submitted
to the parliamentary committee in charge.
Swiss “too-big-to-fail“ (TBTF) requirements require systemical-
ly important banks, including UBS, to put in place viable emer-
gency plans to continue providing systemically important func-
tions despite a failure, to the extent that such activities are not
sufficiently separated in advance. The Swiss TBTF law provides for
the possibility of a limited reduction of capital requirements for
systemically important institutions that adopt measures to reduce
resolvability risk beyond what is legally required. In view of these
factors, UBS intends to establish a new banking subsidiary of UBS
AG in Switzerland. The scope of this potential future subsidiary’s
business is still being determined, but we would currently expect
it to include our Retail & Corporate business division and likely
the Swiss-booked business within our Wealth Management busi-
ness division. We expect to implement this change in a phased
approach starting in mid-2015. This structural change is being
discussed on an ongoing basis with FINMA, and remains subject
to a number of uncertainties that may affect its feasibility, scope
or timing.
Finally, the Swiss-UK tax agreement, which came into effect on
1 January 2013, included a clause stipulating that, should gross tax
receipts under the agreement be lower than CHF 1.3 billion, Swiss
banks would cover the difference up to a maximum of CHF 500
million. Based on monitoring by the Swiss Bankers Association, it is
considered unlikely that CHF 1.3 billion in tax receipts will be re-
ceived. As a result, we expect to be required to pay CHF 110 mil-
lion, and have established a provision in that amount in 2013,
which has been allocated predominantly to Wealth Management.
Developments in a number of key initiatives in
the European Union
In the course of 2013 and early 2014, agreement was reached
on a number of far-reaching regulatory reform initiatives in the
EU. One of the most important developments was the agreement
on the review of the Markets in Financial Instruments Directive
and Regulation package (MiFID II / MiFIR). This package introduces
a wide set of reforms, including in respect of third-country access
to European Economic Area (EEA) markets, new rules regarding
market infrastructure and a sharpened set of investor protection
rules.
A further political compromise reached by the European Parlia-
ment and the Council of the EU related to the Bank Recovery and
Resolution Directive (BRRD). This Directive seeks to achieve a har-
monized approach to the recovery and resolution of banks in the
EU and broadly covers measures relating to recovery and resolu-
tion planning, early intervention powers for authorities and reso-
lution tools should a bank fail or be deemed likely to fail. Final
approval of the BRRD is expected in the first quarter of 2014, with
the majority of the Directive expected to become applicable from
1 January 2015. UBS’s EU subsidiaries will be subject to the re-
quirements of the Directive, while EU member states have the
right to apply the provisions of the Directive to UBS’s EU-based
branches in certain circumstances. The overall impact is difficult to
assess at this stage, as the EU resolution authorities have a mate-
rial degree of discretion in setting some of the key requirements
of the Directive.
In response to regulatory developments, the business and op-
erating model of UBS Limited, our UK bank subsidiary, and its
relationship with UBS AG, are currently being reviewed. Once
this review has been finalized, we expect to commence imple-
mentation of a revised business and operating model, including
changes to its risk profile, which will involve the subsidiary re-
taining credit risk, and some market risk which currently is trans-
ferred to UBS AG under the existing model.
Eleven member states of the EU committed to the implemen-
tation of the financial transaction tax via an “enhanced coopera-
tion” procedure. In February 2013, the European Commission
(EC) issued a proposal, which is currently being discussed in the
EU Council of Ministers. While only the participating countries –
namely France, Germany, Austria, Belgium, Greece, Portugal, Slo-
venia, Italy, Spain, Slovakia and Estonia – are entitled to vote on
and would themselves adopt the tax, its extraterritorial scope
would affect financial institutions and transactions in all 27 EU
member states and beyond. Under the initial EC proposal, the tax
would apply to a wide range of financial transactions and mini-
mum rates of 0.1% (securities) and 0.01% (derivatives) would be
applicable to both parties of a transaction. The final rates imple-
mented in each of the participating countries could, however, dif-
fer. Based on the initial proposal, UBS would be affected by the
22
tax when transacting with, or on behalf of, clients from participat-
ing countries or when performing transactions in financial instru-
ments issued in such countries. The proposal requires operational
implementation on a global level and could negatively affect the
profitability of certain products. However, ongoing negotiations
may alter the territorial application, scope and collection mecha-
nism of the tax and it remains unclear when a political agreement
can be expected.
Progress was also made in 2013 towards establishing automat-
ic information exchange in taxation as a new standard, both at
European level and internationally. Most notably, global automat-
ic information exchange was endorsed as a global standard by the
G20 Summit in September 2013. At EU level, the EC proposed in
June 2013 to extend the automatic information exchange within
the EU to cover all forms of financial income and account balanc-
es. Under the proposal, dividends, capital gains, all other forms of
financial income and account balances would be added to the list
of categories which are subject to automatic information ex-
change within the EU from 1 January 2015. However, member
states reached no agreement in 2013 on the final text of the sec-
ond piece of EU legislation on automatic information exchange,
the revised EU Savings Tax Directive. In parallel, negotiations start-
ed with third countries and the EC on the revision of the existing
taxation agreements (including Switzerland).
With regard to the establishment of the Banking Union, agree-
ment was reached on the Single Supervisory Mechanism (SSM),
which sets out the supervisory arrangements for affected banks
and the respective responsibilities of the European Central Bank
(ECB) and competent national authorities. Under the SSM, banks
deemed systemically important will from November 2014 be sub-
ject to direct ECB supervision in relation to capital and liquidity,
while less significant banks will continue to be supervised by their
current national supervisors. A further element of the Banking
Union is the Single Resolution Mechanism (SRM), which will apply
the substantive provisions of the BRRD to banks within the Bank-
ing Union. Both the European Parliament and the Council of the
EU have agreed their negotiating positions and discussions be-
tween them are ongoing.
Separately, additional EU-wide remuneration rules became ef-
fective at the beginning of 2014 under the Capital Requirements
Directive IV (CRD IV). The rules include provisions on the amount
and form of variable remuneration that can be paid to employees
identified as material risk takers, as defined by the European
Banking Authority. A key element of the rules is the introduction
of a maximum ratio of 1:1 for variable to fixed remuneration
(“bonus cap“). The cap may be increased to 2:1 with sharehold-
ers’ consent. These restrictions apply to material risk takers at all
banks active in the EU, including UBS. However, as a non-EU
headquartered firm, UBS need only apply these restrictions to ma-
terial risk takers employed by EU subsidiaries or branches. We
continue to closely assess EU developments and industry-wide
best practices.
In January 2014, the EC issued a proposed regulation on
“Structural measures improving the resilience of EU credit institu-
tions,“ which is its response to the recommendations of its
High-level Expert Group on reforming the structure of the EU
banking sector (“Liikanen report“). The proposals include two
main measures: (i) a ban on proprietary trading and investments
in hedge funds and (ii) an additional potential separation of cer-
tain trading activities (including market-making, risky securitiza-
tion and complex derivatives) which will not be mandatory, but
rather based on supervisory discretion. The proposal will now en-
ter the EU political process and will likely be subject to changes.
Political agreement is not expected until 2015 at the earliest.
In the US, significant steps were taken in
implementing the Dodd-Frank Act
Developments in US regulatory initiatives in 2013 related primari-
ly to rulemaking stemming from the Dodd-Frank Act passed in
July 2010.
In July 2013, the Commodity Futures Trading Commission
(CFTC) approved final cross-border guidance that defines the ex-
traterritorial application of its swaps regulations. This guidance
may allow non-US swap dealers, such as UBS AG, “substituted
compliance,” under which they may comply with home country
legal requirements that are determined by the CFTC to be “com-
prehensive and comparable” instead of the corresponding CFTC
requirements. In December 2013, the CFTC issued comparability
determinations for Switzerland (and the home countries of other
non-US swap dealers) that will allow UBS to comply with relevant
Swiss regulations instead of CFTC requirements for many, but
not all, of the CFTC regulations for which substituted compliance
is available. While the CFTC deferred a comparability determina-
tion on swap data reporting requirements, as it continues to re-
view the issue, it granted reporting no-action relief that allows
UBS AG (and other non-US swap dealers) to delay reporting
transactions with non-US persons for several months. In January
2014, the CFTC delayed the applicability of US regulations to
swaps between non-US persons and non-US swap dealers when
US personnel are involved until 15 September 2014, giving addi-
tional time for foreign swap dealers to comply with US require-
ments regarding transactions with non-US persons conducted
from the US.
Separately, in December 2013, three financial services industry
associations filed a lawsuit challenging the CFTC’s interpretive
guidance and policy statement regarding compliance with cer-
tain swap regulations. Relief sought includes invalidating the
cross-border guidance and preventing the CFTC from bringing an
enforcement action for not complying with US rules extraterrito-
rially. If the guidance is struck down, portions of it that call for
substituted compliance and limit the application of transaction
regulation to non-US swap dealers would likely also be struck
down and may create more uncertainty for non-US swap dealers
such as UBS.
In May 2013, the US Securities and Exchange Commission
(SEC) proposed rules for the extraterritorial application of its reg-
ulation of securities-based swap dealers in the US. The SEC pro-
23
Operating environment and strategy Operating environment and strategy
Regulatory and legal developments
posal contemplates application of regulations similar to the CFTC
rules to non-US swap dealers, including swap transaction report-
ing requirements and information and inspection requirements
that present potential conflicts with non-US law or necessitate
privacy waivers from clients. Like the CFTC, the SEC envisions a
substituted compliance regime that would allow foreign swap
dealers to comply with comparable home country regulation rath-
er than SEC rules under certain circumstances.
US regulators published final regulations implementing the
Volcker Rule in December 2013 and generally extended the
time to conform to this rule and regulations until July 2015. In
general, the Volcker Rule prohibits any banking entity from en-
gaging in proprietary trading and from owning an interest in
hedge funds and other private fund vehicles. Our earlier strate-
gy decision to exit our equity proprietary trading businesses,
together with certain business lines, will assist us in complying
with the regulatory requirements. In addition, the Volcker Rule
permits UBS and other non-US banking entities to engage in
certain activities that would otherwise be prohibited, to the ex-
tent that they are conducted outside the US and certain other
conditions are met. We continue to evaluate the final rules and
their impact on our activities. One impact will be the need to
establish an extensive global compliance framework designed
to ensure compliance with the Volcker Rule and the terms of
the available exemptions. Moreover, the Volcker Rule could
have an impact on the way in which we organize and conduct
certain business lines.
In February 2014, the Federal Reserve Board issued final rules
for foreign banking organizations (FBO) operating in the US (un-
der section 165 of the Dodd-Frank Act) that include the follow-
ing: (i) a requirement for FBO with more than USD 50 billion of US
non-branch assets to establish an intermediate holding company
(IHC) to hold all US subsidiary operations, (ii) risk-based capital
and leverage requirements for the IHC, (iii) liquidity requirements,
including a 30-day onshore liquidity requirement for the IHC, (iv)
risk management requirements including the establishment of a
risk committee and the appointment of a US chief risk officer, (v)
stress test and capital planning requirements and (vi) a debt-to-eq-
uity limit for institutions that pose “a grave threat” to US financial
stability. Requirements differ based on the overall size of the for-
eign banking organization and the amount of its US-based assets.
We expect that we will be subject to the most stringent require-
ments based on our current operations. We will have until 1 July
2016 to establish an IHC and meet many of the new require-
ments. We must submit an implementation plan by 1 January
2015 and the IHC will not need to comply with the US leverage
ratio until 1 January 2018.
Basel Committee on Banking Supervision provided
further Basel III guidance
Following the start of Basel III implementation on 1 January 2013,
according to the Basel Committee on Banking Supervision’s
(BCBS) timeline, a number of regulatory discussions over the last
year focused on further enhancing and simplifying the capital
framework, for example by potentially increasing the role of stan-
dardized approaches or of leverage ratios, as well as on achieving
better comparability of risk-weighted assets (RWA).
24
In July 2013, the BCBS issued a discussion paper on “The reg-
ulatory framework: balancing risk sensitivity, simplicity and com-
parability,“ which proposed a number of reforms to the Basel
framework with the objective of evaluating whether the balance
between risk sensitivity, simplicity and comparability was still ap-
propriate. The proposals, part of a longer-term discussion, cov-
ered a wide range of possibilities, including a stronger role for the
standardized approach in calculating RWA, tightening the lever-
age ratio, and utilizing added floors and benchmarks for mod-
el-based calculations.
With regard to the leverage ratio specifically, the BCBS issued
a consultation on “Revised Basel III leverage ratio framework
and disclosure requirements“ in June 2013, followed by final
rules in January 2014. The changes to the Basel III leverage ratio
framework relate mostly to the leverage ratio’s exposure mea-
sure and include the following: (i) specifications of the scope of
consolidation for the inclusion of exposures, (ii) changes to the
general treatment of derivatives and related collateral, (iii) spec-
ifications of the treatment of written credit derivatives and (iv)
specifications of the treatment of securities financing transac-
tions. The tier 1 capital requirement under the revised Basel III
leverage ratio remains at 3% of the exposure measure. However,
the BCBS will continue to monitor banks’ leverage ratio data on
a semi-annual basis in order to assess whether the design and
calibration of a minimum tier 1 leverage ratio of 3% is appropri-
ate over a full credit cycle and for different types of business
models. The final calibration, and any final adjustments to the
definition, will be completed by 2017. Based on an initial review
of the proposals, we expect a slight increase in our leverage ratio
denominator. The ratio is expected to be incorporated within
Pillar 1 minimum capital requirements on 1 January 2018. Ac-
cording to the BCBS’s timetable, the disclosure requirements are
effective 1 January 2015 subject to implementation by national
regulators.
Discussions about the leverage ratio also took place in Switzer-
land, with a review report on the Swiss TBTF law expected to be
published by the Federal Council in early 2015.
In addition, there were further developments regarding liquid-
ity requirements under Basel III. Following the publication on 12
January 2014 by the BCBS of additional guidance on the Liquidity
Coverage Ratio (LCR), on 17 January 2014, the Swiss Federal De-
partment of Finance opened a consultation on the revision of the
Liquidity Ordinance and at the same time FINMA issued the re-
vised Circular “Liquidity Banks” in Switzerland for comment. Both
consultations end on 28 March 2014. Based on an initial review
of the proposals, we do not expect a material impact on our
pro-forma LCR.
Also on 12 January 2014, the BCBS issued a consultative paper
on the proposed revision of the Basel III framework’s Net Stable
Funding Ratio (NSFR). The consultation period ends on 11 April
2014. The main changes proposed are increased deposit stability,
a reduction of cliff effects within the measurement of funding
stability and larger stable funding requirements for certain trading
assets. Based on an initial review of the proposals, we expect a
positive net effect on our pro-forma NSFR. Final NSFR rules are
expected to be released by 2016, after which they will undergo a
period of consultation and review by Swiss authorities, potentially
leading to further changes before implementation.
25
Operating environment and strategy Operating environment and strategy
Our strategy
Our strategy
We are committed to providing our 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, complemented by our Global Asset Management
business and our Investment Bank. These businesses share three key characteristics: they benefit from a strong com
petitive position in their targeted markets, are capitalefficient, and offer a superior structural growth and profitability
outlook. Our strategy therefore builds on the strengths of all of our businesses and focuses our efforts on areas in
which we excel, while seeking to capitalize on the compelling growth prospects in the businesses and regions in which
we operate. Capital strength is the foundation of our success.
Successfully executing our strategic transformation
In October 2012, we announced a significant acceleration in the
implementation of our strategy communicated a year earlier. This
announcement underlined our commitment to focus our activities
on a set of highly synergistic, less capital- and balance sheet-in-
tensive businesses dedicated to serving clients and well-positioned
to maximize value for shareholders. Since then, demonstrating
the strength of our business model, we have made substantial
progress in improving our already strong capital position and re-
ducing risk-weighted assets (RWA) and costs, while simultaneous-
ly growing our business and enhancing our competitive position-
ing. We have also successfully transformed our Investment Bank,
focusing it on its traditional strengths in advisory, research, equi-
ties, foreign exchange and precious metals.
Our fully applied common equity tier 1 (CET1) capital ratio in-
creased 300 basis points in 2013 to 12.8%, the highest in our peer
group. This increase was driven by a reduction of fully applied
RWA to CHF 225 billion, ahead of our 2013 target of CHF 250
billion and CHF 33 billion below year-end 2012 RWA. We achieved
this by further active reduction of RWA, mainly through the dis-
posal of positions or other risk reductions in our Non-core and
Legacy Portfolio, and despite incremental RWA of CHF 22.5 billion
resulting from the supplemental operational risk capital analysis
mutually agreed with FINMA and effective 31 December 2013.
Future developments in, and the ultimate elimination of, the incre-
mental RWA attributable to the supplemental analysis will depend
on provisions charged to earnings for litigation, regulatory and
similar matters and other contingent liabilities and on develop-
ments in these matters. Our ability to absorb this event while si-
multaneously increasing our capital ratios and reducing RWA is a
testament to our early decision to maintain and build on our
strong capital position and to focus on sustainable, more capi-
tal-efficient business activities. We continue to target a fully ap-
plied CET1 ratio of 13% in 2014, and intend to build further
Basel III-compliant capital.
(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:115)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:81)(cid:80)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:86)(cid:75)(cid:71)(cid:84)(cid:2)(cid:19)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)(cid:14)(cid:2)(cid:7)
(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:115)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:15)(cid:89)(cid:71)(cid:75)(cid:73)(cid:74)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:124)(cid:2)
(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)(cid:14)(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:13)(cid:2)(cid:21)(cid:18)(cid:18)(cid:2)(cid:68)(cid:82)(cid:85)
(cid:19)(cid:20)(cid:16)(cid:26)
(cid:19)(cid:21)(cid:16)(cid:18)
(cid:96)(cid:27)(cid:16)(cid:26)
(cid:20)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:67)
(cid:79)
(cid:84)
(cid:81)
(cid:72)
(cid:15)
(cid:81)
(cid:84)
(cid:82)
(cid:21)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:22)
(cid:19)
(cid:18)
(cid:20)
(cid:86)
(cid:71)
(cid:73)
(cid:84)
(cid:67)
(cid:86)
(cid:20)(cid:26)(cid:18)
(cid:20)(cid:19)(cid:18)
(cid:19)(cid:22)(cid:18)
(cid:2)(cid:2)(cid:25)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:19)(cid:21)(cid:7)(cid:2)(cid:84)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:96)(cid:20)(cid:23)(cid:26)
(cid:20)(cid:20)(cid:23)
(cid:30)(cid:2)(cid:20)(cid:20)(cid:23)
(cid:20)(cid:18)(cid:21)
(cid:30)(cid:2)(cid:20)(cid:18)(cid:18)
(cid:20)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:67)
(cid:79)
(cid:84)
(cid:81)
(cid:72)
(cid:15)
(cid:81)
(cid:84)
(cid:82)
(cid:21)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:86)
(cid:71)
(cid:73)
(cid:84)
(cid:67)
(cid:86)
(cid:23)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:86)
(cid:71)
(cid:73)
(cid:84)
(cid:67)
(cid:86)
(cid:25)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:43)(cid:80)(cid:69)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:78)(cid:2)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:52)(cid:57)(cid:35)(cid:149)
(cid:19)(cid:2)(cid:52)(cid:71)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:75)(cid:80)(cid:69)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:78)(cid:2)(cid:52)(cid:57)(cid:35)(cid:2)(cid:67)(cid:84)(cid:75)(cid:85)(cid:75)(cid:80)(cid:73)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:87)(cid:82)(cid:82)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:67)(cid:78)(cid:91)(cid:85)(cid:75)(cid:85)(cid:2)(cid:79)(cid:87)(cid:86)(cid:87)(cid:67)(cid:78)(cid:78)(cid:91)(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:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)
(cid:89)(cid:75)(cid:78)(cid:78)(cid:2) (cid:68)(cid:71)(cid:2) (cid:87)(cid:85)(cid:71)(cid:70)(cid:2) (cid:86)(cid:81)(cid:2) (cid:69)(cid:67)(cid:78)(cid:69)(cid:87)(cid:78)(cid:67)(cid:86)(cid:71)(cid:2) (cid:86)(cid:74)(cid:71)(cid:2) (cid:75)(cid:80)(cid:69)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:67)(cid:78)(cid:2) (cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2) (cid:84)(cid:75)(cid:85)(cid:77)(cid:2) (cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2) (cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:70)(cid:2) (cid:86)(cid:81)(cid:2) (cid:68)(cid:71)(cid:2) (cid:74)(cid:71)(cid:78)(cid:70)(cid:2) (cid:72)(cid:81)(cid:84)(cid:2) (cid:78)(cid:75)(cid:86)(cid:75)(cid:73)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)
(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:75)(cid:79)(cid:75)(cid:78)(cid:67)(cid:84)(cid:2)(cid:79)(cid:67)(cid:86)(cid:86)(cid:71)(cid:84)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:69)(cid:81)(cid: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:14)(cid:2)(cid:71)(cid:72)(cid:72)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(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:21)(cid:16)
(cid:2)(cid:19)(cid:24)
(cid:2)(cid:19)(cid:20)
(cid:2)(cid:2)(cid:2)(cid:26)
(cid:2)(cid:2)(cid:2)(cid:22)
(cid:2)(cid:2)(cid:2)(cid:18)
26
(cid:19)(cid:24)
(cid:19)(cid:20)
(cid:26)
(cid:22)
(cid:18)
(cid:20)(cid:26)(cid:18)
(cid:20)(cid:19)(cid:18)
(cid:19)(cid:22)(cid:18)
(cid:25)(cid:18)
(cid:18)
(cid:20)(cid:26)(cid:18)
(cid:20)(cid:19)(cid:18)
(cid:19)(cid:22)(cid:18)
(cid:25)(cid:18)
(cid:18)
As part of the transformation of the Investment Bank, we
transferred certain of its businesses to the Corporate Center in the
first quarter of 2013. These were primarily fixed income business-
es rendered less attractive by changes in regulation and market
developments. As a result, our Investment Bank retains only very
focused credit and rates activities, along with structured financing
capabilities, in order to support its solutions-focused businesses.
Our leading equities and foreign exchange businesses remain cor-
nerstones of our Investment Bank. We did not significantly alter
our advisory and capital markets businesses, but reorganized our
existing business functions to better leverage our capabilities and
therefore better serve our clients. Our Investment Bank has
achieved its target of an adjusted pre-tax return on attributed eq-
uity of greater than 15% throughout 2013, demonstrating its
success in a variety of market conditions. Non-core assets, previ-
ously part of the Investment Bank, are reported within our Non-
core and Legacy Portfolio unit in the Corporate Center, which is
tasked with managing and exiting these assets in a manner that
protects shareholder value. RWA associated with these positions
were reduced by close to 40% in 2013 to CHF 64 billion, signifi-
cantly ahead of our target.
➔ Refer to the “Capital management” section of this report for
more information
organizational effectiveness, primarily in our Corporate Center,
and introducing lean front-to-back processes across our Group.
Our investment in these initiatives is reflected in restructuring
charges of CHF 0.8 billion in 2013 and expectations of further
incremental charges of CHF 0.9 billion and CHF 0.8 billion in
2014 and 2015, respectively. Our efficiency programs will free
up resources to make investments over the next two years to
support growth across our businesses and enable us to service
our clients with greater agility and effectiveness, improving qual-
ity and speed.
2014 will be another key year of transition for the Group as we
continue to work through our plans to further enhance our busi-
nesses, reduce our cost base and further improve collaboration
across our various businesses. For 2014, we do not expect our
unadjusted return on equity to deviate significantly from 2013,
primarily due to anticipated charges associated with litigation,
regulatory and other matters, restructuring charges, and the im-
pact of Non-core and Legacy Portfolio exits and capital require-
ments. While we continue to target an adjusted Group return on
equity of greater than 15% in 2015, given elevated operational
risk RWA, we may not achieve that until 2016. We continue to
target an adjusted Group cost / income ratio of 60% to 70% from
2015 onwards.
Maintaining cost discipline is critical to our long-term success.
In 2013, we achieved our CHF 2 billion gross cost reduction plan
announced in July 2011. We also made further progress in the
implementation of the additional cost reduction program we
announced in 2012, targeting incremental annual gross cost
savings of CHF 3.4 billion, which we expect to yield tangible re-
sults through 2016. These targeted reductions include the ben-
efits from the abovementioned transformation of our Invest-
ment Bank, reducing complexity and size, as well as improving
Delivering attractive shareholder returns
We have a clear strategy and a solid financial foundation, which
we believe prepares us well for the future. We are firmly com-
mitted to returning capital to our shareholders, and plan to con-
tinue our program of progressive returns to shareholders with a
proposed 67% increase in dividend to CHF 0.25 per share for
the financial year 2013. In this context, we reaffirm our commit-
ment to a total payout ratio of at least 50%, consisting of a
27
Operating environment and strategy Operating environment and strategy
Our strategy
baseline dividend and supplementary returns, after reaching our
capital ratio targets of a fully applied CET1 ratio of 13% and a
10% post-stress CET1 ratio, based on our internal stress tests.
We intend to set a baseline dividend at a sustainable level, tak-
ing into account normal economic fluctuations. The supplemen-
tary capital returns will be balanced with our need for invest-
ment and any buffer we choose to maintain for a more
challenging economic environment or other stress scenarios.
Through the further successful implementation of our strategy,
we believe we can sustain and grow our business and maintain
a prudent capital position.
Our annual performance targets
The table on the right provides our annual performance targets
on a Group and business division level as well as for Non-core
and Legacy Portfolio. These performance targets exclude, where
applicable, items considered non-recurring and certain other
items that management believes are not representative of the
underlying performance of our businesses, such as own credit
gains and losses, restructuring-related charges and gains and
losses on sales of businesses and real estate. The performance
targets assume constant foreign currency translation rates.
(cid:35)(cid:80)(cid:80)(cid:87)(cid:67)(cid:78)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:85)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:85)(cid:28)
(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:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:52)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:19)
(cid:36)(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:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:85)(cid:28)
(cid:19)(cid:21)(cid:16)(cid:18)(cid:7)(cid:2)(cid:75)(cid:80)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)
(cid:24)(cid:18)(cid:115)(cid:25)(cid:18)(cid:7)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)
(cid:32)(cid:2)(cid:19)(cid:23)(cid:7)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)
(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:48)(cid:71)(cid:86)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)(cid:84)(cid:67)(cid:86)(cid:71)
(cid:41)(cid:84)(cid:81)(cid:85)(cid:85)(cid:2)(cid:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)(cid:84)(cid:67)(cid:86)(cid:71)
(cid:41)(cid:84)(cid:81)(cid:85)(cid:85)(cid:2)(cid:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:21)(cid:115)(cid:23)(cid:7)
(cid:27)(cid:23)(cid:115)(cid:19)(cid:18)(cid:23)(cid:2)(cid:68)(cid:82)(cid:85)
(cid:24)(cid:18)(cid:115)(cid:25)(cid:18)(cid:7)
(cid:20)(cid:115)(cid:22)(cid:7)
(cid:25)(cid:23)(cid:115)(cid:26)(cid:23)(cid:2)(cid:68)(cid:82)(cid:85)
(cid:26)(cid:18)(cid:115)(cid:27)(cid:18)(cid:7)
(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:48)(cid:71)(cid:86)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:88)(cid:81)(cid:78)(cid:87)(cid:79)(cid:71)(cid:2)(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)
(cid:19)(cid:115)(cid:22)(cid:7)
(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:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:71)(cid:85)(cid:86)(cid:2)(cid:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:73)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)(cid:84)(cid:67)(cid:86)(cid:71)
(cid:41)(cid:84)(cid:81)(cid:85)(cid:85)(cid:2)(cid:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:50)(cid:84)(cid:71)(cid:15)(cid:86)(cid:67)(cid:90)(cid:2)(cid:52)(cid:81)(cid:35)(cid:39)(cid:20)
(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:52)(cid:57)(cid:35)(cid:2)
(cid:37)(cid:81)(cid:85)(cid:86) (cid:17)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)
(cid:48)(cid:81)(cid:80)(cid:15)(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:46)(cid:71)(cid:73)(cid:67)(cid:69)(cid:91)(cid:2)(cid:50)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:85)(cid:28)
(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:52)(cid:57)(cid:35)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:23)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:25)
(cid:19)(cid:22)(cid:18)(cid:115)(cid:19)(cid:26)(cid:18)(cid:2)(cid:68)(cid:82)(cid:85)
(cid:23)(cid:18)(cid:115)(cid:24)(cid:18)(cid:7)
(cid:21)(cid:115)(cid:23)(cid:7)
(cid:21)(cid:20)(cid:115)(cid:21)(cid:26)(cid:2)(cid:68)(cid:82)(cid:85)
(cid:24)(cid:18)(cid:115)(cid:25)(cid:18)(cid:7)
(cid:32)(cid:2)(cid:19)(cid:23)(cid:7)
(cid:30)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:24)(cid:23)(cid:115)(cid:26)(cid:23)(cid:7)
(cid:96)(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:96)(cid:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:23)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:2) (cid:57)(cid:74)(cid:75)(cid:78)(cid:71)(cid:2) (cid:89)(cid:71)(cid:2) (cid:69)(cid:81)(cid:80)(cid:86)(cid:75)(cid:80)(cid:87)(cid:71)(cid:2) (cid:86)(cid:81)(cid:2) (cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:2) (cid:67)(cid:2) (cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2) (cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2) (cid:81)(cid:80)(cid:2) (cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2) (cid:81)(cid:72)(cid:2) (cid:73)(cid:84)(cid:71)(cid:67)(cid:86)(cid:71)(cid:84)(cid:2) (cid:86)(cid:74)(cid:67)(cid:80)(cid:2) (cid:19)(cid:23)(cid:7)(cid:2) (cid:75)(cid:80)(cid:2) (cid:20)(cid:18)(cid:19)(cid:23)(cid:14)(cid:2) (cid:73)(cid:75)(cid:88)(cid:71)(cid:80)(cid:2) (cid:71)(cid:78)(cid:71)(cid:88)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)
(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:52)(cid:57)(cid:35)(cid:14)(cid:2)(cid:89)(cid:71)(cid:2)(cid:79)(cid:67)(cid:91)(cid:2)(cid:80)(cid:81)(cid:86)(cid:2)(cid:67)(cid:69)(cid:74)(cid:75)(cid:71)(cid:88)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:87)(cid:80)(cid:86)(cid:75)(cid:78)(cid:2)(cid:20)(cid:18)(cid:19)(cid:24)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:52)(cid:81)(cid:35)(cid:39)(cid:2)(cid:31)(cid:2)(cid:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:86)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:16)
(cid:19)(cid:36)(cid:38)(cid:19)(cid:18)(cid:20)(cid:65)(cid:71)
28
UBS Switzerland
UBS is the pre-eminent 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 management
and investment banking. We are fully
committed to our home market as our
leading position in Switzerland is crucial in
terms of profit stability, sustaining our
global brand and growing our global core
business. Drawing on our network
of around 300 branches and our 4,700
client-facing staff, complemented by
modern digital 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 and service one in
three households, one in three high net
worth individuals, over 40% of Swiss
companies, one in three pension funds
and 85% of banks domiciled in Switzer-
land. In July, Euromoney acknowledged
our pre- eminent position in Switzerland
with its prestigious “Best Bank in Switzer-
land” award for the second consecutive
year.
Our unique universal bank model is
central to our success. Our dedicated
Swiss management team includes
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 each 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.
Our distribution is based on a clear
multi-channel strategy as we strive to
offer a unique client experience, giving
clients the full flexibility to choose by
which channel to interact with us – be it
through our branches, customer service
centers or digital channels. Our con-
tinuous expansion of our electronic and
mobile banking proposition is very
well- regarded by our clients and translates
into a steadily rising number of users
and client interactions. With the launch of
the new version of our mobile banking
application, downloads have increased
77% year on year and client feedback has
been excellent, with 88% of Apple App
Store ratings awarding the maximum five
stars. Premium functionality was recog-
nized externally, among others with the
international “Best Bank Mobile Applica-
tion“ award at the MobileWebAwards
2013 and the national Best Swiss Apps
2013 Bronze Award. Our e-banking
service currently has around 1.3 million
clients, a 7% increase in each of the past
two years, and now includes a mar-
ket-leading personal financial manage-
ment tool. Around 50 million electronic
and mobile banking touch points per year
provide a distinctive brand experience,
helping us to strengthen client loyalty and
attract new clients. We will continue to
build on our long tradition as a leader and
innovator in digital services to capture
market share and increase efficiency.
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.
29
Operating environment and strategy Operating environment and strategy
Measurement of performance
Measurement of performance
Performance measures
Key performance indicators
Our key performance indicators (KPI) framework focuses on key
drivers of total shareholder return, measured by the dividend yield
and price appreciation of a UBS share. Our senior management
reviews the KPI framework on a regular basis by considering pre-
vailing strategy, business conditions and the environment in which
we operate. The KPI are disclosed consistently in our quarterly and
annual reporting 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
focus. Both Group and business division KPI are taken into ac-
count in determining variable compensation of executives and
personnel.
➔ Refer to the “Compensation” section of this report for more
information on performance criteria for compensation
In addition to the KPI, we disclose performance targets. These
performance targets include certain of the KPI as well as addition-
al balance sheet and capital management performance measures
to track the achievement of our strategic plan.
➔ Refer to the “Our strategy” section of this report for more
information on performance targets
The Group and business division KPI are explained in the
“Group / business division key performance indicators” table.
We made the following key changes to our KPI framework in
2013 to align it to the new Basel III requirements which became
effective at the beginning of the year:
– We replaced “BIS tier 1 ratio (%)“ with “Swiss systemically
relevant banks (SRB) Basel III common equity tier 1 capital ratio
(%).”
– We replaced “FINMA leverage ratio (%)“ with “Swiss SRB
leverage ratio (%)” (formerly also referred to as “FINMA Basel
III leverage ratio (%)”).
We show our “Swiss SRB Basel III common equity tier 1 capital
ratio (%)” on a phase-in and a fully applied basis. The information
provided on a fully applied basis entirely reflects the effects of the
new capital deductions and the phase-out of ineligible capital in-
struments. The information provided on a phase-in basis gradual-
ly reflects those effects during the transition period, which runs
from 2014 to 2018 for the new capital deductions, and from
2013 to 2019 for the phase-out of ineligible capital instruments.
“Swiss SRB leverage ratio (%)” considers Swiss SRB Basel III com-
mon equity tier 1 (CET1) capital and loss-absorbing capital, divid-
ed by total adjusted exposure, which is equal to IFRS assets, based
on a capital adequacy scope of consolidation, adjusted for re-
placement value netting and other adjustments, including off-bal-
ance sheet items. Our KPI for “Swiss SRB leverage ratio (%)” is
calculated on a phase-in basis.
➔ Refer to the “Capital management” section of this report for
more information
In addition, we changed the definition of our Wealth Manage-
ment Americas KPI “Recurring income as a percentage of total op-
erating income (%)” to “Recurring income as a percentage of in-
come (%)” to exclude credit loss (expense) or recovery. The change
of the denominator to “income” from “total operating income”
makes this KPI more consistent with the KPI “Gross margin on in-
vested assets (bps),” “Return on assets, gross (%),” “Return on
risk-weighted assets, gross (%)” and “Cost / income ratio (%)”
which are already based on “income” as opposed to “operating
income,” thereby also excluding credit loss (expense) or recovery.
The effect on our figures of this new basis of calculation was imma-
terial, but prior periods were restated to reflect the change in defi-
nition. In addition, we now also include both “Recurring income”
and “Recurring income as a percentage of total income (%)” in our
Wealth Management disclosure. However, for Wealth Management
these metrics are considered “Additional information” and not KPI.
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 more central measure and
includes, for example, discretionary and advisory wealth manage-
ment portfolios, managed institutional assets, managed fund as-
sets and wealth management securities or brokerage accounts. It
excludes all assets held for custody-only purposes, as we only ad-
minister the assets and do not offer advice on how these assets
should be invested. Non-bankable assets (for example, art collec-
tions) 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
30
t
n
e
m
e
g
a
n
a
M
h
t
l
a
e
W
t
n
e
m
e
g
a
n
a
M
s
a
c
i
r
e
m
A
h
t
l
a
e
W
e
t
a
r
o
p
r
o
C
&
l
i
a
t
e
R
t
e
s
s
A
l
a
b
o
G
l
t
n
e
m
e
g
a
n
a
M
t
n
e
m
t
s
e
v
n
I
k
n
a
B
p
u
o
r
G
Group / business division key performance indicators
Key performance indicators
Definition
Net profit growth (%)
Pre-tax profit growth (%)
Cost / income ratio (%)
Return on equity (RoE) (%)
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 (annualized as
applicable) / average equity attributable to UBS shareholders
Return on attributed equity
(RoAE) (%)
Business division performance before tax (annualized as
applicable) / average attributed equity
Return on assets, gross (%)
Operating income before credit loss (expense) or recovery
(annualized as applicable) / average total assets
Return on risk-weighted assets,
gross (%)
Operating income before credit loss (expense) or recovery
(annualized as applicable) / average risk-weighted assets
Swiss SRB leverage ratio (%)
(phase-in)
Swiss SRB Basel III common equity tier 1 capital and loss-absorb-
ing capital / total adjusted exposure (leverage ratio denominator)
Swiss SRB Basel III common
equity tier 1 capital ratio (%)
Swiss SRB Basel III common equity tier 1 capital / Swiss SRB
Basel III 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 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 margin (%)
Net interest income (annualized as applicable) / average loans
Recurring income as a % of
income (%)
Impaired loans portfolio as a %
of total loans portfolio, gross (%)
Total recurring fees and net interest income / income
Impaired loans portfolio, gross / total loans portfolio, gross
Average VaR (1-day, 95%
confidence, 5 years of
historical data)
Value-at-risk (VaR) expresses maximum potential loss measured
to a 95% confidence level, over a one-day time horizon and
based on five years of historical data
31
Operating environment and strategy
Operating environment and strategy
Measurement of performance
including interest and dividend income in line with historical re-
porting practice in the US market. Market and currency move-
ments, as well as fees, commissions and interest on loans charged,
are excluded from net new money, as are the effects of any acqui-
sition or divestment of a UBS subsidiary or business. Reclassifica-
tions 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 a 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 Invest-
ment Bank does not track invested assets or net new money. Ac-
cordingly, when a client is transferred from the Investment Bank
to another business division, this produces net new money even
though the client assets were already with UBS.
When products are managed in one business division and sold
by another, they are counted in both the investment management
unit and the distribution unit. This results in double-counting
within our total invested assets, as both units provide an indepen-
dent service to their 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 strate-
gy, and allows us to accurately reflect the performance of each
individual business. Overall, CHF 156 billion of invested assets
were double-counted as of 31 December 2013 (CHF 172 billion as
of 31 December 2012).
➔ Refer to “Note 35 Invested assets and net new money” in the
“Financial information” section of this report for more informa-
tion
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 lower client activity lev-
els related to the summer and end-of-year holiday seasons, annu-
al income tax payments, for example, which are concentrated in
the second quarter in the US, and asset withdrawals that tend to
occur in the fourth quarter.
Changes to key performance indicators in 2014
From the beginning of 2014, we will make the following changes to our KPI framework to further enhance its relevance by
reclassifying certain KPI to “Additional information,” or defining certain KPI to focus on our specific wealth management or retail
businesses.
Changes to key performance indicators in 2014
t
n
e
m
e
g
a
n
a
M
s
a
c
i
r
e
m
A
h
t
l
a
e
W
e
t
a
r
o
p
r
o
C
&
l
i
a
t
e
R
p
u
o
r
G
Existing key performance indicators
Changes in 2014
Return on risk-weighted assets,
gross (%)
This metric will no longer be a KPI, but will instead be reported as “Additional information,” as it is
considered to be less meaningful and relevant compared with the other existing KPI to measure the
performance of the Group.
Swiss SRB Basel III common
equity tier 1 capital ratio (%)
(phase-in)
Net new money growth (%)
This metric will no longer be a KPI, but will instead be reported as “Additional information.”
The Swiss SRB Basel III CET1 capital ratio on a fully applied basis will continue to be a KPI.
This KPI will be renamed to “Net new money growth for combined wealth management businesses (%)”
and focus on net new money generated by our wealth management businesses only by excluding net
new money from Global Asset Management and Retail & Corporate from this measure.
Recurring income as a %
of income (%)
This metric will no longer be a KPI, but will instead be reported as “Additional information,” to be
consistent with the way this metric is reported in Wealth Management.
Net new business volume growth
(%)
This KPI will be renamed “Net new business volume growth for retail business (%)” and focus on
net new business volume from our retail business only by excluding our corporate business from
this measure.
Impaired loans portfolio as a % of
total loans portfolio, gross (%)
This measure will no longer be a KPI, as it is considered to be less meaningful and relevant compared
with the other existing KPI to measure the performance of our Retail & Corporate business.
32
Wealth Management
Wealth Management provides wealthy private clients with investment advice and solutions tailored to their individual
needs. At the end of 2013, we had a presence in over 40 countries and invested assets of more than CHF 880 billion.
Business
We provide comprehensive financial services to wealthy private
clients around the world, with the exception of those served by
our colleagues in Wealth Management Americas. UBS is a global
firm with global capabilities, and our clients benefit from a full
spectrum of resources, ranging from investment management
solutions to wealth planning and corporate finance advice, as well
as the specific offerings outlined below. Our guided architecture
model gives clients access to a wide range of products from
third-party providers that complement our own product lines.
Strategy and clients
We are one of the pre-eminent wealth managers globally and aim
to provide our clients with superior investment advice and solu-
tions.
We are building on our leading position by focusing on our cli-
ents’ individual goals. We provide them with access to the infra-
structure we offer to our institutional clients: for example, direct
access to the Investment Bank’s trading platforms, the offering of
our Institutional Solutions Group and professional portfolio man-
agement capabilities, including strategic asset allocation and holis-
tic portfolio monitoring to ensure clients’ portfolios remain aligned
with their investment strategy. In addition, through our Global
Family Office Group, clients benefit from tailored institutional cov-
erage and global execution provided by dedicated specialist teams
from both Wealth Management and the Investment Bank. We also
provide solutions, products and services to financial intermediaries.
The global wealth management business has attractive long-
term growth prospects and we expect its growth to outpace that
of gross domestic product in all regions. From a client segment
perspective, the global ultra high net worth market, 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 capture the opportuni-
ties this presents.
Our integrated client service model enables us to bundle capa-
bilities from across the Group to identify investment opportunities
in all market conditions and tailor solutions to meet individual
client needs. Our booking centers across the globe give us a
strong local presence which allows us to book client assets in
multiple locations. The strength and scope of our franchise also
enable us to adapt to the changing legal and regulatory envi-
ronment.
Collaboration is also crucial to our continued expansion in key
onshore locations, and we continue to benefit from the estab-
lished business relationships of our local Investment Bank and
Global Asset Management teams.
In Asia Pacific, we are accelerating our growth with a focus on
Hong Kong and Singapore, the leading financial centers in the
region. We are also developing a targeted presence in major
onshore markets such as Japan and Taiwan and investing in our
local presence in China to help capture long-term growth oppor-
tunities.
In the emerging markets, we are focused on key growth mar-
kets such as Brazil, Mexico, Israel, Turkey, Russia and Saudi Arabia.
We continually enhance our market-specific products and services
Invested assets by client domicile(cid:15)
%
Total: CHF 886 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:7)
(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:26)(cid:24)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
As of 31.12.13
22
9
Americas
Asia Pacific
(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:21)
(cid:19)(cid:20)
25
Europe, Middle East and Africa
Switzerland
(cid:23)(cid:25)
44
(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:19)
(cid:19)(cid:18)
68-161_1 WM_IA by client domicile_e
33
(cid:25)(cid:18)(cid:15)(cid:19)(cid:24)(cid:19)(cid:65)(cid:20)(cid:2)(cid:57)(cid:47)(cid:65)(cid:43)(cid:35)(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)
Operating environment and strategy Operating environment and strategy
Wealth Management
to ensure we meet the needs of our clients. Many emerging mar-
ket clients prefer to book their assets in established financial cen-
ters and, to that end, we are strengthening our coverage for such
clients through our booking centers in the US, the UK and Swit-
zerland.
In Europe, our long-established footprint in all major booking
centers underpins our growth ambition. We recognized early the
converging needs of clients and combined our offshore and on-
shore businesses. This gives clients across the region access to our
extensive Swiss product offering, creates economies of scale and
enables us to deal more efficiently with increased regulatory and
fiscal requirements.
In Switzerland, we collaborate closely with our colleagues in
retail, corporate, asset management and investment banking.
This generates opportunities to expand our business and gives
our clients access to our investment insight and research, advi-
sory and portfolio management capabilities, products and capi-
tal markets, as well as execution know-how. We generate
significant referrals from Swiss corporate and retail clients
through UBS’s extensive branch network, which includes over
100 wealth management offices. As their wealth increases, re-
tail clients can progress seamlessly to our wealth management
operations.
Our Global Financial Intermediaries business acts as a strategic
business partner for more than 2,400 financial intermediaries in
all major financial centers. It offers them professional investment
advisory services, a global banking infrastructure and tailored
solutions, helping financial intermediaries to advise their end-cli-
ents more effectively.
Organizational structure
Headquartered in Switzerland, we have a presence in over 40
countries with approximately 200 wealth management and repre-
sentative offices, half of which are outside Switzerland. As of the
end of 2013, we employed approximately 16,400 people world-
wide. Of these, approximately 4,100 were client advisors. We are
governed by executive, operating and risk committees and are
primarily organized along regional lines with our business areas
being Asia Pacific, Europe, Global Emerging Markets, Switzerland
and Global Ultra High Net Worth. Our business is supported by
the Chief Investment Office and a global Investment Products and
Services unit, as well as central functions.
Competitors
Our major global competitors include the private banking opera-
tions of Credit Suisse, Julius Bär, HSBC, Deutsche Bank, BNP Pari-
bas, JP Morgan and Citigroup, along with leading investment
managers such as PIMCO. In the European domestic markets, we
primarily compete with the private banking operations of large
local banks such as Barclays in the UK, Deutsche Bank in Germany
and Unicredit in Italy. In Asia Pacific, the private banking franchis-
es of HSBC, Citigroup and Credit Suisse are our main competitors.
Investment advice and solutions
As part of a global, integrated firm, we are a dynamic wealth
manager with investment management capabilities at our core.
(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: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: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:19)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:19)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:23)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(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:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:26)(cid:24)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:23)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:20)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:26)(cid:26)(cid:24)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:19)(cid:18)
(cid:19)(cid:23)
(cid:20)(cid:21)
(cid:19)(cid:20)
(cid:19)(cid:25)
(cid:20)(cid:21)
(cid:19)(cid:19)
(cid:19)(cid:22)
(cid:20)(cid:22)
(cid:19)(cid:19)
(cid:19)(cid:25)
(cid:20)(cid:21)
(cid:19)(cid:21)
(cid:19)(cid:20)
(cid:20)(cid:25)
(cid:19)(cid:18)
(cid:19)(cid:23)
(cid:20)(cid:21)
(cid:35)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:85)(cid:17)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)(cid:14)(cid:2)(cid:386)(cid:70)(cid:87)(cid:69)(cid:75)(cid:67)(cid:84)(cid:91)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:79)(cid:87)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:19)
(cid:39)(cid:90)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:79)(cid:87)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:19)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:82)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)
(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)
34
(cid:19)(cid:24)
(cid:23)
(cid:19)(cid:26)
(cid:20)(cid:26)
(cid:21)(cid:21)
(cid:19)(cid:25)
(cid:23)
(cid:19)(cid:27)
(cid:20)(cid:24)
(cid:21)(cid:21)
(cid:19)(cid:25)
(cid:23)
(cid:19)(cid:27)
(cid:20)(cid:23)
(cid:21)(cid:22)
(cid:25)(cid:20)(cid:15)(cid:19)(cid:24)(cid:19)(cid:65)(cid:21)(cid:2)(cid:57)(cid:47)(cid:65)(cid:43)(cid:35)(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:55)(cid:53)(cid:38)
(cid:41)(cid:36)(cid:50)
(cid:39)(cid:55)(cid:52)
(cid:37)(cid:42)(cid:40)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:85)
(cid:25)(cid:22)(cid:15)(cid:19)(cid:24)(cid:19)(cid:65)(cid:20)(cid:2)(cid:57)(cid:47)(cid:65)(cid:43)(cid:35)(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:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
Our client advisors are proactive in their relationships with clients,
and we have a systematic process for developing a thorough un-
derstanding of our clients’ financial objectives and risk appetite. In
addition, our wealth planners – part of our specialist product
team – often support client advisors as they guide their clients in
making financial decisions based on their life-cycle needs. With
this comprehensive overview, we offer them wealth planning ad-
vice and products, and we ascertain their investment strategy,
which serves as the foundation for the investment solutions we
offer them. Client advisors regularly review their clients’ investor
profiles to make sure they correspond to their evolving priorities
and changing tolerance for risk. Our bespoke training programs
and the ongoing support the firm provides to our client advisors
enable them to deliver superior advice and solutions to our cli-
ents. For example, we require all of our client advisors to obtain
the Wealth Management Diploma, a program accredited by Swit-
zerland’s State Secretariat For Economic Affairs (SECO) that en-
sures a high level of knowledge and expertise. For our most senior
client advisors, we offer extensive training through the Wealth
Management Master program.
Our global Chief Investment Office synthesizes the research
and expertise of our global network of economists, strategists,
analysts and investment specialists from across all business divi-
sions. These specialists are present in all major markets around the
globe, closely monitoring financial developments. This allows us
to deliver real-time insights and to embed local knowledge into
our global investment process. Using these analyses, and in con-
sultation with our external partner network, which includes many
of the world’s most successful money managers, the Chief Invest-
ment Office establishes a clear, concise and consistent investment
view – the UBS House View. The UBS House View includes both
our strategic and our tactical asset allocation across all relevant
asset classes in major markets. The strategic asset allocation rep-
resents the long-term asset allocation for a defined risk level and
is crucial for investment performance. Our strategic asset alloca-
tion is complemented by our tactical asset allocation, which al-
lows us to capitalize on short-term market opportunities.
Our Investment Products and Services unit ensures our solu-
tions are in step with market conditions by aligning our discretion-
ary and advisory offerings with our UBS House View. Clients who
opt for an investment mandate delegate the management of
their assets to a team of professional portfolio managers. Those
who prefer to be actively involved can choose an advisory man-
date. Their entire portfolio is monitored and analyzed closely, and
they receive tailored proposals to help them make informed in-
vestment decisions. They can also invest in the full range of finan-
cial instruments from single securities such as equities and bonds,
to various investment funds, structured products and alternative
investments. Additionally, we offer clients advice on structured
lending and corporate finance.
Our products are aimed at achieving performance in various
market scenarios. They are developed from a wide range of sourc-
es, including Investment Products and Services, Global Asset
Management, the Investment Bank and third parties, as we oper-
ate within a guided architecture model. By aggregating private
investment flows into institutional-size flows, we can offer our
clients access to investments normally only available to institu-
tional clients.
(cid:53)(cid:87)(cid:82)(cid:71)(cid:84)(cid:75)(cid:81)(cid:84)(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:67)(cid:70)(cid:88)(cid:75)(cid:69)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)(cid:111)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)
(cid:52)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)
(cid:52)(cid:75)(cid:85)(cid:77)
(cid:53)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:75)(cid:69)(cid:2)
(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)
(cid:35)(cid:78)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:54)(cid:67)(cid:69)(cid:86)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)
(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)
(cid:35)(cid:78)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:52)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)
(cid:48)(cid:71)(cid:89)
(cid:49)(cid:78)(cid:70)
(cid:52)(cid:75)(cid:85)(cid:77)
(cid:35)(cid:70)(cid:88)(cid:75)(cid:85)(cid:81)(cid:84)(cid:91)
(cid:38)(cid:71)(cid:78)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(cid:85)(cid:86)(cid:67)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:38)(cid:71)(cid:86)(cid:71)(cid:84)(cid:79)(cid:75)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)(cid:111)(cid:2)(cid:73)(cid:81)(cid:67)(cid:78)(cid:85)
(cid:35)(cid:80)(cid:67)(cid:78)(cid:91)(cid:85)(cid:75)(cid:85)
(cid:41)(cid:67)(cid:86)(cid:74)(cid:71)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)
(cid:75)(cid:80)(cid:86)(cid:71)(cid:78)(cid:78)(cid:75)(cid:73)(cid:71)(cid:80)(cid:69)(cid:71)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:42)(cid:81)(cid:87)(cid:85)(cid:71)(cid:2)(cid:56)(cid:75)(cid:71)(cid:89)(cid:2)
(cid:37)(cid:78)(cid:71)(cid:67)(cid:84)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:91)(cid:2)
(cid:35)(cid:2)(cid:85)(cid:86)(cid:84)(cid:81)(cid:80)(cid:73)(cid:2)(cid:68)(cid:67)(cid:85)(cid:75)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)
(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(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:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(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:81)(cid:82)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:69)(cid:74)(cid:75)(cid:71)(cid:88)(cid:71)(cid:2)
(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)(cid:111)(cid:2)(cid:73)(cid:81)(cid:67)(cid:78)(cid:85)(cid:2)(cid:2)
(cid:50)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(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:73)(cid:81)(cid:67)(cid:78)(cid:85)
(cid:50)(cid:84)(cid:81)(cid:86)(cid:71)(cid:69)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)(cid:111)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:71)(cid:85)(cid:86)(cid:85)(cid:2)
(cid:3)
(cid:3)
35
Operating environment and strategy Operating environment and strategy
Wealth Management Americas
Wealth Management Americas
Wealth Management Americas develops advicebased 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
We are one of the leading wealth managers in the Americas in
terms of financial advisor productivity and invested assets. Our
business includes the domestic US and Canadian business as well
as international business booked in the US. We have attractive
growth opportunities and a clear strategy focused on serving our
target client segments. As of 31 December 2013, invested assets
totaled USD 970 billion.
Strategy and clients
Our goal is to be the best wealth management business in the
Americas. With our client-focused, advisor-centric strategy, we
deliver advice-based wealth management solutions and banking
services through our financial advisors in key metropolitan mar-
kets, providing a fully integrated set of products and services to
meet the needs of our target client segments, high net worth cli-
ents and ultra high net worth clients, while also serving the needs
of core affluent clients. We define high net worth clients as those
with investable assets of between USD 1 million and USD 10 mil-
lion, and ultra high net worth clients as those with investable as-
sets of more than USD 10 million. Core affluent clients are defined
as those with investable assets of between USD 250,000 and USD
1 million. The Global Family Office – Americas, a joint venture
between Wealth Management Americas and the Investment
Bank, was launched in 2013 with the objective of seamlessly of-
fering the global resources and reach of the entire firm by provid-
ing integrated, comprehensive wealth management and institu-
tional-type services to selected Family Office clients. Our Wealth
Advice Center serves emerging affluent clients with investable
assets of less than USD 250,000. 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
(cid:41)(cid:71)(cid:81)(cid:73)(cid:84)(cid:67)(cid:82)(cid:74)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:69)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:77)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)(cid:124)(cid:2)
(cid:2)
(cid:37)(cid:67)(cid:80)(cid:67)(cid:70)(cid:67)(cid:2)(cid:22)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)(cid:85)(cid:28)(cid:2)
(cid:37)(cid:67)(cid:78)(cid:73)(cid:67)(cid:84)(cid:91)(cid:14)(cid:2)(cid:47)(cid:81)(cid:80)(cid:86)(cid:84)(cid:71)(cid:67)(cid:78)(cid:14)(cid:2)(cid:54)(cid:81)(cid:84)(cid:81)(cid:80)(cid:86)(cid:81)(cid:14)(cid:2)(cid:56)(cid:67)(cid:80)(cid:69)(cid:81)(cid:87)(cid:88)(cid:71)(cid:84)
(cid:35)(cid:46)(cid:35)(cid:53)(cid:45)(cid:35)
(cid:57)(cid:35)(cid:53)(cid:42)(cid:43)(cid:48)(cid:41)(cid:54)(cid:49)(cid:48)
(cid:47)(cid:49)(cid:48)(cid:54)(cid:35)(cid:48)(cid:35)
(cid:48)(cid:49)(cid:52)(cid:54)(cid:42)(cid:2)(cid:38)(cid:35)(cid:45)(cid:49)(cid:54)(cid:35)
(cid:47)(cid:43)(cid:48)(cid:48)(cid:39)(cid:53)(cid:49)(cid:54)(cid:35)
(cid:49)(cid:52)(cid:39)(cid:41)(cid:49)(cid:48)
(cid:43)(cid:38)(cid:35)(cid:42)(cid:49)
(cid:57)(cid:59)(cid:49)(cid:47)(cid:43)(cid:48)(cid:41)
(cid:53)(cid:49)(cid:55)(cid:54)(cid:42)(cid:2)(cid:38)(cid:35)(cid:45)(cid:49)(cid:54)(cid:35)
(cid:57)(cid:43)(cid:53)(cid:37)(cid:49)(cid:48)(cid:53)(cid:43)(cid:48)
(cid:48)(cid:39)(cid:36)(cid:52)(cid:35)(cid:53)(cid:45)(cid:35)
(cid:43)(cid:49)(cid:57)(cid:35)
(cid:47)(cid:43)(cid:37)(cid:42)(cid:43)(cid:41)(cid:35)(cid:48)
(cid:48)(cid:39)(cid:57)(cid:2)(cid:59)(cid:49)(cid:52)(cid:45)
(cid:48)(cid:39)(cid:56)(cid:35)(cid:38)(cid:35)
(cid:55)(cid:54)(cid:35)(cid:42)
(cid:37)(cid:49)(cid:46)(cid:49)(cid:52)(cid:35)(cid:38)(cid:49)
(cid:45)(cid:35)(cid:48)(cid:53)(cid:35)(cid:53)
(cid:43)(cid:46)(cid:46)(cid:43)(cid:48)(cid:49)(cid:43)(cid:53)
(cid:49)(cid:42)(cid:43)(cid:49)
(cid:43)(cid:48)(cid:38)(cid:43)(cid:35)(cid:48)(cid:35)
(cid:50)(cid:39)(cid:48)(cid:48)(cid:53)(cid:59)(cid:46)(cid:56)(cid:35)(cid:48)(cid:43)(cid:35)
(cid:57)(cid:39)(cid:53)(cid:54)
(cid:56)(cid:43)(cid:52)(cid:41)(cid:43)(cid:48)(cid:43)(cid:35)
(cid:45)(cid:39)(cid:48)(cid:54)(cid:55)(cid:37)(cid:45)(cid:59)
(cid:56)(cid:43)(cid:52)(cid:41)(cid:43)(cid:48)(cid:43)(cid:35)
(cid:47)(cid:43)(cid:53)(cid:53)(cid:49)(cid:55)(cid:52)(cid:43)
(cid:48)(cid:39)(cid:57)(cid:2)(cid:42)(cid:35)(cid:47)(cid:50)(cid:53)(cid:42)(cid:43)(cid:52)(cid:39)
(cid:47)(cid:35)(cid:53)(cid:53)(cid:35)(cid:37)(cid:42)(cid:55)(cid:53)(cid:39)(cid:54)(cid:54)(cid:53)
(cid:52)(cid:42)(cid:49)(cid:38)(cid:39)(cid:2)(cid:43)(cid:53)(cid:46)(cid:35)(cid:48)(cid:38)
(cid:37)(cid:49)(cid:48)(cid:48)(cid:39)(cid:37)(cid:54)(cid:43)(cid:37)(cid:55)(cid:54)
(cid:48)(cid:39)(cid:57)(cid:2)(cid:44)(cid:39)(cid:52)(cid:53)(cid:39)(cid:59)
(cid:38)(cid:39)(cid:46)(cid:35)(cid:57)(cid:35)(cid:52)(cid:39)
(cid:47)(cid:35)(cid:52)(cid:59)(cid:46)(cid:35)(cid:48)(cid:38)
(cid:57)(cid:35)(cid:53)(cid:42)(cid:43)(cid:48)(cid:41)(cid:54)(cid:49)(cid:48)(cid:2)(cid:38)(cid:16)(cid:37)(cid:16)
(cid:56)(cid:39)(cid:52)(cid:47)(cid:49)(cid:48)(cid:54)
(cid:47)(cid:35)(cid:43)(cid:48)(cid:39)
(cid:37)(cid:35)(cid:46)(cid:43)(cid:40)(cid:49)(cid:52)(cid:48)(cid:43)(cid:35)
(cid:35)(cid:52)(cid:43)(cid:60)(cid:49)(cid:48)(cid:35)
(cid:48)(cid:39)(cid:57)(cid:2)(cid:47)(cid:39)(cid:58)(cid:43)(cid:37)(cid:49)
(cid:49)(cid:45)(cid:46)(cid:35)(cid:42)(cid:49)(cid:47)(cid:35)
(cid:35)(cid:52)(cid:45)(cid:35)(cid:48)(cid:53)(cid:35)(cid:53)
(cid:54)(cid:39)(cid:48)(cid:48)(cid:39)(cid:53)(cid:53)(cid:39)(cid:39)
(cid:48)(cid:49)(cid:52)(cid:54)(cid:42)(cid:2)(cid:37)(cid:35)(cid:52)(cid:49)(cid:46)(cid:43)(cid:48)(cid:35)
(cid:53)(cid:49)(cid:55)(cid:54)(cid:42)(cid:2)
(cid:37)(cid:35)(cid:52)(cid:49)(cid:46)(cid:43)(cid:48)(cid:35)
(cid:47)(cid:43)(cid:53)(cid:53)(cid:43)(cid:53)(cid:53)(cid:43)(cid:50)(cid:50)(cid:43)
(cid:35)(cid:46)(cid:35)(cid:36)(cid:35)(cid:47)(cid:35)
(cid:41)(cid:39)(cid:49)(cid:52)(cid:41)(cid:43)(cid:35)
(cid:54)(cid:39)(cid:58)(cid:35)(cid:53)
(cid:46)(cid:49)(cid:55)(cid:43)(cid:53)(cid:43)(cid:35)(cid:48)(cid:35)
(cid:42)(cid:35)(cid:57)(cid:35)(cid:43)(cid:43)
(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:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)(cid:85)(cid:28)
(cid:30)(cid:2)(cid:23)(cid:2)
(cid:23)(cid:115)(cid:19)(cid:23)
(cid:32)(cid:2)(cid:19)(cid:23)
36
(cid:40)(cid:46)(cid:49)(cid:52)(cid:43)(cid:38)(cid:35)
(cid:50)(cid:55)(cid:39)(cid:52)(cid:54)(cid:49)(cid:2)(cid:52)(cid:43)(cid:37)(cid:49)
(cid:55)(cid:84)(cid:87)(cid:73)(cid:87)(cid:67)(cid:91)(cid:2)(cid:19)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)(cid:28)(cid:2)
(cid:47)(cid:81)(cid:80)(cid:86)(cid:71)(cid:88)(cid:75)(cid:70)(cid:71)(cid:81)
(cid:20)(cid:36)(cid:38)(cid:18)(cid:19)(cid:18)(cid:65)(cid:71)
(cid:56)(cid:67)(cid:80)(cid:69)(cid:81)(cid:87)(cid:88)(cid:71)(cid:84)(cid:2)(cid:10)(cid:37)(cid:35)(cid:48)(cid:11)(cid:28)(cid:2)(cid:19)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)
(cid:47)(cid:81)(cid:80)(cid:86)(cid:84)(cid:71)(cid:67)(cid:78)(cid:2)(cid:10)(cid:37)(cid:35)(cid:48)(cid:11)(cid:28)(cid:2)(cid:19)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)
(cid:54)(cid:81)(cid:84)(cid:81)(cid:80)(cid:86)(cid:81)(cid:2)(cid:10)(cid:37)(cid:35)(cid:48)(cid:11)(cid:28)(cid:2)(cid:19)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)
highest standard of execution, and running a streamlined and ef-
ficient business.
of client satisfaction, strengthen our client relationships, and lead
to greater revenue productivity among our financial advisors.
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
970 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
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-gath-
ering businesses and the Investment Bank. These resources are
augmented by our commitment to an open architecture platform
and are supported by our partnerships with many of the world’s
leading third-party institutions. Moreover, our wealth manage-
ment offerings are complemented by banking, mortgage and fi-
nancing 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
2013, our strategy and focus led to a continued 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 ad-
visors’ focus towards advice-based solutions, leveraging the glob-
al capabilities of UBS to clients by continuing to partner with the
Investment Bank and Global Asset Management, and delivering
banking and lending services that complement our wealth man-
agement solutions. We also plan to continue investing in im-
proved platforms and technology, while remaining disciplined on
cost. We expect these efforts to enable us to achieve higher levels
Organizational structure
Wealth Management Americas consists of branch networks in the
US, Puerto Rico, Canada and Uruguay, with 7,137 financial advi-
sors as of 31 December 2013. Most corporate and operational
functions are located in the Wealth Management Americas home
office in Weehawken, New Jersey.
In the US and Puerto Rico, we operate primarily through direct
and indirect subsidiaries of UBS AG. Securities and operations ac-
tivities are conducted primarily through two registered bro-
ker-dealers, UBS Financial Services Inc. and UBS Financial Services
Incorporated of Puerto Rico. Our banking services in the US in-
clude 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 ac-
counts, collateralized lending services, mortgages and credit
cards.
Canadian wealth management and banking operations are
conducted through UBS Bank (Canada), and Uruguayan wealth
management operations are conducted through UBS Financial
Services Montevideo.
Competitors
We compete with national full-service brokerage firms, domestic
and global private banks, regional broker-dealers, independent
broker-dealers, registered investment 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 include the wealth management
businesses of Bank of America, Morgan Stanley and Wells Fargo.
(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:7)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:124)(cid:2)
(cid:7)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)(cid:55)(cid:53)(cid:38)(cid:2)(cid:27)(cid:25)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:19)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(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:21)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:25)(cid:23)(cid:24)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:26)(cid:22)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:27)(cid:25)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:26)
(cid:20)(cid:26)
(cid:20)(cid:26)
(cid:26)
(cid:20)(cid:21)
(cid:23)
(cid:26)
(cid:20)(cid:27)
(cid:21)(cid:19)
(cid:24)
(cid:20)(cid:18)
(cid:24)
(cid:27)
(cid:21)(cid:20)
(cid:21)(cid:19)
(cid:23)
(cid:19)(cid:25)
(cid:24)
(cid:23)
(cid:19)(cid:23)
(cid:21)(cid:24)
(cid:30)(cid:2)(cid:55)(cid:53)(cid:38)(cid:2)(cid:20)(cid:23)(cid:18)(cid:2)(cid:86)(cid:74)(cid:81)(cid:87)(cid:85)(cid:67)(cid:80)(cid:70)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:18)(cid:16)(cid:20)(cid:23)(cid:115)(cid:19)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:55)(cid:53)(cid:38)(cid:2)(cid:19)(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:55)(cid:53)(cid:38)(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:22)(cid:22)
(cid:25)(cid:18)(cid:15)(cid:19)(cid:24)(cid:19)(cid:65)(cid:20)(cid:2)(cid:57)(cid:47)(cid:65)(cid:43)(cid:35)(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:35)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:85)(cid:17)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:19)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:79)(cid:87)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:39)(cid:90)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:79)(cid:87)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:26)(cid:20)(cid:15)(cid:19)(cid:24)(cid:20)(cid:65)(cid:20)(cid:2)(cid:57)(cid:47)(cid:35)(cid:65)(cid:43)(cid:35)(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:65)(cid:55)(cid:53)(cid:38)(cid:65)(cid:71)
(cid:19)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:82)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:85)(cid:14)(cid:2)(cid:67)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:386)(cid:70)(cid:87)(cid:69)(cid:75)(cid:67)(cid:84)(cid:91)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)
37
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
Operating environment and strategy Operating environment and strategy
Wealth Management Americas
Products and services
We offer clients a full array of solutions that focus on their indi-
vidual financial needs. Comprehensive planning supports clients
through the various stages of their lives, including education
funding, charitable giving, estate strategies, insurance, retirement
and trusts and foundations, with corresponding product offerings
for each stage. Our advisors work closely with internal consultants
in areas such as wealth planning, portfolio strategy, retirement
and annuities, alternative investments, managed accounts, struc-
tured products, banking and lending, equities and fixed income.
Clients also benefit from our dedicated Wealth Management Re-
search team, which provides research guidance to help support
our clients’ investment decisions.
Our offerings are designed to meet a wide variety of invest-
ment objectives, including wealth accumulation and preservation,
income generation and portfolio diversification. To address the
full range of our clients’ financial needs, we also offer competitive
lending and cash management services such as securities-backed
lending, resource management accounts, FDIC-insured deposits,
mortgages and credit cards.
Additionally, our UBS Equity Plan Advisory Services is a leading
provider of equity compensation plan services and advice to more
than 130 US corporations, representing one million participants
worldwide. 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 adviso-
ry programs. Non-discretionary advisory programs enable the client
to maintain control over all account transactions, while clients with
discretionary advisory programs direct investment professionals to
manage a portfolio on their behalf. Depending on the type of dis-
cretionary program, the client can give investment discretion to a
qualified financial advisor, a team of our investment professionals
or a third-party investment manager. Separately, we also offer mu-
tual fund advisory programs, whereby a financial advisor works
with the client to create a diversified portfolio of mutual funds
guided by a research-driven asset allocation framework.
For clients who favor individual securities, we offer a broad
range of equity and fixed income instruments. In addition, qualified
clients may take advantage of structured products and alternative
investment offerings to complement their portfolio strategies.
All of these solutions are supported by a dedicated capital mar-
kets 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.
38
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
We provide comprehensive financial products and services to our
retail, corporate and institutional clients in Switzerland, maintain-
ing a leading position in these client segments and embedding
our offering in a multi-channel approach. As shown in the “Busi-
ness mix” chart below, our retail and corporate business gener-
ates stable profits which contribute substantially to the overall fi-
nancial performance of the Group. We are among the leading
players in the retail and corporate loan market in Switzerland,
with a highly collateralized lending portfolio of CHF 137 billion as
of 31 December 2013, as shown in the “Loans, gross” chart be-
low. This portfolio is managed conservatively, focusing on profit-
ability and credit quality rather than market share.
Our retail and corporate business constitutes a central building
block of UBS Switzerland’s universal bank model, supporting oth-
er business divisions by referring clients to them and assisting re-
tail clients to build their wealth to a level at which we can transfer
them to our Wealth Management unit. Furthermore, we leverage
the cross-selling potential of products and services provided by
our asset-gathering and investment banking businesses. In addi-
tion, we manage a substantial part of UBS’s Swiss infrastructure
and Swiss banking products platform, which are both leveraged
across the Group.
We aspire to be the bank of choice for retail clients in Switzerland
by delivering value-added services. Currently, we serve one in
three Swiss households. Our distribution network comprises
around 300 branches, 1,250 automated teller machines including
self-service terminals, and four customer service centers as well as
state-of-the-art digital banking services. Technology is fundamen-
tally transforming the way we deliver our products and services.
We are therefore continuously expanding and enhancing our
multi-channel offering and will continue to build on our long tra-
dition as a leader and innovator in digital services to deliver supe-
rior client experience, capture market share and increase efficien-
cy. Moreover, we follow a life-cycle-based product approach to
provide our clients with tailored solutions 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-sized enterprises to multination-
als, and from pension funds and commodity traders to banks and
insurers. We serve over 40% of Swiss companies, including more
(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:75)(cid:90)
(cid:7)(cid:2)
(cid:40)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:71)(cid:80)(cid:70)(cid:71)(cid:70)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:21)(cid:18)
(cid:19)(cid:21)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:21)(cid:14)(cid:25)(cid:25)(cid:22)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:52)(cid:71)(cid:69)(cid:87)(cid:84)(cid:84)(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:52)(cid:71)(cid:69)(cid:87)(cid:84)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:72)(cid:71)(cid:71)(cid:85)
(cid:23)(cid:25)
(cid:48)(cid:81)(cid:80)(cid:15)(cid:84)(cid:71)(cid:69)(cid:87)(cid:84)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)
(cid:46)(cid:81)(cid:67)(cid:80)(cid:85)(cid:14)(cid:2)(cid:73)(cid:84)(cid:81)(cid:85)(cid:85)
(cid:7)(cid:2)
(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:21)
(cid:25)
(cid:22)
(cid:19)
(cid:19)(cid:23)
(cid:25)(cid:21)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:21)(cid:25)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:19)
(cid:53)(cid:71)(cid:69)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:84)(cid:71)(cid:85)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:82)(cid:84)(cid:81)(cid:82)(cid:71)(cid:84)(cid:86)(cid:91)(cid:20)
(cid:53)(cid:71)(cid:69)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:71)(cid:84)(cid:69)(cid:75)(cid:67)(cid:78)(cid:17) (cid:75)(cid:80)(cid:70)(cid:87)(cid:85)(cid:86)(cid:84)(cid:75)(cid:67)(cid:78)(cid:2)(cid:82)(cid:84)(cid:81)(cid:82)(cid:71)(cid:84)(cid:86)(cid:91)(cid:21)(cid:2)
(cid:53)(cid:71)(cid:69)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:53)(cid:71)(cid:69)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:73)(cid:87)(cid:67)(cid:84)(cid:67)(cid:80)(cid:86)(cid:71)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)
(cid:55)(cid:80)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:78)(cid:81)(cid:67)(cid:80)(cid:85)
(cid:19)(cid:2)(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:85)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:19)(cid:7)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:67)(cid:85)(cid:74)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:23)(cid:23)(cid:7)(cid:2)(cid:67)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:78)(cid:81)(cid:67)(cid:80)(cid:15)(cid:86)(cid:81)(cid:15)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:78)(cid:67)(cid:86)(cid:71)(cid:85)(cid:86)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)
(cid:84)(cid:71)(cid:88)(cid:75)(cid:71)(cid:89)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(cid:2)(cid:23)(cid:24)(cid:7)(cid:2)(cid:67)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(cid:2)(cid:78)(cid:81)(cid:67)(cid:80)(cid:15)(cid:86)(cid:81)(cid:15)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:78)(cid:67)(cid:86)(cid:71)(cid:85)(cid:86)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:71)(cid:88)(cid:75)(cid:71)(cid:89)(cid:16)
(cid:19)(cid:36)(cid:38)(cid:18)(cid:20)(cid:20)(cid:65)(cid:71)
(cid:19)(cid:36)(cid:38)(cid:18)(cid:20)(cid:19)(cid:65)(cid:71)
39
Operating environment and strategy Operating environment and strategy
Retail & Corporate
than 85% of the 1,000 largest Swiss corporations, as well as one
in three pension funds in Switzerland, including 75 of the largest
100, and 85% of banks domiciled in Switzerland. We strive to
further expand and leverage our trans action banking capabilities
(for example, payment and cash management services, custody
solutions, trade and export finance). In addition, we plan to in-
crease our presence and grow in the commodities trade finance
business. Combining the universal bank approach with our local
market expertise across all Swiss regions enables us to optimize
our client service by providing access to all UBS 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 struc-
tures and processes to simplify our service commitments across
the business, including streamlining our processes, reducing the
administrative burden on our client advisors and enhancing their
long-term productivity without compromising our risk standards.
Continuous development, particularly of our client-facing
staff, is a crucial element of our strategy, as this is our key to en-
suring superior client service. We are the only bank in Switzerland
with a mandatory certification scheme for our client advisors ac-
knowledged by an independent third party.
Organizational structure
We are a core element of UBS Switzerland’s universal bank deliv-
ery model, which allows us to extend the expertise of the entire
bank to our Swiss retail, corporate and institutional clients. Swit-
zerland 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 10 geographical regions. Dedicat-
ed 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, Credit Suisse, the cantonal banks, 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 comprehensive life-cycle-based
offering, comprising easy-to-understand products including cash
accounts, payments, savings and retirement solutions, investment
fund products, residential mortgages, a loyalty program and advi-
sory services. We provide financing solutions to our corporate cli-
ents, offering access to equity and debt capital markets, syndicat-
ed 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 In-
vestment Bank is a key building block in our universal bank strat-
egy that enables us to offer capital market products, foreign ex-
change products, hedging strategies (currency, interest rates, and
commodities) and trading (equities and fixed income, currencies
and commodities), as well as to provide corporate 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.
40
Global Asset Management
Global Asset Management is a largescale asset manager with diversified businesses across investment capabilities,
regions and distribution channels. We offer third-party institutional and wholesale clients and clients of UBS’s
wealth management businesses a broad range of investment capabilities and styles across all major traditional and
alternative asset classes.
Business
Our investment capabilities encompass equities, fixed income,
currency, hedge funds, real estate, infrastructure and private equi-
ty. We also enable clients to invest in a combination of different
asset classes through multi-asset strategies. Our fund services unit
is a global fund administration business. Invested assets totaled
CHF 583 billion and assets under administration were CHF 432
billion as of 31 December 2013. We are a leading fund house in
Europe, the largest mutual fund manager in Switzerland and one
of the leading fund of hedge funds and real estate investment
managers in the world.
Strategy
We work closely with our clients in pursuit of their investment
goals with long-term performance as our focus. We seek to ex-
pand our strong third-party institutional business and grow
third-party wholesale distribution. We also remain committed to
delivering distinctive products and solutions to clients of UBS’s
wealth management businesses.
We offer a broad range of investment capabilities and styles
across all major traditional – including indexed – and alternative
asset classes.
Over the past few years, we have significantly developed our
indexed capabilities, including exchange-traded funds (ETF), to
meet growing demand for these strategies from both institutional
and individual investors. Over a quarter of our invested assets
now fall into this category. During 2013, we brought together our
indexing capabilities under a unified business structure – struc-
tured beta and indexing – to fulfill the beta needs of clients across
all asset classes.
We also continue to expand our successful alternatives platform,
building on our established positions in real estate and fund of
hedge funds. During 2013, we split the management of our former
alternative and quantitative investments business line into its two
constituent parts: O’Connor, the single-manager hedge funds busi-
ness, and A&Q hedge fund solutions (A&Q), the multi-manager
hedge funds business. This split provides clear and focused leader-
ship to accelerate growth in each business. These two businesses
continue to be reported together as O’Connor and A&Q.
Overall, our diversified business model has proven resilient to
challenging market conditions, has put us in a good position to
benefit from shifting market dynamics and provided a solid foun-
dation to capture industry growth opportunities.
Although the asset management industry has experienced
a challenging period, the long-term outlook is positive. Three
main drivers indicate asset inflows into the industry: (i) demo-
graphic shifts resulting in population aging in developed countries
that will increase future savings requirements, (ii) governments
are continuing to reduce support for pensions and benefits, lead-
ing to a greater need for private pension savings and (iii) emerging
markets are becoming an ever more important asset pool.
(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:40)(cid:75)(cid:90)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)
(cid:53)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:68)(cid:71)(cid:86)(cid:67)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:70)(cid:71)(cid:90)(cid:75)(cid:80)(cid:73)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(cid:69)(cid:81)(cid:81)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(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:69)(cid:67)(cid:82)(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:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)(cid:2)(cid:101)
(cid:41)(cid:78)(cid:81)(cid:68)(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:2)
(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:49)(cid:111)(cid:37)(cid:81)(cid:80)(cid:80)(cid:81)(cid:84)(cid:19)
(cid:35)(cid:8)(cid:51)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)
(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:19)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:67)(cid:78)(cid:2)(cid:71)(cid:85)(cid:86)(cid:67)(cid:86)(cid:71)
(cid:43)(cid:80)(cid:72)(cid:84)(cid:67)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:82)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:40)(cid:87)(cid:80)(cid:70)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
(cid:35)(cid:85)(cid:75)(cid:67)(cid:2)(cid:50)(cid:67)(cid:69)(cid:75)(cid:386)(cid:69)
(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)
(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:101)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:15)(cid:72)(cid:81)(cid:69)(cid:87)(cid:85)(cid:71)(cid:70)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:86)(cid:71)(cid:67)(cid:79)(cid:85)
(cid:19)(cid:2)(cid:49)(cid:111)(cid:37)(cid:81)(cid:80)(cid:80)(cid:81)(cid:84)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:8)(cid:51)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:89)(cid:71)(cid:84)(cid:71)(cid:2)(cid:72)(cid:81)(cid:84)(cid:79)(cid:71)(cid:84)(cid:78)(cid:91)(cid:2)(cid:77)(cid:80)(cid:81)(cid:89)(cid:80)(cid:2)(cid:67)(cid:85)(cid:2)(cid:67)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:83)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:85)(cid:81)(cid:88)(cid:71)(cid:84)(cid:71)(cid:75)(cid:73)(cid:80)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)
41
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)
(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:21)
(cid:46)(cid:71)(cid:73)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:69)(cid:81)(cid:79)(cid:82)(cid:78)(cid:75)(cid:67)(cid:80)(cid:69)(cid:71)(cid:22)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:22)
(cid:42)(cid:87)(cid:79)(cid:67)(cid:80)(cid:2)(cid:84)(cid:71)(cid:85)(cid:81)(cid:87)(cid:84)(cid:69)(cid:71)(cid:85)(cid:21)
(cid:43)(cid:54)(cid:21)
(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:21)
(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:21)
(cid:37)(cid:49)(cid:49)(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:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:75)(cid:69)(cid:2)
(cid:82)(cid:78)(cid:67)(cid:80)(cid:80)(cid:75)(cid:80)(cid:73)
(cid:101)(cid:2)(cid:67)(cid:78)(cid:78)(cid:2)(cid:85)(cid:87)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:73)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:19)(cid:36)(cid:38)(cid:18)(cid:22)(cid:19)(cid:65)(cid:71)
Operating environment and strategy Operating environment and strategy
Global Asset Management
Organizational structure
Clients and markets
We employ around 3,700 personnel in 24 countries, and have our
principal offices in London, Chicago, Frankfurt, Hartford, Hong
Kong, New York, Paris, Singapore, Sydney, Tokyo and Zurich. The
“Business structure” chart shows our investment and distribution
structure.
Significant recent acquisitions, joint ventures and business
transfers
– In December 2013, we announced the creation of UBS Gro-
con, a joint venture with Grocon, Australia’s largest private de-
velopment and construction firm, to provide investment op-
portunities in Australian real estate.
– In December 2012, we announced the sale of our book of
Canadian domestic business to Fiera Capital Corporation. The
transaction was completed in January 2013.
– In January 2012, the firm’s Jersey fund services business was
transferred to Global Asset Management from Wealth Man-
agement.
– In October 2011, we completed the acquisition of the ING
Investment Management Limited business in Australia. This
business 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.
Competitors
Our competitors include global firms with wide-ranging capabili-
ties and distribution channels, such as JP Morgan Asset Manage-
ment, BlackRock, Goldman Sachs Asset Management, Morgan
Stanley Investment Management, AllianceBernstein Investments
and Schroders. Most of our other competitors are regional or local
players or firms with a specific asset class focus.
We serve third-party institutional and wholesale clients, and clients
of UBS’s wealth management businesses. As shown in the “Invest-
ed assets by channel” chart, as of 31 December 2013 approxi-
mately 70% of invested assets originated from third-party clients.
These comprised institutional clients, such as corporate and public
pension plans, governments and their central banks, and whole-
sale clients, such as financial intermediaries and distribution part-
ners. UBS’s wealth management businesses represented 30% of
invested assets and constituted our largest client relationship.
Products and services
We offer our clients products and services in traditional invest-
ments, single- and multi-manager hedge funds, global real estate,
infrastructure, private equity, and fund services. The “Investment
capabilities and services” chart illustrates the distinct offerings of
each investment area. These can be delivered in the form of seg-
regated, pooled and advisory mandates, as well as a broad range
of registered investment funds, ETF and other investment vehicles
in a wide variety of jurisdictions and across all major asset classes.
– Equities offers a wide spectrum of active investment strategies
with varying risk and return objectives. These strategies are de-
livered by distinct investment teams, each with dedicated re-
search and portfolio construction resources. Our teams are or-
ganized around regional capabilities and styles: global, US,
Europe, Asia Pacific and emerging markets, and growth. Strat-
egies include core, unconstrained, long / short, small cap, sec-
tor, thematic, and other specialized strategies.
– Fixed income offers a diverse range of active global, regional
and local market-based investment strategies. Its capabilities in-
clude single-sector strategies such as government and corporate
bond portfolios, multi-sector strategies such as core and core
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:74)(cid:67)(cid:80)(cid:80)(cid:71)(cid:78)
(cid: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:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:78)(cid:75)(cid:80)(cid:71)
(cid: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:19)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:19)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:25)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:25)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid: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)
42
(cid:24)(cid:24)
(cid:21)(cid:22)
(cid:24)(cid:26)
(cid:21)(cid:20)
(cid:25)(cid:18)
(cid:21)(cid:18)
(cid:55)(cid:36)(cid:53)(cid:2)(cid:89)(cid:71)(cid:67)(cid:78)(cid:86)(cid:74)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:71)(cid:85)
(cid:54)(cid:74)(cid:75)(cid:84)(cid:70)(cid:2)(cid:82)(cid:67)(cid:84)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:19)
(cid:19)
(cid:19)
(cid:25)
(cid:23)
(cid:25)
(cid:23)
(cid:26)(cid:25)
(cid:26)(cid:25)
(cid:25)
(cid:23)
(cid:26)(cid:25)
(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:22)(cid:15)(cid:19)(cid:24)(cid:22)(cid:65)(cid:20)(cid:2)(cid:41)(cid:46)(cid:35)(cid:47)(cid:65)(cid:43)(cid:35)(cid:2)(cid:68)(cid:91)(cid:2)(cid:69)(cid:74)(cid:67)(cid:80)(cid:80)(cid:71)(cid:78)(cid:65)(cid:37)(cid:42)(cid:40)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:49)(cid:110)(cid:37)(cid:81)(cid:80)(cid:80)(cid:81)(cid:84)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:8)(cid:51)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:67)(cid:78)(cid:2)(cid:71)(cid:85)(cid:86)(cid:67)(cid:86)(cid:71)
(cid:43)(cid:80)(cid:72)(cid:84)(cid:67)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:27)(cid:24)(cid:15)(cid:19)(cid:24)(cid:22)(cid:65)(cid:21)(cid:2)(cid:41)(cid:46)(cid:35)(cid:47)(cid:65)(cid:43)(cid:35)(cid:2)(cid:68)(cid:91)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:78)(cid:75)(cid:80)(cid:71)
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
(cid:40)(cid:87)(cid:80)(cid:70)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:40)(cid:87)(cid:80)(cid:70)(cid:17)(cid:50)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:2)
(cid:85)(cid:71)(cid:86)(cid:15)(cid:87)(cid:82)
(cid:48)(cid:71)(cid:86)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:2)(cid:69)(cid:67)(cid:78)(cid:69)(cid:87)(cid:78)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:40)(cid:84)(cid:81)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:79)(cid:75)(cid:70)(cid:70)(cid:78)(cid:71)(cid:2)(cid:81)(cid:72)(cid:386)(cid:69)(cid:71)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)(cid:2)
(cid:52)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:81)(cid:84)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:50)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:78)(cid:67)(cid:68)(cid:71)(cid:78)(cid:75)(cid:80)(cid:73)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:85)(cid:87)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)
(cid:35)(cid:80)(cid:69)(cid:75)(cid:78)(cid:78)(cid:67)(cid:84)(cid:91)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)
(cid:81)(cid:72)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:69)(cid:67)(cid:82)(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:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:40)(cid:75)(cid:90)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)
(cid:53)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:68)(cid:71)(cid:86)(cid:67)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:70)(cid:71)(cid:90)(cid:75)(cid:80)(cid:73)
(cid:41)(cid:78)(cid:81)(cid:68)(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:2)
(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:37)(cid:81)(cid:84)(cid:71)(cid:2)(cid:73)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:14)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:14)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:14)(cid:2)
(cid:71)(cid:79)(cid:71)(cid:84)(cid:73)(cid:75)(cid:80)(cid:73)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)
(cid:49)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:87)(cid:80)(cid:75)(cid:86)(cid:91)(cid:14)(cid:2)(cid:74)(cid:75)(cid:73)(cid:74)(cid:124)(cid:67)(cid:78)(cid:82)(cid:74)(cid:67)
(cid:53)(cid:79)(cid:67)(cid:78)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:14)(cid:2)(cid:85)(cid:71)(cid:69)(cid:86)(cid:81)(cid:84)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:79)(cid:67)(cid:86)(cid:75)(cid:69)(cid:14)(cid:2)
(cid:85)(cid:87)(cid:85)(cid:86)(cid:67)(cid:75)(cid:80)(cid:67)(cid:68)(cid:78)(cid:71)
(cid:41)(cid:84)(cid:81)(cid:89)(cid:86)(cid:74)(cid:2)(cid:85)(cid:86)(cid:91)(cid:78)(cid:71)(cid:2)(cid:115)(cid:2)(cid:73)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:14)(cid:2)(cid:55)(cid:53)(cid:14)(cid:2)
(cid:71)(cid:79)(cid:71)(cid:84)(cid:73)(cid:75)(cid:80)(cid:73)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)
(cid:46)(cid:81)(cid:80)(cid:73)(cid:17)(cid:85)(cid:74)(cid:81)(cid:84)(cid:86)(cid:14)(cid:2)(cid:87)(cid:80)(cid:69)(cid:81)(cid:80)(cid:85)(cid:86)(cid:84)(cid:67)(cid:75)(cid:80)(cid:71)(cid:70)(cid:14)(cid:2)
(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:80)(cid:71)(cid:87)(cid:86)(cid:84)(cid:67)(cid:78)
(cid:51)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)
(cid:42)(cid:75)(cid:73)(cid:74)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:70)
(cid:47)(cid:87)(cid:78)(cid:86)(cid:75)(cid:15)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:91)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)
(cid:37)(cid:81)(cid:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)
(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:53)(cid:74)(cid:81)(cid:84)(cid:86)(cid:2)(cid:70)(cid:87)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:37)(cid:81)(cid:84)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)(cid:82)(cid:78)(cid:87)(cid:85)(cid:2)
(cid:53)(cid:71)(cid:69)(cid:86)(cid:81)(cid:84)(cid:2)(cid:85)(cid:82)(cid:71)(cid:69)(cid:75)(cid:386)(cid:69)(cid:2)
(cid:39)(cid:79)(cid:71)(cid:84)(cid:73)(cid:75)(cid:80)(cid:73)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:85)(cid:2)
(cid:42)(cid:75)(cid:73)(cid:74)(cid:2)(cid:91)(cid:75)(cid:71)(cid:78)(cid:70)(cid:2)
(cid:55)(cid:80)(cid:69)(cid:81)(cid:80)(cid:85)(cid:86)(cid:84)(cid:67)(cid:75)(cid:80)(cid:71)(cid:70)(cid:2)
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:43)(cid:80)(cid:70)(cid:71)(cid:90)(cid:71)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:14)(cid:2)(cid:386)(cid:90)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:14)(cid:2)
(cid:69)(cid:81)(cid:79)(cid:79)(cid:81)(cid:70)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:14)(cid:2)(cid:84)(cid:71)(cid:67)(cid:78)(cid:2)(cid:71)(cid:85)(cid:86)(cid:67)(cid:86)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:67)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)(cid:2)
(cid:35)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:71)(cid:86)(cid:67)
(cid:52)(cid:87)(cid:78)(cid:71)(cid:85)(cid:15)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)
(cid:39)(cid:54)(cid:40)(cid:14)(cid:2)(cid:82)(cid:81)(cid:81)(cid:78)(cid:71)(cid:70)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)(cid:14)(cid:2)(cid:79)(cid:67)(cid:80)(cid:70)(cid:67)(cid:86)(cid:71)(cid:85)
(cid:53)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:49)(cid:111)(cid:37)(cid:81)(cid:80)(cid:80)(cid:81)(cid:84)(cid:19)
(cid:35)(cid:8)(cid:51)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85) (cid:19)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:67)(cid:78)(cid:2)(cid:71)(cid:85)(cid:86)(cid:67)(cid:86)(cid:71)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)
(cid:37)(cid:81)(cid:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)
(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:67)(cid:78)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:37)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:79)(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:87)(cid:84)(cid:80)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:71)(cid:70)
(cid:53)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:85)
(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:35)(cid:70)(cid:88)(cid:75)(cid:85)(cid:81)(cid:84)(cid:91)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:71)(cid:85)
(cid:47)(cid:87)(cid:78)(cid:86)(cid:75)(cid:15)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:84)
(cid:43)(cid:80)(cid:72)(cid:84)(cid:67)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:82)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:53)(cid:75)(cid:80)(cid:73)(cid:78)(cid:71)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:84)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)(cid:28)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:79)(cid:87)(cid:78)(cid:86)(cid:75)(cid:15)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:91)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:71)(cid:69)(cid:86)(cid:81)(cid:84)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)
(cid:78)(cid:81)(cid:80)(cid:73)(cid:2)(cid:17)(cid:2)(cid:85)(cid:74)(cid:81)(cid:84)(cid:86)
(cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:78)(cid:81)(cid:80)(cid:73)(cid:2)(cid:17)(cid:2)(cid:85)(cid:74)(cid:81)(cid:84)(cid:86)
(cid:37)(cid:81)(cid:80)(cid:88)(cid:71)(cid:84)(cid:86)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:67)(cid:84)(cid:68)(cid:75)(cid:86)(cid:84)(cid:67)(cid:73)(cid:71)
(cid:47)(cid:71)(cid:84)(cid:73)(cid:71)(cid:84)(cid:2)(cid:67)(cid:84)(cid:68)(cid:75)(cid:86)(cid:84)(cid:67)(cid:73)(cid:71)
(cid:47)(cid:87)(cid:78)(cid:86)(cid:75)(cid:15)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:84)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)
(cid:82)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:85)
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)
(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:42)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:67)(cid:70)(cid:88)(cid:75)(cid:85)(cid:81)(cid:84)(cid:91)(cid:2)(cid:82)(cid:84)(cid:81)(cid:73)(cid:84)(cid:67)(cid:79)(cid:85)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)
(cid:38)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:2)(cid:75)(cid:80)(cid:72)(cid:84)(cid:67)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(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:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)
(cid:43)(cid:80)(cid:72)(cid:84)(cid:67)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:43)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)(cid:14)(cid:2)(cid:69)(cid:81)(cid:84)(cid:71)(cid:14)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:15)(cid:67)(cid:70)(cid:70)(cid:71)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:81)(cid:82)(cid:82)(cid:81)(cid:84)(cid:86)(cid:87)(cid:80)(cid:75)(cid:85)(cid:86)(cid:75)(cid:69)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:75)(cid:71)(cid:85)
(cid:47)(cid:87)(cid:78)(cid:86)(cid:75)(cid:15)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:84)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:46)(cid:75)(cid:85)(cid:86)(cid:71)(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:40)(cid:67)(cid:84)(cid:79)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:50)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:85)
(cid:50)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:84)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)
(cid:82)(cid:84)(cid:81)(cid:70)(cid:87)(cid:69)(cid:86)(cid:85)
(cid:19)(cid:2)(cid:49)(cid:111)(cid:37)(cid:81)(cid:80)(cid:80)(cid:81)(cid:84)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:8)(cid:51)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:2)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:89)(cid:71)(cid:84)(cid:71)(cid:2)(cid:72)(cid:81)(cid:84)(cid:79)(cid:71)(cid:84)(cid:78)(cid:91)(cid:2)(cid:77)(cid:80)(cid:81)(cid:89)(cid:80)(cid:2)(cid:67)(cid:85)(cid:2)(cid:67)(cid:78)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:83)(cid:87)(cid:67)(cid:80)(cid:86)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)(cid:2)
plus bond, and extended sector strategies such as high yield and
emerging market debt. In addition to this suite of traditional
fixed income offerings, the team also manages unconstrained
fixed income, currency strategies and customized solutions.
– Structured beta and indexing offers indexed, alternative beta
and rules-based strategies across all major asset classes on a
global and regional basis. Its capabilities include indexed equi-
ties, fixed income, commodities, real estate and alternatives
with benchmarks ranging from mainstream to highly custom-
ized indices and rules-driven solutions. Products are offered in
a variety of structures including ETF, pooled funds, structured
funds and mandates.
– Global investment solutions offers active asset allocation, cur-
rency, multi-manager, structured solutions, risk advisory and
strategic investment advisory services. It manages a wide array
of regional and global multi-asset investment strategies across
the full investment universe and risk / return spectrum, struc-
tured portfolios, convertible bonds and absolute return strate-
gies. Through its risk management and strategic investment
advisory services, it supports clients in a wide range of invest-
ment-related functions.
– O’Connor is a global, relative value-focused, single-manager
hedge fund platform. It is dedicated to providing investors with
strong absolute and risk-adjusted returns, differentiated from
those available from long-only investment in traditional asset
classes.
– A&Q hedge fund solutions (A&Q) offers a full spectrum of
multi-manager hedge fund solutions and advisory services in-
cluding a wide range of strategies that provide professionally
managed exposure to hedge fund investments with tailored
risk and return profiles.
– 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. These are offered
43
Operating environment and strategy Operating environment and strategy
Global Asset Management
through open- and closed-end private funds, REITs, customized
investment structures, multi-manager funds, individually man-
aged accounts and real estate securities.
– Infrastructure and private equity manages direct infrastructure
investment and multi-manager infrastructure and private
equity strategies for both institutional and private banking cli-
ents. Infrastructure asset management manages direct invest-
ments in core infrastructure assets globally. Alternative Funds
Advisory (AFA) infrastructure and AFA private equity construct
broadly diversified fund of funds portfolios across the infra-
structure and private equity asset classes, respectively.
– Fund services, 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, real estate funds, private eq-
uity funds and other alternative structures.
Distribution
(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:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:19)
(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:19)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:20)(cid:2)
(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:25)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:23)(cid:26)(cid:21)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:25)(cid:23)
(cid:2)(cid:23)(cid:18)
(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:18)
(cid:21)(cid:21)
(cid:19)(cid:26)
(cid:20)(cid:18)
(cid:20)(cid:27)
(cid:21)(cid:21)
(cid:19)(cid:27)
(cid:20)(cid:18)
(cid:20)(cid:26)
(cid:21)(cid:22)
(cid:20)(cid:20)
(cid:20)(cid:18)
(cid:20)(cid:22)
(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
(cid:35)(cid:85)(cid:75)(cid:67)(cid:2)(cid:50)(cid:67)(cid:69)(cid:75)(cid:386)(cid:69)
(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)(cid:14)(cid:2)(cid:47)(cid:75)(cid:70)(cid:70)(cid:78)(cid:71)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:72)(cid:84)(cid:75)(cid:69)(cid:67)
(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:19)(cid:18)(cid:18)(cid:15)(cid:19)(cid:24)(cid:22)(cid:65)(cid:23)(cid:2)(cid:41)(cid:46)(cid:35)(cid:47)(cid:65)(cid:43)(cid:35)(cid:2)(cid:68)(cid:91)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:65)(cid:37)(cid:42)(cid:40)
(cid:19)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:84)(cid:71)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:89)(cid:81)(cid:84)(cid:78)(cid:70)(cid:89)(cid:75)(cid:70)(cid:71)(cid:16)(cid:2)(cid:2)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:85)(cid:82)(cid:78)(cid:75)(cid:86)(cid:2)(cid:75)(cid:85)(cid:2)(cid:82)(cid:84)(cid:75)(cid:79)(cid:67)(cid:84)(cid:75)(cid:78)(cid:91)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:85)(cid:71)(cid:84)(cid:88)(cid:75)(cid:69)(cid:75)(cid:80)(cid:73)(cid:2)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:16)
As detailed in the “Business structure” chart, our capabilities
and services are distributed through our regional business struc-
ture in the Americas, Asia Pacific, Europe and Switzerland. This
enables clients to access the full resources of our global invest-
ment platforms and functions, while providing them at a local
level with the investment management products and services
they need. In addition, our dedicated global sovereign markets
group delivers an integrated approach to ensure sovereign insti-
tutions receive the focused advisory, investment and training
solutions they require.
A breakdown of invested assets by client servicing location is
shown in the “Invested assets by region” chart.
In Asia Pacific, we have expanded our business through strate-
gic joint ventures. In addition to the abovementioned UBS Grocon
joint venture, in Japan, Mitsubishi Corp. – UBS Realty, a real estate
investment joint venture with Mitsubishi Corporation, has been in
operation since 2001. In China, UBS SDIC Fund Management Co.,
a joint venture with SDIC Trust & Investment Co., is now in the top
third of the onshore asset management market. In South Korea,
UBS Hana Asset Management, a joint venture with Hana Bank, is
among the top 10 domestic asset management firms.
(cid:19)(cid:16)(cid:18)(cid:18)
(cid:18)(cid:16)(cid:25)(cid:23)
(cid:18)(cid:16)(cid:23)(cid:18)
(cid:18)(cid:16)(cid:20)(cid:23)
(cid:18)(cid:16)(cid:18)(cid:18)
44
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 financial advisory
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
The Investment Bank is organized as two distinct but aligned busi-
ness units:
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 institution, sponsor clients and Wealth Management.
Investor Client Services includes execution, distribution and trad-
ing for institutional investors and provides support to Corporate
Client Solutions and UBS’s wealth management businesses. It com-
prises our equities businesses, including cash, derivatives and financ-
ing services, cross-asset class research capabilities and our foreign
exchange franchise, precious metals, rates and credit businesses.
The Investor Client Services unit also provides distribution and risk
management capabilities required to support all of our businesses.
Strategy
In the first quarter of 2013, we re-shaped our strategy and organi-
zational model to capitalize on our traditional strengths in advisory,
capital markets, equities and foreign exchange businesses, while
re-focusing our rates and credit platform on areas that offer the
most attractive opportunities. Following this, and consistent with
our October 2012 announcement to significantly accelerate the
implementation of our strategy, we exited products and services
which were capital- and balance sheet-intensive, exhibited higher
operational complexity and were not required for serving our
wealth management or Corporate Client Solutions clients. In addi-
tion, foreign exchange, rates and credit businesses were brought
under one unit within Investor Client Services to leverage their
combined client base, technology, risk and operational control
management, as well as expertise in different areas.
We believe the strategic transformation of our business differ-
entiates us by capitalizing on our traditional strengths. Our clients
continue to benefit from our expertise, intellectual capital and
global execution. Our client-centric business model makes us an
ideal partner to our wealth management businesses, Retail & Cor-
porate and Global Asset Management, and positions us to pro-
vide our clients with an integrated, solutions-led approach, com-
bined with deep market insight, intellectual capital and global
coverage and execution.
Our Corporate Client Solutions business unit is comprised of our
advisory and capital markets businesses and financing solutions,
which target industries and geographies that offer the best oppor-
tunities to meet our long-term strategy. We have a presence in all
major financial markets, with coverage based on a comprehensive
matrix of country, sector and product banking professionals.
Within our Investor Client Services business unit, our equities
business continues to leverage its global distribution platform and
product expertise while seeking further operational efficiencies.
Foreign exchange and precious metals businesses, underpinned
by a world-class platform, continue to be a cornerstone of our
services. Consistent with our strategy, our rates and credit plat-
form is focused on client flow and solutions businesses. It serves
our capital markets business through an intermediation model,
much like in our equities and foreign exchange platforms.
To ensure the successful execution of our strategy, we will con-
tinue to invest in technology and selectively recruit talent in key ar-
eas across the business. Furthermore, we will remain focused on our
ongoing cost reduction programs and on strengthening our opera-
tional risk framework. In 2013, we made a number of key strategic
hires to strengthen our leadership team further and enhance our
ability to execute our strategy in 2014 and beyond. We continued
to optimize internal efficiencies through the implementation of a
targeted technology plan, which is based on a long-term portfolio
45
Operating environment and strategy Operating environment and strategy
Investment Bank
approach across businesses aimed at enhancing the effectiveness of
our platform for clients. These structural changes are expected to
contribute to the Group-wide effort to increase efficiency. In addi-
tion, and on a selective basis, we will continue to undertake specific
initiatives to simplify our production processes, achieve leaner front-
to-back processes, and operate with a reduced real-estate footprint.
To support our goal of earning attractive returns on allocated
capital resources, we operate within a tightly controlled matrix of
balance sheet, risk-weighted assets, leverage ratio denominator
and other risk metrics (e.g., value-at-risk and liquidity adjusted
stress). Consistent with this, we assess both the Investor Client
Services and Corporate Client Solutions business units based on
the returns they generate.
Organizational structure
As of the end of 2013, we employed approximately 11,615 per-
sonnel in over 35 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 had en-
tered into the agreement to acquire Link Investimentos in 2010.
The acquisition demonstrates our commitment to the emerging
markets and allows us to provide wealth management and invest-
ment 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 com-
peting firms are active in many of the businesses and markets in
which we still participate. For our leading equities, foreign exchange
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 includes client coverage, advisory, debt and equity capital mar-
ket solutions and financing solutions for corporate, financial institu-
tion and sponsor clients. Corporate Client Solutions works closely
with Investor Client Services in the distribution and risk manage-
ment of capital markets products and financing solutions. With a
presence in all major financial markets, it is managed by region and
is organized on a matrix of country, industry sector and product
banking professionals. Its main business lines are as follows:
– Advisory provides bespoke solutions to our clients’ most com-
plex strategic problems. This includes mergers and acquisitions
advice and execution, as well as refinancing, spin-offs, ex-
change offers, leveraged buyouts, joint ventures, takeover de-
fense, 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. Its services include managing initial public offerings, fol-
low-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. It also provides 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 serves corporate and investor clients across
the globe by providing customized solutions across asset classes
via a wide range of financing capabilities including structured
financing, real estate finance and special situations.
– Risk management includes corporate lending and associated
hedging activities.
Investor Client Services
Investor Client Services, which includes our equities business and
our foreign exchange, rates and credit business, provides a com-
prehensive distribution platform with enhanced cross-asset deliv-
ery as well as specialist skills to our corporate, institutional 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 provides clients with liquidity, investment advisory, trade
execution and consultancy services, together with comprehen-
sive access to primary and secondary markets, corporate man-
agement and subject matter experts. We offer full-service trade
execution for single stocks and portfolios, including capital com-
mitment, 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 exe-
46
cution, innovative algorithms and pre-, post- and real-time ana-
lytical tools. Our broker and intermediary services franchise
offers execution and price improvement to retail wholesalers.
– Derivatives provides a full range of flow and structured prod-
ucts, convertible bonds and strategic equity solutions with
global access to primary and secondary markets. It enables cli-
ents to manage risk and meet funding requirements through a
wide range of listed, over-the-counter, 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 our
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 leading foreign exchange franchise and
our market-leading precious metals business, as well as our repo-
sitioned rates and credit businesses. These businesses support the
execution, distribution and risk management related to corporate
and institutional 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-
(cid:39)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:87)(cid:86)(cid:75)(cid:78)(cid:75)(cid:92)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:71)(cid:85)(cid:81)(cid:87)(cid:84)(cid:69)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:79)(cid:82)(cid:84)(cid:81)(cid:88)(cid:71)(cid:70)(cid:2)(cid:82)(cid:84)(cid:81)(cid:386)(cid:86)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:19)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:23)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:20)(cid:18)(cid:19)(cid:19)
(cid:24)(cid:14)(cid:26)(cid:18)(cid:20) (cid:25)(cid:14)(cid:18)(cid:19)(cid:27)
(cid:25)(cid:14)(cid:19)(cid:22)(cid:22)
(cid:19)(cid:16)(cid:26)(cid:124)
(cid:10)(cid:20)(cid:19)(cid:25)(cid:11)
(cid:20)(cid:18)(cid:19)(cid:20)
(cid:24)(cid:14)(cid:26)(cid:25)(cid:25)
(cid:20)(cid:16)(cid:22)
(cid:20)(cid:24)(cid:25)
(cid:20)(cid:18)(cid:19)(cid:21)
(cid:26)(cid:14)(cid:24)(cid:18)(cid:19)
(cid:21)(cid:16)(cid:21)
(cid:24)(cid:14)(cid:21)(cid:18)(cid:18)
(cid:20)(cid:14)(cid:21)(cid:18)(cid:18)
(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:69)(cid:81)(cid:79)(cid:71)
(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:71)(cid:90)(cid:82)(cid:71)(cid:80)(cid:85)(cid:71)(cid:85)
(cid:50)(cid:84)(cid:81)(cid:386)(cid:86)(cid:2)(cid:68)(cid:71)(cid:72)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:67)(cid:90)
(cid:52)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:10)(cid:7)(cid:11)
rithmic) coupled with premier advisory and structuring capabil-
ities 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. Our award-winning teams provide quality, se-
curity 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, medium-term notes,
government and corporate bonds as well as bank notes and
bespoke solutions for clients. Our offering includes mar-
ket-making capabilities in areas required to support our busi-
nesses in foreign exchange and equities, as well as our corpo-
rate and investor client base.
47
(cid:19)(cid:18)(cid:18)(cid:18)(cid:18)
(cid:25)(cid:20)(cid:23)(cid:18)
(cid:22)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:25)(cid:23)(cid:18)
(cid:15)(cid:19)(cid:18)(cid:18)(cid:18)
(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)
Operating environment and strategy Operating environment and strategy
Corporate Center
Corporate Center
The Corporate Center comprises Corporate Center – Core Functions and Corporate Center – Non-core and Legacy Portfolio.
Corporate Center – Core Functions enables the firm to operate cohesively and effectively by providing and managing
support and control functions to the Group and business divisions. Corporate Center – Non-core and Legacy Portfolio
manages the exit and wind-down of the non-core businesses and legacy positions previously part of the Investment Bank.
Our objectives
Corporate Center – Core Functions provides our business divisions
with Group-level control in the areas of finance, risk, legal, compli-
ance and Group-wide shared services functions, comprising sup-
port and logistics functions. We strive to maintain effective corpo-
rate governance processes, including compliance with relevant
regulations and ensuring an appropriate balance between risk and
return. The Corporate Center also encompasses our Non-core and
Legacy Portfolio unit, which comprises the non-core businesses
and legacy positions previously part of the Investment Bank.
At the end of 2013, there were 24,082 employees working
across all Corporate Center functions including Non-core and
Legacy Portfolio. Corporate Center – Core Functions allocates the
majority of its treasury income, operating expenses and personnel
associated with control and shared services functions to the busi-
nesses for which the respective services are performed based on
service consumption and financial resource usage.
Corporate Center – Core Functions provides Group-wide control
functions, including finance, risk control (including compliance) and
legal, and shared services functions. The shared services and other
central functions comprise information technology, operations, hu-
man resources, corporate development, regulatory relations and
strategic initiatives, communications and branding, corporate real
estate and administrative services, procurement, physical security as
well as information security, offshoring and treasury services such as
funding, balance sheet and capital management.
To further enhance cost discipline and strengthen our efforts
to reduce our underlying cost base, starting in 2014 we will refine
the way that operating costs for internal services are allocated
from Corporate Center – Core Functions to the business divisions
and Corporate Center – Non-core and Legacy Portfolio. Under
this refinement, each year, as part of the annual business planning
cycle, Corporate Center – Core Functions will agree with the busi-
ness divisions and Non-core and Legacy Portfolio cost allocations
for services at fixed amounts or at variable amounts based on
formulas, depending on capital and service consumption levels as
well as the nature of the services to be performed. Corporate
Center – Core Functions will be responsible for any differences
between actual costs and the pre-agreed amounts.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on this
refinement to our cost allocation approach
Corporate Center – Non-core and Legacy Portfolio comprises
the non-core businesses and legacy positions previously part of
the Investment Bank, and is overseen by a committee consisting
of the Group Chief Executive Officer, the Group Chief Financial
Officer and the Group Chief Risk Officer. Its businesses and posi-
tions are being managed and exited over time with the objective
of maximizing shareholder value, in line with our strategic plan.
We established clear priorities for regions, counterparties and
product lines and have developed detailed wind-down plans with
the objective of achieving capital benefits at optimized cost. Cor-
porate Center – Non-core and Legacy Portfolio works closely with
sales managers and bankers in the Investment Bank as well as
with trading market contacts in attempting to execute the most
appropriate strategy for each situation, and has built strong man-
agement information systems to track the progress of risk-weight-
ed assets (RWA) and leverage ratio denominator reductions and
exit costs.
The wind-down and exit strategies include negotiated bilateral
settlements with specific counterparties, third-party novations,
including transfers to central clearing houses, agreements to net
down trades with other dealer counterparties and portfolio sales.
Significant simplification of books and trades also contributed to
our strong progress, and dynamic risk management and hedging
of positions effectively mitigated profit and loss volatility in the
portfolio.
During 2013, we exercised our option to acquire the SNB
StabFund’s equity, which was part of the Legacy Portfolio. This re-
sulted in a CHF 2.1 billion increase in our common equity tier 1
capital as the capital deduction related to the fair value of the op-
tion is no longer applicable. Fully applied RWA for Corporate Cen-
ter – Non-core and Legacy Portfolio of CHF 64 billion as of 31 De-
cember 2013 were significantly ahead of our target of CHF 85
billion by year-end 2013. As of 31 December 2013, a total of 1,585
personnel were employed within Corporate Center – Non-core and
Legacy Portfolio including the SNB StabFund investment manage-
ment team, compared with 2,304 as of 31 December 2012.
Structure of Corporate Center – Core Functions
Group Chief Financial Officer
Our Group Chief Financial Officer (Group CFO) is responsible for
ensuring transparency in, and the assessment of, the financial
performance of our Group and business divisions and for the
48
Group’s financial reporting, forecasting, planning and controlling
processes. He also provides advice on financial aspects of strategic
projects and transactions. The Group CFO has management re-
sponsibility over divisional and Group financial control functions.
The Group CFO is responsible for management and control of the
Group’s tax affairs and for treasury and capital management, in-
cluding 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), our Group CFO makes
proposals to the BoD regarding the standards for accounting ad-
opted by UBS and defines the standards for financial reporting
and disclosure. Together with the Group Chief Executive Officer
(Group CEO), the Group CFO provides external certifications un-
der sections 302 and 404 of the Sarbanes-Oxley Act of 2002, and,
in coordination with the Group CEO, manages relations with an-
alysts and investors. Effective January 2014, the Corporate Devel-
opment function, previously within the Group Chief Operating
Officer area, is part of the Group CFO area.
Group Chief Operating Officer
Our Group Chief Operating Officer (Group COO) manages the
shared services functions of our Group, which in 2013 included
the management and control of Group-wide operations, infor-
mation technology, human resources, corporate development,
Group regulatory relations and strategic initiatives, communica-
tions and branding, corporate real estate and administrative ser-
vices, procurement, physical and information security, and off-
shoring. In addition, the Group COO supports the Group CEO in
developing our strategy and addressing regulatory and strategic
issues. Effective January 2014, the Group COO area consists of
Group Technology, Group Operations, Group Corporate Services
and the Group’s Industrialization program. Group Human Re-
sources, Communications & Branding and Group Regulatory Re-
lations & Strategic Initiatives report directly to the Group CEO.
Corporate Development is integrated in the Group CFO area.
Group Chief Risk Officer
Our 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 certain provisions in accordance with the delegated risk
control authorities, and monitors and challenges the firm’s
risk-taking activities. In January 2014, the compliance and opera-
tional risk organizations were brought together to form a single
function focused on the control of our regulatory, conduct and
operational risks across all business divisions. This integrated unit
reports to the Group CRO. Also effective January 2014, our Group
Security Services function became part of the Group CRO area.
Group General Counsel
Our Group General Counsel (Group GC) is responsible for legal mat-
ters, policies and processes, and for managing the legal function of
our Group. The Group GC is responsible for reporting legal risks and
material litigation, and for managing litigation, internal, special and
regulatory investigations. The Group GC assumes responsibility for
legal oversight in respect of the Group’s key regulatory interactions
and for maintaining relationships with our key regulators with re-
spect to legal matters. Until the end of 2013, the Group GC was
also responsible for compliance matters and for managing the com-
pliance organization. Effective January 2014, the compliance orga-
nization is integrated into the Group CRO area.
49
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 summarize the key regulatory
requirements and supervision of our business in Switzerland as well as 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
Federal Ordinance on Banks and Savings Banks of 17 May 1972,
as amended (Banking Ordinance), provide the legal basis for
banking in Switzerland. Based on the license obtained under this
framework, we may engage in a full range of financial services
activities, including retail banking, commercial banking, invest-
ment banking and asset management in Switzerland. The Bank-
ing Act, Banking Ordinance and the Financial Market Supervision
Act of 22 June 2007, as amended, establish a framework for su-
pervision by FINMA, empowering it to issue its own ordinances
and circulars, which contribute to shaping the Swiss legal and
regulatory framework for banks.
In 2010, the Swiss Federal Council and FINMA incorporated
the enhancements to the Basel Capital Accord issued by the Ba-
sel Committee on Banking Supervision on 13 July 2009 (so-
called Basel 2.5) into the Capital Adequacy Ordinance of 29 Sep-
tember 2006 (and related circulars). The enhanced capital
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 sec-
tions are applicable to the largest Swiss banks, including UBS,
and contain specific capital requirements and provisions to en-
sure that systemically relevant functions can be maintained in
case of insolvency. In addition, and in line with global require-
ments, we are required to produce and update recovery plans
and resolution planning materials 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 re-
solved in the event of an unsuccessful recovery. These new sec-
tions entered into force on 1 March 2012. Switzerland imple-
mented 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 Ordinance,
which came into effect on 1 January 2013.
➔ Refer to the “Capital management” section of this report for
more information on 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 au-
thorization 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
broking.
FINMA fulfills its statutory supervisory responsibilities through
licensing, regulation, monitoring and enforcement. 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 responsibility for overall
supervision and enforcement measures while the authorized audit
firms carry out official duties on behalf of FINMA. The responsibil-
ities of external auditors encompass the audit of financial state-
ments, the risk-based assessment of banks’ compliance with pru-
dential requirements and on-site audits.
We are classified as a Swiss systemically relevant bank (SRB)
due to our size, complexity, organization and business activities,
as well as our importance to the financial system. As a Swiss SRB,
we are subject to more rigorous supervision than most other
banks. We are directly supervised by the FINMA group “Supervi-
sion of UBS,” which is supported by teams specifically monitoring
investment banking activities, risk management and legal matters
as well as solvency and capital aspects. FINMA’s supervisory tools
include meetings with management at group and divisional level,
reporting requirements encompassing control and business areas,
on-site reviews in Switzerland and abroad, and exchanges with
internal audit and host supervisors in other jurisdictions. In recent
years, FINMA has implemented the recommendations issued by
the Financial Stability Board and the Basel Committee on Banking
Supervision, and complemented the Supervisory College with the
50
UK Financial Services Authority (FSA) and the Federal Reserve
Bank of New York (FRBNY), established in 1998 to promote super-
visory cooperation and coordination, with a General Supervisory
College – including more than a dozen of UBS host regulatory
agencies – and a Crisis Management College, which is also at-
tended 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, also
providing liquidity to the banking system. It does not exercise any
banking supervision authority and is not responsible for enforcing
banking legislation, but works together with FINMA in the follow-
ing areas: (i) assessment of the soundness of Swiss SRB, (ii) regu-
lations that have a major impact on the soundness of banks, in-
cluding liquidity, capital adequacy and risk distribution provisions,
where they are of relevance for financial stability and (iii) contin-
gency planning and crisis management. FINMA and the SNB ex-
change information and share opinions about the soundness of
the banking sector and Swiss SRB, 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 Swiss
SRB, the SNB may also carry out its own enquiries and request
information directly from the banks. In addition, the SNB has been
tasked by Parliament with the designation of Swiss SRB and their
systemically relevant functions in Switzerland. Currently, UBS,
Credit Suisse and, since 1 November 2013, Zürcher Kantonalbank
are required to comply with specific Swiss SRB rules.
➔ Refer to the “Regulatory and legal 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. UBS maintains branches and representative offices in sev-
eral states, including Connecticut, Illinois, New York, California
and Florida. These branches are licensed either by the Office of
the Comptroller of the Currency (OCC) or the state banking au-
thority of the state in which the branch is located. The represen-
tative offices are licensed by the OCC. Each US branch and repre-
sentative office is subject to regulation and supervision, including
on-site examination, and to licensing and supervision by the Board
of Governors of the Federal Reserve System (FRS). We also main-
tain state- and federally-chartered trust companies and a Federal
Deposit Insurance Corporation (FDIC)-insured depository institu-
tion (IDI) subsidiary, which are licensed and regulated by state reg-
ulators or the OCC. Only the deposits of our IDI, headquartered in
the state of Utah, are insured by the FDIC. The regulation of our
US branches and subsidiaries imposes activity and prudential re-
strictions on the business and operations of those branches and
subsidiaries, including limits on extensions of credit to a single
borrower and on transactions with affiliates.
The licensing authority of each state-licensed US branch of UBS
may, in certain circumstances, take possession of the business and
property of UBS located in the state of the UBS offices it licenses.
Such circumstances generally include violations of law, unsafe
business practices and insolvency. As long as we maintain one or
more federal branches licensed by the OCC, the OCC also has the
authority to take possession of all the US operations of UBS under
broadly similar circumstances, as well as in the event that a judg-
ment 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 OCC exercised its authority over the US branches of
UBS pursuant to federal law in the event of a UBS insolvency, all
US assets of UBS would generally be applied first to satisfy credi-
tors of these US branches as a group, and then made available for
application pursuant to any Swiss insolvency proceeding.
Because we maintain branches in the US, we are subject to
oversight regulation and supervision by the FRS under various
laws (including the International Banking Act of 1978, the Federal
Reserve Act of 1913 and the Bank Holding Company Act of 1956
(BHCA), each as amended, and related regulations). On 10 April
2000, UBS was designated a “financial holding company” under
the BHCA, as amended by the Gramm-Leach-Bliley Act of 1999.
Financial holding companies may engage in a broader spectrum
of activities than holding companies of US banks or foreign bank-
ing organizations that are not financial holding companies. These
activities include expanded authority to underwrite and deal in
securities and commodities and to make merchant banking in-
vestments in commercial and real estate entities. To maintain our
financial holding company status, (i) the Group, our US subsidiary
federally-chartered trust company (Federal Trust Company) and
our IDI are required to meet certain capital ratios, (ii) our US
branches, our Federal Trust Company, and our IDI are required to
maintain certain examination ratings, and (iii) our IDI is required to
maintain a rating of at least “satisfactory” under the Community
Reinvestment Act of 1977.
A major focus of US governmental policy relating to financial
institutions in recent years has been combating money laundering
and terrorist financing. Regulations applicable to UBS and our
subsidiaries require the maintenance of effective policies, proce-
dures and controls to detect, prevent and report money launder-
ing and terrorist financing, and to verify the identity of our clients.
As a result, failure to maintain and implement adequate programs
to prevent money laundering and terrorist financing could result
in significant legal and reputational risk.
In the US, UBS Securities LLC and UBS Financial Services Inc., as
well as our other US-registered broker-dealer subsidiaries, are sub-
ject to laws and regulations that cover all aspects of the securities
and futures business, including: sales and trading practices, use
and safekeeping of clients’ funds and securities, capital require-
ments, record-keeping, financing of clients’ purchases of securi-
ties and other assets, and the conduct 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
51
Operating environment and strategy Operating environment and strategy
Regulation and supervision
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 (CFTC) and other exchanges of which it may be a mem-
ber, depending on the specific nature of the respective
broker-dealer’s business. In addition, the US states and territories
have local securities commissions that regulate and monitor activ-
ities in the interest of investor protection. These regulators have a
variety of sanctions available, including the authority to conduct
administrative proceedings that can result in censure, fines, the
issuance of cease-and-desist orders or the suspension or expulsion
of the broker-dealer or its directors, officers or employees.
FINRA is dedicated to investor protection and market integrity
through effective regulation and complementary compliance and
technology-based services. FINRA covers a broad spectrum of se-
curities matters, including: registering and educating industry par-
ticipants, 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 util-
ities, and administering a dispute resolution forum for investors
and registered firms. It also performs market regulation under
contract for the NASDAQ Stock Market and the NYSE. 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, including securities exchanges,
securities brokers and dealers, investment advisors, and mutual
funds. UBS Global Asset Management (Americas) Inc., and our
other US-registered investment adviser entities, are subject to reg-
ulations that cover all aspects of the investment advisory business
and are regulated primarily by the SEC. Some of these entities are
also registered as commodity trading advisers (CTA) and / or com-
modity pool operators (CPO) and in connection with their activities
as CTA and / or CPO are regulated by the CFTC. To the extent these
entities manage plan assets of employee benefit plans subject to
the Employee Retirement Income Security Act of 1974, their activ-
ities are subject to regulation by the US Department of Labor.
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, bank holding company, and other system-
ically important financial institution (SIFI) capital and prudential
standards, (iii) resolution and liquidation of failing SIFIs, (iv) over-
the-counter derivatives, (v) the ability of deposit-taking banks and
their affiliates to engage in proprietary trading activities and invest
in hedge funds and private equity (the Volcker Rule), (vi) consum-
er and investor protection, (vii) hedge fund registration, (viii) secu-
ritization, (ix) investment advisors, (x) shareholder “say on pay”
and (xi) the role of credit-rating agencies. Many of the provisions
of the Dodd-Frank Act affect the operation of UBS’s US banking
and non-banking entities and have extraterritorial reach. The de-
tails of the legislation and its impact on UBS’s operations will
depend on the final regulations being adopted by various agen-
cies and oversight boards.
➔ Refer to the “Regulatory and legal developments” and “Risk
factors” sections of this report for more information
Regulation and supervision in the UK
With the UK government having separated responsibility for pru-
dential regulation and conduct of business regulation in early
2013, our operations in the UK are mainly regulated by two bod-
ies: the Prudential Regulation Authority (PRA), newly established
as an affiliated authority of the Bank of England, and the Financial
Conduct Authority (FCA). The PRA’s main objective towards the
banking sector is to promote the safety and soundness of UK-reg-
ulated financial firms. The FCA is responsible for securing an ap-
propriate degree of consumer protection, protecting the integrity
of the UK financial system and promoting effective competition in
the interest of consumers.
The PRA and FCA operate a risk-based approach to supervision
and have a wide variety of supervisory tools available to them,
including regular risk assessments, on-site inspections (which may
relate to an industry-wide theme or be firm-specific) and the abil-
ity to commission reports by skilled persons (who may be the
firm’s auditors, information technology specialists, lawyers or oth-
er consultants as appropriate). The UK regulators also have an
extremely wide set of sanctions at their disposal, which may be
imposed under the Financial Services and Markets Act (FSMA).
Some of our subsidiaries and affiliates are also regulated by the
London Stock Exchange and other UK securities and commodities
exchanges of which they are a member. We are also subject to the
requirements of the UK Panel on Takeovers and Mergers, where
relevant.
Financial services regulation in the UK is conducted in accor-
dance with EU directives which require, among other things, com-
pliance with certain capital adequacy standards, client protection
requirements and conduct of business rules (such as the Markets
in Financial Instruments Directive I). These directives apply through-
out the EU and are reflected in the regulatory regimes of the vari-
ous member states.
➔ Refer to the “Regulatory and legal developments” and “Risk
factors” sections of this report for more information
52
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 present-
ed below is not indicative of their likelihood of occurrence or the
potential magnitude of their 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 can have a material and adverse effect on our
business. In the wake of the 2007–2009 financial crisis and the
following 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
institutions. 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 bal-
ance sheet growth or reduce the profitability of trading and
other activities;
– cross-border market access restrictions;
– 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, includ-
ing ring-fencing certain activities and operations within sepa-
rate legal entities; and
– requirements to adopt risk governance structures at a local ju-
risdiction level.
Many of these measures have been adopted and their imple-
mentation had a material effect on our business. Others will be
implemented over the next several years; some are subject to leg-
islative action or to further rulemaking by regulatory authorities
before final implementation. As a result, there remains a high lev-
el of uncertainty regarding a number of the measures referred to
above, including whether (or the form in which) they will be ad-
opted, the timing and content of implementing regulations and
interpretations and / or the dates of their effectiveness. The imple-
mentation of such measures and further, more restrictive changes
may materially affect our business and ability to execute our stra-
tegic plans.
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,
moreover, disadvantages institutions headquartered in jurisdic-
tions that impose relatively more stringent standards. Switzerland
has adopted capital and liquidity requirements for its major inter-
national 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 le-
nient 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“ (TBTF) law to address the issues posed by large banks. The
law became effective on 1 March 2012. Accordingly, Swiss regu-
latory changes 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
significantly 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.
Capital regulation: The provisions of the revised banking ordi-
nance and capital adequacy ordinance implementing the Basel III
capital standards and the Swiss TBTF law became effective on
1 January 2013. As a systemically relevant Swiss bank, we are
subject to base capital requirements, as well as a “progressive
buffer” that scales with our total exposure (a metric that is based
on our balance sheet size) and market share in Switzerland. In
addition, the Swiss governmental authorities have the authority
to impose an additional countercyclical buffer capital requirement
of up to 2.5% of RWA. This authority has been exercised to im-
pose an additional capital charge of 1% in respect of RWA arising
53
Operating environment and strategy Operating environment and strategy
Risk factors
from Swiss residential mortgage loans (increasing to 2% effective
from the end of June 2014). In addition, UBS and FINMA have
mutually agreed to an incremental operational capital require-
ment to be held against litigation, regulatory and similar matters
and other contingent liabilities, which added CHF 22.5 billion to
our RWA at 31 December 2013. There can be no assurance that
we will not in the future be subject to increases in capital require-
ments either from the imposition of additional requirements or
changes in the calculation of RWA or other components of the
existing minimum capital requirement.
Liquidity and funding: We are required to maintain a Liquidity
Coverage Ratio (LCR) of high-quality liquid assets to estimated
stressed short-term funding outflows and will be required to
maintain a Net Stable Funding Ratio (NSFR) intended to ensure
that we are not overly reliant on short-term funding and that we
have sufficient long-term funding for illiquid assets. We currently
calculate these ratios under supervisory guidance from FINMA, as
neither the international nor Swiss standards for the calculation of
these requirements have been fully implemented. These require-
ments, together with liquidity requirements imposed by other ju-
risdictions in which we operate, will likely require us to maintain
substantially higher levels of overall liquidity. Increased capital re-
quirements and higher liquidity requirements make certain lines
of business less attractive and may reduce our overall ability to
generate profits. The LCR and NSFR calculations make assump-
tions about the relative likelihood and amount of outflows of
funding and available sources of additional funding in a market or
firm-specific stress situation. There can be no assurance that in an
actual stress situation our funding outflows would not exceed the
assumed amounts.
Resolution planning and resolvability: The revised banking act
and capital adequacy ordinances provide FINMA with additional
powers to intervene to prevent a failure or resolve a failing finan-
cial institution. These measures may be triggered when certain
thresholds are breached and permit the exercise of considerable
discretion by FINMA in determining whether, when or in what
manner to exercise such powers. In case of a threatened insolven-
cy, FINMA may impose more onerous requirements on us, includ-
ing restrictions on the payment of dividends and interest. Al-
though 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 separate lines of
business into dedicated entities, with limitations on intra-group
funding and certain guarantees), or to further reduce business risk
levels in some manner. The banking act also provides FINMA with
the ability to extinguish or convert to common equity the liabilities
of a bank in connection with its resolution.
Swiss TBTF requirements require systemically important banks,
including UBS, to put in place viable emergency plans to preserve
the operation of systemically important functions despite a failure
of the institution, to the extent that such activities are not suffi-
ciently separated in advance. The Swiss TBTF law provides for the
possibility of a limited reduction of capital requirements for system-
ically important institutions that adopt measures to reduce resolv-
ability risk beyond what is legally required. Such actions would like-
ly include an alteration of the legal structure of a bank group in a
manner that would insulate parts of the group to exposure from
risks arising from other parts of the group thereby making it easier
to dispose of certain parts of the group in a recovery scenario, to
liquidate or dispose of certain parts of the group in a resolution
scenario or to execute a debt bail-in. In view of these factors, we
intend to establish a new banking subsidiary of UBS AG in Switzer-
land. The scope of this potential future subsidiary’s business is still
being determined, but we would currently expect it to include our
Retail & Corporate business division and likely the Swiss-booked
business within our Wealth Management business division. We ex-
pect to implement this change in a phased approach starting in
mid-2015. This structural change is being discussed on an ongoing
basis with FINMA, and remains subject to a number of uncertainties
that may affect its feasibility, scope or timing. We may consider
further changes to the legal structure of the Group in response to
regulatory requirements in Switzerland or in other countries in
which we operate, including to improve the resolvability of the UBS
Group, to respond to Swiss and other capital requirements (includ-
ing seeking potential reduction in the progressive buffer require-
ment as applied to us) and to respond to regulatory required
changes in legal structure. Movement of businesses to a new sub-
sidiary (“subsidiarization”) will require significant time and resourc-
es to implement. “Subsidiarization” in Switzerland and elsewhere
may create operational, capital, funding and tax inefficiencies and
increase our and counterparties‘ credit risk. Refer to “Regulatory
and legislative changes outside Switzerland” for a description of
other regulatory and legislative developments that may affect these
decisions and further discussion of these risks.
In September 2013, the Swiss National Council approved two
motions for the mandatory structural reform of banks in Switzer-
land that would, if also adopted by the Council of States, result in
the submission to Parliament of a law requiring the separation of
certain investment banking activities from systemically relevant
activities, such as retail and commercial banking. No date has
been set for the debate. It is unclear whether, when and in what
form such a law will be adopted.
Market regulation: The Swiss government is working on fun-
damentally reviewing the rules on market infrastructure and on
the relationship between us and our clients. These laws may, if
enacted, have a material impact on the market infrastructure that
we use, available platforms, collateral management and the way
we interact with clients. In addition, these initiatives may cause us
to incur material implementation costs.
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.
Banking structure and activity limitations: Some of these regu-
latory and legislative changes may subject us to requirements to
move activities from UBS AG branches into subsidiaries. Such
“subsidiarization” can create operational, capital and tax ineffi-
54
ciencies, increase our aggregate credit exposure to counterparties
as they transact with multiple UBS AG affiliates, expose our busi-
nesses to higher local capital requirements, and potentially give
rise to client and counterparty concerns about the credit quality of
individual subsidiaries. Such changes could also negatively impact
our funding model and severely limit our booking flexibility.
For example, we have significant operations in the UK and cur-
rently use UBS AG’s London branch as a global booking center for
many types of products. We are being required by the UK Pruden-
tial Regulatory Authority and by FINMA to increase very substan-
tially the capitalization of our UK bank subsidiary, UBS Limited,
and expect to be required to change our booking practices to re-
duce or even eliminate our utilization of UBS AG London branch
as a global booking center for the ongoing business of the Invest-
ment Bank. In addition, the UK Independent Commission on
Banking has recommended structural and non-structural reforms
of the banking sector, most of which have been endorsed by the
UK government and implemented in the Financial Services (Bank-
ing Reform) Act. Key measures proposed include the ring-fencing
of retail banking activities in the UK (which we do not expect to
impact us directly), additional common equity tier 1 capital re-
quirements of up to 3% of RWA for retail banks, and the issuance
by UK banks of debt subject to “bail-in” provisions. Furthermore,
the European Commission’s recent proposals in light of the Liikan-
en report also advocate a Volcker-style prohibition on proprietary
trading together with a separation of trading from banking activ-
ities. The applicability and implications of such changes to branch-
es 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.
In February 2014, the Federal Reserve Board issued final rules
for foreign banking organizations (FBO) operating in the US (un-
der section 165 of the Dodd-Frank Act) that include the follow-
ing: (i) a requirement for FBO with more than USD 50 billion of US
non-branch assets to establish an intermediate holding company
(IHC) to hold all US subsidiary operations, (ii) risk-based capital
and leverage requirements for the IHC, (iii) liquidity requirements,
including a 30-day onshore liquidity requirement for the IHC, (iv)
risk management requirements including the establishment of a
risk committee and the appointment of a US chief risk officer, (v)
stress test and capital planning requirements and (vi) a debt-to-eq-
uity limit for institutions that pose “a grave threat” to US financial
stability. Requirements differ based on the overall size of the for-
eign banking organization and the amount of its US-based assets.
We expect that we will be subject to the most stringent require-
ments based on our current operations. We will have until 1 July
2016 to establish an IHC and meet many of the new require-
ments. We must submit an implementation plan by 1 January
2015 and the IHC will not need to comply with the US leverage
ratio until 1 January 2018.
US regulators published final regulations implementing the
Volcker Rule in December 2013 and generally extended until
2015 the time to conform to this rule and the related regulations.
In general, the Volcker Rule prohibits any banking entity from en-
gaging in proprietary trading and from owning interests in hedge
funds and other private fund vehicles. The Volcker Rule also
broadly limits investments and other transactional activities be-
tween a bank and funds that the bank has sponsored or with
which the bank has certain other relationships. The Volcker Rule
permits us and other non-US banking entities to engage in certain
activities that would otherwise be prohibited to the extent that
they are conducted solely outside the US and certain other condi-
tions are met. One impact will be the need to establish an exten-
sive global compliance framework designed to ensure compliance
with the Volcker Rule and the terms of the available exemptions.
Moreover, the Volcker Rule could have an impact on the way in
which we organize and conduct certain business lines. We contin-
ue to evaluate the final rule and its impact on our activities. The
Volcker Rule could have a substantial impact on market liquidity
and the economics of market-making activities.
OTC derivatives regulation: In 2009, the G20 countries com-
mitted to require all standardized over-the-counter (OTC) deriva-
tive contracts to be traded on exchanges or trading facilities and
cleared through central counterparties by the end of 2012. This
commitment is being implemented through the Dodd-Frank Act
in the US and corresponding legislation in the European Union,
Switzerland and other jurisdictions, and will have a significant im-
pact on our OTC derivatives business, which is conducted primar-
ily in the Investment Bank. For example, we expect that, as a rule,
the shift of OTC derivatives trading to a central clearing model will
tend to reduce profit margins in these products, although some
market participants may be able to offset this effect with higher
trading volumes in commoditized products. Although we are pre-
paring for these thematic market changes, they are likely to re-
duce 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 with the Commodity Fu-
tures Trading Commission (CFTC) in the US at the end of 2012,
enabling the continuation of swaps business with US persons. We
also expect that UBS AG will be required to register as a securi-
ties-based swap dealer with the US Securities and Exchange Com-
mission. Regulations issued by the CFTC impose substantial new
requirements on registered swap dealers for clearing, trade execu-
tion, transaction reporting, recordkeeping, risk management and
business conduct. Certain of the CFTC’s regulations, including
those relating to swap data reporting, recordkeeping, compliance
and supervision, are expected to apply to UBS AG globally. In July
2013, the CFTC approved final cross-border guidance that defines
the extraterritorial application of its swaps regulations. This guid-
ance may allow non-US swap dealers, such as UBS AG, to operate
on the basis of “substituted compliance,” under which they may
comply with home country requirements instead of the corre-
sponding CFTC requirements if the CFTC determines the home
country requirements to be “comprehensive and comparable.” In
December 2013, the CFTC issued comparability determinations
for Switzerland (as well as the home countries of certain other
non-US swap dealers) that will allow us to comply with relevant
Swiss regulations instead of CFTC requirements for many, but not
55
Operating environment and strategy Operating environment and strategy
Risk factors
all, of the CFTC regulations for which substituted compliance is
available. While the CFTC deferred a comparability determination
on swap data reporting requirements as we continue to review
the issue, it granted reporting no-action relief that allows UBS AG
(and other non-US swap dealers) to delay reporting transactions
with non-US persons for several months. The CFTC’s regulations
will apply to swaps between non-US persons and non-US swap
dealers when US personnel are involved, but in January 2014, the
CFTC delayed the applicability of US regulations in this context
until 15 September 2014, giving additional time for foreign swap
dealers to comply with US requirements regarding transactions
with non-US persons conducted from the US. Application of these
requirements to our swaps business with non-US persons contin-
ues to present a substantial implementation burden, will likely
duplicate or conflict with legal requirements applicable to us out-
side of the US and may place us at a competitive disadvantage to
firms that are not CFTC-registered swap dealers.
Regulation of cross-border provision of financial services: In
many instances, we provide services on a cross-border basis and
are therefore sensitive to barriers restricting market access for
third-country firms. In particular, 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 juris-
dictions from Switzerland. In addition, a number of jurisdictions
are increasingly regulating cross-border activities on the basis of
some notion of comity (e.g., substituted compliance, equivalence
determination). While the issuance of such determinations in par-
ticular jurisdictions may ensure market access for us to those juris-
dictions, a negative determination in other jurisdictions may neg-
atively influence our ability to act as a global firm. In addition, as
jurisdictions tend to apply such determinations on a jurisdictional
level rather than on an entity level, we will generally need to rely
on jurisdictions’ willingness to collaborate.
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 Bank Recovery and Resolution Directive. Resolution
plans may increase the pressure on us to make structural changes,
such as the creation of separate legal entities, if the resolution
plan in any jurisdiction identifies impediments that are not accept-
able to the relevant regulators. Such structural changes may neg-
atively impact our ability to benefit from synergies between busi-
ness units, and if they include the creation of separate legal
entities, may have the other negative consequences mentioned
above with respect to “subsidiarization” more generally.
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
write down or convert into equity unsecured debt to effectuate a
so-called “bail-in.” Some jurisdictions are also considering adopt-
ing requirements that regulated firms maintain specified amounts
of unsecured debt that could increase loss-absorbing capacity. 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 interpretation. Depending upon the outcome, bail-in authori-
ty may have a significant effect on our funding costs.
Possible consequences of regulatory and
legislative developments
The planned and potential regulatory and legislative develop-
ments in Switzerland and in other jurisdictions in which we have
operations may have a material adverse effect on our ability to
execute our strategic plans, on the profitability or viability of cer-
tain business lines globally or in particular locations, and in some
cases on our ability to compete with other financial institutions.
They are likely to be costly to implement and could also have a
negative impact on our legal structure or business model, poten-
tially generating capital inefficiencies and resulting in an impact
on our profitability. Finally, the uncertainty related to or the imple-
mentation of legislative and regulatory changes may have a neg-
ative 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 fully applied common
equity tier 1 and total capital ratios under Basel III requirements, is
determined by: (i) RWA (credit, non-counterparty related, market
and operational risk positions, measured and risk-weighted ac-
cording to regulatory criteria); and (ii) eligible capital. Both RWA
and eligible capital may fluctuate based on a number of factors.
RWA are driven by our business activities and by changes in the
risk profile of our exposures, as well as regulatory requirements.
For instance, substantial market volatility, a widening of credit
spreads (the major driver of our value-at-risk), adverse currency
movements, increased counterparty risk, a deterioration in the
economic environment, or increased operational risk could result
in a rise in RWA. Eligible capital would be reduced if we experi-
ence net losses or losses through other comprehensive income, as
determined for the purpose of the regulatory capital calculation,
which may also render it more difficult or more costly for us to
raise new capital. In addition, eligible capital can be reduced for a
number of other reasons, including certain reductions in the rat-
ings of securitization exposures, acquisitions and divestments
changing the level of goodwill, adverse currency movements af-
fecting 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 and liabilities recognized in other comprehensive in-
come. Any such increase in RWA or reduction in eligible capital
could materially reduce our capital ratios.
Risks captured in the operational risk component of RWA have
become increasingly significant as a component of our overall
56
RWA as a result of significant reductions in market and credit risk
RWA, as we execute our strategy, and increased operational risk
charges arising from operational risk events (including charges
arising from litigation, regulatory and similar matters). We have
agreed with FINMA on a supplemental analysis that will be used
to calculate an incremental operational risk capital charge to be
held for litigation, regulatory and similar matters and other con-
tingent liabilities. The incremental RWA calculated based on this
supplemental analysis as of 31 December 2013 was CHF 22.5
billion. Future developments in and the ultimate elimination of
the incremental RWA attributable to the supplemental analysis
will depend on provisions charged to earnings for litigation, regu-
latory and similar matters and other contingent liabilities and on
developments in these matters. There can be no assurance that
we will be successful in addressing these matters and reducing or
eliminating the incremental operational risk RWA.
The required levels and calculation of our regulatory capital
and the calculation of our RWA are also subject to changes in
regulatory requirements or their interpretation, as well as the ex-
ercise of regulatory discretion. Changes in the calculation of RWA
under Basel III and Swiss requirements (such as the revised treat-
ment of certain securitization exposures under the Basel III frame-
work) have significantly increased the level of our RWA and,
therefore, have adversely affected our capital ratios. We have
achieved substantial reductions in RWA, in part to mitigate the
effects of increased capital requirements. However, there is a risk
that we will not be successful in pursuing our plans to further re-
duce RWA, either because we are unable to carry out fully the
actions we have planned or because other business or regulatory
developments or actions to some degree counteract the benefit
of our actions.
In addition to the risk-based capital requirements, we are sub-
ject to a minimum leverage ratio requirement for Swiss systemi-
cally relevant banks. The leverage ratio operates separately from
the risk-based capital requirements, and, accordingly, under cer-
tain circumstances could constrain our business activities even if
we are able to satisfy other risk-based capital requirements. We
have achieved substantial reductions in our balance sheet size and
anticipate further reductions as we wind down our Non-core and
Legacy Portfolio positions. These reductions would improve our
leverage ratio and contribute to our ability to comply with the
more stringent leverage ratio requirements scheduled to become
effective in future years. There can be no assurance that these
plans will be executed successfully. There is also a risk that the
minimum leverage ratio requirement will be increased significant-
ly beyond the levels currently scheduled to come into effect, mak-
ing it more difficult for us to satisfy the requirements without ad-
versely affecting certain of our businesses.
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, could
have a material adverse effect on our business and could affect
our competitive position internationally compared with institu-
tions that are regulated under different regimes.
We may not be successful in completing our announced
strategic plans or in implementing changes in our busi-
nesses to meet changing market, regulatory and other
conditions
In October 2012, we announced a significant acceleration in the
implementation of our strategy. The strategy included 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. We have made significant prog-
ress in implementing the strategy and as of the end of 2013 are
ahead of the majority of our performance targets. There contin-
ues to be a risk that we will not be successful in completing the
execution of our plans, or that our plans may be delayed or that
the effects of our plans may differ from those intended.
Although we have substantially reduced the RWA and balance
sheet usage associated with our Non-core and Legacy Portfolio
positions, there can be no assurance that we will be able to exit
them as quickly as our plans suggest or that we will not incur
significant losses in doing so. The continued illiquidity and com-
plexity of many of the legacy risk positions in particular could
make it difficult to sell or otherwise exit these positions and re-
duce the RWA and the balance sheet usage associated with these
exposures. At the same time, our strategy rests heavily on our
ability to reduce those RWA and balance sheet usage in order to
meet our future capital targets and requirements without incur-
ring unacceptable losses.
As part of our strategy, we have underway a program to
achieve significant incremental cost reductions. 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 re-
duction and efficiency measures we are able to carry out. As is
often the case with major cost reduction and efficiency programs,
our plans involve significant risks. Included among these are the
risks that restructuring costs may be higher and may be recog-
nized sooner than we have projected and that we may not be able
to identify feasible cost reduction opportunities at the level of our
objective that are also consistent with our business goals. In addi-
tion, when we implement our cost reduction and efficiency pro-
grams we may experience unintended consequences such as the
loss or degradation of capabilities that we need in order to main-
tain our competitive position and achieve our targeted returns.
We are exposed to possible outflows of client assets in our as-
set-gathering businesses and to changes affecting the profitability
of our Wealth Management business division, and we may not be
successful in implementing the business changes needed to ad-
dress them. We experienced substantial net outflows of client as-
sets in our wealth management and asset management business-
es in 2008 and 2009. The net outflows resulted from a number of
different factors, including our substantial losses, the damage to
our reputation, the loss of client advisors, difficulty in recruiting
qualified client advisors and tax, legal and regulatory develop-
ments concerning our cross-border private banking business.
57
Operating environment and strategy Operating environment and strategy
Risk factors
Many of these factors have been successfully addressed. Our
Wealth Management and Wealth Management Americas busi-
ness divisions recorded substantial net new money inflows in
2013. Long-term changes affecting the cross-border private
banking business model will, however, continue to affect client
flows in the Wealth Management business division for an extend-
ed period of time. One of the important drivers behind the lon-
ger-term reduction in the amount of cross-border private banking
assets, particularly in Europe but increasingly also in other regions,
is the heightened focus of fiscal authorities on cross-border in-
vestments. Changes in local tax laws or regulations and their en-
forcement 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 and 2013, 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 Germa-
ny 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 ultra high net worth segment
globally. Over time, inflows from these lower-margin segments
and markets have been replacing outflows from higher-margin
segments and markets, in particular cross-border European cli-
ents. 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 and adversely affect the
profitability of our Wealth Management business division. We
have implemented changes in our product offerings and service
improvements, and will continue our efforts to adjust to client
trends and market dynamics as necessary, in an effort to over-
come the effects of these changes in the business mix on our
profitability, but there can be no assurance that we will be able
to counteract those effects. In addition, we have made changes
to our business offerings and pricing practices in line with the
Swiss Supreme Court case concerning “retrocessions” and other
industry developments. These changes may adversely affect our
margins on these products and the current offering may be less
attractive to clients than the products it replaces. There can be no
assurance that we will be successful in our efforts to offset the
adverse impact of these trends and developments.
Global Asset Management experienced net outflows of client
assets in 2012 and 2013. Further net outflows of client assets
could adversely affect the results of this business division.
Material legal and regulatory risks arise in the conduct of
our business
The nature of our business subjects us to significant regulatory
oversight and liability risk. As a global financial services firm oper-
ating 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 investiga-
tions in jurisdictions where we are active. These proceedings ex-
pose us to substantial monetary damages and legal defense costs,
injunctive relief and criminal and civil penalties, in addition to po-
tential regulatory restrictions on our businesses. The outcome of
most of these matters, and their potential effect on our future
business or financial results, is extremely difficult to predict.
We are subject to a large number of claims, disputes, legal
proceedings and government investigations and expect that our
ongoing business activities will continue to give rise to such mat-
ters in the future. The extent of our financial exposure to these
and other matters could be material and could substantially ex-
ceed the level of provisions that we have established for litigation,
regulatory and similar matters.
In December 2012, we announced settlements totaling ap-
proximately CHF 1.4 billion in fines by and disgorgements to US,
UK and Swiss authorities to resolve investigations by those au-
thorities relating to LIBOR and other benchmark interest rates.
UBS AG entered into a non-prosecution agreement with the US
Department of Justice and 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
investigations by other authorities or civil claims that have been or
may in the future be asserted by private and governmental claim-
ants with respect to submissions for LIBOR or other benchmark
interest rates. The extent of our financial exposure to these re-
maining matters is extremely difficult to estimate and could be
material.
These settlements starkly illustrate the much-increased level of
financial and reputational risk now associated with regulatory
matters in major jurisdictions. Very large fines and disgorgement
amounts were assessed against UBS, and the guilty plea of a UBS
subsidiary was required, in spite of our full cooperation with the
authorities in the investigations relating to LIBOR and other
benchmark interest rates, and in spite of our receipt of condition-
al leniency or conditional immunity from antitrust authorities in a
number of jurisdictions, including the US and Switzerland. We
understand that, in determining the consequences to us, the au-
thorities considered the fact that we have in the recent past been
determined to have engaged in serious misconduct in several oth-
er matters. The heightened risk level was further illustrated by the
European Commission (EC) announcement in December 2013 of
fines against other financial institutions related to its Yen Interest
Rate Derivatives (YIRD) investigation. The EC stated that UBS would
have been subject to fines of approximately EUR 2.5 billion had
UBS not received full immunity for disclosing to the EC the exis-
tence of infringements relating to YIRD.
Under the non-prosecution agreement we entered into in con-
nection with the LIBOR matter, we have agreed, among other
things, that, for two years from 18 December 2012 UBS will not
commit any US crime, and we will advise the Department of Jus-
tice of all potentially criminal conduct by UBS or any of its employ-
ees relating to violations of US laws concerning fraud or securities
and commodities markets. UBS is also obligated to continue to
cooperate fully with the Department of Justice. Failure to comply
58
with these obligations could result in termination of the non-pros-
ecution agreement and potential criminal prosecution in relation
to the matters covered by the non-prosecution agreement. As a
result of this history and our ongoing obligations under the
non-prosecution agreement, our level of risk with respect to reg-
ulatory enforcement may be greater than that of some of our
peer institutions.
Considering our overall exposures and the current regulatory
and political climate affecting financial institutions, we expect
charges associated with legal, regulatory and similar matters to
remain at elevated levels through 2014.
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 constrain our strategic flexibility. While we believe
that we have remediated the deficiencies that led to the material
losses during the 2007–2009 financial crisis, the unauthorized
trading incident announced in September 2011 and the LIBOR-re-
lated settlements of 2012, the effects of these matters on our rep-
utation 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 over-
sight. We are determined to address the issues that have arisen in
the above and other matters in a thorough and constructive man-
ner. We are in active dialogue with our regulators concerning the
actions that we are taking to improve our operational risk man-
agement and control framework, but there can be no assurance
that our efforts will have the effects desired. Although the special
restrictions mentioned above have recently been withdrawn by
FINMA, this example illustrates that difficulties associated with our
relationships with regulatory authorities have the potential to ad-
versely affect the execution of our business strategy.
➔ Refer to “Note 22 Provisions and contingent liabilities” in the
“Financial information” section of this report for more informa-
tion on litigation, regulatory and similar matters
Operational risks may affect our business
All of our businesses are dependent on our ability to process a large
number of complex transactions across multiple and diverse mar-
kets in different currencies, to comply with requirements of many
different legal and regulatory regimes to which we are subject and
to prevent, or promptly detect and stop, unauthorized, fictitious or
fraudulent transactions. Our operational risk management and
control systems and processes are designed to help ensure that the
risks associated with our activities, including those arising from pro-
cess 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 or-
ganizations that rely on technology to support their business, like
us. Cyber-crime can range from internet-based attacks that inter-
fere with the organizations’ internet websites, to more sophisti-
cated 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 infor-
mation.
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.
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 activ-
ities, even in the execution of client-driven business, can also ex-
pose us to operational risks. Our loss in 2012 relating to the Face-
book initial public offering illustrates the exposure participants in
these activities have to unexpected results 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 accu-
rate 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
disruption in the infrastructure that supports our businesses and
the communities in which we are located. This may include a dis-
ruption 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 con-
duct business.
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
59
Operating environment and strategy Operating environment and strategy
Risk factors
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 matter 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.
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 weak or stagnant
economic growth in our core markets, or a severe financial 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, nat-
ural disasters, pandemics, civil unrest, war or terrorism. Because
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 markets as well as
developed markets that are susceptible to macroeconomic and po-
litical developments, or as a result of the failure of a major market
participant. We have material exposures to a number of these
markets, both as a wealth manager and as an investment bank.
Moreover, our strategic plans depend more heavily upon our abili-
ty to generate growth and revenue in emerging markets, causing
us to be more exposed to the risks associated with them. The con-
tinued absence of sustained and credible improvements to unre-
solved issues in Europe, continued US fiscal and monetary policy
issues, emerging markets fragility and the mixed outlook for glob-
al growth demonstrate that macroeconomic and political develop-
ments 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 further adverse effects
on our businesses as follows:
– a general reduction in business activity and market volumes, as
we have recently experienced, affects fees, commissions and
margins; local or regional economic factors, such as the ongo-
ing European sovereign debt concerns, could also have an ef-
fect 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;
– the ongoing low interest rate environment will further erode
interest margins in several of our businesses;
– reduced market liquidity or volatility limits trading and arbi-
trage opportunities and impedes our ability to manage risks,
impacting both trading income and performance-based fees;
– deteriorating market conditions could cause a decline in the
value of assets that we own and account for as investments or
trading positions;
– worsening economic conditions and adverse market develop-
ments could lead to impairments and defaults on credit expo-
sures and on trading and investment positions, and losses may
be exacerbated by declines in the value of collateral we hold; 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 have in the past affected
and could 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 impair-
ments 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
We, like other financial market participants, were 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 progress our strategy
and focus on complying with Basel III capital standards, we con-
tinue to hold substantial legacy risk positions, primarily in our
Non-core and Legacy Portfolio. In many cases these risk positions
remain illiquid, and we continue to be exposed to the risk that the
remaining positions may again deteriorate in value. In the fourth
quarter of 2008 and the first quarter of 2009, certain of these
positions were reclassified for accounting purposes from fair value
to amortized cost; these assets are subject to possible impairment
due to changes in market interest rates and other factors.
Moreover, we hold positions related to real estate in various
countries, and could suffer losses on these positions. These posi-
tions 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-
60
cerns expressed by the Swiss National Bank and others about un-
sustainable price escalation in the Swiss real estate market come to
fruition. Other macroeconomic developments, such as the implica-
tions on export markets of any return of crisis conditions within the
eurozone and the potential implications of the recent decision in
Switzerland to reinstate immigration quotas for EU / EEA countries,
could also adversely affect the Swiss economy, our business in Swit-
zerland in general and, in particular, our Swiss mortgage and cor-
porate loan portfolios.
In addition, we are exposed to risk in our prime brokerage, re-
verse repo and Lombard lending activities, as the value or liquidity 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 oth-
er reported figures such as other comprehensive income, invested
assets, balance sheet assets, RWA and tier 1 capital. For example,
in 2011 the strengthening of the Swiss franc, especially against
the US dollar and euro, had an adverse effect on our revenues and
invested assets. Because exchange rates are subject to constant
change, sometimes for completely unpredictable reasons, our re-
sults are subject to risks associated with changes in the relative
values of currencies.
We are dependent upon our risk management and
control processes to avoid or limit potential losses in
our counterparty credit and trading businesses
Controlled risk-taking is a major part of the business of a financial
services firm. Credit risk is an integral part of many of our retail,
corporate, wealth management and Investment Bank activities,
and our non-core activities transferred to Corporate Center –
Non-core and Legacy Portfolio, including lending, underwriting
and derivatives activities. Changes in interest rates, credit spreads,
securities’ prices, market volatility and liquidity, foreign exchange
levels and other market fluctuations can adversely affect our earn-
ings. 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 untimely, 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, affect-
ed;
– 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. The performance of assets we
hold for our clients in these activities could be harmed by the
same factors. If clients suffer losses or the performance of their
assets held with us is not in line with relevant benchmarks against
which clients assess investment performance, we may suffer re-
duced fee income and a decline in assets under management, or
withdrawal of mandates.
If we decide to support a fund or another investment that we
sponsor in our asset or wealth management businesses, it might,
depending on the facts and circumstances, incur charges that
could increase to material levels.
Investment positions, such as equity holdings made as a part of
strategic initiatives and seed investments made at the inception of
funds that we manage, may also be affected by market risk factors.
These investments are often not liquid and generally are intended or
required to be held beyond a normal trading horizon. They are sub-
ject to a distinct control framework. Deteriorations in the fair value
of these positions would have a negative impact on our earnings.
➔ Refer to the “Risk management and control” section of this
report for more information
61
Operating environment and strategy Operating environment and strategy
Risk factors
Valuations of certain positions rely on models; models
have inherent limitations and may use inputs which have
no observable source
tal strength and reputation, also contribute to maintaining client
and counterparty confidence and it is possible that ratings chang-
es could influence the performance of some of our businesses.
If available, fair values of a financial instrument or non-financial
asset or liability are determined using quoted prices in active mar-
kets for identical assets or liabilities. Where the market is not ac-
tive, fair value is established using a valuation technique, includ-
ing pricing models. Where available, valuation techniques use
market observable assumptions and inputs. If such information is
not available, inputs may be derived by reference to similar instru-
ments in active markets, from recent prices for comparable trans-
actions or from other observable market data. If market observ-
able data is not available, we select non-market observable inputs
to be used in our valuation techniques. We also use internally
developed models. Such models have inherent limitations; differ-
ent assumptions and inputs would generate different results, and
these differences could have a significant impact on our financial
results. We regularly review and update our valuation models to
incorporate all factors that market participants would consider in
setting a price, including factoring in current market conditions.
Judgment is an important component of this process, and failure
to make the changes necessary to reflect evolving market condi-
tions could have a material adverse effect on our financial results.
Moreover, evolving market practice may result in changes to valu-
ation techniques that have a material impact on financial results.
Changes in model inputs or calibration, changes in the valuation
methodology incorporated in models, or failure to make the
changes necessary to reflect evolving market conditions could
have a material adverse effect on our financial results.
Liquidity and funding management are critical to
our ongoing performance
The viability of our business depends upon the availability of fund-
ing sources, and our 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 retail and
wholesale 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 availabil-
ity of short-term funding could occur quickly.
Reductions in our credit ratings can increase our funding costs,
in particular with regard to funding from wholesale unsecured
sources, and can affect the availability of certain kinds of funding.
In addition, as we experienced in connection with Moody’s down-
grading 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 agreements relating to our
derivatives businesses. Our credit ratings, together with our capi-
62
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. The addition of loss-absorbing debt as a component of cap-
ital requirements and potential future requirements to maintain
senior unsecured debt that could be written down in an insolvency
or other resolution of UBS, or a subsidiary, may increase our fund-
ing costs or limit the availability of funding of the types required.
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 compe-
tition, 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 us in their size
and breadth. Barriers to entry in individual markets and pricing
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 technology, 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. We have made changes to the terms of
compensation awards to reflect the demands of various stakehold-
ers, including regulatory authorities and shareholders. These terms
include the introduction of a deferred contingent 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 write-down
trigger, increased average deferral periods for stock awards, and
expanded forfeiture provisions for certain awards linked to busi-
ness performance. These changes, while intended 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 us, 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 compro-
mise our ability to execute our strategy and to successfully improve
our operating and control environment.
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 Minder Initiative). In November 2013, the Swiss Federal
Council issued the final transitional ordinance implementing the
constitutional amendments resulting from this initiative, which
came into force on 1 January 2014. The ordinance requires public
companies to specify in their articles of association (AoA) a mech-
anism to permit a “say-on-pay“ vote, setting out three require-
ments: (i) the vote on compensation must be held annually, (ii) the
vote on compensation must be binding rather than advisory and
(iii) the vote on compensation must be held separately for the
board of directors and members of the executive board. In addi-
tion, shareholders will need to determine the details of the “say-
on-pay” vote in the AoA, in particular the nature of the vote,
timing aspects and the consequences of a “no“ vote. Each com-
pany affected by the Minder Initiative must undertake a first bind-
ing vote on management compensation and remuneration of the
board of directors at its 2015 annual general meeting.
The EU has adopted legislation that caps the amount of variable
compensation in proportion to the amount of fixed compensation
for employees of a bank active within the EU. This legislation will
apply to employees of UBS in the EU. These and other similar initia-
tives may require us to make further changes to our compensation
structure and may increase the risks described above.
➔ 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 may also affect our regulatory capital and ratios. We
monitor potential accounting changes and when these are final-
ized by the IASB, we determine the potential impact and disclose
significant future changes in our financial statements. Currently,
there are a number of issued but not yet effective IFRS changes,
as well as potential IFRS changes, some of which could be expect-
ed to impact our reported results, financial position and regulato-
ry 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 annually.
Our impairment test in respect of the assets recognized as of 31
December 2013 indicated that the value of our goodwill is not im-
paired. The impairment test is based on assumptions regarding esti-
mated earnings, discount rates and long-term growth rates impact-
ing the recoverable amount of each segment and on estimates of
the carrying amounts of the segments to which the goodwill relates.
If the estimated earnings and other assumptions in future periods
deviate from the current outlook, the value of our goodwill may
become impaired in the future, giving rise to losses in the income
statement. In the third quarter of 2012, for example, the recognition
by the Investment Bank of a full impairment of goodwill and of an
impairment of other non-financial assets resulted in a charge of al-
most CHF 3.1 billion against our operating profit before tax.
The effect of taxes on our financial results is significantly
influenced by reassessments of our deferred tax assets
The deferred tax assets we have recognized on our balance sheet
as of 31 December 2013 in respect of prior years’ tax losses reflect
the probable recoverable level based on future taxable profit as
informed by our business plans. If the business plan earnings and
assumptions in future periods substantially deviate from current
forecasts, the amount of recognized deferred tax assets may need
to be adjusted in the future. These adjustments may include write-
downs of deferred tax assets through the income statement.
Our effective tax rate is highly sensitive both to our perfor-
mance 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 ef-
fect on our reported results. If the Group’s performance is expect-
ed to improve, particularly in the US, UK or Switzerland, we could
potentially recognize additional deferred tax assets as a result of
that assessment. 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 expected to produce diminished taxable
profit in future years, we may be required to write down all or a
portion of the 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-downs
are taken.
In 2014, notwithstanding the effects of any potential reassess-
ment of the level of deferred tax assets, we expect our effective tax
rate to be in the range of 20% to 25%. Consistent with past prac-
tice, we expect to revalue our overall level of deferred tax assets in
the second half of 2014 based on a reassessment of future profitabil-
ity taking into account updated business plan forecasts. The full year
effective tax rate could change significantly on the basis of this reas-
sessment. It could also change if aggregate tax expenses for loca-
tions other than Switzerland, the US and UK differ from what is ex-
pected. Our effective tax rate is also sensitive to any future reductions
in statutory tax rates, particularly in the US and Switzerland. Reduc-
tions in the statutory tax rate would cause the expected future tax
benefit from items such as tax loss carry-forwards in the affected
63
Operating environment and strategy Operating environment and strategy
Risk factors
locations to diminish in value. This in turn would cause a write-down
of the associated deferred tax assets.
with such tax losses could be written down through the income
statement.
In addition, statutory and regulatory changes, as well as chang-
es to the way in which courts and tax authorities interpret tax laws
could cause the amount of taxes ultimately paid by us to materi-
ally differ from the amount accrued.
This is a potential risk particularly as we consider reorganiza-
tions of our legal entity structures in the US, UK and Switzerland
in response to regulatory changes. The tax authorities in these
countries may prevent the transfer of tax losses incurred in one
legal entity to newly organized or reorganized subsidiaries or
affiliates that are expected to carry on businesses formerly con-
ducted by the transferor. Were this to occur in situations where
there were also limited planning opportunities to utilize the tax
losses in the originating entity, the deferred tax assets associated
In 2011, the UK government introduced a balance sheet based
levy payable by banks operating or resident in the UK. A net charge
of CHF 124 million was recognized in operating expenses (within
operating profit before tax) in 2013. The Group’s bank levy ex-
pense for future years will depend on both the rate of the levy and
the Group’s taxable UK liabilities at each year-end; changes to ei-
ther factor could increase the cost. This expense will likely increase
if, for example, we change our booking practices so as to book
more liabilities into our UK bank subsidiary, UBS Limited. We ex-
pect that the annual bank levy charge will continue to be recog-
nized for IFRS purposes as an expense 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
65
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 these accounting standards requires the use of judgment,
based upon estimates and assumptions that may involve signifi-
cant uncertainty at the time they are made. Such judgments, in-
cluding the underlying estimates and assumptions, which reflect
historical experience, expectations of the future and other factors,
or some combination thereof, are regularly evaluated to determine
their continuing relevance under the circumstances. Using differ-
ent assumptions could cause the reported results to differ. Chang-
es in assumptions may have a significant impact on the financial
statements in the periods when changes occur.
We believe that the assumptions we have made are appropri-
ate under the circumstances, and that our financial statements
therefore present fairly the financial position, financial perfor-
mance and cash flows, in all material respects. Alternative out-
comes and sensitivity analyses discussed or referred to in this sec-
tion are included solely to assist the reader in understanding the
uncertainty inherent in the estimates and assumptions used in our
financial statements. They are not intended to suggest that other
estimates and assumptions would be more appropriate.
This section discusses accounting policies that are deemed crit-
ical to our financial position, financial performance and cash
flows, because they are material in terms of the items to which
they apply, and they involve significant assumptions and esti-
mates. A broader and more detailed 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 structured entities
We sponsor the formation of structured entities (SE) and interact
with non-sponsored SE for a variety of reasons, including allowing
clients to obtain or be exposed to particular risk profiles, to pro-
vide funding or to sell or purchase credit risk. An SE is an entity
that has been designed so that voting or similar rights are not the
dominant factor in deciding who controls the entity. Such entities
generally have a narrow and well-defined objective and include
those historically referred to as special purpose entities and some
investment funds. In accordance with IFRS, we do not consolidate
SE that we do not control.
With effect from 1 January 2013, UBS adopted IFRS 10 Consol-
idated Financial Statements. IFRS 10 provides a cohesive consoli-
dation framework that applies to all types of entities, both SE and
non-SE. That framework is based on the principle that an entity
should consolidate all other entities that it controls, with control
being defined as a function of three elements: power over the
relevant activities of the entity, exposure to variable returns and an
investor’s ability to use its power to affect its returns. UBS consol-
idates an entity when all three elements of control are present.
Where UBS has an interest in an SE that absorbs variability, we
consider whether UBS has power over the SE which allows it to
affect the variability of its returns. Consideration is given to all
facts and circumstances to determine whether the Group has
power over the SE, that is, the current ability to direct the relevant
activities of the SE when decisions about those activities need to
be made. Determining whether we have power to direct the rele-
vant activities requires a significant degree of judgment in light of
all facts and circumstances. In making that determination, we
consider a range of factors, including the purpose and design of
the SE, any rights held through contractual arrangements such as
call rights, put rights or liquidation rights, as well as potential de-
cision-making rights. Where the Group has power over the rele-
vant activities, a further assessment is made to determine wheth-
er, through that power, it has the ability to affect its own returns,
that is, assessing whether power is held in a principal or agent
capacity. Consideration is given to the overall relationship be-
tween UBS, the SE and other parties involved in the SE. In partic-
ular, we assess the following: (i) the scope of decision-making
authority, (ii) rights held by other parties, including removal or
other participating rights and (iii) exposure to variability, including
remuneration, relative to the total variability of the SE, as well as
whether UBS’s exposure is different from that of other investors.
Appropriate weightings are applied to each of these factors on
the basis of the particular facts and circumstances. If, after review
of these factors, UBS concludes that it can exercise its power to
affect its own returns, the SE is consolidated.
➔ Refer to “Note 1a) 3) Subsidiaries and structured entities” and
“Note 30 Interests in subsidiaries and other entities” in
the “Financial information” section of this report for more
information
Fair value of financial instruments
UBS accounts for a significant portion of its assets and liabilities at
fair value. Under IFRS, the relative degree of uncertainty associat-
ed with the measurement of fair value is reflected by use of a
three-level valuation 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 mod-
els. Level 2 of the hierarchy pertains to instruments for which in-
66
puts to a valuation technique are principally based on observable
market data. Level 3 applies to instruments that are measured by
a valuation technique that incorporates one or more significant
unobservable inputs. Valuation techniques that rely to a greater
extent on unobservable inputs require a higher level of judgment
to calculate a fair value than those based wholly on observable
inputs. Substantially all of UBS’s financial assets and financial lia-
bilities are based on observable prices and inputs and hence are
classified in Levels 1 and 2 of the hierarchy.
Where valuation techniques, including models, are used to de-
termine fair values, they are periodically reviewed and validated
by qualified personnel independent of those who sourced them.
Models are calibrated to ensure that outputs reflect actual data
and comparable market prices. Also, models prioritize the use of
observable inputs, when available, over unobservable inputs.
Judgment is required in selecting appropriate models as well as
inputs for which observable data is less readily or not available.
The valuation techniques employed may not fully reflect all the
factors relevant to the positions we hold. Valuations are therefore
adjusted, where appropriate, to allow for additional factors, in-
cluding 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
derivative instruments to reflect counterparty credit risk. Corre-
spondingly, a debit-valuation-adjustment approach is applied to
incorporate UBS’s own credit risk, where applicable, in the fair
value of derivative instruments. Own credit risk for financial liabil-
ities designated at fair value is calculated using the funds transfer
price curve.
As of 31 December 2013, financial assets and financial liabili-
ties for which valuation techniques are used and whose signifi-
cant inputs are considered observable (Level 2) amounted to CHF
289 billion and CHF 310 billion, respectively, (68% and 88% of
total financial assets measured at fair value and total financial lia-
bilities measured at fair value, respectively). Financial assets and
financial liabilities whose valuations include significant unobserv-
able inputs (Level 3) amounted to CHF 15 billion and CHF 17 bil-
lion, respectively, (4% and 5% of total financial assets measured
at fair value and total financial liabilities measured at fair value,
respectively). These amounts reflect the effect of offsetting, wher-
ever such presentation is required under IFRS.
Uncertainty inherent to estimating unobservable market inputs
can affect the amount of gain or loss recorded for a particular
position. While the Group believes its valuation techniques are
appropriate and consistent with those of other market partici-
pants, the use of different techniques or assumptions to deter-
mine the fair value of certain financial instruments could result in
a different estimate of fair value at the reporting date. As of 31
December 2013, the total favorable and unfavorable effects of
changing one or more of the unobservable inputs to reflect rea-
sonably possible alternative assumptions for financial instruments
classified as Level 3 were CHF 1.2 billion and CHF 1.1 billion, re-
spectively. Further discussion of the Group’s use of valuation tech-
niques, the critical estimates and adjustments applied to reflect
uncertainties within the fair value measurement process, and its
governance over the fair value measurement process can be
found in “Note 24 Fair value measurement” in the “Financial in-
formation” section of this report.
➔ Refer to “Note 24 Fair value measurement” in the “Financial
information” section of this report for more information
Allowances for credit losses on loans and
receivables measured at amortized cost
Allowances for credit losses represent management’s best esti-
mate of credit losses incurred in the lending portfolio at the bal-
ance sheet date due to credit deterioration of the issuer or coun-
terparty. The loan portfolio, which is measured at amortized cost
less impairment, consists of financial assets presented on the bal-
ance sheet lines, Due from banks and Loans, including reclassified
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 (or the
equivalent thereof) on a claim based on the original contractual
terms due to credit deterioration of the issuer or counterparty.
Allowances for credit losses are evaluated at both a counter party-
specific level and collectively. Under this incurred loss model, a fi-
nancial asset or group of financial assets is impaired if there is
objective evidence that a credit loss has occurred by the balance
sheet date. Judgment is used in making assumptions when calcu-
lating 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, in-
cluding amounts that may result from restructuring or the liquida-
tion of collateral. If a loan has a variable interest rate, the discount
rate for measuring any impairment loss is the current effective in-
terest 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 allowances for credit losses are calculated for our
portfolios with similar credit risk characteristics, taking into account
historical loss experience and current conditions. The methodology
and assumptions used are reviewed regularly to reduce any differ-
ences between estimated and actual loss experience. For all of our
portfolios, we also assess whether there have been any unforeseen
developments which might result in impairments but which are not
immediately observable. To determine whether an event-driven col-
lective allowance for credit losses is required, we consider global
economic drivers to assess the most vulnerable countries and in-
dustries. Our current event-based collective allowance for credit
losses methodology considers the heightened credit risk arising
from corporate clients in industries exposed to the recessionary ef-
fects in certain countries, combined with the strength of the Swiss
franc.
67
Financial and operating performance Financial and operating performance
Critical accounting policies
Estimated cash flows associated with financial assets reclassi-
fied from Held for trading to Loans and receivables, as described
in “Note 1a) 10) Loans and receivables” in the “Financial informa-
tion” section of this report, and other similar assets acquired sub-
sequently are revised periodically. 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 esti-
mated future cash receipts (above those originally forecast at the
date of reclassification) as a result of increased recoverability are
recognized as an adjustment to the effective interest rate on the
loan from the date of change.
As of 31 December 2013, the gross loan portfolio was CHF
288 billion and the related allowances for credit losses amounted
to CHF 0.7 billion, consisting of specific and collective allowances
of CHF 669 million and CHF 20 million, respectively.
➔ Refer to “Note 1a) 11) Allowances and provisions for credit
losses,” “Note 10 Due from banks and loans (held at amortized
cost),” “Note 12 Allowances and provisions for credit losses” and
“Note 27a Measurement categories of financial assets and
liabilities” in the “Financial information” section of this report
for more information
➔ Refer to “Policies for past due, non-performing and impaired
claims” in the “Risk management and control” section of this
report for more information
Goodwill impairment test
UBS performs an impairment test annually on its goodwill assets,
or when indicators of impairment exist. Our segments are each
considered cash-generating units. The impairment test is per-
formed for each segment to which goodwill is allocated and com-
pares the recoverable amount, based on its value-in-use, to the
carrying amount of the respective segment. An impairment
charge is recognized if the carrying amount exceeds the recover-
able amount. The impairment test is based on the assumptions
described below.
The recoverable amounts are determined using a discounted
cash flow model, which incorporates inputs relevant to the bank-
ing business and its regulatory environment. The recoverable
amount of a segment is the sum of the discounted earnings attrib-
utable to shareholders from the first five forecasted years and the
terminal value. The terminal value, reflecting all periods beyond
the fifth year, is calculated on the basis of the forecast of fifth-year
profit, the discount rate and the long-term growth rate and is ad-
justed for the effect of the capital assumed to be needed to sup-
port the perpetual growth implied by 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, risk-weight-
ed assets and leverage ratio denominator usage, goodwill and
intangible assets. The framework is used primarily for purposes of
measuring the performance of the businesses and includes cer-
68
tain management assumptions. Attributed equity equates to the
capital that a segment requires to conduct its business and is con-
sidered an appropriate starting point from which to determine the
carrying value of the segments. The attributed equity methodolo-
gy is aligned with the business planning process, the inputs from
which are used in calculating the recoverable amounts of the re-
spective 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
based on forecast results, which are part of the business plan ap-
proved by the BoD. The discount rates are determined by applying
a capital-asset-pricing-model-based approach, as well as consid-
ering quantitative and qualitative inputs from both internal and
external analysts and the view of 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, as follows: 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
segment exceeded the respective carrying amount, such that the
reasonably possible changes in key assumptions would not result in
impairment as of 31 December 2013.
If the estimated earnings and other assumptions in future pe-
riods 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
required to be deducted from capital under the Basel capital
framework, no impact would be expected on the Group total
capital ratios.
As of 31 December 2013, total goodwill recognized on the bal-
ance sheet was CHF 5.8 billion, of which CHF 1.3 billion, CHF 3.1
billion and CHF 1.4 billion was carried by Wealth Management,
Wealth Management Americas and Global Asset Management,
respectively. On the basis of the impairment testing methodology
described above, UBS concluded that the year-end 2013 balances
of goodwill allocated to its segments remain recoverable.
➔ Refer to “Note 1a) 21) Goodwill and intangible assets,” “Note 2
Segment reporting” 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 signif-
icant being the following: (i) tax losses that can be carried forward
to be utilized against profits in future years and (ii) expenses rec-
ognized 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 as of 31 De-
cember 2013 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. As of 31 December 2013, the deferred
tax assets amounted to CHF 8.8 billion, which included CHF 6.3
billion in respect of tax losses (mainly in Switzerland and the US)
that can be utilized to offset taxable income in future years.
➔ Refer to “Note 1a) 22) Income taxes” and “Note 8 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 out-
flows of resources. This is particularly the case with litigation, reg-
ulatory and similar matters which, because of their nature, are
subject to many uncertainties, making their outcome difficult to
predict. Such matters may involve unique fact patterns 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 claimants. 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, variables, and known and unknown
uncertainties. The amount of any provision recognized can be very
sensitive to the assumptions used and there could be a wide range
of possible outcomes for any particular matter. Statistical or other
quantitative analytical tools are of limited use in determining
whether to establish or determine the amount of provisions in the
case of litigation, regulatory or similar matters. Furthermore, infor-
mation currently available to management may be incomplete or
inaccurate increasing the risk of erroneous assumptions with re-
gards to the future developments of such matters. Management
regularly reviews all the available information regarding such mat-
ters, 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 whether 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.
As of 31 December 2013, total provisions amounted to CHF
2,971 million, of which CHF 1,622 million pertained to the litiga-
tion, regulatory and similar matters class. 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 ultimately prove to be substantially greater (or less)
than the provisions recognized.
➔ Refer to “Note 1a) 27) Provisions” and “Note 22 Provisions and
contingent liabilities” in the “Financial information” section of
this report for more information
Pension and other postemployment benefit plans
During 2012, UBS adopted revisions to IAS 19 Employee Benefits
(“IAS 19R”) issued by the IASB in June 2011. IAS 19R eliminated
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 in addition, for the Swiss plan, interest credits on retirement
savings account balances.
Life expectancy is determined by reference to published mor-
tality tables. The discount rate is determined by reference to the
rates of return on high-quality fixed-income investments of ap-
propriate currency and term at the measurement date. The as-
sumption for salary increases reflects the long-term expectations
for salary growth and takes into account inflation, seniority, pro-
motion and other relevant factors such as supply and demand in
the labor market. For a sensitivity analysis of the defined benefit
obligation to these significant actuarial assumptions, refer to
“Note 28 Pension and other post-employment benefit plans” in
the “Financial information” section of this report.
The most significant plan is the Swiss pension plan. Consis-
tent with 2012, life expectancy for this plan has been based on
69
Financial and operating performance Financial and operating performance
Critical accounting policies
the 2010 BVG generational mortality tables. The assumption for
the discount rate has changed from 1.9% in the prior year to
2.3% in the current year, as a result of higher market yields on
corporate bonds.
➔ Refer to “Note 1a) 24) Pension and other post-employment
benefit plans” and “Note 28 Pension and other postemployment
benefit plans” in the “Financial information” section of this
report for more information
Equity compensation
We recognize shares, performance shares, options and share-set-
tled stock appreciation rights awarded to employees as compen-
sation expense based on their fair value at grant date. The fair
value of UBS shares issued to employees is determined by refer-
ence to quoted market prices, adjusted, when relevant, to take
into account the terms and conditions inherent in the award. Op-
tions, stock appreciation rights, and certain performance shares
issued by UBS to its employees have features which are not direct-
ly comparable with our shares and options traded in active mar-
kets. Accordingly, we determine the fair value using suitable valu-
ation 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 various instru-
ments granted to our employees. If we were to use different mod-
els, 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 compensa-
tion plans” and “Note 29 Equity participation and other
compensation plans” in the “Financial information” section of
this report for more information
70
Significant accounting and
financial reporting changes
Significant accounting changes
IFRS 7 Financial Instruments: Disclosures
On 1 January 2013, UBS adopted revised IFRS 7 Financial Instru-
ments: Disclosures, requiring the disclosure of new information in
respect of an entity’s use of enforceable netting arrangements.
The amendments to IFRS 7 are intended to enable users of finan-
cial statements to better evaluate the effect or potential effect of
netting arrangements on the entity’s financial position. The
amendments require entities to disclose both gross and net
amounts of recognized financial assets and financial liabilities as-
sociated with master netting agreements and similar arrange-
ments, including the effects of financial collateral, whether or not
presented net on the face of the balance sheet. The resultant dis-
closures are reflected in “Note 26 Offsetting financial assets and
financial liabilities” of our consolidated financial statements.
IFRS 10 Consolidated Financial Statements
On 1 January 2013, UBS adopted IFRS 10 Consolidated Financial
Statements, which introduced a new definition of control for
determining when one entity should consolidate another. Upon
adoption of IFRS 10, the Group has changed the consolidation
status of certain entities, including entities issuing preferred se-
curities which are no longer consolidated by the Group. As a
result of deconsolidating the preferred securities entities, UBS
now recognizes the preferred notes issued to these entities in-
stead of the preferred securities which were previously present-
ed as equity attributable to non-controlling interests. Except for
one preferred note issuance of CHF 1.2 billion, which is classified
as a liability, UBS presents the preferred notes as equity attribut-
able to preferred noteholders. As of 31 December 2012, the
Group’s equity attributable to non-controlling interests decreased
by CHF 4.3 billion, equity attributable to preferred noteholders
increased by CHF 3.1 billion and debt issued held at amortized
cost increased by CHF 1.2 billion. For 2012, net profit attribut-
able to non-controlling interests decreased by CHF 271 million
and net profit attributable to preferred noteholders increased by
CHF 220 million. The implementation of IFRS 10 did not have a
material effect on our regulatory capital.
IFRS 12 Disclosure of Interests in Other Entities
On 1 January 2013, UBS adopted IFRS 12 Disclosure of Interests in
Other Entities, which provides new and comprehensive annual
disclosure requirements about entities with which a reporting en-
tity is involved. IFRS 12 replaces the disclosure requirements previ-
ously included in IAS 27 Consolidated and Separate Financial
Statements, IAS 28 Investment in Associates and IAS 31 Interests
in Joint Ventures. The standard requires entities to disclose infor-
mation that helps users to evaluate the nature, risks and financial
effects associated with a reporting entity’s interests in subsidiaries,
associates, joint arrangements and, in particular, unconsolidated
structured entities. The resultant disclosures are reflected in “Note
30 Interests in subsidiaries and other entities” of our consolidated
financial statements.
IFRS 13 Fair Value Measurement
On 1 January 2013, UBS adopted IFRS 13 Fair Value Measure-
ment, 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 liabili-
ty in an orderly transaction between market participants at the
measurement date, i.e., an exit price. The standard emphasizes
that fair value is a market-based measurement, not an entity-spe-
cific measurement. It clarifies that the unit of measurement is
generally a particular asset or liability unless an entity manages
and reports 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 require-
ments and enhancements to existing disclosures, which are re-
flected in “Note 24 Fair value measurement” of our consolidated
financial statements.
As a result of implementing the unit of measurement guid-
ance, the Group’s valuation reserves increased by approximately
CHF 25 million as of 1 January 2013, decreasing operating profit
before tax in 2013.
➔ 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 IFRS 7,
IFRS 10, IFRS 12 and IFRS 13
Financial reporting changes
Change in the definition of funded assets
From 2013, we define funded assets as total IFRS balance sheet
assets less positive replacement values (PRV) and collateral deliv-
ered against over-the-counter (OTC) derivatives. In prior reporting
periods, we defined funded assets as total IFRS balance sheet as-
sets less PRV and did not exclude the collateral delivered for OTC
derivatives. Prior periods were restated to reflect the change in
definition.
Funded assets exclude PRV because they are volatile but have
little effect on funding requirements. As there is a direct correla-
71
Financial and operating performance Financial and operating performance
Significant accounting and financial reporting changes
tion between replacement values and collateral delivered for OTC
derivatives, collateral delivered is also excluded to create a more
consistent view of our funded assets and to better reflect how we
manage our businesses.
Corporate Center – Non-core and Legacy Portfolio
In line with our strategy to focus the Investment Bank’s business
on its traditional strengths, UBS is exiting many business lines
which are capital- and balance sheet-intensive or are in areas with
high operational complexity or long tail risks. In 2013, these non-
core activities and positions formerly in the Investment Bank were
transferred to and are managed and reported in the Corporate
Center. Together with the Legacy Portfolio and the option to
acquire the equity of the SNB StabFund, which was exercised on
7 November 2013, these non-core activities and positions are
reported as a separate reportable segment within the Corporate
Center called “Non-core and Legacy Portfolio.” Prior period seg-
ment information was restated for this change.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Financial information” section of
Asset Liability Management unit oversees all financing, portfolio,
and structural risk management activities for the Group. Revenues
associated with the ongoing business activities of Asset Liability
Management are allocated to the business divisions and Non-core
and Legacy Portfolio, with the exception of excess funding costs.
Lastly, also in 2013, the risk management responsibility for a
portfolio of financial investments available-for-sale and associated
cash and balances with central banks was transferred from Wealth
Management Americas to Group Treasury within Corporate Cen-
ter – Core Functions. Following this transfer, net interest income
associated with that portfolio is allocated back to Wealth Man-
agement Americas, whereas realized gains and losses arising from
the sales and impairments of individual financial investments are
retained by Group Treasury.
Prior period segment information was restated for these
changes.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” in the “Financial information” section of
this report for more information
➔ Refer to “Investment Bank” in the “Operating environment
this report for more information
and strategy” section of this report for more information on our
Other reporting segment changes
In 2013, the Investment Bank was reorganized into two business
units, Corporate Client Solutions and Investor Client Services.
Furthermore, the repurchase agreement and short-term interest
rate cash units were transferred from the Investment Bank to the
Asset Liability Management unit of Group Treasury within Corpo-
rate Center – Core Functions in 2013. Following this transfer, the
Changes to allocations of centralized shared services
units’ personnel
As part of our ongoing efforts to improve our operational effec-
tiveness and heighten our cost efficiency across the firm, on 1 July
2012 operations units from business divisions were centralized
into our shared services units in the Corporate Center. Effective
Investment Bank’s businesses
72
1 January 2013, personnel allocations to our business divisions for
shared services were revised to reflect the following factors: (i)
enhancements to the Corporate Center service-level agreement
framework for Group Operations, (ii) an ongoing review of attri-
bution keys, including for technology-related personnel and (iii)
organizational changes related to the accelerated implementation
of our strategy, including the transfer of certain non-core busi-
nesses and positions from the Investment Bank.
Attributed equity
With effect from 1 January 2013, attributed equity required to
support remaining goodwill and intangible assets that arose from
the PaineWebber acquisition was transferred from the business
divisions to the Corporate Center. Net charges associated with
this attributed equity are retained in Corporate Center – Core
Functions.
➔ Refer to “Equity attribution framework” in the “Capital
management” section of this report for more information
➔ Refer to “Note 17 Goodwill and intangible assets” in the
“Financial information” section of this report for more
information
Definition of restructuring charges
In 2013, we expanded our definition of restructuring charges to
include non-recurring and other temporary costs necessary to ef-
fect our restructuring programs.
➔ Refer to “Note 32 Changes in organization” in the ”Financial
information” section of this report for more information
Refinement to the allocation of operating costs
for internal services
To further enhance cost discipline and strengthen our efforts to
reduce our underlying cost base, we will refine the way that oper-
ating costs for internal services are allocated from Corporate Cen-
ter – Core Functions to the business divisions and Corporate Cen-
ter – Non-core and Legacy Portfolio. Under this refinement, each
year, as part of the annual business planning cycle, Corporate
Center – Core Functions will agree with the business divisions and
Non-core and Legacy Portfolio cost allocations for services at fixed
amounts or at variable amounts based on formulas, depending
on capital and service consumption levels as well as the nature of
the services to be performed. These pre-agreed cost allocations
will be designed with the expectation that Corporate Center –
Core Functions will recover its costs, without a mark-up. Because
actual costs incurred may differ from those expected, however,
Corporate Center – Core Functions may recognize significant un-
der- or over-allocations depending on various factors, including
Corporate Center – Core Functions’ ability to manage the delivery
of its services and achieve cost savings. Each year these cost allo-
cations will be reset, taking account of the prior year’s experience
and plans for the forthcoming period. We expect the refined ap-
proach to strengthen the effectiveness and efficiency of the ser-
vices performed by Corporate Center – Core Functions, and in
particular to facilitate the achievement of cost savings, by better
aligning cost accountability with the management of these ser-
vices. This change will become effective for 2014.
73
Financial and operating performance Financial and operating performance
Significant accounting and financial reporting changes
Enhancing our disclosure
We believe the market rewards companies
that provide clear, consistent and informa-
tive disclosure about their business and we
have established financial disclosure princi-
ples in support of this objective. More in-
formation on our financial disclosure prin-
ciples can be found within “Information
policy” in the “Corporate governance, re-
sponsibility and compensation” section of
this report.
Consistent with these principles, we are a
member of and endorse the work of the En-
hanced Disclosure Task Force (EDTF), estab-
lished by the Financial Stability Board in
2012 to facilitate discussion between users,
preparers and other interested parties as to
how enhanced disclosure could help in re-
storing investor confidence in banks. Our
reports contain disclosures aligned with the
recommendations issued by the EDTF on
29 October 2012 in its report “Enhancing
the Risk Disclosures of Banks.” Certain dis-
closures in our Annual Report 2012 were
cited by the EDTF in its July 2013 “Progress
Report on Implementation of Disclosure Rec-
ommendations” as “leading practice” and
by Deloitte in its report, “Responding to the
EDTF recommendations – A review of 2012
year end reporting,” as “good practice.”
For our Annual Report 2013, we have
made significant further improvements to
our disclosures in light of these recommen-
dations, including making structural chang-
es to the “Risk, treasury and capital manage-
ment” section of this report and introducing
a large number of both new and enhanced
disclosures. Consistent with Recommenda-
tion 1 of the EDTF, where appropriate we
now present together those related risk dis-
closures we consider to be most relevant to
a particular component of our business, in-
cluding integrating certain disclosures previ-
ously presented separately within our Pillar 3
disclosures or our financial statements.
Further information on our implemen-
tation of each of the EDTF recommenda-
tions can be found at the start of the “Risk,
treasury and capital management” section
of this report, in which most of the new
and enhanced disclosures are presented.
Consistent with our financial reporting
and disclosure principles, we regard the
enhancement of disclosures as an ongoing
commitment and we expect to make fur-
ther refinements to our disclosures in 2014
and beyond.
➔ Refer to the “Risk, treasury and capital
management” section of this report for
more information on our implementa-
tion of the EDTF recommendations
➔ Refer to the “Financial information”
section of this report for an overview of
our Pillar 3 related disclosures
74
Group performance
Net profit attributable to UBS shareholders for 2013 was CHF 3,172 million compared with a loss of CHF 2,480 million
in 2012. Operating profit before tax was 3,272 million compared with a loss of CHF 1,794 million in the prior year.
Operating income increased by CHF 2,309 million and operating expenses decreased by CHF 2,755 million. Furthermore,
we recorded a net tax benefit of CHF 110 million compared with a net tax expense of CHF 461 million in the prior year.
Income statement
CHF million
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) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders 1
Net profit / (loss) attributable to non-controlling interests 1
Net profit / (loss) attributable to UBS shareholders
Comprehensive income
Total comprehensive income
Total comprehensive income attributable to preferred noteholders 1
Total comprehensive income attributable to non-controlling interests 1
Total comprehensive income attributable to UBS shareholders
31.12.13
13,137
(7,351)
5,786
(50)
5,736
16,287
5,130
5,413
(283)
580
27,732
15,182
8,380
816
0
83
24,461
3,272
(110)
3,381
204
5
3,172
2,524
559
4
1,961
For the year ended
31.12.12
15,968
(9,990)
5,978
(118)
5,860
15,396
3,526
5,728
(2,202)
641
25,423
14,737
8,653
689
3,030
106
27,216
(1,794)
461
(2,255)
220
5
(2,480)
(1,767)
179
20
(1,966)
31.12.11
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
268
4,138
5,632
560
5,071
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” in the “Financial information” section of this report for information on the adoption of IFRS 10.
% change from
31.12.12
(18)
(26)
(3)
(58)
(2)
6
45
(5)
(87)
(10)
9
3
(3)
18
(100)
(22)
(10)
(7)
0
212
(80)
75
Financial and operating performance Financial and operating performance
Group performance
Adjusted results 1, 2
CHF million
Operating income as reported
of which: own credit on financial liabilities
designated at fair value 4
of which: gains on sales of real estate
of which: net losses related to the buyback of debt
in public tender offers
of which: gain on sale of Global AM’s
Canadian domestic business
of which: net gain on sale of remaining proprietary
trading business
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
For the year ended 31.12.13
Global
Asset
Retail &
Corporate
Manage-
ment
Investment
Bank
7,563
6,538
3,756
1,935
8,601
CC – Non-
core and
Legacy
Portfolio
347
CC – Core
Functions 3
(1,007)
UBS
27,732
(283)
288
(167)
34
31
27
320
27,829
2,660
24,461
35
200
156
616
2,425
23,689
(283)
288
(194)
(24) 5
(794)
847
(2)
(4)
853
(1,854)
(1,647)
(2,312)
(2,104)
3,272
4,141
CC –
Non-core
and Legacy
Portfolio
1,439
1,439
CC – Core
Functions 3
(1,689)
(2,202)
112
401
UBS
25,423
(2,202)
112
27,513
2,008
5,202
27,216
(1)
(6)
(3)
(1)
58
0
(2)
(7)
3,064
2,089
(3,764)
(651)
358
14
(730)
(116)
3,064
24,627
(1,794)
2,885
34
55
8,546
6,300
9
201
6,090
2,300
2,455
Operating income (adjusted)
7,563
6,538
3,756
1,901
Operating expenses as reported
of which: personnel-related restructuring charges 6
of which: other restructuring charges 6
Operating expenses (adjusted)
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax (adjusted)
5,316
71
107
5,138
2,247
2,425
5,680
2,298
1,359
14
45
19
35
10
33
5,621
2,244
1,316
858
917
1,458
1,512
576
585
For the year ended 31.12.12
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
7,041
5,877
3,728
1,883
7,144
CHF million
Operating income as reported
of which: own credit on financial liabilities
designated at fair value 4
of which: gains on sales of real estate
Operating income (adjusted)
7,041
5,877
3,728
1,883
7,144
Operating expenses as reported
4,634
5,281
1,901
1,314
of which: personnel-related restructuring charges 6
of which: other restructuring charges 6
of which: credit related to changes to the
Swiss pension plan 7
of which: credit related to changes to retiree benefit
plans in the US 7
of which: impairment of goodwill and other
non-financial assets 8
25
0
(357)
(1)
3
0
(287)
3
(5)
(2)
20
0
(30)
(16)
6,877
250
24
(51)
(91)
Operating expenses (adjusted)
4,966
5,284
2,185
1,340
6,746
2,020
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax (adjusted)
2,407
2,075
597
594
1,827
1,543
569
543
267
398
(3,698)
(1,620)
1 Adjusted results are non-GAAP financial measures as defined by SEC regulations. 2 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments follow-
ing organizational changes and restatements due to retrospective adoption of new accounting standards. 3 Corporate Center – Core Functions operating expenses presented in this table are after service allocations to
business divisions and Corporate Center – Non-core and Legacy Portfolio. 4 Refer to “Note 24 Fair value measurement” in the “Financial information” section of this report for more information. 5 Reflects a foreign
currency translation loss. 6 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for more information. 7 Refer to “Note 28 Pension and other post-employment benefit plans”
in the “Financial information” section of this report for more information. 8 Refer to “Note 17 Goodwill and intangible assets” in the “Financial information” section of this report for more information.
76
Adjusted results 1, 2 (continued)
CHF million
Operating income as reported
of which: own credit on financial liabilities
designated at fair value 4
of which: gains on sales of real estate
of which: gain on sale of strategic investment portfolio
Operating income (adjusted)
Operating expenses as reported
of which: personnel-related restructuring charges 5
of which: other restructuring charges 5
Operating expenses (adjusted)
For the year ended 31.12.11
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
7,645
5,213
4,085
1,803
6,802
CC –
Non-core
and Legacy
Portfolio
309
CC – Core
Functions 3
1,931
UBS
27,788
1,537
94
722
309
25,435
1,756
22,482
14
0
261
119
1,742
22,102
1,537
94
300
369
2
14
354
433
7,212
5,213
289
3,796
1,803
6,802
5,012
4,750
2,201
1,373
64
18
5
5
29
3
19
7
4,930
4,740
2,169
1,347
7,019
129
73
6,817
(217)
(15)
Operating profit / (loss) before tax as reported
Operating profit / (loss) before tax (adjusted)
2,633
2,282
463
473
1,884
1,627
430
456
1,562
(54)
(1,448)
(1,434)
5,307
3,334
1 Adjusted results are non-GAAP financial measures as defined by SEC regulations. 2 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments follow-
ing organizational changes and restatements due to retrospective adoption of new accounting standards. 3 Corporate Center – Core Functions operating expenses presented in this table are after service allocations to
business divisions and Corporate Center – Non-core and Legacy Portfolio. 4 Refer to “Note 24 Fair value measurement” in the “Financial information” section of this report for more information. 5 Refer to “Note 32
Changes in organization” in the “Financial information” section of this report for more information.
2013 compared with 2012
Performance
Operating profit before tax was CHF 3,272 million in 2013 com-
pared with a loss of CHF 1,794 million in the prior year, reflecting
a CHF 2,309 million increase in operating income and a CHF
2,755 million reduction in operating expenses.
In addition to reporting our results in accordance with IFRS, we
report adjusted results that exclude items considered non-recur-
ring and certain other items that management believes are not
representative of the underlying performance of our businesses.
Such adjusted results are non-GAAP financial measures as defined
by SEC regulations. For 2013, the items we excluded were an own
credit loss of CHF 283 million, gains on sales of real estate of CHF
288 million, net losses related to the buyback of debt in public
tender offers of CHF 167 million, a gain on the sale of Global
Asset Management’s Canadian domestic business of CHF 34 mil-
lion, a net gain on the sale of our remaining proprietary trading
business of CHF 31 million and net restructuring charges of CHF
772 million. For 2012, the items we excluded were an own credit
loss of CHF 2,202 million, gains on sales of real estate of CHF 112
million, net restructuring charges of CHF 371 million, a credit re-
lated to changes to our Swiss pension plan of CHF 730 million, a
credit related to changes to our retiree benefit plans in the US of
CHF 116 million and the impairment of goodwill and other non-
financial assets of CHF 3,064 million.
On this adjusted basis, profit before tax was CHF 4,141 million
in 2013 compared with CHF 2,885 million in the prior year. Ad-
justed operating income increased by CHF 316 million, mainly
reflecting an increase of CHF 891 million in net fee and commis-
sion income, largely in our wealth management businesses. Ad-
justed net interest and trading income declined by CHF 535 mil-
lion, mainly as a result of reductions in Corporate Center – Non-core
and Legacy Portfolio as well as Corporate Center – Core Func-
tions, partly offset by higher revenues in the Investment Bank.
Adjusted other income decreased by CHF 108 million, mainly due
to lower net gains on financial investments available-for-sale.
Adjusted operating expenses decreased by CHF 938 million to
CHF 23,689 million, mainly due to a decline of CHF 848 million in
charges for provisions for litigation, regulatory and similar matters
as well as a CHF 199 million reduction in personnel expenses,
partly offset by CHF 110 million higher other non-personnel ex-
penses.
Operating income
Total operating income was CHF 27,732 million compared with
CHF 25,423 million. On an adjusted basis, total operating income
increased by CHF 316 million to CHF 27,829 million from CHF
27,513 million, as we recorded an increase of CHF 891 million in
net fee and commission income, largely in our wealth manage-
ment businesses. This increase was largely offset by a CHF 535
million decline in adjusted net interest and trading income, main-
ly as a result of reductions in Non-core and Legacy Portfolio as
well as Corporate Center – Core Functions, partly offset by higher
revenues in the Investment Bank. Adjusted other income de-
creased by CHF 108 million, mainly due to lower net gains on fi-
nancial investments available-for-sale.
77
Financial and operating performance Financial and operating performance
Group performance
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
Retail & Corporate
Global Asset Management
Investment Bank
of which: Corporate Client Solutions
of which: Investor Client Services
Corporate Center
of which: Core Functions
of which: own credit on financial liabilities designated at fair value
of which: Non-core and Legacy Portfolio
Total net interest and trading income
For the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
5,786
5,130
10,915
2,868
1,323
2,485
9
5,015
1,035
3,980
(784)
(1,045)
(283)
261
10,915
5,978
3,526
9,504
2,728
1,265
2,467
9
3,574
575
2,999
(540)
(1,992)
(2,202)
1,452
9,504
6,826
4,343
11,169
2,846
1,179
2,661
8
2,831
399
2,432
1,645
1,765
1,537
(121)
11,169
(3)
45
15
5
5
1
0
40
80
33
45
(48)
(87)
(82)
15
Net interest and trading income
Net interest and trading income increased by CHF 1,411 million to
CHF 10,915 million. 2013 included an own credit loss on financial
liabilities designated at fair value of CHF 283 million, primarily due
to further tightening of our funding spreads, compared with an
own credit loss of CHF 2,202 million in the prior year when our
funding spreads tightened significantly. Excluding the effect of own
credit and a net interest and trading income gain related to the
buyback of debt in a public tender offer of CHF 27 million in 2013,
net interest and trading income decreased by CHF 535 million to
CHF 11,171 million, mainly as a result of reductions in Non-core and
Legacy Portfolio as well as Corporate Center – Core Functions, part-
ly offset by higher revenues in the Investment Bank.
Net interest and trading income in Wealth Management in-
creased by CHF 140 million. Net interest income increased by CHF
110 million to CHF 2,061 million, mainly due to revenues of CHF
110 million allocated from the repurchase agreement unit within
Group Treasury in Corporate Center – Core Functions. Previously,
such revenues were not allocated to the business divisions. The in-
crease in net interest income was also due to lower costs related to
the multi-currency portfolio of unencumbered, high-quality, short-
term assets managed centrally by Group Treasury. These factors,
together with higher income resulting from increased loan and cli-
ent deposit volumes, more than offset the negative effect of a low-
er deposit margin resulting from the ongoing low interest rate envi-
ronment. Net trading income increased by CHF 29 million to CHF
807 million and included higher income from foreign exchange-re-
lated products and increased treasury-related income, partly offset
by lower income from precious metals.
In Wealth Management Americas, net interest and trading in-
come increased by CHF 58 million, reflecting a CHF 144 million in-
crease in net interest income primarily due to higher client balances
in securities-backed lending and mortgages. Furthermore, net fund-
ing costs related to the goodwill and intangible assets that arose
from the PaineWebber acquisition are retained in Corporate Center
– Core Functions with effect from 1 January 2013. These increases
were partly offset by lower net interest income from the available-
for-sale portfolio, primarily due to lower average balances. Net trad-
ing income decreased by CHF 86 million to CHF 387 million, mainly
due to trading losses related to the Puerto Rico municipal market as
well as lower income from taxable fixed income and US municipal
bond trading.
Net interest and trading income in Retail & Corporate increased
by CHF 18 million.
Within the Investment Bank, Investor Client Services net interest
and trading income increased by CHF 981 million, primarily due to
higher derivatives revenues, mainly as a result of higher revenues in
Asia Pacific and Europe, Middle East and Africa. Furthermore, cash
revenues increased, largely as 2012 included a loss of CHF 349 mil-
lion related to the Facebook initial public offering. Revenues in fi-
nancing services and other equities also increased. These increases
were partly offset by lower revenues in rates and credit, primarily
due to weaker trading performance in the flow businesses, and by
slightly lower foreign exchange revenues. Corporate Client Solu-
tions net interest and trading income increased by CHF 460 million,
largely due to higher revenues in equity capital markets, mainly as a
result of a large private transaction recorded in the first half of 2013.
Corporate Center – Core Functions net interest and trading in-
come, excluding the effect of own credit, decreased by CHF 972
million, partly due to losses of CHF 153 million related to our macro
cash flow hedge models compared with gains of CHF 152 million in
the prior year. The decrease in net interest and trading income was
also due to a decline in revenues to CHF 22 million from CHF 245
million in the repurchase agreement unit, which was transferred
78
from the Investment Bank to Corporate Center – Core Functions in
2013 and for which prior period information was restated. Whereas
restated results reflected no allocation of revenues from the repur-
chase agreement unit to the business divisions, from 2013 onwards
revenues from this unit are allocated to the business divisions, main-
ly to Wealth Management. In addition, 2013 included losses from
cross-currency basis swaps of CHF 222 million which are held as
economic hedges and central funding costs retained in Group Trea-
sury increased. Furthermore, 2013 included CHF 102 million in net
funding costs related to the goodwill and intangible assets that
arose from the PaineWebber acquisition which are retained in Cor-
porate Center – Core Functions with effect from 1 January 2013.
In Non-core and Legacy Portfolio, net interest and trading in-
come decreased by CHF 1,191 million. Non-core net interest and
trading income decreased by CHF 1,146 million, largely due to low-
er revenues in rates and credit as we focused on risk-weighted as-
sets (RWA) and balance sheet reduction, as well as on reducing op-
erational complexity as part of the accelerated implementation of
our strategy. In 2012, portfolios were actively traded and benefited
from increased liquidity, with strong two-way client flow that result-
ed in higher revenues. Legacy Portfolio net interest and trading in-
come decreased by CHF 45 million. In 2013, we exercised our op-
tion to acquire the SNB StabFund’s equity and recorded an option
revaluation gain of CHF 431 million prior to the exercise compared
with a gain of CHF 526 million in the prior year. Trading revenues
also decreased due to an interest charge of CHF 34 million in 2013
relating to tax obligations of the SNB StabFund. Legacy Portfolio net
interest and trading income, excluding the SNB StabFund option,
increased by CHF 83 million, mainly as 2012 included losses on col-
lateralized debt obligations (CDO) and related hedging swaps of
CHF 171 million as we exited certain CDO positions to reduce RWA.
➔ Refer to “Note 3 Net interest and trading income” in the “Financial
information” section of this report for more information
➔ Refer to “Note 24 Fair value measurement” in the “Financial
information” section of this report for more information on
own credit
Credit loss expense / recovery
We recorded net credit loss expenses of CHF 50 million compared
with CHF 118 million in the prior year.
In Wealth Management, net credit loss expenses were CHF 10
million compared with net credit loss recoveries of CHF 1 million
in the prior year.
In Wealth Management Americas, 2013 included net credit
loss expenses of CHF 27 million compared with net credit loss
expenses of CHF 14 million in the prior year. The 2013 expenses
were largely due to loan loss allowances on securities-backed
lending facilities collateralized by Puerto Rico municipal securities
and related funds.
In Retail & Corporate, net credit loss expenses were CHF 18 mil-
lion compared with net credit loss expenses of CHF 27 million in
the prior year. 2013 included net specific loan loss allowances of
CHF 113 million, reflecting a number of new workout cases that
were individually reviewed, downgraded and impaired as well as
adjustments on existing positions. This was largely offset by a net
release of CHF 95 million of collective loan loss allowances based
on the ongoing review of the portfolio, as well as the overall im-
proved outlook for relevant industries. The prior year included net
specific loan loss allowances of CHF 43 million, partly offset by a
net decrease in collective loan loss allowances of CHF 16 million.
In Non-core and Legacy Portfolio, net credit loss recoveries
were CHF 3 million compared with net credit loss expenses of CHF
78 million in the prior year, which mainly reflected an impairment
charge related to certain student loan auction rate securities, sub-
sequently sold to reduce RWA.
➔ Refer to the “Wealth Management Americas,” “Retail &
Corporate” and “Corporate Center” sections of this report for
more information
Net fee and commission income
Net fee and commission income increased by CHF 891 million to
CHF 16,287 million.
Portfolio management and advisory fees increased by CHF
730 million to CHF 6,625 million, mainly in Wealth Management
Americas and in Wealth Management, largely due to higher aver-
age invested assets as well as pricing adjustments.
Net brokerage fees increased by CHF 231 million to CHF 3,196
million, mainly in the Investment Bank due to improved market
activity levels, and in Wealth Management Americas due to high-
er client activity levels.
Credit loss (expense) / recovery
CHF million
Wealth Management
Wealth Management Americas
Retail & Corporate
Investment Bank
Corporate Center
of which: Core Functions
of which: Non-core and Legacy Portfolio
Total
For the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
(10)
(27)
(18)
2
3
0
3
(50)
1
(14)
(27)
0
(78)
0
(78)
(118)
11
(6)
(101)
(10)
22
(1)
22
(84)
93
(33)
(58)
79
Financial and operating performance Financial and operating performance
Group performance
Investment fund fees increased by CHF 177 million to CHF
3,803 million, primarily due to higher managed account fees cal-
culated on higher invested asset levels in Wealth Management
Americas and higher client activity levels in Wealth Management.
Total underwriting fees decreased by CHF 165 million to CHF
1,374 million, reflecting a decrease of CHF 208 million in debt
underwriting fees, mainly in the Investment Bank.
➔ 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 580 million compared with CHF 641 mil-
lion in the prior year.
Income from financial investments available-for-sale was CHF
168 million compared with CHF 308 million in the prior year.
Net gains from disposals of financial investments available-for-
sale in 2013 included gains of CHF 74 million resulting from the
divestment of our participation in Euroclear Plc., of which CHF 27
million was allocated to Retail & Corporate, CHF 25 million to
Wealth Management and CHF 22 million to the Investment Bank.
Further, net gains from disposals of financial investments avail-
able-for-sale included net gains of CHF 61 million in Corporate
Center – Core Functions in 2013. 2012 included net gains of CHF
272 million in Corporate Center – Core Functions, as well as gains
of CHF 101 million in Non-core and Legacy Portfolio, mainly relat-
ed to the sale of an equity investment.
Income related to associates and subsidiaries increased by CHF
79 million to CHF 160 million, mainly due to lower charges for
certain provisions for litigation, regulatory and similar matters re-
corded within other income, partly offset by lower income related
to our participation in the SIX Group. Furthermore, 2013 included
a net gain on sale of our remaining proprietary trading business of
CHF 31 million.
Other income excluding income from financial investments
available-for-sale and income related to associates and subsidiar-
ies was unchanged at CHF 252 million. Gains on sales of real es-
tate were CHF 288 million compared with CHF 112 million in the
prior year. Net gains on sales of loans and receivables were CHF
53 million compared with net losses of CHF 11 million in the prior
year. Furthermore, 2013 included losses related to the buyback of
debt in public tender offers of CHF 194 million.
➔ Refer to “Note 5 Other income” in the “Financial information”
section of this report for more information
Operating expenses
Total operating expenses decreased by CHF 2,755 million to CHF
24,461 million. Restructuring charges were CHF 772 million com-
pared with CHF 371 million in the prior year, mainly related to
Operating expenses
CHF million
Personnel expenses (adjusted) 1
Salaries
Total variable compensation
of which: relating to current year 2
of which: relating to prior years 3
Wealth Management Americas: Financial advisor compensation 4
Other personnel expenses 5
Total personnel expenses (adjusted) 1
Non-personnel expenses (adjusted) 1
Provisions for litigation, regulatory and similar matters
Other non-personnel expenses 6
Total non-personnel expenses (adjusted) 1
Adjusting items
of which: personnel-related restructuring charges
of which: other restructuring charges
of which: credits related to changes to the Swiss pension plan and retiree benefit plans in the US 7
of which: impairment of goodwill and other non-financial assets 8
Total operating expenses as reported
For the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
6,203
3,201
2,369
832
3,140
2,481
6,750
3,005
1,901
1,104
2,873
2,595
6,828
3,531
2,020
1,511
2,519
2,494
15,026
15,225
15,373
1,701
6,962
8,662
772
156
616
24,461
2,549
6,852
9,401
2,589
358
14
(846)
3,064
27,216
276
6,453
6,728
380
261
119
(8)
7
25
(25)
9
(4)
(1)
(33)
2
(8)
(70)
(56)
1 Excluding adjusting items. 2 Includes expenses relating to performance awards and other variable compensation for the respective performance year. 3 Consists of amortization of prior years’ awards relating to
performance awards and other variable compensation. 4 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemen-
tal compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes costs related to compensation commitments with financial advisors entered into at the time of
recruitment, which are subject to vesting requirements. 5 Consists of expenses related to contractors, social security, pension and other post-employment benefit plans and other personnel expenses. Refer to “Note 6
Personnel expenses” in the “Financial information” section of this report for more information. 6 Includes general and administrative expenses excluding charges for provisions for litigation, regulatory and similar mat-
ters, as well as depreciation and impairment of property and equipment and amortization and impairment of intangible assets. 7 Refer to “Note 28 Pension and other post-employment benefit plans” in the “Financial
information” section of this report for more information. 8 Refer to “Note 17 Goodwill and intangible assets” in the “Financial information” section of this report for more information.
80
22,482
(10)
increased non-personnel related restructuring charges, partly off-
set by lower personnel-related restructuring charges.
Furthermore, 2012 included a credit related to changes to our
Swiss pension plan of CHF 730 million and a credit related to
changes to our retiree benefit plans in the US of CHF 116 million,
as well as impairment losses on goodwill and other non-financial
assets of CHF 3,064 million. On an adjusted basis, total operating
expenses decreased by CHF 938 million to CHF 23,689 million,
mainly due to a reduction of CHF 848 million in charges for provi-
sions for litigation, regulatory and similar matters as well as a de-
crease of CHF 199 million in personnel expenses, partly offset by
an increase of CHF 110 million in other non-personnel expenses.
➔ Refer to “Note 32 Changes in organization” in the “Financial
information” section of this report for more information on
restructuring charges
Personnel expenses
Personnel expenses increased by CHF 445 million to CHF 15,182
million. 2013 included net charges of CHF 156 million in person-
nel-related restructuring expenses compared with CHF 358 mil-
lion in the prior year. Furthermore, 2012 included a credit related
to changes to our Swiss pension plan of CHF 730 million and a
credit related to changes to our retiree benefit plans in the US of
CHF 116 million. On an adjusted basis, personnel expenses de-
creased by CHF 199 million to CHF 15,026 million.
Expenses for salaries, excluding the effects of restructuring, de-
creased by CHF 547 million, largely due to a reduction in the num-
ber of personnel as a result of our ongoing cost reduction programs.
Excluding the effects of restructuring, total variable compensa-
tion expenses increased by CHF 196 million. Expenses for perfor-
mance awards increased by CHF 116 million, due to higher ex-
penses for current year performance awards reflecting a 28%
increase in the overall performance award pool, partly offset by a
lower charge for the amortization of deferred compensation
awards from prior years. Including restructuring, expenses for per-
formance awards were virtually unchanged. Other variable com-
pensation expenses excluding restructuring increased by CHF 80
million, mainly due to increased expenses for retention payments.
Financial advisor compensation in Wealth Management Amer-
icas increased by CHF 267 million, corresponding with higher
compensable revenues.
Other personnel expenses decreased by CHF 114 million on an
adjusted basis, mainly due to lower expenses for pension and oth-
er post-employment benefits plans and reduced expenses for con-
tractors.
General and administrative expenses
General and administrative expenses decreased by CHF 273 mil-
lion to CHF 8,380 million. On an adjusted basis, excluding net
restructuring charges of CHF 548 million in 2013 compared with
zero in 2012, general and administrative expenses decreased by
CHF 821 million.
Net charges for provisions for litigation, regulatory and similar
matters decreased by CHF 848 million to CHF 1,701 million, pri-
marily as the prior year included charges arising from fines and
disgorgement resulting from regulatory investigations concerning
LIBOR and other benchmark rates. This was partly offset by higher
provisions in 2013 for claims related to sales of residential mort-
gage-backed securities and mortgages. In view of the current reg-
ulatory and political climate affecting financial institutions, and
because we continue to be exposed to a number of significant
claims and regulatory matters, we expect charges associated with
litigation, regulatory and similar matters to remain at elevated lev-
els through 2014.
2013 expenses included a net charge of CHF 124 million for
the UK bank levy, mainly in Non-core and Legacy Portfolio and the
Investment Bank, compared with a net charge of CHF 127 million
recognized in the prior year, as well as a charge of CHF 110 mil-
lion related to the Swiss-UK tax agreement, allocated primarily to
Wealth Management, and an impairment charge of CHF 87 mil-
lion in Non-core and Legacy Portfolio related to certain disputed
receivables. Furthermore, excluding the effects of restructuring,
expenses decreased for outsourcing of information technology
and other services, occupancy, and marketing and public rela-
tions, by CHF 76 million, CHF 66 million and CHF 50 million, re-
spectively.
➔ Refer to “Note 7 General and administrative expenses” in
the “Financial information” section of this report for more
information
➔ Refer to “Note 22 Provisions and contingent liabilities” in
the “Financial information” section of this report for more
information
➔ Refer to the “Regulatory and legal developments” section of
this report for more information on the charge in relation to the
Swiss-UK tax agreement
Depreciation, impairment and amortization
Depreciation and impairment of property and equipment was
CHF 816 million compared with CHF 689 million in the prior year,
partly as restructuring-related charges increased to CHF 68 million
from CHF 14 million.
➔ Refer to “Note 6 Personnel expenses” in the “Financial informa-
Impairment of goodwill was zero compared with CHF 3,030
tion” section of this report for more information
million in the prior year.
➔ Refer to “Note 28 Pension and other postemployment benefit
plans” in the “Financial information” section of this report for
more information
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Financial information” section of this report for
more information
Amortization and impairment of intangible assets was CHF
83 million compared with CHF 106 million in the prior year. We
recorded impairment charges of CHF 3 million compared with
CHF 17 million.
➔ Refer to “Note 17 Goodwill and intangible assets” in the
“Financial information” section of this report for more
➔ Refer to the “Compensation” section of this report for more
information
information
81
Financial and operating performance Financial and operating performance
Group performance
Tax
We recognized a net income tax benefit of CHF 110 million for
2013, which included a Swiss tax expense of CHF 548 million and
a net foreign tax benefit of CHF 658 million.
The Swiss tax expense included a current tax expense of CHF
93 million related to taxable profits, against which no losses were
available to offset, earned by Swiss subsidiaries and also from the
sale of real estate. In addition, it included a deferred tax expense
of CHF 455 million, mainly reflecting the amortization of deferred
tax assets previously recognized in relation to tax losses carried
forward used to offset taxable profits for the year.
The net foreign tax benefit included a current tax expense of
CHF 342 million in respect of taxable profits earned by non-Swiss
subsidiaries and branches, against which no losses were available
to offset. This was more than offset by a net deferred tax benefit
of CHF 1,000 million reflecting a net upward revaluation of de-
ferred tax assets, partially offset by the amortization of deferred
tax assets, as tax losses were used against taxable profits.
In 2014, notwithstanding the effects of any potential reassess-
ment of the level of deferred tax assets, we expect the tax rate to
be in the range of 20% to 25%. Consistent with past practice, we
expect to revalue our overall level of deferred tax assets in the
second half of 2014 based on a reassessment of future profitabil-
ity taking into account updated business plan forecasts. Further-
more, based on our actual and forecasted financial performance,
we may reassess the manner in which the probability of future
taxable income is evaluated and include additional forecasted tax-
able income in our deferred tax assets assessment which may
have a material effect on recognized deferred tax assets and tax
expense. The full year effective tax rate could change significantly
on the basis of this reassessment. It could also change if aggre-
gate tax expenses for locations other than Switzerland, the US
and UK differ from what is expected.
➔ Refer to “Note 8 Income taxes” in the “Financial information”
section of this report for more information
OCI in 2013 included negative cash flow hedge OCI of CHF
1,520 million (net of tax), mainly reflecting significant increases in
long-term interest rates across all major currencies.
Foreign currency translation losses amounted to CHF 471 mil-
lion (net of tax), primarily related to a weakening of the US dollar,
Indian rupee and Australian dollar against the Swiss franc.
OCI associated with financial investments available-for-sale
was negative CHF 154 million (net of tax), mainly as previously
unrealized net gains were reclassified from OCI to the income
statement upon sale of investments.
These decreases in OCI were partly offset by net OCI gains on
defined benefit plans of CHF 939 million (net of tax), mainly relat-
ed to our Swiss pension plan which recorded a pre-tax OCI gain of
CHF 1,119 million. This OCI gain on the Swiss pension plan re-
flected a gain of CHF 1,124 million due to a reduction of the de-
fined benefit obligation and a gain of CHF 803 million related to
an increase in the fair value of plan assets, partly offset by an OCI
reduction of CHF 808 million representing the excess of the pen-
sion surplus over the estimated future economic benefit. The net
pre-tax OCI gains on non-Swiss pension plans amounted to CHF
49 million.
➔ Refer to the “Statement of comprehensive income” in the
“Financial information” section of this report for more
information
➔ Refer to “Note 28 Pension and other post-employment
benefit plans” in the “Financial information” section of this
report for more information on OCI related to defined
benefit plans
Net profit attributable to preferred noteholders
Net profit attributable to preferred noteholders was CHF 204 mil-
lion compared with CHF 220 million in the prior year.
We expect net profit attributable to preferred noteholders to
be approximately CHF 110 million in both 2014 and 2015, and
approximately CHF 85 million in 2016.
Total comprehensive income attributable to
UBS shareholders
Key figures
Total comprehensive income attributable to UBS shareholders in-
cludes all changes in equity (including net profit) attributed to UBS
shareholders during a period, except those resulting from invest-
ments by and distributions to shareholders as well as equity- settled
share-based payments. Items included in comprehensive income,
but not in net profit, are reported under other comprehensive in-
come (OCI). These items will be reclassified to net profit when the
underlying item is sold or realized, with the exception of gains and
losses on defined benefit plans and certain property revaluations.
In 2013, total comprehensive income attributable to UBS
shareholders was CHF 1,961 million, reflecting net profit attribut-
able to UBS shareholders of CHF 3,172 million, partly offset by
negative OCI attributable to UBS shareholders of CHF 1,211 mil-
lion (net of tax).
Cost / income ratio
The cost / income ratio improved to 88.0% in 2013 compared
with 106.6% in the prior year. On an adjusted basis, the cost / in-
come ratio improved to 85.0% from 89.1%.
Risk-weighted assets
Our phase-in Basel III RWA decreased by CHF 33 billion to CHF
229 billion, mainly due to a CHF 41 billion reduction in credit risk
RWA and a CHF 17 billion reduction in market risk RWA, partly
offset by a CHF 25 billion increase in operational risk RWA. The
CHF 41 billion decrease in credit risk RWA was mainly due to a
CHF 24 billion reduction related to Other exposure segments,
mainly driven by a reduction in RWA for advanced and standard-
ized credit valuation adjustments (CVA) of CHF 18 billion, mainly
due to benefits from economic CVA hedges, ratings migration,
82
reduced exposures and market-driven reductions in the Invest-
ment Bank and Non-core and Legacy Portfolio. Furthermore, a
decline of CHF 6 billion was realized due to the sale of securitiza-
tion exposures in Non-core and Legacy Portfolio. Credit risk RWA
for exposures to corporates decreased by CHF 10 billion, primarily
due to a reduction in drawn loans, undrawn loan commitments
and derivative exposures in Wealth Management Americas, the
Investment Bank and Non-core and Legacy Portfolio. Credit risk
RWA for exposures to banks declined by CHF 6 billion, mainly due
to lower derivative exposures in the Investment Bank and Non-
core and Legacy Portfolio. The CHF 17 billion decrease in market
risk RWA was due to a CHF 5 billion decrease in the comprehen-
sive risk measure, a decline of CHF 4 billion in the incremental risk
charge and reductions of CHF 2 billion, CHF 3 billion and CHF
1 billion in RWA related to value-at-risk (VaR), stressed VaR and
risks-not-in-VaR, respectively. The CHF 25 billion increase in oper-
ational risk RWA was primarily due to incremental RWA of CHF
22.5 billion resulting from the supplemental operational risk cap-
ital analysis mutually agreed to by UBS and FINMA.
➔ Refer to the “Investment Bank,” “Corporate Center” and
“Capital management” sections of this report for more
information
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on the incremental RWA resulting
from the supplemental operational risk capital analysis mutually
agreed to by UBS and FINMA
Net new money
In Wealth Management, all regions contributed to net inflows of
CHF 35.9 billion in 2013, compared with CHF 26.3 billion in the
prior year. The strongest net inflows were recorded in Asia Pacific
followed by emerging markets, Switzerland and Europe. Net in-
flows in the European onshore and the Swiss-based Global Family
Office business in Europe more than offset net outflows in the
European cross-border business, which was negatively affected by
ongoing asset outflows in the context of fiscal and regulatory
concerns. On a global basis, net new money from ultra high net
worth clients was CHF 33.6 billion compared with CHF 19.9 bil-
lion in the prior year.
In Wealth Management Americas, net new money totaled CHF
17.6 billion, or USD 19.0 billion, compared with CHF 20.6 billion,
or USD 22.1 billion, in the prior year, due to lower inflows from
financial advisors employed with UBS for more than one year as
well as lower inflows from net recruiting of financial advisors. This
decrease was partly offset by higher inflows from the Global Fam-
ily Office.
Excluding money market flows, Global Asset Management
recorded net new money inflows from third parties of CHF 0.7
billion compared with net outflows of CHF 0.6 billion in 2012.
Net inflows, notably from clients serviced from Europe, Middle
East and Africa and from Switzerland, were partly offset by net
outflows from clients serviced from the Americas. Net new mon-
ey outflows from clients of UBS’s wealth management business-
es, excluding money market flows, were CHF 5.5 billion com-
pared with CHF 5.2 billion in the prior year. Net outflows,
mainly from clients serviced from Switzerland, were partly offset
by net inflows from clients serviced from the Americas. Money
market net outflows from third parties were CHF 1.5 billion com-
pared with net inflows of CHF 0.9 billion in the prior year and
were mainly from clients serviced from the Americas. Money
market net outflows from clients of UBS’s wealth management
businesses were CHF 13.6 billion compared with CHF 8.3 billion
in the prior year. In both years, net outflows were primarily due
to an ongoing initiative by Wealth Management Americas to in-
crease deposit account balances in UBS banking entities. This led
to CHF 8.3 billion in outflows from money market funds man-
aged by Global Asset Management in 2013 and CHF 6.2 billion
in 2012. The corresponding increase in deposit account balances
in Wealth Management Americas does not constitute net new
money. Total net new money outflows were CHF 19.9 billion
compared with CHF 13.3 billion in the prior year.
➔ Refer to the “Wealth Management,” “Wealth Management
Americas” and “Global Asset Management” sections of this
report for more information
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.
For the year ended
31.12.13
31.12.12
31.12.11
35.9
17.6
(19.9)
(4.8)
(15.1)
26.3
20.6
(13.3)
(5.9)
(7.4)
23.5
12.1
4.3
9.0
(4.7)
83
Financial and operating performance Financial and operating performance
Group performance
Invested assets
CHF billion
Wealth Management
Wealth Management Americas
Global Asset Management
31.12.13
886
865
583
As of
31.12.12
821
772
581
% change from
31.12.11
31.12.12
750
709
574
8
12
0
Invested assets
In Wealth Management, invested assets were CHF 886 billion as of
31 December 2013, representing an increase of CHF 65 billion
from 31 December 2012. Net new money inflows of CHF 36 billion
and positive market performance of CHF 34 billion were slightly
offset by negative currency translation effects of CHF 4 billion.
In Wealth Management Americas, invested assets were CHF
865 billion as of 31 December 2013, an increase of CHF 93 billion
from 31 December 2012. In US dollar terms, invested assets in-
creased by USD 127 billion to USD 970 billion, reflecting positive
market performance of USD 108 billion and continued strong net
new money inflows of USD 19 billion.
In Global Asset Management, invested assets were CHF 583
billion as of 31 December 2013 compared with CHF 581 billion as
of 31 December 2012. Net new money outflows of CHF 20 bil-
lion, combined with negative currency translation effects of CHF
15 billion and a reduction of CHF 7 billion related to the afore-
mentioned sale of the Canadian domestic business, were more
than offset by positive market performance of CHF 44 billion.
➔ Refer to the “Wealth Management,” “Wealth Management
Americas” and “Global Asset Management” sections of this
report for more information
84
2012 compared with 2011
Performance
Operating profit before tax was a loss of CHF 1,794 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 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 resulting from regulatory investigations
concerning LIBOR and other benchmark rates, as well as claims
related to sales of residential mortgage-backed securities. The full
year 2012 result also included an own credit loss on financial lia-
bilities designated at fair value of CHF 2,202 million and net re-
structuring charges of CHF 371 million.
In addition to reporting our results in accordance with IFRS, we
report adjusted results that exclude items considered non-recur-
ring and certain other items that management believes are not
representative of the underlying performance of our businesses.
Such adjusted results are non-GAAP financial measures as defined
by SEC regulations. For 2012, the items we excluded were the
abovementioned impairment losses of CHF 3,064 million, the
own credit loss of CHF 2,202 million, gains on sales of real estate
of CHF 112 million, a credit to personnel expenses related to
changes to our Swiss pension plan of CHF 730 million, net re-
structuring charges of CHF 371 million and a credit to personnel
expenses related to changes to our retiree benefit plans in the US
of CHF 116 million. The adjustments in 2011 were an own credit
gain of CHF 1,537 million, gains on sales of real estate of CHF 94
million, a gain on sale of our strategic investment portfolio of CHF
722 million and net restructuring charges of CHF 380 million.
On this adjusted basis, the 2012 profit before tax was CHF
2,885 million compared with CHF 3,334 million in 2011, mainly as
net charges for provisions for litigation, regulatory and similar mat-
ters increased by CHF 2,273 million to CHF 2,549 million, while
2011 included a loss of CHF 1,849 million related to the unautho-
rized trading incident announced in September of that year.
Operating income
Total operating income was CHF 25,423 million in 2012 com-
pared with CHF 27,788 million in 2011. Excluding the impacts of
own credit as well as gains on sales of real estate in both years
and the gain on the sale of our strategic investment portfolio in
2011, operating income increased by CHF 2,078 million to CHF
27,513 million.
Net interest and trading income
Net interest and trading income decreased by CHF 1,665 million
to CHF 9,504 million. 2012 included an own credit loss on finan-
cial liabilities designated at fair value of CHF 2,202 million, pri-
marily reflecting significant tightening of our funding spreads,
compared with an own credit gain of CHF 1,537 million in 2011.
Excluding the impact of own credit, net interest and trading in-
come increased by CHF 2,074 million.
Net interest and trading income in Wealth Management de-
clined by CHF 118 million, mainly as the prior year included CHF
103 million of interest income stemming from the abovemen-
tioned strategic investment portfolio. Moreover, net interest in-
come was negatively affected by increased costs of CHF 69 million
related to assets managed centrally by Group Treasury. Further-
more, net trading revenues declined as a result of lower trea-
sury-related income and lower client activity levels following re-
duced volatility in the foreign exchange market. These factors
were partly offset by CHF 180 million higher product-related in-
terest income, reflecting the beneficial effects of increases in cli-
ent deposit and lending volumes.
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-backed lending and
mortgages.
Retail & Corporate net interest and trading income declined by
CHF 194 million, partly as the prior 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 the historically low inter-
est rate environment 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. Net trading income decreased to CHF 281 million
from CHF 333 million due to lower treasury-related income and
lower valuation income in 2012 related to credit default swaps to
hedge certain loans.
Within the Investment Bank, Corporate Client Solutions net in-
terest and trading income increased by CHF 176 million, largely
due to higher revenues in debt capital markets. Investor Client Ser-
vices net interest and trading income increased by CHF 567 million,
mainly as 2011 included a loss of CHF 1,849 million related to the
unauthorized trading incident, partly offset by lower equities cash
revenues, mainly as 2012 included a loss of CHF 349 million related
to the Facebook initial public offering. In addition, equities deriva-
tives revenues declined, as trading revenues, particularly in Asia
Pacific and Europe, Middle East and Africa, were affected by lower
volatility levels. Other equities revenues also decreased, primarily
reflecting a reduced contribution from proprietary trading as we
continued to exit the business. Furthermore, foreign exchange rev-
enues declined, mainly within foreign exchange spot and foreign
exchange options as volatility decreased from the high levels seen
in 2011 resulting from eurozone uncertainty. Rates and credit reve-
nues also declined, primarily due to increased negative debit valua-
tion adjustments and lower revenues from flow businesses, partly
offset by higher revenues from solutions businesses.
Excluding own credit, net interest and trading revenues in Cor-
porate Center – Core Functions decreased by CHF 18 million.
85
Financial and operating performance Financial and operating performance
Group performance
In Non-core and Legacy Portfolio, net interest and trading in-
come increased by CHF 1,573 million. Our option to acquire the
SNB StabFund’s equity resulted in a gain of CHF 526 million in
2012, compared with a loss of CHF 133 million in 2011. Legacy
Portfolio net interest and trading income excluding the SNB
StabFund option increased by CHF 714 million, partly as 2011
included a loss of CHF 284 million related to credit valuation
adjustments for monoline credit protection. Non-core net inter-
est and trading revenues increased by CHF 200 million, mainly as
a result of higher credit revenues.
➔ Refer to “Note 3 Net interest and trading income” in the “Financial
information” section of this report for more information
➔ Refer to “Note 24 Fair value measurement” in the “Financial
information” section of this report for more information on own
credit
Credit loss expense / recovery
In 2012, we recorded net credit loss expenses of CHF 118 million
compared with net credit loss expenses of CHF 84 million in 2011.
In 2012, we recorded net credit loss expenses of CHF 78 million in
Non-core and Legacy Portfolio, mainly related to student loan
auction rate securities, and net credit loss expenses of CHF 27
million in Retail & Corporate.
➔ Refer to the “Wealth Management Americas,” “Retail &
Corporate” and “Corporate Center” sections of this report for
more information
Net fee and commission income
Net fee and commission income increased by CHF 160 million to
CHF 15,396 million.
Underwriting fees increased by CHF 359 million to CHF 1,539
million, reflecting an increase in both equity and debt underwrit-
ing fees. The increase in underwriting fees corresponded to in-
creased market share in both equity underwriting and debt un-
derwriting. In addition, we increased our participation in private
and structured transactions.
Portfolio management and advisory fees increased by CHF 344
million to CHF 5,895 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
of CHF 101 million in Non-core and Legacy Portfolio mainly relat-
ed to the sale of an equity investment. In 2011, net revenues 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 as well as net gains of CHF 141
million in Corporate Center – Core Functions.
Other income from associates and subsidiaries was CHF 81 mil-
lion compared with CHF 44 million, mainly related to higher reve-
nues from our participation 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 and CHF 2,273
million higher net charges for provisions for litigation, regulatory
and similar matters. The appreciation of the US dollar and British
pound against the Swiss franc also contributed to the overall in-
crease. These increases were partly offset by a credit to personnel
expenses of CHF 730 million related to changes to our Swiss pen-
sion plan and a credit to personnel expenses of CHF 116 million
related to changes to our retiree benefit plans in the US. Net re-
structuring charges were CHF 371 million in 2012 compared with
CHF 380 million in 2011.
➔ Refer to “Note 32 Changes in organization” in the “Financial
information” section of this report for more information on
restructuring charges
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 benefit plans
in the US. Net personnel-related restructuring charges were CHF
358 million in 2012 compared with CHF 261 million in 2011. Ex-
cluding the effects of restructuring and the credits related to the
Swiss and US benefit plans, personnel expenses decreased by CHF
148 million, despite the appreciation of the US dollar and British
pound against the Swiss franc.
Other income
Other income was CHF 641 million compared with CHF 1,467
million in the previous year.
In 2012, net revenues from financial investments available-for-
sale were CHF 308 million, which included CHF 272 million in
gains from Corporate Center – Core Functions, as well as a gain
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
86
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 a special plan award
program.
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 Amer-
icas increased by CHF 354 million excluding restructuring reflect-
ing higher revenue production and higher compensation commit-
ments with recruited financial advisors.
➔ Refer to “Note 6 Personnel expenses” in the “Financial informa-
tion” section of this report for more information
➔ Refer to “Note 28 Pension and other postemployment benefit
plans” in the “Financial information” section of this report for
more information
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Financial information” section of this report for
more information
➔ Refer 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.
Costs for outsourcing of information technology and other ser-
vices increased by CHF 206 million due to higher business demand.
Expenses for marketing and public relations increased by CHF
135 million, partly due to expenditures related to our 150th anni-
versary, 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.
➔ Refer to “Note 7 General and administrative expenses” in the
“Financial information” section of this report for more information
➔ Refer to “Note 22 Provisions and contingent liabilities” 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 information technology
equipment.
Impairment of goodwill was CHF 3,030 million in 2012.
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. 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 informa-
tion
Tax
We recognized a net income tax expense in the income statement
for the year of CHF 461 million. This included a Swiss current tax
expense of CHF 95 million, which relates to taxable profits, against
which no losses were available to offset, earned by Swiss subsid-
iaries and also from the sale of real estate. The net income tax ex-
pense for the year also includes a Swiss deferred tax expense of
CHF 23 million, which relates to a decrease in recognized deferred
tax assets due to Swiss pre-tax profits earned during the year, off-
set by Swiss tax relief for the impairment of goodwill. In addition,
it includes a foreign net current tax expense of CHF 72 million,
which 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, which were partly offset by a tax benefit
from the release of provisions in respect of tax positions which
were previously uncertain. Finally, the net income tax expense for
the year includes a foreign deferred tax expense of CHF 271 mil-
lion, which mainly reflects a tax expense for the amortization of
deferred tax assets, as tax losses were used against taxable profits.
➔ Refer to “Note 8 Income taxes” in the “Financial information”
section of this report for more information
Total comprehensive income attributable
to UBS shareholders
Total comprehensive income attributable to UBS shareholders in
2012 was negative CHF 1,966 million, reflecting the net loss at-
tributable to UBS shareholders of CHF 2,480 million, partly offset
by positive other comprehensive income attributable to UBS
shareholders of CHF 514 million.
OCI in 2012 included net OCI gains on defined benefit plans of
CHF 609 million (net of tax). This reflected net pre-tax OCI gains
of CHF 1,023 million, which were almost entirely due to an in-
crease 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
reflecting decreases in long-term interest rates across all major
currencies, partly offset by the reclassification of net gains associ-
ated with the effective portion of changes in fair value of hedging
derivatives to the income statement. Financial investments avail-
able-for-sale OCI was positive CHF 26 million (net of tax). Foreign
currency translation OCI was a loss of CHF 511 million (net of tax),
87
Financial and operating performance Financial and operating performance
Group performance
predominantly related to the 2% weakening of the US dollar
against the Swiss franc.
OCI attributable to UBS shareholders in 2011 was CHF 934
million (net of tax), mainly reflecting positive cash flow hedge OCI
of CHF 1,537 million and foreign currency translation gains of
CHF 722 million, partly offset by net OCI losses on defined benefit
plans of CHF 1,820 million.
➔ Refer to the “Statement of comprehensive income” in the
“Financial information” section of this report for more information
➔ Refer to “Note 28 Pension and other postemployment benefit
plans” in the “Financial information” section of this report for
more information on OCI related to defined benefit plans
Net profit attributable to preferred noteholders
Net profit attributable to preferred noteholders was CHF 220 mil-
lion in 2012.
Key figures
Cost / income ratio
The cost / income ratio increased to 106.6% in 2012 compared
with 80.7% in the prior year. On an adjusted basis, the cost / in-
come ratio increased to 89.1% from 86.6%.
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
strongest net inflows were recorded in Asia Pacific and emerging
markets as well as globally from ultra high net worth clients. Eu-
rope reported net outflows in the offshore business, mainly relat-
ed 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 com-
pared with the prior year.
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-
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 partly offset by negative currency
translation 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.
Global Asset Management invested assets increased by CHF 7
billion to CHF 581 billion, mainly due to positive market perfor-
mance, partly offset by net new money outflows and negative
currency translation effects. The sale, as agreed prior to the acqui-
sition, of parts of the ING Investment Management business ac-
quired in Australia in 2011 resulted in a net divestment of CHF 14
billion of invested assets in 2012.
➔ Refer to the “Wealth Management,” “Wealth Management
Americas” and “Global Asset Management” sections of this
report for more information
88
Balance sheet
As of 31 December 2013, our balance sheet assets stood at CHF 1,010 billion, a decrease of CHF 250 billion or 20% from
31 December 2012, primarily due to a reduction in positive replacement values (PRV) in Corporate Center – Non-core
and Legacy Portfolio. Funded assets, which represent total assets excluding PRV and collateral delivered against over
the-counter (OTC) deri vatives, decreased by CHF 66 billion to CHF 739 billion, mainly due to reductions in both collateral
trading and trading portfolio assets, primarily reflecting the ongoing execution of our strategy. Currency effects reduced
funded assets by approximately CHF 18 billion.
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
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
Debt issued
Provisions
Other liabilities
Total liabilities
31.12.13
31.12.12
31.12.12
% change from
80,879
17,170
27,496
91,563
122,848
42,449
245,835
28,007
7,364
286,959
59,525
842
6,006
6,293
8,845
66,383
21,220
37,372
130,941
160,564
44,698
418,957
30,413
9,106
279,901
66,230
858
6,004
6,461
8,143
20,228
1,009,860
17,244
1,259,797
12,862
9,491
13,811
26,609
239,953
49,138
69,901
390,825
81,586
2,971
62,777
23,024
9,203
38,557
34,247
395,260
71,148
91,901
373,459
104,837
2,536
66,523
959,925
1,210,697
22
(19)
(26)
(30)
(23)
(5)
(41)
(8)
(19)
3
(10)
(2)
0
(3)
9
17
(20)
(44)
3
(64)
(22)
(39)
(31)
(24)
5
(22)
17
(6)
(21)
89
Financial and operating performance Financial and operating performance
Balance sheet
Balance sheet (continued)
CHF million
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 preferred noteholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
31.12.13
31.12.12
31.12.12
% change from
384
33,952
(1,031)
(46)
24,475
(9,733)
48,002
1,893
41
49,936
384
33,898
(1,071)
(37)
21,297
(8,522)
45,949
3,109
42
49,100
1,009,860
1,259,797
0
0
(4)
24
15
14
4
(39)
(2)
2
(20)
Balance sheet development
Non-core and Legacy Portfolio total assets decreased by CHF 218
billion to CHF 211 billion as of 31 December 2013, mainly reflect-
ing a CHF 170 billion decline in positive replacement values in
Non-core and Legacy Portfolio, primarily from a reduction in OTC
derivative exposures by means of negotiated bilateral settlements
with specific counterparties, third-party novations, including
transfers to central clearing houses, agreements to net down
trades with other dealer counterparties, as well as, to a lesser ex-
tent, fair value changes due to interest rate movements. Non-core
and Legacy Portfolio funded assets decreased by CHF 39 billion to
CHF 22 billion, primarily due to the exit of government and other
liquid bond positions, along with the sale of a portfolio of dis-
tressed assets in Non-core and sales and redemptions of student
loan auction rate securities in the Legacy Portfolio. Investment
Bank total assets decreased by CHF 21 billion to CHF 241 billion,
and funded assets declined by CHF 23 billion to CHF 162 billion,
largely due to lower collateral trading assets across businesses, as
well as due to a reduction in trading portfolio assets in our foreign
exchange, rates and credit business and a reduction in lending
assets in Corporate Client Solutions. Corporate Center – Core
Balance sheet assets: development during 2013
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:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(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:20)(cid:18)(cid:18)(cid:27)(cid:115)(cid:20)(cid:18)(cid:19)(cid:21)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
1,260
(173)
(49)
14
1
1
1,010
(38)
(7)
31.12.12 Positive
replace-
ment
values
Collateral
trading1
Trading
portfolio
Financial
invest-
ments
available-
for-sale
Lending2
Cash
and
balances
with central
banks
Other(cid:31)
31.12.13
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:27)
(cid:18)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:16)
(cid:18)
(cid:19)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:19)(cid:14)(cid:21)(cid:21)(cid:26)
(cid:19)(cid:14)(cid:21)(cid:19)(cid:23)
(cid:16)
(cid:19)
(cid:19)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:19)(cid:14)(cid:22)(cid:19)(cid:25)
(cid:16)
(cid:20)
(cid:19)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:21)
(cid:19)
(cid:16)
(cid:21)
(cid:16)
(cid:19)
(cid:21)
(cid:21)
(cid:19)
(cid:16)
(cid:24)
(cid:16)
(cid:18)
(cid:21)
(cid:21)
(cid:19)
(cid:16)
(cid:27)
(cid:16)
(cid:18)
(cid:21)
(cid:16)
(cid:21)
(cid:19)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(cid:19)(cid:14)(cid:20)(cid:24)(cid:18)
(cid:19)(cid:14)(cid:20)(cid:19)(cid:22)
(cid:27)(cid:19)(cid:25)(cid:149)
(cid:27)(cid:19)(cid:22)(cid:149)
(cid:26)(cid:26)(cid:23)(cid:149)
(cid:26)(cid:18)(cid:23)(cid:149)
(cid:25)(cid:27)(cid:25)(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:20)(cid:20)(cid:27)
(cid:20)(cid:18)(cid:23)
(cid:20)(cid:26)(cid:27)
(cid:20)(cid:25)
(cid:19)(cid:26)(cid:20)
(cid:20)(cid:25)(cid:20)
(cid:21)(cid:18)(cid:18)
(cid:22)(cid:19)
(cid:19)(cid:24)(cid:19)
(cid:19)(cid:24)(cid:26)
(cid:21)(cid:19)(cid:18)
(cid:24)(cid:24)
(cid:19)(cid:22)(cid:23)
(cid:19)(cid:24)(cid:23)
(cid:21)(cid:20)(cid:22)
(cid:24)(cid:22)
(cid:19)(cid:14)(cid:19)(cid:20)(cid:27)
(cid:19)(cid:20)(cid:18)
(cid:19)(cid:21)(cid:25)
(cid:21)(cid:20)(cid:21)
(cid:26)(cid:19)
(cid:19)(cid:14)(cid:18)(cid:22)(cid:27)
(cid:19)(cid:14)(cid:18)(cid:19)(cid:18)
(cid:25)(cid:24)(cid:23)(cid:149)
(cid:25)(cid:22)(cid:20)(cid:149)
(cid:25)(cid:21)(cid:27)(cid:149)
(cid:19)(cid:20)(cid:22)
(cid:19)(cid:19)(cid:23)
(cid:21)(cid:20)(cid:19)
(cid:25)(cid:27)
(cid:19)(cid:20)(cid:21)
(cid:19)(cid:19)(cid:27)
(cid:21)(cid:19)(cid:19)
(cid:26)(cid:19)
(cid:19)(cid:14)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:20)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:27)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:24)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:21)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(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: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)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)
(cid:50)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)
(cid: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:2)(cid:67)(cid:80)(cid:70)(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:70)(cid:71)(cid:78)(cid:75)(cid:88)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(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: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)
1,300
1,200
1,100
1,000
0
90
(cid:19)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:18)(cid:18)
(cid:27)(cid:18)(cid:18)
(cid:24)(cid:18)(cid:18)
(cid:21)(cid:18)(cid:18)
(cid:18)
Total assets and funded assets
CHF billion
Total IFRS assets
Less: positive replacement values
Less: collateral delivered against OTC derivatives 1
Funded assets
Investment
Bank
CC – Core
Functions
241
(72)
(6)
162
247
0
0
247
31.12.13
CC – Non-
core and
Legacy
Portfolio
211
(170)
(19) 2
22
Other
business
divisions
311
(3)
0
307
Investment
Bank
CC – Core
Functions
262
(69)
(8)
185
263
(7)
0
256
UBS
1,010
(246)
(25)
739
31.12.12
CC – Non-
core and
Legacy
Portfolio
429
(340)
(28) 2
61
Other
business
divisions
307
(3)
0
303
UBS
1,260
(419)
(36)
805
1 Mainly consists of cash collateral receivables on derivative instruments and reverse repurchase agreements. 2 Non-core: CHF 17 billion as of 31 December 2013 (CHF 27 billion as of 31 December 2012). Legacy Portfolio:
CHF 1 billion as of 31 December 2013 (CHF 2 billion as of 31 December 2012).
Functions assets decreased by CHF 16 billion to CHF 247 billion,
primarily reflecting lower collateral trading assets, reduced PRV
and sales of mortgage-backed securities held as financial invest-
ments available-for-sale. The overall size of our multi-currency
portfolio of unencumbered, high-quality, short-term assets man-
aged centrally by Group Treasury remained stable. Retail & Corpo-
rate total assets decreased by CHF 4 billion to CHF 141 billion,
largely reflecting a reduction in cash balances. Wealth Manage-
ment total assets increased by CHF 5 billion to CHF 110 billion
mainly resulting from increased Lombard and mortgage lending
activities. Wealth Management Americas and Global Asset Man-
agement total assets were broadly unchanged at CHF 45 billion
and CHF 14 billion, respectively.
Cash and balances with central banks
Cash and balances with central banks increased by CHF 14 bil-
lion to CHF 81 billion as of 31 December 2013, mainly due to a
rebalancing of our multi-currency portfolio of unencumbered,
high-quality, short-term assets.
Lending
Loans increased by CHF 7 billion to CHF 287 billion, predominant-
ly in our wealth management businesses and mainly reflecting
increased Lombard and residential mortgage lending, partly offset
by sales and redemptions of student loan auction rate securities in
the Legacy Portfolio. Interbank lending was lower by CHF 4 bil-
lion, mainly in the Investment Bank, and financial assets designat-
ed at fair value were reduced by CHF 2 billion, primarily due to
trade terminations in Non-core.
Collateral trading
Collateral trading assets (reverse repurchase agreements and cash
collateral on securities borrowed) decreased by CHF 49 billion to
CHF 119 billion, primarily due to the rebalancing of our multi-cur-
rency portfolio of unencumbered, high-quality, short-term assets,
lower collateral trading activity in the Investment Bank and a reduc-
tion in externally sourced securities collateral by Group Treasury.
Collateral trading liabilities (repurchase agreements and cash
collateral on securities lent) were reduced by CHF 24 billion, re-
flecting reduced funding requirements.
Trading portfolio
Trading portfolio assets were reduced by CHF 38 billion to CHF
123 billion, mainly due to a CHF 34 billion decrease in debt instru-
ments held, primarily reflecting lower government, corporate and
mortgage-backed securities debt, and a reduction of CHF 8 billion
in precious metal holdings, partly offset by a CHF 4 billion cli-
ent-driven increase in equity instruments. A majority of the reduc-
tion in trading portfolio assets occurred in Non-core, reflecting
the ongoing execution of our strategy.
Trading portfolio liabilities were lower by CHF 8 billion, primar-
ily reflecting reduced government debt and corporate bonds
short sales.
Replacement values
Positive and negative replacement values declined on both sides
of the balance sheet, decreasing by CHF 173 billion or 41% and
CHF 155 billion or 39% to CHF 246 billion and CHF 240 billion,
91
Financial and operating performance Financial and operating performance
Balance sheet
respectively. Decreases in positive replacement values mainly
occurred in Non-core and Legacy Portfolio, primarily from a re-
duction in OTC derivative exposures by means of negotiated
bilateral settlements with specific counterparties, third-party
novations, including transfers to central clearing houses, agree-
ments to net down trades with other dealer counterparties, as
well as, to a lesser extent, fair value changes due to interest rate
movements. Similarly, decreases in negative replacement values
also mainly occurred in interest rate contracts in Non-core and
Legacy Portfolio.
Financial investments available-for-sale
Financial investments available-for-sale were reduced by CHF 7
billion to CHF 60 billion, mainly reflecting lower holdings of gov-
ernment debt as well as sales of mortgage-backed securities.
Short-term borrowings
Short-term borrowings (short-term debt issued and due to banks)
decreased by CHF 15 billion to CHF 40 billion, primarily due to
lower interbank precious metal accounts recognized on our bal-
ance sheet, combined with reduced funding requirements. The
reduction in short-term debt issued primarily occurred in commer-
cial paper and client customized issuances, partly offset by an in-
crease in certificates of deposit.
➔ Refer to the “Treasury management” section of this report for
more information
Due to customers
Customer deposits increased by CHF 17 billion to CHF 391 billion
as Wealth Management, Wealth Management Americas and Re-
tail & Corporate all continued to attract client money into both
current and deposit accounts.
➔ Refer to the “Treasury management” section of this report for
more information
Long-term debt
Long-term debt decreased by CHF 40 billion to CHF 124 billion,
primarily resulting from a CHF 22 billion reduction in financial liabil-
ities designated at fair value, mainly in the Investment Bank and
Non-core and Legacy Portfolio. Long-term debt issued held at amor-
tized cost was reduced by CHF 18 billion, primarily due to decreases
in senior debt. As part of our reduction in wholesale funding, we
successfully completed two cash tender offers during 2013 to re-
purchase certain subordinated and senior unsecured bonds.
➔ Refer to the “Treasury management” section of this report for
more information
Other assets / Other liabilities
Other assets were largely unchanged at CHF 70 billion, mainly as
a CHF 3 billion increase in prime brokerage receivables was most-
ly offset by a CHF 2 billion reduction in cash collateral receivables
on derivative instruments.
Balance sheet liabilities: development during 2013
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: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: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:20)(cid:18)(cid:18)(cid:27)(cid:115)(cid:20)(cid:18)(cid:19)(cid:21)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
1,250
1,150
1,050
950
0
92
1,211
(cid:27)
(cid:18)
(cid:16)
(cid:16)
(cid:20)
(cid:19)
(cid:19)
(cid:21)
(cid:16)
(cid:18)
(cid:19)
(cid:20)
(cid:19)
(cid:19)
(cid:21)
(cid:16)
(cid:16)
(cid:19)
(cid:19)
(cid:20)
(cid:19)
(cid:19)
(cid:21)
(cid:16)
(cid:16)
(cid:20)
(cid:19)
(cid:20)
(cid:19)
(cid:19)
(cid:21)
(cid:16)
(cid:21)
(cid:19)
(cid:21)
(cid:16)
(cid:16)
(cid:19)
(cid:21)
(cid:21)
(cid:19)
(cid:24)
(cid:16)
(cid:16)
(cid:18)
(cid:21)
(cid:21)
(cid:19)
(cid:27)
(cid:16)
(cid:16)
(cid:18)
(cid:21)
(cid:21)
(cid:19)
(cid:16)
(cid:20)
(cid:19)
(cid:16)
(cid:19)
(cid:21)
(155)
(40)
(33)
(24)
(15)
17
960
31.12.12
Negative
replace-
ment values
Long-
term debt
issued 1
Other 2
Collateral
trading3
Short-term
borrow-
ings4(cid:31)
Due to
customers
31.12.13
1 Consists of long-term debt issued and financial liabilities designated at fair value.
2 Includes trading portfolio liabilities and cash collateral payables on derivative instruments.
3 Consists of repurchase agreements and cash collateral on securities lent.
4 Consists of short-term debt issued and due to banks.
(cid:19)(cid:14)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:14)(cid:20)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:27)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:24)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:21)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(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:20)(cid:24)(cid:18)
(cid:19)(cid:14)(cid:20)(cid:19)(cid:22)
(cid:19)(cid:14)(cid:19)(cid:20)(cid:27)
(cid:19)(cid:14)(cid:18)(cid:22)(cid:27)
(cid:19)(cid:14)(cid:18)(cid:19)(cid:18)
(cid:21)(cid:25)(cid:7)
(cid:21)(cid:24)(cid:7)
(cid:21)(cid:24)(cid:7)
MDA BS Asset-Liab waterfalls YE13_BS_trend_Liability
(cid:22)(cid:27)(cid:7)
(cid:23)(cid:19)(cid:7)
(cid:22)(cid:24)(cid:7)
(cid:22)(cid:21)(cid:7)
(cid:22)(cid:23)(cid:7)
(cid:20)(cid:19)(cid:7)
(cid:19)(cid:27)(cid:7)
(cid:19)(cid:25)(cid:7)
(cid:19)(cid:27)(cid:7)
(cid:19)(cid:26)(cid:7)
(cid:19)(cid:25)(cid:7)
(cid:19)(cid:24)(cid:7)
(cid:19)(cid:24)(cid:7)
(cid:39)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:19)
(cid:46)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)(cid:20)(cid:14)(cid:2)(cid:21)
(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: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:22)
(cid:53)(cid:74)(cid:81)(cid:84)(cid:86)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)(cid:85)(cid:23)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)
(cid:48)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:85)
(cid:19)(cid:2)(cid:37)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(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: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:14)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)(cid:2)(cid:67)(cid:86)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:82)(cid:84)(cid:71)(cid:72)(cid:71)(cid:84)(cid:84)(cid:71)(cid:70)(cid:2)(cid:80)(cid:81)(cid:86)(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:20)(cid:2)(cid:50)(cid:71)(cid:84)(cid:69)(cid:71)(cid:80)(cid:86)(cid:67)(cid:73)(cid:71)(cid:85)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid: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: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: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)(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: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: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:78)(cid:71)(cid:80)(cid:86)(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: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:2)(cid:67)(cid:80)(cid:70)(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:16)
(cid:19)(cid:23)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:18)(cid:18)
(cid:27)(cid:18)(cid:18)
(cid:24)(cid:18)(cid:18)
(cid:21)(cid:18)(cid:18)
(cid:18)
Other liabilities decreased by CHF 25 billion to CHF 115 billion,
primarily due to a CHF 22 billion reduction in cash collateral pay-
ables on derivative instruments.
Equity
Equity attributable to UBS shareholders increased by CHF 2,053
million to CHF 48,002 million as of 31 December 2013 from CHF
45,949 million a year earlier. Total comprehensive income attrib-
utable to UBS shareholders was CHF 1,961 million, reflecting the
net profit attributable to UBS shareholders of CHF 3,172 million,
partly offset by negative other comprehensive income (OCI) at-
tributable to UBS shareholders of CHF 1,211 million (net of tax).
OCI included foreign currency translation losses of CHF 471 mil-
lion as well as negative OCI movements related to cash flow
hedges and financial investments available-for-sale of CHF 1,520
million and CHF 154 million, respectively, partly offset by net gains
on defined benefit plans of CHF 939 million. Share premium in-
creased by CHF 54 million, mainly reflecting an increase of CHF
305 million related to employee share and share option plans and
treasury share gains of CHF 203 million, partly offset by the pay-
ment of CHF 564 million to UBS shareholders out of the capital
contribution reserve. Net treasury share activity increased equity
attributable to UBS shareholders by CHF 41 million.
➔ Refer to the “Statement of changes in equity” in the “Financial
information” section of this report for more information
➔ Refer to “Total comprehensive income attributable to UBS
shareholders” in the “Group performance” section of this report
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.
Equity attributable to UBS shareholders: development during 2013
CHF million
50,000
48,500
47,000
45,500
0
3,172
(471)
(154)
939
305
91
41
213
48,002
(564)
45,949
(1,520)
31.12.12
Net profit
Foreign
currency
translation
(OCI)
Financial
investments
available-
for-sale (OCI)
Cash flow
hedges
(OCI)
Defined
benefit plans
(OCI)
Employee share
and share
option plans
(share premium)
Tax
recognized
in share
premium
Distribution of
capital contri-
bution reserve
(share premium)
Treasury
shares
Other 1
31.12.13
1 Includes treasury share gains (share premium) of CHF 203 million.
93
50000
48500
47000
45500
44000
Financial and operating performance Financial and operating performance
Off-balance sheet
Off-balance sheet
Off-balance sheet arrangements
In the normal course of business, we enter into transactions that
may not be fully recognized on the balance sheet due to the Inter-
national Financial Reporting Standards (IFRS) accounting treatment
adopted for the arrangement entered into. These transactions in-
clude derivative instruments, guarantees and similar arrangements,
as well as purchased and retained interests in non-consolidated
structured entities (SE), which are transacted for a number of rea-
sons, including market-making and hedging activities, to meet spe-
cific needs of our clients or to offer investment opportunities to
clients through entities that are not controlled by us.
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.
➔ Refer to “Note 1a) 3) Subsidiaries and structured entities” 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 consoli-
dation and deconsolidation of subsidiaries, including structured
entities, and recognition and derecognition of financial
instruments, respectively
➔ Refer to “Note 30 Interests in subsidiaries and other entities” in
the “Financial information” section of this report for more
information on our interests in, and maximum exposure to loss
from, unconsolidated structured entities
The following paragraphs provide more information on several
distinct off-balance sheet arrangements. Additional off-balance
sheet information is primarily provided in “Note 14 Derivative in-
struments and hedge accounting,” “Note 22 Provisions and con-
tingent liabilities,” “Note 25 Restricted and transferred financial
assets,” “Note 30 Interests in subsidiaries and other entities” and
“Note 33 Operating lease commitments” in the “Financial infor-
mation” section and in the “Supplemental disclosures required
under Basel III Pillar 3 regulations” 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, which includes our exposures
to off-balance sheet vehicles.
was not contractually obligated to do so, nor does the Group
have an intention to do so.
Guarantees and similar arrangements
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.
As of 31 December 2013, the net exposure (gross values less
sub-participations) from guarantees and similar instruments was
CHF 15.8 billion, compared with CHF 17.8 billion as of 31 Decem-
ber 2012. Fee income from issuing guarantees was not significant
to total revenues in 2013.
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 2013, we
recognized net credit loss recoveries of CHF 2 million, compared
with net credit loss recoveries of CHF 16 million for the year ended
31 December 2012, related to obligations incurred for guarantees
and loan commitments. Provisions recognized for guarantees and
loan commitments were CHF 61 million as of 31 December 2013
and CHF 64 million as of 31 December 2012.
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 fa-
cility. 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.
Support provided to non-consolidated investment funds
In 2013, the Group did not provide material support, financial or
otherwise, to unconsolidated investment funds when the Group
Clearing house and exchange memberships
We are a member of numerous securities and derivative exchanges
and clearing houses. In connection with some of those member-
ships, we may be required to pay a share of the financial obliga-
94
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.
31.12.13
Gross
Sub-
participations
Net
Gross
31.12.12
Sub-
participations
(670)
(706)
(1,599)
(2,975)
(1,227)
(225)
(1,452)
7,061
2,717
6,044
15,823
53,686
535
54,221
7,731
3,423
7,644
18,798
54,913
760
55,673
9,376
46
8,191
(734)
(829)
(660)
(2,223)
(867)
(167)
(1,034)
8,313
3,673
8,072
20,058
59,818
167
59,985
18,576
249
9,993
Net
7,579
2,844
7,412
17,835
58,950
0
58,951
tions 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 prob-
ability of a material loss due to such obligations to be remote.
billion, respectively. Gross debt and private equity underwriting
commitments as of 31 December 2013 and 31 December 2012
were not material.
Contractual obligations
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. The Swiss Fi-
nancial Market Supervisory Authority (FINMA) estimates our share
in the deposit insurance system to be CHF 0.9 billion. The deposit
insurance is a guarantee and exposes us to additional risk. This is
not reflected in the table above due to its unique characteristics.
As of 31 December 2013, we consider the probability of a mate-
rial loss from our obligation to be remote.
Underwriting commitments
Gross equity underwriting commitments as of 31 December 2013
and 31 December 2012 amounted to CHF 0.8 billion and CHF 0.2
The table below summarizes payments due by period under con-
tractual obligations as of 31 December 2013.
All contracts included in this table, with the exception of pur-
chase obligations (i.e., those in which we are committed to pur-
chasing determined volumes of goods and services), are either
recognized as liabilities on our balance sheet or, in the case of
operating leases, disclosed in “Note 33 Operating lease commit-
ments” in the “Financial information” section of this report.
Long-term debt obligations as of 31 December 2013 were CHF
136 billion and consisted of financial liabilities designated at fair
value (CHF 73 billion) and long-term debt issued (CHF 64 billion)
and represent both estimated future interest and principal pay-
ments on an undiscounted basis. Refer to “Note 27b Maturity anal-
ysis of financial liabilities” in the “Financial information” section of
this report for more information. Approximately half of total long-
Contractual obligations
CHF million
Long-term debt obligations
Finance lease obligations
Operating lease obligations
Purchase obligations
Other liabilities
Total
Payment due by period
< 1 year
30,448
39
737
1,433
128
32,785
1–3 years
37,672
42
1,257
890
8
39,869
3–5 years
27,479
6
1,021
427
6
> 5 years
40,972
2
2,316
240
2
28,939
43,532
95
Financial and operating performance Financial and operating performance
Off-balance sheet
term debt obligations had a variable rate of interest. Amounts due
on interest rate swaps used to hedge interest rate risk inherent in
fixed-rate debt issued, and designated in fair value hedge account-
ing relationships, are not included in the table on the previous
page. The notional amount of these interest rate swaps was CHF
31 billion as of 31 December 2013. Financial liabilities designated
at fair value (CHF 73 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 un-
der 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 agree-
ments, Trading portfolio liabilities, Negative replacement values,
Cash collateral payables on derivative instruments, Due to cus-
tomers, Provisions and Other liabilities are excluded from the
table on the previous page. Refer to the respective Notes in the
“Financial information” section of this report for more informa-
tion on these liabilities.
96
Cash flows
As a global financial institution, our cash flows are complex and may bear little relation to our net earnings and net
assets. Consequently, we believe that traditional cash flow analysis is less meaningful in evaluating our liquidity
position than the liquidity, funding 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.
Statement of cash flows (condensed)
CHF million
Net cash flow from / (used in) operating activities
Net cash flow from / (used in) investing activities
Net cash flow from / (used in) financing activities
Effects of exchange rate differences on cash and cash equivalents
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the end of the year
For the year ended
31.12.13
54,325
5,457
(47,555)
(2,702)
9,524
108,632
31.12.12
67,160
(14,879)
(38,110)
(673)
13,500
99,108
As of 31 December 2013, cash and cash equivalents totaled CHF
108.6 billion, an increase of CHF 9.5 billion from 31 December
2012.
Operating activities
For the year ended 31 December 2013, net cash inflow generat-
ed from operating activities was CHF 54.3 billion, primarily due to
the deleveraging of our balance sheet, compared with net cash
inflow from operating activities of CHF 67.2 billion in 2012. Net
operating cash inflow (before changes in operating assets and
liabilities and income taxes paid, net of refunds) totaled CHF 12.4
billion in 2013 compared with net operating cash inflow of CHF
11.2 billion in 2012. In 2013, net cash inflow of CHF 42.4 billion
was generated by the overall decrease in operating assets and
liabilities. Gross cash inflows of CHF 99.9 billion primary resulted
from the reduction of cash collateral on securities borrowed and
reverse repurchase agreement assets (CHF 43.8 billion), and from
the reduction of trading portfolio, replacement values and finan-
cial assets designated at fair value balances (CHF 44.1 billion).
Key components of the gross cash outflows of CHF 57.6 billion
were the reduction of cash collateral on securities lent and repur-
chase agreement liabilities (CHF 23.7 billion), as well as the re-
duction of cash collateral on derivative instruments balances
(CHF 22.4 billion).
Investing activities
Net cash inflow from investing activities was CHF 5.5 billion in
2013 compared with a net cash outflow of CHF 14.9 billion in
2012. The 2013 cash inflow was primarily due to the net divest-
ment of financial investments available-for-sale of CHF 6.0 billion.
This includes gross cash inflow from sales and maturities of CHF
7.3 billion and gross cash outflow from purchases of CHF 3.5 bil-
lion predominantly related to longer-term US asset-backed securi-
ties held as financial investments available-for-sale. The remaining
net cash inflow of CHF 2.2 billion almost entirely related to our
multi-currency portfolio of unencumbered, high-quality, short-
term assets managed centrally by Group Treasury.
Financing activities
Net cash flow used in financing activities was CHF 47.6 billion in
2013, primarily due to the net repayment of long-term debt and
financial liabilities designated at fair value of CHF 40.9 billion (is-
suances less redemptions). Furthermore, the net redemption of
short-term debt generated cash outflows of CHF 4.3 billion, divi-
dends paid and redemptions of preferred notes led to cash out-
flows of CHF 1.4 billion and dividends of CHF 0.6 billion were paid
to UBS shareholders. In 2012, financing activities generated net
cash outflows of CHF 38.1 billion.
➔ Refer to the “Statement of cash flows” in the “Financial
information” section of this report for more information
97
Financial and operating performance Financial and operating performance
Wealth Management
Wealth Management
Profit before tax was CHF 2,247 million in 2013, a decrease of CHF 160 million compared with CHF 2,407 million in 2012.
Operating expenses included restructuring charges of CHF 178 million in 2013, while the prior year included a credit to
personnel expenses of CHF 358 million related to changes to our pension and retiree benefit plans as well as restructuring
charges of CHF 26 million. Adjusted for these items, profit before tax increased by CHF 350 million to CHF 2,425 million,
reflecting CHF 522 million higher operating income, partly offset by a CHF 172 million increase in adjusted operating
expenses, which included a charge in relation to the Swiss-UK tax agreement of CHF 107 million. The gross margin
on invested assets declined by 1 basis point to 88 basis points. Net new money was CHF 35.9 billion compared with
CHF 26.3 billion in the prior year.
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 operating profit / (loss) 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
As of or for the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
2,061
4,648
807
57
7,573
(10)
7,563
3,371
1,650
97
190
8
5,316
2,247
(6.6)
70.2
4.4
88
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
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
6
9
4
54
8
7
18
21
(60)
19
14
15
(7)
(1)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to retrospective adoption of new
accounting standards. 2 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for information on restructuring charges. 3 For the definitions of our key performance indica-
tors, 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 (2013: loss of CHF 10
million, 2012: gain of CHF 4 million, 2011: loss of CHF 22 million).
98
Business division reporting 1 (continued)
CHF million, except where indicated
Additional information
Recurring income
Recurring income as a % of income (%)
Average attributed equity (CHF billion) 2
Return on attributed equity (RoAE) (%)
Risk-weighted assets (phase-in, CHF billion) 3
Risk-weighted assets (fully applied, CHF billion) 3
Return on risk-weighted assets, gross (%) 4
Swiss SRB leverage ratio denominator (phase-in, CHF billion) 5
Goodwill and intangible assets (CHF billion)
Net new money (CHF billion) 6
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
31.12.13
31.12.12
31.12.11
31.12.12
5,652
5,277
74.6
3.5
64.2
21.4
20.9
38.7
122.1
1.3
35.9
886
1,023
96.8
189.4
16,414
4,164
75.0
4.0
60.9
18.6
18.2
41.4
1.4
26.3
821
951
86.6
180.2
16,210
4,128
5,406
70.8
5.0
52.7
1.4
23.5
750
875
75.1
170.2
15,904
4,202
7
(13)
15
15
(7)
8
8
12
5
1
1
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to retrospective adoption of new
accounting standards. 2 Refer to the “Capital management” section of this report for more information on the equity attribution framework. 3 Based on the Basel III framework as applicable for Swiss systemically
relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital management” section of this report for more information. 4 Based on Basel III risk-weighted assets (phase-in) for
2013. Based on Basel 2.5 risk-weighted assets for 2012. 5 The leverage ratio denominator is also referred to as ”total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements.
Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting period. Data as of 31 December 2012 are not available on a reporting segment level due to
organizational changes. Refer to the “Capital management” section of this report for more information. 6 Net new money excludes interest and dividend income.
Regional breakdown of key figures 1, 2
As of or for the year ended 31.12.13
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
Emerging markets
1.9
0.6
363
88
1,620
18.5
9.4
218
80
1,032
6.2
4.3
160
95
761
9.4
7.4
135
93
688
of which: ultra
high net worth
33.6
9.3
416
54
892 6
of which: Global
Family Office 3
8.3
19.3
61
36 5
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 63 client advisors, CHF 10 billion of invested assets, and CHF 0.1 billion of net new money outflows. 3 Joint venture between Wealth Management and the Investment Bank. 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 was 20 basis points. 6 Dedicated ultra high net worth units: 638 client advisors. Non-dedicated ultra high net worth units: 254 client advisors.
99
Financial and operating performance Financial and operating performance
Wealth Management
2013 compared with 2012
Results
Operating income
Total operating income was CHF 7,563 million compared with
CHF 7,041 million in 2012, primarily due to higher net fee and
commission income, as well as higher net interest income.
Net interest income increased by CHF 110 million to CHF 2,061
million, mainly due to revenues of CHF 110 million allocated from
the repurchase agreement unit within Group Treasury in Cor-
porate Center – Core Functions. Previously, such revenues were
not allocated to the business divisions. The increase in net interest
income was also due to lower costs related to the multi-currency
portfolio of unencumbered, high-quality, short-term assets man-
aged centrally by Group Treasury. These factors, together with
higher income resulting from increased loan and client deposit
volumes, more than offset the negative effect of a lower deposit
margin resulting from the ongoing low interest rate environment.
Net fee and commission income increased by CHF 373 million
to CHF 4,648 million, mainly due to higher recurring net fee and
commission income, which primarily resulted from a 10% in-
crease in average invested assets, pricing adjustments and sales
efforts. These positive effects were partly offset by the negative
effect of the migration to retrocession-free products for invest-
ment mandates during 2013, as well as lower income due to on-
going outflows of assets from cross-border clients. Non-recurring
net fee and commission income increased due to higher client
activity levels, particularly in Asia Pacific, in the first half of 2013.
Net trading income increased by CHF 29 million to CHF 807
million and included higher income from foreign exchange-relat-
ed products and increased treasury-related income, partly offset
by lower income from precious metals.
Other income increased to CHF 57 million from CHF 37 million
and included higher revenues for other services, as well as a gain
of CHF 25 million related to the divestment of our participation in
Euroclear Plc. This was partly offset by impairments of CHF 10
million related to our global property fund compared with gains
of CHF 4 million in 2012.
Operating expenses
Total operating expenses were CHF 5,316 million, an increase of
CHF 682 million from the prior year. Restructuring charges were
CHF 178 million compared with CHF 26 million in 2012. Adjusted
for restructuring charges and the aforementioned credit related to
changes to our pension and retiree benefit plans of CHF 358 mil-
lion, operating expenses increased by CHF 172 million to CHF
5,138 million, mainly as 2013 included a charge in relation to the
Swiss-UK tax agreement of CHF 107 million.
Personnel expenses increased to CHF 3,371 million from CHF
2,865 million. Excluding restructuring charges and the credit
related to changes to our pension and retiree benefit plans,
personnel expenses increased by CHF 102 million to CHF 3,300
million. This increase included CHF 120 million higher personnel
expenses due to the centralization of our operations units and
higher variable compensation expenses, partly offset by lower
personnel expenses related to technology and control functions.
The centralization of our operations units from the business divi-
sions in the Corporate Center in July 2012 and the subsequent
reallocation of the operations units resulted in increased person-
nel expenses and general and administrative expenses, offset by
decreased net charges from other business divisions as Retail &
Corporate previously provided significant services to Wealth Man-
agement, which are now provided by the Cor porate Center.
➔ Refer to the “Significant accounting and financial reporting
structure changes” section of our Annual Report 2012 for more
information on changes related to the centralization of
operations units
General and administrative expenses increased by CHF 290
million to CHF 1,650 million. This included restructuring charges
of CHF 100 million compared with zero in the prior year. Exclud-
ing restructuring charges, general and administrative expenses
increased by CHF 190 million, mainly due to the aforementioned
CHF 107 million charge in relation to the Swiss-UK tax agreement,
CHF 36 million higher expenses related to the aforementioned
centralization of operations units as well as slightly higher market-
ing and branding expenses.
Charges for services from other business divisions decreased to
CHF 97 million from CHF 243 million, mainly due to CHF 157
million lower allocations following the aforementioned centraliza-
tion of operations units.
Depreciation was CHF 190 million compared with CHF 159
million, largely due to higher amortization of capitalized software,
an impairment of capitalized software and restructuring charges
of CHF 7 million compared with zero in the prior year. Amortiza-
tion of intangible assets was CHF 8 million, a slight increase from
CHF 7 million.
Cost / income ratio
The cost / income ratio was 70.2% compared with 65.8% in the
prior year. Excluding restructuring charges and the effect from the
credit related to changes to our pension and retiree benefit plans
in 2012, the cost / income ratio improved to 67.8% from 70.5%
and was within our target range of 60% to 70%.
Net new money growth
The net new money growth rate increased to 4.4% from 3.5%
and was near the higher end of our target range of 3% to 5%. All
regions contributed to net inflows of CHF 35.9 billion in 2013. The
strongest net inflows were recorded in Asia Pacific followed by
emerging markets, Switzerland and Europe. Net inflows in the Eu-
ropean onshore and the Swiss-based Global Family Office business
in Europe more than offset net outflows in the European cross-bor-
der business, which was negatively affected by ongoing asset out-
100
flows in the context of fiscal and regulatory concerns. On a global
basis, net new money from ultra high net worth clients was CHF
33.6 billion compared with CHF 19.9 billion in the prior year.
target range of 95 to 105 basis points. The calculation excludes
any effect on profit or loss from a property fund.
Personnel
Invested assets
Invested assets were CHF 886 billion as of 31 December 2013,
representing an increase of CHF 65 billion from 31 December
2012. Net new money inflows of CHF 36 billion and positive mar-
ket performance of CHF 34 billion were slightly offset by negative
currency translation effects of CHF 4 billion.
Gross margin on invested assets
The gross margin on invested assets decreased by 1 basis point to
88 basis points, as the increase in average invested assets out-
paced the increase in revenues. The gross margin was below our
Wealth Management employed 16,414 personnel as of 31 De-
cember 2013 compared with 16,210 as of 31 December 2012,
mainly reflecting an increase in non-client-facing staff.
The number of client advisors increased to 4,164 from 4,128,
primarily in the key strategic growth areas of Asia Pacific and
emerging markets, partly offset by reductions in Switzerland. The
number of client advisors in Europe remained stable. The increase
in non-client-facing staff was mainly recorded in Asia Pacific and
emerging markets, in line with the increase in the number of cli-
ent advisors.
101
Financial and operating performance Financial and operating performance
Wealth Management
2012 compared with 2011
Results
Profit before tax was CHF 2,407 million in 2012 compared with
CHF 2,633 million in the prior 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 chang-
es to our pension and retiree benefit plans. Adjusted for these
two items and restructuring charges, profit before tax decreased
by CHF 207 million to CHF 2,075 million, partly reflecting that the
prior year benefited from CHF 103 million of accrued interest
from the aforementioned strategic investment portfolio. Net new
money was CHF 26.3 billion compared with CHF 23.5 billion.
Operating income
Total operating income was CHF 7,041 million in 2012 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 aforemen-
tioned strategic investment portfolio.
Net interest income decreased by CHF 17 million to CHF
1,951 million, mainly as the prior year included CHF 103 million
of interest income stemming from the abovementioned strategic
investment portfolio. Moreover, net interest income was nega-
tively affected by increased costs of CHF 69 million related to
the multi-currency portfolio of unencumbered, high-quality,
short-term 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 product-related interest income, reflecting
the beneficial effects of increases in client deposit and lending
volumes.
Net fee and commission income declined by CHF 88 million to
CHF 4,275 million, mainly due to lower recurring fees on discre-
tionary business, investment funds and non-asset based fees, pri-
marily resulting from the ongoing outflows of assets from
cross-border clients. This was partly offset by 2% higher transac-
tion-based fees due to increased client activity levels in Asia Pacif-
ic throughout the year.
Net trading income decreased by CHF 100 million to CHF 778
million, primarily due to lower treasury-related income and lower
client activity levels following reduced volatility in the foreign ex-
change market.
Other income was CHF 37 million compared with CHF 425
million 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, a decrease of
CHF 378 million from the prior year. Restructuring charges were
CHF 26 million, down from CHF 82 million in the previous year.
Adjusted for these restructuring charges and the aforementioned
credit related to changes to our pension and retiree bene fit plans,
operating expenses 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 prior year. Excluding the abovementioned fac-
tors, personnel expenses decreased by CHF 38 million, primarily
reflecting lower variable compensation expenses as well as re-
duced personnel expenses related to technology and operations
costs. This was partly offset by higher personnel expenses of CHF
129 million due to the aforementioned centralization of opera-
tions units in July 2012. As Retail & Corporate previously provided
significant services to Wealth Management, the centralization
and subsequent reallocation of operations units had the effect of
reducing net charges from other business divisions and increasing
personnel and non-personnel costs in 2012.
General and administrative expenses were CHF 1,360 million
compared with CHF 1,192 million in the prior year. This included
higher investment in marketing and branding and increased
charges for provisions for litigation, regulatory and similar mat-
ters. 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 CHF 175
million lower allocations from the aforementioned centralization
of operations units, partly offset by higher allocations from other
business transfers.
Depreciation was CHF 159 million compared with CHF 165
million in the prior year. Amortization of intangible assets was
CHF 7 million, a decrease from CHF 37 million in 2011, which in-
cluded the impairment of intangible assets related to a past acqui-
sition in the UK.
Cost / income ratio
The cost / income ratio was 65.8% in 2012. On an adjusted basis
excluding restructuring charges, the effect of the credit related to
changes to our pension and retiree benefit 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 above our target range of 60% to 70%.
Net new money growth
The net new money growth rate increased to 3.5% from 3.1%
and remained within our target range of 3% to 5%. The stron-
gest net inflows were recorded in Asia Pacific and emerging mar-
102
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 in the European onshore business. Swiss
wealth management reported increased net inflows compared
with the prior year.
Invested assets
Invested assets were CHF 821 billion as of 31 December 2012,
representing an increase of CHF 71 billion from 31 December
2011. Positive market performance and net new money inflows
were partly offset by negative currency translation effects, mainly
resulting from a slight strengthening of the Swiss franc against
the US dollar and the euro.
the gross margin declined 7 basis points to 89 basis points and
was below 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
Wealth Management employed 16,210 personnel as of 31 De-
cember 2012 compared with 15,904 as of 31 December 2011.
The aforementioned centralization and subsequent reallocation
of personnel from operations units led to an increase of per-
sonnel. Excluding this effect, the number of non-client-advisor
staff and client advisors decreased, mainly reflecting measures
taken as a part of our cost reduction program announced in
July 2011.
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 prior year,
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.
103
Financial and operating performance Financial and operating performance
Wealth Management Americas
Wealth Management Americas
Profit before tax was a record USD 927 million in 2013 compared with the prior record of USD 638 million in 2012.
Adjusted for the effects of restructuring in both years as well as a credit in 2012 related to changes to our retiree
benefit plans in the US, profit before tax increased to USD 991 million from USD 635 million. The adjusted result
reflected a 12% increase in revenues due to higher recurring income and a 7% increase in operating expenses due to
higher financial advisor related compensation, partly offset by lower charges for provisions for litigation, regulatory
and similar matters. Net new money inflows were USD 19.0 billion compared with USD 22.1 billion in the prior year.
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 with 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 operating profit / (loss) before tax
Key performance indicators 5
Pre-tax profit growth (%) 6
Cost / income ratio (%)
Recurring income as a % of income (%)
Net new money growth (%) 7
Gross margin on invested assets (bps)
31.12.13
1,014
5,637
418
36
7,105
(30)
7,075
4,949
2,708
690
1,551
1,001
14
130
53
6,147
927
As of or for the year ended
31.12.12
849
4,925
507
32
6,312
(15)
6,297
4,556
2,399
679
1,477
958
(16)
107
55
5,659
638
45.3
86.5
71.9
2.3
79
21.3
89.7
67.6
2.9
78
31.12.11
828
4,559
509
25
5,921
(6)
5,915
4,348
2,249
609
1,490
887
(11)
112
54
5,389
526
91.0
66.2
1.9
79
% change from
31.12.12
19
14
(18)
13
13
100
12
9
13
2
5
4
21
(4)
9
45
1
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to retrospective adoption of
new accounting standards. 2 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculat-
ed based on financial advisor productivity, firm tenure, assets and other variables. 3 Compensation commitments with recruited financial advisors represents costs related to compensation commitments granted to
financial advisors at the time of recruitment which are subject to vesting requirements. 4 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for information on restruc-
turing 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.
104
Business division reporting – in US dollars 1 (continued)
USD million, except where indicated
Additional information
Recurring income
Average attributed equity (USD billion) 2
Return on attributed equity (RoAE) (%)
Risk-weighted assets (phase-in, USD billion) 3
Risk-weighted assets (fully applied, USD billion) 3
Return on risk-weighted assets, gross (%) 4
Swiss SRB leverage ratio denominator (phase-in, USD billion) 5
Goodwill and intangible assets (USD billion)
Net new money (USD billion) 6
Net new money including interest and dividend income (USD billion) 7
Invested assets (USD billion)
Client assets (USD billion)
Loans, gross (USD billion)
Due to customers (USD billion)
Recruitment loans to financial advisors
Other loans to financial advisors
Personnel (full-time equivalents)
Financial advisors (full-time equivalents)
31.12.13
As of or for the year ended
31.12.12
31.12.11
% change from
31.12.12
5,110
3.0
30.9
27.5
27.3
30.0
64.1
3.8
19.0
44.2
970
1,025
39.1
67.3
3,063
401
16,344
7,137
4,265
6.6
9.6
25.6
25.3
24.9
3.9
22.1
44.8
843
885
34.1
56.6
3,241
532
16,094
7,059
3,921
9.1
5.8
3.9
14.1
34.7
756
795
29.7
41.4
3,098
659
16,207
6,967
20
(55)
7
8
(3)
15
16
15
19
(5)
(25)
2
1
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to retrospective adoption of new
accounting standards. 2 Refer to the “Capital management” section of this report for more information on the equity attribution framework. 3 Based on the Basel III framework as applicable for Swiss systemically rel-
evant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital management” section of this report for more information. 4 Based on Basel III risk-weighted assets (phase-in) for 2013.
Based on Basel 2.5 risk-weighted assets for 2012. 5 The leverage ratio denominator is also referred to as ”total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data
represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting period. Data as of 31 December 2012 are not available on a reporting segment level due to organi-
zational changes. Refer to the “Capital management” section of this report for more information. 6 Net new money excludes interest and dividend income. 7 Presented in line with historical reporting practice in the
US market.
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 with 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 operating profit / (loss) before tax
As of or for the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
936
5,209
387
33
6,565
(27)
6,538
4,574
2,503
638
1,433
924
13
121
49
5,680
858
792
4,597
473
30
5,891
(14)
5,877
4,252
2,239
634
1,379
893
(15)
100
51
5,281
597
729
4,018
450
22
5,219
(6)
5,213
3,830
1,982
536
1,313
783
(9)
99
48
4,750
463
18
13
(18)
10
11
93
11
8
12
1
4
3
21
(4)
8
44
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to retrospective adoption of
new accounting standards. 2 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculat-
ed based on financial advisor productivity, firm tenure, assets and other variables. 3 Compensation commitments with recruited financial advisors represents costs related to compensation commitments granted to
financial advisors at the time of recruitment which are subject to vesting requirements. 4 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for information on restruc-
turing charges.
105
Financial and operating performance Financial and operating performance
Wealth Management Americas
Business division reporting – in Swiss francs 1 (continued)
CHF million, except where indicated
Key performance indicators 2
Pre-tax profit growth (%) 3
Cost / income ratio (%)
Recurring income as a % of income (%)
Net new money growth (%) 4
Gross margin on invested assets (bps)
Additional information
Recurring income
Average attributed equity (CHF billion)5
Return on attributed equity (RoAE) (%)
Risk-weighted assets (phase-in, CHF billion) 6
Risk-weighted assets (fully applied, CHF billion) 6
Return on risk-weighted assets, gross (%) 7
Swiss SRB leverage ratio denominator (phase-in, CHF billion) 8
Goodwill and intangible assets (CHF billion)
Net new money (CHF billion) 4
Net new money including interest and dividend income (CHF billion) 9
Invested assets (CHF billion)
Client assets (CHF billion)
Loans, gross (CHF billion)
Due to customers (CHF billion)
Recruitment loans to financial advisors
Other loans to financial advisors
Personnel (full-time equivalents)
Financial advisors (full-time equivalents)
As of or for the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
43.7
86.5
71.9
2.3
79
28.9
89.6
67.6
2.9
78
4,721
3,980
2.8
30.9
24.5
24.3
30.0
57.2
3.4
17.6
40.8
865
914
34.8
60.0
2,733
358
16,344
7,137
6.2
9.7
23.5
23.2
25.0
3.5
20.6
41.7
772
810
31.2
51.8
2,967
487
16,094
7,059
91.0
66.2
1.8
77
3,454
8.0
5.8
3.7
12.1
30.5
709
746
27.9
38.9
2,907
618
16,207
6,967
1
19
(55)
4
5
(3)
12
13
12
16
(8)
(26)
2
1
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to retrospective adoption of new
accounting standards. 2 For the definitions of our key performance indicators, refer to the “Measurement of performance” section of this report. 3 Not meaningful and not included if either the reporting period or
the comparison period is a loss period. 4 Net new money excludes interest and dividend income. 5 Refer to the “Capital management” section of this report for more information on the equity attribution frame-
work. 6 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital management” section of this report
for more information. 7 Based on Basel III risk-weighted assets (phase-in) for 2013. Based on Basel 2.5 risk-weighted assets for 2012. 8 The leverage ratio denominator is also referred to as ”total adjusted expo-
sure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting period.
Data as of 31 December 2012 are not available on a reporting segment level due to organizational changes. Refer to the “Capital management” section of this report for more information. 9 Presented in line with
historical reporting practice in the US market.
106
2013 compared with 2012
Results
Operating income
Total operating income increased to USD 7,075 million from USD
6,297 million in 2012.
Net fee and commission income increased by USD 712 million
to USD 5,637 million, mainly due to a 20% increase in recurring
fees resulting from higher managed account fees calculated on
higher invested asset levels. Transaction-based revenues increased
2%, primarily due to higher income from equities and structured
products, partly offset by lower income from annuity products.
Net interest income increased by USD 165 million to USD 1,014
million, primarily due to higher client balances in securities-backed
lending and mortgages. The average securities-backed lending
portfolio balance increased 14% and the average mortgage port-
folio balance nearly doubled from 2012. Furthermore, net funding
costs related to the goodwill and intangible assets that arose from
the PaineWebber acquisition are retained in Corporate Center –
Core Functions with effect from 1 January 2013. These increases
were partly offset by lower net interest income from the available-
for-sale portfolio, primarily due to lower average balances.
Net trading income decreased by USD 89 million to USD 418
million, mainly due to trading losses related to the Puerto Rico
municipal market as well as lower income from taxable fixed in-
come and US municipal bond trading.
Other income increased by USD 4 million to USD 36 million.
Recurring income, the combination of recurring fees and net
interest income, increased by USD 845 million to USD 5,110 mil-
lion due to higher managed account fees as well as higher interest
income. Recurring income comprised 72% of income compared
with 68% in the prior year. Non-recurring income decreased by
USD 53 million to USD 1,994 million, primarily due to the above-
mentioned decrease in trading income.
Net credit loss expenses were USD 30 million compared with
net credit loss expenses of USD 15 million in the prior year. The
2013 expenses were largely due to loan loss allowances on secu-
rities-backed lending facilities collateralized by Puerto Rico munic-
ipal securities and related funds.
➔ Refer to the “Risk management and control“ section of this
report for more information on our exposure to Puerto Rico
municipal securities and related funds
Operating expenses
Operating expenses increased by USD 488 million to USD 6,147
million from USD 5,659 million, primarily due to higher financial
advisor compensation corresponding to higher compensable reve-
nues. In 2013, we recorded restructuring charges of USD 64 mil-
lion, compared with restructuring provision releases of USD 1 mil-
lion in 2012.
Excluding the effects of restructuring in both years as well as a
credit to personnel expenses of USD 2 million related to changes
to our retiree benefit plans in the US in 2012, adjusted personnel
expenses were USD 4,933 million, an increase of USD 379 million
from USD 4,554 million due to a 13% increase in financial advi-
sor compensation corresponding to higher compensable reve-
nues, and a 2% increase in expenses for compensation commit-
ments with recruited financial advisors. Recruitment loans to
financial advisors were USD 3,063 million as of 31 December
2013, a decrease of USD 178 million from 31 December 2012.
On an adjusted basis, salaries and other personnel costs increased
4% due to higher other variable compensation expenses and
USD 20 million of costs related to the partial settlement of a pre-
viously discontinued US defined benefit pension plan.
Excluding restructuring charges, non-personnel expenses in-
creased by USD 42 million to USD 1,150 million from USD 1,108
million, mainly due to higher Corporate Center shared services
costs and lower net charges to the Investment Bank after the dis-
continuation of an interdivisional joint venture effective 1 January
2013. These increases were partly offset by USD 70 million lower
charges for provisions for litigation, regulatory and similar matters.
Cost / income ratio
The cost / income ratio improved to 86.5% from 89.7% in 2012.
On an adjusted basis, the cost / income ratio improved to 85.6%
from 89.7% and remained within our target range of 80% to 90%.
Net new money
The net new money growth rate was 2.3% compared with 2.9%
in 2012, and was within the target range of 2% to 4%. Net new
money totaled USD 19.0 billion compared with USD 22.1 billion
in the prior year due to lower inflows from financial advisors em-
ployed with UBS for more than one year as well as lower inflows
from net recruiting of financial advisors, partly offset by higher
inflows from the Global Family Office. Including interest and divi-
dend income, net new money inflows were USD 44.2 billion com-
pared with USD 44.8 billion in the prior year.
107
Financial and operating performance Financial and operating performance
Wealth Management Americas
Invested assets
Invested assets were USD 970 billion as of 31 December 2013, an
increase of USD 127 billion from USD 843 billion as of 31 Decem-
ber 2012, reflecting positive market performance of USD 108 bil-
lion and continued strong net new money inflows. During 2013,
managed account assets increased by USD 60 billion to USD 308
billion as of 31 December 2013, and comprised 32% of invested
assets compared with 29% as of 31 December 2012.
Gross margin on invested assets
The gross margin on invested assets was 79 basis points in 2013,
an increase of 1 basis point from 78 basis points in 2012, and re-
mained within our target range of 75 to 85 basis points. This re-
flected a 13% increase in income compared with a 12% increase
in average invested assets. The gross margin from recurring in-
come increased by 4 basis points due to higher managed account
fees and higher net interest income, while the gross margin from
non-recurring income decreased by 3 basis points, primarily due
to lower trading income.
Personnel
As of 31 December 2013, Wealth Management Americas em-
ployed 16,344 personnel, an increase of 250 from 31 December
2012. Financial advisor headcount increased by 78 to 7,137,
mainly reflecting the hiring of experienced financial advisors and
trainees as well as continued low financial advisor attrition. The
number of non-financial advisor employees increased by 172 to
9,207, mainly due to hiring of wealth strategy associates to fur-
ther enhance advice-based wealth management solutions offered
to target client segments.
108
2012 compared with 2011
Results
Profit before tax was USD 638 million in 2012 compared with
USD 526 million in 2011. This improved performance resulted
from a 6% increase in revenue due to increases in fees and com-
missions. Operating expenses increased 5% due to higher finan-
cial advisor related compensation and higher charges for provi-
sions for litigation, regulatory and similar matters, partly 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 an-
nuity fee income, compared with USD 32 million related to a
change in accounting estimates for certain mutual fund fees in
2011. Net new money inflows of USD 22.1 billion were the high-
est full year total since 2007.
Operating income
Total operating income increased 6% to USD 6,297 million from
USD 5,915 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.
Net interest income increased by USD 21 million to USD 849
million, primarily due to higher client balances in securities-backed
lending and mortgages. The securities-backed lending average
portfolio balance increased 12% and the mortgage average port-
folio balance nearly doubled from 2011. In addition, 2012 includ-
ed lower income from mortgage-backed securities in the avail-
able-for-sale portfolio due to yield adjustments arising from
updated cash flow estimates compared with an upward adjust-
ment reclassifying USD 22 million from other comprehensive in-
come in 2011.
Net trading income decreased by USD 2 million to USD 507
million due to lower municipal securities trading, mostly offset by
higher income from taxable fixed income, unit investment trusts
and emerging market products.
Other income increased by USD 7 million to USD 32 million.
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
68% of income, compared with 66% in 2011. Non-recurring in-
come increased by USD 47 million to USD 2,047 million, primarily
due to higher transaction-based activity.
Credit loss expenses were USD 15 million compared with USD
6 million in 2011, and primarily related to a loan loss allowance
for a single client.
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.
Excluding the effects of restructuring as well as a credit related
to changes to our retiree benefit plans in the US, personnel ex-
penses were USD 4,554 million, up USD 211 million from USD
4,343 million due to a 7% increase in financial advisor compensa-
tion corresponding to higher revenue production, and an 11%
increase in expenses for compensation commitments with recruit-
ed financial advisors. On an adjusted basis, salaries and other per-
sonnel costs declined 1%. Recruitment loans to financial advisors
were USD 3,241 million as of 31 December 2012, an increase of
USD 143 million from 31 December 2011.
Excluding restructuring charges, non-personnel expenses in-
creased USD 70 million to USD 1,108 million from USD 1,038 mil-
lion. General and administrative costs increased 9% on an adjust-
ed basis to USD 963 million from USD 883 million in 2011 due to
higher Corporate Center shared services costs and higher charges
for provisions for litigation, regulatory and similar matters. This
increase was partly offset by lower professional legal fees.
Cost / income ratio
The cost / income ratio improved to 89.7% from 91.0% in 2011.
On an adjusted basis, the cost / income ratio was 89.7% com-
pared with 90.8% in 2011 and moved within our 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
Invested assets were USD 843 billion as of 31 December 2012, an
increase of 12% from USD 756 billion as of 31 December 2011,
reflecting positive market performance and strong net new money
inflows. As of 31 December 2012, managed account assets had
increased by USD 40 billion to USD 248 billion, and comprised 29%
of invested assets compared with 28% as of 31 December 2011.
109
Financial and operating performance Financial and operating performance
Wealth Management Americas
Gross margin on invested assets
The gross margin on invested assets was 78 basis points in 2012,
a decline of 1 basis point from 79 basis points in 2011, and re-
mained within our target range of 75 to 85 basis points. This re-
flected a 7% increase in income compared with an 8% increase
in average invested assets. The gross margin from recurring in-
come increased by 1 basis point as a result of higher managed
account fees and higher annuities fees, while the gross margin
from non-recurring income decreased by 2 basis points from 2011
mainly due to transaction-based revenue.
Personnel
As of 31 December 2012, Wealth Management Americas em-
ployed 16,094 personnel, a decrease of 113 from 31 December
2011. Financial advisor headcount of 7,059 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 decreased by 205 to 9,035,
reflecting staff reductions related to our cost reduction programs.
110
Retail & Corporate
Profit before tax decreased to CHF 1,458 million in 2013 from CHF 1,827 million in the prior year, mainly as 2012 included
a credit to personnel expenses of CHF 287 million related to changes to our Swiss pension plan. Adjusted for this and
restructuring charges of CHF 54 million in 2013 and CHF 3 million in 2012, profit before tax decreased by CHF 31 million
to CHF 1,512 million, as higher operating expenses were only partly offset by higher operating income. The annualized
net new business volume growth rate was 1.8% in 2013.
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 operating profit / (loss) 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) (%)
Risk-weighted assets (phase-in, CHF billion) 6
Risk-weighted assets (fully applied, CHF billion) 6
Return on risk-weighted assets, gross (%) 7
Swiss SRB leverage ratio denominator (phase-in, CHF billion) 8
Goodwill and intangible assets (CHF billion)
Business volume (CHF billion)
Client assets (CHF billion)
Loans, gross (CHF billion)
Due to customers (CHF billion)
Secured loan portfolio as a % of total loan portfolio, gross (%)
Personnel (full-time equivalents)
31.12.13
2,144
1,203
341
86
3,774
(18)
3,756
1,442
875
(162)
143
0
2,298
1,458
As of or for the year ended
31.12.12
2,186
1,198
281
90
3,756
(27)
3,728
1,287
857
(370)
128
0
1,901
1,827
31.12.11
2,328
1,175
333
350
4,186
(101)
4,085
1,702
834
(470)
136
0
2,201
1,884
% change from
31.12.12
(2)
0
21
(4)
0
(33)
1
12
2
(56)
12
21
(20)
(20.2)
60.9
1.56
1.8
0.7
4.1
35.6
31.4
29.7
11.7
164.7
0.0
540
404
136.5
133.2
93.1
9,463
(3.0)
50.6
1.60
4.9
0.7
4.5
40.6
31.9
30.2
13.8
0.0
518
381
137.3
131.1
91.7
10,156
10.2
52.6
1.71
3.5
0.7
5.0
37.7
0.0
468
333
135.3
117.9
90.9
11,430
(9)
(2)
(2)
4
6
(1)
2
(7)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to retrospective adoption of
new accounting standards. 2 Refer to “Note 32 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” section of this report for more information on the equity attribution framework. 6 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December
2012 are on a pro-forma basis. Refer to the ”Capital management” section of this report for more information. 7 Based on Basel III risk-weighted assets (phase-in) for 2013. Based on Basel 2.5 risk-weighted assets
for 2012. 8 The leverage ratio denominator is also referred to as "total adjusted exposure" and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjust-
ed exposure at the end of the three months preceding the end of the reporting period. Data as of 31 December 2012 are not available on a reporting segment level due to organizational changes. Refer to the “Cap-
ital management” section of this report for more information.
111
Financial and operating performance Financial and operating performance
Retail & Corporate
2013 compared with 2012
Results
Operating income
Total operating income increased by CHF 28 million to CHF 3,756
million.
Net interest income was CHF 2,144 million compared with
CHF 2,186 million. The ongoing low interest rate environment
continued to adversely affect the deposit margin. The resulting
lower interest income was partly offset by pricing adjustments
and substantial growth in average deposit volumes. Interest in-
come from loans increased, reflecting slightly higher average vol-
ume and an improved margin. Furthermore, costs related to the
multi-currency portfolio of unencumbered, high-quality, short-
term assets managed centrally by Group Treasury decreased.
Net fee and commission income was CHF 1,203 million, almost
unchanged from CHF 1,198 million, mainly due to higher custody
fee income.
Net trading income increased to CHF 341 million from CHF
281 million, reflecting higher treasury-related income as well as
higher client activity levels in 2013.
Other income was CHF 86 million, broadly unchanged from
CHF 90 million in the prior year, and included a CHF 27 million
gain related to the divestment of our participation in Euroclear
Plc., almost entirely offset by lower income related to our partici-
pation in the SIX Group.
Credit loss expenses were CHF 18 million in 2013 compared
with CHF 27 million in the prior year. 2013 included net specific
loan loss allowances of CHF 113 million, reflecting a number of
new workout cases that were individually reviewed, downgraded
and impaired as well as adjustments on existing positions. This
was largely offset by a net release of CHF 95 million of collective
loan loss allowances based on the ongoing review of the portfo-
lio, as well as the overall improved outlook for relevant industries.
The prior year included net specific loan loss allowances of CHF
43 million, partly offset by a net decrease in collective loan loss
allowances of CHF 16 million. The remaining balance of the col-
lective loan loss allowances amounted to CHF 15 million as of 31
December 2013.
➔ Refer to “Note 1a) 11) Allowances and provisions for credit
losses” in the “Financial information” section of this report for
more information on collective loan loss allowances
sion plan. Adjusted for this and restructuring charges of CHF 54
million in 2013 and CHF 3 million in the prior year, operating ex-
penses increased by CHF 59 million to CHF 2,244 million, mainly
as a result of CHF 45 million higher charges for provisions for liti-
gation, regulatory and similar matters.
Personnel expenses increased by CHF 155 million to CHF 1,442
million, due to the aforementioned credit in 2012 related to
changes to our Swiss pension plan. Adjusted for this item and
restructuring charges, personnel expenses decreased by CHF 148
million to CHF 1,423 million, mainly due to the centralization of
operations units in Corporate Center in July 2012. This centraliza-
tion and subsequent reallocation of the operations units had the
effect of reducing personnel expenses as well as general and ad-
ministrative expenses, and decreasing net charges to other busi-
ness divisions. Moreover, personnel expenses decreased as 2013
included a credit from the release of accruals for untaken vacation
compared with a charge in 2012 when accruals for untaken vaca-
tion were increased. These decreases were partly offset by higher
variable compensation expenses.
General and administrative expenses were CHF 875 million
compared with CHF 857 million in 2012. Adjusted for restructur-
ing charges, general and administrative expenses decreased by
CHF 15 million to CHF 842 million, reflecting the abovemen-
tioned centralization of operations units. This was partly offset by
CHF 45 million higher net charges for provisions for litigation,
regulatory and similar matters. Moreover, costs rose as a result of
increased expenses related to the refurbishment of our branch
network and our multi-channel offering, as well as due to higher
marketing expenses.
Net charges to other business divisions were CHF 162 million,
a decrease from CHF 370 million in the prior year, primarily as a
result of the abovementioned centralization of operations units in
2012.
Depreciation was CHF 143 million, an increase of CHF 15 mil-
lion from the prior year, reflecting higher software depreciation
expenses.
Cost / income ratio
The cost / income ratio was 60.9% compared with 50.6% in the
prior year. On an adjusted basis excluding the credit related to
changes to our Swiss pension plan in 2012 as well as restructuring
charges, the cost / income ratio was 59.5% compared with 58.2%
in the prior year and was within our target range of 50% to 60%.
Operating expenses
Operating expenses increased to CHF 2,298 million from CHF
1,901 million, mainly as 2012 included a credit to personnel ex-
penses of CHF 287 million related to changes to our Swiss pen-
Net interest margin
The net interest margin decreased 4 basis points to 156 basis points,
reflecting the aforementioned reduction in net interest income on a
slightly higher average loan volume. The net interest margin re-
mained within the target range of 140 to 180 basis points.
112
Net new business volume growth
The growth rate for net new business volume was 1.8% com-
pared with 4.9% in 2012. Our retail business recorded a net new
business volume growth rate of 1.9% in 2013 compared with
3.3% in the prior year. Both our retail and corporate businesses
recorded positive net new client assets. Net new loan inflows
were slightly positive for retail clients and slightly negative for cor-
porate clients, reflecting our strategy to grow our business in
high-quality loans moderately and selectively. Net new business
volume growth was within the target range of 1% to 4%.
Personnel
Retail & Corporate employed 9,463 personnel as of 31 December
2013, a decrease of 693 compared with 10,156 as of 31 Decem-
ber 2012, mainly reflecting changes to allocations of centralized
shared services units’ personnel, which led to a decrease of ap-
proximately 500 personnel.
113
Financial and operating performance Financial and operating performance
Retail & Corporate
2012 compared with 2011
Results
Profit before tax decreased by CHF 57 million to CHF 1,827 mil-
lion from CHF 1,884 million in the prior year. In 2012, personnel
expenses benefited from a CHF 287 million credit related to
changes to our Swiss pension plan. In 2011, there was a gain of
CHF 289 million from the sale of our strategic investment portfo-
lio. Adjusted for these items and restructuring charges of CHF 3
million in 2012 and CHF 32 million in 2011, profit before tax de-
creased by CHF 84 million to CHF 1,543 million, mainly as the
prior year benefited from CHF 68 million of accrued interest from
the abovementioned strategic investment portfolio sold in the
third quarter of 2011.
Operating income
Total operating income decreased by CHF 357 million to CHF
3,728 million, mainly due to 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 prior year included interest income of CHF
68 million related to our strategic investment portfolio. Net inter-
est income was also negatively affected by increased costs related
to the multi-currency portfolio of unencumbered, high-quality,
short-term assets managed centrally by Group Treasury and lower
allocations related to investment proceeds from the firm’s equity.
The loan margin was stable, but the historically low interest rate
environment continued to negatively affect the deposit margin.
This was partly offset by growth in average deposit and, to a less-
er extent, loan volumes, as well as a number of pricing adjust-
ments.
Net fee and commission income was CHF 1,198 million, an
increase of CHF 23 million from CHF 1,175 million in 2011, re-
flecting 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.
Credit loss expenses were CHF 27 million in 2012 compared
with CHF 101 million in 2011, mainly reflecting a CHF 16 million
decrease in 2012 and an increase of CHF 82 million in 2011 in
collective loan loss allowances.
➔ Refer to “Note 1a) 11) Allowances and provisions for credit
losses” in the “Financial information” section of this report 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 restruc-
turing charges, adjusted personnel expenses were CHF 1,571 mil-
lion, a decrease of CHF 102 million from CHF 1,673 million in
2011 due to the centralization of operations units in 2012, which
decreased personnel expenses by CHF 176 million. As Retail & Cor-
porate previously provided significant services to other business
divisions, this centralization and subsequent reallocation of the
operations units had the effect of reducing personnel expenses as
well as general and administrative expenses, and decreasing net
charges to other business divisions. This was partly offset by higher
personnel expenses resulting from other business transfers.
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 partly offset by
the effects of other business transfers.
Net charges to other business divisions were CHF 370 million,
a decrease compared with CHF 470 million in the prior year, pri-
marily as a result of the abovementioned centralization of opera-
tions units in 2012, which reduced net charges for services provid-
ed to other business divisions. This was partly 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
information technology equipment.
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 participation in the SIX
Group.
Cost / income ratio
The cost / income ratio improved to 50.6% from 52.6%, reflecting
lower expenses partly offset by lower income. On an adjusted
basis excluding the credit related to changes to our Swiss pension
plan in 2012, the gain from the sale of our strategic investment
114
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%.
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
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-qual-
ity loans. Net new business volume growth exceeded the target
range of 1% to 4%.
Personnel
Retail & Corporate employed 10,156 personnel as of 31 Decem-
ber 2012 compared with 11,430 as of 31 December 2011, main-
ly reflecting the aforementioned centralization and subsequent
reallocation of operations units personnel. We continued to adapt
our cost base to the challenging business environment.
115
Financial and operating performance Financial and operating performance
Global Asset Management
Global Asset Management
Profit before tax was CHF 576 million in 2013 compared with CHF 569 million in 2012. Adjusted for a gain on the sale of
our Canadian domestic business in 2013, restructuring charges in 2013 and 2012 as well as credits related to changes
to pension and benefit plans in 2012, profit before tax was CHF 585 million compared with CHF 543 million in the prior
year. This increase was due to higher performance fees coupled with lower operating expenses. Excluding money
market flows, net new money outflows were CHF 4.8 billion compared with CHF 5.9 billion in the prior year.
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 operating profit / (loss) 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
O’Connor and A&Q
Global real estate
Infrastructure and private equity
Fund services
Total operating income
Gross margin on invested assets (bps)
Traditional investments
O’Connor and A&Q
Global real estate
Infrastructure and private equity
Total gross margin
As of or for the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
1,739
196
1,935
873
448
(17)
47
8
1,359
576
1.2
70.2
(3.4)
1,144
266
317
38
171
1,935
22
95
76
48
33
1,721
162
1,883
885
395
(10)
37
8
1,314
569
32.3
69.8
(2.3)
1,119
268
293
35
169
1,883
23
91
74
44
33
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
1
21
3
(1)
13
70
27
0
3
1
2
(1)
8
9
1
3
(4)
4
3
9
0
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to retrospective adoption of new
accounting standards. 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 ser-
vices offering), gains or losses from seed money and co-investments, funding costs and other items that are not performance fees. 3 Refer to “Note 32 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.
116
Business division reporting 1 (continued)
CHF million, except where indicated
Net new money (CHF billion) 2
Traditional investments
O’Connor and A&Q
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
Invested assets (CHF billion)
Traditional investments
of which: money market funds
O’Connor and A&Q
Global real estate
Infrastructure and private equity
Total invested assets
Assets under administration by fund services
Assets under administration (CHF billion) 3
Net new assets under administration (CHF billion) 4
Gross margin on assets under administration (bps)
Additional information
Average attributed equity (CHF billion) 5
Return on attributed equity (RoAE) (%)
Risk-weighted assets (phase-in, CHF billion) 6
Risk-weighted assets (fully applied, CHF billion) 6
Return on risk-weighted assets, gross (%) 7
Swiss SRB leverage ratio denominator (phase-in, CHF billion) 8
Goodwill and intangible assets (CHF billion)
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
(18.5)
(2.5)
1.2
0.0
(19.9)
(4.8)
0.7
(5.5)
(15.1)
(1.5)
(13.6)
506
65
27
42
8
583
432
3.8
4
1.8
32.0
3.8
3.7
51.1
14.0
1.4
3,729
(11.6)
(2.7)
1.3
(0.2)
(13.3)
(5.9)
(0.6)
(5.2)
(7.4)
0.9
(8.3)
504
83
28
40
8
581
410
7.7
4
2.2
25.9
3.7
3.6
54.4
1.5
3,781
0.0
(0.8)
1.6
3.5
4.3
9.0
12.2
(3.1)
(4.7)
0.2
(5.0)
497
92
31
38
8
574
375
(5.5)
4
2.5
17.2
1.5
3,750
0
(22)
(4)
5
0
0
5
0
(18)
3
3
(7)
(1)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to retrospective adoption of new
accounting standards. 2 Net new money excludes interest and dividend income. 3 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 alternative funds. 4 Inflows of assets under administration from new and existing funds less outflows from existing funds or fund exits. 5 Refer to the
“Capital management” section of this report for more information on the equity attribution framework. 6 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 De-
cember 2012 are on a pro-forma basis. Refer to the ”Capital management” section of this report for more information. 7 Based on Basel III risk-weighted assets (phase-in) for 2013. Based on Basel 2.5 risk-weighted
assets for 2012. 8 The leverage ratio denominator is also referred to as “total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total
adjusted exposure at the end of the three months preceding the end of the reporting period. Data as of 31 December 2012 are not available on a reporting segment level due to organizational changes. Refer to the “Cap-
ital management” section of this report for more information.
117
Financial and operating performance Financial and operating performance
Global Asset Management
2013 compared with 2012
Results
Operating income
Total operating income was CHF 1,935 million compared with
CHF 1,883 million in 2012. Performance fees were higher at CHF
196 million compared with CHF 162 million, mainly due to strong
investment performance in O’Connor and A&Q. Net manage-
ment fees included a gain of CHF 34 million on the sale of our
Canadian domestic business. Excluding this gain, net manage-
ment fees were CHF 16 million lower, as lower fees in O’Connor
and A&Q more than offset higher fees in global real estate.
Operating expenses
Total operating expenses were CHF 1,359 million in 2013 com-
pared with CHF 1,314 million in 2012. Adjusted for restructuring
charges of CHF 43 million in 2013 and CHF 20 million in 2012, as
well as credits of CHF 30 million and CHF 16 million in 2012 relat-
ed to changes to our Swiss pension plan and our retiree benefit
plans in the US respectively, operating expenses were lower at
CHF 1,316 million compared with CHF 1,340 million.
Personnel expenses were CHF 873 million compared with CHF
885 million. Adjusted for restructuring charges and the above-
mentioned credits related to our Swiss pension plan and US retiree
benefit plans, personnel expenses were lower at CHF 863 million
compared with CHF 911 million, mainly due to lower variable
compensation expenses.
General and administrative expenses were CHF 448 million in
2013 compared with CHF 395 million. Adjusted for restructuring
charges of CHF 26 million in 2013, general and administrative ex-
penses were CHF 422 million compared with CHF 395 million. This
increase was mainly due to higher professional fees, higher ETF-
related index licensing fees, and higher fund promotion activity.
Restructuring charges in 2013 included CHF 19 million real es-
tate-related provisions for onerous lease contracts as we rational-
ized our office space in some principal locations.
Depreciation and impairment of property and equipment in-
creased to CHF 47 million from CHF 37 million in the prior year,
primarily due to asset impairments related to the abovementioned
office space rationalization and higher depreciation of software
and information technology equipment.
Cost / income ratio
The cost / income ratio was 70.2% compared with 69.8% in the
prior year. Adjusted for restructuring charges, the gain on sale of our
Canadian domestic business and credits related to our Swiss pen-
sion plan and US retiree benefit plans, the cost / income ratio im-
proved to 69.2% from 71.2% and was within our target range of
60% to 70%.
Net new money
Excluding money market flows, net new money inflows from third
parties were CHF 0.7 billion compared with net outflows of CHF
0.6 billion in 2012. Net inflows, notably from clients serviced from
Europe, Middle East and Africa and from Switzerland, were partly
offset by net outflows from clients serviced from the Americas.
Excluding money market flows, net new money outflows from
clients of UBS’s wealth management businesses were CHF 5.5 bil-
lion compared with CHF 5.2 billion in the prior year. Net outflows,
mainly from clients serviced from Switzerland, were partly offset
by net inflows from clients serviced from the Americas.
Money market net outflows from third parties were CHF 1.5
billion compared with net inflows of CHF 0.9 billion in the prior
year and were mainly from clients serviced from the Americas.
Money market net outflows from clients of UBS’s wealth manage-
ment businesses were CHF 13.6 billion compared with CHF 8.3
billion in the prior year. In both years, net outflows were primarily
due to an ongoing initiative by Wealth Management Americas to
increase deposit account balances in UBS banking entities. This led
to CHF 8.3 billion in outflows from money market funds managed
by Global Asset Management in 2013 and CHF 6.2 billion in 2012.
Total net new money outflows were CHF 19.9 billion com-
pared with CHF 13.3 billion in the prior year. The net new money
growth rate was negative 3.4% compared with negative 2.3%.
Our target net new money growth rate range is 3% to 5%.
Invested assets
Invested assets were CHF 583 billion as of 31 December 2013 com-
pared with CHF 581 billion as of 31 December 2012. Net new
money outflows, combined with negative currency translation ef-
fects of CHF 15 billion and a reduction of CHF 7 billion related to
the aforementioned sale of our Canadian domestic business, were
more than offset by positive market performance of CHF 44 billion.
As of 31 December 2013, CHF 65 billion, or 11%, of invested
assets were money market assets and CHF 166 billion, or 28%,
were in indexed strategies. On a regional basis, 34% of invested
assets related to clients serviced from Switzerland, 24% from the
Americas, 22% from Europe, Middle East and Africa, and 20%
from Asia Pacific.
Gross margin on invested assets
The gross margin of 33 basis points was in line with 2012 and
within our target range of 32 to 38 basis points.
Results by business line
Traditional investments
Operating income was CHF 1,144 million compared with CHF
1,119 million in 2012. Excluding the abovementioned gain on sale
of our Canadian domestic business, net management fees were in
line with the prior year, while performance fees were lower.
118
The gross margin was 22 basis points compared with 23 basis
The gross margin increased to 95 basis points from 91 basis
points, reflecting lower performance fees.
points due to higher performance fees.
Net new money outflows were CHF 18.5 billion compared
with CHF 11.6 billion in the prior year. Excluding money market
flows, net new money outflows were CHF 3.5 billion compared
with CHF 4.3 billion. Equities net inflows, notably to indexed
strategies, were CHF 2.6 billion compared with net outflows of
CHF 1.3 billion. Fixed income net outflows were CHF 6.0 billion
compared with net inflows of CHF 2.4 billion. Multi-asset net out-
flows (which included flows related to alternative investments not
managed by the O’Connor and A&Q, global real estate or infra-
structure and private equity investment areas) were CHF 0.1 bil-
lion compared with CHF 5.4 billion.
Invested assets were CHF 506 billion as of 31 December 2013
compared with CHF 504 billion as of 31 December 2012. By man-
date type, CHF 196 billion of invested assets related to equities,
CHF 135 billion to fixed income, CHF 65 billion to money markets
and CHF 109 billion to multi-asset mandates (including CHF 5
billion of alternative investments not managed by the O’Connor
and A&Q, global real estate or infrastructure and private equity
investment areas).
O’Connor and A&Q
During 2013, the management of the former alternative and
quantitative investments business line was split into its two con-
stituent parts – O’Connor, the single-manager hedge funds busi-
ness, and A&Q hedge fund solutions (A&Q), the multi-manager
hedge funds business. The two businesses continue to be report-
ed together as O’Connor and A&Q.
Operating income was CHF 266 million compared with CHF
268 million in the prior year. Higher performance fees as a result
of strong investment performance, in both A&Q multi-manager
funds and O’Connor single-manager funds, were offset by lower
net management fees as a result of net new money outflows.
Net new money outflows were CHF 2.5 billion compared with
CHF 2.7 billion in the prior year.
Invested assets were CHF 27 billion as of 31 December 2013
compared with CHF 28 billion as of 31 December 2012.
Global real estate
Operating income was CHF 317 million compared with CHF 293
million, due to higher net management and performance fees.
The gross margin increased to 76 basis points compared with 74
basis points in 2012, due to higher operating income. Net new
money inflows were CHF 1.2 billion compared with CHF 1.3 bil-
lion in 2012. Invested assets were CHF 42 billion as of 31 Decem-
ber 2013 compared with CHF 40 billion as of 31 December 2012.
Infrastructure and private equity
Operating income was CHF 38 million compared with CHF 35
million, with the increase reflecting higher net management fees.
The gross margin was 48 basis points compared with 44 basis
points. Net new money flows were zero compared with net out-
flows of CHF 0.2 billion in the prior year. Invested assets were CHF
8 billion as of 31 December 2013, in line with the prior year-end.
Fund services
Operating income was CHF 171 million compared with CHF 169
million, due to higher administration fees resulting from higher
average assets under administration. The gross margin on assets
under administration was 4 basis points, in line with the prior
year. Net new assets under administration inflows were CHF 3.8
billion compared with CHF 7.7 billion in the prior year. Total assets
under administration increased to CHF 432 billion as of 31 De-
cember 2013 from CHF 410 billion as of 31 December 2012,
mainly due to positive market performance and net new assets
under administration inflows.
119
Financial and operating performance Financial and operating performance
Global Asset Management
Personnel
Global Asset Management employed 3,729 personnel as of 31
December 2013 compared with 3,781 as of 31 December 2012,
a net decrease of 52 personnel. The decrease was primarily due to
cost reduction programs in centralized support functions, and a
net reduction in O’Connor and A&Q, partly offset by headcount
increases in fund services and global real estate.
Investment performance
A majority of our active equities strategies performed well versus
their benchmarks in 2013, as the equity market focus continued
to be on company fundamentals. Across core and growth teams,
the performance of global, US and other developed market sin-
gle-country strategies was generally strong versus benchmarks
and ahead of peer averages. Performance was similarly strong in
European concentrated alpha strategies, but core European strat-
egies underperformed benchmarks and peers due to generally
cautious positioning in favor of quality stocks. Core Asian and
emerging markets strategies also underperformed, largely as a
result of portfolio positioning in the financial sector which was
adversely affected by market reaction to the US Federal Reserve’s
tapering announcements. Nevertheless, other Asian and emerg-
ing markets strategies performed well, including growth, small
cap and China equity. On a longer-term basis, most active strate-
gies were close to or ahead of benchmarks over three and five
years. Indexed strategies met their objectives in 2013 by closely
tracking benchmarks.
2013 was a solid year for fixed income, even in the volatile
markets resulting from major political and macroeconomic devel-
opments. A majority of key traditional bond strategies, such as
Australian, Asian, Global, Swiss and US, outperformed their re-
spective benchmarks. Higher alpha strategies, such as high yield
and total return, also performed well. Liquidity and money market
funds continued to achieve their capital preservation objectives.
In global investment solutions, most key multi-asset strategies
managed versus benchmarks were close to those benchmarks for
the year, with some outperforming and some underperforming.
Security selection was the main detracting factor. Key mutual
funds performed strongly versus peers with many in the top quar-
tile. Global convertible strategies maintained their long-term track
record but were marginally below benchmark for the year, having
not held a small number of highly equity-sensitive benchmark
bonds that performed strongly mid-year.
The O’Connor core single-manager hedge funds posted posi-
tive returns and outperformed many peers on an absolute and
risk-adjusted basis. For A&Q’s funds of hedge funds, it was a
strongly positive year for investment performance, both in abso-
lute terms and versus industry benchmarks. Performance was par-
ticularly strong in the broad-based diversified funds that comprise
the majority of A&Q’s assets. The highest-returning funds were in
equity hedged-oriented mandates.
Global real estate’s pan-European direct strategies produced
mixed results in 2013, while the German core logistics fund per-
formed positively for the year. The UK core fund produced a pos-
itive absolute return but underperformed its benchmark, while
the UK value-add strategy produced double-digit absolute re-
turns. The Swiss composite outperformed its benchmark for the
year. US real estate and farmland strategies delivered strong posi-
tive absolute returns in 2013. In Japan, both J-REITs underper-
formed their benchmarks yet produced very strong absolute re-
turns for the year. Multi-manager strategies had positive absolute
returns for the year and the Swiss real estate securities compos-
ite’s performance was positive relative to benchmark.
In infrastructure and private equity, the direct infrastructure
portfolio continued to deliver above target cash distributions,
while continuing to track longer-term total return targets. From
private equity portfolios, it was a year of very high distributions
for both institutional and private banking clients. Infrastructure
multi-manager portfolios continued to be built out, with investors
benefiting from increased distributions from portfolio companies.
120
2012 compared with 2011
Results
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.
Profit before tax was CHF 569 million in 2012 compared with CHF
430 million in 2011. Performance fees were significantly higher,
mainly in O’Connor and A&Q. Net management fees were also
higher. Operating expenses were lower due to lower personnel
costs, which resulted from lower variable compensation expenses
and from credits related to changes to pension and benefit plans.
Cost / income ratio
The cost / income ratio was 69.8% in 2012 compared with 76.2%
in 2011. On an adjusted basis, the cost / income ratio was 71.2%
compared with 74.7%. Our target cost / income ratio range is
60% to 70%.
Operating income
Total operating income was CHF 1,883 million compared with
CHF 1,803 million in 2011. Performance fees were significantly
higher at CHF 162 million compared with CHF 99 million, mainly
due to stronger investment performance in O’Connor and A&Q 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 partly offset by higher general and administrative expenses.
Restructuring charges were CHF 20 million in 2012, mainly asso-
ciated with our cost reduction programs but also including CHF 3
million related to the acquisition of the ING Investment Manage-
ment business in Australia, which was completed in late 2011 and
fully integrated in early 2012. The prior year’s restructuring
charges were CHF 26 million, of which CHF 7 million related to
the same acquisition.
After adjusting for restructuring charges in 2012 and 2011, as
well as credits of CHF 30 million and CHF 16 million in 2012 relat-
ed to changes to our Swiss pension plan and our retiree benefit
plans 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 expenses, partly offset by higher
base salaries, and the abovementioned pension and benefit-relat-
ed 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, regu-
latory and similar matters, and although 2012 included a reversal
of previously recognized expenses related to a past business clo-
sure of CHF 5 million, there was also a similar reversal of CHF 9
million in 2011.
Net charges to other business divisions increased to CHF 10
million in 2012 from CHF 1 million in 2011. The increase was
Net new money
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 serviced from the Americas and Asia Pacific. Exclud-
ing money market flows, net new money outflows from clients of
UBS’s wealth management businesses were CHF 5.2 billion com-
pared with CHF 3.1 billion in 2011. The net outflows in 2012
were mainly from clients serviced from Switzerland and from
O’Connor and A&Q.
Money market net inflows from third parties were CHF 0.9
billion compared with CHF 0.2 billion in 2011 and were mainly
from sovereign clients. Money market net outflows from clients of
UBS’s wealth management businesses were CHF 8.3 billion com-
pared with CHF 5.0 billion in 2011. Net outflows in 2012 were
mainly from clients serviced from the Americas, where an initia-
tive by Wealth Management Americas to deposit client cash in
UBS banking entities led to outflows of CHF 6.2 billion from mon-
ey market funds managed by Global Asset Management, and
from clients serviced from Switzerland.
Total net new money outflows were CHF 13.3 billion com-
pared with net inflows of CHF 4.3 billion in the prior year. The net
new money growth rate was negative 2.3% in 2012 compared
with positive 0.8% in 2011. Our target net new money growth
rate range is 3% to 5%.
Invested assets
Invested assets increased to CHF 581 billion as of 31 December
2012 from CHF 574 billion as of 31 December 2011, mainly due
to positive market performance, partly offset by net new money
outflows and negative currency translation 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 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.
121
Financial and operating performance Financial and operating performance
Global Asset Management
Results by business line
Traditional investments
Operating income increased to CHF 1,119 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 the prior
year.
Net new money outflows were CHF 11.6 billion compared
with zero net flows in the prior year. Excluding money market
flows, net new money outflows were CHF 4.3 billion compared
with net inflows of CHF 4.7 billion. Equities net outflows were
CHF 1.3 billion 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 alternative investments not managed by the O’Connor and
A&Q, global real estate or infrastructure and private equity invest-
ment areas) were CHF 5.4 billion compared with CHF 5.7 billion.
Invested assets were CHF 504 billion as of 31 December 2012
compared with CHF 497 billion as of 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
billion of alternative investments not managed by the O’Connor
and A&Q, global real estate or infrastructure and private equity
investment areas).
O’Connor and A&Q
Operating income was CHF 268 million compared with CHF 253
million. Higher performance fees as a result of strong investment
performance, notably in O’Connor single-manager funds, were
partly offset by the full year impact of the transfer of the infra-
structure and private equity funds of funds businesses from A&Q
to infrastructure and private equity in mid-2011.
The gross margin increased from 76 basis points to 91 basis
points, primarily due to the higher performance fees.
Net new money outflows were CHF 2.7 billion compared with
CHF 0.8 billion in the prior year.
Invested assets were CHF 28 billion as of 31 December 2012
compared with CHF 31 billion as of 31 December 2011, mainly
due to the net new money outflows.
Global real estate
Operating income was 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 higher performance
fees. Net new money inflows were CHF 1.3 billion compared with
CHF 1.6 billion in 2011. Invested assets were CHF 40 billion as of
31 December 2012 compared with CHF 38 billion as of 31 De-
cember 2011. The increase was mainly due to positive market
performance.
Infrastructure and private equity
Operating income was 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 funds of funds
businesses from A&Q in mid-2011. The gross margin decreased
to 44 basis points from 83 basis points, largely due to the afore-
mentioned business transfer and resulting changes in the busi-
ness mix. Net new money outflows were CHF 0.2 billion com-
pared with net inflows of CHF 3.5 billion in 2011. Invested assets
were CHF 8 billion as of 31 December 2012, in line with the prior
year-end.
Fund services
Operating income was CHF 169 million compared with CHF 165
million, mainly due to higher administration fees resulting from
higher average assets under administration. The gross margin on
assets under administration was 4 basis points, in line with the
prior year. Net new assets under administration inflows were CHF
7.7 billion compared with net outflows of CHF 5.5 billion in the
prior year. Total assets under administration increased to CHF 410
billion as of 31 December 2012 from CHF 375 billion as of 31
December 2011, mainly due to positive market performance and
net new assets under administration inflows.
Personnel
Global Asset Management employed 3,781 personnel as of 31
December 2012 compared with 3,750 as of 31 December 2011,
a net increase of 31 personnel. Increases in personnel resulted
from an increased allocation from the Corporate Center following
the centralization of operations units (approximately 50 person-
nel) and the transfer of the Jersey fund services business from
Wealth Management to Global Asset Management. These in-
creases were partly offset by our cost reduction programs, mainly
in the business acquired from ING Investment Management in
Australia.
122
Investment Bank
Profit before tax was CHF 2,300 million in 2013 compared with CHF 267 million in 2012. Adjusted for a gain from the sale
of our remaining proprietary trading business in 2013 and restructuring charges in both years as well as prior year credits
related to changes to our retiree benefit plans in the US and our Swiss pension plan, profit before tax was CHF 2,455
million compared with CHF 398 million. This increase was largely due to higher revenues in Investor Client Services and
lower operating expenses. Fully applied risk-weighted assets (RWA) decreased by CHF 2 billion to CHF 62 billion.
Business division reporting 1
CHF million, except where indicated
Corporate Client Solutions
Advisory
Equity Capital Markets
Debt Capital Markets
Financing Solutions
Risk Management
Investor Client Services
Equities
Foreign Exchange, Rates and Credit
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 operating profit / (loss) before tax
Key performance indicators 3
Pre-tax profit growth (%) 4
Cost / income ratio (%)
Return on attributed equity (RoAE) (%)
As of or for the year ended
31.12.13
31.12.12
2,979
588
1,142
888
599
(239)
5,619
4,030
1,590
8,599
2
8,601
3,984
2,040
3
260
14
6,300
2,300
761.4
73.3
28.7
2,826
638
777
1,009
685
(283)
4,319
2,532
1,787
7,144
0
7,144
4,539
2,312
(202)
214
13
6,877
267
96.3
2.4
% change from
31.12.12
5
(8)
47
(12)
(13)
(16)
30
59
(11)
20
20
(12)
(12)
21
8
(8)
761
31.12.11
2,636
964
574
791
600
(294)
4,177
2,000
2,177
6,813
(10)
6,802
5,026
2,129
(358)
208
15
7,019
(217)
103.0
Return on assets, gross (%)
Average VaR (1-day, 95% confidence, 5 years of historical data) 5
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to retrospective adoption of new
accounting standards or due to a change to report own credit gains and losses as part of Corporate Center – Core Functions. 2 Refer to “Note 32 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 Not meaningful and not included if
either the reporting period or the comparison period is a loss period. 5 Average VaR has not been restated for periods prior to 2013.
(57)
3.3
1.8
2.4
13
30
75
123
Financial and operating performance Financial and operating performance
Investment Bank
Business division reporting 1 (continued)
CHF million, except where indicated
Additional information
Total assets (CHF billion) 2
Average attributed equity (CHF billion) 3
Risk-weighted assets (phase-in, CHF billion) 4
Risk-weighted assets (fully applied, CHF billion) 4
Return on risk-weighted assets, gross (%) 5
Swiss SRB leverage ratio denominator (phase-in, CHF billion) 6
Goodwill and intangible assets (CHF billion)
Compensation ratio (%)
Impaired loan portfolio as a % of total loan portfolio, gross (%) 7
Personnel (full-time equivalents)
As of or for the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
241.1
8.0
62.6
62.3
13.2
275.3
0.1
46.3
0.2
261.5
403.5
10.9
64.9
64.3
12.8
0.1
63.5
0.3
0.1
73.8
1.8
11,615
13,595
14,685
(8)
(27)
(4)
(3)
0
(15)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to retrospective adoption of new
accounting standards or due to a change to report own credit gains and losses as part of Corporate Center – Core Functions. 2 Based on third-party view, i.e., without intercompany balances. Refer to “Note 2
Segment reporting” in the “Financial information” section of this report for more information. 3 Refer to the “Capital management” section of this report for more information on the equity attribution frame-
work. 4 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital management” section of this
report for more information. 5 Based on Basel III risk-weighted assets (phase-in) for 2013. Based on Basel 2.5 risk-weighted assets for 2012. 6 The leverage ratio denominator is also referred to as ”total adjust-
ed exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting
period. Data as of 31 December 2012 are not available on a reporting segment level due to organizational changes. Refer to the “Capital management” section of this report for more information. 7 Refer to the “Risk
management and control” section of this report for more information on impairment ratios.
124
2013 compared with 2012
Results
Operating income
Total operating income increased 20% to CHF 8,601 million from
CHF 7,144 million, mainly as a result of higher equities revenues
within Investor Client Services. On an adjusted basis, excluding a
gain from the sale of our remaining proprietary trading business
in the first half of 2013, total operating income increased 20% to
CHF 8,546 million from CHF 7,144 million. In US dollar terms,
adjusted operating income increased 21%.
Operating expenses
Total operating expenses decreased 8% to CHF 6,300 million
compared with CHF 6,877 million. Adjusted for restructuring
charges of CHF 210 million in 2013 and CHF 273 million in 2012,
a credit of CHF 91 million related to changes to our retiree benefit
plans in the US and a credit of CHF 51 million related to changes
to our Swiss pension plan in 2012, total operating expenses de-
creased 10% to CHF 6,090 million compared with CHF 6,746
million. This reduction was mainly due to our ongoing cost reduc-
tion programs and CHF 241 million lower charges for provisions
for litigation, regulatory and similar matters. These decreases
were partly offset by higher variable compensation expenses, re-
flecting improved business performance. In US dollar terms, ad-
justed operating expenses decreased 9%.
Personnel expenses declined to CHF 3,984 million from CHF
4,539 million. Adjusted for restructuring charges of CHF 9 million
in 2013 and CHF 250 million in 2012, as well as the abovemen-
tioned credits related to changes to our retiree benefit plans in the
US and our Swiss pension plan in 2012, personnel expenses de-
creased to CHF 3,975 million from CHF 4,431 million, largely due
to savings resulting from our ongoing cost reduction programs,
partly offset by higher variable compensation expenses, in line
with improved business performance.
General and administrative expenses decreased to CHF 2,040
million from CHF 2,312 million. Adjusted for restructuring charges
of CHF 177 million in 2013 and CHF 11 million in 2012, general
and administrative expenses decreased to CHF 1,863 million from
CHF 2,301 million, largely due to CHF 241 million lower charges
for provisions for litigation, regulatory and similar matters and
lower professional fees.
Cost / income ratio
The cost / income ratio improved to 73.3% from 96.3%. On an
adjusted basis, the cost / income ratio improved to 71.3% from
94.4%, within our target range of 65% to 85%.
Risk-weighted assets
Fully applied RWA decreased to CHF 62 billion as of 31 Decem-
ber 2013 from CHF 64 billion as of 31 December 2012, primari-
ly due to a reduction in credit risk RWA, partly offset by the in-
cremental RWA resulting from the supplemental operational risk
capital analysis mutually agreed to by UBS and FINMA. Year-end
2013 RWA were within our target of less than CHF 70 billion.
➔ Refer to the “Capital management” section of this report for
more information
Funded assets
Funded assets decreased to CHF 162 billion as of 31 December
2013 from CHF 185 billion as of 31 December 2012 and were
within our target of less than CHF 200 billion. This decline was
largely due to lower collateral trading assets across businesses as
well as due to a reduction in trading portfolio assets in our foreign
exchange, rates and credit business and a reduction in lending
assets in Corporate Client Solutions.
➔ Refer to the “Balance sheet” section of this report for more
information
Return on attributed equity
Return on attributed equity for 2013 was 28.7%, and 30.6% on
an adjusted basis, consistent with our target of more than 15%.
➔ Refer to “Equity attribution framework” in the “Capital
management” section of this report for more information
Operating income by business area
Corporate Client Solutions
Corporate Client Solutions revenues increased 5% to CHF 2,979
million from CHF 2,826 million, largely due to higher revenues in
equity capital markets. In US dollar terms, revenues increased 6%.
Advisory revenues declined 8% to CHF 588 million from CHF
638 million, mainly as the market fee pool decreased 11%.
Equity capital markets revenues increased 47% to CHF 1,142
million from CHF 777 million. This increase was mainly due to a
large private transaction recorded in the first half of 2013.
Debt capital markets revenues decreased 12% to CHF 888 mil-
lion from CHF 1,009 million, largely due to a decline in investment
grade revenues. Leveraged finance revenues were broadly in line
with the prior year.
Financing solutions revenues decreased 13% to CHF 599 mil-
lion compared with CHF 685 million, mainly due to a reduction in
revenues in both the structured financing and real estate finance
businesses.
Risk management revenues improved to negative CHF 239 mil-
lion from negative CHF 283 million, mainly due to lower mark-to-
market losses.
125
Financial and operating performance Financial and operating performance
Investment Bank
Investor Client Services
Investor Client Services revenues increased 30% to CHF 5,619
million from CHF 4,319 million, due to higher revenues in the
equities businesses. In US dollar terms, revenues also increased
30%.
nues increased to CHF 52 million from negative CHF 44 million.
This improvement was mainly due to both higher revenues on
equity investments prior to their transfer to Corporate Center –
Non-core and Legacy Portfolio, and a gain related to the divest-
ment of our participation in Euroclear Plc.
Equities
Equities revenues increased to CHF 4,030 million from CHF 2,532
million, as a result of higher revenues across all businesses and
regions.
Foreign exchange, rates and credit
Foreign exchange, rates and credit revenues decreased to CHF
1,590 million from CHF 1,787 million, mainly due to lower rates
and credit revenues.
Cash revenues increased to CHF 1,374 million compared with
CHF 879 million. Revenues increased due to higher commission
income and an improvement in client trading revenues. In addi-
tion, 2012 included a loss of CHF 349 million related to the Face-
book initial public offering.
Derivatives revenues increased to CHF 1,350 million from CHF
660 million, mainly as a result of higher revenues in Asia Pacific
and Europe, Middle East and Africa. In addition, 2012 included
negative adjustments related to the refinement of our own credit
calculation methodology.
In financing services, formerly called prime services, revenues
increased to CHF 1,199 million from CHF 1,036 million, as a result
of higher trading revenues in equity finance and increased com-
missions in clearing and execution.
Other equities revenues increased to CHF 107 million from
negative CHF 44 million. Adjusted for a gain from the sale of our
former proprietary trading business in 2013, other equities reve-
Foreign exchange revenues declined slightly, primarily due to a
decrease in revenues from the emerging market short-term inter-
est rate business, partly offset by an increase in electronic trading
revenues as volumes rose.
Rates and credit revenues declined, primarily due to weaker
trading performance in the flow businesses. This was partly offset
by negative debit valuation adjustments of CHF 18 million in 2013
compared with negative debit valuation adjustments of CHF 115
million in the prior year.
Personnel
The Investment Bank employed 11,615 personnel as of 31 De-
cember 2013, a decrease of 1,980 compared with 13,595 as of
31 December 2012, mainly as a result of our ongoing cost reduc-
tion programs.
126
2012 compared with 2011
Results
The Investment Bank recorded a profit before tax of CHF 267 mil-
lion in 2012 compared with a loss before tax of CHF 217 million in
2011. Adjusted for restructuring charges as well as credits related
to our retiree benefit plans in the US and our Swiss pension plan,
profit before tax was CHF 398 million in 2012 compared with a
loss before tax of CHF 15 million in 2011, which included a loss of
CHF 1,849 million related to the unauthorized trading incident.
Operating income
Total operating income increased 5% to CHF 7,144 million in
2012 from CHF 6,802 million in 2011. Investor Client Services
revenues, excluding the unauthorized trading incident, decreased
significantly, also as 2012 included a loss of CHF 349 million relat-
ed to the Facebook initial public offering. This decline in Investor
Client Services revenues was partly offset by higher equity capital
markets and debt capital markets revenues within Corporate Cli-
ent Solutions.
Operating expenses
Total operating expenses decreased 2% to CHF 6,877 million in
2012 compared with CHF 7,019 million in 2011. Adjusted for re-
structuring charges of CHF 273 million in 2012 and CHF 202 mil-
lion in 2011, a credit of CHF 91 million related to changes to our
retiree benefit plans in the US and a credit of CHF 51 million relat-
ed to changes to our Swiss pension plan in 2012, total operating
expenses decreased 1% to CHF 6,746 million compared with CHF
6,817 million. This reduction was mainly due to lower personnel
expenses, which were almost entirely offset by higher general and
administrative expenses and lower charges for services to other
business divisions.
Personnel expenses declined to CHF 4,539 million from CHF
5,026 million. Adjusted for restructuring charges of CHF 250 mil-
lion in 2012 and CHF 129 million in 2011 and the aforementioned
credits related to changes to our retiree benefit plans in the US
and our Swiss pension plan in 2012, personnel expenses de-
creased to CHF 4,431 million from CHF 4,897 million, largely due
to lower variable compensation expenses.
General and administrative expenses increased to CHF 2,312
million from CHF 2,129 million. Adjusted for restructuring charges
of CHF 11 million in 2012 and CHF 55 million in 2011, general
and administrative expenses increased to CHF 2,301 million from
CHF 2,074 million, largely due to increased charges for provisions
for litigation, regulatory and similar matters and higher profes-
sional fees.
Cost / income ratio
The cost / income ratio improved to 96.3% from 103.0%. On an
adjusted basis, the cost / income ratio improved to 94.4% from
100.1%.
Operating income by business area
Corporate Client Solutions
Corporate Client Solutions revenues increased 7% to CHF 2,826
million from CHF 2,636 million, largely due to higher revenues in
equity capital markets and debt capital markets which more than
offset lower advisory revenues. In US dollar terms, revenues in-
creased 2%.
Advisory revenues declined 34% to CHF 638 million from CHF
964 million, as our market share declined against a 7% reduction
in the fee pool in US dollar terms.
127
Financial and operating performance Financial and operating performance
Investment Bank
Equity capital markets revenues increased 35% to CHF 777
million from CHF 574 million, mainly as our market share im-
proved against a 15% decline in the fee pool in US dollar terms.
In addition, we increased our participation in private and struc-
tured transactions.
Debt capital markets revenues increased 28% to CHF 1,009
million from CHF 791 million, as our market share improved in
both debt and leveraged capital markets, and the global fee pool
increased 6% in US dollar terms.
Financing solutions revenues increased 14% to CHF 685 mil-
lion compared with CHF 600 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 challeng-
ing due to uncertainty surrounding the eurozone and the global
economic outlook.
Risk management revenues improved to negative CHF 283 mil-
lion from negative CHF 294 million, primarily due to a decrease in
risk management premiums.
Investor Client Services
Investor Client Services revenues increased 3% to CHF 4,319 mil-
lion from CHF 4,177 million, due to higher revenues in the equi-
ties businesses. In US dollar terms, revenues decreased 2%.
Equities
Equities revenues increased by 27% to CHF 2,532 million from
CHF 2,000 million, mainly as 2011 included a loss of CHF 1,849
million related to the unauthorized trading incident.
Cash revenues decreased to CHF 879 million compared with
CHF 1,441 million, due to lower commission revenues resulting
from lower market activity levels as well as a CHF 349 million loss
related to the Facebook initial public offering.
Derivatives revenues decreased to CHF 660 million from CHF
1,060 million. During the year, client activity levels were lower
across all regions, and trading revenues, particularly in Asia Pacific
and Europe, Middle East and Africa, were affected by lower vola-
tility levels.
In financing services revenues increased to CHF 1,036 million
from negative CHF 680 million, mainly as the prior year included
the loss resulting from the unauthorized trading incident. This
was partly offset by lower revenues in 2012, primarily in the clear-
ing business due to lower client activity levels.
Other equities revenues decreased to negative CHF 44 million
from CHF 180 million, primarily reflecting a reduced contribution
from proprietary trading as we continued to exit the business.
Foreign exchange, rates and credit
Foreign exchange, rates and credit revenues decreased 18% to
CHF 1,787 million from CHF 2,177 million, mainly due to lower
rates and credit revenues.
Foreign exchange revenues declined, mainly within foreign ex-
change spot and foreign exchange options as volatility decreased
from the high levels seen in 2011 resulting from eurozone uncer-
tainty. This decrease was partly offset by higher revenues from the
emerging market short-term interest rate business, and electronic
trading revenues as volumes rose.
Rates and credit revenues also declined, primarily due to in-
creased negative debit valuation adjustments and lower revenues
from flow businesses, partly offset by higher revenues from solu-
tions businesses.
Personnel
The Investment Bank employed 13,595 personnel as of 31 De-
cember 2012, a decrease of 1,090 compared with 14,685 as of
31 December 2011, mainly as a result of our ongoing cost reduc-
tion programs.
128
Corporate Center
Corporate Center reporting – Total 1
CHF million, except where indicated
Income excluding own credit
Own credit 2
Credit loss (expense) / recovery 3
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
Amortization and impairment of intangible assets
Total operating expenses 4
Operating profit / (loss) before tax
Additional information
Average attributed equity (CHF billion) 5
Total assets (CHF billion) 6
Risk-weighted assets (phase-in, CHF billion) 7
Risk-weighted assets (fully applied, CHF billion) 7
Swiss SRB leverage ratio denominator (phase-in, CHF billion) 8
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
31.12.13
31.12.12
31.12.11
31.12.12
(380)
(283)
3
(660)
939
2,443
67
55
0
3
3,507
(4,167)
23.3
457.9
84.9
84.2
394.5
24,082
(21,441)
2,640
681
1,537
22
2,240
822
647
521
117
0
19
2,126
114
708.6
2,029
(2,202)
(78)
(251)
910
2,837
355
51
3,030
28
7,210
(7,461)
23.1
691.5
119.3
118.7
25,892
(23,100)
2,792
26,974
(24,130)
2,845
(87)
163
3
(14)
(81)
8
(100)
(89)
(51)
(44)
1
(34)
(29)
(29)
(7)
(7)
(5)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to retrospective adoption of new
accounting standards or due to a change to report own credit gains and losses as part of Corporate Center – Core Functions. 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 as of 31 December 2013 amounted to CHF 0.6 billion. This loss has increased the fair value of financial liabilities designated at fair value recognized on
our balance sheet. Refer to “Note 24 Fair value measurement” in the “Financial information” section of this report for more information. 3 Includes credit loss (expense) / recovery on reclassified and acquired secu-
rities. 4 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for information on restructuring charges. 5 Refer to the “Capital management” section of this report for
more information on the equity attribution framework. 6 Based on third-party view, i.e., without intercompany balances. Refer to “Note 2 Segment reporting” in the “Financial information” section of this report for
more information. 7 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital management” section
of this report for more information. 8 The leverage ratio denominator is also referred to as “total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the
average of the total adjusted exposure at the end of the three months preceding the end of the reporting period. Data as of 31 December 2012 are not available on a reporting segment level due to organizational
changes. Refer to the “Capital management” section of this report for more information.
129
Financial and operating performance Financial and operating performance
Corporate Center
Corporate Center – Core Functions
Corporate Center – Core Functions recorded a loss before tax of CHF 1,854 million in 2013 compared with CHF 3,698 mil-
lion in the prior year. The 2013 loss was mainly due to treasury income remaining in Corporate Center – Core Functions
of negative CHF 902 million, an own credit loss of CHF 283 million and operating expenses remaining in Corporate
Center – Core Functions of CHF 847 million. These negative effects were partly offset by gains on sales of real estate of
CHF 288 million.
Corporate Center reporting – Core Functions 1
CHF million, except where indicated
Treasury income remaining in Corporate Center – Core Functions
Own credit 2
Other
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
Operating profit / (loss) before tax
Additional information
Average attributed equity (CHF billion) 4
Total assets (CHF billion) 5
Risk-weighted assets (phase-in, CHF billion) 6
Risk-weighted assets (fully applied, CHF billion) 6
Swiss SRB leverage ratio denominator (phase-in, CHF billion) 7
Personnel before allocations (full-time equivalents)
Allocations to business divisions and CC – Non-core and Legacy Portfolio (full-time equivalents)
Personnel after allocations (full-time equivalents)
As of or for the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
(902)
(283)
178
(1,007)
424
422
1
0
0
847
(1,854)
12.5
247.4
21.3
20.7
234.5
23,860
(22,804)
1,055
386
1,537
8
1,931
116
161
19
73
0
369
1,562
183.8
688
(2,202)
(175)
(1,689)
282
1,696
21
9
0
2,008
(3,698)
6.6
262.9
16.7
16.2
25,351
(24,863)
488
26,374
(25,969)
405
(87)
(40)
50
(75)
(95)
(100)
(58)
(50)
89
(6)
28
28
(6)
(8)
116
2
(18)
18
100
(8)
5
(58)
Corporate Center – Core Functions – expenses before service allocation to business divisions and CC – Non-core and Legacy Portfolio
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 and
CC – Non-core and Legacy Portfolio 3
Net allocations to business divisions
Total operating expenses 3
4,199
4,327
761
4
9,291
(8,444)
847
4,110
5,302
647
2
10,060
(8,052)
2,008
4,658
3,608
731
0
8,997
(8,628)
369
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes, restatements due to retrospective adoption of new ac-
counting standards or due to a change to report own credit gains and losses as part of Corporate Center – Core Functions. 2 Represents own credit changes on financial liabilities designated at fair value through prof-
it or loss. The cumulative own credit loss for such debt held as of 31 December 2013 amounted to CHF 0.6 billion. This loss has increased the fair value of financial liabilities designated at fair value recognized on our
balance sheet. Refer to “Note 24 Fair value measurement” in the “Financial information” section of this report for more information. 3 Refer to “Note 32 Changes in organization” in the “Financial information” sec-
tion of this report for information on restructuring charges. 4 Refer to the “Capital management” section of this report for more information on the equity attribution framework. 5 Based on third-party view, i.e.,
without intercompany balances. Refer to “Note 2 Segment reporting” in the “Financial information” section of this report for more information. 6 Based on the Basel III framework as applicable for Swiss systemically
relevant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital management” section of this report for more information. 7 The leverage ratio denominator is also referred to as
“total adjusted exposure” and is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the
reporting period. Data as of 31 December 2012 are not available on a reporting segment level due to organizational changes. Refer to the ”Capital management” section of this report for more information.
130
2013 compared with 2012
Results
Operating income
Total operating income was negative CHF 1,007 million in 2013.
Treasury income remaining in Corporate Center – Core Functions of
negative CHF 902 million and an own credit loss on financial liabil-
ities designated at fair value of CHF 283 million were partly offset
by income related to other items of CHF 178 million. Total operat-
ing income in the prior year was negative CHF 1,689 million.
➔ Refer to “Note 24 Fair value measurement” in the “Financial
the aforementioned losses from cross-currency basis swaps and
net losses related to the buyback of debt as well as a decline in
revenues to CHF 22 million from CHF 245 million in the repur-
chase agreement unit, which was transferred from the Investment
Bank to Corporate Center – Core Functions in 2013 and for which
prior period information was restated. Whereas restated results
reflected no allocation of revenues from the repurchase agree-
ment unit to the business divisions, from 2013 onwards revenues
from this unit are allocated to the business divisions, mainly to
Wealth Management. 2013 also included CHF 206 million lower
realized gains on sales of financial investments held in the avail-
able-for-sale portfolio which was transferred from Wealth Man-
agement Americas to Group Treasury during 2013.
information” section of this report for more information on own
➔ Refer to the “Treasury management” section of this report for
credit
more information on funding costs
Treasury income remaining in Corporate Center – Core Func-
tions, after allocations to the business divisions, was negative CHF
902 million. This was mainly due to central funding costs of CHF
510 million, which were retained in Group Treasury, losses of CHF
222 million from cross-currency basis swaps which are held as
economic hedges and net losses of CHF 194 million related to the
buyback of debt in public tender offers. Furthermore, we record-
ed losses of CHF 153 million related to our macro cash flow hedge
models. These negative effects were partly offset by trading gains
of CHF 47 million on derivative instruments which are used to
economically hedge financial investments available-for-sale.
Compared with the prior year, treasury income remaining in
Corporate Center – Core Functions decreased to negative CHF
902 million from positive CHF 688 million. The 2012 result includ-
ed gains of CHF 152 million related to our macro cash flow hedge
models, as opposed to the abovementioned losses in 2013, and
central funding costs retained in Group Treasury of CHF 268 mil-
lion compared with CHF 510 million. Furthermore, 2013 included
We recorded an own credit loss on financial liabilities designat-
ed at fair value of CHF 283 million, primarily due to tightening of
our funding spreads. The prior year included an own credit loss of
CHF 2,202 million when our funding spreads tightened signifi-
cantly.
Operating income excluding own credit and treasury income
was CHF 178 million, largely due to gains on sales of real estate
of CHF 288 million, partly offset by CHF 102 million in net fund-
ing costs related to the goodwill and intangible assets that arose
from the PaineWebber acquisition which are retained in Corpo-
rate Center – Core Functions with effect from 1 January 2013. In
2012, income related to other items was negative CHF 175 mil-
lion, mainly due to charges related to our multi-currency portfolio
of unencumbered, high-quality, short-term assets managed cen-
trally by Group Treasury and charges for certain provisions for
litigation, regulatory and similar matters which were recorded
within other income, partly offset by gains on sales of real estate
of CHF 112 million.
131
Financial and operating performance Financial and operating performance
Corporate Center
Operating expenses before service allocations
On a gross basis, before service allocations to the business divi-
sions and Corporate Center – Non-core and Legacy Portfolio, total
operating expenses decreased by CHF 769 million to CHF 9,291
million, including net restructuring charges of CHF 707 million
compared with CHF 37 million in the prior year. The prior year
included the positive effects from changes to our Swiss pension
plan and our retiree benefit plans in the US of CHF 276 million
and CHF 16 million, respectively. Adjusted for these items, operat-
ing expenses before allocations to the business divisions and Non-
core and Legacy Portfolio were CHF 8,584 million compared with
CHF 10,315 million in the prior year. This decrease of CHF 1,731
million was mainly due to CHF 1,283 million lower charges for
provisions for litigation, regulatory and similar matters, our ongo-
ing cost reduction programs and lower marketing costs.
Personnel expenses increased by CHF 89 million to CHF 4,199
million. Adjusted for net restructuring charges of CHF 129 mil-
lion compared with CHF 24 million in 2012, as well as the
abovementioned positive effects from changes to our Swiss pen-
sion plan and our retiree benefit plans in the US, personnel ex-
penses were CHF 4,070 million in 2013 compared with CHF
4,378 million in the prior year. This decrease of CHF 308 million
was mainly due to further headcount reductions related to our
ongoing cost reduction programs.
General and administrative expenses decreased by CHF 975
million to CHF 4,327 million. On an adjusted basis, excluding net
restructuring charges of CHF 513 million in 2013 and restructur-
ing releases of CHF 1 million in 2012, general and administrative
expenses decreased by CHF 1,489 million, mainly due to CHF
1,283 million lower charges for provisions for litigation, regulato-
ry and similar matters and lower marketing costs.
Depreciation and impairment of property and equipment in-
creased to CHF 761 million from CHF 647 million, mainly due to
real estate-related restructuring charges of CHF 65 million com-
pared with CHF 14 million as well as higher amortization and an
impairment of capitalized software.
The business divisions and Non-core and Legacy Portfolio were
charged CHF 8,444 million for shared services costs, an increase
of CHF 392 million, mainly related to higher restructuring charges,
partly offset by lower cost allocations following reduced person-
nel expenses incurred.
Operating expenses after service allocations
Total operating expenses remaining after allocations to the busi-
ness divisions and Non-core and Legacy Portfolio decreased to
CHF 847 million from CHF 2,008 million. This decrease of CHF
1,161 million was mainly due to CHF 1,283 million lower charges
for provisions for litigation, regulatory and similar matters.
Operating expenses remaining in Corporate Center – Core
Functions are related to Group governance functions and other
corporate activities.
Risk-weighted assets
Fully applied risk-weighted assets (RWA) were CHF 21 billion as of
31 December 2013, CHF 5 billion higher than at the end of the
prior year, mainly due to incremental RWA resulting from the sup-
plemental operational risk capital analysis mutually agreed to by
UBS and FINMA.
➔ Refer to the “Capital management” section of this report for
more information
Personnel
As of 31 December 2013, Corporate Center – Core Functions em-
ployed 23,860 personnel compared with 25,351 as of 31 Decem-
ber 2012. This decrease of 1,491 personnel was mainly related to
our ongoing cost reduction programs. As of 31 December 2013,
22,804 personnel were allocated to the business divisions as well
as Non-core and Legacy Portfolio, based on services consumed.
The 1,055 personnel remaining in Corporate Center – Core Func-
tions after allocations were related to Group governance func-
tions and other corporate activities.
132
2012 compared with 2011
Results
Corporate Center – Core Functions recorded a loss before tax of
CHF 3,698 million in 2012 compared with profit before tax of
CHF 1,562 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 regula-
tory investigations concerning LIBOR and other benchmark rates,
as well as an own credit loss of CHF 2,202 million. Treasury in-
come remaining in Corporate Center – Core Functions was CHF
688 million.
Operating income
Total operating income was negative CHF 1,689 million, mainly
due to an own credit loss on financial liabilities designated at fair
value of CHF 2,202 million and negative income related to other
items of CHF 175 million, partly offset by treasury income remain-
ing in Corporate Center – Core Functions of CHF 688 million. To-
tal operating income in 2011 was CHF 1,931 million.
Treasury income remaining in Corporate Center – Core Func-
tions, after allocations to the business divisions, was CHF 688 mil-
lion. 2012 included revenues of CHF 245 million in the repurchase
agreement unit, which was transferred from the Investment Bank
to Corporate Center – Core Functions in 2013 and for which prior
period information was restated, realized gains of CHF 219 mil-
lion on sales of financial investments held in the available-for-sale
portfolio and gains of CHF 152 million related to our macro cash
flow hedge models.
Compared with the prior year, treasury income remaining in
Corporate Center – Core Functions increased to CHF 688 million
from CHF 386 million. This increase was mainly due to gains of
CHF 152 million related to our macro cash flow hedge models
compared with losses of CHF 52 million and increased realized
gains of CHF 219 million on sales of financial investments held in
the available-for-sale portfolio compared with CHF 81 million.
In 2012, we recorded an own credit loss on financial liabilities
designated at fair value of CHF 2,202 million, primarily due to
tightening of our funding spreads. 2011 included an own credit
gain on financial liabilities of CHF 1,537 million.
Operating income excluding own credit and treasury income
was negative CHF 175 million in 2012, mainly due to charges of
CHF 196 million related to our multi-currency portfolio of unen-
cumbered, high-quality, short-term assets managed centrally by
Group Treasury and charges for provisions for litigation, regulato-
ry and similar matters which were recorded as other income.
These negative effects were partly offset by gains on sales of real
estate of CHF 112 million. Compared with the prior year, income
related to other items decreased to negative CHF 175 million from
positive CHF 8 million, mainly due to the abovementioned charges
related to our multi-currency portfolio of unencumbered,
high-quality, short-term assets and higher charges for provisions
for litigation, regulatory and similar matters.
Operating expenses before service allocations
On a gross basis, before service allocations to the business divi-
sions and Corporate Center – Non-core and Legacy Portfolio, total
operating expenses increased by CHF 1,063 million to CHF 10,060
million in 2012. Adjusted for restructuring charges of CHF 37 mil-
lion in 2012 and CHF 185 million in 2011, as well as the positive
effect in 2012 of the changes to our Swiss pension plan and our
retiree benefit plans in the US of CHF 276 million and CHF 16
million, respectively, operating expenses before allocations to the
business divisions and Non-core and Legacy Portfolio were CHF
133
Financial and operating performance Financial and operating performance
Corporate Center
10,315 million compared with CHF 8,812 million in the prior year.
This increase of CHF 1,503 million was mainly due to CHF 1,417
million higher charges for provisions for litigation, regulatory and
similar matters, increased business demand for information tech-
nology infrastructure services as well as higher marketing costs.
These increases were partly offset by reduced personnel expenses
associated with our ongoing cost reduction programs.
Personnel expenses decreased by CHF 548 million to CHF
4,110 million. On an adjusted basis, excluding restructuring
charges of CHF 24 million in 2012 and CHF 66 million in 2011, as
well as the positive effect in 2012 of the changes to our Swiss
pension plan and our retiree benefit plans in the US of CHF 276
million and CHF 16 million, respectively, personnel expenses were
CHF 4,378 million in 2012 compared with CHF 4,592 million in
the prior year. This decrease of CHF 214 million was mainly due to
reduced personnel expenses associated with our ongoing cost re-
duction programs, 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 the effect related to the cap-
italization of internally generated software in 2012.
General and administrative expenses increased by CHF 1,694
million to CHF 5,302 million. Adjusted for net restructuring releas-
es of CHF 1 million in 2012 and net restructuring charges of CHF
94 million in 2011, general and administrative expenses increased
by CHF 1,789 million, mainly due to CHF 1,417 million higher
charges for provisions for litigation, regulatory and similar matters
largely arising from fines and disgorgement resulting from regula-
tory investigations concerning LIBOR and other benchmark rates.
Further, 2012 included higher marketing costs and increased busi-
ness demand for information technology infrastructure services,
partly offset by the effect of the capitalization of internally gener-
ated software.
Depreciation and impairment of property and equipment de-
creased to CHF 647 million from CHF 731 million, mainly due to low-
er restructuring charges and amortization of software costs in 2011.
The business divisions and Non-core and Legacy Portfolio were
charged CHF 8,052 million for shared services costs, a decrease of
CHF 576 million, primarily reflecting the aforementioned decrease
in personnel expenses.
Operating expenses after service allocations
Total operating expenses remaining after allocations to the busi-
ness divisions and Non-core and Legacy Portfolio increased to CHF
2,008 million from CHF 369 million. This mainly reflects CHF 1,417
million higher charges for provisions for litigation, regulatory and
similar matters as well as CHF 65 million 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
As of 31 December 2012, Corporate Center – Core Functions em-
ployed 25,351 personnel, compared with 26,374 as of 31 Decem-
ber 2011. This decrease of 1,023 personnel was mainly related to
our ongoing cost reduction programs. As of 31 December 2012,
24,863 personnel were allocated to the business divisions as well
as Non-core and Legacy Portfolio, based on services consumed.
The 488 personnel remaining in Corporate Center – Core Func-
tions after allocations were related to Group governance func-
tions and other corporate activities.
134
Corporate Center – Non-core and Legacy Portfolio
Corporate Center – Non-core and Legacy Portfolio recorded a loss before tax of CHF 2,312 million in 2013 compared with a
loss of CHF 3,764 million in the prior year. The 2013 loss was mainly due to total operating expenses of CHF 2,660 million
which included charges of CHF 1,320 million for provisions for litigation, regulatory and similar matters. Operating income
was CHF 347 million, mainly due to gains from the revaluation of our option to acquire the SNB StabFund’s equity, prior to
our exercise of the option. Fully applied risk-weighted assets (RWA) decreased by CHF 39 billion to CHF 64 billion.
Corporate Center reporting – Non-core and Legacy Portfolio 1
CHF million, except where indicated
Non-core
Legacy Portfolio
of which: SNB StabFund option
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
Impairment of goodwill
Amortization and impairment of intangible assets
Total operating expenses 3
Operating profit / (loss) before tax
Additional information
Average attributed equity (CHF billion) 4
Total assets (CHF billion) 5
Risk-weighted assets (phase-in, CHF billion) 6
Risk-weighted assets (fully applied, CHF billion) 6
Swiss SRB leverage ratio denominator (phase-in, CHF billion) 7
Personnel after allocations (full-time equivalents)
As of or for the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
(50)
394
412
344
3
347
515
2,022
65
55
0
3
2,660
(2,312)
10.8
210.5
63.5
63.5
160.0
1,585
1,135
381
539
1,516
(78)
1,439
628
1,141
335
41
3,030
28
5,202
(3,764)
16.5
428.6
102.5
102.5
2,304
928
(642)
(126)
286
22
309
706
486
503
43
0
19
1,756
(1,448)
524.8
2,440
3
(24)
(77)
(76)
(18)
77
(81)
34
(100)
(89)
(49)
(39)
(35)
(51)
(38)
(38)
(31)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports due to adjustments following organizational changes and restatements due to retrospective adoption of new
accounting standards. 2 Includes credit loss (expense) / recovery on reclassified and acquired securities. 3 Refer to “Note 32 Changes in organization” in the “Financial information” section of this report for informa-
tion on restructuring charges. 4 Refer to the “Capital management” section of this report for more information on the equity attribution framework. 5 Based on third-party view, i.e., without intercompany balances.
Refer to “Note 2 Segment reporting” in the “Financial information” section of this report for more information. 6 Based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB). Numbers
for 31 December 2012 are on a pro-forma basis. Refer to the ”Capital management” section of this report for more information. 7 The leverage ratio denominator is also referred to as “total adjusted exposure” and
is calculated in accordance with Swiss SRB leverage ratio requirements. Data represent the average of the total adjusted exposure at the end of the three months preceding the end of the reporting period. Data as of
31 December 2012 are not available on a reporting segment level due to organizational changes. Refer to the “Capital management” section of this report for more information.
135
Financial and operating performance Financial and operating performance
Corporate Center
2013 compared with 2012
Operating income by business unit
Non-core
Total income was negative CHF 50 million in 2013, mainly due to
a negative debit valuation adjustment of CHF 99 million, partly
offset by slightly positive revenues in rates of CHF 17 million and
credit of CHF 15 million. These modestly positive revenues demon-
strate that significant reductions in RWA and balance sheet as-
sets, as well as operational complexity, following the accelerated
implementation of our strategy, were achieved at negligible cost.
In the prior year, Non-core revenues were positive CHF 1,135
million as, during 2012, the portfolios were actively traded and
benefited from increased liquidity, with strong two-way client
flow that resulted in higher revenues.
Credit loss expense / recovery
In 2013, we recorded credit loss recoveries of CHF 3 million, main-
ly in the Legacy Portfolio, due to sales and redemptions of student
loan auction rate securities impaired in prior periods. Net credit
loss expenses were CHF 78 million in 2012, which mainly reflect-
ed an impairment charge related to certain student loan auction
rate securities, subsequently sold to reduce RWA.
Operating expenses
Total operating expenses decreased to CHF 2,660 million from
CHF 5,202 million in the prior year.
Personnel expenses declined by CHF 113 million to CHF 515
million, mainly due to a decrease in front office personnel follow-
ing the accelerated implementation of our strategy and head-
count reductions related to our ongoing cost reduction programs,
as well as restructuring charges of CHF 35 million in 2013 com-
pared with CHF 58 million in the prior year.
Legacy Portfolio
Total income was CHF 394 million in 2013. We exercised our op-
tion to acquire the SNB StabFund’s equity and recorded total option
revaluation gains of CHF 431 million prior to the exercise, partly
offset by a reduction in trading revenues due to an interest charge
of CHF 34 million relating to tax obligations of the SNB StabFund.
General and administrative expenses increased by CHF 881
million to CHF 2,022 million, largely due to charges for provisions
for litigation, regulatory and similar matters of CHF 1,320 million
compared with CHF 634 million, restructuring charges of CHF
173 million compared with zero, as well as an impairment charge
of CHF 87 million related to certain disputed receivables.
Legacy Portfolio income excluding the SNB StabFund option
was negative CHF 18 million, mainly due to mark-to-market loss-
es of CHF 122 million in the municipal portfolios, partly offset by
gains of CHF 84 million from reference-linked note portfolios.
Compared with the prior year, income in the Legacy Portfolio
increased to CHF 394 million from CHF 381 million, mainly as
2012 included losses on collateralized debt obligations (CDO) and
related hedging swaps of CHF 171 million as we exited certain
CDO positions to reduce RWA. In 2012, we recorded gains of CHF
526 million on the revaluation of our option to acquire the SNB
StabFund’s equity.
Charges for services from other business divisions decreased by
CHF 270 million to CHF 65 million, mainly as a result of reduced
consumption of shared services.
Depreciation and impairment of property and equipment in-
creased to CHF 55 million from CHF 41 million, mainly due to re-
structuring charges of CHF 26 million compared with zero in the
prior year.
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
136
Risk-weighted assets
Balance sheet assets
Fully applied RWA for Corporate Center – Non-core and Legacy
Portfolio decreased by CHF 39 billion to CHF 64 billion, signifi-
cantly below our year-end 2013 target of CHF 85 billion.
Non-core RWA decreased by CHF 32 billion to CHF 33 billion
as a result of continued activity targeted at reducing the number
of outstanding over-the-counter derivative transactions by means
of negotiated bilateral settlements with specific counterparties,
third-party novations or trade compressions. These reductions
were partly offset by the effect of the supplemental operational
risk capital analysis mutually agreed to by UBS and FINMA.
Legacy Portfolio RWA decreased by CHF 7 billion to CHF 31 bil-
lion, mainly due to sales and redemptions of student loan auction
rate securities and sales of bonds within the reference-linked
notes portfolios. These reductions were partly offset by the effect
of the supplemental operational risk capital analysis referred to
above.
➔ Refer to the “Risk management and control” and
“Capital management” sections of this report for
more information
Balance sheet assets decreased 51% to CHF 211 billion as of
31 December 2013 from CHF 429 billion as of 31 December
2012. This decrease was mainly due to a CHF 170 billion reduc-
tion in positive replacement values, largely in Non-core, primarily
as a result of significant ongoing unwind, novation and compres-
sion activity during 2013. Funded assets decreased by CHF 39 bil-
lion, mainly as a result of exiting government and other liquid
bond positions along with the sale of distressed assets in Non-
core, as well as sales and redemptions of student loan auction
rate securities in the Legacy Portfolio.
➔ Refer to the “Balance sheet” section of this report for more
information
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio”
in the “Risk management and control” section of this report for
more information
Personnel
As of 31 December 2013, a total of 1,585 personnel were em-
ployed within Non-core and Legacy Portfolio compared with
2,304 as of 31 December 2012. Front office personnel decreased
to 222 from 541 and personnel allocated from centralized shared
services units decreased by 400 to 1,363.
137
Financial and operating performance Financial and operating performance
Corporate Center
2012 compared with 2011
We do not provide a full comparison of 2012 performance versus
2011 as the restated information for both years is not representa-
tive of the way the business was managed during those years and
as such is an estimate of such periods’ performance. Amounts were
determined reflecting a number of assumptions and allocations in
order to achieve comparability with how the business would be
managed in the future.
Results
Corporate Center – Non-core and Legacy Portfolio recorded a loss
before tax of CHF 3,764 million in 2012 compared with CHF
1,448 million in 2011. The 2012 loss was mainly due to total op-
erating expenses of CHF 5,202 million, mainly related to an im-
pairment of goodwill and other non-financial assets of CHF 3,064
million as well as charges of CHF 634 million for provisions for
litigation, regulatory and similar matters. Operating income was
CHF 1,439 million, mainly due to revenues of CHF 1,135 million
in Non-core and gains of CHF 526 million from the revaluation of
our option to acquire the SNB StabFund’s equity. Fully applied
RWA were CHF 103 billion as of 31 December 2012 on a pro-for-
ma basis.
Operating income by business unit
Non-core
Total income was CHF 1,135 million in 2012 as rates and credit
portfolios, which were part of the Investment Bank prior to the
accelerated implementation of our strategy, were actively traded
and benefited from increased liquidity, with strong two-way client
flow. Compared with 2011, income in Non-core increased to CHF
1,135 million from CHF 928 million as a result of improved perfor-
mance in credit with revenues of CHF 671 million compared with
CHF 308 million in the prior year.
Legacy Portfolio
Total income was CHF 381 million in 2012. The revaluation of our
option to acquire the SNB StabFund’s equity resulted in a gain of
CHF 526 million.
Legacy Portfolio income excluding the SNB StabFund option
was negative CHF 158 million. 2012 included losses of CHF 171
million on CDO and related hedging swaps which we exited in
order to reduce RWA.
Compared with the prior year, income in the Legacy Portfolio
increased to CHF 381 million from negative CHF 642 million,
mainly due to gains of CHF 526 million from the revaluation of
our option to acquire the SNB StabFund’s equity in 2012 com-
pared with losses of CHF 133 million in 2011. Additionally, 2011
included a loss of CHF 284 million related to credit valuation ad-
justments for monoline credit protection.
Credit loss expense / recovery
In 2012, we incurred credit loss expenses of CHF 78 million, main-
ly in the Legacy Portfolio, reflecting an impairment charge related
to certain student loan auction rate securities, subsequently sold
to reduce RWA.
Operating expenses
Total operating expenses increased to CHF 5,202 million from
CHF 1,756 million in 2011.
Personnel expenses decreased by CHF 78 million to CHF 628
million, mainly due to a decrease in front office personnel follow-
ing the accelerated implementation of our strategy and head-
count reductions related to our cost reduction programs.
General and administrative expenses increased by CHF 655
million to CHF 1,141 million, largely due to CHF 607 million high-
er charges for provisions for litigation, regulatory and similar mat-
ters and increased professional fees.
Charges for services from other business divisions decreased by
CHF 168 million to CHF 335 million, mainly as a result of reduced
consumption of shared services.
An impairment of goodwill of CHF 3,030 million was recog-
nized in 2012.
➔ Refer to “Note 17 Goodwill and intangible assets” in the “Finan-
cial information” section of this report for more information
138
Risk, treasury
and capital
management
Audited information according to IFRS 7 and IAS 1
Risk and capital disclosures provided in line with the requirements of International Financial Reporting Standard 7 (IFRS 7) Financial
Instruments: Disclosures, and International Accounting Standard 1 (IAS 1) Financial Statements: Presentation form part of the finan-
cial statements audited by our independent registered public accounting firm, Ernst & Young Ltd, Basel. Information that has been
subject to audit is indicated by a bar stating “audited” within this section of the report and is considered part of the audited financial
statements included in the “Financial information” section of this report.
Risk, treasury and capital management
Table of contents
Implementation of the recommendations of the
Enhanced Disclosure Task Force (EDTF)
General
Risk governance and risk management
strategies / business model
Capital adequacy and risk-weighted assets
Liquidity
Funding
146
146 Market risk
Credit risk
147
Other risks
147
Risk, treasury and capital management
key developments
Risk management and control
Overview of risks arising from our business activities
Risk categories
Top and emerging risks
Risk governance
Risk appetite framework
Risk principles and risk culture
Quantitative risk appetite objectives
Risk measurement
Stress testing
Statistical measures
Portfolio and position limits
Risk concentrations
Credit risk
Key developments during the period
163
163 Main sources of credit risk
163
Overview of measurement, monitoring and
management techniques
Credit risk profile of the Group – IFRS view
142
143
143
144
145
148
150
150
152
153
155
156
157
158
159
159
161
161
161
163
164
140
167
172
173
180
181
186
Impaired assets
Past due but not impaired loans
Credit risk profile of the Group – Internal risk view
Credit risk mitigation
Credit risk models
Policies for past due, non-performing and
impaired claims
Key developments during the period
188 Market risk
188
188 Main sources of market risk
188
Overview of measurement, monitoring and
management techniques
189 Market risk exposures arising from
201
196
199
198
203
200
200
our business activities
191 Market risk stress loss
Value-at-risk
191
Stressed VaR
Risks-not-in-VaR
Incremental risk charge
Comprehensive risk measure
Securitization positions in the trading book
Interest rate risk in the banking book
Other market risk exposures
Country risk
Country risk framework
Country risk exposure
Operational risk
Key developments during the period
Sources of operational risk
Operational risk framework
Corporate Center – Non-core and Legacy Portfolio
Non-core
Legacy Portfolio
210
213
213
205
213
210
210
205
210
205
216
216
216
216
217
219
220
220
220
222
225
225
225
226
226
226
226
226
227
228
Treasury management
Liquidity and funding management
Strategy and objectives
Funding
Funding management
Liquidity management, contingency funding and
stress testing
Asset encumbrance
Credit ratings
Liquidity regulatory requirements
Governance
Internal funding and funds transfer pricing
223
223 Maturity analysis of assets and liabilities
225
Currency management
Currency-matched funding and investment of
non-Swiss franc assets and liabilities
Sell-down of reported profits and losses
Hedging of anticipated future reported profits
and losses
Capital management
Capital management objectives
Annual strategic and ongoing capital planning process
Consideration of stress scenarios
Capital adequacy management
Active management of RWA
Active management of sensitivity to
currency movements
229
229
230
230
231
231
231
235
235
237
238
238
239
239
240
241
241
241
242
244
244
245
246
247
249
249
250
Swiss SRB Basel III capital information
Regulatory framework
Capital requirements
Capital ratios
Eligible capital
Common equity tier 1 (CET1) and tier 1 capital
Tier 2 capital
Additional capital information
Differences between Swiss SRB and BIS Basel III capital
Risk-weighted assets
RWA movement by risk type, exposure and
reporting segment
Credit risk
Non-counterparty-related risk
Market risk
Operational risk
RWA movement by key driver, risk type and
reporting segment
Credit risk
Market risk
Key drivers of RWA movement by risk type
Swiss SRB leverage ratio
Requirements
Developments during 2013
Swiss SRB leverage ratio denominator
Equity attribution framework
UBS shares
Holding of UBS shares
Listing of UBS shares
141
Risk, treasury and capital management
Risk, treasury and capital management
Implementation of the recommendations of the Enhanced Disclosure Task Force (EDTF)
Implementation of the recommendations of the
Enhanced Disclosure Task Force (EDTF)
In light of the recommendations of the EDTF, we have made sig-
nificant enhancements to disclosures in this report, including mak-
ing structural changes to this section and introducing a large num-
ber of both new and improved disclosures. Consistent with
Recommendation 1 of the EDTF, where appropriate, we now pre-
sent together those related risk disclosures we consider to be most
relevant to a particular component of our business, including inte-
grating certain disclosures previously presented separately within
our Pillar 3 disclosures or our consolidated financial statements.
Consistent with our financial reporting and disclosure princi-
ples, we regard the enhancement of disclosures as an ongoing
commitment and we expect to make further refinements to our
disclosures in 2014 and beyond.
The index on the following pages summarizes our implementa-
tion of the 32 recommendations of the EDTF, including reference
to related disclosures that support the objectives of each of these
recommendations.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
enhancing our disclosures
➔ Refer to “Information policy” in the “Corporate governance,
responsibility and compensation” section of this report for more
information on our financial disclosure principles
142
General
1
2
3
4
Presentation of related risk information
Wherever possible, our risk information is disclosed primarily in the “Risk, treasury and capital management” section with
related risk information presented together, as explained in the “Significant accounting and financial reporting changes”
section. Information on the following pages summarizes where key disclosures relating to the recommendations of the EDTF
can be found.
Risk terminology
Our “Risk categories” disclosure within the “Risk management and control” section presents our definitions for all risk types,
including information on our management and measurement of these risks. In addition, we provide explanations for the key
parameters used in our risk measurement models in our “Credit risk” and “Market risk” disclosure in the “Risk management
and control” section, as well as assumptions underlying our stress testing scenarios in our “Risk measurement” disclosure
within the same section.
Top and emerging risks
Our “Top and emerging risks” disclosure within the “Risk management and control” section summarizes those risks that we
consider to be “top and emerging,” as contemplated by EDTF recommendations, in relation to our current business activities.
Further information on each of these risks in the relevant other sections is indicated by reference. Investors should consider
carefully all information set out in our “Risk factors” disclosure within the “Operating environment and strategy” section.
Information on future accounting changes is included in “Note 1 Summary of significant accounting policies” in the
“Financial information” section.
Regulatory ratio developments
We have provided extensive information on the key proposed regulatory ratios, (the leverage ratio, the Liquidity Coverage
Ratio (LCR) and the Net Stable Funding Ratio (NSFR)), all of which are still subject to further amendments by the Swiss
authorities. These ratios are described briefly in the “Regulatory and legal developments” and “Risk factors” sections.
Detailed information, including pro-forma disclosure based on current Swiss Financial Market Supervisory Authority (FINMA)
guidance where appropriate, is included in our “Swiss SRB leverage ratio” disclosure within the “Capital management”
section for the leverage ratio and in our “Liquidity regulatory requirements” disclosure within the “Treasury management”
section for the LCR and NSFR. In addition, our leverage ratio denominator is disclosed by business division in our “Overview
of risks arising from our business activities” disclosure within the “Risk management and control” section and in our “Swiss
SRB leverage ratio” disclosure in the “Capital management section,” the key components of our pro-forma LCR and NSFR
are summarized in our “Strategy and objectives” disclosure within the “Treasury management” section and an analysis of the
liquidity asset buffer that supports our pro-forma LCR is disclosed in our “Liquidity management, contingency funding and
stress testing” disclosure within the same section.
Risk governance and risk management strategies / business model
5
6
Risk management organization
Our “Risk governance” disclosure within the “Risk management and control” section summarizes our risk management
organization and provides information on the risk management responsibilities for key roles, including the relevant responsi-
bilities of the business divisions and the functions providing independent oversight.
Risk culture
Our “Risk principles and risk culture” disclosure within the “Risk management and control” section summarizes the tools we
use to ensure that our desired risk culture is embedded within the organization, including our performance measurement and
compensation framework, and provides information on developments during the year. Further information, including a
related illustration of the determination of individual performance awards, is included in the “Corporate responsibility” and
“Compensation” sections.
143
Risk, treasury and capital management Risk, treasury and capital management
Implementation of the recommendations of the Enhanced Disclosure Task Force (EDTF)
7
8
Business model
Our “Overview of risks arising from our business activities” and subsequent disclosure in the “Risk management and control”
section provides extensive information on the key risks arising from our business model, on our risk appetite framework and
on our management of these risks. The “Key risks, risk measures and performance by business division and Corporate
Center” disclosure in the same section provides a summary of the key risks for each business division and the Corporate
Center and relates these business activities to key financial risk measures – risk-weighted assets (RWA), the leverage ratio
denominator, risk-based capital, average tangible attributed equity, total assets and adjusted performance before tax.
Following information on our risk governance, we disclose our five risk management and control principles and detailed
information on our risk appetite objectives covering capital, solvency, earnings, leverage ratio and liquidity.
Stress testing
We consider the use of stress testing within an established risk governance framework to be a more relevant risk
management tool within a bank than the use of standardized regulatory capital calculations. Our “Stress testing” disclosure
within the “Risk management and control” section provides information on our use of stress testing within our risk
governance and capital framework, including detailed information on scenarios used and agreed with the regulators and the
linkage of stress testing results to our risk appetite objectives. In addition, information on our use of stress testing for credit
risk, market risk and liquidity and funding risk is included within our disclosures for each of these risk categories.
Capital adequacy and risk-weighted assets
Minimum capital requirements
Our “Swiss SRB Basel III capital information” disclosure within the “Capital management” section includes information on
our capital requirements, comparison with available capital and information on capital ratios, together with narrative
explanation. We compare our capital requirements under the Swiss SRB rules with those under BIS rules in our disclosure
“Differences between Swiss SRB and BIS Basel III capital” within the same section. Information on the capital surcharge for
our Swiss residential mortgage business is included in our “Capital requirements” disclosure in the “Capital management”
section. Separately, our “Operational risk” disclosure within the “Risk management and control” section includes information
on the incremental RWA resulting from the supplemental operational risk capital analysis mutually agreed to by UBS and
FINMA.
Components of capital
Our “Eligible capital” disclosure within the “Capital management” section includes information on our common equity tier 1,
tier 1 and tier 2 capital, a reconciliation of our IFRS equity to our Swiss SRB Basel III capital showing regulatory adjustments
and a summary listing of our eligible capital instruments. The “Supplemental disclosures required under Basel III Pillar 3
regulations” section includes a balance sheet reconciliation showing the scope of regulatory consolidation.
Flow statement of capital
Our “Eligible capital” disclosure within the “Capital management” section includes a tabular flow statement of our Swiss SRB
Basel III capital movement.
Strategic and capital planning
The sections “Our strategy” and “Capital management” provide information on our capital planning in the context of our
strategy, including our current and target capital ratios and our plans for capital returns.
Risk-weighted assets and related business activities
Our “Risk-weighted assets” disclosure within the “Capital management” section includes information on our RWA and
related capital requirements for each risk type, presented by business division and Corporate Center. This same information is
also presented together with related underlying gross and net exposures in the “Supplemental disclosures required under
Basel III Pillar 3 regulations” section. More detailed information on the related business activities for market risk is presented
in the linked “Market risk exposures arising from our business activities” disclosure within the “Risk management and
control” section. Reflecting our focus on RWA and balance sheet reduction in Non-core and Legacy Portfolio, more detailed
information on these RWA and balance sheet changes is disclosed in “Corporate Center – Non-core and Legacy Portfolio”
within the same section.
9
10
11
12
13
144
14
15
16
17
Capital requirements for each risk type
The “Supplemental disclosures required under Basel III Pillar 3 regulations” section includes information on our RWA and
related capital requirements for each risk type, together with related underlying gross and net exposures. Similar information
is also presented by business division and Corporate Center in our “Risk-weighted assets” disclosure within the “Capital
management” section. Detailed information on significant risk models used is included in “Credit risk,” “Market risk” and
“Operational risk” within the “Risk management and control” section.
Credit risk analysis
The “Supplemental disclosures required under Basel III Pillar 3 regulations” section includes disclosure of our regulatory net
credit exposure by BIS asset class (exposure segment), linking probability of default and loss given default to RWA, using
internal ratings grades based on a 14 point internal scale mapped to external ratings in our “Credit risk models” disclosure.
Flow statement of risk-weighted assets
Our “Risk-weighted assets” disclosure within the “Capital management” section includes a flow statement presenting our
movement in RWA by key driver. Reflecting our focus on RWA and balance sheet reduction in Non-core and Legacy Portfolio,
more detailed information on these RWA and balance sheet changes is disclosed in “Corporate Center – Non-core and
Legacy Portfolio” within the “Risk management and control” section.
Credit risk model performance
Our “Credit risk models” disclosure within the “Risk management and control” section includes extensive information on the
composition of our credit risk models, including backtesting of probability of default, loss given default and credit conversion
factors as well as expected loss analysis.
Liquidity
18
Liquidity needs and reserves
In our “Liquidity and funding management” disclosure within the “Treasury management” section, our liquidity strategy is
described in “Strategy and objectives” and our liquidity management is described in “Liquidity management, contingency
funding and stress testing.” This section also includes disclosure of the composition of the liquidity asset buffer that forms
the basis for our pro-forma LCR disclosed in “Liquidity regulatory requirements,” as well as a summary of the key changes in
this liquidity asset buffer, together with the monthly average amount for the year and information on our liquidity stress
testing. Our internal funding model is described in “Internal funding and funds transfer pricing” in the same section and
limitations on use of funding reserves from a Group perspective are incorporated within the narrative and quantitative “Asset
encumbrance” disclosure.
145
Risk, treasury and capital management Risk, treasury and capital management
Implementation of the recommendations of the Enhanced Disclosure Task Force (EDTF)
Funding
19
20
21
Encumbered and unencumbered assets
Our “Asset encumbrance” disclosure within the “Treasury management” section differentiates our on- and off-balance sheet
assets between those available and those encumbered or otherwise not available to meet future funding and collateral
needs, including the proportion of available assets by type. Further information on our sources and uses of off-balance sheet
collateral is included in “Note 25 Restricted and transferred assets” in the “Financial information” section. Our “Credit
ratings” disclosure within the “Treasury management” section includes information on our potential additional contractual
obligations following credit rating downgrades.
Contractual maturity analysis
Our “Maturity analysis of assets and liabilities” disclosure within the “Treasury management” section provides an analysis of
total assets, liabilities and off-balance sheet commitments by remaining contractual maturity. For risk management purposes
we consider behavioral characteristics to adjust contractual maturities. The assumptions used to support these adjustments
are described in the context of our stress testing in our “Liquidity management, contingency funding and stress testing”
disclosure within the “Treasury management” section.
Funding strategy
In our “Liquidity and funding management” disclosure within the “Treasury management” section, our funding strategy is
described in “Strategy and objectives.” Our “Funding” disclosure within the same section has extensive information on our
funding sources, including product and currency mix, as well as changes in sources of funding during the year and our
management thereof. Further information on our stress testing and contingent funding sources is included in our “Liquidity
management, contingency funding and stress testing” disclosure within the “Treasury management” section.
Market risk
Market risk linkage to the balance sheet
Our “Market risk exposures arising from our business activities” disclosure within the “Risk management and control” section
shows the extent to which business activities in each of our business divisions and Corporate Center contribute to market
risk. This disclosure table distinguishes balance sheet line items between market risk in the banking book and market risk in
the trading book and provides a link to market risk RWA and total asset amounts disclosed in our “Overview of risks arising
from our business activities” within the “Risk management and control” section. There are also linkages from this disclosure
table to our disclosure of RWA for each risk type in the “Supplemental disclosures required under Basel III Pillar 3 regulations”
section and to the related table by business division and Corporate Center in our “Risk-weighted assets” disclosure within the
“Capital management” section. Further information on value-at-risk and related market risk measures, including the deriva-
tion of market risk RWA follows from the disclosure table “Market risk exposures arising from our business activities” within
the “Risk management and control” section.
Market risk analysis
Our disclosure table “Market risk exposures arising from our business activities” within the “Risk management and control”
section presents trading and non-trading market risk factors relevant to our business activities. The subsequent pages provide
both quantitative and qualitative information on each of these risk factors, including the derivation of market risk RWA for
each risk category, risk sensitivities for banking book exposures and “Other market risk exposures” disclosure for own credit,
equity investments, debt investments, pension risk and own share exposure.
Market risk measurement model performance
Our “Market risk” disclosure within the “Risk management and control” section includes extensive qualitative and
quantitative information on each of our market risk measurement models including information on methodology, key
assumptions, model limitations and changes and backtesting.
Other market risk management techniques
Our “Market risk stress loss” disclosure within the “Risk management and control” section provides information on our
primary measure of stress loss for market risk – our liquidity adjusted stress framework. Further information on our broader
stress testing framework and how this is incorporated within our risk appetite framework is included in our “Risk
measurement” disclosure within the same section. In addition, our disclosure on market risk measurement models provides
both qualitative and quantitative information on stressed value-at-risk, the incremental risk charge and the comprehensive
risk measure.
22
23
24
25
146
Credit risk
26
27
28
29
30
Analysis of credit risk exposures
Our “Credit risk profile of the Group – IFRS view” disclosure within the “Risk management and control” section provides a
summary for on- and off-balance sheet maximum exposure to credit risk, as well as information on collateral, credit
enhancements, ratings, impaired assets and allowances. More detailed disclosures on the composition of our loan and
over-the-counter (OTC) derivative portfolios at a business division or Corporate Center level follow, including information on
loan type, loan-to-value, net exposure at default and counterparty geographical region and industry sector. Further
information on our largest loan portfolio, being our mortgage loan portfolio in Switzerland, is also included. Our “Credit risk
models” disclosure within the “Risk management and control” section includes information on stress testing.
Policies for impaired and non-performing loans
Our disclosure “Policies for past due, non-performing and impaired claims” within the “Risk management and control”
section provides a summary of our policies, with further detail included in “Note 1 Summary of significant accounting
policies” in the “Financial information” section.
Analysis of impaired and non-performing loans
Our disclosure “Development of individually impaired loans” within the “Risk management and control” section presents a
reconciliation of impaired loans during the year. Further information on impaired and non-performing loans, as well as credit
allowances, is also included in our “Credit risk profile of the Group – IFRS view” disclosure within the same section.
Counterparty credit risk from derivative transactions
Our disclosure on derivatives exposures is primarily in “Note 14 Derivative instruments and hedge accounting” and “Note 26
Offsetting financial assets and financial liabilities” in the “Financial information” section, with additional information,
including our use of central counterparties, in our “Credit risk mitigation” disclosure within the “Risk management and
control” section. The majority of our counterparty risk from OTC derivatives arises in the Investment Bank and Corporate
Center – Non-core and Legacy Portfolio, on which further information is included in our “Traded products” disclosure within
the “Risk management and control” section.
Credit risk mitigation
Our “Credit risk mitigation” disclosure within the “Risk management and control” section provides information on our use of
collateral and credit hedging, including loan-to-value and other credit risk mitigation information. We also discuss in this
section our approach to monitoring collateral concentrations in our lending portfolios secured by securities collateral.
Other risks
31
32
Other risks
Our “Risk categories” disclosure within the “Risk management and control” section presents our definitions for risk types to
which we are exposed. This disclosure also provides information on our management and measurement of these risks
including which function provides independent oversight and whether the risk is specifically included in the risk appetite
framework. Further information is included within the relevant sections.
Publicly known risk events
Our disclosure in “Note 22 Provisions and contingent liabilities” in the “Financial information” section provides extensive
information on those matters management considers to be material or considers otherwise significant due to potential
financial, reputational or other effects. Our “Operational risk” disclosure includes information on the remediation program
following the Investment Bank’s unauthorized trading incident and our “Risk principles and risk culture” disclosure
summarizes the tools we use to ensure that our desired risk culture is embedded within the organization.
147
Risk, treasury and capital management Risk, treasury and capital management
Risk, treasury and capital management key developments
Risk, treasury and capital management
key developments
In line with our strategy, we actively managed down risks within Non-core and Legacy Portfolio, maintained a low level
of market risk within our Investment Bank and experienced moderate increases in lending within our wealth manage-
ment businesses. As our balance sheet assets have reduced, we have generated capacity within our liquidity and
funding positions, enabling us to execute tender offers to repurchase certain outstanding long-term debt in 2013, which
lowers our interest expense and allows us to optimize our funding liability structure for the future. Our strong capital
position provides us with a solid foundation for growing our business and enhancing our competitive positioning. At
the end of 2013, our common equity tier 1 (CET1) capital ratio was 18.5% on a phase-in basis and 12.8% on a fully
applied basis, a significant increase compared with yearend 2012 proforma ratios and the highest in our peer group.
At the same time, strengthening our operational control framework remained a primary focus, with substantial progress
made in remediating identified operational risk issues.
Key developments in 2013 included the following.
Credit risks
Non-core and Legacy Portfolio
During 2013, we actively managed down risks within Non-core
and Legacy Portfolio, exceeding our year-end targets for balance
sheet and risk-weighted assets (RWA) reductions. We disposed of
our more liquid cash and loan positions and sold a significant por-
tion of the distressed portfolio and student loan auction rate se-
curities, alongside the steady run-off of the Non-core loan book.
Exposures to over-the-counter derivative contracts were reduced
through negotiated bilateral settlements, portfolio compressions
and negotiated assignments and novations. In the fourth quarter,
we exercised our option to acquire the equity of the SNB Stab-
Fund from the Swiss National Bank. The fair value of the option
was previously deducted from our CET1 capital and its exercise
resulted in a CET1 capital increase of CHF 2.1 billion compared
with our CET1 capital as of 31 December 2012. The additions to
our RWA as a result of the exercise were de minimis.
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio” in
the “Risk management and control” section of this report for
more information
Market risks
In line with our strategy, we maintained a low level of market risk
in our trading businesses, with the risk profile of the Investment
Bank reducing and migrating towards less complex and more cli-
ent-oriented businesses. Average exposure levels of our stress loss
and statistical (value-at-risk) measures roughly halved over the
course of the year.
➔ Refer to “Market risk” in the “Risk management and control”
section of this report for more information
Credit risk continues to account for the vast majority of Basel III
RWA although our net credit loss expenses remained low, totaling
CHF 50 million for the year. Our impaired loan portfolio decreased
by CHF 0.4 billion to CHF 1.2 billion.
Our lending exposure arises mainly from our Swiss domestic
business, which offers corporate loans and mortgage loans se-
cured against residential properties and income-producing real
estate, and is therefore tied to the health of the Swiss economy.
Although these domestic lending portfolios continued to perform
well and net credit loss expenses remain low, we are closely mon-
itoring macroeconomic developments in our home market. These
include signs of a deceleration in the growth in Swiss real estate
prices in some regions, a rising trend in the UBS Swiss Real Estate
Bubble Index, the Swiss National Bank’s increase of the countercy-
clical capital buffer from 1% to 2% effective 30 June 2014, along
with implications of any return of crisis conditions within the eu-
rozone on export markets, and the potential implications of the
recent decision to reinstate immigration quotas for European
Union / European Economic Area countries.
In our wealth management businesses outside Switzerland, we
experienced moderate increases in credit exposures in line with
our strategy to grow our lending businesses. Within the Invest-
ment Bank, our credit exposure is predominantly investment
grade, but includes loan underwriting characterized by concen-
trated exposure to lower-rated credits, albeit of a temporary na-
ture. Distribution of these loans through syndication and securiti-
zation continued to be sound.
➔ Refer to “Credit risk” in the “Risk management and control”
section of this report for more information
148
Treasury risk control framework
Risk appetite framework
Our treasury risk control framework has been further developed
and extended, providing holistic risk control for all treasury activi-
ties and non-traded market risk portfolios across the Group. Key
enhancements during the year were the introduction of a central-
ized balance sheet simulation tool and additional monitoring of
the effect of rising rates scenarios on our treasury portfolios. Our
exposure to fair value losses on our Financial investments avail-
able-for-sale (AFS) portfolios as interest rates rise is limited as the
interest rate risk of our largest AFS portfolio, our global liquidity
reserve, is substantially hedged.
In 2013, we updated our risk appetite objectives to align with the
Swiss systemically relevant banks (SRB) Basel III capital and liquid-
ity requirements that came into force on 1 January 2013. In addi-
tion, we further cascaded the risk appetite objectives into the divi-
sions by establishing stress-based risk appetite triggers at business
division level. The trigger levels were set based on forecasted risk
exposure levels as embedded in our strategic plan.
➔ Refer to the “Risk management and control” section of this
report for more information
➔ Refer to the “Risk management and control” section of this
Sources of funding
report for more information
Consequential risks
Operational risk is an inevitable consequence of being in business
and managing it is a core element of our business activities, imple-
mented through our operational risk framework and an effective
front-to-back control environment.
The impact of operational risk remains at elevated levels, in-
cluding that arising from pending or potential litigation and regu-
latory risks as discussed in “Top and emerging risks” in the “Risk
management and control” section of this report. Accordingly,
strengthening our operational risk control framework remained a
primary focus during 2013, with substantial progress made in
implementing a range of measures to enhance the Group’s risk
management and control processes and drive the right behaviors
to protect our reputation while delivering on our strategic goals.
A program of independent management testing for key proce-
dural controls commenced in 2013, focused on areas deemed to
have the highest levels of inherent risk. Any material control defi-
ciencies identified are recorded in a central inventory, and as-
signed senior management ownership, which is reflected in the
respective employees’ annual performance measurement and
management objectives, to ensure effective and sustainable re-
mediation.
Significant progress was made on the remediation programs
for operational risk issues, resulting in the completion of many
remediation activities. In particular, the Investment Bank’s unau-
thorized trading incident remediation program has been complet-
ed and this has further enhanced the Group’s ability to detect or
prevent such incidents. Independent third-party reviews have
been completed with no material issues identified.
➔ Refer to “Operational risk” in the “Risk management and
control” section of this report for more information
During 2013, the composition of our funding sources moved to-
wards less reliance on wholesale funding. The implementation of
our strategy has driven a reduction in secured funding needs, as
well as lower issuances of short-term and structured debt and the
repurchase of unsecured debt. At the same time, our Retail &
Corporate and wealth management businesses continued to at-
tract new customer deposits.
➔ Refer to the “Treasury management” section of this report for
more information
Liquidity management
We continued to maintain a sound liquidity position throughout
the year. As of 31 December 2013, our liquidity asset buffer, that
is derived from high-quality liquid assets (HQLA) and supports our
estimated pro-forma regulatory LCR, was CHF 153 billion, with
additional available funding of CHF 54 billion. In aggregate, these
sources of available liquidity represented 28% of our funded bal-
ance sheet assets.
➔ Refer to the “Treasury management” section of this report for
more information
Capital management
During 2013, we managed our capital according to our capital
ratio targets, making progress towards meeting the Swiss SRB Ba-
sel III fully applied capital requirements and achieving a CET1
capital ratio of 18.5% on a phase-in basis and 12.8% on a fully
applied basis. We have a strong track record of RWA reduction,
surpassing our 2013 Basel III RWA targets well ahead of schedule
and demonstrating progress towards achieving our RWA target of
less than CHF 200 billion by 2017 on a fully applied basis, despite
the incremental RWA resulting from the supplemental operational
risk capital analysis mutually agreed to by UBS and FINMA.
➔ Refer to the “Capital management” section of this report for
more information
149
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Risk management and control
Overview of risks arising from our business activities
Our business is constrained by the capital we have available to
cover risk-weighted assets (RWA) resulting from the risks in our
business, by the size of our on- and off-balance sheet assets
through their contribution to leverage ratio requirements and
regulatory liquidity ratios, and by our risk appetite. Together, these
constraints create a close link between our strategy, the risks that
our businesses take and the balance sheet and capital resources
that we have available to absorb those risks.
As described in “Equity attribution framework” in the “Capital
management” section of this report, our equity attribution frame-
work reflects our objectives of maintaining a strong capital base
and guiding businesses towards activities that appropriately bal-
ance profit potential, risk, balance sheet and capital usage. The
framework establishes this link through the inclusion of phase-in
Basel III RWA, Swiss SRB leverage ratio denominator (LRD) and
risk-based capital (RBC), an internal measure of risk similar to eco-
nomic capital, as three key drivers for the allocation of tangible
equity to our business divisions. In addition to tangible equity, we
allocate equity to support goodwill and intangible assets as well
as certain capital deduction items to arrive at equity attributed to
the business divisions and Corporate Center.
The table on the next page presents the linkage for each of our
business divisions and Corporate Center between their risk expo-
sures, the constraints described above and their performance. In
addition to the key risks arising in each business division and Cor-
porate Center, it presents together the key drivers of tangible at-
tributed equity, being RWA, LRD and RBC, as well as tangible at-
tributed equity, total assets and adjusted operating profit before
tax. We present tangible attributed equity because we consider it
to be more closely correlated with the risk measures applied. This
enables an understanding of how the activities in our business
divisions and Corporate Center are reflected in our risk measures
and the performance of the business divisions and Corporate
Center in the context of these requirements.
➔ Refer to the “Capital management” section of this report for
more information on RWA, LRD and our equity attribution
framework
➔ Refer to “Statistical measures” in this section for more
information on RBC
➔ Refer to the table “Adjusted results” in the “Group performance”
section of this report for more information
150
Key risks, risk measures and performance by business division and Corporate Center
Business divisions
and Corporate
Center
Key risks arising
from business
activities
Wealth
Management
Credit risk from
lending against
securities collateral
and mortgages,
and a small
amount of
derivatives trading
activity. Minimal
contribution
to market risk
Wealth
Management
Americas
Credit risk from
lending against
securities collateral
and mortgages
Market risk
from municipal
securities and
closed-end fund
secondary trading
Retail &
Corporate
Global Asset
Management
Investment Bank
CC – Core
Functions
Small amounts
of credit and
market risk
Credit risk from
retail, mortgage,
secured and
unsecured
corporate lending,
and a small
amount of
derivatives trading
activity
Credit risk from
lending, derivatives
trading
and securities
financing
Market risk
from trading in
equities, fixed
income, foreign ex-
change (FX)
and commodities
Credit and
market risks from
Group Treasury’s
balance sheet,
capital, and
profit and loss
management
responsibilities
Liquidity, funding
and structural
FX risk are
managed centrally
within Group
Treasury
CC – Non-core
and Legacy
Portfolio
Credit risk from
remaining lending
and derivatives
exposures
Market risk is
mainly from
Non-core
exposures, is
materially hedged
and primarily
relates to liquid
market factors
Operational risk is an inevitable consequence of being in business, as losses can result from inadequate or failed internal processes, people and systems, or from external events.
It can arise as a result of our past and current business activities across all business divisions and Corporate Center
CHF billion
As of or for the year ended 31.12.13
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Phase-in Basel III RWA
of which: credit risk
of which: market risk
of which: operational risk
Swiss SRB leverage ratio
denominator 2
Risk-based capital
Average tangible attributed equity
Total assets
Operating profit / (loss) before tax
(adjusted)
21.4
11.9
0.0
9.2
122.1
1.7
2.7
109.8
2.4
24.5
8.1
1.6
14.8
57.2
1.2
2.2
45.5
0.9
31.4
29.9
0.0
1.4
164.7
3.7
4.1
141.4
1.5
3.8
2.7
0.0
1.1
14.0
0.6
0.5
14.2
0.6
Investment
Bank
62.6
35.5
7.6
19.4
275.3
6.5
7.9
241.1
2.5
CC – Core
Functions
CC – Non-core
and Legacy
Portfolio
21.3
4.8
(4.9) 1
9.2
234.5
13.6
8.7
247.4
(1.6)
63.5
31.3
9.4
22.8
160.0
4.6
10.8
210.5
(2.1)
1 Negative market risk numbers are due to the diversification effect allocated to CC– Core Functions. 2 Swiss SRB leverage ratio denominator is the average for the fourth quarter of 2013.
151
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Risk categories
We categorize the risks faced by our business divisions and Corporate Center as outlined in the table below.
Risk definitions
Primary risks: the risks that our businesses may take in pursuit of their business objectives
Credit risk: the risk of loss resulting from the failure of a client or counterparty to meet its contractual
obligations. This includes settlement risk and loan underwriting risk:
Settlement risk: the risk of loss resulting from 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
Loan underwriting risk: the risk of loss arising during the holding period of financing transactions
which are intended for further distribution
Market risk: the risk of loss resulting from changes in general market risk factors (e.g., interest rates,
equity index levels, exchange rates, commodity prices and general credit spreads) and changes in prices
of debt and equity instruments which result from factors and events specific to individual companies or
entities. Market risk includes issuer risk and investment risk:
Issuer risk: the risk of loss from changes in fair value resulting from credit-related events affecting
an issuer or group of related issuers, including sovereigns, to which we are exposed through tradable
securities or derivatives referencing the issuer
Investment risk: issuer risk associated with positions held as financial investments
Risk managed by
Independent
oversight by
Captured in our risk
appetite framework
Business management
Risk Control
Business management
Risk Control
Country risk: the risk of losses 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 aris-
ing from country-specific political or macroeconomic developments
Business management
Risk Control
Consequential risks: the risks to which our businesses are exposed as a consequence of being in business
Liquidity risk: the risk of being unable to generate sufficient funds from assets to meet payment
obligations when they fall due, including in times of stress
Group Treasury
Risk Control
Funding risk: the risk of higher than expected funding costs due to higher than expected UBS credit
spreads when existing funding positions mature and need to be rolled over, or replaced by other more
expensive funding sources. If a shortage of available funding sources is expected in a stress event, fund-
ing risk also covers potential additional losses from forced asset sales
Operational risk: the risk of loss resulting from inadequate or failed internal processes, people and sys-
tems, or from external events. Operational risk includes legal risk and compliance risk:
Legal risk: the risk of (i) financial loss resulting from the non-enforceability of a contract, or (ii) loss
due to UBS being held responsible for a contractual or legal claim, debt or legal action based on
the breach or default of a contract, commitment of a tort, violation of law, infringement of trademarks
or antitrust action
Compliance risk: the financial or reputational risk incurred by UBS by not adhering to the applicable
laws, rules and regulations, local and international best practice (including ethical standards) and
UBS’s own internal standards
Business management
Risk Control
Legal
Risk Control
Structural foreign exchange risk: the risk of decreases in our capital, due to changes in foreign
exchange rates with an adverse translation effect on capital held in currencies other than CHF
Group Treasury
Risk Control
Pension risk: the risk of a negative impact on other comprehensive income as a result of deteriorating
funded status from decreases in the fair value of assets held in the defined benefit pension funds and / or
changes in the value of defined benefit pension obligations, due to changes in actuarial assumptions
(e.g., discount rate, life expectancy, rate of pension increase) and / or changes to plan designs
Environmental and social risk: the possibility of UBS suffering reputational or financial harm from
transactions, products, services or activities that involve a party associated with environmentally or
socially sensitive activities
➔ Refer to the “Corporate responsibility” section of this report for more information
Human Resources
Risk Control and
Finance
Business management
Risk Control
Reputational risk: the risk of a decline in the reputation of UBS from the point of view of its
stakeholders – customers, shareholders, staff and general public
All functions
Control functions
Business risks: the risks arising from the commercial, strategic and economic environment in which our businesses operate
Business risks: the potential negative impact on earnings from lower than expected business volumes
and / or margins, to the extent not offset by a decrease in expenses
Business management
Finance
152
Top and emerging risks
Our approach to identifying and monitoring top and emerging
risks is an ongoing part of our risk management framework. The
top and emerging risks disclosed below reflect those risks that
we currently consider have the potential for high impact on the
Group and which could materialize within one year. Investors
should also carefully consider all information set out in the “Risk
factors” section of this report, where we discuss the top and
emerging risks in more detail and where we also discuss other
risks we currently consider material, which we are presently
aware of and which may impact our ability to execute our strat-
egy and affect our business activities, financial condition, results
of operations and prospects.
Regulatory and legislative changes: We continue to be ex-
posed to a number of regulatory and legislative changes, some
of which have already been adopted and implemented, but
some of which are subject to legislative action or to further
rulemaking by regulatory authorities before final implementa-
tion. This results in uncertainty as to whether and in which
form these regulatory and legislative changes will be adopted,
the timing and content of implementing regulations and inter-
pretations and / or the dates of their effectiveness. In addition,
both adopted and proposed changes differ significantly across
the major jurisdictions, making it increasingly difficult to man-
age a global institution and potentially putting us at a disad-
vantage to those peers operating in jurisdictions considered to
be less stringent.
We have programs in place to address the risks arising from
regulatory and legislative changes, including ongoing monitor-
ing of proposals, providing guidance and feedback to the rele-
vant authorities and developing internal assessment and imple-
mentation plans. During 2013, our more active programs
included those relating to resolution planning and resolvability,
new and revised capital-, liquidity- and funding-related ratios
and the Minder Initiative. We have made good progress across
all of these programs in preparing for their implementation, in-
cluding announcing our intention to establish a new banking
subsidiary of UBS AG in Switzerland. Our phase-in leverage ratio
and pro-forma LCR and NSFR as of 31 December 2013 were
4.65%, 110%, and 109%, respectively and, based on our cur-
rent understanding of the potential requirements, we expect to
be in full compliance with all of these requirements when they
become effective.
In addition, following discussions with FINMA, UBS has mutu-
ally agreed to an incremental operational risk capital requirement
which had an unexpected significant effect on our RWA in 2013
that amounted to CHF 22.5 billion as of 31 December 2013. We
continue to work closely with FINMA and other regulators to mit-
igate the risk of further additional capital requirements, as well as
working to reduce the level of incremental operational risk-
re lated RWA.
➔ Refer to “Regulatory and legislative changes may adversely
affect our business and ability to execute our strategic plans” in
the “Risk factors” section of this report for more information
➔ Refer to the “Treasury management” section of this report for
more information on the LCR and the NSFR
➔ Refer to the “Capital management” section of this report for
more information on the leverage ratio
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on the Minder Initiative
➔ Refer to “Operational risk” in this section for more information
on the incremental operational risk capital requirement
Legal and regulatory risks: We are subject to a large number of
claims, disputes, legal proceedings and government investiga-
tions and we anticipate that our ongoing business activities will
continue to give rise to such matters in the future. We continue to
work on enhancing our operational risk framework and our rela-
tionships with regulatory authorities and on resolving open mat-
ters in a manner most beneficial to our stakeholders. Information
on those litigation, regulatory and similar matters currently con-
sidered by management as significant is disclosed in Note 22 of
the “Financial information” section of this report. The extent of
our financial exposure to these and other matters could be mate-
rial and could substantially exceed the level of provisions that we
have established, which was CHF 1.6 billion as of 31 December
2013. Considering our overall exposures and the current regula-
tory and political climate affecting financial institutions, we expect
charges associated with these matters to remain at elevated levels
through 2014.
➔ Refer to “Material legal and regulatory risks arise in the
conduct of our business” in the “Risk factors” section of this
report for more information
Market conditions and the macroeconomic climate: We are ex-
posed to a number of macroeconomic issues as well as general
market conditions. These external pressures may have a signifi-
cant adverse effect on our business activities and related financial
results, primarily through reduced margins, asset impairments
and other valuation adjustments. Developments in the eurozone
are currently considered by management to be of the greatest
significance to us, due to the lackluster economic outlook, poten-
tial implications of the slowing of reforms, uncertainty regarding
the outcome of the European Central Bank’s comprehensive as-
sessment and the potential disruption, in the event that one or
more countries exit the euro. Our current exposures to select
euro zone countries are disclosed in “Country risk.” In addition, as
our strategic plans depend more heavily upon our ability to gener-
ate growth and revenue in emerging markets particularly in Asia,
153
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
management is monitoring developments in this geographic sec-
tor very closely. These macroeconomic factors are considered in
our development of stress testing scenarios for our ongoing risk
management activities.
➔ Refer to “Performance in the financial services industry is
affected by market conditions and the macroeconomic climate”
in the “Risk factors” section of this report for more information
Reputational risk: Our reputation is critical to achieving our
strategic goals and financial targets and damage to our reputa-
tion can have fundamental negative effects on our business and
prospects. This has been emphasized for us in recent years follow-
ing events such as the LIBOR matter and the unauthorized trading
incident and has triggered an enhanced focus on sustaining a
strong risk culture across the Group.
➔ Refer to “Risk measurement” in this section for more informa-
tion on macroeconomic considerations, including stress testing
➔ Refer to “Our reputation is critical to the success of our business”
in the “Risk factors” section of this report for more information
Execution of our strategy: In October 2012, we announced a
significant acceleration in the implementation of our strategy to
focus our activities on a set of highly synergistic, less capital- and
balance sheet-intensive businesses dedicated to serving clients
and well-positioned to maximize value for shareholders. During
2013, we made significant progress in implementing that strategy
and are ahead of the majority of our performance targets, includ-
ing improving our leading fully applied Basel III common equity
tier 1 (CET1) ratio 300 basis points in the year to 12.8% and sur-
passing our fully applied RWA reduction target for the year. There
continues to be a risk that we will not be successful in completing
the execution of our plans, or that our plans may be delayed or
that the effects of our plans may differ from those intended. This
could lead to a reduction in the confidence of our stakeholders
and challenges in meeting regulatory requirements in the future.
➔ Refer to “We may not be successful in completing our announced
strategic plans or in implementing changes in our businesses
to meet changing market, regulatory and other conditions” in the
➔ Refer to “Risk culture” in this section for more information
Other operational risks: Due to the operational complexity of
all our businesses, we are continually exposed to operational risks
such as process error, failed execution and fraud. We believe we
have a strong operational risk management framework in place to
help ensure that these risks are appropriately controlled, which
has been significantly enhanced following the unauthorized trad-
ing incident in 2011. In view of the changing nature of opera-
tional risks and the environment within which we operate, we
continuously review our associated control frameworks to allow
us to make enhancements where necessary. In this regard, key
compliance risk focus areas for 2014 will include conduct risk and
other areas where we see evolving inherent risk considerations or
regulatory landscape, such as suitability, conflicts of interest, anti-
money laundering and corruption. Additionally, the increasingly
complex threat of cyber-attacks and cyber-criminal activity facing
the financial services industry is evolving and we have initiated
multiple security programs to address this threat.
“Risk factors” section of this report for more information
➔ Refer to “Regulatory and legislative changes may adversely
➔ Refer to “Operational risks may affect our business” in the
“Risk factors” section of this report for more information
affect our business and ability to execute our strategic plans”
➔ Refer to “Operational risk” in this section for more information
in the “Risk factors” section of this report for more information
on our management of operational risk
➔ Refer to “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” in
the “Risk factors” section of this report for more information
➔ Refer to “We might be unable to identify or capture revenue
or competitive opportunities, or retain and attract qualified
employees” in the “Risk factors” section of this report for more
information
➔ Refer to the “Our strategy” section of this report for more
information on our strategy
154
Risk governance
Our risk governance framework operates along three lines of
defense: business management, who own their risk exposures,
control functions, which provide independent oversight of risks,
and Group Internal Audit, which evaluates the overall effective-
ness of the control environment.
d (cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:73)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)
e
t
i
d
u
A
These key roles and responsibilities for risk management and
control are illustrated in the following chart and described below.
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:35)(cid:87)(cid:70)(cid:75)(cid:86)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(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:41)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:48)(cid:81)(cid:79)(cid:75)(cid:80)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:42)(cid:87)(cid:79)(cid:67)(cid:80)(cid:2)(cid:52)(cid:71)(cid:85)(cid:81)(cid:87)(cid:84)(cid:69)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:37)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:36)(cid:81)(cid:67)(cid:84)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:38)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:81)(cid:84)(cid:85)
(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:80)(cid:70)(cid:71)(cid:82)(cid:71)(cid:80)(cid:70)(cid:71)(cid:80)(cid:86)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:35)(cid:87)(cid:70)(cid:75)(cid:86)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:39)(cid:90)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:36)(cid:81)(cid:67)(cid:84)(cid:70)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:74)(cid:75)(cid:71)(cid:72)(cid:2)(cid:39)(cid:90)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:49)(cid:72)(cid:386)(cid:69)(cid:71)(cid:84)
(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:37)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)
(cid:46)(cid:71)(cid:73)(cid:67)(cid:78)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:74)(cid:75)(cid:71)(cid:72)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:49)(cid:72)(cid:386)(cid:69)(cid:71)(cid:84)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:74)(cid:75)(cid:71)(cid:72)(cid:2)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:49)(cid:72)(cid:386)(cid:69)(cid:71)(cid:84)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:41)(cid:71)(cid:80)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:37)(cid:81)(cid:87)(cid:80)(cid:85)(cid:71)(cid:78)
(cid:38)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)
(cid:69)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)(cid:85)
(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(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:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)
(cid:69)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)(cid:85)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:46)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(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:37)(cid:81)(cid:79)(cid:79)(cid:75)(cid:86)(cid:86)(cid:71)(cid:71)
(cid:38)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:37)(cid:52)(cid:49)(cid:85)
(cid:38)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:37)(cid:40)(cid:49)(cid:85)
(cid:38)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)
(cid:41)(cid:71)(cid:80)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:37)(cid:81)(cid:87)(cid:80)(cid:85)(cid:71)(cid:78)(cid:85)
(cid:38)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:37)(cid:39)(cid:49)(cid:85)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:37)(cid:39)(cid:49)(cid:85)
(cid:37)(cid:81)(cid:79)(cid:82)(cid:78)(cid:75)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:8)(cid:2)
(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:37)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:37)(cid:52)(cid:49)(cid:85)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:37)(cid:40)(cid:49)(cid:85)
(cid:52)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:41)(cid:71)(cid:80)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:37)(cid:81)(cid:87)(cid:80)(cid:85)(cid:71)(cid:78)(cid:85)
(cid:54)(cid:84)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:91)(cid:2)(cid:37)(cid:52)(cid:49)
(cid:50)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:49)(cid:88)(cid:71)(cid:84)(cid:85)(cid:75)(cid:73)(cid:74)(cid:86)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:47)(cid:71)(cid:86)(cid:74)(cid:81)(cid:70)(cid:81)(cid:78)(cid:81)(cid:73)(cid:91)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:41)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:37)(cid:49)(cid:49)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:73)(cid:84)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)
155
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
d
e
t
i
d
u
A
The Board of Directors (BoD) is responsible for determining the
Group’s risk principles, risk appetite and major portfolio limits, in-
cluding their allocation to the business divisions and Corporate
Center. The risk assessment and management oversight per-
formed by the BoD considers evolving best practices and is in-
tended to conform to statutory requirements. The BoD has a Risk
Committee, which monitors and oversees the Group’s risk profile
and the implementation of the risk framework as approved by the
BoD, as well as assessing and approving the Group’s key risk mea-
surement methodologies. The Risk Committee, in conjunction
with the Chairman of the BoD and the Audit Committee, over-
sees the performance of Group Internal Audit.
The Group Chief Executive Officer (Group CEO) is responsible for
the results of the Group, has risk authority over transactions, posi-
tions and exposures, and also allocates portfolio limits approved by
the BoD within the business divisions and Corporate Center.
The Group Executive Board (GEB) implements the risk frame-
work, controls the Group’s risk profile and approves key risk policies.
Business management comprises divisional and regional Chief
Executive Officers. The divisional Chief Executive Officers are ac-
countable for the results of their business divisions. This includes
actively managing their risk exposures and ensuring profit poten-
tial, risk, balance sheet and capital usage are balanced. The re-
gional Chief Executive Officers coordinate and implement UBS’s
strategy in their region, jointly with the divisional CEOs and heads
of the control and support functions. They have a veto power over
decisions in respect to all business activities that may have a nega-
tive regulatory or reputational impact in their respective regions.
The Group Chief Risk Officer (Group CRO) reports directly to the
Group CEO and has functional and management authority over
Risk Control (including compliance) throughout the Group. Risk
Control provides independent oversight of all primary and certain
consequential risks as outlined in “Risk categories.” 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 approval authorities. Divisional and regional Chief
Risk Officers have delegated authority for their respective divisions
and regions. Further, authorities are delegated to risk officers ac-
cording to their expertise, experience and responsibilities.
d
e
t
i
d
u
A
The Group Chief Financial Officer (Group CFO) is responsible
for ensuring that disclosure of our financial performance meets
regulatory requirements and corporate governance standards as
well as being leading practice in clarity and transparency. The
Group CFO is also responsible for the management of UBS’s tax
affairs, treasury and capital, including management of funding
and liquidity risk and UBS’s regulatory capital ratios. Responsibility
for implementation of the control framework for tax and funding
risks resides with the Group CFO whereas responsibility for imple-
mentation of the control framework for treasury activities is with
Risk Control.
The Group General Counsel (Group GC) is responsible for im-
plementing the Group’s risk management and control principles
for legal matters, and for managing the legal function for the UBS
Group. The Group GC is responsible for reporting legal risks and
material litigation, and for managing legal, internal, special and
regulatory investigations.
Group Internal Audit (GIA) independently, objectively and sys-
tematically assesses the adherence to our strategy, the effective-
ness of governance, risk management and control processes at
Group, divisional and regional levels, including compliance with
legal, regulatory and statutory requirements, as well as with inter-
nal policies and contracts. GIA has a functional reporting line to
the Risk Committee and the Audit Committee.
Risk appetite framework
Our risk appetite framework contains both qualitative and quan-
titative risk appetite statements. The qualitative risk appetite
statements comprise the risk management and control principles
and various policies and initiatives that ensure we maintain the
desired risk culture. The quantitative statements aim to ensure the
Group’s resilience against the impact of potential severe adverse
economic or geopolitical events, by setting objectives for the level
of capital, earnings and liquidity that we seek to maintain even
after experiencing severe losses over a defined time horizon. The
framework is comprehensive in aggregating all material risks
across the Group. The combination of the qualitative and quanti-
tative risk appetite statements aims to protect our businesses and
reputation in both normal and stressed environments.
Risk management and control principles
d
e
t
i
d
u
A
Protection of
financial strength
Protection of reputation
Business management
accountability
Independent controls
Risk disclosure
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 aggre-
gate firm-wide level across all
risk types
Protecting our reputation
through a sound risk culture
characterized by a holistic
and integrated view of risk, per-
formance and reward, and
through full compliance with our
standards and principles,
particularly our Code of Business
Conduct and Ethics
Ensuring management account-
ability, whereby business
management, 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
Independent control functions
which monitor the effectiveness of
the business’s risk management
and oversee risk-taking activities
Disclosure of risks to senior
management, the Board of
Directors, shareholders, regulators,
rating agencies and other stake-
holders with an appropriate level
of comprehensiveness and trans-
parency
156
Risk principles and risk culture
A strong and dynamic culture is a prerequisite for success in today’s
highly complex operating environment. We are focused on foster-
ing and further developing our cultural strength and ensuring it is
a competitive advantage both from a risk and a performance point
of view. Our efforts are underpinned by our shared belief that how
we deliver results is as important as the results themselves.
In 2013, the Group Executive Board (GEB) led a global initiative
to foster the strong aspects of the Group’s culture and evolve
them further, building on our strategic pillars – capital strength,
efficiency and effectiveness, and risk management – and our prin-
ciples: excellence, client focus and sustainable performance. We
began a program to raise awareness and further embed the stan-
dards of behavior we ask of our employees at every level of the
Group. Each employee is accountable for ensuring these behav-
iors are integrated into every aspect of their daily work. To reflect
the importance we attach to this, we incorporated assessment of
adherence to these standards in our performance measurement
and compensation framework for 2013.
Our performance measurement and management process re-
quires that all employees have risk objectives aligned to their roles
and responsibilities. Our employees know that rigorous risk man-
agement plays an essential role in our efforts to deliver the best
possible client experience and achieve our business objectives. In
short, everyone at UBS is responsible for anticipating, addressing
and managing risks. We encourage our employees to provide
candid, constructive and actionable feedback. To that end, in
2013, we enhanced our process by making such feedback anony-
mous. The performance measurement and management process
links into the Group’s compensation framework.
Our compensation philosophy is to provide our employees with
compensation that recognizes their individual contributions and
clearly links their pay to performance – not simply the delivery of
business targets, but also how those results were achieved. As ex-
plained in more detail in the “Compensation” section of this re-
port, the performance of GEB members includes both quantitative
and qualitative factors, with the latter contributing 35% to their
overall compensation decision. Qualitative factors include reinforc-
ing a culture of accountability and responsibility, demonstrating
commitment to being a responsible corporate citizen and acting
with integrity in all interactions with our stakeholders.
The “Compensation” section of this report explains how the
compensation of each employee is based on the individual’s con-
tribution (absolute and relative) and shows how the individual’s
contribution to promoting our principles and standards of behav-
iors is factored into the compensation process. The process in-
cludes an examination of the individual’s efforts to actively man-
age risk, striking an appropriate balance between risk and reward,
and to what extent the individual exhibited professional and ethi-
cal behavior. Forfeiture provisions enable the firm to forfeit some,
or all, of any unvested deferred portion of compensation if an
employee commits certain harmful acts.
In addition, we have a range of policies and initiatives in place
to embed the desired risk culture within the Group, covering em-
ployees at all levels. These policies and initiatives include the fol-
lowing.
Code of Business Conduct and Ethics
This Code enshrines the principles and practices that all of our
employees and Board members are required to follow unreserv-
edly, both in letter and in spirit, supported by an annual adher-
ence certification process. Included in the Code are requirements
covering laws, rules and regulations, ethical and responsible be-
havior, information management, the work environment, social
responsibility and disciplinary measures.
Whistleblowing
Our Whistleblowing policy provides a formal framework and inde-
pendent channel for employees to raise concerns about suspected
breaches of the Group’s laws, regulations, policies, procedures or
other matters including those covered by our Code of Business Con-
duct and Ethics. In recognition of the importance for a strong and
successful business of enabling employees to speak up and con-
structively challenge others, in 2013 our Chairman and Group CEO
promoted an awareness campaign of our Whistleblowing policy.
Compliance and risk training
We have a mandatory training program for all employees cover-
ing a range of compliance and risk-related topics including anti-
money laundering and operational risk. In addition, more special-
ized training is provided for employees according to their roles
and responsibilities, such as training on credit risk and market risk
for those working in trading areas. During 2013, employees were
required to complete over 500,000 mandatory training sessions in
aggregate, an increase of approximately one-third from 2012.
The training sessions need to be completed, usually together with
an assessment, within a specified period of time. Since mid-2012,
failure to satisfactorily complete the mandatory training sessions
within 30 days of the deadline results in disciplinary action, usu-
ally in the form of a written warning, with employees still required
to complete the training. In 2013, 12 employees received such a
warning and ultimately our completion rate for these mandatory
training sessions was 100%. If an employee fails to complete two
or more training sessions within 10 days of the deadline, this is
factored into the performance measurement and management
process and the related promotion and compensation processes.
Principles of good supervision
The Group has developed principles of good supervision, which
are applicable to every region and business division of UBS. These
principles establish clear expectations of managers and employ-
ees with respect to supervisory responsibilities, specifically: to take
responsibility, to organize their business, to know their employees
and what they do, to know their business, to create a good com-
pliance culture and to respond to and resolve issues. Supervisors
are expected to understand and set a good example of profes-
sional behavior and to act as role models, to be open about issues,
to be attentive to unusual behavior and to act on any red flags,
157
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
ensuring that issues are resolved. To ensure adherence, frame-
works have been established which are subject to periodic review
and assessment.
Maintaining a strong culture complements our goal of being a
responsible corporate citizen. As a truly global firm with a diverse
workforce, we have a deep understanding and appreciation of
the communities in which we operate. Our longstanding and
active community affairs programs are focused on promoting
education and entrepreneurship supported by the volunteering
efforts of our employees across the globe. These programs con-
tinued to thrive in 2013. For instance, we launched new initiatives
in the Americas and received various awards for our work in the
UK. In the second quarter, the UBS Optimus Foundation an-
nounced a new and major global initiative to put nutrition at the
center of the global development agenda and, later in the year,
the Foundation was involved in fundraising for Typhoon Haiyan
relief efforts in the Philippines. The Group matched client and em-
ployee donations on a 1:1 basis. In the third quarter, UBS was
named in the Dow Jones Sustainability Indices which track the
leading sustainability-driven companies worldwide. Additionally,
we co-launched the Thun Group of Banks’ discussion paper on
banking and human rights. In the fourth quarter, our Global Phi-
lanthropy Forum looked at how we can work with clients to help
improve women’s rights and opportunities around the world. Dur-
ing 2013, we also continued our support for the arts through
culturally enriching programs for our clients, employees and the
public, including the launch of a multi-year agreement with Art
Basel and support for exhibitions in the Americas and in Switzer-
land.
➔ Refer to the “Our employees” and “Compensation” sections of
this report for more information
Quantitative risk appetite objectives
Through a set of quantitative risk appetite objectives, we aim to
ensure that our aggregate risk exposure is within our desired risk
capacity, based on our capital and business plans. The specific
definition of risk capacity for each objective seeks to ensure that
we have sufficient capital, earnings and funding liquidity to pro-
tect our business franchises and exceed minimum regulatory re-
quirements under a severe stress event. The risk appetite objec-
tives are evaluated as part of the annual business planning
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)
(cid:47)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)
(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:53)(cid:81)(cid:78)(cid:88)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)
(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:39)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)
(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:47)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(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:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:46)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)
(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:40)(cid:75)(cid:84)(cid:79)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:82)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:71)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:85)
(cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:79)(cid:67)(cid:75)(cid:80)(cid:86)(cid:67)(cid:75)(cid:80)(cid:2)
(cid:67)(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:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)(cid:81)(cid:72)(cid:2)(cid:67)(cid:86)(cid:2)(cid:78)(cid:71)(cid:67)(cid:85)(cid:86)(cid:2)
(cid:19)(cid:18)(cid:7)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:2)(cid:86)(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:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:2)
(cid:81)(cid:72)(cid:2)(cid:67)(cid:86)(cid:2)(cid:78)(cid:71)(cid:67)(cid:85)(cid:86)(cid:2)(cid:19)(cid:21)(cid:7)(cid:2)(cid:82)(cid:81)(cid:85)(cid:86)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)
(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)
(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:2)(cid:75)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:71)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)
(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:68)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:81)(cid:72)(cid:2)(cid:78)(cid:81)(cid:85)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:68)(cid:67)(cid:80)(cid:77)(cid:111)(cid:85)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:74)(cid:81)(cid:78)(cid:70)(cid:71)(cid:84)(cid:85)(cid:2)(cid:75)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:111)(cid:85)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)
(cid:39)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:71)(cid:85)(cid:2)
(cid:85)(cid:74)(cid:81)(cid:87)(cid:78)(cid:70)(cid:2)(cid:68)(cid:71)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:79)(cid:81)(cid:85)(cid:86)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:85)(cid:16)(cid:2)(cid:2)
(cid:43)(cid:80)(cid:2)(cid:67)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:89)(cid:71)(cid:2)(cid:67)(cid:75)(cid:79)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:88)(cid:81)(cid:75)(cid:70)(cid:2)
(cid:69)(cid:81)(cid:80)(cid:85)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:83)(cid:87)(cid:67)(cid:84)(cid:86)(cid:71)(cid:84)(cid:78)(cid:91)(cid:2)(cid:78)(cid:81)(cid:85)(cid:85)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)
(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)
(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)
(cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:81)(cid:2)(cid:79)(cid:67)(cid:75)(cid:80)(cid:86)(cid:67)(cid:75)(cid:80)(cid:2)(cid:67)(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:81)(cid:72)(cid:2)(cid:67)(cid:86)(cid:2)(cid:78)(cid:71)(cid:67)(cid:85)(cid:86)(cid:2)(cid:20)(cid:16)(cid:22)(cid:7)(cid:2)
(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(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:14)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:78)(cid:71)(cid:67)(cid:85)(cid:86)(cid:2)
(cid:20)(cid:16)(cid:26)(cid:7)(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:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:14)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:2)
(cid:75)(cid:72)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:2)(cid:89)(cid:71)(cid:84)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)
(cid:81)(cid:69)(cid:69)(cid:87)(cid:84)
(cid:39)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:85)(cid:87)(cid:72)(cid:386)(cid:69)(cid:75)(cid:71)(cid:80)(cid:86)(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:86)(cid:81)(cid:2)(cid:85)(cid:87)(cid:84)(cid:88)(cid:75)(cid:88)(cid:71)(cid:2)(cid:67)(cid:2)(cid:85)(cid:71)(cid:88)(cid:71)(cid:84)(cid:71)(cid:2)
(cid:19)(cid:20)(cid:15)(cid:79)(cid:81)(cid:80)(cid:86)(cid:74)(cid:2)(cid:75)(cid:70)(cid:75)(cid:81)(cid:85)(cid:91)(cid:80)(cid:69)(cid:84)(cid:67)(cid:86)(cid:75)(cid:69)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:71)(cid:88)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:89)(cid:75)(cid:86)(cid:74)(cid:81)(cid:87)(cid:86)(cid:2)(cid:85)(cid:75)(cid:73)(cid:80)(cid:75)(cid:386)(cid:69)(cid:67)(cid:80)(cid:86)(cid:78)(cid:91)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:69)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)
(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:72)(cid:84)(cid:67)(cid:80)(cid:69)(cid:74)(cid:75)(cid:85)(cid:71)(cid:85)
(cid:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:69)(cid:67)(cid:82)(cid:67)(cid:69)(cid:75)(cid:86)(cid:91)
(cid:50)(cid:84)(cid:81)(cid:76)(cid:71)(cid:69)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)
(cid:35)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:84)(cid:71)(cid:387)(cid:71)(cid:69)(cid:86)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:35)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:71)(cid:72)(cid:72)(cid:71)(cid:69)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:81)(cid:80)(cid:2)(cid:70)(cid:71)(cid:72)(cid:71)(cid:84)(cid:84)(cid:71)(cid:70)(cid:2)(cid:86)(cid:67)(cid:90)(cid:2)
(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:14)(cid:2)(cid:82)(cid:71)(cid:80)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:14)(cid:2)
(cid:74)(cid:91)(cid:68)(cid:84)(cid:75)(cid:70)(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:52)(cid:75)(cid:85)(cid:77)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)
(cid:53)(cid:86)(cid:67)(cid:86)(cid:75)(cid:85)(cid:86)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:28)(cid:2)(cid:71)(cid:67)(cid:84)(cid:80)(cid:75)(cid:80)(cid:73)(cid:85)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)(cid:14)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:15)(cid:67)(cid:86)(cid:15)(cid:84)(cid:75)(cid:85)(cid:77)(cid:14)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:15)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:53)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:28)(cid:2)(cid:69)(cid:81)(cid:79)(cid:68)(cid:75)(cid:80)(cid:71)(cid:70)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:86)(cid:71)(cid:85)(cid:86)
(cid:37)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:10)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:53)(cid:71)(cid:86)(cid:86)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:46)(cid:81)(cid:67)(cid:80)(cid:2)(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(cid:89)(cid:84)(cid:75)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:11)(cid:124)
(cid:47)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:10)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:43)(cid:85)(cid:85)(cid:87)(cid:71)(cid:84)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:67)(cid:80)(cid:70)(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:84)(cid:75)(cid:85)(cid:77)(cid:11)
(cid:37)(cid:81)(cid:87)(cid:80)(cid:86)(cid:84)(cid:91)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:53)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:67)(cid:78)(cid:2)(cid:40)(cid:58)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:40)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:75)(cid:86)(cid:91)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:50)(cid:71)(cid:80)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)
(cid:37)(cid:81)(cid:80)(cid:85)(cid:71)(cid:83)(cid:87)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:85)
(cid:50)(cid:84)(cid:75)(cid:79)(cid:67)(cid:84)(cid:91)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:85)
(cid:41)(cid:84)(cid:67)(cid:80)(cid:87)(cid:78)(cid:67)(cid:84)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:15)(cid:89)(cid:75)(cid:70)(cid:71)(cid:2)(cid:85)(cid:86)(cid:67)(cid:86)(cid:75)(cid:85)(cid:86)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:85)(cid:85)(cid:2)(cid:79)(cid:71)(cid:86)(cid:84)(cid:75)(cid:69)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:78)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:71)(cid:70)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:67)(cid:2)(cid:73)(cid:84)(cid:67)(cid:80)(cid:87)(cid:78)(cid:67)(cid:84)(cid:2)(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:71)(cid:85)(cid:86)(cid:67)(cid:68)(cid:78)(cid:75)(cid:85)(cid:74)(cid:71)(cid:85)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(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:67)(cid:86)(cid:2)(cid:67)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:78)
158
process, and approved by the BoD. The comparison of risk expo-
sure with risk capacity is a key consideration in management deci-
sions on potential adjustments to the business strategy and the
risk profile of the Group.
d
e
t
i
d
u
A
We make use of both scenario-based stress tests and statistical
risk measurement techniques to assess the impact of a severe
stress event at a Group-wide level. These complementary frame-
works capture exposures to all material primary and consequen-
tial risks across all of our business divisions and the Corporate
Center.
➔ Refer to “Risk measurement” in this section for more information
on our stress test and statistical frameworks
In determining our risk capacity, we adjust projected earnings
from the strategic plan for business risk to reflect lower expected
earnings in a severe stress event, and include the impact on de-
ferred tax assets, pension assets and hybrid capital instruments
through adjustments to our capital.
The chart on the previous page provides an overview of our
quantitative risk appetite objectives. Our strategic plan approved
by the BoD is consistent with these objectives.
Risk measurement
A variety of methodologies and measurements are applied to
quantify the risks of our portfolios and potential risk concentra-
tions. Risks that are not fully reflected within standard measures
are subject to additional controls, which may include pre-approval
of specific transactions and the application of specific restrictions.
Models to quantify risk are generally developed by dedicated units
within control functions, are independently verified and subjected
to periodic confirmation and control by the Group CRO and the
Group CFO organizations.
Stress testing
We perform stress testing to quantify the loss that could result
from extreme yet plausible macroeconomic and geopolitical stress
events. This enables us to identify, better understand and manage
our potential vulnerabilities and risk concentrations. Stress testing
plays a key role in establishing limits at Group-wide, divisional and
portfolio levels. Stress test results are regularly reported to the
BoD, the Risk Committee and GEB. We also provide detailed
stress loss analyses to the Swiss Financial Market Supervisory Au-
159
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
thority (FINMA) in accordance with its requirements. As described
in the “Risk appetite” section above, stress testing, along with
statistical loss measures, plays a central role in risk appetite and
business planning processes.
Our stress testing framework incorporates three pillars: (i) com-
bined stress tests, (ii) a comprehensive range of portfolio- and
risk-type-specific stress tests and (iii) reverse stress testing.
Our combined stress test (CST) framework is scenario-based
and aims to quantify overall Group-wide losses which could re-
sult from a number of potential global systemic events. The
framework captures all primary and consequential risks, as well
as business risks, as shown in the “Risk categories” section
above. Scenarios are forward-looking and encompass macro-
economic and geopolitical stress events calibrated to different
levels of potential severity. Each scenario is implemented
through the expected evolution of market indicators and eco-
nomic variables under that scenario. The resulting effect on our
primary, consequential and business risks is then assessed to
estimate the overall loss and capital implications were the sce-
nario to occur. At least once a year, the Risk Committee ap-
proves the most relevant scenario, known as the binding sce-
nario, to be used as the main scenario for regular CST reporting
and for monitoring risk exposure against our minimum capital
and earnings objectives in our risk appetite framework. Results
are reported to, and discussed with, the Risk Committee and
the GEB on a monthly basis and reported to the BoD and FINMA
monthly. The results of other CST scenarios are monitored and
reported quarterly to the BoD, the Risk Committee, the GEB
and FINMA.
Within the overall model governance framework overseen by
the Group CRO and Group CFO, the Risk Aggregation and Stress
Committee (RASC) is responsible for ensuring the consistency
and adequacy of methodologies and scenarios used for our
Group-wide stress measures and risk aggregation. As part of
these responsibilities, the RASC is charged with ensuring that the
suite of stress scenarios adequately reflects current and potential
developments in the macroeconomic and geopolitical environ-
ment, our current and planned business activities, and actual or
potential risk concentrations and vulnerabilities in our portfolios.
The RASC meets at least quarterly and is comprised of Group and
divisional representatives of Risk Control and the Group Treasur-
er. In executing its responsibilities, the RASC considers input from
the Risk “Think Tank,” a panel of senior representatives from the
business divisions, Risk Control and economic research, which
meets quarterly to review the current and possible future market
environment, with the aim of identifying potential stress scenari-
os which could materially impact the Group’s profitability. This
results in a range of internal stress scenarios that are developed
and evolve over time, separate from the scenarios mandated by
FINMA.
Each scenario captures a wide range of macroeconomic vari-
ables that are considered relevant to assessing the impact of the
stress scenario on our portfolios. These include gross domestic
product (GDP), equity indices, interest rates, foreign exchange
rates, unemployment and property prices. Assumed changes in
these macroeconomic variables in each scenario are used to stress
the key risk drivers of our portfolios. For example, lower GDP
growth and rising interest rates may reduce the profitability of
clients to whom we have lent money, leading to changes in the
credit risk parameters for probability of default, loss given default
and exposure at default, and resulting in higher predicted credit
losses in the stress scenario. We also capture the business risk re-
sulting from lower fee income, interest income and trading in-
come. These effects are measured across all material risk types
and all businesses to calculate the aggregate estimated effect of
the scenario on profit and loss, other comprehensive income,
RWA, Swiss SRB leverage ratio denominator (LRD) and, ultimately,
our capital and leverage ratios.
For 2013, the binding scenario for CST was the internal Euro
Crisis scenario. This scenario assumes a worsening economic envi-
ronment in the eurozone with defaults of certain countries in the
form of debt restructurings, coupled with a disorderly exit from
the eurozone by one country. This triggers sell-offs in financial
markets, increased market volatility and severe pressure on the
euro. The European economy falls into recession and sovereign
exposures on banks’ balance sheets trigger a banking crisis in Eu-
rope. The Swiss export and tourism industries are assumed to be
severely affected.
As part of the CST framework, five additional stress scenarios
are routinely monitored.
– Recession scenario represents renewed financial market tur-
moil due to the failure of a major global financial institution,
leading to prolonged financial deleveraging and dramatically
plunging activity around the globe.
– US Crisis scenario represents a loss of confidence in the US,
leading to international portfolio repositioning out of US dol-
lar-denominated assets, sparking an abrupt and substantial
US dollar sell-off. The US is pushed back into recession, other
industrialized countries replicate this pattern and inflationary
concerns lead to an overall higher interest rate level.
– China Hard Landing scenario represents an economic correc-
tion in China with resulting impact on the global economy,
particularly emerging markets.
– Middle East / North Africa scenario represents a spill-over of po-
litical upheaval leading to a spike in oil prices and a recession
in developed countries.
– Depression scenario represents a more pronounced and pro-
longed version of the Euro Crisis scenario. Additional periph-
eral countries default and exit the eurozone, and advanced
economies are pulled into a prolonged period of economic
stagnation.
CST results over the year indicate a reduction in risk levels, as
expected, in line with the execution of our strategy to operate a
more client-focused and less capital-intensive Investment Bank.
160
Portfolio-specific stress tests are measures that are tailored to
the risks of specific portfolios. Our portfolio stress loss measures
are informed by past events but also include forward-looking ele-
ments. For example, the stress scenarios for trading risks capture
the liquidity characteristics of different markets and positions. Re-
sults of portfolio-specific stress tests may be subject to limits to
explicitly control risk-taking, or may be monitored without limits
to identify vulnerabilities.
Reverse stress testing starts from a defined stress outcome (for
example, a specified loss amount, reputational damage, a liquidity
shortfall, or a breach of regulatory capital ratios) and works back-
wards to identify the economic or financial scenarios that could
result in such an outcome. As such, reverse stress testing is in-
tended to complement forward stress tests by assuming “what if”
outcomes that could extend beyond the range normally consid-
ered, and thereby potentially challenge assumptions regarding
severity and plausibility. The results of reverse stress testing are
reported to relevant governance bodies according to the material-
ity and scope of the exercise.
Additionally, the impact of increasing interest rates, and chang-
es in the structure of yield curves, is routinely analyzed.
Most major financial firms employ stress tests, but their ap-
proaches vary significantly, having been tailored to their individual
business models and portfolios. Moreover, there is a lack of indus-
try standards defining stress scenarios or the way they should be
applied to a firm’s risk exposures. Consequently, comparisons of
stress test results between firms can be misleading and, therefore,
like many of our peers, we do not publish quantitative stress test
results of our internal stress tests.
➔ Refer to “Credit risk” and “Market risk” in this section for more
information on stress loss measures
Statistical measures
In addition to our scenario-based CST measure, we employ a sta-
tistical stress framework that allows us to calculate and aggregate
risks using statistical techniques, enabling us to derive stress
events at chosen confidence levels.
This framework is used to derive a distribution of potential
earnings based on historically observed market changes, the level
of risk exposures, and business plan forecasts, considering effects
on both income and expenses. From this we determine earnings-
at-risk (EaR), which measures the potential shortfall in earnings
(the deviation from forecasted earnings) at a 95% confidence
level and which we evaluate over both three-month and one-year
horizons. EaR is used for the assessment of the earnings objec-
tives in our risk appetite framework.
d
e
t
i
d
u
A
We extend the EaR measure by incorporating the effects of
gains and losses recognized through other comprehensive income,
to derive a distribution of potential effects on capital. From this
distribution, we establish capital-at-risk (CaR) measures based on
confidence levels from 95% to 99.9%. These measures consider
the impact on Basel III common equity tier 1 (CET1) capital of stress
events at the respective confidence levels and are used for the as-
sessment of our capital, solvency and leverage ratio objectives.
We also derive risk-based capital (RBC) from this distribution,
taken at a 99.97% confidence level, to provide an estimate of the
potential capital impairment in such an extreme stress event. As
discussed above, RBC is a core component of our equity attribu-
tion framework.
➔ Refer to “Credit risk,” “Market risk” and “Operational risk”
in this section for more information on our portfoliolevel
statistical loss measures
Portfolio and position limits
The Group-wide stress and statistical metrics are complemented by
lower-level portfolio and position limits. The combination of these
measures provides for a comprehensive, granular limit framework
which is applied to our business divisions and Corporate Center as
relevant to the key risks arising from their business models.
We apply limits to a variety of exposures at portfolio level, us-
ing statistical- and stress-based measures, such as value-at-risk,
liquidity adjusted stress, notional loan underwriting limits, eco-
nomic value sensitivity and portfolio default simulations for our
loan books. These are complemented with a set of thresholds for
net interest income sensitivity, mark-to-market losses on available-
for-sale portfolios, and the impact of foreign exchange move-
ments on capital and capital ratios.
Portfolio measures are supplemented with position-level limits.
Risk measures for position limits are based on market risk sensi-
tivities and counterparty-level credit risk exposures. Market risk
sensitivities include sensitivities to changes in general market risk
factors such as equity indices, foreign exchange rates and interest
rates, and sensitivities to issuer-specific factors such as changes in
an issuer’s credit spread or default risk. We monitor a significant
number of market risk limits for the Investment Bank and Corpo-
rate Center – Non-core and Legacy Portfolio on a daily basis.
Counterparty measures capture the current and potential future
exposure to an individual counterparty taking into account col-
lateral and legally enforceable netting agreements.
Risk concentrations
A risk concentration exists where (i) a position 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 cor-
related factors, and (ii) the exposure could, in the event of large
but plausible adverse developments, result in significant losses.
The categories in which risk concentrations may occur include
counterparties, industries, legal entities, countries, products and
businesses.
The identification of risk concentrations requires judgment, as
potential future developments cannot be accurately predicted
and may vary from period to period. In determining whether we
have a risk concentration, we consider a number of elements,
both individually and collectively. These elements include the
161
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
d
e
t
i
d
u
A
shared characteristics of the positions and our counterparties, the
size of the position or group of positions, the sensitivity of the
position or group of positions to changes in risk factors and the
volatility and correlations of those factors. Also important in our
assessment is the liquidity of the markets where the positions are
traded, and the availability and effectiveness of hedges or other
potential risk-mitigating factors. The value of a hedge instrument
may not always move in line with the position being hedged, and
this mismatch is referred to as basis risk.
d
e
t
i
d
u
A
Risk concentrations are subject to increased monitoring by Risk
Control and are 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, posi-
tions and hedges, particularly if the correlations that emerge in a
stressed environment differ markedly from those envisaged by our
risk models.
➔ Refer to “Credit risk” and “Market risk” in this section for more
information on the compositions of our portfolios
162
Credit risk
Key developments during the period
Overview of measurement, monitoring
and management techniques
d
e
t
i
d
u
A
During 2013, we actively managed down risks within Non-core
and Legacy Portfolio, disposing of our more liquid loan positions
alongside the steady run-off of the Non-core loan book. Expo-
sures to over-the-counter derivative contracts were reduced
through negotiated bilateral settlements, portfolio compressions,
negotiated assignments and novations, and commutations of
monoline insurance. We experienced moderate increases in credit
exposures in line with our strategy to grow our wealth manage-
ment lending businesses. The delinquency ratio of our Swiss resi-
dential mortgage loans and our Swiss corporate loans remained
at low levels. Loan underwriting activity within the Investment
Bank remained steady, with distribution of loans through syndica-
tion and securitization continuing to be sound. Net credit loss ex-
penses totaled CHF 50 million, taking into account releases of
collective loan loss allowances of CHF 93 million. The amount of
impaired loans decreased by CHF 0.4 billion to CHF 1.2 billion,
mainly as a result of repayments.
Main sources of credit risk
d
e
t
i
d
u
A
– Our lending exposure arises mainly from our Swiss domestic
business, which offers corporate loans and mortgage loans se-
cured against residential properties and income-producing real
estate, and is therefore tied to the health of the Swiss economy.
– Within the Investment Bank, our credit exposure is predomi-
nantly investment grade, but includes loan underwriting char-
acterized by concentrated exposure to lower-rated credits, al-
beit of a temporary nature.
– Our wealth management businesses conduct securities-based
lending and mortgage lending.
– Credit risk within the Legacy Portfolio has been significantly
reduced and the balance largely relates to securitized posi-
tions.
– Derivatives activities, a significant portion of which has been
determined to be non-core and will therefore be run down, are
predominantly transacted on a cash collateralized basis.
– Credit risk arising from transactions with individual counter-
parties is measured according to our estimates of probability of
default, exposure at default and loss given default. Limits are
established for individual counterparties and groups of coun-
terparties covering banking and traded products as well as
settlement amounts. Risk control authorities are approved by
the Board of Directors and are delegated to the Group CEO,
Group CRO and divisional Chief Risk Officers based on risk ex-
posure amounts and internal credit rating.
– Limits apply not only to the current outstanding amount, but
also to contingent commitments and the potential future ex-
posure of traded products.
– For the Investment Bank, our monitoring, measurement and
limit framework distinguishes between exposures intended to
be held to maturity (take-and-hold exposures) and those which
are intended to be held for a short term, pending distribution
or risk transfer (temporary exposures).
– We also use models to derive portfolio credit risk measures
of expected loss, statistical loss and stress loss at the Group-
wide and business division levels and establish portfolio level
limits at these levels.
– 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 port-
folio and sub-portfolio levels with regard to sector exposure,
country risk and specific product exposures.
163
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Credit risk profile of the Group – IFRS view
d
e
t
i
d
u
A
Maximum exposure to credit risk
The table below represents the IFRS view of the Group’s maximum
exposure to credit risk by class of financial instrument and the
respective collateral 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 alter-
d
e
t
i
d
u
A
native value is used. Credit enhancements, such as credit deriva-
tive contracts and guarantees, are included at their notional
amounts. Both are capped at the maximum exposure to credit risk
for which they serve as security.
Further on in this section, we provide complementary views of
credit risk based on our internal management view, which can
differ in certain respects from the requirements of IFRS.
➔ Refer to the “Supplemental disclosures required under Basel III
Pillar 3 regulations” 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
0.5
73.7
27.3
88.4
11.2
201.1
5.4
5.4
Maximum exposure to credit risk
d
e
t
i
d
u
A
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
Other assets
31.12.13
Maximum
exposure
to credit
risk
Collateral
Credit enhancements
Cash
collateral
received
Collater-
alized by
securities
Secured
by real
estate
Other
collateral 1
Netting
Credit
derivative
contracts
Guaran-
tees
13.3
78.9
17.2
287.0
27.5
91.6
28.0
17.6
161.5
18.3
0.1
0.3
2.7
2.6
14.2
161.5
20.8
14.2
0.1
3.0
Total financial assets measured at amortized cost
547.7
13.3
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 8
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
245.8
35.4
6.8
58.6
346.6
894.3
18.7
54.9
9.4
83.1
977.4
212.9
0.2
0.0
0.2
212.9
206.5
161.5
0.3
1.3
1.7
1.6
9.3
227.1
21.0
1.9
8.5
0.0
13.3
1.4
0.2
0.8
0.8
1.0
1.1
11.0
1.6
14.9
12.6
219.1
1.6
163.1
10.4
31.4
0.0
227.1
12.2
13.1
0.0
3.0
3.3
1.9
5.2
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 third-party banks on behalf of clients. The credit risk associ-
ated to these balances may be borne by those clients. 3 Loans include a balance outstanding of USD 2.7 billion to the BlackRock fund. This loan is collateralized by a portfolio of US residential mortgage-backed secu-
rities included within “Other collateral.” 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 collateral 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 considered. 7 Does not include debt instruments held for unit-linked investment contracts and
investment fund units. 8 Does not include investment fund units.
164
Maximum exposure to credit risk (continued)
d
e
t
i
d
u
A
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
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 8
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
Collater-
alized by
securities
Secured
by real
estate
Other
collateral 1
Netting
Credit
derivative
contracts
Guaran-
tees
64.1
21.2
279.9
37.4
130.9
30.4
12.3
576.3
419.0
67.3
8.5
65.3
560.0
1,136.3
20.0
59.8
18.8
98.6
1,235.0
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
0.0
251.1
155.8
2.0
2.1
18.8
22.9
274.0
0.3
1.7
1.9
157.7
155.8
0.4
18.3
0.9
0.4
2.5
17.4
155.8
18.7
17.4
0.9
2.9
376.7
376.7
394.1
394.1
0.2
0.2
18.9
2.0
9.2
11.2
30.1
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 third-party banks on behalf of clients. The credit risk associ-
ated 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 secu-
rities included within “Other collateral.” 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 collateral 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 considered. 7 Does not include debt instruments held for unit-linked investment contracts and
investment fund units. 8 Does not include investment fund units.
165
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
d
e
t
i
d
u
A
Financial assets subject to credit risk by rating category
CHF billion
Rating category 1
Balances with central banks
Due from banks
Loans 2
Cash collateral on securities borrowed and reverse repurchase agreements
Positive replacement values
Cash collateral receivables on derivative instruments
Trading portfolio assets – debt instruments 3
Financial investments available-for-sale – debt instruments 4
Other financial instruments 5
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 2
Cash collateral on securities borrowed and reverse repurchase agreements
Positive replacement values
Cash collateral receivables on derivative instruments
Trading portfolio assets – debt instruments 3
Financial investments available-for-sale – debt instruments 4
Other financial instruments 5
Financial instruments not recognized on the balance sheet
Guarantees
Loan commitments
Forward starting reverse repurchase agreements
Forward starting securities borrowing agreements
Total
0–1
41.9
3.1
25.3
1.8
12.4
4.1
11.0
43.9
0.1
2.5
0.8
2–3
37.0
11.4
112.6
86.8
199.6
19.0
11.8
14.6
3.0
8.5
30.2
8.7
0.0
4–5
0.0
1.4
57.1
19.6
25.7
3.4
7.0
0.1
6.5
3.7
9.4
0.6
31.12.13
6–8
9–13
defaulted
1.1
72.4
10.3
6.9
1.5
3.3
14.4
3.2
8.5
0.1
0.2
18.5
0.5
0.9
0.1
2.2
0.1
0.9
5.9
1.1
0.2
0.1
0.2
0.0
0.1
Total
78.9
17.2
287.0
119.1
245.8
28.0
35.4
58.6
24.4
18.7
54.9
9.4
0.0
146.9
543.4
134.5
121.6
29.2
1.7
977.4
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
2.3
0.1
4.7
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
419.0
30.4
67.3
65.3
20.8
20.0
59.8
18.6
0.2
168.2
695.4
231.5
109.2
28.8
1.8
1,235.0
1 Refer to the “Internal UBS rating scale and mapping of external ratings” table for more information on rating categories. 2 In 2013, following model recalibrations, the rating distribution of Retail & Corporate loans
was amended prospectively. 3 Does not include debt instruments held for unit-linked investment contracts and investment fund units. 4 Does not include investment fund units. 5 Comprised of financial assets des-
ignated at fair value – debt instruments (excluding investment fund units) and other assets.
➔ Refer to “Retail & Corporate” in “Credit risk profile of the Group – Internal risk view” and to “Changes to models and model parameters
during the period” in “Credit risk models” in this section for more information on model recalibration driven changes in the rating
distribution of the credit portfolio
166
Impaired assets
d
e
t
i
d
u
A
The following tables show impaired assets, comprising loans,
guarantees, loan commitments, defaulted derivatives contracts
and securities financing transactions. Gross impaired assets de-
creased by CHF 0.6 billion to CHF 1.9 billion as of 31 December
d
e
t
i
d
u
A
2013, mainly due to resolution through repayment, sale or up-
grade. After deducting the estimated liquidation proceeds of col-
lateral and specific allowances, provisions and credit valuation
adjustments (CVA), net impaired assets amounted to CHF 0.6 bil-
lion as of 31 December 2013 compared with CHF 0.8 billion at
the end of the prior year.
Impaired assets by type of financial instrument
d
e
t
i
d
u
A
CHF million
Impaired loans (including due from banks)
Impaired guarantees and loan commitments
Defaulted derivatives contracts
Defaulted securities financing transactions
Total
Impaired assets
31.12.13
31.12.12
1,199
1,606
101
582
2
144
716
2
1,884
2,467
Allowances, provisions
and CVA adjustments 1, 2
31.12.12
31.12.13
Estimated liquidation
proceeds of collateral
Net impaired exposure
31.12.13
31.12.12
31.12.13
31.12.12
(686)
(61)
(283)
(2)
(1,033) 3
(276)
(2)
(437)
(6)
(728)
(64)
(439)
(2)
(1,233)
(279)
(443)
237
38
298
573
441
73
276
791
1 Includes CHF 20 million collective loan loss allowances (31 December 2012: CHF 114 million). 2 Does not include collective credit valuation adjustments of CHF 433 million (31 December 2012: CHF 736 million).
They are partially reflected in the tier 1 capital calculation. 3 Does not include an allowance of CHF 83 million related to certain disputed receivables.
Impaired assets by region
CHF million
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Total 31.12.13
Total 31.12.12
Specific
allowances,
provisions and
credit valuation
adjustments
Impaired assets
net of specific
allowances,
provisions and
credit valuation
adjustments
Collective
allowances and
provisions 2
(46)
(58)
(24)
(175)
(470)
(239)
(1,013)
(1,119)
1
4
40
351
373
102
872
1,349
(2)
(18)
(20)
(114)
Total allowances,
provisions and
specific credit
valuation
adjustments
31.12.13 2
(46)
Total allowances,
provisions and
specific credit
valuation adjust-
ments 31.12.12 2
(58)
(58)
(24)
(176)
(488)
(239)
(1,033) 3
(43)
(35)
(348)
(539)
(209)
(1,233)
Impaired
assets 1
47
63
64
526
842
341
1,884
2,467
1 Values of defaulted derivative contracts (CHF 582 million, 31 December 2012: CHF 716 million) are based on replacement values and do not include “add-ons” used in the calculation of regulatory capital. 2 Does
not include collective credit valuation adjustments of CHF 433 million (31 December 2012: CHF 736 million). They are partially reflected in the tier 1 capital calculation. 3 Does not include an allowance of CHF 83 mil-
lion related to certain disputed receivables.
167
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Impaired assets by exposure segment
CHF million
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Not allocated segment 3
Total 31.12.13
Total 31.12.12
Specific
allowances,
provisions and
credit valuation
adjustments
Collective
allowances and
provisions 2
Impaired
assets 1
1,525
14
67
145
66
67
(829)
(10)
(19)
(46)
(67)
(42)
1,884
2,467
(1,013)
(1,119)
Total allowances,
provisions and
specific credit
valuation
adjustments
31.12.13 2
(829)
(10)
(19)
(46)
(68)
(42)
(18)
(1,033) 4
Write-offs for
the year ended
31.12.13
(64)
(1)
(28)
(93) 5
(162) 5
Total allowances,
provisions and
specific credit
valuation adjust-
ments 31.12.12 2
(937)
(10)
(26)
(51)
(49)
(45)
(113)
(1,233)
(2)
(18)
(20)
(114)
1 Values of defaulted derivative contracts (CHF 582 million, 31 December 2012: CHF 716 million) are based on replacement values and do not include “add-ons” used in the calculation of regulatory capital. 2 Does
not include collective credit valuation adjustments of CHF 433 million (31 December 2012: CHF 736 million). They are partially reflected in the tier 1 capital calculation. 3 With the exception of WMA lombard lending,
collective loan loss allowances are not allocated to individual counterparties. 4 Does not include an allowance of CHF 83 million related to certain disputed receivables. 5 Does not include CHF 35 million securitiza-
tion-related write-offs (31 December 2012: CHF 152 million).
The following table provides a breakdown of movements in the specific and collective allowances and provisions for impaired assets.
Changes in allowances, provisions and specific credit valuation adjustments
CHF million
Balance at the beginning of the year
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
Balance at the end of the year
Specific allowances
and provisions
for banking products
and securities
financing
680 3
(127)
45
144
(12)
0
730 3
Specific credit
valuation
adjustments for
derivatives
Total specific
allowances,
provisions and
credit valuation
adjustments
439
0
(138)
(15)
(4)
283
1,119
(127)
45
6
(27)
(4)
1,013
Collective
loan loss
allowances for
credit losses 1
114
(1)
(93)
0
20
For the
year ended
31.12.13
For the
year ended
31.12.12
1,233
(128)
45
(88)
(27)
(4)
1,033 4
2,395
(313)
63
(899)
(12)
1,233
1 This table does not include collective valuation adjustments of CHF 433 million (31 December 2012: CHF 736 million). They are partially included in the tier 1 capital capital calculation. 2 Total actual credit loss (cred-
it loss expense and changes in specific credit valuation adjustments recognized in net trading income). 3 Includes CHF 2 million allowances for securities financing (31 December 2012: CHF 2 million). 4 Does not
include an allowance of CHF 83 million related to certain disputed receivables.
168
Impaired loans
The majority of our gross impaired exposure relates to loans, pri-
marily in our Swiss domestic business. Gross impaired loans (in-
cluding due from banks) decreased to CHF 1,199 million as of
31 December 2013 from CHF 1,606 million at the end of the prior
year, as new impairments and increases were offset by repay-
ments, sales and upgrades, mainly related to the run-down of the
Legacy Portfolio. This decrease in impaired loan exposure, com-
bined with the increase in gross exposure, led to a reduction in the
ratio of impaired loans to total loans to 0.4% from 0.6%.
d
e
t
i
d
u
A
Collateral held against our impaired loan exposure mainly con-
sisted of real estate and securities as of 31 December 2013. It is
our policy to dispose of foreclosed real estate as soon as practi-
cable. The carrying amount of foreclosed property recorded in our
balance sheet under Other assets at the end of 2013 and 2012
amounted to CHF 40 million and CHF 47 million, respectively. We
d
e
t
i
d
u
A
seek to liquidate collateral held in the form of financial assets ex-
peditiously and at prices considered fair. This may require us to
purchase assets for our own account, where permitted by law,
pending orderly liquidation.
Specific and collective allowances and provisions for credit
losses decreased by CHF 44 million to CHF 750 million as of
31 December 2013. This includes collective loan loss allowances
of CHF 20 million, a reduction of CHF 94 million compared with
CHF 114 million at the end of the prior year.
The table “Loss history statistics” on page 172 provides a five-
year history of our credit loss experience for loans (including due
from banks) relative to our impaired and non-performing loans.
➔ Refer to “Policies for past due, non-performing and impaired
claims” in this section and “Note 10 Due from banks and loans
(held at amortized cost)” and “Note 12 Allowances and provisions
for credit losses” in the “Financial information” section of this
report for more information
169
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
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
IFRS exposure, gross
Impaired exposure
Estimated liquidation
proceeds of collateral
Allowances and provisions
for credit losses 2
Impairment ratio (%)
Group
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
Wealth Management
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
Wealth Management Americas
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
Retail & Corporate
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
Global Asset Management
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
Investment Bank
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
78,912
17,232
64,119
21,242
287,665
280,606
18,798
54,913
20,058
59,818
49
1,150
77
24
56
1,550
76
68
457,520
445,843
1,300
1,749
356
1,243
413
1,039
96,813
86,581
2,277
1,646
2,326
1,574
102,335
91,932
0
1,706
34,846
416
601
0
2,195
31,250
406
1,214
37,569
35,065
0
2,756
2,173
2,713
136,499
137,344
9,741
7,045
10,042
6,787
76
76
40
40
41
932
31
18
55
55
15
15
45
955
27
7
276
2
279
5
5
437
6
443
20
20
0
0
227
2
0
244
6
251
15
671
61
747
71
71
41
41
14
528
16
558
22
706
64
792
41
41
17
17
20
574
16
610
0.3
0.4
0.4
0.0
0.3
0.3
0.6
0.4
0.1
0.4
0.1
0.1
0.1
0.1
0.1
0.0
0.1
0.0
1.5
0.7
0.3
0.3
0.7
1.6
0.7
0.3
0.1
0.6
156,042
159,059
1,022
1,033
230
0
586
152
1
49
787
145
7,550
10,589
5,884
35,353
59,521
0
337
91
0
0
428
381
12,967
10,752
2,978
48,447
75,526
0
0
0
0
0
0
0.0
0.0
19
45
4
69
28
47
22
97
11
45
56
15
48
63
0.2
0.8
0.1
0.3
1.6
0.1
0
0
1 Excludes CHF 2 million allowances for securities financing (31 December 2012: CHF 2 million). 2 Includes CHF 20 million (31 December 2012: CHF 114 million) in collective loan loss allowances for credit losses.
170
Allowances and provisions for credit losses 1 (continued)
CHF million, except where indicated
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
IFRS exposure, gross
Impaired exposure
Estimated liquidation
proceeds of collateral
Allowances and provisions
for credit losses 2
Impairment ratio (%)
Corporate Center – Core Functions
Balances with central banks
78,403
61,029
Due from banks
Loans
Guarantees
Loan commitments
Total
CC – Non-core
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
CC – Legacy Portfolio
Balances with central banks
Due from banks
Loans
Guarantees
Loan commitments
Total
2,912
394
12
22
1,111
1,246
12
10
81,743
63,409
0
0
8
23
2
1
35
11
384
2
39
437
7
116
1,001
468
10,143
11,735
0
362
122
682
1,625
4,293
1,759
8,480
0
198
7,372
11,718
60
113
0
54
0
27
7,788
11,943
60
113
0
0
1
9
10
11
11
0
0
2
21
22
38
38
0.0
0.0
7.3
2.3
0.3
0.0
0.3
1.6
23.6
0.0
2.2
5.2
0.8
1.0
0.8
0.9
0
0
0
44
44
0
99
99
74
74
1 Excludes CHF 2 million allowances for securities financing (31 December 2012: CHF 2 million). 2 Includes CHF 20 million (31 December 2012: CHF 114 million) in collective loan loss allowances for credit losses.
Development of individually impaired loans (including due from banks)
CHF million
Balance at the beginning of the year
New impaired loans
Increase in existing impaired loans
Repayments / sales / upgrades
Write-offs
Foreign currency translations and other adjustments
Balance at the end of the year
For the year ended
31.12.13
1,606
544
50
(910)
(93)
2
1,199
31.12.12
2,155
1,259
50
(1,688)
(162)
(9)
1,606
171
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
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) out-
standing during the period
31.12.13
304,897
1,199
1,582
31.12.12
301,849
1,606
1,516
31.12.11
290,664
2,155
1,529
750
686
83
83
(50)
(50)
0.4
0.5
0.2
0.0
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
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
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.
Past due but not impaired loans
The table below shows a breakdown of total loan balances where
payments have been missed, but which we do not consider im-
paired 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 arise entirely
within 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 Corporate Center – Non-core
and Legacy Portfolio.
The increase in our past due but not impaired loan exposure
resulted from a few individual corporate loans, notably a single
client within the 11 – 30 days category. The amount of past due
but not impaired mortgage loans was not significant compared
with the overall size of the mortgage port folio.
➔ Refer to “Policies for past due, non-performing and impaired
claims” in this section and “Note 1 Summary of significant
accounting policies” in the “Financial information” section of this
report for more information on our impairment policies
d
e
t
i
d
u
A
Past due but not impaired loans
CHF million
1–10 days
11–30 days
31–60 days
61–90 days
> 90 days
of which: mortgage loans
Total
Past due but not impaired mortgage loans
CHF million
Total
172
31.12.13
31.12.12
119
146
28
8
712
617
1,013
104
30
44
14
793
639
986
31.12.13
31.12.12
Total
mortgage loans
149,661
of which:
past due > 90 days
but not impaired
617
Total
mortgage loans
144,667
of which:
past due > 90 days
but not impaired
639
Credit risk profile of the Group – Internal risk view
The exposures detailed in this section are based on our internal
management view of credit risk which differs in certain respects
from the measurement requirements of IFRS.
Internally, we categorize credit risk exposures into two broad
categories: banking products and traded products. Banking prod-
ucts comprise drawn loans, undrawn guarantees and loan commit-
ments, due from banks and balances with central banks. Traded
products comprise over-the-counter (OTC) derivatives, exchange-
traded derivatives (ETD) and securities financing transactions (SFT),
comprised of securities lending and reverse repurchase agreements.
Banking products
The breakdowns of our banking product exposures are shown
before and after allowances and provisions for credit losses and
related single-name credit hedges. The effect of portfolio hedges,
such as index CDS, is not reflected. Guarantees and loan commit-
ments are shown on a notional basis, without applying credit con-
version factors.
Total gross banking products exposure increased to CHF 453
billion as of 31 December 2013 compared with CHF 441 billion at
the end of 2012, mainly due to increases in balances with central
banks and in the loan books of Wealth Management and Wealth
Management Americas, which were only partly offset by reduc-
tions in Retail & Corporate and the Legacy Portfolio.
Wealth Management
Gross banking products exposure within Wealth Management in-
creased to CHF 102 billion as of 31 December 2013 compared
with CHF 92 billion as of 31 December 2012, in line with our
strategy to grow this business.
Our Wealth Management loan portfolio is mainly secured by
securities, residential property and cash as outlined in the table
“Wealth Management: composition of loan portfolio, gross.” The
majority of loans secured by securities were of high quality, with
95% as of 31 December 2013 (91% as of 31 December 2012)
rated investment grade, based on our internal ratings.
The portfolio of mortgage loans secured by properties outside
Switzerland continued to grow to CHF 4.5 billion as of 31 Decem-
ber 2013 from CHF 3.4 billion at the end of the prior year. The
overall quality of this portfolio remains high, with an average
loan-to-value (LTV) ratio of 57% in Europe and 42% in Asia Pa-
cific. There were no credit losses within the portfolio in 2013.
Wealth Management Americas
Gross banking products exposure within Wealth Management
Americas increased to CHF 38 billion as of 31 December 2013
from CHF 35 billion as of 31 December 2012. This exposure large-
ly relates to loans secured by securities and residential mortgage
loans.
The majority of loans secured by marketable securities were of
high quality, with 81% as of 31 December 2013 (87% as of
31 December 2012) rated investment grade, based on our inter-
nal ratings.
The mortgage loan portfolio consists primarily of residential
mortgages offered in all US states. Exposure continued to grow to
CHF 5.6 billion as of 31 December 2013 from CHF 3.5 billion at
the end of the prior year. The overall quality of this portfolio re-
mains high with an average LTV of 58%, and we have experi-
enced no credit losses since the inception of the mortgage pro-
gram. The five largest geographic concentrations in the portfolio
are in California (32%), New York (16%), Florida (8%), Connecti-
cut (4%) and New Jersey (4%).
The credit risk exposure arising from the credit card business
was CHF 161 million as of 31 December 2013 compared with
CHF 152 million at the end of the prior year.
Banking products exposure as of 31 December 2012 was restat-
ed to reflect the transfer of cash balances from Wealth Manage-
ment Americas to Group Treasury during the third quarter of 2013.
There was an increase in the amount of impaired loans, to CHF
40 million as of 31 December 2013 from CHF 15 million at the
end of the prior year, as a result of impairments of securities-
backed loan facilities collateralized by Puerto Rico municipal secu-
rities and related funds. Securities-backed lending facilities pro-
vided by Wealth Management Americas to its customers and
repurchase agreements with institutional clients are, in part, col-
lateralized by Puerto Rico municipal securities and closed-end
funds primarily invested in Puerto Rico municipal securities. This
collateral is subject to lending value haircuts and daily margining.
Our total lending exposure against Puerto Rico municipal securi-
ties and closed-end fund collateral as of 31 December 2013 was
approximately USD 1.0 billion. This collateral had a market value
of approximately USD 2.2 billion as of 31 December 2013. For a
significant number of these loans, UBS has recourse to the bor-
rower. UBS also has direct exposure to Puerto Rico municipal se-
curities and related funds arising from its secondary market ac-
tivities, which was less than USD 50 million at 31 December 2013.
UBS acts as investment manager for, and is the primary liquidity
provider in the market for shares of, a number of affiliated closed-
end funds invested in Puerto Rico municipal securities. These
funds use leverage, which is currently provided primarily through
repurchase agreements between the funds and third-party institu-
tions, through short-term secured debt obligations, and by UBS
through the aforementioned repurchase agreements.
173
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Banking products exposure by business division
CHF million
Balances with central banks
Due from banks
Loans 1
Guarantees
Loan commitments
Banking products 2
Banking products, net 3
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
CC – Non-core
CC – Legacy Portfolio
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
356
1,243
96,813
2,277
1,646
102,335
102,264
413
1,039
86,581
2,326
1,574
91,932
91,891
1,706
34,846
416
601
37,569
37,528
2,195
31,250
406
1,214
35,065
35,048
0
2,756
136,499
9,741
7,045
156,042
155,484
2,173
2,713
137,344
10,042
6,787
159,059
158,359
586
152
1
49
787
787
337
91
428
428
145
9,518
13,290
5,757
32,211
60,921
51,022
381
15,485
14,994
2,743
45,178
78,780
59,177
31.12.13
78,403
2,912
394
12
22
81,743
81,743
31.12.12
61,029
1,111
1,246
12
10
63,409
63,409
7
91
548
459
9,569
10,674
6,998
122
36
1,294
3,331
3,577
8,360
7,259
140
2,562
74
2,776
2,765
3,443
29
3,472
3,433
1 Does not include reclassified securities and similar acquired securities in our Legacy Portfolio. 2 Excludes loans designated at fair value. 3 Net of allowances, provisions and hedges.
Wealth Management: composition of loan portfolio, gross
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
Wealth Management Americas: composition of loan portfolio, gross
Secured by residential property
Secured by commercial / industrial property
Secured by cash
Secured by securities
Secured by guarantees and other collateral
Unsecured loans 1
Total loans, gross
Total loans, net of allowances and credit hedges
1 Includes credit cards exposures.
CHF million
33,425
2,204
12,139
40,054
8,519
472
96,813
96,741
CHF million
5,635
820
26,740
1,410
241
34,846
34,805
31.12.13
31.12.12
%
34.5
2.3
12.5
41.4
8.8
0.5
100.0
CHF million
30,829
1,972
12,235
34,973
6,265
307
86,581
86,540
31.12.13
31.12.12
%
16.2
2.4
76.7
4.0
0.7
100.0
CHF million
3,461
698
25,543
1,319
228
31,250
31,233
%
35.6
2.3
14.1
40.4
7.2
0.4
100.0
%
11.1
2.2
81.7
4.2
0.7
100.0
174
Banking products exposure by business division
CHF million
Balances with central banks
Due from banks
Loans 1
Guarantees
Loan commitments
Banking products 2
Banking products, net 3
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
CC – Non-core
CC – Legacy Portfolio
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
356
1,243
96,813
2,277
1,646
102,335
102,264
413
1,039
86,581
2,326
1,574
91,932
91,891
1,706
34,846
416
601
37,569
37,528
2,195
31,250
406
1,214
35,065
35,048
0
2,756
136,499
9,741
7,045
156,042
155,484
2,173
2,713
137,344
10,042
6,787
159,059
158,359
586
152
1
49
787
787
337
91
428
428
145
9,518
13,290
5,757
32,211
60,921
51,022
381
15,485
14,994
2,743
45,178
78,780
59,177
31.12.13
78,403
2,912
394
12
22
81,743
81,743
31.12.12
61,029
1,111
1,246
12
10
63,409
63,409
31.12.13
31.12.12
31.12.13
31.12.12
7
91
548
459
9,569
10,674
6,998
122
36
1,294
3,331
3,577
8,360
7,259
140
2,562
74
2,776
2,765
3,443
29
3,472
3,433
1 Does not include reclassified securities and similar acquired securities in our Legacy Portfolio. 2 Excludes loans designated at fair value. 3 Net of allowances, provisions and hedges.
Retail & Corporate
Gross banking products exposure within Retail & Corporate was
CHF 156 billion as of 31 December 2013 compared with CHF 159
billion as of 31 December 2012.
Retail & Corporate’s gross loan portfolio decreased to CHF 136
billion from CHF 137 billion at the end of the prior year. The com-
position of the Retail & Corporate loan portfolio was largely un-
changed over the year. At year-end 2013, 93% of this portfolio was
secured by collateral, mainly residential and commercial property.
Based on our internal ratings, 54% of the unsecured loan portfolio
was rated investment grade. Of the total unsecured amount, 60%
related to cash flow-based lending to corporate counterparties and
approximately a quarter related to lending to public authorities. At
the end of the year, and based on our internal ratings, approxi-
mately 64% of Retail & Corporate’s net banking products exposure
was classified as investment grade compared with 69% in the prior
year, with over 80% of this portion categorized in the lowest loss
given default (LGD) bucket of 0% to 25%. Our Swiss mortgage
portfolio, which is managed together with Swiss mortgage loans
originated through our Wealth Management business, is discussed
further below. Rating tools and LGD for real estate exposures were
recalibrated during the year to take the Swiss real estate crisis of
the 1990s into account. As a result, the overall profile of exposures
shifted towards sub-investment grade and higher LGD.
Our Swiss corporate lending portfolio consists of loans to mul-
tinational counterparties and corporates. Although this portfolio
is well-diversified across industries, these Swiss counterparties are,
in general, highly reliant on the domestic economy and the econ-
omies to which they export. The EUR / CHF exchange rate, for
which the Swiss National Bank has maintained a target minimum
rate of CHF 1.20 since September 2011, is an important risk fac-
tor for Swiss corporates engaged in exports, predominantly to the
European Union (EU). We are also closely monitoring the implica-
tions of any return of crisis conditions within the eurozone on
export markets, and the potential implications of the recent deci-
sion to reinstate immigration quotas for EU / EEA countries.
The delinquency ratio, being the ratio of past due but not im-
paired loans to total loans, was 0.9% for the corporate loan port-
folio as of 31 December 2013 compared with 0.7% as of 31 De-
cember 2012.
➔ Refer to “Credit risk models” in this section for more information
on LGD, rating grades and rating agency mappings
➔ Refer to “Changes to models and model parameters during the
period” in this section for more information on the recalibration
of the rating tools and LGD for real estate exposures
Retail & Corporate: composition of loan portfolio, gross
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
31.12.13
31.12.12
CHF million
99,155
20,377
247
1,219
6,029
9,471
136,499
135,971
%
72.6
14.9
0.2
0.9
4.4
6.9
100.0
CHF million
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
175
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
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
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
Total exposure after application of
credit hedges, before deduction of
allowances, provisions
Less: allowances, provisions
Net banking products exposure
after application of credit hedges
31.12.13
LGD bucket
31.12.12
Exposure
98,752
57,290
51,556
4,235
1,499
0–25%
82,204
46,825
42,887
3,749
188
26–50%
51–75% 76–100%
14,432
7,718
6,129
467
1,122
2,104
1,633
1,426
18
189
12
1,114
1,113
2
0
Weighted
average
LGD (%)
14
17
17
12
37
Exposure
109,447
49,522
45,861
1,921
1,741
156,042
129,029
22,150
3,737
1,127
15
158,969
558
155,484
610
158,359
Weighted
average
LGD (%)
Retail & Corporate: unsecured loans by industry sector
31.12.13
31.12.12
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
Public authorities
Real estate and rentals
Retail and wholesale
Services
Other
Total
CHF million
101
696
69
1,563
1,358
2,286
531
1,519
1,213
135
9,471
%
1.1
7.3
0.7
16.5
14.3
24.1
5.6
16.0
12.8
1.4
CHF million
108
1,106
51
1,921
1,578
2,562
430
1,818
1,289
478
100.0
11,340
100.0
10
16
16
14
24
12
%
1.0
9.8
0.5
16.9
13.9
22.6
3.8
16.0
11.4
4.2
Swiss mortgages: distribution of net exposure at default (EAD) across exposure segments and loantovalue (LTV) buckets
CHF billion, except where indicated
Exposure segment
Residential mortgages
Net EAD
as a % of row total
Income-producing real estate (IPRE)
Net EAD
Corporates
Other segments
as a % of row total
Net EAD
as a % of row total
Net EAD
as a % of row total
Mortgage-covered exposure
Net EAD
as a % of total
Mortgage-covered exposure 31.12.12 Net EAD
as a % of total
31.12.13
LTV bucket
≤30% 31–50% 51–60% 61–70% 71–80% 81–100%
>100%
68.4
60
11.0
59
5.2
59
0.7
66
85.4
60
82.3
58
31.5
28
5.0
27
2.3
26
0.3
23
39.0
27
39.7
28
8.7
8
1.5
8
0.6
7
0.1
5
10.9
8
11.5
8
4.2
4
0.8
4
0.3
4
0.0
3
5.3
4
5.9
4
1.3
1
0.3
1
0.1
2
0.0
2
1.7
1
2.1
1
0.2
0
0.1
0
0.1
1
0.0
0
0.4
0
0.5
0
0.0
0
0.0
0
0.1
1
0.0
0
0.1
0
0.3
0
31.12.12
Total
114.7
17.1
9.3
1.2
142.3
Total
114.4
100
18.6
100
8.8
100
1.1
100
142.9
100
142.3
100
176
Our largest loan portfolio continues to be our mortgage loan port-
folio secured by residential and commercial real estate in Switzerland.
These mortgage loans mainly originate from Retail & Corporate but
also include mortgage loans originating from Wealth Management.
The majority of these mortgage loans, CHF 124 billion, relate to resi-
dential properties that the borrower either occupies or rents out and
are full recourse to the borrower. Approximately 70% of the Swiss
residential mortgage loan portfolio relates to properties occupied by
the borrower. The average loan-to-value (LTV) ratio of this portfolio
was 53% as of 31 December 2013 compared with 55% as of 31 De-
cember 2012. The average LTV for newly originated loans in 2013
was 62% compared with 63% in 2012. The remaining 30% of the
Swiss residential mortgage loan portfolio relates to properties rented
out by the borrower. The average LTV of this portfolio was 57% as of
31 December 2013 compared with 58% as of 31 December 2012.
The average LTV for newly originated loans in 2013 was 59% com-
pared with 56% in 2012.
As illustrated by the table “Swiss mortgages: distribution of net
exposure at default (EAD) across exposure segments and loan-to-
value (LTV) buckets,” over 99% of the aggregate amount of Swiss
residential mortgage loans would continue to be covered by the real
estate collateral even if the value assigned to that collateral were to
decrease by 20%. In this table, the amount of each mortgage loan
is allocated across the LTV buckets to indicate the portion at risk at
the various value levels shown. For example, a loan of 75 with an
LTV ratio of 75% (collateral value of 100) would result in allocations
of 30 in the less than 30% bucket, 20 in the 31 – 50% bucket, 10 in
the 51 – 60% bucket, 10 in the 61 – 70% bucket and five in the
71 – 80% bucket.
The delinquency ratio for the Swiss mortgages portfolio was
approximately 0.5% as of 31 December 2013, unchanged from
the end of the prior year.
Global Asset Management
Gross banking products exposure within Global Asset Manage-
ment was less than CHF 1 billion as of 31 December 2013.
Investment Bank
The Investment Bank’s lending activities are largely associated
with corporates and non-bank financial institutions, which is
broadly diversified across industry sectors, but concentrated in
North America.
The gross banking products exposure of the Investment Bank
decreased to CHF 61 billion as of 31 December 2013 compared
with CHF 79 billion as of 31 December 2012.
The Investment Bank actively manages the credit risk of this
portfolio and, as of 31 December 2013, held CHF 9.8 billion of
single-name CDS hedges against its exposures to corporates and
other non-banks, a decrease compared with CHF 19.5 billion at
the end of 2012. In addition, the Investment Bank held CHF 396
million of loss protection from the subordinated tranches of struc-
tured credit protection which is not reflected in the table.
Net banking products exposure, excluding balances with central
banks and the vast majority of due from banks and after allowances,
provisions and hedges, reduced to CHF 42.3 billion as of 31 Decem-
ber 2013 from CHF 48.9 billion at the end of 2012. At the end of
the year and based on our internal ratings, 57% of the Investment
Bank’s net banking products exposure was classified as investment
Investment Bank: banking products 1
CHF million
Total exposure, before deduction of allowances, provisions and hedges 2
Less: allowances, provisions
Less: credit protection bought (credit default swaps, notional) 3
Net exposure after allowances, provisions and hedges
31.12.13
52,186
(36)
(9,843)
42,308
31.12.12
68,434
(42)
(19,540)
48,851
1 Risk view, excludes balances with central banks, internal risk adjustments and the vast majority of due from banks exposures. 2 Banking products including money market and nostro accounts amount to CHF
60,921 million (31 December 2012: CHF 78,780 million). 3 The effect of portfolio hedges, such as index credit default swaps (CDS), and of loss protection from the subordinated tranches of structured credit protection
have not been reflected in this table.
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
B2 to Caa
BB+ to B+
B to CCC
of which: 13 and defaulted
Ca and lower
CC and lower
Net banking products exposure,
after application of credit hedges
31.12.13
LGD bucket
31.12.12
Exposure
0–25%
26–50%
51–75% 76–100%
24,017
18,290
10,541
7,625
124
5,547
10,385
6,492
3,792
102
12,285
5,451
2,192
3,247
11
1,830
1,760
1,622
138
0
4,356
694
236
448
11
42,308
15,932
17,735
3,590
5,051
Weighted
average
LGD (%)
47
26
25
29
17
38
Exposure
28,873
19,978
13,410
6,397
171
48,851
Weighted
average
LGD (%)
36
25
21
32
17
32
177
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Investment Bank: net banking products exposure by geographical region
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Net exposure
Investment Bank: net banking products exposure by industry sector
Banks
Chemicals
Electricity, gas, water supply
Financial institutions, excluding banks
Manufacturing
Mining
Public authorities
Retail and wholesale
Transport, storage and communication
Other
Net exposure
CHF million
2,808
277
80
31,069
852
7,222
42,308
CHF million
3,133
1,532
2,142
12,303
5,080
6,158
3,122
1,534
3,149
4,154
31.12.13
31.12.12
%
6.6
0.7
0.2
73.4
2.0
17.1
100.0
CHF million
4,084
205
238
34,723
244
9,357
48,851
31.12.13
31.12.12
%
7.4
3.6
5.1
29.1
12.0
14.6
7.4
3.6
7.4
9.8
CHF million
5,524
1,304
3,630
11,477
7,521
5,488
2,702
1,795
3,389
6,021
42,308
100.0
48,851
%
8.4
0.4
0.5
71.1
0.5
19.2
100.0
%
11.3
2.7
7.4
23.5
15.4
11.2
5.5
3.7
6.9
12.3
100.0
grade compared with 59% at the end of the prior year. The major-
ity of the Investment Bank’s net banking products exposure had es-
timated LGD of between 0% and 50%.
➔ Refer to “Credit risk models” in this section for more information
on LGD, rating grades and rating agency mappings
Corporate Center – Core Functions
Gross banking products exposure within Corporate Center – Core
Functions increased by CHF 18 billion to CHF 82 billion. This expo-
sure arises in connection with treasury activities and primarily con-
sists of balances with central banks.
Corporate Center – Non-core and Legacy Portfolio
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio”
in this section for more information
Traded products
Exposures to OTC derivatives are generally measured as net posi-
tive replacement values after the application of legally enforce-
able netting agreements and the deduction of cash collateral.
Exchange-traded derivatives (ETD) exposures take into account
initial and daily variation margins. Securities financing exposures
are reported taking into account collateral received.
The majority of the credit risk arising from traded products
relates to OTC derivatives, primarily within Corporate Center –
Non-core and Legacy Portfolio and the Investment Bank. As coun-
terparty risk for traded products exposure is managed at a coun-
terparty level, no split between exposures in the Investment Bank
and those in Non-core and Legacy Portfolio is provided. The tables
below provide information on our OTC derivative exposures
across the Investment Bank and Corporate Center – Non-core and
Legacy Portfolio.
Credit risk arising from traded products, after the effects of mas-
ter netting agreements but excluding credit valuation adjustments
and hedges, decreased by CHF 6 billion to CHF 50 billion. This de-
crease reflected continued progress in managing down credit risks
within Corporate Center – Non-core and Legacy Portfolio.
178
Investment Bank and CC – Noncore and Legacy Portfolio: OTC derivatives exposure 1
CHF million
Total exposure, before deduction of allowances, provisions and hedges
Less: allowances, provisions
Less: credit protection bought (credit default swaps, notional)
Net exposure after allowances, provisions and hedges
1 Net replacement value includes the impact of netting agreements (including cash collateral) in accordance with Swiss federal banking law.
31.12.13
23,466
(687)
(965)
21,814
31.12.12
28,154
(1,083)
(2,559)
24,511
Investment Bank and CC – Noncore and Legacy Portfolio: 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
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 OTC derivatives exposure,
after application of credit hedges
31.12.13
LGD bucket
31.12.12
Exposure
0–25%
26–50%
51–75% 76–100%
20,319
1,494
950
263
281
4,372
13,881
482
401
73
9
533
252
181
100
819
264
93
2
169
1,247
215
204
8
3
21,814
4,855
14,414
1,082
1,462
Weighted
average
LGD (%)
36
44
42
32
61
37
Exposure
22,938
1,573
1,270
47
257
24,511
Weighted
average
LGD (%)
Investment Bank and CC – Noncore and Legacy Portfolio: net OTC derivatives exposure by geographical region
34
35
36
43
30
34
%
14.3
0.9
3.1
39.2
3.5
39.1
31.12.13
31.12.12
CHF million
4,023
126
112
7,350
1,004
9,198
%
18.4
0.6
0.5
33.7
4.6
42.2
CHF million
3,499
219
755
9,600
864
9,575
21,814
100.0
24,511
100.0
Asia Pacific
Latin America
Middle East and Africa
North America
Switzerland
Rest of Europe
Net exposure
Investment Bank and CC – Noncore and Legacy Portfolio: net OTC derivatives exposure by industry sector 1
Banks
Chemicals
Electricity, gas, water supply
Financial institutions, excluding banks
Manufacturing
Mining
Public authorities
Retail and wholesale
Transport, storage and communication
Other
Net exposure
31.12.13
CHF million
7,351
98
239
9,511
371
125
3,155
130
463
372
%
33.7
0.4
1.1
43.6
1.7
0.6
14.5
0.6
2.1
1.7
31.12.12
CHF million
7,947
224
463
8,968
331
114
5,075
54
601
736
%
32.4
0.9
1.9
36.6
1.4
0.5
20.7
0.2
2.5
3.0
21,814
100.0
24,511
100.0
179
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Credit risk mitigation
d
e
t
i
d
u
A
We actively manage the credit risk in our portfolios by taking col-
lateral against exposures and by utilizing credit hedging.
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Lending secured by real estate
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 Swiss mortgage loans. The two key factors within this
model are an affordability calculation relative to gross income and
the loan-to-value (LTV) ratio. 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.
For properties occupied by the borrower, the maximum LTV
allowed within the standard approval process is 80%. This is re-
duced to 60% in the case of vacation properties and luxury real
estate. For properties rented out by the borrower, the maximum
LTV allowed within the standard 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.
The value assigned by UBS to each property is based on the
lowest value determined based on internally calculated valuations,
the purchase price and, in some cases, an additional external valu-
ation. We use two separate models provided by a market-leading
external vendor to derive property valuations for owner-occupied
residential properties (ORP) and income-producing real estate. For
ORP, we estimate the current value of properties by using a regres-
sion model (hedonic model) to compare detailed characteristics for
each property against a database of property transactions. In addi-
tion to the model-derived values, valuations for ORP are updated
annually throughout the lifetime of the loan by using region-spe-
cific real estate price indices. The price indices are sourced from an
external vendor and are subject to internal validation and bench-
marking against two other external vendors. On an annual basis,
we use these valuations to compute indexed LTV for all ORP and
consider these together with other risk measures (e.g., rating mi-
gration and behavioral information) to identify higher-risk loans,
which are then reviewed manually by client advisors and credit
officers and actions are taken where considered necessary.
For income-producing real estate, a capitalization model is
used to determine the property valuation by discounting estimat-
ed sustainable future income using a capitalization rate based on
various attributes. These attributes consider regional as well as
specific property characteristics such as market and location data
(e.g., vacancy rates), benchmarks (e.g., for running costs) and cer-
tain other standardized input parameters (e.g., property condi-
tion). 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 trig-
ger an interim reappraisal.
d
e
t
i
d
u
A
d
e
t
i
d
u
A
To take market developments into account for these models,
the external vendor regularly updates the parameters and / or re-
fines the architecture for each model. Model changes and param-
eter updates are subject to the same validation procedures as for
our internally developed models.
We similarly apply underwriting guidelines for our Wealth
Management Americas mortgage loan portfolio to ensure afford-
ability of the loans and sufficiency of collateral. These include the
following: maximum loan amounts, maturities and LTV limits by
type of property, debt-to-income limits, required reserves as a per-
centage of proposed loan amounts and appropriate credit score
guidelines. The maximum LTV allowed within the standard ap-
proval process ranges from 45% to 80% depending on property
type and overall loan size.
➔ Refer to “Retail & Corporate” in “Credit risk profile of the
Group – Internal risk view” in this section for more information
on LTV in our Swiss mortgage portfolio
➔ Refer to “Wealth Management Americas” in “Credit risk profile
of the Group – Internal risk view” in this section for more
information on LTV in our Wealth Management Americas
mortgage portfolio
Exposures secured by other forms of collateral
Lombard loans and other lending such as securities financing
transactions are secured against the pledge of eligible marketable
securities, guarantees and other forms of collateral. Eligible finan-
cial securities primarily include transferable securities (such as
bonds and equities), which are liquid and actively traded, and
other transferable securities such as approved structured products
for which regular prices are available and for which the issuer of
the security provides a market.
We apply discounts (haircuts) to reflect the collateral’s risk and
to derive the “lending value.” Haircuts for eligible marketable
securities are calculated to cover the possible change in the mar-
ket value over a given close-out period and confidence level. For
less liquid instruments such as structured products and certain
bonds, and for products with long redemption periods, the close-
out period might be much longer than that for highly liquid in-
struments, resulting in a higher haircut. For cash, life insurance
policies and guarantees / letters of credit, haircuts are determined
on a product- / client-specific basis. Where such products are held
with a third party, a further haircut is applied to cover any related
operational risks and the potential cost of closing out such col-
lateral.
d
e
t
i
d
u
A
We also consider concentration risks across collateral pledged.
A concentration of collateral in single securities, issuers or issuer
groups, industry sectors, countries, regions or currencies may re-
sult in higher risk and reduced liquidity. In such cases, transactions
are subject to a higher level of credit approval and the lending
value of the collateral, margin call and close-out levels are ad-
justed accordingly.
Exposures and collateral values are monitored on a daily basis
to ensure that the credit exposure continues to be covered by suf-
ficient collateral. A shortfall occurs when the lending value drops
180
below the exposure. If a shortfall exceeds a defined trigger level, a
margin call is initiated, requiring the client to provide additional
collateral, reduce the exposure or take other action to bring expo-
sure in line with the lending value of the collateral. If the shortfall
widens, or is not corrected within the required period, a close-out
is initiated, through which collateral is liquidated, open derivative
positions are closed and guarantees or letters of credit are called.
d
e
t
i
d
u
A
and monitor positions where we believe there is significant expo-
sure and correlation between the counterparty and the hedge
provider (so-called wrong-way risk). Our policy is to discourage
such activity, and in any event or as market correlations may
change, not to recognize hedge benefits subject to wrong-way
risk within counterparty limits and credit exposure-related capital
calculations.
We also conduct stress testing of collateralized exposures to
simulate market events which increase the risk of collateral short-
falls and unsecured exposures by significantly reducing the value
of the collateral, increasing the exposure of traded products, or
both. The results are monitored against thresholds at a portfolio
level and, in some cases, at an individual client level.
➔ Refer to “Stress loss” in “Credit risk models” in this section for
more information on our stress testing
d
e
t
i
d
u
A
Our OTC derivatives trading is conducted through central
counterparties (CCP) where practicable. Where CCP are not used,
we have clearly defined processes for entering into netting and
collateral arrangements, including the requirement to have a legal
opinion on the enforceability of contracts in relevant jurisdictions
in the case of insolvency. Trading is generally conducted under
bilateral International Swaps and Derivatives Association (ISDA) or
ISDA-equivalent master netting agreements, which allow for the
close-out and netting of all transactions in the event of default.
For certain major market participant counterparties, we may in
addition use two-way collateral agreements under which either
party can be required to provide collateral in the form of cash or
marketable securities, typically limited to well-rated government
debt, when the exposure exceeds specified levels.
➔ Refer to “Note 14 Derivative instruments and hedge accounting”
in the “Financial information” section of this report for more
information on our OTC derivatives settled through CCP
➔ Refer to “Note 26 Offsetting financial assets and financial
liabilities” in the “Financial information” section of this report
for more information on the effect of netting and collateral
arrangements on our derivative exposures
d
e
t
i
d
u
A
Credit hedging
We utilize single-name credit default swaps CDS, credit index
CDS, bespoke protection, and other instruments to actively
manage credit risk in the Investment Bank and Corporate Cen-
ter – Non-core and Legacy Portfolio. This is aimed at reducing
concentrations of risk from specific counterparties, sectors or
port folios.
We maintain high standards for taking credit hedges into ac-
count for credit risk mitigation purposes. 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 different name) or credit index CDS. Buying credit
protection also creates credit exposure against the protection pro-
vider. We monitor our exposures to credit protection providers
and the effectiveness of credit hedges as part of our overall credit
exposures to the relevant counterparties. In addition, we identify
➔ Refer to “Note 14 Derivative instruments and hedge accounting”
in the “Financial information” section of this report for more
information
Mitigation of settlement risk
To mitigate settlement risk, we reduce our actual settlement vol-
umes through the use of multilateral and bilateral agreements
with counterparties, including payment netting.
Our most significant source of settlement risk is foreign ex-
change transactions. We are 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 member-
ship and other means does not eliminate our credit risk in foreign
exchange transactions (resulting from changes in exchange rates
prior to settlement), which is managed as part of our overall cred-
it risk management of OTC derivatives.
Credit risk models
d
e
t
i
d
u
A
We have developed tools and models in order to estimate future
credit losses that may be implicit in our current portfolio.
Exposures to individual counterparties are measured based on
three generally accepted parameters: probability of default (PD),
loss given default (LGD) and exposure at default (EAD). For a given
credit facility, the product of these three parameters results in the
12 months’ expected loss. 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 III framework governing in-
ternational convergence of capital. We also use models to derive
the portfolio credit risk measures of expected loss, statistical loss
and stress loss.
The table on the next page summarizes the key features of the
models that we use to derive PD, LGD and EAD for our main
portfolios and is followed by more detailed explanations of these
parameters.
➔ Refer to the “Supplemental disclosures required under Basel III
Pillar 3 regulations” section of this report for more information
on the regulatory capital calculation under the advanced internal
ratings-based approach
Probability of default
The PD is an estimate of the likelihood of a counterparty default-
ing on its contractual obligations over the next 12 months. PD
181
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
ratings are used for credit risk measurement and as an important
input for determining credit risk approval authorities.
PD is assessed using rating tools tailored to the various catego-
ries of counterparties. Statistically developed score cards, based
on key attributes of the obligor and any associated collateral, are
used to determine PD for many of our corporate clients and for
loans secured by real estate. Where available, market data may
also be used to derive the PD for large corporate counterparties.
For Lombard loans, Merton-type model simulations taking into
account potential changes in the value of securities collateral are
used in our rating approach. 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. Our masterscale expresses one-year default prob-
abilities that we determine 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 PD changes.
The ratings of the major credit rating agencies, and their map-
ping to our internal rating masterscale and internal PD bands, are
shown in the table “Internal UBS rating scale and mapping of
external ratings” below. The mapping is based on the long-term
average of one-year default rates available from the rating agen-
cies. For each external rating category, the average default rate is
Key features of our main credit risk models
Portfolio in scope
Model approach
Main drivers
Probability of default
Swiss owner-occupied mortgages
Score card
Behavioral data, affordability relative to income,
property type, loan-to-value
Income Producing Real Estate mortgages
Transaction rating
Loan-to-value, debt-service-coverage
Lombard lending
Retail & Corporate – Corporates
Investment Bank – Banks
Investment Bank – Corporates
Merton type
Score card
Score card
Loan-to-value, portfolio volatility
Financial data including balance sheet ratios and
profit and loss, and qualitative risk factors
Financial data including balance sheet ratios and
profit and loss
Score card / market
data
Financial data including balance sheet ratios and
profit and loss, and market data
Loss given default
Swiss owner-occupied mortgages
Actuarial model
Historical observed loss rates, loan-to-value,
property type
Income Producing Real Estate mortgages
Actuarial model
Historical observed loss rates
Lombard lending
Investment Bank – all counterparties
Actuarial model
Actuarial model
Exposure at default
Banking products
Statistical model
Portfolio volatility, portfolio illiquidity
Counterparty and facility specific, including industry
segment, collateral, seniority, legal environment and
bankruptcy procedures
Exposure type (committed credit lines, revocable
credit lines, contingent products)
Traded products
Statistical model
Product specific market drivers, e.g., interest rates
Number of
years loss data
19
19
5–10
15
5–10
5–10
19
19
5–10
5–10
> 10
> 10
Internal UBS rating scale and mapping of external ratings
Internal
UBS rating
0 and 1
2
3
4
5
6
7
8
9
10
11
12
13
Counterparty is in default (CDF)
182
1-year PD range
in %
0.00–0.02
0.02–0.05
0.05–0.12
0.12–0.25
0.25–0.50
0.50–0.80
0.80–1.30
1.30–2.10
2.10–3.50
3.50–6.00
6.00–10.00
10.00–17.00
>17
Default
Description
Investment grade
Sub-investment grade
Defaulted
Moody’s Investors
Service mapping
Standard & Poor’s
mapping
Aaa
Aa1 to Aa3
A1 to A3
Baa1 to Baa2
AAA
AA+ to AA–
A+ to A–
BBB+ to BBB
Fitch
mapping
AAA
AA+ to AA–
A+ to A–
BBB+ to BBB
Baa3
Ba1
Ba2
Ba3
B1
B2
B3
Caa
Ca to C
BBB–
BB+
BB
BB–
B+
B
B–
CCC
CC to C
D
BBB–
BB+
BB
BB–
B+
B
B–
CCC
CC to C
D
d
e
t
i
d
u
A
compared with our internal PD bands to derive a mapping to our
internal rating scale. Our internal rating of a counterparty may,
therefore, diverge from one or more of the correlated external
ratings shown in the table. Observed defaults by rating agencies
may vary through economic cycles, and we do not necessarily ex-
pect 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 agencies’ grades, and we adjust their mapping to our mas-
terscale as necessary to reflect any material changes.
Loss given default
Loss given default (LGD) is the magnitude of the likely loss if there
is a 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. Our estimates are supported by our in-
ternal loss data and external information where available. Where
we hold collateral, such as marketable securities or a mortgage on
a property, loan-to-value ratios are a key parameter in determin-
ing LGD.
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 using sce-
nario and statistical techniques. We assess the net amount that
may be owed to us or that we may owe to others, taking into
account the impact of market moves over the potential time it
would take to close out our positions. For exchange-traded de-
rivatives, our calculation of EAD takes into account initial and
daily variation margins. When measuring individual counterparty
exposure against credit limits, we consider the maximum likely
exposure measured to a high level of confidence. However, when
aggregating exposures to different counterparties for portfolio
risk measurement purposes, we use the expected exposure to
each counterparty at a given time period (usually one year) gener-
ated by the same model.
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.
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 that be-
come impaired. The expected loss for a given credit facility is a
function of the three components described above: PD, EAD and
LGD. We aggregate the expected loss for individual counterpar-
ties 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.
We use a statistical modeling approach to estimate the loss
profile of each of our credit portfolios over a one-year period to a
specified level of confidence. The mean value of this loss distribu-
tion is the expected loss. The loss estimates deviate from the
mean value due to statistical uncertainty on the defaulting coun-
terparties and to systematic default relationships among counter-
parties within and between segments. The statistical measure is
sensitive to concentration risks on individual counterparties and
groups of counterparties. The outcome provides an indication of
the level of risk in our portfolio and the way it may develop over
time.
Stress loss
We complement our statistical modeling approach with scenario-
based stress loss measures. Stress tests are run on a regular basis
to monitor the potential impact of extreme but nevertheless plau-
sible events on our portfolios, under which key credit risk param-
eters are assumed to deteriorate substantially. Where we consider
it appropriate, we apply limits on this basis.
Stress scenarios and methodologies are tailored to the nature
of the portfolios, ranging from regionally focused to global sys-
temic events, and varying in time horizon. For example, for our
loan underwriting portfolio, we apply a global market event under
which, simultaneously, the market for loan syndication freezes,
market conditions significantly worsen, and credit quality deterio-
rates. Similarly, for Lombard lending, we apply a range of scenari-
os representing instantaneous market shocks to all collateral posi-
tions, taking into consideration their liquidity and potential
concentrations. The portfolio-specific stress test for our mortgage
lending in Switzerland reflects a multi-year event and the over-
arching stress test for global wholesale and counterparty credit
risk to corporates uses a one-year global stress event and takes
into account exposure concentrations to single counterparties.
➔ Refer to “Stress testing” in this section for more information
on our stress testing framework
Credit risk model validation
Applied models and methodologies must be approved and regu-
larly reviewed in accordance with regulatory requirements as well
183
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
as internal policies to ensure that models perform as expected,
produce results consistent with real events and values, and reflect
best-in-practice approaches as well as recent academic develop-
ments. Accordingly, we assess whether the model is performing
satisfactorily, additional analysis is required, or recalibration or re-
development need to be performed. Results and conclusions are
presented to the relevant governance body and, as required, to
regulators.
The ongoing process of assessing model quality and perfor-
mance in the production environment comprises two compo-
nents: model verification, being the initial and regular assessment
of the model’s conceptual soundness, performed by the internal
Independent Verification Unit (IVU), and model confirmation, rep-
resenting the regular process of checking the accuracy and ap-
propriateness of the model output and its application, carried out
by the model developers and reviewed by the IVU.
ments, including feedback from users on the model output as a
practical indicator of the performance and reliability of the model.
Material changes in a portfolio composition may invalidate the
conceptual soundness of the model. We therefore perform regu-
lar analysis of the evolution of portfolios to identify such changes
in the structure and credit quality of portfolios. This includes anal-
ysis of changes in key attributes, changes in portfolio concentra-
tion measures, as well as changes in RWA.
Backtesting
We monitor the performance of our models by backtesting and
benchmarking them, whereby model outcomes are compared
with actual results, based on our internal experience as well as
externally observed results. We take a portfolio (or sub-portfolio
or rating bucket) approach to determine whether behavior ob-
served is in line with that predicted by our models.
Our approach to model confirmation involves both quantita-
tive methods, including monitoring compositional changes in the
portfolios and the results of backtesting, and qualitative assess-
For PD, we use statistical modeling to derive a distribution of
expected number of defaults. The observed number of defaults is
then compared with this distribution, allowing us to derive a sta-
Credit models backtesting by regulatory exposure segment
PD
Corporates 3
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
LGD
Corporates
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending 4
Other retail
CCF
Corporates
Length of time
series used for
the calibration
(in years)
Actual rates in %
Average of last
5 years 1
Min. of last
5 years 2
Max. of last
5 years 2
Estimated average
rates at the start
of the period in %
> 10
> 10
> 10
> 15
> 10
> 10
> 10
> 10
> 10
> 10
> 10
> 10
0.19
0.00
0.18
0.16
0.02
0.36
21.39
30.40
2.14
42.64
23.43
0.07
0.00
0.05
0.13
0.00
0.24
8.45
18.80
0.00
40.42
6.65
0.46
0.00
0.45
0.22
0.06
0.47
24.97
35.67
3.52
40.42
31.62
0.38
0.34
0.55
0.19
0.20
1.05
19.64
40.43
37.73
6.12
20.00
47.64
> 10
15.77
9.75
30.65
38.65
1 Average of all observations over the last five years. 2 Minimum / maximum annual average of observations in any single year from the last five years. Yearly averages are only calculated where five or more observa-
tions occurred during that year. 3 Reported averages are low due to the impact of managed funds, which have relatively low default rates. 4 For Lombard lending, the minimum and maximum annual observations for
LGD relate to 2009, being the only year in which five or more defaults were observed. Due to the low number of defaults over this period, the observed averages are not meaningful comparators to the equivalent esti-
mated average, which is calibrated using a larger data set spanning a longer historical period.
184
tistical level of confidence in the model accuracy. In addition, we
derive a lower and upper bound for the average default rate. If
the portfolio average PD lies outside the derived interval, the rat-
ing tool is, as a general rule, recalibrated.
We apply a similar approach to assess the predictive power of
our simulations of potential future exposures for traded products
such as OTC derivatives.
For LGD, we compute the difference between observed and
estimated LGD for defaulted counterparties with the expectation
that, for each specific LGD model, the distribution of those differ-
ences is symmetric around zero with a small dispersion. Models
are recalibrated where these differences are outside expectations.
Credit conversion factors (CCF), used for the calculation of
EAD for undrawn facilities with corporate counterparties, are de-
pendent on several contractual dimensions of the credit facility.
Similar to our approach for PD, we compare the predicted amount
drawn with observed historical utilization of such facilities for de-
faulted counterparties. If any statistically significant deviation is
observed, the relevant CCF are redefined.
The table on the previous page compares the current model
calibration for PD, LGD and CCF with historical observed values
over the last five years.
Changes to models and model parameters during the period
As part of our continuous efforts to enhance models to reflect
market developments and new available data, certain models
have been modified in the course of 2013. The rating and LGD
models for residential mortgages have been enhanced to increase
the extent to which they take into account the availability of cli-
ents’ behavioral data. A new model has been implemented for
rating large multinationals, taking into account extended market
information, research and analysis to assess the creditworthiness
of the counterparty. To meet Basel III requirements, developments
have been made in the context of the derivatives future exposure
calculations, with new models for the calculation of the future
close-out risk and CVA. Where required, changes to models and
model parameters are approved by FINMA prior to implementa-
tion.
Comparison of actual versus expected loss
In addition to the above comparison of estimated with observed
parameter values, the table below provides a breakdown over the
last five years of the one-year expected loss estimate on our cred-
it portfolios (covering banking and traded products) and the ac-
tual IFRS credit loss amount (including CVA on derivatives) charged
against our income statement, according to BIS-defined exposure
segments of the advanced internal ratings-based approach.
Although such a comparison may provide some insight, com-
parison between expected and actual losses has certain limita-
tions and the two measures may not be directly comparable. For
example, our estimates of expected loss are calibrated on a
“through-the-cycle” basis, taking into account observed losses
over a prolonged historical period. In contrast, the actual loss fig-
ures presented are a “point-in-time” view of our credit loss ex-
penses, equal to the amount charged to the income statement in
a specific financial year. Furthermore, the estimated expected loss
at the start of the period assumes that the portfolio will be un-
changed throughout the coming year. In reality, the portfolio
composition changes on an ongoing basis, affecting the actual
loss experience.
Total expected loss and actual credit loss
Expected
loss
Actual
loss
Expected
loss
Actual
loss
Expected
loss
Actual
loss
Expected
loss
Actual
loss
Expected
loss
For the
year ended
31.12.13
31.12.12
For the
year ended
31.12.12
31.12.11
31.12.10
(199)
(4)
(36)
(96)
(32)
(18)
(386)
31
0
3
(2)
(36)
(8)
99
88
(322)
(19)
(35)
(59)
(24)
(5)
(463)
884
0
(1)
15
(12)
(11)
24
899
(336)
(27)
(40)
(62)
(30)
For the
year ended
31.12.11
(321)
(1)
3
12
(5)
(75)
31.12.09
(359)
(8)
(37)
(84)
(19)
(5)
For the
year ended
31.12.10
1,577
26
1
5
(2)
7
31.12.08
(610)
(13)
(57)
(87)
(34)
(11)
Actual
loss
For the
year ended
31.12.09
(1,093)
1
(22)
(1)
52
(30)
(17)
CHF million
Corporates 1
Sovereigns
Banks
Retail
Residential mortgages
Lombard lending
Other retail
Not allocated segment 2
Total
1 Includes actual credit recovery in Corporate Center – Non-core and Legacy Portfolio, which amounted to CHF 3 million (31 December 2012: CHF 78 million net loss). 2 Includes changes in collective loan loss
allowances and provisions.
185
(494)
(387)
(512)
1,615
(812)
(1,110)
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Policies for past due, non-performing and impaired claims
d
e
t
i
d
u
A
The diagram below illustrates how we categorize banking prod-
ucts and securities financing transactions as performing, non-
performing or impaired. For products accounted for on a fair val-
ue basis, such as OTC derivatives, credit deterioration is recognized
through a CVA, and these products are therefore not subject to
the below impairment framework.
We consider a claim to be past due when a contractual pay-
ment has not been received by its contractual due date. This in-
cludes account overdrafts where the credit limit is exceeded. Past
due claims are not considered impaired where we expect to col-
lect all amounts due under the contractual terms of the claims.
d
e
t
i
d
u
A
A past due claim is considered non-performing when the pay-
ment of interest, principal or fees is overdue by more than 90
days. Claims are also classified as non-performing when insolven-
cy proceedings / enforced liquidation have commenced or obliga-
tions have been restructured on preferential terms, such as prefer-
ential interest rates, extension of maturity or subordination.
Non-performing claims are rated as being in counterparty default
on our internal rating scale.
(cid:39)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:69)(cid:67)(cid:86)(cid:71)(cid:73)(cid:81)(cid:84)(cid:75)(cid:92)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
d
e
t
i
d
u
A
Individual claims are classified as impaired if, following an indi-
vidual impairment assessment, their carrying amount exceeds the
recoverable amount, where the recoverable amount is defined as
the present value of the expected cash flows relating to the expo-
sures. Accordingly, both performing and non-performing loans
may be classified as impaired.
Restructured claims
Due to low volumes of distressed claims, we do not operate a
general policy for restructuring claims in order to avoid default of
the counterparty. Where restructuring does take place, we assess
each case individually. Typical features of terms and conditions
granted through restructuring to avoid default may include the
provision of special interest rates, postponement of interest or
principal payments, modification of the schedule of repayments
or amendment of loan maturity.
If a loan is restructured with preferential conditions (i.e., new
terms and conditions are agreed which do not meet the normal
current market criteria for the quality of the obligor and the type
of loan), the claim is still classified as non-performing and is rated
as being in counterparty default. It will remain so until the loan is
(cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)
(cid:48)(cid:81)(cid:80)(cid:15)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73) (cid:19)
(cid:40)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)
(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:80)(cid:81)(cid:86)(cid:2)(cid:82)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71)(cid:16)(cid:2)(cid:54)(cid:74)(cid:75)(cid:85)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:28)
(cid:115)(cid:2) (cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(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:69)(cid:78)(cid:67)(cid:85)(cid:85)(cid:75)(cid:386)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)(cid:2)(cid:81)(cid:84)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70)(cid:14)(cid:2)(cid:68)(cid:87)(cid:86)
(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:84)(cid:71)(cid:86)(cid:87)(cid:84)(cid:80)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:124)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:84)(cid:70)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:90)(cid:75)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)
(cid:2)
(cid:115)(cid:2) (cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(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:68)(cid:71)(cid:71)(cid:80)(cid:2)(cid:84)(cid:71)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:82)(cid:84)(cid:71)(cid:72)(cid:71)(cid:84)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:68)(cid:67)(cid:85)(cid:75)(cid:85)(cid:14)
(cid:2) (cid:71)(cid:16)(cid:73)(cid:16)(cid:14)(cid:2)(cid:67)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:124)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:68)(cid:71)(cid:71)(cid:80)(cid:2)(cid:82)(cid:84)(cid:81)(cid:88)(cid:75)(cid:70)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:71)(cid:84)
(cid:86)(cid:71)(cid:84)(cid:79)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:67)(cid:84)(cid:84)(cid:67)(cid:80)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)
(cid:50)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:87)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)
(cid:115)(cid:2) (cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(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:85)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:79)(cid:75)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)(cid:82)(cid:67)(cid:91)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:81)(cid:84)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:70)(cid:84)(cid:67)(cid:72)(cid:86)(cid:85)(cid:2)(cid:75)(cid:80)
(cid:2) (cid:71)(cid:90)(cid:69)(cid:71)(cid:85)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:2)(cid:87)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:2)(cid:82)(cid:71)(cid:84)(cid:75)(cid:81)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)(cid:2)(cid:85)(cid:75)(cid:80)(cid:69)(cid:71)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:67)(cid:91)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:2) (cid:70)(cid:67)(cid:86)(cid:71)(cid:2)(cid:81)(cid:84)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:2)(cid:68)(cid:84)(cid:71)(cid:67)(cid:69)(cid:74)
(cid:50)(cid:67)(cid:85)(cid:86)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:79)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)
(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(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:85)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:79)(cid:75)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)(cid:82)(cid:67)(cid:91)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:81)(cid:84)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:70)(cid:84)(cid:67)(cid:72)(cid:86)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:85)(cid:85)(cid:2)
(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:78)(cid:75)(cid:79)(cid:75)(cid:86)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:79)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:27)(cid:18)(cid:2)(cid:70)(cid:67)(cid:91)(cid:85)
(cid:52)(cid:71)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:10)(cid:82)(cid:84)(cid:71)(cid:72)(cid:71)(cid:84)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:86)(cid:71)(cid:84)(cid:79)(cid:85)(cid:11)
(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:86)(cid:71)(cid:84)(cid:79)(cid:85)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71)(cid:2)(cid:68)(cid:71)(cid:71)(cid:80)(cid:2)(cid:73)(cid:84)(cid:67)(cid:80)(cid:86)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:2)(cid:82)(cid:84)(cid:71)(cid:72)(cid:71)(cid:84)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:68)(cid:67)(cid:85)(cid:75)(cid:85)(cid:2)
(cid:75)(cid:80)(cid:2)(cid:81)(cid:84)(cid:70)(cid:71)(cid:84)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:88)(cid:81)(cid:75)(cid:70)(cid:124)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:82)(cid:67)(cid:84)(cid:86)(cid:91)(cid:14)(cid:2)(cid:71)(cid:16)(cid:73)(cid:16)(cid:14)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:71)(cid:85)(cid:86)(cid:2)(cid:69)(cid:81)(cid:80)(cid:69)(cid:71)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)
(cid:71)(cid:90)(cid:86)(cid:71)(cid:80)(cid:70)(cid:71)(cid:70)(cid:2)(cid:79)(cid:67)(cid:86)(cid:87)(cid:84)(cid:75)(cid:86)(cid:91)(cid:14)(cid:2)(cid:85)(cid:87)(cid:68)(cid:81)(cid:84)(cid:70)(cid:75)(cid:80)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:43)(cid:80)(cid:85)(cid:81)(cid:78)(cid:88)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:82)(cid:84)(cid:81)(cid:69)(cid:71)(cid:71)(cid:70)(cid:75)(cid:80)(cid:73)(cid:85)
(cid:43)(cid:80)(cid:85)(cid:81)(cid:78)(cid:88)(cid:71)(cid:80)(cid:69)(cid:91)(cid:2)(cid:82)(cid:84)(cid:81)(cid:69)(cid:71)(cid:71)(cid:70)(cid:75)(cid:80)(cid:73)(cid:85)(cid:2)(cid:17)(cid:2)(cid:71)(cid:80)(cid:72)(cid:81)(cid:84)(cid:69)(cid:71)(cid:70)(cid:2)(cid:78)(cid:75)(cid:83)(cid:87)(cid:75)(cid:70)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:74)(cid:67)(cid:88)(cid:71)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:71)(cid:80)(cid:69)(cid:71)(cid:70)(cid:2)(cid:67)(cid:73)(cid:67)(cid:75)(cid:80)(cid:85)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:81)(cid:68)(cid:78)(cid:75)(cid:73)(cid:81)(cid:84)
(cid:48)(cid:81)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(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:71)(cid:90)(cid:75)(cid:85)(cid:86)(cid:85)
(cid:43)(cid:72)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(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:71)(cid:90)(cid:75)(cid:85)(cid:86)(cid:85)
(cid:43)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:81)(cid:84)(cid:85)(cid:2)(cid:81)(cid:72)(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:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:78)(cid:91)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:75)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:79)(cid:82)(cid:67)(cid:75)(cid:84)(cid:71)(cid:70) (cid:19)
(cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:80)(cid:81)(cid:80)(cid:15)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:75)(cid:80)(cid:73)(cid:2)(cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:81)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:71)(cid:88)(cid:75)(cid:70)(cid:71)(cid:80)(cid:69)(cid:71)(cid:2)(cid:81)(cid:72)(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:71)(cid:90)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:67)(cid:84)(cid:84)(cid:91)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:79)(cid:81)(cid:87)(cid:80)(cid:86)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:71)(cid:70)(cid:85)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:67)(cid:79)(cid:81)(cid:87)(cid:80)(cid:86)
(cid:19)(cid:2)(cid:37)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:84)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:70)(cid:71)(cid:72)(cid:67)(cid:87)(cid:78)(cid:86)(cid:16)(cid:2)(cid:35)(cid:78)(cid:78)(cid:2)(cid:85)(cid:87)(cid:69)(cid:74)(cid:2)(cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:70)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(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:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:79)(cid:71)(cid:80)(cid:86)(cid:16)
186
d
e
t
i
d
u
A
collected, written off or non-preferential conditions are granted
that supersede the preferential conditions, and will be assessed
for impairment on an individual basis.
d
e
t
i
d
u
A
If a loan is restructured with non-preferential conditions (e.g.,
additional collateral is provided by the client, or new terms and
conditions meet the normal market criteria for the quality of the
obligor and the type of loan), the loan is classified as performing,
but assessed for impairment on an individual basis. Management
regularly reviews all loans to ensure that all criteria according to
the loan agreement continue to be met and that future payments
are likely to occur.
d
e
t
i
d
u
A
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Individual and collective impairment assessments
Claims are assessed individually for impairment where there are
indicators that an impairment may exist. Otherwise claims are in-
cluded in a collective impairment assessment.
Individual impairment
Non-performing status is considered an indicator that a loan may
be impaired and therefore all non-performing claims are assessed
individually for impairment. However, an impairment analysis
would be carried out irrespective of non-performing status if oth-
er objective evidence indicates that a loan may be impaired. Any
event that impacts current and future cash flows may be an indi-
cation of impairment and trigger an assessment by the risk officer.
Such events may be (i) significant collateral shortfalls due to a fall
in lending values (securities and real estate), (ii) increase in loan or
derivative exposures, (iii) significant financial difficulties of a client
and (iv) high probability of bankruptcy, debt moratorium or finan-
cial reorganization of the client.
Individual claims are assessed for impairment based on the
borrower’s character, overall financial condition, resources and
payment record, the prospects for support from any financially
responsible guarantors, and where applicable, the realizable value
of any collateral. The recoverable amount is determined from all
relevant cash flows and, where this is lower than the carrying
amount of the claim, the claim is considered impaired. We con-
sider a reclassified security an impaired loan if the carrying value
at the balance sheet date is, on a cumulative basis, 5% or more
below the carrying value at the reclassification date adjusted for
redemptions.
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. Our workout strategy and estimation of recoverable
amounts are independently approved in accordance with our
credit authorities.
Collective impairment
We assess our portfolios of claims carried at amortized cost with
similar credit risk characteristics for collective impairment in order
to consider if these portfolios contain impaired claims that cannot
yet be individually identified. To cover the time lag between the
occurrence of an impairment event and its identification based on
the policies above, 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 any indi-
vidual impairment. These portfolios are not considered impaired
loans in the tables shown in the composition of credit risk for
business divisions above.
Additionally, for all of our portfolios we assess whether there
have been any developments which might result in event-driven
impairments 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 significant changes in the legal or
regulatory environment. To determine whether a collective im-
pairment exists, we regularly use a set of global economic drivers
to assess the most vulnerable countries and review the impact of
any potential impairment event.
d
e
t
i
d
u
A
Recognition of impairment
The recognition of impairment in our financial statements depends
on the accounting treatment of the claim. For claims carried at
amortized cost, impairment is recognized through the creation of
an allowance, or in the case of off-balance sheet items such as
guarantees and loan commitments through a provision, both
charged to the income statement as a credit loss expense. For de-
rivatives, which are carried at fair value, 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 24a
Valuation principles” in the “Financial information” section of
this report for more information on allowances and provisions
for credit losses and credit valuation adjustments
187
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Market risk
Key developments during the period
Overview of measurement, monitoring and
management techniques
We maintained a low level of market risk in our trading busi-
nesses, with the risk profile of the Investment Bank reducing and
moving towards less complex and more client-oriented business-
es. Average exposure levels of our stress loss and statistical (val-
ue-at-risk) measures roughly halved over the course of the year.
d
e
t
i
d
u
A
Main sources of market risk
d
e
t
i
d
u
A
– Market risks arise from both our trading and non-trading busi-
ness activities.
– Trading market risks arise mainly in connection with securities
and derivatives trading for market-making and client facilita-
tion purposes within our Investment Bank, and from remaining
positions within Non-core and Legacy Portfolio.
– Trading market risk also arises from our municipal securities
trading business within Wealth Management Americas.
– Non-trading market risk arises predominantly in the form of
interest rate and foreign exchange risks in connection with our
retail banking and lending in our wealth management busi-
nesses, our retail and corporate banking businesses in Switzer-
land and the Investment Bank’s lending business, in addition to
treasury activities.
– Group Treasury assumes market risks in the process of manag-
ing interest rate and structural foreign exchange risks and the
funding and liquidity profile of the Group.
– Market risk limits are set for the Group, the business divisions
and Corporate Center and at granular levels within the various
business lines, reflecting the nature and magnitude of the mar-
ket risks.
– Our primary portfolio measures of market risk are liquidity ad-
justed stress (LAS) loss and value-at-risk (VaR). Both are com-
mon to all our business divisions and subject to limits that are
approved by the Board of Directors (BoD).
– These measures are complemented by concentration and gran-
ular limits for general and specific market risk factors. Our trad-
ing businesses are subject to multiple market risk limits. These
limits take into account the extent of market liquidity and vola-
tility, available operational capacity, valuation uncertainty, and,
for our single-name exposures, the credit quality of issuers.
– Issuer risk is controlled by limits applied at business division
level based on jump-to-zero measures, which estimate our
maximum default exposure (the loss in the case of a default
event assuming zero recovery).
– Non-trading foreign exchange risks are managed under mar-
ket risk limits, with the exception of Group Treasury’s manage-
ment of consolidated capital activity discussed in the “Treasury
management” section of this report. All foreign exchange risks
are included in our Group-wide statistical and stress testing
metrics which flow into our risk appetite framework.
– Equity and debt investments can also give rise to market risks,
as can some aspects of our employee benefits such as defined
benefit pension schemes.
– Our Treasury Risk Control function applies a holistic risk frame-
work which sets the appetite for treasury-related risk-taking
activities across the Group. A key element of the framework is
188
d
e
t
i
d
u
A
an overarching economic value sensitivity limit, set by the BoD.
This limit is linked to the level of Basel III common equity tier 1
(CET1) capital and takes into account risks arising from interest
rates, foreign exchange and credit spreads. 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 in-
terest income based on market expected interest rates. Limits
are also set by the BoD to balance the impact of foreign ex-
change movements on our CET1 capital and CET1 ratio. Non-
trading interest rate and foreign exchange risks are included in
our Group-wide statistical and stress testing metrics which
flow into our risk appetite framework. Further information on
interest rate risk in the banking book can be found below, and
details on Group Treasury’s management of foreign exchange
risks can be found in the “Treasury management” section of
this report.
– Equity and debt investments are subject to a range of risk con-
trols including pre-approval of new investments by business
management and Risk Control and regular monitoring and re-
porting. They are also included in our Group-wide statistical
and stress testing metrics which flow into our risk appetite
framework.
➔ Refer to the “Capital management” section of this report for
more information on the sensitivity of our CET1 capital and CET1
ratio to currency movements
Market risk exposures arising from our business activities
The table on the next page highlights the most significant sourc-
es of our trading market risk exposures and the interest rate risk
on our banking book exposures, categorized according to the
business activities that primarily generate the risks and the clas-
sification of positions on the balance sheet. In practice, and par-
ticularly for positions classified in the banking book, we take
account of natural risk offsets that occur between balance sheet
line items, for example loans and deposits, and manage the re-
sidual exposures. The table does not show the foreign exchange
risks arising from Group Treasury’s management of consolidated
capital activity discussed in the “Treasury management” section
of this report. Also shown in the table is the specific capital treat-
ment for positions classified within the regulatory trading book.
The amount of capital required to underpin market risk in the
regulatory trading book is calculated using a variety of methods
approved by FINMA. The components of market risk RWA are
value-at-risk (VaR), stressed VaR, an add-on for risks which are
potentially not fully modeled in VaR, the incremental risk charge,
the comprehensive risk charge for the correlation portfolio and
the securitization framework for securitization positions in the
trading book. Further information on each of these components
follows the table.
189
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Market risk exposures arising from our business activities
CHF billion
Business activity
Balance sheet line item
Wealth Management 1
Wealth Management Americas
Client deposits
Due to customers
Securities backed lending and mortgages
Loans
Municipal securities and closed-end
funds trading
Trading portfolio assets and liabilities
Retail & Corporate 1
Global Asset Management
Investment Bank
Investor Client Services
Market risk type
Trading book market risk
RWA category
e
r
u
s
a
e
M
k
s
i
R
e
v
i
s
n
e
h
e
r
p
m
o
C
n
o
i
t
a
z
i
t
i
r
u
c
e
s
k
o
o
b
g
n
i
d
a
r
T
e
g
r
a
h
C
k
s
i
R
l
a
t
n
e
m
e
r
c
n
I
R
a
V
-
n
i
-
t
o
n
-
s
k
s
i
R
s
e
t
a
r
t
s
e
r
e
t
n
I
s
d
a
e
r
p
s
t
i
d
e
r
C
s
e
i
t
i
u
q
E
e
g
n
a
h
c
x
e
n
g
i
e
r
o
F
R
a
V
y
r
o
t
a
l
u
g
e
R
s
e
i
t
i
d
o
m
m
o
C
R
a
V
d
e
s
s
e
r
t
S
0.0 0.0
0.4 0.9
0.0
0.3
0.0 0.0
0.0 0.0
A
W
R
k
s
i
r
t
e
k
r
a
m
l
a
t
o
T
0.0
1.6
0.0
0.0
1.6 2.5
1.2
2.1
0.0
0.1 7.6
Trading
book /
Banking
book
Banking book
Banking book
Trading book 2
Fixed income, equities, foreign exchange and
precious metals, securities and derivatives
Structured notes
Trading portfolio assets and liabilities and
positive and negative replacement values
Financial liabilities designated at fair value
Trading book
Trading book
Corporate Client Solutions
Originate to distribute loans and
CMBS origination 3
Take and hold loans
Loans, structured loans, reverse repurchase
agreements and securities borrowing
Corporate Center – Core Functions 1, 4
Trading portfolio assets
Loans
Financial assets designated at
fair value
Trading book
Banking book
Banking book
Centralized liquidity and funding
Debt issued and due to banks
Banking book
Repurchase and reverse repurchase agreements
Trading book
Global and local liquidity reserves
Balances with central banks and
Due from banks
Financial investments available-for-sale
Trading portfolio assets
Mortgage and other loans
Loans
Client deposits
Due to customers
Banking book
Banking book
Trading book
Banking book
Banking book
Hedging instruments and other derivatives
Positive and negative replacement values
Banking book
Corporate Center – Non-core and
Legacy Portfolio
Assets and derivatives considered to be
non-core and which we will continue to
wind down
Counterparty CVA management 5
Reclassified held for trading assets, and
corporate and asset based lending
Structured notes
Key contributor
Less significant contributor
Trading portfolio assets and liabilities and
positive and negative replacement values
Trading book
Positive and negative replacement values
Trading book
Loans
Banking book
Financial liabilities designated at fair value
Trading book
(1.4) (2.3) 0.1 (1.4)
(4.9)
1.1 1.5
0.6
0.3
4.2
1.7 9.4
1 Interest rate risk from Wealth Management and Retail & Corporate loans and deposits is transferred to Group Treasury and reported under Corporate Center – Core Functions in this analysis. 2 Although risk is con-
trolled under the market risk framework, Puerto Rico closed-end fund positions are treated as banking book for capital underpinning purposes due to market illiquidity. 3 Credit spread risk arising from loan underwrit-
ing is captured through, and reported as part of, credit risk RWA. 4 Negative market risk RWA are due to diversification effects allocated to Corporate Center – Core Functions. 5 Counterparty credit risk in the valu-
ation of OTC derivative instruments, derivatives embedded in funded assets designated at fair value and derivatives embedded in traded debt instruments is captured through credit valuation adjustment RWA calculated
under the advanced IRB or standardized approach and reported as part of credit risk RWA.
190
Market risk stress loss
Value-at-risk
We measure and manage our market risks primarily through a
comprehensive framework of non-statistical measures and related
limits. This includes an extensive series of stress tests and scenario
analyses that undergo continuous evaluation to ensure that, if an
extreme but nevertheless plausible event were to occur, the result-
ing losses would not exceed our risk appetite.
d
e
t
i
d
u
A
Liquidity adjusted stress (LAS)
Our primary measure of stress loss for Group-wide market risk is
liquidity adjusted stress (LAS). The LAS framework is designed to
capture the economic losses that could arise under specified stress
scenarios. This is in part achieved by replacing the standard one-
day and 10-day holding period assumptions used for manage-
ment and regulatory VaR with liquidity adjusted holding periods,
as explained below. Shocks are then applied to positions based on
the expected market movements over the liquidity adjusted hold-
ing periods resulting from the specified scenario.
The holding periods used in LAS are calibrated to reflect the
amount of time it would take to flatten the risk of positions in
each major risk factor in a stressed environment, assuming maxi-
mum utilization of the relevant position limits. Holding periods are
also subject to minimum periods, regardless of observed liquidity
levels, reflecting the fact that identification of, and reaction to, a
crisis may not always be immediate.
The expected market movements are derived using a combina-
tion of historical market behavior, based on an analysis of histori-
cal events, and forward-looking analysis including consideration
of defined scenarios that have not occurred historically.
LAS-based limits are applied at a number of levels: Group-
wide, business divisions and Corporate Center, business areas and
sub-portfolios. In addition, LAS forms the core market risk compo-
nent of our combined stress test framework and is therefore inte-
gral to our overall risk appetite framework.
➔ Refer to “Risk appetite” in this section for more information on
our risk appetite framework
➔ Refer to “Stress testing” in this section for more information on
our stress testing framework
Method applied
Historical simulation
Data set
Five years
Holding period
10 days for regulatory VaR, 1 day for internal limits
Confidence level
Population
99% for regulatory VaR, 95% for internal limits –
both based on expected tail loss
Regulatory trading book for regulatory VaR, a broader
population for internal limits
d
e
t
i
d
u
A
VaR definition
Value-at-risk (VaR) is a statistical measure of market risk, repre-
senting the market risk losses that could potentially be realized
over a set time horizon (holding period) at an established level of
confidence. The measure assumes no change in the Group’s trad-
ing positions over the set time horizon.
We calculate VaR on a daily basis, based on the application of
historical changes in market risk factors directly to our current po-
sitions – a method known as historical simulation. We use a single
VaR model for both determining market risk regulatory capital re-
quirements and internal management purposes, although we con-
sider different confidence levels and time horizons. The regulatory
measure of market risk used to underpin the market risk capital
requirement under Basel III requires a measure equivalent to a
99% confidence level using a 10-day holding period. For internal
management purposes, risk limits are established and exposures
are measured using VaR at the 95% confidence level with a one-
day holding period, more closely aligned to the way we consider
the risks associated with our trading activities.
The population of the portfolio within regulatory and manage-
ment VaR is slightly different. The population within regulatory
VaR meets minimum regulatory requirements for inclusion in reg-
ulatory VaR. Management VaR includes a broader population of
positions. For example, the credit spread risks from the securitiza-
tion portfolio are treated instead under the securitization ap-
proach for regulatory purposes.
191
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
d
e
t
i
d
u
A
VaR limitations
Actual realized market risk losses may differ from those implied by
our VaR for a variety of reasons.
– The VaR measure is calibrated to a specified level of confidence
and may not indicate potential losses beyond this confidence
level.
– The 10-day time horizon used in the regulatory VaR measure,
or one-day in the case of VaR used for internal management
purposes, may not fully capture the market risk of positions
that cannot be closed out or hedged within the specified
period.
– In certain cases, VaR calculations approximate the impact of
changes in risk factors on the values of positions and portfoli-
os. This may happen because the number of risk factors in-
cluded in the VaR model is necessarily limited. For example,
yield curve risk factors do not exist for all future dates.
– The effect of extreme market movements is subject to estima-
tion errors, which may result from non-linear risk sensitivities, as
well as the potential for actual volatility and correlation levels to
differ from assumptions implicit in the VaR calculations.
d
e
t
i
d
u
A
time influenced by the length of the historical observation
period.
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
complementary characteristics in order to create a holistic frame-
work which ensures material completeness of risk identification
and measurement. As a statistical aggregate risk measure, VaR
supplements our comprehensive stress testing framework.
Furthermore, we have an established framework to identify
and quantify potential risks that are not fully captured by our VaR
model. This framework is explained further on.
VaR model developments in 2013
We made no significant changes to the VaR model during 2013.
During the year, we improved the VaR model by integrating se-
lected risk-not-in-VaR items into the VaR model. The impact of
incorporating these items into VaR was negligible.
– The use of a five-year window means that sudden increases in
market volatility will tend not 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. Similarly, fol-
lowing a period of increased volatility, as markets stabilize,
VaR predictions will remain more conservative for a period of
Regulatory VaR for the period
The tables on the next page show minimum, maximum, average
and period-end regulatory VaR by business division and Corporate
Center and general market risk factor type. The decrease in the
Group’s regulatory VaR to CHF 38 million from CHF 63 million is
primarily a result of risk reductions.
192
Regulatory value-at-risk (10-day, 99% confidence, 5 years of historical data) by business division and Corporate Center
and general market risk factor type 1
CHF million
Total regulatory VaR, Group
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Diversification effect 2, 3
Group, excluding CC – Non-core and
Legacy Portfolio
CC – Non-core and Legacy Portfolio
For the year ended 31.12.13
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Min.
37
0
9
0
0
32
8
32
8
Max.
Average
99
1
18
0
1
117
33
114
80
31.12.13
38
0
10
0
0
35
20
54
0
13
0
0
52
17
(30)
(31)
52
41
35
42
21
78
33
27
0
0
0
0
31
0
(1)
31
11
22
71
35
31
46
131
88
62
3
110
35
10
Average (per business division and risk type)
0
7
0
0
37
12
(20)
36
19
0
20
0
0
80
9
(12)
97
48
0
0
0
0
28
10
(10)
28
20
6
38
15
11
0
0
0
0
15
0
(0)
15
1
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise the VaR for each business line or
risk type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and losses for that business line or risk type, may well be driven by different days in the historical time-series, render-
ing invalid the simple summation of figures to arrive at the aggregate total. 2 Difference between the sum of the standalone VaRs for the business divisions and the “Corporate Center – Core Functions” shown and
the VaR for the “Group, excluding CC – Non-core and Legacy Portfolio” as a whole. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a minimum
and maximum portfolio diversification effect.
CHF million
Total regulatory VaR, Group
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank 4
Corporate Center – Core Functions 4
Diversification effect 2, 3
Group, excluding CC – Legacy Portfolio
Legacy Portfolio 4
For the year ended 31.12.12
Min.
56
0
14
0
0
58
8
60
24
Max.
776
0
25
1
1
769
55
703
109
Average
31.12.12
133
0
18
0
0
131
15
(31)
134
37
63
0
17
0
0
61
18
(30)
66
47
Equity
24
713
52
27
0
1
0
0
52
0
(1)
52
0
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
40
162
79
40
99
296
186
104
21
149
51
38
Average (per business division and risk type)
0
9
0
0
87
8
(20)
84
10
0
26
0
0
147
8
(16)
165
50
0
0
0
0
55
11
(12)
54
7
6
75
17
21
0
0
0
0
17
0
(0)
17
0
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise the VaR for each business line or
risk type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and losses for that business line or risk type, may well be driven by different days in the historical time-series, render-
ing invalid the simple summation of figures to arrive at the aggregate total. 2 Difference between the sum of the standalone VaRs for the business divisions and the “Corporate Center – Core Functions” shown and
the VaR for the “Group, excluding CC – Legacy Portfolio” as a whole. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a minimum and maximum
portfolio diversification effect. 4 Numbers have not been restated to take into account the transfer of non-core positions from the Investment Bank to the Corporate Center.
193
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Management VaR for the period
The table below shows minimum, maximum, average and period-
end management VaR by business division and Corporate Center
and general market risk factor type.
d
e
t
i
d
u
A
Management value-at-risk (1-day, 95% confidence, 5 years of historical data) by business division and
Corporate Center and general market risk factor type 1
For the year ended 31.12.13
CHF million
Total management VaR, Group
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Diversification effect 2, 3
Group, excluding CC – Non-core and
Legacy Portfolio
CC – Non-core and Legacy Portfolio
Min.
10
0
1
0
0
7
3
8
6
Max.
Average
31.12.13
33
0
2
0
0
28
11
33
14
16
0
1
0
0
13
5
(5)
13
11
11
0
2
0
0
10
4
(5)
10
11
Equity
6
18
9
7
0
0
0
0
8
0
(0)
8
4
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
7
16
10
8
10
31
18
10
2
9
5
3
Average (per business division and risk type)
0
2
0
0
9
4
(5)
10
5
0
3
0
0
11
1
(2)
13
10
0
0
0
0
4
1
(1)
4
2
1
5
2
2
0
0
0
0
2
0
(0)
2
0
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise the VaR for each business line or
risk type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and losses for that business line or risk type, may well be driven by different days in the historical time-series, render-
ing invalid the simple summation of figures to arrive at the aggregate total. 2 Difference between the sum of the standalone VaRs for the business divisions and the “Corporate Center – Core Functions” shown and
the VaR for the “Group, excluding CC – Non-core and Legacy Portfolio” as a whole. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a minimum
and maximum portfolio diversification effect.
CHF million
Total management VaR, Group
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank 4
Corporate Center – Core Functions 4
Diversification effect 2, 3
Group, excluding CC – Legacy Portfolio
Legacy Portfolio 4
For the year ended 31.12.12
Min.
18
0
1
0
0
15
3
16
7
Max.
167
0
2
0
0
164
12
155
16
Average
31.12.12
33
0
2
0
0
30
6
(7)
31
9
18
0
2
0
0
15
5
(6)
16
10
Equity
7
160
12
8
0
0
0
0
12
0
(0)
12
0
Interest
rates
Credit
spreads
Foreign
exchange
Com modities
11
33
19
12
23
42
31
26
3
13
6
5
Average (per business division and risk type)
0
2
0
0
19
5
(7)
19
3
0
4
0
0
25
1
(3)
27
10
0
0
0
0
5
2
(2)
5
2
1
7
3
3
0
0
0
0
3
0
(0)
3
0
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise the VaR for each business line or
risk type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and losses for that business line or risk type, may well be driven by different days in the historical time-series, render-
ing invalid the simple summation of figures to arrive at the aggregate total. 2 Difference between the sum of the standalone VaRs for the business divisions and the “Corporate Center – Core Functions” shown and
the VaR for the “Group, excluding CC – Legacy Portfolio” as a whole. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a minimum and maximum
portfolio diversification effect. 4 Numbers have not been restated to take into account the transfer of non-core positions from the Investment Bank to the Corporate Center.
194
Derivation of regulatory VaR-based RWA
Regulatory VaR is used to derive the regulatory VaR component of
the market risk Basel III RWA, shown in “Table 2: Detailed segmen-
tation of Basel III exposures and risk-weighted assets” in the “Sup-
plemental disclosures required under Basel III Pillar 3 regulations”
section of this report. This calculation takes the maximum of the
period-end regulatory VaR and the average regulatory VaR for the
60 trading days immediately preceding the period end multiplied
by a scaling factor set by FINMA, currently three. This is then mul-
tiplied by a factor of 12.5 to determine the RWA. This calculation
is set out in the table below.
Backtesting of VaR
For backtesting purposes, we compute backtesting VaR using a
99% confidence level and one-day holding period for the popula-
tion included within regulatory VaR. The backtesting process com-
pares backtesting 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 revenues
from intraday trading, to ensure a like-for-like comparison. A
backtesting exception occurs when backtesting revenues are neg-
ative and the absolute value of those revenues is greater than the
previous day’s backtesting VaR.
Statistically, given the confidence level of 99%, two to three
backtesting exceptions per year can be expected. More excep-
tions than this could indicate that the VaR model is not perform-
ing appropriately, as could too few exceptions over a prolonged
period of time. However, as noted in the VaR limitations above, a
sudden increase or decrease in market volatility relative to the
five-year window could lead to a higher or lower number of ex-
ceptions respectively. Accordingly, Group-level backtesting excep-
tions are investigated, as are exceptional positive backtesting rev-
enues, with results being reported to senior business management,
the Group Chief Risk Officer and the divisional Chief Risk Officers.
Backtesting exceptions are also reported to internal and external
auditors and to the relevant regulators. We did not have any
Group backtesting exceptions in 2013.
The chart “Development of backtesting revenues against back-
testing VaR” on the next page shows the 12-month development
of backtest VaR against backtesting revenues of the Group for
2013. The chart shows both the negative and positive tails of the
backtest VaR distribution at 99% confidence intervals represent-
ing, respectively, the losses and gains that could potentially be
realized over a one-day period at that level of confidence.
The asymmetry between the negative and positive tails is due
to the significant long gamma risk profile that has historically
been run in the Investment Bank. This long gamma position prof-
its from increases in volatility which therefore benefits the positive
tail of the VaR simulated profit and loss distribution. This asym-
metry declined towards the end of the year as the long gamma
profile reduced.
The histogram “Investment Bank and Corporate Center – Non-
core and Legacy Portfolio daily revenue distribution” shows the
daily revenue distribution for the Investment Bank and Corporate
Center – Non-core and Legacy Portfolio for 2013. This includes, in
addition to backtesting revenues, revenues such as commissions
and fees, revenues for intraday trading and own credit.
Calculation of regulatory VaR-based RWA as of 31 December 2013
CHF million
Period end
regulatory VaR
(A)
38
60-day average
regulatory VaR
(B)
47
Scaling factor
(C)
3
Max (A, B x C)
(D)
140
Multiplier
(E)
12.5
Basel III
RWA (D x E)
1,746
195
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
(cid:38)(cid:71)(cid:88)(cid:71)(cid:78)(cid:81)(cid:82)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid: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:68)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:56)(cid:67)(cid:52)(cid:20)(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)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:36)(cid:67)(cid:80)(cid:77)(cid:2)(cid:67)(cid:80)(cid:70)(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:115)(cid:2)(cid:48)(cid:81)(cid:80)(cid:15)(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:46)(cid:71)(cid:73)(cid:67)(cid:69)(cid:91)(cid:2)(cid:50)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:70)(cid:67)(cid:75)(cid:78)(cid:91)(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:21)(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:21)
(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:23)(cid:18)
(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: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:27)(cid:27)(cid:7)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(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:56)(cid:67)(cid:52)(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:36)(cid:67)(cid:69)(cid:77)(cid:86)(cid:71)(cid:85)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:56)(cid:67)(cid:52)(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:2)(cid:31)(cid:2)(cid:19)(cid:7)(cid:2)(cid:80)(cid:71)(cid:73)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:86)(cid:67)(cid:75)(cid:78)(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:36)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)(cid:56)(cid:67)(cid:52)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:37)(cid:56)(cid:35)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:75)(cid:84)(cid:2)(cid:71)(cid:78)(cid:75)(cid:73)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:74)(cid:71)(cid:70)(cid:73)(cid:71)(cid:85)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:85)(cid:87)(cid:68)(cid:76)(cid:71)(cid:69)(cid:86)(cid:2)
(cid:86)(cid:81)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:80)(cid:71)(cid:89)(cid:2)(cid:85)(cid:86)(cid:67)(cid:80)(cid:70)(cid:67)(cid:78)(cid:81)(cid:80)(cid:71)(cid:2)(cid:37)(cid:56)(cid:35)(cid:2)(cid:69)(cid:74)(cid:67)(cid:84)(cid:73)(cid:71)(cid:16)
Group: regulatory valueatrisk (1day, 99% confidence,
5 years of historical data)
(cid:19)(cid:20)(cid:18)
(cid:19)(cid:18)(cid:18)
(cid:26)(cid:18)
(cid:24)(cid:18)
(cid:22)(cid:18)
(cid:20)(cid:18)
(cid:18)
(cid:21)(cid:22)(cid:26)(cid:15)(cid:21)(cid:18)(cid:19)(cid:65)(cid:24)(cid:22)(cid:18)
(cid:11)
(cid:18)
(cid:18)
(cid:19)
(cid:10)
(cid:30)
(cid:11)
(cid:23)
(cid:25)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:18)
(cid:19)
(cid:10)
(cid:11)
(cid:18)
(cid:23)
(cid:10)
(cid:115)
(cid:11)
(cid:23)
(cid:25)
(cid:10)
(cid:11)
(cid:23)
(cid:20)
(cid:10)
(cid:115)
(cid:11)
(cid:18)
(cid:23)
(cid:10)
(cid:18)
(cid:115)
(cid:11)
(cid:23)
(cid:20)
(cid:10)
(cid:23)
(cid:20)
(cid:115)
(cid:18)
(cid:18)
(cid:23)
(cid:115)
(cid:23)
(cid:20)
(cid:23)
(cid:25)
(cid:115)
(cid:18)
(cid:23)
(cid:18)
(cid:18)
(cid:19)
(cid:115)
(cid:23)
(cid:25)
(cid:18)
(cid:18)
(cid:19)
(cid:32)
(cid:52)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:79)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:2)(cid:43)(cid:80)(cid:2)(cid:67)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:86)(cid:81)(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:14)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(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:84)(cid:71)(cid:88)(cid:71)(cid:80)(cid:87)(cid:71)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(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:14)(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:16)
For the year ended 31.12.13
Aver-
CHF million
Min. Max.
age 31.12.13 Min. Max.
Group
15
42
23
17
23
239
Basel 2.5 –
for the year ended 31.12.12
Aver-
age
47
31.12.12
25
Stressed VaR
Method applied
Data set
Holding period
Confidence level
Population
Historical simulation
From 1 January 2007 to present
10 days
99% based on expected tail loss
Regulatory trading book
Stressed VaR (SVaR) adopts broadly the same methodology as
regulatory VaR and is calculated using the same population,
holding period (10-day) and confidence level (99%). However,
unlike regulatory VaR, the historical data set for SVaR is not
limited to five years. SVaR uses continuous one-year data sets to
derive the largest potential loss arising from a one-year period
of significant financial stress relevant to the current portfolio of
the Group.
SVaR is subject to the same limitations as noted for VaR above,
but the use of one-year data sets avoids the smoothing effect of
the five-year data set used for VaR, and the removal of the five-
year window provides for a longer history of potential loss events.
Therefore, although the significant period of stress during the fi-
nancial crisis is dropping out of the historical period used for regu-
latory VaR, SVaR will continue to use this data. This approach is
intended to reduce the procyclicality of the regulatory capital re-
quirements for market risks.
Stressed VaR model developments in 2013
In 2013, the stressed VaR model was changed to implement an
expanding historical data set, with a starting date anchored at
1 January 2007, instead of a rolling five-year historical data set.
This change aimed to reduce procyclicality (e.g., the Lehman crisis
dropping out of the five-year historical data window).
196
(cid:19)(cid:20)(cid:18)
(cid:19)(cid:18)(cid:18)
150
100
50
0
-50
-100
(cid:26)(cid:18)
(cid:24)(cid:18)
(cid:22)(cid:18)
(cid:20)(cid:18)
(cid:18)
Stressed value-at-risk (10-day, 99% confidence, 5 years of historical data) by business division and Corporate Center
and general market risk type 1
CHF million
Total stressed VaR, Group
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Diversification effect 2, 3
Group, excluding CC – Non-core and Legacy
Portfolio
CC – Non-core and Legacy Portfolio
For the year ended 31.12.13
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Min.
59
0
13
0
0
45
12
44
14
Max.
Average
178
2
35
0
2
231
53
241
121
31.12.13
63
0
21
0
0
53
44
82
0
20
0
1
83
26
(48)
(65)
82
66
53
64
35
155
58
49
0
1
0
1
54
0
(1)
54
19
21
104
53
66
91
235
148
92
6
210
56
23
Average (per business division and risk type)
1
9
0
0
55
26
(42)
49
30
0
30
0
0
131
13
(16)
158
71
0
0
0
0
48
15
(16)
47
30
10
81
24
21
0
0
0
0
24
0
0
24
2
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise the VaR for each business line or risk
type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and losses for that business line or risk type, may well be driven by different days in the historical time-series, rendering invalid
the simple summation of figures to arrive at the aggregate total. 2 Difference between the sum of the standalone VaRs for the business divisions and the “Corporate Center – Core Functions” shown and the VaR for the
“Group, excluding CC – Non-core and Legacy Portfolio” as a whole. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a minimum and maximum port-
folio diversification effect.
CHF million
Total stressed VaR, Group
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank 4
Corporate Center – Core Functions
Diversification effect 2, 3
Group, excluding CC – Legacy Portfolio
Legacy Portfolio 4
For the year ended 31.12.12
Min.
Max.
Average
31.12.12
105
1,127
0
18
0
0
100
12
103
43
1
31
0
1
1,111
86
1,131
190
189
0
24
0
1
184
20
(41)
188
62
125
0
23
0
1
118
21
(42)
121
78
Equity
20
1,015
76
38
0
1
0
0
76
0
(1)
76
0
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
43
285
93
43
159
528
326
163
28
222
83
61
Average (per business division and risk type)
0
11
0
0
114
12
(28)
110
14
0
37
0
0
253
12
(21)
282
80
0
0
0
0
90
16
(19)
87
8
7
110
23
40
0
0
0
0
23
0
(0)
23
0
1 Statistics at individual levels may not be summed to deduce the corresponding aggregate figures. The minima and maxima for each level may well occur on different days, and likewise the VaR for each business line or risk
type, being driven by the extreme loss tail of the corresponding distribution of simulated profits and losses for that business line or risk type, may well be driven by different days in the historical time-series, rendering invalid
the simple summation of figures to arrive at the aggregate total. 2 Difference between the sum of the standalone VaRs for the business divisions and the “Corporate Center – Core Functions” shown and the VaR for the
“Group, excluding CC – Legacy Portfolio” as a whole. 3 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a minimum and maximum portfolio diversifi-
cation effect. 4 Numbers have not been restated to take into account the transfer of non-core positions from the Investment Bank to the Corporate Center.
197
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Calculation of SVaR-based RWA as of 31 December 2013
CHF million
Period end SVaR
(A)
63
60 day average
SVaR
(B)
69
Scaling factor
(C)
3
Max (A, B x C)
(D)
208
Multiplier
(E)
12.5
Basel III
RWA (D x E)
2,604
Derivation of SVaR-based RWA
SVaR is used to derive the SVaR component of the market risk
Basel III RWA shown in “Table 2: Detailed segmentation of Basel
III exposures and risk-weighted assets” in the “Supplemental dis-
closures required under Basel III Pillar 3 regulations” section of this
report. The derivation of this component is similar to that ex-
plained above for regulatory VaR, and is shown above.
Risks-not-in-VaR
10-day 99%-VaR for an item. Other eligible methods are based
on analytical considerations or stress test and worst-case assess-
ments. Statistical methods are used to aggregate the standalone
risks, yielding a Group-level 10-day 99%-VaR estimate of the en-
tire inventory of RniV items at the specific date. The ratio of this
amount to regulatory VaR is used to produce estimates for arbi-
trary points in time by scaling the corresponding regulatory VaR
figures with that fixed ratio. An analogous approach is applied for
stressed VaR.
Risks-not-in-VaR definition
We have an established framework to identify and quantify po-
tential risk factors that are not fully captured by our VaR model.
We refer to these risk factors as risks-not-in-VaR (RniV). This
framework is used to underpin these potential risk factors with
regulatory capital, calculated as a multiple of regulatory VaR and
stressed VaR.
These RniV arise from approximations made by the VaR model
to quantify the impact of risk factor changes on the profit and loss
of positions and portfolios, as well as the use of proxies for certain
market risk factors. We categorize RniV by means of items and
keep track of which instrument classes are affected by each item.
When new types of instruments are included in the VaR popu-
lation, we assess whether new items must be added to the inven-
tory of RniV items.
Risks-not-in-VaR quantification
Risk officers perform a quantitative assessment for each position
in the inventory of RniV items annually, as of a specific date. The
assessment is made in terms of a 10-day 99%-VaR measure ap-
plied to the difference between the profit and loss scenarios
which would have been produced based on our best estimate
given available data, and the profit and loss scenarios generated
by the current model used for the regulatory VaR calculation.
Whenever the available market data allows, a historical simulation
approach with five years of historical data is used to estimate the
Risks-not-in-VaR mitigation
Material RniV items are monitored and controlled by means and
measures other than VaR, such as position limits and stress limits.
Additionally, there are ongoing initiatives to extend the VaR mod-
el to better capture these risks.
Derivation of RWA add-on for risks-not-in-VaR
This RniV framework is used to derive the RniV-based component
of the market risk Basel III RWA, using the aforementioned ap-
proach, which is approved by FINMA and subject to an annual
recalibration. As the RWA from RniV are add-ons, they do not
reflect any diversification benefits across risks capitalized through
VaR and stressed VaR.
In September 2013, following a new calibration approved by
FINMA, RniV VaR capital was set at 58% of VaR capital, and RniV
stressed VaR capital was set at 32% of stressed VaR capital, com-
pared with prior ratios of 47% and 26% respectively. In addition,
FINMA requires that RniV stressed VaR capital is floored at RniV
VaR capital.
Based on the regulatory VaR and stressed VaR RWA noted
above, the RniV RWA add-ons as of 31 December 2013 were CHF
1.0 billion and CHF 1.0 billion, respectively, compared with CHF
1.8 billion and CHF 1.5 billion as of 31 December 2012. The de-
creases in these RWA add-ons are due to the decreases in VaR and
stressed VaR over the period, partially offset by the increases in
the RniV VaR and stressed VaR add-on multipliers noted above.
198
Incremental risk charge
Method applied
Holding period
Confidence level
Population
Expected portfolio loss simulation
One-year liquidity horizon
99.9%
Regulatory trading book positions subject
to issuer risk, excluding equity and securi-
tization exposures
The incremental risk charge (IRC) represents an estimate of the
default and rating migration risk of all trading book positions with
issuer risk, except for equity products and securitization expo-
sures, measured over a one-year time horizon at a 99.9% confi-
dence level. The calculation of the measure assumes all positions
in the IRC portfolio have a one-year liquidity horizon and are kept
unchanged over this period.
The portfolio default and rating migration loss distribution is
estimated using a Monte Carlo simulation of correlated rating mi-
gration events (defaults and rating changes) for all issuers in the
IRC portfolio, based on a Merton-type model. For each position,
default losses are calculated based on the maximum default expo-
sure measure (the loss in the case of a default event assuming
zero recovery) and a random recovery concept. To account for
potential basis risks between instruments, different recovery val-
ues may be generated for different instruments even if they be-
long to the same issuer. To calculate rating migration losses a lin-
ear (delta) approximation is used: a loss due to a rating migration
event is calculated as the estimated change in credit spread due to
the change in rating migration multiplied by the corresponding
sensitivity of a position to changes in credit spreads.
The table below provides a breakdown of the Group’s period-
end incremental risk charge by business division and Corporate
Center. The reduction in the Group’s period-end IRC, and more
notably in the 12-month average IRC, was mainly attributable to
the de-risking of Non-core positions.
Derivation of IRC-based RWA
IRC is calculated weekly, the results of which are used to derive
the IRC-based component of the market risk Basel III RWA, shown
in “Table 2: Detailed segmentation of Basel III exposures and risk-
weighted assets” in the “Supplemental disclosures required un-
der Basel III Pillar 3 regulations” section of this report. The deriva-
tion is similar to that for VaR- and stressed VaR-based RWA but
without a scaling factor, and is shown below.
Incremental risk charge by business division and Corporate Center
For the year ended 31.12.13
For the year ended 31.12.12 1
Min.
Max.
Average
31.12.13
Min.
Max.
Average
31.12.12
CHF million
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Diversification effect 3, 4
Group, excluding CC – Non-core and Legacy Portfolio
CC – Non-core and Legacy Portfolio
Diversification effect 4, 5
Total incremental risk charge, Group
8
128
108
50
60
2
27
314
190
207
356
0
14
208
153
118
183
172
113
(88)
219
65
(174)
110
22
5
2
32
109
143 2
1,074
258 2
0
13
706
196 2
10
109
183 2
131
1,045
(212)
703
(168)
135
1 Numbers have not been restated to take into account the transfer of non-core positions from the Investment Bank to the Corporate Center for the period prior to this event. 2 Includes positions in the Legacy Port-
folio. 3 Difference between the sum of the standalone IRC for the business divisions and the “Corporate Center – Core Functions” shown and the IRC for the “Group, excluding CC – Non-core and Legacy Portfolio”
as a whole. 4 As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a minimum, maximum and average portfolio diversification effect. 5 Difference
between the sum of the two standalone IRC for “Group, excluding CC – Non-core and Legacy Portfolio” and the “CC – Non-core and Legacy Portfolio” and the IRC for the Group as a whole.
Calculation of IRC-based RWA as of 31 December 2013
CHF million
Period end
IRC (A)
Average of last 12 weeks
IRC (B)
110
96
Max(A, B)
(C)
110
Multiplier
(D)
12.5
Basel III RWA
(C x D)
1,377
199
Risk, treasury and capital management
Risk, treasury and capital management
Risk management and control
Comprehensive risk measure
Method applied
Holding period
Confidence level
Population
Expected portfolio loss simulation
One-year liquidity horizon
99.9%
Positions in the correlation trading
portfolio
The 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 credit
spread, correlation and recovery, measured over a one-year time
horizon at a 99.9% confidence level. The calculation of the mea-
sure assumes that all positions in the CRM portfolio have a one-
year liquidity horizon and are kept unchanged over this time pe-
riod. The model scope covers collateralized debt obligation (CDO)
swaps and credit-linked notes (CLN), first and nth to default
swaps and CLN and hedges for these positions, including credit
default swaps (CDS), CLN and index CDS.
The CRM profit and loss distribution is estimated using a Monte
Carlo simulation of defaults over the next 12 months, and calcu-
lates 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% negative quantile of the resulting profit and loss distri-
bution is then taken to be the CRM result. Our CRM methodology
is subject to minimum qualitative standards as well as stress testing.
The table below shows the period-end comprehensive risk
charge for the Group. CRM reduction was primarily due to negoti-
ated bilateral settlements of over-the-counter derivative contracts.
Derivation of CRM-based RWA
CRM is calculated weekly, the results of which are used to derive
the CRM-based component of the market risk Basel III RWA,
shown in “Table 2: Detailed segmentation of Basel III exposures
and risk-weighted assets” in the “Supplemental disclosures re-
quired under Basel III Pillar 3 regulations” section of this report.
The calculation is subject to a floor calculation equal to 8% of the
equivalent capital charge under the specific risk measure for the
correlation trading portfolio. The calculation is shown below.
Securitization positions in the trading book
Our exposure to securitization positions in the trading book is limited
and relates primarily to positions in Non-core and Legacy Portfolio
which we will continue to wind down. A small amount of exposure
also arises from secondary trading in commercial mortgage-backed
securities (CMBS) in the Investment Bank. Refer to “Table 2: Detailed
segmentation of Basel III exposures and risk-weighted assets” in the
“Supplemental disclosures required under Basel III Pillar 3 regula-
tions” section of this report for more information.
Group: Comprehensive risk charge
CHF million
Total comprehensive risk charge, Group
Min.
308
Max.
618
Average
31.12.13
457
308
Min.
594
Max.
770
Average
31.12.12
675
604
For the year ended 31.12.13
For the year ended 31.12.12
Calculation of CRM-based RWA as of 31 December 2013
CHF million
Period end
CRM
(A)
308
Average of last
12 weeks CRM 1
(B)
334
Max (A, B)
(C)
334
Multiplier
(D)
12.5
Basel III
RWA (D x E)
4,176
1 CRM = Max (CRM model result, 8% of equivalent charge under the SRM).
200
Interest rate risk in the banking book
d
e
t
i
d
u
A
Sources of interest rate risk in the banking book
Interest rate risk in the banking book arises from Available-for-sale
instruments, Loans and receivables, Debt issued and client depos-
its, certain Instruments designated at fair value 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 transactions. These positions may im-
pact Other comprehensive income or profit or loss, depending on
accounting treatment.
Our largest banking book interest rate exposures arise from cli-
ent deposits and lending products in both our wealth management
businesses and Retail & Corporate. For Wealth Management and
Retail & Corporate, the inherent interest rate risks 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, which manages the risks on an integrated basis
allowing for netting interest rate risks across different sources. Any
residual interest rate risks in Wealth Management and Retail & Cor-
porate locations that are not transferred to Group Treasury are
managed locally and are subject to independent monitoring and
control both in the locations by local risk control units as well as
centrally by Treasury Risk Control. To manage the interest rate risk
centrally, Group Treasury utilizes derivative instruments, some of
which are in designated hedge accounting relationships.
A significant amount of interest rate risk also arises from Group
Treasury financing and investing activities, for example the financ-
ing of non-monetary corporate balance sheet items that have in-
definite maturities, such as equity and goodwill. For these items
senior management has defined specific target durations based on
which we fund and invest as applicable. These targets are defined
by replication portfolios, which establish rolling benchmarks to ex-
ecute against. Group Treasury also maintains a portfolio of avail-
able-for-sale debt investments to meet the Group’s liquidity needs.
Interest rate risk within Wealth Management Americas arises
from the business division’s portfolio of available-for-sale invest-
ments 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 ac-
d
e
t
i
d
u
A
count 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 non-trading interest rate risk.
Effect of interest rate changes on shareholders’ equity
and Basel III CET1 capital
The table “Accounting and capital effect of changes in interest
rates” below illustrates the accounting and Basel III CET1 capital
treatment of gains and losses resulting from changes in interest
rates. For instruments held at fair value, a change in interest
rates results in an immediate fair value gain or loss recognized
either in the income statement or through other comprehensive
income (OCI), whereas changes in interest income and expense
on interest-bearing assets and liabilities held at amortized cost
will be realized over time. Typically, increases in interest rates
would lead to an immediate reduction in the value of our longer-
term assets held at fair value, but we would expect this to be
offset over time through higher net interest income on our core
banking products.
➔ Refer to “Differences between Swiss SRB and BIS Basel III
capital” in the “Capital management” section of this report for
more information
In addition to the differing accounting treatments, our bank-
ing book positions have different sensitivities to different points
on the yield curves. For example, our portfolios of available-for-
sale debt securities and interest rate swaps designated as cash
flow hedges, on the whole, are more sensitive to changes in
longer-duration interest rates, whereas our deposits and a sig-
nificant portion of our loans contributing to net interest income
are more sensitive to short-term rates. These factors are impor-
tant as yield curves may not shift on a parallel basis and could, for
example, exhibit an initial steepening, followed by a subsequent
flattening over time.
By virtue of the accounting treatment and yield curve sensi-
tivities outlined above, in a steepening yield curve scenario we
would expect to recognize an initial reduction in shareholders’
Accounting and capital effect of changes in interest rates 1
Available-for-sale debt portfolios
Economic hedges classified as held for trading
Designated cash flow hedges
Loans and deposits at amortized cost
Shareholders’ equity
Gains
Losses
Basel III CET1 capital
Gains
Losses
Recognition
Timing
Immediate
Immediate
Immediate
Gradual
Location
OCI
Income statement
OCI 2
Income statement
1 Refer to the table “Differences between Swiss SRB and BIS Basel III capital information” in the “Capital management” section of this report for more information on the differences between shareholders’ equity and
Basel III CET1 capital. 2 Excluding hedge ineffectiveness which is recognized in the income statement in accordance with our accounting policies.
201
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
equity as a result of fair value losses. This would be compensated
over time by increased net interest income once increases in in-
terest rates affect in particular the shorter end of the yield curve.
The effect would be similar on Basel III CET1 capital, albeit less
pronounced as gains and losses on interest rate swaps designat-
ed as cash flow hedges are not recognized or reversed for regula-
tory capital purposes.
d
e
t
i
d
u
A
We apply scenario analyses to monitor the effect of rising inter-
est rates and changes in the yield curve on our interest rate sensi-
tive banking book exposures.
d
e
t
i
d
u
A
Interest rate risk sensitivity to parallel shifts in yield curves
Interest rate risk in the banking book is not underpinned for capi-
tal purposes, but is subject to a regulatory threshold. The impact
of an adverse parallel shift in interest rates of 200 basis points on
our banking book interest rate risk exposures is significantly be-
low the threshold of 20% of eligible capital recommended by
regulators.
The interest rate risk sensitivity figures presented in the table
“Interest rate sensitivity – banking book” below represent the im-
pacts of +1, ±100 and ±200-basis-point parallel moves in yield
curves on present values of future cash flows, irrespective of ac-
counting treatment. For some portfolios, the +1-basis-point sensi-
tivity has been estimated by dividing the +100-basis-point sensitiv-
ity by 100. Due to the low level of interest rates, downward moves
by 100 / 200 basis points are floored to ensure that the resulting
interest rates are not negative. This effect results in nonlinear be-
havior of the sensitivity, in particular in US dollar when combined
with prepayment risk on US mortgages and related products.
The sensitivity of the banking book to rising rates decreased
year on year by CHF 1.2 million per basis point mainly due to re-
ductions in Wealth Management Americas and Corporate Center
– Core Functions, partly offset by a slight increase in the Invest-
ment Bank’s banking book sensitivity. Wealth Management Amer-
icas’ sensitivity declined by CHF 0.9 million as the steeper USD yield
curve with higher longer-term USD rates led to a shorter effective
duration of client deposits, which represent the majority of Wealth
Management Americas’ liabilities. This effect was partly offset by a
shortening of the duration in Wealth Management Americas’ in-
vestment portfolio. Corporate Center – Core Functions’ sensitivity
is chiefly driven by Group Treasury, which was the main contributor
to the reported change of CHF 0.6 million.
Interest rate sensitivity – banking book 1, 2
d
e
t
i
d
u
A
CHF million
CHF
EUR
GBP
USD
Other
Total impact on interest rate-sensitive banking book positions
of which: Wealth Management Americas
of which: Investment Bank
of which: Corporate Center – Core Functions
of which: CC – Non-core and Legacy Portfolio
CHF million
CHF
EUR
GBP
USD
Other
Total impact on interest rate-sensitive banking book positions
of which: Wealth Management Americas
of which: Investment Bank
of which: Corporate Center – Core Functions
of which: CC – Legacy Portfolio
–200 bps
–100 bps
31.12.13
+1 bp
+100 bps
+200 bps
(9.6)
73.9
21.5
100.1
(6.2)
179.7
172.4
29.1
(27.0)
4.3
13.7
47.3
14.2
(40.6)
(5.6)
29.0
18.3
16.8
(11.7)
5.1
–200 bps
–100 bps
(22.5)
19.8
(5.5)
(198.3)
2.5
(203.9)
(168.3)
15.5
(54.5)
2.9
(13.5)
12.1
(2.8)
(139.3)
(6.0)
(149.5)
(111.3)
9.7
(51.0)
2.7
0.1
(0.6)
(0.3)
3.0
0.1
2.4
3.0
(0.2)
(0.3)
(0.1)
31.12.12
+1 bp
(0.2)
(0.4)
(0.0)
4.1
0.2
3.6
3.9
(0.3)
0.3
(0.1)
14.5
(55.4)
(25.8)
301.0
5.6
239.8
297.7
(20.4)
(23.1)
(11.6)
32.0
(105.9)
(51.0)
610.0
11.6
496.7
597.0
(40.3)
(30.8)
(23.5)
+100 bps
+200 bps
(13.7)
(42.5)
(4.6)
415.8
19.4
374.3
391.7
(35.0)
35.9
(14.6)
(23.5)
(82.1)
(10.0)
800.0
38.7
723.1
745.9
(70.0)
83.8
(29.3)
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. 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. 2 In the fourth quarter of 2013, we removed the sensitivity of the debit valuation adjustment to interest rate movements from this table, as this sensitivity is not considered to be part of
the banking book for regulatory capital purposes. Prior periods have been restated. The net effect of this exclusion for the –200, –100, +1, +100 and +200 basis point shocks for 31 December 2012 was CHF 3.5, (2.8),
0.3, 31.8 and 63.7 million respectively.
202
d
e
t
i
d
u
A
The sensitivity of the banking book to rising rates includes the
interest rate sensitivities arising from debt investments classified
as Financial investments available-for-sale and their associated
hedges. The sensitivity of these positions (excluding hedges and
excluding investments in funds accounted for as available-for-
sale) to a 1-basis-point parallel increase in the yields of the respec-
tive instruments is approximately negative CHF 8 million, which
would be recorded in Other comprehensive income if such change
occurred.
The sensitivity of the banking book to rising rates also includes
interest rate sensitivities arising from interest rate swaps desig-
nated in cash flow hedges. Fair value gains or losses associated
with the effective portion of these swaps 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 re-
classified from Equity to profit or loss. These swaps are denomi-
nated in US dollar, euro, British pound and Swiss franc. As of
31 December 2013, the fair value of these interest rate swaps
amounted to CHF 4.8 billion (positive replacement values) and
CHF 2.3 billion (negative replacement values). The impact of a
1-basis-point increase of underlying LIBOR curves would have de-
creased equity by approximately CHF 22.3 million, ignoring ad-
justments for tax.
➔ Refer to “Note 15 Financial investments available-for-sale” in the
“Financial information” section of this report for more information
Other market risk exposures
Own credit
We are exposed to changes in UBS’s own credit which are re-
flected in the valuation of those financial liabilities designated at
fair value, for which UBS’s own credit risk would be considered by
market participants. We also estimate debit valuation adjustments
(DVA) to incorporate own credit in the valuation of derivatives.
Changes in fair value due to changes in own credit are recognized
in the income statement and therefore affect shareholders’ equity
and CET1 capital.
➔ Refer to “Note 24 Fair value measurement” in the “Financial
information” section of this report for more information on own
credit
Structural foreign exchange risk
On consolidation, assets and liabilities held in foreign operations
are translated into Swiss francs at the closing foreign exchange
rate on the balance sheet date, and items of income and expense
are translated into Swiss francs at the average rate for the period.
The resulting foreign exchange differences are recognized in Oth-
er comprehensive income and therefore affect shareholders’ eq-
uity and Basel III CET1 capital.
Group Treasury employs strategies to manage this foreign cur-
rency exposure, including matched funding of assets and liabilities
and net investment hedging.
➔ Refer to the “Treasury management” section of this report for
more information on our exposure to and management of
structural foreign exchange risk
d
e
t
i
d
u
A
Equity investments
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 or Investments in associates.
We make direct investments in a variety of entities and buy
equity holdings in both listed and unlisted companies for a variety
of purposes. This includes investments such as exchange and
clearing house memberships that are held to support our business
activities. We may also make investments in funds that we man-
age, in order to fund or “seed” them at inception, or to demon-
strate 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 investments tends to be dominated by
factors specific to the individual investments. Equity investments
are generally intended to be held for the medium or long term
and may be subject to lockup agreements. For these reasons, we
generally do not control these exposures using the market risk
measures applied to trading activities. Such equity investments
are, however, subject to a different range of controls, including
pre-approval of new investments by business management and
Risk Control, portfolio and concentration limits, and regular mon-
itoring and reporting to senior management. They are also in-
cluded in our Group-wide statistical and stress testing metrics
which flow into our risk appetite framework.
203
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
d
e
t
i
d
u
A
As of 31 December 2013, we held equity investments totaling
CHF 1.5 billion, of which CHF 0.6 billion were classified as
Financial investments available-for-sale, and CHF 0.8 billion as
Investments in associates. This was broadly unchanged from the
prior year.
➔ Refer to “Note 15 Financial investments available-for-sale” and
“Note 30 Interests in other entities” in the “Financial informa-
tion” section of this report for more information
d
e
t
i
d
u
A
Debt investments
Debt investments classified as Financial investments available-for-
sale are measured at fair value with changes in fair value recorded
through Equity, and can broadly be categorized as money market
instruments and debt securities primarily held for statutory, regu-
latory or liquidity reasons.
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. They are also included in our Group-wide statistical and stress
testing metrics which flow into our risk appetite framework.
Debt instruments classified as Financial investments available-
for-sale had a fair value of CHF 58.9 billion as of 31 December
2013 compared with CHF 65.7 billion as of 31 December 2012.
➔ Refer to “Note 15 Financial investments available-for-sale” in the
“Financial information” section of this report for more informa-
tion
➔ Refer to “Interest rate risk sensitivity to parallel shifts in yield
curves” in this section for more information
If plan assets are insufficient to meet the projected pension pay-
ments, UBS may be required, or might choose, to make extra con-
tributions to the pension plans.
Under IFRS, remeasurements of the defined benefit obligation
and the fair values of the plan assets are recognized through
Other comprehensive income and therefore affect shareholders’
equity. An increase in the overall net defined benefit liability of a
pension plan (where the defined benefit obligation exceeds the
fair value of plan assets) will reduce our equity. Where the defined
benefit obligation is less than the fair value of the plan assets, the
pension plan is in a surplus position. Such surplus can only be
recognized on the balance sheet to the extent that it does not
exceed the estimated future economic benefit. Where the amount
of surplus recognized has been capped, any reduction in the esti-
mated future economic benefit will reduce equity. Changes in the
surplus, due to changes in the defined benefit obligation or fair
value of plan assets, will not affect equity until the surplus falls
below any cap.
Remeasurements of the defined benefit obligations and plan
assets similarly affect our Basel III CET1 capital on a fully applied
basis, albeit pension surpluses are not recognized.
Investment policies and strategies are in place for our defined
benefit pension plans which take account of the maturity profile of
plan liabilities and ensure diversified portfolios of assets are main-
tained. These strategies are managed by responsible governance
bodies in each jurisdiction according to local laws and regulations.
Pension risk is included in our Group-wide statistical and stress
testing metrics which flow into our risk appetite framework.
➔ Refer to “Note 28 Pension and other postemployment benefit
plans” in the “Financial information” section of this report for
➔ Refer to the “Treasury management” section of this report for
more information
more information
Pension risk
We maintain a number of defined benefit pension plans for past
and current employees. The ability of each plan to meet the pro-
jected pension payments is maintained principally through invest-
ments. Pension risk arises because the fair value of these plan as-
sets might decline, their investment returns might decrease or the
estimated value of the defined benefit obligation might increase.
UBS own share exposure
We hold our own shares primarily to hedge employee share and
option participation plans. A smaller number are held by the
Investment Bank which relate to market-making and hedging
activities.
➔ Refer to “Holding of UBS shares” in the “Capital management”
section of this report for more information
204
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 sovereign risk, which
refers to the ability and willingness of a government to honor its
financial commitments, transfer risk, which would arise if an is-
suer or counterparty could not acquire foreign currencies follow-
ing a moratorium of a central bank on foreign exchange 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 frame-
work through which we assess the risk profile of all countries
where we have exposure.
We attribute to each country a sovereign rating, which express-
es the probability of the sovereign defaulting on its own financial
obligations in foreign currency. Our ratings are expressed by statis-
tically 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 occurring and establish
rules as to how the aspects of “other” country risk should be in-
corporated into the analysis of the counterparty rating of incorpo-
rated 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 dispro-
portionate to the respective country risk profile. For all countries
rated 3 and below we set country risk ceilings, which are ap-
proved 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 counterparties
or issuers of securities and financial investments in the respective
country. We may limit the extension of credit, transactions in trad-
ed products or positions in securities based on a country ceiling,
even if our exposure to a counterparty is otherwise acceptable.
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
maintain increased monitoring of, 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. In
addition to the classification of exposures into banking products
and traded products as defined in “Credit risk profile of the Group
– Internal risk view,” we classify within trading inventory issuer
risk on securities such as bonds and equities, as well as the risk
relating to the underlying reference assets for derivative positions,
including those linked to credit protection we buy or sell and loan
or security underwriting commitments pending distribution.
As we manage the trading inventory on a net basis, we net the
value of long positions against short positions with the same un-
derlying 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 re-
porting country exposures as Exposure before hedges except for
the risk-reducing effects of master netting agreements and col-
lateral 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.
205
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
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 products).
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 refer-
ence asset (presented within trading inventory). This approach
ensures that we capture both the counterparty and, where appli-
cable, 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 ben-
efit (notional minus fair value) of the CDS (100 – 20 = 80) against
country Y (within trading inventory). In the example of protection
bought, the 80 hedge benefit would offset against any exposure
arising from securities held and issued by the same entity as the
reference asset, floored at zero per issuer. In the case of protection
sold, this would be reflected as a risk exposure of 80 in addition
to any exposure arising from securities held and issued by the
same entity as the reference asset. In the case of derivatives refer-
encing a basket of assets, the issuer risk against each reference
entity is calculated as the expected change in fair value of the
derivative given an instantaneous fall in value to zero of the cor-
responding reference asset (or assets) issued by that entity. Expo-
sures are then aggregated by country across issuers, floored at
zero per issuer.
Exposures to selected eurozone countries
We continue to monitor and manage closely our exposures to
peripheral European countries. Our direct exposures to Greece,
Italy, Ireland, Portugal and Spain remain limited, but we neverthe-
less remain vigilant regarding the potential broader implications
of adverse developments in the eurozone. As noted in the “Stress
testing” section, the Euro Crisis scenario was our binding scenario
for Combined Stress Test purposes during 2013, making it central
to the regular monitoring of risk exposure against the minimum
capital and earnings objectives in our risk appetite framework.
The table “Exposures to selected eurozone countries” on the
next page provides an overview of our exposures to eurozone
countries rated lower than AAA / Aaa by at least one of the major
rating agencies as of 31 December 2013. Following the down-
grade of its credit rating by Standard & Poor’s from AAA to AA+
in November 2013, the Netherlands has been added to this dis-
closure. The table shows an internal risk view of gross and net
exposures split by sovereign, agencies and central banks, local
governments, banks and other counterparties (including corpo-
rates, insurance companies and funds). Exposures to Andorra,
Cyprus, Estonia, Malta, Monaco, Montenegro, San Marino, Slova-
kia 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. As of
31 December 2013, and not taking into account the risk-reducing
effect of master netting agreements, we had purchased approxi-
mately CHF 60 billion gross notional of single name CDS protection
on issuers domiciled in Greece, Italy, Ireland, Portugal or Spain
(GIIPS) and had sold CHF 57 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 14 billion notional purchased and CHF 11 billion no-
tional sold. More than 99% of gross protection purchased was
from investment grade counterparties (based on our internal rat-
ings) and on a collateralized basis. The vast majority of this was
from financial institutions domiciled outside the eurozone. Ap-
proximately CHF 0.7 billion of the gross protection purchased was
from counterparties domiciled in a GIIPS country and less than
CHF 0.3 billion was with counterparties domiciled in the same
country as the reference 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
206
Exposures to selected eurozone countries
CHF million
31.12.13
France
Sovereign, agencies and central bank
Local governments
Banks
Other 2
Netherlands
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 3
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
10,291
5,653
15
1,438
3,185
7,616
3,166
0
1,117
3,334
3,982
881
138
1,048
1,916
2,341
222
13
255
1,851
1,581
1,198
1
342
40
1,051
38
243
770
642
252
142
249
180
20
160
50
23
9
19
195
Total
Net of hedges 1
9,469
5,530
15
1,438
2,486
6,878
3,166
0
1,117
2,595
3,273
881
138
1,048
1,207
1,579
222
13
255
1,089
1,360
977
1
342
40
1,051
38
243
770
642
252
142
249
57
20
37
50
23
9
19
195
Banking products
(loans, guarantees, loan commitments)
Exposure
before hedges
1,955
56
6
219
1,674
2,080
1
643
1,436
1,775
37
366
1,373
810
20
59
731
53
12
20
21
136
108
29
169
4
87
78
125
2
123
5
5
0
120
Net of hedges 1
1,257
of which:
unfunded
751
56
6
219
975
1,408
1
643
764
1,070
37
366
667
198
20
59
119
53
12
20
21
136
108
29
169
4
87
78
3
2
0
5
5
0
326
888
133
16
1
41
2
5
120
32
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
before hedges Net of hedges
Net long per issuer
2,406
260
3
1,016
1,127
734
2,283
137
3
1,016
1,127
667
62
0
449
223
633
67
92
120
354
396
7
176
213
709
585
1
120
3
614
0
31
583
129
71
30
28
13
13
0
4
4
0
71
62
0
449
156
629
67
92
120
350
246
7
176
63
487
364
1
120
3
614
0
31
583
129
71
30
28
13
13
0
4
4
0
71
5,930
5,337
6
203
384
4,803
3,103
25
1,675
1,574
776
46
562
189
1,135
201
5
21
908
820
601
1
202
16
301
38
104
158
344
176
24
143
42
4
37
41
23
0
18
5
1 Not deducted from the “Net of hedges” exposures are total allowances and provisions for credit losses of CHF 35 million (of which: Malta CHF 13 million, Austria CHF 9 million and France CHF 5 million). 2 Includes
corporates, insurance companies and funds. 3 The majority of the Ireland exposure relates to funds and foreign bank subsidiaries.
207
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Exposure from single-name credit default swaps referencing Greece, Italy, Ireland, Portugal or Spain
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)
Notional
751
35,539
4,216
4,485
15,099
60,090
RV
(16)
238
(32)
128
(133)
185
Notional
RV
Notional
0
272
13
138
286
709
0
0
0
5
43
47
0
158
0
0
100
258
RV
0
Notional
(728)
(1)
(33,954)
0
0
40
40
(4,067)
(4,319)
(14,364)
(57,433)
RV
19
(436)
58
(135)
109
(385)
Buy
notional
Sell
notional
240
6,491
1,409
1,273
4,470
(217)
(4,907)
(1,259)
(1,107)
(3,736)
13,884
(11,226)
PRV
14
172
57
66
136
445
NRV
(11)
(370)
(31)
(73)
(160)
(645)
CHF million
31.12.13
Greece
Italy
Ireland
Portugal
Spain
Total
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 to emerging market countries
The table “Emerging markets net exposure by major geographical
region” on the following page shows the five largest emerging
market country exposures in each major geographical area by
product type as of 31 December 2013 compared with 31 Decem-
ber 2012. Based on the main country rating categories, as of
31 December 2013, 93% of our emerging market country expo-
sure was rated investment grade compared with 92% as of
31 December 2012.
Emerging markets net exposure 1 by internal UBS country rating category
CHF million
Investment grade
Sub-investment grade
Total
31.12.13
31.12.12
14,880
1,126
16,007
16,953
1,428
18,381
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 65 million are not deducted (31 December 2012: CHF 73 million).
208
Emerging markets net exposure by major geographical region
CHF million
Total
Banking products
(loans, guarantees,
loan commitments)
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 1
Net of hedges 1
Net of hedges
Net long per issuer
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
Emerging America
Brazil
Mexico
Colombia
Chile
Argentina
Other
Emerging Asia
China
Hong Kong
India
South Korea
Taiwan
Other
Emerging Europe
Russia
Turkey
Bulgaria
Croatia
Ukraine
Other
Middle East and Africa
Saudi Arabia
South Africa
Kuwait
United Arab Emirates
Israel
Other
Total
2,223
1,335
331
192
152
57
156
9,720
3,528
1,436
1,335
1,158
921
1,342
1,591
835
324
76
60
49
247
2,473
673
438
357
281
154
570
2,498
1,353
214
192
322
59
357
11,184
3,163
1,557
2,155
1,532
1,072
1,704
1,833
1,061
264
38
49
121
300
2,867
599
559
309
525
299
575
789
387
93
139
81
37
53
3,722
1,160
588
735
273
309
657
978
509
248
40
12
27
141
890
149
154
9
141
38
399
707
185
97
124
200
34
67
4,341
838
674
1,156
447
299
926
864
489
204
38
4
37
92
626
521
49
12
44
1
489
305
75
23
82
4
1,783
1,846
263
541
190
472
193
124
89
24
25
1
0
39
245
510
254
462
247
127
247
174
23
0
0
0
50
1,105
473
31
293
217
4
86
807
427
190
42
26
20
103
4,216
2,105
307
410
413
420
561
525
302
51
36
47
23
67
578
20
241
1
72
103
140
1,302
863
43
44
40
25
286
4,998
2,080
374
744
623
526
651
722
398
38
0
45
84
158
756
19
414
0
112
105
107
1,006
1,005
107
114
16
196
190
383
503
43
348
67
13
30
16,007
18,381
6,379
6,918
3,502
3,686
6,126
7,777
1 Not deducted are total allowances and provisions of CHF 65 million (31 December 2012: CHF 73 million).
209
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
Operational risk
Key developments during the period
Sources of operational risk
Reporting of significant risk issues and operational effectiveness
was further extended and strengthened through 2013. Where a
particular operational risk issue is considered of strategic concern
to the Group, it is categorized as a ”Group Significant Opera-
tional Risk Issue.” Remediation programs related to these issues
are led by members of the Group Executive Board and are subject
to independent quality assurance. Completion is assessed against
clearly defined success criteria to confirm that an adequate and
sustainable standard of control has been achieved. The Group Ex-
ecutive Board members have confirmed their personal and collec-
tive commitment to the timely and sustainable remediation of
Group Significant Operational Risk Issues. In 2013, we made sig-
nificant progress on these remediation programs resulting in the
completion of many remediation activities.
The Investment Bank’s unauthorized trading incident remedia-
tion program has been completed and this has further enhanced
the Group’s ability to detect or prevent such incidents. Indepen-
dent third-party reviews have been completed with no material
issues identified.
In the past year we have entered into a number of settlements,
the largest of which relates to Federal Housing Finance Agency.
Multiple security programs have been initiated in 2013 to ad-
dress the evolving and increasingly complex threat of cyber-at-
tacks and cyber-criminal activity facing the financial services in-
dustry and the increased use of mobile devices, social networking,
and the growing sophistication of cyber-attacks have been identi-
fied as an area of increasing operational risk.
Operational risk is an inevitable consequence of being in busi-
ness, as losses can result from inadequate or failed internal pro-
cesses, people and systems, or from external events. The impact
of operational risk remains at elevated levels, and can arise as a
result of past and current business activities across all business
divisions and Corporate Center. In acknowledgement of the dy-
namic industry and the environment in which we operate, we will
continue to refine our framework to ensure it is adaptive to orga-
nizational changes, is responsive to regulatory requirements and
supports forward-looking risk identification.
As of 1 January 2014, our Operational Risk Control unit
merged with the compliance function to manage the Group’s
compliance, conduct and operational risks in a more integrated
and effective way. The new function will continue to report to the
Group Chief Risk Officer and will continue to manage, implement
and enhance the operational risk framework.
Operational risk is an inevitable consequence of being in business
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 con-
centrations, in order to achieve an appropriate balance between
risk and reward.
Operational risk framework
The business division Chief Executive Officers and Corporate Cen-
ter function heads are ultimately accountable for the effectiveness
of operational risk management and for the implementation of
our operational risk framework. The business division Chief Exec-
utive Officers are responsible for establishing and maintaining an
effective front-to-back control environment, notwithstanding the
delegation of those responsibilities to the business division Chief
Operating Officers. Management in all functions (business, logis-
tics and control functions) are responsible for establishing an ap-
propriate operational risk management environment, including
the establishment and maintenance of robust internal controls,
effective supervision and a strong risk culture. Controls must be
regularly assessed for design and operating effectiveness and sup-
ported by positive demonstrable evidence.
Operational Risk Control provides an independent and objec-
tive view of the adequacy of operational risk management across
the Group. It is governed by the Operational Risk Management
Committee, 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, provides oversight of the implementation and re-
finement of the operational risk framework and ensures an effec-
tive and independent assessment of the operational risk profile.
The operational risk framework describes general requirements
for managing and controlling operational risk at UBS. The refine-
ment of the operational risk framework was the key focus during
2013, building on the main elements previously established. The
framework is built on four main pillars:
1. classification of inherent risks through the operational risk
taxonomy;
2. assessment of the design and operating effectiveness of
controls through the internal control assessment process;
3. assessment of residual risk through the operational risk
assessment process and
4. remediation to address identified deficiencies which are out-
side accepted levels of residual risk.
210
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 each category
of the operational risk taxonomy is supported by clearly defined
core controls. Core controls are the high-level critical controls
that, if designed and operating effectively, will materially ensure
that our operational risk profile stays within acceptable levels. The
completeness of core controls is tested using scenarios through
which the inherent risk, including stress and tail risk, may materi-
alize. To support the core controls, functions are required to iden-
tify key procedural controls relevant to their activities. Full imple-
mentation and integration of scenarios, core and key procedural
controls is key to ensuring a comprehensive view of residual risk in
the organization. A review of these elements is achieved through
a quarterly internal control assessment process that requires func-
tions to assess and evidence operating and design effectiveness of
their key procedural controls. This also forms the basis for the as-
sessment and testing of the controls which oversee 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, functional as-
sessments, gathering of evidence, management affirmation and
remediation tracking.
To further enhance and strengthen the operational risk frame-
work, a program of independent management testing for key
procedural controls commenced in 2013. The program is testing
all key procedural controls in the areas with the highest levels of
inherent risk in addition to those relevant for SOX 404, with full
front-to-back business engagement.
Significant control deficiencies that surface during the internal
control and operational risk assessment processes must be report-
ed in the operational risk inventory and sustainable remediation
must be instigated. All significant issues are assigned to owners at
senior management level and must be reflected in the respective
employees’ annual performance measurement and management
objectives to ensure effective, sustainable remediation.
The aggregated impact of control deficiencies and the adequa-
cy 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 by internal subject matter expertise, provides a
transparent assessment of the current operational risk exposure
against agreed risk appetite statements and measures.
Risk appetite measures indicate a breach of operational risk
appetite limits, which requires management to adapt their busi-
ness activities or adjust the internal control environment accord-
ingly. Risk appetite can be expressed through the establishment of
quantitative constraints such as operating limits or qualitative
statements in the form of policies. To assist with prioritization of
all known operational risk issues, irrespective of origin, a common
rating methodology is adopted by all internal control functions
and both internal and external audit. Assessment of all known
issues irrespective of source against the same rating scale sup-
ports clear prioritization and appropriate management focus on
the key issues. Group Internal Audit applies an enhanced assur-
ance process to issue closure to promote stronger management
discipline for identifying, mitigating and sustainably remediating
operational risk issues. As described in the “Risk principles and
risk culture” section, we have policies and initiatives in place to
embed the desired risk culture within the Group and have taken
steps in 2013 to strengthen our culture further, re-emphasizing
the importance of a strong control culture and individual respon-
sibility across all levels of the Group.
Advanced measurement approach model
The operational risk framework is aligned to and underpins the
calculation of capital, representing a major step forward in our
approach in quantifying operational risk and setting effective
management incentives. The processes detailed above are inte-
gral to the quantification of operational risk, which reinforces in-
tegration 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. Regulatory
requirements are currently leading to the implementation of AMA
models in UBS locations.
The AMA model consists of a backward-looking historical
component and a forward-looking scenario component. The his-
torical component is a retrospective view based on our history of
(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)
211
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
operational risk losses since January 2002, excluding extreme in-
ternal losses, which are captured through the scenario compo-
nent. The key assumption within the historical component is that
past events form a reasonable proxy for future events. A distribu-
tion of aggregated losses over one year is derived 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 experience and de-
termine the expected loss portion of our capital requirement.
The scenario component is a forward-looking view of potential
operational losses that may occur taking into account the opera-
tional risk issues facing the Group. The aim is to reach a reason-
able estimate of unexpected or tail loss exposure (corresponding
to a low frequency / high severity event). We use 20 AMA taxono-
my categories which are 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.
Qualitative adjustments to the parameters of the scenario compo-
nent utilize the assessments of operational risk exposure resulting
from the operational risk assessment process as well as control
deficiencies, scenarios and core controls. The chart on the previ-
ous page provides a high-level overview of the model compo-
nents 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.
In 2013, there were no methodological changes to our AMA
model. Developments focused on enhancing the benchmarking
framework and analysis to support the plausibility of AMA model
results and establishing granular reporting of operational risk ex-
posure by event type (i.e., AMA taxonomy) and business lines.
Further progress has been made in the adaptation of the Group’s
AMA model to support local and regional entity-specific regula-
tory requirements and ensuring a consistent approach for the
measurement of operational risk globally.
Operational risk regulatory capital continued to be allocated to
the business divisions based on historical operational risk-related
losses. In 2013, we concentrated on developing and improving
the current capital allocation methodology to strengthen the link-
age between the quality of operational risk management and the
resulting capital allocation to promote and incentivize excellence
in risk management behavior. This enhanced capital allocation
methodology is planned to be introduced in early 2014.
At the end of the third quarter, we received an order from
FINMA announcing the imposition, with effect from 1 October
2013, of a temporary 50% add-on to our AMA based opera-
tional risk-related RWA in relation to known or unknown litiga-
tion, compliance and other operational risk matters. During the
fourth quarter of 2013 and in January of 2014, UBS and FINMA
reviewed this temporary operational risk-related RWA add-on and
mutually agreed that, effective on 31 December 2013, a supple-
mental analysis would be used to calculate the incremental opera-
tional risk capital required to be held for litigation, regulatory and
similar matters and other contingent liabilities. The incremental
RWA calculated based upon this supplemental analysis replaced
the temporary operational risk-related RWA add-on, and is re-
flected in the 31 December 2013 RWA and capital ratio informa-
tion in this report. The incremental RWA calculated based upon
this supplemental analysis as of 31 December 2013 was CHF 22.5
billion, approximately CHF 5 billion less than the incremental RWA
determined as of 1 October 2013 under the previously disclosed
50% operational risk add-on.
➔ Refer to the “Capital management” section of this report for
more information on the development of risk-weighted assets
for operational risk
212
Corporate Center – Non-core and Legacy Portfolio
During 2013, Non-core and Legacy Portfolio balance sheet assets
declined by CHF 218 billion to CHF 211 billion, a 51% reduction,
mainly due to a CHF 170 billion reduction in positive replacement
values (PRV) and, to a lesser extent, a CHF 39 billion reduction in
funded assets along with a CHF 9 billion reduction in collateral
delivered against over-the-counter (OTC) derivatives.
Risk-weighted assets (RWA) for Non-core and Legacy Portfolio
declined by CHF 39 billion to CHF 64 billion from CHF 103 billion,
significantly below our target of CHF 85 billion for year-end 2013
despite increased operational risk RWA mainly resulting from the
supplemental operational risk capital analysis mutually agreed to
by UBS and FINMA.
Non-core
Beginning in the first quarter of 2013, the non-core businesses
formerly in the Investment Bank were transferred to Corporate
Center – Non-core, and they are now managed and reported in
that unit. These positions are capital- and balance sheet-intensive
or are in areas with high operational complexity and long tail
risks. Non-core consists of a large number of positions previously
originated mainly within the Investment Bank’s rates and credit
businesses. The majority of Non-core positions consist of OTC
derivatives reported as replacement values on UBS’s balance
sheet. In contrast to the Legacy Portfolio, credit risk from coun-
terparty exposures in Non-core is well-diversified by both cur-
rency and geography, and single-name exposures are limited.
Over 95% of gross PRV was collateralized as of 31 December
2013. Overall market risk is hedged and primarily relates to liquid
market parameters such as interest rates and foreign currencies.
Non-core balance sheet assets decreased by CHF 204 billion to
CHF 185 billion as of 31 December 2013, mainly due to lower
PRV which declined by CHF 161 billion. This decrease came pri-
marily from a reduction in OTC derivative exposures by means of
negotiated bilateral settlements with specific counterparties, (i.e.,
unwinds), third-party novations, including transfers to central
clearing houses, (i.e., trade migrations), agreements to net down
trades with other dealer counterparties, (i.e., trade compressions),
as well as, to a lesser extent, fair value changes due to interest
rate movements. Funded assets decreased by CHF 33 billion, pri-
marily from the exit of government and other liquid bond posi-
tions along with the sale of a portfolio of distressed assets. Re-
maining funded asset positions are largely corporate loans and
bonds held to hedge OTC positions. Lastly, collateral delivered
against OTC derivatives declined by CHF 9 billion. Funded assets
and PRV classified as Level 3 in the fair value hierarchy totaled CHF
3 billion, or 2%, of total Non-core balance sheet assets as of
31 December 2013.
Non-core RWA totaled CHF 33 billion as of 31 December 2013,
a decrease of CHF 32 billion compared with 31 December 2012,
due to ongoing RWA reduction activity resulting in a CHF 21 bil-
lion decrease in credit risk and a CHF 10 billion decrease in market
risk RWA.
Legacy Portfolio
The Legacy Portfolio was created in the fourth quarter of 2011
and comprises positions previously originated in the Investment
Bank. It also included our option to acquire the equity of the SNB
StabFund, which we exercised during the fourth quarter of 2013.
The majority of Legacy Portfolio positions are relatively concen-
trated and illiquid.
Legacy Portfolio balance sheet assets decreased by CHF 14
billion to CHF 25 billion during 2013. PRV decreased by CHF 8
billion, which included the impact of the exercise of our option to
acquire the equity of the SNB StabFund. Funded assets decreased
by CHF 6 billion, which included sales and redemptions of stu-
dent loan auction rate securities. Funded assets and PRV classi-
fied as Level 3 in the fair value hierarchy totaled CHF 4 billion, or
16%, of total Legacy Portfolio balance sheet assets as of 31 De-
cember 2013.
Legacy Portfolio RWA totaled CHF 31 billion as of 31 Decem-
ber 2013, a decrease of CHF 7 billion compared with 31 Decem-
ber 2012 due to a CHF 17 billion combined reduction in credit risk
and market risk RWA, which was partly offset by a CHF 10 billion
increase in operational risk RWA, mainly resulting from the afore-
mentioned supplemental operational risk capital analysis mutually
agreed to by UBS and FINMA.
213
Risk, treasury and capital management Risk, treasury and capital management
Risk management and control
An overview of the composition of Non-core and Legacy Portfolio
is presented below and on the following page, including position
and RWA information for the current and prior year. The group-
ings of positions by exposure category and the order in which
these are listed are not necessarily representative of the magni-
tude of the risks associated with them, nor do the metrics shown
in the tables necessarily represent the risk measures used to man-
age and control these positions. For example, OTC derivatives
trading is largely conducted on a collateralized basis and under
bilateral International Swaps and Derivatives Association (ISDA) or
ISDA-equivalent master netting agreements, which allow for the
close-out and netting of PRV with negative replacement values in
the event of default. The funded assets and PRV measures pre-
sented are intended to provide additional transparency regarding
progress in the execution of our strategy to exit these positions.
All positions, primarily PRV, are affected by market factors outside
the control of UBS, for example, by interest rate movements.
Composition of Non-core
CHF billion
Exposure category
Description
Changes in 2013
RWA 1
Funded assets 2
PRV 3
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
Linear OTC
Rates
Non-linear
OTC
Government bonds and other liquid
bonds along with primarily vanilla
interest rate, inflation, basis, flow
commodities and cross-currency
swaps for all major currencies and
some emerging markets. Over 95%
of gross PRV is collateralized.
Approximately 50% of the current
gross PRV is due to mature by 2019.
Decrease in funded assets due to
exit of government, agencies, CMO
pass-throughs and other liquid
bonds. Reduction in RWA primarily
due to a decrease in PRV, mainly
as a result of trade unwinds, trade
compressions, transfers to central
clearing houses, as well as interest
rate movements.
Vanilla and structured options.
Over 95% of gross PRV is
collater alized. Non-linear exposures
are typically longer dated than
linear exposures.
Decrease in funded assets primarily
due to the sale of a structured bond.
Decrease in PRV mainly due to trade
unwinds, trade compressions and
transfers to central clearing houses,
as well as interest rate movements.
Loans and
distressed
trading
Corporate lending, distressed
credit trading, asset-based lending,
syndicated loans, structured
financing and structured repo
exposures.
Decrease in funded assets and
RWA reflects the sale of distressed
assets, corporate loan sales,
and repayments along with exit
of financing positions.
Cash and
credit default
swaps (CDS)
Vanilla CDS and corporate bonds.
Credit
Other
Structured
credit
Tranches of structured credit
products, liquid index tranches,
credit-linked notes, structured
entities and bond-repackaged
notes with granular risk charac-
teristics and average remaining
maturity of less than 4 years.
This portfolio is managed under
a correlation trading strategy.
Exposures to precious metal
deposits, equities, CVA and related
hedging activity.
Operational risk
Operational risk RWA allocated to
Non-core.
Decrease in funded assets due to
sales of bond positions. Decrease in
PRV primarily due to transfer of
CDS positions to the “Structured
credit” category for risk manage-
ment purposes and to facilitate un-
winds with certain counterparties.
Ongoing reduction in cash posi-
tions contributed to a reduction in
RWA.
Following the transfer of CDS
positions from the “Cash and
CDS” category as mentioned
above, PRV decreased due to CDS
and collateralized debt obligation
(CDO) trade unwinds, maturing
trades and trade netting of selected
positions with counterparties re-
sulting in RWA reduction.
Decrease in funded assets mainly
due to the reduction in physical
gold holdings held on behalf of
clients. PRV and RWA decrease due
to sales of certain equity positions
and ongoing CVA exposure
management and hedging activity.
Reduction in operational risk RWA
reflects a lower allocation of total
Group operational risk RWA.
1.1
16.0
109.7
222.8
13.8
29.3
1.0
1.7
36.8
72.1
2.4
5.9
0.0
0.7
0.2
3.8
0.1
7.4
7.8
20.3
0.4
0.5
13.3
16.7
1.4
4.5
2.2
12.6
0.4
2.0
9.5
10.4
–
–
–
–
Total
32.6
64.5
7.3
40.5
160.3
321.7
1 Phase-in and fully applied Basel III RWA. 2 Funded assets are defined as total IFRS balance sheet assets less positive replacement values (PRV) and collateral delivered against over-the-counter (OTC) derivatives
(CHF 17.4 billion as of 31.12.13 and CHF 26.5 billion as of 31.12.12). 3 Positive replacement values (gross exposure excluding the impact of any counterparty netting).
214
Composition of Legacy Portfolio
CHF billion
Exposure category
Description
Changes in 2013
RWA 1
Funded assets 2
PRV 3
Collateralized debt
obligations (CDO)
Reference-linked notes
(RLN)
Includes ABS, RMBS, CDO, CMBS
and CLO bonds as well as
single-name CDS trades referencing
these asset classes.
RWA reduction due to sales and
unwinds of certain CDO positions
and hedges. RWA reduced > 70%
since 30.9.11.
RLN consist of a series of
transactions, mainly issued in note
form, whereby UBS purchased
credit protection on a reference
portfolio of fixed income assets,
along with related cash bonds held
for hedging purposes.
Decrease in funded assets due to
the sale of certain cash bonds.
PRV increase partly due to maturity
date extensions on specific RLN.
RWA reduction reflective of the
lower ratings of the bonds sold.
RWA reduced > 70% since 30.9.11.
Monolines
Primarily CDS protection purchased
from monoline insurers to hedge
specific positions. The majority of
this exposure is hedged via single-
name credit default swaps.
Real estate assets
Primarily CDS on ABS and CMBX 4
derivatives positions and CMBS cash
bonds.
Auction rate securities
(ARS) and auction
preferred stock (APS)
Muni swaps and options
Portfolio of student loan and
municipal ARS as well as APS.
100% of student loan ARS
exposures were rated BB– and
higher as of 31.12.13, with over
86% of the collateral backed by
Federal Family Education Loan
Program guaranteed collateral.
All APS were rated A and higher
as of 31.12.13.
Swaps and options with US state
and local governments.
Loan to BlackRock fund
SNB StabFund option
Loan to structured entity managed
by BlackRock Financial Management
Inc. The loan’s LTV ratio was below
60% as of 31.12.13.
Represented the value of UBS’s
option to acquire the equity of the
SNB StabFund. The option value
was directly deducted from equity.
Other
Includes a number of smaller
positions.
Operational risk
Operational risk RWA allocated to
the Legacy Portfolio.
RWA decreased due to certain trade
unwinds along with ratings up-
grades for specific counter parties.
Total fair value of CDS protection
was stable at CHF 0.4 billion (of
which CHF 0.1 billion from mono-
lines rated BBB and above) after
cumulative CVA of CHF 0.1 billion.
Decrease in PRV and RWA primarily
due to ongoing trade unwinds
and novation of CMBX trades.
RWA reduced > 70% since 30.9.11.
Reduction in funded assets and
RWA due to sales and redemptions
of student loan ARS positions.
Student loan ARS funded assets
decreased to CHF 0.9 billion from
CHF 3.8 billion. RWA reduced
> 90% since 30.9.11.
Decrease in PRV primarily due to
interest rate movements supported
by trade unwinds. RWA reduced
due to a refined market risk RWA
allocation benefit in line with
Basel III of CHF 1.8 billion introduced
in 1Q 2013, along with lower PRV.
Outstanding loan balance
(including amounts held in escrow)
decreased by CHF 0.9 billion
to CHF 2.4 billion reflecting
repayment of principal.
Decrease in PRV in connection with
the exercise of our option. The
fund’s remaining assets had a mar-
ket value of less than CHF 1 million
at exercise and were transferred to
the “Real estate assets” category
of the Legacy Portfolio.
Decrease in PRV mainly due to
interest rate and FX movements.
RWA decreased due to market
movements and lower VaR.
Increase in RWA primarily reflects
the effect of the supplemental
operational risk capital analysis as
well as an increased allocation of
total Group operational risk RWA.
31.12.13
31.12.12
31.12.13
31.12.12
31.12.13
31.12.12
5.1
9.8
2.5
3.1
0.5
2.1
3.1
5.7
1.7
2.4
0.6
0.2
2.2
4.0
–
–
0.4
0.5
2.0
2.4
0.5
0.5
0.9
2.0
1.6
3.2
3.8
7.1
–
–
1.0
4.6
–
0.0
3.1
5.0
0.3
0.8
2.4
3.3
–
–
–
–
–
–
–
2.1
2.3
3.7
3.5
3.9
4.1
6.0
13.3
3.8
–
–
–
–
Total
30.9
38.0
14.4
20.3
9.6
17.9
1 Phase-in and fully applied Basel III RWA. 2 Funded assets are defined as total IFRS balance sheet assets less positive replacement values (PRV) and collateral delivered against over-the-counter (OTC) derivatives
(CHF 1.5 billion as of 31.12.13 and CHF 1.7 billion as of 31.12.12). 3 Positive replacement values (gross exposure excluding the impact of any counterparty netting). 4 Index of CMBS.
215
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
Treasury management
Liquidity and funding management
Strategy and objectives
d
e
t
i
d
u
A
As described more fully in the “Our strategy” section of this re-
port, we are continuing in our commitment to focus our activities
on a set of highly synergistic, less capital- and balance sheet-in-
tensive businesses dedicated to serving clients and well-positioned
to maximize value for shareholders. This is reflected in the sub-
stantial progress we have made in further improving our leading
capital position and in reducing risk-weighted assets (RWA).
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 and in con-
sideration of current and future regulatory constraints. In line
with the implementation of our strategy, as our balance sheet
assets are reduced we generate capacity within our liquidity and
funding positions. This reduction in our funding needs has en-
abled us to execute tender offers to repurchase certain out-
standing long-term debt in 2013, which lowers our interest
expense and allows us to optimize our funding liability structure
for the future.
Our liquidity risk management aims to maintain a sound liquid-
ity position to meet all our liabilities when due and to provide
adequate time and financial flexibility to respond to a firm-specif-
ic liquidity crisis in a generally stressed market environment, with-
out incurring unacceptable losses or risking sustained damage to
our various businesses. Complementing this, our funding risk
management aims for the optimal asset and liability structure to
finance our businesses reliably and cost-efficiently.
We employ a number of measures to monitor our liquidity and
funding positions under normal and stressed conditions. Our pri-
mary tool for cash management is an operational cash ladder,
which is used to monitor our funding requirements on a daily
basis, within limits set by the Group Asset and Liability Manage-
ment Committee (Group ALCO), the Group Chief Financial Offi-
cer (Group CFO) and the Group Treasurer. This cumulative cash
ladder shows the projected net cumulative funding requirement
for a specific day, from the current day to three months forward.
We then use stress scenarios to apply behavioral adjustments and
calibrate the results with external measures, primarily the evolving
regulatory requirements for the Liquidity Coverage Ratio (LCR)
and the Net Stable Funding Ratio (NSFR).
As of 31 December 2013, our estimated pro-forma regulatory
Basel III LCR based on current supervisory guidance from FINMA
was 110% and our management LCR, which includes additional
available funding not eligible under the Basel III LCR framework,
was 148%. Based on current regulatory guidance, our estimated
pro-forma NSFR was 109% as of 31 December 2013. The Basel
Committee on Banking Supervision issued a Consultative Docu-
ment on the NSFR in January 2014.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information
We continued to maintain a sound liquidity position through-
out the year. As of 31 December 2013, our liquidity asset buffer,
that is derived from high-quality liquid assets (HQLA) and supports
our estimated pro-forma regulatory LCR, was CHF 153 billion,
with additional available funding of CHF 54 billion. In aggregate,
these sources of available liquidity represented 28% of our fund-
ed balance sheet assets.
The remainder of this section provides more detailed informa-
tion on our liquidity and funding management including our
sources of funding and liquidity, our contingency planning and
stress testing, current and potential future regulatory require-
ments and our governance structure.
Funding
d
e
t
i
d
u
A
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 wealth management businesses and Retail & Corporate
provide significant, cost-efficient and reliable sources of funding.
These include core deposits and pledging a portion of our port-
folio of Swiss residential mortgages as collateral to generate long-
term funding through Swiss Pfandbriefe and our own covered
bond program. In addition, we have a number of short-, medium-
and long-term funding programs under which we issue senior
unsecured and structured notes, as well as short-term secured
debt – generally for the highest-quality assets. These programs
allow institutional and private investors in Europe, the US and Asia
Pacific to customize their investments in UBS’s debt. Collectively,
these broad product offerings and funding sources, together with
the global scope of our business activities, support our funding
stability.
216
UBS: funding by product and currency
Securities lending
Repurchase agreements
Due to banks
Short-term debt issued 2
Retail savings / deposits
Demand deposits
Fiduciary deposits
Time deposits
Long-term debt issued 3
Cash collateral payables on
derivative instruments
Prime brokerage payables
In CHF billion
All currencies
31.12.13 31.12.12
9.5
13.8
12.9
27.6
143.1
179.0
21.5
47.3
9.2
38.6
23.0
32.5
134.3
163.0
25.0
51.3
123.9
164.2
49.1
32.5
71.1
35.6
All currencies 1
31.12.13 31.12.12
CHF 1
31.12.13 31.12.12
EUR 1
31.12.13 31.12.12
USD 1
31.12.13 31.12.12
Others1
31.12.13 31.12.12
1.4
2.1
1.9
4.2
21.7
27.1
3.3
7.2
18.8
7.4
4.9
1.2
5.2
3.1
4.3
18.0
21.8
3.3
6.9
22.0
9.5
4.8
0.3
0.0
0.5
0.3
0.4
0.1
0.5
0.3
13.6
11.8
8.9
0.1
0.4
3.0
0.3
0.0
8.0
0.1
0.2
2.7
0.3
0.1
0.3
0.5
0.2
0.2
1.0
5.4
0.6
0.3
5.6
3.4
0.7
0.2
1.1
0.2
0.8
0.8
4.1
0.8
0.5
7.3
5.0
0.5
0.6
1.3
0.7
3.2
7.1
8.9
2.2
4.0
7.9
2.8
3.3
0.5
3.3
0.7
2.7
5.4
6.4
2.0
3.7
9.0
3.2
3.3
0.2
0.3
0.6
0.5
0.0
3.9
0.4
2.5
2.2
0.9
0.8
0.2
0.6
1.6
0.6
0.0
3.2
0.5
2.5
2.9
0.9
0.8
Total
660.2
747.7
100.0
100.0
27.3
24.6
18.3
21.4
42.0
40.1
12.4
13.9
1 As a percent of total funding sources. 2 Short-term debt issued is comprised of deposit, commercial paper, acceptances and promissory notes, and other money market papers. 3 Long-term debt issued also includes
debt with a remaining time to maturity of less than one year.
Funding management
d
e
t
i
d
u
A
Group Treasury regularly monitors our funding status, including
concentration risks, to ensure we maintain a well-balanced and
diversified liability structure. Our funding activities are planned by
analyzing the overall liquidity and funding profile of our balance
sheet, taking into account the amount of stable funding that
would be needed to support ongoing business activities through
periods of difficult market conditions.
(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:21)
(cid:22)(cid:20)(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:20)(cid:25)(cid:25)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:26)(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:20)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:21)
(cid:20)(cid:19)
(cid:22)
(cid:22)(cid:18)
(cid:23)(cid:20)
(cid:19)(cid:22)(cid:24)
(cid:23)(cid:20)(cid:19)
(cid:20)(cid:26)
(cid:21)(cid:25)
(cid:20)(cid:25)(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:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:19)(cid:20)(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:26)(cid:20)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
(cid:20)(cid:21)
(cid:20)
(cid:20)
(cid:20)(cid:18)
(cid:22)
(cid:21)
(cid:22)
(cid:19)(cid:20)
(cid:19)(cid:22)
(cid:19)(cid:23)(cid:20)
(cid:22)(cid:26)
(cid:22)(cid:23)
(cid:37)(cid:87)(cid:85)(cid:86)(cid:81)(cid:79)(cid:71)(cid:84)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:36)(cid:81)(cid:80)(cid:70)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:80)(cid:81)(cid:86)(cid:71)(cid:85)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:79)(cid:67)(cid:84)(cid:73)(cid:75)(cid:80)(cid:142)
(cid:43)(cid:80)(cid:86)(cid:71)(cid:84)(cid:68)(cid:67)(cid:80)(cid:77)
(cid:47)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)
(cid:52)(cid:71)(cid:82)(cid:81)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:75)(cid:80)(cid:73)
(cid:19)(cid:2)(cid:35)(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: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:24)(cid:24)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:25)(cid:22)(cid:26)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:85)(cid:74)(cid:71)(cid:71)(cid:86)(cid:2)(cid: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:21)(cid:2)(cid:67)(cid:80)(cid:70)(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:84)(cid:71)(cid:85)(cid:82)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:78)(cid:91)(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)
217
(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)
(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)
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
(cid:55)(cid:36)(cid:53)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:14)(cid:2)(cid:71)(cid:90)(cid:69)(cid:71)(cid:82)(cid:86)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)
(cid:35)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:27)(cid:26)
(cid:24)(cid:18)
(cid:19)(cid:19)(cid:27)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:14)(cid:2)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:69)(cid:71)(cid:80)(cid:86)(cid:84)(cid:67)(cid:78)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:88)(cid:67)(cid:75)(cid:78)(cid:67)(cid:68)(cid:78)(cid:71)(cid:15)(cid:72)(cid:81)(cid:84)(cid:15)(cid:85)(cid:67)(cid:78)(cid:71)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:81)(cid:80)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:68)(cid:81)(cid:84)(cid:84)(cid:81)(cid:89)(cid:71)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:84)(cid:71)(cid:88)(cid:71)(cid:84)(cid:85)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:27)(cid:24)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)
(cid:85)(cid:87)(cid:84)(cid:82)(cid:78)(cid:87)(cid:85)
(cid:38)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)
(cid:53)(cid:74)(cid:81)(cid:84)(cid:86)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)(cid:19)
(cid:37)(cid:67)(cid:85)(cid:74)(cid:2)(cid:69)(cid:81)(cid:78)(cid:78)(cid:67)(cid:86)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:81)(cid:80)(cid:2)(cid:85)(cid:71)(cid:69)(cid:87)(cid:84)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:78)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:82)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:85)(cid:71)(cid:2)(cid:67)(cid:73)(cid:84)(cid:71)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)
(cid:38)(cid:71)(cid:79)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:19)(cid:20)(cid:21)
(cid:54)(cid:84)(cid:67)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:81)(cid:84)(cid:86)(cid:72)(cid:81)(cid:78)(cid:75)(cid:81)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)
(cid:20)(cid:26)(cid:25)
(cid:46)(cid:81)(cid:67)(cid:80)(cid:85)
(cid:19)(cid:21)(cid:24)(cid:7)(cid:2)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:18)(cid:22)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)(cid:85)(cid:87)(cid:84)(cid:82)(cid:78)(cid:87)(cid:85)
(cid:54)(cid:75)(cid:79)(cid:71)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:40)(cid:75)(cid:70)(cid:87)(cid:69)(cid:75)(cid:67)(cid:84)(cid:91)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:52)(cid:71)(cid:86)(cid:67)(cid:75)(cid:78)(cid:2)(cid:85)(cid:67)(cid:88)(cid:75)(cid:80)(cid:73)(cid:85) (cid:17)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:78)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:70)(cid:71)(cid:85)(cid:75)(cid:73)(cid:80)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:72)(cid:67)(cid:75)(cid:84)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:143)
(cid:42)(cid:71)(cid:78)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:67)(cid:79)(cid:81)(cid:84)(cid:86)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:69)(cid:81)(cid:85)(cid:86)
(cid:85)
(cid:84)
(cid:71)
(cid:79)
(cid:81)
(cid:86)
(cid:85)
(cid:87)
(cid:69)
(cid:2)
(cid:81)
(cid:86)
(cid:2)
(cid:71)
(cid:87)
(cid:38)
(cid:20)
(cid:70)
(cid:71)
(cid:87)
(cid:85)
(cid:85)
(cid:75)
(cid:2)
(cid:86)
(cid:68)
(cid:71)
(cid:70)
(cid:2)
(cid:79)
(cid:84)
(cid:71)
(cid:86)
(cid:15)
(cid:73)
(cid:80)
(cid:81)
(cid:46)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)
(cid:26)(cid:21)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(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:80)(cid:71)(cid:86)(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:11)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid:21)(cid:27)(cid:19)
(cid:19)(cid:20)(cid:22)
(cid:19)(cid:21)
(cid:20)(cid:26)
(cid:20)(cid:21)
(cid:20)(cid:25)
(cid:19)(cid:25)(cid:27)
(cid:22)(cid:25)
(cid:20)(cid:19)
(cid:19)(cid:22)(cid:21)
(cid:25)(cid:18)
(cid:23)(cid:22)
(cid:19)(cid:19)(cid:23)
(cid:23)(cid:18)
(cid:19)(cid:2)(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:2)(cid:75)(cid:85)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:84)(cid:75)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:69)(cid:71)(cid:84)(cid:86)(cid:75)(cid:386)(cid:69)(cid:67)(cid:86)(cid:71)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:14)(cid:2)(cid:69)(cid:81)(cid:79)(cid:79)(cid:71)(cid:84)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:14)(cid:2)(cid:67)(cid:69)(cid:69)(cid:71)(cid:82)(cid:86)(cid:67)(cid:80)(cid:69)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(cid:84)(cid:81)(cid:79)(cid:75)(cid:85)(cid:85)(cid:81)(cid:84)(cid:91)(cid:2)(cid:80)(cid:81)(cid:86)(cid:71)(cid:85)(cid:14)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:79)(cid:81)(cid:80)(cid:71)(cid:91)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:46)(cid:81)(cid:80)(cid:73)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:85)(cid:85)(cid:87)(cid:71)(cid:70)(cid:2)(cid:67)(cid:78)(cid:85)(cid:81)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:85)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:67)(cid:2)(cid:84)(cid:71)(cid:79)(cid:67)(cid:75)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:75)(cid:79)(cid:71)(cid:2)
(cid:86)(cid:81)(cid:2)(cid:79)(cid:67)(cid:86)(cid:87)(cid:84)(cid:75)(cid:86)(cid:91)(cid:2)(cid:81)(cid:72)(cid:2)(cid:78)(cid:71)(cid:85)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:80)(cid:2)(cid:81)(cid:80)(cid:71)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:21)(cid:2)(cid:43)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:15)(cid:86)(cid:74)(cid:71)(cid:15)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:2)(cid:75)(cid:80)(cid:85)(cid:86)(cid:84)(cid:87)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:16)
(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)
(cid:46)(cid:75)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:75)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:71)(cid:83)(cid:87)(cid:75)(cid:86)(cid:91)
(cid: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:19)(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:21)
(cid:19)(cid:24)
(cid:19)(cid:20)
(cid:2)(cid:26)
(cid:2)(cid:22)
(cid:2)(cid:2)(cid:2)
(cid:2)(cid:18)
(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:20)(cid:18)(cid:19)(cid:25)(cid:115)(cid:20)(cid:18)(cid:19)(cid:26) (cid:20)(cid:18)(cid:19)(cid:27)(cid:115)(cid:20)(cid:18)(cid:20)(cid:21) (cid:20)(cid:18)(cid:20)(cid:22)(cid:115)(cid:20)(cid:18)(cid:21)(cid:21)
(cid:67)(cid:72)(cid:86)(cid:71)(cid:84)(cid:2)(cid:20)(cid:18)(cid:21)(cid:21)
(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: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)
(cid:19)(cid:2)(cid:39)(cid:90)(cid:69)(cid:78)(cid:87)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:85)(cid:86)(cid:84)(cid:87)(cid:69)(cid:86)(cid:87)(cid:84)(cid:71)(cid:70)(cid:2)(cid:70)(cid:71)(cid:68)(cid:86)(cid:16)
Changes in sources of funding during the reporting period
During 2013, the composition of our funding sources moved to-
wards less reliance on wholesale funding. The implementation of
our strategy has driven a reduction in secured funding needs, as
well as lower issuances of short-term and structured debt and the
repurchase of unsecured debt. At the same time, our Retail &
Corporate and wealth management businesses continued to at-
tract new customer deposits. In 2013, total customer deposits
increased to CHF 391 billion from CHF 374 billion, or 59% of our
total funding sources compared with 50% as of 31 December
2012. Our ratio of customer deposits to outstanding loan bal-
218
ances was 136%, compared with 133% as of 31 December
2012.
In contrast, our outstanding long-term debt, including struc-
tured debt reported as financial liabilities at fair value, decreased
by CHF 40 billion to CHF 124 billion as of 31 December 2013,
representing 19% of our funding sources compared with 22% as
of 31 December 2012. Excluding structured debt, long-term debt
– which comprises senior debt and subordinated debt and is pre-
sented within Debt issued on the balance sheet – decreased to
CHF 54.0 billion as of 31 December 2013 from CHF 72.3 billion as
of 31 December 2012, primarily due to decreases in senior debt
to CHF 43.0 billion from CHF 61.0 billion. Senior debt comprises
both publicly and privately placed notes and bonds, as well as
covered bonds. As shown on the long-term debt contractual ma-
(cid:22)(cid:18)(cid:23)(cid:15)(cid:21)(cid:20)(cid:18)(cid:18)(cid:65)(cid:22)
turity chart, CHF 8.0 billion will mature within one year, represent-
ing 15% of outstanding long-term debt excluding structured
debt, compared with CHF 13.9 billion, or 19%, in the prior year.
In addition, CHF 0.5 billion of subordinated debt has an early call
date in 2014.
As part of our reduction in wholesale funding, we successfully
completed two cash tender offers during 2013 to repurchase cer-
tain subordinated and senior unsecured bonds. In February 2013,
we executed a cash tender offer to repurchase 14 senior unsecured
note issuances denominated in US dollar, euro and Italian lira, with
remaining maturities ranging between June 2013 and January
2027, for a total repurchase amount equivalent to CHF 5.1 billion.
In December 2013, we executed a cash tender offer to repurchase
certain subordinated and senior unsecured bonds denominated in
Swiss franc, euro, British pound and Italian lira, with an aggregate
principal repurchase amount equivalent to CHF 1.9 billion.
(cid:19)(cid:24)
(cid:19)(cid:20)
(cid:26)
(cid:22)
(cid:18)
(cid:19)(cid:19)(cid:18)(cid:18)
(cid:23)(cid:23)(cid:18)
(cid:26)(cid:20)(cid:23)
(cid:20)(cid:25)(cid:23)
(cid:18)
(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)
During the year, we continued to raise medium- and long-term
funds through medium-term notes and private placements and
through Swiss Pfandbriefe issuances with a principal amount of
CHF 1.5 billion, as well as a USD 1.25 billion three-year covered
bond. We also contributed to our targeted loss-absorbing capital by
executing a USD 1.5 billion issuance of loss-absorbing Basel III-com-
pliant tier 2 subordinated notes. These 10-year notes with an op-
tional call at year five will pay a non-deferrable coupon at an initial
rate of 4.75%. In February 2014, we issued further loss-absorbing
Basel III-compliant tier 2 subordinated notes: EUR 2 billion notional
with 12-year duration and an optional call in year seven and which
will pay a non-deferrable coupon at an initial rate of 4.75%.
Our short-term interbank deposits (presented as Due to banks
on the balance sheet), together with our outstanding short-term
debt, represented 6.1% of total funding sources compared with
7.4% as of 31 December 2012.
Secured financing, in the form of repurchase agreements and
securities lent against cash collateral received, represented 3.5%
of our funding sources as of 31 December 2013 compared with
6.4% as of 31 December 2012. As of 31 December 2013, we
were borrowing CHF 87 billion less cash on a collateralized basis
than we were lending, significantly lower than the difference of
CHF 121 billion as of 31 December 2012.
Liquidity management, contingency funding
and stress testing
The table below shows a breakdown of our liquidity asset buf-
fer derived from high-quality liquid assets (HQLA) that support
our regulatory LCR pro-forma calculation, analyzed by asset type,
balance sheet carrying value and LCR eligible amount. In accor-
dance with the Basel Committee on Banking Supervision’s guid-
ance issued in January 2013, HQLA comprise unencumbered
cash or assets that can be converted into cash at little or no loss
of value in private markets to meet liquidity needs for a 30-calen-
dar-day liquidity stress scenario. HQLA are eligible for inclusion as
our liquidity asset buffer component of the LCR after applying
certain haircuts and caps, dependent on whether the assets are
categorized as Level 1 (fair values based on quoted prices in ac-
tively traded markets) or Level 2 (fair values based on valuation
techniques for which all significant inputs are, or are based on,
observable market data) in accordance with the aforementioned
Basel guidance. As of 31 December 2013, our HQLA were CHF
157 billion and our liquidity asset buffer was CHF 153 billion. Our
liquidity asset buffer was also CHF 153 billion as of 31 December
2012. The monthly average for 2013 was CHF 151 billion. In ad-
dition to the liquidity asset buffer component of the regulatory
LCR, for our management LCR we include additional high-quality
and unencumbered contingent funding sources not eligible un-
der the regulatory Basel III liquidity framework, primarily local
funding reserves and unutilized funding capacity.
➔ Refer to “Liquidity regulatory requirements” in this section
for more information
d
e
t
i
d
u
A
Our Group contingency funding plan is an integral part of our
global crisis management concept, which covers various types of
crisis events. This contingency funding plan contains an assess-
ment of contingent funding sources in a stressed environment,
liquidity status indicators and metrics and contingency proce-
dures. Our funding diversification and global scope help protect
our liquidity position in the event of a crisis. We regularly assess
and test 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. Our contingent fund-
ing sources include a large, multi-currency portfolio of unencum-
bered, high-quality, short-term assets managed centrally by Group
Treasury, available and unutilized liquidity facilities at several ma-
jor central banks, and contingent reductions of liquid trading
portfolio assets.
d
e
t
i
d
u
A
We perform stress testing to determine the optimum asset and
liability structure that allows us to maintain an appropriately bal-
anced liquidity and funding position under various scenarios. Li-
quidity crisis scenario analysis and contingency funding planning
support the liquidity management process, which ensures that
immediate corrective measures to absorb potential sudden liquid-
ity shortfalls can be put into effect.
We model our liquidity exposures under two main potential
scenarios that encompass stressed and acute market conditions,
including considering the possible impact on our access to mar-
kets from stress events affecting all parts of our business.
The acute scenario represents an extreme stress event that
combines a firm-specific crisis with market disruption. This sce-
nario assumes large drawdowns on otherwise stable client depos-
its mainly due on demand, inability to renew or replace maturing
Composition of liquidity asset buffer component of our regulatory Liquidity Coverage Ratio
As of 31.12.13
CHF billion
Cash and deposits with central banks
Central bank pledges
Government bills / bonds
Corporate bonds, including covered bonds issued by financial institutions
Reverse repurchase agreements
Total
of which Basel III LCR eligible:
Liquidity asset
buffer
High-quality
liquid assets
80.1
28.3
31.9
15.0
1.8
157.1
Level 1
80.1
16.2
31.9
0.6
0.0
128.7
Level 2
0.0
10.3
0.0
12.3
1.6
24.1
Total
80.1
26.5
31.9
12.9
1.6
152.8
219
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
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 unwind deriva-
tive positions or to deliver additional collateral and additional col-
lateral needs due to adverse movements in the market values of
derivatives. It is run both daily and monthly, with the former used
to project potential cash outflows over a one-month time horizon
for day-to-day risk management, while the latter involves a more
detailed assessment of asset and liability cash flows.
Since a liquidity crisis could have a myriad of causes, the stressed
scenario encompasses potential stress effects across all markets,
currencies and products but it is not typically firm-specific and
focuses on a time horizon of up to one year. As well as the loss of
ability to replace maturing wholesale funding, it assumes a gra dual
drawdown of otherwise stable client deposits and liquidity out-
flows corresponding to a two-notch downgrade.
We also use a cash capital model which measures the amount
of long-term funding available to fund illiquid assets. The illiquid
portion of assets is the difference (the haircut) between the carry-
ing value of an asset on the balance sheet and its effective cash
value when used as collateral in a secured funding transaction.
Long-term funding used as cash capital to support illiquid assets
comprises unsecured funding with a 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 be-
havioral maturity of at least one year).
All these models and their assumptions are reviewed regularly
to incorporate the latest business and market developments. We
continuously refine the assumptions used in our crisis scenario
and maintain a robust, actionable and tested contingency plan.
Asset encumbrance
Part of our future funding and collateral needs are supported
by assets currently available and unrestricted. The table on the
next page presents both total IFRS on-balance sheet assets and
off-balance sheet assets received as collateral, allocating these
amounts between those assets that are available and those assets
that are encumbered or otherwise not available to support future
funding and collateral needs.
Assets are presented as Encumbered if they have been pledged
as collateral against an existing liability or if they are otherwise
restricted in their use to secure funding. Included within the lat-
ter category are assets protected under client asset segregation
rules, assets held by the Group’s insurance entities to back relat-
ed liabilities to the policy holders, assets held in certain jurisdic-
tions to comply with explicit minimum local asset maintenance
requirements and assets held in consolidated bankruptcy remote
entities, such as certain investment funds and other structured
entities.
➔ Refer to “Note 25 Restricted and transferred financial assets”
in the “Financial information” section of this report for more
information
220
Assets which cannot be pledged as collateral represents those
assets which are not encumbered but which, by their nature, are not
considered available to secure funding or to meet collateral needs.
These mainly include secured financing receivables, positive replace-
ment values for derivatives, goodwill and intangible assets.
All other assets are presented as Unencumbered. Shown sepa-
rately are those assets that are considered to be readily available to
secure funding or to meet collateral needs, consisting of cash and
securities readily realizable in the normal course of business. These
include cash and deposits with central banks, our multi-currency
portfolio of unencumbered, high-quality, short-term assets man-
aged centrally by Group Treasury and unencumbered positions in
our trading portfolio. The majority of unencumbered assets not
considered readily available are loans. This category also includes
assets held by certain subsidiaries that are available to meet fund-
ing and collateral needs in certain jurisdictions which are not read-
ily available for use by the Group as a whole.
Credit ratings
Credit ratings can affect the cost and availability of funding, espe-
cially funding from wholesale unsecured sources. Our credit rat-
ings can also influence the performance of some of our businesses
and levels of client and counterparty confidence. Rating agencies
take into account a range of factors when assessing creditworthi-
ness and setting credit ratings. These include the company’s strat-
egy, its business position and franchise value, stability and quality
of earnings, capital adequacy, risk profile and management, liquid-
ity 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.
In evaluating our liquidity requirements, we consider the po-
tential impact of a reduction in UBS’s long-term credit ratings and
a corresponding reduction in short-term ratings. If our credit rat-
ings were to be downgraded, “rating trigger” clauses, especially
in derivative transactions, could result in an immediate cash out-
flow due to the unwinding of derivative positions, the need to
deliver additional collateral or other ratings-based requirements.
Based on UBS’s credit ratings as of 31 December 2013, contrac-
tual liquidity outflows of approximately CHF 3.3 billion, CHF 5.0
billion and CHF 5.1 billion would have been required in the event
of a one-notch, two-notch and three-notch reduction, respective-
ly. Of these outflows, the portion related to derivative transactions
is approximately CHF 1.4 billion, CHF 3.0 billion and CHF 3.2 bil-
lion, respectively.
Liquidity regulatory requirements
In December 2010, the Basel Committee on Banking Supervision
(BCBS) published its “International framework for liquidity risk
measurement, standards and monitoring” (Basel III Liquidity). The
framework includes two liquidity ratios: the Liquidity Coverage
Ratio (LCR) and the Net Stable Funding Ratio (NSFR). In January
2014, the BCBS published its final LCR requirements and issued a
Asset encumbrance
Encumbered
Unencumbered
CHF million
Balance sheet as of 31 December 2013
Cash and balances with central banks
Due from banks
Financial assets designated at fair value
Loans
of which: mortgage loans
Lending
Cash collateral on securities borrowed
Reverse repurchase agreement
Collateral trading
Trading portfolio assets excluding financial assets for
unit-linked investment contracts
of which: government bills / bonds
of which: corporate bonds, municipal bonds, including
bonds issued by financial institutions
of which: loans
of which: investment fund units
of which: asset-backed securities
of which: mortgage-backed securities
of which: equity instruments
of which: precious metals and other physical commodities
Financial assets for unit-linked investment contracts
Positive replacement values
Financial investments available-for-sale
Cash collateral receivables on derivative instruments
Investments in associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Other
Total assets
CHF million
Off-balance sheet as of 31 December 2013
Fair value of assets received as collateral which can be sold
or repledged
Total off-balance sheet
Total Group
assets (IFRS)
Assets pledged
as collateral
Assets other-
wise restricted
to use to
secure funding
Cash and
securities
available to
secure funding
80,879
17,170
7,364
286,959
160,050
311,492
27,496
91,563
119,060
106,999
13,061
16,008
3,033
11,137
3,280
1,973
51,881
8,599
15,849
245,835
59,525
28,007
842
6,006
6,293
8,845
20,228
70,221
0
0
0
33,632
33,632
33,632
0
0
0
48,368 1
6,039
3,924
26
3,977
222
181
34,180
0
0
0
0
0
0
0
0
0
0
0
1,009,860
82,000
2
6,570
581
0
0
7,150
0
1,989
1,990
8,403
1,976
3,237
94
2,243
0
0
852
0
15,849
1
44
7,939
0
0
0
0
167
8,106
41,544
71,984
0
0
931
0
931
0
0
0
43,600
4,757
7,288
0
4,744
1,794
955
16,418
8,599
0
0
50,380
0
0
0
0
0
0
0
166,895
Other
realizable
assets
8,893
10,192
1,743
251,734
126,418
263,669
0
0
0
6,629
288
1,559
2,913
173
1,265
836
431
0
0
0
9,102
0
842
5,917
0
0
0
6,759
295,052
Encumbered
Unencumbered
Fair value
of assets
received which
can be sold or
repledged
Fair value
of assets
received that
have been sold
or repledged
as collateral
Fair value
of assets
received other-
wise restricted
to use to
secure funding
Fair value
of assets
available to
secure funding
Fair value
of other
realizable
assets
351,712
351,712
240,176
240,176
28,074
28,074
54,990
54,990
28,471
28,471
Assets which
cannot be
pledged as
collateral
Percentage
of cash and
securities
available to
secure funding
0
407
5,041
661
0
6,109
27,496
89,574
117,070
0
0
0
0
0
0
0
0
0
0
245,834
0
20,068
0
89
6,293
8,845
20,062
55,356
424,370
32%
0%
0%
0%
0%
0%
0%
0%
0%
20%
2%
3%
0%
2%
1%
0%
7%
4%
0%
0%
23%
0%
0%
0%
0%
0%
0%
0%
75%
25%
25%
Total balance sheet and off-balance sheet
322,176
69,618
221,885
323,523
424,370
100%
1 Includes CHF 42,449 million assets pledged as collateral which may be sold or repledged by counterparties.
221
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
Liquidity Coverage Ratio (LCR)
CHF billion, except where indicated
Cash outflows
Cash inflows
Net cash outflows
Liquidity asset buffer
Regulatory LCR (%)
Additional contingent funding sources 1
Management LCR (%)
1 Additional contingent funding sources including dedicated local liquidity reserves and additional unutilized borrowing capacity.
Net Stable Funding Ratio (NSFR)
CHF billion, except where indicated
Available stable funding
Required stable funding
NSFR (%)
31.12.13
236
97
139
153
110
54
148
31.12.13
346
318
109
further Consultative Document on the NSFR. Local regulators, in-
cluding the Swiss authorities, are considering how to incorporate
the final LCR requirements into local regulatory guidance. Conse-
quently, banks currently employ a wide range of interpretations to
calculate LCR and NSFR. We were in compliance with FINMA’s
current liquidity requirements throughout 2013.
The LCR provides a measure that illustrates the extent to which
a bank holds enough highly liquid assets to survive short-term
(30-day) severe general market and firm-specific stress. The NSFR
assigns a required stable funding factor to assets (representing the
illiquid part of assets) and assigns all liabilities an available stable
funding factor (representing the stability of a liability) to illustrate
the extent to which a bank is not overly reliant on short-term
funding and has sufficient long-term funding for illiquid assets.
Based on current regulatory guidance, the future minimum regu-
latory requirement is 100% for both the LCR (as of 2019) and
NSFR (as of 2018), with minimum quantitative requirements for
Switzerland expected to be effective as of January 2015.
The tables above show our pro-forma Basel III liquidity ratios
based on current supervisory guidance from FINMA. These calcu-
lations include estimates of the impact of the rules and their inter-
pretation and will be refined as regulatory interpretations evolve
and as new models and the associated systems are enhanced. For
the LCR, cash out- and inflows are estimated for up to a 30-day
period under severe general market and firm-specific stress sce-
narios. The liquidity asset buffer includes our dedicated Group li-
quidity reserve, excess cash at major central banks and unencum-
bered collateral pledged to central banks. A more detailed
breakdown of the liquidity asset buffer and the HQLA from which
it is derived is shown in the table “Composition of liquidity asset
buffer component of our regulatory Liquidity Coverage Ratio” on
page 219. Available stable funding for our NSFR consists mainly of
client deposits from our wealth management businesses, long-
term debt issued and capital. This source of stable funding is used
primarily to support residential mortgages as well as other loans.
Governance
d
e
t
i
d
u
A
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 Risk Committee.
Group Treasury monitors and oversees the implementation
and execution of our liquidity and funding strategy, and ensures
adherence to our liquidity and funding policies including limits
and targets, reporting the Group’s overall liquidity and funding
position, including funding status and concentration risks, at
least monthly to the Group ALCO and the Risk Committee. This
enables close control of both our cash and collateral, including
our stock of high-quality liquid securities, and ensures that the
Group’s general access to wholesale cash markets is centralized
in Group Treasury. In addition, should a crisis require contingency
funding measures to be invoked, Group Treasury is responsible
for coordinating liquidity generation with representatives of the
relevant business areas.
Liquidity and funding limits and targets are set at a Group and
business division level, and are reviewed and reconfirmed at least
once a year by the Board of Directors, the Group ALCO, the Group
CFO, the Group Treasurer and the business divisions taking into
consideration current and projected business strategy and risk tol-
erance. 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 and liability
structure. Structural limits and targets focus on the structure and
composition of the balance sheet, while supplementary limits and
d
e
t
i
d
u
A
222
d
e
t
i
d
u
A
targets are designed to drive the utilization, diversification and al-
location of funding resources. Together the limits and targets fo-
cus on liquidity and funding risk for periods out to one year, in-
cluding stress testing. To complement and support this framework,
Group Treasury monitors the markets with a dashboard of early
warning indicators reflecting the current liquidity situation. The li-
quidity status indicators are used at a Group level to assess both
the overall global and regional situations for potential threats.
➔ Refer to the “Corporate governance” section of this report for
more information
Internal funding and funds transfer pricing
We employ an integrated liquidity and funding framework to gov-
ern the liquidity management of all our branches and subsidiaries
and our major sources of liquidity are channeled through entities
that are fully consolidated. Group Treasury meets internal de-
mands for funding by channeling funds from units generating
surplus cash to those in need of financing.
Funding costs and benefits are allocated to our business divi-
sions and Non-core and Legacy Portfolio according to our liquid-
ity and funding risk management framework. 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 generating the liquidity and fund-
ing risks and deals with the movement of funds from those busi-
nesses in surplus to those that have a shortfall. Funding is inter-
nally transferred or allocated among businesses at rates and
tenors that reflect each business’s asset composition, liquidity
and reliable external funding. We continue to review and en-
hance our internal funds transfer pricing system.
Maturity analysis of assets and liabilities
The table on the next page provides an analysis of consolidated
total assets, liabilities and off-balance sheet commitments by re-
sidual contractual maturity at the balance sheet date. The con-
tractual maturity of liabilities is based on the earliest date on
which we could be required to pay and the contractual maturity
of assets is based on the latest date the asset will mature. This
basis of presentation differs from “Note 27b Maturity analysis of
financial liabilities” in the “Financial information” section of this
report, which is presented on an undiscounted basis, and the
funding analysis above, for which long-term debt is presented
based on original, rather than contractual maturity.
Derivative replacement values and trading portfolio assets and
liabilities are assigned to the column Due less than 1 month, al-
though the respective contractual maturities may extend over sig-
nificantly longer periods.
Financial assets and liabilities with no contractual maturity
(such as equity securities) are included in the Perpetual / not ap-
plicable time bucket. Undated or perpetual instruments are classi-
fied based on the contractual notice period which the counter-
party of the instrument is entitled to give. Where there is no
contractual notice period, undated or perpetual contracts are in-
cluded in the Perpetual / not applicable time bucket.
Non-financial assets and liabilities with no contractual maturity
(such as property, plant and equipment, goodwill and intangible
assets, current and deferred tax assets and liabilities and retire-
ment benefit liabilities) are generally included in the Perpetual
time bucket.
Loan commitments are classified on the basis of the earliest
date they can be drawn down.
223
Risk, treasury and capital management Risk, treasury and capital management
Treasury management
Maturity analysis of assets and liabilities
CHF billion
Assets
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
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
of which: residential mortgages
of which: commercial mortgages
of which: Lombard loans
of which: other loans
of which: securities
Financial investments available-for-sale
Investments in associates
Property and equipment
Goodwill and intangible assets
Deferred tax assets
Other assets
Total assets 31.12.13
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
Provisions
Other liabilities
Total liabilities 31.12.13
Financial liabilities not recognized on balance sheet
Loan commitments
Underwriting commitments
Total commitments
Guarantees
Reverse repurchase agreements
Securities borrowing agreements
Total 31.12.13
224
Due less
than
1 month
Due
between
1 and 3
months
Due
between
3 and 6
months
Due
between
6 and 9
months
Due
between
9 and 12
months
Due
between
1 and 2
years
Due
between
2 and 5
years
Due over
5 years
Perpetual /
not
applicable
0.3
0.0
0.1
0.1
0.1
80.9
13.6
27.5
60.3
122.8
42.4
245.8
28.0
1.0
99.0
15.6
4.3
66.2
12.9
4.0
1.1
0.0
22.3
0.6
0.0
4.4
0.3
46.6
28.7
6.2
9.1
2.6
5.8
0.2
13.1
6.7
1.7
3.5
1.2
9.3
1.0
2.2
0.2
5.9
3.0
0.6
1.5
0.8
4.5
0.4
0.0
2.2
0.2
6.6
3.0
0.6
2.2
0.9
1.3
19.9
12.9
1.8
1.7
3.5
3.5
18.7
3.1
49.4
31.5
4.3
2.2
11.2
0.2
8.5
0.6
46.4
35.9
3.3
0.4
2.1
4.6
4.3
0.6
1.0
0.8
6.0
6.3
8.8
Total
80.9
17.2
27.5
91.6
122.8
42.4
245.8
28.0
7.4
287.0
137.3
22.7
86.8
35.3
4.8
59.5
0.8
6.0
6.3
8.8
20.2
16.1
699.1
0.1
76.2
27.6
13.8
12.9
40.0
1.7
63.0
2.3
53.9
9.5
8.3
12.1
26.6
240.0
49.1
3.5
378.1
6.3
3.0
59.2
795.7
54.5
0.8
55.2
18.3
9.4
0.0
83.0
1.3
0.7
1.1
4.0
6.8
8.6
2.9
25.4
0.3
0.3
0.0
1.5
0.6
0.1
3.9
2.9
14.7
0.1
23.6
0.1
0.1
0.0
0.1
0.0
5.2
1.5
2.4
0.1
0.1
3.4
1.1
3.6
9.2
8.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
11.7
0.1
7.1
0.1
18.9
0.0
0.0
0.1
0.3
0.3
19.2
0.1
21.5
0.2
41.5
0.0
0.0
0.1
0.0
0.1
17.9
0.1
16.4
0.2
34.7
0.0
0.0
0.3
0.1
0.1
0.0
0.1
0.1
0.0
23.5 1,009.9
12.9
9.5
13.8
26.6
240.0
49.1
69.9
390.8
81.6
3.0
62.8
1.2
1.2
2.4
959.9
54.9
0.8
55.7
18.8
9.4
0.0
83.9
Currency management
Our Group currency management activities are designed to reduce
adverse currency effects on our reported financial results in Swiss
francs, within limits set by the Board of Directors. Group Treasury
focuses on three principal areas of currency risk management:
currency-matched funding of investments in non-Swiss franc as-
sets 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 manage-
ment of consolidated capital activity.
Currency-matched funding and investment of
non-Swiss franc assets and liabilities
For monetary balance sheet items and non-core investments, as
far as it is practical and efficient we follow the principle of match-
ing the currencies of our assets and liabilities for funding purpos-
es. This avoids profits and losses arising from the retranslation of
non-Swiss franc assets and liabilities.
Net investment hedge accounting is applied to non-Swiss franc
core investments to balance the effect of foreign exchange move-
ments on both the common equity tier 1 (CET1) capital ratio and
CET1 capital on a fully applied basis.
➔ Refer to “Note 1a Significant accounting policies” and “Note 14
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 using the relevant
month-end rate. Monthly income statement items of foreign sub-
sidiaries and branches with a functional currency other than the
Swiss franc are translated into Swiss francs using the relevant
month-end rate. Weighted average rates for a year represent an
average of 12 month-end rates, weighted according to the in-
come and expense volumes of all foreign subsidiaries and branch-
es with the same functional currency for each month. To reduce
earnings volatility on the retranslation of previously recognized
earnings in foreign currencies, Group Treasury centralizes the
profits and losses arising in the Parent Bank and its branches and
sells or buys the profit or loss for Swiss francs. Our operating enti-
ties follow a similar monthly sell-down process into their own re-
porting currencies. Retained earnings in operating entities with a
reporting currency other than the Swiss franc are integrated and
managed as part of net investment hedge accounting.
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. Although intended to hedge future earnings, these
transactions are accounted for as open currency positions and are
subject to internal market risk VaR and stress loss limits.
225
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Capital management
Our strong capital position provides us with a solid foundation for growing our business and enhancing our competitive
positioning. At the end of 2013, our common equity tier 1 (CET1) capital ratio 1 was 18.5% on a phase-in basis and
12.8% on a fully applied basis, a significant increase compared with yearend 2012 proforma ratios, and the highest
fully applied ratio in our peer group.
Capital management objectives
d
e
t
i
d
u
A
Adequate capital is a prerequisite to support our business activi-
ties, in accordance with both our own internal assessment and
regulatory requirements. We aim to maintain a strong capital po-
sition and sound capital ratios at all times and therefore consider
not only the current situation but also projected business and
regulatory developments. We are committed to continuing to im-
prove these ratios, mainly through a combination of retained
earnings, the issuance of additional loss-absorbing capital (LAC)
and efforts to reduce risk-weighted assets (RWA).
Ongoing compliance with regulatory capital requirements and
target capital ratios is central to our capital adequacy manage-
ment. We are targeting a fully applied CET1 ratio of 13% in 2014.
By achieving our targets, we will exceed the Swiss Financial Mar-
ket Supervisory Authority’s (FINMA) requirements for Swiss sys-
temically relevant banks (SRB), which are stricter than Basel Com-
mittee on Banking Supervision (BCBS) requirements. We believe
this will provide even greater comfort to our stakeholders, further
increase confidence in our firm and contribute to strong external
credit ratings.
➔ Refer to the “Our strategy” section of this report for more
information on our targets
➔ Refer to the “Swiss SRB and BIS Basel III capital requirements”
chart in this section for more information on differences in
capital requirements
Annual strategic and ongoing capital planning process
Capital limits and targets are established at both Group and busi-
ness division levels, and submitted to the Board of Directors for ap-
proval or for information on at least an annual basis. Group Treasury
monitors and plans for consolidated RWA, LRD and capital develop-
ments. Monitoring activities may form the basis of adjustments to
RWA and / or LRD limits, actions related to the issuance or redemption
of capital instruments and other business-related decisions. In the
event of limits being breached, an action plan is triggered, which de-
fines remediating actions required to return the exposures to a limit-
compliant level. Monitoring activities also consider developments in
capital regulations.
Consideration of stress scenarios
Through a set of quantitative risk appetite objectives, we aim to
ensure that aggregate risk exposure is within our desired risk ca-
pacity, based on our capital and business plans. We use both
scenario-based stress tests and statistical frameworks to assess
the impact of a severe stress event at an aggregate, Group-wide
level. We have set an objective that our CET1 capital ratio remains
at 10% or above if a severe stress event were to occur, and we are
firmly committed to return capital to shareholders with a payout
ratio of at least 50%, conditional on our achievement of both a
fully applied CET1 ratio of a minimum of 13% and a post-stress
CET1 ratio of a minimum of 10%.
➔ Refer to the “Risk management and control” section of this report
for more information on our risk appetite framework
d
e
t
i
d
u
A
The annual strategic planning process incorporates a capital plan-
ning component and is key in defining mid- and longer-term
capital targets. It is based on an attribution of Group RWA and
leverage ratio denominator (LRD) limits to the business divisions.
These resource allocations in turn impact business plans and earn-
ings projections, which are then reflected in our capital plans.
d
e
t
i
d
u
A
During 2013, we managed our capital according to our capital
ratio targets. In the target-setting process, we take into account
the current and future capital requirements set by regulators as
well as actual and potential future capital requirements including
capital buffer requirements. We also consider our aggregate risk
Capital adequacy management
1 Unless otherwise indicated, all information in this section is based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB).
226
d
e
t
i
d
u
A
exposure in terms of capital-at-risk, the views of rating agencies,
comparisons with peer institutions and the impact of expected
accounting policy changes. Our progress towards meeting the
Swiss SRB Basel III fully applied capital requirements was evi-
denced by a series of capital transactions, including the following:
– the redemption of CHF 1.0 billion of two tier 2 capital instru-
ments and the repurchase of CHF 1.0 billion of certain other
tier 2 capital instruments in a public tender offer, as these
capital instruments are not eligible for full recognition under
Basel III and are being phased out by 2019;
– an increase in our Deferred Contingent Capital Plan (DCCP) of
CHF 0.5 billion to a total of CHF 1.0 billion, under which de-
ferred compensation balances will forfeit if a 7% Basel III CET1
ratio level (or 10% with respect to awards granted to Group
Executive Board members) is breached or if a viability event
occurs during the five-year period after the award date and
– our issuances of Basel III-compliant tier 2 loss-absorbing notes
with a nominal amount of USD 1.5 billion in May 2013 and
EUR 2.0 billion in February 2014, respectively, which both qual-
ify as tier 2 capital and progressive buffer capital in compliance
with Swiss SRB Basel III rules.
Active management of RWA
We have a strong track record of RWA reduction, surpassing our
2013 Basel III RWA targets well ahead of schedule and demon-
strating progress towards achieving our RWA target of less than
CHF 200 billion by 2017 on a fully applied basis, despite the incre-
mental RWA resulting from the supplemental operational risk
capital analysis mutually agreed to by UBS and FINMA.
Having fully adapted its business to Basel III, our Investment
Bank has operated with fully applied RWA of less than CHF 70
billion. In line with our strategy to deploy capital efficiently, RWA
are expected to increase both in our wealth management busi-
nesses and in Retail & Corporate, as we deliver attractive lending
and mortgage opportunities to our clients.
With the transfer of non-core assets from our Investment Bank
to our Non-core and Legacy Portfolio unit, Corporate Center was
tasked with managing these diversified assets in a manner that
protects shareholder value and within the same robust oversight
structure that successfully supported our RWA reduction in our
Legacy Portfolio. While we managed approximately CHF 102.5
billion of RWA in our Non-core and Legacy Portfolio unit at the
beginning of 2013, we reduced these to CHF 64 billion as of
Our capital ratios and targets
Targeting a 13% fully applied common equity tier 1 capital ratio in 2014
%
Phase-in
Fully applied
~18.9
18.9
~15.3
15.3
20.6
16.2
21.8
17.5
22.2
18.5
20
15
10
5
0
~11.4
~9.8
11.8
10.1
13.5
11.2
14.3
11.9
15.4
12.8
13.0
11.5
31.12.12
pro-forma
31.3.13
30.6.13
30.9.13
31.12.13
31.12.12
pro-forma
31.3.13
30.6.13
30.9.13
31.12.13
2013
target
2014
target
Common equity tier 1 (CET1) capital
High-trigger loss-absorbing capital (LAC)1, 2
Low-trigger LAC2
Non-Basel III-compliant capital2
1 Consists of our Deferred Contingent Capital Plan. 2 Eligible as tier 2 capital.
227
20
15
10
5
0
20
15
10
5
0
25
20
15
10
5
0
Risk, treasury and capital management Risk, treasury and capital management
Capital management
31 December 2013 and therefore significantly exceeded our tar-
get of CHF 85 billion for that unit by the end of 2013. We aim to
further reduce RWA in our Non-core and Legacy Portfolio to CHF
55 billion by the end of 2015 and CHF 25 billion by the end of
2017.
Active management of sensitivity to currency movements
The majority of our capital and a significant portion of our RWA
are denominated in Swiss francs, but we also hold RWA and some
eligible capital in other currencies, primarily US dollars, euros and
British pounds. A 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 ef-
fects. If the Swiss franc depreciates against other currencies, con-
solidated RWA increase relative to our capital, and vice versa. The
Group Asset and Liability Management Committee, a committee
of the UBS Group Executive Board, can adjust the currency mix in
capital, within limits set by the Board of Directors, to balance the
effect of foreign exchange movements on the fully applied CET1
capital and capital ratio. Limits are in place for the sensitivity of
both CET1 capital and capital ratio to a ±10% change in the value
of the Swiss franc against other currencies. As of 31 December
2013, we estimate that a 10% depreciation of the Swiss franc
against other currencies would increase CET1 capital by CHF
1,075 million (31 December 2012: CHF 845 million) and would
decrease the CET1 capital ratio by 15 basis points (31 December
2012: 30 basis points). Conversely, we estimate that a 10% ap-
preciation of the Swiss franc against other currencies would de-
crease CET1 capital by CHF 973 million (31 December 2012: CHF
764 million) and would increase the CET1 capital ratio by 15 basis
points (31 December 2012: 30 basis points).
Risk-weighted assets development and targets
fully applied, in CHF billion
300
240
180
120
60
0
~258
~103
~64
~91
225
64
62
99
<250
~85
<225
~55
<70
<70
<200
~25
<70
~95
~100
~105
31.12.12
pro-forma
31.12.13
31.12.13
target
31.12.15
target
31.12.17
target
WM / WMA / R&C / Global AM / Corporate Center – Core Functions
Investment Bank
Corporate Center – Non-core and Legacy Portfolio
228
Swiss SRB Basel III capital information
As we are required to comply with regulations based on the
Basel III framework as applicable for Swiss systemically relevant
banks (SRB), our capital disclosures focus on Swiss SRB Basel III
capital information. Differences between the Swiss SRB and BIS
Basel III capital regimes are outlined in the subsection “Differences
between Swiss SRB and BIS Basel III capital.”
Regulatory framework
The Basel III framework came into effect in Switzerland on 1 Janu-
ary 2013 and includes prudential filters for the calculation of
capital. These prudential filters consist mainly of capital deduc-
tions for deferred tax assets recognized for tax loss carry-forwards
and the inclusion of the effects of IAS 19 (revised) relating to post-
employment benefits. As these filters are being phased in be-
tween 2014 and 2018, their effects are gradually factored into
our calculations of capital, RWA and capital ratios on a phase-in
basis and are entirely reflected in our capital and capital ratios on
a fully applied basis.
Furthermore, based on the most recent Swiss Financial Mar-
ket Supervisory Authority (FINMA) regulation, capital instru-
ments which were treated as hybrid tier 1 capital and as tier 2
capital under the Basel 2.5 framework are being phased out un-
der Basel III between 2013 and 2019. On a phase-in basis, our
capital and capital ratios include the applicable portion of these
capital instruments not yet phased out. Our capital and capital
ratios on a fully applied basis do not include these capital instru-
ments.
All Basel III numbers for 31 December 2012 provided in this
report are on a pro-forma basis. The pro-forma numbers were
either disclosed in our report for the fourth quarter of 2012
and / or our Annual Report 2012 or were introduced as compara-
tives during 2013. Some of the models applied when calculating
31 December 2012 pro-forma information required regulatory
(cid:49)(cid:87)(cid:84)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:20)(cid:18)(cid:19)(cid:21)
(cid:50)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)
(cid:20)(cid:18)(cid:19)(cid:22)
(cid:20)(cid:18)(cid:19)(cid:23)
(cid:50)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:19)(cid:16)(cid:23)(cid:7)(cid:2)(cid:46)(cid:81)(cid:89)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:14)(cid:2)(cid:20)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:19)(cid:16)(cid:18)(cid:7)(cid:2)(cid:42)(cid:75)(cid:73)(cid:74)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:14)(cid:2)(cid:21)
(cid:26)(cid:16)(cid:24)(cid:7)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:20)(cid:16)(cid:24)(cid:7)(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:22)
(cid:36)(cid:67)(cid:85)(cid:71)(cid:28)
(cid:21)(cid:16)(cid:23)(cid:7)(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:50)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:20)(cid:16)(cid:26)(cid:7)(cid:2)(cid:46)(cid:81)(cid:89)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:14)(cid:2)(cid:20)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:19)(cid:16)(cid:26)(cid:7)(cid:2)(cid:42)(cid:75)(cid:73)(cid:74)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:14)(cid:2)(cid:21)
(cid:19)(cid:19)(cid:16)(cid:23)(cid:7)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:20)(cid:16)(cid:27)(cid:7)(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:23)
(cid:36)(cid:67)(cid:85)(cid:71)(cid:28)
(cid:22)(cid:16)(cid:18)(cid:7)(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:50)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:21)(cid:16)(cid:24)(cid:7)(cid:2)(cid:46)(cid:81)(cid:89)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:14)(cid:2)(cid:20)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:20)(cid:16)(cid:21)(cid:7)(cid:2)(cid:42)(cid:75)(cid:73)(cid:74)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:14)(cid:2)(cid:21)
(cid:19)(cid:21)(cid:16)(cid:20)(cid:7)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:20)(cid:16)(cid:27)(cid:7)(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:23)
(cid:36)(cid:67)(cid:85)(cid:71)(cid:28)
(cid:22)(cid:16)(cid:23)(cid:7)(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:40)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)
(cid:20)(cid:18)(cid:19)(cid:27)
(cid:50)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:24)(cid:16)(cid:18)(cid:7)(cid:2)(cid:46)(cid:81)(cid:89)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:14)(cid:2)(cid:20)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:21)(cid:16)(cid:18)(cid:7)(cid:2)(cid:42)(cid:75)(cid:73)(cid:74)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:14)(cid:2)(cid:21)
(cid:24)(cid:16)(cid:18)(cid:7)(cid:2)(cid:53)(cid:91)(cid:85)(cid:86)(cid:71)(cid:79)(cid:75)(cid:69)
(cid:85)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:84)(cid:73)(cid:71)
(cid:19)(cid:27)(cid:16)(cid:18)(cid:7)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:21)(cid:16)(cid:18)(cid:7)(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:23)
(cid:26)(cid:16)(cid:23)(cid:7)(cid:2)(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)
(cid:37)(cid:81)(cid:80)(cid:85)(cid:71)(cid:84)(cid:88)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:20)(cid:16)(cid:23)(cid:7)(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:36)(cid:67)(cid:85)(cid:71)(cid:28)
(cid:22)(cid:16)(cid:23)(cid:7)(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:22)(cid:16)(cid:23)(cid:7)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)
(cid:19)(cid:2)(cid:46)(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:16)(cid:2)(cid:42)(cid:75)(cid:73)(cid:74)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(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:2)(cid:83)(cid:87)(cid:67)(cid:78)(cid:75)(cid:386)(cid:71)(cid:85)(cid:2)(cid:67)(cid:85)(cid:2)(cid:82)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:87)(cid:80)(cid:86)(cid:75)(cid:78)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:20)(cid:18)(cid:19)(cid:25)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:49)(cid:87)(cid:84)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:75)(cid:85)(cid:2)(cid:70)(cid:91)(cid:80)(cid:67)(cid:79)(cid:75)(cid:69)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:71)(cid:82)(cid:71)(cid:80)(cid:70)(cid:85)(cid:2)(cid:81)(cid:80)(cid:2)(cid:81)(cid:87)(cid:84)(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:67)(cid:80)(cid:70)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:78)(cid:81)(cid:67)(cid:80)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:71)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:85)(cid:2)(cid:68)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)(cid:16)(cid:2)(cid:48)(cid:87)(cid:79)(cid:68)(cid:71)(cid:84)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:78)(cid:67)(cid:86)(cid:71)(cid:85)(cid:86)(cid:2)(cid:75)(cid:80)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:67)(cid:88)(cid:67)(cid:75)(cid:78)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:87)(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:85)(cid:87)(cid:82)(cid:71)(cid:84)(cid:88)(cid:75)(cid:85)(cid:81)(cid:84)(cid:91)(cid:2)(cid:73)(cid:87)(cid:75)(cid:70)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:40)(cid:43)(cid:48)(cid:47)(cid:35)(cid:16)(cid:2)(cid:57)(cid:71)(cid:2)(cid:71)(cid:90)(cid:82)(cid:71)(cid:69)(cid:86)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:27)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:24)(cid:16)(cid:18)(cid:7)(cid:2)
(cid:81)(cid:80)(cid:2)(cid:67)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)(cid:2)(cid:68)(cid:67)(cid:85)(cid:75)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:72)(cid:67)(cid:78)(cid:78)(cid:2)(cid:86)(cid:81)(cid:2)(cid:22)(cid:16)(cid:23)(cid:7)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:82)(cid:78)(cid:67)(cid:80)(cid:80)(cid:71)(cid:70)(cid:2)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:85)(cid:74)(cid:71)(cid:71)(cid:86)(cid:2)(cid:84)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(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:67)(cid:69)(cid:69)(cid:71)(cid:78)(cid:71)(cid:84)(cid:67)(cid:86)(cid:71)(cid:70)(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:81)(cid:87)(cid:84)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:91)(cid:2)(cid:67)(cid:80)(cid:80)(cid:81)(cid:87)(cid:80)(cid:69)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(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)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(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:16)(cid:2)(cid:53)(cid:91)(cid:85)(cid:86)(cid:71)(cid:79)(cid:75)(cid:69)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(cid:84)(cid:71)(cid:78)(cid:71)(cid:88)(cid:67)(cid:80)(cid:86)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)(cid:2)(cid:10)(cid:53)(cid:52)(cid:36)(cid:11)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:71)(cid:78)(cid:75)(cid:73)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:67)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:68)(cid:67)(cid:86)(cid:71)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:75)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:91)(cid:2)(cid:86)(cid:67)(cid:77)(cid:71)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:72)(cid:67)(cid:69)(cid:75)(cid:78)(cid:75)(cid:86)(cid:67)(cid:86)(cid:71)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:85)(cid:81)(cid:78)(cid:88)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:68)(cid:71)(cid:91)(cid:81)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:79)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:71)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:73)(cid:84)(cid:75)(cid:86)(cid:91)(cid:2)(cid:81)(cid:72)(cid:2)
(cid:85)(cid:91)(cid:85)(cid:86)(cid:71)(cid:79)(cid:75)(cid:69)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(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: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)(cid:2)(cid:2)(cid:2)(cid:2)(cid:22)(cid:2)(cid:48)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:85)(cid:2)(cid:69)(cid:67)(cid:80)(cid:2)(cid:82)(cid:87)(cid:86)(cid:2)(cid:75)(cid:80)(cid:2)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:2)(cid:67)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:69)(cid:91)(cid:69)(cid:78)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:87)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)(cid:20)(cid:16)(cid:23)(cid:7)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:15)(cid:89)(cid:71)(cid:75)(cid:73)(cid:74)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)
(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:75)(cid:84)(cid:2)(cid:76)(cid:87)(cid:84)(cid:75)(cid:85)(cid:70)(cid:75)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:16)(cid:2)(cid:43)(cid:80)(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:21)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:40)(cid:71)(cid:70)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:37)(cid:81)(cid:87)(cid:80)(cid:69)(cid:75)(cid:78)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:69)(cid:91)(cid:69)(cid:78)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:81)(cid:72)(cid:2)(cid:19)(cid:7)(cid:2)(cid:81)(cid:72)(cid:2)(cid:52)(cid:57)(cid:35)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:79)(cid:81)(cid:84)(cid:86)(cid:73)(cid:67)(cid:73)(cid:71)(cid:2)(cid:78)(cid:81)(cid:67)(cid:80)(cid:85)(cid:2)(cid:81)(cid:80)(cid:2)(cid:84)(cid:71)(cid:85)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:82)(cid:84)(cid:81)(cid:82)(cid:71)(cid:84)(cid:86)(cid:91)(cid:2)(cid:75)(cid:80)(cid:2)(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)(cid:14)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:80)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:67)(cid:78)(cid:78)(cid:2)(cid:18)(cid:16)(cid:19)(cid:7)(cid:2)
(cid:67)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:14)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:75)(cid:85)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:20)(cid:16)(cid:24)(cid:7)(cid:2)(cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:21)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:23)(cid:2)(cid:43)(cid:80)(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:22)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:40)(cid:71)(cid:70)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)(cid:37)(cid:81)(cid:87)(cid:80)(cid:69)(cid:75)(cid:78)(cid:2)(cid:67)(cid:82)(cid:82)(cid:84)(cid:81)(cid:88)(cid:71)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:75)(cid:80)(cid:69)(cid:84)(cid:71)(cid:67)(cid:85)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:69)(cid:91)(cid:69)(cid:78)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:72)(cid:84)(cid:81)(cid:79)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:67)(cid:72)(cid:81)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:75)(cid:81)(cid:80)(cid:71)(cid:70)(cid:2)(cid:19)(cid:7)(cid:2)(cid:86)(cid:81)(cid:2)(cid:20)(cid:7)(cid:16)(cid:2)(cid:54)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:71)(cid:72)(cid:72)(cid:71)(cid:69)(cid:86)(cid:2)(cid:75)(cid:85)(cid:2)(cid:84)(cid:71)(cid:387)(cid:71)(cid:69)(cid:86)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:20)(cid:16)(cid:27)(cid:7)(cid:2)(cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:89)(cid:75)(cid:78)(cid:78)(cid:2)(cid:68)(cid:71)(cid:2)(cid:71)(cid:72)(cid:72)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:21)(cid:18)(cid:2)(cid:44)(cid:87)(cid:80)(cid:71)(cid:2)(cid:20)(cid:18)(cid:19)(cid:22)(cid:16)(cid:2)(cid:37)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:71)(cid:70)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:23)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:20)(cid:18)(cid:19)(cid:27)(cid:2)(cid:70)(cid:81)(cid:2)(cid:80)(cid:81)(cid:86)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:2)(cid:67)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:69)(cid:91)(cid:69)(cid:78)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)
(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:16)
(cid:19)(cid:41)(cid:53)(cid:18)(cid:23)(cid:18)
229
Risk, treasury and capital management Risk, treasury and capital management
Capital management
approval and included estimates (as discussed with our primary
regulator) of the effect of these new capital charges.
Capital requirements
e
t
i
d
u
A
d 1.5%. As of 31 December 2013, we satisfied the base and buf-
fer (including the countercyclical buffer) capital requirements
through our CET1 capital. High- and low-trigger loss-absorbing
capital significantly exceeded the progressive buffer capital re-
quirement.
In Switzerland, all banks must comply with the Basel III capital
framework, as required by the Swiss Capital Ordinance and regu-
lations issued by FINMA. In addition, UBS, Credit Suisse and, since
1 November 2013, Zürcher Kantonalbank are required to comply
with specific Swiss SRB rules.
d
e
t
i
d
u
A
As of 31 December 2013, our total capital requirement was
8.6% of our RWA. This requirement consisted of: (i) base capital
of 3.5%, (ii) buffer capital of 3.6% (including a countercyclical
buffer capital requirement that increased our effective capital
requirement by 0.1%) and (iii) progressive buffer capital of
Capital ratios
As of 31 December 2013, our phase-in CET1 capital ratio was
18.5%, an increase of 3.2 percentage points compared with
15.3% as of 31 December 2012. On a fully applied basis, our
CET1 capital ratio increased 3.0 percentage points to 12.8% dur-
ing the year, exceeding our target ratio of 11.5% for 2013.
The significant improvement in our CET1 capital ratio was
mainly due to a CHF 33.2 billion reduction in RWA, despite incre-
Swiss SRB Basel III available capital versus capital requirements
CHF million, except where indicated
Requirements
Required
ratio (%)
Swiss SRB
Basel III capital
requirements
Phase-in
Actual information
Available Swiss SRB Basel III capital
Actual ratio (%)
Capital type
3.5
3.6
0.1
1.5
8.6
31.12.13
31.12.13
8,000
8,149
149
3,428
19,577
8,000
34,180 1
5,665 2
2,971
50,815
Pro-forma
31.12.12
9,163
30,869 1
4,160 2
5,384
49,576
31.12.13
Pro-forma
31.12.12
3.5
15.0
2.5
1.3
22.2
3.5
11.8
1.6
2.1
18.9
CET1
CET1
LAC
Base capital
Buffer capital
of which: effect of countercyclical buffer
Progressive buffer
Phase-out capital
Total
1 Swiss SRB Basel III CET1 capital exceeding the base capital requirement is allocated to the buffer capital. 2 During the transition period until end of 2017, high-trigger loss-absorbing capital (LAC) can be included in
the progressive buffer.
Swiss SRB Basel III capital information
CHF million, except where indicated
Swiss SRB Basel III tier 1 capital
of which: common equity tier 1 capital
Swiss SRB Basel III tier 2 capital
of which: high-trigger loss-absorbing capital
of which: low-trigger loss-absorbing capital
of which: phase-out capital
Swiss SRB Basel III total capital
Swiss SRB Basel III common equity tier 1 capital ratio (%)
Swiss SRB Basel III tier 1 capital ratio (%)
Swiss SRB Basel III total capital ratio (%)
Swiss SRB Basel III risk-weighted assets
1 Includes additional tier 1 capital in the form of hybrid instruments, which was entirely offset by the required deductions for goodwill.
230
Phase-in
Fully applied
31.12.13
42,179 1
42,179
8,636
955
4,710
2,971
Pro-forma
31.12.12
40,032 1
40,032
9,544
504
3,656
5,384
31.12.13
28,908
28,908
5,665
955
4,710
Pro-forma
31.12.12
25,182
25,182
4,160
504
3,656
50,815
49,576
34,573
29,342
18.5
18.5
22.2
15.3
15.3
18.9
12.8
12.8
15.4
9.8
9.8
11.4
228,557
261,800
225,153
258,113
mental RWA of CHF 22.5 billion resulting from the supplemental
operational risk capital analysis mutually agreed to by UBS and
FINMA. A CHF 2.1 billion increase in our CET1 capital, consistent
with our strategy of high-quality capital accretion, also contribut-
ed to the increase in our CET1 capital ratio.
Our phase-in total capital ratio stood at 22.2% as of 31 De-
cember 2013 compared with 18.9% as of 31 December 2012.
This improvement was primarily due to the aforementioned re-
duction in RWA and the increase in our CET1 capital. Our fully
applied total capital ratio increased 4.0 percentage points to
15.4%.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on the incremental RWA resulting
from the supplemental operational risk capital analysis mutually
agreed to by UBS and FINMA
Swiss SRB capital ratios
In %
18.9
15.3
11.8
10.1
3.8
20.6
16.2
13.5
11.2
3.9
21.8
17.5
14.3
11.9
4.2
d
e
t
i
d
u
A
22.2
18.5
15.4
12.8
4.7
20
18.9
15
15.3
11.4
9.8
3.6
10
5
0
31.12.12
pro-forma
31.3.13
30.6.13
30.9.13
31.12.13
Total capital ratio (phase-in)(cid:31)
Total capital ratio (fully applied)
Swiss SRB leverage ratio
Common equity tier 1 (CET1) capital ratio (phase-in)
Common equity tier 1 (CET1) capital ratio (fully applied)
Eligible capital
d
e
t
i
d
u
A
Common equity tier 1 (CET1) and tier 1 capital
Our CET1 capital mainly comprises share capital, share premium,
which primarily consists of additional paid-in capital related to
shares issued, and retained earnings. A detailed reconciliation of
IFRS equity to CET1 capital is provided in the table “Reconciliation
IFRS equity to Swiss SRB Basel III capital.”
Our phase-in tier 1 capital is equal to our phase-in CET1 capital,
as additional tier 1 capital in the form of hybrid capital instruments
is entirely offset by required deductions for goodwill. These hybrid
tier 1 capital instruments are not eligible as capital under Basel III
and are therefore not included in our fully applied tier 1 capital.
During 2013, phase-in CET1 capital increased by CHF 2.1 billion
to CHF 42.2 billion. This increase was mainly due to the full year net
profit attributable to UBS shareholders of CHF 3.2 billion and the
exercise of our option to acquire the SNB StabFund’s equity, which
resulted in a CHF 2.1 billion increase in capital. These increases
were partly offset by an increased deduction for goodwill as a result
of a reduction in hybrid capital against which this goodwill was
previously offset, adverse foreign currency translation effects and a
number of other required adjustments to regulatory capital.
On a fully applied basis, CET1 capital increased by CHF 3.7 bil-
lion to CHF 28.9 billion, largely due to the same factors that con-
tributed to the increase in phase-in CET1 capital with the main
exception being the effect of the goodwill deduction on phase-in
CET1 capital, which is not relevant for the fully applied CET1 cap-
ital calculation.
A more granular analysis of our 2013 CET1 capital movement
on both a phase-in and fully applied basis is shown in the table
“Swiss SRB Basel III capital movement.”
Tier 2 capital
Low-trigger loss-absorbing capital accounted for CHF 4.7 billion
of tier 2 capital as of 31 December 2013 and consisted of three
US dollar-denominated subordinated notes with a write-down
threshold set at a 5% phase-in CET1 ratio (after giving effect to
the write-down of any high-trigger loss-absorbing capital). Fur-
thermore, our tier 2 capital included high-trigger loss-absorbing
capital of CHF 1.0 billion, in the form of our DCCP, with a write-
down threshold set at a 7% phase-in CET1 ratio or 10% with
respect to awards granted to Group Executive Board members
for the performance year 2013. Additionally, our loss-absorbing
capital instruments would be written down if FINMA determines
that a write-down is necessary to ensure UBS’s viability, or if UBS
receives a commitment of governmental support that FINMA de-
termines to be necessary to ensure UBS’s viability.
The remainder of tier 2 capital consisted of outstanding tier 2
instruments which will be phased out by 2019, based on the most
recent FINMA regulation.
During 2013, our phase-in tier 2 capital decreased by CHF 0.9
billion to CHF 8.6 billion. This decrease was primarily due to the
redemption and amortization of tier 2 capital instruments of CHF
1.3 billion, the repurchase of certain other tier 2 capital instruments
of CHF 1.0 billion in a public tender offer and adverse foreign cur-
rency translation effects, partly offset by an increase of CHF 1.2
billion in low-trigger loss-absorbing capital and CHF 0.5 billion in
high-trigger loss-absorbing capital in the form of our DCCP.
Fully applied tier 2 capital increased by CHF 1.5 billion to CHF
5.7 billion, almost entirely due to the issuance of loss-absorbing
capital.
A more detailed overview of our tier 2 capital instruments eli-
gible as capital on a phase-in basis under Basel III as of 31 Decem-
ber 2013 is provided in the tables later on in this section.
231
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Swiss SRB Basel III capital movement
CHF billion
Common equity tier 1 capital as of 31.12.12
Movements during 2013:
Net profit attributable to UBS shareholders
Exercise of the SNB StabFund option
Own credit related to financial liabilities designated at fair value and replacement values, net of tax
Foreign currency translation effects
Deferred tax assets recognized for tax loss carry-forwards, less deferred tax liabilities, as applicable
Compensation and own shares related capital components (including share premium)
Goodwill net of tax, less hybrid capital, as applicable (including goodwill relating to significant investments in financial institutions)
Defined benefit pension plans
Expected losses on advanced internal ratings-based portfolio less general provisions
Other
Total movement
Common equity tier 1 capital as of 31.12.13
Tier 2 capital as of 31.12.12
Movements during 2013:
Redemption and amortization of phase-out capital instruments
Buyback of phase-out capital instruments
Increase in loss-absorbing capital
Foreign currency translation effects
Total movement
Tier 2 capital as of 31.12.13
Total capital as of 31.12.13
Total capital as of 31.12.12
Phase-in
Fully applied
40.0
25.2
3.2
2.1
0.4
(0.3)
(0.5)
(1.2)
(0.5)
(0.3)
(0.9)
2.1
42.2
9.5
(1.3)
(1.0)
1.7
(0.3)
(0.9)
8.6
50.8
49.6
3.2
2.1
0.4
(0.3)
(0.1)
(0.5)
0.0
(0.3)
(0.9)
3.7
28.9
4.2
1.7
(0.1)
1.5
5.7
34.6
29.3
232
Reconciliation IFRS equity to Swiss SRB Basel III capital
Phase-in
Fully applied
CHF million
Equity attributable to UBS shareholders
Equity attributable to preferred noteholders and non-controlling interests
Total IFRS equity
Reversal of the effect of the adoption of IAS 19R, net of tax
Own credit related to financial liabilities designated at fair value and replacement values, net of tax
Equity attributable to preferred noteholders and non-controlling interests
Goodwill net of tax, less hybrid capital, as applicable (including goodwill relating to
significant investments in financial institutions)
Intangible assets, net of tax
Fair value of the call option to acquire SNB StabFund’s equity, pre-tax
Unrealized (gains) / losses from cash flow hedges, net of tax
Deferred tax assets recognized for tax loss carry-forwards, less deferred tax liabilities, as applicable
Compensation and own shares related capital components (not recognized in net profit)
Net defined benefit pension and post-employment assets (IAS 19R), pre-tax
Unrealized gains related to financial investments available-for-sale, net of tax
Expected losses on advanced internal ratings-based portfolio less general provisions
Prudential valuation adjustments
Consolidation scope
National specific regulatory adjustments and other 1
Swiss SRB Basel III common equity tier 1 capital
Hybrid capital
Goodwill net of tax, less hybrid capital, as applicable (including goodwill relating to
significant investments in financial institutions)
Swiss SRB Basel III additional tier 1 capital
Swiss SRB Basel III tier 1 capital
Swiss SRB Basel III tier 2 capital
Swiss SRB Basel III total capital
Audited
31.12.13
Pro-forma
31.12.12
48,002
1,935
49,936
2,540
304
(1,935)
(3,044)
(435)
(1,463)
(1,430)
(325)
(304)
(107)
(55)
(1,502)
42,179
3,113
(3,113)
0
42,179
8,636
50,815
45,949
3,152
49,100
3,948
(142)
(3,152)
(1,949)
(501)
(2,103)
(2,983)
(495)
(183)
(43)
(136)
(65)
(1,264)
40,032
4,316
(4,316)
0
40,032
9,544
49,576
1 Includes an accrual for the proposed distribution of capital contribution reserves, a charge for the increase in high-trigger loss-absorbing capital and other items.
Audited
31.12.13
48,002
1,935
49,936
Pro-forma
31.12.12
45,949
3,152
49,100
304
(1,935)
(6,157)
(435)
(1,463)
(6,665)
(1,430)
(952)
(325)
(304)
(107)
(55)
(1,502)
28,908
28,908
5,665
34,573
(142)
(3,152)
(6,265)
(501)
(2,103)
(2,983)
(6,586)
(495)
0
(183)
(43)
(136)
(65)
(1,264)
25,182
25,182
4,160
29,342
233
Risk, treasury and capital management Risk, treasury and capital management
Capital management
High-trigger loss-absorbing capital
million, except where indicated
No.
1
2
Issuer
UBS AG
UBS AG
Total high-trigger loss-absorbing capital
Date
31.12.2012
31.12.2013
Outstanding
amount as of
31.12.13
CHF 458
CHF 497
Low-trigger loss-absorbing capital
million, except where indicated
No.
Issuer
UBS AG, Jersey branch
UBS AG, Stamford branch
Issue date
22.02.2012
17.08.2012
Outstanding
amount as of
31.12.13
USD 2,000
USD 2,000
UBS AG
22.05.2013
USD 1,500
Amount
recognized in
regulatory
capital as of
31.12.2013
CHF 458
CHF 497
CHF 955
Amount
recognized in
regulatory
capital as of
31.12.2013
CHF 1,783
CHF 1,629
CHF 1,298
CHF 4,710
Coupon rate and frequency of payment
Issues in CHF: 5.40%, issues in USD: 6.25%, annually
Issues in CHF: 3.50%, issues in USD: 5.125%, annually
Coupon rate and frequency of payment
7.25% / 6.061% + Mid Market Swap Rate
from 22 February 2017, annually
7.625%, semi-annually
Optional
call date
22.02.2017
4.75% / 3.765% + Mid Market Swap Rate
from 22 May 2018, annually
22.05.2018
Issue date
21.07.1995
21.07.1995
24.10.1995
03.09.1996
20.06.1997
18.12.1995
16.09.2004
30.06.2005
USD 350
USD 150
USD 300
USD 300
USD 300
GBP 150
EUR 381
CHF 488
Outstanding
amount as of
31.12.13
Amount
recognized in
regulatory
capital as of
31.12.2013
Coupon rate and frequency of payment
Optional
call date
CHF 315
7.5%, semi-annually
CHF 27
CHF 54
CHF 271
CHF 161
CHF 221
CHF 468
CHF 97
CHF 369
CHF 348
7.375%, semi-annually
7%, semi-annually
7.75%, semi-annually
7.375%, semi-annually
8.75%, annually
4.5% / 3-month EURIBOR + 1.26%,
annually / quarterly
2.375%, annually
5.25% / 3-month Sterling LIBOR + 1.29%,
annually / quarterly
6.375% / 3-month Sterling LIBOR + 2.10%,
annually / quarterly
5.875%, semi-annually
16.09.2014
21.06.2016
19.11.2019
UBS AG, Jersey branch
21.06 2006
GBP 163
CHF 236
UBS AG, Jersey branch
UBS AG, Stamford branch
UBS AG
UBS AG
UBS AG
19.11.2007
26.07.2006
30.06.2004
28.06.2006
27.12.2007
GBP 250
USD 1,000
CHF 400
CHF 434
CHF 385
CHF 0
3.125%, annually
CHF 174
CHF 231
CHF 2,971
3.125%, annually
4.125%, annually
Total low-trigger loss-absorbing capital
Phase-out capital
million, except where indicated
No.
Issuer
UBS AG, NY branch
UBS AG, NY branch
UBS AG, NY branch
UBS AG, NY branch
UBS AG, NY branch
UBS AG, Jersey branch
UBS AG, Jersey branch
UBS AG, Jersey branch
1
2
3
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Total phase-out capital
234
Additional capital information
In order to improve the consistency and comparability of regula-
tory capital instruments disclosures across market participants, BIS
and FINMA Basel III Pillar 3 rules require banks to disclose the main
features of eligible capital instruments and their terms and condi-
tions. This information is available in the “Bondholder informa-
tion” section of our Investor Relations website.
➔ Refer to “Bondholder information” at www.ubs.com/investors
for more information on the capital instruments of UBS Group
and UBS AG (Parent Bank)
In order to fulfill BIS and FINMA Basel III Pillar 3 composition of
capital disclosure requirements, a full reconciliation of all regula-
tory capital elements to the published IFRS balance sheet is dis-
closed in the “Supplemental disclosures required under Basel III
Pillar 3 regulations” section of this report.
➔ Refer to the “Supplemental disclosures required under Basel III
Pillar 3 regulations” section of this report for more information
BIS and Swiss SRB Basel III rules require banks to disclose differ-
ences between the accounting scope of consolidation and the
regulatory scope of consolidation.
The scope of consolidation for the purpose of calculating
Group regulatory capital is generally the same as the scope under
IFRS and includes subsidiaries directly or indirectly controlled by
UBS AG that are active in the banking and finance sector. How-
ever, subsidiaries consolidated under IFRS that are active in sectors
other than banking and finance are excluded from the regulatory
scope of consolidation. More information on the IFRS scope of
consolidation as well as the list of significant subsidiaries included
in this scope as of 31 December 2013 are available in the “Finan-
cial information” section of this report. Details on entities which
are treated differently under the regulatory scope of consolidation
are available in the “Supplemental disclosures required under
Basel III Pillar 3 regulations” section of this report.
➔ Refer to “Note 1 Summary of significant accounting policies,”
“Note 30 Interests in subsidiaries and other entities” and “Supple-
mental disclosures required under Basel III Pillar 3 regula tions”
in the “Financial information” section of this report for more
information on the IFRS scope of consolidation
We have estimated the loss in capital that we could incur as a
result of the risks associated with the matters described in
“Note 22 Provisions and contingent liabilities” to our consolidat-
ed financial statements. We have utilized for this purpose the ad-
vanced measurement approach (AMA) methodology that we use
when determining the capital requirements associated with op-
erational risks, based on a 99.9% confidence level over a
12-month horizon. The methodology takes into consideration
UBS and industry experience for the AMA operational risk catego-
ries to which those matters correspond in isolation from other
areas. On this standalone basis, we estimate the loss in capital
that we could incur over a 12-month period as a result of our risks
associated with these operational risk categories at CHF 2.7 bil-
lion as of 31 December 2013. Because this estimate is based upon
historical data for the relevant risk categories, it does not consti-
tute a subjective assessment of UBS’s actual exposures in those
matters and does not take into account any provisions recognized
for those matters. For this reason, and because some of these
matters are not expected to be resolved within the next 12
months, any possible losses that we may incur with respect to
these matters may be materially more or materially less than this
estimated amount.
➔ Refer to “Note 22 Provisions and contingent liabilities” in the
“Financial information” section of this report for more information
Differences between Swiss SRB and BIS Basel III capital
Our Swiss SRB Basel III and BIS Basel III capital have the same basis
of calculation, on both a phase-in and fully applied basis, except
for two specific items. Firstly, our DCCP instruments, representing
high-trigger loss-absorbing capital, are amortized over five years
under BIS Basel III, but are not amortized under Swiss SRB regula-
tions, resulting in Swiss SRB Basel III tier 2 capital being higher by
CHF 92 million as of 31 December 2013. Secondly, a portion of
unrealized gains on financial investments available-for-sale, total-
ing CHF 30 million as of 31 December 2013, is recognized as
tier 2 capital under BIS Basel III, but not under Swiss SRB regula-
tions.
235
Risk, treasury and capital management Risk, treasury and capital management
Capital management
(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:36)(cid:43)(cid:53)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:124)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)
(cid:36)(cid:43)(cid:53)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)
(cid:20)(cid:18)(cid:19)(cid:21)(cid:2)(cid:10)(cid:82)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)(cid:11)
(cid:20)(cid:18)(cid:19)(cid:27)(cid:2)(cid:10)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)(cid:11)
(cid:20)(cid:18)(cid:19)(cid:21)(cid:2)(cid:10)(cid:82)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)(cid:11)(cid:2)
(cid:20)(cid:18)(cid:19)(cid:27)(cid:2)(cid:10)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)(cid:11)
(cid:50)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:24)(cid:16)(cid:18)(cid:7)(cid:2)(cid:46)(cid:81)(cid:89)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:14)(cid:2)(cid:20)(cid:2)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:21)(cid:16)(cid:18)(cid:7)(cid:2)(cid:42)(cid:75)(cid:73)(cid:74)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:14)(cid:2)(cid:21)
(cid:24)(cid:16)(cid:18)(cid:7) (cid:2)(cid:53)(cid:91)(cid:85)(cid:86)(cid:71)(cid:79)(cid:75)(cid:69)
(cid:85)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:84)(cid:73)(cid:71)
(cid:50)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:19)(cid:16)(cid:23)(cid:7)(cid:2)(cid:46)(cid:81)(cid:89)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:2)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)(cid:2)(cid:19)(cid:16)(cid:18)(cid:7)(cid:2)(cid:42)(cid:75)(cid:73)(cid:74)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(cid:2)(cid:46)(cid:35)(cid:37)(cid:19)(cid:14)(cid:21)
(cid:26)(cid:16)(cid:24)(cid:7)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:20)(cid:16)(cid:24)(cid:7)(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:23)
(cid:36)(cid:67)(cid:85)(cid:71)(cid:28)
(cid:21)(cid:16)(cid:23)(cid:7)(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:19)(cid:27)(cid:16)(cid:18)(cid:7)
(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:21)(cid:16)(cid:18)(cid:7)(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:23)(cid:2)
(cid:26)(cid:16)(cid:23)(cid:7)(cid:2)(cid:36)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)
(cid:37)(cid:81)(cid:80)(cid:85)(cid:71)(cid:84)(cid:88)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:20)(cid:16)(cid:23)(cid:7)(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:36)(cid:67)(cid:85)(cid:71)(cid:28)
(cid:22)(cid:16)(cid:23)(cid:7)(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:22)(cid:16)(cid:23)(cid:7)
(cid:35)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:86)(cid:75)(cid:71)(cid:84)(cid:2)(cid:19)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:75)(cid:71)(cid:84)(cid:2)(cid:20)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:22)(cid:16)(cid:23)(cid:7)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)
(cid:26)(cid:16)(cid:18)(cid:7)(cid:23)
(cid:36)(cid:67)(cid:85)(cid:71)(cid:28)
(cid:21)(cid:16)(cid:23)(cid:7)(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:21)(cid:16)(cid:23)(cid:7)
(cid:35)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:86)(cid:75)(cid:71)(cid:84)(cid:2)(cid:19)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:75)(cid:71)(cid:84)(cid:2)(cid:20)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)
(cid:41)(cid:15)(cid:53)(cid:43)(cid:36)(cid:2)(cid:85)(cid:87)(cid:84)(cid:69)(cid:74)(cid:67)(cid:84)(cid:73)(cid:71)(cid:28)
(cid:19)(cid:16)(cid:23)(cid:7)(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:22)
(cid:19)(cid:20)(cid:16)(cid:18)(cid:7)(cid:23)
(cid:37)(cid:81)(cid:80)(cid:85)(cid:71)(cid:84)(cid:88)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:28)
(cid:20)(cid:16)(cid:23)(cid:7)(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:36)(cid:67)(cid:85)(cid:71)(cid:28)
(cid:22)(cid:16)(cid:23)(cid:7)(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:19)(cid:2)(cid:46)(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:16)(cid:2)(cid:42)(cid:75)(cid:73)(cid:74)(cid:15)(cid:86)(cid:84)(cid:75)(cid:73)(cid:73)(cid:71)(cid:84)(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:2)(cid:83)(cid:87)(cid:67)(cid:78)(cid:75)(cid:386)(cid:71)(cid:85)(cid:2)(cid:67)(cid:85)(cid:2)(cid:82)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:87)(cid:80)(cid:86)(cid:75)(cid:78)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:20)(cid:18)(cid:19)(cid:25)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:2)(cid:57)(cid:71)(cid:2)(cid:71)(cid:90)(cid:82)(cid:71)(cid:69)(cid:86)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:27)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:24)(cid:16)(cid:18)(cid:7)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:67)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:70)(cid:2)(cid:68)(cid:67)(cid:85)(cid:75)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:72)(cid:67)(cid:78)(cid:78)(cid:2)
(cid:86)(cid:81)(cid:2)(cid:22)(cid:16)(cid:23)(cid:7)(cid:2)(cid:70)(cid:87)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)(cid:82)(cid:78)(cid:67)(cid:80)(cid:80)(cid:71)(cid:70)(cid:2)(cid:68)(cid:67)(cid:78)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:85)(cid:74)(cid:71)(cid:71)(cid:86)(cid:2)(cid:84)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(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:67)(cid:69)(cid:69)(cid:71)(cid:78)(cid:71)(cid:84)(cid:67)(cid:86)(cid:71)(cid:70)(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:81)(cid:87)(cid:84)(cid:2)(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:91)(cid:2)(cid:67)(cid:80)(cid:80)(cid:81)(cid:87)(cid:80)(cid:69)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(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)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:84)(cid:71)(cid:70)(cid:87)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(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:16)(cid:2)(cid:53)(cid:91)(cid:85)(cid:86)(cid:71)(cid:79)(cid:75)(cid:69)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(cid:84)(cid:71)(cid:78)(cid:71)(cid:88)(cid:67)(cid:80)(cid:86)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)(cid:2)(cid:10)(cid:53)(cid:52)(cid:36)(cid:11)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)
(cid:71)(cid:78)(cid:75)(cid:73)(cid:75)(cid:68)(cid:78)(cid:71)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:67)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:68)(cid:67)(cid:86)(cid:71)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:84)(cid:81)(cid:73)(cid:84)(cid:71)(cid:85)(cid:85)(cid:75)(cid:88)(cid:71)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:75)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:91)(cid:2)(cid:86)(cid:67)(cid:77)(cid:71)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:72)(cid:67)(cid:69)(cid:75)(cid:78)(cid:75)(cid:86)(cid:67)(cid:86)(cid:71)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:88)(cid:71)(cid:84)(cid:91)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:85)(cid:81)(cid:78)(cid:88)(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:68)(cid:71)(cid:91)(cid:81)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:79)(cid:75)(cid:80)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:71)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:73)(cid:84)(cid:75)(cid:86)(cid:91)(cid:2)(cid:81)(cid:72)(cid:2)(cid:85)(cid:91)(cid:85)(cid:86)(cid:71)(cid:79)(cid:75)(cid:69)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(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:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(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)(cid:2)(cid:2)(cid:2)(cid:2)(cid:22)(cid:2)(cid:35)(cid:82)(cid:82)(cid:78)(cid:75)(cid:71)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:55)(cid:36)(cid:53)(cid:2)(cid:67)(cid:85)(cid:2)(cid:81)(cid:80)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:73)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:85)(cid:91)(cid:85)(cid:86)(cid:71)(cid:79)(cid:75)(cid:69)(cid:67)(cid:78)(cid:78)(cid:91)(cid:2)(cid:75)(cid:79)(cid:82)(cid:81)(cid:84)(cid:86)(cid:67)(cid:80)(cid:86)(cid:2)(cid:68)(cid:67)(cid:80)(cid:77)(cid:85)(cid:2)(cid:10)(cid:41)(cid:15)(cid:53)(cid:43)(cid:36)(cid:11)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:89)(cid:75)(cid:78)(cid:78)(cid:2)(cid:68)(cid:71)(cid:2)(cid:82)(cid:74)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:68)(cid:71)(cid:86)(cid:89)(cid:71)(cid:71)(cid:80)(cid:2)(cid:20)(cid:18)(cid:19)(cid:24)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:20)(cid:18)(cid:19)(cid:26)(cid:14)(cid:2)(cid:68)(cid:71)(cid:69)(cid:81)(cid:79)(cid:75)(cid:80)(cid:73)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)
(cid:71)(cid:72)(cid:72)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:81)(cid:80)(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:27)(cid:16)(cid:2)(cid:2)(cid:2)(cid:2)(cid:23)(cid:2)(cid:48)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:85)(cid:2)(cid:69)(cid:67)(cid:80)(cid:2)(cid:82)(cid:87)(cid:86)(cid:2)(cid:75)(cid:80)(cid:2)(cid:82)(cid:78)(cid:67)(cid:69)(cid:71)(cid:2)(cid:67)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:69)(cid:91)(cid:69)(cid:78)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:87)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)(cid:20)(cid:16)(cid:23)(cid:7)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:15)(cid:89)(cid:71)(cid:75)(cid:73)(cid:74)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:75)(cid:84)(cid:2)(cid:76)(cid:87)(cid:84)(cid:75)(cid:85)(cid:70)(cid:75)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:16)(cid:2)(cid:43)(cid:80)(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:21)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:40)(cid:71)(cid:70)(cid:71)(cid:84)(cid:67)(cid:78)(cid:2)
(cid:37)(cid:81)(cid:87)(cid:80)(cid:69)(cid:75)(cid:78)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:88)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:69)(cid:91)(cid:69)(cid:78)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:81)(cid:72)(cid:2)(cid:19)(cid:7)(cid:2)(cid:81)(cid:72)(cid:2)(cid:52)(cid:57)(cid:35)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:79)(cid:81)(cid:84)(cid:86)(cid:73)(cid:67)(cid:73)(cid:71)(cid:2)(cid:78)(cid:81)(cid:67)(cid:80)(cid:85)(cid:2)(cid:81)(cid:80)(cid:2)(cid:84)(cid:71)(cid:85)(cid:75)(cid:70)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:78)(cid:2)(cid:82)(cid:84)(cid:81)(cid:82)(cid:71)(cid:84)(cid:86)(cid:91)(cid:2)(cid:75)(cid:80)(cid:2)(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)(cid:14)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:80)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:67)(cid:78)(cid:78)(cid:2)(cid:18)(cid:16)(cid:19)(cid:7)(cid:2)(cid:67)(cid:70)(cid:70)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:14)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:75)(cid:85)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:20)(cid:16)(cid:24)(cid:7)(cid:2)(cid:37)(cid:39)(cid:54)(cid:19)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)
(cid:69)(cid:67)(cid:82)(cid:75)(cid:86)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:21)(cid:16)(cid:2)(cid:36)(cid:43)(cid:53)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:21)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:20)(cid:18)(cid:19)(cid:27)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(cid:2)(cid:36)(cid:67)(cid:85)(cid:71)(cid:78)(cid:2)(cid:43)(cid:43)(cid:43)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:20)(cid:18)(cid:19)(cid:27)(cid:2)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:75)(cid:85)(cid:2)(cid:73)(cid:84)(cid:67)(cid:82)(cid:74)(cid:2)(cid:70)(cid:81)(cid:2)(cid:80)(cid:81)(cid:86)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:87)(cid:70)(cid:71)(cid:2)(cid:67)(cid:2)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:71)(cid:84)(cid:69)(cid:91)(cid:69)(cid:78)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:68)(cid:87)(cid:72)(cid:72)(cid:71)(cid:84)(cid:2)(cid:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:16)(cid:2)
(cid:19)(cid:41)(cid:53)(cid:18)(cid:23)(cid:18)
Differences between Swiss SRB and BIS Basel III capital information
Phase-in
Fully applied
Swiss SRB
Differences Swiss
SRB versus BIS
BIS
Swiss SRB
Differences Swiss
SRB versus BIS
BIS
CHF million, except where indicated
Tier 1 capital
of which: common equity tier 1 capital
Tier 2 capital
of which: high-trigger loss-absorbing capital
of which: low-trigger loss-absorbing capital
of which: phase-out capital and other tier 2 capital
Total capital
Common equity tier 1 capital ratio (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Basel III risk-weighted assets
42,179
42,179
8,636
955
4,710
2,971
50,815
18.5
18.5
22.2
31.12.13
42,179
42,179
8,575
863
4,710
3,001
50,754
18.5
18.5
22.2
228,557
228,557
0
0
61
92
0
(30)
61
0.0
0.0
0.0
0
28,908
28,908
5,665
955
4,710
34,573
12.8
12.8
15.4
31.12.13
28,908
28,908
5,604
863
4,710
30
34,512
12.8
12.8
15.3
225,153
225,153
0
0
61
92
0
(30)
61
0.0
0.0
0.0
0
236
Risk-weighted assets
Our risk-weighted assets (RWA) under BIS Basel III are the same as
under Swiss SRB Basel III. RWA on a fully applied basis are the
same as on a phase-in basis, except for differences related to the
adoption of IAS 19 (revised) Employee Benefits, which are phased
in between 2014 and 2018. On a fully applied basis, net defined
benefit assets / liabilities are determined in accordance with IAS 19
(revised), and any net defined benefit asset that is recognized is
deducted from common equity tier 1 capital rather than being
risk-weighted. On a phase-in basis, defined benefit-related as-
sets / liabilities are determined in accordance with the previous IAS
19 requirements (“corridor method”), and any defined benefit-
related asset that is recognized is risk-weighted at 100%. As a re-
sult, our phase-in RWA as of 31 December 2013 were CHF 3.4
billion higher than our fully applied RWA.
Phase-in RWA decreased by CHF 33.2 billion to CHF 228.6 bil-
lion in 2013 and fully applied RWA by CHF 32.9 billion to CHF
225.2 billion. These decreases were both mainly due to a CHF 41
billion reduction in credit risk RWA and a CHF 17 billion reduction
in market risk RWA, partly offset by a CHF 25 billion increase in
operational risk RWA, primarily due to the aforementioned supple-
mental operational risk capital analysis.
In accordance with our strategy to focus on sustainable, less
capital-intensive business activities and due to our active portfolio
management and risk-mitigation activities, RWA both in the In-
vestment Bank and in Corporate Center – Non-core and Legacy
Portfolio were substantially reduced during 2013.
The tables “Basel III RWA by risk type, exposure and reporting
segment” and “Basel III RWA movement by key driver, risk type
and reporting segment” on the following pages provide more
granular disclosures of RWA movements by reporting segment.
➔ Refer to “Investment Bank” and “Corporate Center” in the
“Financial and operating performance” section and to the
“Risk management and control” section of this report for
more information on RWA developments
➔ Refer to “Table 2: Detailed segmentation of Basel III exposures
and risk- weighted assets” in the “Supplemental disclosures
required under Basel III Pillar 3 regulations” section of this report
for more information on gross and net exposure at default by
exposure segment
Phase-in Basel III risk-weighted assets
CHF billion
300
240
180
120
60
0
262
53
27
12
170
262
54
24
13
171
243
55
21
13
154
222
55
16
13
138
229
23
78
14
13
124
31.12.12
pro-forma
31.3.13
30.6.13
30.9.13
31.12.13
Credit risk
Non-counterparty-related risk
Market risk
Operational risk
of which incremental RWA resulting from the supplemental operational risk capital analysis
mutually agreed to by UBS and FINMA
The following changes in our RWA calculations are expected to
add approximately CHF 3 billion to our RWA in the first quarter of
2014: (i) a further reduction of the difference in the RWA calcula-
tion for Swiss residential mortgages between the advanced inter-
nal ratings-based (IRB) and the standardized approaches as a result
of the FINMA requirement to apply a bank-specific multiplier for
banks using the internal ratings-based approach (this difference
will be reduced annually until 2019) and (ii) net long and net short
securitization positions in the trading book requiring separate
underpinning, (rather than the higher of net long or net short po-
sitions underpinned during the transitional phase until 31 Decem-
ber 2013).
237
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Basel III RWA by risk type, exposure and reporting segment
CHF billion
Credit risk
Advanced IRB approach
Sovereigns
Banks
Corporates 3
Retail
Other 4
Standardized approach
Sovereigns
Banks
Corporates
Central counterparties
Retail
Other 4
Non-counterparty-related risk
Market risk
Value-at-risk (VaR)
Stressed value-at-risk (SVaR)
Add-on for risks-not-in-VaR
Incremental risk charge (IRC)
Comprehensive risk measure (CRM)
Securitization / re-securitization in the trading book
Operational risk
of which: incremental RWA 6
Total Basel III RWA phase-in
Phase-out items
Total Basel III RWA fully applied
31.12.13
Wealth
Manage-
ment
Americas
Retail &
Corporate
Global
Asset
Manage-
ment
Invest-
ment
Bank
CC – Core
Functions
CC – Non-
core and
Legacy
Portfolio
8
2
0
0
0
2
0
6
0
1
3
0
2
0
0
2
0
1
0
0
0
0
15
4
24
0
24
30
27
0
1
14
10
1
3
0
0
2
0
0
0
0
0
0
0
0
0
0
0
1
0
31
2
30
3
1
0
0
0
0
1
1
0
0
1
0
0
0
0
0
0
0
0
0
0
0
1
0
4
0
4
36
29
0
7
18
0
3
7
0
0
2
1
0
4
0
8
2
3
1
2
0
0
19
6
63
0
62
5
4
0
1
2
0
0
1
0
0
2
1
0
(2)
12
(5) 5
(1)
(2)
0
(1)
0
0
9
3
21
1
21
31
25
0
2
6
0
17
6
0
0
2
0
0
4
0
9
1
2
1
0
4
2
23
7
64
0
64
Wealth
Manage-
ment
12
8
0
0
0
7
1
4
0
0
2
0
2
0
0
0
0
0
0
0
0
0
9
3
21
0
21
Total
capital
require-
ment 1
11
8
0
1
3
2
2
2
0
0
1
0
0
0
1
1
0
0
0
0
0
0
7
2
20
Total
RWA
124 2
97
1
12
41
20
24
27
0
2
14
2
3
6
13
14 2
2
3
2
1
4
2
78
23
229
3
225
1 Calculated based on our Swiss SRB Basel III total capital requirement of 8.6% of RWA. 2 In line with Basel III Pillar 1 requirements, RWA related to securitization / re-securitization in the trading book are newly pre-
sented as market risk RWA. Previously, these RWA were presented as credit risk RWA. Prior periods were restated for this change in presentation. 3 Includes stressed expected positive exposures across all exposure
classes. 4 Includes securitization / re-securitization exposures in the banking book, equity exposures in the banking book according to the simple risk weight method, credit valuation adjustments, settlement risk and
business transfers. 5 Corporate Center – Core Functions market risk RWA were negative as this included the effect of portfolio diversification across businesses. 6 Reflects the effect of the supplemental operational
risk capital analysis mutually agreed to by UBS and FINMA.
RWA movement by risk type, exposure and
reporting segment
Credit risk
Phase-in credit risk RWA amounted to CHF 124 billion as of
31 December 2013 compared with CHF 166 billion as of 31 De-
cember 2012.
This decrease was mainly due to a CHF 24 billion reduction
related to Other exposure segments. This was primarily driven by
a reduction in RWA for advanced and standardized credit valua-
tion adjustments (CVA) of CHF 18 billion, mainly due to benefits
from economic CVA hedges, ratings migration, reduced expo-
sures and market-driven reductions in Corporate Center – Non
core and Legacy Portfolio and to a lesser extent in the Invest-
ment Bank. Furthermore, a decline of CHF 6 billion was realized
due to the sale of securitization exposures in Corporate Center
– Legacy Portfolio.
Credit risk RWA for exposures to corporates decreased by CHF
10 billion, primarily due to a reduction in drawn loans, undrawn
loan commitments and derivative exposures in Wealth Manage-
ment Americas, Investment Bank and Corporate Center – Non-
core and Legacy Portfolio.
Credit risk RWA for exposures to banks declined by CHF 6 bil-
lion, mainly due to lower derivative exposures in the Investment
Bank and Corporate Center – Non-core and Legacy Portfolio.
238
Basel III RWA by risk type, exposure and reporting segment (continued)
CHF billion
Credit risk
Advanced IRB approach
Sovereigns
Banks
Corporates 3
Retail
Other 4
Standardized approach
Sovereigns
Banks
Corporates
Central counterparties
Retail
Other 4
Non-counterparty-related risk
Market risk
Value-at-risk (VaR)
Stressed value-at-risk (SVaR)
Add-on for risks-not-in-VaR 6
Incremental risk charge (IRC)
Comprehensive risk measure (CRM)
Securitization / re-securitization in the trading book
Operational risk
Total Basel III RWA phase-in
Phase-out items
Total Basel III RWA fully applied
31.12.12 (pro-forma)
Wealth
Manage-
ment
Americas
Retail &
Corporate
Global
Asset
Manage-
ment
Invest-
ment
Bank
CC – Core
Functions
CC – Non-
core and
Legacy
Portfolio
9
2
0
0
0
2
0
7
0
1
4
0
2
0
0
2
1
1
0
0
0
0
13
24
0
23
31
28
0
1
15
11
1
2
0
0
2
0
0
0
0
0
0
0
0
0
0
0
1
32
2
30
3
2
0
0
0
0
2
1
0
0
1
0
0
0
0
0
0
0
0
0
0
0
1
4
0
4
42
36
0
10
21
0
5
6
0
0
1
1
0
4
0
7
1
2
2
1
0
0
16
65
1
64
6
4
0
1
2
0
1
2
0
0
1
1
0
0
12
(2) 5
(2)
(3)
0
2
0
0
1
17
1
16
64
54
1
5
11
0
36
10
0
0
4
1
0
5
0
25
3
5
2
2
9
4
14
103
0
103
Wealth
Manage-
ment
11
8
0
1
0
6
1
3
0
0
2
0
1
0
0
0
0
0
0
0
0
0
7
19
0
18
Total
capital
require-
ment 1
13
11
Total
RWA
166 2
133
0
1
4
2
4
3
0
0
1
0
0
1
1
2
0
0
0
0
1
0
4
21
2
18
50
19
44
33
0
2
15
2
3
10
12
31 2
4
6
3
5
9
4 2
53
262
4
258
1 Calculated based on our Swiss SRB Basel III total capital requirement of 8.0% of RWA. 2 In line with Basel III Pillar 1 requirements, RWA related to securitization / re-securitization in the trading book are newly pre-
sented as market risk RWA. Previously, these RWA were presented as credit risk RWA. Prior periods were restated for this change in presentation. 3 Includes stressed expected positive exposures across all exposure
classes. 4 Includes securitization / re-securitization exposures in the banking book, equity exposures in the banking book according to the simple risk weight method, credit valuation adjustments, settlement risk and
business transfers. 5 Corporate Center – Core Functions market risk RWA were negative as this included the effect of portfolio diversification across businesses. 6 RWA related to risks-not-in-VaR are presented on a
Basel 2.5 basis.
Non-counterparty-related risk
Phase-in non-counterparty-related risk RWA amounted to CHF 13
billion as of 31 December 2013 compared with CHF 12 billion as
of 31 December 2012.
stressed VaR and risks-not-in-VaR, respectively. From a reporting
segment perspective, the aforementioned decrease in market risk
RWA was almost entirely recorded in Corporate Center – Non-
core and Legacy Portfolio.
Market risk
Phase-in market risk RWA amounted to CHF 14 billion as of
31 December 2013 compared with CHF 31 billion as of 31 De-
cember 2012. This decline was due to a CHF 5 billion decrease in
the comprehensive risk measure, a decline of CHF 4 billion in the
incremental risk charge and reductions of CHF 2 billion, CHF 3
billion and CHF 1 billion in RWA related to value-at-risk (VaR),
239
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Basel III RWA by risk type, exposure and reporting segment (continued)
31.12.13 vs 31.12.12 (pro-forma)
CHF billion
Credit risk
Advanced IRB approach
Sovereigns
Banks
Corporates
Retail
Other
Standardized approach
Sovereigns
Banks
Corporates
Central counterparties
Retail
Other
Non-counterparty-related risk
Market risk
Value-at-risk (VaR)
Stressed value-at-risk (SVaR)
Add-on for risks-not-in-VaR
Incremental risk charge (IRC)
Comprehensive risk measure (CRM)
Securitization / re-securitization in the trading book
Operational risk
Total Basel III RWA phase-in
Phase-out items
Total Basel III RWA fully applied
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
1
1
0
0
0
1
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2
3
0
3
(1)
1
0
0
0
1
0
(2)
0
0
(1)
0
0
0
0
0
0
0
0
0
0
0
2
1
0
1
Global
Asset
Manage-
ment
Invest-
ment
Bank
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(7)
(7)
0
(3)
(4)
0
(1)
0
0
0
1
0
0
(1)
0
1
0
0
0
1
0
0
4
(2)
0
(2)
CC – Non-
core and
Legacy
Portfolio
Total
capital
require-
ment
Total
RWA
(32)
(28)
(1)
(4)
(5)
0
(18)
(4)
0
0
(2)
(1)
0
(2)
0
(41)
(35)
(1)
(6)
(9)
1
(20)
(6)
0
0
(1)
0
0
(4)
0
(3)
(2)
0
0
0
0
(1)
0
0
0
0
0
0
0
0
(15)
(17)
(1)
(2)
(4)
(1)
(2)
(5)
(2)
9
(39)
0
(39)
(2)
(3)
(1)
(4)
(5)
(2)
25
(33)
0
(33)
0
0
0
0
0
0
2
(1)
CC – Core
Functions
(1)
0
0
0
0
0
0
(1)
0
0
1
0
0
(2)
1
(3)
0
1
0
(4)
0
0
8
5
0
5
Retail &
Corporate
(1)
(1)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Operational risk
Phase-in operational risk RWA amounted to CHF 78 billion as of
31 December 2013, an increase of CHF 25 billion compared with
31 December 2012, primarily due to incremental RWA of CHF
22.5 billion resulting from the supplemental operational risk capi-
tal analysis mutually agreed to by UBS and FINMA.
During the fourth quarter of 2013 and January of 2014, UBS and
FINMA reviewed the temporary operational risk-related RWA add-on
that became effective on 1 October 2013. Following a review of the
advanced measurement approach (AMA) model, the litigation expo-
sures and contingent liabilities of UBS, provisioning movements and
methodologies, and progress on managing other operational risks,
UBS and FINMA mutually agreed that, effective on 31 December
2013, a supplemental analysis will be used to calculate the incre-
mental operational risk capital required to be held for litigation,
regulatory and similar matters and other contingent liabilities. The
incremental CHF 22.5 billion operational risk-related RWA was allo-
cated to the business divisions and Corporate Center proportionally
to the amount of allocated operational risk-related RWA excluding
the incremental RWA as of 31 December 2013. The allocation meth-
odology for operational risk-related RWA excluding the incremental
RWA is based on the cumulative operational risk-related loss history
of the business divisions and Corporate Center – Non-core and Leg-
acy Portfolio.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on the incremental RWA resulting
from the supplemental operational risk capital analysis mutually
agreed to by UBS and FINMA
240
Basel III RWA movement by key driver, risk type and reporting segment
CHF billion
Total RWA balance as of 31.12.12 (pro-forma)
Credit risk RWA movement during 2013:
Methodology changes and model parameter updates
Acquisitions and disposals of business operations
Book quality
Book size
Foreign currency translation effects
Non-counterparty-related risk RWA movement
during the year 2013:
Exposure movements
Foreign currency translation effects
Market risk RWA movement during 2013:
Methodology changes
Model parameter updates
Regulatory add-ons
Movement in risk levels
Operational risk RWA movement during 2013:
Incremental RWA
Other model parameter updates
Total movement
Total RWA balance as of 31.12.13 (phase-in)
Wealth
Management
19
1
1
0
0
1
0
0
0
0
0
0
0
0
0
2
3
(1)
3
21
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
CC – Core
Functions
CC – Non-
core
and Legacy
Portfolio
Group
24
(1)
0
0
0
(1)
0
0
0
0
0
0
0
0
0
2
4
(2)
1
24
32
(1)
0
0
0
(1)
0
0
0
0
0
0
0
0
0
0
1
0
0
31
4
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4
65
(7)
(3)
0
1
(4)
(1)
0
0
0
1
0
0
0
1
4
6
(2)
(2)
63
17
(1)
(1)
0
0
0
0
1
1
0
(3)
0
0
0
(3)
8
3
5
5
21
103
(32)
(3)
0
(4)
(24)
(2)
0
0
0
(15)
(1)
0
1
(15)
9
7
2
(39)
64
262
(41)
(6)
0
(3)
(29)
(4)
0
0
0
(17)
(1)
0
1
(17)
25
23
2
(33)
229
RWA movement by key driver, risk type and
reporting segment
The following pages include information about the definitions of
key driver categories and underlying judgments and assumptions.
Credit risk
The decrease of CHF 41 billion in credit risk RWA was mainly driv-
en by reductions in book size in both Corporate Center – Non-
core and Legacy Portfolio and the Investment Bank, primarily due
to the aforementioned sale of securitization exposures, trade
compressions and reduced derivative exposures, and a net im-
provement in book quality, primarily driven by economic CVA
hedges in Corporate Center – Non-core and Legacy Portfolio.
Market risk
Substantially all of the decrease of CHF 17 billion in market risk
RWA was the result of reduced market risk exposures. Only a
small amount resulted from changes in methodology or routine
model parameter updates.
➔ Refer to “Corporate Center – Non-core and Legacy Portfolio”
in the “Risk management and control” section of this report for
more information on RWA by portfolio composition and
exposure category
241
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Key drivers of RWA movement by risk type
We employ a range of analyses in our RWA monitoring framework to identify the key drivers of movements in the positions. This
includes a top-down identification approach for several sub-components of the RWA movement, leveraging information available
from our monthly detailed calculation, substantiation and control processes. Particular attention is paid to identifying and
segmenting items within the day-to-day control of the business and those items that are driven by changes in risk models or
regulatory methodology. We transitioned to Basel III in the first quarter of 2013. As RWA as of 31 December 2012 represent Basel III
pro-forma information, certain 2013 movements were allocated to the various movement types on a best efforts basis only.
Credit risk RWA movements
Methodology changes and model parameter updates
Represents RWA movements arising from the implementation of new models and from parameter changes to existing models.
This movement type also includes regulatory methodology changes, reviews of modeling assumptions and refinements to our
Basel III (pro-forma) calculations applied until January 2013. The RWA impact of model and methodology changes is estimated based
on the portfolio at the time of the implementation of the change. Methodology changes and model parameter updates were
not segregated due to a combination of the aforementioned complexity associated with the transition from Basel III (pro-forma) to
Basel III, inherent complexity related to some components of credit risk and materiality aspects.
Acquisitions and disposals of business operations
Represents the movement in RWA as a result of the disposal or acquisition of business operations, quantified based on the credit risk
exposures as at the end of the month preceding a disposal or following an acquisition. Acquisition and disposal of exposures in the
ordinary course of business are reflected under book size.
Book quality
Represents RWA movements resulting from changes in the underlying credit quality of counterparties. These are caused by changes
to risk parameters which arise from actions such as, but not limited to, model recalibration, change in counterparty external rating or
new credit hedges.
Book size
Represents RWA movements arising in the normal course of business, such as growth in credit exposures or reduction in book size
from sales and write-offs. The amounts reported for each business division and Corporate Center may also include the effect of
transfers and allocations of exposures between business divisions reflected in the period. Currently, the movement in book size is
estimated based on amounts derived from the other four drivers. We will continue to refine our underlying RWA reporting and
intend to provide more granular information in the future.
Foreign currency translation effects
Represents RWA movements as a result of changes in exchange rates of the transaction currencies versus the Swiss franc.
242
Non-counterparty-related risk RWA movements
Exposure movements
Represents RWA movements arising in the normal course of business, such as purchase or sale of relevant underlying exposures.
Foreign currency translation effects
Represents foreign currency translation effects on RWA movements as a result of changes in exchange rates of the transaction
currencies versus the Swiss franc.
Market risk RWA movements
Methodology changes
Represents methodology changes to the calculation driven by regulatory and internal policy decisions. In some cases, the effects of
methodology changes have been assessed at the time of implementation, and may not reflect the effects for the entire year 2013.
Further, methodology changes may, on occasion, be implemented at the same time as parameter updates and changes in regulatory
add-ons, the effects of which cannot be fully disaggregated.
Model parameter updates
Includes routine updates to model parameters such as the roll-forward of the five-year historical data used for VaR. The effect of
each parameter update, assessed at the point of implementation, has been used to approximate the combined effect over the year.
Regulatory add-ons
Represents entirely the “Risks-not-in-VaR (RniV)” add-on described in the “Risk management and control” section of this report. The
effect of the annual recalibration has been calculated by applying the old and new multiplication factors to the year-end VaR- and
SVaR-based RWA.
Movement in risk levels
Represents changes as a result of movements in risk levels that are derived after accounting for the movements in the above three
specific drivers. This includes changes in positions, effects of market moves on risk levels and currency translation effects. The
amounts reported for each business division and Corporate Center may also include the effect of transfers and allocations of
exposures between business divisions reflected in the period.
Operational risk RWA movements
Incremental RWA
Represents RWA movements relating to changes in the incremental RWA resulting from the supplemental operational risk capital
analysis mutually agreed to by UBS and FINMA.
Other model parameter updates
Represents RWA movements arising from the regular update of our advanced measurement approach (AMA) model.
243
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Swiss SRB leverage ratio
Requirements
The Swiss SRB leverage ratio is calculated by dividing the relevant
capital amount by the three-month average total IFRS on-balance
sheet assets and off-balance sheet items, based on the regulatory
scope of consolidation and adjusted for netting of securities fi-
nancing transactions and derivatives and other items. The capital
considered in the calculation of the phase-in leverage ratio in-
cludes CET1 capital and loss-absorbing capital, but excludes tier 2
phase-out capital.
The table “Swiss SRB leverage ratio requirements” shows our
total leverage ratio requirement, as well as the requirements by
capital components, and our actual leverage ratio information. As
of 31 December 2013, our CET1 capital covered the leverage ratio
requirements for the base and buffer capital components, while
our high- and low-trigger loss-absorbing capital satisfied our le-
verage ratio requirement for the progressive buffer component.
The Swiss SRB leverage ratio requirement is equal to 24% of
the total capital ratio requirement. As of 31 December 2013, the
effective total leverage ratio requirement was 2.06%, resulting
from multiplying the total capital ratio requirement of 8.6% by
24%.
The Basel Committee on Banking Supervision (BCBS) issued a
consultation on “Revised Basel III leverage ratio framework and
disclosure requirements” in June 2013, followed by final rules in
January 2014. The final calibration, and any final adjustments to
the definition, will be completed by 2017. The ratio is expected to
be incorporated within Pillar 1 capital requirements on 1 January
(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:82)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(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:82)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(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:22)(cid:16)(cid:24)(cid:23)(cid:7)(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:21)(cid:16)
(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:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(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:10)(cid:82)(cid:74)(cid:67)(cid:85)(cid:71)(cid:15)(cid:75)(cid:80)(cid:11)
=
(cid:37)(cid:42)(cid:40)(cid:2)(cid:22)(cid:25)(cid:16)(cid:27)(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:20)(cid:16)(cid:20)(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:23)(cid:16)(cid:25)(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:18)(cid:20)(cid:26)(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:18)(cid:19)(cid:25)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:13)
(cid:37)(cid:42)(cid:40)(cid:2)(cid:19)(cid:19)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)
= (cid:22)(cid:16)(cid:24)(cid:23)(cid:7)
(cid:35)(cid:70)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:37)(cid:42)(cid:40)(cid:2)(cid:20)(cid:19)(cid:27)(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:18)(cid:23)(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:27)(cid:24)(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:19)(cid:26)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)
(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:20)(cid:18)(cid:27)(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:19)(cid:27)(cid:25)(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: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:19)(cid:18)(cid:2)(cid:68)(cid:75)(cid:78)(cid:78)(cid:75)(cid:81)(cid:80)(cid:11)
(cid:19)(cid:2)(cid:37)(cid:67)(cid:78)(cid:69)(cid:87)(cid:78)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:84)(cid:70)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(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:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:67)(cid:88)(cid:71)(cid:84)(cid:67)(cid:73)(cid:71)(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:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:86)(cid:74)(cid:84)(cid:71)(cid:71)(cid:2)(cid:79)(cid:81)(cid:80)(cid:86)(cid:74)(cid:85)(cid:2)(cid:82)(cid:84)(cid:71)(cid:69)(cid:71)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:80)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:81)(cid:84)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:71)(cid:84)(cid:75)(cid:81)(cid:70)(cid:16)(cid:2)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:71)(cid:90)(cid:82)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:84)(cid:71)(cid:82)(cid:84)(cid:71)(cid:85)(cid:71)(cid:80)(cid:86)(cid:85)(cid:2)(cid:67)(cid:85)(cid:85)(cid:71)(cid:86)(cid:85)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:73)(cid:80)(cid:75)(cid:92)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:67)(cid: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:80)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:84)(cid:70)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:43)(cid:40)(cid:52)(cid:53)(cid:2)
(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)(cid:82)(cid:84)(cid:75)(cid:80)(cid:69)(cid:75)(cid:82)(cid:78)(cid:71)(cid:85)(cid:14)(cid:2)(cid:68)(cid:87)(cid:86)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(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:16)(cid:2)(cid:43)(cid:80)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:84)(cid:70)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:69)(cid:87)(cid:84)(cid:84)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:53)(cid:89)(cid:75)(cid:85)(cid:85)(cid:2)(cid:53)(cid:52)(cid:36)(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:84)(cid:71)(cid:83)(cid:87)(cid:75)(cid:84)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)(cid:85)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(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: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:71)(cid:90)(cid:69)(cid:74)(cid:67)(cid:80)(cid:73)(cid:71)(cid:15)(cid:86)(cid:84)(cid:67)(cid:70)(cid:71)(cid:70)(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:39)(cid:54)(cid:38)(cid:11)(cid:14)(cid:2)(cid:68)(cid:81)(cid:86)(cid:74)(cid:2)(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:16)
(cid:19)(cid:41)(cid:53)(cid:18)(cid:24)(cid:18)
2018. According to the BCBS’s timetable, the disclosure require-
ments are to become effective as of 1 January 2015 subject to
implementation by national regulators.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information on the new BIS Basel III leverage
ratio framework published in January 2014
Swiss SRB leverage ratio requirements
Requirements
Required
Swiss SRB
leverage
ratio (%) 1
Swiss SRB
leverage ratio
capital
requirement
Phase-in
Actual information
Available Swiss SRB Basel III capital
Actual Swiss SRB leverage ratio (%)
Capital type
CHF million, except where indicated
31.12.13
31.12.13
31.12.12
31.12.13
31.12.12
Base capital
Buffer capital
Progressive buffer
Total
0.84
0.86 2
0.36
2.06
8,634
8,795
3,700
21,130
8,634
33,545 3
5,665 4
47,844
10,219
29,813 3
4,160 4
44,192
0.84
3.26
0.55
4.65
0.84
2.45
0.34
3.63
CET1
CET1
LAC
1 Requirements for base capital (24% of 3.5%), buffer capital (24% of 3.6%) and progressive buffer capital (24% of 1.5%). 2 This includes the effect of the countercyclical buffer requirement. 3 Swiss SRB Basel III
CET1 exceeding the base capital requirements is allocated to the buffer capital. 4 During the transition period until end of 2017, high-trigger loss-absorbing capital (LAC) can be included in the progressive buffer.
244
Developments during 2013
Our phase-in total Swiss SRB leverage ratio increased 102 basis
points to 4.65% as of 31 December 2013 from 3.63% as of 31 De-
cember 2012. This increase was mainly due to a CHF 189 billion
decrease in the total adjusted exposure, also known as the leverage
ratio denominator, resulting in an improvement of 70 basis points
to the leverage ratio. In addition, the aforementioned increases in
CET1 and loss-absorbing capital contributed 32 basis points to the
improvement in the leverage ratio on a phase-in basis.
The exposure reduction of CHF 189 billion mainly reflected a
CHF 253 billion reduction in average on-balance sheet assets,
resulting from reductions in average positive replacement values
and financial investments available-for-sale, partly offset by an
increase of CHF 75 billion from the combined net effect of re-
duced derivative and securities financing exposure netting and a
lower current exposure add-on for derivative exposures. Further-
more, the adjusted exposure for off-balance sheet items and as-
sets of entities consolidated under IFRS but not under the regula-
tory scope of consolidation decreased by CHF 5 billion and CHF
7 billion, respectively.
On a fully applied basis, our Swiss SRB leverage ratio increased
96 basis points to 3.39% as of 31 December 2013 from 2.43% as
of 31 December 2012.
Swiss SRB leverage ratio
CHF million, except where indicated
Total on-balance sheet assets 1
Netting of securities financing transactions
Netting of derivative exposures
Current exposure method (CEM add-on) for derivative exposures
Off-balance sheet items
of which: commitments and guarantees – unconditionally cancellable (10%)
of which: commitments and guarantees – other than unconditionally cancellable (100%)
Assets of entities consolidated under IFRS but not in regulatory scope of consolidation
Items deducted from Swiss SRB Basel III tier 1 capital, phase-in (at period-end)
Total adjusted exposure (“leverage ratio denominator”) 2
Swiss SRB Basel III common equity tier 1 capital (phase-in)
Swiss SRB Basel III loss-absorbing capital
Swiss SRB Basel III common equity tier 1 capital including loss-absorbing capital
Swiss SRB leverage ratio phase-in (formerly referred to as “FINMA Basel III leverage ratio”) (%)
Average 4Q13
Pro-forma
Average 4Q12
1,017,335
1,270,627
(1,537)
(196,992)
105,352
96,256
21,538
74,719
17,878
(10,428)
1,027,864
(20,508)
(332,076)
184,180
101,708
20,168
81,540
24,630
(12,000)
1,216,561
As of
31.12.13
31.12.12
42,179
5,665
47,844
4.65
40,032
4,160
44,192
3.63
1 Represent assets recognized on the balance sheet in accordance with IFRS measurement principles, but based on the regulatory scope of consolidation. Refer to the “Supplemental disclosures required under Basel III
Pillar 3 regulations” section of this report for more information on the regulatory scope of consolidation. 2 In accordance with current Swiss SRB leverage ratio requirements, the leverage ratio denominator excludes
forward starting repos, securities lending indemnifications and CEM add-ons for exchange-traded derivatives (ETD), both proprietary and agency transactions.
245
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Swiss SRB leverage ratio denominator
We implemented the disclosure of the Swiss SRB leverage ratio on
a Group level in 2013, with comparative 2012 information pro-
vided on a pro-forma basis only. The table below provides Swiss
SRB leverage ratio denominator information by reporting seg-
ment for 31 December 2013 which represents the average of the
fourth quarter 2013. It is the first time such segment disclosure is
made. No comparative information is provided in this table due to
organizational changes.
Swiss SRB leverage ratio denominator by reporting segment
CHF billion
Total on-balance sheet assets 1
Netting of securities financing transactions
Netting of derivative expsoures
Current exposure method (CEM add-on) for
derivative exposures
Off-balance sheet items
of which: commitments and guarantees –
unconditionally cancellable (10%)
of which: commitments and guarantees –
other than unconditionally cancellable (100%)
Assets of entities consolidated under IFRS but not in
regulatory scope of consolidation
Items deducted from Swiss SRB Basel III tier 1 capital,
phase-in (at period-end)
Total adjusted exposure (“leverage ratio
denominator”) 2
Wealth
Manage-
ment
104.9
0.0
(0.1)
1.2
9.6
5.9
3.7
6.6
Wealth
Manage-
ment
Americas
Average 4Q13
Global
Asset
Retail &
Corporate
Manage-
ment
Investment
Bank
CC –
Core
Functions
CC –
Non-core
and Legacy
Portfolio
45.3
(0.0)
(0.0)
0.0
11.7
11.0
0.6
0.2
142.8
0.0
(0.3)
1.1
21.1
4.2
16.9
0.0
4.0
0.0
0.0
0.0
0.0
0.0
0.0
10.0
245.9
(1.1)
(49.0)
245.1
(0.4)
0.0
229.4
0.0
(147.6)
34.4
44.2
0.4
43.9
0.9
0.0
0.0
0.0
0.0
0.2
(10.4)
68.6
9.6
0.0
9.6
(0.0)
Total LRD
1,017.3
(1.5)
(197.0)
105.4
96.3
21.5
74.7
17.9
(10.4)
122.1
57.2
164.7
14.0
275.3
234.5
160.0
1,027.9
1 Represent assets recognized on the balance sheet in accordance with IFRS measurement principles, but based on the regulatory scope of consolidation. Refer to the “Supplemental disclosures required under Basel III
Pillar 3 regulations” section of this report for more information on the regulatory scope of consolidation. 2 In accordance with current Swiss SRB leverage ratio requirements, the leverage ratio denominator excludes
forward starting repos, securities lending indemnifications and CEM add-ons for exchange-traded derivatives (ETD), both proprietary and agency transactions.
246
Equity attribution framework
The equity attribution framework reflects our objectives of main-
taining a strong capital base and managing performance, by guid-
ing each business towards activities that appropriately balance
profit potential, risk and capital usage. This framework, which
includes some forward-looking elements, enables us to integrate
Group-wide capital management activities with those at a busi-
ness division level and to calculate and assess return on attributed
equity (RoAE) in each of our business divisions.
Tangible equity is attributed to our business divisions by apply-
ing a weighted-driver approach that combines phase-in Basel III
capital requirements with internal models to determine the
amount of capital required to cover each business division’s risk.
RWA and leverage ratio denominator usage are converted to their
common equity tier 1 (CET1) equivalents based on capital ratios
as targeted by industry peers. Risk-based capital (RBC) is convert-
ed to its CET1 equivalent based on a conversion factor that con-
siders the amount of RBC exposure covered by loss-absorbing
capital. In addition to tangible equity, we allocate equity to sup-
port goodwill and intangible assets as well as certain capital de-
duction items. The amount of equity attributed to all business di-
visions and Corporate Center corresponds to the amount we
believe is required to maintain a strong capital base and to sup-
port our businesses adequately, and can differ from the Group’s
actual equity during a given period.
Average total equity attributed to the business divisions and
Corporate Center was CHF 43.5 billion in 2013, a decrease from
CHF 50.8 billion for 2012. This reduction was due to decreases in
RWA, the leverage ratio denominator and RBC as a result of the
Average attributed equity
CHF billion
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
of which: Core Functions
of which: Group items 1
of which: Non-core and Legacy Portfolio
Average equity attributed to the business divisions and Corporate Center
Difference
Average equity attributable to UBS shareholders
For the year ended
31.12.13
31.12.12
3.5
2.8
4.1
1.8
8.0
23.3
12.5
8.6
10.8
43.5
3.7
47.2
4.0
6.2
4.5
2.2
10.9
23.1
6.6
3.6
16.5
50.8
(2.1)
48.7
1 Group items within the Corporate Center carries common equity not allocated to the business divisions, reflecting equity that we have targeted above a 10% common equity tier 1 ratio. Additionally, this includes
attributed equity for PaineWebber goodwill and intangible assets as well as attributed equity for centrally held risk-based capital items.
Return on attributed equity (RoAE) and return on equity (RoE)1
%
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center – Core Functions
Corporate Center – Non-core and Legacy Portfolio
UBS Group
1 Return on attributed equity shown for the business divisions and Corporate Center and return on equity shown for UBS Group.
For the year ended
31.12.13
31.12.12
64.2
30.9
35.6
32.0
28.7
(14.8)
(21.4)
6.7
60.9
9.7
40.6
25.9
2.4
(56.2)
(22.8)
(5.1)
247
Risk, treasury and capital management Risk, treasury and capital management
Capital management
accelerated implementation of our strategy announced in Octo-
ber 2012. Average attributed equity also decreased for all busi-
ness divisions as a result of methodology refinements. From 1 Jan-
uary 2013, equity associated with goodwill and intangible assets
that arose from the PaineWebber acquisition is attributed to the
Corporate Center. Furthermore, attributed equity for the business
divisions decreased because a number of centrally managed risks
that are included in RBC have been moved from the business divi-
sions to the Corporate Center. This change took effect in the third
quarter of 2013, together with the implementation of the above-
mentioned RBC conversion to a CET1-equivalent measure. These
changes contributed to an overall increase in average attributed
equity for Corporate Center – Core Functions in 2013. Further-
more, as of 1 January 2014, equity required to underpin certain
Basel III capital deduction items that are relevant from 2014 will
be allocated to Group items within Corporate Center – Core
Functions.
➔ Refer to the “Risk management and control” section of this
report for more information on risk-based capital
Average equity attributable to UBS shareholders decreased to
CHF 47.2 billion in 2013 from CHF 48.7 billion in 2012. The dif-
ference between average equity attributable to UBS shareholders
and average equity attributed to the business divisions and Cor-
porate Center increased to positive CHF 3.7 billion in 2013 from
negative CHF 2.1 billion in 2012, with the 2013 difference mainly
resulting from holding higher levels of equity than required under
the Basel III phase-in rules.
Annualized return on attributed equity (RoAE) is a pre-tax prof-
itability measure that is an indicator of efficiency in the usage of
the firm’s financial resources.
The return on equity (RoE) for the Group increased to positive
6.7% in 2013 from negative 5.1% in the prior year due to an in-
crease in net profit attributable to UBS shareholders, coupled with
a decrease in average equity attributable to UBS shareholders. For
2013, the RoE of the Group was lower than the average of the
RoAE of the business divisions because of the negative RoAE of
the Corporate Center and due to the fact that more equity was
attributable to UBS shareholders than the total equity attributed
to the business divisions and Corporate Center.
248
UBS shares
d
e
t
i
d
u
A
The majority of our common equity tier 1 capital comprises share
capital, share premium and retained earnings attributable to UBS
shareholders. As of 31 December 2013, total IFRS equity attribut-
able to UBS shareholders amounted to CHF 48,002 million and
was represented by a total of 3,842,002,069 shares issued.
In 2013, shares issued increased by a total of 6,751,836 shares
due to exercises of employee options. Each share has a par value
of CHF 0.10 and entitles the holder to one vote at the sharehold-
ers’ meeting, if entered into the share register as having the right
to vote, as well as a proportionate share of distributed dividends.
As the Articles of Association of UBS AG indicate, there are no
other classes of shares and no preferential rights for shareholders.
➔ Refer to “Capital structure” and “Shareholders’ participation
rights” in the “Corporate governance” section of this report for
more information
Holding of UBS shares
We hold our own shares primarily to hedge employee share and
option participation plans.
In addition, the Investment Bank holds a limited number of
own shares in its capacity as a liquidity provider to the equity
index futures market and as a market-maker in UBS shares and
derivatives on UBS shares. Furthermore, to meet client demand,
UBS has issued structured debt instruments linked to UBS
shares, which are economically hedged by cash-settled deriva-
tives and, to a limited extent, own shares held by the Invest-
ment Bank.
As of 31 December 2013, we held 73,800,252 treasury shares,
or 1.9% of shares issued, compared with 87,879,601, or 2.3%,
as of 31 December 2012.
As of 31 December 2013, total future share delivery obligations
in relation to employee share-based compensation awards were
109 million shares, taking into account the UBS share price at year-
end 2013 as well as performance conditions. Share delivery obliga-
tions related to unvested and vested notional share awards, per-
formance share awards, options and stock appreciation rights.
As of 31 December 2013, we held 73 million treasury shares
(31 December 2012: 74 million shares) which were available to
satisfy delivery obligations related to notional share awards, per-
formance share awards and options and stock appreciation
rights. An additional 139 million unissued shares (31 December
UBS shares
Shares outstanding
Shares issued
of which: issuance of shares related to employee option plans for the year ended
Treasury shares
Shares outstanding
Earnings per share (CHF) 1
Basic
Diluted
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
Market capitalization and share price
Share price (CHF)
Market capitalization (CHF million) 2
As of
31.12.13
31.12.12
3,842,002,069
6,751,836
73,800,252
3,768,201,817
3,835,250,233
3,128,334
87,879,601
3,747,370,632
Change from
31.12.12
6,751,836
3,623,502
(14,079,349)
20,831,185
As of or for the year ended
31.12.13
31.12.12
% change from
31.12.12
0.84
0.83
48,002
6,293
41,709
12.74
11.07
16.92
65,007
(0.66)
(0.66)
45,949
6,461
39,488
12.26
10.54
14.27
54,729
4
(3)
6
4
5
19
19
1 Refer to “Note 9 Earnings per share (EPS) and shares outstanding” in the “Financial information” section of this report for more information. 2 Market capitalization is calculated based on the total UBS shares issued
multiplied by the UBS share price at period end.
249
Risk, treasury and capital management Risk, treasury and capital management
Capital management
2012: 145 million shares) in conditional share capital (out of 150
million approved in 2006) were available to satisfy the delivery
obligation related to options and stock appreciation rights. Trea-
sury shares held or newly issued shares are delivered to employ-
ees at exercise or vesting.
Treasury share activities
The table below outlines the market purchases of UBS shares
by Group Treasury and does not include the activities of the In-
vestment Bank.
Month of purchase
January 2013
February 2013
March 2013
April 2013
May 2013
June 2013
July 2013
August 2013
September 2013
October 2013
November 2013
December 2013
Treasury shares purchased for employee share
and option participation plans and acquisitions 1
Total number of shares
Number of shares
Average price in CHF
Number of shares (Cumulative)
Average price in CHF
0
0
14,000,000
0
0
0
0
0
0
0
0
0
0.00
0.00
14.85
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0
0
14,000,000
14,000,000
14,000,000
14,000,000
14,000,000
14,000,000
14,000,000
14,000,000
14,000,000
14,000,000
0.00
0.00
14.85
14.85
14.85
14.85
14.85
14.85
14.85
14.85
14.85
14.85
1 This table excludes purchases by UBS for the purpose of hedging derivatives linked to UBS shares and for market making in UBS shares. The table also excludes UBS shares purchased by investment funds managed by
UBS for clients in accordance with specified investment strategies that are established by each fund manager acting independently of UBS and also excludes UBS shares purchased by pension and retirement benefit funds
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 other post-employment benefit funds purchased
1,459,076 UBS shares during the year and held 18,090,651 UBS shares as of 31 December 2013.
Trading volumes
1,000 shares
SIX Swiss Exchange total
SIX Swiss Exchange daily average
NYSE total
NYSE daily average
Source: Reuters
Listing of UBS shares
UBS shares are listed on the SIX Swiss Exchange (SIX) and the New
York Stock Exchange (NYSE). During 2013, the average daily vol-
ume of UBS shares traded on the SIX was 11.1 million shares and
0.4 million shares on the NYSE. The SIX is expected to remain the
main venue for determining the movement in our share price due
to the high volume traded on this exchange.
During the hours in which both the SIX and NYSE are simul-
taneously open for trading (generally 3:30 p.m. to 5:30 p.m.
250
31.12.13
2,763,179
11,053
98,382
390
For the year ended
31.12.12
3,046,539
12,186
156,152
625
31.12.11
3,974,639
15,648
239,713
951
Central European Time), price differences between these ex-
changes are likely to be arbitraged away by professional mar-
ket-makers. Accordingly, the share price will typically be similar
between the two exchanges when considering the prevailing
US dollar / Swiss franc exchange rate. When the SIX is closed for
trading, globally traded volumes will typically be lower. How-
ever, the specialist firm making a market in UBS shares on the
NYSE is required to facilitate sufficient liquidity and maintain an
orderly market in UBS shares throughout normal NYSE trading
hours.
(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:19)(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:21)
(cid:19)(cid:23)(cid:18)
(cid:19)(cid:20)(cid:23)
(cid:19)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:25)(cid:23)
(cid:2)(cid:2)(cid:23)(cid:18)
(cid:2)(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:2)(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:19)(cid:51)(cid:19)(cid:21)
(cid:20)(cid:51)(cid:19)(cid:21)
(cid:21)(cid:51)(cid:19)(cid:21)
(cid:22)(cid:51)(cid:19)(cid:21)
(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)
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
251
(cid:19)(cid:23)(cid:18)
(cid:19)(cid:20)(cid:23)
(cid:19)(cid:18)(cid:18)
(cid:25)(cid:23)
(cid:23)(cid:18)
(cid:20)(cid:23)
(cid:18)
Risk, treasury and capital management Risk, treasury and capital management
Capital management
Stock exchange prices
SIX Swiss Exchange
New York Stock Exchange
High (CHF)
Low (CHF)
Period end (CHF)
High (USD)
Low (USD)
Period end (USD)
19.60
19.30
17.41
17.69
19.30
19.60
19.60
19.47
18.35
18.02
17.15
18.02
16.90
16.39
15.50
16.10
16.39
15.62
15.62
12.60
12.79
13.60
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
14.09
16.12
16.12
16.34
17.34
15.62
18.16
17.77
15.62
14.09
15.43
16.35
14.09
14.23
14.23
14.35
14.59
9.69
11.39
9.69
10.55
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
16.92
16.92
16.92
17.28
17.56
18.50
18.50
18.02
18.23
16.08
16.08
17.01
16.60
14.55
14.55
14.83
15.78
14.27
14.27
11.45
11.05
12.65
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
21.61
21.61
19.34
19.29
21.61
21.48
21.48
20.87
19.84
18.70
18.21
18.70
18.00
17.65
16.49
17.65
17.62
16.99
16.99
13.57
14.15
14.77
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
15.09
17.94
18.21
17.94
19.30
16.54
19.60
19.25
16.54
15.09
16.49
17.52
15.09
15.11
15.11
15.40
15.80
9.78
12.32
9.78
10.96
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
19.25
19.25
19.25
19.00
19.36
20.52
20.52
19.30
19.67
16.95
16.95
17.53
17.79
15.39
15.39
15.81
17.37
15.74
15.74
12.18
11.71
14.02
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
2013
Fourth quarter 2013
December
November
October
Third quarter 2013
September
August
July
Second quarter 2013
June
May
April
First quarter 2013
March
February
January
2012
Fourth quarter 2012
Third quarter 2012
Second quarter 2012
First quarter 2012
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
252
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, 663c para. 1 and 663c para. 3 of the Swiss Code of Obligations
(supplementary disclosures for companies whose shares are listed on a stock exchange: compensation and participations) are also
included in the audited financial statements of UBS AG (Parent Bank) in the “Financial information” section of this report. Information
that has been subject to audit is indicated by a bar stating “audited” within this section of the report.
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 (EY) against the GRI
Sustainability Reporting Guidelines. This content has been prepared in accordance with the comprehensive option of GRI G4 as evi-
denced in the EY assurance report at www.ubs.com/global/en/about_ubs/corporate_responsibility/commitment_strategy/reporting_
assurance.html. The assurance by EY also covered other relevant text and data in the Annual Report 2013 and on the website of UBS
which is referenced in the GRI Content Index (www.ubs.com/gri).
253
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) adopted the
Organization Regulations of UBS AG (Organization Regulations),
which constitute our primary corporate governance guidelines. The
currently applicable Organization Regulations date from 1 January
2013. The BoD also adopted the currently applicable UBS Code of
Business Conduct and Ethics (Code) in September 2012.
➔ Refer to the Articles of Association, the Organization
Regulations and the Code at www.ubs.com/governance
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
(Minder Initiative). In November 2013, the Swiss Federal Council
issued the final transitional ordinance
implementing the
constitutional amendments of this initiative, which came into
force on 1 January 2014. UBS is currently in the process of imple-
menting these requirements. The BoD intends to propose
amended Articles of Association to be voted upon by sharehold-
ers at the Annual General Meeting of Shareholders (AGM) on
7 May 2014.
➔ Refer to the “Regulatory and legal developments” section of this
report for more information
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-
254
Proxy statement reports of the Audit Committee and Human
Resources and Compensation Committee
NYSE listing standards would require the abovementioned com-
mittees to directly submit their reports to shareholders. Under
Swiss company law, all reports addressed to shareholders by UBS,
including those from the abovementioned committees, are
provided and signed by the full BoD, which has ultimate responsi-
bility vis-à-vis shareholders.
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, it requires that Swiss companies determine the nature
and components of capital in their articles of association, and
each increase in capital is required to be submitted for share holder
approval. This means that, if equity-based compensation plans
result in a need for an increase in capital, shareholder approval is
mandatory. If, however, shares for such plans are purchased in the
market, shareholders do not have approval authority.
➔ Refer to “Board of Directors” in this section for more information
on the Board of Directors’ committees
➔ Refer to “Capital structure” in this section for more information
on capital
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 AGM.
Discussion of risk assessment and risk management policies by
the Risk Committee
In accordance with our Organization Regulations, the Risk Com-
mittee has the authority to define our risk principles and risk ca-
pacity. The Risk Committee is responsible for monitoring our ad-
herence to those risk principles and for monitoring whether
business divisions and control units maintain 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 performance evaluations of senior management
Performance evaluations of our senior management, comprising
the Group Chief Executive Officer (Group CEO) and the other
Group Executive Board members, are completed by the Chairman
and the Human 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 Nominat-
ing Committee. All BoD committees perform a self-assessment of
their activities and report back to the full BoD.
255
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Group structure and shareholders
UBS Group legal entity structure
Under Swiss company law, UBS AG is organized as an Aktienge-
sellschaft (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, through its
branches worldwide. This structure is designed to capitalize on
the increased business opportunities and cost efficiencies offered
by the use of a single legal platform, and to enable the flexible
and efficient use of capital. Where it is neither possible nor effi-
cient to operate out of the Parent Bank, businesses 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.
As previously announced, we continue to assess the need for
and feasibility of changes to our legal entity structure in light of
regulatory trends and requirements. Among these are regulatory
requirements addressing the “too-big-to-fail” issue, which will
cause financial institutions to modify their legal entity structures to
facilitate resolution in the event of a failure. In view of these fac-
tors, we intend to establish a new banking subsidiary of UBS AG in
Switzerland. The scope of this potential future subsidiary’s business
is still being determined, but we would currently expect it to in-
clude the Retail & Corporate business division and likely the Swiss-
booked business within our Wealth Management business divi-
sion. We expect to implement this change in a phased approach
starting in mid-2015. This structural change is being discussed on
an ongoing basis with FINMA, and remains subject to a number of
uncertainties that may affect its feasibility, scope or timing.
In February 2014, the US Federal Reserve Board issued final
rules for foreign banking organizations (FBO) operating in the US
that include a requirement for FBO with more than USD 50 billion
of US non-branch assets to establish an intermediate holding
company (IHC) to hold all US subsidiary operations. The IHC will
be subject to US capital and other regulatory requirements. We
will have until 1 July 2016 to establish an IHC and meet many of
the new requirements. We must submit an implementation plan
by 1 January 2015 and the IHC will not need to comply with the
US leverage ratio until 1 January 2018.
Operational Group structure
On 31 December 2013, the operational structure of the Group
comprised five business divisions: Wealth Management, Wealth
Management Americas, Retail & Corporate, Global Asset Man-
agement and the Investment Bank, as well as the Corporate Cen-
ter with its components, Core Functions and Non-core and Legacy
Portfolio.
➔ Refer to the “Financial and operating performance” section
and “Note 2 Segment reporting” in the “Financial information”
section of this report for more information
256
Listed and non-listed companies belonging to the Group
The Group includes a number of consolidated entities, none of
which, however, has shares listed on any stock exchange, other
than UBS AG.
➔ Refer to “Note 30a Interests in subsidiaries” in the “Financial
information” section of this report for more information on 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 hold-
ing derivative rights related to shares of such a company, must
notify the company and the SIX Swiss Exchange (SIX) if the hold-
ing attains, falls below or exceeds one of the following threshold
percentages: 3, 5, 10, 15, 20, 25, 331⁄3, 50, or 662⁄3% of voting
rights, whether or not such rights may be exercised. The detailed
disclosure requirements and the methodology for calculating 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 irrespective of their pos-
sible contingent nature must be taken into account, and prohibits
the netting of acquisition positions (in particular shares, conver-
sion rights and acquisition rights or obligations) with disposal po-
sitions (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 thresholds. Nominee compa-
nies which cannot autonomously decide 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 18 September
2013, Government of Singapore Investment Corp., Singapore,
disclosed the change of its corporate name to GIC Private Limited,
effective from 22 July 2013, with a holding of 6.40% of the total
share capital of UBS AG. The beneficial owner of this holding is
the Government of Singapore. On 30 September 2011, Norges
Bank, Oslo, the Central Bank of Norway, disclosed a holding of
3.04%. 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 notifica-
tion. Information on disclosures under the Swiss Stock Exchange
Act can be found on the following website of the SIX: 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 below were registered
with 3% or more of the total share capital as of 31 December
2013, 2012 and 2011.
Cross-shareholdings
We have no cross-shareholdings in excess of a reciprocal 5% of
capital or voting rights with any other company.
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
GIC Private Limited, 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.
31.12.13
11.73
6.39
5.89
3.75
31.12.12
11.94
6.40
5.28
3.84
31.12.11
10.95
6.41
7.07
4.20
257
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Capital structure
Issued share capital
Under Swiss company law, shareholders must approve, in a share-
holders’ meeting, any increase in the total number of shares,
which may arise from an ordinary share capital increase or the
creation of conditional or authorized capital. During 2013, no
such increase was approved by UBS AG shareholders.
At year-end 2013, 3,842,002,069 shares were issued with a
par value of CHF 0.10 each, leading to a share capital of
CHF 384,200,206.90.
Changes of shareholders’ equity and shares
According to International Financial Reporting Standards (IFRS),
Group equity attributable to UBS shareholders amounted to
CHF 48.0 billion as of 31 December 2013 (2012: CHF 45.9 billion,
2011: CHF 48.5 billion). UBS Group shareholders’ equity was rep-
resented by 3,842,002,069 issued shares as of 31 December 2013
(2012: 3,835,250,233 shares, 2011: 3,832,121,899 shares).
➔ 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
Issued share capital
As of 31 December 2011
Issue of shares out of conditional capital due to employee options exercised in 2012
As of 31 December 2012
Issue of shares out of conditional capital due to employee options exercised in 2013
As of 31 December 2013
Share capital in CHF
Number of shares
Par value in CHF
383,212,190
3,832,121,899
312,833
3,128,334
383,525,023
3,835,250,233
675,184
6,751,836
384,200,207
3,842,002,069
0.10
0.10
0.10
0.10
0.10
Distribution of UBS shares
As of 31 December 2013
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
5,000,001–38,420,020 (1%)
1–2%
2–3%
3–4%
4–5%
Over 5%
Total registered
Unregistered 3
Total shares issued
Shareholders registered
Shares registered
Number
34,367
162,176
91,263
9,043
690
95
25
1
2
1
0
3 1
297,666
%
11.6
54.5
30.7
3.0
0.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
100.0
Number % of shares issued
1,967,157
75,191,894
254,540,908
220,165,057
185,036,289
211,905,582
251,431,040
41,946,308
164,602,980
143,960,557
0
922,249,147
2,472,996,919 2
1,369,005,150
3,842,002,069
0.1
2.0
6.6
5.7
4.8
5.5
6.5
1.1
4.3
3.8
0.0
24.0
64.4
35.6
100.0
1 As of 31 December 2013, Chase Nominees Ltd., London, entered as a trustee / nominee, was registered with 11.73% of all UBS shares issued. However, according to the provisions of UBS, voting rights of trust-
ees / nominees 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 5.89% of all UBS shares issued and is not subject to
this 5% voting limit as securities clearing organization. The same applies to the GIC Private Limited, Singapore, which was registered as beneficial owner with 6.39% of all UBS shares issued. 2 Of the total shares
registered, 409,992,696 shares did not carry voting rights. 3 Shares not entered in the share register as of 31 December 2013.
258
Ownership
Ownership of UBS shares is widely spread. The tables in this sec-
tion provide information about the distribution of our sharehold-
ers by category and geographical location. This information re-
lates only to registered shareholders and cannot be assumed to be
representative of our entire investor base nor the actual beneficial
ownership. Only shareholders registered in the share register as
“shareholders with voting rights” are entitled to exercise voting
rights.
➔ Refer to “Shareholders’ participation rights” in this section for
more information
As of 31 December 2013, 2,063,004,223 shares carried voting
rights, 409,992,696 shares were entered in the share register
without voting rights and 1,369,005,150 shares were not regis-
tered. All 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 2013, we owned 73,800,252 UBS registered
shares corresponding to 1.9% of the total share capital of UBS
AG. At the same time, we had disposal positions relating to
284,975,843 voting rights of UBS AG, corresponding to 7.4% of
the total voting rights of UBS AG. 7.0% of this consisted of voting
rights on shares deliverable in respect of employee awards. The
calculation methodology for the disposal position is based on the
SESTO-FINMA, which sets forth that all future potential share de-
livery obligations irrespective of the contingent nature of the de-
livery must be taken into account.
Conditional share capital
At year-end 2013, the following conditional share capital was
available to the Board of Directors (BoD):
– At the Annual General Meeting of Shareholders (AGM) held in
2006, the shareholders approved the creation of conditional
capital in the maximum amount of 150,000,000 fully paid
registered shares, with a nominal value of CHF 0.10 each, to
be used for employee option grants. Options are exercisable
at any time between their vesting and expiration dates.
Shareholders have no pre-emptive rights. In 2013, options on
6,751,836 shares were exercised under the option plans with
a total of 138,759,156 conditional capital shares being avail-
able at the end of 2013 to satisfy further exercises of options.
– At the AGM held in 2010, the shareholders approved the cre-
ation of conditional capital in the amount of up to
380,000,000 fully paid registered shares, with a nominal val-
ue of CHF 0.10 each, for the exercise of conversion rights
and / or warrants granted in connection with the issuance of
bonds or similar financial instruments 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 2013, the
BoD had not made use of the allowance to issue bonds or
warrants with conversion rights covered by conditional share
capital.
In 2013, the Articles of Association were amended and the
allowance to issue 100,000,000 fully paid registered shares to
the Swiss National Bank (SNB), which had been approved by the
AGM held in 2009, was removed. These shares could have been
issued in the event of the exercise of warrants granted to the
SNB in connection with the loan that the SNB provided to the
SNB StabFund, to which UBS transferred certain illiquid securi-
ties and other positions in 2008 and 2009. As the loan was paid
back in full in 2013, the warrants were terminated and the BoD
approved the reduction of the conditional capital in the amount
of CHF 10,000,000.
Authorized share capital
The BoD had no authorized share capital available as of 31 December
2013, 2012 and 2011.
Conditional capital
Employee equity participation plans of UBS AG
Conversion rights / warrants granted in connection with bonds
Total
Maximum number of
shares to be issued
Year approved by share-
holder general meeting
% of shares issued
31.12.13
138,759,156
380,000,000
518,759,156
2006
2010
31.12.13
3.61%
9.89%
13.50%
259
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Shareholders, legal entities and nominees: type and geographical distribution
As of 31 December 2013
Individual shareholders
Legal entities
Nominees, fiduciaries
Total registered shares
Unregistered shares
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
Total registered shares
Unregistered shares
Total
Shareholders registered
Number
291,066
6,191
409
%
97.8
2.1
0.1
297,666
100.0
Individual shareholders
Legal entities
Nominees
Total
Number
9,129
8,120
6,390
15,871
5,063
5,637
4,877
294
%
3.1
2.7
2.2
5.3
1.7
1.9
1.6
0.1
Number
248
92
126
361
34
20
283
24
259,676
87.2
5,456
291,066
97.8
6,191
%
0.1
0.0
0.0
0.1
0.0
0.0
0.1
0.0
1.9
2.1
Number
221
201
24
91
8
11
71
1
73
%
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Number
9,598
8,413
6,540
16,323
5,105
5,668
5,231
319
%
3.2
2.8
2.2
5.5
1.7
1.9
1.8
0.1
265,205
89.1
409
0.1
297,666
100.0
756,640,328
19.7
1,146,051,655
29.8
3,842,002,069
100.0
Individual shareholders
Legal entities
Number of shares
Number of shares
Nominees
Number of shares
Total
Number of shares
54,451,944
52,106,225
45,535,758
73,625,900
14,587,032
46,191,178
12,071,095
776,595
396,691,334
570,304,936
0
570,304,936
%
1.4
1.4
1.2
1.9
0.4
1.2
0.3
0.0
10.4
14.9
14.9
48,726,206
45,854,289
319,831,829
52,128,052
5,725,348
2,266,556
43,597,770
538,378
335,954,241
756,640,328
0
%
1.3
1.2
8.3
1.4
0.1
0.1
1.2
0.0
8.7
19.7
317,367,853
316,933,276
11,933,493
800,539,237
9,001,954
667,026,546
124,505,737
5,000
16,211,072
1,146,051,655
0
%
8.3
8.2
0.3
20.8
0.2
17.4
3.2
0.0
0.4
29.8
Shares registered
Number
570,304,936
756,640,328
1,146,051,655
2,472,996,919
1,369,005,150
3,842,002,069
420,546,003
414,893,790
377,301,080
926,293,189
29,314,334
715,484,280
180,174,602
1,319,973
748,856,647
2,472,996,919
1,369,005,150
%
14.9
19.7
29.8
64.4
35.6
100.0
%
10.9
10.8
9.9
24.1
0.8
18.6
4.7
0.0
19.5
64.4
35.6
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 shareholders, irrespective of the country and stock exchange
on which they are traded. We have no participation certificates
outstanding.
➔ Refer to “UBS shares” in the “Capital management” section of
this report for more information
Distributions to shareholders
The decision whether to pay a dividend, and the amount of the
dividend, are dependent on our profits and cash flow generation
and on our progress towards achieving our targeted capital ratios.
For financial year 2013, the BoD intends to propose a dividend
payment of CHF 0.25 per share against reserves from capital con-
tribution to be voted upon by shareholders at the AGM on 7 May
2014. This is a 67% increase from last year.
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 “Shareholders’ participation rights” in this section for
more information
260
Shareholders, legal entities and nominees: type and geographical distribution
Shareholders registered
Shares registered
Individual shareholders
Legal entities
Nominees
Total
Individual shareholders
Legal entities
As of 31 December 2013
Individual shareholders
Legal entities
Nominees, fiduciaries
Total registered shares
Unregistered shares
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
Total registered shares
Unregistered shares
Total
297,666
100.0
Number
291,066
6,191
409
Number
9,598
8,413
6,540
16,323
5,105
5,668
5,231
319
%
97.8
2.1
0.1
%
3.2
2.8
2.2
5.5
1.7
1.9
1.8
0.1
Number
9,129
8,120
6,390
15,871
5,063
5,637
4,877
294
%
3.1
2.7
2.2
5.3
1.7
1.9
1.6
0.1
Number
248
92
126
361
34
20
283
24
Number
221
201
24
91
8
11
71
1
73
%
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
%
0.1
0.0
0.0
0.1
0.0
0.0
0.1
0.0
1.9
2.1
259,676
87.2
5,456
265,205
89.1
291,066
97.8
6,191
409
0.1
297,666
100.0
Number of shares
54,451,944
52,106,225
45,535,758
73,625,900
14,587,032
46,191,178
12,071,095
776,595
396,691,334
570,304,936
0
570,304,936
%
1.4
1.4
1.2
1.9
0.4
1.2
0.3
0.0
10.4
14.9
14.9
Number of shares
48,726,206
45,854,289
319,831,829
52,128,052
5,725,348
2,266,556
43,597,770
538,378
335,954,241
756,640,328
0
Number
570,304,936
756,640,328
1,146,051,655
2,472,996,919
1,369,005,150
3,842,002,069
Total
Number of shares
420,546,003
414,893,790
377,301,080
926,293,189
29,314,334
715,484,280
180,174,602
1,319,973
748,856,647
2,472,996,919
1,369,005,150
%
14.9
19.7
29.8
64.4
35.6
100.0
%
10.9
10.8
9.9
24.1
0.8
18.6
4.7
0.0
19.5
64.4
35.6
%
1.3
1.2
8.3
1.4
0.1
0.1
1.2
0.0
8.7
19.7
Nominees
Number of shares
317,367,853
316,933,276
11,933,493
800,539,237
9,001,954
667,026,546
124,505,737
5,000
16,211,072
1,146,051,655
0
%
8.3
8.2
0.3
20.8
0.2
17.4
3.2
0.0
0.4
29.8
756,640,328
19.7
1,146,051,655
29.8
3,842,002,069
100.0
Convertible bonds and options
As of 31 December 2013, there were no contingent capital securi-
ties or convertible bonds outstanding requiring the issuance of
new shares.
➔ Refer to the “Capital management” section of this report for
more information on our outstanding capital instruments
As of 31 December 2013, there were 154,636,901 employee
options outstanding, including stock appreciation rights. Options
and stock appreciation rights equivalent to 37,019,120 shares
were in-the-money and exercisable. We source our option-based
compensation plans either by purchasing UBS shares in the mar-
ket, or through the issuance of new shares out of conditional
capital. As mentioned above, as of 31 December 2013,
138,759,156 unissued shares in conditional share capital were
available for this purpose.
261
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 300,000 shareholders are directly regis-
tered, some 110,000 US shareholders via nominee companies.
Shareholders are regularly informed about our activities and per-
formance, as well as being personally invited to the general meet-
ings of shareholders.
➔ Refer to “Information policy” in this section for more information
Since March 2013, our shareholder portal (www.ubs.com/
shareholderportal) has allowed our registered shareholders to access
personalized services and important information year-round regard-
ing share register entries and our shareholder meetings. The share-
holder portal enables registered shareholders to enter their voting
instructions electronically ahead of our shareholder meetings.
Shareholders can verify their voting instructions before and after the
general meetings using an encryption method (cryptography). This
method of encryption ensures that the voting instructions remain
secret throughout the entire voting process. In addition, share-
holders can order admission cards and register changes to their
address details. It also enables them to manage their subscriptions
to shareholder-related publications and to communicate directly
with UBS Shareholder Services via a secure channel. The share-
holder portal is fully integrated into our internet platform.
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 Group developments.
The AGM offers shareholders the opportunity to raise any
questions to the Board of Directors (BoD) and Group Executive
Board (GEB), as well as our internal and external auditors.
Voting rights, restrictions and representation
We place no restrictions on share ownership and voting rights.
However, nominee companies and trustees, who normally repre-
sent a large number of individual shareholders and may hold an
unlimited number of shares, have voting rights limited to a maxi-
mum of 5% of all issued UBS shares in order to avoid the risk of
unknown shareholders with large stakes being entered in the
share register. Securities clearing organizations, such as The De-
pository Trust Company in New York, are not subject to this 5%
voting limit.
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 electronically issue their voting instructions to the inde-
pendent proxy using our shareholder portal. Nominee companies
normally submit the proxy material to the beneficial owners and
transmit the collected votes to the independent proxy.
Statutory quorums
Motions, including the election and re-election of BoD members
and the appointment of the auditors, are decided at a general
meeting of shareholders by an absolute majority of the votes cast,
excluding blank and invalid ballots. Swiss company law requires
that, for certain specific issues, a majority of two-thirds of the
votes represented at a general meeting of share holders, and the
absolute majority of the par value of shares represented at the
meeting, must vote in favor of the motion for it to be approved.
These issues include the creation of shares with privileged voting
rights, the introduction of restrictions on the transferability of reg-
istered 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 their provisions
regarding the number of BoD members, and any decision to re-
move a quarter or more of the BoD members.
Votes and elections are normally conducted electronically to
ascertain the exact number of votes cast. Voting by a show of
hands remains possible if a clear majority is predictable. Share-
holders representing at least 3% of the votes represented may
request that a vote or election takes place electronically or by writ-
ten ballot. In order to allow shareholders to clearly express their
views on all individual topics, each item on the agenda is put to a
vote separately and BoD elections are made on a person-by-per-
son basis.
Convocation of general meetings of shareholders
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-
The AGM must occur within six months of the close of the
financial year and normally takes place in late April or early May.
A personal invitation including a detailed agenda and explanation
of each motion is sent to every registered shareholder at least
262
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 at
www.ubs.com/agm. Requests for items to be placed on the agen-
da must include the actual motions to be put forward, together
with a short explanation, if necessary. The BoD formulates opin-
ions on the proposals, which are published together with the mo-
tions.
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.
263
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 Chair-
man, decides on the strategy of the Group upon recommendation
of the Group Chief Executive Officer (Group CEO), exercises ulti-
mate 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, members of BoD committees, their
respective Chairpersons and the Company Secretary.
Members of the Board of Directors
On 12 March 2013, the BoD announced that Reto Francioni, CEO
of Deutsche Börse AG since 2005, would be nominated for elec-
tion to the BoD at the 2013 AGM, and Wolfgang Mayrhuber
would not stand for re-election on that date. At the AGM held on
2 May 2013, Axel A. Weber, Michel Demaré, David Sidwell,
Rainer-Marc Frey, Ann F. Godbehere, Axel P. Lehmann, Helmut
Panke, William G. Parrett, Isabelle Romy, Beatrice Weder di Mauro
and Joseph Yam were re-elected as their terms of office expired.
Reto Francioni was elected to his first term of office. Following
their election, the BoD appointed Axel A. Weber as Chairman,
Michel Demaré as Vice Chairman and David Sidwell as Senior
Independent Director.
The following biographies provide information on the BoD
members and the Company Secretary.
Axel A. Weber
German, born 8 March 1957
UBS AG, Bahnhofstrasse 45, CH-8001 Zurich
Functions in UBS
Chairman of the Board of Directors / Chairperson of
the Corporate Responsibility Committee / Chairperson
of the Governance and Nominating Committee
Year of initial appointment: 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 has chaired the Governance and Nominating Committee since 2012 and became Chairperson of the Corporate
Responsibility Committee in 2013. 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
economics and Director of the Center for Financial Studies at the Goethe University in Frankfurt / Main from 1998 to 2001.
From 1994 to 1998, he was a professor of economic theory at the University of Bonn. Mr. Weber holds a PhD in economics
from the University of Siegen, where he also received his habilitation. He graduated with a master’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 corporations, organizations and foundations or interest groups include:
Mr. Weber is a board member of the Institute of International Finance and the International Monetary Conference. He is a
member of the European Banking Group, the European Financial Services Roundtable and the Group of Thirty, Washington,
DC. He is a research fellow at the Center for Economic Policy Research in London and at the Center for Financial Research
in Cologne. He is 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. He is a member of the Advisory Board of the German Market Economy Foundation and a member of
the Advisory Board of the Department of Economics at the University of Zurich. He is also a member of the IMD Foundation
Board in Lausanne and a member of the International Advisory Panel of the Monetary Authority of Singapore.
264
Michel Demaré
Belgian, born 31 August 1956
Syngenta International AG, Schwarzwaldallee 215,
CH-4058 Basel
Functions in UBS
Independent Vice Chairman / member of the
Audit Committee / member of the Governance and
Nominating Committee / member of the
Human Resources and Compensation Committee
Year of initial appointment: 2009
David Sidwell
American (US) and British, born 28 March 1953
UBS AG, Bahnhofstrasse 45, CH-8001 Zurich
Functions in UBS
Senior Independent Director / Chairperson of the Risk
Committee / member of the Governance and
Nominating Committee
Year of initial appointment: 2008
Reto Francioni
Swiss, born 18 August 1955
Deutsche Börse AG, D-60485 Frankfurt am Main
Function in UBS
Member of the Corporate Responsibility Committee
Year of initial appointment: 2013
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. He
became a member of the Human Resources and Compensation Committee in 2013. 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 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 corporations, organizations and foundations or interest groups include:
Mr. Demaré is Chairman of the Board of Syngenta. He is a member of the IMD Supervisory Board in Lausanne and Chairman
of SwissHoldings in Berne. He is Chairman of the Syngenta Foundation for Sustainable Agriculture and a member of the
Advisory Board of the Department of Banking and Finance at the University of Zurich.
Professional history and education
David Sidwell was elected to the BoD at the 2008 AGM. In April 2010, he was appointed Senior Independent Director. He
has chaired the Risk Committee since 2008 and has been a member of the Governance and Nominating Committee since
2011. Mr. Sidwell was Executive Vice President and CFO of Morgan Stanley between 2004 and 2007. Before joining Morgan
Stanley he worked for JPMorgan Chase & Co., where, in his 20 years of service, he held a number of different positions, in-
cluding controller and, from 2000 to 2004, CFO of the Investment Bank. Prior to this, he was with Price Waterhouse in both
London and New York. Mr. Sidwell graduated from Cambridge University and qualified as a chartered accountant with the
Institute of Chartered Accountants in England and Wales.
Other activities and functions
Mandates on boards of corporations, organizations and foundations or interest groups include:
Mr. Sidwell is a director and Chairperson of the Risk Policy and Capital Committee of Fannie Mae, Washington, DC, and is a
senior advisor at Oliver Wyman, New York. He is Chairman of the Board of Village Care, New York, and is a director of the
National Council on Aging, Washington, DC.
Professional history and education
Reto Francioni was elected to the BoD at the 2013 AGM and became a member of the Corporate Responsibility Committee.
He has been CEO of Deutsche Börse AG since 2005. Since 2006, he has been a professor of applied capital markets theory
at the University of Basel. From 2002 to 2005, he was Chairman of the Supervisory Board and President of the SWX Group,
Zurich. Mr. Francioni was co-CEO and Spokesman for the Board of Directors of Consors AG, Nuremberg, from 2000 to 2002.
Between 1993 and 2000, he held various management positions at Deutsche Börse AG, including that of Deputy CEO from
1999 to 2000. From 1992 to 1993, he served in the corporate finance division of Hoffmann-La Roche, Basel. Prior to this, he
worked for several years for Association Tripartite Bourses and, from 1985 to 1988, for the former Credit Suisse, holding
positions in the equity sales and legal departments. He started his professional career in 1981 in the commerce division of
Union Bank of Switzerland. Mr. Francioni completed his studies in law in 1981 and his PhD in 1987 at the University of Zurich.
Other activities and functions
Mandates on boards of corporations, organizations and foundations or interest groups include:
Mr. Francioni is a member of the Shanghai International Financial Advisory Committee and of the Advisory Board of Moscow
International Financial Center. He also serves as a member of the International Advisory Board of the Instituto de Empresa
and of the Board of Trustees of Goethe Business School. Mr. Francioni is a member of the Steering Committee of the Project
“Role of Financial Services in Society,“ World Economic Forum, and a member of the Franco-German Roundtable. He is a
member of the Strategic Advisory Group of VHV Insurance. Mr. Francioni holds various mandates on the boards of Deutsche
Börse Group subsidiaries.
265
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
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 2013, he led the buy-out of Lonrho plc on the London Stock Exchange and
became the majority shareholder of this now privately held company. 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 corporations, organizations and foundations or interest groups include:
Mr. Frey is a member of the board of DKSH Group, Zurich, as well as of the Frey Charitable Foundation, Freienbach. He is
Chairman of Lonrho Holdings Ltd. and Vice Chairman of its operating company.
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. Prior to 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 corporations, organizations and foundations or interest groups include:
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 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, in 2004, was responsible for integrating it with UK, Ireland and South Africa. In 2001, he took over responsi-
bility for Northern, Central and Eastern Europe and was appointed 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 corporations, organizations and foundations or interest groups include:
Mr. Lehmann is Chairman of the Board of the Institute of Insurance Economics at the University of St. Gallen, and is a former
Chairman and member of the Chief Risk Officer Forum and a board member of Economiesuisse.
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
Ann F. Godbehere
Canadian and British, born 14 April 1955
UBS AG, Bahnhofstrasse 45, CH-8001 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
Function in UBS
Member of the Risk Committee
Year of initial appointment: 2009
266
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 corporations, organizations and foundations or interest groups include:
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 be-
tween 1999 and 2007. Mr. Parrett founded Deloitte’s US National Financial Services Industry Group in 1995 and its Global
Financial Services Industry Group in 1997, both of which he led as Chairman. In his 40 years of experience in professional
services, Mr. Parrett served public, private, governmental, and state-owned 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 corporations, organizations and foundations or interest groups include:
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 on the board of iGATE. He is 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, 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 professor 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 corporations, organizations and foundations or interest groups include:
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
UBS AG, Bahnhofstrasse 45, CH-8001 Zurich
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-8001 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, 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
267
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 since
2012 and became a member of the Risk Committee in 2013. 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, DC, 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, DC. 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 corporations, organizations and foundations or interest groups include:
Ms. Weder di Mauro is on the boards of Roche Holding Ltd., Basel, and Robert Bosch GmbH, Stuttgart. She is a member of
the Corporate Governance Commission of the German Government and the Expert Group of European Commission on Debt
Redemption Fund and Eurobills.
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 corporations, organizations and foundations or interest groups include:
Mr. Yam sits on the international advisory councils of a number of government and academic institutions. 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, in-
cluding 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 Risk Committee
Year of initial appointment: 2012
Joseph Yam
Chinese and Hong Kong citizen,
born 9 September 1948
UBS AG, Bahnhofstrasse 45, CH-8001 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-8001 Zurich
Function in UBS
Company Secretary since 2005
268
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 AGM,
which will next take place on 7 May 2014.
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 their 70th birthday. In excep-
tional circumstances the BoD can extend both these limits.
Organizational principles and structure
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 of-
ten as business requires, but must meet at least six times a year. In
2013, a total of 22 meetings were held, eight times with the pres-
ence of GEB members and 14 times for meetings and calls with-
out GEB participation. On average, 95% of BoD members were
present at BoD meetings without GEB participation, and 97% at
meetings with GEB participation. The average duration of these
meetings and calls was 165 minutes. 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 BoD committees’ assessment was conducted by a
third party and was completed in spring 2013. It concluded that
the BoD is operating effectively. The next assessment will be con-
ducted again as a self-assessment and will be completed in spring
2014.
The committees listed below assist the BoD in the perfor-
mance of its responsibilities. These committees and their char-
ters are described in the Organization Regulations, published at
www.ubs.com/governance.
Audit Committee
The Audit Committee is comprised of five BoD members, with all
members having been determined by the BoD to be fully indepen-
dent and financially literate. On 31 December 2013, William
G. Parrett chaired the Audit Committee with Michel Demaré, Ann
F. Godbehere, Isabelle Romy and Beatrice Weder di Mauro as ad-
ditional members. All members have accounting or related finan-
cial management expertise and the majority qualify as a “financial
expert” under 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 (EY),
who in turn are responsible for auditing UBS AG’s and UBS
Group’s annual financial statements and for reviewing the quar-
terly financial statements.
The function of the Audit Committee is to serve as an indepen-
dent and objective body with oversight of the following: (i) UBS
AG’s and UBS Group’s accounting policies, financial reporting and
disclosure controls and procedures, (ii) the quality, adequacy and
scope of external audit, (iii) UBS AG’s and UBS Group’s compliance
with financial reporting requirements, (iv) the senior manage-
ment’s approach to internal controls with respect to the produc-
tion and integrity of the financial statements and disclosure of the
financial performance and (v) the performance of Group Internal
Audit in conjunction with the Chairman and the Risk Committee.
For these purposes, the Audit Committee has the authority to
meet with regulators and external bodies in consultation with the
Group CEO. Senior management is responsible for the prepara-
tion, presentation and integrity of the financial statements.
The Audit Committee reviews the annual and quarterly finan-
cial statements of UBS AG and UBS Group, as proposed by man-
agement, with the external auditors and Group Internal Audit in
order 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 2013, the Audit Committee held a total of eight meet-
ings and 10 telephone conferences. The meetings had an average
duration of four hours and the telephone conferences lasted ap-
proximately one hour each. Participation was 97%. Also present
at the meetings were the Chairman, the Group CEO, the Group
Chief Financial Officer (Group CFO), the Head of Group Internal
Audit, the Group Finance Chief Operating Officer, the Group
Controller as well as EY (for the agenda items appropriate to
them). The conference calls were conducted in the presence of
the Audit Committee members, the Group CFO and selected
management members. In 2013, eight joint Audit Commit-
tee / Risk Committee sessions were held. The Audit Committee
held a session with FINMA in early 2014.
The Audit Committee reports to the BoD about its discussions
with our external auditors. Once per year, the lead representatives
of our external auditors present their long-form report to the BoD,
as required by FINMA.
The NYSE listing standards on corporate governance set more
stringent independence requirements for members of audit com-
269
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
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 ful-
filling its duty to safeguard and advance the Group’s reputation
for responsible corporate conduct. It reviews and assesses stake-
holder concerns and expectations for responsible corporate con-
duct and their possible consequences for UBS, and recommends
appropriate actions to the BoD. The majority of the Corporate
Responsibility Committee’s members must be independent. On
31 December 2013, the Corporate Responsibility Committee was
chaired by Axel A. Weber, with independent BoD members Reto
Francioni, William G. Parrett and Joseph Yam as additional mem-
bers. The Corporate Responsibility Committee is advised and
supported by a number of senior business representatives. It met
three times for 75 minutes on average in 2013, and 100% of the
Corporate Responsibility Committee members 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 three independent BoD members and, on 31 December 2013,
was chaired by Axel A. Weber, with Michel Demaré, Isabelle
Romy and David Sidwell as additional members. In 2013, eight
meetings and one telephone conference were held, with a 100%
participation rate and a duration averaging one hour. One meet-
ing was held with external 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
duties to set guidelines on compensation and benefits, (ii) ap-
proving the total compensation for the Chairman and the non-
independent BoD members, (iii) evaluating, in consultation with
the Chairman, the performance of the Group CEO and other GEB
members in meeting agreed goals and objectives as well as in-
forming the Governance and Nominating Committee of the out-
come of the performance evaluation of the Group CEO, (iv) pro-
posing, together with the Chairman, total individual compensation
for the independent BoD members and Group CEO for approval
by the BoD and (v) proposing to the BoD for approval, upon rec-
ommendation of the Group CEO, the total individual compensa-
tion for GEB members. The Human Resources and Compensation
Committee also reviews the compensation disclosure included in
this report.
The Human Resources and Compensation Committee com-
prises four independent BoD members and, on 31 December
2013, Ann F. Godbehere chaired it with Michel Demaré, Rainer-
Marc Frey and Helmut Panke as additional members. In 2013,
seven meetings and five telephone conferences were held with
an average duration of 100 minutes and a participation rate of
94%. All meetings were conducted with the presence of external
advisors, the Chairman and Group CEO.
➔ Refer to “Our Total Reward Principles and compensation
governance” in the “Compensation” section of this report
for more information on the Human Resources and
Compensation 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, in-
cluding 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 in-
formation from the GEB and has the authority to meet with regu-
lators and external bodies in consultation with the Group CEO.
On 31 December 2013, the Risk Committee comprised six inde-
pendent BoD members. David Sidwell chaired the Risk Commit-
tee with Rainer-Marc Frey, Axel P. Lehmann, Helmut Panke, Bea-
trice Weder di Mauro and Joseph Yam as additional members.
During 2013, the Risk Committee held a total of eight meetings
and three calls, with an average member participation rate of
95%. The average meeting duration was six hours and the calls
lasted approximately two hours on average.
The Audit Committee Chairperson regularly attended part or
all of the Risk Committee meetings. In 2013, the Chairman, the
Group CEO, the Group CFO, the Group Chief Risk Officer, the
Group General Counsel, the CEO of the Investment Bank, the
Group Treasurer, the Head Group Internal Audit and EY were also
regularly present. In addition, the Risk Committee and Human
Resources and Compensation Committee met to jointly discuss
topics on which they have shared responsibility. Annually, one
session is held with the Governing Board of the SNB and one
270
with FINMA. One meeting was held with the Federal Reserve
Bank of New York and the Connecticut Department of Banking.
In addition, the Risk Committee Chairperson meets at least once
a year with the UK Prudential Regulation Authority and Financial
Conduct Authority.
Ad-hoc Strategy Committee
In 2013, the ad-hoc committee on strategy (the Strategy Commit-
tee) focused on the agreed upon UBS strategy and the ongoing
resolution and recovery program. On 31 December 2013, the
Strategy Committee comprised five BoD members. Axel A. Weber
chaired the Strategy Committee with Michel Demaré, Reto Fran-
cioni, Rainer-Marc Frey and David Sidwell as additional members.
One telephone conference and two meetings were held with an
average duration of 40 minutes and a participation rate of 100%.
All these events were attended by the Group CEO and Group
CFO.
Ad-hoc Special Committee
In 2013, the BoD created an ad-hoc Special Committee, com-
posed of three independent BoD members, focusing on certain
specific litigation and regulatory matters. On 31 December 2013,
David Sidwell chaired the Special Committee with Isabelle Romy
and Joseph Yam as additional members. The Special Committee
held two meetings and five telephone conferences in 2013,
which were attended by all the Special Committee members. The
meetings and calls lasted on average 100 minutes.
Roles and responsibilities of the Chairman of the Board of
Directors
Axel A. Weber, the Chairman of the BoD, has entered into a full-
time employment contract with UBS in connection with his ser-
vice on the BoD.
The Chairman coordinates 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 ultimate su-
pervision over management and appoints all GEB members.
The Chairman presides over all general meetings of sharehold-
ers, 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 communica-
tion with shareholders and other stakeholders, including govern-
ment officials, regulators and public organizations. This is in ad-
dition to establishing and maintaining a close working relationship
with the Group CEO and other GEB members, and providing
advice and support when appropriate.
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 Independent Director organizes and leads a
meeting of the independent BoD members in the absence of the
Chairman. In 2013, two independent BoD meetings were held
with an average duration of 75 minutes. The Senior Independent
Director relays any issues or concerns of independent BoD mem-
bers to the Chairman and acts as a contact point for shareholders
and stakeholders wishing to engage in discussions with an inde-
pendent BoD member.
Important business connections of independent members
of the Board of Directors with UBS
As a global financial services provider and a major bank in
Switzerland, we have business relationships with many large
companies, including those in which our BoD members assume
management or independent board responsibilities. The Gov-
ernance and Nominating Committee determines whether the
nature of the relationships between us and the companies
whose chair, chief executive or other officer is a member of our
BoD compromises or not 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 or one of its subsidiaries, either
directly or as a partner, controlling shareholder or executive officer
of a company that has a relationship with us. In addition, in order
to be considered independent, our BoD members have to fulfill
the additional criteria our BoD has established based on the re-
quirements 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 cri-
teria, together with a definition of what constitutes a material
relationship, are published on our website at www.ubs.com/
governance.
In 2013, our BoD met the standards of the Organization
Regulations for the percentage of directors that are considered
independent under the criteria described above. Due to our
Chairman’s full-time employment by UBS, he is not considered
independent.
All relationships and transactions with UBS’s independent BoD
members are conducted in the ordinary course of business, and
are on the same terms as those prevailing at the time for compa-
rable transactions with non-affiliated persons. All relationships
and transactions with BoD members’ associated companies are
conducted at arm’s length.
➔ Refer to “Note 34 Related parties” in the “Financial information”
section of this report for more information
271
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Checks and balances: Board of Directors and Group
Executive Board
Information and control instruments vis-à-vis the 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 monitors
the business, whereas the GEB, headed by the Group CEO, has
executive management responsibility. The functions of Chairman
of the BoD and Group CEO are assigned to two different people,
ensuring a separation of power. This structure establishes checks
and balances and preserves the institutional independence of the
BoD from the day-to-day management of the Group, for which
responsibility is delegated to the GEB under the leadership of the
Group CEO. No member of one board may be a member of the
other.
Supervision and control of the GEB remains with the BoD. The
authorities and responsibilities of the two bodies are governed by
the Articles of Association and the Organization Regulations, in-
cluding the latter document’s “Annex B – Responsibilities and au-
thorities.”
➔ Refer to www.ubs.com/governance for more information
on checks and balances for the Board of Directors and Group
Executive Board
The BoD is kept informed of the activities of the GEB in various
ways, including minutes of GEB meetings being made available to
the BoD. The Group CEO and other GEB members also regularly
update the BoD on important issues at BoD meetings.
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, the effectiveness of
governance, risk management and control processes at Group,
divisional 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
together approve the appropriateness of Group Internal Audit’s
annual audit plan and annual audit objectives and must be in
regular contact with the Head Group Internal Audit. Both com-
mittees and the Chairman are provided with written reports from
Group Internal Audit including an annual report summarizing the
function’s activities and significant audit results.
Our compliance function provided an annual compliance re-
port to the BoD in March 2013. This report is required by section
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
report for more information
272
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
2013
In spring 2013, the GEB decided that the role of the Corporate
Center Chief Executive Officer would be eliminated and all re-
sponsibilities and authorities pertaining to that role would be
assumed by the Group Chief Operating Officer (Group COO). On
5 December 2013, changes to the GEB and Corporate Center
structure were announced. John Fraser, Chairman and CEO
Global Asset Management since 2001, retired from his CEO role
on 31 December 2013. Ulrich Körner assumed the role of CEO
Global Asset Management and Tom Naratil, currently Group
Chief Financial Officer (CFO), was also appointed Group COO,
effective on 1 January 2014.
The following biographies provide information on the GEB
members.
Professional history and education
Sergio P. Ermotti was appointed Group Chief Executive Officer in November 2011, having held the position of Group Chief
Executive Officer 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.
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 this, 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 corporations, organizations and foundations or interest groups include:
Mr. Diethelm is Chairman of the Swiss-American Chamber of Commerce’s legal committee. He is a member of the Committee
on Capital Markets Regulation, the Swiss Advisory Council of the American Swiss Foundation, the UBS Foundation of
Economics in Society and 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-8001 Zurich
Function in UBS
Group Chief Executive Officer
Year of initial appointment: 2011
Markus U. Diethelm
Swiss, born 22 October 1957
UBS AG, Bahnhofstrasse 45, CH-8001 Zurich
Function in UBS
Group General Counsel
Year of initial appointment: 2008
273
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 was a member of
the GEB from 2002 to 2013. He retired from his CEO role on 31 December 2013 and is currently Chairman of UBS Global
Asset Management. 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 vari-
ous positions at the Australian Treasury, including two international postings in Washington, DC, first, at the International
Monetary Fund and, subsequently, as the Economic Minister at the Australian Embassy in Washington, DC. He was the
Deputy Secretary (Economic) of the Australian Treasury from 1990 to 1993. Mr. Fraser graduated from Monash University,
Melbourne, in 1972 with a first-class honors degree in economics and, in 2013, was awarded an honorary Doctorate of Laws
by this same University.
Other activities and functions
Mandates on boards of corporations, organizations and foundations or interest groups include:
Mr. Fraser is Chairman of the Victorian Funds Management Corporation in Melbourne, a member of the Advisory Council of
AccountAbility and a member of the MSCI Advisory Board.
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 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, prior to this, 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 corporations, organizations and foundations or interest groups include:
Mr. Gähwiler is a member of the boards of the Zürcher Volkswirtschaftliche Gesellschaft, Opernhaus Zürich AG and
Economiesuisse. He is Vice Chairman of the Zurich Chamber of Commerce and 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 became CEO Global Asset Management in January 2014. Additionally, he has been CEO of UBS Group Europe,
Middle East and Africa since December 2011. He became a member of the GEB in April 2009 and was Group Chief
Operating Officer from 2009 to 2013. 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 management consultant at McKinsey & Company.
Other activities and functions
Mandates on boards of corporations, organizations and foundations or interest groups include:
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 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, 21 Lombard Street, London EC3V 9AH, UK
Functions in UBS
Chairman and CEO Global Asset Management
until 31 December 2013, retiring from CEO role and
GEB on that date.
Year of initial appointment: 2002
Lukas Gähwiler
Swiss, born 4 May 1965
UBS AG, Bahnhofstrasse 45, CH-8001 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-8001 Zurich
Functions in UBS
CEO Global Asset Management since 1 January 2014
and CEO UBS Group Europe, Middle East and Africa
Group Chief Operating Officer until 31 December 2013
Year of initial appointment: 2009
274
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. Prior to 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 ana-
lyst 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 degree in economics from
Bethany College, West Virginia, and holds an MBA from Texas Christian University.
Other activities and functions
Mandates on boards of corporations, organizations and foundations or interest groups include:
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, DC, 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. In addition to this role, he was
appointed Group Chief Operating Officer in January 2014. He served as CFO and Chief Risk Officer of Wealth Management
Americas from 2009 until his appointment as Group CFO. Before 2009, he held various senior management positions
within UBS, including heading the Auction Rate Securities Solutions Group during the financial crisis in 2008. He was named
Global Head of Marketing, Segment & Client Development in 2007, Global Head of Market Strategy & Development in
2005, and Director of Banking and Transactional Solutions, Wealth Management USA, in 2002. During this time, he was a
member of the Group Managing Board. He joined Paine Webber Incorporated in 1983, and after the merger with UBS be-
came 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, 677 Washington Boulevard, Stamford,
CT 06901 USA
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, 1200 Harbor Boulevard, Weehawken,
NJ 07086 USA
Functions in UBS
CEO Wealth Management Americas and
CEO UBS Group Americas
Year of initial appointment: 2009
Tom Naratil
American (US), born 1 December 1961
UBS AG, Bahnhofstrasse 45, CH-8001 Zurich
Functions in UBS
Group CFO and, since 1 January 2014, Group Chief
Operating Officer
Year of initial appointment: 2011
275
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
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 corporations, organizations and foundations or interest groups include:
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 ap-
pointed as Head of Wealth Management North, East & Central Europe. From 2005 to 2007, he was CEO of UBS Deutschland,
Frankfurt, and, prior to this, 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 corporations, organizations and foundations or interest groups include:
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-8001 Zurich
Function in UBS
CEO Investment Bank
Year of initial appointment: 2012
Chi-Won Yoon
Korean, born 2 June 1959
UBS AG, 2 International Finance Centre
52/F, 8 Finance Street, Central, Hong Kong
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-8001 Zurich
Function in UBS
CEO UBS Wealth Management
Year of initial appointment: 2009
276
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 Chief Executive Officer (Group
CEO), the GEB has executive management responsibility for the
Group and its business. It assumes 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 supervis-
ing the implementation of risk management and control princi-
ples, approving major risk policies as proposed primarily by the
Group Chief Risk Officer and controlling the risk profile of the
Group as a whole, as determined by the BoD and the Risk Com-
mittee. In 2013, the GEB held a total of 20 meetings, not includ-
ing two GEB offsite meetings and seven ad-hoc conference calls.
➔ Refer to the Organization Regulations 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 2013, the Group ALCO
held 10 meetings.
Management contracts
We have not entered into management contracts with any third
parties.
277
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
Change of control and defense measures
We refrain from restrictions regarding change of control and de-
fense measures that would hinder developments initiated in, or
supported by, the financial markets. We also do not have any
specific defenses in place to prevent hostile takeovers.
Duty to make an offer
An investor who acquired more than 331⁄3% 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), contain change of
control clauses.
All employment contracts with GEB members contain a notice
period of six months, except for one which contains a 12-month
notice period. During the notice period, GEB members are entitled
to their salary and the continuation of existing employment benefits.
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.
278
Auditors
Audit is an integral part of corporate governance. While safe-
guarding their independence, the external auditors closely coordi-
nate their work with Group Internal Audit. The Audit Committee,
and ultimately the Board of Directors (BoD), supervises the effec-
tiveness of audit work.
➔ Refer to “Board of Directors” in this section for more information
on the Audit Committee
External independent auditors
At the 2013 Annual General Meeting of Shareholders (AGM),
Ernst & Young Ltd (EY) were re-elected as auditors for the Group
for a further one-year term of office. EY assume virtually all audit-
ing functions according to laws, regulatory requests and the Ar-
ticles of Association. The EY lead partner in charge of the UBS fi-
nancial audit has been Jonathan Bourne since 2010 and his
incumbency is limited to five years. The co-signing partner for the
financial statement audit is Troy J. Butner, who has been on the
audit since 2011. His incumbency is limited to seven years. The
Lead Auditor to FINMA is Rolf Walker. He has been in charge of
auditing UBS since 2013 and his incumbency is limited to two
years due to prior audit service to UBS in another role. The
co-signing partner for the FINMA audit has been Marc Ryser since
2012, with an incumbency of seven years.
opinions independently from the auditors in connection with cap-
ital increases.
Fees paid to external independent auditors
The fees (including expenses) paid to our auditors EY are set forth
in the table below. In addition, EY received CHF 34,445,000 in
2013 (CHF 33,327,000 in 2012) for services performed on behalf
of our investment funds, many of which have independent fund
boards or trustees.
Audit work includes all services necessary to perform the audit
in accordance with applicable laws and generally accepted audit-
ing standards, as well as other assurance services that convention-
ally only the auditor can provide. These include statutory and regu-
latory audits, attest services, and the review of documents to be
filed with regulatory bodies. The additional services classified as
audit in 2013 included several engagements for which EY 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, and consultation concerning financial
accounting and reporting standards.
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
Tax work involves services performed by professional staff in
EY’s tax division, and includes tax compliance and tax consultation
with respect to our own affairs.
Fees paid to external independent auditors
UBS paid the following fees (including expenses) to its external independent auditors.
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: consultation concerning financial accounting and reporting standards
Tax services
Other
Total non-audit
31.12.13
31.12.12
49,522
17,604
67,126
11,708
6,922
4,386
400
950
1,601
14,258
53,900
23,648
77,548
8,401
3,427
4,134
840
817
1,990
11,208
279
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
“Other” services are permitted services which include on-call
advisory services and assessments of regulatory and internal con-
trol frameworks. In addition, 2013 and 2012 included non-recur-
ring expenses.
Pre-approval procedures
To ensure EY’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 blan-
ket 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 EY to the Chairperson
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 352 personnel worldwide as of 31 December 2013, Group
Internal Audit (GIA) performs the internal auditing function for
the entire Group. It is an independent and objective function that
supports both the Group, in achieving its defined strategic, op-
erational, financial and compliance objectives, and the BoD, sup-
ported by its committees, in discharging their governance re-
sponsibilities. GIA provides assurance by assessing the reliability
of financial and operational information, as well as compliance
with legal, regulatory and statutory requirements. All reports
with key issues are provided to the Group CEO, GEB members
responsible for the business divisions and other responsible man-
agement. In addition, the Chairman, the Risk Committee and the
Audit Committee are regularly informed about important issues.
GIA further assures the closure and successful remediation of is-
sues, irrespective of the function which identified them, including
those which are self-identified by management (first line of de-
fense) or are raised by control functions (second line of defense),
GIA (third line of defense), external auditors and regulators. 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. In
their assessment, GIA is quantitatively and qualitatively well re-
sourced, with 390 personnel budgeted worldwide to perform its
function. The role, position, responsibilities and accountability of
GIA are set out in our Organization Regulations, published at
www.ubs.com/governance. GIA has unrestricted access to all ac-
counts, books, records, systems, property and personnel, and
must be provided with all information and data needed to fulfill
its auditing duties. The Risk Committee 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 Committee or the Risk Committee.
Coordination and close cooperation with the external auditors
enhance the efficiency of GIA’s work.
280
Information policy
We provide regular information to our shareholders and to the
financial community.
Financial disclosure principles
Financial reports will be published as follows
First quarter 2014
Second quarter 2014
Third quarter 2014
6 May 2014
29 July 2014
28 October 2014
The Annual General Meeting of Shareholders will take
place as follows
2014
2015
7 May 2014
7 May 2015
We fully support the notion of transparency and consistent and
informative disclosure. We aim to communicate our strategy and
results in a manner that allows stakeholders to gain a good un-
derstanding of how our Group works, what our growth pros-
pects are and what risks our businesses and our strategy entail.
We continually assess feedback from analysts and investors and,
where appropriate, reflect this in our disclosures. To continue
achieving these goals, we apply the following principles in our
financial reporting and disclosure:
– Transparency that enhances understanding of the economic
drivers and builds trust and credibility
– Consistency within each reporting period and between report-
ing periods
➔ Refer to the corporate calendar at www.ubs.com/investors for
– Simplicity that allows readers to gain a good understanding of
future financial report publication and other key dates
the performance of our businesses
We meet with institutional investors worldwide throughout the
year and regularly hold results presentations, attend and present
at investor conferences and, from time to time, host investor days.
Investor meetings always include members of our Investor Rela-
tions 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 contact with shareholders around the world.
Registered shareholders may opt to receive our annual report
or review booklet, which reflects on specific 2013 initiatives and
achievements of the Group and provides an overview of our ac-
tivities 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 distribu-
tion lists to internal and external stakeholders and reduced stocks,
yielding significant annual savings. In addition, shareholders can
change their subscription preferences at any time using our share-
holder 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
– Relevance that prevents information overload by focusing on
what is required by regulation or statute and what is relevant
to our stakeholders
– Best practice that leads to improved standards
We endorse the work of the Enhanced Disclosure Task Force
(EDTF) and our financial reports contain disclosures aligned with
the recommendations issued by the EDTF on 29 October 2012 in
its report “Enhancing the Risk Disclosures of Banks.” Certain dis-
closures in our Annual Report 2012 were cited by the EDTF in its
July 2013 “Progress Report on Implementation of Disclosure Rec-
ommendations” as “leading practice” and by Deloitte in its re-
port, “Responding to the EDTF recommendations – A review of
2012 year end reporting,” as “good practice.” For our Annual
Report 2013, we have made significant further enhancements to
our disclosures in light of these recommendations. Further infor-
mation on our implementation of each of the EDTF recommenda-
tions can be found at the start of the “Risk, treasury and capital
management” section of this report, in which most of the new
and enhanced disclosures are presented. Consistent with our fi-
nancial reporting and disclosure principles, we regard the en-
hancement of disclosures as an ongoing commitment and we
expect to make further refinements to our disclosures in 2014 and
beyond.
➔ Refer to the “Significant accounting and financial reporting
changes” section of this report for more information on
enhancing our disclosures
➔ Refer to the “Risk, treasury and capital management” section
of this report for more information on our implementation of
industry conference presentations
the EDTF recommendations
➔ Refer to the “Information sources” section of this report for
more information
281
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate governance
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 more
information on the basis of UBS’s accounting
We are committed to maintaining the transparency of our re-
ported results and to ensuring that analysts and investors can
make meaningful comparisons with prior periods. If there is a ma-
jor reorganization of our business divisions, or if changes to ac-
counting standards or interpretations lead to a material change in
the Group’s reported results, our results are restated for previous
periods, when required by applicable accounting standards. These
restatements show how results would have been reported accord-
ing 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 in-
formation, including certain financial reports, with the US Secu-
rities and Exchange Commission (SEC) under the US federal se-
curities laws. We file an annual report on Form 20-F, and submit
our quarterly financial reports and other material information
under cover of Form 6-K to the SEC. These reports are all avail-
able 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 Group CFO, of the ef-
fectiveness of our disclosure controls and procedures (as defined
in Rule 13a–15e) under the US Securities Exchange Act of 1934.
Based upon that evaluation, the Group CEO and Group CFO con-
cluded that our disclosure controls and procedures were effective
as of 31 December 2013. 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“ section of this report contains man-
agement’s assessment of the effectiveness of internal control over
financial reporting as of 31 December 2013. The external audi-
tors’ report on this assessment is also included in this report.
➔ Refer to the “Financial information” section of this report for
more information
282
Corporate responsibility
At UBS, corporate responsibility means “doing the right thing” – both now and in the future. Our commitment to this
is incorporated in the principles and standards set out in our Code of Business Conduct and Ethics (Code). These apply
to all aspects of our business and the ways in which we engage with our stakeholders, from the products and services
we offer our clients, our management of environmental and social risks, to the way we protect the well-being of
our employees. Corporate responsibility is embedded at every level of the firm, helping us to adopt a responsible and
sustainable approach to doing business while underlining our desire to contribute to the communities in which we
operate.
The successful delivery of our corporate responsibility commit-
ments and activities relies on the firm conviction that, above all,
we must conduct our business in a sustainable way. We have
made good on this belief over the course of our over 150-year
history and have demonstrated resilience in the face of the many
political, economic and regulatory changes and challenges that
have come to pass during this period.
We understand that to be taken seriously as a responsible cor-
porate citizen takes time, and that a solid and proven track record
counts for more than a series of quick wins. We have such a track
record, as described in the following section. The guiding princi-
ples and standards set out in the Code shape our business activi-
ties and all our dealings with our stakeholders including clients,
colleagues, shareholders, regulators and business partners. Proper
implementation of the Code contributes to the wider societal
goal of sustainable development. Policies and guidelines, as well
as associated objectives related to this aspiration, are guided and
supervised at the highest level of the firm. We demonstrate ac-
countability for our corporate responsibility commitments and
activities at both Board of Directors (BoD) and Group Executive
Board (GEB) levels.
➔ Refer to www.ubs.com/responsibility for more information
(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)
(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:37)(cid:81)(cid:70)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:36)(cid:87)(cid:85)(cid:75)(cid:80)(cid:71)(cid:85)(cid:85)(cid:2)(cid:37)(cid:81)(cid:80)(cid:70)(cid:87)(cid:69)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:39)(cid:86)(cid:74)(cid:75)(cid:69)(cid:85)
(cid:46)(cid:71)(cid:73)(cid:67)(cid:78)(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:81)(cid:84)(cid:91)(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:75)(cid:71)(cid:85)
(cid:39)(cid:86)(cid:74)(cid:75)(cid:69)(cid:67)(cid:78)(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:75)(cid:71)(cid:85)
(cid:57)(cid:81)(cid:84)(cid:77)(cid:82)(cid:78)(cid:67)(cid:69)(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:75)(cid:71)(cid:85)
(cid:53)(cid:81)(cid:69)(cid:75)(cid:71)(cid:86)(cid:67)(cid:78)(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:75)(cid:71)(cid:85)
(cid:32)(cid:2)(cid:37)(cid:81)(cid:79)(cid:82)(cid:78)(cid:75)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:78)(cid:67)(cid:89)(cid:85)(cid:14)(cid:2)
(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)
(cid:32)(cid:2)(cid:54)(cid:67)(cid:90)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:78)(cid:75)(cid:67)(cid:80)(cid:69)(cid:71)
(cid:32)(cid:2)(cid:39)(cid:86)(cid:74)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:85)(cid:86)(cid:67)(cid:80)(cid:70)(cid:67)(cid:84)(cid:70)(cid:85)
(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)
(cid:24)(cid:18)(cid:24)(cid:15)(cid:22)(cid:19)(cid:18)(cid:24)(cid:16)(cid:19)(cid:2)
283
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
Working with our clients towards a better society
Our clients care deeply about societal
issues and want to use their resources
for the benefit and advancement of
individuals, communities and societies
around the globe. They are increasingly
focused on issues such as the mainte-
nance of functioning infrastructures,
the impact of climate change, the
strains imposed by demographic shifts,
the growth in inequalities, and the
provision of education, jobs and
healthcare for all.
As a global firm, and the world’s largest
wealth manager, we are in a unique
position to help our clients address their
societal concerns. As their trusted financial
advisor, we recognize this responsibility
and take it seriously. For a long time, we
have been helping them to invest
according to sustainable and responsible
criteria. Building on this capability, in 2013
we made a significant commitment to
maximize these efforts through a dedi-
cated, industry-leading platform. This will
deliver comprehensive research, advisory
and product capabilities in sustainable
investments and philanthropy, and is
currently under development. While we
have always provided such offerings,
it is our objective to do this holistically,
channeling a growing percentage of
assets, through innovative financial
mechanisms, to address societal chal-
lenges and make societal performance
part of every client conversation.
To date, 24% of our assets are already
invested according to sustainable and
socially responsible investment criteria, as
illustrated in the ”SRI invested assets”
table in ”Investment products” in this
section. We want this to increase, in
particular through developing innovative
solutions. In 2013, a key example
included our ground-breaking Impact
Investing Private Equity fund for small
and medium-sized enterprises (SMEs) in
emerging and frontier markets. This
provides our clients with yet more
opportunities to direct their investments
and address social and environmental
challenges. Client focus is also a crucial
component of our climate change
strategy. In 2013, we made progress in
several areas, including through the
environmental optimization of our Global
Real Estate investment portfolios, by
offering the “Energy check-up for SMEs”
to Swiss SMEs, and through our innova-
tive UBS Clean Energy Infrastructure
Switzerland fund for our institutional
clients, enabling them to invest in
renewable energy infrastructures.
We also continue to provide thought
leadership in this area through our
leading research capabilities and our
active involvement in discussions on key
societal topics. In 2013, an important
example was the collaboration of
environmental, social and governance
(ESG) research experts in Wealth Man-
agement, Global Asset Management and
the Investment Bank on one of our
flagship publications, the “UBS Research
Focus.” Recognizing growing client
interest in sustainable investing, this
publication explored sustainability issues
and demonstrated how a well-considered
sustainability approach can add real value
to a client’s portfolio. As a second major
example, we co-launched the Thun
Group of Banks’ discussion paper on
banking and human rights, which
examines the ways in which our industry
can effectively implement the UN’s
Guiding Principles on Business and
Human Rights.
Our own efforts towards the sustainable
development of societies and communi-
ties, including our community invest-
ment and employee volunteering
activities focused on education and
entrepreneurship, complement our
client-focused platform. Our response to
the devastation in the Philippines caused
by Typhoon Haiyan demonstrates our
unique and integrated approach. UBS
Community Affairs and the UBS Optimus
Foundation joined forces, including both
clients and employees in our firm’s
matched-giving schemes. This resulted in
a combined (client and UBS) commit-
ment of more than CHF 3 million in
financial contributions. While the UBS
Optimus Foundation established a Rapid
Response Emergency Fund to provide
immediate essential supplies to children
and families in the hardest hit and most
remote areas, contributions will also be
used for the longer-term reconstruction
and development efforts that must
follow.
We aim to work with, and for, our clients
towards a better society. The spirit and
ambition of our client-focused approach
is aimed at helping our clients express
their values and achieve both financial
and societal benefits. We will continue to
expand our capabilities in order to
provide our clients with an industry-lead-
ing and integrated range of sustainability
and impact investment products and
services, which will enable them to
continue to invest with societal goals in
mind.
284
Our approach
Corporate responsibility governance
The BoD is responsible for setting our firm’s values and standards
and ensuring that 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 reputa-
tion and ensuring that we communicate effectively with all our
stakeholders.
All BoD committees are focused on achieving our goal of creat-
ing sustainable value. Of the BoD committees, the Corporate Re-
sponsibility Committee shoulders the main undertaking for cor-
porate responsibility. As set out in the committee’s charter, it ac-
tively reviews and assesses how we meet the existing and evolving
corporate responsibility expectations of our stakeholders. It also
monitors and reviews our corporate responsibility policies and
regulations, the implementation of our activities and commit-
ments, as well as regularly reviewing the Code.
➔ Refer to the UBS Code of Business Conduct and Ethics at
www.ubs.com/code for more information
➔ Refer to the Organization Regulations of UBS at
www.ubs.com/governance for the charter of the Corporate
Responsibility Committee
In 2013, Wolfgang Mayrhuber, Chairman of the Corporate Re-
sponsibility Committee, announced his intention to leave the BoD
at the 2013 Annual General Meeting of Shareholders. The Com-
mittee is newly chaired by Axel A. Weber, Chairman of the BoD,
has three additional members and is advised by a panel of GEB
members, consisting of the Group CEO and all regional chief ex-
ecutive officers.
The GEB is responsible for the development and implementa-
tion of our Group and business division strategies, including those
pertaining to corporate responsibility. At or directly below GEB
level, there are various committees and boards responsible for
tasks and activities relating to particular aspects of corporate re-
sponsibility, including the Global Environmental & Social Risk
Committee, chaired by the Group Chief Risk Officer, which shapes
UBS’s position on controversial activities and related policies. Ad-
ditionally, our Environmental & Human Rights Committee over-
sees the operational execution of UBS’s Environmental and Hu-
man Rights Policy, which was revised in 2014 to incorporate
recent commitments made in the areas of climate change and
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 Anti-Money Laundering (AML) Compliance and
supported by a network of compliance experts. The GEB also
monitors the implementation of our diversity and inclusion-relat-
ed strategies and plans for each business division. Our global di-
versity and inclusion team supports senior management and hu-
man resources business partners in developing these plans.
➔ 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 goals of our community affairs. In addition, it
(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)
(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:35)(cid:73)(cid:71)(cid:80)(cid:70)(cid:67)
(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)
(cid:50)(cid:84)(cid:81)(cid:82)(cid:81)(cid:85)(cid:67)(cid:78)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:35)(cid:70)(cid:88)(cid:75)(cid:69)(cid:71)
(cid:47)(cid:67)(cid:80)(cid:70)(cid:67)(cid:86)(cid:71)
(cid:72)(cid:81)(cid:84)(cid:2)(cid:67)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:39)(cid:90)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)
(cid:71)(cid:90)(cid:82)(cid:71)(cid:84)(cid:86)(cid:85)
(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:79)(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: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)
(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:71)(cid:90)(cid:82)(cid:71)(cid:84)(cid:86)(cid:85)
(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: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:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)
(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:36)(cid:67)(cid:80)(cid:77)
(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:24)(cid:18)(cid:26)(cid:15)(cid:22)(cid:19)(cid:18)(cid:25)(cid:16)(cid:19)(cid:2)
285
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
is ultimately responsible for determining our response to world-
wide disasters. In 2014, this committee will be integrated in the
Corporate Responsibility Committee, and its advisory panel, to
ensure further alignment.
➔ Refer to “Our communities” in this section for more information
on our charitable and related activities
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 at both BoD
and GEB level, we demonstrate that we have firmly established
responsibility for, and supervision of, this important and complex
task at the highest levels 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 in strengthening our corporate responsibility agenda.
In October 2013, we co-launched the Thun Group of Banks’
discussion paper on banking and human rights. The Thun Group
is an informal group of representatives from seven banks, with the
name derived from the location (the UBS conference center in the
Swiss city of Thun) where the group met to share experiences and
ideas regarding the implementation of the UN’s Guiding Principles
on Business and Human Rights. The paper is the result of these
discussions. It aims to support banks in mapping and analyzing
their potentially adverse impacts on human rights, and also looks
at related risks, including reputational, legal, operational and fi-
nancial risks. The work of the Thun Group is reflected in our envi-
ronmental and human rights policy framework.
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.
In 2013, we re-entered the Dow Jones Sustainability Indices (DJSI)
from which we had been removed in 2012, as our score was just
below the raised benchmark. This followed continuous inclusion in
the DJSI since their launch in 1999. At the time, the DJSI were the
first global indices to track the financial performance of the leading
sustainability-driven companies worldwide. The DJSI follow a best-
in-class approach and include companies from across all industries
that outperform their peers in numerous sustainability metrics.
We have been a member of the FTSE4Good index series since
its inception, and have also been awarded corporate responsibility
prime status by oekom research, one of the world’s leading sus-
tainability rating agencies. According to oekom’s corporate rating
system, prime status is awarded to companies that are among the
leaders in their industry and that meet industry-specific minimum
requirements. We were also ranked among the top 20 financial
institutions in the CDP Global 500 Climate Change Report 2013.
We received several honors in the 11th annual Thomson Re-
uters Extel / UKSIF Socially Responsible Investing (SRI) & Sustain-
ability Survey of over 500 investment professionals from 27 coun-
tries. The UBS Investment Bank ESG & Sustainability Team was
ranked third overall for ESG and SRI, including second for Corpo-
rate Governance and for Renewable Energy, fourth for Climate
Change and for Thematic Research, and fifth for SRI Research.
Stakeholder dialogue
We regularly engage with our stakeholders on a wide range of
topics which gives us important information about their expecta-
tions and concerns. This leads to a more in-depth understanding
of issues relevant to our firm and their management. Our relation-
ship with stakeholders is multi-faceted and includes interactions
with large groups, regular communications with representatives
from a particular group, as well as meetings with individuals (for
example, clients and investors). In 2013, we also undertook an
analysis of the issues deemed relevant to our stakeholders. The
results of this analysis are reflected in a materiality matrix as de-
fined by the Global Reporting Initiative (GRI). The matrix distils the
views of the stakeholders with which our firm interacts and covers
20 topics including financial stability, risk behavior and culture,
operational efficiency and resilience, environmental protection
and climate change, and society and community.
In 2013, 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 2013 UBS Global
Philanthropy Forum. Over 100 clients from around the world
spent two days discussing how they can help to narrow the gen-
der gap and ensure equal educational and employment opportu-
nities for girls and women.
Discussions with employees covered various sustainability top-
ics, including energy. A key annual campaign, the UBS Environ-
mental Month in April, again raised awareness among employees
and external stakeholders about our efforts towards reducing the
environmental impact of our operations and banking activities.
Working together with investors and rating agencies, we also
considered key environmental, social and governance topics such
as climate change. Discussions with non-governmental organiza-
tions focused on the subjects of reputational risks, controversial
weapons, food “speculation” as well as climate change, particu-
larly 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 an important role,
with its members providing critical input on stakeholder expecta-
tions and concerns. These contributions are relayed back to the
Corporate Responsibility Committee and provide a very valuable
addition to information gathered through other monitoring
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 2013 that are dedicated
to “Corporate responsibility” and “Our employees.” The content
286
of these sections, other relevant annual report text and data and
information on our website are reviewed by EY, according to the
Global Reporting Initiative’s Sustainability Reporting Guidelines.
➔ Refer to www.ubs.com/gri for more information
➔ Refer to www.ubs.com/materiality for the GRI materiality matrix
Training and raising awareness
We actively engage in internal and external education and aware-
ness-raising training on corporate responsibility topics and issues.
Through induction, education and broader awareness-raising ac-
tivities, we ensure that our employees understand their responsi-
bilities in complying with our policies and the importance of our
societal commitments. General information is published on our
intranet and on our corporate responsibility website. In 2013,
training and awareness-raising activities for employees continued
to embrace the Code, 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 9,271 employees
received training on environmental issues, of which 7,136 re-
ceived general training on our environmental policy and programs
and 2,135 participated in specialist training targeted within their
area of expertise and influence. Employee speaker sessions, exhi-
bitions and lunchtime training sessions were delivered in all re-
gions alongside specific technical training for the regional envi-
ronmental teams. Community Affairs engagement forms part of
our key internal leadership programs, while skills-based employee
volunteering further contributes towards staff development. Em-
ployees are also required to undergo regular refresher training
sessions in AML-related issues. This includes online training,
awareness campaigns and seminars.
➔ Refer to “Education and development” in the “Our employees”
section of this report for more information
Our clients
We are focused on gaining and retaining the trust of our stake-
holders, as well as achieving our goal of generating sustainable
earnings and creating long-term shareholder value. 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 demonstrate that we are
not only listening to our stakeholders, but also aiming to be in an
industry-leading position and meet their expectations.
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-
lustrated by the way we take responsibility in our own operations,
aiming to help preserve the integrity of the financial system. We
employ a rigorous risk-based approach to ensure our policies and
procedures are able to detect risks and effectively manage those
risks, including, for example, managing relationships which are
classified as higher risk with increased scrutiny. We adhere to strict
know-your-client regulations without undermining our clients’ le-
gitimate right to privacy. Ongoing due diligence and monitoring,
including the use of advanced technology to help identify transac-
tion patterns or unusual dealings, assists in the identification of
suspicious activities. If suspicious activities are discovered, they are
promptly escalated to management or control functions and ex-
ternally, as required.
During 2013, Global AML Compliance worked closely with the
Environmental and Social Risk group to further develop effective
ways of screening potential business partners, vendors and clients
with regards to potential issues relating to environmental and social
risk, building on the work already carried out during previous years.
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 AML
risks, was forward-looking and included 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 AML, sanctions or anti-corruption poli-
cies. Additional risk assessments that have taken place since then
have confirmed this view. Nonetheless, a number of initiatives we
have in place continue to strengthen our defenses against UBS
being used for criminal purposes. In addition, over the course of
2014 we will continue to revise our risk assessment framework in
a manner that further focuses on key risks and controls.
As part of our extensive and ongoing efforts to prevent money
laundering, corruption and terrorist financing, our internal global
AML policies were reviewed in 2011 and enhancements to ad-
dress more specific risks in relation to corruption, sanctions and
money laundering were implemented globally. In 2012, we also
reviewed and amended our approach to controversial weapons in
order to comply with the Swiss law that came into effect on
1 February 2013. This law implements the international bans on
the use, stockpiling, production and transfer of cluster munitions
and anti-personnel mines.
(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:67)(cid:80)(cid:70)(cid:2)(cid:74)(cid:87)(cid:79)(cid:67)(cid:80)(cid:2)(cid:84)(cid:75)(cid:73)(cid:74)(cid:86)(cid:85)(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:67)(cid:80)(cid:70)(cid:2)(cid:74)(cid:87)(cid:79)(cid:67)(cid:80)(cid:2)(cid:84)(cid:75)(cid:73)(cid:74)(cid:86)(cid:85)(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:49)(cid:87)(cid:84)(cid:2)(cid:71)(cid:79)(cid:82)(cid:78)(cid:81)(cid:91)(cid:71)(cid:71)(cid:85)
(cid:49)(cid:87)(cid:84)(cid:2)(cid:81)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:47)(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:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:78)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:75)(cid:80)(cid:70)(cid:71)(cid:82)(cid:71)(cid:80)(cid:70)(cid:71)(cid:80)(cid:86)(cid:78)(cid:91)(cid:2)(cid:88)(cid:71)(cid:84)(cid:75)(cid:386)(cid:71)(cid:70)
(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:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(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)
287
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
We are a founding member of the Wolfsberg Group, an associa-
tion of 11 global banks established in 2000, which aims to develop
financial services industry standards and related products for know-
your-client, AML and counter-terrorist financing policies. Alongside
the other members of this group, we continue to work closely with
the Financial Action Task Force, an intergovernmental body that de-
velops and promotes national and international policies to combat
money laundering and terrorist financing through consultation with-
in the private sector.
We will act decisively to prevent potentially irresponsible or harm-
ful actions by individuals. First and foremost, this means that our
employees must uphold the law, adhere to relevant regulations, and
behave in a responsible and principled manner. To this effect, our
business processes and control mechanisms are constantly under re-
view in order to enhance our prevention capabilities.
– 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 their launch in order to assess their compati-
bility and consistency 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.
– Own operations: our operational activities and employees, or
contractors working on UBS premises, are assessed for compli-
ance with relevant environmental, health and safety and labor
rights regulations.
Managing environmental and social risks
We apply a risk framework to all of our transactions, products, ser-
vices and activities in order to identify and manage potential adverse
impacts to the environment and to human rights, as well as the as-
sociated environmental and social risks to which our clients’ and our
own assets are exposed. Environmental and social (including human
rights) risks are broadly defined as the possibility of UBS suffering
reputational or financial harm from transactions, products, services
or activities such as lending, capital raising, advisory services or in-
vestments that involve a party associated with environmentally or
socially sensitive activities. For products, services and activities identi-
fied as potentially posing significant environmental and social risks,
procedures and tools for the identification, assessment, escalation
and monitoring of such risks are applied and integrated into stan-
dard 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.
Business or control functions are responsible for identifying
and assessing environmental and social risks as part of the client,
supplier or transaction due diligence processes. Where these
functions determine the existence of potential material risks, they
refer the client, supplier or transaction to a specialized environ-
mental and social risk unit for enhanced due diligence. To support
the consistent identification and assessment of such risks, our in-
ternal industry sector guidelines provide an overview of key envi-
ronmental and human rights issues that arise in the various life
cycles of the sector, and summarize industry standards in dealing
with them. These guidelines currently cover six sectors: chemicals,
forestry products and biofuels, infrastructure, metals and mining,
oil and gas, and utilities. If identified risks are believed to pose
potentially significant environmental or social risks, they are esca-
lated for approval to senior management, at divisional, regional,
or group level, depending on their significance. We have defined
controversial activities in which we will not engage, such as pro-
viding financial services to extractive industries, heavy infrastruc-
Environmental and social risk assessments
Cases referred for assessment 2
by region
Americas
Asia Pacific
Europe, Middle East and Africa
Switzerland
by business division
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center 3
For the year ended
% change from
GRI 1
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
FS2
31.12.13
1,716
31.12.12
1,039
367
296
373
680
298
46
598
14
657
103
288
222
225
304
157
5
223
12
533
109
31.12.11
31.12.12
416
111
136
119
50
59
5
22
330
65
27
33
66
124
90
820
168
17
23
(6)
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.
288
ture, forestry and plantation operations that risk severe environ-
mental damage to endangered species, high-conservation value
forests and world heritage sites. They also include all commercial
activities that engage in child or forced labor, or threaten indige-
nous peoples’ rights.
An enhanced due diligence and approval process is triggered for
areas in which we will only provide financial services under strin-
gent, pre-established guidelines. Such areas include palm oil pro-
duction, mountaintop removal as a coal extraction method, hy-
draulic fracturing as an exploration or extraction method for oil and
gas, and exploration and development of oil sands. Enhanced due
diligence includes an assessment of the company’s regulatory com-
pliance, past and present environmental performance records, as
well as concerns from stakeholder groups.
➔ Refer to www.ubs.com/responsibility for the complete “UBS
position on relationships with clients and suppliers associated
with controversial activities”
Clients, transactions or suppliers potentially in breach of UBS’s
position, or otherwise subject to significant environmental and hu-
man rights controversies, are identified as part of UBS’s know-your-
client compliance processes. Advanced data analytics on compa-
nies associated with such risks are integrated into the web-based
compliance tool used by our staff before they enter into a client or
supplier relationship, or a transaction. The systematic nature of this
tool significantly enhances our ability to identify potential reputa-
tional risk as is evidenced by the high number of cases referred for
assessment to our environmental and social risk units since 2012.
➔ Refer to the table “Environmental and social risk assessments” in
this section for more information
Sustainable products and services
By integrating environmental and social considerations into our ad-
visory, research, investment, finance and ownership processes
across all of our businesses, we provide financial products and
services which help our clients benefit from environmentally and
socially related business opportunities. This is particularly the case
in relation to climate change, where our activities focus on our
client-centric activities of risk management, investment, financing
and research.
➔ Refer to “Our climate change commitment” in this section for
more information on related business initiatives
Investment advisory
We offer investment advisory services for wealth management
and institutional clients, helping them to consider the potential
social and environmental impacts, as well as the potential finan-
cial returns, of their investments. Our philanthropy and sustain-
able investing teams have continued to develop the holistic ser-
vice offered within our wealth management businesses. These
teams provide thought leadership, advice, products and solutions
to existing and prospective private clients who wish to make in-
vestments in accordance with their own personal values. These
services also extend to aiding philanthropic or investment deci-
sions intended to drive positive change. Our services also include
sustainable portfolio management, such as mandate solutions
and separately managed accounts for private clients and institu-
tions with a strong focus on sustainability across all asset classes.
In the US, we also offer managed accounts with environmental,
social and governance criteria (sourced from third-party data pro-
vider MSCI) embedded into private clients’ fundamental invest-
ment process, enabling them to identify and exclude securities
based on issue-oriented screens.
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
We produce award-winning research on the impact of environ-
mental, social and governance issues on various sectors and com-
panies. Our specialized teams have regularly published research
on topics that will shape our future, including climate change,
energy efficiency, resource scarcity and demographics. Our experi-
ence and sector knowledge help 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 sectors we cover, as well as about how companies are
affected in relative terms. Increasing client demand for integrating
sustainability issues into fundamental investment analysis is re-
flected in our publications and client conferences:
– In 2013, one of the flagship publications of UBS Wealth Man-
agement, “UBS Research Focus,”was produced in collabora-
tion with research teams in Global Asset Management and the
Investment Bank. Entitled “Sustainable investing,” it discussed
how sustainability considerations are increasingly incorporat-
ed into investment decisions.
– Our UBS Q-Series® reports focus on thought-provoking discus-
sions on pivotal investment questions, and on making clear
investment conclusions, leading to a Group-wide drive for
more thoughtful, proprietary and valuable research. Examples
of Q-Series® reports published in 2013 include “Human capital
– Corporate culture: Relevant to investors?” and “Global en-
ergy markets: How much oil in the US transport sector can be
displaced by cheap US natural gas?” Other publications fo-
cused on nutrition (“Nutrition: Access and traceability”) and
on sustainable innovation (“Integration – global sustainability
and cultural change”).
– Our newly established publication, “ESG Keys,” addresses the
what, how and why of ESG issues and sustainability invest-
ment styles. Reports in 2013 addressed corporate governance,
human capital, and energy and climate change.
– The UBS European Conference hosted a number of panels on
sustainability issues, featuring experts and UBS research ana-
lysts, such as “The great sustainability debate,” “Human capi-
tal – driving returns” and “Energy: prospects and challenges
for fracking.”
289
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
– Our outreach and dialogue programs included a three-year part-
nership with the Smith School of Enterprise and the Environment
at the University of Oxford, with which UBS hosted a series of
events between 2011 and 2013, open to both UBS clients and
employees, and featuring thought leaders from around the globe.
Investment products
Global Asset Management is committed to environmental, social
and governance integration and has been a signatory to the United
Nations-supported Principles for Responsible Investment (PRI) since
2009. These provide a voluntary framework according to which all
investors can take into account environmental, social and gover-
nance issues in their decision-making and ownership practices and
align their objectives with the broader objectives of society.
Global Asset Management offers a range of sustainable invest-
ment funds that integrate material sustainability factors with a rig-
orous fundamental investment process. We apply the concept of
shared value, according to which companies that pursue sustain-
ability practices (for example, conserving resources, maintaining a
high-quality workforce and a strong supply chain) not only create
value for the shareholder but also for a wider range of stakehold-
ers. Our investment themes include energy efficiency, environ-
ment, social and healthcare, and demographics. We also manage
four exchange-traded funds which track MSCI’s Socially Responsi-
ble Indices and are listed on the Deutsche Börse (Xetra), the SIX
Swiss Exchange and the London and Milan Stock Exchanges.
Through our open architecture, we also offer our wealth man-
agement clients the opportunity to invest in socially responsible
investment bonds, equity and microfinance products from leading
third-party providers. As of 31 December 2013, invested assets
held in socially responsible investments (SRI) totaled CHF 576 bil-
lion, representing 24% of our total invested assets. Throughout
2013, invested assets in all of our SRI classes increased. In particu-
lar assets that are subject to UBS’s policy pertaining to controver-
sial weapons increased substantially, largely due to the global ex-
pansion of the policy.
➔ Refer to the table “Socially responsible investments invested
assets” in this section for more information
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-carbon economy,
and we are determined to support our
clients in preparing for success in an
increasingly carbon-constrained world. We
are one of the leading wealth manage-
ment firms worldwide, and the leading
universal bank in Switzerland, backed by a
top asset management business and a
client-centered investment bank. There-
fore, our climate change strategy focuses
on the areas of risk management,
investments, financing, research and
in-house operations. It is in these areas
that we believe we can make the greatest
contribution to the transition towards a
low-carbon economy. Our contribution to
these areas in 2013 included:
Risk management: seeking to protect
our clients’, and our own, assets from
climate change risks, within our
sphere of influence.
We committed to participating in
international efforts led by the Green-
house Gas Protocol and the United
Nations (UN) Environment Programme
Finance Initiative to develop a greenhouse
gas accounting and reporting guidance
for financial intermediaries.
We helped our clients manage their
exposure to the emissions markets and
offered execution and full service clearing
for contracts on, for example, EU
Emissions Trading System allowances and
UN Certified Emissions Reductions in
Europe and North America.
Investments: helping to mobilize
private and institutional capital
towards investments facilitating
climate change mitigation and
adaptation.
We launched an Impact Investing Private
Equity fund for SMEs in emerging and
frontier markets. With a volume slightly in
excess of CHF 50 million at closure, it is
one of the largest impact funds in the
sector funded by clients and private
capital. The fund represents a unique
investment opportunity for wealthy clients
and is expected to generate significant
social and environmental impact.
Our UBS Portfolio Screening Services
helped Wealth Management clients align
their portfolios to their values by assess-
ing portfolios using specific sustainability
criteria (including environmental topics).
Based on increased interest among our
clients, we screened CHF 4.2 billion of
client assets in 2013.
The UBS Clean Energy Infrastructure
Switzerland offers institutional investors
unprecedented access to a diversified
portfolio of Swiss infrastructure facilities
and companies in the field of renewable
energies and energy efficiency. Capital
commitments had reached approximately
CHF 350 million on 31 December 2013.
Six of Global Asset Management’s real
estate funds, with CHF 20 billion gross
assets under management, obtained the
top ranking (”green star”), and two of
290
Our climate change commitment
Socially responsible investments invested assets 1
For the year ended
% change
from
CHF billion, except where indicated
GRI 2
31.12.13
31.12.12
31.12.11
31.12.12
UBS total invested assets
UBS SRI products and mandates
positive criteria
positive criteria / RPI 3
exclusion criteria 4
policy based restrictions 5
Third-party 6
Total SRI invested assets
Proportion of total invested assets (%) 7
2,390
2,230
2,167
FS11
FS11
FS11
FS11
FS11
FS11
2.18
39.00
56.09
475.14
3.70
576.12
24.11%
1.60
32.15
35.68
181.64
2.66
253.73
11.38%
1.84
28.19
27.46
180.85
2.58
240.92
11.12%
7
37
21
57
162
39
127
1 All figures are based on the level of knowledge as of January 2014. 2 FS stands for the Performance Indicators defined in the Global
Reporting Initiative Financial Services Sector Supplement. 3 UBS Global Asset Management Responsible Property Investment strategy.
4 Includes customized screening services (single or multiple exclusion criteria). 5 Assets subject to restrictions under UBS policy on the pro-
hibition of investments in companies related to anti-personnel mines and cluster munitions (includes all invested assets held in Global Asset
Management actively managed discretionary segregated mandates and all actively managed funds (retail and institutional) held by Global
Asset Management, Wealth Management and Retail & Corporate). In 2013, the scope of this policy became global. 6 SRI products from third-
party providers apply either positive and exclusion criteria or a combination thereof. 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 whereby one or several sectors are
excluded based on environmental, social or ethical
criteria, for example, companies involved in weapons,
tobacco, gambling, or companies with high negative
environmental impacts. This also includes faith-based
investing consistent with principles and values of a
particular religion.
them were awarded “sector leader”
status, by the 2013 Global Real Estate
Sustainability Benchmark, thus recogniz-
ing our efforts in defining and implement-
ing a sustainable and responsible property
investment strategy (RPI). All six funds
rank within the first and second quartiles
of their respective peer set (among more
than 540 real estate portfolios).
Financing: supporting this transition
as corporate advisor, and / or with our
lending capacity.
We supported Swiss SMEs in saving energy,
as promoted by the Swiss Energy Agency’s
SMEs Model. Clients benefited from the
agency’s ”energy check-up for SMEs” at
reduced costs and were granted cash
premiums for committing to an energy
reduction plan within this scheme. By the
end of 2013, 116 companies signed up.
By supporting Swiss private clients when
renovating their private homes sustainably,
we redistributed CHF 2.9 million in cash
benefit, funded by proceeds from the Swiss
CO2 levy refund. Swiss private clients could
also benefit from the UBS “eco” mortgage
when building energy-efficient homes.
Expressing our commitment to being a
financial partner in the energy transition
in Switzerland, we are sponsors of the
Swiss Energy and Climate Summit 2013
and 2014 as a Premium Partner.
In 2013, the Investment Bank supported
190 clients that provide a positive
contribution to climate change mitigation
and adaptation, either in equity or debt
capital market transactions (total deal
value CHF 28.5 billion) or as financial
advisor (total deal value CHF 49.4 billion).
Research: offering worldclass
research capacity to our clients on
climate change issues.
We continued to provide clients with
award-winning research on climate change
related topics. Examples include “ESG
Outcomes for a ‘New Global Economy,’“
“Postcards from the US … on energy &
climate,” “Global utilities: Can utilities
survive in their current form?” and “China
integrated natural gas: Will a coal-to-gas
boom eventually go bust?” Our thought
leadership in this area was recognized by
the annual Thomson Reuters Extel / UKSIF
Socially Responsible Investing (SRI) &
Sustainability Survey where UBS ranked
fourth for Climate Change and second for
Renewable Energy.
Our Chief Investment Office (CIO) Wealth
Management research provided regular
research updates on renewables,
agribusiness, energy efficiency and water.
The latter was the sustainable investment
theme promoted in the 2013 UBS CIO
House View.
Inhouse operations: reducing our
own greenhouse gas emissions.
We further reduced our emissions 15%
year on year, achieving a 49% reduction
from baseline year 2004. This brings us
very close to reaching our target of a 50%
reduction by 2016. We continued to invest
in sustainable real estate and efficient
information technology, and reduced our
energy consumption 3% year on year.
We are on track to reach our target of a
10% reduction compared with 2012 levels
by 2016.
➔ Refer to www.ubs.com/climate for our
complete climate change commitment
291
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
Corporate and private clients financing and advisory
UBS globally provides capital raising and strategic advisory servic-
es to companies offering products that provide a positive contri-
bution to climate change mitigation and adaptation, including
those in the solar, wind, hydro, energy efficiency, waste and bio-
fuels, and transport sectors. In 2013, we supported transactions
that included a USD 50 million equity capital raising for Cool
Planet, a US-based renewable energy company which has devel-
oped a patented process to convert non-food biomass into gaso-
line, a USD 300 million three-year bond offering for the China
Longyuan Power Group, the largest wind power generation com-
pany in Asia, and a CHF 400 million dual-tranche bond for Sika
AG, a Swiss specialty chemicals company providing products to
the construction and transportation industries that enhance dura-
bility and promote the efficient use of energy, water and other
resources. In addition, we helped our clients manage their expo-
sure to the emissions markets, while in Switzerland, we helped
SMEs to save energy and support retail clients when undertaking
energy-efficient renovations.
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. In 2013, we voted on more than 69,000 separate resolu-
tions at 7,075 company meetings. Our approach to corporate
governance is an active one and is integral to our investment pro-
cess. We are an active member of a number of collaborative
shareholder bodies.
Since 2010, Global Asset Management in Switzerland has
been offering UBS Voice, a free service enabling holders of Swiss
institutional funds to express voting preferences ahead of share-
holder meetings of major Swiss corporations. This provides addi-
tional shareholder input into the voting decisions of the funds’
management company. More than 40% of invested assets for
which UBS Voice is offered participate in this service.
Our operations
Continuously reducing our greenhouse gas footprint
In 2013, we reduced our greenhouse gas footprint again by de-
creasing our emissions 15% year on year, achieving a 49% re-
duction from baseline year 2004. This brings us very close to
reaching our target of a 50% reduction by 2016. We also re-
duced our footprint per full-time employee 12% year on year.
Our strong performance is a result of adopting energy efficiency
measures to reduce the energy consumption of the buildings we
occupy, and of critical facilities such as the data centers we use,
while increasing the proportion of renewable energy. Emissions
that cannot be reduced by other means (for example, business air
travel) are offset.
UBS’s Environmental Program was introduced in the 1970s,
and since 1999, we have managed the program through an Envi-
ronmental Management System in accordance with ISO 14001.
At the time, we were the first bank to obtain ISO 14001 certifica-
tion for our Group-wide environmental management system. In
addition, our greenhouse gas emissions data is externally verified
according to ISO 14064 standards.
Reducing energy consumption and improving energy efficiency
In 2013, we reduced energy consumption 3%, contributing to
our target of reducing energy consumption 10% by 2016 com-
pared with 2012 levels. Between 2009 and 2012, we over-
achieved on our previous targets and reduced our energy con-
sumption 21%. We will continue to invest in energy-efficient
infrastructure and implement established energy reduction mea-
sures, such as ensuring that heating, air-conditioning and lighting
controls of the buildings we occupy are optimized. In addition, we
Environmental targets and performance in our operations 1
GRI 2
2013
Target 2016
Total net greenhouse gas emissions (GHG footprint) in t CO2e 3
EN15–17
183,011
Energy consumption in GWh
Share of renewable energy
GHG offsetting (business air travel) in t CO2e
Paper consumption in kg per FTE 7
Share of recycled and FSC paper
Waste in kg per FTE 7
EN3
EN3
EN18
EN1
EN2
EN23
737
48.8%
72,612
121
57.6%
213
–50%
–10%
increase
100%
–5%
60%
–5%
% change
from baseline
Progress /
Achievement 6
–49.2
–3.2
104.2
100
–1.1
3.1
–7.8
2012
2011
215,279
220,593
761
41.6%
73,024
122
55.8%
230
827
44.9%
88,867
122
44.3%
242
Baseline
360,501 4
761 5
23.9% 4
0 4
122 5
55.8% 5
230 5
54.2% 5
1.95 5
Waste recycling ratio
Water consumption in m m3
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 are available on the internet www.ubs.com/environment. Reporting period 2013 (1 July 2012 to 30 June 2013). 2 Related to Global Reporting Initiative (see also www.global reporting.
org). EN stands for the environmental performance indicators as defined in the GRI. 3 GHG footprint equals gross GHG emissions minus GHG reductions from renewable energy and GHG offsets (Gross GHG emissions in-
clude: 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). 4 Baseline year 2004. 5 Baseline year 2012. 6 Green: on track / amber: behind schedule. 7 FTEs are calculated on an average basis including contractors.
55.6%
54.2%
54.2%
EN23
1.77
–5%
60%
–9.1
2.00
1.95
EN8
2.5
292
(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)
(cid:43)(cid:80)(cid:2)(cid:86)(cid:81)(cid:80)(cid:80)(cid:71)(cid:85)(cid:2)(cid:37)(cid:49)(cid:20) (cid:71)(cid:2)
(cid:53)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:84)(cid:71)(cid:80)(cid:71)(cid:89)(cid:67)(cid:68)(cid:78)(cid:71)(cid:2)(cid:71)(cid:80)(cid:71)(cid:84)(cid:73)(cid:91)(cid:2)(cid:10)(cid:75)(cid:80)(cid:2)(cid:7)(cid:11)
(cid:22)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:21)(cid:24)(cid:18)(cid:14)(cid:23)(cid:18)(cid:20)
(cid:21)(cid:25)(cid:20)(cid:14)(cid:19)(cid:26)(cid:22)
(cid:21)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:20)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid: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:2)(cid:19)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:25)(cid:23)
(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:19)(cid:26)(cid:21)(cid:14)(cid:18)(cid:19)(cid:19)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:23)(cid:18)
(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:22)(cid:27)
(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:20)(cid:18)(cid:19)(cid:21)
(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)
(cid:49)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:2)(cid:41)(cid:42)(cid:41)(cid:2)(cid:71)(cid:79)(cid:75)(cid:85)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:10)(cid:86)(cid:84)(cid:67)(cid:88)(cid:71)(cid:78)(cid:2)(cid:75)(cid:80)(cid:69)(cid:78)(cid:16)(cid:2)(cid:81)(cid:72)(cid:72)(cid:85)(cid:71)(cid:86)(cid:86)(cid:75)(cid:80)(cid:73)(cid:14)(cid:2)(cid:82)(cid:67)(cid:82)(cid:71)(cid:84)(cid:14)(cid:2)(cid:89)(cid:67)(cid:85)(cid:86)(cid:71)(cid:11)
(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:75)(cid:80)(cid:69)(cid:78)(cid:16)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:69)(cid:86)(cid:2)(cid:74)(cid:71)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:10)(cid:75)(cid:80)(cid:2)(cid:7)(cid:11)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
apply externally verified standards to validate building perfor-
mance.
Information technology consumes up to half of the electricity
used by the Group worldwide, and consolidation, virtualization
and the Desktop Transformation Program (designed to reduce the
number of personal computers whilst ensuring that new comput-
ers and monitors are more energy-efficient than the equipment
they replace) have contributed to significant energy savings in re-
cent years. In 2013, we reduced the electricity consumption of
our data centers more than 6% year on year.
Increasing share of renewable energy
We are reducing our use of carbon-intensive energy by replacing
fossil-fuelled heating infrastructure where feasible and by pur-
chasing renewable energy for a high proportion of the energy we
use (49% in 2013).
Business travel and offsetting CO2 emissions
We continuously try to minimize our CO2 emissions in business
travel by encouraging our employees to choose alternatives to air
travel, such as high-speed rail, recording a 7% reduction in the
number of flights taken, and a 2% increase in employee rail travel
in Switzerland in 2013. Our investments in video-conferencing so-
lutions also contributed to the reduction in air travel. Globally, over
400 rooms with video facilities are available and more than 80,000
room bookings were processed in 2013. The marketing and events
teams adhere to environmental guidelines for client conferences
and consider the impact of delegate travel, hotels, venue facilities
and catering as part of their logistics and planning.
We continue to offset all CO2 emissions resulting from agency-
booked business air travel and client events and conferences,
thereby supporting renewable energy and other projects reducing
CO2 emissions. Projects we selected meet the requirements of the
Gold Standard for voluntary emissions reductions and also pro-
vide positive community benefits. Schemes selected include a
wind power project in Turkey and community biofuel projects in
China and India.
Reducing paper consumption, waste generation and water usage
We are committed to further reducing our environmental footprint
and are on track to reach our 2016 targets, which use 2012 per-
formance as the baseline:
– The amount of paper used per employee decreased 1% com-
pared with baseline year 2012. Double-sided printing and copy-
ing, now the default setting for printers used by the majority of
our employees, combined with an ongoing shift towards the
distribution of electronic documents, will enable us to reach our
target of reducing paper usage 5%. We increased the percent-
age of office paper from Forest Stewardship Council (FSC), or
recycled sources, to 58% in 2013, contributing towards reach-
ing our 60% target.
(cid:20)(cid:19)(cid:27)(cid:14)(cid:25)(cid:20)(cid:25)
(cid:20)(cid:20)(cid:23)(cid:14)(cid:26)(cid:23)(cid:22)
(cid:19)(cid:19)(cid:19)(cid:14)(cid:25)(cid:25)(cid:21)
(cid:20)(cid:21)(cid:18)(cid:14)(cid:18)(cid:19)(cid:23)
(cid:20)(cid:19)(cid:26)(cid:14)(cid:24)(cid:26)(cid:19)
(cid:27)(cid:26)(cid:14)(cid:27)(cid:19)(cid:26)
(cid:21)(cid:19)(cid:14)(cid:24)(cid:21)(cid:23)
(cid:21)(cid:24)(cid:14)(cid:21)(cid:20)(cid:21)
(cid:21)(cid:22)(cid:14)(cid:23)(cid:23)(cid:24)
(cid:22)(cid:19)(cid:14)(cid:26)(cid:23)(cid:26)
– The continued implementation of bin-less offices in many larger
locations has reduced the waste per employee 8% since 2012,
(cid:24)(cid:19)(cid:22)(cid:15)(cid:22)(cid:19)(cid:19)(cid:19)(cid:16)(cid:19)(cid:2)
outperforming our 5% reduction target by 2016. Our waste
recycling ratio improved from 54% in 2012 to 56%, a step in
the right direction towards reaching our target of 60% by
2016.
(cid:21)(cid:19)(cid:14)(cid:23)(cid:19)(cid:27)
(cid:20)(cid:24)(cid:14)(cid:25)(cid:18)(cid:19)
– Our water consumption decreased 9% compared with 2012
levels, exceeding our target of 5% by 2016.
➔ Refer to the table “Environmental targets and performance in
our operations” in this section for more information
Engaging our employees
By educating, increasing awareness among and offering incen-
tives to our 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 2013, switching off
lights in UBS offices in 73 cities around the world for one hour.
This also marked the start of our annual internal and external
environmental awareness campaign. The theme in 2013 was
”Protecting our future” and focused on our renewed climate
change commitment, with activities including environmental
fairs, an online environmental quiz, as well as articles and inter-
views with senior management posted on our internal and exter-
nal websites.
Responsible supply chain management
Responsible supply chain management (RSCM) principles serve
to embed our ethics and values when interacting with our suppli-
ers, contractors and service partners. As part of this commitment,
we have implemented an RSCM framework to identify, assess
and monitor supplier practices in the areas of human and labor
rights, the environment, health and safety and anti-corruption. In
2013, we further strengthened our existing RSCM framework by
focusing on suppliers that either have a potentially high environ-
mental or social impact, or suppliers that are active in high-risk
countries. We screened relevant suppliers and identified around
40 suppliers for which remediation measures have been defined
in order to be in line with UBS’s RSCM standards. Due diligence is
performed by our experienced procurement and sourcing spe-
cialists, and is supported by a centralized team of experts.
293
500000.093750
437500.082031
375000.070312
312500.058594
250000.046875
187500.035156
125000.023438
62500.011719
0.000000
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Corporate responsibility
Our communities
Within our community investment program, we aim to overcome
disadvantage in our local communities by supporting education
and entrepreneurship through a combination of targeted funding
and the commitment and skills of our employees. Coordinated
globally, our initiatives are implemented regionally. Proximity to
our partners allows us to better understand the needs and re-
quirements of our communities. Based on this, we can generate a
long-term, sustainable and measurable impact on our local com-
munities while offering volunteering opportunities for our em-
ployees. As well as direct cash donations and the commitment of
our employees, our community investment program also includes
matched-giving schemes and disaster relief efforts.
Community Affairs
We actively engage with the communities around the globe of
which we are a part. In 2013, UBS and our affiliated foundations
made direct cash donations totaling CHF 28.3 million to carefully
selected non-profit partner organizations and charities. These do-
nations were primarily aimed at our Community Affairs key
themes of education and entrepreneurship. Additionally, spend-
ing on the UBS Anniversary Education Initiative amounted to CHF
14.0 million. Our contributions, 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 regional examples pro-
vided below.
Contributions were also made to other causes, in particular
disaster relief, including a commitment of more than CHF 1.9 mil-
lion in total financial contributions to both short-term relief and
long-term rebuilding efforts in response to the devastation caused
by Typhoon Haiyan in the Philippines. Community Affairs and the
Optimus Foundation, UBS’s independent grant-making founda-
tion, joined forces to offer a unique and integrated approach in-
cluding both clients’ and employees’ donations in its matched-
Key examples of UBS’s community investment activities across the globe
Switzerland
Developing Switzerland’s next generation
of business leaders was a priority for us in
2013. One of the projects we supported
was the annual company event organized
by Young Enterprise Switzerland (YES). As
part of this program, which we have been
supporting since 2007, students from all
over the country establish and manage a
real company, thus learning how the
business world works. For 12 months,
they receive support from business
mentors, their teachers and YES. At the
end of the year, representatives of the 25
best-performing companies are invited to
the grand final in Zurich, where the
winner is crowned.
As part of the UBS education initiative, in
2013 we also supported one of the
annual awards made by the Social
Entrepreneurship Initiative & Foundation
(seif). Each year, seif recognizes innovative
business ideas that foster responses to
social or environmental challenges.
for Social Issues and Education, and the A
Helping Hand from UBS Employees
association. In 2013, these organizations
made valuable contributions to important
social causes, including fostering the
humanities and the creative arts, support-
ing communities in need, and helping
disabled and disadvantaged people.
Americas
In 2013, Community Affairs & Corporate
Responsibility Americas undertook a
strategic re-launch of our programming to
help deploy the firm’s financial and
human capital more effectively. This
included a complete overhaul of our
employee giving portal, which supports all
of our engagement programs across the
Americas. Within UBS’s global focus areas
of education and entrepreneurship, we
are providing under-resourced, high-
potential individuals with advice and
resources to help develop more enterpris-
ing communities.
In Switzerland, our community investment
efforts are also advanced by the UBS
Culture Foundation, the UBS Foundation
In our first major initiative following the
re-launch, we coordinated UBS’s second
annual Season of Service, a community
impact initiative open to all business
divisions in the Americas. Over the course
of two months, employees completed 92
different volunteer activities and logged
more than 2,500 volunteer hours.
Within our flagship Elevating Entrepre-
neurs program, we continued to expand
our lending offerings in Chicago and Los
Angeles. In coordination with our partners
in the UBS Bank USA Community
Development Group and the Valley
Economic Development Center, we
committed USD 35 million in capital to
qualified small businesses in Chicago, Los
Angeles, New York, New Jersey, Connecti-
cut, Salt Lake City and Las Vegas. During
2013, 29 small businesses received loans
ranging from USD 50,000 to USD 250,000
totaling USD 6.4 million. Combined, these
companies have created 451 new jobs.
Asia Pacific
In 2013, the UBS Finance Academy
program in Sydney marked its 11th
anniversary, and over the years has
provided more than 550 public school
students with first-hand insight into the
world of finance and exposure to UBS.
Over the course of the program, students
294
Key examples of UBS’s community investment activities across the globe
giving programs. This combined (client and UBS) commitment
raised the total financial contributions to the rebuilding efforts in
the Philippines to more than CHF 3 million.
Across all business regions, our employees continue to play a
very active role in our community investment efforts, in particular
through their volunteering activities. In 2013, 10,648 employees
spent 91,370 hours volunteering. We support their commitment
by offering up to two working days a year for volunteering ef-
forts. For the second year in a row, employees who have demon-
strated outstanding volunteering commitment were rewarded
with the UBS Global Employee Volunteer Awards.
Furthermore, we strengthened the measurement of the impact
of our Community Affairs activities. We measure the impact of
projects across all regions using the London Benchmarking Group
model. Understanding where we make an impact provides vital
data that helps us evaluate and focus our program. Therefore, we
plan to further expand measurements of our strategic programs
across all regions in 2014.
Client foundation
The UBS Optimus Foundation is an expert grant-making founda-
tion established by UBS in 1999. The Foundation works to break
down barriers that prevent children from reaching their full poten-
tial by funding leading organizations to improve the health, edu-
cation and protection of children. The UBS Optimus Foundation
supports programs in places where children face adversity. Since
its establishment, the Foundation has received more than 25,000
donations totaling over CHF 195 million. By the end of 2013, the
Foundation supported 107 projects in 48 countries amounting to
a total value of CHF 69.8 million. As UBS bears all administrative
costs related to the UBS Optimus Foundation, 100% of every do-
nation goes directly towards the projects funded.
were provided with the opportunity to
listen to, and interact with, key industry
figures. Students also gained practical
knowledge of financial markets through
“day in the life” presentations, merger
and acquisition case studies and a field
trip to both UBS’s live trading floor and
CNBC’s filming studio.
Across the region, UBS employees
continue to volunteer in a diverse variety
of both skill-based and grassroots
programs. Clients and family members are
also often invited to join in where
appropriate. In 2013, during the Regional
Volunteer Experience, volunteers from
across Asia Pacific traveled to Japan and
joined local volunteers to work together
on the Team Tohoku program in the
remote northeastern community of
Kamaishi City, aimed at helping the
community get back on its feet following
the 2011 tsunami. Led by senior manage-
ment, including UBS Asia Pacific’s Chief
Executive Officer, Chi-Won Yoon, these
volunteers focused on various projects
relating to job and economic regenera-
tion, temporary and long-term recovery
housing, strengthening the skills and
knowledge needed by local civil societies
for further development, as well as risk
reduction and future disaster preparedness.
recognized with a Business in the
Community 2013 Responsible Business
Award for its volunteering program.
In its second year, Singapore’s Diversity in
Abilities arts program, targeted at
bringing visual and performing arts to
children in special education, was
awarded Singapore’s National Arts
Council Patron of the Arts Award 2013.
More than 140 children were trained by
renowned local and regional artists and
the program culminated in a stage
production that featured Singapore’s
Minister of Education in an acting role.
Europe, Middle East and Africa
In Europe, the Middle East and Africa,
Community Affairs activities focus on
sharing the workplace skills of our
employees in order to help people in
disadvantaged communities reach their
full potential. Last year, in the UK alone,
we helped 6,366 students develop
employability and entrepreneurial skills
through UBS work-related learning
programs, which range from employabil-
ity skills workshops and interview practice
to work experience. In the UK, UBS was
In Turkey, over 1,000 students took part
in the BKD-Science Heroes Association
challenge, which helps develop their
technology, math and entrepreneurial
skills. Hakan Habip of UBS Turkey, who
co-manages our partnership with BKD,
was named one of Turkey’s top 100
”Changemakers” by the highly regarded
Sabanci Foundation for his involvement in
BKD activities. In Italy, a team of UBS
managers worked with a group of
students from underprivileged back-
grounds to raise their aspirations and
achievements, and helped them secure
places at a prestigious university. In Israel,
the successful partnership with Ashoka
continues, supporting young social
entrepreneurs to develop their projects.
Across Europe, the Middle East and
Africa, employees are getting involved in
their local communities and sharing their
workplace and entrepreneurial skills.
➔ Refer to www.ubs.com/community for
more information
295
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Our employees
Our employees
Our employees’ drive, skill, insight and experience are key to meeting our clients’ needs and growing our businesses.
We are committed to investing in our employees and furthering our reputation as a leading employer. We promote a
performance- and development-oriented culture that values integrity and encourages collaboration across the entire
firm. Our principles of client focus, excellence and sustainable performance serve as the basis for all of our endeavors,
helping us focus on every opportunity to create value for our stakeholders.
Our workforce
In the past two years, we have concentrated on building our cap-
ital strength, improving efficiency and effectiveness, and reinforc-
ing risk management. These three pillars underpin our strategy
and are the foundation of everything we do. A key part of this
effort has been to build a strong corporate culture while ensuring
that we hire, develop and retain a global workforce that not only
meets today’s business challenges, but also enables us to build
strength as we plan for our leadership needs in the future.
We made some changes to our workforce in 2013. This was
primarily due to our ongoing cost reduction programs that re-
duced staff numbers across the firm, particularly within the Invest-
ment Bank and the Corporate Center. These changes also reflect-
ed measures designed to improve our long-term efficiency. For
example, in August 2013, we announced the creation of the UBS
Nashville Business Solutions Center in the US. The Nashville loca-
tion is part of our strategy to create regional centers of excellence
for our support functions and allows us to increase collaboration
and operational effectiveness. It also complements our existing
service center in Poland and our other outsourcing and offshoring
relationships elsewhere in the world.
As of 31 December 2013, we employed 60,205 people (on a
full-time equivalent basis), 2,423 fewer than a year earlier. In
2013, our employees worked in 56 countries, with approximate-
ly 36% of our staff employed in Switzerland, 35% in the Ameri-
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
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
of which: Core Functions
of which: Non-core and Legacy Portfolio
Total
of which: Corporate Center personnel (before allocations) 1
31.12.13
21,317
20,037
7,116
10,052
5,595
4,303
153
21,720
60,205
31.12.13
16,414
16,344
9,463
3,729
11,615
2,640
1,055
1,585
60,205
24,082
As of
31.12.12
% change from
31.12.11
31.12.12
21,995
20,833
7,426
10,829
6,459
4,202
167
22,378
62,628
22,924
21,746
7,690
11,019
6,674
4,182
162
23,188
64,820
(3)
(4)
(4)
(7)
(13)
2
(8)
(3)
(4)
As of
31.12.12
% change from
31.12.11
31.12.12
16,210
16,094
10,156
3,781
13,595
2,792
488
2,304
62,628
25,892
15,904
16,207
11,430
3,750
14,685
2,845
405
2,440
64,820
26,974
1
2
(7)
(1)
(15)
(5)
116
(31)
(4)
(7)
1 Comparative figures in this table may differ from those originally published in quarterly and annual reports (for example due to adjustments following organizational changes).
296
cas, 17% in Europe, Middle East and Africa and 12% in Asia
Pacific.
A mobile workforce enables employees to develop relation-
ships across business divisions, regions and cultures, increases
trust and helps us to better leverage our employees’ skills. It also
helps ensure that we have the right people in the right roles in
order to meet our clients’ needs. As part of our commitment to
business growth and career development, we transferred 1,105
employees between business divisions in 2013, in addition to
transferring 405 employees to roles in a different region. Globally,
employee turnover, as a percentage of average overall headcount,
was 15% in 2013 compared with 12.9% in 2012. Employee-initi-
ated turnover was 8.7%, an increase of 2% from 2012.
Attracting and retaining talent
We strive for excellence in everything we do, and this begins with
our employees. It is fundamental to our success to recruit the
most talented individuals, help them develop, and effectively le-
verage their skills to meet our clients’ evolving needs. We try to be
as forward-looking as possible when planning our talent needs
and comparing them with our existing workforce. Regular talent
reviews enable us to understand our employees’ capabilities, po-
tential and ambition in order to fill any gaps by developing or
further recruiting talent at all levels. Our integrated approach to
managing talent across the entire employee lifecycle allows us to
link our recruitment, diversity, learning, mobility, performance
management, talent review, compensation and succession prac-
tices in the most meaningful way.
Recruiting new employees
People join UBS from a diverse range of backgrounds. We are
committed to building the skills of our existing employees while
hiring the best available talent, as required, to sustain and grow
our core businesses.
In 2013, we reviewed our comprehensive hiring standards and
processes, especially those focused on recruiting at senior levels, to
help ensure that we continue to hire people who are demonstrably
qualified for their roles and are a good fit for the firm’s culture. We
recruited highly effective financial and client advisors in 2013 and
invested in our future by hiring graduates and interns globally, as
well as strengthening our commitment to apprentices in Switzer-
land. In total, 6,548 external hires were made across the firm in
2013, with Wealth Management recruiting 374 client advisors and
Wealth Management Americas hiring 480 financial advisors.
Our own employees helped refer talent to the organization. As
a result, 15% of externally sourced roles in 2013 were filled
through employee referrals. Employees also expect to be consid-
ered for open roles within the firm. Therefore, in 2013, we insti-
tuted further measures to support transparent and objective inter-
nal hiring processes so that current employees have the same
access to available jobs at UBS as external candidates.
Throughout 2013, we ensured a continuous and visible pres-
ence at our target universities, with UBS leaders and employees
actively supporting our campus recruiting efforts. Global initia-
tives launched in 2013 included the Emerging Talent Program, a
special internship within UBS’s Education Initiative that targets
students early in their academic careers. The UBS Explore career-
consideration program helped increase the number of potential
recruits, and our graduate trainees benefited from educational
opportunities and business-specific training. In 2013, 476 univer-
sity graduates were hired into one of UBS’s undergraduate or
MBA graduate training programs. An additional 876 interns were
hired globally.
Our apprenticeship program in Switzerland continued to per-
form strongly in 2013, hiring 266 business and 39 information
technology apprentices. This was the first year that UBS recruited
an increased number of apprentices in conjunction with the UBS
Education Initiative (an additional 150 apprentices over a five-year
period). We also recruited 185 trainees into our All-round Trainee-
ship Program for Swiss high school graduates.
In 2013, we continued to be seen as an attractive employer
and were notably ranked in the global top 50 in Universum’s 2013
World’s Most Attractive Employers list. In Switzerland, UBS ranked
third among business students in Universum’s 2013 Ideal Employ-
er survey.
➔ Refer to www.ubs.com/awards for more information on UBS’s
rankings as an employer
Strengthening our diverse workforce and inclusive work
environment
Our workforce is truly global. We have 890 offices in 56 countries,
and our employees, who together speak more than 137 languag-
es, are citizens of 144 countries. In 2013, the average age of our
employees was 41 years and the average length of employment
within the firm was 9.2 years. In Switzerland, more than 49% of
employees have worked at UBS for more than 10 years. This ex-
perience enables our employees to have stronger skills, better un-
derstanding and more institutional knowledge about our clients’
needs and how to meet them.
We believe that companies with diverse workforces and inclu-
sive work environments excel in understanding and serving cli-
ents. In all our businesses, we seek to hire and retain a broad
range of talent with diversity in race, gender, business experience,
perspective, ethnicity, nationality, religion, age, abilities, educa-
tion and sexual orientation. As part of this goal, we seek to
strengthen and sustain an inclusive work environment that en-
courages all employees’ development and enhances client rela-
tionships. We are globally committed to offering equal employ-
ment opportunities and believe that having the right people, in
the right roles, at the right time is a key factor in delivering excel-
lence and building capability for the future.
Within our continuing effort to strengthen all aspects of diver-
sity, increasing gender diversity remained a key priority in 2013.
We again called for divisional diversity planning that includes tar-
geted, forward-looking actions over the next several years that
aim to increase the number of women working at UBS, particu-
larly in senior roles.
297
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Our employees
A wide range of regional initiatives complemented our global
efforts. For example, we launched an 18-month sponsorship pro-
gram for high-performing female Directors and Executive Direc-
tors in the US. Combining mentoring and advocacy, this program
strengthens leadership skills, provides increased access to the
firm’s senior executives and fosters a “pay-it-forward” culture
among women across the organization. We also worked with
groups such as the Council of Urban Professionals and the Finan-
cial Women’s Association to significantly increase the number of
diverse recruitment candidates presented to managers. Numerous
events for staff in the US, the UK and Asia Pacific strengthened
employees’ understanding and promoted a sense of personal re-
sponsibility towards issues related to culture, gender, sexual orien-
tation and working relationships.
In Switzerland, we worked to enhance skills and representa-
tion among several employee groups in 2013. For example, a
suite of practical training programs to promote life-long learning
was offered to mid-life employees, focusing on career planning
and skills development in technology, new media and languages.
A mentoring program for 150 mid-career women combined ca-
reer advice with increased visibility and access to the firm’s senior
management. Also in 2013, we established a partnership with
Advance, an association of Switzerland-based companies that fo-
cuses on increasing the percentage of women in Swiss industries
through development opportunities, role modeling and targeted
events. In Asia Pacific, we sponsored workshops and events dur-
ing 2013 to help our businesses better leverage their multi-gener-
ational workforces. Understanding and appreciating differences
in age, behavior, attitude, motivation and working styles builds
stronger teams that are better able to serve our clients.
In 2013, over 14,500 employees across UBS were members of
more than 20 employee networks. These networks, representing af-
finities such as gender, culture, life stage and sexual orientation, help
build cross-business relationships and an open workplace. Our glob-
al network guidelines enable employees to set up or join employee
networks in all our operating regions. Additionally, our human re-
source policies and processes have global coverage and outline our
commitment to a non-discriminating, harassment-free workplace,
(cid:41)(cid:71)(cid:80)(cid:70)(cid:71)(cid:84)(cid:2)(cid:70)(cid:75)(cid:85)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:73)(cid:71)(cid:81)(cid:73)(cid:84)(cid:67)(cid:82)(cid:74)(cid:75)(cid:69)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:19)(cid:124)(cid:2)
(cid:49)(cid:80)(cid:2)(cid:21)(cid:19)(cid:16)(cid:19)(cid:20)(cid:16)(cid:19)(cid:21)
(cid:2)
(cid:20)(cid:22)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:26)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:19)(cid:20)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:24)(cid:14)(cid:18)(cid:18)(cid:18)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:28)(cid:2)
(cid:20)(cid:19)(cid:14)(cid:24)(cid:24)(cid:20)(cid:2)
(cid:25)(cid:14)(cid:20)(cid:21)(cid:25)(cid:2)
(cid:19)(cid:18)(cid:14)(cid:22)(cid:26)(cid:20)(cid:2)
(cid:20)(cid:20)(cid:14)(cid:23)(cid:20)(cid:26)
(cid:26)(cid:14)(cid:20)(cid:25)(cid:24)
(cid:19)(cid:21)(cid:14)(cid:21)(cid:26)(cid:24)
(cid:21)(cid:14)(cid:21)(cid:26)(cid:19)
(cid:21)(cid:14)(cid:26)(cid:23)(cid:24)
(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)
(cid:35)(cid:85)(cid:75)(cid:67)(cid:2)(cid:50)(cid:67)(cid:69)(cid:75)(cid:386)(cid:69)
(cid:47)(cid:67)(cid:78)(cid:71)
(cid:40)(cid:71)(cid:79)(cid:67)(cid:78)(cid:71)
(cid:21)(cid:14)(cid:26)(cid:23)(cid:18)
(cid:24)(cid:14)(cid:24)(cid:21)(cid:20)
(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)(cid:14)
(cid:47)(cid:75)(cid:70)(cid:70)(cid:78)(cid:71)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:72)(cid:84)(cid:75)(cid:69)(cid:67)
(cid:26)(cid:14)(cid:20)(cid:19)(cid:24)
(cid:19)(cid:22)(cid:14)(cid:21)(cid:19)(cid:20)
(cid:53)(cid:89)(cid:75)(cid:86)(cid:92)(cid:71)(cid:84)(cid:78)(cid:67)(cid:80)(cid:70)
(cid:19)(cid:2)(cid:37)(cid:67)(cid:78)(cid:69)(cid:87)(cid:78)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:68)(cid:67)(cid:85)(cid:75)(cid:85)(cid:2)(cid:86)(cid:74)(cid:67)(cid:86)(cid:2)(cid:67)(cid:2)(cid:82)(cid:71)(cid:84)(cid:85)(cid:81)(cid:80)(cid:2)(cid:10)(cid:89)(cid:81)(cid:84)(cid:77)(cid:75)(cid:80)(cid:73)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:2)(cid:86)(cid:75)(cid:79)(cid:71)(cid:2)(cid:81)(cid:84)(cid:2)(cid:82)(cid:67)(cid:84)(cid:86)(cid:2)(cid:86)(cid:75)(cid:79)(cid:71)(cid:11)(cid:2)(cid:75)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:70)(cid:71)(cid:84)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:71)(cid:2)(cid:74)(cid:71)(cid:67)(cid:70)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:75)(cid:85)(cid:2)
(cid:73)(cid:84)(cid:67)(cid:82)(cid:74)(cid:2)(cid:81)(cid:80)(cid:78)(cid:91)(cid:16)(cid:2)(cid:46)(cid:81)(cid:81)(cid:77)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:86)(cid:2)(cid:85)(cid:87)(cid:68)(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:70)(cid:67)(cid:86)(cid:67)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:55)(cid:53)(cid:35)(cid:2)(cid:67)(cid:86)(cid:2)(cid:20)(cid:18)(cid:14)(cid:21)(cid:20)(cid:26)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:35)(cid:79)(cid:71)(cid:84)(cid:75)(cid:69)(cid:67)(cid:85)(cid:2)(cid:67)(cid:86)(cid:2)(cid:19)(cid:14)(cid:21)(cid:21)(cid:22)(cid:16)(cid:2)(cid:39)(cid:47)(cid:39)(cid:35)(cid:2)(cid:69)(cid:81)(cid:80)(cid:85)(cid:75)(cid:85)(cid:86)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:55)(cid:45)(cid:2)(cid:67)(cid:86)(cid:2)(cid:23)(cid:14)(cid:25)(cid:23)(cid:26)(cid:14)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:71)(cid:85)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:39)(cid:87)(cid:84)(cid:81)(cid:82)(cid:71)(cid:2)(cid:67)(cid:86)(cid:2)(cid:22)(cid:14)(cid:23)(cid:24)(cid:22)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:47)(cid:75)(cid:70)(cid:70)(cid:78)(cid:71)(cid:2)(cid:39)(cid:67)(cid:85)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:35)(cid:72)(cid:84)(cid:75)(cid:69)(cid:67)(cid:2)
(cid:67)(cid:86)(cid:2)(cid:19)(cid:24)(cid:18)(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:21)(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:19)(cid:14)(cid:27)(cid:18)(cid:27)(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)
offering equal opportunities. This foundation encourages active and
growing participation in our many employee networks.
Managing performance
As a results-driven firm, personal accountability, effective perfor-
mance management and sound compensation practices are criti-
cal for our success. Our performance management framework
features regular employee-manager dialogue, consistent assess-
ment processes and clear links between performance, behavior,
achievements and compensation. We provide the tools and sup-
port employees need to set clear goals, be effective in their jobs
and advance their careers.
We further strengthened our year-end evaluation processes in
2013 to more closely align individual performance with the firm’s
strategy and culture. More than ever, we want to evaluate not
only each employee’s achievements, but how those results were
(cid:24)(cid:19)(cid:27)(cid:15)(cid:22)(cid:19)(cid:19)(cid:23)(cid:16)(cid:19)(cid:2)
Gender distribution by employee category 1
As of 31.12.13
Male
Female
Total
Officers
(Director and above)
Officers
(other officers)
Non-officers
Total
Number
17,995
4,996
22,991
%
78.3
21.7
100.0
Number
12,463
7,844
20,307
%
61.4
38.6
100.0
Number
7,728
10,883
18,611
%
41.5
58.5
100.0
Number
38,186
23,723
61,909
%
61.7
38.3
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-2013 employee number of 61,909, which excludes staff from
UBS Card Center, Hotel Seepark Thun, Wolfsberg and Hotel Widder.
298
(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)
The building blocks of effective people management
Effective
leadership
Talent
acquisition
and
mobility
Workforce
diversity
A winning
culture
Managing
performance
and reward
Talent
pipeline
Learning and
development
Ensuring our supply of talent is in line
with demand
Ensuring engagement, transparency and
accountability for superior performance
Building employees’ capabilities in line
with strategic requirements
achieved. As part of this, specific corporate behaviors were inte-
grated into our performance management processes starting with
2013 year-end evaluations. Employees and managers are expect-
ed to use concrete examples to illustrate how these behaviors
were exhibited in 2013 and provide feedback on areas for future
focus. We also assess employees’ competencies and development
needs as part of our overall performance management approach.
Appropriate awareness and management of all types of risk con-
tinues to be a focus for our businesses. As part of this, measurable
and relevant risk objectives were again required for all employees in
2013 and considered in performance and reward decisions.
Performance management for our executives is especially rig-
orous. Senior leaders, including all Group Executive Board mem-
bers, are evaluated on key achievements, business performance,
risk management, leadership skills and meeting specific financial
targets, in addition to acting as role models for our corporate
culture. Comprehensive feedback from peers, direct reports and
internal clients forms part of this assessment.
Our “key risk takers” also receive additional input and feed-
back in their performance reviews. These individuals may work in
front office, logistics or control functions and, due to their role,
are able to materially commit, use or control the firm’s resources
and exert significant influence over our risk profile. For this rea-
son, in addition to self, manager and other relevant 360-degree
reviewers, at least one person in a control function, such as fi-
nance or compliance, must attest to the person’s attitudes and
actions towards managing risk.
Our people management processes are global. In 2013, 99%
of the employees eligible to participate in the firm’s performance
assessment processes received a performance review. We have
Group-wide ranks and country-specific salary ranges that are ap-
plicable to all employees. We also have a standardized role clas-
sification model which is used across the firm. Many human re-
source processes are based on these global role profiles, and this
supports more clearly defined career paths and development
plans for all employees.
Education and development
Our Group-wide learning and development course offerings en-
compass senior leadership development, business education and
practical training measures for employees at all levels. Our goal is
to provide our employees and leaders with what they need to
excel in their roles, progress in their careers and ultimately create
value for our stakeholders.
In 2013, we made our education function more agile and flex-
ible. Continuously evolving business and regulatory environments
call for specialized training to be delivered to teams more quickly
than traditional learning initiatives were in the past. Striking a bet-
ter balance between highly customized learning activities and ex-
ternal training support has been key to delivering timely, topical
training to front office employees in particular.
A primary aim for 2013 was to continue to offer training that
helped our businesses achieve their goals. In Wealth Management
Americas, for example, our financial advisor education aimed to
deepen our advisors’ ability to deliver holistic advice that consid-
ers clients’ planning, borrowing, saving and giving needs, in addi-
tion to investing. A new, four-module Wealth Advisor program
gives established financial advisors the advanced skills and knowl-
edge to deliver comprehensive counsel to their clients. In Novem-
ber 2013, a national learning forum gathered hundreds of finan-
cial advisors, field and home office leaders, and external partners
to discuss client trends, wealth management solutions and best
practices. Additionally, select new candidates for financial advisor
roles are regularly hired into a two-year, salaried Wealth Planning
UBS Wealth Management Master
Launched in late 2012 and aimed at senior client advisors across
Wealth Management, the UBS Wealth Management Master is
the highest internal certification available to top-performing
client-facing staff in Wealth Management. The two-year
program combines structured training with on-the-job develop-
ment, enabling senior professionals to acquire in-depth expertise
in client book management, client investment and relationship
management. Since inception, 90 client advisors have entered
the program.
299
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Our employees
Analyst program, which enables them to obtain relevant licens-
ing, training and practical experience in a US branch office before
joining an existing team as a qualified financial advisor.
our compensation and performance award pool funding. They
reflect our long-standing focus on pay for performance, sustained
profitability, risk awareness and sound governance.
We offer client education opportunities through our Financial
Markets Education team. Numerous classes and educational events
are available to clients in all of our operating regions. These initia-
tives cover a wide range of financial topics including equities and
equity derivatives, fixed income basics, credit risk and commodities.
Role-driven business education is offered through specific
learning pathways. These pathways, covering topics such as risk,
compliance, sales, advisory and financial markets, help ensure
consistent training across similar job roles. For example, Wealth
Management expects a high and consistent level of expertise
within client advisor roles. In addition to the Wealth Management
Diploma and Wealth Management Master Certificate programs
that are already available, in 2013 we developed specialized train-
ing for client advisors to help them strengthen client relationships,
investment strategies and business focus.
All employees can access a broad range of development and
training as part of their daily job and through various programs.
Our eLearning portfolio consists of more than 5,100 courses on
topics such as communication skills, management and leadership,
financial markets and information technology. Specialized learn-
ing modules on risk, finance and compliance topics help employ-
ees develop the skills they need to work effectively in their roles
and within evolving business and regulatory environments. Over-
all, in 2013, our employees participated in about 776,000 devel-
opment activities, including approximately 512,000 mandatory
training sessions focusing on compliance and regulatory topics.
This equated to an average of 12.5 training experiences per em-
ployee or an average of 2.5 training days.
Compensation
We strive to offer our employees a competitive salary and perfor-
mance award while maintaining our obligations to our sharehold-
ers and regulators. Our approach recognizes the need to compen-
sate individuals for their performance within the context of
market conditions, risk considerations, a fast-changing commer-
cial environment and evolving regulatory supervision. Our fore-
most priority is to encourage and reward behavior that contrib-
utes to sustainable profitability and the firm’s long-term success.
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 performance awards 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
➔ Refer to “Our deferred variable compensation plans” in the
“Compensation” section of this report for more information
Employee share ownership
We believe personal accountability for business actions and deci-
sions can be encouraged through equity-based awards. Our em-
ployee share purchase plan, Equity Plus, is a voluntary equity-
based program whereby eligible employees can purchase UBS
shares at market price and receive one matching share for free for
every three shares purchased. These matching shares vest in three
years, subject to continued employment at UBS and retention of
the purchased shares. We also use UBS shares as a significant
component in our performance award deferral programs. As of
31 December 2013, current employees held an estimated 7% of
UBS shares outstanding (including approximately 5% in unvest-
ed / blocked actual and notional 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 2013, an estimated 48% of all employees
held UBS shares.
➔ Refer to the “Compensation” section of this report for more
information
Our identity and our commitment to being a responsible
employer
We have a clear vision. We want to be the world’s leading wealth
manager and the top universal bank in Switzerland. We want to
have an investment bank and an asset management business that
are leaders in their chosen areas of focus and that add value to
the overall franchise. We have made excellent progress in the past
18 months in implementing our strategy and in resolving legacy
issues, and we are one of the world’s best-capitalized banks. Our
continued success depends largely on hard work and on building
a strong corporate culture.
Relationships based on respect, trust and mutual understanding
are the foundation for all of our business activities. The firm’s guid-
ing principles characterize the way we work together and the com-
mitments we make to our clients. Unrivaled client focus is at the
heart of our business model and we strive for excellence in every-
thing we do, from the people we employ to the products and ser-
vices we offer to our clients. We aim to deliver sustainable perfor-
mance by strengthening our reputation and by delivering consistent
returns to our shareholders. These concepts are integrated into our
corporate decision-making and people management processes,
and they are intended to shape the daily actions of our employees.
We are committed to making our unique culture a winning one.
Our principles are brought to life in the actions and personal con-
duct that each of our employees exhibits in daily interactions with
300
clients and colleagues. In 2012, we developed some basic expecta-
tions for employee behavior with input from over 500 employees
throughout all regions and businesses. They were discussed with
the firm’s 2,500 most senior managers in mid-2013 and then with
more than 10,000 staff to ensure that our employees understand
and act according to the values and principles that define who we
are and what we stand for as an organization. In late 2013, we
integrated these expectations into our promotion and performance
evaluation processes to ensure that the way we achieve our goals is
as important as achieving the goals themselves. We are developing
a concrete plan to embed them in everything we do, from leader-
ship skills building and business process simplification to employee
engagement and the way we recruit people.
Listening to the voice of our employees
We request feedback from employees throughout the year. In
2012, we instituted a regular “Ask the CEO” event to allow em-
ployees to pose questions to our Group Chief Executive Officer Ser-
gio P. Ermotti live in Zurich or via an interactive news and feedback
channel called UBS Connections. A broad range of topics are dis-
cussed at these sessions, for example strategic direction, corporate
restructurings and concepts such as collaboration and integrity.
Since 2008, we have utilized a targeted feedback tool to gauge
the efficacy of our strategic communication initiatives, as well as
the engagement levels of employees across the firm. This survey is
sent several times a year to a representative sample of employees
across all regions and business divisions. It assesses employees’
familiarity with our senior management, the firm’s principles and
behaviors, specific measures of employee engagement, and their
conviction regarding our strategic direction. We use the results to
shape our communication strategies and to develop targeted ini-
tiatives that address areas of perceived weakness.
Benefits and well-being
We invest in all of our employees by offering a comprehensive
suite of benefits such as insurance, pension, retirement and both
paid and unpaid time off. We also offer our employees benefits
beyond those required by local law or market practice. These ben-
efits are designed to enhance employees’ work experience and
help them manage their professional and personal interests.
For example, we support flexible work arrangements in our
major locations. In Switzerland, employees can request “Time
Flex” options such as teleworking, part-time or job-sharing, or
begin partial retirement starting at 58 years old. The UK and US
have policies that outline part-time, flexible, job-sharing and
home-working opportunities that may be appropriate for employ-
ees whose roles are amenable to flexible working conditions.
We also provide employee assistance programs in a number of
locations, including the UK, US, Switzerland, Hong Kong, Singa-
pore and Japan. These programs offer specialist support and
counseling to help employees resolve issues related to stress, ill-
ness, personal conflict, finances, bereavement, mental health,
performance, adult care and other work-life challenges. In addi-
tion, employees in the UK can utilize an on-site general practitio-
ner, physiotherapist and dentist, as well as occupational health
services. Employees in Switzerland have access to a child-care re-
ferral service, and employees in Stamford have access to on-site
childcare.
We have a longstanding commitment to support the overall
health and safety of all our employees, as noted in our Code of
Business Conduct and Ethics. Our health and safety guidelines
emphasize the importance of providing a good physical infra-
structure and a work environment that promotes the health and
safety of our employees and contractors. As part of this mandate,
we track accident and illness rates. In 2013, 48,389 work days
were lost to accident and 319,868 to illness. This amounts to six
work days per employee.
Our commitment to being a responsible employer is present in
every component of our people management process. This is es-
pecially important when necessary actions significantly impact
certain employee groups in workforce-reduction exercises such as
downsizings or organizational restructurings. Redeployment and
outplacement initiatives in every region provide transitional sup-
port to affected employees. For example, eligible employees in
the US receive career transition support, in addition to severance
pay and health benefits. In Switzerland, our COACH program
helps affected employees find new roles within UBS, or outside
the firm, in the event of a restructuring. Employees below the
level of Director participate in a social plan that sets out the terms
and conditions for redundancies as well as internal hiring, job
transfers and severance.
➔ 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 for Europe was established in 2002
and includes representatives from 18 countries across Europe. It
facilitates open dialogue on pan-European issues that may affect
our regional performance, prospects or operations. Other local
forums address topics such as health and safety, changes to work-
place conditions, pensions, collective redundancies and business
transfers. In Switzerland, for example, the elected members of the
Employee Representation Committee partner with senior man-
agement for annual salary negotiations and represent employee
interests on specific topics. The UK Employee Forum, with elected
representatives from our UK businesses and appointed manage-
ment representatives, focuses on economic, financial and social
activities concerning UK employees. Collectively, the UBS Employ-
ee Forum, including the Employee Representation Committee and
UK Employee Forum, represents approximately 50% of our global
workforce.
301
Corporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Compensation
2013 compensation highlights and key changes
Performance achievements and performance award pool
A year ago, we committed to continue adapting our business to
better serve clients, reduce risk, deliver more sustainable perfor-
mance and enhance shareholder returns. In 2013, we made good
progress in achieving all these goals and finished the year ahead
of the majority of our performance targets.
Our business divisions posted strong results for 2013. Our ad-
justed Group profit before tax increased 44% year on year to CHF
4.1 billion. Our industry-leading fully applied Basel III common
equity tier 1 (CET1) capital ratio increased by 300 bps to 12.8%,
surpassing our 2013 target. Fully applied Basel III risk-weighted
assets were reduced to CHF 225 billion, mainly due to disposals
and other risk reduction in our Non-core and Legacy Portfolio,
exceeding our 2013 year-end target and in line with our target for
2015. We significantly deleveraged our balance sheet, reducing
total assets by CHF 250 billion. Maintaining cost discipline is criti-
cal to our long-term success. In 2013, we achieved our CHF 2
billion gross cost reduction target announced in July 2011.
A year ago, our 2012 performance award pool was significantly
affected by the LIBOR matter, negatively impacting awards in the
Investment Bank, in some areas of the Corporate Center, as well as
the awards to the Group CEO and the other Group Executive Board
(GEB) members. Based on the strong performance in 2013, we nor-
malized our performance award levels for those areas most nega-
tively affected last year and reduced gaps to market pay levels, lead-
ing to a performance award pool for 2013 of CHF 3.2 billion, which
is 28% higher than for 2012. However, reflecting the reduced
awards and longer deferrals in recent years which have resulted in
decreased charges in 2013 for prior-year deferrals, the cost of per-
formance awards was flat year on year on an accounting basis (IFRS).
While stability and predictability in our compensation frame-
work are important, we have made some refinements to our
framework in 2013 in response to the competitive environment
and feedback from our shareholders.
Refinements to the GEB compensation framework
We introduced individual caps on performance awards of a maxi-
mum of five times the base salary for the Group CEO and a maxi-
mum of seven times the base salary for other GEB members.
These caps are in addition to the overall GEB pool cap of 2.5% of
adjusted Group profit before tax that we introduced last year.
We changed the GEB’s performance award deferral mix by in-
creasing the weighting of the equity portion under the Equity
Ownership Plan (EOP) to at least 62.5% from 50% of the de-
ferred amount and by decreasing the Deferred Contingent Capi-
tal Plan (DCCP) portion to 37.5% from 50%.
302
We increased the DCCP’s phase-in CET1 capital ratio trigger to
10% from 7% for all GEB members including the Group CEO so
that, if this capital ratio falls below 10%, the affected deferred per-
formance awards would be written down to zero.
We based all GEB performance awards, including for the Group
CEO, on financial and qualitative measures that were clearly defined
and quantified in terms of relative weightings.
Refinements to the compensation framework
for employees below GEB level
We changed the performance award deferral mix by increasing
the weighting of the EOP portion to 60% of the deferred amount
from 50% and reducing the DCCP portion to 40% from 50%.
Reflecting market dynamics, we raised the threshold of com-
pensation levels subject to deferrals. We introduced deferral rates
ranging from 40% to 75% compared with the previously flat rate
of 60%, and better aligned performance award conditions to the
firm’s targets. In general, this means employees at the lower end
of the compensation scale benefited from lower levels of deferral
than in previous years, while those at the higher end of the com-
pensation scale were subject to higher levels of deferral.
The combined effect of the changes to deferral rates and
threshold for all employees below the GEB level resulted in addi-
tional compensation expenses of CHF 0.2 billion for 2013.
Key regulatory developments
The “Ordinance against excessive pay in stock exchange listed
companies,” issued by the Swiss Federal Council in November
2013 and effective from 1 January 2014, requires Swiss listed
companies to submit the compensation of the GEB and Board of
Directors (BoD) to shareholders for a binding vote annually. The
Human Resources and Compensation Committee and BoD are
being provided with regular updates on the impact and proposed
implementation of the Ordinance. The first vote on BoD and GEB
compensation will be held at the 2015 Annual General Meeting
of Shareholders (AGM).
Another key regulatory development is the impact of the Euro-
pean Union’s Capital Requirements Directive IV on affected em-
ployees and the related implementation of the performance
award cap for 2014 for this population. As a result of these re-
quirements, we will submit for approval at the 2014 AGM a pro-
posal concerning the award cap for variable compensation for
affected employees.
Details regarding both of these measures will be provided as
part of the agenda for the AGM.
➔ Refer to the “Regulatory and legal developments” section of our
Annual Report 2013 for more information
Advisory vote Dear shareholders,
We are on track with the implementation
of our ambitious strategy. To ensure this
continues, we further anchored our
strategy and a culture of accountability
into our compensation framework during
2013.
We have built on the important strides we
took in 2012 with the adoption of a
revised compensation model founded on
incentivizing disciplined capital manage-
ment and with performance awards
based on risk-adjusted profitability. In
2013, the Human Resources and Com-
pensation Committee reviewed the firm’s
compensation model to ensure it contin-
ues to reinforce our employees’ focus on
medium- and longer-term performance,
and in response to the competitive
environment and feedback from our
shareholders. Consequently, we made
two key refinements to our plans during
2013. Firstly, we increased the weighting
of the Equity Ownership Plan (EOP) to
sharpen employees’ focus on future
shareholder value creation. The increased
weighting of the EOP underlines our
commitment to deliver attractive returns
to our shareholders and employees alike.
Secondly, we raised the forfeiture trigger
level of the Deferred Contingent Capital
Plan (DCCP) for the Group Executive
Board (GEB), thereby significantly
increasing the sensitivity of their compen-
sation to a possible common equity tier 1
(CET1) capital ratio reduction.
We aim to foster a true culture of
accountability at all levels of the firm. We
strive to embed this core value into our
daily actions including integrating
safeguards on pay with appropriate
governance oversight. To this end we
made the following amendments to our
compensation policies: we introduced a
cap on the proportion of fixed to variable
compensation for GEB members in
addition to the cap of 2.5% of adjusted
Group profit before tax for the GEB
performance pool implemented a year
ago. We now disclose in more detail the
parameters we considered and how they
were weighted in this year’s GEB perfor-
mance award assessment process.
Below GEB level, we established greater
differentiation in the deferral rates of the
performance awards at the individual level
based on total compensation. While
deferral rates have been reduced for
some, improving market competitiveness,
the marginal deferral rate at the higher
end of the scale has been increased,
placing more compensation at risk.
Furthermore, we continue to take a strong
stance on long-term accountability with
our performance award plans. The lengths
of our vesting periods are demanding
compared with the industry, with plan
durations of three to five years for the
GEB and two to five years for employees
below GEB level. These lengthy deferral
periods are designed to ensure appropri-
ate risk-taking.
In 2013, we increased profits and
shareholder returns. Our business
divisions posted strong results and were
profitable in every quarter, demonstrating
that our business model has the flexibility
to deliver in a variety of market condi-
tions. Our employees met the continued
challenges affecting our industry with
energy, determination and commitment,
enabling us to deliver for both our clients
and shareholders. While the performance
of our businesses improved significantly
during 2013 and we finished the year
ahead of many of our targets, we remain
fully committed to moderation in
performance-related pay.
In 2013, adjusted Group profit before tax
increased 44%. Reflecting the firm’s
strong performance, the Board of
Directors (BoD) is recommending a 67%
increase in the dividend for shareholders.
By way of comparison, we took the
decision to increase the overall perfor-
303
Advisory voteCorporate governance, responsibility and compensation Ann F. Godbehere
Chair of the Human Resources
and Compensation Committee
of the Board of Directors
Corporate governance, responsibility and compensation
Compensation
advisory vote on the compensation
report, but will also seek shareholder
approval on the compensation for the
GEB and BoD. Revised Articles of
Association, outlining the framework
for the binding approval, will be
presented at the upcoming Annual
General Meeting (AGM). Furthermore,
in accordance with the EU Capital
Requirements Directive 2013, the BoD
will propose, via a shareholder advisory
vote, a cap of 2:1 for variable versus
fixed compensation for UK-based
employees whose professional activities
could have a material impact on the
firm’s risk profile in the UK.
The BoD and I would like to offer our
sincere thanks to our shareholders for
the time they took to meet with us and
share their views on compensation.
Over the following pages you will find
details of UBS’s compensation programs
and decisions for 2013, for which we
will seek your support at our AGM in
May 2014.
mance award pool 28% to CHF 3.2
billion. The increase compared with 2012
also reflects the fact that a year ago we
addressed issues of the past that weighed
on our performance. This resulted in pay
that was understandably at the lower end
of the scale compared with the industry.
While the performance award pool
increased 28%, the actual recognized
performance award expenses remained
flat compared to 2012, reflecting the
lower awards in recent years and the
strong deferral component in our
compensation plans.
Looking ahead, we will continue to assess
and refine our compensation framework
to promote sustainable performance, risk
alignment and competitive pay position-
ing against the backdrop of increasing
regulation and a changing business
environment. We intend to strike and
maintain a balance whereby we reward
employees effectively and responsibly. To
ensure our continued success, we need to
attract and retain the best people to
deliver sustainable performance for our
shareholders. As part of our endeavors,
we will remain responsive to our share-
holders and seek out opportunities to
engage with them on compensation
matters.
As a result of the implementation of the
Ordinance against excessive pay issued
by the Swiss Federal Council, from
2015 onwards we will not only have an
Ann F. Godbehere
Chair of the Human Resources
and Compensation Committee of
the Board of Directors
304
Advisory vote 2013 performance and compensation funding
Our performance in 2013 demonstrated both the strength of our business model, which is designed to provide sustain-
able and attractive results with a much lower capital and risk profile, and the focused and disciplined manner in which
we continue to implement our strategy. As a result, the performance award pool for 2013 was increased to CHF 3.2
billion, 28% higher than in 2012.
Our performance in 2013
Summary of financial performance for 2013 and 2012
Overall for 2013, we reported an adjusted 1 Group profit before
tax of CHF 4.1 billion, a net profit attributable to UBS sharehold-
ers of CHF 3.2 billion and diluted earnings per share of CHF 0.83.
In 2013, we further enhanced our position as one of the
world’s best-capitalized banks, exceeding our year-end capital
target. On a fully applied basis our Basel III common equity tier
1 (CET1) capital ratio increased 300 bps to 12.8%, ahead of our
2013 target of 11.5%. We achieved this improvement primarily
through reductions in fully applied risk-weighted assets (RWA)
of CHF 33 billion to CHF 225 billion at year-end. Our capital
strength gives us the flexibility to execute our strategy effec-
tively. Additionally, it reinforces client confidence while allowing
us to address the challenges of the past and to absorb unex-
pected events. We also continued to successfully deleverage
our balance sheet, reducing total assets by CHF 250 billion. Our
funding, liquidity and leverage ratios remain comfortably above
our regulator’s current requirements. In line with one of our
strategic objectives to improve efficiency, during the year we
surpassed our CHF 2 billion gross cost savings target announced
in the second half of 2011, although substantial work remains
to be done to achieve the gross cost savings targets we an-
nounced in 2012. As a result of our improved performance, the
Board of Directors (BoD) is recommending a 67% increase in
the dividend for shareholders for 2013 to CHF 0.25 per share.
This is consistent with our commitment to progressive capital
returns to our shareholders.
Basel III CET1 capital ratio
%
phase-in
fully applied
~15.3
+320 bps
~9.8
+300 bps
18.5
12.8
CHF billion
Operating profit / (loss) before tax as reported
Impairment of goodwill and other non-financial assets
Own credit
Net restructuring charges
Other
Operating profit / (loss) before tax (adjusted) 1
2013
3.3
0.0
0.3
0.8
(0.2)
4.1
2012
(1.8)
3.1
2.2
0.4
(1.0)
2.9
(cid:49)(cid:82)(cid:71)(cid:84)(cid:67)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:84)(cid:81)(cid:386)(cid:86) (cid:17)(cid:10)(cid:78)(cid:81)(cid:85)(cid:85)(cid:11)(cid:2)(cid:68)(cid:71)(cid:72)(cid:81)(cid:84)(cid:71)(cid:2)(cid:86)(cid:67)(cid:90)(cid:2)(cid:10)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:11)(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:22)(cid:14)(cid:20)(cid:23)(cid:18)
(cid:20)(cid:14)(cid:19)(cid:20)(cid:23)
(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:18)
(cid:20)(cid:14)(cid:19)(cid:20)(cid:23)
(cid:22)(cid:14)(cid:20)(cid:23)(cid:18)
(cid:20)(cid:14)(cid:22)(cid:20)(cid:23)
(cid:20)(cid:14)(cid:18)(cid:25)(cid:23)
(cid:20)(cid:14)(cid:22)(cid:23)(cid:23)
(cid:19)(cid:14)(cid:23)(cid:22)(cid:21) (cid:19)(cid:14)(cid:23)(cid:19)(cid:20)
(cid:27)(cid:19)(cid:25)
(cid:23)(cid:27)(cid:22)
(cid:23)(cid:22)(cid:21)
(cid:23)(cid:26)(cid:23)
(cid:21)(cid:27)(cid:26)
(cid:22)(cid:14)(cid:19)(cid:22)(cid:19)
(cid:20)(cid:14)(cid:26)(cid:26)(cid:23)
(cid:10)(cid:20)(cid:14)(cid:20)(cid:25)(cid:19)(cid:11)
(cid:10)(cid:21)(cid:14)(cid:25)(cid:23)(cid:19)(cid:11)
(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: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:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)
(cid:35)(cid:85)(cid:85)(cid:71)(cid:86)(cid:2)
(cid:47)(cid:67)(cid:80)(cid:67)(cid:73)(cid:71)(cid:79)(cid:71)(cid:80)(cid:86)
(cid:43)(cid:80)(cid:88)(cid:71)(cid:85)(cid:86)(cid:79)(cid:71)(cid:80)(cid:86)(cid:2)
(cid:36)(cid:67)(cid:80)(cid:77)
(cid: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:41)(cid:84)(cid:81)(cid:87)(cid:82)
(cid:20)(cid:18)(cid:19)(cid:20)
(cid:20)(cid:18)(cid:19)(cid:21)
1 For 2013, adjusted operating profit / loss before tax excludes each of the following items, to the extent appli-
cable, on a Group and business division level: an own credit loss of CHF 283 million, gains on sales of real estate
of CHF 288 million, net losses of CHF 167 million related to the buyback of debt in public tender offers, net
restructuring charges of CHF 772 million, a gain on sale of Global Asset Management’s Canadian domestic
business of CHF 34 million and a net gain on sale of remaining proprietary trading business of CHF 31 million.
For 2012, the items we excluded were an own credit loss of CHF 2,202 million, gains on sales of real estate of
CHF 112 million, net restructuring charges of CHF 371 million, a credit related to changes to the Swiss pension
plan of CHF 730 million, a credit related to changes to our retiree benefit plans in the US of CHF 116 million and
an impairment of goodwill and other non-financial assets of CHF 3,064 million. Refer to the “Group perfor-
mance” section in our Annual Report 2013 for more information on adjusted results.
Basel III RWA
Fully applied, CHF billion
~258
(13%)
225
31.12.12 pro-forma
31.12.13
31.12.12 pro-forma
31.12.13
305
(cid:22)(cid:20)(cid:23)(cid:18)
(cid:20)(cid:19)(cid:20)(cid:23)
(cid:18)
(cid:15)(cid:20)(cid:19)(cid:20)(cid:23)
(cid:15)(cid:22)(cid:20)(cid:23)(cid:18)
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Our business divisions posted strong results for the year,
demonstrating that our model has the flexibility to adapt and
perform well in a variety of market conditions. Our success has
given our clients even greater confidence in the firm. Net new
money inflows into our wealth management businesses to-
taled CHF 54 billion for the year, an increase of 14% year on
year. We were recognized as the largest and fastest growing
large-scale wealth manager in the world 1. Wealth Manage-
ment Americas achieved new records with invested assets of
USD 1 trillion 2, adjusted 3 profit before tax of USD 1 billion 4 and
with revenue per financial advisor at over USD 1 million. Our
Retail & Corporate business showed sustained profitability de-
spite considerable pressure on net interest margins, and aver-
age client deposit volumes increased year on year. Global Asset
Management recorded a stable performance in challenging
markets with an 8% increase in adjusted 3 profit before tax,
although it did experience net new money outflows, excluding
money market flows, of almost CHF 5 billion. The Investment
Bank delivered significantly higher adjusted 3 profit before tax
of CHF 2.5 billion, achieving an adjusted 3 return on attributed
equity of 31%, significantly above its target of greater than
15%. This was achieved while operating well within strict RWA
and balance sheet targets. All business divisions operated with-
in their cost / income ratio targets and focused on using re-
sources efficiently. In the Corporate Center, profit before tax
was negatively affected by continuing elevated charges for
provisions for litigation, regulatory and similar matters primar-
ily in Non-core and Legacy Portfolio, by negative treasury in-
come and by restructuring charges. However, reduction of
RWA in Non-core and Legacy Portfolio was ahead of our tar-
gets and was executed in a manner that protected shareholder
value, allowing the Group to exceed its capital ratio target.
Performance award pool funding
Business performance is the basis of our compensation funding
framework. We measure our performance in a variety of ways,
including profitability, quality of earnings, contribution before
performance award and economic contribution before perfor-
mance award, which is a risk adjusted measure of performance.
In addition to the key performance metric of risk-adjusted profit-
ability, we use a number of criteria to assess the performance of
each of our business divisions and Corporate Center. Examples
include the following:
– In our wealth management businesses, we use criteria such as
the level of net new money generated, cost / income ratio and
gross margins.
– In Retail & Corporate, we consider factors such as net new busi-
ness volume growth, net interest margin and cost / income ratio.
1 Scorpio Partnership Private Banking Benchmark 2013, based on 2012 data for banks with assets under
management of over USD 500 billion. 2 Invested assets of USD 970 billion. 3 Refer to the chart “Operat-
ing profit / (loss) before tax (adjusted) for the Group and business divisions” on the previous page for details
on adjusted results. 4 Full year adjusted profit before tax of USD 991 million.
306
– In Global Asset Management, we use criteria such as net new
money growth rate, gross margin and cost / income ratio.
– In the Investment Bank, we consider factors such as pre-tax
return on attributed equity, cost / income ratio and capital utili-
zation.
– For Corporate Center – Core Functions, we look at factors such
as risk and capital management and cost reduction.
– For Corporate Center – Non-core and Legacy Portfolio, we
consider RWA reductions and exit costs.
Certain risk-related objectives are common across all business
divisions and Corporate Center, while others may vary. Risk-relat-
ed objectives include, for example, adherence to risk investment
guidelines, Group risk policies and value-at-risk limits, and the
avoidance of significant operational risk events.
Each business division’s performance award pool is accrued as a
percentage of the pre-performance award pool profit. This figure is
then risk adjusted by factoring in a risk capital charge as well as fur-
ther considerations of relevant risk metrics. The percentage is further
affected by items such as changes in performance during the year,
quality of earnings, affordability and market positioning. The per-
centage increases or decreases as performance declines or improves.
If a business division’s profits increase, the proportion of profits we
allocate to pay performance awards is generally reduced. In good
years, this helps to prevent excessive compensation and allows us to
return more capital to shareholders. In lean years, it provides us with
the flexibility to make adequate provisions to retain key employees.
For the purposes of performance award pool funding, business divi-
sion performance is adjusted for items which do not reflect their un-
derlying performance, such as gains related to divestments or sales of
real estate, restructuring charges and gains or losses on own credit.
We assess the performance of the Group using criteria such as
risk-adjusted profits, performance relative to the industry and gen-
eral market competitiveness. We also consider progress against our
strategic initiatives, including risk-weighted asset reduction, balance
sheet reduction, delivery of cost efficiencies and capital accretion.
We look at the firm’s risk profile and culture, including the extent to
which operational risks and audit issues are identified and resolved
and the quality and success of the firm’s risk reduction initiatives.
In determining performance award funding at all levels we take
the following key risks into account, as applicable: credit, market,
liquidity, funding, operational, including legal and compliance, and
reputational risk. We consider as well the number of operational
risks and audit recommendations that are effectively resolved.
The Human Resources and Compensation Committee (HRCC)
monitors the forecasted full-year performance award pool on a
regular basis. This includes a regular review of year-to-date accruals
to ensure alignment to the overall performance of the firm and tak-
ing account of the competitive environment.
At the end of each year, the Group CEO, after consultation with
the business division CEOs, develops the final performance award
pool recommendation for the year. If the Group CEO believes that
a business division’s performance award pool does not properly re-
flect its achievements, the Group CEO can recommend a change to
Advisory vote the size of the pool. The proposal is then submitted to the HRCC
for consideration.
The HRCC considers all recommendations in the context of the
firm’s overall performance, capital strength and risk profile, market
positioning and trends of the businesses and geographies in which
we operate. The HRCC ensures recommendations are in line with
our strategy and the philosophy and objectives embodied in our
Total Reward Principles to create sustainable shareholder value. The
HRCC can either accept the Group CEO’s proposal, or adjust it ei-
ther downwards or upwards before submitting it to the BoD for
final approval.
2013 performance award pool and expenses
The performance award pool for 2013 was CHF 3.2 billion, an
increase of CHF 0.7 billion, or 28%, compared with 2012. The
pool reflects our overall increased profitability, the quality of earn-
ings, and our progress towards achieving our strategic objectives.
Our 2012 performance award pool was significantly affected by
the LIBOR matter, negatively impacting awards in the Investment
Bank, some areas of the Corporate Center as well as the awards
to the GEB including the Group CEO. In 2013, we finished the
year ahead of many of our strategic and financial targets. We
normalized performance award levels in areas negatively affected
last year and reduced gaps to market pay levels in light of our
absolute and relative achievements. Our achievements in 2013
and the proposed increase in distributions to our shareholders
illustrate the continuing shift in the relationship between com-
pensation, capital and dividends. The performance award pool
includes all discretionary, performance-based variable awards for
2013.
The “Performance award expenses” chart below compares
the performance award pool with the performance award ex-
penses for the financial year 2013. Performance award expenses
remained flat at CHF 3.0 billion and included expenses related to
2013 compensation awards and amortized expenses related to
awards made in prior years. The 2013 expenses reflected increas-
es for current year performance awards, offset by decreased am-
ortized expenses from prior years’ awards.
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Performance award expenses
CHF billion
+28%1
3.0
1.3
Amortization
of prior-
year awards
1.7
Awards
expenses for
performance
year
3.2
0.9
Awards
for
performance
year deferred
to future
periods2
(incl.
accounting
adjustments)
3.0
0.7
2.3
Amortization
of prior-
year awards
Awards
expenses for
performance
year
2.5
0.8
Awards
for
performance
year deferred
to future
periods2
(incl.
accounting
adjustments)
Performance
award pool
2012
Performance
award pool
2013
Flat
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.
307
Advisory voteCorporate governance, responsibility and compensation Advisory vote
Corporate governance, responsibility and compensation
Compensation
2013 compensation for the Group CEO and the other
Group Executive Board members
Group Executive Board (GEB) awards are made at the discretion of the Board of Directors (BoD). The BoD takes into
account the overall performance of the Group and the available performance award pool funding. For GEB members
in office for 2013, performance awards were up 20% year on year, whereas the overall performance award pool for all
employees increased 28%.
Key features of our 2013 compensation framework for the Group Chief Executive Officer (Group CEO) and
the other members of the GEB
Pay for performance
Safeguards
The Human Resources and Compensation Committee (HRCC) reviews the performance of
our Group CEO and other GEB members against the Group’s performance targets.
The GEB’s performance awards are based on financial and non-financial performance
measures and consider performance of the individual and the Group overall.
Our compensation framework contains a number of features designed to ensure
that risk is appropriately managed with safeguards to limit inappropriate risk-taking.
Our framework has
– In 2013, the Group CEO / GEB performance scorecard was introduced. This is based on a
deferral
set of financial and qualitative measures, and provides a framework for a balanced assess-
ment. Group level, business division, regional, functional and qualitative performance
measures are included in combination, depending on the individual GEB member’s remit
– a cap on the total GEB performance award pool of up to 2.5% of adjusted Group profit
before tax
– a balanced mix of shorter-term and longer-term performance awards with a focus on
– Compensation plan forfeiture provisions enable the firm to reduce the unvested deferred
portion if the compensation plans’ relevant performance conditions are not achieved.
This means
– individual caps on the proportion of fixed to variable pay for the Group CEO and other
GEB members
– the vesting of EOP awards depends on both Group and divisional performance
– DCCP awards only vest in full if the firm delivers an adjusted profit before tax and our
phase-in common equity tier 1 (CET1) capital ratio does not fall below 10%. This is a
higher threshold than the 7% CET1 capital ratio trigger applicable in 2012. Like last
year, annual interest is only paid if UBS achieves an adjusted profit before tax during
the vesting period
– a share ownership policy under which each GEB member must build up and hold a
minimum of 350,000 shares. The Group CEO must build up and hold a minimum of
500,000 shares
– an evaluation of the risk control effectiveness and adherence of each GEB member as
part of their individual qualitative assessment
– employment contracts that generally include a six-month notice period
– provisions that enable the firm to trigger forfeiture of some, or all, of the unvested de-
ferred performance award if an employee commits certain harmful acts or employment is
terminated for cause. Generally, we regard the following as harmful acts:
– contributing substantially to a significant downward restatement 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, including reputational harm
– engaging in conduct that materially violates legal and regulatory requirements or
internal policies and procedures
– improperly disclosing confidential or proprietary information
– soliciting UBS employees or clients
308
Advisory vote
2013 compensation framework for GEB members
Of the annual performance award up to 20% is paid in the form of immediate cash, and 80% is paid as a longer-term performance award, with 50% paid in deferred equity and
the remaining 30% in deferred notional bonds.
Illustrative example
2013
DCCP
30%
EOP
50%1
20%
Cash
Up to
20%
Base
salary
Payout of performance award
Payout of performance award
2012
DCCP
40%
30%
16%
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
%
0
8
t
s
a
e
l
t
A
e
c
n
a
m
r
o
f
r
e
p
f
o
n
i
d
i
a
p
d
r
a
w
a
2
h
s
a
c
e
t
a
i
d
e
m
m
i
%
0
2
o
t
p
U
17%
17%
Replicates many of the features of loss-absorbing bonds.
Award cliff vests in year 5, subject to forfeiture if a capital ratio
trigger or viability event occurs. The awards are subject to 20%
forfeiture for each financial year if UBS does not achieve an
adjusted Group profit before tax.
Notional interest payments will be made annually in years
where the firm achieves an adjusted Group profit before tax.
Awards are subject to continued employment and harmful acts
provisions.
Notional shares awarded.
Award vests in equal installments in year 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.
Awards are subject to continued employment and harmful acts
provisions.
EOP
40%
Up to 20% paid out immediately, subject to a cash cap of
CHF/USD 1 million. To the extent that less than 20% is paid in
immediate cash, the excess amount will be delivered in EOP.(cid:30)
20%
Cash
Up to
20%
Base
salary
40%
13%
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
%
0
8
t
s
a
e
l
t
A
e
c
n
a
m
r
o
f
r
e
p
f
o
n
i
d
i
a
p
d
r
a
w
a
2
h
s
a
c
e
t
a
i
d
e
m
m
i
%
0
2
o
t
p
U
13%
14%
2013
2014 2015 2016 2017 2018 2019
Share
retention
500,000 shares for Group CEO
350,000 shares for other GEB members
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.
2012
2013 2014 2015 2016 2017 2018
Share
retention
500,000 shares for Group CEO
350,000 shares for other GEB members
1 At least 50% of the performance award is granted under EOP. 2 UK Code Staff receive 50% in the form of blocked shares.
309
Corporate governance, responsibility and compensation
Corporate governance, responsibility and compensation
Compensation
Base salary
Each GEB member receives a fixed base salary, which is reviewed
annually by the HRCC. GEB salaries, excluding the Group CEO,
were unchanged from CHF 1.5 million (or currency equivalent),
which was set by the BoD in early 2011. Since his appointment,
the Group CEO’s base salary was set at CHF 2.5 million.
Pensions and benefits
Pensions contributions and benefits for GEB members are in line
with local practices for other employees.
➔ Refer to “Note 28 Pension and other postemployment benefit
plans” in the “Financial information” section of our Annual
Report 2013 for details on the various major postemployment
benefit plans established in Switzerland and other countries
How we set variable compensation levels for our Group
CEO and other GEB members – performance scorecard
assessment
The Group CEO and other GEB members are eligible to receive an
annual performance award at the full discretion of the BoD. In
2013, we enhanced our performance assessment approach based
on a balanced scorecard. We assess an individual’s performance
against a number of financial and qualitative key performance
indicators (KPI).
The financial factors determining the Group CEO’s annual dis-
cretionary performance award are based on Group performance.
For other GEB members, the financial criteria are split between
Group performance and that of their relevant business division
(BD) and / or region. Those who lead Group control functions, or
who are solely regional CEOs, are assessed based on the perfor-
Overview of the quantitative and qualitative measures on which the performance scorecard is based
Quantitative measures (65% weighting)
Qualitative measures (35% weighting)
The quantitative factors are aligned with the Group’s strategic plan. They are mainly
based on the Group measures, supplemented with business division, regional or
functional KPI for business division, regional or Corporate Center GEB members, and
include the following:
– Group return on equity (as reported)
– adjusted Group profit before tax
– fully applied common equity tier 1 (CET1) capital ratio
– business division and / or regional KPI (if applicable)
– functional KPI (for Corporate Center GEB members)
Both regional and functional KPI may consist of some qualitative measures.
The qualitative factors assess how effective the Group CEO / GEB member is in respect of
the following:
– clients – evaluates how effective the individual is in increasing client satisfaction and
maintaining high levels of satisfaction over the long term. This includes promoting cross-
business division collaboration and fostering the delivery of the whole bank to our clients
– people and culture – assesses the extent to which the individual actively develops
successors for the most senior positions, facilitates talent mobility within the firm
and promotes a diverse and inclusive workforce. Furthermore, this measure evaluates
the individual’s ability to reinforce a culture of accountability and responsibility,
demonstrating our commitment to being a responsible corporate citizen and acting
with integrity in all our interactions with our stakeholders
– risk control – evaluates how effective the individual is in ensuring risk management
and control principles are fully implemented and adhered to through an effective
risk management and control framework. It also captures the degree to which risks are
self-identified
– regulatory compliance – focuses on the individual’s success in ensuring regulatory
compliance with the various regulatory frameworks in which we operate. It also
evaluates how well the individual helps shape the firm’s relationships with regulators
through ongoing dialogue
– execution effectiveness – assesses how the individual contributes to the development
and execution of our strategy. The measure also looks to ensure there is success across
all business lines, functions and regions, as applicable, through specific objectives, initia-
tives, timeframes and metrics
– brand and reputation – assesses the individual’s protection of our reputation and full
compliance with our standards and principles, particularly our Code of Business Conduct
and Ethics
310
Advisory vote Weightings of financial and qualitative measures
in %
Key performance indicators (KPI)
Group RoE, adjusted Group profit before tax and Basel III CET1 ratio (fully applied)
Business division / regional KPI
Functional KPI
Financial
Qualitative
Total
Group CEO
BD / Regional CEO
Functional heads
Weighting
65
65
35
100
35
30
65
35
100
45
20
65
35
100
mance of the Group and of the functions or of the regions they
may oversee. Quantitative factors, such as business division finan-
cial, regional and functional measures, account for 65% and
qualitative factors for 35% of the assessment. The qualitative fac-
tors considered are the same for the Group CEO and other GEB
members.
The table above provides an overview of the quantitative and
qualitative KPI on which the scorecard is based.
The weighting of the quantitative factors between Group,
business division, regional and functional KPI varies depending on
the GEB member’s role, with a significant weighting on Group KPI
for all GEB members.
The degree of achievement of these financial measures, cou-
pled with the assessment of performance against the qualitative
measures, gives an overall score that determines the starting point
for a GEB member’s annual performance award. Target total com-
pensation is reviewed against the market value of the respective
role. Scoring at target would generally result in a total compensa-
tion around the median of the industry peer group. Where the
performance is below target, the score is reduced (and can be
0%), which then results in a total compensation below market
median. If the performance exceeds the target, the score increases,
resulting in a total compensation that can be above market medi-
an. While this method represents a more formulaic approach than
in the past, it is not intended to be mechanical. The HRCC does not
abdicate its responsibility to exercise sound judgment and applies
an appropriate level of discretion that may result in the outcome of
the above scorecard or compensation level being adjusted up-
wards or downwards by up to 20%. The HRCC’s final compensa-
tion recommendations for GEB members are based on the score-
cards, the assessment against each individual’s market value for
the role and the CEO’s overall recommendation, excluding his own
performance award. The HRCC’s recommendations are then re-
viewed, and must be approved by the BoD, which retains full dis-
cretion in determining the variable compensation levels for GEB
members and may decide not to grant any performance awards.
The HRCC and BoD go through a similar process in setting the
compensation for the Group CEO.
Caps
The total potential GEB performance award pool is capped at 2.5%
of the firm’s adjusted Group profit before tax, thereby linking over-
all GEB compensation to the firm’s profitability. As the Group’s ad-
justed profit before tax for 2013 was CHF 4.141 billion, the GEB
2013 performance award pool was capped at CHF 104 million.
The actual total performance award pool for 2013 was CHF 63
million, representing 1.5% (in 2012: CHF 52 million or 1.8%) of
the Group’s adjusted profit before tax. Furthermore, 100% of a
GEB member’s deferred compensation is subject to performance
conditions.
For 2013, we also introduced individual compensation caps on
the proportion of fixed pay to variable pay. The Group CEO’s per-
formance award is capped at five times base salary. Performance
awards of other GEB members are capped at seven times base
salary.
For 2013, GEB member and Group CEO performance awards
were, on average, 3.7 times the base salary (2012: 3.2 times).
Benchmarking against peers
The HRCC reviews GEB compensation and benefits levels against
those of a peer group of companies selected based on the compa-
rability of their size, business mix, geographic mix, and the extent to
which they are our competitors for talent. The HRCC also considers
the practices of these peers that may influence their pay strategies
and pay levels and their respective regulatory environments.
Year-on-year consistency of the peer group is considered an im-
portant element by the HRCC. In 2013, it reviewed our peer group
and determined it remained appropriate. The group consists of the
following 12 companies: Bank of America, Barclays, BNP Paribas,
Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP
Morgan Chase, Julius Baer, Morgan Stanley and Nomura.
Overall, total compensation of GEB members is targeted at
the median of the industry peer group, adjusted for individual
and Group performance.
311
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Comparability assessment against main peers
Benchmarking ensures that our executive compensation is appropriate relative to our industry peer group. The key benchmarking
criteria are summarized in the following table.
Size 1
Business
mix 2
Geographic
mix 3
Competitors
for talent 4
HQ location:
regulatory 5
HQ location:
geography 6
Firm
Bank of America
Barclays
BNP Paribas
Citigroup
Credit Suisse
Deutsche Bank
Goldman Sachs
HSBC
JP Morgan Chase
Julius Baer
Morgan Stanley
Nomura
Less comparable
Moderately comparable
Comparable
1 Size: evaluated in terms of revenue, profitability, assets and employee size. This would potentially impact management complexity outside of the impact of product mix and geography. 2 Business mix: in terms of type
and size of major businesses. This would impact pay strategy, pay levels and approach and, importantly, risk profile. 3 Geographic mix: evaluated not only in terms of mix, but also from a European Headquarters (HQ)
perspective. This impacts executive role definition and management complexity. 4 Competitors for talent: firms from which UBS recruits and / or firms which recruit from UBS. 5 HQ location / regulatory: impact of the
regulatory environment based on home regulator. 6 HQ location / geography: culture and practice that impacts pay strategy, levels.
2013 deferral of performance awards
In line with our focus on generating sustainable performance, at
least 80% of a GEB member’s performance award is deferred. In
2012, in light of the firm’s overall results for the year, and, based
on a recommendation from the Group CEO, 100% of the GEB’s
2012 performance award was deferred.
For 2013, a minimum of 50% of the overall performance award
is awarded under the Equity Ownership Plan (EOP), a longer-term
performance award. EOP awards vest in three equal installments
from years three to five, subject to performance conditions being
met.
Thirty percent of the overall performance award is awarded
under the Deferred Contingent Capital Plan (DCCP), another lon-
ger-term performance award which vests only in year five. No-
tional interest is paid for each year provided the firm achieves an
adjusted Group profit before tax for that year. In addition to a
phase-in CET1 capital ratio trigger of 10%, DCCP awards are sub-
ject to an additional performance condition. If UBS does not
achieve an adjusted Group profit before tax for any year during
the vesting period, GEB members forfeit 20% of the award for
each loss-making year. This means 100% of the award is subject
to an additional risk of forfeiture in addition to the capital ratio
trigger.
For each GEB member a maximum of 20% of the overall per-
formance award can be paid out in the form of immediate cash,
subject to a cap of CHF / USD 1 million (or currency equivalent).
Any amount above this is paid in notional shares under the EOP.
In addition, for GEB members considered “UK Code Staff” for
the year 2013, 50% of any immediate cash must be delivered in
vested shares which are blocked until 1 September 2014, and
each EOP installment vesting on 1 March will be blocked for a
further six months.
The average deferral period for deferred awards for GEB
members in 2013 was 4.4 years. Our compensation plans have
no upward leverage, such as multiplier factors, and therefore do
not encourage excessive risk-taking.
➔ Refer to the “Our deferred variable compensation plans” section
of this report for more information
➔ Refer to the “Our compensation model for employees other than
GEB members” section of this report for more information on UK
Code Staff
Share ownership requirements
We aim to align GEB members’ interests with those of our share-
holders. To ensure GEB members remain focused on the longer-
term success of the firm, we require the Group CEO to hold a
312
Advisory vote (cid:49)(cid:88)(cid:71)(cid:84)(cid:88)(cid:75)(cid:71)(cid:89)(cid:2)(cid:81)(cid:72)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:82)(cid:84)(cid:81)(cid:69)(cid:71)(cid:85)(cid:85)(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:39)(cid:49)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:85)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)(cid:75)(cid:85)(cid:2)(cid:75)(cid:80)(cid:88)(cid:81)(cid:78)(cid:88)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:78)(cid:78)(cid:2)(cid:85)(cid:86)(cid:67)(cid:73)(cid:71)(cid:85)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:70)(cid:71)(cid:69)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:15)(cid:79)(cid:67)(cid:77)(cid:75)(cid:80)(cid:73)(cid:2)(cid:82)(cid:84)(cid:81)(cid:69)(cid:71)(cid:85)(cid:85)(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:39)(cid:49)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:386)(cid:80)(cid:67)(cid:78)(cid:2)(cid:67)(cid:82)(cid:82)(cid:84)(cid:81)(cid:88)(cid:67)(cid:78)(cid:2)(cid:68)(cid:91)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:36)(cid:81)(cid:67)(cid:84)(cid:70)(cid:2)(cid:81)(cid:72)(cid:2)(cid:38)(cid:75)(cid:84)(cid:71)(cid:69)(cid:86)(cid:81)(cid:84)(cid:85)
(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:73)
(cid:57)(cid:71)(cid:75)(cid:73)(cid:74)(cid:86)(cid:15)
(cid:75)(cid:80)(cid:73)
(cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)
(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:79)(cid:71)(cid:80)(cid:86)(cid:19)
(cid:53)(cid:69)(cid:81)(cid:84)(cid:71)(cid:19)
(cid:37)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:70)(cid:71)(cid:69)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)
(cid:38)(cid:71)(cid:78)(cid:75)(cid:88)(cid:71)(cid:84)(cid:91)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(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:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:14)(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:14)(cid:2)
(cid:84)(cid:71)(cid:73)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:67)(cid:80)(cid:70)(cid:17)(cid:81)(cid:84)(cid:2)(cid:72)(cid:87)(cid:80)(cid:69)(cid:86)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)
(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:70)(cid:71)(cid:82)(cid:71)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)
(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:84)(cid:81)(cid:78)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)
(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)
(cid:54)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)
(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:85)(cid:86)(cid:84)(cid:67)(cid:86)(cid:71)(cid:73)(cid:75)(cid:69)(cid:2)(cid:82)(cid:78)(cid:67)(cid:80)(cid:2)
(cid:24)(cid:23)(cid:7)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:67)(cid:84)(cid:71)(cid:2)
(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:71)(cid:70)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)
(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:85)(cid:14)(cid:2)(cid:89)(cid:74)(cid:71)(cid:84)(cid:71)(cid:68)(cid:91)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)(cid:70)(cid:71)(cid:86)(cid:71)(cid:84)(cid:79)(cid:75)(cid:80)(cid:71)(cid:85)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:85)(cid:69)(cid:81)(cid:84)(cid:71)(cid:2)
(cid:10)(cid:85)(cid:71)(cid:71)(cid:2)(cid:73)(cid:84)(cid:67)(cid:82)(cid:74)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:85)(cid:69)(cid:81)(cid:84)(cid:71)(cid:69)(cid:67)(cid:84)(cid:70)(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:39)(cid:49)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:74)(cid:75)(cid:73)(cid:74)(cid:71)(cid:85)(cid:86)(cid:2)(cid:82)(cid:67)(cid:75)(cid:70)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)
(cid:81)(cid:80)(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:82)(cid:67)(cid:73)(cid:71)(cid:85)(cid:11)
(cid:51)(cid:87)(cid:67)(cid:78)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)
(cid:51)(cid:87)(cid:67)(cid:78)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:83)(cid:87)(cid:67)(cid:78)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:72)(cid:67)(cid:69)(cid:86)(cid:81)(cid:84)(cid:85)(cid:2)
(cid:79)(cid:71)(cid:67)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:74)(cid:81)(cid:89)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:90)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)
(cid:67)(cid:69)(cid:74)(cid:75)(cid:71)(cid:88)(cid:71)(cid:85)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:85)
(cid:2)
(cid:21)(cid:23)(cid:7)
(cid:54)(cid:74)(cid:71)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)(cid:70)(cid:71)(cid:86)(cid:71)(cid:84)(cid:79)(cid:75)(cid:80)(cid:71)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)
(cid:89)(cid:74)(cid:67)(cid:86)(cid:2)(cid:71)(cid:90)(cid:86)(cid:71)(cid:80)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:71)(cid:90)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)
(cid:74)(cid:67)(cid:85)(cid:2)(cid:79)(cid:71)(cid:86)(cid:2)(cid:71)(cid:67)(cid:69)(cid:74)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:83)(cid:87)(cid:67)(cid:78)(cid:75)(cid:86)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:72)(cid:67)(cid:69)(cid:86)(cid:81)(cid:84)(cid:85)(cid:14)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)
(cid:75)(cid:80)(cid:2)(cid:81)(cid:80)(cid:71)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:85)(cid:69)(cid:81)(cid:84)(cid:71)(cid:28)
(cid:115)(cid:2)(cid:69)(cid:78)(cid:75)(cid:71)(cid:80)(cid:86)(cid:85)
(cid:115)(cid:2)(cid:82)(cid:71)(cid:81)(cid:82)(cid:78)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:69)(cid:87)(cid:78)(cid:86)(cid:87)(cid:84)(cid:71)(cid:2)
(cid:115)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:81)(cid:78)
(cid:115)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:86)(cid:81)(cid:84)(cid:91)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:78)(cid:75)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)
(cid:115)(cid:2)(cid:71)(cid:90)(cid:71)(cid:69)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:71)(cid:72)(cid:72)(cid:71)(cid:69)(cid:86)(cid:75)(cid:88)(cid:71)(cid:80)(cid:71)(cid:85)(cid:85)
(cid:115)(cid:2)(cid:68)(cid:84)(cid:67)(cid:80)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:82)(cid:87)(cid:86)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:2)
(cid:18)(cid:115)(cid:19)(cid:21)(cid:18)(cid:7)
(cid:18)(cid:115)(cid:25)(cid:18)(cid:7)
(cid:18)(cid:115)(cid:20)(cid:18)(cid:18)(cid:7)
(cid:57)(cid:74)(cid:71)(cid:80)(cid:2)(cid:70)(cid:71)(cid:86)(cid:71)(cid:84)(cid:79)(cid:75)(cid:80)(cid:75)(cid:80)(cid:73)(cid:2)(cid:67)(cid:69)(cid:86)(cid:87)(cid:67)(cid:78)(cid:2)(cid:82)(cid:67)(cid:91)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:78)(cid:85)(cid:14)(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:85)(cid:2)(cid:72)(cid:67)(cid:69)(cid:86)(cid:81)(cid:84)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:68)(cid:91)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)(cid:28)
(cid:115)(cid:2)(cid:85)(cid:69)(cid:81)(cid:84)(cid:71)(cid:69)(cid:67)(cid:84)(cid:70)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:2)
(cid:115)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:71)(cid:2)
(cid:115)(cid:2)(cid:75)(cid:80)(cid:86)(cid:71)(cid:84)(cid:80)(cid:67)(cid:78)(cid:2)(cid:88)(cid:67)(cid:78)(cid:87)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:115)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:82)(cid:67)(cid:84)(cid:67)(cid:79)(cid:71)(cid:86)(cid:71)(cid:84)(cid:85)(cid:2)(cid:70)(cid:71)(cid:71)(cid:79)(cid:71)(cid:70)(cid:2)(cid:84)(cid:71)(cid:78)(cid:71)(cid:88)(cid:67)(cid:80)(cid:86)
(cid:54)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:85)(cid:2)(cid:86)(cid:67)(cid:84)(cid:73)(cid:71)(cid:86)(cid:71)(cid:70)(cid:2)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:79)(cid:71)(cid:70)(cid:75)(cid:67)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:71)(cid:71)(cid:84)(cid:2)(cid:73)(cid:84)(cid:81)(cid:87)(cid:82)(cid:14)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)
(cid:81)(cid:80)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(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:16)(cid:2)(cid:56)(cid:67)(cid:84)(cid:75)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:2)
(cid:86)(cid:81)(cid:2)(cid:79)(cid:71)(cid:70)(cid:75)(cid:67)(cid:80)(cid:2)(cid:75)(cid:85)(cid:2)(cid:70)(cid:71)(cid:82)(cid:71)(cid:80)(cid:70)(cid:71)(cid:80)(cid:86)(cid:2)(cid:81)(cid:80)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:15)(cid:2)(cid:81)(cid:84)(cid:2)
(cid:87)(cid:80)(cid:70)(cid:71)(cid:84)(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:67)(cid:85)(cid:2)(cid:84)(cid:71)(cid:387)(cid:71)(cid:69)(cid:86)(cid:71)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:86)(cid:74)(cid:71)
(cid:67)(cid:85)(cid:85)(cid:71)(cid:85)(cid:85)(cid:79)(cid:71)(cid:80)(cid:86)(cid:17)(cid:85)(cid:69)(cid:81)(cid:84)(cid:71)(cid:69)(cid:67)(cid:84)(cid:70)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:70)(cid:71)(cid:69)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:85)(cid:2)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)
(cid:70)(cid:75)(cid:85)(cid:69)(cid:84)(cid:71)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:36)(cid:81)(cid:38)
(cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:75)(cid:85)(cid:2)(cid:82)(cid:67)(cid:75)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:2)(cid:85)(cid:74)(cid:81)(cid:84)(cid:86)(cid:71)(cid:84)(cid:15)
(cid:86)(cid:71)(cid:84)(cid:79)(cid:14)(cid:2)(cid:75)(cid:79)(cid:79)(cid:71)(cid:70)(cid:75)(cid:67)(cid:86)(cid:71)(cid:2)(cid:69)(cid:67)(cid:85)(cid:74)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)
(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:2)(cid:67)(cid:2)(cid:78)(cid:81)(cid:80)(cid:73)(cid:71)(cid:84)(cid:15)(cid:86)(cid:71)(cid:84)(cid:79)(cid:2)(cid:70)(cid:71)(cid:72)(cid:71)(cid:84)(cid:84)(cid:71)(cid:70)(cid:2)
(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:89)(cid:74)(cid:75)(cid:69)(cid:74)(cid:2)(cid:75)(cid:85)(cid:2)(cid:70)(cid:71)(cid:72)(cid:71)(cid:84)(cid:84)(cid:71)(cid:70)(cid:2)
(cid:87)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)(cid:386)(cid:88)(cid:71)(cid:2)(cid:91)(cid:71)(cid:67)(cid:84)(cid:85)
(cid:21)(cid:18)(cid:7)
(cid:19)(cid:24)(cid:7)
(cid:19)(cid:25)(cid:7)
(cid:19)(cid:25)(cid:7)
(cid:38)(cid:37)(cid:37)(cid:50)
(cid:21)(cid:18)(cid:7)
(cid:39)(cid:49)(cid:50)
(cid:23)(cid:18)(cid:7)
(cid:20)(cid:18)(cid:7)
(cid:37)(cid:67)(cid:85)(cid:74)
(cid:55)(cid:82)(cid:2)(cid:86)(cid:81)(cid:2)
(cid:20)(cid:18)(cid:7)
(cid:36)(cid:67)(cid:85)(cid:71)(cid:2)
(cid:85)(cid:67)(cid:78)(cid:67)(cid:84)(cid:91)
(cid:20)(cid:18)(cid:19)(cid:21)(cid:2)
(cid:20)(cid:18)(cid:19)(cid:22)(cid:2) (cid:20)(cid:18)(cid:19)(cid:23)(cid:2) (cid:20)(cid:18)(cid:19)(cid:24)(cid:2) (cid:20)(cid:18)(cid:19)(cid:25)(cid:2) (cid:20)(cid:18)(cid:19)(cid:26)(cid:2) (cid:20)(cid:18)(cid:19)(cid:27)
(cid:53)(cid:74)(cid:67)(cid:84)(cid:71)(cid:2)
(cid:84)(cid:71)(cid:86)(cid:71)(cid:80)(cid:15)
(cid:86)(cid:75)(cid:81)(cid:80)
(cid:23)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:39)(cid:49)
(cid:21)(cid:23)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)(cid:2)(cid:85)(cid:74)(cid:67)(cid:84)(cid:71)(cid:85)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:81)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:85)
(cid:19)(cid:2)(cid:54)(cid:74)(cid:71)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)(cid:74)(cid:67)(cid:85)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:84)(cid:71)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:86)(cid:81)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:85)(cid:69)(cid:81)(cid:84)(cid:75)(cid:80)(cid:73)(cid:2)(cid:17)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:78)(cid:71)(cid:88)(cid:71)(cid:78)(cid:2)(cid:87)(cid:82)(cid:15)(cid:2)(cid:81)(cid:84)(cid:2)(cid:70)(cid:81)(cid:89)(cid:80)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:67)(cid:2)(cid:79)(cid:67)(cid:90)(cid:75)(cid:79)(cid:87)(cid:79)(cid:2)(cid:81)(cid:72)(cid:2)(cid:20)(cid:18)(cid:7)(cid:16)(cid:2)(cid:55)(cid:85)(cid:71)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:75)(cid:85)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:84)(cid:71)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:75)(cid:85)(cid:2)(cid:85)(cid:86)(cid:75)(cid:78)(cid:78)(cid:2)(cid:68)(cid:81)(cid:87)(cid:80)(cid:70)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:70)(cid:71)(cid:386)(cid:80)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:69)(cid:67)(cid:82)(cid:85)(cid:16)(cid:2)
minimum of 500,000 UBS shares and the other GEB members to
hold a minimum of 350,000 UBS shares. These shareholdings
must be built up within five years from the date a GEB member is
appointed and must be retained for as long as they remain in of-
fice. The number of UBS shares held by each GEB member is de-
termined by adding any vested or unvested shares to privately held
shares. GEB members are not permitted to sell their UBS shares
until the abovementioned thresholds have been reached. As of the
end of 2013, all GEB members who have been in office for at least
five years achieved their required share ownership levels.
Overview of GEB compensation determination process
The illustration above provides an overview of how GEB compen-
sation is determined under the governance and oversight of the
HRCC and the BoD.
2013 compensation
The performance awards of the Group CEO and each other mem-
ber of the GEB are based on the achievement of both financial
targets and qualitative performance objectives, as described ear-
lier in this section.
As part of Mr. Ermotti’s performance assessment, a 65%
weighting was accorded to Group financial performance, and
35% was accorded to his performance against the qualitative cri-
teria. In the case of Mr. Orcel (the highest paid GEB member for
2013), a 35% weighting was accorded to Group financial perfor-
mance, 30% to Investment Bank performance and 35% to quali-
tative criteria.
A “Target score achievement” on the overall balanced score-
card supports market median level compensation.
313
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
2013 compensation for the Group Chief Executive Officer
The table below summarizes the factors on which Mr. Ermotti’s
performance was assessed as Group CEO for 2013 by the HRCC
in consultation with the Chairman.
The BoD recognized that under Mr. Ermotti’s leadership, Group
financial performance for 2013 was strong and was driven by
progress towards the successful implementation of the firm’s am-
bitious strategy – a strategy focused on sustainable performance,
best-in-class capital ratios, and vigilance on operational risk and on
effectiveness and efficiency. In terms of the Group financial tar-
gets, the firm delivered significantly increased adjusted Group
profit before tax, up 44% compared with the prior year. The Group
also achieved an increased return on equity, up significantly on
2012. The firm’s share price development in 2013 also reflected
investor confidence in the firm’s progress and future success.
Additionally, UBS further enhanced its position as one of the
world’s best-capitalized banks, exceeding its year-end capital ratio
targets. The firm surpassed its Basel III risk-weighted assets reduction
target for the year and also continued to successfully deleverage its
balance sheet. The firm’s Basel III funding, liquidity and leverage ra-
tios remained comfortably above regulatory requirements in 2013.
UBS’s business divisions posted strong results for the year and
were profitable in every quarter. The firm’s success continued to give
clients great confidence in UBS’s strategy. This was demonstrated by
net new money inflows into the firm’s wealth management busi-
nesses, which increased by 14% year-on-year to CHF 54 billion.
Against the qualitative criteria, the BoD considered Mr. Ermot-
ti’s successes in promoting a Group-wide initiative to embed the
firm’s principles of client focus, excellence and sustainable perfor-
mance further into the fabric of the firm. This effort will be key to
ensuring the right behaviors and culture which will be essential to
supporting UBS’s success going forward. The assessment also rec-
ognized his consistent focus on protecting and improving the
firm’s reputation, and the clear improvement in the firm’s stand-
ing with its key regulators.
In addition to the strategic, financial and qualitative accom-
plishments noted above, the BoD also recognized the positive im-
pact that Mr. Ermotti had in effectively addressing operational risk
remediation requirements and also resolving a number of key le-
gal matters from the past.
Reflecting his achievements and strong performance in 2013,
the BoD approved the proposal from the HRCC to grant Mr. Er-
motti a performance award of CHF 7.9 million, bringing his total
compensation (excluding benefits and contributions to retire-
ment benefit plan) for the year to CHF 10.4 million. Based on the
compensation framework, he received 13% of his performance
award in cash CHF 1.0 million. The remaining 87% of his perfor-
mance award was deferred under EOP (57% of his performance
award) and under DCCP (30% of his performance award). The
future actual pay-outs under EOP and DCCP are dependent upon
the firm’s forthcoming performance, as described earlier in this
section.
Scorecard for the Group CEO
Financial factors 1
2013 Result
Weighting
Assessment relative to plan
Threshold
Target
Stretch
Group
(65%)
Group RoE
6.7%
Adjusted Group profit before tax
4.1 billion
Basel III CET1 ratio (fully applied)
12.8%
20%
25%
20%
Qualitative factors
Weighting
Assessment
Threshold
Target
Stretch
Clients, people and culture, risk control,
regulatory compliance, execution effectiveness,
brand and reputation
35%
1 Financial factors and target levels were based on internal performance objectives in our 2013 Operating Plan. These financial targets and ranges do not necessarily correspond to UBS’s Group targets announced in
October 2012, most of which are applicable from 2015.
314
Advisory vote 2013 compensation for the highest paid GEB member
Andrea Orcel, the CEO of the Investment Bank, was the highest-
paid GEB member for performance year 2013. The financial per-
formance results and qualitative achievement assessment of Mr.
Orcel as determined by the Group CEO are summarized in the
table below. The HRCC and the BoD supported the overall assess-
ment.
During his first full year as CEO of the Investment Bank, Mr.
Orcel proved himself an effective leader and drove positive perfor-
mance throughout a very successful year for the business. Mr.
Orcel executed a fundamental turnaround in the Investment
Bank’s performance in 2013. He guided the business and its em-
ployees through a period of intense and sometimes challenging
transformation following the announcement of the acceleration
of the implementation of the firm’s strategy in late 2012. In 2013,
a more client-focused, less complex, and less risky Investment
Bank delivered significantly higher profitability and outperformed
on all its targets. The business achieved an adjusted profit before
tax of CHF 2.5 billion for the year. It delivered an adjusted return
on attributed equity of 30.6%, significantly above its 2013 target.
It operated successfully below its relatively restrictive risk-weight-
ed asset and funded asset targets. The Investment Bank remained
highly focused on using its resources effectively and efficiently
and achieved its cost / income ratio target for the year.
The Investment Bank reinforced its position among the global
market leaders in its core businesses of advisory, research, equi-
ties, foreign exchange and precious metals. Further, Rates and
Credit has transformed into a successful client-centric and capital-
light business with a strong focus on improved IT effectiveness
which has also led to best-in-class execution. The Investment
Bank’s turnaround performance was recognized with numerous
industry awards, and most importantly, was applauded by clients.
In line with the firm’s strategy, the Investment Bank continued to
work in close collaboration with all the firm’s other businesses, in
particular its wealth management businesses, to deliver the best
of UBS to clients and drive sustainable returns for the benefit of
UBS’s shareholders.
In judging his achievements in relation to qualitative factors,
the Group CEO considered that Mr. Orcel displayed a strong focus
on ensuring the business delivered on the firm’s principles of excel-
lence, client focus and sustainable performance, and his consistent
promotion of the highest standards of employee conduct and be-
havior whilst at the same time addressing issues from the past.
Reflecting his significant achievements and strong perfor-
mance in 2013, the BoD approved the proposal from the Group
CEO and the HRCC to grant Mr. Orcel a performance award of
CHF 9.0 million, bringing his total compensation (excluding ben-
efits and contributions to retirement benefit plan) for the year to
CHF 10.5 million. 89% of his performance award was deferred,
with 59% under EOP and 30% under DCCP.
➔ Refer to the “2013 performance and compensation funding”
section of this report for information on financial performance
achievements in 2013
Scorecard for the highest paid GEB member
Financial factors 1
2013 Result Weighting
Assessment relative to plan
Threshold
Target
Stretch
Group
(35%)
Group RoE
6.7%
Adjusted Group profit before tax
4.1 billion
Basel III CET1 ratio (fully applied)
12.8%
IB
divisional
(30%)
RoAE (adjusted)
Cost / income ratio
31%
73%
Basel III RWA (fully applied)
62 billion
10%
20%
5%
10%
10%
10%
Qualitative factors
Weighting
Assessment
Threshold
Target
Stretch
Clients, people and culture, risk control,
regulatory compliance, execution effectiveness,
brand and reputation
35%
1 Financial factors and target levels were based on internal performance objectives in our 2013 Operating Plan. These financial targets and ranges do not necessarily correspond to UBS’s Group targets announced in
October 2012, most of which are applicable from 2015.
315
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Total compensation for GEB members for the
performance years 2013 and 2012
Employment contracts
The table below shows the total compensation for GEB members
for the performance years 2013 and 2012.
➔ Refer to the “Supplemental information” section of this report
and “Note 34 Related parties” in the “Financial information”
section of our Annual Report 2013 for information on vested and
unvested shares and options for GEB members
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 for 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
they may be considered for a discretionary performance award
based on their contribution during the time worked in that per-
formance year following the principles outlined above. Such
awards are at the full discretion of the BoD, which may decide not
to grant any awards.
d
e
t
i
d
u
A
Total compensation for GEB members for the performance years 2013 and 2012
CHF, except where indicated 1
Name, function
Sergio P. Ermotti, Group CEO
Sergio P. Ermotti, Group CEO (highest-paid)
Andrea Orcel (highest-paid)
Aggregate of all GEB members who were in office at
the end of the year 7
Aggregate of all GEB members who stepped down
during the year 8
For the year
Base salary
2,500,000
2,500,000
2013
2012
2013
2013
2012
2013
2012
Annual
performance
award
under
EOP 3
4,530,000
Annual
performance
award
under
DCCP 4
2,370,000
Immediate
cash 2
1,000,000
0
3,660,000
2,440,000
Contributions
to retirement
benefit plans 6
Total
202,822 10,730,122
201,088
8,870,588
202,822 11,429,870
Benefits 5
127,300
69,500
727,048
1,500,000
1,000,000
5,300,000
2,700,000
16,873,360
9,949,062
33,894,646
18,790,161
1,548,784
1,347,784 82,403,796
16,273,460
0
1,593,288
0
0
0
31,355,592
20,903,728
640,683
1,233,719 70,407,181
0
0
0
0
0
0
0
105,865
14,799
1,713,952
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of our Annual Report 2013. 2 Under the 2013 compensation
framework, 20% is paid out in immediate cash, subject to a cash cap of CHF / USD 1 million. Due to applicable UK Prudential Regulation Authority regulations, the immediate cash includes blocked shares for Andrea Orcel.
For the performance year 2012, no immediate cash was paid. 3 For EOP awards for the performance years 2013 and 2012, the number of shares allocated at grant has been determined by dividing the amount communi-
cated by CHF 18.60 and USD 20.88 (for notional shares) for 2013, and by CHF 15.014 and USD 15.868 (for actual shares) and by CHF 13.97 and USD 14.77 (for notional shares) for 2012, based on the average price of
UBS shares over the ten trading days prior to and including the grant date (28 February 2014 and 15 March 2013 respectively). For notional shares granted under EOP 2012 the number of notional shares has been adjusted
for the estimated value of dividends paid on UBS shares over the vesting period. 4 DCCP awards vest after the five-year vesting period. The amount reflects the amount of the notional bond excluding future notional inter-
est. For DCCP awards for the performance year 2013, the notional interest rate is set at 5.125% for awards denominated in USD and 3.500% for awards denominated in CHF. For DCCP awards for the performance year 2012,
the notional interest rate is set at 6.25% for awards denominated in USD and 5.40% for awards denominated in CHF. 5 Benefits are all valued at market price. 6 This figure excludes the mandatory employer’s social secu-
rity contributions, but includes the portion related to the employer’s contribution to the statutory pension scheme. The employee contribution is included in the base salary and annual incentive award components. 7 11 GEB
members were in office on 31 December 2013 and on 31 December 2012 respectively. 8 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.
Fixed and variable compensation for GEB members 1
Total for the year
ended 2013
Not deferred
Deferred 2
CHF million, except where indicated
Amount
%
Amount
Total compensation
Amount
Number of beneficiaries
Fixed compensation
Base salary
Variable compensation
Immediate cash
Equity Ownership Plan (EOP)
Deferred Contingent Capital Plan (DCCP)
100
21
79
80
11
17
63
10
34
19
27
17
10
10
0
0
%
34
100
16
100
0
0
Amount
53
0
53
0
34
19
Total for the
year ended
2012 3
Amount
70
13
18
52
0
31
21
%
66
0
84
0
100
100
1 The figures refer to all GEB members in office in 2013. 2 This is based on the specific plan vesting and reflects the total award value at grant which may differ from the accounting expenses. 3 Year 2012 as reported in
Annual Report 2012.
316
Advisory vote Loans
GEB members may be granted loans, fixed advances and mort-
gages. 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 unfa-
vorable features.
➔ Refer to the “Supplemental information” section and “Note 34
Related parties” in the “Financial information” section of our
Annual Report 2013 for information on loans granted to current
and former GEB members
d
e
t
i
d
u
A
Share and option ownership / entitlements of GEB members on 31 December 2013 / 2012 1
Name, function
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
Ulrich Körner,
Group Chief Operating Officer and CEO UBS Group EMEA
Philip J. Lofts,
Group Chief Risk Officer
Robert J. McCann,
CEO Wealth Management Americas and CEO UBS Group Americas
Tom Naratil,
Group Chief Financial Officer
Andrea Orcel,
CEO Investment Bank
Chi-Won Yoon,
CEO UBS Group Asia Pacific
Jürg Zeltner,
CEO UBS Wealth Management
Total
on
31 December
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Number of
unvested
shares / at risk 2
453,460
220,928
542,417
506,132
645,324
617,529
504,800
412,199
688,923
605,284
601,553
542,402
892,872
658,470
422,516
340,757
1,209,775
1,755,691
502,762
478,986
624,415
522,500
7,088,817
6,660,878
Number of
vested shares
Total number
of shares
Potentially
conferred voting
rights in %
69,900
41,960
108,007
126,098
268,945
315,270
22,727
95,537
208,887
121,837
157,447
169,789
65,971
18,112
263,027
233,603
523,360
262,888
650,424
632,230
914,269
932,799
527,527
507,736
897,810
727,121
759,000
712,191
958,843
676,582
685,543
574,360
0
0
1,209,775
1,755,691
441,143
370,760
13,920
38,329
943,905
849,746
638,335
560,829
1,619,974
1,531,295
8,708,791
8,192,173
0.025
0.013
0.032
0.030
0.044
0.045
0.026
0.024
0.044
0.035
0.037
0.034
0.046
0.032
0.033
0.027
0.059
0.084
0.046
0.041
0.031
0.027
0.422
0.391
Number of
options 3
0
Potentially
conferred voting
rights in % 4
0.000
0
0
0
756,647
884,531
0
0
0
0
500,741
536,173
0
0
867,087
935,291
0
0
538,035
578,338
203,093
203,093
2,865,603
3,137,426
0.000
0.000
0.000
0.037
0.042
0.000
0.000
0.000
0.000
0.024
0.026
0.000
0.000
0.042
0.045
0.000
0.000
0.026
0.028
0.010
0.010
0.139
0.150
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 29 Equity
participation and other compensation plans” in the “Financial information” section of our Annual Report 2013 for more information. 4 No conversion rights are outstanding.
317
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
2013 compensation for the Board of Directors
Members of the Board of Directors (BoD) receive fixed fees for their services, of which 50% is paid in blocked UBS shares
unless they elect to receive 100% in blocked UBS shares. The BoD members do not receive variable compensation. This
reinforces their focus on long-term strategy, supervision and governance. It also helps them to remain independent of
the firm’s senior management. The Chairman, as a nonindependent BoD member, receives an annual base salary, UBS
blocked shares and benefits.
Chairman of the BoD
Our compensation framework provides for the Chairman of the
BoD, Axel A. Weber, to receive an annual base salary of CHF 2
million and 200,000 UBS shares, blocked from distribution for
four years, as well as benefits. The shares are not designed or in-
tended as variable compensation. The value of the 200,000 UBS
shares awarded for 2013 was CHF 3,720,000. Accordingly, his
total compensation, including benefits and pension fund contri-
butions for his services as Chairman from January to December
2013 was CHF 6,069,516.
This share component ensures that the Chairman’s pay is
aligned with the longer-term performance of the firm. The Chair-
man’s employment agreement does not provide for special sever-
ance terms, including supplementary contributions to pension
plans. Benefits for the Chairman are in line with local practices for
other employees. Determining the Chairman’s compensation is
the responsibility of the Human Resources and Compensation
Committee (HRCC), which conducts an annual assessment and
takes into consideration fee and / or compensation levels for com-
parable roles outside of UBS.
Given the continued improvements in our share price since the
inception of our compensation framework for the chairman role
in 2009, the HRCC has, in agreement with the Chairman, revisit-
ed the framework for 2014 and decided to limit the upside and
cap the Chairman’s total compensation at the current level of CHF
5.7 million. Following market practice for company chairmen, we
have implemented a pay mix shift where a larger part of the
Chairman’s compensation will be paid in cash (currently foreseen
to be approximately 60%). The balance of the overall compensa-
tion will be delivered in UBS shares which will continue to be
blocked from distribution for four years.
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 servic-
es, with 50% of their fees in cash and the other 50% in blocked UBS
d
e
t
i
d
u
A
Total payments to BoD members
CHF, except where indicated 1
Aggregate of all BoD members
shares that are restricted from sale for four years. Alternatively, they
may choose to have 100% of their remuneration paid in blocked UBS
shares. In all cases, the number of shares that independent directors
are entitled to receive is calculated using a discount of 15% below
the prevailing market price at the time of issuance. In addition to the
base fee, independent BoD members receive fees known as commit-
tee retainers that reflect their workload in serving on the firm’s vari-
ous board committees. The Senior Independent Director and the Vice
Chairman of the BoD each receive an additional payment of CHF
250,000. In accordance with their role, independent BoD members
do not receive 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 pro-
posal is submitted by the Chairman of the BoD to the HRCC, which
then submits a recommendation to the BoD for final approval.
The “Remuneration details and additional information for inde-
pendent BoD members” table on the following page shows the re-
muneration received by independent BoD members between the
2013 and 2014 Annual General Meetings of Shareholders (AGM).
Fees have remained unchanged during this period, and have been
kept largely at the same level since 1998. Remuneration levels for
BoD members, other than the Chairman, ranged from CHF 375,000
to CHF 1,075,000. Total remuneration for the independent BoD
members for the period between the 2013 and 2014 AGMs was
CHF 7.6 million, which was flat compared with the prior period.
In accordance with normal practice, two BoD members chose to
receive 100% of their fees, less applicable deductions, in UBS shares.
Loans
Loans to independent members are made in the ordinary course of
business at general market conditions. Loans to non-independent
members are made in the ordinary course of business on substantially
the same terms as those granted to other employees, including inter-
est rates and collateral, and do not involve more than the normal risk
of collectability or contain other unfavorable features.
➔ Refer to the “Supplemental information” section of this report and
“Note 34 Related parties” in the “Financial information” section
of our Annual Report 2013 for information on loans granted to
current and former BoD members
For the year
2013
2012
Total
13,694,516
11,802,434
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of our Annual Report 2013.
318
Advisory vote d
e
t
i
d
u
A
d
e
t
i
d
u
A
Compensation details and additional information for non-independent BoD members
CHF, except where indicated 1
Name, function 2
Axel A. Weber, Chairman
Kaspar Villiger, former Chairman
For the year
2013
2012
2013
2012
Base salary
2,000,000
1,322,581
–
354,167
Annual share
award
3,720,000
2,003,995 5
–
200,000 5
Contributions
to retirement
benefit plans 4
260,070
171,898
–
–
Benefits 3
89,446
69,867
–
54,926
Total
6,069,516
3,568,341
–
609,093
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of our Annual Report 2013. 2 Axel A. Weber was the only
non-independent member in office on 31 December 2013 and on 31 December 2012 respectively. Kaspar Villiger did not stand for re-election at the AGM on 3 May 2012. 3 Benefits are all valued at market
price. 4 This figure excludes the mandatory employer’s social security contributions, but includes the portion related to the employer’s contribution to the statutory pension scheme. The employee contribution is includ-
ed in the base salary and annual incentive award components. 5 These shares are blocked for four years.
Remuneration details and additional information for independent BoD members
CHF, except where indicated 1
&
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
M
M
M
C
C
M
M
M
e
e
t
t
i
m
m
o
C
t
i
d
u
A
M
M
M
M
C
C
M
M
M
M
&
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
M
M
M
M
M
M
M
2013/2014
2012/2013
C 2013/2014
C 2012/2013
2013/2014
2012/2013
M 2013/2014
M 2012/2013
2013/2014
2012/2013
M 2013/2014
M 2012/2013
2013/2014
2012/2013
M 2013/2014
M 2012/2013
2013/2014
2012/2013
2013/2014
2012/2013
M 2013/2014
2012/2013
M 2013/2014
M 2012/2013
M
C
M
M
M
M
M
Base fee
325,000
325,000
325,000
325,000
325,000
–
325,000
325,000
325,000
325,000
325,000
325,000
–
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
Committee
retainer(s)
400,000
300,000
500,000
500,000
50,000
–
300,000
300,000
500,000
500,000
200,000
300,000
–
200,000
300,000
300,000
350,000
350,000
300,000
300,000
400,000
250,000
250,000
250,000
Additional
payments
250,000 6
250,000 6
250,000 6
250,000 6
Total
975,000
875,000
1,075,000
1,075,000
375,000
–
625,000
625,000
825,000
825,000
525,000
625,000
–
525,000
625,000
625,000
675,000
675,000
625,000
625,000
725,000
575,000
575,000
575,000
7,625,000
7,625,000
Share
percentage 3
50
Number of
shares 4, 5
30,834
50
50
50
50
–
100
100
50
50
100
100
–
50
50
50
50
50
50
50
50
50
50
50
34,233
33,997
42,057
11,859
–
37,394
46,367
26,091
32,276
31,403
46,367
–
20,539
19,765
24,452
21,347
26,408
19,765
24,452
22,928
22,496
18,184
22,496
Name, function 2
Michel Demaré,
Vice Chairman
David Sidwell,
Senior Independent Director
Reto Francioni,
member
Rainer-Marc Frey,
member
Ann F. Godbehere,
member
Axel P. Lehmann,
member
Wolfgang Mayrhuber,
former member
Helmut Panke,
member
William G. Parrett,
member
Isabelle Romy,
member
Beatrice Weder di Mauro,
member
Joseph Yam,
member
Total 2013
Total 2012
Legend: C = Chairperson of the respective Committee, M = Member of the respective Committee
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of our Annual Report 2013. 2 There were 11 independent BoD members
in office on 31 December 2013. Reto Francioni was appointed at the AGM on 2 May 2013 and Wolfgang Mayrhuber did not stand for re-election at the AGM on 2 May 2013. 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 re-election at the AGM on 3 May 2012. 3 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. 4 For 2013, shares valued at CHF 18.60 (average price of UBS shares at SIX Swiss Exchange over the last
10 trading days of February 2014), and were granted with a price discount of 15% for a new value of CHF 15.81. These shares are blocked for four years. 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. 5 Number of shares is reduced in case of the 100%
election to deduct social security contributions. All remuneration payments are subject to social security contributions / withholding tax. 6 This payment is associated with the Vice Chairman or the Senior Independent Director function,
respectively.
319
Advisory voteCorporate governance, responsibility and compensation
Corporate governance, responsibility and compensation
Compensation
Our compensation model for employees other than GEB members
The elements that make up total compensation consist of a base salary and a performance award. The performance
award may comprise a shorter-term immediate cash performance award as well as a longer-term performance award
which is deferred into UBS notional shares and UBS notional bonds. Furthermore, pension contributions and benefits
are paid in line with local practices.
Base salary
The base salary reflects the skills, role and experience of an employee
as well as local market practices. It is fixed and usually paid monthly
or semi-monthly. Between 2011 and 2013 we made only limited sal-
ary increases. We have determined to bring salaries in line with the
market, although this will vary greatly between functions and loca-
tions. With effect from March 2014, base salaries were increased by
a total of CHF 157 million, an increase of 2.5%. This return to
healthy increases, reflective of competitive trends, supports our posi-
tion in the market on salaries. Nonetheless, increases will continue to
be focused on those who were promoted, are considered to be high
contributors, or who delivered a very strong performance or took on
increased responsibilities. This practice is broadly in line with devel-
opments in the industry as a whole. As a firm, we focus on total
compensation. For example, 2014 performance award pools will
consider salary increases granted earlier in the year. We will continue
to review salaries and performance awards in light of market devel-
opments, performance, affordability and our commitment to deliver
sustainable returns to our shareholders.
Pensions, benefits and employee share purchase program
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.
While pension contributions and pension plans vary across loca-
tions and countries in accordance with local requirements and mar-
ket practice, pension plan rules in any one location are generally
the same for all employees in that location, including management.
Our employee share purchase program, the Equity Plus Plan,
allows employees to contribute up to 30% of their base salary
and / or up to 35% of their performance award toward the pur-
chase of UBS shares. All employees below the rank of Managing
Director are eligible to participate. Employees can purchase UBS
shares at market price and they receive one matching share for
free for every three purchased through the program. Shares pur-
chased under the Equity Plus Plan are generally restricted from
disposal for a maximum of three years from the time of purchase.
The matching shares vest after three years, with vesting being
subject to continued employment with the firm.
➔ Refer to “Note 28 Pension and other postemployment benefit
plans” in the “Financial information” section of our Annual Report
2013 for more information on the various major postemployment
benefit plans established in Switzerland and other countries
Performance award
Most of our regular employees are considered for an annual dis-
cretionary performance award. The level of performance award
depends on the firm’s overall performance, the performance of
the employee’s business division, and the individual’s perfor-
mance, and is at the complete discretion of the firm.
For 2013, reflecting the improved performance of the firm, the
performance award for employees across the Group was on aver-
age approximately 52% of the base salary (2012: 37%).
Benchmarking
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.
Compensation elements
Shorter-term
performance award
Immediate
performance award
in form of cash
+
+
Longer-term performance award
Notional shares
(EOP)
Notional bonds
(DCCP)
+
Pension
contributions and
other benefits
+
=
Total reward
Base salary
320
Advisory vote Deferral of performance awards
To help ensure our employees are focused on the longer-term prof-
itability of the firm, we require that a significant part of their per-
formance award be deferred for up to five years if their total com-
pensation exceeds CHF / USD 300,000, an increase from CHF / USD
250,000 in 2012. This increase, together with the introduction of
graduated deferral rates, aligns our deferral levels closer to the
market. For participants in our deferral schemes at the highest
levels of compensation, the effective deferral rate has been in-
creased, while for others at lower levels of compensation it has
been decreased. The deferral increases at higher marginal rates in
line with the value of the performance award, with the lowest
deferral rate set at 40% of the performance award and the high-
est rate at 75%, compared to the previously flat rate of 60%. In
addition, the portion paid out in immediate cash is capped at
CHF / USD 1 million. Any immediate cash award in excess of the
CHF / USD 1 million cap is deferred as notional shares under the
Equity Ownership Plan (EOP). The effective deferral rate therefore
depends on the value of the performance award and the value of
the total compensation.
Of the deferred annual performance award, 60% is deferred in
UBS notional shares under the EOP and the remaining 40% is
deferred in notional bonds under the Deferred Contingent Capital
Plan (DCCP). Global Asset Management employees receive 75%
of their deferred performance awards in notional funds under the
EOP and the remaining 25% under the DCCP. The average defer-
ral period of the deferred awards for employees below GEB level
for 2013 was 3.5 years.
➔ Refer to the “Our 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 29 Equity participation and other compensation
plans” in the “Financial information” section of our Annual
Report 2013 for more information on specific local plans with
deferral provisions that differ from those described here
The illustration below provides an overview of how we deter-
mine an individual performance award and the governance and
oversight processes conducted by senior management and the
HRCC as part of that process.
(cid:38)(cid:71)(cid:86)(cid:71)(cid:84)(cid:79)(cid:75)(cid:80)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)
(cid:52)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:84)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:85)(cid:75)(cid:73)(cid:74)(cid:86)(cid:2)(cid:68)(cid:91)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)
(cid:50)(cid:84)(cid:81)(cid:69)(cid:71)(cid:85)(cid:85)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)
(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:84)(cid:75)(cid:85)(cid:77)(cid:15)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(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:70)(cid:84)(cid:75)(cid:88)(cid:71)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:82)(cid:81)(cid:81)(cid:78)(cid:2)(cid:72)(cid:87)(cid:80)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:88)(cid:75)(cid:67)(cid:2)(cid:79)(cid:81)(cid:80)(cid:86)(cid:74)(cid:78)(cid:91)(cid:2)(cid:67)(cid:69)(cid:69)(cid:84)(cid:87)(cid:67)(cid:78)(cid:85)
(cid:55)(cid:82)(cid:81)(cid:80)(cid:2)(cid:85)(cid:71)(cid:86)(cid:86)(cid:75)(cid:80)(cid:73)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:82)(cid:81)(cid:81)(cid:78)(cid:14)(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:67)(cid:84)(cid:71)(cid:2)(cid:67)(cid:78)(cid:85)(cid:81)(cid:2)(cid:86)(cid:67)(cid:77)(cid:71)(cid:80)(cid:2)
(cid:75)(cid:80)(cid:86)(cid:81)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:28)(cid:2)
(cid:115)(cid:2) (cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:82)(cid:81)(cid:85)(cid:75)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:67)(cid:85)(cid:2)(cid:89)(cid:71)(cid:78)(cid:78)(cid:2)(cid:67)(cid:85)(cid:2)(cid:75)(cid:80)(cid:70)(cid:87)(cid:85)(cid:86)(cid:84)(cid:91)(cid:2)(cid:82)(cid:67)(cid:91)(cid:2)(cid:86)(cid:84)(cid:71)(cid:80)(cid:70)(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:115)(cid:2) (cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:84)(cid:71)(cid:78)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:2)(cid:86)(cid:81)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)
(cid:37)(cid:81)(cid:79)(cid:82)(cid:71)(cid:86)(cid:75)(cid:86)(cid:75)(cid:88)(cid:71)(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:40)(cid:75)(cid:80)(cid:67)(cid:78)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)
(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:82)(cid:81)(cid:81)(cid:78)(cid:85)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:78)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)
(cid:82)(cid:81)(cid:81)(cid:78)(cid:2)(cid:75)(cid:85)(cid:2)(cid:67)(cid:78)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:86)(cid:81)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)
(cid:40)(cid:87)(cid:84)(cid:86)(cid:74)(cid:71)(cid:84)(cid:2)(cid:67)(cid:78)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:75)(cid:80)(cid:2)
(cid:86)(cid:74)(cid:71)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:85)(cid:2)(cid:86)(cid:81)(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:41)(cid:84)(cid:81)(cid:87)(cid:82)
(cid:57)(cid:47)
(cid:57)(cid:47)(cid:35)
(cid:52)(cid:8)(cid:37)
(cid:41)(cid:78)(cid:81)(cid:68)(cid:67)(cid:78)(cid:2)(cid:35)(cid:47)
(cid:43)(cid:36)
(cid:37)(cid:37)
(cid:40)(cid:75)(cid:80)(cid:67)(cid:78)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:2)(cid:67)(cid:78)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:67)(cid:86)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:84)(cid:71)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:386)(cid:84)(cid:79)(cid:2)(cid:68)(cid:67)(cid:85)(cid:71)(cid:70)(cid:2)
(cid:81)(cid:80)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:80)(cid:86)(cid:84)(cid:75)(cid:68)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:10)(cid:67)(cid:68)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:84)(cid:71)(cid:78)(cid:67)(cid:86)(cid:75)(cid:88)(cid:71)(cid:11)(cid:14)(cid:2)(cid:86)(cid:67)(cid:77)(cid:75)(cid:80)(cid:73)(cid:2)
(cid:75)(cid:80)(cid:86)(cid:81)(cid:2)(cid:67)(cid:69)(cid:69)(cid:81)(cid:87)(cid:80)(cid:86)(cid:2)(cid:55)(cid:36)(cid:53)(cid:111)(cid:85)(cid:2)(cid:82)(cid:84)(cid:75)(cid:80)(cid:69)(cid:75)(cid:82)(cid:78)(cid:71)(cid:85)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:68)(cid:71)(cid:74)(cid:67)(cid:88)(cid:75)(cid:81)(cid:84)(cid:85)
(cid:43)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:2)(cid:67)(cid:78)(cid:78)(cid:81)(cid:69)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:86)(cid:81)(cid:2)(cid:71)(cid:80)(cid:85)(cid:87)(cid:84)(cid:71)(cid:2)(cid:67)(cid:80)(cid:2)(cid:67)(cid:82)(cid:82)(cid:84)(cid:81)(cid:82)(cid:84)(cid:75)(cid:67)(cid:86)(cid:71)(cid:2)(cid:82)(cid:67)(cid:91)(cid:15)(cid:72)(cid:81)(cid:84)(cid:15)(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:70)(cid:75)(cid:72)(cid:72)(cid:71)(cid:84)(cid:71)(cid:80)(cid:86)(cid:75)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:43)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:2)
(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)
(cid:43)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:2)
(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)
(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)
(cid:47)(cid:81)(cid:85)(cid:86)(cid:2)(cid:71)(cid:79)(cid:82)(cid:78)(cid:81)(cid:91)(cid:71)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:78)(cid:78)(cid:2)(cid:84)(cid:71)(cid:69)(cid:71)(cid:75)(cid:88)(cid:71)(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:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:91)(cid:2)(cid:75)(cid:80)(cid:2)(cid:69)(cid:67)(cid:85)(cid:74)
(cid:39)(cid:79)(cid:82)(cid:78)(cid:81)(cid:91)(cid:71)(cid:71)(cid:85)(cid:2)(cid:89)(cid:75)(cid:86)(cid:74)(cid:2)(cid:67)(cid:2)(cid:86)(cid:81)(cid:86)(cid:67)(cid:78)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)
(cid:71)(cid:90)(cid:69)(cid:71)(cid:71)(cid:70)(cid:75)(cid:80)(cid:73)(cid:2)(cid:37)(cid:42)(cid:40)(cid:17)(cid:55)(cid:53)(cid:38)(cid:2)(cid:21)(cid:18)(cid:18)(cid:14)(cid:18)(cid:18)(cid:18)(cid:2)
(cid:84)(cid:71)(cid:69)(cid:71)(cid:75)(cid:88)(cid:71)(cid:2)(cid:82)(cid:67)(cid:84)(cid:86)(cid:2)(cid:81)(cid:72)(cid:2)(cid:86)(cid:74)(cid:71)(cid:75)(cid:84)(cid:2)(cid:75)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)
(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:2)(cid:86)(cid:75)(cid:79)(cid:71)
(cid:50)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)
(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)(cid:79)(cid:75)(cid:90)
(cid:38)(cid:37)(cid:37)(cid:50)
(cid:38)(cid:71)(cid:78)(cid:75)(cid:88)(cid:71)(cid:84)(cid:91)(cid:2)(cid:81)(cid:88)(cid:71)(cid:84)(cid:2)(cid:86)(cid:75)(cid:79)(cid:71)
(cid:19)(cid:18)(cid:18)(cid:7)
(cid:23)(cid:18)(cid:7)
(cid:23)(cid:18)(cid:7)
(cid:39)(cid:49)(cid:50)
(cid:37)(cid:67)(cid:85)(cid:74)
(cid:19)(cid:18)(cid:18)(cid:7)
(cid:2)
(cid:20)(cid:18)(cid:19)(cid:22)(cid:2) (cid:20)(cid:18)(cid:19)(cid:23)(cid:2) (cid:20)(cid:18)(cid:19)(cid:24)(cid:2) (cid:20)(cid:18)(cid:19)(cid:25)(cid:2) (cid:20)(cid:18)(cid:19)(cid:26)(cid:2) (cid:20)(cid:18)(cid:19)(cid:27)
(cid:41)(cid:81)(cid:88)(cid:71)(cid:84)(cid:80)(cid:67)(cid:80)(cid:69)(cid:71)
(cid:51)(cid:87)(cid:67)(cid:84)(cid:86)(cid:71)(cid:84)(cid:78)(cid:91)(cid:2)(cid:84)(cid:71)(cid:88)(cid:75)(cid:71)(cid:89)(cid:2)(cid:68)(cid:91)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:40)(cid:49)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:42)(cid:52)(cid:2)(cid:42)(cid:71)(cid:67)(cid:70)
(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)(cid:84)(cid:71)(cid:73)(cid:87)(cid:78)(cid:67)(cid:84)(cid:78)(cid:91)(cid:2)(cid:87)(cid:82)(cid:70)(cid:67)(cid:86)(cid:71)(cid:70)(cid:2)(cid:81)(cid:80)(cid:2)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:72)(cid:87)(cid:78)(cid:78)(cid:15)(cid:91)(cid:71)(cid:67)(cid:84)(cid:2)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:67)(cid:89)(cid:67)(cid:84)(cid:70)(cid:2)
(cid:72)(cid:81)(cid:84)(cid:71)(cid:69)(cid:67)(cid:85)(cid:86)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:39)(cid:49)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)(cid:84)(cid:71)(cid:69)(cid:71)(cid:75)(cid:88)(cid:71)(cid:2)
(cid:67)(cid:70)(cid:88)(cid:75)(cid:69)(cid:71)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:70)(cid:67)(cid:86)(cid:67)(cid:2)(cid:81)(cid:80)(cid:2)(cid:79)(cid:67)(cid:84)(cid:77)(cid:71)(cid:86)(cid:2)(cid:86)(cid:84)(cid:71)(cid:80)(cid:70)(cid:85)(cid:2)
(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:39)(cid:49)(cid:2)(cid:67)(cid:82)(cid:82)(cid:84)(cid:81)(cid:88)(cid:71)(cid:85)(cid:2)(cid:70)(cid:75)(cid:88)(cid:75)(cid:85)(cid:75)(cid:81)(cid:80)(cid:67)(cid:78)(cid:2)(cid:82)(cid:81)(cid:81)(cid:78)(cid:85)(cid:2)
(cid:67)(cid:80)(cid:70)(cid:2)(cid:82)(cid:84)(cid:81)(cid:82)(cid:81)(cid:85)(cid:71)(cid:85)(cid:2)(cid:86)(cid:81)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)
(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)(cid:84)(cid:71)(cid:69)(cid:81)(cid:79)(cid:79)(cid:71)(cid:80)(cid:70)(cid:85)(cid:2)(cid:386)(cid:80)(cid:67)(cid:78)(cid:2)(cid:82)(cid:81)(cid:81)(cid:78)(cid:2)(cid:86)(cid:81)(cid:2)
(cid:86)(cid:74)(cid:71)(cid:2)(cid:36)(cid:81)(cid:38)
(cid:50)(cid:67)(cid:91)(cid:15)(cid:72)(cid:81)(cid:84)(cid:15)(cid:82)(cid:71)(cid:84)(cid:72)(cid:81)(cid:84)(cid:79)(cid:67)(cid:80)(cid:69)(cid:71)(cid:2)(cid:84)(cid:71)(cid:88)(cid:75)(cid:71)(cid:89)(cid:2)
(cid:68)(cid:91)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:37)(cid:39)(cid:49)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:42)(cid:52)(cid:37)(cid:37)
(cid:42)(cid:52)(cid:37)(cid:37)(cid:2)(cid:67)(cid:82)(cid:82)(cid:84)(cid:81)(cid:88)(cid:71)(cid:85)(cid:2)(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)
(cid:72)(cid:84)(cid:67)(cid:79)(cid:71)(cid:89)(cid:81)(cid:84)(cid:77)(cid:2)(cid:72)(cid:81)(cid:84)(cid:2)(cid:68)(cid:81)(cid:86)(cid:74)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)
(cid:68)(cid:71)(cid:78)(cid:81)(cid:89)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid:75)(cid:80)(cid:72)(cid:81)(cid:84)(cid:79)(cid:85)(cid:2)(cid:86)(cid:74)(cid:71)(cid:2)(cid:36)(cid:81)(cid:38)
(cid:43)(cid:80)(cid:70)(cid:75)(cid:88)(cid:75)(cid:70)(cid:87)(cid:67)(cid:78)(cid:2)(cid:41)(cid:39)(cid:36)(cid:2)(cid:79)(cid:71)(cid:79)(cid:68)(cid:71)(cid:84)(cid:2)
(cid:69)(cid:81)(cid:79)(cid:82)(cid:71)(cid:80)(cid:85)(cid:67)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:67)(cid:82)(cid:82)(cid:84)(cid:81)(cid:88)(cid:71)(cid:70)(cid:2)(cid:68)(cid:91)(cid:2)
(cid:86)(cid:74)(cid:71)(cid:2)(cid:36)(cid:81)(cid:38)
321
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Other variable compensation components
To support hiring or retention, particularly at senior levels, we may
offer certain incentives separate from the annual performance
awards. These include the following:
– Replacement payments to compensate employees for deferred
awards forfeited as a result of joining UBS. Such payments are
prevailing industry practice and are often necessary to attract
senior candidates who generally have a significant portion of
their awards deferred at their current employer and where
continued employment is required to avoid forfeiture.
– Retention payments made to key employees to induce them to
stay, particularly during critical periods for the firm.
– On a very limited basis, guarantees may be required to attract
individuals with certain skills and experience. These awards,
which are fixed incentives to which our standard deferral ap-
plies, are paid regardless of future events, but are limited to the
first performance year.
– Sign-on payments that may be offered to employees hired late
in the year to replace performance awards that they would
have earned at their current employer but have forfeited by
joining UBS. In addition, in very limited circumstances, certain
candidates may be offered sign-on payments to increase the
chances of their accepting an offer.
– Severance payments made to employees in redundancy cases
when asked to leave as part of a reduction in the workforce.
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
locations, we may provide severance packages that are negoti-
ated with our local social partners that go beyond these mini-
mum legal requirements (“standard severance”). In addition,
we may make severance payments that exceed legally obligat-
ed or standard severance payments (“supplemental sever-
ance”) where we believe that they are aligned with market
practice and appropriate under the circumstances.
Compensation for financial advisors in Wealth Manage-
ment Americas
In line with market practice for US brokerage businesses, the com-
pensation system for financial advisors in Wealth Management
Americas is based on production payout and awards. Production
payout, paid monthly, is primarily based on revenue generated.
Advisors may also qualify for year-end awards, most of which are
deferred for between six and 10 years. The awards are based on
strategic performance measures which may include production,
length of service, net new money brought in, and / or production
related to advisory fees and financial planning. Production payout
rates and awards may be reduced if financial advisors make re-
peated or significant transaction errors and / or demonstrate neg-
ligence or carelessness or otherwise fail to comply with the firm’s
rules, standards, practices and policies and / or applicable law.
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 and control functions. We currently have 543
individuals classified as Key Risk Takers. We also include employ-
ees with a performance award exceeding CHF / USD 2 million
Fixed and variable compensation for Key Risk Takers 1
Total for the year
ended 2013
Not deferred
Deferred 2
CHF million, except where indicated
Amount
%
Amount
Total compensation
Amount
Number of beneficiaries
Fixed compensation
Base salary
Variable compensation
1,041
543
235
806
100
449
23
77
235
214
%
43
100
27
Amount
591
0
591
Total for the
year ended
2012 3
Amount
790
501
218
572
%
57
0
73
1 Includes employees with a performance award exceeding CHF / USD 2 million (Highly Paid Employees). 2 This is based on the specific plan vesting and reflects the total award value at grant which may differ from the
accounting expenses. 3 Year 2012 as reported in our Annual Report 2012.
322
Advisory vote (Highly Paid Employees) in this category if they have not already
been identified as Key Risk Takers. All 11 GEB members are Key
Risk Takers, and their compensation is disclosed separately in this
report.
Key Risk Takers identified at the beginning of the performance
year are subject to a performance evaluation by the control func-
tions. Since the performance year 2010, the vesting of their de-
ferred awards has been contingent on meeting Group and / or di-
visional performance conditions. Like all other employees, Key
Risk Takers also are subject to forfeiture or reduction of the de-
ferred portion of their compensation if they commit harmful acts.
The same compensation measures apply to all Group Manag-
ing Directors (GMDs), regardless of whether they are classified as
Key Risk Takers or not. GMDs 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
conditions to which Key Risk Takers are subject.
Although most Key Risk Takers are subject to higher marginal
deferral rates under the new graduated deferral scheme, all Key
Risk Takers are subject to the mandatory deferral of at least 50%
of their performance award which applies regardless of whether
or not the UBS deferral threshold has been met, in order to com-
ply with regulatory requirements.
We believe that we comply fully with the relevant Swiss Finan-
cial Market Supervisory Authority (FINMA) requirements regarding
risk takers, and we also consult with our other key regulators on
the topic.
UK Code Staff
In accordance with guidance from the UK Prudential Regulation
Authority (PRA) and Financial Conduct Authority (FCA), we have
identified 156 employees, consisting of senior management and
employees whose professional activities could have a material im-
pact on the firm’s risk profile in the UK, as so-called “UK Code
Staff.” Compensation measures that apply to UK Code Staff are
generally similar to those applied to Key Risk Takers. However, due
to specific UK PRA / FCA requirements, 50% of UK Code Staff per-
formance awards that are paid out immediately are delivered in
UBS shares, which are blocked for six months. In addition, any
notional shares granted to UK Code Staff under the EOP for their
performance in 2013 will be subject to an additional six-month
blocking period upon vesting.
Control functions and Group Internal Audit
To monitor risk effectively, our control functions, Risk Control
(including Compliance), Finance and Legal, must be independent.
To support this, their compensation is determined independently
from the revenue producers that they oversee, supervise or sup-
port. Their performance award pool is not based on the perfor-
mance of these businesses, but instead reflects the performance
of the firm as a whole. In addition, we consider other factors such
as how well the function has performed, together with our mar-
ket positioning. Decisions regarding individual compensation for
the senior managers of the control functions are made by the
function heads and approved by the Group CEO. Decisions re-
garding individual compensation within Group Internal Audit
(GIA) are made by the Head of GIA and approved by the Chair-
man. The compensation for the Head of GIA is approved by the
HRCC.
Sign-on payments, replacement payments, severance payments and guarantees
CHF million, except where indicated
Total sign-on payments
of which GEB members
of which Key Risk Takers 1
Total replacement payments
of which GEB members
of which Key Risk Takers 1
Total guarantees
of which GEB members
of which Key Risk Takers 1
Total severance payments 2
of which GEB members
of which Key Risk Takers 1
Of which
expenses
recognized
in 2013 3
Of which
expenses to be
recognized in
2014 and later
Total 2013
Total 2012 4
18
0
9
67
0
30
34
0
15
138
0
2
9
0
3
3
0
1
14
0
5
129
0
1
8
0
6
63
0
29
21
0
10
9
0
1
17
0
4
96
25
32
40
0
20
319
0
0.2
Number of beneficiaries
2012 4
182
2013
165
0
7
209
0
15
52
0
7
0
5
203
1
16
68
0
10
2,291
2,321
0
2
0
1
1 Expenses for Key Risk Takers is the full-year amount for individuals in office on 31 December 2013. Key Risk Takers include employees with a performance award exceeding CHF / USD 2 million or more (Highly Paid Employ-
ees). 2 Severance payments include legally obligated and standard severance, as well as supplemental severance payments of CHF 24 million. 3 Expenses before post vesting transfer restrictions. 4 Year 2012 as report-
ed in Annual Report 2012.
323
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Our deferred variable compensation plans for 2013
To ensure our employees’ and stakeholders’ interests are aligned, we grant part of our performance awards in UBS notional
shares and UBS notional bonds. To help ensure our employees are focused on the medium and longerterm profitability of
the firm, all variable compensation plans require a significant part of an employee’s performance award above a total
compensation threshold to be deferred for up to five years and include forfeiture provisions. Compensation is closely linked
to longer-term sustainable performance. All our variable compensation plans feature performance conditions.
Equity Ownership Plan (EOP)
The EOP is a mandatory deferral plan for all employees with total
compensation greater than CHF / USD 300,000. These employees
receive at least 60% of their deferred performance award under
the EOP in notional shares and are eligible to receive reinvested
dividend equivalents. EOP awards granted to Global Asset Man-
agement employees have a different vesting schedule and defer-
ral mix, as shown in the table below, and are granted as cash-
settled notional funds. For 2013, approximately 5,300 employees
received EOP awards. EOP awards are granted annually.
The plan includes provisions that enable the firm to trigger for-
feiture of some, or all, of the unvested deferred portion if an em-
ployee commits certain harmful acts or in most cases of termi-
nated employment.
The vesting of an EOP award granted to GEB members,
GMDs and Key Risk Takers (including Highly Paid Employees)
depends on both Group and divisional performance. Group per-
formance is measured by the average adjusted Group return on
tangible equity (RoTE). Divisional performance is measured by
the average adjusted divisional return on attributed equity
(RoAE). For Corporate Center employees, it is measured by the
Overview of our deferred compensation plans
Beneficiaries
Deferral mix
Vesting schedule
Equity Ownership Plan
GEB members, Key Risk Takers and all employees with total
compensation greater than CHF / USD 300,000
GEB members: at least 62.5%
Global Asset Management employees: at least 75%
All other employees: at least 60%
Deferred Contingent Capital Plan
GEB members, Key Risk Takers and all
employees with total compensation greater
than CHF / USD 300,000
GEB members: 37.5%
Global Asset Management employees: 25%
All other employees: 40%
GEB members: vests in three installments in years 3, 4 and 5
Global Asset Management employees: vests in three installments in years 2, 3 and 5
All other employees: vests in equal installments in year 2 and 3
Vests in full in year 5
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
Share price
Forfeiture clauses
Harmful acts
Performance conditions GEB members, GMDs and Key Risk Takers (including Highly Paid Employees):
Number of UBS shares delivered at vesting depends on the achievement of both Group
and respective divisional performance conditions1
Depends on whether a trigger event or viability
event has occurred and, for GEB members, also on
profitability
Profitability as funding driver
Instrument
UBS notional shares 2 (eligible for dividend equivalents)
Notional bonds and interest
1 Includes Global Asset Management employees who are GMDs, Key Risk Takers (including Highly Paid Employees). 2 Notional funds for Global Asset Management employees.
324
Advisory vote
average of the RoAE for all business divisions excluding the Cor-
porate Center (“Continuing Businesses RoAE”). By linking the
vesting of EOP awards with a return on equity over a two- to
five-year time horizon, we focus our employees on developing
and managing the business in a way that delivers sustainable
returns. We believe that Group RoTE provides a more consistent
basis to measure performance than the Group’s return on share-
holders’ equity (RoE), which also includes goodwill and intangi-
bles.
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, resulting in an adjusted
RoTE approximately 1 to 2 percentage points higher than our ad-
justed RoE of 8.3%. Our 2015 RoE target of 15% or greater is the
equivalent of RoTE of 17% or greater, calculated based on our
estimated tangible equity. However, given elevated operational
risk RWA, we may not achieve this target until 2016. The thresh-
old for the Group RoTE has been increased for the 2014 perfor-
mance year to 8% from 6%, and takes into consideration the
continued financial effects of restructuring.
(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:19)(cid:18)
(cid:26)
(cid:26)
(cid:26)
(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:52)(cid:81)(cid:54)(cid:39)(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: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:14)(cid:2)(cid:81)(cid:89)(cid:80)(cid:2)(cid:69)(cid:84)(cid:71)(cid:70)(cid:75)(cid:86)(cid:2)(cid:67)(cid:80)(cid:70)(cid:2)(cid: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:2)
(cid:67)(cid:85)(cid:2)(cid:82)(cid:71)(cid:84)(cid:2)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:70)(cid:75)(cid:85)(cid:69)(cid:78)(cid:81)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:81)(cid:80)(cid:2)(cid:67)(cid:70)(cid:76)(cid:87)(cid:85)(cid:86)(cid:71)(cid:70)(cid:2)(cid:41)(cid:84)(cid:81)(cid:87)(cid:82)(cid:2)(cid:84)(cid:71)(cid:85)(cid:87)(cid:78)(cid:86)(cid:85)
(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:22)(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:71)(cid:85)(cid:86)(cid:75)(cid:79)(cid:67)(cid:86)(cid:71)(cid:70)(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)
325
(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)
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
If the average adjusted Group RoTE achieved is equal to or above
the 8% threshold, the EOP award will vest in full, subject to the
relevant business divisional threshold also being met. If the Group
RoTE is 0% or negative, the installment will be fully forfeited for the
entire firm regardless of any division’s particular performance. If the
average adjusted Group RoTE falls between 0% and 8%, the award
will vest on a linear basis between 0% and 100%, again subject to
the relevant business divisional threshold being met.
The purpose of the business divisional threshold is to reduce the
amount of the EOP award that vests for any business division that
does not meet its performance target. Therefore, if the business
divisional return on attributable equity (RoAE) threshold (see table
below) is met, no adjustment is made to the EOP award. If, how-
ever, the RoAE falls below the threshold but is above 0% for any
business division, the award will be partially forfeited. The extent of
the forfeiture depends on how much the actual RoAE falls below
the threshold for that business division, and can be up to 40%. If
the actual RoAE for a business division is 0% or negative, the in-
stallment will be fully forfeited for that business division. The HRCC
assesses the achievement of the performance conditions.
The example below shows how we determine the percent-
age vesting.
Performance conditions for EOP awards granted in February 2014
Installment vesting after
Applicable performance period
3 years
4 years
5 years
2 years
3 years
2014, 2015 and 2016
2015, 2016 and 2017
2016, 2017 and 2018
2014 and 2015
2014, 2015 and 2016
GEB
GMDs and Key Risk Takers (including Highly Paid Employees)
Group RoTE threshold
Group RoTE threshold
Business divisional RoAE thresholds (or, for Corporate Center employees, Continuing Businesses RoAE threshold)
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
≥ 8%
≥ 50%
≥ 22.5%
≥ 17.5%
≥ 25%
≥ 15%
≥ 20%
EOP performance conditions for GEB members, GMDs and Key Risk Takers (including Highly Paid Employees)
Group performance
Divisional performance
Illustrative example (assuming constant share price)
% vesting
based on
Group RoTE
100% vesting at a
Group RoTE of ≥ 8%
Partial forfeiture determined on
a linear basis if Group RoTE
between 0% and 8%
Adjustment
based on
business
divisional
RoAE/
Continuing
Businesses
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%
Assume an EOP award of CHF 100,000 granted to an Investment Bank employee due
to vest in 2017, and an actual average adjusted Group RoTE and Investment Bank RoAE
(averaged over the performance years 2014 to 2016) of 4% and 7.5%, respectively.
To determine the percentage of shares that vest
–50%
of 100K
(50)
– the award is reduced by 50% due to Group
performance (as a 4% Group RoTE is 50% of the
Group RoTE threshold) and
– the award is reduced by a further 20% due to the
Investment Bank’s divisional performance (the 7.5%
RoAE represents half of the 15% Investment Bank
RoAE threshold).
100% forfeiture at a
Group RoTE of ≤ 0%
100% forfeiture if
RoAE ≤ 0%
326
100
–20%
of 50K
(10)
50
40
Installment about
to vest
Adjustment
due to Group
performance
Vesting based
on Group
performance
Amount vesting
Adjustment
due to business
divisional
performance
100
80
60
40
20
0
Advisory vote Deferred Contingent Capital Plan (DCCP)
The DCCP is a mandatory deferral plan for all employees with
total compensation greater than CHF / USD 300,000. Such em-
ployees receive 40% of their deferred performance award under
the DCCP, with the exception of Global Asset Management em-
ployees, who receive 25% of their deferred performance awards
under the plan. For 2013, approximately 5,300 employees re-
ceived DCCP awards. DCCP awards are granted annually.
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 Group profit before tax. For
years in which UBS does not achieve an adjusted Group profit
before tax, no notional interest will be paid. The notional interest
rate is 5.125% for awards denominated in US dollars and 3.500%
for awards denominated in Swiss francs. These interest rates are
based on the most recent issuance of our low-trigger loss-absorb-
ing capital (February 2014 denominated in euros with a coupon
of 4.75%) adjusted for differences in currency and tenor.
Awards vest in full after five years subject to there being no
trigger event. Awards granted under the DCCP forfeit if our
phase-in common equity tier 1 (CET1) capital ratio falls below
10% for GEB members and 7% for all other employees. This
writedown threshold is higher than the 5% for public holders of
our low-trigger loss-absorbing capital notes. In addition, awards
are also forfeited if a viability event occurs, that is, if FINMA pro-
vides 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 an event. For GEB
members, an additional performance condition applies. If UBS
does not achieve an adjusted profit before tax for any year during
the vesting period, GEB members forfeit 20% of their award for
each loss-making year.
The plan includes provisions that enable the firm to trigger for-
feiture of some, or all, of the unvested deferred portion if an em-
ployee commits certain harmful acts or in most cases of termi-
nated employment.
➔ Refer to “Performance awards granted for the 2013 performance
year,” “Performance award expenses in the 2013 performance
year” and “Total personnel expenses for 2013” in the “Supple-
mental information” section of this report for more information
➔ Refer to “Vesting of outstanding awards granted in prior years
impacted by performance conditions” and “Discontinued plans”
section of this report for more information on past awards
327
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Our Total Reward Principles and compensation governance
The Human Resources and Compensation Committee (HRCC) takes into account the philosophy and objectives embodied
in our Total Reward Principles. These influence how we structure compensation and provide funding for our perfor-
mance award pool. They reflect our focus on pay for performance, sustainable profitability, sound governance and risk
awareness, and support the firm’s strategy by promoting and rewarding behavior that enhances the firm’s position and
reputation. Compensation should help foster a sense of engagement among employees and serve to align their
long-term interests with those of clients and shareholders. Our Total Reward Principles were reviewed most recently by
the HRCC on 30 August 2013.
We must clearly link pay with performance. To maintain 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 are used
as a basis for setting the performance conditions of our compen-
sation plans. A balanced mix of fixed and variable compensation
ensures appropriate risk-taking and behavior that produces sus-
tainable business results.
Overview of HRCC’s governance
Ensuring we have strong governance and oversight of our com-
pensation process is the responsibility of the HRCC. The HRCC is
a committee of the Board of Directors (BoD) and consists of four
independent BoD members. On 31 December 2013, the HRCC
members were Ann F. Godbehere, who chairs the committee,
Michel Demaré, Rainer-Marc Frey and Helmut Panke.
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 programs and plans
– reviews performance award funding throughout the year and pro-
poses the final performance award pool to the BoD for approval
– together with the Group CEO, proposes base salaries and an-
nual performance awards for other GEB members to the BoD,
which approves the total compensation of the GEB
– together with the Chairman of the BoD, proposes the compen-
sation for the Group CEO
– 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
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
Support
appropriate
and controlled
risk-taking
Align reward
with sustainable
performance
Funding based on
profitability
Allocation of per-
formance award based
on performance
At least 50% of performance
award deferred and at risk of
forfeiture for senior employees
328
Advisory vote The Group CEO and the Chairman of the BoD may not attend
any parts of committee meetings when 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 independent BoD members are
subject to an annual review. A proposal is submitted by the Chair-
man of the BoD to the HRCC, which then submits a recommenda-
tion to the BoD. The BoD has the ultimate responsibility for ap-
proving the compensation strategy proposed by the HRCC.
The HRCC held seven meetings and five calls in 2013 with an
average attendance of 94%. The HRCC reappointed Hostettler,
Kramarsch & Partner to provide impartial external advice on com-
pensation-related matters. The company has no other mandates
with UBS. Compensation consulting firm Towers Watson, ap-
pointed by Group Human Resources, continued to provide the
HRCC with data on market trends and benchmarks, including in
relation to GEB and BoD compensation. Various subsidiaries of
Towers Watson provide similar data to Group Human Resources in
relation to compensation at lower levels of the organization. Tow-
ers Watson has no other compensation-related mandates with
UBS.
The Risk Committee’s role in compensation
We are engaged in 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, another BoD com-
mittee, works closely with the HRCC to ensure our approach to
compensation reflects risk management and control. The Risk
Committee supervises and sets appropriate risk management and
control principles and receives regular briefings on how risk is fac-
tored into the compensation process. It also monitors Risk Con-
trol’s involvement in compensation and reviews risk-related aspects
of the compensation process.
➔ Refer to our corporate governance website at
www.ubs.com/corporate-governance for more information
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
Other 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
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
329
Advisory voteCorporate governance, responsibility and compensation
Corporate governance, responsibility and compensation
Compensation
Supplemental information
This section provides an overview and further context regarding our compensation strategy and framework. It also
provides further information required to comply with statutory disclosure requirements.
Performance awards granted for the 2013 performance year
The “Total variable compensation” table shows the amount of
variable compensation awarded to employees for the perfor-
mance year 2013, 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 parts
of these awards are subject and consideration of relevant forfei-
ture 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 2013. For no-
tional funds, it is determined using the latest available market
price for the underlying funds at year-end 2013, and for deferred
cash plans, it is determined based on the outstanding amount of
cash owed to award recipients. All awards made under our de-
ferred variable compensation plans listed in the “Deferred com-
pensation” table are subject to ex-post adjustments, whether
implicitly, through exposure to share price movements, or explic-
itly, for example, through forfeitures instigated by the firm. Ac-
cordingly, their value can change over time. The amounts shown
in the column “Relating to awards for prior years” already take
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 2013.
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Financial information” section of our Annual
Report 2013 for more information
Performance award expenses in the 2013 performance year
The performance award expenses include all immediate expens-
es related to 2013 compensation awards and expenses deferred
Total variable compensation 1
CHF million, except where indicated
Cash performance awards
Deferred Contingent Capital Plan
Deferred cash plans 3
UBS share plans
Equity Ownership Plan – notional funds
Expenses
2013
1,942
152
2
190
19
2012
1,411
145
5
135
28
Total performance award pool
2,305
1,724
Expenses deferred to
future periods
2013
2012
Adjustments 2
2013
2012
0
348
7
520
37
912
0
361
10
383
20
774
(24)
0
0
41
0
17
0
0
0
24
0
24
Total
Number of beneficiaries
2013
1,918
500
9
751
56
2012
1,411
506
15
542
48
2013
46,593
5,286
23
4,931
370
2012
46,709
6,317
58
5,866
506
3,234
2,522
46,620
46,732
CHF million, except where indicated
Total variable compensation – other 4
2013
152
2012
424
2013
340
2012
494
2013
(101) 5
2012
(137) 5
2013
391
2012
781
Expenses
Expenses deferred to
future periods
Adjustments
Total
Expenses
Expenses deferred to
future periods
Adjustments
Total
Number of beneficiaries
CHF million, except where indicated
Total WMA financial advisor compensation 6
2013
2,334
2012
2,087
2013
592
2012
706
2013
2012
0
0
2013
2,926
2012
2,793
2013
7,137
2012
7,059
1 The total “performance award” paid to employees for the performance years 2013 (CHF 3,234 million) and 2012 (CHF 2,522 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 and other adjustments 3 Deferred cash plans include specific regional deferred cash
plan which is not part of the Group’s compensation delivery framework. 4 Replacement payments and retention plan payments including the 2012 Special Plan Award Program. 5 Included in expenses deferred to
future periods is an amount of CHF 101 million (prior year CHF 137 million) relating to future interest on the DCCP. 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. 6 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial ad-
visors and supplemental compensation calculated based on financial advisor productivity, firm tenure and other variables. It also includes costs related to compensation commitments with financial advisors entered into
at the time of recruitment, which are subject to vesting requirements.
330
Advisory vote to 2013 related to awards made in prior years. The chart shows
the amount at the end of 2013 of unrecognized awards to be
amortized in subsequent years. This was CHF 1.6 billion for
2013, compared with CHF 1.7 billion at the end of 2012.
The table below shows the value of actual ex-post explicit
and implicit adjustments to outstanding deferred compensation
in the financial year 2013. Ex-post adjustments occur after an
award has been granted. Ex-post explicit adjustments occur
when we adjust compensation by forfeiting deferred awards.
Ex-post implicit adjustments are unrelated to any 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 ex-
plicit adjustments made to UBS shares in 2013, based on the
approximately 14 million shares forfeited during 2013, is a re-
duction of CHF 234 million. This includes partial forfeiture of
the vesting installment of Performance Equity Plan 2010 of
48% due to performance conditions not fully achieved. The to-
tal value of ex-post explicit adjustments made to UBS options
and share-settled stock appreciation rights (SARs) in 2013,
based on the approximately 0.1 million options / SARs forfeited
during 2013, is a reduction in value of CHF 1 million. The size of
implicit adjustments is mainly due to an increase in the share
price. However, the share price as of year-end means that many
of the options previously granted remain out of the money.
Hence, the majority of outstanding option awards had no in-
trinsic value as of the end of 2013.
Amortization of deferred compensation
CHF billion
(6%)
(13%)
0.8
0.9
0.7
1.7
1.6
0.2
Amortized
Forfeited
31.12.12
Unrecognized
awards to be
amortized
including awards
granted in
1Q13 for the
performance
year 20121
Expected
amortization
of prior year
awards in 2014
Annual
awards
granted
including
awards to be
granted in
1Q14 for the
performance
year 2013
31.12.13
Unrecognized
awards to be
amortized
including awards
to be granted in
1Q14 for the
performance
year 20131, 2
1 Related to performance awards and including special plan awards.
2 Estimate. The actual amount to be expensed in future periods may vary, for example due to forfeitures.
Deferred compensation 1, 2
CHF million, except where indicated
Deferred Contingent Capital Plan
Equity Ownership Plan
Equity Ownership Plan – notional funds
Discontinued deferred compensation plans 4
Total
Relating to awards
for 2013
500
751
56
0
1,307
Relating to awards for
prior years 3
465
3,044
447
336
4,292
Total
965
3,795
503
336
5,599
of which exposed to
ex-post adjustments
Total deferred compen-
sation at year-end 2012
100%
100%
100%
100%
506
3,925
582
420
5,433
1 This is based on specific plan vesting and reflects the economic value of the outstanding awards, which may differ from the accounting expenses. 2 Refer to “Note 29 Equity participation and other compensation
plans in the “Financial information” section of our Annual Report 2013 for more information. 3 This takes into account the ex-post implicit adjustments, given the share price movements since grant. 4 Cash Balance
Plan (CBP), Senior Executive Equity Ownership Plan (SEEOP), Performance Equity Plan (PEP), Incentive Performance Plan (IPP) and Deferred Cash Plan (DCP).
Expost explicit and implicit adjustments to deferred compensation in 2013 1
CHF million
UBS notional bonds (DCCP)
UBS shares (EOP, IPP, PEP, SEEOP) 2
UBS options (KESOP) and SARs (KESAP) 2
UBS notional funds (EOP) 3
Ex-post explicit adjustments 4
Ex-post implicit adjustments
to unvested awards 5
2013
31.12.13
2012
31.12.12
2013
31.12.13
2012
31.12.12
(27)
(234)
(1)
(20)
(211)
(16)
(8)
368
51
(178)
52
1 Compensation (performance awards and other variable compensation) relating to awards for previous performance years. 2 IPP, PEP, SEEOP, Key Employee Stock Appreciation Rights Plan (KESAP) and Key Employee
Stock Option Plan (KESOP) 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 30 December 2013 (CHF 16.92) and on 28 December 2012 (CHF 14.27) 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 2013 and 2012. For DCCP the fair value at grant of the forfeited awards during
the year is reflected. 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. The amount for notional
funds is calculated using the mark-to-market change during 2013 and 2012.
331
2.0
1.5
1.0
0.5
0.0
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Personnel expenses
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
of which: guarantees for new hires
Variable compensation – other 1
of which:
replacement payments 2
forfeiture credits
severance payments 3
retention plan and other payments
Contractors
Relating to
awards for 2013
Relating to awards
for prior years
Expenses
Total 2013
6,268
1,942
152
2
190
0
19
2,305
14
152
6
0
114
32
190
0
(30)
96
53
502
0
60
681
62
136
72
(146)
0
210
0
6,268
1,912
248
55
692
0
79
2,986
76
288
78
(146)
114
242
190
2012
6,814
1,373
145
154
1,202
14
112
3,000
134
367
109
(174)
303
128
214
2011
6,859
1,466
0
343
1,490
100
118
3,516
173
191
121
(215)
239
46
217
732
Social security
Pension and other post-employment benefit plans 4
Wealth Management Americas: Financial advisor compensation 1, 5
Other personnel expenses
Total personnel expenses 6
1 Refer to “Note 29 Equity participation and other compensation plans” in the “Financial information” section of our Annual Report 2013 for more information. 2 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 financial year (mainly the amortization of the award). 3 Includes legally obligated
and standard severance payments. 4 2012 included a credit of CHF 730 million related changes to our Swiss pension plan and a credit of CHF 116 million related changes to retiree benefit plans in the US. Refer
to “Note 28 Pension and other post-employment benefit plans” of the “Financial information” section of our Annual Report 2013 for more information. 5 Financial advisor compensation consists of grid-based
compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It
also includes costs related to compensation commitments with financial advisors entered into at the time of recruitment, which are subject to vesting requirements. 6 Includes restructuring charges of CHF 156 mil-
lion for the year ended 31 December 2013 and CHF 358 million for the year ended 31 December 2012. Refer to “Note 32 Changes in organization” in the “Financial information” section of our Annual Report 2013
for more information.
13,477
15,182
15,634
14,737
3,140
2,334
2,873
2,518
1,705
792
887
609
631
887
831
758
743
768
806
682
18
60
22
0
Total personnel expenses for 2013
The table “Personnel expenses” shows our total personnel ex-
penses in 2013 for our 60,205 employees. It includes salaries,
pension contributions and other personnel costs, social security
contributions and variable compensation. Variable compensation
includes discretionary cash performance awards paid in 2014 for
the 2013 performance year, the amortization of unvested de-
ferred awards granted in previous years and the cost of deferred
awards granted to employees who are eligible for retirement in
the context of the compensation framework at the date of grant.
The performance award pool reflects the value of discretionary
performance awards granted relating to the 2013 performance
year, including awards that are paid out immediately and those
that are deferred. To determine our variable compensation ex-
penses, the following adjustments are required in order to recon-
cile the performance award pool to the accounting expenses rec-
ognized in the Group’s financial statements prepared under IFRS:
– reduction for the unrecognized future amortization (including
accounting adjustments) of unvested deferred awards granted
in 2014 for the performance year 2013
– addition for the 2013 amortization of unvested deferred
awards granted in prior years
As a large part of compensation consists of deferred awards,
the amortization of unvested deferred awards granted in prior
years forms a significant part of the IFRS accounting expenses in
both 2012 and 2013.
➔ Refer to “Note 29 Equity participation and other compensation
plans” in the “Financial information” section of our Annual
Report 2013 for more information
332
Advisory vote Vesting of outstanding awards granted in prior years impacted by performance conditions
The tables below show the extent to which the performance conditions of awards granted in prior years have been met and the per-
centage of the award which vested on 1 March 2014.
Vesting of awards with performance conditions
Performance Equity Plan 2011
Performance conditions
Performance achieved
% of installment vesting
Cumulative economic profit and relative shareholder return
for the period 2011 – 2013. The percentage applied to
determine the number of UBS shares to be delivered
at vesting is calculated by multiplying the economic profit
multiplier (“EP multiplier”) with the total shareholder
return multiplier (“TSR multiplier”), rounded to a full
percentage
Cash Balance Plan 2012
Performance conditions
The award is adjusted based on Group RoE.
If Group RoE is below 0%, the actual Group RoE deter-
mines the extent of the downward adjustment.
If Group RoE is between 0% and 6%, no adjustment
will be made. If Group RoE exceeds 6%, the award is
adjusted upwards in line with the actual Group RoE,
up to a maximum of 20%
For the period from 2011 to the end of 2013 the HRCC
determined that the EP multiplier is 50% and the TSR
multiplier is 80%, which results in a multiplier of 40%
40%
Performance achieved
% of installment vesting
The last installment was adjusted upward by 1.3% based
on the compound actual Group RoE over 2012 and 2013
101.3%
Equity Ownership Plan 2010 / 2011 and 2011 / 2012 and Senior Executive Equity Ownership Plan 2010 / 2011 and 2011 / 2012
Performance conditions
Performance achieved
% of installment vesting
Adjusted operating profit before tax for the business
division or, for Corporate Center, adjusted Group operating
profit before tax
As the Group and the business divisions reported an
operating profit for 2013, the profitability performance
condition has been met and the third installment of the
EOP awards and SEEOP 2010 / 2011 awards and second
installment of EOP and SEEOP 2011 / 2012 awards will vest
in full
100%
333
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Discontinued deferred compensation plans
The table lists discontinued compensation plans. UBS has not granted any options since 2009. The strike price for stock options award-
ed under prior compensation plans has not been reset.
➔ Refer to “Note 29 Equity participation and other compensation plans” in the “Financial information” section of our Annual Report 2013 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 Exe-
cutive Stock
Appreciation
Rights Plan
(SESAP) and
Senior Exe-
cutive 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 GMDs
Selected Manag-
ing Directors and
GMDs in the
Investment Bank
Investment Bank
employees whose
total compen-
sation 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:
dependent on the
return on equity
CBP 2010:
dependent on
UBS being
profitable
Dependent on
whether the busi-
ness division
makes a loss (the
amount forfeited
depends on the
extent of the loss
and generally
ranges from 10%
to 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
delivered can be
between zero and
two times the
number of perfor-
mance shares
granted, depend-
ing on whether
performance tar-
gets relating to
eco-nomic 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
initially granted
334
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
continued
employment,
non-solicitation
of clients and
employees and
non-disclosure of
proprietary
information
Subject to
continued
employment,
non-solicitation
of clients and
employees and
non-disclosure
of proprietary
information
Vests in full 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 List of tables
Total of all vested and unvested shares of GEB members
Number of shares of BoD members on 31 December 2013 / 2012
Total of all blocked and unblocked shares of BoD members
Vested and unvested options of GEB members on 31 December 2013 / 2012
Loans granted to GEB members on 31 December 2013 / 2012
Loans granted to BoD members on 31 December 2013 / 2012
Compensation paid to former BoD and GEB members
Page
336
336
336
337
339
339
339
335
Advisory voteCorporate governance, responsibility and compensation d
e
t
i
d
u
A
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Corporate governance, responsibility and compensation
Compensation
Total of all vested and unvested shares of GEB members 1, 2
Total
of which
vested
2014
2015
2016
2017
2018
of which vesting
Shares on 31 December 2013
8,708,791
1,619,974
1,652,867
2,373,539
1,263,412
1,052,595
746,404
Shares on 31 December 2012
8,192,173
1,531,295
1,811,280
1,652,867
2,373,539
517,001
306,191
1 Includes 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.
2013
2014
2015
2016
2017
Number of shares of BoD members on 31 December 2013 / 2012 1
Name, function
Axel A. Weber, Chairman 2
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Reto Francioni, member 2
Rainer-Marc Frey, member
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, former member 3
Helmut Panke, member
William G. Parrett, member
Isabelle Romy, member 2
Beatrice Weder di Mauro, member 2
Joseph Yam, member
Total
on 31 December
Number of shares held
Voting rights in %
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
233,333
200,000
150,412
116,179
151,184
149,199
0
–
209,044
162,677
113,562
81,286
185,970
139,603
–
38,957
162,244
137,792
99,914
91,078
24,452
0
22,496
0
48,679
26,183
1,401,290
1,142,954
0.011
0.010
0.007
0.006
0.007
0.007
0.000
0.000
0.010
0.008
0.006
0.004
0.009
0.007
0.000
0.002
0.008
0.007
0.005
0.004
0.001
0.000
0.001
0.000
0.002
0.001
0.068
0.055
1 This table includes blocked and unblocked shares held by BoD members, including related parties. No options were granted in 2013 and 2012. 2 Reto Francioni was appointed at the AGM on 2 May 2013. Axel A. We-
ber, Isabelle Romy and Beatrice Weder di Mauro were appointed at the AGM on 3 May 2012. 3 Wolfgang Mayrhuber did not stand for re-election at the AGM on 2 May 2013.
Total of all blocked and unblocked shares of BoD members 1
Shares on 31 December 2013
1,401,290
201,098
204,792
216,451
324,012
454,937
Total
of which
unblocked
of which blocked until
2014
2015
2016
2017
Shares on 31 December 2012
1 Includes related parties.
336
1,142,954
56,624
302,118
204,792
231,501
347,919
2013
2014
2015
2016
Advisory vote Vested and unvested options of GEB members on 31 December 2013 / 2012 1
d
e
t
i
d
u
A
on
31 De-
cember
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
on
31 De-
cember
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
2013
2012
0
0
Markus U. Diethelm, Group General Counsel
2013
2012
0
0
John A. Fraser, Chairman and CEO Global Asset Management
2013
756,647
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
Robert J. McCann, CEO Wealth Management Americas
and CEO UBS Group Americas
2013
2012
0
0
Tom Naratil, Group Chief Financial Officer
2013
867,087
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
170,512
2007
01.03.2010
28.02.2017
CHF 73.67
2012
935,291
63,942
2003
31.01.2006
31.01.2013
USD 22.53
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
Lukas Gähwiler, CEO UBS Switzerland and CEO Retail & Corporate
2013
2012
0
0
Ulrich Körner, Group Chief Operating Officer and CEO UBS Group EMEA
2013
2012
0
0
Philip J. Lofts, Group Chief Risk Officer
2013
500,741
35,524
35,524
35,521
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
2012
536,173
85,256
74,599
9,985
9,980
9,974
1,833
1,830
1,830
35,524
35,524
35,521
2007
01.03.2010
28.02.2017
CHF 73.67
2008
01.03.2011
28.02.2018
CHF 35.66
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
2012
578,338
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
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
Andrea Orcel, CEO Investment Bank
2013
2012
0
0
Chi-Won Yoon, CEO UBS Group Asia Pacific
2013
538,035
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
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
8,648
8,642
8,635
4,262
3,374
3,371
3,371
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
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 29 Equity participation and other compensation plans” in the “Financial information”
section of our Annual Report 2013 for more information.
337
Advisory voteCorporate governance, responsibility and compensation Corporate governance, responsibility and compensation
Compensation
Vested and unvested options of GEB members on 31 December 2013 / 2012 1 (continued)
d
e
t
i
d
u
A
on
31 De-
cember
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
on
31 De-
cember
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Chi-Won Yoon, CEO UBS Group Asia Pacific (continued)
Jürg Zeltner, CEO UBS Wealth Management (continued)
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
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
2012
203,093
2006
01.03.2009
28.02.2016
CHF 65.97
2007
01.03.2008
28.02.2017
CHF 67.00
2007
01.03.2009
28.02.2017
CHF 67.00
2007
01.03.2010
28.02.2017
CHF 67.00
42,628
2008
01.03.2011
28.02.2018
CHF 32.45
350,000
2009
01.03.2012
27.02.2019
CHF 11.35
Jürg Zeltner, CEO UBS Wealth Management
2013
203,093
4,972
7,106
7,103
7,103
93
161
149
127
7,106
7,103
7,103
110
242
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
230
221
7,105
7,105
7,103
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
4,972
7,106
7,103
7,103
93
161
149
127
7,106
7,103
7,103
110
242
230
221
7,105
7,105
7,103
2008
01.03.2011
28.02.2018
CHF 35.66
2009
01.03.2012
27.02.2019
CHF 11.35
2004
01.03.2007
27.02.2014
CHF 44.32
2005
01.03.2006
28.02.2015
CHF 47.58
2005
01.03.2007
28.02.2015
CHF 47.58
2005
01.03.2008
28.02.2015
CHF 47.58
2005
04.03.2007
04.03.2015
CHF 47.89
2005
06.06.2007
06.06.2015
CHF 45.97
2005
09.09.2007
09.09.2015
CHF 50.47
2005
05.12.2007
05.12.2015
CHF 59.03
2006
01.03.2007
28.02.2016
CHF 65.97
2006
01.03.2008
28.02.2016
CHF 65.97
2006
01.03.2009
28.02.2016
CHF 65.97
2006
03.03.2008
03.03.2016
CHF 65.91
2006
09.06.2008
09.06.2016
CHF 61.84
2006
08.09.2008
08.09.2016
CHF 65.76
2006
08.12.2008
08.12.2016
CHF 67.63
2007
01.03.2008
28.02.2017
CHF 67.00
2007
01.03.2009
28.02.2017
CHF 67.00
2007
01.03.2010
28.02.2017
CHF 67.00
223
2007
02.03.2009
02.03.2017
CHF 67.08
42,628
90,000
2008
01.03.2011
28.02.2018
CHF 35.66
2009
01.03.2012
27.02.2019
CHF 11.35
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 29 Equity participation and other compensation plans” in the “Financial information”
section of our Annual Report 2013 for more information.
338
Advisory vote d
e
t
i
d
u
A
d
e
t
i
d
u
A
d
e
t
i
d
u
A
Loans granted to GEB members on 31 December 2013 / 2012 1
CHF, except where indicated 2
Name, function
Ulrich Körner, Group Chief Operating Officer and CEO UBS Group EMEA (highest loan in 2013)
Markus U. Diethelm, Group General Counsel (highest loan in 2012)
Aggregate of all GEB members
on 31 December
2013
2012
2013
2012
Loans 3
5,181,976
5,564,012
18,763,976
18,862,820
1 No loans have been granted to related parties of the GEB members at conditions not customary in the market. 2 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency
translation rates” in the “Financial information” section in our Annual Report 2013. 3 All loans granted are secured loans, except for CHF 311,308 in 2012.
Loans granted to BoD members on 31 December 2013/ 2012 1
CHF, except where indicated 2
Aggregate of all BoD members
on 31 December
Loans 3, 4
2013
2012
1,520,000
500,000
1 No loans have been granted to related parties of the BoD members at conditions not customary in the market. 2 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency
translation rates” in the “Financial information” section in our Annual Report 2013. 3 All loans granted are secured loans. 4 CHF 1,520,000 for Reto Francioni in 2013. CHF 500,000 for Michel Demaré in 2012.
Compensation paid to former BoD and GEB members1
CHF, except where indicated 2
Former BoD members
Aggregate of all former GEB members 3
Aggregate of all former BoD and GEB members
For the year
Compensation
Benefits
2013
2012
2013
2012
2013
2012
0
0
0
0
0
0
0
0
27,809
25,465
27,809
25,465
Total
0
0
27,809
25,465
27,809
25,465
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 Local currencies are converted into CHF using the exchange rates as
detailed in “Note 36 Currency translation rates” in the “Financial information” section in our Annual Report 2013. 3 Includes one former GEB member in 2013 and 2012.
339
Advisory voteCorporate governance, responsibility and compensation Financial
information
426
426
449
452
455
459
471
481
487
487
489
490
493
494
494
495
497
Additional information
24 Fair value measurement
25 Restricted and transferred financial assets
26 Offsetting financial assets and financial liabilities
27 Financial assets and liabilities – additional information
28 Pension and other post-employment benefit plans
29 Equity participation and other compensation plans
30 Interests in subsidiaries and other entities
31 Business combinations
32 Changes in organization
33 Operating lease commitments
34 Related parties
35 Invested assets and net new money
36 Currency translation rates
37 Events after the reporting period
38 Swiss GAAP requirements
39 Supplemental guarantor information required
under SEC regulations
Financial information
Table of contents
344
Introduction and accounting principles
345
Consolidated financial statements
345 Management’s report on internal control over financial
reporting
Report of independent registered public accounting firm
on internal control over financial reporting
Report of the statutory auditor and the independent
registered public accounting firm on the consolidated
financial statements
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in equity
Statement of cash flows
Notes to the consolidated financial statements
1 Summary of significant accounting policies
2 Segment reporting
Income statement notes
3 Net interest and trading income
4 Net fee and commission income
5 Other income
6 Personnel expenses
7 General and administrative expenses
8
9 Earnings per share (EPS) and shares outstanding
Income taxes
Balance sheet notes: assets
10 Due from banks and loans (held at amortized cost)
11 Cash collateral on securities borrowed and lent,
reverse repurchase and repurchase agreements, and
derivative instruments
12 Allowances and provisions for credit losses
13 Trading portfolio
14 Derivative instruments and hedge accounting
15 Financial investments available-for-sale
16 Property and equipment
17 Goodwill and intangible assets
18 Other assets
Balance sheet notes: liabilities
19 Due to banks and customers
20 Financial liabilities designated at fair value
21 Debt issued held at amortized cost
22 Provisions and contingent liabilities
23 Other liabilities
346
348
350
351
353
354
357
359
359
381
386
386
387
388
389
389
390
393
394
394
395
396
397
399
407
408
409
412
413
413
413
414
415
425
342
507
UBS AG (Parent Bank)
507
Parent Bank review
510
510
511
512
513
513
Parent Bank financial statements
Income statement
Balance sheet
Statement of appropriation of retained earnings
Notes to the Parent Bank financial statements
Business activities, risk assessment,
1
outsourcing and personnel
513
2 Accounting policies
516
516
516
517
517
517
518
519
520
520
521
522
522
522
523
524
524
525
526
526
527
527
528
528
528
529
531
Additional income statement information
3 Net trading income
4 Extraordinary income and expenses
Additional balance sheet information
5 Other assets and liabilities
6
7
Pledged assets
Swiss pension plan and non-Swiss defined
benefit plans
8 Allowances and provisions
9 Statement of shareholders’ equity
10 Share capital and significant shareholders
11 Transactions with related parties
Off-balance sheet and other information
12 Commitments and contingent liabilities
13 Derivative instruments
14 Fiduciary transactions
Compensation of the members of the Board of Directors
and the Group Executive Board
Total compensation for GEB members for the
performance years 2013 and 2012
Share and option ownership / entitlements of GEB
members on 31 December 2013 / 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 2013 / 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 2013 / 2012
Loans granted to GEB members on
31 December 2013 / 2012
531
532
534
535
537
Loans granted to BoD members on
31 December 2013 / 2012
Report of the statutory auditor on the financial statements
Auditor’s Report related to the contingent capital increase
Confirmation of the auditors concerning removal of
conditional capital increase
Supplemental disclosures required under
SEC regulations
537
A – Introduction
538
539
541
542
542
543
543
544
544
545
547
549
550
550
551
552
553
554
555
556
557
559
B – Selected financial data
Key figures
Income statement data
Balance sheet data
Ratio of earnings to fixed charges
C – Information on the company
Property, plant and equipment
D – Information required by industry guide 3
Selected statistical information
Average balances and interest rates
Analysis of changes in interest income and expense
Deposits
Short-term borrowings
Contractual maturities of investments in debt instruments
available-for-sale
Due from banks and loans (gross)
Due from banks and loan maturities (gross)
Impaired and non-performing loans
Cross-border outstandings
Summary of movements in allowances and provisions
for credit losses
Allocation of the allowances and provisions for
credit losses
Due from banks and loans by industry sector (gross)
Supplemental disclosures required under
Basel III Pillar 3 regulations
343
Financial information Financial information
Introduction and accounting principles
The financial information section of UBS’s Annual Report 2013
consists of: a) the audited consolidated financial statements of
UBS Group for 2013 prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB), b) the UBS AG (Parent Bank)
review and audited financial statements for 2013, prepared in
order to meet Swiss regulatory requirements and in compliance
with Swiss GAAP, c) supplemental disclosures required under
US Securities and Exchange Commission (SEC) regulations and
d) supplemental disclosures required under Basel III Pillar 3 regula-
tions.
The significant accounting policies applied in the preparation
of UBS’s Group financial statements are described in Note 1 to the
financial statements. Except where otherwise explicitly stated in
these financial statements, all financial information is in Swiss
francs (CHF) and presented on a consolidated basis under IFRS,
and all references to “UBS” refer to the UBS Group and not to the
Parent Bank. UBS AG (Parent Bank) is incorporated in Switzerland,
has branches worldwide and owns all subsidiaries, directly or indi-
rectly. All references to 2013, 2012 and 2011 refer to the fiscal
years ended 31 December 2013, 2012 and 2011, respectively.
The financial statements for the UBS Group and the Parent Bank
have been audited by Ernst & Young Ltd.
344
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 and management of UBS AG (UBS) are
responsible for establishing and maintaining adequate internal
control over financial reporting. UBS’s internal control over finan-
cial reporting is designed to provide reasonable assurance regard-
ing the preparation and fair presentation of published financial
statements in accordance with International Financial Reporting
Standards (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
financial statements.
Because of its inherent limitations, internal control over finan-
cial reporting may not prevent or detect misstatements. Also, pro-
jections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Management’s assessment of internal control
over financial reporting as of 31 December 2013
UBS management has assessed the effectiveness of UBS’s internal
control over financial reporting as of 31 December 2013 based on
the criteria set forth by the Committee of Sponsoring Organiza-
tions of the Treadway Commission (COSO) in Internal Control
Integrated Framework (1992 Framework). Based on this assess-
ment, management believes that, as of 31 December 2013, UBS’s
internal control over financial reporting was effective.
The effectiveness of UBS’s internal control over financial re-
porting as of 31 December 2013 has been audited by Ernst &
Young Ltd, UBS’s independent registered public accounting
firm, as stated in their report appearing on pages 346 to 347,
which expressed an unqualified opinion on the effectiveness of
UBS’s internal control over financial reporting as of 31 Decem-
ber 2013.
345
Financial information Financial information
Consolidated financial statements
346
347
Financial information Financial information
Consolidated financial statements
348
349
Financial information Financial information
Consolidated financial statements
Income statement
CHF million, except per share data
Note
31.12.13
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) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders 1
Net profit / (loss) attributable to non-controlling interests 1
Net profit / (loss) attributable to UBS shareholders
Earnings per share (CHF)
Basic
Diluted
3
3
3
12
4
3
5
6
7
16
17
17
8
9
9
13,137
(7,351)
5,786
(50)
5,736
16,287
5,130
580
27,732
15,182
8,380
816
0
83
24,461
3,272
(110)
3,381
204
5
3,172
0.84
0.83
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for information on the adoption of IFRS 10.
For the year ended
31.12.12
15,968
(9,990)
5,978
(118)
5,860
15,396
3,526
641
25,423
14,737
8,653
689
3,030
106
27,216
(1,794)
461
(2,255)
220
5
(2,480)
(0.66)
(0.66)
% change from
31.12.12
(18)
(26)
(3)
(58)
(2)
6
45
(10)
9
3
(3)
18
(100)
(22)
(10)
(7)
0
31.12.11
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
268
4,138
1.10
1.08
350
Statement of comprehensive income
CHF million
Comprehensive income attributable to UBS shareholders
Net profit / (loss)
Other comprehensive income
Other comprehensive income that may be reclassified to the income statement 1
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, net of tax
Financial investments available-for-sale
Net unrealized gains / (losses) on financial investments available-for-sale, before tax
Impairment charges reclassified to the income statement from equity
Realized gains reclassified to the income statement from equity
Realized losses reclassified to the income statement from equity
Income tax relating to net unrealized gains / (losses) on financial investments available-for-sale
Subtotal financial investments available-for-sale, net of tax
Cash flow hedges
Effective portion of changes in fair value of derivative instruments designated as cash flow hedges, before tax
Net realized (gains) / losses reclassified to the income statement from equity
Income tax relating to cash flow hedges
Subtotal cash flow hedges, net of tax
Total other comprehensive income that may be reclassified to the income statement, net of tax
Other comprehensive income that will not be reclassified to the income statement 1
Defined benefit plans
Gains / (losses) on defined benefit plans, before tax
Income tax relating to defined benefit plans
Subtotal defined benefit plans, net of tax
Property revaluation surplus
Gains on property revaluation, before tax
Net (gains) / losses reclassified to retained earnings
Income tax relating to gains on property revaluation
Subtotal changes in property revaluation surplus, net of tax
Total other comprehensive income that will not be reclassified to the income statement, net of tax
Total other comprehensive income
Total comprehensive income attributable to UBS shareholders
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for information on the adoption of the revisions to IAS 1.
Table continues on the next page.
For the year ended
31.12.13
31.12.12
31.12.11
3,172
(2,480)
4,138
(440)
(36)
5
(471)
(57)
41
(265)
56
71
(154)
(652)
(1,261)
393
(1,520)
(2,145)
1,178
(239)
939
0
(6)
0
(6)
933
(1,211)
1,961
(362)
(58)
(91)
(511)
335
85
(433)
19
20
26
1,714
(1,235)
(95)
384
(102)
1,023
(413)
609
8
0
(2)
6
615
514
(1,966)
693
8
20
722
1,458
39
(950)
24
(76)
495
3,093
(1,140)
(417)
1,537
2,753
(2,141)
321
(1,820)
0
0
0
0
(1,820)
934
5,071
351
Financial information Financial information
Consolidated financial statements
Statement of comprehensive income (continued)
Table continued from previous page.
CHF million
For the year ended
31.12.13
31.12.12
31.12.11
Comprehensive income attributable to preferred noteholders 1
Net profit / (loss)
204
220
Other comprehensive income
Other comprehensive income that will not be reclassified to the income statement 2
Foreign currency translation movements, before tax
Income tax relating to foreign currency translation movements
Subtotal foreign currency translation, net of tax
Total other comprehensive income that will not be reclassified to the income statement, net of tax
Total comprehensive income attributable to preferred noteholders
Comprehensive income attributable to non-controlling interests 1
Net profit / (loss)
Other comprehensive income
Other comprehensive income that will not be reclassified to the income statement 2
Foreign currency translation movements, before tax
Income tax relating to foreign currency translation movements
Subtotal foreign currency translation, net of tax
Total other comprehensive income that will not be reclassified to the income statement, net of tax
Total comprehensive income attributable to non-controlling interests
Total comprehensive income
Net profit / (loss)
Other comprehensive income
of which: other comprehensive income that may be reclassified to the income statement
of which: other comprehensive income that will not be reclassified to the income statement
Total comprehensive income
355
0
355
355
559
5
(1)
0
(1)
(1)
4
3,381
(857)
(2,145)
1,288
2,524
(41)
0
(41)
(41)
179
5
15
0
15
15
20
(2,255)
487
(102)
589
(1,767)
268
292
0
292
292
560
4,406
1,226
2,753
(1,528)
5,632
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for information on the adoption of IFRS 10. 2 Refer to “Note 1b Changes in accounting policies, comparability and other adjust-
ments” for information on the adoption of the revisions to IAS 1.
352
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
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
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 preferred noteholders
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
Note
31.12.13
31.12.12
31.12.12
% change from
10
11
11
13
25
14
11
27
10
15
30
16
17
8
18
19
11
11
13
14
11
20
19
21
22
8, 23
80,879
17,170
27,496
91,563
122,848
42,449
245,835
28,007
7,364
286,959
59,525
842
6,006
6,293
8,845
66,383
21,220
37,372
130,941
160,564
44,698
418,957
30,413
9,106
279,901
66,230
858
6,004
6,461
8,143
20,228
1,009,860
17,244
1,259,797
12,862
9,491
13,811
26,609
239,953
49,138
69,901
390,825
81,586
2,971
62,777
23,024
9,203
38,557
34,247
395,260
71,148
91,901
373,459
104,837
2,536
66,523
959,925
1,210,697
384
33,952
(1,031)
(46)
24,475
(9,733)
48,002
1,893
41
49,936
384
33,898
(1,071)
(37)
21,297
(8,522)
45,949
3,109
42
49,100
1,009,860
1,259,797
22
(19)
(26)
(30)
(23)
(5)
(41)
(8)
(19)
3
(10)
(2)
0
(3)
9
17
(20)
(44)
3
(64)
(22)
(39)
(31)
(24)
5
(22)
17
(6)
(21)
0
0
(4)
24
15
14
4
(39)
(2)
2
(20)
353
Financial information Financial information
Consolidated financial statements
Statement of changes in equity
CHF million
Balance as of 1 January 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
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred notes
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance as of 31 December 2011
Effect of adoption of IFRS 10 1
Balance as of 1 January 2012 after adoption of IFRS 10
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
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred notes
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance as of 31 December 2012
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
Dividends
Equity classified as obligation to purchase own shares – movements
Preferred notes
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
(2,455)
1,949 2
(83)
10
19
280
(5)
15
383
34,614
(1,160)
(39)
4,138
23,742
35
34,614
(1,160)
(39)
23,777
(1,398) 2
1,486
(9)
4
126
(457)
(379) 3
(1)
2
383
0
384
1
(846)
887 2
203
30
305
91
(564) 3
(11)
(9)
Share
capital
383
Share
premium
34,393
Treasury
shares
(654)
Equity classified
as obligation to
purchase own shares
Retained
earnings
Cumulative net income
recognized directly
in equity, net of tax
(54)
19,604
(9,945)
of which:
of which: Financial
Foreign currency
investments avail-
translation
able-for-sale
of which: Cash
flow hedges
of which:
of which:
Defined benefit
Property revalua-
Total equity
attributable to
pension plans
tion surplus
UBS shareholders
noteholders
Preferred
Non-controlling
(7,169)
(243)
1,063
(3,596)
0
interests
5,043
Total equity
48,770
934
(9,011)
(24)
(9,035)
722
(6,447)
5
(6,443)
495
252
(29)
223
1,537
2,600
2,600
(1,820)
(5,415)
(5,415)
33,898
(1,071)
(37)
(2,480)
21,297
514
(8,522)
(511)
(6,954)
26
249
384
2,983
609
(4,806)
(1,966)
45,949
179
3,109
0
0
0
6
6
43,728
0
(2,455)
1,949
(83)
10
19
280
0
15
0
(5)
0
5,071
48,530
48,540
11
0
(1,398)
1,486
(9)
4
126
(457)
(379)
2
0
0
(1)
1
(846)
887
203
30
305
91
(564)
(9)
0
6
(11)
0
(2,455)
1,949
(83)
10
19
280
(269)
15
(882)
(4)
(47)
5,632
52,935
(1,198)
51,737
0
(1,398)
1,486
(9)
4
126
(457)
(605)
2
0
(11)
(9)
(1,767)
49,100
1
(846)
887
203
30
305
91
(773)
(9)
(1,572)
6
(11)
2,524
49,936
(269)
(882)
1
(47)
560
4,406
(4,359)
46
(6)
(10)
(9)
20
42
4
41
3,150
3,150
(220)
(204)
(6)
(1,572)
0
559
1,893
Balance as of 31 December 2013
384
33,952
(1,031)
(46)
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for information on the adoption of IFRS 10. 2 For the year 2013, the net disposal of 12 million treasury shares (CHF 170 mil-
lion) which related to market-making and hedging activities of the Investment Bank are presented as dispositions. For the year 2012, the net acquisition of 5 million treasury shares (CHF 92 million) are presented as
acquisitions. For the year 2011, the net disposal of 5 million treasury shares (CHF 122 million) are presented as dispositions. 3 Reflects the payment of CHF 0.15 (2012: CHF 0.10) per share of CHF 0.10 par value out
of the capital contribution reserve of UBS AG (Parent Bank).
354
6
3,172
24,475
(1,211)
(9,733)
(471)
(7,425)
(154)
95
(1,520)
1,463
939
(3,867)
(6)
0
1,961
48,002
Preferred
noteholders
Non-controlling
interests
5,043
Total equity
48,770
0
(2,455)
1,949
of which:
Foreign currency
translation
of which: Financial
investments avail-
able-for-sale
of which: Cash
flow hedges
of which:
Defined benefit
pension plans
of which:
Property revalua-
tion surplus
Total equity
attributable to
UBS shareholders
(7,169)
(243)
1,063
(3,596)
0
Balance as of 1 January 2012 after adoption of IFRS 10
34,614
(1,160)
(39)
23,777
383
34,614
(1,160)
(39)
4,138
23,742
35
934
(9,011)
(24)
(9,035)
722
(6,447)
5
(6,443)
495
252
(29)
223
1,537
2,600
2,600
(1,820)
(5,415)
(5,415)
33,898
(1,071)
(37)
(2,480)
21,297
514
(8,522)
(511)
(6,954)
26
249
384
2,983
609
(4,806)
0
0
0
6
6
Share
capital
383
Share
premium
34,393
Treasury
shares
(654)
Equity classified
as obligation to
purchase own shares
Retained
earnings
Cumulative net income
recognized directly
in equity, net of tax
(54)
19,604
(9,945)
Statement of changes in equity
CHF million
Balance as of 1 January 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
Dividends
Preferred notes
Equity classified as obligation to purchase own shares – movements
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance as of 31 December 2011
Effect of adoption of IFRS 10 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
Premium on shares issued and warrants exercised
Employee share and share option plans
Tax (expense) / benefit recognized in share premium
Dividends
Preferred notes
Equity classified as obligation to purchase own shares – movements
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
Balance as of 31 December 2012
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
Dividends
Preferred notes
New consolidations and other increases / (decreases)
Deconsolidations and other decreases
Total comprehensive income for the year recognized in equity
(2,455)
1,949 2
(1,398) 2
1,486
(846)
887 2
(83)
10
19
280
(5)
(9)
4
126
(457)
(379) 3
(1)
203
30
305
91
(564) 3
(11)
383
0
384
1
15
2
Equity classified as obligation to purchase own shares – movements
(9)
Balance as of 31 December 2013
384
33,952
(1,031)
(46)
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for information on the adoption of IFRS 10. 2 For the year 2013, the net disposal of 12 million treasury shares (CHF 170 mil-
lion) which related to market-making and hedging activities of the Investment Bank are presented as dispositions. For the year 2012, the net acquisition of 5 million treasury shares (CHF 92 million) are presented as
acquisitions. For the year 2011, the net disposal of 5 million treasury shares (CHF 122 million) are presented as dispositions. 3 Reflects the payment of CHF 0.15 (2012: CHF 0.10) per share of CHF 0.10 par value out
of the capital contribution reserve of UBS AG (Parent Bank).
6
3,172
24,475
1
(846)
887
203
30
305
91
(564)
(9)
0
6
(11)
(1,211)
(9,733)
(471)
(7,425)
(154)
95
(1,520)
1,463
939
(3,867)
(6)
0
1,961
48,002
(204)
(6)
(1,572)
0
559
1,893
4
41
43,728
0
(2,455)
1,949
(83)
10
19
280
0
15
0
(5)
0
5,071
48,530
11
48,540
0
(1,398)
1,486
(9)
4
126
(457)
(379)
2
0
(1)
0
(269)
(882)
1
(47)
560
4,406
(4,359)
46
(6)
(10)
(9)
20
42
3,150
3,150
(220)
(1,966)
45,949
179
3,109
(83)
10
19
280
(269)
15
(882)
(4)
(47)
5,632
52,935
(1,198)
51,737
0
(1,398)
1,486
(9)
4
126
(457)
(605)
2
0
(11)
(9)
(1,767)
49,100
1
(846)
887
203
30
305
91
(773)
(9)
(1,572)
6
(11)
2,524
49,936
355
Financial information Financial information
Consolidated financial statements
Shares issued and treasury shares held
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 2013, 138,759,156 additional shares (31 De-
cember 2012: 145,510,992 shares) could have been issued to
fund UBS’s employee share option programs.
On 14 April 2010, the Annual General Meeting of UBS AG
shareholders approved the creation of conditional capital to a
maximum number of 380,000,000 shares for conversion rights /
warrants granted in connection with the issuance of bonds or
similar financial instruments.
For the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
3,835,250,233
3,832,121,899
3,830,840,513
6,751,836
3,128,334
1,281,386
3,842,002,069
3,835,250,233
3,832,121,899
87,879,601
55,346,016
84,955,551
38,892,031
114,292,481
155,636,639
(69,425,365)
(111,368,431)
(109,573,119)
73,800,252
87,879,601
84,955,551
0
116
0
3
(52)
(38)
(16)
In 2013, the conditional capital of up to 100,000,000 shares,
which was available in connection with an arrangement with the
Swiss National Bank (SNB), was removed. The SNB provided a loan
to the SNB StabFund, to which UBS transferred certain illiquid
securities and other positions in 2008 and 2009. As part of this
arrangement, UBS granted warrants on shares to the SNB, which
would have been exercisable if the SNB had incurred a loss on the
loan. In 2013, the loan was paid back in full, the warrants were
terminated and the relevant conditional capital was removed.
Total conditional share capital outstanding as of 31 December
2013 is also disclosed in “Note 10 Share capital and significant
shareholders” of the UBS AG (Parent Bank) financial statements.
356
Statement of cash flows
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:
Due from / to banks
Cash collateral on securities borrowed and reverse repurchase agreements
Cash collateral on securities lent and repurchase agreements
Trading portfolio, replacement values and financial assets designated at fair value
Cash collateral on derivative instruments
Loans / due to customers
Other assets, provisions 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 1
Purchase of property and equipment
Disposal of property and equipment
Net (investment in) / divestment of financial investments available-for-sale 2
Net cash flow from / (used in) investing activities
For the year ended
31.12.13
31.12.12
31.12.11
3,381
(2,255)
4,406
816
0
83
50
(49)
(545)
(522)
3,988
5,148
(7,551)
43,754
(23,659)
44,068
(22,407)
12,087
(3,935)
(382)
54,325
(49)
136
(1,236)
639
5,966
5,457
689
3,030
106
118
(88)
294
(486)
3,717
6,088
(7,686)
102,436
(66,407)
9,369
4,399
15,869
(1,771)
(261)
67,160
(11)
41
(1,118)
202
(13,994)
(14,879)
761
0
127
84
(42)
795
(996)
(5,856)
3,703
(14,569)
(67,262)
27,116
17,225
6,330
6,068
8,218
(349)
(14,241)
(58)
50
(1,129)
233
20,281
19,377
1 Includes dividends received from associates. 2 Includes gross cash inflows from sales and maturities (CHF 7,258 million for the year ended 31 December 2013, CHF 8,796 million for the year ended 31 December
2012) and gross cash outflows from purchases (CHF 3,521 million for the year ended 31 December 2013, CHF 7,422 million for the year ended 31 December 2012) predominantly related to longer-term US asset-backed
securities held as financial investments available-for-sale which were transferred from Wealth Management Americas to Corporate Center – Core Functions in 2013. Other net cash flows (CHF 2,229 million inflows for
the year ended 31 December 2013, CHF 15,368 million outflows for the year ended 31 December 2012) almost entirely related to our multi-currency portfolio of unencumbered, high-quality, short-term assets managed
centrally by Group Treasury.
Table continues on the next page.
357
Financial information Financial information
Consolidated financial statements
Statement of cash flows (continued)
Table continued from previous page.
CHF million
Cash flow from / (used in) financing activities
Net short-term debt issued / (repaid)
Net movements in treasury shares and own equity derivative activity
Increase in share capital
Dividends paid on UBS shares
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 and repayments of preferred notes
Net changes of non-controlling interests
Net cash flow from / (used in) financing activities
Effects of exchange rate differences on cash and cash equivalents
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 1
Cash and cash equivalents comprise:
Cash and balances with central banks
Money market paper 2
Due from banks 3
Total 4
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 5
For the year ended
31.12.13
31.12.12
31.12.11
(4,290)
(341)
1
(564)
28,014
(68,954)
(1,415)
(6)
(47,555)
(2,702)
9,524
99,108
108,632
80,879
4,288
23,465
108,632
12,148
7,176
1,421
(37,967)
(1,159)
0
(379)
55,890
(54,259)
(221)
(16)
(38,110)
(673)
13,500
85,609
99,108
66,383
4,381
28,344
99,108
14,551
9,166
1,430
15,338
(1,885)
0
0
52,590
(62,626)
0
(748)
2,670
(2,129)
5,678
79,934
85,612
40,638
3,900
41,074
85,612
16,667
9,812
1,343
1 Prior period data for cash and cash equivalents was restated upon adoption of IFRS 10 as follows: from CHF 85,612 million to CHF 85,609 million for the opening balance of 2012 and from CHF 99,118 million to CHF
99,108 million for the closing balance of 2012. 2 Money market paper is included on the balance sheet under Trading portfolio assets (31 December 2013: CHF 1,716 million, 31 December 2012: CHF 2,192 million,
31 December 2011: CHF 1,783 million) and Financial investments available-for-sale (31 December 2013: CHF 2,571 million, 31 December 2012: CHF 2,190 million, 31 December 2011: CHF 2,117 million). 3 Includes
positions recognized in the balance sheet under Due from banks (31 December 2013: CHF 14,413 million, 31 December 2012: CHF 15,951 million, 31 December 2011: 18,733 million) and Cash collateral receivables
on derivative instruments with bank counterparties (31 December 2013: CHF 9,052 million, 31 December 2012: CHF 12,393 million, 31 December 2011: CHF 22,341 million). 4 CHF 8,333 million and CHF 10,109
million of cash and cash equivalents were restricted as of 31 December 2013 and 31 December 2012, respectively. Refer to “Note 25 Restricted and transferred financial assets” for more information. 5 Includes divi-
dends received from associates (2013: CHF 69 million, 2012: CHF 37 million, 2011: CHF 28 million) reported within cash flow from / (used in) investing activities.
358
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies
a) Significant accounting policies
The significant accounting policies applied in the preparation of
the consolidated financial statements (the “Financial Statements”)
of UBS AG and its subsidiaries (“UBS” or the “Group”) are de-
scribed in this note. These policies have been applied consistently
in all years presented unless otherwise stated.
1) Basis of accounting
UBS provides a broad range of financial services including: advi-
sory services, underwriting, financing, market-making, asset man-
agement and brokerage on a global level, and retail banking in
Switzerland. The Group was formed on 29 June 1998 when Swiss
Bank Corporation and Union Bank of Switzerland merged.
The Financial Statements are prepared in accordance with
Inter national 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 6 March 2014, the Financial State-
ments were authorized for issue by the Board of Directors. The
Financial Statements are prepared using uniform accounting poli-
cies for similar transactions and other events. Intercompany trans-
actions and balances have been eliminated.
Disclosures incorporated in the “Risk, treasury and capital
management” section of this report, which form part of these
Financial Statements, are marked as audited. These disclosures
relate to requirements under IFRS 7 Financial Instruments: Disclo-
sures and IAS 1 Presentation of Financial Statements and are not
repeated in the “Financial information – consolidated financial
statements” section.
2) Use of estimates
Preparation of the Financial Statements requires management to
make estimates and assumptions that affect reported income, ex-
penses, assets, liabilities and the disclosure of contingent assets
and liabilities. Actual results in the future could differ from such
estimates and assumptions, and such differences may be material
to the Financial Statements. Estimates and their underlying as-
sumptions are reviewed on an ongoing basis. Revisions to esti-
mates resulting from these reviews are recognized in the period in
which they occur.
The following notes to the Financial Statements contain infor-
mation about those areas of estimation uncertainty considered to
require critical judgment and have the most significant effect on
the amounts recognized in the Financial Statements: Note 8
Income taxes, Note 12 Allowances and provisions for credit loss-
es, Note 17 Goodwill and intangible assets, Note 22 Provisions
and contingent liabilities, Note 24 Fair value measurement, Note
28 Pension and other post-employment benefit plans and Note
29 Equity participation and other compensation plans.
3) Subsidiaries and structured entities
The Financial Statements comprise those of the parent company
(UBS AG) and its subsidiaries, including controlled structured enti-
ties (SE), presented as a single economic entity. Equity attributable
to non-controlling interests is presented on the consolidated bal-
ance sheet within Equity, separately from Equity attributable to
UBS shareholders.
As detailed in Note 1b, UBS adopted IFRS 10 Consolidated
Financial Statements on 1 January 2013 on a limited retrospective
basis. Under IFRS 10, UBS controls an entity when it has power
over the relevant activities of the entity, exposure to variable re-
turns and the ability to use its power to affect its returns. Where
an entity is governed by voting rights, control is generally indi-
cated by a direct shareholding of more than one-half of the voting
rights.
In other cases, the assessment of control is more complex and
requires greater use of judgment. Where UBS has an interest in
an entity that absorbs variability, we consider whether UBS has
power over the entity which allows it to affect the variability of
its returns. Consideration is given to all facts and circumstances
to determine whether the Group has power over another entity,
that is, the current ability to direct the relevant activities of an
entity when decisions about those activities need to be made.
Factors such as the purpose and design of the entity, rights held
through contractual arrangements such as call rights, put rights
or liquidation rights, as well as potential decision-making rights
are all considered in this assessment. Where the Group has
power over the relevant activities, a further assessment is made
to determine whether, through that power, it has the ability to
affect its own returns, that is, assessing whether power is held in
a principal or agent capacity. Consideration is given to (i) the
scope of decision-making authority, (ii) rights held by other par-
ties, including removal or other participating rights, (iii) exposure
to variability, including remuneration, relative to total variability
of the entity as well as whether that exposure is different from
other investors. If, after review of these factors, UBS concludes
that it can exercise its power to affect its own returns, the entity
is consolidated.
Subsidiaries, including SE, are consolidated from the date con-
trol is obtained and are deconsolidated from the date control
ceases. Control, or the lack thereof, is reassessed if facts and
359
Financial information Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
circumstances indicate that there is a change to one or more of
the elements needed to establish that control is present.
Refer to Note 30 for more information on subsidiaries and
structured entities.
Structured entities (SE)
SE are entities that have been designed so that voting or similar
rights are not the dominant factor in deciding who controls the
entity, such as when any voting rights relate only to administrative
tasks and the relevant activities are directed by means of contrac-
tual arrangements. Such entities generally have a narrow and
well-defined objective and include those historically referred to as
special purpose entities (SPE) and some investment funds. We as-
sess whether an entity is an SE by considering the nature of the
activities of the entity as well as the substance of voting or similar
rights afforded to other parties, including investors and indepen-
dent boards or directors. We consider rights such as the ability to
liquidate the entity or remove the decision maker to be similar to
voting rights when the holder has the substantive ability to exer-
cise such rights without cause. In the absence of such rights or in
cases where the existence of such rights cannot be fully estab-
lished, the entity is considered to be an SE.
The Group sponsors the formation of SE and interacts with
non-sponsored SE for a variety of reasons including allowing cli-
ents to obtain or be exposed to particular risk profiles, to provide
funding or to sell or purchase credit risk. Many SE are established
as bankruptcy remote, meaning that only the assets in the SE are
available for the benefit of the SE’s investors and such investors
have no other recourse to UBS. UBS is deemed to be the sponsor
of an SE when it is involved in its creation, establishment and
promotion and facilitates its ongoing success through the trans-
fer of assets or the provision of explicit or implicit financial, op-
erational or other support. Where the Group acts purely as an
advisor, administrator or placement agent for an SE created by a
third-party entity, it is not con sidered to be sponsored by UBS.
UBS will consolidate an SE in line with the consolidation prin-
ciples described above. When UBS does not consolidate an SE but
has an interest in an SE or has sponsored an SE, additional disclo-
sures are provided in Note 30 on the nature of these interests and
sponsorship activities.
UBS is involved with a number of SE types:
– Securitization structured entities are established to issue
securities to investors which are backed by assets held by the
SE and whereby (i) significant credit risk associated with the
securitized exposures has been transferred to third parties and
(ii) there is more than one risk position or tranche issued by the
securitization vehicle in line with the Basel III securitization
definition. All securitization entities are classified as SE.
– Client investment structured entities are established predomi-
nantly for clients to invest in specific assets or risk exposures
through purchasing notes issued by the SE, predominantly on
a fixed term basis. The SE may source assets via a transfer from
UBS or through an external market transaction. In some cases,
UBS may enter into derivatives with the SE to either align the
cash flows of the entity with the investor’s intended invest-
ment objective or to introduce other desired risk exposures. In
certain cases, UBS may have interests in a third-party spon-
sored SE to hedge specific risks or participate in asset-backed
financing.
– Investment fund structured entities have a collective invest-
ment objective, are managed by an investment manager and
are either passively managed, such that any decision-making
does not have a substantive effect on variability, or are actively
managed and investors or their governing bodies do not have
substantive voting or similar rights. UBS creates and sponsors a
large number of funds for which it may have an interest
through the receipt of variable management fees and / or a
direct investment. In addition, UBS has interests in a number
of funds created and sponsored by third parties, including
exchange-traded funds and hedge funds, to hedge issued
structured products.
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
recognized at fair value at the acquisition date. If the contingent
consideration is classified as an asset or liability, subsequent
changes in the fair value of the contingent consideration are rec-
ognized in the income statement. If the contingent consideration
is classified as equity, it is not remeasured and its subsequent set-
tlement is accounted for within Equity.
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 con-
sidered goodwill and is recognized as a separate asset on the
balance 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 in-
come statement on the acquisition date.
Refer to Note 31 for more information on business combina-
tions completed during 2013.
360
Note 1 Summary of significant accounting policies (continued)
4) Associates and joint ventures
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
recorded at cost, and the carrying amount is increased or de-
creased 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 joint ventures are
also accounted for under the equity method of accounting. A
joint venture is subject to a contractual agreement between UBS
and one or more third parties, which establishes joint control
over the relevant activities and provides rights to the net assets of
the entity. Interests in joint ventures are classified as investments
in associates.
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
equity 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 joint ventures are
classified as “held for sale” if their carrying amount will be recov-
ered principally through a sale transaction rather than through
continuing use. Refer to item 29) for more information.
Refer to Note 30 for more information on associates and joint
ventures.
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 also acts in a trustee or other fiduciary capacity,
which results in the holding or placing of assets on behalf of indi-
viduals, trusts, retirement benefit plans and other institutions. Un-
less the recognition criteria are satisfied, these assets and the re-
lated 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 substantially all of the risks and rewards are re-
tained, the transferred financial assets are not derecognized
from the balance sheet. Transactions where transfers of finan-
cial assets result in UBS retaining all or substantially all risks and
rewards include securities lending and repurchase transactions
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 sub-
stantially 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
asset is surrendered. The rights and obligations retained in the
transfer are recognized separately as assets and liabilities, respec-
tively. In transfers where control over the financial asset is re-
tained, the Group continues to recognize the asset to the extent
of its continuing involvement, determined by the extent to which
it is exposed to changes in the value of the transferred asset. Ex-
amples of such transactions include written put options, acquired
call options, or other instruments linked to the performance of
the transferred asset.
For the purposes of the Group’s disclosures of transferred
financial 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 contractual rights to receive the cash flows of that asset, but
assumes a contractual obligation to pay the cash flows to one or
more entities.
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 repledge 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.
Refer to Note 25b and 25c for more information on transferred
finan cial assets.
Financial liabilities
UBS derecognizes a financial liability from its balance sheet
when it is extinguished, i.e., when the obligation specified in
the contract is discharged, cancelled or expired. When an exist-
ing financial liability is exchanged for a new one from the same
lender on substantially different terms, or the terms of an exist-
ing liability are substantially modified, such an exchange or
modification is treated as the derecognition of the original liabil-
ity and the recognition of a new liability with any difference in
the respective carrying amounts being recognized in the income
statement.
6) Determination of fair value
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Determination
of fair value is considered a critical accounting policy for the
Group.
Refer to Note 24 for more information.
361
Financial information Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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 that 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) for more information. The trading portfolio includes rec-
ognized assets and liabilities relating to proprietary-, hedging- and
client-related business.
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 in-
come. The corresponding receivable or payable is presented on
the balance sheet as a Positive replacement value or Negative re-
placement 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 derecog-
nized.
Trading portfolio assets transferred to external parties that do
not qualify for derecognition (refer to item 5) for more informa-
tion) and where the transferee has obtained the right to sell or
repledge the assets continue to be classified on the UBS balance
sheet as Trading portfolio assets but are identified as Assets
pledged as collateral which may be sold or repledged by counter-
parties. Such assets continue to be measured at fair value.
Refer to Note 13 for more information on trading portfolio as-
sets and liabilities.
8) Financial assets and financial liabilities designated at fair value
through profit or loss, (“fair value option”)
A financial instrument may only be designated at fair value
through profit or loss upon initial recognition and this designa-
tion cannot be changed subsequently. Financial assets and finan-
cial liabilities designated at fair value are presented on separate
lines on the face of the balance sheet. The fair value option can
be applied only if one of the following criteria is met:
– the financial instrument is a hybrid instrument which includes
a substantive embedded derivative;
– 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 sig-
nificantly reduces an accounting mismatch that would other-
wise 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 and / or are managed
on a fair value basis. Such hybrid debt instruments predominantly
include 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 and
– 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
commitments, 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 com-
mitments reduces an accounting mismatch, as the credit deriva-
tives are accounted for as derivative instruments at fair value
through profit or loss.
In order to reduce an accounting mismatch, UBS has also ap-
plied the fair value option to certain structured loans and reverse
repurchase 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
362
Note 1 Summary of significant accounting policies (continued)
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.
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) for
more information.
Refer to Notes 3, 20, 24e and 27d for more information on
finan cial assets and liabilities designated at fair value.
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 multi-currency portfolio of unencumbered,
high-quality, short-term assets managed centrally by Group Trea-
sury, strategic equity investments, certain investments in real es-
tate funds, certain equity instruments including private equity in-
vestments, and debt instruments and non-performing loans
acquired in the secondary market.
Financial investments available-for-sale are recognized initially
at fair value less transaction costs and are measured subsequently
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 investment is
determined to be impaired. Unrealized gains before tax are pre-
sented separately from unrealized losses before tax in Note 15.
For monetary instruments (such as debt securities), foreign ex-
change translation gains and losses determined by reference to
the instrument’s amortized cost basis are recognized in Net trad-
ing income. Foreign exchange translation gains and losses related
to other changes in fair value are recognized in Other comprehen-
sive income. Foreign exchange translation gains and losses associ-
ated with non-monetary instruments (such as equity securities)
are part of the overall fair value change of the instruments 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).
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 indicators of
impairment are present for an available-for-sale investment. An
available-for-sale investment is impaired when there is objective
evidence that, as a result of one or more events that occurred after
the initial recognition of the investment, the estimated future cash
flows from the investment have decreased. A significant or pro-
longed decline in the fair value of an available-for-sale equity instru-
ment 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 im-
pairment 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 it be-
coming probable that the borrower will enter bankruptcy or finan-
cial reorganization. If a financial investment available-for-sale is
determined to be impaired, the related cumulative net unrealized
loss previously recognized in Equity is included in the income state-
ment 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 instru-
ments up to amortized cost in original currency are recognized in
Other income, provided that the fair value increase is related to an
event occurring after the impairment loss was recorded.
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) for more informa-
tion), except that unrealized gains and losses between trade date
and settlement date are recognized in Equity rather than in the
income statement.
Refer to Note 15 for more information on financial investments
available-for-sale.
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 as-
sets 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 bor-
rower;
– participation in a loan from another lender and purchased loans;
– 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 27c for more information) and
– loans such as leverage finance loans previously in the trading
portfolio and reclassified to loans and receivables (refer to
Note 27c for more information).
363
Financial information Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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 credit losses. Refer to item 11) for information on allow-
ances for credit losses and to Note 27a for an overview of the fi-
nancial assets classified as loans and receivables.
Interest on loans and receivables is included in Interest earned
on loans and advances and is recognized on an accrual basis.
Upfront fees and direct costs relating to loan origination, re-
financing or restructuring as well as to loan commitments are
generally deferred and amortized to Interest earned on loans and
advances over the life of the loan using the EIR method. Where
no loan is expected to 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 and
– 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 in-
come when the services have been provided.
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.
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
income 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
of approximately twelve months from the reclassification. There-
fore, these assets were reclassified from held for trading to loans
and receivables (refer to Note 27c for more information).
Renegotiated loans
A renegotiated or restructured loan is a loan for which the terms
have been modified or for which additional collateral has been
requested 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
interest rates, postponement of interest or amortization pay-
ments, modification of the schedule of repayments or amend-
ment 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.,
additional collateral is provided by the client, or new terms and
conditions 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 likely
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) has been changed by
10% or more, or there has been a significant change in the risk
profile of the loan.
If a loan is derecognized in these circumstances, the new loan
is measured at fair value at initial recognition. Any allowance
taken to date against the original loan is eliminated and is not at-
tributed to the new loan. Consequently, the new loan is not con-
sidered 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 thereof) on a claim based on the
original contractual terms due to credit deterioration of the issuer
or counterparty. A “claim” means a loan or receivable carried at
amortized cost, or a commitment such as a letter of credit, a guar-
antee, or another similar instrument. Objective evidence of im-
pairment includes significant financial difficulty for the issuer or
counterparty, default or delinquency in interest or principal pay-
ments, or it becoming probable that the borrower will enter bank-
ruptcy or financial reorganization.
364
Note 1 Summary of significant accounting policies (continued)
An allowance for credit losses is reported as a reduction of the
carrying value of a claim on the balance sheet. For an off-balance-
sheet item, such as a commitment, a provision for credit loss is
reported in Provisions. Changes to allowances and provisions for
credit losses are recognized as 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 and capacity, resources and payment re-
cord, the prospects for support from any financially responsible
guarantors and, where applicable, the realizable value of any col-
lateral. The estimated recoverable amount is the present value,
using the claim’s original EIR, of expected future cash flows in-
cluding amounts that may result from restructuring or the liquida-
tion of collateral. If a loan has a variable interest rate, the discount
rate for measuring any impairment loss is the current EIR. Impair-
ment is measured and allowances for credit losses are established
based on the difference between the carrying amount and the
estimated recoverable amount. Upon impairment, the accrual of
interest income based on the original terms of the loan is discon-
tinued. 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 im-
pairment 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, when
insolvency proceedings have commenced, or when obligations
have been restructured on concessionary terms. Loans are evalu-
ated individually for impairment when amounts have been over-
due by more than 90 days, or sooner if other objective evidence
indicates that a loan may be impaired.
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
financial asset is impaired, it is removed from the group of finan-
cial assets assessed for impairment on a collective basis and is
assessed 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 re-
ceivables in accordance with the requirements in item 10) and
other similar assets acquired subsequently are revised periodical-
ly. Adverse revisions in cash flow estimates related to credit
events are recognized in the income statement as Credit loss ex-
pense. For reclassified securities, increases in estimated future
cash receipts, as a result of increased recoverability over those
expected at the time of reclassification, are recognized as an ad-
justment to the EIR on the loan from the date of change (refer to
Note 27c for more information).
Refer to Note 12 for more information on allowances and pro-
visions for credit loss.
12) Securitization structures set up by UBS
UBS securitizes certain financial assets, generally selling Trading
portfolio assets to SE which issue securities to investors. UBS ap-
plies the policies set out in item 3) in determining whether the
respective SE must be consolidated 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.
Collectively: All loans for which no impairment is identified at a
counterparty-specific level are grouped on the basis of the Group’s
Gains or losses related to the sale of Trading portfolio assets
involving a securitization are generally recognized when the
365
Financial information Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
derecognition criteria are satisfied with the gain or loss being
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 collateral
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 securitizations,
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 quotations where
available or internal pricing models that utilize variables such as
yield curves, prepayment speeds, default rates, loss severity, inter-
est rate volatilities and spreads. Where possible, assumptions
based on observable transactions are used to determine the fair
value of retained interests, but for some interests substantially no
observable information is available.
Refer to Note 30c for more information on the Group’s involve-
ment with securitization entities.
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.
Cash collateral received is recognized with a corresponding ob-
ligation to return it (Cash collateral on securities lent) and cash
collateral delivered is derecognized and a corresponding receiv-
able reflecting UBS’s right to receive it back is recorded (Cash col-
lateral on securities borrowed). The securities which have been
transferred are not recognized on, or derecognized from, the bal-
ance sheet unless the risks and rewards of ownership are also
transferred. Refer to item 5) for more information. UBS-owned
securities transferred to a borrower that is granted the right to sell
or repledge those transferred 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
repledge them, with additional disclosure provided for securities
that UBS has actually resold or repledged. The sale of securities
which is settled by delivering securities received in a borrowing 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 re-
ceive) the securities are recognized on the balance sheet, as the
derecognition criteria are not met. Refer to item 5) for more infor-
mation.
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.
Refer to Notes 11, 25 and 26 for more information on securi-
ties borrowing and lending.
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 derec-
ognized and a corresponding receivable, including accrued inter-
est, is recorded in the balance sheet line Reverse repurchase
agreements, recognizing UBS’s right to receive the cash back. In a
repurchase agreement, the cash received is recognized and a cor-
responding obligation, including accrued interest, is recorded in
the balance sheet line Repurchase agreements. Securities received
under reverse repurchase agreements and securities delivered
under repurchase agreements are not recognized on or derecog-
nized from the balance sheet, unless the risks and rewards of
ownership are transferred. UBS-owned securities transferred to a
recipient that is granted the right to resell or repledge them 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 repledge them, with additional
disclosure provided for securities that UBS has actually resold or
repledged (refer to Note 25 for more information). Additionally,
the sale of securities which is settled by delivering securities re-
366
Note 1 Summary of significant accounting policies (continued)
ceived 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 generally offsets reverse repurchase agreements
and repurchase agreements with the same counterparty, maturity,
currency and Central Securities Depository (CSD) in accordance
with the relevant accounting requirements. Refer to item 35) for
more information.
Refer to Notes 11, 25 and 26 for more information on repur-
chase and reverse repurchase transactions.
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 as de-
scribed within this item.
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 receiv-
ables on derivative instruments or Cash collateral payables on de-
rivative instruments. They are not classified within replacement
values because the change in fair value of these instruments is
settled each day, either in fact or in substance, through the cash
payment of variation margin. Products that receive this treatment
are futures contracts, 100% daily margined exchange-traded op-
tions, 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 hedging instru-
ments in certain types of hedge accounting relationships.
Refer to Note 14 for more information on derivative instru-
ments and hedge accounting.
Hedge accounting
The Group uses derivative instruments as part of its risk manage-
ment activities to manage exposures particularly to interest rate
and foreign currency risks, including exposures arising from fore-
cast 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 rec-
ognized assets or liabilities (“fair value hedges”), hedges of the
variability in future cash flows attributable to a recognized 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
relationship, the Group formally documents the relationship be-
tween the hedging instrument(s) and hedged item(s), including
the risk management objectives and strategy in undertaking the
hedge transaction and the methods that will be used to assess
the effectiveness of the hedging relationship. Accordingly, the
Group assesses, both at the inception of the hedge and on an
ongoing basis, whether the hedging instruments, primarily de-
rivatives, have been “highly effective” in offsetting changes in
the fair value or cash flows associated with the designated risk of
the hedged items. A hedge is considered highly effective if the
following criteria are met: a) at inception of the hedge and
throughout its life, the hedge is expected to be highly effective in
achieving offsetting changes in fair value or cash flows attribut-
able 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 trans action must have a high probability of oc-
curring and must present an exposure to variations in cash flows
that could ultimately affect the reported net profit or loss. The
Group discontinues hedge accounting voluntarily, or when the
Group determines that a hedging instrument is not, or has ceased
to be, highly effective as a hedge, when the derivative expires or
is sold, terminated or exercised, 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 in
the present value of (expected) future cash flows of the hedged
item. Such ineffectiveness is recorded in current period earnings
in Net trading income. Interest income and expense on derivatives
designated as hedging instruments in effective hedge relation-
ships is included in Net interest income.
Fair value hedges
For qualifying fair value hedges, the change in the fair value of the
hedging instrument is recognized in the income statement along
with the change in the fair value of the hedged item that is at-
tributable to the hedged risk. In fair value hedges of interest rate
risk, the fair value change of the hedged item attributable to the
hedged risk is 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
between the carrying value of the hedged item at that point and
the value at which it would have been carried had the hedge
never existed (the “unamortized fair value adjustment”) is amor-
tized to the income statement over the remaining term to matu-
rity of the hedged item.
For a portfolio hedge of interest rate risk, the equivalent
change in fair value is reflected within Other assets or Other liabil-
367
Financial information Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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 pre-
viously reported in Equity remain there until the committed or
forecasted transactions occur and affect profit or loss. If the fore-
casted transactions are no longer expected to occur, the deferred
gains or losses are reclassified 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
instrument relating to the effective portion of the hedge are rec-
ognized directly in Equity (and presented in the statement of
changes in equity and statement of comprehensive income under
Foreign currency translation), while any gains or losses relating to
the ineffective and / or undesignated portion (for example, the
interest element of a forward contract) are recognized in the
income statement. Upon loss of control of the foreign operation
or its liquidation, the cumulative value of any such gains or losses
associated with the entity, and recognized directly in Equity, is re-
classified to the income statement.
Economic hedges that do not qualify for hedge accounting
Derivative instruments that 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 certain short duration
foreign exchange contracts, which are reported in Net interest
income. Refer to Note 14 for more information on economic
hedges.
Embedded derivatives
Derivatives may be embedded in other financial instruments (“host
contracts”), for example, they could be represented by the conver-
sion feature embedded in a convertible bond. Such combinations
are known as hybrid instruments and arise predominantly from the
issuance of certain structured debt instruments. An embedded de-
rivative is generally required to be separated from the host contract
and accounted for as a standalone derivative instrument at fair val-
ue through profit or loss if: (i) the host contract is not carried at fair
value with changes in fair value reported in the income statement,
(ii) 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 (iii) the terms of the embedded derivative
would meet the definition of a standalone derivative were they con-
tained in a separate contract. Bifurcated embedded derivatives are
presented on the same balance sheet line as the host contract, and
are shown in Note 27a in the “Held for trading” category, reflecting
the measurement and recognition principles applied.
Typically, UBS applies the fair value option to hybrid instru-
ments (refer to item 8) for more information), in which case bifur-
cation of an embedded derivative component is not required.
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 draw-
down by the counterparty, the amount of the loan is accounted
for in accordance with Loans and receivables. Refer to item 10) for
more information.
Irrevocable loan commitments (where UBS has no right to
withdraw the loan commitment once communicated to the ben-
eficiary, or which are revocable only due to automatic cancellation
upon 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;
– loan commitments designated at fair value through profit and
loss (refer to item 8) for more information) and
– 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) for more information.
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
368
Note 1 Summary of significant accounting policies (continued)
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) for more information. Financial guarantees that
are not managed on a fair value basis are initially recognized in
the financial statements at fair value. Subsequent to initial recog-
nition, these financial guarantees are measured at the higher of
the amount initially recognized less cumulative amortization, and
to the extent a payment under the guarantee has become prob-
able, the present value of the expected payment. Any change in
the liability relating to probable expected payments resulting from
guarantees is recorded in the income statement in Credit loss ex-
pense / recovery.
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 and other
commodities) held by UBS as a result of its broker-trader activities
are accounted for at fair value less costs to sell and recognized
within 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, investment
properties, leasehold improvements, information technology hard-
ware, 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
(which includes capitalized interest from associated borrowings,
where applicable), less accumulated depreciation and impairment
losses, and is reviewed periodically for impairment.
Refer to Note 16 for more information on property and equip-
ment.
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 ac-
counted for as own-used property and investment property. If
the portions cannot be sold separately, the whole property is
classified as own-used 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 investment property. Any gain arising on remea-
surement is recognized in profit or loss to the extent that it re-
verses a previous impairment loss on the specific property, with
any remaining gain recognized in Other comprehensive income
and presented in the revaluation 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
period of change.
Leasehold improvements
Leasehold improvements are investments made to customize
buildings and offices occupied under operating lease contracts
to make them suitable for their intended purpose. The present
value of estimated 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 corre-
sponding liability recognized to reflect the obligation incurred.
Reinstatement costs are recognized in profit and loss through
depreciation of the capitalized leasehold improvements over their
estimated useful lives 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 occur within 12 months, these assets are classified as non-
current assets held for sale and are reclassified to Other assets.
Upon classification as held for sale, they are no longer depreci-
ated 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 in property and equipment, together with pur-
chased 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.
369
Financial information Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Properties, excluding land
Leasehold improvements
Other machines and equipment
IT hardware and communication
equipment
Software
Not exceeding 67 years
Residual lease term
Not exceeding 10 years
Not exceeding 5 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.
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: (i) infra-
structure and (ii) 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
includes mainly intangible assets for client relationships, non-
compete agreements, favorable contracts, trademarks and trade
names acquired in business combinations.
Refer to Note 17 for more information on goodwill and intan-
gible assets.
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.
370
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 liabil-
ity 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 simul-
taneously.
Current and deferred taxes are recognized as income tax ben-
efit or expense in the income statement except for current and
deferred taxes recognized (i) upon the acquisition of a subsidiary,
(ii) for unrealized gains or losses on financial investments avail-
able-for-sale, for changes in fair value of derivative instruments
designated as cash flow hedges, for remeasurements of defined
benefit plans, and for certain foreign currency translations of for-
eign operations, (iii) for certain tax benefits on deferred compen-
sation 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 goodwill. Amounts
relating to points (ii), (iii) and (iv) are recognized directly in equity
as Other comprehensive income.
Refer to Note 8 for more information on income taxes.
23) Debt issued
Debt issued is carried at amortized cost. In cases where, as part of
the Group’s risk management 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
more information 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, that the structured notes contain an embedded
derivative, or both. Refer to item 8) for more information on the
fair value option. The fair value option is not applied to certain
structured notes that contain embedded derivatives that refer-
ence foreign exchange rates and / or precious metal prices. For
these instruments, the embedded derivative component is mea-
sured on a fair value basis and the related underlying debt host
component is measured on an amortized cost basis, with both
components presented together within Debt issued.
Debt issued and subsequently repurchased in relation to
market-making or other activities is treated as redeemed. A gain
or loss on redemption is recorded in Other income depending on
Note 1 Summary of significant accounting policies (continued)
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 more information 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.
Refer to Note 28 for more information on pension and other
post-employment benefit plans.
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 high-
er than the present value of the defined benefit obligation, the mea-
surement of the resulting defined benefit asset is limited to the pres-
ent value of economic benefits available in the form of refunds from
the plan or reductions in future contributions to the plan. UBS ap-
plies the projected unit credit method to determine the present val-
ue of its defined benefit obligations, the related current service cost
and, where applicable, past service cost. These amounts, which take
into account the specific features of each plan, including risk sharing
between the employee and employer, are calculated periodically by
independent qualified actuaries.
Defined contribution plans
A defined contribution plan is a pension plan under which UBS pays
fixed contributions into a separate entity from which post-employ-
ment and other benefits are paid. UBS has no legal or constructive
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 contributions are ex-
pensed when the employees have rendered services in exchange for
such contributions. This is generally in the year of contribution. Pre-
paid 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 appre-
ciation right (SAR) plans. UBS’s equity participation plans include
mandatory, 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 employee 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
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 fu-
ture 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
vesting structure, which vest at the end of a specified period.
Compensation 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
recognized over the period from grant date to the retirement eli-
gibility 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 compensa-
tion expense and, on a cumulative basis, no compensation ex-
pense is recognized for awards that expire worthless or remain
unexercised.
Refer to Note 29 for more information on the determination of
fair value of equity participation plans.
371
Financial information Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
Other compensation plans
UBS has established other fixed and variable deferred compensation
plans, the values of which are not linked to UBS’s own equity. De-
ferred cash compensation plans are either mandatory or discretion-
ary 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 retire-
ment eligible, including those employees who meet full career re-
tirement criteria, compensation expense 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 distributed to employees. For awards in the form of alter-
native investment vehicles or similar structures, which provide em-
ployees 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 recog-
nized proportionately to the elapsed service period. Forfeiture of
these awards results in the reversal of compensation expense.
Refer to Note 29 for more information on other compensation
plans.
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. These contracts
allow investors to invest in a pool of assets through issued invest-
ment units. The unit holders receive all rewards and bear all risks
associated with the reference asset pool. The financial liability rep-
resents 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.
visions, including those of less significant amounts, are presented
under Other provisions. Provisions are presented separately on the
balance sheet and, when they are no longer considered uncertain
in timing or amount, are reclassified to Other liabilities – Other.
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,
either through commencement of the plan or announcements to
affected employees.
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 Notes 13 and 23 for more information on unit-linked
Refer to Note 22 for more information on provisions.
investment contracts.
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, employee benefits, real estate
and loan commitments and guarantees. Provisions that are similar
in nature are aggregated to form a class, while the remaining pro-
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 and preferred noteholders
Net profit and Equity are presented including non-controlling in-
terests and preferred noteholders. Net profit is split into Net prof-
372
Note 1 Summary of significant accounting policies (continued)
it attributable to UBS shareholders, Net profit attributable to non-
controlling interests and Net profit attributable to preferred
noteholders. Equity is split into Equity attributable to UBS share-
holders, Equity attributable to non-controlling interests and Equi-
ty attributable to preferred noteholders.
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.
Preferred notes issued to non-consolidated preferred securities
entities
On 1 January 2013, UBS deconsolidated certain entities that is-
sued preferred securities which resulted in UBS recognizing the
subordinated notes (that is, the preferred notes) issued to these
entities rather than the preferred securities issued by them. Except
for one preferred note, which is presented as a liability, these are
presented as Equity attributable to preferred noteholders. UBS AG
has fully and unconditionally guaranteed all contractual payments
on the preferred securities. UBS’s obligations under these guaran-
tees are subordinated to the full prior payment of the deposit lia-
bilities of UBS and all other liabilities of UBS. Depending on
whether the preferred notes include a contractual obligation to
deliver cash, the preferred notes represent equity instruments or
liabilities which are held by third parties. For instruments classified
as equity, once a coupon payment becomes mandatory, that is,
when it is triggered by a contractually defined event, the full divi-
dend payment obligation on these preferred notes is reclassified
from Equity to a corresponding liability. In the income statement
the full dividend payment is reclassified from Net profit attribut-
able to UBS shareholders to Net profit attributable to preferred
noteholders at that time. For instruments classified as liabilities,
interest is accrued through the income statement and presented
within Net interest income.
29) Non-current assets held for sale
UBS classifies individual non-current assets and disposal groups as
held for sale if such assets or disposal groups are available for im-
mediate sale in their present condition subject to terms that are
usual and customary for sales of such assets or disposal groups and
their sale is considered highly probable. For a sale to be highly prob-
able, 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 with-
in one year. The assets held for sale and disposal groups are mea-
sured 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.
Refer to Note 18 for more information on non-current assets
held for sale.
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 33. These contracts include non-can-
cellable long-term leases of office buildings in most UBS locations.
373
Financial information Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
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 categories:
fees earned from services that are provided over a certain period of
time (for example, investment fund fees, portfolio management
and advisory fees) and fees earned from providing transaction-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 peri-
od, with the exception of performance-linked fees or fee compo-
nents 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 service has been completed. Gen-
erally, fees are presented in the income statement in line with the
balance sheet classification of the underlying instruments.
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.
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.
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.
Refer to Note 36 for more information on currency translation
rates.
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.
Refer to Note 4 for more information on net fee and commis-
Refer to Note 9 for more information on earnings per share.
sion income.
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-
34) Segment reporting
UBS‘s businesses are organized globally into five business divi-
sions: Wealth Management, Wealth Management Americas, Re-
tail & Corporate, Global Asset Management and the Investment
Bank, 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, the non-core activities and positions formerly in the In-
vestment Bank are managed and reported in the Corporate
374
Note 1 Summary of significant accounting policies (continued)
Center. Together with the Legacy Portfolio and the option to ac-
quire the equity of the SNB StabFund, which was exercised on
7 November 2013, these non-core activities and positions are re-
ported as a separate reportable segment within the Corporate
Center called “Non-core and Legacy Portfolio.” Financial informa-
tion about the five business divisions and the Corporate Center
(with its components) is presented separately in internal manage-
ment reports to the Group Executive Board, which is considered
the “chief operating decision maker” within the context of IFRS 8
Operating Segments.
The operating expenses of Corporate Center – Core Functions
are allocated, based on internally determined allocation bases, to
the reportable segments and presented under the appropriate
line items, that is, Personnel expenses, General and administrative
expenses, Depreciation and impairment of property and equip-
ment and Amortization and impairment of intangible assets.
These allocations 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 Func-
tions. UBS’s internal accounting policies, which include manage-
ment accounting policies and service level agreements, determine
the revenues and expenses directly attributable to each reportable
segment. Internal charges and transfer pricing adjustments are
reflected in operating results of the reportable segments. Transac-
tions between the reportable segments are carried out at inter-
nally agreed rates or at arm’s length and are also reflected in the
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 generally allocated to the reportable
segments based on their balance sheet positions. Assets and lia-
bilities of the reportable segments are funded through and in-
vested with Group Treasury, and the net interest margin is reflect-
ed in the results of each reportable segment. Interest income
earned from managing UBS’s consolidated equity is allocated to
the reportable segments based on average attributed equity.
In line with internal management reporting, segment assets
are reported without intercompany balances on a third-party view
basis. For the purpose of segment reporting under IFRS 8, the
non-current assets consist of investments in associates and joint
ventures, goodwill, other intangible assets and property and
equipment.
Refer to Note 2 for more information on segment reporting.
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, over-the-counter interest rate swaps trans-
acted with the London Clearing House, netted by currency and
across maturity dates, repurchase and reverse repurchase transac-
tions entered into with both the London Clearing House and the
Fixed Income Clearing Corporation, netted by counterparty, cur-
rency, central securities depository and maturity, as well as trans-
actions with various other counterparties, exchanges and clearing
houses.
Refer to Note 26 for more information on offsetting financial
assets and financial liabilities.
b) Changes in accounting policies, comparability and other adjustments
Effective in 2013
IFRS 7 Financial Instruments: Disclosures
In December 2011, the IASB issued revised IFRS 7 Financial Instru-
ments: Disclosures, requiring the disclosure of new information in
respect of an entity’s use of enforceable netting arrangements.
The amendments to IFRS 7 are intended to enable users of finan-
cial statements to better evaluate the effect or potential effect of
netting arrangements on the entity’s financial position. The
amendments require entities to disclose both gross and net
amounts of recognized financial assets and liabilities associated
with master netting agreements and similar arrangements, in-
cluding the effects of financial collateral, whether or not present-
ed net on the face of the balance sheet.
UBS adopted the revisions to IFRS 7 as of 1 January 2013 in
accordance with the transitional provisions set out in the standard
and the resultant disclosures are reflected in Note 26.
IFRS 10 Consolidated Financial Statements
In May 2011, the IASB issued IFRS 10 Consolidated Financial
Statements. In October 2012, the IASB issued Investment Entities
(Amendments to IFRS 10, IFRS 12 and IAS 27) which provide an
exception to consolidation for certain “investment entities.” IFRS
10 establishes a single control-based model for assessing whether
one entity should consolidate another, applying to all types of
entities and replacing SIC 12 Consolidation – Special Purpose Enti-
ties, and the consolidation principles within IAS 27 Consolidated
and Separate Financial Statements, which has been renamed IAS
375
Financial information Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
IFRS 10: Effect on Total comprehensive income
Effect on net profit
Effect on other comprehensive income
CHF million
As previously reported for the
year ended 31 December 2012
Net
interest
income
Net fee
and com-
mission
income
Net
trading
income
5,994
15,405
3,480
Changes in reported figures for the year
(16)
(8)
46
Other
income
Net
profit
682
(41)
(2,235)
(20)
Restated amount for the year
ended 31 December 2012
5,978
15,396
3,526
641
(2,255)
Net profit
attribut-
able to
preferred
note-
holders
Net profit
attribut-
able to
non-con-
trolling
interests
Net profit
attribut-
able
to UBS
share-
holders
Unrealized
gains / (losses)
on financial
investments
available-for-sale,
net of tax
Foreign
curency
trans-
lation
move-
ment,
net of tax
Other
compre-
hensive
income
Total
compre-
hensive
income
0
220
220
276
(271)
(2,511)
31
5
(2,480)
14
12
26
(544)
7
469
18
(1,766)
(2)
(537)1
487
(1,767)
1 Of which CHF (511) million was attributable to UBS shareholders, CHF (41) million attributable to preferred noteholders and CHF 15 million attributable to non-controlling interests.
27 Separate financial Statements. Refer to Note 1a) 3) for further
information.
which is classified as a liability, UBS presents the preferred notes
as equity attributable to preferred noteholders.
On 1 January 2013, UBS adopted IFRS 10, resulting in a change
in the consolidation status of certain entities. The Group consoli-
dated certain investment funds where UBS’s exposure to variabil-
ity indicates that its power as fund manager is in a principal ca-
pacity. In addition, UBS deconsolidated certain entities that were
previously consolidated due to UBS’s exposure to a majority of risk
and rewards, but where UBS does not have the ability to direct the
relevant activities. UBS also deconsolidated certain entities where
UBS’s involvement does not expose it to variable returns from the
entity. This includes entities that issue preferred securities, the de-
consolidation of which results in UBS recognizing the preferred
notes issued to these entities instead of the preferred securities
which were presented as equity attributable to non-controlling
interests. Except for one preferred note issuance of CHF 1.2 billion
UBS adopted IFRS 10 on a limited retrospective basis. The com-
parative 31 December 2012 balance sheet and other primary
statements for the period ending 2012 have been restated to re-
flect the effects of adopting IFRS 10. The transition effects on the
opening equity balance as of 1 January 2012 are presented in the
Statement of changes in equity. No balance sheet as of the begin-
ning of 2012 has been presented under IFRS 10 as adoption was
not deemed to have a material impact on the Financial State-
ments. In addition, periods prior to 2012 are not required to be
restated and are therefore presented on the basis of IAS 27 and
SIC 12. Where a change in consolidation status was warranted,
the financial results in 2012 have been restated to reflect the ap-
propriate consolidation status as of the date that UBS obtained or
lost control of the respective entity. No adjustments have been
IFRS 10: Effect on the balance sheet
CHF million
Total assets
of which: Positive replacement values
Total liabilities
of which: Due to customers
of which: Repurchase agreements
of which: Financial liabilities designated at fair value
Total equity
of which: equity attributable to UBS shareholders
of which: equity attributable to preferred noteholders
of which: equity attributable to non-controlling interests
Total liabilities and equity
376
Balance as of
31 December 2012
previously reported
Change in
reported figures
Restated
balance as of
31 December 2012
1,259,232
418,029
1,208,983
371,892
37,639
92,878
50,249
45,895
0
4,353
1,259,232
565
928
1,714
1,567
918
(977)
(1,149)
54
3,109
(4,311)
565
1,259,797
418,957
1,210,697
373,459
38,557
91,901
49,100
45,949
3,109
42
1,259,797
Note 1 Summary of significant accounting policies (continued)
made for entities where, at the date of initial application, the con-
solidation status is unchanged from that under IAS 27 or SIC 12.
The effect of adoption is shown in the tables on the previous
page. There was no material impact on earnings per share.
ments in Associates by incorporating the accounting for joint ven-
tures. UBS adopted the IAS 28 amendments on the mandatory
effective date of 1 January 2013 and the new standard had no
impact on the Financial Statements.
The October 2012 amendments for investment entities had no
impact on the Financial Statements as UBS Group does not itself
meet the definition of an investment entity.
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 standard provides guidance on how to account for joint opera-
tions and joint ventures, considering the rights, obligations and le-
gal form of the arrangement, with both defined as types of joint
arrangements. The standard also addresses inconsistencies in the
reporting of joint ventures by eliminating the proportionate con-
solidation approach and requiring that an investment be accounted
for under the equity method under IAS 28. UBS adopted IFRS 11 on
its mandatory effective date of 1 January 2013. As UBS already ap-
plies the equity method to account for its interests in joint ventures,
the new standard had no impact on the Financial Statements.
IFRS 12 Disclosure of Interests in Other Entities
In May 2011, the IASB issued IFRS 12 Disclosure of Interests in
Other Entities, which provides new and comprehensive annual
disclosure requirements about entities with which a reporting en-
tity is involved. IFRS 12 replaces the disclosure requirements previ-
ously included in IAS 27 Consolidated and Separate Financial
Statements, IAS 28 Investment in Associates and IAS 31 Interests
in Joint Ventures. The standard requires entities to disclose infor-
mation that helps users to evaluate the nature, risks and financial
effects associated with a reporting entity’s interests in subsidiaries,
associates, joint arrangements and, in particular, unconsolidated
SE. UBS adopted the revised standard on its mandatory effective
date of 1 January 2013 in accordance with the transitional provi-
sions of the standard and the resultant disclosures are reflected in
Note 30.
IAS 27 Separate Financial Statements
In May 2011, the IASB issued IAS 27 Separate Financial State-
ments, which amended and renamed IAS 27 Consolidated and
Separate Financial Statements. The amendments resulted from
the issuance of IFRS 10 Consolidated Financial Statements as stat-
ed above. As a result, IAS 27 now contains requirements relating
to separate financial statements only. UBS adopted the IAS 27
amendments on their mandatory effective date of 1 January 2013
and the new standard had no impact on the Financial Statements.
IAS 28 Investments in Associates and Joint Ventures
In May 2011, the IASB issued IAS 28 Investments in Associates
and Joint Ventures, which amended and renamed IAS 28 Invest-
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
reports 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, which are reflected in
Note 24.
IFRS 13 became effective for the Group on 1 January 2013 and
has been applied prospectively from that date. As a result of im-
plementing the unit of measurement guidance of the standard,
the Group’s valuation reserves increased by approximately CHF
25 million as of 1 January 2013, decreasing operating profit be-
fore tax in 2013. In conjunction with the implementation of IFRS
13, the Group has refined its methodologies for estimating the
sensitivity of fair value measurements to changes in unobservable
valuation input assumptions. As a result, the 31 December 2012
comparative figures in Note 24i have been restated from CHF
1.2 billion to CHF 1.8 billion for favorable changes and from CHF
1.2 billion to CHF 1.4 billion for unfavorable changes.
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 com-
prehensive 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. UBS adopted the re-
vised standard on its mandatory effective date of 1 January 2013
and continues to provide two consecutive statements. The pre-
sentation in the statement of comprehensive income was revised
in line with the new requirements.
IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
(Amendment to IAS 36 Impairment of Assets)
In May 2013, the IASB published Recoverable Amount Disclosures
for Non-Financial Assets (Amendments to IAS 36, Impairment of
Assets) requiring disclosure, for a non-financial asset or a cash
377
Financial information Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
generating unit for which an impairment loss was recognized or
reversed, of its recoverable amount and, if this was determined
based on fair value less costs of disposal, additional fair value in-
formation. UBS early adopted the narrow-scope amendments as
of 31 December 2013, ahead of their mandatory effective date of
1 January 2014, in accordance with the transitional provisions of
the amendments, with no material impact on the Financial State-
ments. Refer to Notes 16 and 17 for more information.
Annual Improvements to IFRSs 2009 – 2011
In May 2012, the IASB issued six amendments to five IFRSs as part
of its annual improvements project. Of these amendments, UBS
adopted the amendment to IAS 1 in 2012, ahead of its manda-
tory effective date of 1 January 2013 in accordance with the tran-
sitional provisions of the standard. UBS adopted the remaining
amendments as of 1 January 2013 with no material impact on the
Financial Statements.
IAS 1 Comparative Information
In line with the IAS 1 comparative period requirements which UBS
adopted in 2012, UBS will no longer present a second compara-
tive balance sheet unless it is required to do so as a consequence
of a retrospective restatement or reclassification. For the year
ended 31 December 2013, the Group is not required to present
an additional balance sheet and therefore only one comparative
balance sheet is disclosed as of 31 December 2012.
Corporate Center – Non-core and Legacy Portfolio
In line with our strategy to focus the Investment Bank’s business
on its traditional strengths, UBS is exiting many business lines
which are capital- and balance sheet-intensive or are in areas with
high operational complexity or long tail risks. In 2013, these non-
core activities and positions formerly in the Investment Bank were
transferred to and are now managed and reported in the Corpo-
rate Center. Together with the Legacy Portfolio and the option to
acquire the equity of the SNB StabFund, which was exercised on
7 November 2013, these non-core activities and positions are re-
ported as a separate reportable segment within the Corporate
Center called “Non-core and Legacy Portfolio.” Prior period seg-
ment information was restated for this change. As a result, total
assets of the Investment Bank as of 31 December 2012 decreased
by CHF 390 billion, full year 2012 operating income decreased by
CHF 1,147 million and full year 2012 operating expenses de-
creased by CHF 4,341 million, resulting in an overall increase in
full year 2012 operating profit before tax of CHF 3,194 million,
with corresponding movements in Corporate Center – Non-core
and Legacy Portfolio. This restated information is not representa-
tive of the way the business was managed during those prior pe-
riods and as such is an estimate of such periods’ performance.
Amounts were determined reflecting a number of assumptions
and allocations in order to achieve comparability with how the
business would be managed in the future.
378
Other transfers between reporting segments
The repurchase agreement and short-term interest rate cash
units were transferred from the Investment Bank to the Asset
Liability Management unit of Group Treasury within Corporate
Center – Core Functions in 2013. Following this transfer, the As-
set Liability Management unit oversees all financing, portfolio,
and structural risk management activities for the Group. Reve-
nues associated with the ongoing business activities of Asset
Liability Management are allocated to the business divisions and
Non-core and Legacy Port folio, with the exception of excess
funding costs. Prior period segment information was restated for
this change. As a result, total assets of the Investment Bank as of
31 December 2012 decreased by CHF 20 billion, full year 2012
operating income decreased by CHF 314 million and full year
operating expenses decreased by CHF 113 million, resulting in an
overall decrease in full year operating profit before tax of CHF
201 million, with corresponding increases in Corporate Center –
Core Functions. This restated information is only an estimate of
such periods’ performance.
In 2013, the risk management responsibility for a portfolio of
financial investments available-for-sale and associated cash and
balances with central banks was transferred from Wealth Manage-
ment Americas to Group Treasury within Corporate Center – Core
Functions. Following this transfer, net interest income associated
with that portfolio has been allocated back to Wealth Manage-
ment Americas, whereas realized gains and losses arising from the
sales and impairments of individual financial investments are re-
tained by Group Treasury. Prior period segment information was
restated for this change. As a result, total assets of Wealth Man-
agement Americas as of 31 December 2012 decreased by CHF 20
billion and full year 2012 non-interest income decreased by CHF
220 million, with corresponding increases in Corporate Center –
Core Functions.
Definition of restructuring charges
In 2013, UBS expanded its definition of restructuring charges to
include non-recurring and other temporary costs necessary to
effect its restructuring programs. Refer to Note 32 for more infor-
mation.
Accrued income and prepaid expenses, accrued expenses and
deferred income
Starting with the fourth quarter of 2013, Accrued income and
prepaid expenses as well as Accrued expenses and deferred in-
come are no longer presented as separate line items in the bal-
ance sheet but under Other assets and Other liabilities, respec-
tively. Comparative information was adjusted accordingly. Refer
to Notes 18 and 23 for more information. This change in presen-
tation did not impact net profit, total assets or total liabilities.
Note 1 Summary of significant accounting policies (continued)
c) International Financial Reporting Standards and Interpretations to be adopted in 2014 and later and other adjustments
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, except equity instru-
ments, to be classified at fair value through profit or loss or amor-
tized 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 mea-
sured at amortized cost, it can be designated at fair value through
profit or loss under the fair value option if doing so would signifi-
cantly reduce or eliminate an accounting mismatch. Equity instru-
ments 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: any gain or loss arising on a financial liability
designated at fair value through profit or loss that is attributable
to changes in the credit risk of that liability (own credit) is pre-
sented in OCI and not recognized in profit or loss. There is no
subsequent recycling of realized gains or losses from OCI to profit
or loss.
In November 2013, the IASB issued IFRS 9 Financial Instru-
ments (Hedge accounting and amendments to IFRS 9, IFRS 7 and
IAS 39). This standard contains guidance on hedge accounting
that will replace the existing requirements of IAS 39, introducing
substantial changes to hedge effectiveness and eligibility require-
ments as well as new disclosures. The amendments also remove
the previous mandatory effective date of 1 January 2015 for all of
the IFRS 9 requirements, with a final effective date to be decided
upon when the project is closer to completion. Subsequently, the
IASB has tentatively decided that the mandatory effective date
will be for annual periods beginning on or after 1 January 2018.
The standard further amends IFRS 9 to permit entities to early
adopt the own credit presentation changes without having to ap-
ply any of the other requirements of IFRS 9.
UBS is currently assessing the impact of the new requirements
on the Financial Statements.
Offsetting Financial Assets and Financial Liabilities (Amendments
to IAS 32)
In December 2011, the IASB issued Offsetting Financial Assets
and Financial Liabilities (Amendments to IAS 32, Financial Instru-
ments: Presentation). The amendments to IAS 32 restrict offset-
ting on the balance sheet to only those arrangements in which an
offsetting right exists that is unconditional and legally enforce-
able, both in the normal course of business and in the event of
default, bankruptcy or insolvency of the entity and all of the coun-
terparties. The amendments also provide incremental guidance
for determining when gross settlement systems result in the func-
tional equivalent of net settlement.
Upon adoption as of 1 January 2014, UBS expects, based on
current assumptions, that certain derivative arrangements will no
longer qualify for offset. Consequently, had the amendments
been effective as of 31 December 2013, total assets and liabilities
would increase by approximately CHF 10 billion, with no impact
on total equity or net profit. UBS’s Basel III capital, capital ratios
and Swiss SRB leverage ratio are not expected to be significantly
impacted. Some application issues are in the process of being re-
solved, hence, the actual impact may be different from that cur-
rently estimated.
Novation of Derivatives and Continuation of Hedge Accounting
(Amendments to IAS 39)
In June 2013, the IASB issued Novation of Derivatives and Con-
tinuation of Hedge Accounting (Amendments to IAS 39, Finan-
cial Instruments: Recognition and Measurement) to provide relief
from discontinuing hedge accounting when a derivative desig-
nated as a hedging instrument is novated to effect clearing with
a central counterparty as a result of laws and regulations, pro-
vided certain criteria are met. The amendment is applicable retro-
spectively and is effective on 1 January 2014. Adoption of the
amendment will not have a material impact on the Financial
Statements.
IFRIC Interpretation 21, Levies
In May 2013, the IASB issued IFRIC Interpretation 21, Levies. IFRIC
21 sets out the accounting for an obligation to pay a government
levy that is not within the scope of IAS 12, Income Taxes. The inter-
pretation specifies that liabilities for levies should not be recognized
prior to the occurrence of a specified triggering event, regardless of
whether an entity has no realistic ability to avoid the triggering
event. The interpretation is applicable retrospectively and is effec-
tive on 1 January 2014. Adoption of the interpretation will not
have a material impact on the Financial Statements.
Narrow-scope amendments to IAS 19 Employee Benefits
In December 2013, the IASB issued Defined Benefit Plans: Em-
ployee Contributions (Amendments to IAS 19, Employee Bene-
fits). The amendments offer an alternative, simplified treatment
for considering contributions from employees or third parties in
the calculation of the defined benefit obligation if the amount of
employee or third-party contributions is independent of the num-
379
Financial information Financial information
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies (continued)
ber of years of service. Under the alternative treatment, an entity
may recognize such contributions as a reduction in service cost in
the period in which the related service is rendered, instead of at-
tributing the contributions to the periods of service. This is appli-
cable for the Swiss pension plan, whereby UBS currently attributes
employee contributions to the periods of service in accordance
with the plan’s benefit formula. The amendments to IAS 19 are
applicable retrospectively, for UBS on 1 January 2015, with earlier
adoption permitted. UBS does not expect to apply the alternative
treatment introduced by this amendment to IAS 19.
Annual Improvements to IFRSs 2010 – 2012 Cycle and Annual
Improvements to IFRSs 2011 – 2013 Cycle
In December 2013, the IASB issued Annual Improvements to IFRSs
2010 – 2012 Cycle and Annual Improvements to IFRSs 2011 –
2013 Cycle that resulted in 12 amendments to nine IFRSs. Gener-
ally, the amendments are effective for UBS on 1 January 2015,
with early adoption permitted. UBS is currently assessing the im-
pact of the amendments on the Financial Statements.
Fair value measurements – funding valuation adjustments
UBS and, more broadly, other major dealers in derivatives, are cur-
rently analyzing how the costs and benefits of funding associated
with uncollateralized derivative receivables and payables can be
incorporated into their valuation techniques. Those costs and
benefits (referred to as “funding valuation adjustments“) differ
from credit valuation adjustments (CVA) and debit valuation ad-
justments (DVA) (refer to “Note 24 Fair value measurement’’), and
theoretically represent a spread over LIBOR to compensate for the
inherent cost of funding those uncollateralized derivative posi-
tions. Currently, there are diverse views within the industry as to
how such inputs should be quantified and applied. We expect to
incorporate funding valuation adjustments into our fair value
measurements, prospectively, as a change in accounting estimate,
possibly during 2014, when our analysis is completed and the re-
lated financial effects can be validated. Notably, our exposure to
un collateralized derivatives continues to reduce in line with the
accelerated implementation of our strategy to exit many of the
businesses with which they are associated.
380
Note 2a Segment reporting
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, Retail & Corporate, Global Asset Man-
agement and the Investment Bank.
across all major traditional and alternative asset classes including
equities, fixed income, currencies, hedge funds, real estate, infra-
structure and private equity that can also be combined into multi-
asset strategies. The fund services unit provides professional ser-
vices including fund set-up, accounting and reporting for both
traditional investment funds and alternative funds.
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 manage-
ment to estate planning and corporate finance advice, in addition
to specific wealth management products and services.
Wealth Management Americas
Wealth Management Americas provides advice-based solutions
and banking services 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 families. It includes the domestic US business, the
domestic Canadian business and international business booked in
the US.
Retail & Corporate
Retail & Corporate maintains a leading position across retail, cor-
porate and institutional client segments in Switzerland and con-
stitutes a central building block of UBS Switzerland’s pre-eminent
universal bank model. It provides comprehensive financial prod-
ucts and services embedded in a true multi-channel experience,
offering clients convenient access. It continues to enhance the
range of life-cycle products and services offered to clients, while
pursuing additional growth in advisory and execution services.
Global Asset Management
Global Asset Management is a large-scale asset manager with
diversified businesses across investment capabilities, regions and
distribution channels. It offers investment capabilities and styles
Investment Bank
The Investment Bank provides corporate, institutional and wealth
management clients with expert advice, innovative financial solu-
tions, outstanding execution and comprehensive access to the
world’s capital markets. It offers financial advisory and capital
markets, research, equities, foreign exchange, precious metals
and tailored fixed income services in rates and credit through its
two business units, Corporate Client Solutions and Investor Client
Services. The Investment Bank is an active participant in capital
markets flow activities, including sales, trading and market-mak-
ing across a range of securities.
Corporate Center
The Corporate Center comprises Corporate Center – Core Func-
tions and Corporate Center – Non-core and Legacy Portfolio.
Corporate Center – Core Functions provides Group-wide control
functions including finance, risk control (including compliance)
and legal. In addition, it provides all logistics and support func-
tions, including operations, information technology, human re-
sources, corporate development, regulatory relations and strate-
gic initiatives, communications and branding, corporate real
estate and administrative services, procurement, physical security,
information security, offshoring and treasury services such as
funding, balance sheet and capital management. Corporate
Center – Core Functions allocates most of its treasury income,
operating expenses and personnel associated with the above-
mentioned activities to the businesses based on capital and ser-
vice consumption levels. Corporate Center – Non-core and Lega-
cy Portfolio comprises the non-core businesses and legacy
positions previously part of the Investment Bank.
381
Financial information Financial information
Notes to the consolidated financial statements
Note 2a Segment reporting 1 (continued)
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
Corporate Center
UBS
CHF million
For the year ended 31 December 2013
Net interest income
Non-interest income
Income 3, 4, 5
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 6
Total operating expenses 7
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets 8
Additions to non-current assets
2,061
5,512
7,573
(10)
7,563
3,371
1,650
97
190
8
5,316
2,247
936
5,629
6,565
(27)
6,538
4,574
924
13
121
49
5,680
858
2,144
1,630
3,774
(18)
3,756
1,442
875
(162)
143
0
2,298
1,458
(20)
1,954
1,935
0
1,935
873
448
(17)
47
8
1,359
576
886
7,712
8,599
2
8,601
3,984
2,040
3
260
14
6,300
2,300
Core
Functions 2
Non-core
and Legacy
Portfolio
(31)
(976)
(1,007)
0
(1,007)
424
422
1
0
0
(191)
535
344
3
347
515
2,022
65
55
3
847
(1,854)
2,660
(2,312)
5,786
21,997
27,782
(50)
27,732
15,182
8,380
0
816
83
24,461
3,272
(110)
3,381
109,758
45,491
141,369
14,223
241,103
5
1
17
1
81
247,407
1,236
210,508
1,009,860
0
1,341
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for information on changes to reporting segments. 2 Certain cost allocations to the business divisions and Corporate Center –
Non-core and Legacy Portfolio are based on periodically agreed standard rates. This could lead to a difference between costs actually incurred by Corporate Center – Core Functions and charges to the business divisions
and Corporate Center – Non-core and Legacy Portfolio. 3 Impairments of financial investments available-for-sale for the year ended 31 December 2013 were as follows: Wealth Management CHF 10 million, Global
Asset Management CHF 3 million, Investment Bank CHF 20 million, Corporate Center – Non-core and Legacy Portfolio CHF 8 million. 4 The total inter-segment revenues for the Group are immaterial as the majority of
the revenues are allocated across the segments by means of revenue-sharing agreements. 5 Refer to “Note 24 Fair value measurement” for more information on own credit in Corporate Center – Core Functions. 6 Refer
to ”Note 17 Goodwill and intangible assets“ for more information on goodwill and other intangible assets by segment. 7 Refer to ”Note 32 Changes in organization“ for information on restructuring charges. 8 The seg-
ment assets are based on a third-party view and this basis is in line with the internal reporting to management, i.e., the amounts do not include intercompany balances. Certain assets managed centrally by Corporate Center
– Core Functions (including property and equipment and certain financial assets) are allocated to the segments on a basis different to which the corresponding costs and / or revenues are allocated. Specifically, certain assets
are reported in Corporate Center – Core Functions, whereas the corresponding costs and / or revenues are entirely or partially allocated to the segments based on various internally determined allocations. Similarly, certain
assets are reported in the business divisions, whereas the corresponding costs and / or revenues are entirely or partially allocated to Corporate Center – Core Functions.
382
Note 2a Segment reporting 1 (continued)
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
Corporate Center
UBS
CHF million
For the year ended 31 December 2012
Net interest income
Non-interest income
Income 3, 4, 5
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 7
Amortization and impairment of intangible assets 7
Total operating expenses 8
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets 9
Additions to non-current assets
1,951
5,089
7,040
1
7,041
2,865
1,360
243
159
0
7
4,634
2,407
792
5,099
5,891
(14)
5,877
4,252
893
(15)
100
0
51
5,281
597
2,186
1,569
3,756
(27)
3,728
1,287
857
(370)
128
0
0
1,901
1,827
(21)
1,904
1,883
0
1,883
885
395
(10)
37
0
8
1,314
569
834
6,310
7,144
0
7,144
4,539
2,312
(202)
214
0
13
6,877
267
Core
Functions 2
Non-core
and Legacy
Portfolio
47
(1,737)
(1,689)
0
(1,689)
282
1,696 6
21
9
0
0
189
1,327
1,516
(78)
1,439
628
1,141
335
41
3,030
28
2,008
(3,698)
5,202
(3,764)
5,978
19,563
25,541
(118)
25,423
14,737
8,653
0
689
3,030
106
27,216
(1,794)
461
(2,255)
104,620
43,948
145,320
12,916
261,511
4
1
45
12
62
262,857
1,032
428,625
1,259,797
0
1,158
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for information on the adoption of IFRS 10 and changes to reporting segments. 2 Certain cost allocations to the business
divisions and Corporate Center – Non-core and Legacy Portfolio are based on periodically agreed standard rates. This could lead to a difference between costs actually incurred by Corporate Center – Core Functions and
charges to the business divisions and Corporate Center – Non-core and Legacy Portfolio. 3 Impairments of financial investments available-for-sale for the year ended 31 December 2012 were as follows: Global Asset
Management CHF 4 million, Investment Bank CHF 12 million, Corporate Center – Core Functions CHF 2 million, Corporate Center – Non-core and Legacy Portfolio CHF 67 million. 4 The total inter-segment revenues for
the Group are immaterial as the majority of the revenues are allocated across the segments by means of revenue-sharing agreements. 5 Refer to “Note 24 Fair value measurement” for more information on own credit
in Corporate Center – Core Functions. 6 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 22 Provisions and contingent liabilities“ for more information. 7 Refer to ”Note 17 Goodwill and intangible assets“ for more information. 8 Refer to ”Note 32 Changes in organization“ for informa-
tion on restructuring charges. 9 The segment assets are based on a third-party view and this basis is in line with the internal reporting to management, i.e., the amounts do not include intercompany balances. Certain
assets managed centrally by Corporate Center – Core Functions (including property and equipment and certain financial assets) are allocated to the segments on a basis different to which the corresponding costs and / or
revenues are allocated. Specifically, certain assets are reported in Corporate Center – Core Functions, whereas the corresponding costs and / or revenues are entirely or partially allocated to the segments based on vari-
ous internally determined allocations.
383
Financial information Financial information
Notes to the consolidated financial statements
Note 2a Segment reporting 1 (continued)
Wealth
Management
Wealth
Management
Americas
Retail &
Corporate
Global Asset
Management
Investment
Bank
Corporate Center
UBS
CHF million
For the year ended 31 December 2011
Net interest income
Non-interest income
Income 3, 4, 5
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 6
Total operating expenses 7
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Additional Information
Total assets 8
Additions to non-current assets
1,968
5,666
7,634
11
7,645
3,300
1,192
318
165
37
5,012
2,633
729
4,490
5,219
(6)
5,213
3,830
783
(9)
99
48
4,750
463
2,328
1,858
4,186
(101)
4,085
1,702
834
(470)
136
0
2,201
1,884
(15)
1,817
1,803
0
1,803
954
375
(1)
38
8
1,373
430
974
5,838
6,813
(10)
6,802
5,026
2,129
(358)
208
15
7,019
(217)
Core
Functions 2
Non-core
and Legacy
Portfolio
208
1,724
1,932
(1)
1,931
116
161
19
73
0
369
1,562
634
(347)
286
22
309
706
486
503
43
19
1,756
(1,448)
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
42,159
147,117
15,239
403,512
5
25
22
18
90
183,761
1,013
524,823
1,416,962
19
1,192
1 Refer to “Note 1b Changes in accounting policies, comparability and other adjustments” for information on changes to reporting segments. 2 Certain cost allocations to the business divisions and Corporate Center –
Non-core and Legacy Portfolio are based on periodically agreed standard rates. This could lead to a difference between costs actually incurred by Corporate Center – Core Functions and charges to the business divisions
and Corporate Center – Non-core and Legacy Portfolio. 3 Impairments of financial investments available-for-sale for the year ended 31 December 2011 were as follows: Wealth Management CHF 28 million, Corporate
Center – Non-core and Legacy Portfolio CHF 12 million. 4 The total inter-segment revenues for the Group are immaterial as the majority of the revenues are allocated across the segments by means of revenue-sharing
agreements. 5 Refer to “Note 24 Fair value measurement” for more information on own credit in Corporate Center – Core Functions. 6 Refer to ”Note 17 Goodwill and intangible assets“ for more information on
goodwill and other intangible assets by segment. 7 Refer to ”Note 32 Changes in organization“ for information on restructuring charges. 8 The segment assets are based on a third-party view and this basis is in line
with the internal reporting to management, i.e., the amounts do not include intercompany balances. Certain assets managed centrally by Corporate Center – Core Functions (including property and equipment and cer-
tain financial assets) are allocated to the segments on a basis different to which the corresponding costs and / or revenues are allocated. Specifically, certain assets are reported in Corporate Center – Core Functions,
whereas the corresponding costs and / or revenues are entirely or partially allocated to the segments based on various internally determined allocations.
384
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. This geographical information
does not reflect the way the Group is managed. The segments
of the Group are managed globally with a focus on cross-divi-
sional collaboration and the interest of our clients to yield the
maximum possible profitability by product line for the Group.
The geographic analysis of operating income and non-current
assets is provided in order to comply with IFRS.
For the year ended 31 December 2013
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 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
Total operating income
Total non-current assets
CHF million
Share %
CHF million
Share %
9,319
9,002
4,313
3,373
2,189
1,121
63
10,728
27,732
34
32
16
12
8
4
0
39
100
6,072
5,637
353
1,455
628
821
6
5,261
13,141
46
43
3
11
5
6
0
40
100
Total operating income
Total non-current assets
CHF million
Share %
CHF million
Share %
9,678
9,214
3,094
1,609
118
1,426
66
11,041
25,423
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
385
Financial information Financial information
Notes to the consolidated financial statements
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
Retail & Corporate
Global Asset Management
Investment Bank
of which: Corporate Client Solutions
of which: Investor Client Services
Corporate Center
of which: Core Functions
of which: own credit on financial liabilities designated at fair value 1
of which: Non-core and Legacy Portfolio
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
31.12.13
31.12.12
31.12.11
31.12.12
5,786
5,130
10,915
2,868
1,323
2,485
9
5,015
1,035
3,980
(784)
(1,045)
(283)
261
10,915
8,686
852
2,913
364
322
13,137
893
829
1,846
1,197
2,586
7,351
5,786
5,978
3,526
9,504
2,728
1,265
2,467
9
3,574
575
2,999
(540)
(1,992)
(2,202)
1,452
9,504
9,323
1,413
4,482
369
381
15,968
1,433
1,208
2,442
1,744
3,163
9,990
5,978
6,826
4,343
11,169
2,846
1,179
2,661
8
2,831
399
2,432
1,645
1,765
1,537
(121)
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
(3)
45
15
5
5
1
0
40
80
33
45
(48)
(87)
(82)
15
(7)
(40)
(35)
(1)
(15)
(18)
(38)
(31)
(24)
(31)
(18)
(26)
(3)
1 Refer to “Note 24 Fair value measurement” for more information on own credit. 2 Includes interest income on impaired loans and advances of CHF 15 million for 2013, CHF 16 million for 2012 and CHF 20 million
for 2011. 3 Includes expense related to dividend payment obligations on trading liabilities.
386
Note 3 Net interest and trading income (continued)
CHF million
Net trading income
Investment Bank Corporate Client Solutions
Investment Bank Investor Client Services
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
31.12.13
31.12.12
31.12.11
31.12.12
545
3,584
1,002
5,130
99
389
2,351
786
3,526
420
(2,056)
(6,493)
355
1,502
2,487
4,343
419
7,437
40
52
27
45
(76)
(68)
1 Refer to “Note 24 Fair value measurement” for more information on own credit. 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 2013 included a gain of CHF 431 million
from the valuation of the option to acquire the SNB StabFund’s
equity, reflected in the line Other business divisions and Cor porate
Center, compared with a gain of CHF 526 million in 2012 and a
CHF 133 million loss in 2011.
Net trading income in 2011 included a loss of CHF 1,849 million
due to the unauthorized trading incident, reflected in the line
Investment Bank Investor Client Services.
Note 4 Net fee and commission income
CHF million
Equity underwriting fees
Debt underwriting fees
Total underwriting fees
M&A and corporate finance fees
Brokerage fees
Investment fund fees
Portfolio management and advisory fees
Insurance-related and other fees
Total securities trading and investment activity fees
Credit-related fees and commissions
Commission income from other services
Total fee and commission income
Brokerage fees paid
Other
Total fee and commission expense
Net fee and commission income
of which: net brokerage fees
For the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
850
524
1,374
613
4,035
3,803
6,625
485
16,935
367
873
18,176
839
1,050
1,889
16,287
3,196
807
732
1,539
679
3,836
3,626
5,895
451
16,026
414
833
17,273
871
1,006
1,876
15,396
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
5
(28)
(11)
(10)
5
5
12
8
6
(11)
5
5
(4)
4
1
6
8
387
Financial information Financial information
Notes to the consolidated financial statements
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
31.12.13
31.12.12
31.12.11
31.12.12
111
0
49
160
209
(41)
168
35
(16)
233
580
(7)
0
88
81
393
(85)
308
35
4
213
641
(18)
20
42
44
926
(39)
887
38
9
490
1,467
(44)
98
(47)
(52)
(45)
0
9
(10)
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 2013 included a gain of CHF 74 million resulting from
the divestment of the Group’s participation in Euroclear Plc., of
which CHF 27 million was allocated to Retail & Corporate, CHF
25 million to Wealth Management and CHF 22 million to the In-
vestment Bank. Further, it included net gains of CHF 61 million in
Corporate Center – Core Functions. 2012 included net gains of
CHF 272 million in Corporate Center – Core Functions, as well as
gains of CHF 101 million in Corporate Center – Non-core and
Legacy Portfolio, mainly related to the sale of an equity invest-
ment. 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 net gains of CHF 141 million in Corporate
Center – Core Functions.
The line Other included net gains of CHF 53 million on sales of
loans and receivables in 2013, compared with net losses of CHF
11 million in 2012 and net gains of CHF 344 million in 2011. Ad-
ditionally, it included gains on sales of real estate of CHF 288 mil-
lion in 2013, CHF 112 million in 2012 and CHF 78 million in 2011.
2013 further included losses of CHF 194 million related to the
buyback of debt in public tender offers.
388
Note 6 Personnel expenses
CHF million
Salaries
Variable compensation – performance awards 1
of which: guarantees for new hires
Variable compensation – other 1
of which: replacement payments 2
of which: forfeiture credits
of which: severance payments 3
of which: retention plan and other payments
Contractors
Social security
Pension and other post-employment benefit plans 4
Wealth Management Americas: Financial advisor compensation 1, 5
Other personnel expenses
Total personnel expenses 6
For the year ended
% change from
31.12.13
31.12.12
31.12.11
31.12.12
6,268
2,986
76
288
78
(146)
114
242
190
792
887
3,140
631
15,182
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
(8)
0
(43)
(22)
(28)
(16)
(62)
89
(11)
3
9
(7)
3
1 Refer to “Note 29 Equity participation and other compensation plans” for more information. 2 Replacement payments are payments made to compensate employees for deferred awards forfeited as a result of join-
ing UBS. 3 Includes legally obligated and standard severance payments. 4 2012 included a credit of CHF 730 million related to changes to the Swiss pension plan and a credit of CHF 116 million related to changes
to retiree medical and life insurance benefit plans in the US. Refer to “Note 28 Pension and other post-employment benefit plans” for more information. 5 Financial advisor compensation consists of grid-based com-
pensation 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 with financial advisors entered into at the time of recruitment, which are subject to vesting requirements. 6 Included net restructuring charges of CHF 156 million,
CHF 358 million and CHF 261 million for the years ended 31 December 2013, 31 December 2012 and 31 December 2011, respectively. Refer to “Note 32 Changes in organization” for more information.
Note 7 General and administrative expenses
CHF million
Occupancy
Rent and maintenance of IT and other equipment
Communication and market data services
Administration
Marketing and public relations
Travel and entertainment
Professional fees
Outsourcing of IT and other services
Provisions for litigation, regulatory and similar matters 1, 2
Other 3
Total general and administrative expenses 4
For the year ended
31.12.13
1,044
31.12.12
1,074
31.12.11
1,059
458
609
638
478
451
1,032
1,340
1,701
628
8,380
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
% change from
31.12.12
(3)
(3)
(4)
0
(9)
0
14
(1)
(33)
(3)
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 15 million, CHF 12 million
and CHF 33 million for the years ended 31 December 2013, 31 December 2012 and 31 December 2011, respectively. A portion (CHF 21 million release) of the net increase / release recognized in the income statement
for provisions for certain litigation, regulatory and similar matters for 2013 as presented in “Note 22a Provisions” was recorded as other income rather than as general and administrative expenses. 2 Refer to “Note
22 Provisions and contingent liabilities” for more information. 3 2013 included a charge of CHF 110 million related to the Swiss-UK tax agreement and an impairment charge of CHF 87 million related to certain
disputed receivables. 4 Included net restructuring charges of CHF 548 million, CHF 0 million and CHF 93 million for the years ended 31 December 2013, 31 December 2012 and 31 December 2011, respectively. Refer
to “Note 32 Changes in organization” for more information.
389
Financial information Financial information
Notes to the consolidated financial statements
Note 8 Income taxes
CHF million
Tax expense / (benefit)
Swiss
Current
Deferred
Foreign
Current
Deferred
Total income tax expense / (benefit)
For the year ended
31.12.13
31.12.12
31.12.11
93
455
342
(1,000)
(110)
95
23
72
271
461
23
1,041
83
(246)
901
The Swiss current tax expense of CHF 93 million related to taxable
profits, against which no losses were available to offset, earned by
Swiss subsidiaries and also from the sale of real estate. The Swiss
deferred tax expense of CHF 455 million mainly reflected the amorti-
zation of deferred tax assets previously recognized in relation to tax
losses carried forward used to offset taxable profits for the year.
The foreign current tax expense of CHF 342 million related to
a tax expense in respect of taxable profits earned by non-Swiss
subsidiaries and branches, against which no losses were available
to offset. The foreign net deferred tax benefit of CHF 1,000 mil-
lion reflected a net upward revaluation of deferred tax assets
based on a reassessment of future profitability taking into ac-
count updated business plan forecasts. This was partially offset by
the amortization of deferred tax assets, as tax losses were used
against taxable profits.
The components of operating profit before tax, and the differ-
ences between income tax expense reflected in the financial
statements and the amounts calculated at the Swiss tax rate, are
shown in the table below.
CHF million
Operating profit / (loss) before tax
of which: Swiss
of which: Foreign
Income tax at Swiss tax rate of 21% for both 2013 and 2012, and 21.5% for 2011
Increase / (decrease) resulting from:
Foreign tax rates differing from Swiss tax rate
Tax effects of losses not recognized
Previously unrecognized 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)
For the year ended
31.12.13
31.12.12
31.12.11
3,272
3,323
(51)
687
(305)
58
(419)
(624)
1,245
(32)
6
(859)
107
28
(110)
(1,794)
4,040
(5,834)
(377)
(680)
184
(1,342)
(417)
2,205
(216)
1
1,071
7
25
461
5,307
4,652
654
1,141
98
939
(8)
(1,189)
674
(171)
17
(680)
42
39
901
The following is an explanation of the items included as differ-
ences between group operating profit before tax at the Swiss tax
rate and the actual income tax expense.
cable local tax rate. A tax benefit arises in the year in relation to
entities which have losses and also local tax rates in excess of the
Swiss tax rate.
Foreign tax rates differing from Swiss tax rate
To the extent that Group profits or losses arise outside Switzer-
land, the applicable local tax rate may differ from the Swiss tax
rate. This item reflects, for such profits or losses, an adjustment
from the tax expense / benefit that would arise at the Swiss tax
rate and the tax expense / benefit that would arise at the appli-
Tax effects of losses not recognized
This item relates to tax losses of entities arising in the year, which
are not recognized as deferred tax assets. Consequently, no tax
benefit arises in relation to those losses. Therefore, the tax benefit
calculated by applying the local tax rate to those losses as de-
scribed above is reversed.
390
Note 8 Income taxes (continued)
Previously unrecorded tax losses now utilized
This item relates to taxable profits for the year, which are offset by
tax losses from previous years, for which no deferred tax assets
were previously recorded. Consequently, no current tax or de-
ferred tax expense arises in relation to those taxable profits.
Therefore, the tax expense calculated by applying the local rate on
those profits is reversed.
Non-taxable and lower taxed income
This item relates to profits for the year, which are either permanently
not taxable or are taxable, but at a lower rate of tax than the local
tax rate. It also includes any permanent deductions made for tax
purposes, which are not reflected in the accounts thereby effectively
ensuring that profits covered by the deduction are not taxable.
Non-deductible expenses and additional taxable income
This item mainly relates to income for the year, which is imputed
for tax purposes for an entity, but is not included in its operating
profit. In addition, it includes expenses for the year, which are
permanently non-deductible.
Adjustments related to prior years – current tax
This item relates to adjustments to current tax expenses for prior
years, for example, if the tax payable for a year agreed with the
tax authorities is expected to differ from the amount previously
reflected in the accounts.
Adjustments related to prior years – deferred tax
This item relates to adjustments to deferred tax recognized in
prior years, for example, if a tax loss for a year is fully recognized
and the amount of the tax loss agreed with the tax authorities is
expected to differ from the amount previously recognized as de-
ferred tax assets in the accounts.
Change in deferred tax valuation allowances
This item includes revaluations of deferred tax assets previously
recognized resulting from reassessments of expected future prof-
its. It also includes changes in temporary differences in the year,
for which deferred tax is not recognized. The amount in the year
mainly relates to the upward revaluation of deferred tax assets
referred to above.
Adjustments to deferred tax balances arising from
changes in tax rates
This item relates to remeasurement of deferred tax assets and li-
abilities recognized due to changes in tax rates. These have the
effect of changing the future tax savings that are expected from
tax losses or deductible tax differences and therefore the amount
of deferred tax assets recognized or, alternatively, changing the
tax cost of additional taxable income from taxable temporary dif-
ferences and therefore the deferred tax liability.
Other items
Other items include other differences between profit or losses at
the local tax rate and the actual local tax expense or benefit, in-
cluding increases in provisions for uncertain positions in relation
to the current year, interest accruals for such provisions in relation
to prior years and other items.
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
Financial investments
Investments in associates and other
Total deferred tax liabilities
31.12.13
Valuation
allowance Recognized
Gross
1,290
(415)
28,801
(22,534)
831
1,729
(84)
(773)
875
6,267
747
956
32,651
(23,807)
8,845
37
0
21
59
31.12.12
Valuation
allowance
(1,047)
(23,276)
(131)
(425)
(24,879)
Gross
1,698
29,022
1,067
1,235
33,021
Recognized
651
5,746
936
809
8,143
17
2
33
52
391
Financial information Financial information
Notes to the consolidated financial statements
Note 8 Income taxes (continued)
Certain deferred tax asset and liability movements are recog-
nized directly in equity. In 2013, these include tax benefits of CHF
230 million recognized in Other comprehensive income (2012:
charges of CHF 581 million), which mainly relate to the reduction
in temporary difference deferred tax liabilities. In addition, they
include tax benefits of CHF 91 million recognized in Share pre-
mium (2012: charges of CHF 457 million), which mainly relate to
an increase in deferred tax assets for net Swiss tax losses arising
in previous periods.
In addition, there were net foreign currency translation losses
related to the effects of exchange rate movements on tax assets
and liabilities denominated in currencies other than Swiss francs.
In the table on the previous page, the valuation allowance repre-
sents amounts that are not expected to provide a future tax ben-
efit due to insufficient projected future taxable profits. UBS AG
Switzerland and certain overseas branches and subsidiaries of the
Group have deferred tax assets related to tax loss carry-forwards
and other items as shown in the table on the previous page. For
entities that incurred losses in either the current or preceding year,
deferred tax assets of CHF 4,484 million were recognized as of
31 December 2013 (CHF 3,487 million as of 31 December 2012).
The deferred tax assets recognized as of 31 December 2013 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 2013, tax loss carry-forwards totaling CHF
69,962 million, which were 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
31.12.13
31.12.12
0
10,683
189
40,579
18,512
69,962
0
7,912
461
43,866
15,886
68,125
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 2013,
no such earnings were considered indefinitely invested.
392
Note 9 Earnings per share (EPS) and shares outstanding
Basic earnings (CHF million)
Net profit / (loss) attributable to UBS shareholders
Diluted earnings (CHF million)
Net profit / (loss) attributable to UBS shareholders
Less: (profit) / loss on UBS equity derivative contracts
Net profit / (loss) 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
31.12.13
31.12.12
31.12.11
31.12.12
3,172
(2,480)
4,138
3,172
0
3,172
(2,480)
(1)
(2,481)
4,138
(3)
4,135
3,763,076,788
3,754,112,403
3,774,036,437
81,111,217
126,261
61,259,378
3,844,188,005
3,754,238,664
3,835,295,815
0.84
0.83
(0.66)
(0.66)
1.10
1.08
3,842,002,069
3,835,250,233
3,832,121,899
73,800,252
87,879,601
84,955,551
3,768,201,817
3,747,370,632
3,747,166,348
246,042
418,526
509,243
3,768,447,859
3,747,789,158
3,747,675,591
(100)
0
2
0
(16)
1
(41)
1
The table below outlines the potential shares which could dilute basic earnings per share in the future, but were not dilutive for the
periods presented.
Number of shares
Potentially dilutive instruments
Employee share-based compensation awards
Other equity derivative contracts
SNB warrants 1
Total
31.12.13
31.12.12
31.12.11
31.12.12
% change from
117,623,624
233,256,208
219,744,203
16,517,384
0
134,141,008
15,386,605
100,000,000
348,642,813
24,407,443
100,000,000
344,151,646
(50)
7
(100)
(62)
1 These warrants related 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 in 2008
and 2009. As part of this arrangement, UBS granted warrants on shares to the SNB, which would have been exercisable if the SNB incurred a loss on its loan to the SNB StabFund. In 2013, these warrants were termi-
nated following the full repayment of the loan in the third quarter of 2013.
393
Financial information Financial information
Notes to the consolidated financial statements
Balance sheet notes: assets
Note 10 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
Other allowances
Due from banks, net
Loans, gross
Residential mortgages
Commercial mortgages
Lombard loans
Other loans 1, 2
Securities 3
Subtotal
Allowance for credit losses
Other allowances
Loans, net
Total due from banks and loans, net 4
31.12.13
31.12.12
17,232
2,407
(15)
(47)
21,242
638
(22)
0
17,170
21,220
137,370
22,716
86,820
35,945
4,813
287,665
(671)
(35)
286,959
304,128
132,033
22,421
77,579
40,407
8,166
280,606
(706)
0
279,901
301,121
1 Includes corporate loans. 2 Includes leveraged finance loans reclassified from held-for-trading. Refer to Note 1a) 10) and “Note 27c Reclassification of financial assets” for more information. 3 Includes securities
reclassified from held-for-trading. Refer to Note 1a) 10) and “Note 27c Reclassification of financial assets” for more information. 4 Refer to “Maximum exposure to credit risk” in the “Risk management and control”
section of this report for information on collateral and other credit enhancements.
394
Note 11 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
Cash collateral
on securities
borrowed
31.12.13
Reverse
repurchase
agreements
31.12.13
Cash collateral
receivables
on derivative
instruments
Cash collateral on
securities borrowed
Reverse repurchase
agreements
Cash collateral
receivables
on derivative
instruments
31.12.13
31.12.12
31.12.12
31.12.12
10,495
17,001
27,496
34,729
56,834
91,563
9,052
18,955
28,007
15,977
21,396
37,372
56,775
74,165
130,941
12,393
18,021
30,413
Cash collateral
on securities lent
31.12.13
Repurchase
agreements
31.12.13
Cash collateral
payables
on derivative
instruments
Cash collateral
on securities lent
31.12.13
31.12.12
8,805
686
9,491
3,953
9,858
13,811
27,236
21,902
49,138
8,572
630
9,203
Repurchase
agreements
31.12.12
13,727
24,830
38,557
Cash collateral
payables
on derivative
instruments
31.12.12
46,101
25,047
71,148
395
Financial information Financial information
Notes to the consolidated financial statements
Note 12 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 2
Reclassifications
Foreign currency translation
Other
Balance at the end of the year
Specific
allowances
Collective
allowances
Total
allowances
616
(127)
45
145
1
(8)
(3)
669
114
(1)
0
(93)
0
0
0
20
730
(128)
45
52
1
(8)
(3)
688
Provisions 1
64
0
0
(2)
(1)
0
0
61
Total 31.12.13
Total 31.12.12
794
(128)
45
50
0
(9)
(3)
750
938
(313)
63
118
0
(8)
(3)
794
1 Represents provisions for loan commitments and guarantees. Refer to “Note 22 Provisions and contingent liabilities” for more information. Refer to “Off-balance sheet” in the “Financial and operating performance”
section of this report for the maximum irrevocable amount of loan commitments and guarantees. 2 Does not include an impairment charge of CHF 87 million related to certain disputed receivables. Including this, total
impairment charges related to financial instruments were CHF 137 million in 2013.
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 31.12.13
Total 31.12.12
15
651
2
669
0
20
0
20
15
671
2
688
15
671
2
61
750
22
706
2
64
794
61
61
396
Note 13 Trading portfolio
CHF million
Trading portfolio assets by issuer type
Debt instruments
Government and government agencies
of which: Switzerland
of which: USA
of which: Singapore
of which: Italy
of which: South Korea
of which: Australia
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: Singapore
of which: Italy
of which: South Korea
of which: Australia
of which: Germany
Banks
Corporates and other
Total debt instruments
Equity instruments
Total trading portfolio liabilities
31.12.13
31.12.12
16,073
352
3,657
1,631
1,603
1,482
1,312
1,192
5,039
25,407
46,519
51,881
15,849
114,249
8,599
122,848
8,222
173
2,508
1
1,140
15
573
308
823
2,453
11,498
15,111
26,609
37,594
492
16,377
1,222
1,430
1,701
2,249
1,930
8,547
34,064
80,205
48,035
15,230
143,471
17,093
160,564
16,115
280
7,387
1
527
8
568
1,610
1,475
3,036
20,626
13,621
34,247
397
Financial information Financial information
Notes to the consolidated financial statements
Note 13 Trading portfolio (continued)
CHF million
Trading portfolio assets by product type 1
Debt instruments
Government bills / bonds
Corporate bonds and 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 1
Debt instruments
Government bills / bonds
Corporate bonds and 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
1 Refer to “Note 24 Fair value measurement” for more information on the fair value hierarchy categorization.
31.12.13
31.12.12
13,061
16,008
3,033
11,137
3,280
1,973
46,519
51,881
15,849
114,249
8,599
122,848
7,327
3,635
533
3
3
11,498
15,111
26,609
28,737
23,887
6,129
12,895
8,556
6,760
80,205
48,035
15,230
143,471
17,093
160,564
14,741
5,479
383
22
22
20,626
13,621
34,247
398
Note 14 Derivative instruments and hedge accounting
Derivatives: overview
“Note 20 Financial liabilities designated at fair value” and “Note
24 Fair value measurement” for more information.
A derivative is a financial instrument, the value of which is derived
from the value of one or more variables (“underlyings”). Under-
lyings 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. The industry continues 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. Other derivative contracts
are standardized in terms of their amounts and settlement dates,
and are bought and sold on organized exchanges. These are com-
monly referred to as exchange-traded derivatives (ETD) contracts.
Exchanges offer the benefits of pricing transparency, standardized
daily settlement of changes in value, and consequently reduced
credit risk.
Derivative instruments are measured at fair value and generally
classified as Positive replacement values and Negative replacement
values on the face of the balance sheet. However, 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. For presentation purposes, the Group is sub-
ject to the IFRS netting provisions for derivative contracts. Changes
in the replacement values of derivatives are recorded in net trading
income, unless the derivatives are designated and effective as
hedging instruments in certain types of hedge accounting relation-
ships. Refer to Note 1a) 15) for more information.
Valuation principles and techniques applied in the measure-
ment of derivative instruments are discussed in “Note 24 Fair
value measurement.” Positive replacement values represent the
estimated amount the Group would receive if the derivative con-
tract were sold on the balance sheet date. Negative replacement
values indicate the value the Group would pay to transfer its obli-
gations 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 cases where UBS applies
the fair value option to hybrid instruments, bifurcation of an
embedded derivative component is not required and as such,
also not included in the table “Derivative instruments.” Refer to
Types of derivative instruments
The Group uses the following derivative financial instruments for
both trading and hedging purposes. Through the use of the prod-
ucts listed below, the Group is engaged in extensive high-volume
market-making and client facilitation trading referred to as the
flow business. Measurement techniques applied to determine the
fair value of each product type are described in “Note 24 Fair
value measurement.”
The main types of derivative instruments used by the Group are:
– Swaps: Swaps are transactions in which two parties exchange
cash flows on a specified notional amount for a predetermined
period.
– Cross-currency swaps: Cross-currency swaps involve the ex-
change of interest payments based on two different currency
principal balances and reference interest rates and generally
also entail exchange of principal amounts at the start or end of
the contract. Most cross-currency swaps are traded in the OTC
market.
– 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.
– 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).
The main products and underlyings used by the Group are:
– Interest rate contracts: Interest rate products include interest rate
swaps, forward rate agreements, swaptions and caps and floors.
– Credit derivative contracts: credit default swaps (CDS) are the
most common form of a credit derivative, under which the
party buying protection makes one or more payments to the
party selling protection in exchange for an undertaking by the
seller to make a payment to the buyer following the occur-
rence 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
delivery of one or more obligations of the credit entity, and is
made regardless of whether the protection buyer has actually
399
Financial information Financial information
Notes to the consolidated financial statements
Note 14 Derivative instruments and hedge accounting (continued)
suffered a loss. After a credit event and settlement, the con-
tract is generally terminated. More information on credit de-
rivatives is included in a separate section below. Total return
swaps (TRS) 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 in-
clude 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 client-centric 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. The Group also 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 OTC and cer-
tain non-vanilla OTC. The vanilla OTC are in forwards, swaps
and options.
Risks of derivative instruments
Derivative instruments are transacted in many trading portfolios,
which generally include several types of instruments, not just de-
rivatives. The market risk of derivatives is predominantly managed
and controlled as an integral part of the market risk of these port-
folios. The Group’s approach to market risk is described in the
audited portions of “Market risk” in the “Risk management and
control” 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 “Credit risk” in the “Risk management
and control” section of this report. It should be noted that, al-
though the positive replacement values shown on the balance
sheet can be an important component of the Group’s credit expo-
sure, the positive replacement values for a counterparty are rarely
an adequate reflection of the Group’s credit exposure in its deriva-
tives business with that counterparty. This is, for example, because
on one hand, replacement values can increase over time (“poten-
tial future exposure”), while on the other hand, exposure may be
mitigated by entering into master netting agreements and bilat-
eral collateral arrangements with other counterparties. Both the
exposure measures used internally by the Group to control credit
risk and the capital requirements imposed by regulators reflect
these additional factors.
The replacement values presented on UBS’s balance sheet
include netting in accordance with IFRS requirements (refer to
Note 1a) 35)), which is generally 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 enforceable in case of insolvency. The positive and nega-
tive replacement values based on netting in accordance with
Swiss federal banking law (factoring in cash collateral) are pre-
sented 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.
400
Note 14 Derivative instruments and hedge accounting (continued)
Derivative instruments 1
CHF billion
Interest rate contracts
Over-the-counter (OTC) contracts
Forward contracts 6
Swaps
Options 7
Exchange-traded contracts
Futures
Options
Agency transactions 8
Total
Credit derivative contracts
Over-the-counter (OTC) contracts
Credit default swaps
Total return swaps
Options and warrants
Total
Foreign exchange contracts
Over-the-counter (OTC) contracts
Forward contracts
Interest and currency swaps
Options 7
Exchange-traded contracts
Futures
Options
Agency transactions 8
Total
Equity / index contracts
Over-the-counter (OTC) contracts
Forward contracts
Options
Exchange-traded contracts
Futures
Options
Agency transactions 8
Total
Table continues on the next page.
31.12.13
31.12.12
Notional
values
related
to PRVs 3
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
Total
PRV 2
0.2
104.3
25.2
123.7
2,243.5
928.8
0.0
0.1
0.2
0.2
91.7
25.3
0.1
0.0
107.1
1,944.2
0.8
481.0
0.8
443.8
1,329.6
2,098.5
14,162.8
223.3
3,933.5
196.1
3,789.2 14,276.3
900.3
0.0
41.8
1,193.7
42.2
1,181.5
0.0
492.0
287.5
1.8
3.0
0.0
0.0
0.0
0.0
759.0
725.5
0.0
129.8
3,296.2
117.2
3,107.7
16,886.5
266.0
5,611.3
239.1
5,414.5 17,090.4
541.7
3.1
3.6
548.4
661.2
1,924.0
494.0
5.4
18.1
0.2
0.0
18.3
12.4
54.2
9.3
0.0
0.1
16.9
0.2
0.0
17.0
13.4
57.4
9.4
0.0
0.1
527.0
203.3
36.5
1,092.0
34.0
1,043.3
238.9
3.1
0.1
0.0
0.0
0.4
0.0
2.4
3.1
0.4
0.0
3.3
0.5
0.0
0.0
530.1
203.3
36.9
1,097.6
34.4
1,047.1
238.9
667.9
1,858.1
455.5
6.1
0.0
0.0
0.0
7.2
0.0
12.3
76.9
6.8
690.8
2,382.0
411.8
12.5
80.9
7.6
689.6
2,193.2
348.0
0.6
0.0
0.0
0.6
0.0
0.0
0.0
0.0
0.0
13.8
0.0
76.0
3,084.4
80.3
2,987.6
7.2
96.0
3,485.1
101.0
3,231.4
13.8
3.2
7.7
3.1
4.0
18.1
45.9
74.7
4.6
9.3
59.2
103.1
110.8
231.4
4.0
4.0
21.9
112.4
0.0
0.0
25.7
7.2
41.7
84.8
94.9
2.7
8.4
2.4
2.4
3.3
7.4
3.3
2.4
47.0
98.3
106.8
0.0
0.0
16.6
17.7
274.7
32.9
15.9
221.4
16.4
252.1
34.3
401
Financial information Financial information
Notes to the consolidated financial statements
Note 14 Derivative instruments (continued)
Derivative instruments 1 (continued)
Table continued from previous page.
CHF billion
Commodities contracts
Over-the-counter (OTC) contracts
Forward contracts
Options 7
Exchange-traded contracts
Futures
Forward contracts
Options
Agency transactions 8
Total
Unsettled purchases of non-derivative financial assets 9
Unsettled sales of non-derivative financial assets 9
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 10
31.12.13
31.12.12
Notional
values
related
to PRVs 3
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
Total
PRV 2
1.5
1.0
0.0
0.0
0.9
3.5
0.1
0.1
19.5
12.9
9.7
0.6
42.7
19.6
12.7
1.3
0.9
0.1
0.1
0.9
3.2
0.1
0.2
14.7
9.4
8.2
2.3
34.6
8.9
15.2
0.0
0.0
11.1
0.0
0.2
11.3
0.0
0.0
1.4
1.0
0.4
0.1
0.9
3.8
0.2
0.1
22.9
25.2
23.3
6.4
77.9
20.4
8.9
1.4
1.2
0.4
0.1
0.9
4.0
0.1
0.2
21.8
21.7
21.2
7.0
71.7
8.7
19.0
0.0
0.0
14.4
0.0
1.2
15.6
0.0
0.0
245.8
7,235.5
240.0
6,958.7
17,141.2
419.0 10,522.6
395.3 10,044.4 17,392.9
(185.0)
(27.9)
32.9
(185.0)
(14.2)
40.7
(327.3)
(49.4)
42.3
(327.3)
(17.4)
50.5
1 Bifurcated embedded derivatives are presented on the same balance sheet line as their host contracts and are excluded from this table. As of 31 December 2013, these derivatives amounted to a PRV of CHF 0.2 billion
(related notional values of CHF 6.7 billion) and an NRV of CHF 0.4 billion (related notional values of CHF 12.8 billion). In 2013, comparative period figures were corrected. On a corrected basis, as of 31 December 2012,
these derivatives amounted to a PRV of CHF 0.2 billion (related notional values of CHF 6.5 billion) and an NRV of CHF 0.3 billion (related notional values of CHF 13.2 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 Other notional values relate to derivatives which are cleared through either a central clearing counterparty or an exchange. The fair value of these derivatives is presented on the balance sheet net of the corre-
sponding cash margin under Cash collateral receivables on derivative instruments and Cash collateral payables on derivatives instruments, totaling as of 31 December CHF 0.8 billion (31 December 2012: CHF 0.9 billion)
and CHF 0.0 billion (31 December 2012: CHF 0.0 billion), respectively. 6 Negative replacement values as of 31 December 2013 include CHF 0.0 billion related to derivative loan commitments (31 December 2012:
CHF 0.1 billion). No notional amounts related to these replacement values are included the table. The maximum irrevocable amount related to these commitments was CHF 7.1 billion as of 31 December 2013 (31 De-
cember 2012: CHF 6.3 billion). 7 In 2013, the classification of certain PRV and NRV between OTC interest rate options and OTC foreign exchange options was corrected for 31 December 2012. As a result, for OTC in-
terest rate options, PRV were reduced by CHF 1.8 billion (associated notional values: reduced by CHF 16.7 billion) and NRV were reduced by CHF 2.4 billion (associated notional values: reduced by CHF 18.7 billion) with
corresponding increases made to OTC foreign exchange options. In addition, corrections were made to 31 December 2012 notional values for OTC commodities options. Respective notional values related to PRV were
reduced by CHF 10.0 billion and notional values related to NRV were reduced by CHF 20.0 billion. 8 Notional values of exchange-traded agency transactions are not disclosed due to their significantly different risk pro-
file. 9 Changes in the fair value of purchased and sold non-derivative financial assets between trade date and settlement date are recognized as replacement values. 10 Includes the impact of netting agreements (in-
cluding cash collateral) in accordance with Swiss federal banking law.
The maturity profile of OTC interest rate contracts held as of
31 December 2013, based on notional values, was as follows: ap-
proximately 38% (31 December 2012: 37%) mature within one
year, 38% (31 December 2012: 38%) within one to five years and
24% (31 December 2012: 25%) after five years. Notional values
of interest rate contracts cleared with a 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
Most of the Group’s derivative transactions relate to sales and
trading activities. Sales activities include the structuring and mar-
keting of derivative products to customers to enable them to take,
transfer, modify, or reduce, current or expected risks. Trading ac-
tivities include market making 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 CDS
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.
Market-making activity, which is done within the Investment
Bank, consists of buying and selling single-name CDS, index CDS,
loan CDS and related referenced cash instruments to facilitate cli-
ent trading activity. UBS also actively utilizes CDS to economically
hedge specific counterparty credit risks in its accrual loan portfolio
402
Note 14 Derivative instruments and hedge accounting (continued)
and off-balance sheet loan portfolio (including loan commit-
ments) with the aim of reducing concentrations in individual
names, sectors or specific portfolios.
In addition, UBS actively utilizes CDS 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 2012, UBS announced an Investment Bank strategy
change which resulted in a focus on certain types of client facilita-
tion business and resulted in reduced market-making activity. As a
result, CDS were increasingly used for economic hedging purpos-
es. In 2013, large portfolios of credit derivatives including struc-
tured credit products were transferred to and are now managed
and reported in Corporate Center – Non Core. These positions are
being actively unwound and CDS is used to continue to manage
the underlying risk exposures.
The tables below provide further details on credit protection
bought and sold, including replacement and notional value infor-
mation by instrument type and counterparty type. The value of
protection bought and sold is not, in isolation, a measure of UBS’s
credit risk. Counterparty relationships are viewed in terms of the
total outstanding credit risk, which relates to other instruments in
addition to CDS, and in connection with collateral arrangements
in place. On a notional value basis, credit protection bought and
sold as of 31 December 2013 matures in a range of approxi mately
22% (2012: 22%) within one year, approximately 72% (2012:
69%) within one to five years and approximately 6% (2012: 8%)
after five 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 2013
of which: credit derivatives related to economic hedges
of which: credit derivatives related to market-making
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
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
5.1
1.0
0.4
0.2
0.0
6.6
6.4
0.3
9.2
1.9
0.4
0.1
0.0
11.6
11.2
0.4
488.2
146.8
9.4
5.4
3.6
653.4
639.5
13.9
8.7
2.9
0.1
0.0
0.0
11.7
11.2
0.4
4.1
1.1
0.2
0.1
0.0
5.5
5.2
0.3
450.3
171.9
5.3
0.8
0.1
628.4
613.7
14.8
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
14.9
6.1
0.8
0.4
0.0
22.1
22.0
0.1
11.1
1.5
1.2
0.3
0.0
14.0
13.5
0.5
815.0
376.7
17.7
4.2
3.1
1,216.8
1,167.9
48.9
11.1
2.7
1.0
0.0
0.0
14.8
14.3
0.5
13.1
6.0
1.2
0.1
0.0
20.4
20.3
0.1
781.7
369.4
13.7
1.5
0.5
1,166.7
1,117.3
49.4
403
Financial information Financial information
Notes to the consolidated financial statements
Note 14 Derivative instruments and hedge accounting (continued)
Credit derivatives by counterparty
CHF billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2013
CHF billion
Broker-dealers
Banks
Central clearing counterparties
Other
Total 31 December 2012
Protection bought
Protection sold
Fair value:
PRV
Fair value:
NRV
Notional
values
Fair value:
PRV
Fair value:
NRV
Notional
values
1.6
3.7
0.0
1.4
6.6
2.9
8.0
0.0
0.7
11.6
146.9
377.0
101.5
27.9
653.4
3.0
8.1
0.0
0.6
11.7
1.5
3.7
0.0
0.3
5.5
138.0
370.7
101.8
17.8
628.4
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
4.2
22.1
3.0
10.1
0.0
1.0
14.0
255.4
752.3
132.6
76.4
1,216.8
3.1
10.8
0.0
0.8
14.8
5.5
13.8
0.0
1.1
20.4
254.7
741.3
106.3
64.5
1,166.7
UBS’s credit derivatives are usually traded as OTC contracts. Since
2009, in line with the broader derivatives industry, a number of
initiatives have been launched in both the US and Europe to
establish CCP solutions for OTC CDS contracts with the aim of
reducing counterparty risk. UBS, along with other dealer mem-
bers, has continued to participate in these initiatives during 2013.
UBS’s CDS trades are documented using industry standard
forms of documentation published by ISDA or equivalent terms
documented in a bespoke (i.e., tailored) agreement. Those forms
and agreements use standardized terms that form the basis for
market conventions related to the types of credit events that
would trigger performance (i.e., payment default, bankruptcy,
etc. – see below) under a CDS. Those agreements and forms do
not contain recourse provisions that would enable UBS to recover
from third parties any amounts paid out by UBS (i.e., this is the
case where a credit event occurs and UBS is required to make pay-
ment 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, restructuring, obli-
gation 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 2013, additional col-
lateral or termination payments pursuant to bilateral agreements
with certain counterparties of approximately CHF 3.3 billion, CHF
5.0 billion and CHF 5.1 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.
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 ac-
counted for as hedging instruments are explained in Note 1a) 15),
under which terms used in the following sections are explained.
The Group has also entered into various hedging strategies uti-
lizing derivatives for which hedge accounting has not been ap-
plied. These include interest rate swaps and other interest rate
derivatives (e.g., futures) for day-to-day economic interest rate
risk management purposes. In addition, the Group has used eq-
uity futures, options and, to a lesser extent, swaps for economic
hedging in a variety of equity trading strategies to offset underly-
404
Note 14 Derivative instruments and hedge accounting (continued)
ing equity and equity volatility exposure. The Group has also en-
tered into CDS that provide economic hedges for credit risk expo-
sures (refer to the credit derivatives section). Fair value changes of
derivatives that are part of economic relationships, but do not
qualify for hedge accounting treatment, are reported in Net trad-
ing income, except for the forward points on certain short dura-
tion foreign exchange 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., non-structured fixed-rate bonds, cov-
ered bonds and subordinated debt) due to movements in market
interest rates. The fair values of outstanding interest rate deriva-
tives designated as fair value hedges were assets of CHF 1,588
million and liabilities of CHF 140 million as of 31 December 2013
and assets of CHF 3,028 million as of 31 December 2012.
Fair value hedges of interest rate risk
CHF million
Gains / (losses) on hedging instruments
Gains / (losses) on hedged items attributable to the hedged risk
Net gains / (losses) representing ineffective portions of fair value hedges
For the year ended
31.12.13
31.12.12
31.12.11
(1,123)
1,116
(7)
537
(581)
(44)
1,203
(1,172)
31
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 within Other assets on the balance sheet. The fair values
of outstanding interest rate derivatives designated for these
hedges as of 31 December 2013 were assets of CHF 176 million
and liabilities of CHF 716 million (31 December 2012: assets of
CHF 1 million and liabilities of CHF 1,208 million).
Fair value hedge of portfolio of interest rate risk
CHF million
Gains / (losses) on hedging instruments
Gains / (losses) on hedged items attributable to the hedged risk
Net gains / (losses) representing ineffective portions of fair value hedges
For the year ended
31.12.13
31.12.12
31.12.11
636
(625)
11
139
(159)
(20)
(461)
452
(9)
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 vari-
able rates or are expected to be refinanced or reinvested in the
future. The amounts and timing of future cash flows, representing
both principal and interest flows, are projected for each portfolio
of financial assets and liabilities, based on contractual terms and
other relevant factors including estimates of prepayments and de-
faults. The aggregate principal balances and interest cash flows
across all portfolios over time form the basis for identifying the
non-trading interest rate risk of the Group, which is hedged with
interest rate swaps, the maximum maturity of which is 14 years.
The table below shows forecasted principal balances on which ex-
pected interest cash flows arise as of 31 December 2013. Amounts
shown in the table below represent, by time bucket, average as-
sets and liabilities subject to forecasted cash flows designated as
hedged items in cash flow hedge accounting relationships.
As of 31 December 2013, the fair values of outstanding deriva-
tives designated as cash flow hedges of forecasted transactions
were CHF 4,770 million assets and CHF 2,275 million liabilities
and as of 31 December 2012 the amounts were CHF 7,764 mil-
lion assets and CHF 3,046 million liabilities. In 2013, a loss of
CHF 80 million was recognized in Net trading income due to
hedge ineffectiveness, compared with a gain of CHF 158 million
in 2012 and a loss of CHF 38 million in 2011.
At the end of 2013 and 2012, losses of CHF 18 million and
gains of CHF 3 million associated with terminated interest rate
swaps were deferred in OCI, respectively. They will be removed
from OCI when the previously hedged forecasted cash flows af-
fect 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 were a CHF 1 mil-
lion net gain in 2013, a CHF 4 million net gain in 2012 and a net
gain of CHF 11 million in 2011.
405
Financial information Financial information
Notes to the consolidated financial statements
Note 14 Derivative instruments and hedge accounting (continued)
Principal balances subject to cash flow forecasts
CHF billion
Assets
Liabilities
Net balance
< 1 year
1–3 years
3–5 years
5–10 years
over 10 years
66
7
59
129
21
108
37
3
34
27
2
26
1
0
1
Hedges of net investments in foreign operations
The Group applies hedge accounting for certain net investments in
foreign operations. As of 31 December 2013, the positive replace-
ment values and negative replacement values of FX derivatives
(mainly FX swaps) designated as hedging instruments in net in-
vestment hedge accounting relationships were CHF 104 million
and CHF 102 million, respectively (31 December 2012: positive
replacement values of CHF 103 million and negative replacement
values of CHF 45 million). As of 31 December 2013, the underly-
ing hedged structural exposures in several currencies amounted to
CHF 7.2 billion (31 December 2012: CHF 4.8 billion). Hedges of
structural FX exposures in currencies other than the US dollar may
be comprised of two jointly designated derivatives as the foreign
currency risk may be hedged against the US dollar first and then
converted into Swiss francs, the presentation currency of the
Group, as part of a separate FX derivative transaction. The aggre-
gated notional amount of designated hedging derivatives as of 31
December 2013 was CHF 13.8 billion in total (31 December 2012:
CHF 9.2 billion) including CHF 7.2 billion notional values related to
USD versus CHF swaps and CHF 6.7 billion notional values related
to derivatives hedging foreign currencies (other than the US dollar)
versus the US dollar. The effective portion of gains and losses of
these FX swaps is transferred directly to OCI to offset foreign cur-
rency translation (FCT) gains and losses on the net investments in
foreign branches and subsidiaries. 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.
UBS designates certain non-derivative foreign currency fi-
nancial assets and liabilities of foreign branches or subsidiaries
as hedging instruments in net investment hedge accounting ar-
rangements. The FX translation difference recorded in FCT OCI
of the non-derivative hedging instrument of one foreign entity
offsets the structural FX exposure of another foreign entity.
Therefore, the aggregated FCT OCI of the Group is unchanged
from this hedge designation. As of 31 December 2013, the
nominal amount of non-derivative financial assets and liabilities
designated as hedging instruments in such net investment
hedges was CHF 15.5 billion and CHF 15.5 billion, respectively
(31 December 2012: CHF 16.1 billion non-derivative financial
assets and CHF 16.1 billion non-derivative financial liabilities).
No material ineffectiveness of hedges of net investments in for-
eign operations was recognized in the income statement in
2013, 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 2013. The table includes derivatives traded on an exchange or
through a clearing house where the change in fair value is settled
each day, either in fact or in substance, through cash payment of
variation margin.
Derivatives designated in hedge accounting relationships (undiscounted cash flows)
CHF billion
Interest rate swaps 1
Cash inflows
Cash outflows
FX swaps / forwards
Cash inflows
Cash outflows
Net cash flows
On demand
Due within
1 month
Due between
1 and 3 months
Due between
3 and 12 months
Due between
1 and 5 years
Due after
5 years
0
0
14
14
0
0
0
0
3
1
1
10
7
2
3
3
0
0
Total
16
13
14
14
3
1 The table includes gross cash inflows and cash outflows of all interest rate swaps designated in hedge accounting relationships, which are either assets or liabilities of UBS as of 31 December 2013.
406
Note 15 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: United Kingdom
of which: Germany
of which: France
of which: Japan
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
31.12.13
31.12.12
50,761
44
17,876
8,089
6,733
5,601
4,865
4,983
3,132
58,876
649
59,525
372
(196)
175
95
58,973
156
31,740
5,042
6,669
3,593
4,221
4,200
2,486
65,659
572
66,230
421
(17)
404
252
CHF million
31.12.13
31.12.12
Financial investments available-for-sale by product type 1
Debt instruments
Government bills / bonds
Corporate bonds and 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
39,233
15,324
301
4,017
4,017
58,876
637
12
649
47,031
10,940
375
7,313
7,313
65,659
547
24
572
Total financial investments available-for-sale
1 Refer to “Note 24 Fair value measurement” for more information on the fair value hierarchy categorization.
59,525
66,230
407
Financial information Financial information
Notes to the consolidated financial statements
Note 16 Property and equipment
At historical cost less accumulated depreciation
Own-used
properties
Leasehold
improvements
IT hardware
and
communication
Software
Other machines
and equipment
Projects in
progress
31.12.13
31.12.12
CHF million
Historical cost
Balance at the beginning of the year
Additions
Disposals / write-offs 1
Reclassifications
Foreign currency translation
Balance at the end of the year
Accumulated depreciation
8,307
51
(154)
(225)
(10)
7,970
2,677
69
(209)
215
(76)
2,677
2,422
208
(382)
4
(46)
2,205
1,411
53
(47)
310
(8)
1,718
Balance at the beginning of the year
4,660
1,912
2,071
1,306
Depreciation
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
202
0
(51)
(323)
(4)
4,485
3,485
178
59
(201)
4
(59)
1,894
783
191
0
(381)
0
(40)
1,841
364
108
15
(47)
0
(9)
1,374
344
792
41
(77)
27
(15)
769
574
55
7
(77)
0
(12)
547
222
819
821
(1)
(818)
(23)
799
0
0
0
0
0
0
0
799
16,428
1,244
(871)
(488) 5
(178)
16,683
1,111
(859)
(420)
(88)
16,136
16,428
10,524
11,005
734
81
(756)
(319) 5
(124)
10,140
5,996
653
36
(850)
(255)
(65)
10,524
5,905
1 Includes write-offs of fully depreciated assets. 2 Impairment charges recorded in 2013 relate to assets for which the recoverable amount was determined based on value-in-use (recoverable amount of the impaired
assets: CHF 36 million Leasehold improvements, CHF 0 million Software, CHF 1 million Other machines and equipment). 3 The fire insurance value of property and equipment was CHF 12,331 million as of 31 December
2013 (as of 31 December 2012: CHF 12,865 million), predominantly related to real estate. 4 As of 31 December 2013, contractual commitments to purchase property in the future amounted to approximately CHF 0.4
billion. 5 Reflects reclassifications to Properties held for sale (CHF 169 million on a net basis) reported within Other assets.
31.12.13
31.12.12
99
7
0
(16)
(81)
0
10
10
6
0
9
75
0
99
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
408
Note 17 Goodwill and intangible assets
Introduction
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
separate cash-generating units (CGU). The impairment test is per-
formed for each segment to which goodwill is allocated by com-
paring the recoverable amount, based on its value-in-use, to the
carrying amount of the respective segment. An impairment
charge is recognized if the carrying amount exceeds the recover-
able amount. As of 31 December 2013, total goodwill recognized
on the balance sheet was CHF 5.8 billion, of which CHF 1.3 bil-
lion, CHF 3.1 billion and CHF 1.4 billion was carried by Wealth
Management, Wealth Management Americas and Global Asset
Management, respectively. Based on the impairment testing
methodology described below, UBS concluded that the goodwill
balances as of 31 December 2013 allocated to these segments
remain recoverable.
Methodology for goodwill impairment testing
The recoverable amounts are determined using a discounted cash
flow model, which has been adapted to use inputs that consider
features of the banking business and its regulatory environment.
The recoverable amount of a segment is the sum of the discount-
ed earnings attributable to shareholders from the first five fore-
casted years and the terminal value. The terminal value, which
covers 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 and is adjusted for the effect of the capital as-
sumed to be needed to support the perpetual growth implied by
the long-term growth rate. The carrying amount for each seg-
ment is determined by reference to the Group’s equity attribution
framework. Within this framework, which is described in the
“Capital management” section of this report, the Board of Direc-
tors (BoD) attributes equity to the businesses after considering
their risk exposure, risk-weighted assets and leverage ratio de-
nominator usage, goodwill and intangible assets. The total
amount of equity attributed to the business divisions can differ
from the Group’s actual equity during a given period. The frame-
work is primarily used for purposes of measuring the performance
of the businesses and includes certain management assumptions.
Attributed equity equals 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. From 1 January 2013, attributed equity underpinning
goodwill and intangible assets that arose from the PaineWebber
acquisition is reported in Corporate Center – Core Functions. For
the purpose of the impairment test, the amount of goodwill and
intangible assets related to this acquisition is allocated back to the
respective business divisions when calculating the carrying
amounts, such that the treatment is consistent with previous
years. The attributed equity methodology is aligned with the busi-
ness planning process, the inputs from which are used in calculat-
ing the recoverable amounts of the respective CGU.
➔ 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 by applying a capital-asset-
pricing-model-based approach, as well as considering quantita-
tive and qualitative inputs from both internal and external ana-
lysts and the view of management. Based on this approach,
discount rates for all CGU have decreased by 1% compared with
last year.
409
Financial information Financial information
Notes to the consolidated financial statements
Note 17 Goodwill and intangible assets (continued)
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 in-
come 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 required
to be deducted from capital under the Basel capital framework, no
impact would be expected on the Group total capital ratios.
In 2012, an impairment test was performed as of 30 Septem-
ber 2012 with respect to the Investment Bank because indicators
of impairment were present for that cash-generating unit. These
indicators included negative variances from planned perfor-
mance, preliminary discussions regarding changes in strategy for
the Investment Bank and revised business plan information tak-
ing into account changes in market conditions and the global
economic outlook. The impairment test was based on the busi-
ness 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 2012. Additional assets were exam-
ined to determine 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 million for property and equipment, both in 2012.
These impairment losses were recognized in the Investment
Bank’s 2012 operating results as Impairment of goodwill, Amor-
tization and impairment of intangible assets, and Depreciation
and impairment of property and equipment. In 2013, these im-
pairment losses were retrospectively allocated to Corporate Cen-
ter – Non-core and Legacy Portfolio.
➔ Refer to “Note 1b Changes in accounting policies, comparability
and other adjustments” for more information on the creation of
Corporate Center – Non-core and Legacy Portfolio
Discount and growth rates
In %
Wealth Management
Wealth Management Americas
Global Asset Management
Investment Bank
CHF million
Historical cost
Balance at the beginning of the year
Additions / adjustments 1
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 2
Disposals
Write-offs
Foreign currency translation
Balance at the end of the year
Net book value at the end of the year
Discount rates
Growth rates
31.12.13
31.12.12
31.12.13
31.12.12
9.0
9.0
9.0
12.0
10.0
10.0
10.0
13.0
1.7
2.4
2.4
2.4
1.7
2.4
2.4
2.4
Goodwill
Total
Infrastructure
Intangible assets
Customer
relationships,
contractual
rights and other
5,949
41
(6)
(141)
5,842
0
5,842
696
(18)
678
424
35
(12)
447
231
773
38
(28)
(20)
763
532
44
3
(28)
(9)
543
220
Total
31.12.13
31.12.12
1,469
38
(28)
(38)
1,441
956
79
3
(28)
(21)
990
451
7,417
10,641
79
(35)
0
(179)
7,283
956
79
3
(28)
0
(21)
990
6,293
11
(1)
(3,110)
(124)
7,417
946
89
3,047
0
(3,110)
(17)
956
6,461
1 Mainly related to the acquisition of Link Investimentos, which was completed in 2013. Refer to “Note 31 Business combinations” for more information. 2 Impairment charges recorded in 2013 relate to assets for
which the recoverable amount was determined based on value-in-use (recoverable amount of the impaired assets: CHF 5 million).
410
Note 17 Goodwill and intangible assets (continued)
The following table presents the disclosure of goodwill and intangible assets by segment for the year ended 31 December 2013.
CHF million
Goodwill
Balance at the beginning of the year
Additions / adjustments
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
Wealth
Management
Wealth
Management
Americas
Investment Bank
Global Asset
Management
Corporate Center
UBS
Core Functions
Non-core and
Legacy Portfolio
1,304
(11) 1
(12)
1,281
55
2
(4)
(3)
1
50
3,213
(82)
3,131
323
(49)
(6)
267
52 2
(8)
44
90
23
(1)
(13)
(9)
90
1,432
(6)
(39)
1,386
34
(8)
(1)
25
5,949
41
(6)
0
(141)
5,842
513
38
(1)
(79)
(3)
(16)
451
6
13
(4)
15
4
(2)
0
3
1 Goodwill for an acquisition made prior to the adoption of IFRS 3 (revised 2009) was subsequently adjusted due to a change in the amount of contingent consideration. 2 Related to the acquisition of Link Investimen-
tos, which was completed in 2013. Refer to “Note 31 Business combinations” for more information.
The estimated, aggregated amortization expenses for intangible assets are as follows.
CHF million
Estimated, aggregated amortization expenses for:
2014
2015
2016
2017
2018
2019 and thereafter
Not amortized due to indefinite useful life
Total
Intangible assets
79
78
68
57
50
101
19
451
411
Financial information Financial information
Notes to the consolidated financial statements
Note 18 Other assets 1
CHF million
Prime brokerage receivables 2
Recruitment loans to financial advisors
Other loans to financial advisors
Accrued interest income
Accrued income – other
Prepaid expenses
Net defined benefit pension and post-employment assets3
Settlement and clearing accounts
VAT and other tax receivables
Properties and other non-current assets held for sale
Other
Total other assets
31.12.13
11,175
2,733
358
433
931
985
952
466
410
119
1,665
20,228
31.12.12
8,072
2,967
487
753
761
1,170
0
589
214
137
2,094
17,244
1 In 2013, changes in the presentation of this Note were made. Accrued income and prepaid expenses are no longer presented as a separate line item on the balance sheet but under Other assets. Recruitment loans
to financial advisors, Other loans to financial advisors, Accrued interest income, Accrued income – other and Prepaid expenses which were previously disclosed under Accrued income and prepaid expenses, are now
presented separately in this Note in order to enhance transparency. Prior periods have been restated. As a result, Other assets as of 31 December 2012 increased by CHF 6,138 million. Refer to “Note 1b Changes in
accounting policies, comparability and other adjustments” for more information. 2 Prime brokerage services include clearance, settlement, custody, financing and portfolio reporting services for corporate clients trading
across multiple asset classes. The balance is mainly comprised of margin lending receivables. 3 Refer to “Note 28 Pension and other post-employment benefit plans” for more information.
412
Balance sheet notes: liabilities
Note 19 Due to banks and customers
CHF million
Due to banks
Due to customers: demand deposits
Due to customers: time deposits
Due to customers: fiduciary deposits
Due to customers: retail savings / deposits
Total due to customers
Total due to banks and customers
Note 20 Financial liabilities designated at fair value
CHF million
Non-structured fixed-rate bonds
Structured debt instruments issued:
Equity-linked
Credit-linked
Rates-linked 1
Other
Structured over-the-counter debt instruments:
Equity-linked
Other
Repurchase agreements
Loan commitments 2
Total
of which: own credit on financial liabilities designated at fair value
31.12.13
12,862
178,972
47,326
21,459
143,068
390,825
403,686
31.12.12
23,024
162,954
51,266
24,984
134,255
373,459
396,483
31.12.13
3,664
31.12.12
4,845
32,835
6,279
14,488
2,698
3,478
4,839
1,572
49
69,901
577
35,259
9,382
18,599
4,241
7,959
9,784
1,672
161
91,901
292
1 Also includes non-structured rates-linked debt instruments issued. 2 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 2013, the contractual redemption amount at
maturity of Financial liabilities designated at fair value through
profit or loss was CHF 0.3 billion higher than the carrying value.
As of 31 December 2012, the contractual redemption amount at
maturity of such liabilities was CHF 0.2 billion higher than the car-
rying value.
As of 31 December 2013 and 31 December 2012, the Group
had CHF 69,901 million and CHF 91,901 million, respectively, of
financial liabilities designated at fair value, comprised of both
Swiss franc and non-Swiss franc-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. In-
terest rate ranges for future interest payments related to these fi-
nancial liabilities designated at fair value have not been included
in the table below as a majority of these liabilities are structured
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 “Note 27b Maturity analysis of financial liabilities” for
maturity information on an undiscounted cash flow basis
413
Financial information Financial information
Notes to the consolidated financial statements
Note 20 Financial liabilities designated at fair value (continued)
Contractual maturity of carrying value
CHF million, except where indicated
2014
2015
2016
2017
2018
2019–2023
Thereafter
Total
31.12.13
Total
31.12.12
UBS AG (Parent Bank)
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
Subsidiaries
Non-subordinated debt
Fixed-rate
Floating-rate
Subtotal
Total
3,556
14,057
17,612
1,881
9,244
11,126
4
779
783
125
511
636
1,361
6,522
7,882
55
211
267
2,637
3,412
6,049
79
656
735
933
3,293
4,227
242
264
506
2,275
5,105
7,380
175
557
732
18,395
11,762
8,149
6,784
4,733
8,112
2,788
8,126
10,915
788
264
1,052
11,966
15,431
49,760
65,191
1,468
3,242
4,710
22,344
62,551
84,894
1,733
5,273
7,006
69,901
91,901
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
of which: Swiss SRB Basel III low-trigger loss absorbing capital
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
31.12.13
15,811
2,961
8,862
27,633
17,417
14,341
11,040
4,710
8,293
779
2,083
53,953
81,586
31.12.12
11,153
7,792
13,548
32,493
31,341
15,116
11,848
3,656
7,585
1,341
5,113
72,344
104,837
1 Net of bifurcated embedded derivatives with a net negative fair value of CHF 160 million as of 31 December 2013. In 2013, the comparative period figure was corrected. On a corrected basis, as of 31 December 2012,
these derivatives had a net negative fair value of CHF 118 million.
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 14 Derivative instruments and hedge accounting.” As a re-
sult of applying hedge accounting, the carrying value of debt is-
sued increased by CHF 1,119 million and by CHF 2,608 million as
of 31 December 2013 and 31 December 2012, respectively, re-
flecting changes in fair value due to interest rate movements.
tively, of subordinated debt, which included CHF 4,710 million
and CHF 3,656 million of Swiss SRB Basel III low-trigger loss ab-
sorbing capital as of 31 December 2013 and 31 December 2012,
respectively. The majority of the subordinated debt outstanding as
of 31 December 2013 were fixed-rate issuances, with the remain-
der paying floating-rate interest 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.
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 2013 and 31 December 2012, the
Group had CHF 11,040 million and CHF 11,848 million, respec-
As of 31 December 2013 and 31 December 2012, the Group
had CHF 70,546 million and CHF 92,989 million, respectively, of
non-subordinated debt issued held at amortized cost, comprised
of both Swiss franc- and non-Swiss franc-denominated fixed-rate
and floating-rate debt.
414
Note 21 Debt issued held at amortized cost (continued)
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 redemp-
tion features. The Group uses interest rate swaps to hedge the
majority of fixed-rate debt issued, which changes their repricing
characteristics into those similar to floating-rate debt.
➔ Refer to “Note 27b Maturity analysis of financial liabilities” for
maturity information on an undiscounted cash flow basis
Contractual maturity dates of carrying value
CHF million, except where indicated
2014
2015
2016
2017
2018
2019–2023
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
25,023
0–6.6
5,661
383
3.1
6,154
0.3–3.9
6
889
2.4–7.4
5,332
0–6.4
131
7,484
0–5.9
5,753
0.4–6.6
8,250
0–4.9
1,305
3.1–5.9
653
4.1–7.4
0
0
31,067
7,049
6,769
8,137
5,753
2,469
0–8.0
2,469
33,536
2
0
2
7,050
540
0–8.3
540
7,309
141
0–8.0
141
8,277
3
0
1
4
5,757
13,713
5,944
Total
31.12.13
Total
31.12.12
59,381
77,511
7,988
9,198
10,805
11,157
235
78,409
692
98,557
3,175
6,150
1
3,177
81,586
129
6,280
104,837
1,384
0–2.8
2,190
2,368
4.3–8.8
5,943
1
0
1
5,207
4.5–7.6
235
13,693
20
0
20
Note 22 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
Reclassifications
Foreign currency translation / unwind of discount
Balance at the end of the year
Litigation,
regulatory
and similar
matters 2
1,432
8 3
1,788
(93)
(1,417)
0
(6)
(89)
1,622
Operational
risks 1
53
0
34
(10)
(31)
0
0
(1)
45
Loan com-
mitments
and guar-
antees Real estate
Restruc-
turing
Employee
benefits
Other
Total
31.12.13
Total
31.12.12
511
0
601
(95)
(349)
0
0
(9)
658 5
64
0
4
(6)
0
0
(1)
0
61
178
0
9
(2)
(32)
5
0
(2)
157 6
244
0
29
(27)
(22)
0
0
(2)
222 7
53
0
134 4
(6)
(4)
0
28
(1)
205
2,536
1,626
8
2,599
(238)
(1,855)
5
21
(104)
2,971
0
3,350
(273)
(2,102)
(4)
(47)
(14)
2,536
1 Comprises provisions for losses resulting from security risks and transaction processing risks. 2 Comprises provisions for losses resulting from legal, liability and compliance risks. 3 Related to the acquisition of Link
Investimentos. Refer to “Note 31 Business combinations” for more information. 4 Included a charge of CHF 110 million related to the Swiss-UK tax agreement. 5 Includes personnel-related restructuring provisions
of CHF 104 million as of 31 December 2013 (31 December 2012: CHF 243 million) and provisions for onerous lease contracts of CHF 554 million as of 31 December 2013 (31 December 2012: CHF 267 million).
6 Includes reinstatement costs for leasehold improvements of CHF 95 million as of 31 December 2013 (31 December 2012: CHF 97 million) and provisions for onerous lease contracts of CHF 62 million as of 31 Decem-
ber 2013 (31 December 2012: CHF 81 million). 7 Includes provisions for sabbatical and anniversary awards as well as provisions for severance which are not part of restructuring provisions.
415
Financial information Financial information
Notes to the consolidated financial statements
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
contracts, which cover a period of up to 11 years. Severance re-
lated provisions are utilized within a short time period, usually
within six months, but potential changes in amount may be trig-
gered 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 22b. Further information on the nominal principal amount
of Loan commitments and guarantees, representing our maxi-
mum exposure to credit risk, is disclosed in the “Credit risk” sec-
tion of this report. There are no material contingent liabilities as-
sociated 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.
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 estab-
lished a provision, in which case the matter is treated as a contin-
gent liability under the applicable accounting standard or (b) we
have established a provision but expect disclosure of that fact to
prejudice seriously our position with other parties in the matter
because it would reveal the fact that UBS believes an outflow of
resources to be probable and reliably estimable.
With respect to certain litigation, regulatory and similar mat-
ters as to which we have established provisions, we are able to
estimate the expected timing of outflows. However, the aggre-
gate amount of the expected outflows for those matters for
which we are able to estimate expected timing is immaterial rela-
tive to our current and expected levels of liquidity over the rele-
vant time periods.
The aggregate amount provisioned for litigation, regulatory
and similar matters as a class is disclosed in Note 22a above. It is
not practicable to provide an aggregate estimate of liability for
our litigation, regulatory and similar matters as a class of contin-
gent 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. Al-
though we therefore cannot provide a numerical estimate of the
future losses that could arise from the class of litigation, regula-
tory and similar matters, we can confirm that we believe that the
aggregate amount of possible future losses from this class that are
more than remote substantially exceeds the level of current provi-
sions.
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-
The risk of loss associated with litigation, regulatory and similar
matters is a component of operational risk for purposes of deter-
mining our capital requirements. Information concerning our
capital requirements and the calculation of operational risk for
this purpose is included in the “Capital management” and “Risk
management and control” sections of this report.
416
Note 22 Provisions and contingent liabilities (continued)
Provisions for litigation, regulatory and similar matters by segment 1
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
Reclassifications
Foreign currency translation / unwind of discount
Balance at the end of the year
Wealth
Manage-
ment
Wealth
Manage-
ment
Americas
130
170
114
(18)
(53)
(7)
(1)
165
65
(25)
(149)
(5)
56
Retail &
Corporate
Global
Asset Man-
agement
Investment
Bank
29
55
(2)
(7)
7
82
7
1
(5)
3
28
8 2
16
(7)
(16)
(6)
(2)
22
Corporate
Center –
Core
Functions
Corporate
Center –
Non-core
and Legacy
Portfolio
338
732
203
(34)
(4)
0
(14)
488
1,334
(7)
(1,184)
(67)
808
Total
31.12.2013
Total
31.12.2012
1,432
8
1,788
(93)
(1,417)
(6)
(89)
482
2,686
(81)
(1,685)
43
(13)
1,622
1,432
1 Provisions, if any, for the matters described in (a) item 5 of this Note 22b are recorded in Wealth Management, (b) items 2 and 8 of this Note 22b are recorded in Wealth Management Americas, (c) item 12 of this
Note 22b are recorded in the Investment Bank, (d) items 4, 9 and 11 of this Note 22b are recorded in Corporate Center – Core Functions and (e) items 3 and 7 of this Note 22b are recorded in Corporate Center – Non-
core and Legacy Portfolio. Provisions for the matters described in items 1 and 10 of this Note 22b are allocated between Wealth Management and Retail & Corporate, and provisions for the matter described in item 6
of this Note 22b are allocated between the Investment Bank and Corporate Center – Non-core and Legacy Portfolio. 2 Related to the acquisition of Link Investimentos. Refer to “Note 31 Business combinations” for
more information.
1. Inquiries regarding cross-border wealth management
businesses
Following the disclosure and the settlement of the US cross-border
matter, tax and regulatory authorities in a number of countries
have made inquiries and served requests for information located in
their respective jurisdictions relating to the cross-border wealth
management services provided by UBS and other financial institu-
tions. As a result of investigations in France, in May and June 2013,
respectively, UBS (France) S.A. and UBS AG were put under formal
examination (“mise en examen”) for complicity in having illicitly so-
licited clients on French territory, and were declared witness with
legal assistance (“témoin assisté”) regarding the laundering of pro-
ceeds of tax fraud and of banking and financial solicitation by un-
authorized persons. In June 2013, the French banking supervisory
authority’s disciplinary commission reprimanded UBS (France) S.A.
for having had insufficiencies in its control and compliance frame-
work around its cross-border activities and “know your customer”
obligations. It imposed a penalty of EUR 10 million, and a provision
in that amount is reflected on our balance sheet at 31 December
2013. In Germany, several authorities have been conducting inves-
tigations against UBS Deutschland AG, UBS AG, and against cer-
tain employees of these entities concerning certain matters relating
to our cross-border business. UBS is cooperating with these au-
thorities within the limits of financial privacy obligations under
Swiss and other applicable laws. Settlement discussions have com-
menced with respect to the German investigations.
2. 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. (Leh man), 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 was named as a defendant in a putative class
action asserting violations of disclosure provisions of the federal se-
curities laws. In August 2013, UBSFS agreed to a proposed USD 120
million settlement of the case, which was approved by the Court in
December 2013. Previously, certain of the other underwriter defen-
dants and the former officers and directors of Lehman reached
separate settlements regarding the same case. UBSFS also has been
named in numerous individual civil suits and customer arbitrations,
a small number of which were pending as of 31 December 2013.
The individual customer claims, some of which have resulted in
awards payable by UBSFS, relate primarily to whether UBSFS ade-
quately disclosed the risks of these notes to its customers.
Our balance sheet at 31 December 2013 reflected a provision
with respect to pending arbitration matters described in this
item 2 in an amount that UBS believes to be appropriate under
the applicable accounting standard. As in the case of other mat-
ters 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.
3. 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 pur-
chaser and seller of US residential mortgages. A subsidiary of UBS,
UBS Real Estate Securities Inc. (UBS RESI), acquired pools of resi-
dential mortgage loans from originators and (through an affiliate)
deposited them into securitization trusts. In this manner, from
2004 through 2007, UBS RESI sponsored approximately USD
417
Financial information Financial information
Notes to the consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
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 ac-
tive from 2006 to 2008, and securitized less than half of these loans.
Securities lawsuits concerning disclosures in RMBS offering doc-
uments: UBS is named as a defendant relating to its role as under-
writer and issuer of RMBS in a large number of lawsuits related to
approximately USD 13 billion in original face amount of RMBS un-
derwritten or issued by UBS. Some of the lawsuits are in their early
stages and have not advanced beyond the motion to dismiss phase;
others are in varying stages of discovery. Of the USD 13 billion in
original face amount of RMBS that remains at issue in these cases,
approximately USD 3 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 10 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 indemni-
fication rights against surviving third-party issuers or originators
for losses or liabilities incurred by UBS, but UBS cannot predict the
extent to which it will succeed in enforcing those rights. A class
action settlement announced in April 2013 by a third-party issuer
received final approval by the district court in December 2013.
The settlement, which is subject to appeal, reduced the original
face amount of RMBS at issue in these cases from USD 37 billion
to USD 13 billion, and the original face amount of RMBS at issue
in cases involving third-party issuers from USD 34 billion to USD
10 billion, as noted above. The third-party issuer will fund the
settlement at no cost to UBS. In January 2014, certain objectors to
the settlement filed a notice of appeal from the district court’s
approval of the settlement.
In 2012, a federal court in New Jersey dismissed with prejudice
on statute of limitations grounds a putative class action lawsuit
that asserted violations of the federal securities laws against vari-
ous UBS entities, among others, in connection with USD 2.6 billion
in original face amount of UBS-sponsored RMBS. In September
2013, the US Court of Appeals for the Third Circuit affirmed the
district court’s dismissal with prejudice, and in October 2013 the
Court of Appeals denied plaintiffs’ petition for en banc review.
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 contrac-
tually 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 institu-
tional purchasers and insurers of mortgage loans and RMBS of their
contention that possible breaches of representations may entitle
the purchasers to require that UBS repurchase the loans or to other
relief. The table below summarizes repurchase demands received
by UBS and UBS’s repurchase activity from 2006 through 5 March
2014. 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.
Loan repurchase demands by year received – original principal balance of loans 1
USD million
Resolved demands
Actual or agreed loan repurchases / make whole payments by UBS
Demands rescinded by counterparty
Demands resolved in litigation
Demands expected to be resolved by third parties
Demands resolved or expected to be resolved through enforcement of
indemnification rights against third-party originators
Demands in dispute
Demands in litigation
Demands in review by UBS
Demands rebutted by UBS but not yet rescinded by counterparty
Total
1 Loans submitted by multiple counterparties are counted only once.
418
2006–2008
2009
2010
2011
2012
2013
5 March
Total
2014, through
12
110
1
1
104
21
19
304
237
77
2
45
128
99
346
732
1,041
1
205
2
368
122
2
1
2
17
1,084
1,424
3
515
618
3
3
13
774
21
351
2,118
8
540
3,825
Note 22 Provisions and contingent liabilities (continued)
Payments that UBS has made or agreed to make to date to resolve
repurchase demands equate to approximately 62% of the original
principal balance of the related loans. Most of the payments 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 repur-
chase 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 representa-
tions 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 securitized by UBS
from 2004 through 2007, less than 50% was purchased from surviv-
ing 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 response to demands re-
ceived 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.
Lawsuits related to contractual representations and warranties
concerning mortgages and RMBS: In 2012, certain RMBS trusts filed
an action in the Southern District of New York (Trustee Suit) seeking
to enforce UBS RESI’s obligation to repurchase loans with an original
principal balance of approximately USD 2 billion for which Assured
Guaranty Municipal Corp. (Assured Guaranty), a financial guaranty
insurance company, had previously demanded repurchase. The case
is in discovery. Related litigation brought by Assured Guaranty was
resolved in May 2013. With respect to the loans subject to the Trust-
ee Suit that were originated by institutions still in existence, UBS
intends to enforce its indemnity rights against those institutions. At
this time, UBS does not expect that it will be required to make pay-
ment for the majority of loan repurchase demands at issue in the
Trustee Suit for at least the following reasons: (1) we reviewed the
origination file and/or servicing records for the loan and concluded
that the allegations of breach of representations and warranties are
unfounded, 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 connec-
tion with approximately half of the USD 2 billion in original principal
balance of loans at issue in this suit (reflected in the “Demands in
litigation” category in the table above).
In 2012, the FHFA, on behalf of 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 al-
leged breaches of representations and warranties in connection
with certain mortgage loans and UBS RESI’s alleged failure to re-
purchase such mortgage loans. The complaint for this suit was
filed in September 2012. The lawsuit seeks, among other relief,
specific performance of UBS RESI’s alleged loan repurchase obli-
gations for at least USD 94 million in original principal balance of
loans for which Freddie Mac had previously demanded repur-
chase; no damages are specified. In June 2013, the Court dis-
missed the complaint for lack of standing, on the basis that only
the RMBS trustee could assert the claims in the complaint, and
the complaint was unclear as to whether the trustee was the
plaintiff and had proper authority to bring suit. The trustee filed
an amended complaint in June 2013, which UBS moved to dis-
miss in July 2013. The motion remains pending.
In December 2013, Residential Funding Company LLC (RFC)
filed a complaint in New York Supreme Court against UBS RESI
asserting claims for breach of contract and indemnification in
connection with loans purchased from UBS RESI with an original
principal balance of USD 460 million that were securitized by an
RFC affiliate. This is the first case filed against UBS seeking dam-
ages allegedly arising from the securitization of whole loans pur-
chased from UBS. Damages are unspecified.
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 at 31 De-
cember 2013 reflected a provision of USD 807 million with re-
spect to matters described in this item 3. As in the case of other
matters for which we have established provisions, the future out-
flow of resources in respect of this matter cannot be determined
with certainty based on currently available information, and ac-
cordingly may ultimately prove to be substantially greater (or may
be less) than the provision that we have recognized.
UBS has received requests from both the Special Inspector
General for the Troubled Asset Relief Program (SIGTARP) (who is
working in conjunction with the US Attorney’s Office for Con-
necticut and the US Department of Justice, Criminal Division,
Fraud Section) and the SEC for information relating to its practices
in connection with purchases and sales of mortgage-backed secu-
rities. We are cooperating with the authorities in these matters,
which are in an early stage. Numerous other banks reportedly
have received similar requests.
419
Financial information Financial information
Notes to the consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
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
31.12.13
31.12.12
658
1,359
(1)
(1,208)
807
104
554
0
0
658
4. 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 2012, the court dismissed with prejudice the remaining
claims based on purchases or sales of UBS ordinary 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 duties brought on
behalf of current and former participants in two UBS Employee
Retirement Income Security Act (ERISA) retirement plans in which
there were purchases of UBS stock. In 2011, the court dismissed
the ERISA complaint. In 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 second 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 pru-
dently manage the plan’s investment options, as well as the claims
derivative of that duty.
In 2012, a consolidated complaint was filed in a putative secu-
rities fraud class action pending in federal court in Manhattan
against UBS AG and certain of its current and former officers re-
lating to the unauthorized trading incident that occurred in the
Investment Bank and was announced in September 2011. 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. In December 2013, the district court granted
UBS’s motion to dismiss the complaint in its entirety. Plaintiffs
have filed a notice of appeal.
5. 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 Lux-
embourg, 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
420
Note 22 Provisions and contingent liabilities (continued)
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 Luxem-
bourg fund concerned. The total amount claimed against all de-
fendants was not less than USD 555 million. Following a motion
by UBS, in 2011, the District Court dismissed all of the BMIS Trust-
ee’s claims other than claims for recovery of fraudulent convey-
ances and preference payments that were allegedly transferred to
UBS on the ground that the BMIS Trustee lacks standing to bring
such claims. In June 2013, the Second Circuit Court of Appeals
rejected the BMIS Trustee’s appeal against that ruling and upheld
the District Court’s decision. The BMIS Trustee has sought leave to
appeal to the US Supreme Court, which has invited the Solicitor
General of the United States to file a brief expressing the views of
the United States as to whether review should be granted. In Ger-
many, certain clients of UBS are exposed to Madoff-managed po-
sitions through third-party funds and funds administered by UBS
entities in Germany. A small number of claims have been filed
with respect to such funds.
6. 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 Milan,
in 2012, civil claims brought by the City of Milan against UBS
Limited, UBS Italia SIM Spa and three other international banks in
relation to a 2005 bond issue and associated derivatives transac-
tions entered into with Milan between 2005 and 2007 were set-
tled without admission of liability. In 2012, the criminal court in
Milan issued a judgment convicting two current UBS employees
and one former employee, together with employees from the
three other banks, of fraud against a public entity in relation to
the same bond issue and the execution, and subsequent restruc-
turing, of the related derivative transactions. In the same proceed-
ings, the Milan criminal court also found UBS Limited and three
other banks liable for the administrative offense of failing to have
in place a business organizational model capable of preventing
the criminal offenses of which its employees were convicted. The
sanctions against UBS Limited, which are not effective until ap-
peals 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 payment of legal fees. UBS has previously provided for this
potential exposure in the amount of EUR 18.5 million. UBS Limit-
ed and the individuals appealed that judgment, and in March
2014, the Milan Court of Appeal handed down its judgment in
short form. It overturned all findings of liability against UBS Lim-
ited and convictions of the UBS individuals and acquitted them,
stating that the conduct did not occur. The court indicated that it
would issue a full judgment within 90 days.
Derivative transactions with the Regions of Calabria, Tuscany,
Lombardy, Lazio and Campania, and the City of Florence have
also been called into question or become the subject of legal pro-
ceedings and claims for damages and other awards. In 2012, UBS
AG and UBS Limited settled all civil disputes with the Regions of
Tuscany, Lombardy and Lazio without any admission of liability. In
August 2013, a settlement of all civil and administrative disputes
was reached with the City of Florence. Provisions were booked in
respect of these settlements.
7. Kommunale Wasserwerke Leipzig GmbH (KWL)
In 2006 and 2007, KWL entered into a series of Credit Default Swap
(CDS) transactions with bank swap counterparties, including UBS.
UBS entered into back-to-back CDS transactions with the other
counterparties, Depfa Bank plc (Depfa) and Landesbank Baden-
Württemberg (LBBW), in relation to their respective swaps with KWL.
As a result of the KWL CDS transactions and the back-to-back CDS
transactions with Depfa and LBBW, UBS and UBS Limited are owed a
total amount of approximately USD 319.8 million, plus interest,
which remains unpaid. Specifically, under the CDS contracts between
KWL and UBS, the last of which were terminated by UBS in 2010, a
net sum of approximately USD 137.6 million, plus interest, has fallen
due from KWL but not been paid. Earlier in 2010, UBS issued pro-
ceedings in the English High Court against KWL seeking various dec-
larations from the English court, in order to establish that the swap
transaction between KWL and UBS is valid, binding and enforceable
as against KWL. The English court ruled in 2010 that it has jurisdic-
tion 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 proceedings.
KWL is defending against UBS’s claims and has served a counterclaim
which also joins UBS Limited and Depfa to the proceedings. 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 pursuant 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. Both KWL and Depfa make mutually exclusive
claims for payment of USD 32.6 million which has previously been
paid by Depfa to UBS Limited. The trial is due to start in April 2014.
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 have continued in Leipzig, and in June 2013,
421
Financial information Financial information
Notes to the consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
the court in Leipzig ruled in LBBW’s favor. KWL has filed an appeal
against that ruling. A hearing is fixed for late March 2014. The
Leipzig court has also 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 Eng-
lish High Court against Depfa and LBBW seeking declarations as to
the parties’ obligations under the back-to-back CDS trans actions
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 are de-
fending against the claims and have also issued counterclaims. Ad-
ditionally Depfa added a claim against KWL to the proceedings
against it and KWL served a defense.
In 2011, the former managing director of KWL and two financial
advisers were convicted on criminal charges related to certain KWL
transactions, including swap transactions with UBS and other banks.
Following further criminal proceedings brought against them in
Dresden relating to the same transactions, they were each convicted
of embezzlement in December 2013 and given longer sentences.
They have indicated that they will appeal.
Since 2011, the SEC has been conducting an investigation fo-
cused on, among other things, the suitability of the KWL transac-
tions, and information provided by UBS to KWL. UBS has provided
documents and testimony to the SEC and is continuing to cooperate
with the SEC.
8. Puerto Rico
In 2011, a purported 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 Ser-
vices Inc. of Puerto Rico (UBS PR) and other consultants and under-
writers, trustees of the System, and the President and Board of the
Government Development Bank of Puerto Rico. The plaintiffs al-
leged that defendants violated their purported fiduciary duties and
contractual obligations in connection with the issuance and under-
writing of approximately USD 3 billion of bonds by the System in
2008 and sought damages of over USD 800 million. UBS is named
in connection with its underwriting and consulting services. In March
2013, the case was dismissed by the Puerto Rico Court of First In-
stance on the grounds that plaintiffs did not have standing to bring
the claim. That dismissal was overturned by the Puerto Rico Court of
Appeals in September 2013. In February 2014, UBS’s petition for
appeal was denied by the Supreme Court of Puerto Rico, and UBS is
filing motions for reconsideration. Also, in October 2013, an SEC
Administrative Law Judge dismissed a case brought by the SEC
against two UBS executives following a hearing that took place in
late 2012, finding no violations. The charges had stemmed from the
SEC’s investigation of UBS’s sale of closed-end funds in 2008 and
2009, which UBS settled in May 2012. Additionally, declines in Puer-
to Rico municipal bond and closed-end fund prices since August
422
2013 have led to multiple regulatory inquiries, customer complaints
and arbitrations filed by clients in Puerto Rico who own those securi-
ties. A shareholder derivative action also was filed in February 2014
against various UBS entities and current and certain former directors
of the closed-end funds, alleging hundreds of millions in losses in
the funds. An internal review also disclosed that certain clients,
many of whom acted at the recommendation of one financial advi-
sor, invested proceeds of non-purpose loans in closed-end fund se-
curities in contravention of their loan agreements.
Our balance sheet at 31 December 2013 reflected a provision
with respect to the matters described in this item 8 in an amount
that UBS believes to be appropriate under the applicable accounting
standards. As in the case of other matters for which we have estab-
lished provisions, the future outflow of resources in respect of such
matters cannot be determined with certainty based on currently
available information, and accordingly may prove to be substantially
greater (or may be less) than the provision that we have recognized.
9. LIBOR, foreign exchange, and benchmark rates
LIBOR and other benchmark-related regulatory matters: Numerous
government agencies, including the SEC, the US Commodity Fu-
tures Trading Commission (CFTC), the US Department of Justice
(DOJ), the UK Financial Conduct Authority (FCA) (to which certain
responsibilities of the UK Financial Services Authority (FSA) have
passed), the UK Serious Fraud Office (SFO), the Monetary Authority
of Singapore (MAS), the Hong Kong Monetary Authority (HKMA),
FINMA, the various state attorneys general in the US, and competi-
tion authorities in various jurisdictions have conducted or are con-
tinuing to conduct investigations regarding submissions with re-
spect to British Bankers’ Association LIBOR (London Interbank
Offered Rate) and other benchmark rates, including HIBOR (Hong
Kong Interbank Offered Rate) and ISDAFIX. These investigations fo-
cus on whether there were improper attempts by UBS (among oth-
ers), either acting on our own or together with others, to manipu-
late LIBOR and other benchmark rates at certain times.
In 2012, UBS reached settlements with the FSA, the CFTC and
the Criminal Division of the DOJ in connection with their investiga-
tions of benchmark interest rates. At the same time FINMA issued
an order concluding its formal proceedings with respect to UBS re-
lating to benchmark interest rates. UBS has paid a total of approxi-
mately 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 FINMA. Under a non-prose-
cution agreement (NPA) that UBS entered into with the DOJ, UBS
agreed to pay a fine of USD 500 million. Pursuant to a separate plea
agreement between the DOJ and UBS Securities Japan Co. Ltd.
(UBSSJ), UBSSJ entered a plea to one count of wire fraud relating to
the manipulation of certain benchmark interest rates, including Yen
LIBOR. The NPA required UBS to pay the USD 500 million fine to DOJ
after the sentencing of UBSSJ, and provides that any criminal penal-
ties imposed on UBSSJ at sentencing be deducted from the USD
500 million fine. At the sentencing hearing held in September 2013,
Note 22 Provisions and contingent liabilities (continued)
the court approved the proposed plea agreement and imposed a
USD 100 million fine against UBSSJ, as agreed to by the DOJ and
UBSSJ under the plea agreement. Since the sentencing, UBS has
paid a fine of USD 400 million to the DOJ, and UBSSJ has paid the
USD 100 million fine imposed by the sentencing court. The conduct
described in the various settlements and the FINMA order includes
certain UBS personnel: engaging in efforts to manipulate submis-
sions for certain benchmark rates to benefit trading positions; col-
luding with employees at other banks and cash brokers to influence
certain benchmark rates to benefit their trading positions; and giv-
ing inappropriate directions to UBS submitters that were in part mo-
tivated by a desire to avoid unfair and negative market and media
perceptions during the financial crisis. The benchmark interest rates
encompassed by one or more of these resolutions include Yen LI-
BOR, 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 cooperate with au-
thorities with which we have reached resolutions and to undertake
certain remediation with respect to benchmark interest rate submis-
sions. Investigations by the CFTC and other government authorities
remain ongoing notwithstanding these resolutions.
UBS has been granted conditional leniency or conditional immu-
nity from authorities in certain jurisdictions, including the Antitrust
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 LI-
BOR. The Canadian Competition Bureau (Bureau) had granted UBS
conditional immunity in connection with potential competition law
violations related to submissions for Yen LIBOR, but in January 2014,
the Bureau announced the discontinuation of its investigation into
Yen LIBOR for lack of sufficient evidence to justify prosecution under
applicable laws. 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 condi-
tional 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 addi-
tion, as a result of the conditional leniency agreement with the DOJ,
we are eligible for a limit on liability to actual rather than treble
damages were damages to be awarded in any civil antitrust action
under US law based on conduct covered by the agreement and for
relief from potential joint and several liability in connection with
such civil antitrust action, subject to our satisfying the DOJ and the
court presiding over the civil litigation of our cooperation. The con-
ditional leniency and conditional immunity grants do not otherwise
affect the ability of private parties to assert civil claims against us.
In December 2013, the European Commission (EC) announced a
decision adopted in the Commission’s Yen Interest Rate Derivatives
(YIRD) investigation, under which UBS has received full immunity
from fines for disclosing to the Commission the existence of in-
fringements relating to YIRD.
In June 2013, the MAS announced the results of its investigation
of benchmark submissions by 20 banks, including UBS. The investi-
gation related to various benchmark submissions, including the Sin-
gapore Interbank Offered Rates and the Swap Offered Rates, and
covered the period from 2007 to 2011. The MAS found deficiencies
in the governance, risk management, internal controls and surveil-
lance systems for the banks’ benchmark submission processes and
directed the banks to correct the deficiencies and set aside addi-
tional statutory reserves with MAS at zero interest for one year. The
MAS also announced proposed changes to its regulatory framework
for financial benchmarks that are designed to enhance the integrity
of the process for setting benchmarks.
In December 2013, UBS entered into an enforceable undertaking
in relation to an investigation by the Australian Securities and Invest-
ments Commission (ASIC) into conduct relating to Australian Bank
Bill Swap Rate (BBSW) submissions. An independent expert en-
gaged by UBS at ASIC’s request concluded that, to the extent there
may have been any impact of such conduct on the market as a
whole, it would have been insignificant. The enforceable undertak-
ing requires UBS to ensure that its participation in relation to the
setting of Australian interest rate benchmarks upholds the integrity
and reliability of those benchmarks and is in accordance with its
obligations under the CFTC order. UBS also agreed to make a volun-
tary contribution of AUD 1 million to fund independent financial
literacy projects in Australia. ASIC has the power to investigate, con-
duct further surveillance or pursue criminal prosecution of UBS or its
representatives in relation to any contravention. ASIC acknowl-
edged UBS’s cooperation and the fact that it was the first bank to
report this conduct to it. ASIC’s inquiries in relation to the BBSW rate
set are ongoing.
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 TIBOR. These ac-
tions 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 Euroyen 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 benefiting trading positions.
LIBOR and other benchmark-related civil litigation: A number of
putative class actions and other actions are pending in the federal
courts in New York against UBS and numerous other banks on be-
half of parties who transacted in certain interest rate benchmark-
based derivatives linked directly or indirectly to US dollar LIBOR, Yen
LIBOR, Euroyen TIBOR and EURIBOR. Also pending are actions as-
423
Financial information Financial information
Notes to the consolidated financial statements
Note 22 Provisions and contingent liabilities (continued)
serting losses related to various products whose interest rate was
linked to US dollar LIBOR, including adjustable rate mortgages,
preferred and debt securities, bonds pledged as collateral, loans,
depository accounts, investments and other interest bearing in-
struments. 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, the federal racketeering statute, fed-
eral and state antitrust and securities laws and other state laws. In
March 2013, a federal court in New York dismissed the federal
antitrust and racketeering claims of certain US dollar LIBOR plain-
tiffs and a portion of their claims brought under the Commodity
Exchange Act (CEA) and state common law. In August 2013, the
same court denied the parties’ requests for reconsideration and
plaintiffs’ motion for interlocutory appeal and to amend the com-
plaints to include additional antitrust and Commodity Exchange
Act allegations. It granted certain plaintiffs permission to assert
claims for unjust enrichment and breach of contract. Motions to
dismiss these unjust enrichment and breach of contract claims are
pending, as is a renewed motion to dismiss by UBS and other
defendants that seeks dismissal of further CEA claims. Certain
plaintiffs have also appealed the dismissal of their antitrust claims,
but in October 2013 the appellate court denied these appeals as
premature, without prejudice to bringing the appeals again after
final disposition of the LIBOR actions. UBS and other defendants
in other lawsuits including the one related to Euroyen TIBOR have
filed motions to dismiss.
With respect to additional matters and jurisdictions not en-
compassed by the settlements and order referred to above, our
balance sheet at 31 December 2013 reflected a provision of 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.
Foreign exchange-related regulatory matters: Following an ini-
tial media report in June 2013 of widespread irregularities in the
foreign exchange markets, UBS immediately commenced an in-
ternal review of its foreign exchange business, which includes our
precious metals business. Since then, various authorities report-
edly have commenced investigations concerning possible manip-
ulation of foreign exchange markets, including FINMA, WEKO,
the DOJ, the CFTC, and the FCA. UBS and other financial institu-
tions have received requests from various authorities relating to
their foreign exchange businesses, and UBS is cooperating with
the authorities. A number of authorities also are reportedly inves-
tigating potential manipulation of precious metal prices. UBS has
taken and will take appropriate action with respect to certain per-
sonnel as a result of its ongoing review.
Foreign exchange-related civil litigation: Several putative class
actions have been filed since November 2013 in US federal courts
against UBS and other banks. These actions are on behalf of puta-
tive classes of persons who engaged in foreign currency transac-
tions. They allege collusion by the defendants and assert claims
under the antitrust laws and for unjust enrichment. The defen-
dants (including UBS) have not yet filed responsive pleadings.
10. Swiss retrocessions
The Swiss Supreme Court ruled in 2012, in a test case against
UBS, that distribution fees paid to a bank for distributing third
party and intra-group investment funds and structured products
must be disclosed and surrendered to clients who have entered
into a discretionary mandate agreement with the bank, absent a
valid waiver.
FINMA has issued a supervisory note to all Swiss banks in re-
sponse 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 potentially affected
clients.
It is expected that the Supreme Court decision will result in a
significant number of client requests for UBS to disclose and poten-
tially surrender retrocessions. Client requests are being assessed on
a case-by-case basis. Considerations to be taken into account when
assessing these cases include, among others, the existence of a dis-
cretionary mandate and whether or not the client documentation
contained a valid waiver with respect to distribution fees.
Our balance sheet at 31 December 2013 reflected a provision
with respect to matters described in this item 10 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. Hence as in the case of other matters for which we have
established provisions, the future outflow of resources in respect
of such matters cannot be determined with certainty based on
currently available information, and accordingly may ultimately
prove to be substantially greater (or may be less) than the provi-
sion that we have recognized.
11. 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 BRL 2.5 billion, including interest and penalties, which is
net of liabilities retained by BTG. The claims pertain principally to
several tax assessments issued by the Brazilian tax authorities
against Pactual relating to the period from December 2006
424
Note 22 Provisions and contingent liabilities (continued)
through March 2009, when UBS owned Pactual. These assess-
ments are being or will be challenged in administrative proceed-
ings. BTG has also provided notice to UBS of several additional
Pactual-related inquiries by the Brazilian tax authorities that relate
to the period of UBS’s ownership of Pactual, but involving sub-
stantially smaller amounts. In November and December 2013,
approximately BRL 128 million in tax claims relating to the period
for which UBS has indemnification obligations were submitted for
settlement through amnesty programs announced by the Brazil-
ian government in October 2013.
Our balance sheet at 31 December 2013 reflected a provision
with respect to matters described in this item 11 in an amount
that UBS believes to be appropriate under the applicable account-
ing standard. 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 cur-
rently available information, and accordingly may ultimately prove
to be substantially greater (or may be less) than the provision that
we have recognized.
12. Matters relating to the CDS market
In July 2013 the EC issued a Statement of Objections against thir-
teen credit default swap (CDS) dealers including UBS, as well as
data service provider Markit and the International Swaps and De-
rivatives Association (ISDA). The Statement of Objections broadly
alleges that the dealers infringed EU antitrust rules by colluding to
prevent exchanges from entering the credit derivatives market be-
tween 2006 and 2009. We have submitted our response to the
Statement of Objections. Since mid-2009, the Antitrust Division
of the DOJ has also been investigating whether multiple dealers,
including UBS, conspired with each other and with Markit to re-
strain competition in the markets for CDS trading, clearing and
other services. Between May 2013 and November 2013, several
putative class action complaints were filed against twelve dealers,
including UBS, as well as Markit and ISDA, alleging violations of
the US Sherman Antitrust Act. In January 2014, after the cases
were consolidated for pretrial purposes in the Southern District of
New York, plaintiffs filed a consolidated amended complaint.
Plaintiffs allege that the defendants, Markit and ISDA unlawfully
conspired to restrain competition in and / or monopolize the mar-
ket for CDS trading in the US in order to protect the dealers’
profits from trading CDS in the over-the-counter market. Plaintiffs
assert claims under the Sherman Act and common law on behalf
of all purchasers and sellers of CDS that transacted directly with
any of the dealer defendants since January 1, 2008, and seek
unspecified trebled compensatory damages and other relief.
Note 23 Other liabilities 1
CHF million
Prime brokerage payables 2
Amounts due under unit-linked investment contracts
Accrued expenses – compensation related
Accrued expenses – interest expense
Accrued expenses – other
Deferred compensation plans
Net defined benefit pension and post-employment liabilities 3
Third-party interest in consolidated investment funds
Settlement and clearing accounts
Current and deferred tax liabilities 4
VAT and other tax payables
Deferred income
Other
Total other liabilities
31.12.13
32,543
16,155
2,631
1,199
2,465
1,919
1,048
953
946
667
570
264
1,417
62,777
31.12.12
35,620
15,299
2,043
1,955
2,628
1,541
1,284
965
991
586
606
291
2,713
66,523
1 In 2013, changes in the presentation of this Note were made. Accrued expenses and deferred income are no longer presented as a separate line item on the balance sheet but under Other liabilities. Accrued expenses –
compensation related, Accrued expenses – interest expense, Accrued expenses – other and Deferred income, which were previously disclosed under Accrued expenses and deferred income, are now presented separate-
ly in this Note in order to enhance transparency. Prior periods have been restated. As a result, Other liabilities as of 31 December 2012 increased by CHF 6,917 million. Refer to “Note 1b Changes in accounting policies,
comparability and other adjustments” for more information. 2 Prime brokerage services include clearance, settlement, custody, financing and portfolio reporting services for corporate clients trading across multiple as-
set classes. The balance is mainly comprised of client securities financing and deposit liabilities. 3 Refer to “Note 28 Pension and other post-employment benefit plans” for more information. 4 Deferred tax liabilities
were CHF 59 million and CHF 52 million for 31 December 2013 and 31 December 2012, respectively. Refer to “Note 8 Income taxes” for more information.
425
Financial information Financial information
Notes to the consolidated financial statements
Additional information
Note 24 Fair value measurement
This note provides fair value measurement information for both fi-
nancial and non-financial instruments and is structured as follows:
a) Valuation principles
b) Valuation governance
c) Valuation techniques
d) Valuation adjustments
e) Fair value measurements and classification within the
fair value hierarchy
f) Transfers between Level 1 and Level 2 in the fair value
hierarchy
g) Movements of Level 3 instruments
h) Valuation of assets and liabilities classified as Level 3
i) Sensitivity of fair value measurements to changes in
unobservable input assumptions
j) Deferred day-1 profit or loss
k) Financial instruments not measured at fair value
a) Valuation principles
Fair value is defined as the price that would be received for the
sale of an asset or paid to transfer a liability in an orderly transac-
tion between market participants in the principal or most advan-
tageous market as of the measurement date. In measuring fair
value, the Group utilizes various valuation approaches and applies
a hierarchy for prices and inputs that maximizes the use of observ-
able market data, if available.
All financial and non-financial assets and liabilities measured or
disclosed at fair value are categorized into one of three fair value
hierarchy levels. In certain cases, the inputs used to measure fair
value may fall within different levels of the fair value hierarchy. For
disclosure purposes, the level in the hierarchy within which the
instrument is classified in its entirety is based on the lowest level
input that is significant to the position’s fair value measurement:
– Level 1 – quoted prices (unadjusted) in active markets for iden-
tical assets and liabilities;
– Level 2 – valuation techniques for which all significant inputs
are, or are based on, observable market data or
– Level 3 – valuation techniques for which significant inputs are
not based on observable market data
If available, fair values are determined using quoted prices in
active markets for identical assets or liabilities. An active market is
one in which transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing data on an
ongoing basis. Assets and liabilities that are quoted and traded in
an active market are valued at the currently quoted price multi-
plied by the number of units of the instrument held.
Where the market for a financial instrument or non-financial
asset or liability is not active, fair value is established using a valu-
ation technique, including pricing models. Valuation techniques
involve the use of estimates, the extent of which depends on the
complexity of the instrument 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 valuation technique, but which
would nevertheless be considered by market participants when
forming a price. The limitations inherent in a particular valuation
technique are considered in the determination of an asset or lia-
bility’s classification within the fair value hierarchy.
Many cash instruments and over-the-counter (OTC) derivative
contracts have bid and offer prices that can be observed in the
marketplace. Bid prices reflect the highest price that a party is will-
ing to pay for an asset. Offer prices represent the lowest price that
a party is willing to accept for an asset. In general, long positions
are measured at a bid price and short positions at an offer price,
reflecting the prices at which the instruments could be transferred
under normal market conditions. Offsetting positions in the same
financial instrument are marked at the mid-price within the bid-
offer spread.
Generally, the unit of account for a financial instrument is the
individual instrument, and UBS applies valuation adjustments at
an individual instrument level, consistent with that unit of ac-
count. However, if certain conditions are met, UBS may estimate
the fair value of a portfolio of financial assets and liabilities with
substantially similar and offsetting risk exposures on the basis of
the net open risks.
For transactions where the valuation technique used to mea-
sure fair value requires significant inputs that are not based on
observable market data, the financial instrument is initially recog-
nized at the transaction price. This initial recognition amount
may differ from the fair value obtained using the valuation tech-
nique. Any such difference is deferred and not recognized in the
income statement and referred to as deferred day-1 profit or loss.
Refer to “Note 24j Deferred day-1 profit or loss” for more infor-
mation.
426
Note 24 Fair value measurement (continued)
b) Valuation governance
UBS’s fair value measurement and model governance framework
includes numerous controls and other procedural safeguards that
are intended to maximize the quality of fair value measurements
reported in the financial statements. New products and valuation
techniques must be reviewed and approved by key stakeholders
from risk and finance control functions. Responsibility for the on-
going measurement of financial and non-financial instruments at
fair value resides with the business divisions, but is validated by
risk and finance control functions, which are independent of the
business divisions. In carrying out their valuation responsibilities,
the businesses are required to consider the availability and quality
of external market data and to provide justification and rationale
for their fair value estimates.
Independent price verification is performed by the finance
function to evaluate the business divisions’ pricing input assump-
tions and modeling approaches. By benchmarking the business’s
fair value estimates with observable market prices and other inde-
pendent sources, the degree of valuation uncertainty embedded
in these measurements is assessed and managed as required in
the governance framework. Fair value measurement models are
assessed for their ability to value specific products in the principal
market of the product itself, as well as the principal market for the
main valuation input parameters to the model.
An independent model review group evaluates UBS’s valuation
models on a regular basis, or when established triggers occur, and
approves them for valuation of specific products. As a result of
the valuation controls employed, valuation adjustments may be
made to the business’s estimate of fair value to align with inde-
pendent market data and accounting standards (refer to “Note
24d Valuation adjustments” for more information).
c) Valuation techniques
Valuation techniques are used to value positions for which a market
price is not available from market sources. This includes certain less
liquid debt and equity instruments and all derivatives transacted in
the OTC market. UBS uses widely recognized valuation techniques
for determining the fair value of financial and non-financial instru-
ments that are not actively traded and quoted. The most frequent-
ly applied valuation techniques include discounted value of expect-
ed cash flows, relative value and option pricing methodologies.
Discounted value of expected cash flows is a valuation tech-
nique that measures fair value using estimated expected future
cash flows from assets or liabilities and then discounts these cash
flows using a discount rate or discount margin that reflects the
credit and / or funding spreads required by the market for instru-
ments with similar risk and liquidity profiles to produce a present
value. When using such valuation techniques, expected future
cash flows are estimated using an observed or implied market
price for the future cash flows or by using industry standard cash
flow projection models. The discount factors within the calcula-
tion are generated using industry standard yield curve modeling
techniques and models.
Relative value models measure fair value based on the market
prices of equivalent or comparable assets or liabilities, making ad-
justments for differences between the characteristics of the ob-
served instrument and the instrument being valued.
Option pricing models incorporate assumptions regarding the
behavior of future price movements of an underlying referenced
asset or assets to generate a probability-weighted future expected
payoff for the option. The resulting probability-weighted expect-
ed payoff is then discounted using discount factors generated
from industry standard yield curve modeling techniques and mod-
els. The option pricing model may be implemented using a closed-
form analytical formula or other mathematical techniques (e.g.,
binomial tree or Monte Carlo simulation).
Where available, valuation techniques use market-observable
assumptions and inputs. If such data is not available, inputs may
be derived by reference to similar assets in active markets, from
recent prices for comparable transactions or from other observ-
able market data. When measuring fair value, UBS selects the
non-market-observable inputs to be used in its valuation tech-
niques, based on a combination of historical experience, deriva-
tion of input levels based on similar products with observable
price levels and knowledge of current market conditions and valu-
ation approaches.
For more complex instruments and instruments not traded in
an active market, fair values may be estimated using a combina-
tion 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 by consensus pricing ser-
vices. UBS also uses internally developed models, which are typi-
cally based on valuation methods and techniques recognized as
standard within the industry.
Assumptions and inputs used in valuation techniques include
benchmark interest rate curves, credit and funding spreads used
in estimating discount rates, bond and equity prices, equity index
prices, foreign exchange rates, levels of market volatility and cor-
relation, (refer to “Note 24h Valuation of assets and liabilities clas-
sified as Level 3”). The discount curves used by the Group incor-
porate the funding and credit characteristics of the instruments to
which they are applied.
427
Financial information Financial information
Notes to the consolidated financial statements
Note 24 Fair value measurement (continued)
d) Valuation adjustments
The output of a valuation technique is always an estimate or
approximation of a fair value that cannot be measured with com-
plete certainty. As a result, valuations are adjusted, where appropri-
ate, to reflect close-out costs, credit exposure, model-driven-
valuation uncertainty, trading restrictions and other factors, when
such factors would be considered by market participants in measur-
ing fair value. Valuation adjustments are an important component
of fair value for assets and liabilities that are measured using valua-
tion techniques. Such adjustments are applied to reflect uncertain-
ties within the fair value measurement process, to adjust for an
identified model simplification or to incorporate an aspect of fair
value that requires an overall portfolio assessment rather than an
evaluation based on an individual instrument level characteristic.
The major classes of valuation adjustments are discussed in
further detail below.
Reflection of market bid-offer levels
Instruments that are measured as part of a portfolio of combined
long and short positions are valued at mid-market levels to ensure
consistent valuation of the long and short component risks. A
valuation adjustment is then made to the overall net long or short
exposure to move the fair value to bid or offer as appropriate,
reflecting current levels of market liquidity. The bid-offer spreads
used in the calculation of the valuation adjustment are obtained
from market transactions and other relevant sources and are up-
dated periodically.
Reflection of model uncertainty
Uncertainties associated with the use of model-based valuations
are incorporated into the measurement of fair value through the
use of model reserves. These reserves reflect the amounts that the
Group estimates should be deducted from valuations produced
directly by models to incorporate uncertainties in the relevant
modeling assumptions, in the model and market inputs used, or
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
of which: Other instruments
Life-to-date gain / (loss)
of which: Monoline credit protection
of which: Other instruments
in the calibration of the model output to adjust for known model
deficiencies. In arriving at these estimates, the Group considers a
range of market practices, including how it believes market par-
ticipants would assess these uncertainties. Model reserves are re-
assessed periodically in light of data from market transactions,
consensus pricing services and other relevant sources.
Day-1 reserves
Day-1 profit or loss reserves are reflected, where appropriate, as
valuation adjustments. Refer to “Note 24j Deferred day-1 profit or
loss” for more information.
Counterparty credit risk in the valuation of derivatives
In order to measure fair value, credit valuation adjustments (CVA)
are necessary to reflect the credit risk of the counterparty inherent
in OTC derivative instruments. This amount represents the esti-
mated fair value of protection required to hedge the counterparty
credit risk of such instruments. The CVA is determined for each
counterparty considering all exposures to that counterparty and is
dependent on the expected future value of exposures, default
probabilities and recovery rates, applicable collateral or netting
arrangements, break clauses and other contractual factors.
Own credit risk in the valuations of OTC derivative instruments
The Group estimates debit valuation adjustments (DVA) to incor-
porate own credit in the valuation of derivatives, effectively con-
sistent with the CVA methodology. DVA represents the theoretical
cost to counterparties of hedging, or the credit risk reserve that a
counterparty could reasonably be expected to hold, against their
credit risk exposure to UBS. DVA is determined for each counter-
party considering all exposures with that counterparty and taking
into account collateral netting agreements, expected future mark-
to-market movements and UBS’s credit default spreads.
31.12.13
31.12.12
(0.1)
0.3
0.4
0.2
0.2
(0.5)
(0.1)
(0.4)
(0.4)
0.4
1.1
0.3
0.8
(0.9)
(0.4)
(0.6)
1 Amounts do not include reserves against defaulted counterparties. 2 Amounts do not include commutations.
428
Note 24 Fair value measurement (continued)
UBS’s own credit risk in the valuations of financial liabilities
designated at fair value
In addition to considering the valuation of the derivative risk com-
ponent, the valuation of fair value option liabilities also requires
consideration of the funded component and specifically the own
credit component of fair value. Own credit risk is reflected if this
component would be considered for valuation purposes by mar-
ket participants. Consequently, own credit risk is not reflected for
those contracts that are fully collateralized and for other contracts
for which it is established market practice not to include an own
credit component. The own credit component is estimated using
a funds transfer price (FTP) curve to derive a single, market-based
level of discounting for uncollateralized funded instruments. UBS
senior debt curve spreads are discounted in order to arrive at the
FTP curve, with the discount primarily reflecting the differences
between the spreads in the senior unsecured debt market for UBS
debt and the levels at which UBS MTN are currently issued. The
FTP curve is generally a Level 2 pricing input. However, certain
long-dated exposures that are beyond the tenors that are actively
traded are classified as Level 3.
The effects of own credit adjustments related to financial liabil-
ities designated at fair value (predominantly issued structured
products) as of 31 December 2013 and 2012, respectively, are
summarized in the table below.
Year-to-date amounts represent the change during the year,
and life-to-date amounts reflect the cumulative change since ini-
tial recognition. The change in own credit for the period consists
of changes in fair value that are attributable to the change in
UBS’s credit spreads as well as the effect of changes in fair values
attributable to factors other than credit spreads, such as redemp-
tions, effects from time decay and changes in interest and other
market rates.
Own credit on financial liabilities designated at fair value
CHF million
Gain / (loss) for the year ended
Life-to-date gain / (loss)
As of or for the year ended
31.12.13
31.12.12
31.12.11
(283)
(577)
(2,202)
(292)
1,537
1,934
429
Financial information Financial information
Notes to the consolidated financial statements
Note 24 Fair value measurement (continued)
e) Fair value measurements and classification within the fair value hierarchy
The classification in the fair value hierarchy of the Group’s finan-
cial and non-financial assets and liabilities measured at fair value
is summarized in the table below. The narrative that follows de-
scribes the significant valuation inputs and assumptions for each
class of assets and liabilities measured at fair value, the valuation
techniques, where applicable, used in measuring their fair value,
and the factors determining their classification within the fair
value hierarchy.
Determination of fair values from quoted market prices or valuation techniques 1
CHF billion
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31.12.13
31.12.12
Assets measured at fair value on a recurring basis
Financial assets held for trading 2
of which:
Government bills / bonds
Corporate bonds and municipal bonds, including
bonds issued by financial institutions
Loans
Investment fund units
Asset-backed securities
Equity instruments
Financial assets for unit-linked investment contracts
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
of which:
Loans (including structured loans)
Structured reverse repurchase and securities
borrowing agreements
Other
Financial investments available-for-sale
of which:
Government bills / bonds
Corporate bonds and municipal bonds, including
bonds issued by financial institutions
Investment fund units
Asset-backed securities
Equity instruments
Non-financial assets
Investment properties at fair value
Precious metals and other physical commodities
79.9
7.9
1.1
0.0
4.8
0.0
50.7
15.4
3.0
0.0
0.0
0.5
2.2
0.0
0.1
0.0
0.0
0.1
39.7
38.0
1.6
0.0
0.0
0.1
0.0
8.6
30.1
5.1
13.3
2.0
6.0
2.3
1.0
0.4
237.4
129.4
15.3
74.6
14.6
3.5
2.9
1.4
1.1
0.5
19.0
1.2
13.6
0.0
4.0
0.1
0.0
0.0
4.3
0.0
1.7
1.0
0.3
1.0
0.2
0.1
5.5
0.3
3.0
0.9
1.2
0.0
4.4
1.1
3.1
0.2
0.8
0.0
0.1
0.2
0.0
0.4
0.0
0.0
114.2
13.1
16.0
3.0
11.1
3.3
51.9
15.8
245.8
129.8
18.3
76.0
18.1
3.5
7.4
2.5
4.2
0.7
59.5
39.2
15.3
0.3
4.0
0.6
0.0
8.6
91.4
22.2
0.8
0.0
2.6
3.6
47.6
14.5
2.9
0.0
0.0
0.3
2.2
0.1
0.1
0.0
0.0
0.1
48.5
46.4
2.1
0.0
0.0
0.1
0.0
17.1
46.4
6.4
21.4
4.1
10.2
3.4
0.3
0.4
408.0
265.6
33.2
94.5
10.9
3.8
4.1
1.4
2.2
0.5
16.9
0.6
8.8
0.1
7.3
0.0
0.0
0.0
5.7
0.1
1.6
2.0
0.1
1.5
0.1
0.3
8.1
0.4
3.6
1.2
2.9
0.0
4.9
1.4
3.3
0.2
0.7
0.0
0.1
0.2
0.0
0.4
0.1
0.0
143.5
28.7
23.9
6.1
12.9
8.6
48.0
15.2
419.0
266.0
36.9
96.0
15.9
3.8
9.1
2.8
5.5
0.8
66.2
47.0
10.9
0.4
7.3
0.6
0.1
17.1
Assets measured at fair value on a non-recurring basis
Other assets 3
Total assets measured at fair value
0.0
131.3
0.1
289.4
0.1
15.0
0.1
435.7
0.0
160.0
0.0
475.4
0.1
19.6
0.1
655.1
430
Note 24 Fair value measurement (continued)
Determination of fair values from quoted market prices or valuation techniques 1 (continued)
CHF billion
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
31.12.13
31.12.12
Liabilities measured at fair value on a recurring basis
Trading portfolio liabilities
of which:
Government bills / bonds
Corporate bonds and municipal bonds, including
bonds issued by financial institutions
Investment fund units
Asset-backed securities
Equity instruments
Negative replacement values 4
of which:
Interest rate contracts
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Commodities contracts
Financial liabilities designated at fair value
of which:
Non-structured fixed-rate bonds
Structured debt instruments issued
Structured over-the-counter debt instruments
Structured repurchase agreements
Loan commitments
Other liabilities – amounts due under unit-linked
investment contracts
Total liabilities measured at fair value
22.5
6.9
0.3
0.4
0.0
15.0
3.0
0.0
0.0
0.5
2.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
3.9
0.5
3.2
0.1
0.0
0.2
232.5
116.8
15.1
79.3
18.1
3.2
57.8
2.4
48.4
6.5
0.4
0.0
0.0
25.5
16.2
310.3
0.2
0.0
0.2
0.0
0.0
0.0
4.4
0.4
2.0
0.5
1.5
0.0
12.1
1.2
7.9
1.8
1.2
0.0
0.0
16.8
26.6
7.3
3.6
0.5
0.0
15.1
240.0
117.2
17.0
80.3
21.9
3.2
69.9
3.7
56.3
8.3
1.6
0.0
16.2
352.6
28.6
14.1
0.9
0.1
0.0
13.5
2.9
0.0
0.0
0.3
2.2
0.1
0.0
0.0
0.0
0.0
0.0
0.0
5.4
0.6
4.5
0.2
0.0
0.1
385.9
238.7
31.1
99.2
12.9
3.9
77.2
4.2
57.4
15.5
0.0
0.2
0.0
31.5
15.3
483.8
0.2
0.0
0.1
0.0
0.0
0.0
6.5
0.4
3.3
1.5
1.3
0.0
14.7
0.8
10.0
2.2
1.7
0.0
0.0
21.4
34.2
14.7
5.5
0.4
0.0
13.6
395.3
239.1
34.4
101.0
16.4
4.0
91.9
5.0
67.4
17.7
1.7
0.2
15.3
536.7
1 Bifurcated embedded derivatives are presented on the same balance sheet lines as their host contracts and are excluded from this table. As of 31 December 2013, net bifurcated embedded derivative liabilities held at
fair value, totaling CHF 0.2 billion (of which CHF 0.2 billion were net Level 2 assets and CHF 0.4 billion net Level 2 liabilities) were recognized on the balance sheet within Debt issued. In 2013, comparative period fig-
ures were corrected. On a corrected basis, as of 31 December 2012, net bifurcated embedded derivative liabilities held at fair value, totaling CHF 0.1 billion (of which CHF 0.2 billion were net Level 2 assets and CHF 0.3
billion net Level 2 liabilities) were recognized on the balance sheet within Debt issued. 2 Financial assets held for trading do not include precious metals and commodities. 3 Other assets primarily consist of assets
held for sale, which are measured at the lower of their net carrying amount or fair value less costs to sell. 4 Includes a life-to-date debit valuation adjustment gain on derivatives of CHF 256 million as of 31 December
2013 (31 December 2012: CHF 384 million).
Financial assets and liabilities held for trading, financial
assets designated at fair value and financial investments
available-for-sale
Government bills and bonds
Government bills and bonds include fixed-rate, floating-rate and
inflation-linked bills and bonds issued by sovereign governments,
as well as interest and principal strips based on these bonds. Such
instruments are generally traded in active markets and prices can
be obtained directly from these markets, resulting in classification
as Level 1, while the majority of the remaining positions are clas-
sified as Level 2. Instruments that cannot be priced directly using
active market data are valued using discounted cash flow valua-
tion techniques that incorporate market data for similar govern-
ment instruments converted into yield curves. These yield curves
are used to project future index levels, and to discount expected
future cash flows. The main inputs to valuation techniques for
these instruments are bond prices and inputs to estimate the fu-
ture index levels for floating or inflation index-linked instruments.
Instruments classified as Level 3 are limited and are generally clas-
sified as such due to the requirement to extrapolate yield curve
inputs outside the range of active market trading.
Corporate and municipal bonds
Corporate bonds include senior, junior and subordinated debt is-
sued by corporate entities. Municipal bonds are issued by state
and local governments. While most instruments are standard
fixed or floating-rate securities, some may have more complex
431
Financial information Financial information
Notes to the consolidated financial statements
Note 24 Fair value measurement (continued)
coupon or embedded option features. Corporate and municipal
bonds are generally valued using prices obtained directly from the
market. In cases where no directly comparable price is available,
instruments may be valued using yields derived from other securi-
ties by the same issuer or benchmarked against similar securities,
adjusted for seniority, maturity and liquidity. Instruments that can-
not be priced directly using active market data are valued using
discounted cash flow valuation techniques incorporating the
credit spread of the issuer, which may be derived from other issu-
ances or CDS data for the issuer, estimated with reference to
other equivalent issuer price observations or from credit modeling
techniques. Corporate bonds are typically classified as Level 2 be-
cause, although market data is readily available, there is often
insufficient third-party trading transaction data to justify an active
market and corresponding Level 1 classification. Municipal bonds
are generally classified as Level 1 or Level 2 depending on the
depth of trading activity behind price sources. Level 3 instruments
have no suitable price available for the security held or by refer-
ence to other securities issued by the same issuer. Therefore, these
instruments are measured based on price levels for similar issuers
adjusted for relative tenor and issuer quality.
Convertible bonds are generally valued using prices obtained
directly from market sources. In cases where no directly compa-
rable price is available, issuances may be priced using a convert-
ible bond model, which values the embedded equity option and
debt components and discounts these amounts using a curve that
incorporates the credit spread of the issuer. Although market data
is readily available, convertible bonds are typically classified as
Level 2 because there is insufficient third-party trading transaction
data to justify a Level 1 classification.
Traded loans and loans designated at fair value
Traded loans and loans designated at fair value are valued directly
using market prices that reflect recent transactions or quoted
dealer prices where available. For illiquid loans where no market
price data is available, alternative valuation techniques are used,
which include relative value benchmarking using pricing derived
from debt instruments in comparable entities or different prod-
ucts in the same entity. The corporate lending portfolio is valued
using either directly observed market prices typically from consen-
sus providers or by using a credit default swap valuation tech-
nique, which requires inputs for credit spreads, credit recovery
rates and interest rates. The market for these instruments is not
actively traded and even though price data is available it may not
be directly observable, and therefore corporate loans typically do
not meet Level 1 classification. Instruments with suitably deep
and liquid price data available will be classified as Level 2, while
any positions requiring the use of valuation techniques or for
which the price sources have insufficient trading depth are classi-
fied as Level 3. Recently originated commercial real estate loans
which are classified as Level 3 are measured using a securitization
approach based on rating agency guidelines. Future profit and
432
loss from the securitization is not recognized, but overall spread
moves are captured in the loan valuation.
Included within loans are various contingent lending transac-
tions, for which valuations are dependent on actuarial mortality
levels and actuarial life insurance policy lapse rates. Mortality and
lapse rate assumptions are based on external actuarial estimations
for large homogeneous pools, and contingencies are derived from
a range relative to the actuarially expected amount. In addition,
the pricing technique uses volatility of mortality as an input.
Investment fund units
Investment fund units are predominantly exchange traded, with
quoted prices in liquid markets readily available. Where market
prices are not available, fair value may be measured using net as-
set values (NAV), taking into account any restrictions imposed
upon redemption. Listed units are classified as Level 1, provided
there is sufficient trading to justify active market classification,
while other positions are classified as Level 2. Positions where
NAV is not available or which are not redeemable at the measure-
ment date or in the near future are classified as Level 3.
Asset-backed securities
Residential mortgage-backed securities (RMBS), commercial
mortgage-backed securities (CMBS), other asset-backed
securities (ABS) and collateralized debt obligations (CDO)
RMBS, CMBS, ABS and CDO are instruments generally issued
through the process of securitization of underlying interest bearing
assets. The underlying collateral for RMBS is residential mortgages,
for CMBS, commercial mortgages, for ABS, other assets such as
credit card, car or student loans and leases and for CDO, other
securitized positions of RMBS, CMBS or ABS. The market for these
securities is not active, and therefore a variety of valuation tech-
niques are used to measure fair value. For more liquid securities,
trade or quote data may be obtained periodically for the instru-
ment held, and the valuation process will use this trade price data,
updated for movements in market levels between the time of trad-
ing and the time of valuation. Less liquid instruments are measured
using discounted expected cash flows incorporating price data for
instruments or indices with similar risk profiles. Expected cash flow
estimation involves the modeling of the expected collateral cash
flows using input assumptions derived from proprietary models,
fundamental analysis and / or market research based on manage-
ment’s quantitative and qualitative assessment of current and fu-
ture economic conditions. The expected collateral cash flows thus
estimated are then converted into the securities’ projected perfor-
mance under such conditions based on the credit enhancement
and subordination terms of the securitization. Expected cash flow
schedules are discounted using a rate or discount margin that re-
flects the discount levels required by the market for instruments
with similar risk and liquidity profiles. Inputs to discounted expect-
ed cash flow techniques include asset prepayment rates, discount
Note 24 Fair value measurement (continued)
margin or discount yields, asset default rates and asset loss on
default severity, which may in turn be estimated using more fun-
damental loan and economic drivers such as, but not limited to,
loan-to-value data, house price appreciation, foreclosure costs,
rental income levels, void periods and employment rates. RMBS,
CMBS and ABS are generally classified as Level 2. However, if sig-
nificant inputs are unobservable, or if market or fundamental data
is not available for instruments or collateral with a sufficiently sim-
ilar risk profile to the positions held, they are classified as Level 3.
Equity instruments
The majority of equity securities are actively traded on public stock
exchanges where quoted prices are readily and regularly available,
resulting in their classification as Level 1. Units held in hedge
funds are also classified as equity instruments. Fair value for these
units is measured based on their published NAV, taking into ac-
count any restrictions imposed upon the redemption. These units
are classified as Level 2, except for positions where published NAV
is not available or which are not redeemable at the measurement
date or in the near future, which are classified as Level 3.
Unlisted equity holdings, including private equity positions, are
initially marked at their transaction price and are periodically re-
valued to the extent reliable evidence of price movements be-
comes available or the position is deemed to be impaired.
Financial assets underlying unit-linked investments
Unit-linked investment contracts allow investors to invest in a
pool of assets through issued investment units. The unit holders
receive all rewards and bear all risks associated with the reference
asset pool. Assets held under unit-linked investment contracts are
presented as Trading portfolio assets. The majority of assets are
listed on exchanges and are classified as Level 1 if actively traded,
or Level 2 if trading is not active. However, instruments for which
prices are not readily available are classified as Level 3.
Structured repurchase agreements and structured reverse
repurchase agreements
Structured repurchase agreements and structured reverse repur-
chase agreements designated at fair value are measured using
discounted expected cash flow techniques. The discount rate ap-
plied is based on funding curves that are specific to the collateral
eligibility terms for the contract in question. Collateral terms for
these positions are not standard and therefore funding spread
levels used for valuation cannot be observed in the market. As a
result, these positions are mostly classified as Level 3.
Replacement values
Collateralized and uncollateralized instruments
The curves used for discounting expected cash flows in the valua-
tion of collateralized derivatives reflect the funding terms associ-
ated with the relevant collateral arrangement for the instrument
being valued. These collateral arrangements differ across counter-
parties with respect to the eligible currency and interest terms of
the collateral. The majority of collateralized derivatives are mea-
sured using a discount curve that is based on funding rates de-
rived from overnight interest in the cheapest eligible currency for
the respective counterparty collateral agreement.
Uncollateralized derivatives are discounted using the LIBOR (or
equivalent) curve for the currency of the instrument. As described
in “Note 24d Valuation adjustments,” the fair value of uncollater-
alized derivatives is adjusted using CVA or DVA processes to re-
flect an estimation of the impact of counterparty credit and UBS
own credit risk on the fair value of assets and liabilities.
Interest rate contracts
Interest rate swap contracts include interest rate swaps, basis
swaps, cross-currency swaps, inflation swaps and interest rate for-
wards, often referred to as forward rate agreements (FRA). These
products are valued by estimating future interest cash flows and
discounting those cash flows using a rate that reflects the appro-
priate funding rate for the position being measured. The yield
curves used to estimate future index levels and discount rates are
generated using market standard yield curve models using inter-
est rates associated with current market activity. The key inputs to
the models are interest rate swap rates, FRA rates, short-term in-
terest rate futures prices, basis swap spreads and inflation swap
rates. In most cases, the standard market contracts that form the
inputs for yield curve models are traded in active and observable
markets, resulting in the majority of these financial instruments
being classified as Level 2.
Interest rate option contracts include caps and floors, swap-
tions, swaps with complex payoff profiles and other more com-
plex interest rate options. These contracts are valued using various
market standard option models, using inputs that include interest
rate yield curves, inflation curves, volatilities and correlations. The
volatility and correlation inputs within the models are implied
from market data based on market observed prices for standard
option instruments trading within the market. Option models
used to value more exotic products have a number of model pa-
rameter inputs that require calibration to enable the exotic model
to price standard option instruments to the price levels observed
in the market. Although these inputs cannot be directly observed,
they are generally treated as Level 2, as the calibration process
enables the model output to be validated to active market levels.
Models calibrated in this way are then used to revalue the portfo-
lio of both standard options as well as more exotic products. In
most cases, there are active and observable markets for the stan-
dard market instruments that form the inputs for yield curve mod-
els as well as the financial instruments from which volatility and
correlation inputs are derived, resulting in the majority of these
products being classified as Level 2. Within interest rate option
contracts, exotic options for which appropriate volatility or corre-
lation input levels cannot be implied from observable market data
433
Financial information Financial information
Notes to the consolidated financial statements
Note 24 Fair value measurement (continued)
are classified as Level 3. These options are valued using volatility
and correlation levels derived from non-market sources.
Interest rate swap and option contracts are classified as Level 3
when the maturity of the contract exceeds the term for which
standard market quotes are observable for a significant input pa-
rameter. Such positions are valued by extrapolation from the last
observable point using standard assumptions or by reference to
another observable comparable input parameter to represent a
suitable proxy for that portion of the term.
Balance guaranteed swaps (BGS) are interest rate or currency
swaps that have a notional schedule based on a securitization
vehicle, requiring the valuation to incorporate an adjustment for
the unknown future variability of the notional schedule. Inputs to
value BGS are those used to value the standard market risk on the
swap and those used to estimate the notional schedule of the
underlying securitization pool (i.e., prepayment, default and inter-
est rates). BGS are classified as Level 3, as the correlation between
unscheduled notional changes and the underlying market risk of
the BGS does not have an active market and cannot be observed.
Credit derivative contracts
Credit derivative contracts based on a single credit name include
credit default swaps (CDS) based on corporate and sovereign
single names, CDS on loans and certain total return swaps (TRS).
These contracts are valued by estimating future default probabili-
ties using industry standard models based on market credit
spreads, upfront pricing points and implied recovery rates. These
default and recovery assumptions are used to generate future ex-
pected cash flows that are then discounted using market standard
discounted cash flow models and a discount rate that reflects the
appropriate funding rate for that portion of the portfolio. TRS and
certain single-name CDS contracts for which a derivative-based
credit spread is not directly available are valued using a credit
spread derived from the price of the cash bond that is referenced
in the credit derivative, adjusted for any funding differences be-
tween the cash and synthetic product. Loan CDS for which a
credit spread cannot be observed directly may be valued, where
possible, using the corporate debt curve for the entity, adjusted
for differences between loan and debt default definitions and re-
covery rate assumptions. Inputs to the valuation models used to
value single-name and loan CDS include single-name credit
spreads and upfront pricing points, recovery rates and funding
curves. In addition, corporate bond prices are used as inputs to
the valuation model for TRS and certain single-name or loan CDS
as described. Many single-name credit default swaps are classified
as Level 2 because the credit spreads and recovery rates used to
value these contracts are actively traded and observable market
data is available. Where the underlying reference name is not ac-
tively traded, these contracts are classified as Level 3.
Credit derivative contracts based on a portfolio of credit names
include credit default swaps on a credit index, credit default swaps
based on a bespoke portfolio or first to default swaps (FTD). The
434
valuation of these contracts is similar to that described above for
single-name CDS and includes an estimation of future default
probabilities using industry standard models based on market
credit spreads, upfront pricing points and implied recovery rates.
These default and recovery assumptions are used to generate fu-
ture expected cash flows that are then discounted using market
standard discounted cash flow models based on an estimation of
the funding rate for that portion of the portfolio. Tranche products
and FTD are valued using industry standard models that, in addi-
tion to default and recovery assumptions as above, incorporate
implied correlations to be applied to the credits within the portfo-
lio in order to apportion the expected credit loss at a portfolio
level across the different tranches or names within the overall
structure. These correlation assumptions are derived from prices of
actively traded index tranches or other FTD baskets. Inputs to the
valuation models used for all portfolio credit default swaps include
single-name or index credit spreads and upfront pricing points,
recovery rates and funding curves. In addition, models used for
tranche and FTD products have implied credit correlations as in-
puts. Credit derivative contracts based on a portfolio of credit
names are classified as Level 2 when credit spreads and recovery
rates are determined from actively traded observable market data,
and when the correlation data used to value bespoke and index
tranches is based on actively traded index tranche instruments.
This correlation data undergoes a mapping process that takes into
account both the relative tranche attachment / detachment points
in the overall capital structure of the portfolio and portfolio com-
position. Where the mapping process requires extrapolation be-
yond the range of available and active market data, the position is
classified as Level 3. This relates to a small number of index and all
bespoke tranche contracts. FTD are classified as Level 3, as the cor-
relations between specific names in the FTD portfolio are not ac-
tively traded. Also classified as Level 3 are several older credit index
positions, referred to as “off the run” indices, due to the lack of
any active market for the index credit spread.
Credit derivative contracts on securitized products have an un-
derlying reference asset that is a securitized product (RMBS,
CMBS, ABS or CDO) and include credit default swaps and certain
TRS. These credit default swaps (typically referred to as “pay-as-
you-go” or “PAYG CDS”) and TRS are valued using a similar valu-
ation technique to the underlying security (by reference to equiva-
lent securities trading in the market, or through cash flow
estimation and discounted cash flow techniques as described in
the Asset-backed securities section above), with an adjustment
made to reflect the funding differences between cash and syn-
thetic form. Inputs to the PAYG CDS and TRS are those used to
value the underlying security (prepayment rates, default rates, loss
severity, discount margin / rate and other inputs) and those used
to capture the funding basis differential between cash and syn-
thetic form. The classification of PAYG CDS and these TRS follow
the characteristics of the underlying security and are therefore
distributed across Level 2 and Level 3.
Note 24 Fair value measurement (continued)
Foreign exchange (FX) contracts
Open spot FX contracts are valued using the FX spot rate observed
in the market. Forward FX contracts are valued using the FX spot
rate adjusted for forward pricing points observed from standard
market-based sources. As the markets for both FX spot and
FX forward pricing points are both actively traded and observable,
FX contracts are generally classified as Level 2.
OTC FX option contracts include standard call and put options,
options with multiple exercise dates, path-dependent options, op-
tions with averaging features, options with discontinuous pay-off
characteristics and options on a number of underlying FX rates.
OTC FX option contracts are valued using market standard option
valuation models. The models used for shorter-dated options (i.e.,
maturities of five years or less) tend to be different than those
used for longer-dated options because the models needed for
longer-dated OTC FX contracts require additional consideration of
interest rate and FX rate interdependency. Inputs to the option
valuation models include spot FX rates, FX forward points, FX
volatilities, interest rate yield curves, interest rate volatilities and
correlations. The inputs for volatility and correlation are implied
through the calibration of observed prices for standard option
contracts trading within the market.
As inputs are derived mostly from standard market contracts
traded in active and observable markets, a significant proportion
of OTC FX option contracts are classified as Level 2. OTC FX op-
tion contracts classified as Level 3 include long-dated FX exotic
option contracts for which there is no active market from which
to derive volatility or correlation inputs. The inputs used to value
these OTC FX option contracts are calculated using consensus
pricing services without an underlying principal market, historical
asset prices or by extrapolation.
Cross currency balance guaranteed swaps (BGS) are classified
as foreign exchange contracts. Details of the fair value classifica-
tion can be found under interest rate contracts above.
Equity / index contracts
Equity / index contracts include equity forward contracts and eq-
uity option contracts. Equity forward contracts have a single stock
or index underlying and are valued using market standard models.
The key inputs to the models are stock prices, estimated dividend
rates and equity funding rates (which are implied from prices of
forward contracts observed in the market). Estimated cash flows
are then discounted using market standard discounted cash flow
models using a rate that reflects the appropriate funding rate for
that portion of the portfolio. As inputs are derived mostly from
standard market contracts traded in active and observable mar-
kets, a significant proportion of equity forward contracts are clas-
sified as Level 2. Positions classified as Level 3 have no market
data available for the instrument maturity and are valued by some
form of extrapolation of available data, use of historical dividend
data, or use of data for a related equity.
Equity option contracts include market standard single or bas-
ket stock or index call and put options as well as equity option
contracts with more complex features including option contracts
with multiple or continuous exercise dates, option contracts for
which the payoff is based on the relative or average performance
of components of a basket, option contracts with discontinuous
payoff profiles, path-dependent options and option contracts
with a payoff calculated directly upon equity features other than
price (i.e., dividend rates, volatility or correlation). Equity option
contracts are valued using market standard models that estimate
the equity forward level as described above for equity forward
contracts and incorporate inputs for stock volatility and for cor-
relation between stocks within a basket. The probability-weight-
ed expected option payoff generated is then discounted using
market standard discounted cash flow models using a rate that
reflects the appropriate funding rate for that portion of the port-
folio. Positions for which inputs are derived from standard mar-
ket contracts traded in active and observable markets are classi-
fied as Level 2. Level 3 positions are those for which volatility,
forward or correlation inputs are not observable and are there-
fore valued using extrapolation of available data, historical divi-
dend, correlation or volatility data, or the equivalent data for a
related equity.
Commodity derivative contracts
Commodity derivative contracts include forward, swap and op-
tion contracts on individual commodities and on commodity indi-
ces. Commodity forward and swap contracts are measured using
market standard models that use market forward levels on stan-
dard instruments. Commodity option contracts are measured us-
ing market standard option models that estimate the commodity
forward level as described above for commodity forward and
swap contracts, incorporating inputs for the volatility of the un-
derlying index or commodity. The option model produces a prob-
ability-weighted expected option payoff that is then discounted
using market standard discounted cash flow models using a rate
that reflects the appropriate funding rate for that portion of the
portfolio. For commodity options on baskets of commodities or
bespoke commodity indices, the valuation technique also incor-
porates inputs for the correlation between different commodities
or commodity indices. Individual commodity contracts are typi-
cally classified as Level 2 because active forward and volatility
market data is available.
Financial liabilities designated at fair value
Structured and OTC debt instruments issued
Structured debt instruments issued are comprised of medium-
term notes (MTN), which are held at fair value under the fair
value option. These MTN are tailored specifically to the holder’s
risk or investment appetite with structured coupons or payoffs.
435
Financial information Financial information
Notes to the consolidated financial statements
Note 24 Fair value measurement (continued)
The risk management and the valuation approaches for these
MTN are closely aligned to the equivalent derivatives business
and the underlying risk, and the valuation techniques used for
this component are the same as the relevant valuation techniques
described above. For example, equity-linked notes should be ref-
erenced to equity / index contracts in the replacement value sec-
tion and credit-linked notes should be referenced to credit deriva-
tive contacts.
Other liabilities – amounts due under unit-linked contracts
Unit-linked investment contracts allow investors to invest in a pool
of assets through issued investment units. The unit holders receive
all rewards 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.
The fair values of investment contract liabilities are determined by
reference to the fair value of the corresponding assets. The liabili-
ties themselves are not actively traded, but are mainly referenced
to instruments which are and are therefore classified as Level 2.
f) Transfers between Level 1 and Level 2 in the fair value hierarchy
With the adoption of IFRS 13, UBS refined its methodology re-
garding disclosure of transfers between Level 1 and Level 2 in the
fair value hierarchy. The amounts disclosed reflect transfers be-
tween Level 1 and Level 2 for instruments which were held for the
entire reporting period.
Assets totaling approximately CHF 0.8 billion, which were
mainly comprised of financial assets held for trading, and liabili-
ties totaling approximately CHF 0.1 billion were transferred from
Level 2 to Level 1 during 2013, generally due to increased levels
of trading activity observed within the market.
Assets totaling approximately CHF 1.0 billion, which were main-
ly comprised of financial assets held for trading and positive replace-
ment values, and liabilities totaling approximately CHF 0.3 billion,
which were primarily comprised of negative replacement values,
were transferred from Level 1 to Level 2 during 2013, generally due
to diminished levels of trading activity observed within the market.
g) Movements of Level 3 instruments
Significant changes in Level 3 instruments
The table on the following pages presents additional information
about Level 3 assets and liabilities measured at fair value on a re-
curring basis. Level 3 assets and liabilities may be hedged with
instruments classified as Level 1 or Level 2 in the fair value hierar-
chy and, as a result, realized and unrealized gains and losses in-
cluded in the table may not include the effect of related hedging
activity. Further, the realized and unrealized gains and losses pre-
sented within the table are not limited solely to those arising from
Level 3 inputs, as valuations are generally derived from both ob-
servable and unobservable parameters.
With the adoption of IFRS 13, the Group refined its methodol-
ogy for determining transfers and movements of Level 3 instru-
ments, resulting in increased disclosure granularity and alignment
with industry best practices. Assets and liabilities transferred into
or out of Level 3 are now presented as if those assets or liabilities
had been transferred at the beginning of the annual reporting
period. Prior to adopting IFRS 13, the Group presented transfers
into or out of Level 3 on a quarterly basis, with the quarters then
aggregated for the annual result. Comparative data has not been
restated.
As of 31 December 2013, financial instruments measured with
valuation techniques using significant non-market-observable in-
puts (Level 3) mainly comprised the following:
– structured debt instruments issued (equity- and credit-linked);
– structured reverse repurchase and securities borrowing agree-
ments;
– credit derivative contracts and
– structured over-the-counter debt instruments.
436
Note 24 Fair value measurement (continued)
Significant movements in Level 3 instruments during the year
ended 31 December 2013 were as follows.
Financial assets held for trading
Financial assets held for trading decreased from CHF 5.7 billion to
CHF 4.3 billion during the year. Issuances of CHF 5.0 billion, com-
prised of traded loans, and purchases of CHF 2.1 billion, mainly
comprised of corporate bonds and traded loans, were mostly off-
set by sales of CHF 6.8 billion, which were primarily comprised of
traded loans. Transfers into Level 3 during the period amounted
to CHF 2.2 billion and were mainly comprised of traded loans,
mortgage-backed securities and corporate bonds due to de-
creased observability of credit spread inputs. Transfers out of Lev-
el 3 amounted to CHF 1.2 billion and were primarily comprised of
asset-backed securities, traded loans and corporate bonds.
Financial assets designated at fair value
Financial assets designated at fair value decreased from CHF 4.9
billion to CHF 4.4 billion during the year. Settlements of CHF 3.3
billion, primarily comprised of structured reverse repurchase and
securities borrowing agreements, were partly offset by issuances
of CHF 2.6 billion, which were mainly comprised of structured
reverse repurchase and securities borrowing agreements and
structured loans.
Financial investments available-for-sale
Financial investments available-for-sale increased from CHF 0.7
billion to CHF 0.8 billion during the year. Sales of CHF 0.2 billion
were more than offset by net gains of CHF 0.1 billion included in
comprehensive income, purchases of CHF 0.1 billion and transfers
into Level 3 of CHF 0.1 billion.
Positive replacement values
Positive replacement values decreased from CHF 8.1 billion to
CHF 5.5 billion during the year. Settlements and issuances
amounted to CHF 4.7 billion and CHF 2.2 billion, respectively, and
were primarily comprised of credit derivative contracts. Transfers
into Level 3 amounted to CHF 3.8 billion and were primarily com-
prised of credit derivative contracts and foreign exchange deriva-
tive contracts. These transfers resulted from both changes in the
availability of observable inputs for credit spread and changes in
correlation between the portfolio held and the representative
market portfolio used to independently verify market data. Trans-
fers out of Level 3 totaling CHF 2.7 billion included UBS’s option
to acquire the equity of the SNB StabFund, which was transferred
from Level 3 to Level 2 during the third quarter of 2013 and exer-
cised subsequently.
Negative replacement values
Negative replacement values decreased from CHF 6.5 billion to
CHF 4.4 billion during the year. Settlements and issuances
amounted to CHF 4.6 billion and CHF 1.4 billion, respectively.
Settlements were primarily comprised of credit derivative con-
tracts, and issuances were mainly comprised of equity / index con-
tracts and credit derivative contracts. Transfers into and out of
Level 3 amounted to CHF 3.0 billion and CHF 1.0 billion, respec-
tively, and were primarily comprised of credit derivative contracts
and equity / index contracts resulting from changes in the avail-
ability of observable inputs for credit spread and changes in cor-
relation between the portfolio held and the representative market
portfolio used to independently verify market data.
Financial liabilities designated at fair value
Financial liabilities designated at fair value decreased from CHF
14.7 billion to CHF 12.1 billion during the year. Settlements of
CHF 9.4 billion, mainly comprised of equity- and credit-linked
structured debt instruments issued and structured over-the-coun-
ter debt instruments, were partly offset by issuances of CHF 6.4
billion, which were primarily comprised of equity-linked struc-
tured debt instruments issued, non-structured fixed-rate bonds,
structured repurchase agreements and structured over-the-coun-
ter debt instruments. Financial liabilities designated at fair value
transferred into and out of Level 3 amounted to CHF 2.9 billion
and CHF 1.7 billion, respectively. Transfers into Level 3 were pri-
marily comprised of rates- and equity-linked structured debt in-
struments issued as well as structured over-the-counter debt in-
struments, as a reduction in observable equity volatility inputs and
credit correlation affected the embedded options in these struc-
tures. Transfers out of Level 3 were mainly comprised of equity-,
credit- and rates-linked structured debt instruments issued, due to
volatility inputs becoming observable for credit spread, equity
volatility inputs and rates correlation used to determine the fair
value of the embedded options in these structures.
437
Financial information Financial information
Notes to the consolidated financial statements
Note 24 Fair value measurement (continued)
Movements of Level 3 instruments
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Net
interest
income
and other
income
Other
com-
prehen-
sive
income
Balance
as of
31 Decem-
ber 2011
Net
trading
income
Pur-
chases
Sales
Issu-
ances
Settle-
ments
Trans-
fers into
Level 3
Trans-
fers
out of
Level 3
Foreign
currency
trans-
lation
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Net
interest
income
and other
income
Other
com-
prehen-
sive
Balance
as of
31 Decem-
ber 2012
Net
trading
income
income Pur chases
Sales
Issuances
Settle-
ments
Transfers
Transfers
into
Level 3
out of
Level 3
Foreign
currency
translation
Balance
as of
31 Decem-
ber 2013 2
7.8
(1.1)
(0.3)
0.0
0.0
0.0
1.0
(7.2)
6.1
0.0
2.4
(3.0)
(0.3)
5.7
(2.4)
(1.3)
0.0
0.0
0.0
2.1
(6.8)
5.0
0.0
2.2
(1.2)
(0.2)
4.3
2.4
1.4
3.7
0.3
2.7
0.8
1.7
0.2
0.1
0.0
0.0
0.0
0.0
0.0
0.0
2.7
(1.0)
0.6
0.0
(0.3)
2.6
(3.3)
0.2
(0.2)
(0.1)
CHF billion
Financial assets held
for trading 1
of which:
Corporate bonds and municipal
bonds, including bonds issued
by financial institutions
Loans
Asset-backed securities
Other
Financial assets designated at
fair value
of which:
Loans (including structured loans)
Structured reverse repurchase and
securities borrowing agreements
Other
Financial investments
available-for-sale
0.6
0.1
(0.1)
Positive replacement values
13.9
(2.9)
(1.2)
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
(0.2)
0.0
0.1
1.2
(0.1)
(3.4)
0.2
2.1
(0.1)
0.0
(2.3)
(0.5)
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
8.8
2.0
2.2
0.9
Negative replacement values
10.8
(1.3)
(0.3)
0.0
0.0
0.0
0.0
0.0
1.1
(3.9)
2.7
(2.3)
(0.5)
(0.5)
(0.1)
(1.0)
(0.4)
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
Financial liabilities designated
at fair value
of which:
Non-structured fixed-rate bonds
Structured debt instruments issued
Structured over-the-counter debt
instruments
Structured repurchase agreements
7.1
2.3
0.9
0.4
12.1
1.9
1.1
(0.4)
0.0
0.0
0.0
0.0
5.9
(6.0)
5.9
(5.3)
0.6
14.7
(0.4)
1.0
0.0
0.0
0.0
0.0
6.4
(9.4)
2.9
(1.7)
(0.2)
12.1
0.1
8.9
2.7
0.4
1 Includes assets pledged as collateral which may be sold or repledged by counterparties. 2 Total Level 3 assets as of 31 December 2013 were CHF 15.0 billion (31 December 2012: CHF 19.6 billion). Total Level 3
liabilities as of 31 December 2013 were CHF 16.8 billion (31 December 2012: CHF 21.4 billion).
438
0.2
1.5
(0.6)
(0.6)
(0.8)
(0.5)
1.6
2.0
1.5
0.6
4.9
1.4
3.3
0.2
0.7
8.1
3.6
1.2
2.9
0.4
6.5
3.3
1.5
1.3
0.4
0.8
10.0
2.2
1.7
0.0
(2.1)
(0.1)
(0.2)
0.8
0.0
0.0
(0.8)
(0.2)
0.4
(0.2)
(0.8)
(0.1)
0.5
(0.1)
(0.1)
1.2
(0.4)
(1.0)
0.0
(1.2)
(0.1)
0.0
2.1
0.0
0.0
(0.6)
0.0
0.4
(0.3)
(0.3)
(0.1)
0.4
(0.1)
(0.1)
0.6
(0.3)
0.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.1)
0.0
(2.7)
(0.3)
0.9
0.7
0.2
0.3
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.8)
(4.9)
(0.7)
(0.4)
0.0
0.0
0.0
0.0
(0.2)
(0.1)
0.0
0.0
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5.0
0.0
0.0
1.2
1.3
0.0
0.0
2.2
1.9
0.0
0.0
0.3
1.4
0.4
0.0
0.7
0.3
1.1
3.2
1.0
1.1
0.0
0.0
0.0
0.0
(0.8)
(2.4)
(0.1)
0.0
(4.7)
(3.8)
(0.4)
(0.1)
(0.4)
(4.6)
(3.3)
(0.5)
(0.7)
(0.1)
(0.8)
(6.7)
(1.3)
(0.6)
0.3
0.6
0.6
0.6
0.1
0.2
0.0
0.1
3.8
2.4
0.6
0.4
0.4
3.0
2.7
0.0
0.1
0.2
0.5
1.9
0.5
0.0
(0.2)
(0.2)
(0.5)
(0.2)
(0.2)
0.0
0.0
(0.2)
(0.1)
(2.3)
(0.1)
(0.3)
0.0
(0.5)
(0.2)
(0.1)
(1.4)
(0.1)
0.0
0.0
0.0
(0.2)
0.0
0.0
(0.1)
0.0
(0.1)
(0.2)
0.0
0.0
0.0
(0.3)
0.0
(0.1)
0.0
(0.1)
(0.1)
0.0
1.7
1.0
1.0
0.6
4.4
1.1
3.1
0.2
0.8
5.5
3.0
0.9
1.2
0.3
4.4
2.0
0.5
1.5
0.5
1.2
7.9
1.8
1.2
Note 24 Fair value measurement (continued)
Movements of Level 3 instruments
CHF billion
Financial assets held
for trading 1
of which:
Corporate bonds and municipal
bonds, including bonds issued
by financial institutions
Loans
Other
Asset-backed securities
Financial assets designated at
fair value
of which:
Loans (including structured loans)
Structured reverse repurchase and
securities borrowing agreements
Other
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
of which:
Credit derivative contracts
Foreign exchange contracts
Equity / index contracts
Other
Financial liabilities designated
at fair value
of which:
Non-structured fixed-rate bonds
Structured debt instruments issued
Structured over-the-counter debt
instruments
Structured repurchase agreements
2.4
1.4
3.7
0.3
2.7
0.8
1.7
0.2
8.8
2.0
2.2
0.9
7.1
2.3
0.9
0.4
0.1
8.9
2.7
0.4
0.1
0.0
0.0
0.0
0.0
0.0
0.0
2.7
(1.0)
0.6
0.0
(0.3)
Financial investments
available-for-sale
0.6
0.1
(0.1)
Positive replacement values
13.9
(2.9)
(1.2)
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
(0.2)
0.0
0.1
1.2
(0.1)
(3.4)
0.2
2.1
(0.1)
0.0
(2.3)
(0.5)
Negative replacement values
10.8
(1.3)
(0.3)
0.0
0.0
0.0
0.0
0.0
1.1
(3.9)
2.7
(2.3)
(0.5)
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
Net
the end of
of which:
related to
Level 3 in-
Net
struments
held at
Other
com-
the end of
prehen-
interest
income
Balance
as of
31 Decem-
ber 2011
trading
the report-
income
ing period
and other
the report-
sive
income
ing period
income
Pur-
chases
Sales
Issu-
ances
Settle-
ments
fers into
out of
Level 3
Level 3
trans-
lation
Trans-
Trans-
Foreign
fers
currency
Total gains / losses included in comprehensive income
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
of which:
related to
Level 3 in-
struments
held at
the end of
the report-
ing period
Net
interest
income
and other
income
Balance
as of
31 Decem-
ber 2012
Net
trading
income
Other
com-
prehen-
sive
income Pur chases
Sales
Issuances
Settle-
ments
Transfers
into
Level 3
Transfers
out of
Level 3
Foreign
currency
translation
Balance
as of
31 Decem-
ber 2013 2
7.8
(1.1)
(0.3)
0.0
0.0
0.0
1.0
(7.2)
6.1
0.0
2.4
(3.0)
(0.3)
5.7
(2.4)
(1.3)
0.0
0.0
0.0
2.1
(6.8)
5.0
0.0
2.2
(1.2)
(0.2)
4.3
1.6
2.0
1.5
0.6
4.9
1.4
3.3
0.2
0.7
8.1
3.6
1.2
2.9
0.4
6.5
3.3
1.5
1.3
0.4
0.0
(2.1)
(0.1)
(0.2)
0.0
(1.2)
(0.1)
0.0
0.2
1.5
(0.6)
(0.6)
0.8
0.0
0.0
2.1
0.0
0.0
(0.8)
(0.5)
(0.8)
(0.2)
0.4
(0.2)
(0.6)
0.0
0.4
(0.3)
(0.5)
(0.1)
(0.8)
(0.1)
0.5
(0.1)
(0.3)
(0.1)
0.4
(0.1)
12.1
1.9
1.1
(0.4)
0.0
0.0
0.0
0.0
5.9
(6.0)
5.9
(5.3)
0.6
14.7
(0.4)
1.0
0.8
10.0
2.2
1.7
(0.1)
1.2
(0.4)
(1.0)
(0.1)
0.6
(0.3)
0.8
1 Includes assets pledged as collateral which may be sold or repledged by counterparties. 2 Total Level 3 assets as of 31 December 2013 were CHF 15.0 billion (31 December 2012: CHF 19.6 billion). Total Level 3
liabilities as of 31 December 2013 were CHF 16.8 billion (31 December 2012: CHF 21.4 billion).
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.9
0.7
0.2
0.3
0.0
0.0
0.0
0.0
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.8)
(4.9)
(0.7)
(0.4)
0.0
0.0
0.0
0.0
(0.2)
(0.1)
0.0
0.0
(0.1)
0.0
0.0
0.0
0.0
0.0
0.0
0.0
5.0
0.0
0.0
0.0
0.0
0.0
0.0
0.3
0.6
0.6
0.6
(0.2)
(0.2)
(0.5)
(0.2)
0.0
0.0
(0.2)
0.0
2.6
(3.3)
0.2
(0.2)
(0.1)
1.2
1.3
0.0
0.0
2.2
1.9
0.0
0.0
0.3
1.4
0.4
0.0
0.7
0.3
(0.8)
(2.4)
(0.1)
0.0
(4.7)
(3.8)
(0.4)
(0.1)
(0.4)
(4.6)
(3.3)
(0.5)
(0.7)
(0.1)
0.1
0.2
0.0
0.1
3.8
2.4
0.6
0.4
0.4
3.0
2.7
0.0
0.1
0.2
(0.2)
0.0
0.0
0.0
(0.1)
0.0
(0.1)
0.0
(2.7)
(0.3)
(0.2)
(0.1)
(2.3)
(0.1)
(0.1)
(0.2)
0.0
0.0
(1.0)
(0.4)
(0.3)
0.0
(0.5)
(0.2)
0.0
(0.3)
0.0
(0.1)
1.7
1.0
1.0
0.6
4.4
1.1
3.1
0.2
0.8
5.5
3.0
0.9
1.2
0.3
4.4
2.0
0.5
1.5
0.5
0.0
0.0
0.0
0.0
6.4
(9.4)
2.9
(1.7)
(0.2)
12.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.1
3.2
1.0
1.1
(0.8)
(6.7)
(1.3)
(0.6)
0.5
1.9
0.5
0.0
(0.1)
(1.4)
(0.1)
0.0
0.0
(0.1)
(0.1)
0.0
1.2
7.9
1.8
1.2
439
Financial information Financial information
Notes to the consolidated financial statements
Note 24 Fair value measurement (continued)
h) Valuation of assets and liabilities classified as Level 3
The table on the following pages presents the Group’s assets and
liabilities recognized at fair value and classified as Level 3, togeth-
er with the valuation techniques used to measure fair value, the
significant inputs used in the valuation technique that are consid-
ered unobservable and a range of values for those unobservable
inputs.
The range of values represents the highest and lowest level
input used in the valuation techniques. Therefore, the range does
not reflect the level of uncertainty regarding a particular input,
but rather the different underlying characteristics of the relevant
assets and liabilities. The ranges will therefore vary from period to
period and parameter to parameter based on characteristics of
the instruments held at each balance sheet date. Further, the
ranges of unobservable inputs may differ across other financial
institutions due to the diversity of the products in each firm’s in-
ventory.
Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities
CHF billion
Assets
Liabilities
Valuation technique(s)
Significant
unobservable input(s) 1
low
high
unit 1
Fair value as of 31.12.13
Range of inputs
1.8
2.2
0.6
1.0
0.6
3.1
0.1
0.2 Relative value to market comparable
Bond price equivalent
0.0 Relative value to market comparable
Loan price equivalent
Discounted expected cash flows
Credit spread
Market comparable and
securitization model
Discount margin / spread
Mortality dependent cash flow
Volatility of mortality
0.0 Relative value to market comparable
Net asset value
0.0
Discounted cash flow projection
Constant prepayment rate
Constant default rate
Loss severity
Discount margin / spread
Relative value to market comparable
Bond price equivalent
0.0 Relative value to market comparable
Price
0
0
65
1
21
0
0
0
1
0
127
102
125
15
128
18
10
100
39
102
points
points
basis points
%
%
%
%
%
%
points
1.2
Discounted expected cash flows
Funding spread
10
163
basis points
Relative value to market comparable
Price
11.0
Financial assets held for trading /
Trading portfolio liabilities, Financial
assets / liabilities designated at
fair value and Financial investments
available-for-sale
Corporate bonds and municipal bonds,
including bonds issued by financial institutions
Traded loans, loans designated at fair value
and loan commitments
Investment fund units 2
Asset-backed securities
Equity instruments 2
Structured (reverse) repurchase agreements
Financial assets for unit-linked investment
contracts 2
Structured debt instruments and
non-structured fixed-rate bonds 3
440
Note 24 Fair value measurement (continued)
Valuation techniques and inputs used in the fair value measurement of Level 3 assets and liabilities (continued)
Fair value as of 31.12.13
Range of inputs
Assets
Liabilities
Valuation technique(s)
Significant
unobservable input(s) 1
low
high
unit 1
CHF billion
Replacement values
Interest rate contracts
0.3
0.4
Option model
Volatility of interest rates
Discounted expected cash flows
Constant prepayment rate
Rate to rate correlation
Intra-curve correlation
Credit derivative contracts
3.0
2.0
Discounted expected
cash flow based on modeled
defaults and recoveries
Discounted cash flow projection
on underlying bond
Foreign exchange contracts
0.9
0.5
Option model
Credit spreads
Upfront price points
Recovery rates
Credit index correlation
Discount margin / spread
Credit pair correlation
Constant prepayment rate
Constant default rate
Loss severity
Discount margin / spread
Bond price equivalent
Volatility of foreign
exchange
Rate to FX correlation
FX to FX correlation
Equity / index contracts
1.2
1.5
Option model
Equity dividend yields
Discounted expected cash flows
Constant prepayment rate
Non-financial assets 2, 4
0.1
Relative value to market comparable
Price
Volatility of equity stocks,
equity and other indices
Equity – FX correlation
Equity to equity correlation
Discounted cash flow projection
Projection of cost and
income related to the
particular property
Discount rate
Assessment of the particu-
lar property’s condition
13
84
50
0
2
(12)
0
10
0
42
0
0
0
0
0
7
(71)
(83)
0
0
1
(52)
17
73
94
84
3
%
%
%
%
1,407
basis points
68
95
90
39
92
15
12
100
38
100
20
60
80
13
10
88
77
99
%
%
%
%
%
%
%
%
%
points
%
%
%
%
%
%
%
%
1 The ranges of significant unobservable inputs are represented in points, percentages and basis points. Points are a percentage of par. For example, 100 points would be 100% of par. 2 The range of inputs is not
disclosed due to the dispersion of possible values given the diverse nature of the investments. 3 Valuation techniques, significant unobservable inputs and the respective input ranges for structured debt instruments
and non-structured fixed-rate bonds are the same as the equivalent derivative or structured financing instruments presented elsewhere in this table. 4 Non-financial assets include investment properties at fair value
and other assets which primarily consist of assets held for sale.
441
Financial information Financial information
Notes to the consolidated financial statements
Note 24 Fair value measurement (continued)
Significant unobservable inputs in Level 3 positions
This section discusses the significant unobservable inputs identi-
fied in the table above and assesses the potential effect that a
change in each unobservable input in isolation may have on a fair
value measurement, including information to facilitate an under-
standing of factors that give rise to the input ranges shown. Rela-
tionships between observable and unobservable inputs have not
been included in the summary below.
Bond price equivalent: Where market prices are not available for
a bond, fair value is measured by comparison with observable
pricing data from similar instruments. Factors considered when
selecting comparable instruments include credit quality, maturity
and industry of the issuer. Fair value may be measured either by a
direct price comparison or by conversion of an instrument price
into a yield (either as an outright yield or as a spread to LIBOR).
Bond prices are expressed as points of the nominal, where 100
represents a fair value equal to the nominal value (i.e., par).
For corporate and municipal bonds, the range of 0–127 repre-
sents the range of prices from reference issuances used in deter-
mining fair value. Bonds priced at 0 are distressed to the point that
no recovery is expected, while prices significantly in excess of 100
or “par” relate to inflation-linked or structured issuances that pay
a coupon in excess of the market benchmark as of the measure-
ment date. The weighted average price is approximately 87 points,
with a majority of positions concentrated around this price.
For asset-backed securities, the bond price range of 0–102
points represents the range of prices for reference securities used
in determining fair value. An instrument priced at 0 is not ex-
pected to pay any principal or interest, while an instrument priced
close to 100 points is expected to be repaid in full as well as pay a
yield close to the market yield. More than 75% of the portfolio is
priced at 80 points or higher, and the weighted average price
for Level 3 assets within this portion of the Level 3 portfolio is
84 points.
For credit derivatives, the bond price range of 0–100 points
disclosed within credit derivatives represents the range of prices
used for reference instruments that are typically converted to an
equivalent yield or credit spread as part of the valuation process.
The range is comparable to that for corporate and asset-backed
issuances described above.
Loan price equivalent: Where market prices are not available for a
traded loan, fair value is measured by comparison with observable
pricing data for similar instruments. Factors considered when se-
lecting comparable instruments include industry segment, collat-
eral quality, maturity and issuer-specific covenants. Fair value may
be measured either by a direct price comparison or by conversion
of an instrument price into a yield. The range of 0–102 points
represents the range of prices derived from reference issuances of
a similar credit quality used in measuring fair value for loans clas-
sified as Level 3. Loans priced at 0 are distressed to the point that
442
no recovery is expected, while a current price of 102 represents a
loan that is expected to be repaid in full, and also pays a yield
marginally higher than market yield. The portfolio is distributed at
both the very low end and the very high end of the disclosed
range with a weighted average of approximately 90 points.
Credit spread: Valuation models for many credit derivatives re-
quire an input for the credit spread, which is a reflection of the
credit quality of the associated referenced underlying. The credit
spread of a particular security is quoted in relation to the yield on
a benchmark security or reference rate, typically either US Trea-
sury or LIBOR, and is generally expressed in terms of basis points.
An increase / (decrease) in credit spread will increase / (decrease)
the value of credit protection offered by CDS and other credit
derivative products. The impact on the results of the Group of
such changes depend on the nature and direction of the positions
held. Credit spreads may be negative where the asset is more
creditworthy than the benchmark against which the spread is cal-
culated. A wider credit spread represents decreasing creditworthi-
ness. The ranges of 65–125 basis points in loans and 2–1407 basis
points in credit derivatives represents a diverse set of underlyings,
with the lower end of the range representing credits of the high-
est quality (e.g., approximating the risk of LIBOR) and the upper
end of the range representing greater levels of credit risk.
Constant prepayment rate: A prepayment rate represents the
amount of unscheduled principal repayment for a pool of loans.
The prepayment estimate is based on a number of factors, such as
historical prepayment rates for previous loans that are similar pool
loans and the future economic outlook, considering factors in-
cluding, but not limited to, future interest rates. In general, a sig-
nificant increase (decrease) in this unobservable input in isolation
would result in a significantly higher (lower) fair value for bonds
trading at a discount. For bonds trading at a premium the reverse
would apply, with a decrease in fair value when the constant pre-
payment rate increases. However, in certain cases the effect of a
change in prepayment speed upon instrument price is more com-
plicated and is dependent upon both the precise terms of the se-
curitization and the position of the instrument within the securiti-
zation capital structure.
For asset-backed securities, the range of 0–18% represents in-
puts across various classes of asset-backed securities. Securities
with an input of 0% typically reflect no current prepayment be-
havior within their underlying collateral with no expectation of
this changing in the immediate future, while the high range of
18% relates to securities that are currently experiencing high pre-
payments. Different classes of asset-backed securities typically
show different ranges of prepayment characteristics depending
on a combination of factors, including the borrowers’ ability to
refinance, prevailing refinancing rates, and the quality or charac-
teristics of the underlying loan collateral pools. The weighted av-
erage constant prepayment rate for the portfolio is 2%.
Note 24 Fair value measurement (continued)
For credit derivatives, the range of 0–15% represents the in-
put assumption for credit derivatives on asset-backed securities.
The range is driven in a similar manner to that for asset-backed
securities.
tives on asset-backed securities and is broadly similar to the range
for cash positions held. The recovery rate range of 0–95% repre-
sents a wide range of expected recovery levels on credit derivative
contracts within the Level 3 portfolio.
For FX contracts and interest rate contracts, the ranges of
0–13% and 0–3%, respectively, represent the prepayment as-
sumptions on securitizations underlying the BGS portfolio. This
portfolio is less diverse than other asset-backed securities port-
folios and the range of prepayment speed is therefore narrower.
Constant default rate (CDR): The CDR represents the percentage
of outstanding principal balances in the pool that are projected to
default and liquidate and is the annualized rate of default for a
group of mortgages or loans. The CDR estimate is based on a
number of factors, such as collateral delinquency rates in the pool
and the future economic outlook. In general, a significant increase
(decrease) in this unobservable input in isolation would result in
significantly lower (higher) cash flows for the deal (and thus lower
(higher) valuations). However, different instruments within the
capital structure can react differently to changes in the CDR rate.
Generally, subordinated bonds will decrease in value as CDR in-
creases, but for well-protected senior bonds an increase in CDR
may cause an increase in price. In addition, the presence of a
guarantor wrap on the collateral pool of a security may result in
notes at the junior end of the capital structure experiencing a
price increase with an increase in the default rate.
The ranges of 0–10% for asset-backed securities and 0–12%
for credit derivatives represent the expected default percentage
across the individual instruments’ underlying collateral pools. For
asset-backed securities, the weighted average CDR is 2%.
Loss severity / recovery rate: The projected loss severity / recovery
rate reflects the estimated loss that will be realized given expected
defaults. Loss severity is generally applied to collateral within as-
set-backed securities while the recovery rate is the analogous pric-
ing input for corporate or sovereign credits. Recovery is the re-
verse of loss severity, so a 100% recovery rate is the equivalent of
a 0% loss severity. Increases in loss severity levels / decrease in re-
covery rates will result in lower expected cash flows into the struc-
ture upon the default of the instruments. In general, a significant
decrease (increase) in the loss severity in isolation would result in
significantly higher (lower) fair value for the respective asset-
backed securities. The impact of a change in recovery rate on a
credit derivative position will depend upon whether credit protec-
tion has been bought or sold.
Loss severity is ultimately driven by the value recoverable from
collateral held after foreclosure occurs relative to the loan princi-
pal and possibly unpaid interest accrued at that point. The range
of 0–100% for asset-backed securities represents the different
quality and nature of collateral within the asset-backed securities
portfolio. The weighted average loss severity is 90%. For credit
derivatives, the loss severity range of 0–100% applies to deriva-
Discount margin (DM) spread: The DM spread represents the dis-
count rates used to present value cash flows of an asset to reflect
the market return required for uncertainty in the estimated cash
flows. DM spreads are a rate or rates applied on top of a floating
index (e.g., LIBOR) to discount expected cash flows. Generally, a
decrease (increase) in the unobservable input in isolation would
result in a significantly higher (lower) fair value.
The different ranges represent the different discount rates
across loans (1–15%), asset-backed securities (1–39%) and credit
derivatives (0–39%). The high end of the range relates to securities
that are priced very low within the market relative to the expected
cash flow schedule and there is significant discounting relative to
the expected cash flow schedule. This indicates that the market is
pricing an increased risk of credit loss into the security that is
greater than what is being captured by the expected cash flow
generation process. The low ends of the ranges are typical of fund-
ing rates on better quality instruments. For asset-backed securities,
the weighted average DM is 5.5%. For loans, the average effective
DM is 1.84% compared with the disclosed range of 1–15%.
Equity dividend yields: The derivation of a forward price for an
individual stock or index is important both for measuring fair val-
ue for forward or swap contracts and for measuring fair value
using option pricing models. The relationship between the current
stock price and the forward price, is based on a combination of
expected future dividend levels and payment timings, and, to a
lesser extent, the relevant funding rates applicable to the stock in
question. Dividend yields are generally expressed as an annualized
percentage of share price with the lowest limit of 0% represent-
ing a stock that is not expected to pay any dividend. The dividend
yield and timing represents the most significant parameter in de-
termining fair value for instruments that are sensitive to an equity
forward price. The range of 0–10% reflects the expected range of
dividend rates for the portfolio.
Volatility: Volatility measures the variability of future prices for a
particular instrument and is generally expressed as a percentage,
where a higher number reflects a more volatile instrument for
which future price movements are more likely to occur. The mini-
mum level of volatility is 0% and there is no theoretical maximum.
Volatility is a key input into option models, where it is used to
derive a probability-based distribution of future prices for the un-
derlying instrument. The effect of volatility on individual positions
within the portfolio is driven primarily by whether the option con-
tract is a long or short position. In most cases, the fair value of an
option increases as a result of an increase in volatility and is re-
duced by a decrease in volatility. Generally, volatility used in the
443
Financial information Financial information
Notes to the consolidated financial statements
Note 24 Fair value measurement (continued)
measurement of fair value is derived from active market option
prices (referred to as “implied” volatility). A key feature of implied
volatility is the volatility “smile” or “skew,” which represents the
effect of pricing options of different option strikes at different
implied volatility levels.
– Volatility of interest rates – the range of 13–73% reflects the
range of unobservable volatilities across different currencies
and related underlying interest rate levels. Volatilities of low
interest rates tend to be much higher than volatilities of high
interest rates. In addition, different currencies may have sig-
nificantly different implied volatilities.
– Volatility of foreign exchange – the range of 7–20% reflects
differences across various FX rates.
– Volatility of equity stocks, equity and other indices – the range
of 1–88% is reflective of the range of underlying stock vola-
tilities.
– Volatility of mortality – the range of 21–128% represents mor-
tality volatility assumptions for different components of the
mortality contingent loan portfolio. The range in volatility in-
puts is driven by different characteristics of contracts within
the portfolio. An increase in volatility will cause an increase in
loan value as the notional drawn will tend to increase.
Correlation: Correlation measures the inter-relationship between
the movements of two variables. It is expressed as a percentage
between –100% and +100% where +100% are perfectly corre-
lated variables (meaning a movement of one variable is associated
with a movement of the other variable in the same direction), and
–100% are inversely correlated variables (meaning a movement
of one variable is associated with a movement of the other vari-
able in the opposite direction). The effect of correlation on the
measurement of fair value is dependent on the specific terms of
the instruments being valued, due to the range of different payoff
features within such instruments.
– Rate-to-rate correlation – the correlation between interest
rates of two separate currencies. The range of 84–94% results
from the different pairs of currency involved.
– Intra-curve correlation – the correlation between different ten-
or points of the same yield curve. Correlations are typically
fairly high, as reflected by the range of 50–84%.
– Credit index correlation of 10–90% reflects the implied corre-
lation derived from different indices across different parts of
the benchmark index capital structure. The input is particularly
important for bespoke and Level 3 index tranches.
– Credit pair correlation is particularly important for FTD credit
structures. The range of 42–92% reflects the difference be-
tween credits with low correlation and similar highly correlated
credits.
– Rate-to-FX correlation – captures the correlation between in-
terest rates and FX rates. The range for the portfolio is (71)–
60%, which represents the relationship between interest rates
and foreign exchange levels. The signage on such correlations
444
is dependent on the quotation basis of the underlying FX rate
(e.g., EUR / USD and USD / EUR correlations to the same interest
rate will have opposite signs).
– FX-to-FX correlation is particularly important for complex op-
tions that incorporate different FX rates in the projected pay-
off. The range of (83)–80% reflects the underlying characteris-
tics across the main FX pairs to which the Group has exposures.
– Equity-to-equity correlation is particularly important for com-
plex options that incorporate, in some manner, different equi-
ties in the projected payoff. The closer the correlation is to
100%, the more related one equity is to another. For example,
equities with a very high correlation could be from different
parts of the same corporate structure. The range of 17–99% is
reflective of this.
– Equity-to-FX correlation is important for equity options based
on a currency different to the currency of the underlying stock.
The range of (52)–77% represents the range of the relation-
ship between underlying stock and foreign exchange vola-
tilities.
Funding spread: Structured financing transactions are valued us-
ing synthetic funding curves that best represent the assets that
are pledged as collateral to the transactions. They are not repre-
sentative of where the Group can fund itself on an unsecured
basis, but provide an estimate of where the Group can source and
deploy secured funding with counterparties for a given type of
collateral. The funding spreads are expressed in terms of basis
points over or under LIBOR and if funding spreads widen this
increases the impact of discounting. The range of 10–163 basis
points for both structured repurchase agreements and structured
reverse repurchase agreements represents the range of asset
funding curves, where wider spreads are due to a reduction in
liquidity of underlying collateral for funding purposes.
A small proportion of structured debt instruments and non-
structured fixed-rate bonds within finan cial liabilities designated
at fair value has an exposure to funding spreads that is longer in
duration than the actively traded market. Such positions are with-
in the range of 10 – 163 basis points reported above.
Upfront price points: A component in the price quotation of credit
derivative contracts, whereby the overall fair value price level is
split between the credit spread (basis points running over the life
of the contract as described above) and a component that is quot-
ed and settled upfront on transacting a new contract. This latter
component is referred to as upfront price points and represents
the difference between the credit spread paid as protection pre-
mium on a current contract versus a small number of standard
contracts defined by the market. Distressed credit names fre-
quently trade and quote CDS protection only in upfront points
rather than as a running credit spread. An increase / (decrease) in
upfront points will increase / (decrease) the value of credit protec-
tion offered by CDS and other credit derivative products. The ef-
Note 24 Fair value measurement (continued)
fect on the results of the Group of increases or decreases in up-
front price points depends on the nature and direction of the
positions held. Upfront pricing points may be negative where a
contract is quoting for a narrower premium than the market stan-
dard, but are generally positive, reflecting an increase in credit
premium required by the market as creditworthiness deteriorates.
The range of (12)–68% within the table above represents the va-
riety of current market credit spread levels relative to the bench-
marks used as a quotation basis. Upfront points of (12)% reflect
an instrument that is trading with a tighter credit spread than the
underlying quotation instrument, while upfront points of 68%
represent a distressed credit.
i) Sensitivity of fair value measurements to changes in unobservable input assumptions
The table on the following page summarizes those financial assets
and liabilities classified as Level 3 for which a change in one or
more of the unobservable inputs to reflect reasonably possible
alternative assumptions would change fair value significantly, and
the estimated effect thereof. As of 31 December 2013, the total
favorable and unfavorable effects of changing one or more of the
unobservable inputs to reflect reasonably possible alternative as-
sumptions for financial instruments classified as Level 3 were CHF
1.2 billion and CHF 1.1 billion, respectively (31 December 2012:
CHF 1.8 billion and CHF 1.4 billion, respectively). In the table on
the following page, the significant change in sensitivity within eq-
uity / index derivative contracts from 31 December 2012 to 31 De-
cember 2013 resulted from the transfer of UBS’s option to acquire
the equity of the SNB StabFund from Level 3 to Level 2 during the
third quarter and the subsequent exercise.
The table shown presents the favorable and unfavorable ef-
fects for each class of financial assets and liabilities for which the
potential change in fair value is considered significant. The sensi-
tivity data presented represents an estimation of valuation uncer-
tainty based on reasonably possible alternative values for Level 3
inputs at the balance sheet date and does not represent the esti-
mated effect of stress scenarios. Typically, these financial assets
and liabilities are sensitive to a combination of inputs from Levels
1–3. Although well-defined interdependencies may exist between
Levels 1–2 and Level 3 parameters (e.g., between interest rates,
which are generally Level 1 or Level 2, and prepayments, which
are generally Level 3), these have not been incorporated in the
table. Further, direct inter-relationships between the Level 3 para-
meters discussed below are not a significant element of the valu-
ation uncertainty.
Sensitivity data is estimated using a number of techniques includ-
ing the estimation of price dispersion among different market par-
ticipants, variation in modeling approaches and reasonably possible
changes to assumptions used within the fair value measurement
process. The sensitivity ranges are not always symmetrical around
the fair values as the inputs used in valuations are not always pre-
cisely in the middle of the favorable and unfavorable range.
Sensitivity data is determined at a product or parameter level
and then aggregated assuming no diversification benefit. The cal-
culated sensitivity is applied to both the outright position and any
related hedges. The main interdependencies across different
products to a single unobservable input parameter have been in-
cluded in the basis of netting exposures within the calculation.
Aggregation without allowing for diversification involves the sim-
ple summation of individual results with, the total sensitivity
therefore representing the impact of all unobservable inputs
which, if moved to a reasonably possible favorable or unfavorable
level at the same time, would result in a significant change in the
valuation. Diversification would incorporate estimated correla-
tions across different sensitivity results and, as such, would result
in an overall sensitivity that would be less than the sum of the
individual component sensitivities. The Group believes that, while
there are diversification benefits within the portfolios representing
these sensitivity numbers, they are not significant to this analysis.
445
Financial information Financial information
Notes to the consolidated financial statements
Note 24 Fair value measurement (continued)
Sensitivity of fair value measurements to changes in unobservable input assumptions 1
CHF million
Government bills / bonds
Corporate bonds and municipal bonds, including bonds issued by financial institutions
Traded loans, loans designated at fair value and loan commitments
Asset-backed securities
Equity instruments
Interest rate derivative contracts, net
Credit derivative contracts, net
Foreign exchange derivative contracts, net
Equity / index derivative contracts, net
Structured debt instruments issued
Other
Total
31.12.13
31.12.12
Favorable
changes 2
17
Unfavorable
changes 2
(4)
Favorable
changes 2
29
Unfavorable
changes 2
(2)
35
148
54
137
127
366
57
41
184
63
(76)
(70)
(46)
(84)
(91)
(419)
(56)
(43)
(151)
(54)
102
204
74
151
27
577
89
272
219
73
(70)
(40)
(48)
(76)
(30)
(556)
(94)
(272)
(151)
(75)
1,229
(1,094)
1,818
(1,414)
1 Upon adoption of IFRS 13, UBS refined its methodologies for estimating the sensitivity of fair value measurements to changes in unobservable valuation input assumptions. Refer to “Note 1b Changes in accounting
policies, comparability and other adjustments” for more information. 2 Of the total favorable change, CHF 154 million as of 31 December 2013 (31 December 2012: CHF 163 million) related to financial investments
available-for-sale. Of the total unfavorable change, CHF 159 million as of 31 December 2013 (31 December 2012: CHF 124 million) related to financial investments available-for-sale.
j) Deferred day-1 profit or loss
As explained above, for new transactions resulting in a financial
instrument classified as Level 3, the financial instrument is initially
recognized at the transaction price. The transaction price may dif-
fer from the fair value obtained using a valuation technique, and
any such difference is deferred and not recognized in the income
statement and referred to as deferred day-1 profit or loss. The
table below reflects the activity in deferred day-1 profit or loss for
these financial instruments, including the aggregate difference
yet to be recognized in the income statement at the beginning
and end of the reporting period and a reconciliation of changes
during the reporting period. Amounts deferred are released and
gains or losses are recorded in Net trading income when pricing of
equivalent products or the underlying parameters become observ-
able or when the transaction is closed out.
For the year ended
31.12.13
31.12.12
474
694
(653)
(29)
486
433
424
(367)
(16)
474
Deferred day 1 profit or loss
CHF million
Balance at the beginning of the year
Profit / (loss) deferred on new transactions
(Profit) / loss recognized in the income statement
Foreign currency translation
Balance at the end of the year
446
Note 24 Fair value measurement (continued)
k) Financial instruments not measured at fair value
The following table reflects the estimated fair values and the fair value hierarchy for UBS’s financial instruments not measured at
fair value.
Financial instruments not measured at fair value
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
Other assets
Liabilities
Due to banks
Cash collateral on securities lent
Repurchase agreements
Cash collateral payables on derivative instruments
Due to customers
Debt issued
Other liabilities
Guarantees / Loan commitments
Guarantees 1
Loan commitments 2
Carrying
value
31.12.13
Fair value
Total
Total
Level 1
Level 2
Level 3
31.12.12
Carrying
value
Total
Fair value
Total
80.9
17.2
27.5
91.6
28.0
287.0
17.6
12.9
9.5
13.8
49.1
390.8
81.4
39.5
0.1
0.0
80.9
17.2
27.5
91.6
28.0
289.3
17.4
12.9
9.5
13.8
49.1
390.8
84.0
39.5
(0.1)
0.1
80.9
14.7
0.0
0.0
0.0
0.0
0.0
10.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
2.4
27.5
91.2
28.0
165.5
17.4
2.1
9.5
13.8
49.1
390.8
79.3
39.5
0.0
0.1
0.0
0.0
0.0
0.4
0.0
123.8
0.0
0.0
0.0
0.0
0.0
0.0
4.7
0.0
(0.1)
0.0
66.4
21.2
37.4
130.9
30.4
279.9
12.2
23.0
9.2
38.6
71.1
373.5
104.7
44.8
0.1
0.0
66.4
21.2
37.4
131.1
30.4
282.9
12.2
23.1
9.2
38.6
71.1
373.5
107.7
44.8
(0.1)
0.3
1 The carrying value of guarantees represented a liability of CHF 0.1 billion as of 31 December 2013 (31 December 2012: CHF 0.1 billion). The estimated fair value of guarantees represented an asset of CHF 0.1 billion
as of 31 December 2013 (31 December 2012: CHF 0.1 billion). 2 The carrying value of loan commitments represented a liability of CHF 0.0 billion as of 31 December 2013 (31 December 2012: CHF 0.0 billion). The
estimated fair value of loan commitments represented a liability of CHF 0.1 billion as of 31 December 2013 (31 December 2012: CHF 0.3 billion).
447
Financial information Financial information
Notes to the consolidated financial statements
Note 24 Fair value measurement (continued)
The fair values included in the table on the previous page were
calculated for disclosure purposes only. The fair value valuation
techniques and assumptions described below relate only to the
fair value of UBS’s financial instruments not measured at fair val-
ue. Other institutions may use different methods and assumptions
for their fair value estimation, and therefore such fair value disclo-
sures cannot necessarily be compared from one financial institu-
tion to another. UBS applies significant judgments and assump-
tions to arrive at these fair values, which are more holistic and less
sophisticated than UBS’s established fair value and model gover-
nance policies and processes applied to financial instruments ac-
counted 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 not
measured at fair value:
– 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 esti-
mate of fair value. The following financial instruments not mea-
sured at fair value have remaining maturities of three months or
less as of 31 December 2013: 100% of cash and balances with
central banks, 86% of amounts due from banks, 100% of cash
collateral on securities borrowed, 90% of reverse repurchase
agreements, 100% of cash collateral receivables on derivatives,
51% of loans, 84% of amounts due to banks, 94% of cash
collateral on securities lent, 96% of repurchase agreements,
100% of cash collateral payable on derivatives, 99% of amount
due to customers and 17% of debt issued.
– 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 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.
448
Note 25 Restricted and transferred financial assets
This Note provides information on restricted financial assets (Note 25a), transfers of financial assets (Note 25b and 25c), and financial
assets which are received as collateral with the right to resell or repledge these assets (Note 25d).
a) Restricted financial assets
During 2013, UBS has enhanced its disclosures on restricted fi-
nancial assets in order to comply with IFRS 12 requirements on
significant restrictions that impact the Group’s ability to use the
assets and settle the liabilities of the Group. Restricted financial
assets consist of assets pledged as collateral against an existing
liability or contingent liability and other assets which are other-
wise explicitly restricted such that they cannot be used to secure
funding. In addition, UBS AG including its branches and its sub-
sidiaries are generally not subject to significant restrictions that
would prevent the transfer of dividends and capital within the
Group, other than UBS AG’s regulated subsidiaries which are re-
quired to maintain capital to comply with local regulations, with a
certain level of capital being not available for distribution or trans-
fer. Non-regulated subsidiaries are generally not subject to divi-
dend or capital transfer restrictions. However, exceptions may
exist when restrictions are imposed as a result of a contractual-,
entity- or country-specific arrangement or requirement.
Financial assets are mainly pledged as collateral in securities
lending transactions, in repurchase transactions, against loans
from Swiss mortgage institutions and in connection with the issu-
ance of covered bonds. The Group generally enters into repur-
chase and securities lending arrangements under standard market
agreements, with a market based haircut applied to the collateral,
which results in the associated liabilities having a carrying value
below the carrying value of the assets. Pledged mortgage loans
serve as collateral for existing liabilities against Swiss central mort-
gage institutions and for existing covered bond issuances of CHF
22,634 million as of 31 December 2013 (31 December 2012: CHF
21,902 million).
Other restricted financial assets include assets protected under
client asset segregation rules, assets held by the Group’s insurance
entities to back related liabilities to the policy holders, assets held
in certain jurisdictions to comply with explicit minimum local asset
maintenance requirements and assets held in consolidated bank-
ruptcy remote entities such as certain investment funds and other
structured entities. The carrying value of the liabilities associated
with these other restricted financial assets is generally equal to the
carrying value of the assets, with the exception of assets held to
comply with local asset maintenance requirements for which the
associated liabilities are greater.
Restricted financial assets
CHF million
Financial assets pledged as collateral
Trading portfolio assets
of which: assets pledged as collateral which may be sold or repledged by counterparties
Loans
of which: mortgage loans 1
Total financial assets pledged as collateral 2
Other restricted financial assets
Due from banks
Reverse repurchase agreements
Trading portfolio assets
Cash collateral receivables on derivative insruments
Financial assets designated at fair value
Financial investments available-for-sale
Other
Total other restricted financial assets 3
Total financial assets pledged and other restricted financial assets
Carrying amount
31.12.13
31.12.12
48,368
42,449
33,632
33,632
82,000
6,570
1,989
24,252
7,939
581
44
169
41,544
123,544
53,656
44,698
34,005
33,928
87,661
7,804
1,872
32,715
4,080
655
2,339
143
49,608
137,269
1 Of these pledged mortgage loans, approximately CHF 5.8 billion for 31 December 2013 (31 December 2012: approximately CHF 7.5 billion) could be withdrawn or used for future liabilities or covered bond issuances
without breaching existing collateral requirements. 2 Does not include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes (31 December 2013: CHF
4.3 billion, 31 December 2012: CHF 4.8 billion). 3 Other restricted financial assets as of 31 December 2013 included cash and cash equivalents of CHF 8.3 billion (31 December 2012: CHF 10.1 billion), of which CHF
6.2 billion under Due from banks (31 December 2012: CHF 7.8 billion), CHF 1.7 billion under Trading portfolio assets (31 December 2012: CHF 2.1 billion) and CHF 0.4 billion under Cash collateral receivables on de-
rivative instruments (31 December 2012: CHF 0.2 billion).
449
Financial information Financial information
Notes to the consolidated financial statements
Note 25 Restricted and transferred financial assets (continued)
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 securities lending and repurchase 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
31.12.13
31.12.12
Carrying value
of transferred
assets
Carrying value of
associated liabilities
recognized
on balance sheet
Carrying value of
transferred assets
Carrying value of
associated liabilities
recognized
on balance sheet
16,296
25,349
804
42,449
15,026
0
442
15,468
23,573
18,258
2,868
44,698
22,350
0
152
22,502
Transactions whereby financial assets are transferred, but con-
tinue to be recognized in their entirety on UBS’s 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 agreements,
and are undertaken with counterparties subject to UBS’s normal
credit risk control processes. Other financial asset transfers in-
clude securities transferred to collateralize derivative trans-
actions.
As of 31 December 2013, approximately one-third of the trans-
ferred financial assets are trading portfolio assets transferred in ex-
change 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 associ-
ated liabilities having a carrying value below the carrying value of
the transferred assets. The counterparties to the associated liabili-
ties 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 repledged 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
2013 and 2012.
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 2013
and 2012.
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
vehicles. The table below provides information on the Group’s
continuing involvement in transferred and fully derecognized fi-
nancial assets.
450
Note 25 Restricted and transferred financial assets (continued)
Transferred financial assets that are derecognized in their entirety with continuing involvement
CHF million
31.12.13
Type of continuing involvement
Lending arrangements
Purchased and retained interests
in securitization vehicles
Other
Total
CHF million
Balance sheet
Carrying
amount of
continuing
line item
involvement
Gain / (loss)
recognized at
the date of
transfer of the
financial assets
Gain / (loss) from continuing
involvement in transferred and
derecognized financial assets
For the year
ended 31.12.13
Life-to-date
31.12.13
Fair value of
continuing
involvement
Loans
2,408
2,384
Trading portfolio assets /
Replacement values 1
(34)
(34)
2,374
2,350
31.12.12
0
1
6
8
43
6
49
694
(1,596)
(902)
Type of continuing involvement
Purchased call option 2
Lending arrangements
Balance sheet line item
Positive replacement values
Loans
Purchased and retained interests in securitization
vehicles
Trading portfolio assets /
Replacement values 1
Total
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
31.12.12
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)
1 As of 31 December 2013, Purchased and retained interest in securitization vehicles consisted of Trading portfolio assets of CHF 34 million and Negative replacement values of CHF 68 million. As of 31 December 2012,
Purchased and retained interest in securitization vehicles consisted of Trading portfolio assets of CHF 325 million and Negative replacement values of CHF 120 million. 2 Reflects the option to acquire the equity of the
SNB StabFund which was exercised on 7 November 2013.
There are a limited number of specific transactions for which UBS
has continuing involvement in derecognized financial assets, as
detailed below.
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”), an entity managed by BlackRock, Inc. The USD 15 billion
proceeds were approximately in line with the fair value of the as-
sets 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 provided by UBS, which rep-
resents 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.
Purchased and retained interests in securitization vehicles
In cases where UBS has transferred assets into securitization ve-
hicles and retained or purchased interests therein, UBS has a con-
tinuing involvement in those transferred assets. The majority of
our retained continuing involvement securitization positions held
in the trading portfolio are collateralized debt obligations, US
commercial mortgage-backed securities and residential mort-
gage-backed securities. As a result of losses incurred in previous
years, the majority of these continuing involvement positions
have a carrying amount of zero as of 31 December 2013. As of
31 December 2013, the maximum exposure to loss related to
purchased and retained interests in securitization structures was
CHF 49 million compared with CHF 329 million as of 31 Decem-
ber 2012, both mainly related to trading portfolio assets. Life-to-
date losses presented in the table above only relate to retained
interests held as of 31 December 2013.
451
Financial information Financial information
Notes to the consolidated financial statements
Note 25 Restricted and transferred financial assets (continued)
d) Off-balance-sheet assets received
The following table presents assets received from third parties that can be sold or repledged, 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 assets received
CHF million
Fair value of assets 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 ¹
in connection with financing activities
to satisfy commitments under short sale transactions
in connection with derivative and other transactions
31.12.13
351,712
348,205
3,507
240,176
193,879
26,609
19,688
31.12.12
400,150
398,496
1,654
284,692
224,361
34,247
26,084
1 Does not include off-balance-sheet assets (31 December 2013: CHF 38.4 billion, 31 December 2012: CHF 29.4 billion) placed with central banks related to undrawn credit lines and for payment, clearing and settle-
ment purposes for which there are no associated liabilities or contingent liabilities.
Note 26 Offsetting financial assets and financial liabilities
UBS enters into netting agreements with counterparties to man-
age the credit risks associated primarily with repurchase and re-
verse repurchase transactions, securities borrowing and lending
and over-the-counter and exchange-traded derivatives. These
netting agreements and similar arrangements generally enable
the counterparties to offset liabilities against available assets re-
ceived – in the ordinary course of business and / or in the event
that the counterparty to the transaction is unable to fulfill its con-
tractual obligations. The right to offset is a legal right to settle or
otherwise eliminate all or a portion of an amount due by applying
an amount receivable from the same counterparty against it, thus
reducing credit exposure. From a balance sheet presentation per-
spective, the criteria for offsetting financial assets and financial
liabilities are highly restrictive. UBS offsets financial assets and fi-
nancial liabilities on its balance sheet only when it has a currently
enforceable legal right to offset the respective recognized
amounts and intends either to settle on a net basis, or to realize
the asset and settle the liability simultaneously. In assessing the
criteria for a relevant set of facts and circumstances, emphasis is
placed on the effectiveness of the operational mechanics of net or
simultaneous settlements in eliminating all credit and liquidity ex-
posure between counterparties at the time of settlement. These
criteria preclude offsetting on the balance sheet for substantial
amounts of the Group’s financial assets and liabilities, even if
these amounts may be subject to enforceable netting arrange-
ments. For derivative contracts, balance sheet offsetting is gener-
ally only permitted in circumstances in which a market settlement
mechanism (e.g., an exchange or clearing house) exists which ef-
fectively accomplishes net settlement through a daily cash mar-
gining process. Bilateral OTC derivatives and exchange traded
derivatives that are not margined on a daily basis are commonly
precluded from offsetting on the balance sheet unless a mecha-
nism exists to provide for net settlement of the cash flows arising
from these contracts. For repurchase arrangements and securities
financings, balance sheet offsetting may be permitted only to the
extent that financial assets and liabilities with a counterparty have
the same maturity date and are settled through a clearing process
by which intra-day credit and liquidity exposures are substantially
eliminated. Thus, repurchase and securities financing arrange-
ments that are not cleared through a formal mechanism, such as
a clearing house or exchange, are generally not offset on the bal-
ance sheet. UBS engages in a variety of counterparty credit miti-
gation strategies in addition to netting and collateral arrange-
ments. Therefore, the net amounts presented on the tables on the
next pages do not purport to represent the Group’s actual credit
exposure.
452
Note 26 Offsetting financial assets and financial liabilities (continued)
The table below provides a summary of financial assets subject to
offsetting, enforceable master netting arrangements and similar
agreements, as well as financial collateral received to mitigate
credit exposures for these financial assets. The gross financial as-
sets of the Group that are subject to offsetting, enforceable net-
ting arrangements and similar agreements are reconciled to the
net amounts presented within the associated balance sheet line,
after giving effect to financial liabilities with the same counterpar-
ties that have been offset on the balance sheet and other financial
assets not subject to an enforceable netting arrangement or simi-
lar agreement. Further, related amounts for financial liabilities and
collateral received that are not offset on the balance sheet are
shown to arrive at financial assets after consideration of netting
potential.
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements
Assets subject to netting arrangements
31.12.13
Netting potential not recognized
in the balance sheet 3
CHF billion
Cash collateral on securities borrowed
Reverse repurchase agreements
Positive replacement values
Cash collateral receivables on derivative instruments 1
Financial assets designated at fair value
Total assets
Balance sheet
netting with
gross liabilities 2
0.0
(25.4)
(7.2)
(200.2)
0.0
(232.9)
Assets
recognized
on the
balance
sheet, net
26.5
86.1
233.5
23.5
3.9
373.5
Gross assets
before balance
sheet netting
26.5
111.5
240.7
223.8
3.9
606.4
Financial
liabilities
Collateral
received
Assets after
consideration
of netting
potential
(1.2)
(5.4)
(185.0)
(14.2)
0.0
(205.8)
(25.2)
(80.7)
(35.1)
(1.1)
(3.9)
(145.9)
0.2
0.0
13.4
8.2
0.1
21.8
Assets subject to netting arrangements
31.12.12
Netting potential not recognized
in the balance sheet 3
CHF billion
Cash collateral on securities borrowed
Reverse repurchase agreements
Positive replacement values
Cash collateral receivables on derivative instruments 1
Financial assets designated at fair value
Total assets
Balance sheet
netting with
gross liabilities 2
0.0
(34.8)
(14.6)
(331.8)
0.0
(381.2)
Assets
recognized
on the
balance
sheet, net
37.4
119.7
402.1
20.1
4.6
583.9
Gross assets
before balance
sheet netting
37.4
154.5
416.8
351.8
4.6
965.1
Financial
liabilities
Collateral
received
Assets after
consideration
of netting
potential
(2.7)
(9.6)
(327.3)
(17.4)
0.0
(357.1)
(34.4)
(110.1)
(57.3)
0.0
(4.5)
(206.3)
0.3
0.0
17.5
2.7
0.1
20.6
Assets not
subject to
enforceable
netting ar-
rangements
and other
out-of-
scope items
Total assets
recognized
on the
balance
sheet
1.0
5.5
12.3
4.5
3.4
26.7
27.5
91.6
245.8
28.0
7.4
400.3
Assets not
subject to
enforceable
netting ar-
rangements
and other
out-of-
scope items
Total assets
recognized
on the
balance
sheet
0.0
11.2
16.8
10.2
4.5
42.8
37.4
130.9
419.0
30.4
9.1
626.8
1 The amount of Cash collateral receivables on derivative instruments recognized on the balance sheet, net, includes certain OTC derivatives which are in substance net settled on a daily basis under IAS 32 and ETD de-
rivatives which are economically settled on a daily basis. In addition, this balance includes OTC and ETD cash collateral balances which correspond with the cash portion of collateral pledged, reflected on the Negative
replacement values line in the table presented on the following page. 2 The logic of the table results in amounts presented in the “Balance sheet netting with gross liabilities” column corresponding directly to the
amounts presented in the “Balance sheet netting with gross assets” column in the liabilities table presented on the following page. 3 For the purpose of this disclosure, the amounts of financial instruments and cash
collateral not set off in the balance sheet have been capped by relevant netting agreement so as not to exceed the Net amount of financial assets presented on the balance sheet, i.e., over-collateralization, where it ex-
ists, is not reflected in the table.
453
Financial information Financial information
Notes to the consolidated financial statements
Note 26 Offsetting financial assets and financial liabilities (continued)
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements
Liabilities subject to netting arrangements
31.12.13
Netting potential not recog-
nized in the balance sheet 3
Gross
liabilities
before
balance sheet
netting
8.5
34.2
231.7
240.5
6.6
521.6
Liabilities
recognized
on the
balance
sheet, net
8.5
8.8
224.6
40.3
6.6
288.7
Balance sheet
netting with
gross assets 2
0.0
(25.4)
(7.2)
(200.2)
0.0
(232.9)
Liabilities subject to netting arrangements
Financial
assets
Collateral
pledged
(1.2)
(5.4)
(185.0)
(27.9)
0.0
(219.5)
(7.3)
(3.4)
(20.7)
(3.6)
(2.1)
(37.0)
31.12.12
Netting potential not recog-
nized in the balance sheet 3
Gross
liabilities
before
balance sheet
netting
9.2
56.2
390.8
391.3
7.0
854.6
Liabilities
recognized
on the
balance
sheet, net
9.2
21.4
376.2
59.6
7.0
473.4
Balance sheet
netting with
gross assets 2
0.0
(34.8)
(14.6)
(331.8)
0.0
(381.2)
Financial
assets
Collateral
pledged
(2.7)
(9.6)
(327.3)
(49.4)
0.0
(389.0)
(6.4)
(11.8)
(20.3)
(0.4)
(2.4)
(41.3)
Liabilities
not subject
to enforce-
able netting
arrange-
ments and
other
out-of-
scope items
Total
liabilities
recognized
on the
balance
sheet
Liabilities
after
con sideration
of netting
potential
0.0
0.0
18.8
8.8
4.6
32.2
1.0
5.0
15.4
8.8
63.3
93.5
9.5
13.8
240.0
49.1
69.9
382.3
Liabilities
not subject
to enforce-
able netting
arrange-
ments and
other
out-of-
scope items
Total
liabilities
recognized
on the
balance
sheet
Liabilities
after
consideration
of netting
potential
0.1
0.0
28.6
9.9
4.6
43.1
0.0
17.1
19.1
11.5
84.9
132.6
9.2
38.6
395.3
71.1
91.9
606.1
CHF billion
Cash collateral on securities lent
Repurchase agreements
Negative replacement values
Cash collateral payables on derivative instruments 1
Financial liabilities designated at fair value
Total liabilities
CHF billion
Cash collateral on securities lent
Repurchase agreements
Negative replacement values
Cash collateral payables on derivative instruments 1
Financial liabilities designated at fair value
Total liabilities
1 The amount of Cash collateral payables on derivative instruments recognized on the balance sheet, net, includes certain OTC derivatives which are in substance net settled on a daily basis under IAS 32 and ETD de-
rivatives which are economically settled on a daily basis. In addition, this balance includes OTC and ETD cash collateral balances which correspond with the cash portion of collateral received reflected on the Positive
replacement values line in the table presented on the previous page. 2 The logic of the table results in amounts presented in the “Balance sheet netting with gross assets” column corresponding directly to the amounts
presented in the Balance sheet netting with gross liabilities column in the assets table presented on the previous page. 3 For the purpose of this disclosure, the amounts of financial instruments and cash collateral not
set off on the balance sheet have been capped by relevant netting arrangement so as not to exceed the Net amount of financial liabilities presented in the balance sheet, i.e., over-collateralization, where it exists, is not
reflected in the table.
454
Note 27 Financial assets and liabilities – additional information
a) Measurement categories of financial assets and liabilities
The following table provides information about the carrying
amounts of individual classes of financial instruments within the
measurement categories of financial assets and liabilities as de-
fined in IAS 39 Financial Instruments: Recognition and Measure-
ment. Only those assets and liabilities which are financial instru-
ments as defined in IAS 32 Financial Instruments: Presentation are
included in the table below, which causes certain balances to dif-
fer from those presented on the balance sheet.
➔ Refer to “Note 24 Fair value measurement” for more information
on how fair value of financial instruments is determined
Measurement categories of financial assets and liabilities
CHF million
Financial assets 1
Fair value through profit or loss, 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, other
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
Other assets
Total
Available-for-sale
Financial investments available-for-sale
Total financial assets
Financial liabilities
Fair value through profit or loss, 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
Debt issued
Other liabilities
Total
Total financial liabilities
31.12.13
31.12.12
114,249
42,449
202
245,835
360,286
143,471
44,698
154
418,957
562,581
7,364
9,106
80,879
17,170
27,496
91,563
28,007
286,959
17,598
549,673
59,525
976,848
26,609
362
239,953
266,924
69,901
16,155
86,056
12,862
9,491
13,811
49,138
390,825
81,426
39,522
597,075
950,055
66,383
21,220
37,372
130,941
30,413
279,901
12,155
578,385
66,230
1,216,302
34,247
271
395,260
429,778
91,901
15,299
107,201
23,024
9,203
38,557
71,148
373,459
104,719
44,807
664,918
1,201,896
1 As of 31 December 2013, based on contractual maturities, CHF 116 billion of Loans, CHF 0 billion of Due from banks, CHF 0 billion of Reverse repurchase agreements, CHF 31 billion of Financial investments available-for-
sale and CHF 5 billion of Financial assets designated at fair value are expected to be recovered or settled after 12 months. 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 12 months. 2 Repre-
sents the embedded derivative component of structured debt issued for which the fair value option has not been applied and which is presented within Debt issued on the balance sheet. In 2013, the comparative period
figures were corrected. As a result, financial assets presented for 31 December 2012 decreased by CHF 251 million and financial liabilities presented for 31 December 2012 increased by CHF 99 million.
455
Financial information Financial information
Notes to the consolidated financial statements
Note 27 Financial assets and liabilities – additional information (continued)
b) Maturity analysis of financial liabilities
The contractual maturities of our non-derivative and non-trading
financial liabilities as of 31 December 2013 are based on the
earliest date on which we could be contractually required to pay.
The total amounts that contractually mature in each time-band
are also shown for 31 December 2012. Derivative positions and
trading liabilities, predominantly made up of short sale transac-
tions, are assigned to the column Due within 1 month, as this
provides a conservative reflection of the nature of these trading
activities. The contractual maturities may extend over significant-
ly longer periods.
Maturity analysis of financial liabilities 1
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
Debt issued
Other liabilities
Total 31.12.13
Total 31.12.12
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 31.12.13
Total 31.12.12
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
9.5
8.3
12.1
26.6
240.0
49.1
3.5
378.1
6.5
54.3
788.1
996.9
54.5
0.8
55.2
18.3
9.4
0.0
83.0
97.9
1.3
0.7
1.1
4.1
6.8
8.9
22.9
28.0
0.3
0.3
0.0
0.3
0.2
1.7
0.6
0.2
12.9
5.6
22.2
43.1
61.2
0.1
0.1
0.1
0.2
0.3
0.3
0.3
31.6
0.2
33.7
66.2
78.6
0.0
0.0
0.2
0.3
0.3
0.0
0.1
20.5
0.2
20.5
41.3
52.9
0.0
0.1
0.1
0.1
Total
12.9
9.5
13.9
26.6
240.0
49.1
72.6
390.9
91.8
54.3
961.6
1,217.6
54.9
0.8
55.7
18.8
9.4
0.0
83.9
98.8
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 14 Derivative instruments and hedge accounting” for undiscounted cash flows of derivatives des-
ignated in hedge accounting relationships. 4 Contractual maturities of trading portfolio liabilities are: CHF 24.3 billion due within one month (2012: CHF 32.5 billion), CHF 1.2 billion due between one month and one
year (2012: CHF 0.5 billion), and CHF1.1 billion due between one and five years (2012: CHF 1.3 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 guaran-
tees, commitments and forward starting transactions.
456
Note 27 Financial assets and liabilities – additional information (continued)
c) Reclassification of financial assets
In the fourth quarter of 2008 and the first quarter of 2009, finan-
cial assets were reclassified out of Trading portfolio assets to
Loans. On their reclassification date, these assets had fair values
of CHF 26 billion and CHF 0.6 billion, respectively.
The reclassification of financial assets reflected UBS’s change in
intent and ability to hold these financial assets for the foreseeable
future rather than for trading in the near term. The foreseeable
future is interpreted to mean a period of approximately 12 months
following the date of reclassification. The financial assets were
reclassified using their fair value on the date of the reclassifica-
tion, which became their new cost basis at that date.
Held-for-trading assets reclassified to loans and receivables
CHF billion
Carrying value
Fair value
Pro-forma fair value gain / (loss)
31.12.13
31.12.12
1.5
1.5
0.0
3.2
3.1
(0.1)
The following table provides notional values, fair values and carrying values by product category for the remaining reclassified financial
assets.
Held-for-trading assets reclassified to loans and receivables
CHF billion
US student loan and municipal auction rate securities
Monoline-protected assets
Other assets
Total
31.12.13
Notional value
Fair value
Carrying value
0.6
0.6
0.5
1.6
0.5
0.6
0.4
1.5
0.5
0.6
0.4
1.5
Ratio of carry-
ing to notional
value (%)
95
92
84
91
In 2013, the carrying value of the remaining reclassified financial
assets decreased by CHF 1.7 billion, mainly due to sales and re-
demptions of US student loan auction rate securities and lever-
aged finance loans. The overall impact on operating profit before
tax from the financial assets for the year ended 31 December
2013 was a profit of CHF 132 million (see table below). If the fi-
nancial assets had not been reclassified, the impact on operating
profit before tax for the year ended 31 December 2013 would
have been a profit of approximately CHF 0.2 billion (2012: CHF
0.3 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.
For the year ended
31.12.13
31.12.12
74
4
53
132
116
(73)
7
49
457
Financial information Financial information
Notes to the consolidated financial statements
Note 27 Financial assets and liabilities – additional information (continued)
d) Maximum exposure to credit risk of financial assets designated at fair value
Financial assets designated at fair value totaled CHF 7,364 mil-
lion as of 31 December 2013 (31 December 2012: CHF 9,106
million). Maximum exposure to credit risk from financial assets
designated at fair value was CHF 6.8 billion as of 31 December
2013 (31 December 2012: CHF 8.5 billion). The exposure relat-
ed to structured loans and reverse repurchase and securities
borrowing agreements was mitigated by securities collateral of
CHF 5.4 billion as of 31 December 2013 (31 December 2012:
CHF 6.5 billion).
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.
Investment fund units designated at fair value do not have a
direct exposure to credit risk.
➔ Refer to “Note 24 Fair value measurement” for more information
on financial assets designated at fair value
➔ Refer to “Maximum exposure to credit risk” in the “Credit risk”
section of this report for more information on collateral related
to financial assets designated at fair value
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.
31.12.13
31.12.12
1,103
790
(8)
2,102
1,025
2
The table below provides the impact on the fair values of loans from changes in credit risk for the periods presented and cumula-
tively 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
31.12.13
31.12.12
31.12.13
31.12.12
16
(9)
22
(18)
5
(8)
(10)
2
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. Cumulative changes in
the fair value of credit derivatives hedging such loans include all the derivatives which have been used to mitigate credit risk of these loans since designation at fair value. For loans reported under the fair value option,
changes in fair value due to changes in the credit standing of the borrower are calculated using counterparty credit information obtained from independent market sources.
458
Note 28 Pension and other post-employment benefit plans
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 – expenses related to 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: Non-Swiss 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
31.12.13
31.12.12
31.12.11
651
638
555
82
(11)
24
236
887
(222)
(116)
(198)
82
(102)
(3)
240
18
577
519
453
66
(2)
60
254
831
1 Refer to “Note 28a Defined benefit pension plans” for more information. 2 Refer to “Note 28b 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 28c Defined contribution plans” for more information. 5 Refer to “Note 6 Personnel expenses” for more
information.
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: Non-Swiss 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
31.12.13
31.12.12
31.12.11
1,168
1,119
49
3
7
1,178
(239)
939
(4,364)
497
(3,867)
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)
1 Refer to “Note 28a Defined benefit pension plans” for more information. 2 Refer to “Note 28b 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.”
459
Financial information Financial information
Notes to the consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
The following tables provide information on UBS’s assets and liabilities with respect to pension and post-employment benefit plans.
These are recognized on the balance sheet within Other assets and Other liabilities. All major plans are currently in a deficit situation
except for the Swiss plan which is in a surplus situation.
Balance sheet – net defined benefit pension and post-employment asset
CHF million
Major pension plans 1
of which: Swiss plan
of which: Non-Swiss plans
Post-retirement medical and life insurance plans
Remaining plans
Total net defined benefit pension and post-employment asset 2
1 Refer to “Note 28a Defined benefit pension plans” for more information. 2 Refer to “Note 18 Other assets.”
Balance sheet – net defined benefit pension and post-employment liability
CHF million
Major pension plans 1
of which: Swiss plan
of which: Non-Swiss plans 2
Post-retirement medical and life insurance plans 3
Remaining plans
Total net defined benefit pension and post-employment liability 4
31.12.13
31.12.12
952
952
0
0
0
952
31.12.13
903
0
903
114
31
1,048
0
0
0
0
0
0
31.12.12
1,108
118
990
136
39
1,284
1 Refer to “Note 28a Defined benefit pension plans” for more information. 2 Liability consists of: UK plan CHF 433 million, US plans CHF 186 million and German plans CHF 284 million (31 December 2012: UK plan
CHF 422 million, US plans CHF 290 million and German plans CHF 277 million). 3 Refer to “Note 28b Post-retirement medical and life insurance plans” for more information. 4 Refer to “Note 23 Other liabilities.”
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 the
governance body with reference to the prevailing current and ex-
pected 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. Spe-
cific 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 port-
folio of assets across geographic regions to ensure a balance of risk
and return to the extent allowed under local pension laws.
Swiss pension plan
The Swiss pension plan covers employees of UBS AG and its affili-
ated companies in Switzerland and exceeds the minimum benefit
requirements under Swiss pension law. The pension fund must
provide the minimum mandatory benefits in accordance with
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 contributions paid
by the employee. Employee contributions are calculated as a per-
centage of contributory salary and are deducted monthly. The
percentages deducted from salary depend on age and choice of
contribution category and vary between 1% and 13.5% of con-
tributory base salary and between 0% and 9% of contributory
variable compensation. Depending on the age of the employee,
UBS pays a contribution that ranges between 6.5% and 27.5% of
contributory base salary and between 3.6% and 9% of contribu-
tory variable compensation for retirement credits. UBS also pays
risk contributions which are used to finance benefits paid out in
the event of death and disability, as well as to finance the old age
bridging pension. The benefits include retirement benefits and
disability, death and survivor pensions. The pension plan offers to
members at the normal retirement age of 64 a choice between a
lifetime pension with or without full restitution and a partial or full
lump sum payment. Members can draw retirement benefits early
460
Note 28 Pension and other post-employment benefit plans (continued)
from the age of 58. The amount of pension payable is a result of
the conversion rate applied on the accumulated balance of the
individual plan participant’s pension account at the retirement
date. The accumulated balance of each individual plan partici-
pant’s pension account is based on credited vested benefits trans-
ferred from previous employers, purchases of benefits and 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 based on a defined contribu-
tion promise under Swiss pension law, it is accounted for as a
defined benefit plan under IAS 19, primarily because of the obli-
gation to accrue interest on the pension accounts and the pay-
ment 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 de-
fined by Swiss pension law and by the plan rules. According to
Swiss pension law, a temporary limited underfunding is permit-
ted. However, the Pension Foundation Board is required to take
the necessary measures to ensure that full funding can be ex-
pected to be restored within a period up to a maximum of ten
years. Under Swiss pension law, if the Swiss pension plan became
significantly 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 127.0%
as of 31 December 2013 (31 December 2012: 123.4%), and thus
it is not expected that additional contributions will be required in
the next year. The investment strategy of the Swiss plan is in line
with Swiss pension law, including the rules and regulations relat-
ing to diversification of plan assets. The Pension Foundation Board
strives for a medium- and long-term consistency and sustainability
between assets and liabilities. Under IAS 19, volatility arises in the
Swiss pension plan net asset because the fair value of the plan
assets is not directly correlated to movements in the value of the
plan’s defined benefit obligation in the short term.
There are ongoing discussions in the Swiss government on
possible changes to Swiss pension law. The outcome of these dis-
cussions and the timing of any resulting changes are uncertain.
In 2012, UBS announced certain changes to its Swiss pension
plan. The main changes were a reduction in conversion rate on
retirement and an increase of the normal retirement age, which
served 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 result-
ing in a gain in 2012.
The employer contributions expected to be made to the Swiss
pension plan in 2014 are estimated to be CHF 474 million. The
actuarial assumptions used for the Swiss pension plan are based
on the local economic environment. Refer also to Note 1a) 24) for
a description of the accounting policy for defined benefit pension
plans.
The Swiss pension plan was in a surplus situation as of 31 De-
cember 2013 as the fair value of plan assets exceeded the defined
benefit obligation by CHF 1,760 million (31 December 2012: def-
icit of CHF 118 million). However, such a surplus can only be rec-
ognized on the balance sheet to the extent that it does not ex-
ceed the estimated future economic benefit, which is the
difference between the estimated future net service cost and the
estimated future employer contributions. As of 31 December
2013, the estimated future economic benefit was CHF 952 million
and hence, this was the amount recognized as net defined benefit
asset on the balance sheet. The difference of CHF 808 million
between the pension plan surplus and the estimated future eco-
nomic benefit, the so-called asset ceiling effect, was recognized
as a loss in other comprehensive income.
Non-Swiss pension plans
The non-Swiss 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
to the financial results of UBS, no further disclosure is given within
this note. The non-Swiss pension plans provide benefits in the
event of retirement, death or disability. The level of benefits pro-
vided depends on the specific rate of benefit accrual and the level
of employee compensation. The amounts shown for the non-
Swiss pension plans reflect the net funded positions of the signifi-
cant non-Swiss pension 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 non-Swiss pension plans’
net liability because the fair value of the plan assets is not directly
correlated to movements in the value of the plans’ defined benefit
obligation. The employer contributions expected to be made to
these pension plans in 2014 are estimated to be CHF 186 million.
The funding policy for these plans is consistent with local govern-
ment regulations and tax requirements. The actuarial assumptions
used for the non-Swiss pension plans are based on the local eco-
nomic environment.
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 and
benefits increase automatically based on UK price inflation. Nor-
mal retirement age for the UK plan is 60. The plan is closed to
new entrants, who instead can participate in a defined contribu-
461
Financial information Financial information
Notes to the consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
tion arrangement. On 1 July 2013, UBS closed the UK defined
benefit pension plan for future service. After that date, UBS no
longer recognizes current service costs for this plan. The closure of
the plan for future service did not have a financial impact since
the UK plan is a career average plan and past service benefits are
indexed to UK price inflation. Plan participants who were active
employees under the defined benefit plan were eligible to be-
come participants of the defined contribution arrangement for
any service after the plan was closed for future service.
There is a UK Pension Trustee Board which is required under
local pension laws. The responsibility for governance of the UK
plan lies jointly with the Pension Trustee Board and UBS. The em-
ployer contributions to the pension fund included regular contri-
butions and specific deficit funding contributions up to the date
of the closure of the UK plan for future service and thereafter
represent agreed deficit funding contributions. The employer con-
tributions are determined based on the last actuarial valuation
which is conducted based on assumptions agreed by the Trustees
and UBS. In the event of an underfunding, UBS must agree a
deficit recovery plan with the Pension Trustee Board within statu-
tory 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 significant in the UK plan where infla-
tionary increases result in higher sensitivity to changes in the life
expectancy.
Based on the plan rules and due to local pension legislation,
there are caps on the level of inflationary increase applied to plan
benefits. 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 defined benefit 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 pen-
sion account is credited annually with interest based on a rate
which is linked to the yield on a US government bond. Upon retire-
ment, the plan participant can elect to receive the retirement ben-
efit as a lump sum or a lifetime pension. The other plan provides 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 valuations are regularly
completed for the plans and UBS has historically elected to make
contributions to the plans in order to at least maintain a funded
ratio of 80% as calculated under local pension regulations. The
annual employer contributions are equal to the present value of
benefits accrued each year plus a rolling amortization of any prior
underfunding. If the employer contributes more than the mini-
mum or the plan has assets exceeding the liabilities, the excess can
be used to offset minimum funding requirements.
In 2013, UBS offered to certain deferred vested members of
the US pension plans the option to receive a lump sum payment
(or early annuity payments) instead of a lifetime pension. This re-
sulted in a reduction of the defined benefit obligation of CHF 196
million, a reduction of fair value of plan assets of CHF 216 million
and a charge to the income statement of CHF 20 million in 2013.
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 employer 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 which is funded
entirely by the employees. The deferred compensation plan has a
guaranteed interest rate of 4% on contributions paid after 2009.
The German plans are regulated under German pension law un-
der 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.
462
Note 28 Pension and other post-employment benefit plans (continued)
Defined benefit pension plans
CHF million
For the year ended
Defined benefit obligation at the beginning of the year
Current service cost
Interest expense
Plan participant contributions
Remeasurements 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
Payments related to plan amendments
Foreign currency translation
Fair value of plan assets at the end of the year
Asset ceiling effect
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
Net asset / (liability) recognized on the balance sheet at the end of the year
Funded and unfunded plans
Defined benefit obligation from funded plans
Defined benefit obligation from unfunded plans
Plan assets
Surplus / (deficit)
Asset ceiling effect
Net defined benefit asset / (liability)
Swiss
Non-Swiss
31.12.13
21,901
31.12.12
22,555
31.12.13
4,773
31.12.12
4,414
549
399
197
(1,124)
0
(1,114)
(10)
0
(37)
(1,183)
36
0
20,738
9,841
0
10,897
21,783
803
403
470
36
197
(1,183)
(11)
0
0
22,498
808
952
(118)
(555)
1,119
470
36
0
952
20,738
0
22,498
1,760
808
952
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
0
21,783
0
(118)
(1,941)
198
1,095
486
43
0
(118)
21,901
0
21,783
(118)
0
(118)
21
199
0
105
(23)
3
125
(196) 2
0
(204)
0
(26)
4,670
710
2,249
1,711
3,783
154
162
125
0
0
(204)
(5)
(216) 2
(31)
3,768
0
(903)
(990)
(82)
49
125
0
(5)
(903)
4,365
306
3,768
(903)
0
(903)
33
211
0
258
(27)
269
17
0
0
(164)
0
20
4,773
713
2,378
1,682
3,458
216
167
84
0
0
(164)
(5)
0
26
3,783
0
(990)
(956)
(82)
(42)
84
0
5
(990)
4,472
301
3,783
(990)
0
(990)
1 During 2012, UBS revised its approach for the financial assumptions regarding calculating past service cost for certain members of the Swiss pension plan to consider not only age but also the initial employee contri-
butions transferred to, or withdrawn from, the plan. This affected the distribution between past and future service costs, resulting in a reduction in the defined benefit obligation of CHF 841 million in 2012. This amount
is offset by other remeasurement changes relating to changes in financial assumptions. 2 In 2013, UBS offered to certain deferred vested members of the US pension plans the option to receive a lump sum payment
(or early annuity payments) instead of a lifetime pension. This resulted in a reduction of the defined benefit obligation, a reduction of fair value of plan assets and a charge to the income statement in 2013.
463
Financial information Financial information
Notes to the consolidated financial statements
Note 28 Pension and other post-employment benefit 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
Plan amendments
Curtailments
Termination benefits
Net periodic pension cost
Analysis of amounts 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
Asset ceiling effect
Total gains / (losses) recognized in other comprehensive income
Swiss
Non-Swiss
31.12.13
31.12.12
31.12.13
31.12.12
549
399
(403)
11
0
(37)
36
555
531
462
(460)
11
(730)
(54)
43
(198)
21
199
(162)
5
20 1
0
0
82
33
211
(167)
5
0
0
0
82
Swiss
Non-Swiss
31.12.13
31.12.12
31.12.13
31.12.12
1,124
803
(808)
1,119
(29)
1,124
0
1,095
(105)
154
0
49
(258)
216
0
(42)
1 In 2013, UBS offered to certain deferred vested members of the US pension plans the option to receive a lump sum payment (or early annuity payments) instead of a lifetime pension. This resulted in a reduction of the
defined benefit obligation, a reduction of fair value of plan assets and a charge to the income statement in 2013.
The following table provides information on the duration of the defined benefit pension obligations and the distribution of the timing
of benefit payments.
Duration of the defined benefit obligation
Maturity analysis of benefits expected to be paid
CHF million
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 The duration of the defined benefit obligation represents a weighted average across non-Swiss plans.
Swiss
Non-Swiss1
31.12.13
15.1
31.12.12
15.7
31.12.13
18.9
31.12.12
18.2
1,033
2,051
3,008
5,630
5,874
28,915
1,036
2,051
3,022
5,527
5,783
28,828
151
321
555
1,168
1,422
8,970
150
310
538
1,157
1,471
9,264
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 Represents weighted average assumptions across non-Swiss plans.
464
Swiss
Non-Swiss1
31.12.13
31.12.12
31.12.13
31.12.12
2.3
2.5
0.0
2.6
1.9
2.5
0.0
2.1
4.6
3.2
3.3
1.1
4.3
4.1
2.1
1.2
Note 28 Pension and other post-employment benefit plans (continued)
Mortality tables and life expectancies for major plans
Country
Switzerland
UK
US
Mortality table
BVG 2010 G
S1NA_L CMI 2010 G, with projections
PPA mandated mortality table per IRC 1.430(h)(3)
Germany
Dr. K. Heubeck 2005 G
Country
Switzerland
UK
US
Mortality table
BVG 2010 G
S1NA_L CMI 2010 G, with projections
PPA mandated mortality table per IRC 1.430(h)(3)
Germany
Dr. K. Heubeck 2005 G
Life expectancy at age 65 for a male member currently
aged 65
aged 45
31.12.13
31.12.12
31.12.13
31.12.12
21.3
24.4
19.3
19.7
21.2
24.5
19.2
19.6
23.1
27.3
19.3
22.4
23.0
27.5
19.2
22.3
Life expectancy at age 65 for a female member currently
aged 65
aged 45
31.12.13
31.12.12
31.12.13
31.12.12
23.8
25.5
21.1
23.8
23.7
25.6
21.0
23.7
25.5
27.8
21.1
26.3
25.4
27.9
21.0
26.2
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 asset / (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
Non-Swiss plans: increase / (decrease)
in defined benefit obligation
31.12.13
31.12.12
31.12.13
31.12.12
(1,301)
1,471
142
(138)
1,007
– 2
270
(259)
561
(1,438)
1,639
163
(155)
1,118
– 2
304
(286)
613
(411)
472
1
(1)
391
(340)
7
(6)
132
(410)
470
2
(2)
355
(281)
10
(10)
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. 2 As the assumed rate of pension
increase was 0% as of 31 December 2013 and as of 31 December 2012, a downward change in assumption is not applicable.
465
Financial information Financial information
Notes to the consolidated financial statements
Note 28 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 non-Swiss
pension plans.
Composition and fair value of plan assets
Swiss Plan
31.12.13
31.12.12
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:
Bank accounts at UBS and UBS debt instruments
UBS shares
Securities lent to UBS
Property occupied by UBS
Derivative financial instruments, counterparty UBS
Structured products, counterparty UBS
Fair Value
Quoted in
an active
market
113
Other
0
Total
113
0
2,523
2,523
617
5,935
3,018
0
6,867
752
0
1,220
0
18,523
0
827
0
0
0
0
124
486
15
617
6,761
3,018
0
6,867
752
124
1,707
15
Plan asset
allocation %
Fair Value
Plan asset
allocation %
Quoted in
an active
market
602
Other
0
0
2,377
597
5,210
3,492
0
7,060
615
0
593
0
0
824
0
0
0
0
138
259
16
1
11
3
30
13
0
31
3
1
8
0
3
11
3
28
16
0
32
3
1
4
0
3,975
22,498
100
18,169
3,614
100
31.12.13
22,498
119
32
1,001 2
143
287 2
122
31.12.12
21,783
611
32
0
158
83
0
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. 2 Securities lent to UBS and derivative financial instruments are pre-
sented gross of any collateral. Net of collateral, derivative financial instruments amounted to CHF 14 million as of 31 December 2013. Securities lent to UBS were fully covered by collateral as of 31 December 2013.
466
Note 28 Pension and other post-employment benefit plans (continued)
Composition and fair value of plan assets (continued)
Non-Swiss Plans
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
31.12.13
31.12.12
Fair Value
Quoted in
an active
market
173
66
42
10
7
1
639
1,012
1,061
208
100
62
0
0
45
0
0
3,426
Other
0
0
0
0
0
0
3
0
0
0
35
21
103
0
160
15
5
342
Total
173
66
42
10
7
1
641
1,012
1,061
208
135
83
103
0
205
15
5
3,768
3,768
Weighted
average
plan asset
allocation %
Weighted
average
plan asset
allocation %
Fair Value
Quoted in
an active
market
Other
5
2
1
0
0
0
17
27
28
6
4
2
3
0
5
0
0
95
121
121
19
23
0
624
874
1,082
219
125
132
0
0
61
0
8
100
3,503
0
0
0
0
0
0
4
0
0
0
0
0
95
0
163
15
4
280
3,783
3
3
3
1
1
0
16
23
29
6
3
4
3
0
6
0
0
100
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 employ-
ees. 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 pharmaceuticals.
The retirees contribute to the cost of the post-retirement medical
benefits. These plans are not pre-funded plans and costs are in-
curred as amounts are paid.
In 2013, UBS announced changes to one of the US post-retire-
ment medical and life insurance plans in relation to the eligibility cri-
teria and cost sharing. This change reduced the defined benefit obli-
gation by CHF 9 million resulting in a gain of CHF 9 million in 2013.
Further in 2013, UBS announced a change to the other US post-
retirement medical and life insurance plan in relation to the prescrip-
tion drug coverage. This plan change reduced the defined benefit
obligation by CHF 8 million resulting in a gain of CHF 8 million in 2013.
In 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 correspond-
ing gain recognized in the income statement in 2012.
The employer contributions expected to be made to the post-
retirement medical and life insurance plans in 2014 are estimated
to be CHF 7 million.
467
Financial information Financial information
Notes to the consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
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.
31.12.13
136
31.12.12
219
1
6
2
(3)
(1)
(10)
8
(17)
0
(9)
(2)
114
15
0
99
0
(114)
1
6
(17)
0
(11)
3
3
6
9
3
26
0
10
16
(9)
(108)
(9)
(1)
136
27
0
109
0
(136)
6
9
(9)
(108)
(102)
(26)
(26)
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
Remeasurements 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 Benefit payments are funded by employer contributions and plan participant contributions.
468
Note 28 Pension and other post-employment benefit plans (continued)
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 28a 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
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 28a Defined benefit pension plans.”
31.12.13
31.12.12
4.8
6.8
5.1
4.1
7.6
5.0
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
31.12.13
31.12.12
(6)
7
9
(8)
7
(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.
c) Defined contribution plans
UBS also sponsors a number of defined contribution plans in its
non-Swiss locations. The locations with significant defined contri-
bution plans are the UK and the US. Certain plans permit employ-
ees to make contributions and earn matching or other contribu-
tions from UBS. The employer contributions to these plans are
recognized as an expense which, for the years ended 31 December
2013, 31 December 2012 and 31 December 2011, amounted to
CHF 236 million, CHF 240 million and CHF 254 million, respectively.
469
Financial information Financial information
Notes to the consolidated financial statements
Note 28 Pension and other post-employment benefit plans (continued)
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 non-Swiss 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 prop-
erties with 25-year lease terms and two renewal options for 10
years each. During 2009, UBS renegotiated one of the lease con-
tracts which reduced UBS’s remaining lease commitment. In 2013,
after the first five years, the early break options for most of the
leases were not exercised, which resulted in an increase in the
minimum commitment for additional five years. As of 31 Decem-
ber 2013, the minimum commitment towards the Swiss pension
fund under the related leases is approximately CHF 19 million
(31 December 2012: CHF 11 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
Dividends and capital repayments
The transaction volumes in UBS shares and other UBS securities are as follows.
Transaction volumes – related parties
Financial instruments bought by pension funds
UBS 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
31.12.13
31.12.12
31.12.11
33
8
1
2
31
9
1
0
24
10
3
0
For the year ended
31.12.13
31.12.12
1,459
5
2,293
8
2,926
10
3,645
81
Details of the fair value of the plan assets of the defined pension
plans are disclosed in “Note 28a Defined benefit pension plans.”
In addition, UBS defined contribution pension funds held
16,192,501 UBS shares with a fair value of CHF 278 million as of
31 December 2013 (31 December 2012: 16,690,174 UBS shares
with a fair value of CHF 240 million).
470
Note 29 Equity participation and other compensation plans
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
Equity Ownership Plan) are granted to eligible employees in ap-
proximately 50 countries and are designed to meet the legal, tax
and regulatory requirements of each country in which they are
offered. Certain plans are used in specific countries, business ar-
eas (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, discre-
tionary and voluntary basis. The explanations below provide a
general description of the terms of the most significant plans
which relate to the performance year 2013 (granted in 2014) and
those from prior years that are partly expensed in 2013. Refer to
Note 1a) 25) for a description 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 in UBS shares,
notional shares or UBS performance shares (notional shares
which are subject to performance conditions). From February
2014 onwards in general only notional shares and UBS perfor-
mance shares are granted. Since 2011 (for the performance year
2010), performance shares have been granted to EOP partici-
pants who are risk-takers, Group Managing Directors or employ-
ees whose incentive exceeds a certain threshold. The perfor-
mance shares granted in 2011 and 2012 will only vest in full if
certain performance targets are met, i.e., if the participant’s busi-
ness 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. To determine if a business
division is profitable in this context, adjustments to reported prof-
itability may be made based on considerations relating to risk,
quality and reliability of earnings. For performance shares grant-
ed in respect of the performance years 2012 and 2013, the per-
formance conditions are based on the Group return on tangible
equity and the divisional return on attributed equity (for Corpo-
rate Center participants, the return on attributed equity of the
Group excluding Corporate Center). Replacement awards (in-
cluding sign-on payments) can be offered in deferred cash under
the EOP plan rules.
Awards in 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 during the vesting period. Notional and
performance shares granted before February 2014 have no rights
to dividends, whereas for awards granted since February 2014
employees are entitled to receive a dividend equivalent which may
be paid in notional shares and / or cash, and which will vest on the
same terms and conditions as the award. Awards granted in the
form of UBS shares, notional shares and performance shares are
settled by delivering UBS shares at vesting, except in countries
where this is not permitted for legal or tax reasons. 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 two and three years following
grant. 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 recognized
from the grant date to the earlier of the vesting date or the retire-
ment eligibility date of the employee, on a tiered basis.
Senior Executive Equity Ownership Plan (SEEOP): Up to 2012
(performance year 2011) GEB members received 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 for-
feitable if certain conditions are not met. Awards granted since
2011 are subject to the same performance conditions as perfor-
mance 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 scheduled vesting. Awards granted
under SEEOP are settled by delivering UBS shares at vesting. Com-
pensation expense is recognized on the same basis as for share-
settled EOP awards. From 2013 (performance year 2012), GEB
members have received EOP awards. No SEEOP awards were
granted for the performance years 2012 and 2013.
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 in full af-
ter five years (i.e., in 2015) and are subject to continued employ-
ment with UBS. Compensation expense is recognized on a tiered
basis from the grant date to the earlier of the vesting date or the
retirement eligibility 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 in full
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 shareholders (in the form of share price appreciation and
471
Financial information Financial information
Notes to the consolidated financial statements
Note 29 Equity participation and other compensation plans (continued)
dividends) as compared to the constituents of a banking index.
Vesting is subject to continued employment with UBS. Compen-
sation expense is recognized on a tiered basis from the grant date
to the earlier of the vesting date or the retirement eligibility date
of the employee. No PEP awards were granted for the perfor-
mance years 2012 and 2013.
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
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
Deferred Contingent Capital Plan (DCCP): The DCCP is a manda-
tory 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 for
the performance year 2012 (granted in 2013) vest in full five years
from grant and are forfeited if the phase-in Basel III common eq-
uity tier 1 capital ratio of the Group falls below 7%, if FINMA de-
termines that the DCCP awards need to be written down to pre-
vent the insolvency, bankruptcy or failure of UBS AG, or if UBS AG
has received a commitment of extraordinary support from the pub-
lic sector that is necessary to prevent such insolvency, bankruptcy or
failure. DCCP awards for the performance year 2013 (granted in
2014) are forfeited if the phase-in Basel III common equity tier 1
capital ratio of the Group falls below 10% for GEB members and
7% for non-GEB members. There was no change to the other for-
feiture rules. Interest is paid annually for performance years in
which the firm generates an adjusted profit before tax. In any years
during the vesting period where UBS does not achieve an adjusted
profit before tax, GEB members would forfeit 20% of the award.
The awards are subject to standard forfeiture and harmful acts pro-
visions, including 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 recognized from the
grant date to the earlier of the vesting date or the retirement eligi-
bility date of the employee.
Long-Term Deferred Retention Senior
Incentive Scheme
(LTDRSIS): Awards granted under the LTDRSIS are granted to em-
ployees in Australia and represent a profit share amount based on
the profitability of the Australian business. Awards vest after three
years and include an arrangement which allows for unpaid install-
ments to be reduced if the business has a loss during the calendar
year preceding vesting. The awards are generally forfeitable upon
voluntary termination of employment with UBS. Compensation
expense is recognized in the performance year if the employee
meets the retirement eligibility requirements at the date of the
grant. Otherwise, compensation expense is recognized ratably
from the grant date to the earlier of the vesting date or the retire-
ment eligibility date of the employee.
Global Asset Management Equity Ownership Plan: In order to
align their compensation with the performance of the funds
they manage, all Global Asset Management employees receiving
EOP awards, receive them in the form of cash-settled notional
funds since 2012. The amount depends on the value of the rel-
evant underlying Global Asset Management funds at the time of
vesting. In prior years certain Global Asset Management employ-
ees received EOP awards in a combination of shares and cash-
settled notional funds, the corresponding amount depended on
the value of the underlying Global Asset Management funds at
the time of vesting. The awards are generally forfeitable upon,
among other circumstances, voluntary termination of employ-
ment with UBS. Compensation expense is recognized in the per-
formance year if the employee meets the retirement eligibility
requirements at the date of grant. Otherwise, compensation
expense is recognized from the grant date to the earlier of the
vesting date or the retirement eligibility date of the employee,
on a tiered basis.
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, respectively) are subject to Group return on equity per-
formance conditions, whereas awards granted in 2010 (for per-
formance 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 onwards are forfeited if a GEB member volun-
tarily terminates his or her employment and joins another finan-
cial services organization. Compensation expense is recognized in
the performance year, which is generally the financial year prior to
the grant date. No CBP awards were granted for the performance
years 2012 and 2013.
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 period following grant. The awards are
forfeitable upon voluntary termination of employment. Compen-
sation expense is recognized ratably over the vesting period. DCP
was a one-time plan granted in 2011.
472
Note 29 Equity participation and other compensation plans (continued)
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 commitments 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
most cases, UBS grants loans to financial advisors in connection
with these compensation commitments.
GrowthPlus is a program for selected financial advisors whose
revenue production and length of service exceeds defined thresh-
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.
PartnerPlus is a mandatory deferred cash compensation plan
for certain eligible employees. Awards (UBS contributions) are
based on a predefined formula during the performance year. Par-
ticipants are also allowed to voluntarily contribute additional
amounts earned during the year, up to a percentage of their pay,
which are vested upon contribution. Awards earn an above-mar-
ket rate of interest during the initial four-year period and a market
rate of interest thereafter. Voluntary contributions can earn an
above-market rate of interest during the initial four-year period
and a market rate of interest thereafter or along with vested com-
pany contributions can be benchmarked to various mutual funds
when balances vest. Awards and all interest vest in 20% incre-
ments six to ten years following grant date. Awards and interest
earned on both UBS and voluntary contributions are forfeitable
under certain circumstances. Compensation expense for awards is
recognized in the performance year if the employee meets the
qualifying separation eligibility requirements at the date of grant.
Otherwise, compensation expense for awards is recognized rat-
ably commencing in the performance year to the earlier of the
vesting date or the qualifying separation eligibility date of the em-
ployee. Compensation expense 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 appre-
ciation in the market price of a UBS share between the grant date
and the exercise date. One option gives the right to acquire one
registered UBS share at the option’s strike price. SARs and options
are settled by delivering UBS shares, except in countries where
this is not permitted for legal reasons. These awards are generally
forfeitable upon termination of employment with UBS. Compen-
sation expense is recognized from the grant date to the earlier of
the vesting date or the retirement eligibility date of the employee.
No options or SARs awards have been granted since 2009.
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 Equity Plus is recognized from the
grant date to the earlier of the vesting date or the retirement eli-
gibility date of the employee. For awards granted from April 2014
onwards, employees are entitled to receive a dividend equivalent
which may be paid in either notional shares and / or cash.
Share delivery obligations
UBS satisfies share delivery obligations under its share-based plans
either by purchasing UBS shares in the market or through the issu-
ance of new shares. As of 31 December 2013, total future share
delivery obligations in relation to employee share-based compen-
sation awards were 109 million shares, taking into account the
UBS share price at year-end 2013 as well as performance condi-
tions. Share delivery obligations related to unvested and vested
notional share awards, performance share awards, options and
stock appreciation rights.
As of 31 December 2013, UBS held 73 million treasury shares
(31 December 2012: 74 million shares) which were available to
satisfy delivery obligations related to notional share awards, per-
formance share awards, options and stock appreciation rights. An
additional 139 million unissued shares (31 December 2012: 145
million shares) in conditional share capital (out of 150 million ap-
proved in 2006) were available to satisfy the delivery obligation
related to options and stock appreciation rights. Treasury shares
held or newly issued shares are delivered to employees at exercise
or vesting.
473
Financial information Financial information
Notes to the consolidated financial statements
Note 29 Equity participation and other compensation plans (continued)
b) Effect on the 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 2013 and deferred com-
pensation expenses that will be recognized as an expense in the
income statements of 2014 and later. The deferred compensation
expenses in the table also include vested and non-vested awards
granted mainly in February 2014, which relate to the performance
year 2013.
Personnel expenses – Recognized and deferred 1
Personnel expenses for the year ended 2013
Personnel expenses deferred to 2014 and later
CHF million
Performance awards
Cash performance awards
Deferred Contingent Capital Plan (DCCP)
Deferred cash plans (DCP and other cash plans)
Equity Ownership Plan (EOP / SEEOP) – UBS shares
Performance Equity Plan (PEP)
Incentive Performance Plan (IPP)
Total UBS share plans
Equity Ownership Plan (EOP) – notional funds
Total performance awards
Variable compensation
Variable compensation – other
Financial advisor compensation – cash payments
Compensation commitments with recruited financial advisors
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas:
Financial advisor compensation 5
Total
Expenses
relating to
awards for
2013
Expenses
relating to
awards for
prior years
1,942
(30)
152
2
190
0
0
190
19
2,305
152
2,219
33
62
20
2,334
4,791
96
53
466
3
33
502
60
681
136
0
605
132
69
806
1,623
Relating to
awards for
2013
Relating to
awards for
prior years
0
348
7
520
0
0
520
37
912
340 3
0
440
107
45
592
1,844
0
230
12
307
0
21
328
36
606
398 4
0
2,098
564
165
2,827
3,831
Total
1,912
248
55
656
3
33
692
79
2,986
288 2
2,219
638
194
89
3,140
6,414
Total
0
578
19
827
0
21
848
73
1,518
738
0
2,538
671
210
3,419
5,675
1 Total share-based personnel expenses recognized for the year ended 31 December 2013 were CHF 1,042 million and were comprised of UBS share plans of CHF 787 million, Equity Ownership Plan – notional funds
of CHF 79 million, related social security costs of CHF 65 million and other compensation plans (reported within Variable compensation – other) of CHF 111 million. 2 Includes replacement payments of CHF 78 mil-
lion (CHF 72 million related to prior years), forfeiture credits of CHF 146 million (all related to prior years), severance payments of CHF 114 million (all related to current year) and retention plan and other payments of
CHF 242 million (CHF 210 million related to prior years). 3 Includes DCCP interest of CHF 101 million for DCCP awards 2013 (granted in 2014). 4 Includes DCCP interest of CHF 109 million for DCCP awards 2012
(granted in 2013). 5 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated based
on financial advisor productivity, firm tenure, assets and other variables. It also includes costs related to compensation commitments with financial advisors entered into 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.
474
Note 29 Equity participation and other compensation plans (continued)
Personnel expenses – Recognized and deferred1
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) – notional funds
Total performance awards
Variable compensation
Variable compensation – other
Financial advisor compensation – cash payments
Compensation commitments with recruited financial advisors
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas:
Financial advisor compensation 4
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
494 3
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
367 2
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 million,
Equity Ownership Plan – notional funds 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 Includes
replacement payments of CHF 109 million (CHF 94 million prior year), forfeiture credits of CHF 174 million (prior year), severance payments of CHF 303 million (current year) and retention plan and other payments of
CHF 128 million (CHF 21 million prior year). 3 Includes DCCP interest of CHF 137 million. 4 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by
financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables. It also includes costs related to compensation commitments with financial
advisors entered into 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.
During 2013, 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 em-
ployees retain their deferred compensation awards, however, as
the employees are not required to provide future service, compen-
sation expense relating to these awards was accelerated to the
termination date based on the shortened service period. The
amounts accelerated and recognized relating to share-based pay-
ment awards in 2013 and 2012 were CHF 62 million and CHF 63
million respectively, and the amounts related to deferred cash
awards were CHF 9 million and CHF 13 million, respectively.
UBS also shortened the service period for certain employees in
accordance with the mutually agreed termination provisions of
their deferred compensation awards. Expense recognition was ac-
celerated to the revised vesting date. The amounts accelerated
and recognized relating to share-based payment awards in 2013
and 2012 were CHF 11 million and CHF 20 million, respectively,
and the amounts related to deferred cash awards were CHF 3 mil-
lion and CHF 2 million, respectively.
475
Financial information Financial information
Notes to the consolidated financial statements
Note 29 Equity participation and other compensation plans (continued)
Personnel expenses – Recognized and deferred1
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) – notional funds
Total performance awards
Variable compensation
Variable compensation – other
Financial advisor compensation – cash payments
Compensation commitments with recruited financial advisors
GrowthPlus and other deferral plans
UBS share plans
Wealth Management Americas:
Financial advisor compensation 3
Total
Expenses
relating to
awards for
2011
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 2
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 million,
Equity Ownership Plan – notional funds 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. 2 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. 3 Financial advisor compensation consists
of grid-based compensation based directly on compensable revenues generated by financial advisors and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other vari-
ables. It also includes costs related to compensation commitments with financial advisors entered into at the time of recruitment, which are subject to vesting requirements. Amounts reflected as deferred expenses repre-
sent the maximum deferred exposure as of the balance sheet date.
Additional disclosures on mandatory, discretionary and
voluntary share-based compensation plans (including notional
funds granted under EOP)
The total share-based personnel expenses recognized for the
years ended 31 December 2013, 2012 and 2011 were CHF 1,042
million, CHF 1,584 million, and CHF 1,789 million, respectively.
This includes the current period expense, amortization and related
social security costs for awards issued in prior periods and perfor-
mance year expensing for awards granted to retirement-eligible
employees where the terms of the awards do not require the em-
ployee to provide future services.
The total compensation expenses for non-vested share-based
awards granted up to 31 December 2013 relating to prior years
to be recognized in future periods is CHF 710 million and will be
recognized as personnel expenses over a weighted average period
of 2 years. This includes UBS share plans, UBS share option plans,
the Equity Ownership Plan (notional funds), other variable com-
pensation and the Equity Plus Plan. Total deferred compensation
amounts included in the 2013 table differ from this amount as the
deferred compensation amounts also include non-vested awards
granted in February 2014 related to the performance year 2013.
Actual payments to participants in cash-settled share-based
plans, including amounts granted as notional funds issued under
the EOP, for the years ended 31 December 2013 and 2012 were
CHF 157 million and CHF 141 million respectively. The total carry-
ing amount of the liability related to these plans was CHF 164
million as of 31 December 2013 and CHF 249 million as of 31
December 2012.
476
Note 29 Equity participation and other compensation plans (continued)
c) Movements during the year
UBS share and performance share awards
Movements in UBS share and notional share awards were as follows:
UBS share awards
Outstanding, at the beginning of the year
Shares awarded during the year
Distributions during the year
Forfeited during the year
Outstanding, at the end of the year
of which: shares vested for accounting purposes
Weighted
average grant
date fair
value (CHF)
15
15
15
15
15
Number of
shares
2013
249,059,529
50,270,660
(99,955,951)
(12,740,747)
186,633,491
48,096,537
Number of
shares
2012
214,698,539
120,208,862
(72,997,669)
(12,850,203)
249,059,529
61,555,483
Weighted
average grant
date fair
value (CHF)
17
12
17
17
15
The fair value of shares that became legally vested and were distributed (i.e., all restrictions were fulfilled) during the years ended
31 December 2013 and 2012 was CHF 1,398 million and CHF 1,216 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
Vested during the year
Forfeited during 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
Vested during the year
Forfeited during the year
Forfeitable, at the end of the year
of which: performance shares vested for accounting purposes
2013
Number
of performance
shares 2013
14,231,831
0
(8,690) 2
(1,072,118)
13,151,023 3
10,248,071
2012
16,137,466
0
(7,182)
(1,898,453)
14,231,831 3
8,965,917
Weighted average fair
value of IPP
performance shares at
grant date (CHF) 1
22
0
22
22
22
22
0
22
22
22
1 The weighted average fair value takes into account the applicable performance conditions and the range of possible outcomes. 2 The corresponding number of UBS shares distributed in 2013 was 8,690. 3 As of
31 December 2013 and 31 December 2012, the number of deliverable UBS shares was equal to the number of forfeitable performance shares.
477
Financial information Financial information
Notes to the consolidated financial statements
Note 29 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
Vested during the year
Forfeited during 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
Vested during the year
Forfeited during the year
Forfeitable, at the end of the year
of which: performance shares vested for accounting purposes
2013
Number
of performance
shares 2013
1,825,199
0
(359,613) 2
(84,628)
1,380,958 3
1,041,901
2012
1,210,598
845,580
0
(230,979)
1,825,199 3
1,160,836
Weighted average fair
value of PEP
performance shares at
grant date (CHF) 1
16
0
16
17
16
18
13
0
13
16
1 The weighted average fair value takes into account the applicable performance conditions and the range of possible outcomes. 2 The corresponding number of UBS shares distributed in 2013 was 186,999. 3 As of
31 December 2013, the number of deliverable UBS shares was 629,136 based on the applicable performance conditions. As of 31 December 2012, the number of deliverable UBS shares was 946,683 based on the appli-
cable performance conditions.
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
2013
158,090,564
Weighted
average exercise
price (CHF) 1
43
Number of
options
2012
179,992,361
Weighted
average exercise
price (CHF) 1
43
0
(3,430,697)
(177,272)
(21,312,456)
133,170,139
133,170,139
0
12
45
36
45
45
0
(992,180)
(1,283,626)
(19,625,991)
158,090,564
158,090,564
0
11
44
40
43
43
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)
478
31.12.13
31.12.12
17
17.5
N/A
13
3.6
N/A
Note 29 Equity participation and other compensation plans (continued)
The following table provides additional information about options outstanding and options exercisable as of 31 December 2013:
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)
11,949,232
9,685,112
26,937,351
7,527,842
15,333,852
4,480,527
44,254,456
120,168,372
1,647
5,749,053
7,251,067
13,001,767
11.40
18.89
31.48
42.01
49.43
60.09
67.62
20.59
31.74
37.59
66.0
4.6
0.0
0.0
0.0
0.0
0.0
70.6
0.0
0.0
0.0
0.0
4.6
4.7
3.8
1.0
1.4
2.7
2.4
1.0
0.5
1.2
11,949,232
9,685,112
26,937,351
7,527,842
15,333,852
4,480,527
44,254,456
120,168,372
1,647
5,749,053
7,251,067
13,001,767
11.40
18.89
31.48
42.01
49.43
60.09
67.62
20.59
31.74
37.59
66.0
4.6
0.0
0.0
0.0
0.0
0.0
70.6
0.0
0.0
0.0
0.0
4.6
4.7
3.8
1.0
1.4
2.7
2.4
1.0
0.5
1.2
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
35.01–44.83
17.88–44.83
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
2013
33,118,335
0
(10,427,263)
(57,500)
(1,189,556)
21,444,016
21,444,016
Weighted
average exercise
price (CHF)
12
0
11
11
33
12
12
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
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)
31.12.13
31.12.12
17
57.0
N/A
13
24.6
N/A
479
Financial information Financial information
Notes to the consolidated financial statements
Note 29 Equity participation and other compensation plans (continued)
The following table provides additional information about SARs outstanding as of 31 December 2013:
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)
20,979,066
18,000
92,950
354,000
21,444,016
11.34
14.71
16.80
19.25
117.0
0.0
0.0
0.0
117.0
5.0
5.5
4.8
5.6
20,979,066
18,000
92,950
354,000
21,444,016
11.34
14.71
16.80
19.25
117.0
0.0
0.0
0.0
117.0
5.0
5.5
4.8
5.6
Range of exercise prices
CHF
9.35–12.50
12.51–15.00
15.01–17.50
17.51–20.00
9.35–20.00
d) Valuation
UBS share awards
UBS measures compensation expense based on the average mar-
ket price of the UBS share on the grant date as quoted on the SIX
Swiss Exchange, taking into consideration post-vesting sale and
hedge restrictions, non-vesting conditions and market conditions,
where applicable. 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 purchasing an at-the-money European put option for
the term of the transfer restriction. The weighted average dis-
count for share and performance share awards granted during
2013 is approximately 13.4% (2012: 15.4%) of the market price
of the UBS share. The grant date fair value of notional UBS shares
without dividend entitlements also includes a deduction for the
present value of future expected dividends to be paid between
the grant date and distribution.
UBS options and SARs awards
Since 2010, the fair values of options and SARs have been deter-
mined using a standard closed-formula option valuation model.
The expected term of each instrument is calculated based on his-
torical employee exercise behavior patterns, taking into account
the share price, strike price, vesting period and the contractual
life of the instrument. The term structure of volatility is derived
from the implied volatilities of traded UBS options in combination
with the observed long-term historical share price volatility. Ex-
pected future dividends are derived from traded UBS options or
from the historical dividend pattern. No options or SARs have
been granted since 2009.
Incentive Performance Plan (IPP) and Performance Equity Plan
(PEP)
No IPP and no PEP awards were granted in 2013. For performance
share awards granted in 2012, UBS obtained an independent
third-party valuation based on the market conditions at the date
of grant. The valuation methodology applied was a Monte Carlo
simulation. The approach to determining input parameters and
valuing the post-vesting transfer restriction is in line with that
used for options. The fair value of PEP units granted in 2012 was
determined using the following assumptions.
Expected total shareholder return volatility (%)
Expected economic profit volatility (%)
Risk-free interest rate (%)
Expected dividend (CHF)
Share price (CHF)
480
31.12.12
PEP CHF awards
43.00
16.00
0.09
0.13
12.76
Note 30 Interests in subsidiaries and other entities
a) Interests in subsidiaries
Effective 31 December 2013, UBS revised its approach to deter-
mining its significant subsidiaries to include only those entities
that, either individually or in aggregate, contribute significantly to
the Group’s financial position or results of operations, based on a
number of criteria, including the subsidiaries’ equity and their
contribution to the Group’s total assets and profit / (loss) before
tax, in accordance with the requirements set by IFRS 12, Swiss
regulations and the regulations of the US SEC.
Individually significant subsidiaries
The table below lists the Group’s individually significant subsidiar-
ies as of 31 December 2013. Unless otherwise stated, the subsid-
iaries listed below have share capital consisting solely of ordinary
shares, which are held fully by the Group, and the proportion of
ownership interest held is equal to the voting rights held by the
Group. The country where the respective registered office is lo-
cated is also generally the principal place of business.
Individually significant subsidiaries as of 31 December 2013
Company
UBS Americas Inc.
UBS Bank USA
UBS Financial Services Inc.
UBS Limited
UBS Securities LLC
1 Mainly comprised of non-voting preferred shares held by UBS Americas Inc.
Registered office
Primary business division
Wilmington, Delaware, USA
Investment Bank
Salt Lake City, Utah, USA
Wealth Management Americas
Wilmington, Delaware, USA
Wealth Management Americas
London, United Kingdom
Wilmington, Delaware, USA
Investment Bank
Investment Bank
USD
USD
USD
GBP
USD
Share capital
in million
Equity interest
accumulated in %
0.0
0.0
0.0
226.6
1,283.1 1
100.0
100.0
100.0
100.0
100.0
UBS Limited and UBS Americas Inc. are fully held by UBS AG. UBS Bank USA and UBS Financial Services Inc. are fully held by UBS
Americas Inc. 30% of UBS Securities LLC is held by UBS AG and 70% by UBS Americas Inc. (after consideration of preferred shares).
481
Financial information Financial information
Notes to the consolidated financial statements
Note 30 Interests in subsidiaries and other entities (continued)
Other subsidiaries
The table below lists other subsidiaries that are not individually significant but contribute to the Group’s total assets and aggregated
profit before tax thresholds and are thereby selected in accordance with the requirements set by the US SEC.
Other subsidiaries as of 31 December 2013
Company
Topcard Service AG
UBS (Italia) SpA
UBS (Luxembourg) S.A.
Registered office
Primary business division
Glattbrugg, Switzerland
Retail & Corporate
Milan, Italy
UBS Wealth Management
Luxembourg, Luxembourg
UBS Wealth Management
UBS Alternative and Quantitative Investments LLC
Wilmington, Delaware, USA
Global Asset Management
UBS Beteiligungs-GmbH & Co. KG
Frankfurt, Germany
UBS Wealth Management
UBS Card Center AG
UBS Credit Corp.
UBS Deutschland AG
UBS Fund Advisor, L.L.C.
Glattbrugg, Switzerland
Retail & Corporate
Wilmington, Delaware, USA
Wealth Management Americas
Frankfurt, Germany
UBS Wealth Management
Wilmington, Delaware, USA
Wealth Management Americas
UBS Fund Management (Switzerland) AG
Basel, Switzerland
Global Asset Management
UBS Fund Services (Cayman) Ltd
George Town, Cayman Islands
Global Asset Management
UBS Global Asset Management (Americas) Inc.
Wilmington, Delaware, USA
Global Asset Management
UBS Global Asset Management (Japan) Ltd
Tokyo, Japan
Global Asset Management
UBS Global Asset Management (Singapore) Ltd
Singapore, Singapore
Global Asset Management
UBS Loan Finance LLC
UBS O’Connor LLC
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 India Private Limited
UBS Securities Japan Co., Ltd.
UBS Securities Pte. Ltd.
UBS Services LLC
Wilmington, Delaware, USA
Investment Bank
Dover, Delaware, USA
Global Asset Management
Wilmington, Delaware, USA
Investment Bank
Boston, Massachusetts, USA
Global Asset Management
Bangkok, Thailand
Sydney, Australia
Toronto, Canada
Madrid, Spain
Mumbai, India
Tokyo, Japan
Singapore, Singapore
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Investment Bank
Wilmington, Delaware, USA
Investment Bank
UBS Trust Company of Puerto Rico
Hato Rey, Puerto Rico
Wealth Management Americas
1 Includes a nominal amount relating to redeemable preference shares.
Share capital
in million
Equity interest
accumulated in %
CHF
EUR
CHF
USD
EUR
CHF
USD
EUR
USD
CHF
USD
USD
JPY
SGD
USD
USD
USD
USD
THB
AUD
CAD
EUR
INR
JPY
SGD
USD
USD
0.2
80.0
150.0
0.1
568.8
0.1
0.0
176.0
0.0
1.0
5.6
0.0
2,200.0
4.0
0.1
1.0
0.0
9.0
500.0
0.3 1
10.0
15.0
140.0
74,450.0
420.4
0.0
0.1
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
482
Note 30 Interests in subsidiaries and other entities (continued)
Changes in consolidation scope
On 1 January 2013, UBS adopted IFRS 10, resulting in a change in
the consolidation status of certain entities. Refer to “Note 1b
Changes in accounting policies, comparability and other adjust-
ments” for an overview of the effects on total comprehensive in-
come and on the balance sheet. There were no material changes
in the scope of consolidation in 2013.
Non-controlling interests
As of 31 December 2013 and 31 December 2012, non-controlling
interests were not material to the Group. In addition, as of these
dates there were no significant restrictions on UBS’s ability to ac-
cess or use the assets and settle the liabilities of the Group result-
ing from protective rights of non-controlling interests.
➔ Refer to the “Statement of changes in equity” for more
information
b) Interests in associates and joint ventures
As of 31 December 2013 and 31 December 2012, no associate or
joint venture was individually material to the Group. In addition,
there were no significant restrictions on the ability of associates or
joint ventures to transfer funds to UBS AG or its subsidiaries in the
form of cash dividends or to repay loans or advances made. There
were no quoted market prices for any associates or joint ventures
of the Group.
Investments in associates and joint ventures
CHF million
Carrying amount at the beginning of the year
Additions
Disposals
Share of comprehensive income
of which: share of net profit 1
of which: share of other comprehensive income 2
Dividends received
Foreign currency translation
Carrying amount at the end of the year
of which: associates
of which: UBS Securities Co. Limited 3
of which: SIX Group AG 4
of which: other associates
of which: joint ventures
31.12.13
858
0
(2)
59
49
10
(69)
(4)
842
815
369
367
78
27
31.12.12
795
4
(3)
113
88
25
(37)
(12)
858
828
385
366
77
30
1 For 2013, consists of CHF 37 million from associates and CHF 12 million from joint ventures. For 2012, consists of CHF 76 million from associates and CHF 12 million from joint ventures. 2 For 2013, consists of CHF 9 mil-
lion from associates and CHF 1 million from joint ventures. For 2012, consists of CHF 24 million from associates and CHF 1 million from joint ventures. 3 UBS’s equity interest amounts to 20.0%. 4 UBS’s equity interest
amounts to 17.3% and UBS is represented on the Board of Directors.
483
Financial information Financial information
Notes to the consolidated financial statements
Note 30 Interests in subsidiaries and other entities (continued)
c) Interests in unconsolidated structured entities
During 2013, the Group sponsored the creation of various struc-
tured entities (SE) and interacted with a number of non-sponsored
SE, including securitization vehicles, client vehicles as well as certain
investment funds, which UBS did not consolidate as of 31 Decem-
ber 2013 because it did not control these entities.
➔ Refer to Note 1a) 3) for more information on the nature, purpose,
activities and financing structure of these entities
The table below presents the Group’s interests in and maximum
exposure to loss from unconsolidated SE as of 31 December
2013. In addition, the total assets held by the SE in which UBS
had an interest as of 31 December 2013 are provided, except for
investment funds sponsored by third parties, for which the carry-
ing value of UBS’s interest as of 31 December 2013 has been
disclosed.
Interests in unconsolidated structured entities
CHF million, except where indicated
Trading portfolio assets
Positive replacement values
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Other assets
Total assets
Negative replacement values
Total liabilities
Assets held by the unconsolidated structured entities
in which UBS had an interest (CHF billion)
Securitization
vehicles
Client vehicles
544
16
124 2
4,020
53 2
4,756
31.12.13
Investment
funds
6,509
0
91
366
77
6
7,048
0
0
Maximum
exposure to loss 1
10,350
42
2,449
2,244
4,096
933
16
Total
10,350
42
215
2,244
4,096
58
17,005
1,263
1,263
96 7
266 8
3,298
26
1,878
5,2023
1,263 4
1,263 5
390 6
1 For purposes of this disclosure, maximum exposure to loss amounts do not consider the risk-reducing effects of collateral or other credit enhancements. 2 Represents the carrying value of loan commitments, both des-
ignated at fair value and held at amortized cost. The maximum exposure to loss for these instruments is equal to the notional amount. 3 Of the CHF 5.2 billion, CHF 5.0 billion or 96% was held by Corporate Center –
Non-core and Legacy Portfolio. 4 Comprised of credit default swap (CDS) liabilities and other swap liabilities. The maximum exposure to loss for CDS is equal to the sum of the negative carrying value and the notional
amount. For other swap liabilities, no maximum exposure to loss is reported. 5 Entirely held by Corporate Center – Non-core and Legacy Portfolio. 6 Represents principal amount outstanding. 7 Represents the market
value of total assets. 8 Represents the net asset value of the investment funds sponsored by UBS (CHF 260 billion) and the carrying value of UBS’s interest in the investment funds not sponsored by UBS (CHF 7 billion).
The Group retains or purchases interests in unconsolidated SE in
the form of direct investments, financing, guarantees, letters of
credit, derivatives and through management contracts.
For retained interests, the Group’s maximum exposure to loss is
generally equal to the carrying value of the Group’s interest in the
SE, with the exception of guarantees, letters of credit and credit
derivatives for which the contract’s notional amount, adjusted for
losses already incurred, represents the maximum loss that the
Group is exposed to. In addition, the current fair value of deriva-
tive swap instruments with a positive replacement value only,
such as total return swaps, are presented as UBS’s maximum ex-
posure to loss. Risk exposure for these swap instruments could
change over time with market movements.
The maximum exposure to loss disclosed in the table above
does not reflect the Group’s risk management activities, including
effects from financial instruments that the Group may utilize to
economically hedge the risks inherent in the unconsolidated SE
or the risk reducing effects of collateral or other credit enhance-
ments.
In 2013, the Group did not provide support, financial or
otherwise, to an unconsolidated structured entity when the
Group was not contractually obligated to do so, nor has the
Group an intention to do so in the future.
In 2013, income earned from interests in unconsolidated SE
primarily resulted from mark-to-market movements recognized in
net trading income as well as fee and commission income re-
ceived from UBS sponsored funds.
Interests in securitization vehicles
As of 31 December 2013, the Group retained interests in securiti-
zation vehicles related to financing, underwriting, secondary mar-
ket and derivative trading activities. In some cases the Group may
be required to absorb losses from an unconsolidated SE before
other parties because the Group’s interest is subordinated to oth-
ers in the ownership structure. An overview of the Group’s inter-
ests in unconsolidated securitization vehicles and the relative
ranking and external credit rating of those interests as of 31 De-
cember 2013 is presented in the table on the next page.
484
Note 30 Interests in subsidiaries and other entities (continued)
Interests in unconsolidated securitization vehicles 1
CHF million, except where indicated
Sponsored by UBS
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in mezzanine tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
Interests in junior tranches
Total
of which: Trading portfolio assets
of which: Loans
Total assets held by the vehicles in which UBS had an interest (CHF billion)
Not sponsored by UBS
Interests in senior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in mezzanine tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Interests in junior tranches
of which: rated investment grade
of which: rated sub-investment grade
of which: defaulted
of which: not rated
Total
of which: Trading portfolio assets
of which: Loans
Total assets held by the vehicles in which UBS had an interest (CHF billion)
Residential
mortgage-
backed
securities
Commercial
mortgage-
backed
securities
31.12.13
Other
asset-backed
securities 2
Re-securiti-
zation 3
24
23
1
4
4
0
0
28
28
1
391
332
57
2
0
218
135
79
5
0
88
57
21
0
11
698
698
0
103
103
103
0
27
20
6
1
130
130
26
745
575
170
350
212
133
5
0
8
4
4
0
1,103
1,103
0
149
96
90
6
8
8
104
57
47
2
1,263
1,112
148
3
0
369
332
23
14
134
133
1
0
1,766
763
1,002
70
627
624
1
1
33
33
0
0
660
21
639
4
449
412
37
237
211
25
0
2
2
688
498
190
27
1 This table excludes derivative transactions with securitization vehicles. 2 Includes credit card, car and student loan structures. 3 Includes collateralized debt obligations.
Total
849
839
1
7
1
73
61
10
2
0
922
237
686
32
2,848
2,431
412
5
0
1,173
890
260
10
14
234
194
26
1
13
4,254
3,062
1,192
349
485
Financial information Financial information
Notes to the consolidated financial statements
Note 30 Interests in subsidiaries and other entities (continued)
The numbers outlined in the table on the previous page differ from
the securitization positions presented in the “Supplemental disclo-
sures required under Basel III Pillar 3 regulations” section of this
report, primarily due to: (i) exclusion from the table above of syn-
thetic securitizations transacted with entities that are not SE and
transactions in which the Group did not have an interest because
it did not absorb any risk, (ii) a different measurement basis in
certain cases (e.g., IFRS carrying value within the table above com-
pared with net exposure amount at default for Basel III Pillar 3
disclosures) and (iii) different classification of vehicles viewed as
sponsored by the Group versus sponsored by third parties.
➔ Refer to Note 1a) items 3) and 12) for more information on
when the Group is viewed as the sponsor of an SE and for the
Group’s accounting policies regarding securitization vehicles
established by UBS
➔ Refer to the “Supplemental disclosures required under Basel III
Pillar 3 regulations” section of this report for more information
on securitization exposures
Interests in client vehicles
As of 31 December 2013, the Group retained interests in client
vehicles sponsored by the Group and third parties that relate to
financing and derivative activities and to hedge structured pro-
duct offerings. Included within these investments are securities
guaranteed by US government agencies.
Interests in investment funds
The Group holds interests in a number of investment funds, pri-
marily resulting from seed investments or to hedge structured
product offerings. In addition to the interests disclosed in the ta-
ble on the previous page, the Group manages the assets of vari-
ous pooled investment funds and receives fees which are based,
in whole or part, on the net asset value of the fund and / or the
performance of the fund. The specific fee structure is determined
based on various market factors and considers the nature of the
fund, the jurisdiction of incorporation as well as fee schedules
negotiated with clients. These fee contracts represent an interest
in the fund as they align the Group’s exposure to investors, pro-
viding a variable return which is based on the performance of the
entity. Depending on the structure of the fund, these fees may be
collected directly from the fund assets and / or from the investors.
Any amounts due are collected on a regular basis and are gener-
ally backed by the assets of the fund. The Group did not have any
material exposure to loss from these interests as of 31 December
2013.
Sponsored unconsolidated structured entities in which UBS did
not have an interest
For several sponsored SE, no interest was held by the Group as of
31 December 2013. However, during the reporting period the
Group transferred assets, provided services and held instruments
which did not qualify as an interest with these sponsored SE, and
accordingly earned income or incurred expenses from these enti-
ties. The table below presents the income earned and expenses
incurred directly from these entities during 2013 as well as asset
information. The table does not include income earned and ex-
penses incurred from risk management activities, including in-
come and expenses from financial instruments that the Group
may utilize to economically hedge instruments transacted with
the unconsolidated SE.
Sponsored unconsolidated structured entities in which UBS did not have an interest at year end 1
CHF million, except where indicated
Net interest income
Net fee and commission income
Net trading income
Total income
Asset information (CHF billion)
Securitization
vehicles
1
(271)
(270)
2 2
As of or for the year ended
31.12.13
Client
vehicles
(48)
(368)
(416)
0 3
Investment
funds
(19)
64
113
159
13 4
Total
(66)
64
(525)
(527)
1 This table excludes net profit attributable to preferred noteholders of CHF 204 million. 2 Represents total assets transferred to the respective securitization vehicles. Of the total amount transferred, CHF 1 billion was
transferred by UBS and CHF 1 billion was transferred by third parties. 3 Represents total assets transferred to the respective client vehicles. The entire amount relates to assets transferred by UBS. 4 Represents the
total net asset value of the respective investment funds.
During 2013, the Group primarily earned fees and incurred net trad-
ing losses from sponsored SE in which UBS did not hold an interest.
The majority of the fee income arose from investment funds that are
sponsored and administrated by the Group and managed by third
parties. As the Group does not provide any active management ser-
vices, UBS was not exposed to risk from the performance of these
entities and therefore was deemed not to have an interest in them.
In certain structures, the fees receivable for administrative pur-
poses may be collected directly from the investors and have there-
fore not been included in the table above.
486
Note 30 Interests in subsidiaries and other entities (continued)
In addition, the Group incurred net trading losses from mark-
to-market movements arising primarily from derivatives, such as
interest rate swaps and credit derivatives in which the Group pur-
chases protection, and financial liabilities designated at fair value,
which do not qualify as interests because the Group does not
absorb variability from the performance of the entity. The net
losses reported do not reflect economic hedges or other mitigat-
ing effects from the Group’s risk management activities.
During 2013, UBS and third parties transferred assets totaling
CHF 3 billion into sponsored securitization and client vehicles cre-
ated in 2013. For sponsored investment funds, transfers arose
during the period as investors invested and redeemed positions,
thereby changing the overall size of the funds alongside market
movements, resulting in a total closing net asset value of CHF
13 billion.
Note 31 Business combinations
Business combinations in 2013
In 2013, UBS completed the acquisition of all voting and owner-
ship interests in Link Investimentos, a Brazilian financial services
firm that was integrated into the Investment Bank. The acquisi-
tion cost was CHF 90 million of which CHF 55 million related to
goodwill, CHF 21 million to intangible assets, primarily related to
customer relationships, and CHF 14 million to other net assets.
The acquisition costs included a cash payment of CHF 35 million
and deferred consideration of CHF 55 million.
Business combinations in 2012
In 2012, no significant business combinations were completed.
Note 32 Changes in organization
Restructuring charges arise from programs that materially change
either the scope of business undertaken by the Group or the man-
ner in which such business is conducted. Restructuring charges
are non-recurring, temporary costs that are necessary to effect
such programs and include items such as severance and other
personnel related charges, duplicate headcount costs, impairment
and accelerated depreciation of assets, contract termination costs,
consulting fees, and related infrastructure and system costs. These
costs are presented in the income statement according to the un-
derlying nature of the expense. As the costs associated with re-
structuring programs are temporary in nature, and in order to
provide a more thorough understanding of business performance,
such costs are separately presented on the following page.
Prior to 2013, restructuring charges were limited to (i) items
recognized in the restructuring provision, consisting of severance
and other personnel related items and onerous lease contracts
and (ii) associated asset impairments. The expanded definition of
restructuring charges better reflects the total economic costs aris-
ing from UBS’s restructuring programs and thus provides better
information regarding the effects of its investment in significant
transformational activities expected to reduce operating costs
upon completion. This change solely affects the presentation of
charges and does not affect the timing of when such charges are
recognized in our operating results. The effect of this expanded
definition on all prior periods is not material and thus no amounts
have been restated.
487
Financial information Financial information
Notes to the consolidated financial statements
Note 32 Changes in organization (continued)
Net restructuring charges by business division and Corporate Center
CHF million
Wealth Management
Wealth Management Americas
Retail & Corporate
Global Asset Management
Investment Bank
Corporate Center
of which: Core Functions
of which: Non-core and Legacy Portfolio
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
Net restructuring charges by general and administrative expense category
CHF million
Occupancy
Rent and maintenance of IT and other equipment
Administration
Travel and entertainment
Professional fees
Outsourcing of IT and other services
Other 1
Total net restructuring charges: general and administrative expenses
1 Mainly comprised of onerous real estate lease contracts.
488
For the year ended
31.12.13
31.12.12
31.12.11
178
59
54
43
210
229
(6)
235
772
156
548
68
26
(1)
3
20
273
51
(8)
58
371
358
0
14
82
10
32
26
202
29
15
14
380
261
93
26
For the year ended
31.12.13
31.12.12
31.12.11
65
(15)
88
3
5
8
0
3
156
64
115
247
0
(10)
(56)
0
(1)
358
31
54
122
0
20
30
(1)
6
261
For the year ended
31.12.13
31.12.12
31.12.11
35
8
2
4
76
59
364
548
(1)
4
0
0
1
0
(5)
0
(1)
1
0
0
1
0
92
93
Note 33 Operating lease commitments
As of 31 December 2013, 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:
2014
2015
2016
2017
2018
2019 and thereafter
Subtotal commitments for minimum payments under operating leases
Less: Sublease rental income commitments
Net commitments for minimum payments under operating leases
CHF million
Gross operating lease expense recognized in the income statement
Sublease rental income
Net operating lease expense recognized in the income statement
31.12.13
737
674
583
552
469
2,316
5,330
383
4,947
31.12.13
31.12.12
31.12.11
792
74
718
860
87
773
837
84
754
489
Financial information Financial information
Notes to the consolidated financial statements
Note 34 Related parties
UBS defines related parties as associates (entities which are sig-
nificantly influenced by UBS), post-employment benefit plans for
the benefit of UBS employees, key management personnel, close
family members of key management personnel and entities which
are, directly or indirectly, controlled or jointly controlled by key
management personnel or their close family members. Key
management personnel is defined as members of the Board of
Directors (BoD) and Group Executive Board (GEB).
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
2013, is provided in the table below.
Remuneration of key management personnel
CHF million
Base salaries and other cash payments
Incentive awards – cash 1
Annual incentive award under DCCP
Employer’s contributions to retirement benefit plans
Benefits in kind, fringe benefits (at market value)
Equity-based compensation 2
Total
31.12.13
31.12.12
31.12.11
19
10
19
2
2
38
88
20
0
21
1
1
34
76
21
22
0
1
1
33
79
1 Includes immediate and deferred cash. 2 Expenses for shares granted is measured at grant date and allocated over the vesting period, generally for 5 years. In 2013 and 2012, equity-based compensation was entirely
comprised of EOP awards. In 2011, 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 benefits
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 2013, CHF 7.6 million in 2012 and CHF 7.0 million in 2011.
b) Equity holdings of key management personnel
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
31.12.13
2,865,603
3,951,869
31.12.12
3,137,426
4,557,522
1 Refer to “Note 29 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 were held by close family
members of key management personnel on 31 December 2013
and 31 December 2012, respectively. No shares were held by enti-
ties that are directly or indirectly controlled or jointly controlled by
key management personnel or their close family members on
31 December 2013 and 31 December 2012. Refer to “Note 29
Equity participation and other compensation plans” for more in-
formation. As of 31 December 2013, no member of the BoD or
GEB was the beneficial owner of more than 1% of UBS AG’s
shares.
490
Note 34 Related parties (continued)
c) Loans, advances and mortgages to key management personnel
Non-independent members of the BoD and GEB members have
been granted loans, fixed advances and mortgages on the same
terms and conditions that are available to other employees, which
are based on terms and conditions granted to third parties but are
adjusted for differing 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
1 All loans are secured loans, except for CHF 311,308 in 2012.
2013
2012
19
2
(1)
20
19
5
(5)
19
d) Other related party transactions with entities controlled by key management personnel
During 2013 and 2012, 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 2013, these entities included H21 Macro
Fund Ltd (Cayman Islands), DKSH Holding Ltd. (Switzerland) and
Immo Heudorf AG (Switzerland). In 2012, these entities included
H21 Macro Fund Ltd (Cayman Islands) and Immo Heudorf AG
(Switzerland).
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
2013
2012
11
0
1
10 1
2013
0
2
11
1
0
11 1
2012
0
0
491
Financial information Financial information
Notes to the consolidated financial statements
Note 34 Related parties (continued)
e) Transactions with associates and joint ventures
All transactions with associates and joint ventures are conducted at arm’s length.
Loans and outstanding receivables to associates and joint ventures
CHF million
Balance at the beginning of the year
Additions
Reductions
Foreign currency translation
Balance at the end of the year
of which: unsecured loans
of which: allowances for credit losses
Other transactions with associates and joint ventures transacted at arm’s length.
CHF million
Payments to associates and joint ventures for goods and services received
Fees received for services provided to associates and joint ventures
Commitments and contingent liabilities to associates and joint ventures
2013
450
2
(163)
0
288
271
1
2012
231
251
(32)
1
450
276
1
As of or for the year ended
31.12.13
31.12.12
163
2
2
131
0
8
Refer to “Note 30 Interests in subsidiaries and other entities” for an overview of investments in associates and joint ventures.
f) Additional information
UBS may also engage in trading and risk management activities
(e.g., swaps, options and forwards) with related parties. These
transactions may give rise to credit risk either for UBS or for a re-
lated 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.
492
Note 35 Invested assets and net new money
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 securities or
brokerage accounts. All assets held for purely transactional pur-
poses and custody-only assets, including corporate client assets
held for cash management and transactional purposes, are ex-
cluded from invested assets as the Group only administers the
assets and does not offer advice on how the assets should be in-
vested. Also excluded are non-bankable assets (e.g., art collec-
tions) and deposits from third-party banks for funding or trading
purposes.
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 cli-
ents, 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 2013 and 2012.
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)
For the year ended
31.12.13
31.12.12
244
714
1,432
2,390
156
(6.6)
32.3
270
635
1,325
2,230
172
(13.8)
32.9
493
Financial information Financial information
Notes to the consolidated financial statements
Note 36 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
31.12.13
31.12.12
31.12.13
31.12.12
31.12.11
0.89
1.23
1.48
0.85
0.92
1.21
1.49
1.05
0.92
1.23
1.45
0.95
0.93
1.20
1.49
1.12
0.88
1.23
1.45
1.11
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.
Note 37 Events after the reporting period
There have been no material events after the reporting period which would require disclosure in or adjustment to the 31 Decem-
ber 2013 Financial Statements.
494
Note 38 Swiss GAAP requirements
The consolidated Financial Statements of UBS are prepared in ac-
cordance with International Financial Reporting Standards (IFRS).
The Swiss Financial Market Supervisory Authority (FINMA) re-
quires banks which present their financial statements under IFRS
to provide a narrative explanation of the main differences be-
tween IFRS and Swiss GAAP (FINMA Circular 2008 / 2 and the
Banking Ordinance). Included in this note are the significant dif-
ferences in regard to recognition and measurement between IFRS
and the provisions of the Banking Ordinance and the guidelines
of the FINMA governing financial statement reporting pursuant
to Article 23 through Article 27 of the Banking Ordinance. The
differences outlined in points two through nine also apply to the
Parent Bank statutory accounts. Refer to Parent Bank financial
statements “Note 2 Accounting policies, c) Accounting policies
to be adopted in the future” for an outlook on the expected
Swiss GAAP revision.
1. Consolidation
Under IFRS, all entities which are controlled by the Group are con-
solidated.
Under Swiss GAAP, 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 GAAP, classification and measurement of finan-
cial investments available-for-sale depends on the nature of the
investment. Equity instruments with no permanent holding in-
tent and debt instruments are classified as Financial investments
and measured at lower of (amortized) cost or market. Market
value adjustments up to the original cost amount and realized
gains or losses upon disposal of the investment are recorded in
the income statement as Other income from ordinary activities.
Equity instruments with a permanent holding intent are classified
as participations in Investments in subsidiaries and other partici-
pations and measured at cost less impairment. Impairment losses
are recorded in the income statement as Impairment of invest-
ments in subsidiaries and other participations. Reversal of impair-
ments up to the original cost amount as well as realized gains or
losses upon disposal of the investment are recorded as Extraordi-
nary income / Extraordinary expenses in the income statement.
3. Cash flow hedges
The Group designates derivative instruments in cash flow hedge
accounting relationships. Under IFRS, when hedge accounting is
applied, the fair value gain or loss on the effective portion of the
derivative designated as a cash flow hedge is recognized in equity.
When the hedged cash flows materialize, the accumulated unrec-
ognized gain or loss is reclassified to income.
Under Swiss GAAP, the effective portion of the fair value
change of the derivative instrument used to hedge cash flow ex-
posures 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. Fair value option
Under IFRS, the Group applies the fair value option to certain
financial assets and financial liabilities not held for trading. In-
struments for which the fair value option is applied are account-
ed for at fair value with changes in fair value reflected in Net
trading income. The fair value option is applied primarily to
structured debt instruments, certain non-structured debt instru-
ments, structured reverse repurchase and repurchase agree-
ments and securities borrowing agreements, certain structured
and non-structured loans as well as loan commitments.
Under Swiss GAAP, 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 recog-
nized in the income statement.
5. 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 GAAP, goodwill and intangible assets with indefi-
nite 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.
495
Financial information Financial information
Notes to the consolidated financial statements
Note 38 Swiss GAAP requirements (continued)
6. Pension funds
7. Netting of replacement values
Swiss GAAP 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 (IAS 19) for its non-Swiss defined benefit
plans and Swiss accounting standards (Swiss GAAP FER 16, “FER
16”) for the Swiss pension plan in the Parent Bank. The require-
ments of FER 16 are better aligned with the specific nature of
Swiss pension plans, which are hybrid in that they combine ele-
ments of defined contribution and defined benefit plans, but are
treated as defined benefit plans under IFRS. The financial state-
ments of the Swiss pension plan are prepared in accordance with
Swiss GAAP FER 26 (“FER 26”). Key differences between FER
16 / 26 and IAS 19 relate to the treatment of future salary increas-
es, which are not considered under FER 16 / 26, and the determi-
nation 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 GAAP
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 an FER 26 basis).
Under IFRS, replacement values are reported on a gross basis un-
less certain restrictive requirements are met. Under Swiss GAAP,
replacement values and the related cash collateral are reported on
a net basis, provided the master netting and the related collateral
agreements are legally enforceable.
8. Restructuring provisions
Under Swiss GAAP, a provision for restructuring costs is recog-
nized when a detailed formal plan is approved by the governing
body responsible for the overall direction, supervision and control
of the entity. For IFRS, in addition to a detailed formal plan for the
restructuring, a provision for restructuring costs is recognized only
when the entity also has raised a valid expectation in those af-
fected that it will carry out the restructuring by starting to imple-
ment the plan or announcing its main features to those affected
by it. Therefore, the recognition of a provision for restructuring
may occur earlier under Swiss GAAP than under IFRS.
Furthermore under Swiss GAAP, the restructuring provision in-
cludes all costs that are directly related to the restructuring mea-
sures and that are not associated with the ongoing ordinary ac-
tivities of the entity, whereas under IFRS, costs associated with the
ongoing activities of the entity must not be included in the provi-
sion. Swiss GAAP results in a wider scope of charges being eligible
for inclusion in the restructuring provision than IFRS.
9. Extraordinary income and expense
Certain items of non-recurring and non-operating income and ex-
pense are classified as extraordinary items under Swiss GAAP. This
distinction is not available under IFRS.
496
Note 39 Supplemental guarantor information required under SEC regulations
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 an SEC registrant. Upon 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 hold-
ers of the Debt Securities or the Debt Securities trustee may de-
mand payment from UBS AG without first proceeding against
UBS Americas Inc. UBS AG’s obligations under the subordinated
note guarantee are subordinated to the prior payment in full
of the deposit liabilities of UBS AG and all other liabilities of
UBS AG.
The information presented in this note is prepared in accor-
dance with IFRS and should be read in conjunction with the con-
solidated financial statements of UBS of which this information is
a part.
Supplemental guarantor consolidated income statement
CHF million
For the year ended 31 December 2013
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
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to UBS shareholders
11,308
(7,086)
4,221
(14)
4,207
6,426
4,592
283
1,073
16,582
8,099
3,959
575
6
12,639
3,943
567
3,376
204
0
3,172
1,984
(695)
1,290
(33)
1,257
6,781
379
0
416
8,833
5,584
3,364
133
60
9,141
(307)
(937)
630
0
0
630
1,204
(930)
275
(3)
271
3,079
159
0
(909)
2,600
1,499
1,058
107
17
2,681
(81)
261
(342)
0
5
(347)
(1,359)
1,359
0
0
0
0
0
(283)
0
(283)
0
0
0
0
0
(283)
0
(283)
0
0
(283)
13,137
(7,351)
5,786
(50)
5,736
16,287
5,130
0
580
27,732
15,182
8,380
816
83
24,461
3,272
(110)
3,381
204
5
3,172
1 UBS AG (Parent Bank) prepares its audited financial statements in accordance with Swiss GAAP. UBS AG (Parent Bank) net profit for 2013 in accordance with Swiss GAAP was CHF 2,753 million. Refer to the UBS AG (Parent
Bank) financial statements for more information. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS.
497
Financial information Financial information
Notes to the consolidated financial statements
Note 39 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated balance sheet
CHF million
As of 31 December 2013
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
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
Debt issued
Provisions
Other liabilities
Total liabilities
Equity attributable to UBS shareholders
Equity attributable to preferred noteholders
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
69,808
27,677
28,304
77,647
92,757
44,602
242,582
23,834
6,519
274,616
50,014
67,1752
5,149
326
4,946
13,506
984,858
39,988
23,823
10,039
22,142
235,870
36,846
67,912
346,246
78,470
1,625
28,781
891,742
91,222
1,893
0
93,116 2
984,858
8,893
7,009
33,385
28,757
7,848
1,862
8,219
5,920
1,880
36,807
4,169
1
603
4,906
3,658
7,572
2,178
53,826
2,097
47,122
27,194
1,853
59,282
19,977
3,257
15,231
5,343
1
254
1,061
241
2,047
159,628
239,112
39,449
19,261
19,333
3,603
8,318
8,141
440
41,029
341
938
16,244
157,098
2,530
0
0
2,530
159,628
4,768
2,696
46,402
5,480
60,013
25,874
6,084
43,245
2,866
408
20,648
218,486
20,585
0
41
20,626
239,112
0
(71,342)
(36,290)
(61,963)
(4,951)
(5,869)
(64,248)
(21,724)
(4,292)
(39,695)
0
(66,335) 2
0
0
0
80,879
17,170
27,496
91,563
122,848
42,449
245,835
28,007
7,364
286,959
59,525
842
6,006
6,293
8,845
(2,896)
(373,737)
20,228
1,009,860
(71,342)
(36,290)
(61,963)
(4,617)
(64,248)
(21,724)
(4,536)
(39,695)
(91)
0
(2,896)
(307,402)
(66,335)
0
0
(66,335) 2
(373,737)
12,862
9,491
13,811
26,609
239,953
49,138
69,901
390,825
81,586
2,971
62,777
959,925
48,002
1,893
41
49,936
1,009,860
1 UBS AG (Parent Bank) prepares its audited financial statements in accordance with Swiss GAAP. UBS AG (Parent Bank) total assets and total equity as of 31 December 2013 in accordance with Swiss GAAP were
CHF 715,917 million and CHF 35,437 million, respectively. Refer to the UBS AG (Parent Bank) financial statements for more information. Amounts presented in this column serve as a basis for preparing Group Financial
Statements under IFRS. 2 Investments in subsidiaries which are presented gross in this table are eliminated against equity upon consolidation.
498
Note 39 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated statement of cash flows
CHF million
For the year ended 31 December 2013
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
Increase in share capital
Dividends paid on UBS shares
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 and repayments of preferred notes
Net changes of non-controlling interests
Net activity in investments in subsidiaries
Net cash flow from / (used in) financing activities
Effects of exchange rate differences on cash and cash equivalents
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
55,469
UBS
Americas Inc.
Other
subsidiaries
(8,159)
7,015
UBS Group
54,325
(49)
136
(1,032)
545
751
351
(1,400)
(341)
1
(564)
27,442
(65,112)
(1,415)
0
12
(41,377)
(2,330)
12,112
71,858
83,970
69,808
4,224
9,938
83,970
0
0
(160)
5
6,076
5,922
0
0
0
0
59
(486)
0
0
23
(405)
(207)
(2,850)
14,275
11,425
8,893
28
2,503
11,425
0
0
(44)
91
(861)
(815)
(2,890)
0
0
0
513
(3,356)
0
(6)
(35)
(5,774)
(165)
261
12,975
13,237
2,178
35
11,024
13,237
(49)
136
(1,236)
639
5,966
5,457
(4,290)
(341)
1
(564)
28,014
(68,954)
(1,415)
(6)
0
(47,555)
(2,702)
9,524
99,108
108,632
80,879
4,288
23,465
108,632 5
1 UBS AG (Parent Bank) prepares its audited financial statements in accordance with Swiss GAAP. 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 on the balance
sheet under Due from banks and Cash collateral receivables on derivative instruments. 5 CHF 8,333 million of cash and cash equivalents were restricted.
499
Financial information Financial information
Notes to the consolidated financial statements
Note 39 Supplemental guarantor information required under SEC regulations (continued)
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) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) attributable to preferred noteholders
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to UBS shareholders
13,376
(9,395)
3,982
(7)
3,974
5,933
3,119
(3,981)
1,545
10,590
7,682
4,643
501
14
3
12,843
(2,254)
6
(2,260)
220
0
(2,480)
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
0
1,882
(1,507)
375
1
375
3,130
157
0
(1,687)
1,976
1,686
1,393
84
156
20
3,339
(1,363)
290
(1,653)
0
5
(2,065)
2,065
0
0
0
0
0
3,981
0
3,981
0
0
0
0
0
0
3,981
0
3,981
0
0
(2,323)
(1,658)
3,981
15,968
(9,990)
5,978
(118)
5,860
15,396
3,526
0
641
25,423
14,737
8,653
689
3,030
106
27,216
(1,794)
461
(2,255)
220
5
(2,480)
1 UBS AG (Parent Bank) prepares its audited financial statements in accordance with Swiss GAAP. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS.
500
Note 39 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated balance sheet
CHF million
As of 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
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
Debt issued
Provisions
Other liabilities
Total liabilities
Equity attributable to UBS shareholders
Equity attributable to preferred noteholders
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
64,8072
5,034
323
5,132
10,924
11,395
7,845
35,172
60,659
21,772
5,467
5,695
4,045
3,037
38,663
10,484
4
593
5,116
2,643
7,712
796
68,734
3,126
59,962
29,026
2,466
128,949
28,331
4,490
10,252
4,706
1
376
1,023
368
1,730
1,213,726
214,835
341,869
54,795
19,704
24,540
24,996
391,863
58,650
88,775
330,271
98,906
1,166
29,256
1,122,924
87,693
3,109
0
90,802 2
1,213,726
46,014
22,105
51,057
8,892
5,856
10,907
988
45,107
353
1,023
20,497
212,801
2,034
0
0
2,034
214,835
6,680
4,069
57,837
6,980
129,325
36,294
8,132
46,133
5,966
347
19,890
321,653
20,174
0
42
20,216
341,869
0
(84,464)
(36,675)
(94,877)
(7,572)
(10,460)
(131,785)
(34,703)
(5,428)
(48,053)
0
(63,953) 2
0
0
0
(3,122)
(510,633)
(84,464)
(36,675)
(94,877)
(6,620)
(131,785)
(34,703)
(5,994)
(48,053)
(388)
0
(3,122)
(446,682)
(63,951)
0
0
(63,951) 2
(510,633)
66,383
21,220
37,372
130,941
160,564
44,698
418,957
30,413
9,106
279,901
66,230
858
6,004
6,461
8,143
17,244
1,259,797
23,024
9,203
38,557
34,247
395,260
71,148
91,901
373,459
104,837
2,536
66,523
1,210,697
45,949
3,109
42
49,100
1,259,797
1 UBS AG (Parent Bank) prepares its audited financial statements in accordance with Swiss GAAP. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS. 2 Investments in
subsidiaries which are presented gross in this table are eliminated against equity upon consolidation.
501
Financial information Financial information
Notes to the consolidated financial statements
Note 39 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated statement of cash flows
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 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
Dividends paid on UBS shares
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 and repayments of preferred notes
Net changes of non-controlling interests
Net activity in investments in subsidiaries
Net cash flow from / (used in) financing activities
Effects of exchange rate differences on cash and cash equivalents
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
49,291
UBS
Americas Inc.
10,795
Other
subsidiaries
7,075
UBS Group
67,160
(11)
41
(878)
194
(12,429)
(13,082)
(26,177)
(1,159)
(379)
49,885
(49,981)
(221)
0
(2,600)
(30,631)
(200)
5,377
66,481
71,858
54,192
4,279
13,387
71,858
0
0
(189)
5
(780)
(965)
0
0
0
575
(23)
0
0
(99)
452
(352)
9,930
4,336
14,266
11,395
47
2,824
14,266
0
0
(50)
3
(785)
(832)
(11,790)
0
0
5,430
(4,254)
0
(16)
2,698
(7,932)
(121)
(1,808)
14,793
12,985
796
56
12,133
12,985
(11)
41
(1,118)
202
(13,994)
(14,879)
(37,967)
(1,159)
(379)
55,890
(54,259)
(221)
(16)
0
(38,110)
(673)
13,500
85,609
99,108
66,383
4,381
28,344
99,108 5
1 UBS AG (Parent Bank) prepares its audited financial statements in accordance with Swiss GAAP. 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. 5 CHF 10,109 million of cash and cash equivalents were restricted.
502
Note 39 Supplemental guarantor information required under SEC regulations (continued)
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
Amortization and impairment of intangible assets
Total operating expenses
Operating profit / (loss) before tax
Tax expense / (benefit)
Net profit / (loss)
Net profit / (loss) 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
26
11,940
5,032
895
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
80
7,679
551
61
490
2
488
2,952
(2,391)
561
(6)
555
3,128
269
0
(689)
3,263
1,663
1,099
81
21
2,864
399
(55)
454
266
189
(3,203)
3,203
0
0
0
0
0
(677)
0
(677)
0
0
0
0
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
127
22,482
5,307
901
4,406
268
4,138
1 UBS AG (Parent Bank) prepares its audited financial statements in accordance with Swiss GAAP. Amounts presented in this column serve as a basis for preparing Group Financial Statements under IFRS.
503
Financial information Financial information
Notes to the consolidated financial statements
Note 39 Supplemental guarantor information required under SEC regulations (continued)
Supplemental guarantor consolidated statement of cash flows
CHF million
For the year ended 31 December 2011
Net cash flow from / (used in) operating activities
Cash flow from / (used in) investing activities
Purchase of subsidiaries, associates and intangible assets
Disposal of subsidiaries, associates and intangible assets 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
Net changes of non-controlling interests
Net activity in investments in subsidiaries
Net cash flow from / (used in) financing activities
Effects of exchange rate differences on cash and cash equivalents
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
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
(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)
(748)
(274)
5,457
159
4,457
10,339
14,796
568
67
14,162
14,796
(58)
50
(1,129)
233
20,281
19,377
15,338
(1,885)
52,590
(62,626)
(748)
0
2,670
(2,129)
5,678
79,934
85,612
40,638
3,900
41,074
85,612
1 UBS AG (Parent Bank) prepares its audited financial statements in accordance with Swiss GAAP. 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.
504
Note 39 Supplemental guarantor information required under SEC regulations (continued)
Guarantee of other securities
The table below provides information on outstanding trust pre-
ferred securities which are registered under the US Securities Act
and issued by US-domiciled entities that are 100% legally owned
by UBS AG. These entities are not consolidated as UBS does not
absorb any variability from the performance of these entities.
However, 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. As of 31 December 2013,
the amount of senior liabilities of UBS to which the holders of the
subordinated debt securities would be subordinated was approxi-
mately CHF 948 billion.
Guarantee of other securities
USD billion, unless otherwise indicated
As of 31.12.13
Amount
Issuing Entity
Type of security
Date issued
Interest (%)
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
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.
505
Financial information 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 2012 to 31 Decem-
ber 2013.
Income statement
UBS AG (Parent Bank) recorded a net profit of CHF 2,753 million
in 2013, compared with a net loss of CHF 6,645 million in 2012.
The profit before extraordinary items and tax was CHF 1,365
million, compared with a loss of CHF 3,016 million in the prior
year. This was mainly a result of a CHF 2,935 million decline in the
impairment of investments in subsidiaries and other participations,
as the prior year included goodwill impairments in subsidiaries and
the impact of the adoption of IAS 19R. Furthermore, expenses for
allowances, provisions and losses decreased by CHF 1,076 million,
mainly due to lower charges for provisions for litigation, regulatory
and similar matters. In addition, operating expenses decreased by
CHF 707 million, which was partly offset by a decrease in operat-
ing income amounting to CHF 300 million.
Extraordinary income was CHF 1,667 million compared with
CHF 429 million in the prior year, mainly reflecting a reversal of
impairments and provisions of subsidiaries and other participa-
tions as well as the release of the reinvestment relief provision
related to the sale of UBS Pactual. Extraordinary expenses were
CHF 9 million compared with CHF 4,117 million, mainly as 2012
included expenses related to changes in pension accounting.
Net interest income
Net interest income increased by CHF 183 million, or 5%, to CHF
4,044 million, reflecting a CHF 2,394 million decline in interest ex-
penses, partly offset by CHF 2,211 million lower interest income.
The CHF 2,211 million decline in interest income was driven by
CHF 1,255 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 849 million. Furthermore, interest and dividend
income from financial investments decreased by CHF 107 million.
Interest expense decreased by CHF 2,394 million, mainly due
to lower interest expenses on debt issued as well as due to banks
and customers.
Net fee and commission income
Net fee and commission income increased by CHF 439 million to
CHF 6,454 million.
Fee and commission income from securities and investment
businesses increased by CHF 443 million to CHF 6,713 million.
Portfolio management and advisory fees increased in Wealth
Management. Brokerage fees increased in the Investment Bank
due to improved market activity. Investment fund fees increased
mainly in Global Asset Management. These increases were partly
offset by a decrease in underwriting fees in the Investment Bank
and Corporate Center.
Fee and commission expense decreased by CHF 36 million,
mainly due to lower brokerage fees paid.
Net trading income
Net trading income was CHF 4,209 million in 2013 compared
with CHF 5,097 million in 2012. Net trading income within the
Corporate Client Solutions business in the Investment Bank was
positive CHF 368 million, compared with negative CHF 743 mil-
lion in 2012. Net trading income within the Investor Client Ser-
vices business in the Investment Bank increased by CHF 914 mil-
lion to CHF 3,566 million. Net trading income in other business
divisions and Corporate Center was CHF 275 million compared
with CHF 3,189 million in 2012.
Other income from ordinary activities
Other income from ordinary activities was CHF 2,368 million, a
decline of CHF 33 million.
Dividend income from investments in subsidiaries and other
participations increased by CHF 110 million to CHF 1,015 million.
Sundry ordinary income decreased by CHF 225 million to CHF
3,734 million. In 2013, sundry income included CHF 3,599 million
of income received from subsidiaries for services rendered, a de-
crease of CHF 257 million compared with the prior year.
Sundry ordinary expenses decreased by CHF 77 million to CHF
2,492 million. Charges from subsidiaries for services received
decreased by CHF 272 million to CHF 2,096 million. This was
partly offset by losses of CHF 187 million related to the buyback
of debt in public tender offers in 2013.
Operating expenses
Personnel expenses decreased by CHF 732 million to CHF 8,156
million, mainly as the prior year included restructuring charges
of CHF 1,364 million and a credit of CHF 485 million related to
changes to our Swiss pension plan.
General and administrative expenses increased by CHF 25 million.
507
Financial information Financial information
UBS AG (Parent Bank)
Impairment of investments in subsidiaries and
other participations
Impairment of investments in subsidiaries and other participations
decreased by CHF 2,935 million to CHF 1,275 million. Impair-
ments in 2013 were mainly due to unfavorable foreign currency
impacts, mainly related to US subsidiaries, updated strategic busi-
ness outlooks and certain litigation charges. In 2012, the net asset
value of subsidiaries which recorded a goodwill impairment de-
clined, resulting in an impairment of the investments in those sub-
sidiaries of CHF 2,951 million. In addition, the adoption of IAS
19R by foreign subsidiaries in 2012 also resulted in lower net asset
values, resulting in an impairment of CHF 620 million of the re-
spective investments.
Allowances, provisions and losses
Allowances, provisions and losses decreased by CHF 1,076 million
to CHF 659 million, mainly as 2012 included higher charges for
provisions for litigation, regulatory and similar matters, primarily
as a result of charges for provisions arising from fines and
disgorgement resulting from regulatory investigations concerning
LIBOR and other benchmark rates. 2013 included a charge of
CHF 110 million related to the Swiss-UK tax agreement.
Extraordinary income
Extraordinary income increased by CHF 1,238 million to CHF
1,667 million.
Reversals of impairments and provisions of subsidiaries and
other participations increased by CHF 815 million to CHF 976 mil-
lion, mainly due to a significant deferred tax assets write-up.
Gains from disposals of subsidiaries and other participations in-
creased by CHF 39 million and included gains of CHF 40 million
resulting from the divestment of our participation in Euroclear Plc.
Prior period related income decreased to CHF 49 million from CHF
115 million. Other extraordinary income of CHF 275 million main-
ly included gains on sales of real estate. Furthermore, in 2013, the
reinvestment relief provision of CHF 291 million related to the sale
of UBS Pactual in 2009 was released.
Extraordinary expenses
Extraordinary expenses decreased by CHF 4,108 million to CHF
9 million, mainly as 2012 included changes in pension accounting,
which resulted in extraordinary expenses of CHF 3,954 million, of
which CHF 3,063 million related to the Swiss pension plan and CHF
892 million related to non-Swiss defined benefit plans.
Tax expense / benefit
The tax expense in 2013 was CHF 270 million compared with a
net tax benefit in 2012 of CHF 59 million.
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 net upward revaluation of
deferred tax assets and 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 benefit of
CHF 110 million for IFRS purposes, for which the net upward re-
valuation and net amortization of deferred tax assets represent
the most significant elements.
Balance sheet
Assets
Total assets stood at CHF 716 billion as of 31 December 2013, a
decrease of CHF 60 billion from 31 December 2012, predomi-
nantly in Non-core and Legacy Portfolio, reflecting the ongoing
execution of our strategy.
Asset reductions mainly occurred within reverse repurchase
agreements, trading balances in securities and precious metals,
money market paper and positive replacement values. These de-
creases were partly offset by higher liquid assets held at central
banks and increased holdings of high-quality corporate bonds.
Liquid assets and money market paper
Liquid assets increased by CHF 16 billion to CHF 70 billion as of
31 December 2013, mainly reflecting higher balances with central
banks. Money market paper held decreased by CHF 9 billion to
CHF 22 billion, primarily due to reductions in US, German, Dutch
and Canadian government bills.
Due from banks and due from customers
Interbank lending (due from banks) decreased by CHF 40 billion
to CHF 128 billion, mainly reflecting reduced reverse repurchase
agreements and securities borrowing with UBS subsidiaries, in
particular in the Americas and Europe.
Due from customers decreased by CHF 8 billion to CHF 153
billion, mainly due to a decrease in non-mortgage loans of CHF 3
billion, primarily in the Americas, a decrease in current accounts
of CHF 3 billion, mainly in Switzerland, and a decrease in reverse
repurchase agreements and securities borrowings with non-bank
clients of CHF 2 billion. These decreases were partly offset by
higher prime brokerage loan balances, mainly in the Americas,
which increased by CHF 3 billion.
Mortgage loans
Mortgage loans increased by CHF 3 billion, mainly due to an in-
crease in residential mortgages.
508
Trading balances in securities and precious metals and
financial investments
Trading balances in securities and precious metals decreased by
CHF 21 billion. Precious metal holdings were lower by CHF 8 bil-
lion, debt instruments were reduced by CHF 4 billion and invest-
ment fund units were down by CHF 4 billion. These decreases
were partly offset by an increase in securities borrowing arrange-
ments totaling CHF 6 billion.
Financial investments increased by CHF 4 billion to CHF 35 billion,
primarily due to increased holdings of high-quality corporate bonds.
Investments in subsidiaries and other participations
Investments in subsidiaries and other participations increased
by CHF 1 billion to CHF 22 billion. This was mainly due to the
aforementioned write-up of subsidiaries of CHF 1 billion com-
bined with net capital injections of CHF 1 billion, partly offset by
write-downs of CHF 1 billion.
Positive replacement values
Positive replacement values, which are reported on a net basis
provided the master netting and / or the related collateral agree-
ments are legally enforceable, decreased by CHF 6 billion to CHF
29 billion, mainly as replacement values for interest rate contracts
fell due to lower volumes and interest rate movements, whereas
replacement values for credit derivatives fell due to the tightening
of credit spreads and reduced volumes. Replacement values for
equity / index contracts declined as a result of the exercise of our
option to acquire the SNB StabFund’s equity. These decreases
were partly offset by an increase in foreign exchange contracts.
Trading portfolio liabilities
Trading portfolio liabilities declined by CHF 3 billion to CHF 22
billion as of 31 December 2013, mainly related to a reduction in
debt instruments sold short, which was partly offset by an in-
crease in equity instruments sold short.
Bonds issued and loans from central mortgage institutions
Bonds issued and loans from central mortgage institutions de-
creased by CHF 25 billion, primarily due to decreases in senior
debt. As part of our reduction in wholesale funding, we success-
fully completed two cash tender offers during 2013 to repurchase
certain subordinated and senior unsecured bonds.
Financial liabilities designated at fair value
Financial liabilities designated at fair value decreased by CHF 15
billion, primarily resulting from trade restructurings, lower valua-
tion of structured debt as well as instrument maturities and re-
demptions.
Negative replacement values
Negative replacement values fell by CHF 6 billion to CHF 37 bil-
lion, primarily due to lower replacement values for interest rate
and equity / index contracts.
Other liabilities and allowances and provisions
Other liabilities decreased by CHF 4 billion, mainly due to de-
creased deferrals for hedging instruments and settlements of lia-
bilities.
Allowances and provisions remained stable at CHF 3 billion.
Liabilities
Equity
Money market paper issued
Money market paper issued increased by CHF 2 billion to CHF 23
billion on 31 December 2013, mainly due to an increase in certifi-
cates of deposit outstanding, which was partly offset by a reduc-
tion in commercial paper outstanding.
Due to banks and due to customers
Due to banks decreased by CHF 23 billion to CHF 79 billion,
reflecting lower unsecured interbank borrowing of CHF 15 bil-
lion and lower repurchase activity of CHF 11 billion. These de-
creases were partly offset by increased securities lending activity
of CHF 4 billion. Total amounts due to customers increased by
CHF 13 billion to CHF 377 billion, primarily due to an increase
in deposit and personal accounts, mainly in the Americas and in
Switzerland, respectively.
Total equity attributable to shareholders stood at CHF 35,437 mil-
lion as of 31 December 2013, compared with CHF 33,176 million
as of 31 December 2012. The increase was mainly due to the
2013 net profit of CHF 2,753 million. The general statutory re-
serve decreased by CHF 5,386 million to CHF 26,611 million as of
31 December 2013, mainly reflecting a partial appropriation of
the loss in 2012 of CHF 4,894 million as well as the distribution
out of the capital contribution reserve in May 2013.
The reserve for own shares increased by CHF 131 million to
CHF 1,020 million, reflecting the net acquisition of treasury
shares. Other reserves decreased by CHF 1,882 million, reflecting
the partial appropriation of the loss in 2012 of CHF 1,751 million,
as well as the net acquisition of treasury shares, which decreased
other reserves by CHF 131 million.
509
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 ordinary income
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
Net profit / (loss) for the period
510
For the year ended
% change from
Note
31.12.13
8,792
2,409
135
(7,292)
4,044
324
6,713
649
(1,231)
6,454
4,209
81
1,015
30
3,734
(2,492)
2,368
17,074
8,156
5,041
13,197
3,877
1,275
579
659
1,365
1,667
(9)
(270)
2,753
3
4
4
31.12.12
(12)
(26)
(44)
(25)
5
(14)
7
2
(3)
7
(17)
8
12
(3)
(6)
(3)
(1)
(2)
(8)
0
(5)
12
(70)
7
(62)
289
(100)
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)
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 retained earnings
Other reserves
Net profit / (loss) for the period
Equity attributable to shareholders
Total liabilities and equity
of which: subordinated liabilities
of which: amounts due to subsidiaries
Note
31.12.13
31.12.12
31.12.12
% change from
69,808
22,159
127,689
153,326
152,479
94,841
34,985
21,758
5,193
2,025
29,085
2,568
715,917
1,776
150,663
22,885
79,207
22,165
106,040
271,339
779
75,585
49,620
6,610
37,415
6,029
2,805
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
10,163
2,925
680,480
742,511
384
26,611
41,692
(15,081)
1,020
1,020
4,669
2,753
35,437
715,917
13,800
76,339
384
31,997
42,184
(10,187)
889
889
6,551
(6,645)
33,176
775,687
15,985
103,148
13
5
13
5
8
9, 10
9
9
9
9
29
(29)
(24)
(5)
2
(18)
14
3
3
(6)
(17)
(15)
(8)
(53)
(25)
8
(23)
(13)
13
0
(42)
(25)
(23)
3
(14)
(41)
(4)
(8)
0
(17)
(1)
48
15
15
(29)
7
(8)
(14)
(26)
511
Financial information Financial information
UBS AG (Parent Bank)
Statement of appropriation of retained earnings
The Board of Directors proposes that the Annual General Meeting of Shareholders (AGM) on 7 May 2014 approves the following
appropriation of retained earnings.
Proposed appropriation of retained earnings
CHF million
Net profit for the period
Total available for appropriation
Appropriation to general statutory reserve: retained earnings
Total appropriation
Proposed distribution of capital contribution reserve
For the year ended
31.12.13
2,753
2,753
2,753
2,753
The Board of Directors proposes that the AGM on 7 May 2014
approves the pay-out of CHF 0.25 per share of CHF 0.10 par value
out of the capital contribution reserve. Provided that the proposed
distribution of the capital contribution reserve is approved, the
payment of CHF 0.25 per share would be made on 15 May 2014
to holders of shares on the record date 14 May 2014. The shares
will be traded ex-dividend as of 12 May 2014, and accordingly the
last day on which the shares may be traded with entitlement to
receive a pay-out will be 9 May 2014.
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 0.25 per dividend bearing share 3
Total capital contribution reserve after proposed distribution
For the year ended
31.12.13
41,692
(961)
40,732
1 As presented on the balance sheet, the capital contribution reserve of CHF 41,692 million is a component of the general statutory reserve of CHF 26,611 million after taking into account negative retained earnings of
CHF 15,081 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
differences between the Swiss Federal Tax Authorities and companies about the qualifying amounts of 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 26.5 billion as of 31 December 2013 subsequent to the distributions approved by the AGM 2012 and 2013. 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 14 May 2014.
512
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 information technology 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 the 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 33,291 personnel on a full-time
equivalent basis as of 31 December 2013, compared with 35,153
personnel as of 31 December 2012.
Note 2 Accounting policies
a) Significant accounting policies
UBS AG’s (Parent Bank) financial statements are prepared in
accordance with Swiss GAAP (FINMA Circular 2008 / 2 and the
Banking Ordinance). The accounting policies are principally the
same as for the consolidated financial statements outlined in
“Note 1 Summary of significant accounting policies.” Major
differences between the Swiss GAAP requirements and Inter-
national Financial Reporting Standards are described in “Note
38 Swiss GAAP requirements” to the consolidated financial
statements. The significant accounting policies applied for the
statutory accounts of UBS AG (Parent Bank) are discussed be-
low. In addition the presentation of the balance sheet and in-
come statement under Swiss GAAP differs from the presenta-
tion under IFRS.
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
reserves are available. The Reserve for own shares, is not available
for distribution to shareholders. Total treasury shares held cannot
exceed 10% of total issued shares.
Treasury shares
Foreign currency translation
Treasury shares are own equity instruments held by an entity. Un-
der Swiss GAAP, treasury shares are recognized in the balance
sheet as Trading balances in securities and precious metals or as
Financial investments. Short positions in treasury shares are pre-
sented as Trading portfolio liabilities. Treasury shares recognized
as trading balances (which include treasury shares held as eco-
nomic hedges of equity compensation plans) and short positions
in treasury shares are measured at fair value with unrealized gains
or losses from remeasurement to fair value included in the income
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 ex-
change 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 36 Currency translation rates” to the
consolidated financial statements.
513
Financial information Financial information
UBS AG (Parent Bank)
Note 2 Accounting policies (continued)
Investments in subsidiaries and other participations
Sundry income from ordinary activities and sundry
ordinary expenses
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
a 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 income
in the income statement. Impairments of investments are present-
ed in Profit / (loss) before extraordinary items and taxes under Im-
pairment of investments in subsidiaries and other participations.
Impairments and partial or full reversal of impairments for a sub-
sidiary on net basis are classified as extraordinary expense or ex-
traordinary income respectively, if they relate to prior periods.
Deferred taxes
Deferred tax assets are not recognized in UBS AG’s (Parent Bank) fi-
nancial statements under Swiss GAAP. However, deferred tax liabili-
ties may be recognized for taxable temporary differences. The change
in the deferred tax liability balance is recognized in profit or loss.
Equity participation and other compensation plans
Equity participation plans
Under Swiss GAAP, 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.
Other compensation plans
Fixed and variable deferred cash compensation is recognized as
compensation expenses over the performance year.
514
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.
Pension and other postemployment benefit plans
FINMA Circular 2008 / 2 “Accounting – banks” permits the use
of IAS 19 or Swiss GAAP FER 16 (“FER 16”) for accounting for
pension and other post-employment benefit plans. Election of
the accounting standard may be done on a plan-by-plan basis.
UBS AG (Parent Bank) applies FER 16 for the Swiss pension
plan. FER 16 requires recognizing the employer contributions
to the pension fund as personnel expenses. The employer con-
tributions to the Swiss pension fund are determined as a per-
centage of contributory 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) applies IAS 19 to the non-Swiss defined
benefit plans. For Swiss GAAP, remeasurements of the defined
benefit obligation and the plan assets are recognized in the in-
come statement rather than equity. Key differences between FER
16 / 26 and IAS 19 include the treatment of future salary increas-
es, which are not considered under FER 16 / 26, and the determi-
nation of the discount rate.
In 2012, UBS AG (Parent Bank) adopted the revisions to IAS 19
issued by the IASB in June 2011 (“IAS 19R”) for the non-Swiss
defined benefit plans and at the same time adopted FER 16 for
the Swiss pension plan.
Note 2 Accounting policies (continued)
b) Changes in accounting policies, comparability and other adjustments
Presentation of net defined benefit liabilities
On 31 December 2013, UBS has reclassified liabilities arising from
non-Swiss defined benefit plans accounted for under IAS 19 of
CHF 563 million from Allowances and provisions to Other liabili-
ties and restated comparative 2012 information, following a re-
assessment of the economic nature of such liabilities.
c) Accounting policies to be adopted in the future
Amendment of accounting standards applicable to banks and
securities dealers
The Swiss Code of Obligations’ provisions concerning financial
reporting were revised and came into force on 1 January 2013,
effective for annual periods beginning on or after 1 January
2015. Following this, the accounting standards applicable to
banks and securities dealers are being amended accordingly. On
29 October 2013, the Swiss Federal Department of Finance re-
leased the amended Banking Ordinance, and FINMA released its
new circular “Accounting – banks,” both for consultation until
31 December 2013. Final rules are expected to be published dur-
ing the second quarter of 2014 and are expected to be applica-
ble for annual financial statements as of 31 December 2015 the
latest. Under the proposed changes Swiss GAAP will be more
closely aligned with IFRS in certain areas such as the fair value
option, share-based compensation and treasury shares.
515
Financial information Financial information
UBS AG (Parent Bank)
Additional income statement information
Note 3 Net trading income
CHF million
Investment Bank Corporate Client Solutions
Investment Bank Investor Client Services
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
Release of reinvestment relief provision related to the sale of Pactual
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
31.12.13
31.12.12
31.12.12
368
3,566
275
4,209
(743)
2,652
3,189
5,097
34
(91)
(17)
For the year ended
% change from
31.12.13
31.12.12
31.12.12
76
976
49
275
291
1,667
(3)
(7)
0
(9)
37
161
115
116
0
429
(67)
(96)
(3,954)
(4,117)
105
506
(57)
137
289
(96)
(93)
(100)
(100)
1 Of the CHF 3,954 million for 2012, CHF 3,063 million related to the Swiss pension plan and CHF 892 million to non-Swiss pension plans. Refer to “Note 2 Accounting policies” for more information.
516
Additional balance sheet information
Note 5 Other assets and liabilities
CHF million
Other assets
Receivables from subsidiaries
Settlement and clearing accounts
VAT and other tax receivables
Other receivables
Total other assets
Other liabilities
CHF million
Deferral position for hedging instruments
Payables to subsidiaries
Settlement and clearing accounts
Net defined benefit liabilities 1
VAT and other tax payables
Other payables
Total other liabilities
31.12.13
31.12.12
31.12.12
% change from
1,412
394
313
449
2,568
31.12.13
2,690
728
655
563
387
1,006
6,029
1,784
470
178
606
3,037
31.12.12
5,453
770
757
510
451
2,222
10,163
(21)
(16)
76
(26)
(15)
% change from
31.12.12
(51)
(5)
(13)
10
(14)
(55)
(41)
1 In 2013, liabilities arising from non-Swiss defined benefit plans accounted for in accordance with IAS 19 were reclassified from Allowances and provisions to Other liabilities. Prior periods have been restated for this
change in presentation. As a result, Other liabilities as of 31 December 2012 increased by CHF 510 million. Refer to “Note 2b Changes in accounting policies, comparability and other adjustments” for more information.
Note 6 Pledged assets
CHF million
Money market paper
Mortgage loans 1
Securities
Pledges of precious metals to subsidiaries
Total 2
31.12.13
31.12.12
Change in %
Carrying value of
pledged assets
Associated liability
recognized on the
balance sheet
Carrying value of
pledged assets
Associated liability
recognized on
the balance sheet
Carrying value of
pledged assets
Associated liability
recognized on
the balance sheet
496
33,632
45,071
4,144
83,343
405
22,634
15,849
0
38,888
1,880
33,928
49,316
4,163
89,287
1,226
21,902
26,889
0
50,017
(70)
(1)
(9)
0
(7)
(67)
3
(41)
(22)
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 5.8
billion for 31 December 2013 (31 December 2012: approximately CHF 7.5 billion) could be withdrawn or used for future liabilities or covered bond issuances without breaching existing collateral requirements. 2 Does
not include assets placed with central banks related to undrawn credit lines and for payment, clearing and settlement purposes totaling CHF 3.3 billion as of 31 December 2013 (31 December 2012: CHF 3.5 billion).
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 cov-
ered bonds.
517
Financial information Financial information
UBS AG (Parent Bank)
Note 7 Swiss pension plan and non-Swiss defined benefit plans
a) Liabilities due to Swiss pension plan and non-Swiss defined benefit plans
CHF million
Provision for Swiss pension plan
Net defined benefit liabilities for non-Swiss defined benefit plans
Total provision for Swiss pension plan and net defined benefit liabilities for non-Swiss defined benefit plans
Bank accounts at UBS and UBS debt instruments held by Swiss pension fund
UBS derivative financial instruments held by Swiss pension fund
Total liabilities due to Swiss pension plan and non-Swiss defined benefit plans
b) Swiss pension plan 1
CHF million
Pension plan surplus
Economical benefit / (obligation) for UBS AG
Change in economical benefit / obligation recognized in the income statement
Employer contributions for the period recognized in the income statement under FER 16
Performance rewards related employer contributions accrued
Total pension expense recognized in the income statement within Personnel expenses under FER 16
Pension cost recognized in the income statement under IAS 19
of which: current service cost
of which: past service cost related to plan amendment
Total pension expense recognized in the income statement within Personnel expenses under IAS 19
Total pension expense recognized in the income statement within Personnel expenses
31.12.13
31.12.12
0
563
563
119
295
977
0
510
510
611
98
1,219
As of or for the year ended
31.12.13
4,772
31.12.12
4,115
0
0
468
49
517
0
0
0
0
517
0
0
108
14
121 2
(128)
357
(485)
(128) 2
(6) 3
1 The pension plan surplus is determined in accordance with FER 26 and consists of the reserve for the fluctuation in asset value. The surplus did not represent an economical benefit for UBS AG in accordance with FER
16 as of 31 December 2013 or 31 December 2012. 2 The Swiss pension plan was accounted for in accordance with IAS 19 until 30 September 2012 and in accordance with FER 16 since 1 October 2012. 3 In addi-
tion, in 2012 extraordinary expenses of CHF 3,063 million were recognized related to changes in accounting for the Swiss pension plan. These extraordinary expenses included the reversal of the credit of CHF 485 mil-
lion shown on the line Past service cost related to a plan amendment.
The Swiss pension plan had no employer contribution reserve in 2013 or 2012. Details on the Swiss pension plan and non-Swiss
defined benefit plans can be found in “Note 28 Pension and other post-employment benefit plans” to the consolidated financial
statements.
518
Note 8 Allowances and provisions1
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 2
of which: provisions for loan commitments and guarantees
of which: other allowances
Operational risks
Litigation risks 3
Restructuring 4
Real estate 5
Employee benefits
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
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,
doubtful interest
and cur rency trans-
lation differences
Balance at
31.12.12
Provisions
released
to income
New provisions
charged to income
Balance at
31.12.13
754
573
22
113
47
23
501
1,612
88
235
84
334
3,633
707
2,925
(86)
(85)
(1)
(14)
(92)
(449)
(20)
(21)
(3)
(685)
9
2
6
1
(1)
(13)
42
13
(2)
0
48
(240)
(127)
(11)
(95)
(6)
(5)
(53)
(184)
(4)
(23)
(293) 6
(802)
310
244
0
1
5
61
17
383
434
8
26
0
3
131 7
1,312
747
606
15
18
46
61
21
726
1,455
84
215
85
3
169
3,505
701
2,805
1 In 2013, liabilities arising from non-Swiss defined benefit plans accounted for in accordance with IAS 19 were reclassified from Allowances and provisions to Other liabilities. Prior periods have been restated for this change
in presentation. As a result, Allowances and provisions as of 31 December 2012 decreased by CHF 510 million. Refer to “Note 2b Changes in accounting policies, comparability and other adjustments” for more informa-
tion. 2 Mainly relates to due from customers. 3 Includes provisions for litigation resulting from security risks. 4 Refer to “Note 38 Swiss GAAP requirements” in the consolidated financial statements for more information
with regard to differences between IFRS and Swiss GAAP with respect to timing of recognizing restructuring provisions. 5 Includes provisions for onerous lease contracts of CHF 16 million as of 31 December 2013 (31 De-
cember 2012: CHF 22 million) and reinstatement cost provisions for leasehold improvements of CHF 68 million as of 31 December 2013 (31 December 2012: CHF 66 million). 6 Mainly due to the release of the reinvestment
relief provision related to the sale of UBS Pactual in 2009. 7 Mainly related to the Swiss-UK tax agreement.
519
Financial information Financial information
UBS AG (Parent Bank)
Note 9 Statement of shareholders’ equity
CHF million
Balance as of 31 December 2011 and 1 January 2012
Capital increase
Net profit / (loss) appropriation
Prior year dividend
Net profit / (loss) for the period
Changes in reserve for own shares
Balance as of 31 December 2012 and 1 January 2013
Capital increase
Net profit / (loss) appropriation
Prior year dividend
Net profit / (loss) for the period
Changes in reserve for own shares
Balance as of 31 December 2013
Share
capital
General statutory
reserve
383
0
384
1
32,350
26
(379)
31,997
71
(4,894)
(564)
384
26,611
Reserve for
own shares
1,066
(176)
889
131
1,020
Other
reserves
Net profit / (loss)
for the period
Total shareholders’
equity (before
distribution of capital
contribution reserve)
934
5,440
176
6,551
(1,751)
(131)
4,669
5,440
(5,440)
(6,645)
(6,645)
6,645
2,753
2,753
40,174
26
0
(379)
(6,645)
0
33,176
72
0
(564)
2,753
0
35,437
Note 10 Share capital and significant shareholders
Balance as of 31 December 2013
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
Balance 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
Par value
Dividend bearing
No. of shares
Capital in CHF
No. of shares
Capital in CHF
3,842,002,069
384,200,207
3,768,225,119
376,822,512
3,768,201,817
376,820,182
3,768,201,817
376,820,182
73,776,950
7,377,695
23,302
2,330
23,302
2,330
518,759,156
51,875,916
3,835,250,233
383,525,023
3,747,463,874
3,747,370,632
374,737,063
3,747,370,632
374,746,387
374,737,063
87,786,359
93,242
8,778,636
9,324
625,510,992
62,551,099
93,242
9,324
1 During 2013, 55.3 million treasury shares were acquired at market prices (2012: 114.3 million) and 69.4 million treasury shares were disposed of (2012: 111.4 million), mainly related to the delivery of shares under
employee share based compensation plans.
Conditional share capital
As of 31 December 2013, 138,759,156 additional shares (31 De-
cember 2012: 145,510,992 shares) could have been issued to
fund UBS’s employee share option programs.
On 14 April 2010, the Annual General Meeting of UBS AG
shareholders approved the creation of conditional capital to a
maximum number of 380,000,000 shares for conversion
rights / warrants granted in connection with the issuance of bonds
or similar financial instruments.
In 2013, the conditional capital of up to 100,000,000 shares,
which was available in connection with an arrangement with the
Swiss National Bank (SNB), was removed. The SNB provided a loan
to the SNB StabFund, to which UBS transferred certain illiquid
securities and other positions in 2008 and 2009. As part of this
arrangement, UBS granted warrants on shares to the SNB, which
would have been exercisable if the SNB had incurred a loss on the
loan. In 2013, the loan was paid back in full, the warrants were
terminated and the relevant conditional capital was removed.
520
Significant shareholders
According to disclosure notifications filed with UBS AG and the
SIX under the Swiss Stock Exchange Act, on 18 September 2013,
Government of Singapore Investment Corp., Singapore, dis-
closed the change of its corporate name to GIC Private Limited,
effective from 22 July 2013, with a holding of 6.40% of the total
share capital of UBS AG. The beneficial owner of this holding is
the Government of Singapore. On 30 September 2011, Norges
Bank, Oslo, the Central Bank of Norway, disclosed a holding of
3.04%. 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 notifica-
tion. Information on disclosures under the Swiss Stock Exchange
Act can be found on the following website of the SIX: http://
www.six-exchange-regulation.com/obligations/disclosure/major_
shareholders_en.html.
According to our share register, the shareholders (acting in
their own name or in their capacity as nominees for other inves-
tors or beneficial owners) listed in the table below were registered
with 3% or more of the total share capital as of 31 December
2013 and 2012.
➔ 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 the total share capital as of 31 December 2013 and 2012
Chase Nominees Ltd., London
GIC Private Limited, Singapore
DTC (Cede & Co.), New York 1
Nortrust Nominees Ltd, London
31.12.13
Total nominal
Quantity
value CHF million
450,540,638
245,517,417
226,191,092
143,960,557
45
25
23
14
Share %
11.73
6.39
5.89
3.75
Quantity
457,784,081
245,517,417
202,368,918
147,144,758
31.12.12
Total nominal
value CHF million
46
25
20
15
Share %
11.94
6.40
5.28
3.84
1 DTC (Cede & Co.), New York, “The Depository Trust Company,” is a US securities clearing organization.
Note 11 Transactions with related parties
Transactions with related parties (such as securities transactions,
payment transfer services, borrowing and compensation for de-
posits) are conducted at internally agreed transfer prices or at
arm’s length, or with respect to loans, fixed advances and mort-
gages to non-independent members of the Board of Directors
and Group Executive Board members on the same terms and con-
ditions that are available to other employees. Refer to the “Com-
pensation of the members of the Board of Directors and the
Group Executive Board” section of this report for information on
loans granted to Group Executive Board and Board of Directors
members. Amounts due from / to subsidiaries are disclosed on the
balance sheet.
521
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: 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.
31.12.13
61,016
44,446
7,816
2,719
6,035
58,712
57,817
893
18,970
10,452
46
8,471
47
31.12.12
115,254
97,335
7,676
2,847
7,397
68,420
67,448
972
33,510
22,321
249
10,940
63
% change from
31.12.12
(47)
(54)
2
(4)
(18)
(14)
(14)
(8)
(43)
(53)
(82)
(23)
(25)
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 therefore 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
CHF million, except where indicated
Interest rate contracts 5
Credit derivative contracts
Foreign exchange contracts 5
Precious metal contracts 5
Equity / Index contracts
Commodities contracts, excluding precious metal contracts
Total before netting 6
Replacement value netting
Total after netting
31.12.13
31.12.12
PRV 2
115,763
16,665
69,224
1,982
14,209
305
218,148
189,063
29,085
Notional values
(CHF billion) 4
23,298
1,290
6,082
49
552
38
31,310
NRV 3
112,033
16,634
75,989
2,001
19,400
421
226,478
189,063
37,415
PRV 2
236,793
31,935
85,582
1,789
13,397
797
370,293
335,087
35,206
Notional values
(CHF billion) 4
28,093
2,400
6,725
79
505
86
37,888
NRV 3
231,574
33,152
95,872
2,118
15,018
852
378,606
335,087
43,518
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 Represents the sum of notional values related to PRV and NRV and other notional values. 5 In 2013, the classification of certain PRV and NRV, between interest contracts and foreign exchange contracts, was cor-
rected for 31 December 2012. As a result, interest rate contracts PRV were reduced by CHF 1,774 million and interest rate contracts NRV were reduced by CHF 2,422 million (associated notional amount: reduced by CHF
35 billion) with corresponding increases made to foreign exchange contracts. In addition, a correction was made to 31 December 2012 notional values for precious metal contracts. Respective notional values were re-
duced by CHF 30 billion. 6 Replacement values are presented net of cash collateral, where applicable.
522
Note 14 Fiduciary transactions
CHF million
Deposits:
with third-party banks
with subsidiaries
Total
31.12.13
31.12.12
31.12.12
% change from
5,153
1,725
6,879
6,175
2,261
8,436
(17)
(24)
(18)
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. Un-
less 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) balance 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.
523
Financial information Financial information
UBS AG (Parent Bank)
Compensation of the members of the Board of Directors
and the Group Executive Board
Total compensation for GEB members for the performance years 2013 and 2012
CHF, except where indicated 1
Name, function
Sergio P. Ermotti, Group CEO
Sergio P. Ermotti, Group CEO (highest-paid)
Andrea Orcel (highest-paid)
Aggregate of all GEB members who were in office at
the end of the year 7
Aggregate of all GEB members who stepped down
during the year 8
For the year
Base salary
2,500,000
2,500,000
2013
2012
2013
2013
2012
2013
2012
Annual
performance
award
under
EOP 3
4,530,000
Annual
performance
award
under
DCCP 4
2,370,000
Immediate
cash 2
1,000,000
0
3,660,000
2,440,000
Contributions
to retirement
benefit plans 6
Total
202,822 10,730,122
201,088
8,870,588
202,822 11,429,870
Benefits 5
127,300
69,500
727,048
1,500,000
1,000,000
5,300,000
2,700,000
16,873,360
9,949,062
33,894,646
18,790,161
1,548,784
1,347,784 82,403,796
16,273,460
0
1,593,288
0
0
0
31,355,592
20,903,728
640,683
1,233,719 70,407,181
0
0
0
0
0
0
0
105,865
14,799
1,713,952
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of our Annual Report 2013. 2 For the performance year 2013,
20% was paid out in immediate cash, subject to a cash cap of CHF / USD 1 million. Due to applicable UK Prudential Regulation Authority regulations, the immediate cash includes blocked shares for Andrea Orcel. For the
performance year 2012, no immediate cash was paid. 3 For EOP awards for the performance years 2013 and 2012, the number of shares allocated at grant has been determined by dividing the amount communicated by
CHF 18.60 and USD 20.88 (for notional shares) for 2013, and by CHF 15.014 and USD 15.868 (for actual shares) and by CHF 13.97 and USD 14.77 (for notional shares) for 2012, based on the average price of UBS shares
over the ten trading days prior to and including the grant date (28 February 2014 and 15 March 2013 respectively). For notional shares granted under EOP 2012 the number of notional shares has been adjusted for the es-
timated value of dividends paid on UBS shares over the vesting period. 4 DCCP awards vest after the five-year vesting period. The amount reflects the amount of the notional bond excluding future notional interest. For
DCCP awards for the performance year 2013, the notional interest rate is set at 5.125% for awards denominated in USD and 3.500% for awards denominated in CHF. For DCCP awards for the performance year 2012, the
notional interest rate is set at 6.25% for awards denominated in USD and 5.40% for awards denominated in CHF. 5 Benefits are all valued at market price. 6 This figure excludes the mandatory employer’s social security
contributions, but includes the portion related to the employer’s contribution to the statutory pension scheme. The employee contribution is included in the base salary and annual incentive award components. 7 11 GEB
members were in office on 31 December 2013 and on 31 December 2012 respectively. 8 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.
524
Share and option ownership / entitlements of GEB members on 31 December 2013 / 2012 1
Name, function
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
Ulrich Körner,
Group Chief Operating Officer and CEO UBS Group EMEA
Philip J. Lofts,
Group Chief Risk Officer
Robert J. McCann,
CEO Wealth Management Americas and CEO UBS Group Americas
Tom Naratil,
Group Chief Financial Officer
Andrea Orcel,
CEO Investment Bank
Chi-Won Yoon,
CEO UBS Group Asia Pacific
Jürg Zeltner,
CEO UBS Wealth Management
Total
on
31 December
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Number of
unvested
shares / at risk 2
453,460
220,928
542,417
506,132
645,324
617,529
504,800
412,199
688,923
605,284
601,553
542,402
892,872
658,470
422,516
340,757
1,209,775
1,755,691
502,762
478,986
624,415
522,500
7,088,817
6,660,878
Number of
vested shares
Total number
of shares
Potentially
conferred voting
rights in %
69,900
41,960
108,007
126,098
268,945
315,270
22,727
95,537
208,887
121,837
157,447
169,789
65,971
18,112
263,027
233,603
523,360
262,888
650,424
632,230
914,269
932,799
527,527
507,736
897,810
727,121
759,000
712,191
958,843
676,582
685,543
574,360
0
0
1,209,775
1,755,691
441,143
370,760
13,920
38,329
943,905
849,746
638,335
560,829
1,619,974
1,531,295
8,708,791
8,192,173
0.025
0.013
0.032
0.030
0.044
0.045
0.026
0.024
0.044
0.035
0.037
0.034
0.046
0.032
0.033
0.027
0.059
0.084
0.046
0.041
0.031
0.027
0.422
0.391
Number of
options 3
0
Potentially
conferred voting
rights in % 4
0.000
0
0
0
756,647
884,531
0
0
0
0
500,741
536,173
0
0
867,087
935,291
0
0
538,035
578,338
203,093
203,093
2,865,603
3,137,426
0.000
0.000
0.000
0.037
0.042
0.000
0.000
0.000
0.000
0.024
0.026
0.000
0.000
0.042
0.045
0.000
0.000
0.026
0.028
0.010
0.010
0.139
0.150
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 29 Equity
participation and other compensation plans” in the “Financial information” section of our Annual Report 2013 for more information. 4 No conversion rights are outstanding.
525
Financial information Financial information
UBS AG (Parent Bank)
Compensation details and additional information for non-independent BoD members
CHF, except where indicated 1
Name, function 2
Axel A. Weber, Chairman
Kaspar Villiger, former Chairman
For the year
2013
2012
2013
2012
Base salary
2,000,000
1,322,581
–
354,167
Annual share
award
3,720,000
2,003,995 5
–
200,000 5
Contributions
to retirement
benefit plans 4
260,070
171,898
–
–
Benefits 3
89,446
69,867
–
54,926
Total
6,069,516
3,568,341
–
609,093
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of our Annual Report 2013. 2 Axel A. Weber was the only
non-independent member in office on 31 December 2013 and on 31 December 2012 respectively. Kaspar Villiger did not stand for re-election at the AGM on 3 May 2012. 3 Benefits are all valued at market
price. 4 This figure excludes the mandatory employer’s social security contributions, but includes the portion related to the employer’s contribution to the statutory pension scheme. The employee contribution is includ-
ed in the base salary and annual incentive award components. 5 These shares are blocked for four years.
Remuneration details and additional information for independent BoD members
CHF, except where indicated 1
&
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
M
M
M
C
C
M
M
M
e
e
t
t
i
m
m
o
C
t
i
d
u
A
M
M
M
M
C
C
M
M
M
M
&
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
M
M
M
M
M
M
M
2013/2014
2012/2013
C 2013/2014
C 2012/2013
2013/2014
2012/2013
M 2013/2014
M 2012/2013
2013/2014
2012/2013
M 2013/2014
M 2012/2013
2013/2014
2012/2013
M 2013/2014
M 2012/2013
2013/2014
2012/2013
2013/2014
2012/2013
M 2013/2014
2012/2013
M 2013/2014
M 2012/2013
M
C
M
M
M
M
M
Base fee
325,000
325,000
325,000
325,000
325,000
–
325,000
325,000
325,000
325,000
325,000
325,000
–
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
325,000
Committee
retainer(s)
400,000
300,000
500,000
500,000
50,000
–
300,000
300,000
500,000
500,000
200,000
300,000
–
200,000
300,000
300,000
350,000
350,000
300,000
300,000
400,000
250,000
250,000
250,000
Additional
payments
250,000 6
250,000 6
250,000 6
250,000 6
Total
975,000
875,000
1,075,000
1,075,000
375,000
–
625,000
625,000
825,000
825,000
525,000
625,000
–
525,000
625,000
625,000
675,000
675,000
625,000
625,000
725,000
575,000
575,000
575,000
7,625,000
7,625,000
Share
percentage 3
50
Number of
shares 4, 5
30,834
50
50
50
50
–
100
100
50
50
100
100
–
50
50
50
50
50
50
50
50
50
50
50
34,233
33,997
42,057
11,859
–
37,394
46,367
26,091
32,276
31,403
46,367
–
20,539
19,765
24,452
21,347
26,408
19,765
24,452
22,928
22,496
18,184
22,496
Name, function 2
Michel Demaré,
Vice Chairman
David Sidwell,
Senior Independent Director
Reto Francioni,
member
Rainer-Marc Frey,
member
Ann F. Godbehere,
member
Axel P. Lehmann,
member
Wolfgang Mayrhuber,
former member
Helmut Panke,
member
William G. Parrett,
member
Isabelle Romy,
member
Beatrice Weder di Mauro,
member
Joseph Yam,
member
Total 2013
Total 2012
Legend: C = Chairperson of the respective Committee, M = Member of the respective Committee
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of our Annual Report 2013. 2 There were 11 independent BoD members
in office on 31 December 2013. Reto Francioni was appointed at the AGM on 2 May 2013 and Wolfgang Mayrhuber did not stand for re-election at the AGM on 2 May 2013. 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 re-election at the AGM on 3 May 2012. 3 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. 4 For 2013, shares valued at CHF 18.60 (average price of UBS shares at SIX Swiss Exchange over the last
10 trading days of February 2014), and were granted with a price discount of 15% for a new value of CHF 15.81. These shares are blocked for four years. 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. 5 Number of shares is reduced in case of the 100%
election to deduct social security contributions. All remuneration payments are subject to social security contributions / withholding tax. 6 This payment is associated with the Vice Chairman or the Senior Independent Director function,
respectively.
526
Total payments to BoD members
CHF, except where indicated 1
Aggregate of all BoD members
For the year
2013
2012
Total
13,694,516
11,802,434
1 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency translation rates” in the “Financial information” section of our Annual Report 2013.
Number of shares of BoD members on 31 December 2013 / 2012 1
Name, function
Axel A. Weber, Chairman 2
Michel Demaré, Vice Chairman
David Sidwell, Senior Independent Director
Reto Francioni, member 2
Rainer-Marc Frey, member
Ann F. Godbehere, member
Axel P. Lehmann, member
Wolfgang Mayrhuber, former member 3
Helmut Panke, member
William G. Parrett, member
Isabelle Romy, member 2
Beatrice Weder di Mauro, member 2
Joseph Yam, member
Total
on 31 December
Number of shares held
Voting rights in %
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
233,333
200,000
150,412
116,179
151,184
149,199
0
–
209,044
162,677
113,562
81,286
185,970
139,603
–
38,957
162,244
137,792
99,914
91,078
24,452
0
22,496
0
48,679
26,183
1,401,290
1,142,954
0.011
0.010
0.007
0.006
0.007
0.007
0.000
0.000
0.010
0.008
0.006
0.004
0.009
0.007
0.000
0.002
0.008
0.007
0.005
0.004
0.001
0.000
0.001
0.000
0.002
0.001
0.068
0.055
1 This table includes blocked and unblocked shares held by BoD members, including related parties. No options were granted in 2013 and 2012. 2 Reto Francioni was appointed at the AGM on 2 May 2013. Axel A. We-
ber, Isabelle Romy and Beatrice Weder di Mauro were appointed at the AGM on 3 May 2012. 3 Wolfgang Mayrhuber did not stand for re-election at the AGM on 2 May 2013.
527
Financial information Financial information
UBS AG (Parent Bank)
Compensation paid to former BoD and GEB members1
CHF, except where indicated 2
Former BoD members
Aggregate of all former GEB members 3
Aggregate of all former BoD and GEB members
For the year
Compensation
Benefits
2013
2012
2013
2012
2013
2012
0
0
0
0
0
0
0
0
27,809
25,465
27,809
25,465
Total
0
0
27,809
25,465
27,809
25,465
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 Local currencies are converted into CHF using the exchange rates as
detailed in “Note 36 Currency translation rates” in the “Financial information” section in our Annual Report 2013. 3 Includes one former GEB member in 2013 and 2012.
Total of all vested and unvested shares of GEB members 1, 2
Total
of which
vested
2014
2015
2016
2017
2018
of which vesting
Shares on 31 December 2013
8,708,791
1,619,974
1,652,867
2,373,539
1,263,412
1,052,595
746,404
Shares on 31 December 2012
8,192,173
1,531,295
1,811,280
1,652,867
2,373,539
517,001
306,191
1 Includes 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.
2013
2014
2015
2016
2017
Total of all blocked and unblocked shares of BoD members 1
Shares on 31 December 2013
1,401,290
201,098
204,792
216,451
324,012
454,937
Shares on 31 December 2012
1 Includes related parties.
1,142,954
56,624
302,118
204,792
231,501
347,919
2013
2014
2015
2016
Total
of which
unblocked
of which blocked until
2014
2015
2016
2017
528
Vested and unvested options of GEB members on 31 December 2013 / 2012 1
on
31 De-
cember
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
on
31 De-
cember
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
2013
2012
0
0
Markus U. Diethelm, Group General Counsel
2013
2012
0
0
John A. Fraser, Chairman and CEO Global Asset Management
2013
756,647
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
Robert J. McCann, CEO Wealth Management Americas
and CEO UBS Group Americas
2013
2012
0
0
Tom Naratil, Group Chief Financial Officer
2013
867,087
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
170,512
2007
01.03.2010
28.02.2017
CHF 73.67
2012
935,291
63,942
2003
31.01.2006
31.01.2013
USD 22.53
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
Lukas Gähwiler, CEO UBS Switzerland and CEO Retail & Corporate
2013
2012
0
0
Ulrich Körner, Group Chief Operating Officer and CEO UBS Group EMEA
2013
2012
0
0
Philip J. Lofts, Group Chief Risk Officer
2013
500,741
35,524
35,524
35,521
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
2012
536,173
85,256
74,599
9,985
9,980
9,974
1,833
1,830
1,830
35,524
35,524
35,521
2007
01.03.2010
28.02.2017
CHF 73.67
2008
01.03.2011
28.02.2018
CHF 35.66
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
2012
578,338
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
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
Andrea Orcel, CEO Investment Bank
2013
2012
0
0
Chi-Won Yoon, CEO UBS Group Asia Pacific
2013
538,035
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
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
8,648
8,642
8,635
4,262
3,374
3,371
3,371
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
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 29 Equity participation and other compensation plans” in the “Financial information”
section of our Annual Report 2013 for more information.
529
Financial information Financial information
UBS AG (Parent Bank)
Vested and unvested options of GEB members on 31 December 2013 / 2012 1 (continued)
on
31 De-
cember
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
on
31 De-
cember
Total
number of
options 2
Number of
options 3
Year of
grant
Vesting
date
Expiry
date
Strike
price
Chi-Won Yoon, CEO UBS Group Asia Pacific (continued)
Jürg Zeltner, CEO UBS Wealth Management (continued)
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
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
2012
203,093
2006
01.03.2009
28.02.2016
CHF 65.97
2007
01.03.2008
28.02.2017
CHF 67.00
2007
01.03.2009
28.02.2017
CHF 67.00
2007
01.03.2010
28.02.2017
CHF 67.00
42,628
2008
01.03.2011
28.02.2018
CHF 32.45
350,000
2009
01.03.2012
27.02.2019
CHF 11.35
Jürg Zeltner, CEO UBS Wealth Management
2013
203,093
4,972
7,106
7,103
7,103
93
161
149
127
7,106
7,103
7,103
110
242
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
230
221
7,105
7,105
7,103
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
4,972
7,106
7,103
7,103
93
161
149
127
7,106
7,103
7,103
110
242
230
221
7,105
7,105
7,103
2008
01.03.2011
28.02.2018
CHF 35.66
2009
01.03.2012
27.02.2019
CHF 11.35
2004
01.03.2007
27.02.2014
CHF 44.32
2005
01.03.2006
28.02.2015
CHF 47.58
2005
01.03.2007
28.02.2015
CHF 47.58
2005
01.03.2008
28.02.2015
CHF 47.58
2005
04.03.2007
04.03.2015
CHF 47.89
2005
06.06.2007
06.06.2015
CHF 45.97
2005
09.09.2007
09.09.2015
CHF 50.47
2005
05.12.2007
05.12.2015
CHF 59.03
2006
01.03.2007
28.02.2016
CHF 65.97
2006
01.03.2008
28.02.2016
CHF 65.97
2006
01.03.2009
28.02.2016
CHF 65.97
2006
03.03.2008
03.03.2016
CHF 65.91
2006
09.06.2008
09.06.2016
CHF 61.84
2006
08.09.2008
08.09.2016
CHF 65.76
2006
08.12.2008
08.12.2016
CHF 67.63
2007
01.03.2008
28.02.2017
CHF 67.00
2007
01.03.2009
28.02.2017
CHF 67.00
2007
01.03.2010
28.02.2017
CHF 67.00
223
2007
02.03.2009
02.03.2017
CHF 67.08
42,628
90,000
2008
01.03.2011
28.02.2018
CHF 35.66
2009
01.03.2012
27.02.2019
CHF 11.35
1 This table includes all options of GEB members, including related parties. 2 No conversion rights are outstanding. 3 Refer to “Note 29 Equity participation and other compensation plans” in the “Financial information”
section of our Annual Report 2013 for more information.
530
Loans granted to GEB members on 31 December 2013 / 2012 1
CHF, except where indicated 2
Name, function
Ulrich Körner, Group Chief Operating Officer and CEO UBS Group EMEA (highest loan in 2013)
Markus U. Diethelm, Group General Counsel (highest loan in 2012)
Aggregate of all GEB members
on 31 December
2013
2012
2013
2012
Loans 3
5,181,976
5,564,012
18,763,976
18,862,820
1 No loans have been granted to related parties of the GEB members at conditions not customary in the market. 2 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency
translation rates” in the “Financial information” section in our Annual Report 2013. 3 All loans granted are secured loans, except for CHF 311,308 in 2012.
Loans granted to BoD members on 31 December 2013/ 2012 1
CHF, except where indicated 2
Aggregate of all BoD members
on 31 December
Loans 3, 4
2013
2012
1,520,000
500,000
1 No loans have been granted to related parties of the BoD members at conditions not customary in the market. 2 Local currencies are converted into CHF using the exchange rates as detailed in “Note 36 Currency
translation rates” in the “Financial information” section in our Annual Report 2013. 3 All loans granted are secured loans. 4 CHF 1,520,000 for Reto Francioni in 2013. CHF 500,000 for Michel Demaré in 2012.
531
Financial information Financial information
UBS AG (Parent Bank)
532
533
Financial information Financial information
UBS AG (Parent Bank)
534
535
Financial information Supplemental disclosures required
under SEC regulations
A – Introduction
The following pages contain supplemental UBS Group disclosures
which are required under SEC regulations. UBS’s consolidated
financial statements have been prepared in accordance with Inter-
national Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB) and are denomi-
nated in Swiss francs (CHF), the reporting currency of the Group.
537
Financial information Financial information
Supplemental disclosures required under SEC regulations
B – Selected financial data
The tables below provide information concerning the noon
purchase rate for the Swiss franc, expressed in United States
dollars, or USD, per one Swiss franc. The noon purchase rate is
the rate in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of
New York.
On 28 February 2014, the noon purchase rate was 1.1351
USD per 1 CHF.
Year ended 31 December
2009
2010
2011
2012
2013
Month
September 2013
October 2013
November 2013
December 2013
January 2014
February 2014
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
0.9260
0.9670
1.1398
1.0724
1.0826
0.9654
1.0673
1.0668
1.0923
1.1231
High
1.0016
1.0673
1.3706
1.1174
1.1292
High
1.1061
1.1216
1.1053
1.1292
1.1176
1.1351
Low
0.8408
0.8610
1.0251
1.0043
1.0190
Low
1.0597
1.0913
1.0846
1.1018
1.0970
1.1050
538
Key figures
CHF million, except where indicated
31.12.13
31.12.12
31.12.11
31.12.10
31.12.09
As of or for the year ended
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
27,732
24,461
3,272
3,172
0.83
25,423
27,216
(1,794)
(2,480)
(0.66)
Key performance indicators, balance sheet and capital management, and additional information 2
Performance
31,994
24,650
7,345
7,452
1.94
18.0
24.7
15.5
2.3
N/A
(0.8)
76.9
22,601
25,128
(2,527)
(2,700)
(0.74)
(7.9)
(6.1)
9.9
1.5
N/A
(7.1)
102.8
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
17.2
6.7
8.0
11.4
2.5
N/A
1.4
88.0
18.5
12.8
4.7
(5.1)
1.6
12.0
1.9
N/A
1.6
106.6
15.3
9.8
21.3
25.2
3.6
1,009,860
1,259,797
1,416,962
1,314,813
1,338,239
48,002
12.74
11.07
42,179
28,908
228,557
225,153
22.2
15.4
45,949
12.26
10.54
40,032
25,182
261,800
258,113
18.9
11.4
40,982
192,505
48,530
12.95
10.36
43,728
11.53
8.94
37,704
10.71
7.58
38,370
240,962
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
Common equity tier 1 capital ratio (%, phase-in) 7
Common equity tier 1 capital ratio (%, fully applied) 7
BIS tier 1 capital ratio, Basel 2.5 (%)
BIS total capital ratio, Basel 2.5 (%)
Swiss SRB leverage ratio (%, phase-in) 8
Balance sheet and capital management
Total assets
Equity attributable to UBS shareholders
Total book value per share (CHF) 9
Tangible book value per share (CHF) 9
Common equity tier 1 capital (phase-in) 7
Common equity tier 1 capital (fully applied) 7
Risk-weighted assets (phase-in) 7
Risk-weighted assets (fully applied) 7
Total capital ratio (%) (phase-in) 7
Total capital ratio (%) (fully applied) 7
BIS tier 1 capital, Basel 2.5
BIS risk-weighted assets, Basel 2.5
1 Refer to “Note 9 Earnings per share (EPS) and shares outstanding” to the consolidated financial statements for more information. 2 For the definitions of our key performance indicators, refer to the “Measurement
of performance” section of this report. 3 Net profit / loss attributable to UBS shareholders before amortization and impairment of goodwill and intangible assets (annualized as applicable) / average equity attributable
to UBS shareholders less average goodwill and intangible assets. 4 Based on Basel III risk-weighted assets (phase-in) for 2013. Based on Basel 2.5 risk-weighted assets for 2012. Based on Basel II risk-weighted assets
for 2011, 2010 and 2009. 5 Not meaningful and not included if either the reporting period or the comparison period is a loss period. 6 Group net new money includes net new money for Retail & Corporate and ex-
cludes interest and dividend income. 7 Based on the Basel III framework as applicable for Swiss systemically relvant banks (SRB). Numbers for 31 December 2012 are on a pro-forma basis. Refer to the “Capital man-
agement” section of this report for more information. 8 Refer to the “Capital management” section of this report for more information. 9 Refer to “UBS shares” in the “Capital management” section of this report
for more information.
539
Financial information Financial information
Supplemental disclosures required under SEC regulations
Key figures (continued)
CHF million, except where indicated
Additional information
Average equity of average assets (%)
Invested assets (CHF billion) 1
Market capitalization 2
Registered ordinary shares (number)
Treasury shares (number)
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
31.12.13
31.12.12
31.12.11
31.12.10
31.12.09
As of or for the year ended
4.0
2,390
65,007
3.4
2,230
54,729
3.2
2,088
42,843
2.7
2,075
58,803
1.7
2,160
57,108
3,842,002,069
3,835,250,233
3,832,121,899
3,830,840,513
3,558,112,753
73,800,252
87,879,601
84,955,551
38,892,031
37,553,872
60,205
21,317
20,037
7,116
10,052
5,595
4,303
153
21,720
62,628
21,995
20,833
7,426
10,829
6,459
4,202
167
22,378
64,820
22,924
21,746
7,690
11,019
6,674
4,182
162
23,188
64,617
23,178
22,031
7,263
10,892
6,634
4,122
137
23,284
65,233
23,834
22,702
6,865
10,484
6,204
4,145
134
24,050
1 Group invested assets includes invested assets for Retail & Corporate. 2 Refer to “UBS shares” in the “Capital management” section of this report for more information.
540
Income statement data
CHF million, except where indicated
31.12.13
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 / (loss) attributable to preferred noteholders
Net profit / (loss) attributable to non-controlling interests
Net profit / (loss) attributable to UBS shareholders
Cost / income ratio (%) 1
Per share data (CHF)
Basic 2
Diluted 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
13,137
(7,351)
5,786
(50)
5,736
16,287
5,130
580
27,732
24,461
3,272
(110)
3,381
0
3,381
204
5
3,172
88.0
0.84
0.83
0.25
29.8
6.7
6.7
0.3
31.12.12
15,968
(9,990)
5,978
(118)
5,860
15,396
3,526
641
25,423
27,216
(1,794)
461
(2,255)
0
(2,255)
220
5
(2,480)
106.6
(0.66)
(0.66)
0.15
0.16
(22.7)
(5.1)
(5.0)
(0.2)
For the year ended
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
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
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)
1 Operating expenses / operating income before credit loss expense. 2 Refer to “Note 9 Earnings per share (EPS) and shares outstanding” to 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 2013, an amount of CHF 0.25 per share will be paid out of capital con-
tribution reserve on 15 May 2014, subject to approval by shareholders at the Annual General Meeting on 7 May 2014. The USD amount per share will be determined on 12 May 2014. 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.
541
Financial information Financial information
Supplemental disclosures required under SEC regulations
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
Due to banks
Cash collateral on securities lent
Repurchase agreements
Trading portfolio liabilities
Negative replacement values
Cash collateral payables on derivative instruments
Financial liabilities designated at fair value
Due to customers
Debt issued
Other liabilities
Equity attributable to UBS shareholders
Ratio of earnings to fixed charges
31.12.13
31.12.12
31.12.11
31.12.10
31.12.09
1,009,860
1,259,797
1,416,962
1,314,813
1,338,239
80,879
17,170
27,496
91,563
122,848
42,449
245,835
28,007
286,959
59,525
20,228
12,862
9,491
13,811
26,609
239,953
49,138
69,901
390,825
81,586
62,777
48,002
66,383
21,220
37,372
130,941
160,564
44,698
418,957
30,413
279,901
66,230
17,244
23,024
9,203
38,557
34,247
395,260
71,148
91,901
373,459
104,837
66,523
45,949
40,638
23,218
58,763
213,501
181,525
39,936
486,584
41,322
266,604
53,174
15,492
30,201
8,136
102,429
39,480
473,400
67,114
88,982
342,409
140,617
69,633
48,530
26,939
17,133
62,454
142,790
228,815
61,352
401,146
38,071
262,877
74,768
24,973
41,490
6,651
74,796
54,975
393,762
58,924
100,756
332,301
130,271
70,412
43,728
20,899
16,804
63,507
116,689
232,258
44,221
421,694
53,774
266,477
81,757
26,459
31,922
7,995
64,175
47,469
409,943
66,097
112,653
339,263
131,352
79,643
37,704
The following table sets forth UBS’s ratio of earnings to fixed charges on an IFRS basis for the periods indicated. The ratios are cal-
culated based on earnings from continuing operations. Ratios of earnings to fixed charges and preferred share dividends are not
presented as there were no mandatory preferred share dividends in any of the periods indicated.
For the year ended
31.12.13
1.41
31.12.12
0.83 1
31.12.11
1.42
31.12.10
1.52
31.12.09
0.83
1 The ratio of earnings to fixed charges for the year ended 31 December 2012 was restated upon the adoption of IFRS 10.
The ratios for the years ended prior to 31 December 2012 were not restated in line with the transition requirements of
IFRS 10.
542
C – Information on the company
Property, plant and equipment
At 31 December 2013, UBS operated about 864 business and
banking locations worldwide, of which about 42% were in
Switzerland, 42% in the Americas, 11% in the rest of Europe,
Middle East and Africa and 5% in Asia Pacific. Of the business
and banking locations in Switzerland, 31% were owned directly
by UBS, with the remainder, along with most of UBS’s offices out-
side Switzerland, being held under commercial leases. These
premises are subject to continuous maintenance and upgrading
and are considered suitable and adequate for current and antici-
pated operations.
543
Financial information Financial information
Supplemental disclosures required under SEC regulations
D – Information required by industry guide 3
Selected statistical information
The 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 2013, 31 December 2012
and 31 December 2011 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.
544
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
31.12.13
Average
balance
Interest
income
Average
yield (%)
Average
balance
31.12.12
Interest
income
Average
yield (%)
Average
balance
31.12.11
Interest
income
Average
yield (%)
3,051
17,301
11,479
162,479
8
82
10
575
5,189
119,894
177
2,736
0.3
0.5
0.1
0.4
3.4
2.3
3,566
24,718
4,884
263,958
6,019
156,581
33
282
4
1,155
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
119,894
2,736
2.3
156,581
4,247
2.7
191,174
5,167
155
29,576
414
10,113
0
70
0
364
189,969
100,027
3,974
2,420
1,980
60,093
60,093
11
310
310
0.0
0.2
0.0
3.6
2.1
2.4
0.6
0.5
9
36,895
454
8,790
0
143
0
369
185,969
88,246
4,280
2,150
1,572
61,233
8
373
373
0.5
61,233
0.6
60,026
8,953
430
720,674
11,168
4.8
1.5
7,143
439
850,037
13,718
6.1
1.6
12,001
901,496
1,528
441
1,804
446
0.0
0.4
0.0
4.2
2.3
2.4
0.5
0.6
21
37,696
493
8,262
0
324
0
248
182,125
82,755
4,604
2,203
3,465
60,026
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
0.0
0.9
0.0
3.0
2.5
2.7
0.1
1.0
1.0
4.2
1.7
Interest income and average interest-earning assets
720,674
13,137
1.8
850,037
15,968
1.9
901,496
17,969
2.0
Non-interest-earning assets
Positive replacement values
Fixed assets
Other
Total average assets
337,092
6,054
115,921
1,179,741
460,849
5,859
130,902
1,447,647
410,839
5,420
86,469
1,404,224
545
Financial information Financial information
Supplemental disclosures required under SEC regulations
Average balances and interest rates (continued)
CHF million, except where indicated
Liabilities and equity
Due to banks
Domestic
Foreign
Cash collateral on securities lent and repurchase agreements
Domestic
Foreign
Trading portfolio liabilities
Domestic
Foreign
Cash collateral payables on derivative instruments
Domestic
Foreign
Financial liabilities designated at fair value
Domestic
Foreign
Due to customers
Domestic demand deposits
Domestic savings deposits
Domestic time deposits
Domestic total
Foreign 1
Short-term debt
Domestic
Foreign
Long-term debt
Domestic
Foreign
Other interest-bearing liabilities
Domestic
Foreign
Total interest-bearing liabilities
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.
31.12.13
31.12.12
31.12.11
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
Average
balance
Interest
expense
Average
interest
rate (%)
13,859
4,073
5,344
65,088
628
29,874
540
59,896
1,207
79,182
126,953
95,937
4,379
227,268
155,312
1,703
33,363
11,823
50,053
35,706
774,920
37
24
2
344
12
1,834
0
65
9
1,188
60
246
15
321
373
3
170
281
2,131
67
6,863
489
0.3
0.6
0.0
0.5
1.9
6.1
0.0
0.1
0.7
1.5
0.0
0.3
0.3
0.1
0.2
0.2
0.5
2.4
4.3
25,843
7,709
6,289
148,734
886
47,002
1,131
67,955
1,335
90,007
111,975
90,312
4,821
207,108
153,379
1,776
48,525
11,188
62,053
0.2
0.9
36,823
917,743
61
65
7
768
18
2,424
0
134
11
1,733
95
356
30
481
594
9
365
264
2,525
98
9,557
433
0.2
0.8
0.1
0.5
2.0
5.2
0
0.2
0.8
1.9
0.1
0.4
0.6
0.2
0.4
0.5
0.8
2.4
4.1
0.3
1.0
25,672
10,250
8,836
168,429
1,095
52,373
357
58,731
1,548
91,920
95,679
82,004
6,672
184,355
145,772
1,303
57,873
12,705
57,830
36,926
915,975
259
93
12
969
26
2,826
0
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
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
774,920
7,351
917,743
9,990
915,975
11,143
321,004
34,188
1,130,111
49,630
1,179,741
443,881
33,722
1,395,346
52,301
1,447,647
402,535
35,672
1,354,182
50,042
1,404,224
5,786
5,978
6,826
0.8
0.7
0.8
The percentage of total average interest-earning assets attribut-
able to foreign activities was 71% for 2013 (76% for 2012 and
77% for 2011). The percentage of total average interest-bearing
liabilities attributable to foreign activities was 66% for 2013 (72%
for 2012 and 74% for 2011). All assets and liabilities are trans-
lated into CHF at uniform month-end rates. Interest income and
expense are translated at monthly average rates.
Average rates earned and paid on assets and liabilities can
change from period to period based on the changes in interest
rates in general, but are also affected by changes in the currency
mix included in the assets and liabilities. This is especially true for
foreign assets and liabilities. Tax-exempt income is not recorded
on a tax-equivalent basis. For all three years presented, tax-ex-
empt income is considered to be insignificant and the impact
from such income is therefore negligible.
546
Analysis of changes in interest income and expense
The following tables allocate, by categories of interest-earning
assets and interest-bearing liabilities, the changes in interest
income and expense due to changes in volume and interest rates
for the year ended 31 December 2013 compared with the year
ended 31 December 2012, and for the year ended 31 Decem-
ber 2012 compared with the year ended 31 December 2011.
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.
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
2013 compared with 2012
2012 compared with 2011
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
(5)
(82)
7
(406)
(32)
(991)
0
(991)
0
(29)
0
56
92
283
2
(7)
0
(7)
0
110
(20)
(118)
(1)
(174)
(26)
(520)
0
(520)
0
(44)
0
(61)
(398)
(13)
1
(56)
0
(56)
0
(119)
64
(1,066)
(1,002)
(443)
(1,105)
(1,548)
1
57
(6)
(88)
(156)
(899)
(4)
(903)
0
(7)
0
16
96
148
(2)
12
12
0
(204)
(67)
(969)
(1,036)
(25)
(200)
6
(580)
(58)
(1,511)
0
(1,511)
0
(73)
0
(5)
(306)
270
3
(63)
0
(63)
0
(9)
(379)
(2,171)
(2,550)
(276)
(5)
(2,831)
10
83
(5)
(242)
92
(17)
0
(17)
0
(174)
0
105
(420)
(201)
6
(250)
(250)
0
142
(316)
(554)
(870)
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)
547
Financial information Financial information
Supplemental disclosures required under SEC regulations
Analysis of changes in interest income and expense (continued)
2013 compared with 2012
2012 compared with 2011
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
(24)
(29)
(1)
(418)
(5)
(891)
0
(16)
(1)
(206)
15
22
(3)
34
8
0
(121)
15
(492)
0
(3)
18
(2,168)
(2,150)
0
(12)
(4)
(6)
(1)
301
0
(53)
(1)
(339)
(50)
(132)
(12)
(194)
(229)
(6)
(74)
2
98
0
(28)
(203)
(342)
(544)
(24)
(41)
(5)
(424)
(6)
(590)
0
(69)
(2)
(545)
(35)
(110)
(15)
(160)
(221)
(6)
(195)
17
(394)
0
(31)
(185)
(2,510)
(2,694)
56
(2,639)
2
(23)
(3)
(118)
(5)
(290)
0
46
(1)
(42)
16
42
(11)
47
38
1
(65)
(15)
173
0
0
26
(281)
(255)
(200)
(5)
(2)
(83)
(3)
(112)
0
(193)
2
(207)
(53)
(108)
0
(161)
(140)
4
48
153
(42)
0
(18)
(208)
(752)
(960)
(198)
(28)
(5)
(201)
(8)
(402)
0
(147)
1
(249)
(37)
(66)
(11)
(114)
(102)
5
(17)
138
131
0
(18)
(182)
(1,033)
(1,215)
62
(1,153)
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
548
Deposits
The following table analyzes average deposits and average rates
on each deposit category listed below for the years ended 31 De-
cember 2013, 2012 and 2011. 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
76,246 million, CHF 74,252 million and CHF 66,540 million as of
31 December 2013, 31 December 2012 and 31 December 2011,
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
31.12.13
31.12.12
31.12.11
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
Average
deposits
Average
rate (%)
8,513
5,346
13,859
3,763
17,622
126,953
95,937
4,379
227,268
43,954
111,358
155,312
382,580
(0.1)
0.8
0.3
0.6
0.3
0.0
0.3
0.3
0.1
0.0
0.3
0.2
0.2
1,270
2,296
3,566
24,718
28,284
111,975
90,312
4,821
207,108
38,707
114,672
153,379
360,487
0.0
0.7
0.5
0.8
0.8
0.1
0.4
0.6
0.2
0.1
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 Mainly time deposits. 2 Due to banks is considered to represent short-term borrowings to the extent that the total Due to banks exceeds total Due from banks, without differentiating between domestic and foreign
offices. The remainder of total Due to banks is considered to represent deposits for the purpose of this disclosure.
As of 31 December 2013, the maturity of time deposits was as follows:
CHF million
Within 3 months
3 to 6 months
6 to 12 months
1 to 5 years
Over 5 years
Total time deposits
Domestic
5,857
1,966
285
43
5
Foreign
60,682
2,379
2,591
438
159
8,155
66,249
549
Financial information Financial information
Supplemental disclosures required under SEC regulations
Short-term borrowings
The following table presents the period-end, average and maximum month-end outstanding amounts for short-term borrowings,
along with the average rates and period-end rates at and for the years ended 31 December 2013, 2012 and 2011.
Short-term debt
CHF million, except where indicated
31.12.13
31.12.12
31.12.11
31.12.13
Period-end balance
Average balance
Maximum month-end balance
Average interest rate during the period (%)
Average interest rate at period-end (%)
27,633
35,067
44,789
0.5
0.4
32,493
50,301
72,432
0.7
0.7
71,377
59,175
71,377
0.7
0.7
0
309
1,370
0.3
0.0
Due to banks 1
31.12.12
1,782
5,267
13,555
0.4
0.2
31.12.11
6,966
14,834
20,080
1.0
1.0
Repurchase agreements 2
31.12.12
31.12.13
31.12.11
41,160
61,251
76,014
0.2
0.2
73,358
145,831
183,207
0.3
0.2
152,121
170,442
194,684
0.4
0.3
1 Presented net of Due from banks to reflect short-term borrowings. The difference between the gross Due to banks amount and the amount disclosed here is presented as deposits from banks on the preceding page.
2 Repurchase agreements are presented on a gross basis, and therefore, for the purpose of this disclosure, do not reflect the effect of netting permitted under IFRS.
Contractual maturities of investments in debt instruments available-for-sale 1, 2
CHF million, except percentages
31 December 2013
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 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
Within 1 year
1 up to 5 years
5 to 10 years
Over 10 years
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
Amount
Yield (%)
849
25,483
743
27,075
0.17
0.27
0.52
43
13,010
7,277
6,873
27,202
0.46
0.36
0.55
0.80
1
3
63
178
0
245
3.55
3.30
0.98
0.85
4.71
19
1
4,017
4,037
12.16
6.60
2.09
Within 1 year
1 up 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 up 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
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 2013 issued by
US government and government agencies of CHF 17,876 million (31 December 2012: CHF 31,740 million, 31 December 2011: CHF 25,677 million), the German government of CHF 6,733 million (31 December 2012:
CHF 6,669 million, 31 December 2011: CHF 1,991 million), and the UK government of CHF 8,089 million (31 December 2012: CHF 5,042 million, 31 December 2011: CHF 3,477 million).
550
Due from banks and loans (gross)
The Group’s lending portfolio is widely diversified across industry
sectors. CHF 174.5 billion (57.2% of the total) consists of loans to
thousands of private households, predominantly in Switzerland,
and mostly secured by mortgages, financial collateral or other
assets. Exposure to Banks and Financial institutions amounted to
CHF 65 billion (21.3% of the total). Exposure to banks includes
money market deposits with highly rated institutions. Excluding
Banks and Financial institutions, the largest industry sector expo-
sure as of 31 December 2013 was CHF 20 billion (6.6% of the
total) to Services. For further discussion of the loan portfolio, re-
fer to the “Risk management and control” section of this report.
The following table illustrates the diversification of the loan
portfolio among industry sectors as of 31 December 2013, 2012,
2011, 2010, and 2009. The industry categories presented are
consistent with the classification of loans for reporting to the
Swiss Financial Market Supervisory Authority (FINMA) and Swiss
National Bank. Loans designated at fair value and loans held in
the trading portfolio are excluded from the tables below.
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
31.12.13
31.12.12
31.12.11
31.12.10
31.12.09
736
1,429
4,643
1,817
2,512
124,569
2,415
14,511
3,784
5,330
3,680
532
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
165,426
164,180
161,364
161,108
159,991
16,497
178
1,132
1,337
43,125
1,850
1,175
49,920
1,322
2,995
1,791
14,733
2,809
606
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
139,471
304,897
137,669
301,849
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
125,969
285,960
551
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Includes food and beverages, hotels and restaurants.
Financial information Financial information
Supplemental disclosures required under SEC regulations
Due from banks and loans (gross) (continued)
The following table analyzes the Group’s mortgage portfolio by geographic origin of the client and type of mortgage as of 31 Decem-
ber 2013, 2012, 2011, 2010 and 2009. 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
31.12.13
31.12.12
31.12.11
31.12.10
31.12.09
144,852
15,235
160,086
137,370
22,716
160,086
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
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
736
64,951
15,641
81,328
16,322
11,438
86,372
114,132
195,460
0
47,041
2,992
50,033
148
1,376
15,693
17,217
67,250
0
32,859
1,206
34,066
26
2,420
5,674
8,121
42,186
736
144,852
19,839
165,426
16,497
15,235
107,739
139,471
304,897
As of 31 December 2013, 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
59,710
7,540
67,250
37,239
4,947
42,186
Total
96,949
12,487
109,437
552
Impaired and non-performing loans
A loan (included in Due from banks or Loans) is classified as non-
performing: (i) when the payment of interest, principal or fees is
overdue by more than 90 days, (ii) when insolvency proceedings
have commenced or (iii) when obligations have been restructured
on concessionary terms. For IFRS reporting purposes, the defini-
tion of impaired loans is more comprehensive, covering both non-
performing loans and other situations where objective evidence
indicates that UBS may be unable to collect all amounts due. Re-
fer to “Impaired loans” in the “Risk management and control”
section of this report for comprehensive information on UBS’s im-
paired loans, of which non-performing loans are a component.
Also, refer to “Note 1 Summary of significant accounting poli-
cies” to the consolidated financial statements for more informa-
tion 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
31.12.13
31.12.12
31.12.11
31.12.10
31.12.09
1,113
469
1,582
1,121
395
1,516
1,199
329
1,529
1,164
563
1,727
1,462
3,940
5,402
CHF million
31.12.13
31.12.12
31.12.11
31.12.10
31.12.09
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
6
4
23
7
8
3
28
6
10
9
29
6
11
35
35
19
13
89
41
30
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. Instead, specific
loan allowances are established as necessary. Unrecognized inter-
est related to restructured loans was not material to the results of
operations in 2013, 2012, 2011, 2010 or 2009.
553
Financial information Financial information
Supplemental disclosures required under SEC regulations
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 as of 31 Decem-
ber 2013, 2012 and 2011. As of 31 December 2013, 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, differing
trade populations and differing approach to allocation of expo-
sures to countries. For more information on the country frame-
work within risk control, refer to “Country risk” in the “Risk man-
agement and control” section of this report.
CHF million
USA
United Kingdom
Japan
France
Germany
CHF million
USA
United Kingdom
Japan
France
CHF million
USA
United Kingdom
Japan
France
Banks
Private sector
Public sector
outstandings % of total assets
31.12.13
Total
23,167
10,872
1,019
4,793
4,328
Banks
45,371
13,366
2,014
4,885
Banks
114,952
13,679
3,799
5,220
76,047
39,528
17,009
7,478
2,664
51,287
150,501
8,583
4,765
56
1,900
58,983
22,794
12,327
8,891
31.12.12
14.9
5.8
2.3
1.2
0.9
Private sector
Public sector
Total outstandings
% of total assets
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
16.4
4.1
1.4
1.3
Guarantees and
Commitments 1
38,778
8,494
289
6,997
2,062
Guarantees and
Commitments 1
43,904
12,106
2,208
9,161
Guarantees and
Commitments 1
46,285
13,487
7,090
8,034
1 Includes forward starting transactions (reverse repurchase agreements and securities borrowing agreements).
554
Summary of movements in allowances and provisions for credit losses
The following table provides an analysis of movements in allow-
ances and provisions for credit losses.
UBS writes off loans against allowances only on final settle-
ment of bankruptcy proceedings, the sale of the underlying assets
and / or in the case of debt forgiveness. Under Swiss law, a credi-
tor can continue to collect from a debtor who has emerged from
bankruptcy, unless the debt has been forgiven through a formal
agreement.
CHF million
Balance at beginning of year
31.12.13
794
31.12.12
938
31.12.11
1,287
31.12.10
2,820
31.12.09
3,070
Domestic
Write-offs
Construction
Financial institutions
Hotels and restaurants
Manufacturing
Private households
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
(2)
(6)
0
(4)
(38)
0
(11)
(4)
(1)
(67)
(1)
0
(6)
(44)
0
0
(6)
(1)
(1)
(1)
0
0
0
(61)
0
(128)
35
10
45
(83)
144
(93)
(9)
(3)
750
(1)
0
(1)
(20)
(45)
(2)
(21)
(6)
(17)
(8)
(17)
0
(31)
(59)
(3)
(37)
(21)
(6)
(112)
(183)
(8)
(47)
(1)
(28)
(66)
(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)
(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
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. 4 Includes allowances for cash collateral on securities borrowed.
555
Financial information Financial information
Supplemental disclosures required under SEC regulations
Allocation of the allowances and provisions for credit losses
The following table provides an analysis of the allocation of the
allowances and provisions for credit loss by industry sector and
geographic location as of 31 December 2013, 2012, 2011, 2010
and 2009. 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
31.12.13
31.12.12
31.12.11
31.12.10
31.12.09
3
16
16
12
57
54
0
9
152
23
24
365
13
0
17
1
37
18
2
66
16
2
77
35
19
0
303
20
61
750
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
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.
556
Due from banks and loans by industry sector (gross)
The following table presents the percentage of loans in each
industry sector and geographic location to total loans. This table
can be read in conjunction with the preceding table showing the
breakdown of the allowances and provisions for credit losses
by industry sectors to evaluate the credit risks in each of the cat-
egories.
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
31.12.13
31.12.12
31.12.11
31.12.10
31.12.09
0.2
0.5
1.5
0.6
0.8
40.9
0.8
4.8
1.2
1.7
1.2
54.3
5.4
0.1
0.4
0.4
14.1
0.6
0.4
16.4
0.4
1.0
0.6
4.8
0.9
0.2
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
45.7
100.0
45.6
100.0
44.5
100.0
42.7
100.0
44.1
100.0
1 Includes chemicals, food and beverages, transportation, storage, mining, electricity, gas and water supply. 2 Includes food and beverages, hotels and restaurants.
557
Financial information Supplemental disclosures required under
Basel III Pillar 3 regulations
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table of contents
562
Introduction
563
565
565
566
566
Table 1a: Overview of disclosure requirements
Risk exposure measures and derivation of
risk-weighted assets
Table 1b: Requirements by risk type
Scope of regulatory consolidation
Table 1c: Main legal entities according to the IFRS
scope of consolidation not subject to the regulatory
scope of consolidation
567
Risk-weighted assets
568
Table 2: Detailed segmentation of Basel III
exposures and risk-weighted assets
581
581
582
Standardized approach
Table 10: Regulatory gross and net credit exposure by
risk weight under the standardized approach
Table 11: Eligible financial collateral recognized under
the standardized approach
582
Impairment, default and credit loss
583
583
584
584
Derivatives credit risk
Table 12: Credit exposure of derivative instruments
Other credit risk information
Table 13: Credit derivatives
585
Equity instruments in the banking book
570
Credit risk
585
Table 14: Equity instruments in the banking book
Table 3: Counterparty credit risk by exposure
segment and RWA
Table 4: Regulatory gross credit exposure by
geographical region
Table 5: Regulatory gross credit exposure by
counterparty type
Table 6: Regulatory gross credit exposure by
residual contractual maturity
Table 7: Derivation of regulatory net credit exposure
Table 8: Regulatory gross credit exposure covered by
guarantees and credit derivatives
Advanced internal ratings-based approach
Table 9a: Corporates – Advanced IRB approach:
Regulatory net credit exposure, weighted average PD,
LGD and RWA by internal UBS ratings
Table 9b: Sovereigns – Advanced IRB approach:
Regulatory net credit exposure, weighted average PD,
LGD and RWA by internal UBS ratings
Table 9c: Banks – Advanced IRB approach: Regulatory net
credit exposure, weighted average PD, LGD and RWA by
internal UBS ratings
Table 9d: Residential mortgages – Advanced IRB ap-
proach: Regulatory net credit exposure, weighted
average PD, LGD and RWA by internal UBS ratings
Table 9e: Lombard – Advanced IRB approach:
Regulatory net credit exposure, weighted average PD,
LGD and RWA by internal UBS ratings
Table 9f: Other Retail – Advanced IRB approach:
Regulatory net credit exposure, weighted average PD,
LGD and RWA by internal UBS ratings
586 Market risk
587
Securitization
587
Table 15: Securitization / re-securitization
588
Objectives, roles and involvement
590
590
591
592
593
593
594
595
596
596
596
Securitization in the banking and trading book
Table 16: Securitization activity of the year in
the banking book
Table 17: Securitization activity of the year in
the trading book
Table 18: Outstanding securitized exposures
Table 19: Impaired or past due securitized exposures
and losses related to securitized exposures in the
banking book
Table 20: Exposures intended to be securitized in
the banking and trading book
Table 21: Securitization positions retained or purchased
in the banking book
Table 22: Securitization positions retained or purchased
in the trading book
Table 23: Capital requirement for securitization /
re-securitization positions retained or purchased in
the banking book
Securitization exposures to be deducted from
Basel III tier 1 capital
Securitization exposures subject to early amortization in
the banking and trading book
570
571
571
572
573
573
574
575
576
577
578
579
580
560
597
598
599
599
600
600
Table 24: Re-securitization positions retained or pur-
chased in the banking book
Table 25: Re-securitization positions retained or pur-
chased in the trading book
Table 26: Aggregated amount of securitized exposures
subject to the market risk approach
Table 27: Correlation products subject to the
comprehensive risk measure or the securitization
framework for specific risk
Table 28: Securitization positions and capital requirement
for trading book positions subject to the securitization
framework
Table 29: Capital requirement for securitization positions
related to correlation products
601
Composition of capital
601
603
Table 30: Reconciliation of accounting balance sheet
to balance sheet under the regulatory scope of
consolidation
Table 31: Composition of capital
606
G-SIBs indicator
561
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Introduction
This section of the report provides the BIS Basel III Pillar 3 supplementary disclosure information as of 31 December 2013
for UBS Group to the extent that these required Pillar 3 disclosures are not included in other sections of our Annual
Report 2013. The Basel III Pillar 3 disclosures were previously provided in the Basel III Pillar 3 report for the first half 2013
published on the UBS website. The corresponding disclosures published in our Annual Report 2012 were prepared in
accordance with Basel 2.5.
The capital adequacy framework consists of three pillars, each of
which focuses on a different aspect of capital adequacy. Pillar 1
provides a framework for measuring minimum capital require-
ments for the credit, market and operational risks faced by banks.
Pillar 2 addresses the principles of the supervisory review process,
emphasizing the need for a qualitative approach to supervising
banks. Pillar 3 aims to encourage market discipline by requiring
banks to publish a range of disclosures, mainly on risk and capital.
This report is based on phase-in rules under the BIS Basel III
framework, as implemented by the revised Swiss Capital Adequa-
cy Ordinance issued by the Swiss Federal Council and required by
Swiss Financial Market Supervisory Authority (FINMA) regulation.
In addition, systemically relevant banks (SRB) in Switzerland (cur-
rently UBS, Credit Suisse and, since 1 November 2013, Zürcher
Kantonalbank) are required to comply with Swiss SRB-specific
rules.
➔ Refer to the “Capital management” section of this report for
more information on regulatory requirements including the
differences between BIS Basel III and Swiss SRB
FINMA requires us to publish comprehensive quantitative and
qualitative Pillar 3 disclosures annually, as well as an update of
quantitative disclosures and any significant changes to qualitative
information semi-annually. The implementation of Basel III as of
1 January 2013 resulted in the introduction of new Pillar 1 con-
cepts which required amendment of several Pillar 3 tables for
31 December 2013. Respective comparative 31 December 2012
tables and numbers are based on Basel 2.5 requirements and
concepts. The numbers for 31 December 2012 presented in the
Pillar 3 disclosures may be restated due to the retrospective imple-
mentation of IFRS 10.
➔ 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 IFRS 10
This section also contains a reference to the new Basel III dis-
closures of the indicators used in the calculation methodology for
assessing the systemic importance of the G-SIBs and the resulting
G-SIB buffer capital requirements.
562
Table 1a: Overview of disclosure requirements
The following table provides an overview of Pillar 3 disclosures in our Annual Report 2013.
Pillar 3
requirements
Location of disclosure:
Annual Report section
Table in section ”Supplemental disclosures required under
Basel III Pillar 3 regulations”
Scope of consolidation
Capital structure
Capital adequacy
Capital instruments
Risk management
objectives, policies
and methodologies
(qualitative disclosures)
Risk-weighted assets
Credit risk
Financial information – Note 1
Summary of significant account-
ing policies
Supplemental disclosures re-
quired under Basel III Pillar 3
regulations
Capital management
(on page 230)
Capital management
(on pages 226–248)
Refer to “Bondholder informa-
tion” at www.ubs.com/investors
for more information
Risk management and control
(on pages 150–212)
Capital management
Supplemental disclosures
required under Basel III Pillar 3
regulations
Risk management and control
Supplemental disclosures
required under Basel III Pillar 3
regulations
Table 1c: Main legal entities according to the IFRS scope of consolidation
not subject to the regulatory scope of consolidation
Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets
Table 3: Counterparty credit risk by exposure segment and RWA
Table 4: Regulatory gross credit exposure by geographical region
Table 5: Regulatory gross credit exposure by counterparty type
Table 6: Regulatory gross credit exposure by residual contractual maturity
Table 7: Derivation of regulatory net credit exposure
Table 8: Regulatory gross credit exposure covered by guarantees and credit derivatives
Table 9a: Corporates – Advanced IRB approach: Regulatory net credit exposure,
weighted average PD, LGD and RWA by internal UBS ratings
Table 9b: Sovereigns – Advanced IRB approach: Regulatory net credit exposure,
weighted average PD, LGD and RWA by internal UBS ratings
Banks – Advanced IRB approach: Regulatory net credit exposure,
weighted average PD, LGD and RWA by internal UBS ratings
Table 9c:
Table 9d: Residential mortgages – Advanced IRB approach: Regulatory net credit exposure,
weighted average PD, LGD and RWA by internal UBS ratings
Table 9e: Lombard – Advanced IRB approach: Regulatory net credit exposure,
weighted average PD, LGD and RWA by internal UBS ratings
Other Retail – Advanced IRB approach: Regulatory net credit exposure,
weighted average PD, LGD and RWA by internal UBS ratings
Table 9f:
Table 10: Regulatory gross and net credit exposure by risk weight under the standardized
approach
Table 11: Eligible financial collateral recognized under the standardized approach
Table 12: Credit exposure of derivative instruments
Table 13: Credit derivatives
563
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 1a: Overview of disclosure requirements (continued)
The following table provides an overview of Pillar 3 disclosures in our Annual Report 2013.
Pillar 3
requirements
Location of disclosure:
Annual Report section
Table in section ”Supplemental disclosures required under
Basel III Pillar 3 regulations”
Equity instruments in
the banking book
Market risk
Operational risk
Supplemental disclosures re-
quired under Basel III Pillar 3
regulations
Risk management and control
(on pages 188–204)
Risk management and control
(on pages 210–212)
Interest rate risk in
the banking book
Risk management and control
(on pages 201–203)
Securitization
Supplemental disclosures
required under Basel III Pillar 3
regulations
Table 14: Equity instruments in the banking book
Table 15: Securitization / re-securitization
Table 16: Securitization activity of the year in the banking book
Table 17: Securitization activity of the year in the trading book
Table 18: Outstanding securitized exposures
Table 19: Impaired or past due securitized exposures and losses related to securitized
exposures in the banking book
Table 20: Exposures intended to be securitized in the banking and trading book
Table 21: Securitization positions retained or purchased in the banking book
Table 22: Securitization positions retained or purchased in the trading book
Table 23: Capital requirement for securitization / re-securitization positions retained or
purchased in the banking book
Table 24: Re-securitization positions retained or purchased in the banking book
Table 25: Re-securitization positions retained or purchased in the trading book
Table 26: Aggregated amount of securitized exposures subject to the market risk approach
Table 27: Correlation products subject to the comprehensive risk measure or the
securitization framework for specific risk
Table 28: Securitization positions and capital requirement for trading book positions
subject to the securitization framework
Table 29: Capital requirement for securitization positions related to correlation products
Composition of capital
Supplemental disclosures re-
quired under Basel III Pillar 3
regulations
Table 30:
Table 31:
Reconciliation of accounting balance sheet to balance sheet under the
regulatory scope of consolidation
Composition of capital
G-SIBs indicator
Remuneration
Refer to “SEC filings and
other disclosures” at
www.ubs.com/investors
Compensation
(on pages 302–340)
564
Risk exposure measures and derivation of
risk-weighted assets
Measures of risk exposure may differ depending on whether the
exposures are calculated for financial accounting purposes under
International Financial Reporting Standards (IFRS), for determin-
ing our regulatory capital or for risk management purposes. Our
Basel III Pillar 3 disclosures are generally based on measures of risk
exposure used to calculate the regulatory capital required to un-
derpin those risks.
The table below provides a more detailed summary of the ap-
proaches we use for the main risk categories for determining reg-
ulatory capital.
The naming conventions for the exposure segments used in the
following tables are based on BIS rules and may differ from those
under Swiss and European Union (EU) regulations. For example,
“sovereigns” under the BIS naming convention equate to what are
termed “central governments and central banks” under the Swiss
and EU regulations. Similarly, “banks” equate to “institutions”
and “residential mortgages” equate to “claims secured on resi-
dential real estate.”
Our risk-weighted assets (RWA) are published according to the
BIS Basel III framework, as implemented by the revised Swiss
Capital Adequacy Ordinance issued by the Swiss Federal Council
and required by FINMA regulation.
➔ Refer to the “Capital management” section of this report for
more information on the differences between BIS Basel III and
Swiss SRB
Table 1b: Requirements by risk type
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 securities financing transactions. Our disclosure includes the Basel III requirements for credit risk that were
adopted as of 1 January 2013 (e.g., stressed expected positive exposure, changes in the risk weighting of central
counterparties, capital charge for credit valuation adjustments, asset value correlation (AVC) multiplier). For a
subset of our credit portfolio, we apply the standardized approach, based on external ratings.
Equity instruments in the banking book
Simple risk-weight method under the advanced internal ratings-based approach.
Credit valuation adjustment (CVA)
The credit valuation adjustment (CVA) is an additional capital charge to the existing counterparty credit risk
default charge. Banks are required to hold capital for the risk of mark-to-market losses (i.e., CVA) associated
with the deterioration of counterparty credit quality.
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 III framework.
Non-counterparty-related risk
Non-counterparty-related assets such as our premises, other properties and equipment and deferred tax
assets on temporary differences require capital according to prescribed regulatory risk weights.
Market risk
Regulatory capital requirement is calculated using a variety of methods approved by FINMA. The components
are value-at-risk (VaR), stressed VaR (SVaR), an add-on for risks which are potentially not fully modeled in
VaR, the incremental risk charge, the comprehensive risk charge for the correlation portfolio and the
securitization framework for securitization positions in the trading book described below. Details on the
derivation of RWA for each of these components are provided in the “Risk management and control” section.
Operational risk
We have developed a model to quantify operational risk, which meets the regulatory capital standard under the
advanced measurement approach, that is approved by FINMA and includes the incremental operational risk RWA.
Securitization / re-securitization in
the banking book (credit risk) and
trading book (market risk)
Securitization / re-securitization exposures in the banking book are assessed using the advanced internal ratings-
based approach, applying risk weights based on external ratings and for distinct deals the supervisory formula
based approach is used. Securitization / re-securitization exposures in the trading book are assessed for their
general market risk as well as for their specific risk. The capital charged for general market risk is determined by
the value-at-risk (VaR), stressed VaR (SVaR) 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.
➔ Refer to the “Risk management and control” section of this report for more information
565
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Scope of regulatory consolidation
Generally, the scope of consolidation when calculating regulatory
capital requirements follows the IFRS consolidation rules for sub-
sidiaries directly or indirectly controlled by UBS AG that are active
in the banking and finance business, but excludes subsidiaries in
other sectors.
➔ Refer to “Note 1 Summary of significant accounting policies” and
Subsidiaries which are not included in the regulatory consoli-
dation did not report any capital deficiencies at year-end 2013. In
the banking book, 97 equity instruments were not required to be
consolidated under IFRS and the regulatory scope of consolida-
tion. This category mainly covers infrastructure holdings and joint
operations (for example, settlement and clearing institutions,
stock and financial futures exchanges). These entities fall under
the threshold rules for deduction under Basel III.
“Note 30 Interests in subsidiaries and other entities” in the
“Financial information” section of this report for more informa-
➔ Refer to “Table 14: Equity instruments in the banking book” in
this section for more information on the measurement of these
tion on the accounting policies and most relevant subsidiaries
instruments
under the IFRS scope of consolidation, respectively
The main differences in the basis of consolidation for IFRS
and regulatory capital purposes relate to the following entities,
and apply regardless of our level of control as of 31 Decem-
ber 2013:
– 178 real estate and commercial companies and investment
schemes which were not consolidated for regulatory capital
purposes, but are risk-weighted;
➔ Refer to “Table 1c: Main legal entities according to the IFRS scope
of consolidation not subject to the regulatory scope of consoli-
dation” in this section for more information
The table below provides a list of the most significant entities
that are included in the IFRS scope of consolidation, but not in the
regulatory capital scope of consolidation. We have no significant
investments, which are included in the regulatory scope of consol-
idation but not in the IFRS scope of consolidation.
– Seven insurance companies which were not consolidated for
regulatory capital purposes, but fall under the threshold rules
for deduction under Basel III;
We have a significant participation in the SIX Group which is
not part of the regulatory scope of consolidation. For regulatory
capital purposes, it is risk-weighted.
– Three joint ventures which were fully consolidated for regula-
tory capital purposes, and which were accounted for under the
equity method for IFRS and
– Securitization vehicles which were not consolidated for regula-
tory capital purposes but which were treated under the securi-
tization framework.
➔ Refer to “Note 25 Restricted and transferred financial assets” in
the “Financial information” section of this report for more
information on transferability restrictions under IFRS 12
Table 1c: Main legal entities according to the IFRS scope of consolidation not subject to the
regulatory scope of consolidation
31.12.13
CHF million
UBS Global Asset Management Life Ltd
UBS International Life Limited
UBS A&Q Alternative Solution Master Limited
UBS A&Q Alternative Solution Limited
UBS Alpha Select Hedge Fund
UBS Global Life AG – Vaduz
UBS Life AG – Zurich
UBS Life insurance company USA
O’Connor Global Multi-Strategy Alpha (Levered) Limited
UBS Multi-Manager Alternative Commodities Fund Ltd.
UBS Diversed Alpha XL Master Limited
Total assets 1
10,023
5,066
988
969
680
683
581
283
262
258
255
Total equity 1
14
Purpose
Life insurance
58
953
953
664
11
58
38
254
220
254
Life Insurance
Investment vehicle for feeder funds 2
Investment vehicle for multiple investors 2
Investment vehicle for multiple investors 2
Life insurance
Life insurance
Life insurance
Investment vehicle for multiple investors 2
Offshore hedge fund 2
Fund 2
Investment vehicle for multiple investors 2
UBS ATF Trading Fund
1 Total assets and Total equity on a standalone basis. 2 Represents the net asset value (NAV) of issued fund units. These fund units are subject to liability treatment in the Group Financial Statements under IFRS.
189
156
566
Risk-weighted assets
“Table 2: Detailed segmentation of Basel III exposures and
risk-weighted assets” provides a breakdown of our RWA and in-
cludes the enhanced risk coverage for stricter market and coun-
terparty credit risk requirements introduced through the imple-
mentation of Basel III. Table 2 and subsequent tables provide a
breakdown according to BIS-defined exposure segments as fol-
lows:
– Sovereigns (central governments and central banks as defined
under Swiss regulations), consisting of exposures relating to
sovereign states and their central banks, the BIS, the Interna-
tional Monetary Fund, the EU (including the European Central
Bank) and eligible multilateral development banks.
– Banks (as defined under Swiss regulations), consisting of expo-
sures to legal entities holding a banking license. This segment
also includes securities firms subject to supervisory and regula-
tory arrangements, including risk-based capital requirements,
which are comparable to those applied to banks according to
the framework. The BIS regulation also includes in this seg-
ment exposures to public sector entities with tax-raising power
or entities whose liabilities are fully guaranteed by a public
entity.
– Corporates, consisting of all exposures that do not fit into any
of the other exposure segments listed below. This segment
includes private commercial entities such as corporations,
partnerships or proprietorships, insurance companies, funds,
exchanges and clearing houses.
– Central counterparties – A central counterparty (CCP) is a
clearing house that interposes itself between counterparties to
contracts traded in one or more financial markets, becoming
the buyer to every seller and the seller to every buyer and
thereby ensuring the future performance of open contracts. A
CCP becomes counterparty to trades with market participants
through novation, an open offer system, or another legally
binding arrangement.
– Retail – Residential mortgages (claims secured on residential
real estate as defined under Swiss regulations), consisting of
residential mortgages, regardless of exposure size, if the obli-
gor occupies or rents out the mortgaged property.
– Retail – Lombard lending, consisting of loans made against the
pledge of eligible marketable securities or cash.
– Retail – Other retail, consisting of exposures to small business-
es, private clients and other retail customers without mortgage
financing.
Table 2 also shows the gross and net exposure at default (EAD)
per risk type and exposure segment for the current disclosure
period, which form the basis for the calculation of the RWA as
well as the capital requirement per exposure category. The Basel
III credit risk- related components “Credit valuation adjustment
(CVA)” and “Stressed expected positive exposure (sEPE)” are dis-
closed separately in the table below, as is the net EAD and RWA
for central counterparties.
➔ Refer to the table “Basel III RWA by risk type, exposure and
reporting segment” in the “Capital management” section of this
report for more information on RWA by business division and
Corporate Center
567
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 2: Detailed segmentation of Basel III exposures and riskweighted assets
31.12.13
Basel III (phase-in)
Gross EAD
Net EAD
RWA
Capital requirement
Advanced
IRB /
model-
based
approach
Standard-
ized
approach
Total
Advanced
IRB /
model-
based
approach
Standard-
ized
approach
Total
Advanced
IRB /
model-
based
approach
Standard-
ized
approach
Total
644,448
460,505
164,328
624,833
97,472
26,783
124,255
8,349
2,294
148,381
67,515
33,863
54,396
143,106
118,279
18,107
230,410
217,831
133,552
128,563
92,661
4,197
87,293
1,975
114,518
148,381
5,950
18,848
18,106
6,868
4,646
2,222
60,346
137,127
18,106
224,699
133,209
87,293
4,197
607,518
424,369
164,290
588,660
22,579
22,579
22,579
840
11,615
34,659
19,855
14,667
4,437
751
66,969
6,202
266
1,981
13,606
1,793
3,346
1,680
1,666
20,992
1,106
13,596
48,265
1,793
23,200
16,346
4,437
2,417
87,960
6,202
72
995
23
170
2,969
1,165
154
287
144
143
1,798
1,701
1,256
380
64
5,736
531
Total 6
10,643
95
1,165
4,134
154
1,987
1,400
380
207
7,534
531
630,097
446,948
164,290
611,239
73,171
20,992
94,163
6,267
1,798
8,065
12,569
1,522
11,928
1,522
260
19,491
2,098
107
1,966
37
19,491
11,928
1,522
144
19,491
1,966
2,098
1,966
1,966
8,352
4,999
8,352
4,999
10,598
5,696
16,294
95
12,634
352
13,727
1,746
2,604
2,025
1,377
4,176
1,799
77,941
22,500
447
12,634
13,727
1,746
2,604
2,025
1,377
4,176
1,799
77,941
22,500
228,557 5
488
8
1,082
715
428
908
30
1,176
150
223
173
118
358
154
6,676
1,927
715
428
1,396
38
1,082
1,176
150
223
173
118
358
154
6,676
1,927
16,201
3,376
19,577
CHF million
Credit risk
Sovereigns
Banks
Corporates
Central counterparties
Retail
Residential mortgages
Lombard lending
Other retail
Counterparty credit risk by exposure
segment (excl. sEPE)
Stressed EPE 1
Counterparty credit risk by exposure
segment (incl. sEPE)
Securitization / re-securitization
in the banking book
Equity instruments in the banking book 2
Credit valuation adjustment (CVA)
Settlement risk
Non-counterparty-related risk
Market risk
Value-at-risk (VaR)
Stressed value-at-risk (SVaR)
Add-on for risks-not-in-VaR (RniV)
Incremental risk charge (IRC)
Comprehensive risk measure (CRM)
Securitization / re-securitization
in the trading book 3
Operational risk
of which: incremental RWA 4
Total Swiss SRB
666,036
462,471
183,818
646,289
189,141
39,417
1 Majority relates to exposures with Banks and Corporates. 2 Simple risk-weight method. 3 In line with Basel III Pillar 1 requirements, RWA related to securitization / re-securitization in the trading book are newly presented
as market risk RWA. Previously, these RWA were presented as credit risk RWA. Prior periods were restated for this change in presentation. 4 Incremental RWA reflect the effect of the supplemental operational risk capital
analysis mutually agreed to by UBS and FINMA. 5 Refer to the “Capital management” section of this report for more information on the difference between phase-in and fully applied RWA numbers. 6 As we are required
to comply with regulations based on the Basel III framework as applicable for Swiss systemically relevant banks (SRB), our capital disclosures are based on the Swiss SRB Basel III capital charge of 8.6% for 2013.
568
Table 2: Detailed segmentation of Basel 2.5 exposures and riskweighted assets (continued)
Gross EAD
Net EAD
RWA
Capital requirement
31.12.12
Basel 2.5
CHF million
Credit risk
Sovereigns
Banks
Corporates
Central counterparties
Retail
Residential mortgages
Lombard lending
Other retail
Counterparty credit risk by exposure
segment
Securitization / re-securitization
in the banking book 1
Equity instruments in the banking book 2
Credit valuation adjustment (CVA)
Settlement risk
Non-counterparty-related risk
Market risk
Value-at-risk (VaR)
Stressed value-at-risk (SVaR)
Add-on for risks-not-in-VaR (RniV)
Incremental risk charge (IRC)
Comprehensive risk measure (CRM)
Securitization / re-securitization
in the trading book 4
Operational risk
Total Swiss SRB
Advanced
IRB /
model-
based
approach
444,332
37,796
48,506
Standard-
ized
approach
138,106
104,354
6,073
Total
602,514
142,271
63,443
Total
582,438
142,150
54,580
Advanced
IRB /
model-
based
approach
Standard-
ized
approach
Total
Advanced
IRB /
model-
based
approach
Standard-
ized
approach
82,344
21,823
104,167
6,588
1,746
3,205
8,654
222
2,083
162,925
132,829
21,604
154,433
43,250
16,312
216,324
129,657
82,275
4,392
209,382
125,051
82,271
2,060
5,960
3,625
2,336
215,342
128,676
82,271
4,396
18,737
13,888
4,111
739
3,116
1,362
1,754
Total 5
8,333
274
859
256
692
18
167
3,460
1,305
4,765
1,499
1,111
329
59
249
109
140
1,748
1,220
329
199
3,427
10,737
59,562
21,854
15,250
4,111
2,493
584,963
428,513
137,992
566,505
73,847
21,733
95,580
5,908
1,739
7,646
16,537
14,995
798
217
16,810 3
7,646
798
26
6,453
14,995
798
141
16,810 3
6,453
114
16,810 3
7,646
6,453
6,453
5,497
2,972
28
28,812
3,876
5,852
3,326
5,192
8,928
1,639
53,277
91
6,248
5,497
2,972
118
6,248
28,812
3,876
5,852
3,326
5,192
8,928
1,639
53,277
626,970
450,785
154,917
605,701
164,434
28,071
192,505
440
238
2
2,305
310
468
266
415
714
131
4,262
13,155
7
500
440
238
9
500
2,305
310
468
266
415
714
131
4,262
15,400
2,246
1 As of 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. 2 Simple risk-weight method. 3 In 2013, the comparative period 31 December 2012 figure for net EAD was restated. On a restated basis, as of 31 December 2012, these had a regulatory credit exposure of
CHF 16.8 billion. 4 In line with Basel III Pillar 1 requirements, RWA related to securitization / re-securitization in the trading book are newly presented as market risk RWA. Previously, these RWA were presented as
credit risk RWA. Prior periods were restated for this change in presentation. 5 Our capital disclosures are based on Basel 2.5 capital charge of 8.0% for 2012.
569
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Credit risk
The tables in this section provide details on the exposures used
to determine the firm’s credit risk-related 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 require-
ments. These include, for example, the application of regulatory
prescribed floors and multipliers, and differences with respect to
eligibility criteria and exposure definitions. The exposure informa-
tion presented in this section therefore differs from that disclosed
in the “Risk management and control” sections of our quarterly
and annual reports. Similarly, the regulatory capital prescribed mea-
sure of credit risk exposure also differs from that required under
IFRS. The following credit risk-related tables are based on Basel III
phase-in and correspond to the counterparty credit risk by expo-
sure segment excluding the stressed expected positive exposure
(sEPE), which is shown in “Table 2: Detailed segmentation of Ba-
sel III exposures and risk-weighted assets.”
➔ Refer to the “Risk management and control” section of this
report for more information on credit risk
The regulatory gross credit exposure for banking products is
equal to the drawn loan amounts represented on the balance sheet,
with the exception of off-balance sheet commitments where the
regulatory gross credit exposure is calculated by applying a credit
conversion factor to the undrawn amount or contingent claim.
For traded products, we determine the regulatory credit expo-
sure on the majority of our derivative exposures by applying the
effective expected positive exposure (EPE) and sEPE as defined in
the Basel III framework. For a small portion of the derivatives port-
folio we instead apply the current exposure method (CEM) based
on the replacement value of derivatives in combination with a reg-
ulatory prescribed add-on. For a majority of securities financing
transactions, we determine the regulatory gross credit exposure
using the close-out period (COP) approach. The regulatory gross
credit exposure for traded products is set equal to regulatory net
credit exposure, in the credit risk tables on the following pages.
The regulatory net credit exposure detailed in the tables on the
following pages is shown as the regulatory exposure at default
after applying collateral, netting and other eligible risk mitigants
permitted by the relevant regulations. The information on im-
paired and defaulted assets by segmentation, consistent with the
regulatory capital treatment, is presented in the “Risk manage-
ment and control” section of this report.
Table 3: Counterparty credit risk by exposure segment and RWA
This table shows the derivation of RWA from the regulatory gross credit exposure, broken down by major types of credit exposures
according to classes of financial instruments.
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
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.13
Total 31.12.12 (Basel 2.5)
Exposure
Average regulatory
risk-weighting 1
RWA 2
Average regulatory
gross credit
exposure
Regulatory gross
credit exposure
Less: regulatory
credit risk offsets
and adjustments
Regulatory net
credit exposure
74,586
19,765
286,007
4,908
36,242
421,508
58,191
15,453
54,404
78,912
19,773
284,711
2,782
33,774
419,951
45,718
17,154
49,753
128,047
112,625
5,281
61,269
6,126
8,493
81,169
630,724
627,142
3,412
58,236
5,560
7,733
74,942
607,518
584,963
(4,950)
(11,026)
(1,022)
(309)
(17,308)
(26)
(53)
(1,472)
(1,551)
(18,859)
(18,458)
78,912
14,823
273,685
1,759
33,465
402,644
45,718
17,154
49,753
112,625
3,387
58,236
5,507
6,261
73,391
588,660
566,505
0%
27%
15%
32%
27%
14%
26%
22%
7%
17%
82%
2%
80%
94%
19%
15%
17%
75
3,981
41,159
564
8,940
54,719
11,911
3,766
3,364
19,041
2,761
1,130
4,415
5,895
14,200
87,960
95,580
1 Average regulatory gross credit exposure is calculated using the four quarter averages. 2 The derivation of RWA is based on the various credit risk parameters of the advanced IRB approach and the standardized ap-
proach, respectively.
570
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
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.13
Total 31.12.12 (Basel 2.5)
Asia Pacific
Latin
America
Middle East
and Africa
Rest of
Europe
Total regulatory
gross credit
exposure
Total regulatory
net credit
exposure
5,053
4,564
19,041
49
1,098
29,805
5,208
3,503
4,467
13,178
1,265
5,482
190
221
7,158
50,141
41,690
0
162
5,396
713
6,270
548
4
243
795
90
99
24
16
229
7,294
6,798
North
America Switzerland
49,341
3,181
13,811
728
65,651
164,638
1,041
17,420
514
7,074
185
4,087
148
408
10,707
10,952
25,898
1,030
7,061
4,828
136,635
186,764
55,649
282
37
1,704
2,022
18
13
10
15
56
12,498
3,147
11,236
26,881
884
21,721
3,745
2,642
28,991
3,934
279
3,285
7,499
13
1,605
345
4,081
6,044
23,248
10,184
28,818
62,249
1,142
29,317
1,247
759
32,465
6,907
6,564
192,507
200,307
150,363
194,557
210,112
125,242
78,912
19,773
284,711
2,782
33,774
419,951
45,718
17,154
49,753
112,625
3,412
58,236
5,560
7,733
74,942
607,518
584,963
78,912
14,823
273,685
1,759
33,465
402,644
45,718
17,154
49,753
112,625
3,387
58,236
5,507
6,261
73,391
588,660
566,505
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 BIS-defined exposure segments used in certain other tables in this section.
CHF million
Cash and balances with central banks
Due from banks
Loans
Financial assets designated at fair value
Off-balance sheet
Banking products
Derivatives
Cash collateral receivables on derivative financial instruments
Securities financing
Traded products
Trading portfolio assets
Financial investments available-for-sale
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.13
Total 31.12.12 (Basel 2.5)
1 Also includes non-bank financial institutions.
Private
individuals
Corporates 1
0
181,855
2,180
184,034
1,530
1
34
1,565
1
7
3,678
679
4,365
189,964
182,867
99,120
2,200
29,855
131,175
18,828
8,358
34,586
61,772
2,588
9,864
1,082
5,410
18,944
211,890
213,037
Public entities
(including
sovereigns and
central banks)
Banks and
multilateral
institutions
Total
regulatory
gross credit
exposure
Total
regulatory
net credit
exposure
78,686
2,407
3,736
32
286
85,148
6,143
138
5,728
12,009
301
40,699
157
391
41,549
138,706
135,228
226
17,366
550
1,453
19,595
19,217
8,657
9,404
37,278
523
7,665
643
1,254
10,085
66,958
53,830
78,912
19,773
284,711
2,782
33,774
419,951
45,718
17,154
49,753
112,625
3,412
58,236
5,560
7,733
74,942
607,518
584,963
78,912
14,823
273,685
1,759
33,465
402,644
45,718
17,154
49,753
112,625
3,387
58,236
5,507
6,261
73,391
588,660
566,505
571
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
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, not taking into account any early redemption features.
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
Accrued income and prepaid expenses
Other assets
Other products
Total 31.12.13
Total 31.12.12 (Basel 2.5)
Callable and
on demand 1
78,912
15,407
79,965
55
174,338
70
6,360
41,887
48,316
201
16
2,470
7,733
10,420
233,075
201,822
Due in
1 year or less
Due between
1 year and
5 years
Due over
5 years
4,213
92,219
295
7,849
104,574
24,598
6,006
7,433
38,037
1,318
26,967
362
28,647
171,259
176,125
127
68,282
1,852
23,603
93,863
8,155
2,144
432
10,731
887
26,995
1,728
29,610
134,204
136,625
26
44,246
635
2,267
47,175
12,895
2,644
2
15,540
1,007
4,258
1,000
6,265
68,981
70,391
Total
regulatory
gross credit
exposure 2
78,912
19,773
284,711
2,782
33,774
419,951
45,718
17,154
49,753
112,625
3,412
58,236
5,560
7,733
74,942
607,518
584,963
Total
regulatory
net credit
exposure
78,912
14,823
273,685
1,759
33,465
402,644
45,718
17,154
49,753
112,625
3,387
58,236
5,507
6,261
73,391
588,660
566,505
1 For example loans without a fixed term and cash collateral receivables on derivative instruments, on which notice of termination has not been given. 2 Amounts presented in this table are based on contractual ma-
turities and do not take into account early redemption features.
572
Table 7: Derivation of regulatory net credit exposure
This table provides a derivation of the regulatory net credit exposure from the regulatory gross credit exposure according to the advanced
internal ratings-based approach and the standardized approach.
CHF million
Total regulatory gross credit exposure
Less: regulatory credit risk offsets and adjustments
Total regulatory net credit exposure
Total 31.12.12 (Basel 2.5)
Advanced IRB
approach
Standardized
approach
Total 31.12.13
Total 31.12.12
(Basel 2.5)
436,764
(12,395)
424,369
428,513
170,754
(6,464)
164,290
137,992
607,518
(18,859)
588,660
584,963
(18,458)
566,505
➔ Refer to ”Table 2: Detailed segmentation of Basel III exposures and riskweighted assets“ in this section for more information on the
regulatory net credit exposure by exposure segment
Table 8: Regulatory gross credit exposure covered by guarantees and credit derivatives
This table provides a breakdown of exposures covered by guarantees as well as those covered by credit derivatives, according to BIS-de-
fined exposure segments. The amounts in the table reflect the values used for determining regulatory capital to the extent collateral
are eligible under the BIS framework.
CHF million
Exposure segment
Corporates
Sovereigns
Banks
Central counterparties
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.13
Total 31.12.12 (Basel 2.5)
1 Includes guarantees and standby letters of credit provided by third parties, mainly banks.
Exposure covered by
guarantees 1
Exposure covered by
credit derivatives
4,231
29
377
3
456
49
5,145
6,813
12,300
39
18
12,357
16,331
573
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Advanced internal ratings-based approach
UBS uses the advanced internal ratings-based (A-IRB) and stan-
dardized approaches for calculating credit risk exposures across all
business divisions and the Corporate Center. Under the A-IRB ap-
proach, the required capital for credit risk is quantified through
empirical models developed by the Bank for estimating the prob-
ability of default, loss given default, exposure at default and other
parameters, subject to the approval of the regulator. Under the
standardized approach, the Bank uses ratings from external cred-
it rating agencies to quantify the required capital for credit risk.
The A-IRB approach calculates RWA for the banking book using
advanced IRB risk measures like probability of default (PD) and
loss given default (LGD), based on internal assessments.
➔ Refer to the “Risk management and control” section of this
report for more information
Tables 9a to 9f provide a breakdown of the regulatory net cred-
it exposure-weighted average PD, LGD, RWA and the average risk
weight by internal UBS ratings across BIS-defined exposure seg-
ments. In addition, a breakdown of the regulatory net credit ex-
posure and RWA for which we apply the A-IRB approach by inter-
nal rating class is shown for each of the exposure segments.
574
Table 9a: Corporates – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by
internal UBS ratings
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
31.12.13
10
10,199
28,845
17,027
10,317
11,673
11,682
9,755
7,900
4,973
3,138
997
426
165
239
2,242
3,444
1,659
977
595
519
907
576
1,238
403
122
54
0.0
0.0
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.8
45.5
24.0
22.1
32.8
37.6
31.2
21.8
22.6
22.4
20.8
23.2
19.1
19.6
21.2
26.1
RWA
1
565
1,650
3,154
3,400
4,573
4,853
4,473
3,983
2,766
2,606
797
406
187
33,414
Average risk
weight in %
7.0
5.5
5.7
18.5
33.0
39.2
41.5
45.9
50.4
55.6
83.1
80.0
95.4
113.3
28.5
Total 31.12.13
117,104
12,975
1 Impaired and defaulted assets are excluded from this table (RWA in December 2013, CHF 1,245 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.12 (Basel 2.5)
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
31.12.12
28
7,752
29,450
25,340
16,042
11,446
11,469
11,440
8,329
5,792
2,468
1,347
655
149
131,708
2,226
3,022
1,716
1,433
695
642
777
775
1,022
487
239
22
13,057
0.0
0.0
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.7
42.9
23.0
20.7
30.2
30.9
31.2
25.7
24.8
21.0
24.2
27.1
19.1
14.4
8.6
25.9
RWA
2
489
1,906
4,028
4,755
8,598
5,190
5,427
3,688
4,047
2,349
1,058
458
67
42,063
Average risk
weight in %
7.4
6.3
6.5
15.9
29.6
75.1
45.3
47.4
44.3
69.9
95.2
78.5
69.9
45.0
31.9
1 Impaired and defaulted assets are excluded from this table (RWA in December 2012, CHF 1,188 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
575
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 9b: Sovereigns – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA
by internal UBS ratings
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
31.12.13
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
1
194
16
6
24
0
0
0
25,714
4,273
2,652
882
267
10
22
3
8
2
0
4
1
0
1
95
25
0
0
0
1
0
27,851
4,508
2,321
723
2,271
32
17
30
7
4
0
4
0
0
0.0
0.0
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.0
39.4
31.3
42.5
43.5
58.6
11.5
39.2
51.5
22.2
22.5
10.0
30.1
10.0
10.0
38.8
0.0
0.0
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.0
25.9
32.6
41.3
47.0
70.0
77.7
21.0
31.7
19.8
29.5
21.2
29.0
10.0
10.0
30.8
RWA
51
117
309
161
142
2
14
4
6
1
0
6
1
0
815
Average risk
weight in %
0.2
2.7
11.7
18.2
53.4
22.8
64.5
133.0
70.8
69.2
47.1
139.4
58.6
54.5
2.4
RWA
45
165
443
189
2,270
27
7
17
4
3
0
6
0
0
3,177
Average risk
weight in %
0.2
3.7
19.1
26.2
99.9
83.1
43.3
56.2
57.0
87.4
83.5
133.5
54.8
57.7
8.4
Total 31.12.13
33,840
240
1 Impaired and defaulted assets are excluded from this table (RWA in December 2013, CHF 25 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
31.12.12
Total 31.12.12 (Basel 2.5)
37,769
122
1 Impaired and defaulted assets are excluded from this table (RWA in December 2012, CHF 29 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
576
Table 9c: Banks – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA by
internal UBS ratings
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.13
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.13
54,225
9,466
1 Impaired and defaulted assets are excluded from this table (RWA in December 2013, CHF 174 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
31.12.12
0
7,724
1,449
45
42
4
0
197
5
0
1
2,094
36,415
9,714
3,206
1,196
414
383
517
118
32
69
67
0
8
10,072
1,795
15
29
2
7
50
0
78
1
1,111
26,731
10,108
4,151
3,944
854
424
645
29
104
96
1
231
0.0
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.1
37.7
34.6
33.8
40.7
25.3
37.0
43.5
16.2
36.7
41.6
38.0
41.9
19.0
34.7
174
6,823
1,586
1,189
415
266
338
199
142
50
119
140
0
11,441
8.3
18.7
16.3
37.1
34.7
64.2
88.3
38.5
119.7
159.5
172.3
210.2
112.3
21.1
RWA
135
2,731
1,866
1,663
541
331
344
185
29
116
179
3
450
8,573
Average risk
weight in %
12.2
10.2
18.5
40.1
13.7
38.8
81.1
28.6
102.1
111.8
185.8
189.7
194.6
17.7
0.0
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.3
32.7
28.0
32.0
42.0
11.5
24.8
41.6
13.1
38.8
32.5
39.3
40.0
31.0
28.7
Total 31.12.12 (Basel 2.5)
48,430
12,057
1 Impaired and defaulted assets are excluded from this table (RWA in December 2012, CHF 81 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
577
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 9d: Residential mortgages – Advanced IRB approach: Regulatory net credit exposure, weighted average PD,
LGD and RWA by internal UBS ratings
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.13
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.13
22,895
9,825
16,970
17,212
17,126
11,931
12,796
8,612
5,577
3,160
1,370
475
156
128,104
107
17
43
48
73
57
281
117
24
21
16
7
5
816
0.0
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.8
9.8
9.7
10.3
10.6
11.5
11.8
11.5
10.9
10.4
10.2
10.1
10.2
10.5
10.7
293
144
481
905
1,625
1,740
2,474
2,157
1,806
1,358
756
320
122
14,180
1.3
1.5
2.8
5.3
9.5
14.6
19.3
25.0
32.4
43.0
55.2
67.3
77.7
11.1
1 Impaired and defaulted assets are excluded from this table (RWA in December 2013, CHF 487 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.12
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
173
1,828
12,702
83,034
14,285
6,125
3,253
1,355
543
596
323
394
0
6
12
60
82
68
5
34
1
1
2
0
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
13.0
22.0
0.6
23.0
23.0
14.9
13.2
16.0
19.8
19.3
17.5
14.2
12.7
12.7
12.9
14.4
4
69
809
6,589
2,024
1,361
943
496
250
330
222
323
13,421
2.3
3.8
6.4
7.9
14.2
22.2
29.0
36.6
46.0
55.5
68.7
81.9
10.8
Total 31.12.12 (Basel 2.5)
124,611
271
1 Impaired and defaulted assets are excluded from this table (RWA in December 2012, CHF 466 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
578
Table 9e: Lombard – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA
by internal UBS ratings
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.13
47,034
26,482
2,598
6,646
2,241
890
431
36
649
286
259
19
16
25
3
1
25
0
3
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
1,236
1,182
200
821
387
192
111
11
201
95
2.6
4.5
7.7
12.3
17.3
21.6
25.9
29.1
31.0
33.3
Total 31.12.13
87,293
351
0.2
20.0
4,436
5.1
1 Impaired and defaulted assets are excluded from this table (RWA in December 2013, CHF 0.5 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.12
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
45,445
25,423
2,772
3,945
2,170
668
544
212
590
487
210
13
25
14
5
0
21
0
11
2
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
0.2
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
20.0
1,195
1,134
213
487
375
144
141
62
183
162
2.6
4.5
7.7
12.3
17.3
21.6
25.9
29.1
31.0
33.3
20.0
4,096
5.0
Total 31.12.12 (Basel 2.5)
82,257
300
1 Impaired and defaulted assets are excluded from this table (RWA in December 2012, CHF 15 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
579
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 9f: Other Retail – Advanced IRB approach: Regulatory net credit exposure, weighted average PD, LGD and RWA
by internal UBS ratings
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.13
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.13
14
126
10
8
10
6
135
2
1,644
10
1
1,966
0.0
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
6.5
19.6
12.3
11.0
8.5
10.7
26.3
6.2
43.6
21.7
7.3
2.4
39.8
0
3
0
0
1
1
45
0
688
3
0
742
0.7
2.7
2.8
4.9
5.5
9.6
33.6
8.1
41.9
34.0
12.3
37.8
0
2
2
1 Impaired and defaulted assets are excluded from this table (RWA in December 2013, CHF 9 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
CHF million, except where indicated 1
Investment grade
Rating 0
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Sub-Investment grade
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Rating 11
Rating 12
Rating 13
Total 31.12.12 (Basel 2.5)
Regulatory net
credit exposure
of which: loan
commitments
Average
PD in % 2
Average
LGD in %
RWA
Average risk
weight in %
31.12.12
127
1
19
61
102
32
357
1,337
11
4
0
2,051
0.0
0.1
0.2
0.4
0.6
1.0
1.7
2.7
4.6
7.8
22.0
2.2
20.0
20.0
8.6
7.1
29.6
30.4
42.8
42.0
26.6
16.7
9.8
38.5
4
0
1
3
27
21
200
469
5
1
0
730
2.8
4.7
3.6
4.3
26.9
64.1
55.9
35.2
42.9
25.1
26.0
35.6
2
2
1 Impaired and defaulted assets are excluded from this table (RWA in December 2012, CHF 10 million). Refer to the “Risk management and control” section of this report for impaired and defaulted figures. 2 Average PD
for the internal rating categories are based on median values.
580
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 rat-
ings-based approach has been granted by FINMA. The standard-
ized approach requires banks to use risk assessments prepared by
external credit assessment institutions (ECAI) or export credit
agencies to determine the risk weightings applied to rated coun-
terparties. We use FINMA-recognized ECAI risk assessments to
determine the risk weightings for certain counterparties accord-
ing to the BIS-defined exposure segments
We use three FINMA-recognized ECAI for this purpose: Standard
& Poor’s Ratings Group, Moody’s Investors Service and Fitch Ratings.
The mapping of external ratings to the standardized approach risk
weights is determined by FINMA and published on its website.
Table 10: 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 according to BIS-defined exposure seg-
ments for those credit exposures for which we apply the standardized approach.
Total exposure
Total exposure
0%
> 0–35%
36–75%
76–100%
150%
31.12.13
CHF million
Risk weight
Regulatory gross credit exposure
Corporates
Sovereigns
Banks
Central Counterparties
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.13
Total 31.12.12 (Basel 2.5)
Regulatory net credit exposure
Corporates
Sovereigns
Banks
Central Counterparties
Retail
Residential mortgages
Lombard lending
Other retail
Total 31.12.13
Total 31.12.12 (Basel 2.5)
114,132
5,982
0
3,332
18,101
1,080
240
2,609
4,522
110
114,132
104,104
31,936
12,558
114,132
5,982
0
3,331
18,100
2,220
6,258
6,601
1,071
240
2,609
4,522
110
114,132
104,104
31,935
12,540
2,218
6,248
6,601
17,773
132
147
10
6
358
4
18,297
19,576
0
0
132
265
11,676
118
0
0
147
10
6
15
4
11,857
14,498
118
249
31.12.12
(Basel 2.5)
25,730
104,354
6,078
24,967
114,518
5,950
18,107
4,989
4,606
2,224
170,754
18,848
114,518
5,950
18,106
2,337
143,104
21,604
104,354
6,073
4,646
3,625
2,222
164,290
2,336
137,992
581
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 11: 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 stan-
dardized approach, according to BIS-defined exposure segments.
CHF million
Exposure segment
Corporates
Sovereigns
Banks
Central Counterparties
Retail
Residential mortgages
Lombard lending
Other retail
Total
Regulatory net credit exposure
under standardized approach
Eligible financial collateral recognized
in capital calculation1
31.12.12
(Basel 2.5)
31.12.13
31.12.12
(Basel 2.5)
31.12.13
18,848
114,518
5,950
18,106
21,604
104,354
6,073
4,646
3,625
2,222
164,290
2,336
137,992
7,668
25
500
887
343
22
9,444
6,821
37
1,436
981
0
9,275
1 Reflects the impact of the application of regulatory haircuts for exposures not covered under an internal exposure model. The eligible financial collateral recognized in the capital calculation is based on the difference
between the IFRS reported values and the regulatory net credit exposure. In 2013, the eligible financial collateral recognized under standardized approach for exposures covered under internal exposure models was re-
stated as of 31 December 2012 from CHF 8,643 million to CHF 9,275 million.
Impairment, default and credit loss
The “Risk management and control” section of this report provides more information on the impaired, default and credit loss related
disclosures.
➔ Refer to “Note 12 Allowances and provisions for credit losses” in the “Financial information” section of this report for more information
582
Derivatives credit risk
Table 12: Credit exposure of derivative instruments
This table provides an overview of our credit exposures arising
from derivatives. Exposures are provided based on the balance
sheet carrying values of derivatives as well as regulatory net cred-
it exposures. The net balance sheet credit exposure differs from
the regulatory net credit exposures because of differences in valu-
ation methods, netting and collateral deductions used for ac-
counting and regulatory capital purposes. Net current credit expo-
sure 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
31.12.13
245,835
(184,994)
(33,567)
27,274
45,718
38,906
6,812
27,900
5,490
50
127
33,567
31.12.12
(Basel 2.5)
418,029
(327,320)
(55,890)
34,818
53,576
44,135
9,441
49,382
6,236
101
171
55,890
583
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Other credit risk information
Our credit derivatives trading is predominantly on a collateralized
basis. This means that our mark-to-market exposures arising from
derivatives 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 rat-
ings, for example a large bank or broker-dealer, is typically con-
ducted under an International Swaps and Derivatives Association
(ISDA) master netting agreement. Credit exposures to those coun-
terparties from credit default swaps (CDS), together with expo-
sures 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 generally 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 generally
takes the form of cash or highly liquid debt securities, is available
to cover any amounts due under those derivative transactions.
The CDS settlement risk, including payment risk of CDS, has
been mitigated to some extent by the development of a mar-
ket-wide credit event auction process, which results in a wider use
of cash settlement of CDS. We did not have any significant losses
from failed settlements of CDS contracts in 2013.
Table 13: Credit derivatives 1, 2
This table provides an overview of the notional amount of credit derivatives, including those used to manage risks within our banking
and trading books.
Notional amounts, CHF million
Credit default swaps
Total rate of return swaps
Options and warrants
Total 31.12.13 3
Total 31.12.12 (Basel 2.5)
Regulatory banking book
Regulatory trading book
Total
Protection
bought
Protection
sold
22,525
151
22,676
13,711
3,307
3,307
119
Total
25,832
151
25,983
13,831
Protection
bought
Protection
sold
Total
31.12.13
31.12.12
(Basel 2.5)
520,382
522,446
1,042,828
1,068,660
2,135,451
5,222
3,597
809
61
6,031
3,658
6,182
3,658
5,736
3,559
529,200
523,317
1,052,517
1,078,500
1,070,580
1,060,336
2,130,916
2,144,747
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 posi-
tive exposure (or exposure according to current exposure method) is taken. 2 Notional amounts are reported based on regulatory scope of consolidation and only include amounts related to PRV and NRV. 3 The year-end
2013 numbers are based on a revised methodology for presenting credit derivatives in the trading book versus the banking book. Prior periods were not restated. The treatments of credit derivatives under Pillar 1 are unchanged.
584
Equity instruments in the banking book
The regulatory capital view for equity instruments in the banking
book differs from the IFRS view primarily due to the following:
– Differences in the basis of valuation, for example financial in-
vestments available-for-sale are subject to fair value account-
ing under IFRS but have to be treated under the “lower of cost
or market” or “cost less impairment” concept for regulatory
capital purposes.
– The use of different frameworks to determine regulatory capi-
tal. Positions held in trading book, for example, are treated
under market risk value-at-risk (VaR).
– Differences in the scope of consolidation.
➔ Refer to “Scope of regulatory consolidation” in this section for
more information
Table 14: Equity instruments in the banking book
The table below shows the different equity instruments categories
held in the banking book with their amounts as disclosed under
IFRS, followed by the regulatory capital adjustment amount. This
adjustment considers the abovementioned differences to IFRS re-
sulting in the total regulatory equity instruments exposure under
the BIS framework, the corresponding RWA and the capital charge.
The table also shows net realized gains and losses and unrealized
revaluation gains relating to equity instruments.
CHF million
Equity instruments
Financial investments available-for-sale
Financial assets designated at fair value
Investments in associates
Total equity instruments under IFRS
Regulatory capital adjustment 1
Total equity instruments under regulatory capital
of which: to be risk-weighted
publicly traded
privately held 2, 3
not deducted in application of threshold, but risk-weighted at 250%
of which: deduction from common equity tier 1 capital 4
RWA according to simple risk-weight method 5
Capital requirement according to simple risk-weight method 5
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
31.12.13
31.12.12
(Basel 2.5)
649
842
1,491
885
2,376
132
1,225
674
344
4,999
428
772
122
11
5
572
25
858
1,455
1,223
2,678
184
1,198
N/A
1,297
2,972
238
1,535
122
41
18
1 Includes CHF 805 million investment fund units treated under debt investment under IFRS and other adjustments mainly due to trading book positions not treated under VaR, differences in the scope of consolidation and
in the basis of valuation. 2 Includes CHF 509 million exposure booked in trust entities that did not generate risk-weighted assets (CHF 584 million on 31 December 2012). 3 Includes equity investments in companies
active in the banking and finance business where UBS owns less than 10% of the entity’s common equity. 4 Under Basel III, goodwill of investments in associates is deducted from common equity tier 1 capital. 5 The
risk-weighted assets of CHF 5 billion and the capital requirements of CHF 0.4 billion, as of 31 December 2013, are also disclosed in the “Equity instruments in the banking book” line of “Table 2: Detailed segmentation
of Basel III exposures and risk-weighted assets.”
585
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Market risk
The market risk related Pillar 3 disclosures that were shown previously in the Pillar 3 report are consolidated in the “Risk management
and control” section of this report.
586
Securitization
This section provides details of traditional and synthetic securitiza-
tion exposures in the banking and trading book based on the
Basel III framework. Under this framework, low-rated and / or
unrated securitization exposures are no longer deducted from el-
igible capital as used to be the case under Basel 2.5 but are in-
stead risk-weighted with a 1,250% factor. Other securitized ex-
posures continue to be risk-weighted, generally, based on their
external ratings. This section also provides details of the regulato-
ry capital requirement associated with these exposures.
In a traditional securitization, a pool of loans (or other debt
obligations) is typically transferred to structured entities that have
been established to own the loan pool and to issue tranched secu-
rities to third-party investors referencing this pool of loans. In a
synthetic securitization, legal ownership of securitized pools of as-
sets is typically retained, but associated credit risk is transferred to
structured entities typically through guarantees, credit derivatives
or credit-linked notes. Hybrid structures with a mix of traditional
and synthetic features are disclosed as synthetic securitizations.
We act in different roles in securitization transactions. As orig-
inator, we create or purchase financial assets, which are then se-
curitized in traditional or synthetic securitization transactions, en-
abling us to transfer significant risk to third-party investors. As
sponsor, we manage, provide financing or advise securitization
programs. In line with the Basel framework, sponsoring includes
underwriting, that is, placing securities in the market. In all other
cases, we act in the role of investor by taking securitization posi-
tions.
Basel III RWA attributable to securitization positions increased
to CHF 10.2 billion as of 31 December 2013 from CHF 7.1 billion
as of 31 December 2012 based on our Basel 2.5 RWA for securi-
tizations. As of 31 December 2013, RWA for securitizations in
Non-core and Legacy Portfolio stood at CHF 9.5 billion. This in-
crease in the RWA due to the revised regulatory treatment of the
low-rated or unrated securitization exposures, which are
risk-weighted at 1,250% under Basel III, was offset mainly by
sales and redemptions of student loan auction rate securities and
commercial mortgage-backed securities during 2013. The expo-
sures shown under other business divisions are all in the Invest-
ment Bank except for some positions deemed immaterial (based
on RWA) relating to Wealth Management Americas.
➔ Refer to “Note 30 Interests in subsidiaries and other entities” in
the “Financial information” section of this report for more
information on structured entities
➔ Refer to the tables “Composition of Non-core” and “Composition
of Legacy Portfolio” in the “Risk management and control”
section of this report for more information
Table 15: Securitization / resecuritization
Basel III (phase-in)
CHF million
Securitization / re-securitization in the banking book
CC – Non-core and Legacy Portfolio
Other business divisions
Securitization / re-securitization in the trading book
CC – Non-core and Legacy Portfolio
Other business divisions
Basel 2.5
CHF million
Securitization / re-securitization in the banking book
Securitization / re-securitization in the trading book
Gross EAD
12,569
8,767
3,803
2,098
1,896
202
Gross EAD
16,537
7,646
31.12.13
31.12.12
Net EAD
11,928
8,125
3,803
1,966
1,799
167
Net EAD
14,995
6,453
RWA
8,352
7,772
580
1,799
1,711
89
RWA
5,497
1,639
Capital
requirement
715
666
50
154
147
8
Capital
requirement
440
131
587
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Objectives, roles and involvement
Securitization in the banking book
Securitization positions held in the banking book include tranches
of synthetic securitization of loan exposures and over-the-counter
derivatives. These were primarily hedging transactions executed in
2013 and 2012 by synthetically transferring counterparty credit
risk. In addition, securitization in the banking book includes lega-
cy risk positions, some of which were (i) reclassified under IFRS
from Held for trading to Loans and receivables in the fourth quar-
ter of 2008 and the first quarter of 2009, or (ii) classified as Loans
and receivables when acquiring student loan auction rate securi-
ties from clients. As of 31 December 2013, this portfolio included
student loan auction rate securities, collateralized debt obliga-
tions and collateralized loan obligations, some of which have
credit default swap protection purchased from monoline insurers,
as well as commercial mortgage-backed securities, residential
mortgage-backed securities and reference-linked note programs.
In addition, credit-risk hedging transactions in 2013 and 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 2013, we acted in the roles of both originator and sponsor.
As originator, we sold originated commercial mortgage loans into
securitization programs. As sponsor, we managed or advised se-
curitization programs and helped to place the securities in the
market. Refer to “Table 16: Securitization activity of the year in
the banking book” for an overview of our originating and spon-
soring activities in 2013 and 2012, respectively.
Securitization and re-securitization positions in the banking
book are measured either at fair value or at amortized cost less
impairment. The impairment assessment for a securitized position
is generally based on the net present value of future cash flows
expected 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 mar-
ket-making and client facilitation. During 2013 we were also in-
volved in the placement of securitized assets originated by other
institutions in the market, that is, we acted in the role of a spon-
sor. In one case, we provided warehouse financing to collateral-
ized loan obligation managers but did not retain any positions
from this type of sponsored deal. “Table 17: Securitization activity
of the year in the trading book” provides an overview of our orig-
inating and sponsoring activities in full year 2013 and 2012, re-
spectively. Included in the trading book are positions in our cor-
relation book and legacy positions in leveraged super senior
tranches. In the trading book, securitization and re-securitization
positions are measured at fair value reflecting market prices where
available or are based on our internal pricing models.
Type of structured entities and affiliated entities involved in
the securitization transactions
For the securitization of third-party exposures, the type of struc-
tured entities 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 structured enti-
ties that we sponsor. Significant groups of affiliated entities in-
clude North Street, Brooklands / ELM, and East Street, which are
involved in the US, European and Asia Pacific reference-linked
note programs, respectively.
➔ Refer to “Note 30 Interests in subsidiaries and other entities” in
the “Financial information” section of this report for more
information on structured entities
➔ Refer to the tables “Composition of Non-core” and “Composition
of Legacy Portfolio” in the “Risk management and control”
section of this report for more information on RWA by exposure
category
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 our 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-
588
tion positions are governed by risk limits together with any other
trading positions. Legacy trading book securitization exposure is
subject to the same management VaR limit framework. Addition-
ally, risk limits are used to control the unwind, novation and asset
sales process on an ongoing basis.
Regulatory capital treatment of securitization structures
Generally, in both the banking and trading book we apply the
ratings-based approach to securitization positions using ratings, if
available, from Standard & Poor’s, Moody’s and Fitch for all secu-
ritization and re-securitization exposures. The selection of the Ex-
ternal Credit Assessment Institutions (ECAI) is based on the prima-
ry rating agency concept. This concept is applied, in principle, to
avoid that the credit assessment by one ECAI is applied for one or
more tranches and another ECAI for the other tranches unless this
is the result of the application of the specific rules for multiple
assessments. If any two of the abovementioned rating agencies
have issued a rating for a particular position, we would apply the
lower credit rating of the two. If all three rating agencies have is-
sued a rating for a particular position, we would apply the middle
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 underly-
ing assets had they not been securitized. This treatment has been
applied in particular to the US and European reference-linked
note programs. For the purposes of determining regulatory capi-
tal and the Pillar 3 disclosure for these positions, the underlying
exposures are reported under the standardized approach, the ad-
vanced internal ratings-based approach or the securitization ap-
proach, depending on the category of the underlying security. If
the underlying security is reported under the standardized
approach or the advanced 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-
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.
In the trading book, the comprehensive risk measure is used
for the correlation portfolio as defined by Basel III requirements.
This measure broadly covers securitizations of liquid corporate un-
derlying assets as well as associated hedges that are not necessar-
ily securitizations, 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 deriv-
atives with securitization vehicles is treated under the advanced
internal ratings-based approach and is therefore not part of this
disclosure.
Accounting policies
Refer to “Note 1 Summary of significant accounting policies” in
the “Financial information” section of this report for information
on our accounting policies that relate to our securitization activi-
ties, primarily “Note 1a) 3) Subsidiaries and structured entities”
and “Note 1a) 12) Securitization structures set up by UBS.”
We disclose our intention to securitize exposures as an origina-
tor if assets are designated for securitization and a tentative pric-
ing date for a transaction is known as of the balance sheet date
or if a pricing of a transaction has been fixed. 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 and 2010, and this report
complies with that publication in all material respects.
589
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Securitization in the banking and trading book
Tables 16 and 17 outline the exposures, that is, the transaction
size at inception we securitized in the banking and trading book
during 2013 and 2012. The activity is further broken down by our
role (originator / sponsor) and by type (traditional / synthetic).
Amounts disclosed under the Traditional column of these ta-
bles 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,
exposures are split into two parts, those in which we have re-
tained securitization positions and / or continue to be involved on
an ongoing basis (for example credit enhancement or implicit sup-
port), and those in which we have no retained securitization posi-
tions and / or have no further involvement.
Where we acted as both originator and sponsor to a securiti-
zation, 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 2013 and 31 De-
cember 2012, amounts of CHF 2.5 billion and CHF 3.8 billion,
respectively, were included in “Table 16: Securitization activity of
the year in the banking book” under both Originator and Spon-
sor and “Table 18: Outstanding securitized exposures.”
Table 16: Securitization activity of the year in the banking book
Originator
Sponsor
Traditional
Synthetic
Securitization
positions retained
No securitization
positions retained
Securitisation
positions retained
No securitization
positions retained
Realized
gains / (losses) on
traditional
securitizations
Traditional
Synthetic
1,331
1,199
97
7,580
1,331
1,199
876
876
0
3,768
97
166
7,580
0
7,189
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 31.12.13
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
6,735
6,735
0
166
7,189
0
Total 31.12.12 (Basel 2.5)
3,768
0
590
Table 17: 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
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 31.12.13
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
1,033
1,033
0
Total 31.12.12 (Basel 2.5)
0
0
0
0
0
1 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 other-
wise impact our capital. On this basis we did not report any securitization activity in the year 2013.
591
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 18: Outstanding securitized exposures
This table outlines exposures (that is, outstanding transaction size)
in which we have originated / sponsored and retained securitiza-
tion positions at the balance sheet date in the banking or trading
book and/or are otherwise involved on an ongoing basis (for ex-
ample credit enhancement, implicit support).
Amounts disclosed under the Traditional column in this table
reflect the total outstanding notes at par value issued by the secu-
ritization 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
2013 and 2012 in which we retained / purchased positions. These
can also be found in “Table 16: Securitization activity of the year
in the banking book” and “Table 17: Securitization activity of the
year in the trading book.” Where no positions were retained, the
outstanding transaction size is only disclosed in the year of incep-
tion for originator transactions.
All values in this table are as of the balance sheet date.
Banking Book
Trading Book 1, 2
Originator
Sponsor
Originator
Sponsor
Traditional
Synthetic
Traditional
Synthetic
Traditional
Synthetic
1,324
Synthetic
Traditional 3
4,871
15,323
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 31.12.13
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 (Basel 2.5)
658
2,529
585
3,772
1,288
3,768
390
8,659
9,049
840
5,896
782
8,590
9,372
158
18,592
553
741
6,788
3,426
754
31,011
2,474
14,772
0
306
394
0
13,296
0
3,489
2,801
37,532
770
181
951
0
1,505
951
20,963
0
554
1,779
0
2,333
976
976
7,578
17,989
908
2,604
1,236
30,315
0
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. This interim relief is
granted until 31 December 2013. After the transition period both net long and net short positions require capital underpinning. 2 In line with our disclosure principles we disclose the UBS originated and sponsored
deals only where the positions result in an RWA or capital deduction under Pillar 1. 3 The scope of this disclosure is 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.
592
Table 19: 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 as well as 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 un-
der the Basel III framework for the retained or purchased posi-
tions.
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
31.12.13
31.12.12 (Basel 2.5)
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
323
0
21
793
321
307
50
680
115
115
1,134
11
3
0
0
15
Impaired or
past due in
securitized
exposures
791
373
67
1,232
Recognized
losses in
income
statement
Impaired or
past due in
securitized
exposures
Recognized
losses in
income
statement
0
1
1
67
68
468
761
0
787
2,016
0
0
8
0
1
9
Table 20: 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
31.12.13
31.12.12 (Basel 2.5)
Banking Book
Trading Book
Banking Book
Trading Book
447
0
0
447
0
593
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 21: 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 value disclosed is the net exposure amount at default subject to risk-weighting 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, 2
31.12.13
31.12.12 (Basel 2.5)
On balance sheet
Off balance sheet
On balance sheet
Off balance sheet
541
351
43
349
1
1,060
948
8,403 3
11,696
600
553
47
240
1
3,892
800
9,334 3
15,466
161
71
232
147
33
180
1 The total exposure of CHF 11.9 billion as of 31 December 2013 is also disclosed in “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets” in line “Securitization / re-securitization in the bank-
ing book.” 2 The total exposure of CHF 15.0 billion as of 31 December 2012 is also disclosed in “Table 2: Detailed segmentation of Basel 2.5 exposures and risk-weighted assets” in line “Securitization / re-securitiza-
tion in the banking book” and excludes the deductions compared with the 31 December 2012 numbers shown above (CHF 15.6 billion). 3 “Other” primarily includes securitization of portfolios of counterparty credit
risk in over-the-counter (OTC) derivatives and loan exposures.
594
Table 22: 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 securiti-
zation 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 III. The amounts disclosed are either the fair
value or, in the case of derivative positions, the aggregate of the
notional amount and the associated replacement value at the bal-
ance 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 31.12.13 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 31.12.12 1, 2 (Basel 2.5)
Gross long
Gross short
Gross long
Gross short
86
462
0
37
16
601
49
869
3
7
1
411
15
1,355
2
0
0
1
0
3
25
3
1
29
1,036
847
1,196
1,341
45
269
2,197
1,066
5,871
72
269
2,878
1,175
6,704
235
7,172
551
8,430
Net long 3
109
477
Net short
199
508
9
16
611
141
923
3
7
1
168
14
1,257
8
715
125
926
81
1
1,134
1 Leveraged super senior tranches (subject to the securitization framework) are not included in this table, but disclosed in “Table 27: Correlation products subject to the comprehensive risk measure or the securitization
framework for specific risk.” 2 The total exposure of CHF 6.4 billion as of 31 December 2012 is also disclosed in “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets” in line “Securitiza-
tion / re-securitization in the trading book” and excludes the deductions compared with the 31 December 2012 numbers shown above (CHF 1.2 billion) and the leveraged super senior tranches as per footnote 1. 3 The
net exposure at default of CHF 2.0 billion as of 31 December 2013 disclosed in “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets” (line “Securitization / re-securitization exposures”) com-
prises total net long position of CHF 0.6 billion (included in this table) and CHF 1.4 billion for leveraged super senior tranches.
595
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 23: Capital requirement for securitization / resecuritization 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 banking
book, irrespective of our role in the securitization transaction, split by risk weight bands and regulatory capital approach. We disclose
securitization and re-securitization positions which were previously deducted from capital under Basel 2.5 in the 1,250% risk-weight-
ing band from 2013 onwards.
31.12.13
31.12.12 (Basel 2.5)
Ratings-based
approach
Supervisory formula
approach
Ratings-based
approach
Supervisory formula
approach
Securitization
securitization Securitization
Re-
Re-
securitization
Securitization
Re-
securitization
25
8
3
17
14
21
99
308
494
0
29
0
2
8
65
28
132
72
17
89
54
7
4
17
23
44
114
263
0
Re-
securitization
Securitization
49
5
9
1
23
65
103
49
0
CHF million
over 0–20%
over 20–35%
over 35–50%
over 50–75%
over 75–100%
over 100–250%
over 250–1,249%
1,250%
Total 1, 2
1 Refer to “Table 2: Detailed segmentation of Basel III exposures and risk-weighted assets.” On 31 December 2013, CHF 8.4 billion banking book securitization exposures translated to an overall capital requirement of
CHF 0.7 billion. 2 On 31 December 2012, CHF 5.5 billion banking book securitization exposures translated to a capital requirement of CHF 0.4 billion without applying a scaling factor of 1.06.
Securitization exposures to be deducted from
Basel III tier 1 capital
In 2013 and 2012, we have not retained any significant exposures
relating to securitization for which we have recorded gains on
sale.
Securitization exposures subject to early amortization in the
banking and trading book
In 2013 and 2012, we had no securitization structures in the
banking and trading book that are subject to early amortization
treatment.
596
Table 24: Resecuritization 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 III regula-
tions.
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 31.12.13
Total 31.12.12 (Basel 2.5)
With credit risk
mitigation
Without credit risk
mitigation
1,109
947
Re-securitization positions with integrated insurance wrapper broken down according to guarantor credit worthiness categories 1
CHF million
0–5
6–13
14
Total 31.12.13
0–5
6–13
14
Total 31.12.12 (Basel 2.5)
1 Internal UBS rating.
Investment grade
Sub-investment grade
Defaulted
Investment grade
Sub-investment grade
Defaulted
Total
1,109
947
1
1
22
22
597
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 25: Resecuritization 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 III. The lower part of the table discloses the total re-securiti-
zation positions which have an integrated insurance wrapper, split
by positions with investment grade, sub-investment grade and
defaulted insurance. As of 31 December 2013, none of the re-
tained or purchased trading book re-securitization positions had
an integrated insurance wrapper.
CHF million
Total 31.12.13
Total 31.12.12 (Basel 2.5)
Gross long
Gross short
Net long
Net short
82
646
73
554
9
168
Re-securitization positions with integrated insurance wrapper broken down according to guarantor credit worthiness categories 1
CHF million
0–5
6–13
14
Total 31.12.13
0–5
6–13
14
Total 31.12.12 (Basel 2.5)
1 Internal UBS rating.
Investment grade
Sub-investment grade
Defaulted
Investment grade
Sub-investment grade
Defaulted
0
42
2
25
69
0
46
0
18
64
0
3
2
10
15
598
8
81
0
7
3
10
Table 26: 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. The table does not include positions from current year securitizations (where UBS was originator) unless they were retained at
year-end. Disclosure is made only where we have retained positions in the trading book. The amount disclosed is the notional amount
of the outstanding notes issued by the securitization vehicle at the balance sheet date.
CHF million
Residential mortgages
Commercial mortgages
Credit card receivables
Leasing
Loans to corporates or small and medium-sized enterprises
Consumer loans
Student loans
Trade receivables
Re-securitizations
Other
Total 31.12.13 1, 2
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 2 (Basel 2.5)
Originator
Sponsor
Synthetic
Traditional
Synthetic
4,871
15,323
770
20,693
7,578
17,989
908
2,604
1,236
30,315
951
951
976
976
0
0
Traditional
1,324
181
1,505
554
1,779
2,333
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. This interim relief is
granted until 31 December 2013. As of 1 January 2014, both net long and net short positions require capital underpinning. 2 In line with our disclosure principles, we disclose the UBS originated and sponsored deals
only where the positions result in a RWA or capital deduction under Pillar 1.
Table 27: 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 subject to either 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. The
reduction in replacement values and notionals is a result of expi-
ration or sales of positions in our correlation book.
31.12.13
CHF million
Positions subject to comprehensive risk measure
Positions subject to securitization framework 1
31.12.12 (Basel 2.5)
Positions subject to comprehensive risk measure
Positions subject to securitization framework 1
1 Includes leveraged super senior tranches.
Cash positions
Derivative positions
Assets
Liabilities
Assets
Liabilities
Market
value
71
Market
value
615
Positive
replacement
value
Positive
replacement
value
notionals
Negative
replacement
value
998
88
30,645
5,970
1,298
1
Negative
replacement
value
notionals
20,532
1,465
191
1,748
4,518
152
110,653
12,316
4,949
52
91,266
20,810
599
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 28: 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 III. We disclose securitization positions which were previously deducted from capital under Basel 2.5 in the
1,250% risk-weighting band from 2013 onwards.
31.12.13
31.12.12 (Basel 2.5)
Ratings-based
approach
Supervisory formula
approach
Ratings-based
approach
Supervisory formula
approach
CHF million
over 0–20%
over 20–35%
over 35–50%
over 50–75%
over 75–100%
over 100–250%
over 250–1,249%
1,250%
Total 2
Net
long
367
Net
short
715 1
Capital
require-
ment
Net
long
Net
short
Capital
require-
ment
4
0
2
2
3
2
Net
short
987 1
Net
long
449
293
135
38
93
20
29
118
132
715
0
0
0
1,057
987
Capital
require-
ment
Net
long
Net
short
Capital
require-
ment
7
7
5
2
7
4
12
45
0
0
0
16
37
32
38
10
1
109
611
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. This interim relief is
granted until 31 December 2013. After the transition period both net long and net short positions require capital underpinning. The amount disclosed under net short is for information only, i.e., a 0% risk-weight was
applied. 2 Leveraged super senior tranches (subject to the securitization framework) are not included in this table, but disclosed in “Table 27: Correlation products subject to the comprehensive risk measure or the se-
curitization framework for specific risk.”
Table 29: Capital requirement 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.”
31.12.13
Capital
requirement
358
23
381
31.12.12
(Basel 2.5)
Capital
requirement
714
86
800
CHF million
Positions subject to comprehensive risk measure
Positions subject to securitization framework 1
Total
1 Leveraged super senior tranches.
600
Composition of capital
With the objective of mitigating the risk of inconsistent disclosure
formats undermining market participants’ ability to compare cap-
ital adequacy of banks across jurisdictions, the Basel Committee
on Banking Supervision and FINMA require banks to publish their
capital positions according to common templates. The following
tables provide the required information. In addition to the recon-
ciliation provided in the following tables, an overview of the main
features of our regulatory capital instruments as well as the full
terms and conditions of those capital instruments are published in
the “Bondholder information” section of our Investor Relations
website.
➔ Refer to “Bondholder information” at www.ubs.com/investors
for more information on the capital instruments of UBS Group
and UBS AG (Parent Bank)
Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of consolidation
The table below provides a reconciliation of the IFRS balance sheet to the balance sheet according to the regulatory scope of consoli-
dation. Lines in the balance sheet under the regulatory scope of consolidation are expanded and referenced where relevant to display
all components that are used in “Table 31: Composition of capital.”
According to the
financial statement
Effect of deconsol-
idated entities
for regulatory
consolidation
Effect of additional
consolidated enti-
ties for regulatory
consolidation
According to the
regulatory consoli-
dation scope
References 1
CHF million
Cash and balances with central banks
Due from banks
Cash collateral on securities borrowed
Reverse repurchase agreements
Trading portfolio assets
Positive replacement values
Cash collateral receivables on derivative instruments
Financial assets designated at fair value
Loans
Financial investments available-for-sale
Consolidated participations
Investments in associates
of which: goodwill
Property and equipment
Goodwill and intangible assets
of which: goodwill
of which: intangible assets
Deferred tax assets
of which: deferred tax assets recognized for tax loss carry-forwards,
less deferred tax liabilities, as applicable
of which: deferred tax assets on temporary differences,
less deferred tax liabilities, as applicable
Other assets
of which: net defined benefit pension and other post-employment assets
31.12.13
80,879
17,170
27,496
91,563
122,848
245,835
28,007
7,364
286,959
59,525
0
842
344
6,006
6,293
5,842
451
8,845
6,267
2,577
20,228
952
(0)
(591)
(16,538)
23
198
(58)
205
(87)
(0)
9
2
7
(176)
Total assets
1,009,860
(17,015)
1 References link respective lines of this table to the respective reference numbers provided in the column “References” in “Table 31: Composition of capital.”
80,879
16,579
27,496
91,563
106,310
245,858
28,007
7,364
287,156
59,467
205
842
344
5,919
6,293
5,842
451
8,854
6,270
2,584
20,056
952
992,849
4
4
4
4
5
9
10
601
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory scope of
consolidation (continued)
According to the
financial statement
Effect of deconsol-
idated entities
for regulatory
consolidation
Effect of additional
consolidated enti-
ties for regulatory
consolidation
According to the
regulatory consoli-
dation scope
References 1
CHF million
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
of which: amount eligible for low-trigger loss-absorbing tier 2 capital 2
of which: amount eligible for capital instruments subject to
phase-out from additional tier 1 capital 3
of which: amount eligible for capital instruments subject to
phase-out from tier 2 capital 4
Provisions
Other liabilities
of which: amount eligible for high-trigger loss-absorbing tier 2 capital
(Deferred Contingent Capital Plan (DCCP)) 5
Total liabilities
Share capital
Share premium account
Treasury shares
Contracts on UBS shares with liability treatment
Retained earnings
Cumulative net income recognized directly in equity, net of tax
of which: unrealized (gains) / losses from cash flow hedges
Equity attributable to UBS shareholders
Equity attributable to preferred noteholders and equity attributable to
non-controlling interests
of which: capital instruments subject to phase-out from additional tier 1 capital 2
Total equity
Total liabilities and equity
31.12.13
12,862
9,491
13,811
26,609
239,953
49,138
69,901
390,825
81,586
4,710
1,220
2,971
2,971
62,777
385
959,925
384
33,952
(1,031)
(46)
24,475
(9,733)
1,463
48,002
1,934
1,893
49,936
1,009,860
(49)
(53)
226
38
205
(34)
(5)
(17,288)
(16,959)
(2)
1
(184)
129
0
(57)
1
(55)
(17,015)
1
1
2
3
2
(1)
(1)
1
1
4
12,813
9,491
13,811
26,556
240,179
49,138
69,939
391,031
81,552
4,710
1,220
2,971
2,966
45,491
385
942,969
384
33,952
(1,031)
(46)
24,291
(9,605)
1,463
47,946
1,935
1,893
49,881
992,849
7
6
8
7
1
1
3
3
2
3
11
6
1 References link respective lines of this table to the respective reference numbers provided in the column “References” in “Table 31: Composition of capital.” 2 Represent IFRS book value. 3 IFRS book value is CHF
1,221 million. 4 IFRS book value is CHF 5,109 million. 5 Represent IFRS book value. Refer to the “Compensation” section of this report for more information on the Deferred Contingent Capital Plan.
602
Table 31: Composition of capital
The table below provides the “Composition of capital” as defined by the Basel Committee on Banking Supervision and FINMA. Refer-
ence is made to items reconciling to the balance sheet under the regulatory scope of consolidation as disclosed in “Table 30: Reconcil-
iation of accounting balance sheet to balance sheet under the regulatory scope of consolidation.” Where relevant, the effect of phase-
in arrangements is disclosed as well.
➔ Refer to the “Capital management” section of this report for more information on phase-in arrangements
CHF million, except where indicated
1
Directly issued qualifying common share (and equivalent for non-joint stock companies)
capital plus related stock surplus
Retained earnings
Accumulated other comprehensive income (and other reserves)
Directly issued capital subject to phase-out from CET1 (only applicable to non-joint stock companies)
Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1)
Common equity tier 1 capital before regulatory adjustments
Prudential valuation adjustments
Goodwill net of tax, less hybrid capital, as applicable
Intangible assets, net of tax
Deferred tax assets recognized for tax loss carry-forwards, less deferred tax liabilities, as applicable 2
Unrealized (gains) / losses from cash flow hedges, net of tax
Expected losses on advanced internal ratings-based portfolio less general provisions
Securitization gain on sale
Own credit related to financial liabilities designated at fair value and replacement values, net of tax
Defined benefit pension and post-employment assets IAS 19R, net of tax
Compensation and own shares related capital components (not recognized in net profit)
Reciprocal crossholdings in common equity
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
17a Holdings with a significant investments in the common stock
17b Consolidated investments (CET1 instruments)
18
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of
the issued share capital (amount above 10% threshold)
Significant investments in the common stock of banking, financial and insurance entities that are outside
the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold)
19
Expected losses on equity investments treated according to the PD / LGD approach
Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability)
Amount exceeding the 15% threshold
of which: significant investments in the common stock of financials
of which: mortgage servicing rights
of which: deferred tax assets arising from temporary differences
20 Mortgage servicing rights (amount above 10% threshold)
21
22
23
24
25
26
26a Other adjustments relating to the application of an internationally accepted accounting standard
26b Other deductions
27
28
29
30
31
32
33
34
of which: classified as equity under applicable accounting standards
of which: classified as liabilities under applicable accounting standards
Directly issued capital instruments subject to phase-out from additional tier 1
Additional tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and
held by third parties (amount allowed in group additional tier 1)
Regulatory adjustments applied to common equity tier 1 due to insufficient additional tier 1 and tier 2 to cover deductions
Total regulatory adjustments to common equity tier 1
Common equity tier 1 capital (CET1)
Directly issued qualifying additional tier 1 instruments plus related stock surplus
Numbers fully
applied
31.12.13
Effect of the
transition phase
31.12.13
References 1
34,336
24,291
(10,682)
47,946
(107)
(6,157) 3
(435) 3
(6,665)
(1,463)
(304)
304
(952)
(1,430)
(325)
(1,502)
(19,037)
28,908
1
2
3
4, 6
5
9
11
3,113
6,665
952
10
2,540
13,271
13,271
3,113
7
6
Additional tier 1 capital before regulatory adjustments
of which: instruments issued by subsidiaries subject to phase-out
35
36
1 References link respective lines of this table to the respective reference numbers provided in the column “References” in “Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory
scope of consolidation.” 2 The CHF 6,665 million deferred tax assets that rely on future profitability reported in line 10 differ from the CHF 6,269 million deferred tax assets shown in the line “Deferred tax assets” in
Table 30 because the latter figure is shown after the offset of deferred tax liabilities for cash flow hedge gains (CHF 363 million) and other temporary differences, which are adjusted out in line 11 and other lines of this
table. 3 The CHF 6,157 million reported in line 8 includes DTL on goodwill of CHF 29 million. The CHF 435 million reported in line 9 includes DTL on intangibles of CHF 16 million.
3,113
0
603
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
Table 31: Composition of capital (continued)
CHF million, except where indicated
37
Investments in own additional tier 1 instruments
Reciprocal crossholdings in additional tier 1 instruments
38
38a Holdings with a significant investments in the common stock
38b Holdings in companies which are to be consolidated (additional tier 1 instruments)
39
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of
the issued common share capital of the entity (amount above 10% threshold)
Significant investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation (net of eligible short positions)
National specific regulatory adjustments
Regulatory adjustments applied to additional tier 1 due to insufficient tier 2 to cover deductions
Tier 1 adjustments on impact of transitional arrangements
40
41
42
of which: prudential valuation adjustment
of which: own CET1 instruments
of which: goodwill net of tax, offset against hybrid capital
of which: other intangible assets (net of related tax liabilities)
of which: gains from the calculation of cash flow hedges
of which: IRB shortfall of provisions to expected losses
of which: gains on sales related to securitization transactions
of which: gains / losses in connection with own credit risk
of which: investments
of which: expected loss amount for equity exposures under the PD/LG approach and
under the simple risk-weighting method
of which: mortgage servicing rights
42a Excess of the adjustments which are allocated to the CET1 capital
Total regulatory adjustments to additional tier 1 capital
43
Additional tier 1 capital (AT1)
44
Tier 1 capital (T1 = CET1 + AT1)
45
46
47
48
Directly issued qualifying tier 2 instruments plus related stock surplus
Directly issued capital instruments subject to phase-out from tier 2
Tier 2 instruments (and CET1 and additional tier 1 instruments not included in rows 5 or 34)
issued by subsidiaries and held by third parties (amount allowed in group tier 2)
of which: instruments issued by subsidiaries subject to phase-out
Provisions
Tier 2 capital before regulatory adjustments
Investments in own tier 2 instruments
Reciprocal crossholdings in tier 2 instruments
49
50
51
52
53
53a Investments with a significant influence (tier 2 instruments)
53b Investments to be consolidated (tier 2 Instrumente)
54
Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of
the issued common share capital of the entity (amount above the 10% threshold)
Significant investments in the capital banking, financial and insurance entities that are outside the scope of
regulatory consolidation (net of eligible short positions)
National specific regulatory adjustments
Additional deductions on the impact of transitional arrangements (further half-half deduction)
55
56
Numbers fully
applied
31.12.13
Effect of the
transition phase
31.12.13
References 1
(3,113)
(3,113)
(3,113)
6
0
0
28,908
5,665
(3,113)
0
13,271
2,971
5,665
2,971
7 2
8
7
7
56a Excess of the adjustments which are allocated to the additional tier 1 capital
57
58
Total regulatory adjustments to tier 2 capital
Tier 2 capital (T2)
of which: high-trigger loss-absorbing capital
of which: low-trigger loss-absorbing capital
59
Total capital (TC = T1 + T2)
0
5,665
955
4,710
34,573
0
2,971
16,242
1 References link respective lines of this table to the respective reference numbers provided in the column “References” in “Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory
scope of consolidation.” 2 The CHF 5,665 million reported in line 46 includes the following positions: CHF 4,710 million low-trigger loss-absorbing tier 2 capital recognized in the line “Debt issued” in table 30,
CHF 385 million DCCP recognized in the line “Other liabilities” in table 30 and CHF 570 million recognized in DCCP-related charge for regulatory capital purpose in line 26b of this table.
604
Table 31: Composition of capital (continued)
CHF million, except where indicated
Amount with risk-weight pursuant the transitional arrangement (phase-in)
of which: defined benefit pension fund assets
of which: deferred tax assets on temporary differences
60
Total risk-weighted assets
Capital ratios and buffers
61
62
63
64
65
66
67
68
Common equity tier 1 (as a percentage of risk-weighted assets)
Tier 1 (Pos 29 as a percentage of risk-weighted assets)
Total capital (pos 45 as a percentage of risk-weighted assets)
Institution specific buffer requirement (minimum CET1 requirement plus capital conservation and countercyclical
buffer requirements plus G-SIB buffer requirement, expressed as a percentage of risk-weighted assets)
of which: capital conservation buffer
of which: bank-specific countercyclical buffer requirement
of which: G-SIB buffer requirement
Common equity tier 1 available to meet buffers (as a percentage of risk-weighted assets)
68a Common equity tier 1 requirement including countercyclical buffer according to FINMA RS 11/2
68b Available common equity tier 1 (in percentage of risk-weighted assets)
68c
Tier 1 requirement including countercyclical buffer according to FINMA RS 11/2
68d Available tier 1 (in percentage of risk-weighted assets)
68e
Total capital requirement including countercyclical buffer according to FINMA RS 11/2
68f Available total capital (in percentage of risk-weighted assets)
72
73
Non significant investments in the capital of other financials
Significant investments in the common stock of financials
74 Mortgage servicing rights (net of related tax liability)
75
Deferred tax assets arising from temporary differences (net of related tax liability)
Applicable caps on the inclusion of provisions in tier 2
76
77
78
Provisions eligible for inclusion in tier 2 in respect of exposures subject to standardised approach
(prior to application of cap)
Cap on inclusion of provisions in tier 2 under standardized approach
Provisions eligible for inclusion in tier 2 in respect of exposures subject to internal ratings-based approach
(prior to application of cap)
79
Cap for inclusion of provisions in tier 2 under internal ratings-based approach
Numbers fully
applied
Effect of the
transition phase
31.12.13
31.12.13
References 1
3,404
3,460
(56)
3,404
225,153
12.8
12.8
15.4
7.1
3.6
0.1
18.5
7.1
18.5
7.1
18.5
8.6
22.2
1,591
697
2,565
1 References link respective lines of this table to the respective reference numbers provided in the column “References” in “Table 30: Reconciliation of accounting balance sheet to balance sheet under the regulatory
scope of consolidation.”
605
Financial information Financial information
Supplemental disclosures required under Basel III Pillar 3 regulations
G-SIBs indicator
For the financial year ended 2013, all banks that qualify as global
systemically important banks (G-SIBs) are required to disclose, as
defined by the Basel Committee on Banking Supervision, the 12
indicators for assessing the systemic importance of G-SIBs. UBS,
being classified as a G-SIB in 2013, is required to comply with
these additional disclosure requirements. These 12 indicators fall
under the five categories of size, cross-jurisdictional activity, inter-
connectedness, substitutability / financial institution infrastructure
and complexity, which are weighted equally and will be used for
the G-SIB score calculation that drives the G-SIB surcharge to the
CET1 capital ratio of 1.5%.
➔ Refer to “SEC filings and other disclosures” at www.ubs.com/
investors for more information on G-SIBs indicators
606
Appendix
Abbreviations frequently used in our financial reports
A
ABS
AGM
asset-backed securities
annual general meeting of share-
holders
advanced measurement approach
articles of association
AMA
AoA
APAC Asia Pacific
ARS
auction rate securities
B
BCBS
BIS
bps
C
CC
CCF
CCP
CDO
CDR
CDS
CET1
CHF
CLN
CLO
CMBS
CVA
D
DBO
DCCP
DVA
Basel Committee on
Banking Supervision
Bank for International Settlements
basis points
Corporate Center
credit conversion factors
central counterparty
collateralized debt obligations
constant default rate
credit default swaps
common equity tier 1
Swiss franc
credit-linked notes
collateralized loan obligations
commercial mortgage-backed
securities
credit valuation adjustments
defined benefit obligation
deferred contingent capital plan
debit valuation adjustments
E
EAD
ECB
EEA
EMEA
EPS
ETD
ETF
EU
EUR
EURIBOR Euro Interbank Offered Rate
exposure at default
European Central Bank
European Economic Area
Europe, Middle East and Africa
earnings per share
exchange-traded derivatives
exchange-traded funds
European Union
euro
F
FCA
FINMA
FRA
FTD
FTP
FX
G
GAAP
GBP
G-SIB
I
IASB
IFRS
IRB
IRC
K
KPI
L
LAC
LAS
LCR
LGD
LIBOR
LRD
LTV
UK Financial Conduct Authority
Swiss Financial Market
Supervisory Authority
forward rate agreements
first to default swaps
funds transfer price
foreign exchange
generally accepted accounting
principles
British pound
global systemically important
banks
International Accounting Standards
Board
International Financial Reporting
Standards
internal ratings-based
incremental risk charge
key performance indicator
loss-absorbing capital
liquidity adjusted stress
Liquidity Coverage Ratio
loss given default
London Interbank Offered
Rate
leverage ratio denominator
loan-to-value
O
OECD
OCI
OTC
P
PD
PRA
PRV
R
RBC
RLN
RMBS
RoAE
RoE
RV
RWA
S
SE
SEC
SNB
SRB
U
UK
US
USD
V
VaR
Organization for Economic
Cooperation and Development
other comprehensive income
over-the-counter
probability of default
UK Prudential Regulation
Authority
positive replacement values
risk-based capital
reference-linked notes
residential mortgage-backed
securities
return on attributed equity
return on equity
replacement values
risk-weighted assets
structured entity
US Securities and Exchange
Commission
Swiss National Bank
systemically relevant banks
United Kingdom
United States of America
US dollar
value-at-risk
M
MTN medium-term notes
N
NAV
NRV
NSFR Net Stable Funding Ratio
net asset value
negative replacement values
607
Appendix
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 Group strategy and performance, the strategy
and performance of the business divisions and the Corporate
Center, risk, treasury and capital management, corporate gover-
nance, responsibility and senior management compensation, (in-
cluding compensation to the Board of Directors and the Group
Executive Board members) and financial information, including
the financial statements. Review (SAP no. 80530): The booklet
contains key information on our strategy and financials. It is pub-
lished in English, German, French and Italian. Compensation Re-
port (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 pro-
vides 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 quarter. It is published in English.
How to order reports: The annual and quarterly publications are
available in PDF format on the internet at www.ubs.com/investors
in the “Financial information” section. Printed copies can be or-
dered from the same website in the “Investor services” section,
which can be accessed via the link on the left-hand side of the
screen. Alternatively, they can be ordered by quoting the SAP
number and the language preference where applicable, from UBS
AG, F4UK–AUL, P.O. Box, CH-8098 Zurich, Switzerland.
Website: The “Investor Relations” website at www.ubs.com/
investors provides the following information on UBS: news releas-
es, financial information (including results-related filings with the
US Securities and Exchange Commission), corporate information,
including UBS share price charts and data and dividend informa-
tion, the UBS corporate calendar and presentations by manage-
ment for investors and financial analysts. Information on the in-
ternet 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/presentations.
Messaging service / UBS news alert: On the www.ubs.com/
newsalerts website, it is possible to subscribe to receive news
alerts about UBS via SMS or e-mail. Messages are sent in English,
German, French or Italian and it is possible to state theme prefer-
ences for the alerts received.
Form 20-F and other submissions to the US Securities and
Exchange Commission: We file periodic reports and submit
other information about UBS to the US Securities and Exchange
Commission (SEC). Principal among these filings is the annual re-
port on Form 20-F, filed pursuant to the US Securities Exchange
Act of 1934. The filing of Form 20-F is structured as a “wrap-
around” document. Most sections of the filing can be satisfied by
referring to parts of the annual report. However, there is a small
amount of additional information in Form 20-F which is not pre-
sented elsewhere, and is particularly targeted at readers in the US.
Readers are encouraged to refer to this additional disclosure. Any
document that we file with the SEC is available to read and copy
on the SEC’s website, www.sec.gov, or at the SEC’s public refer-
ence room at 100 F Street, N.E., Room 1580, Washington, DC,
20549. Please call the SEC by dialing +1-800-SEC-0330 for fur-
ther information on the operation of its public reference room.
Please visit www.ubs.com/investors for more information.
608
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: (i) the degree to which UBS is successful in executing its announced strategic plans, including its efficiency initiatives
and its planned further reduction in Basel III risk-weighted assets (RWA); (ii) developments in the markets in which UBS operates or to which it is exposed, includ-
ing movements in securities prices or liquidity, credit spreads, currency exchange rates and interest rates and the effect of economic conditions and market devel-
opments on the financial position or creditworthiness of UBS’s clients and counterparties; (iii) changes in the availability of capital and funding, including any
changes in UBS’s credit spreads and ratings, or arising from requirements for bail-in debt or loss-absorbing capital; (iv) changes in or the implementation of finan-
cial legislation and regulation in Switzerland, the US, the UK and other financial centers that may impose more stringent capital (including leverage ratio), liquid-
ity and funding requirements, incremental tax requirements, additional levies, limitations on permitted activities, constraints on remuneration or other measures;
(v) uncertainty as to when and to what degree the Swiss Financial Market Supervisory Authority (FINMA) will approve reductions to the incremental RWA resulting
from the supplemental operational risk capital analysis mutually agreed to by UBS and FINMA effective 31 December 2013, or will approve a limited reduction of
capital requirements due to measures to reduce resolvability risk; (vi) possible changes to the legal entity structure or booking model of UBS Group in response to
enacted, proposed or future legal and regulatory requirements, including capital requirements, the proposal to require non-US banks to establish intermediate
holding companies for their US operations, resolvability requirements and the pending Swiss parliamentary proposals and proposals in other countries for manda-
tory structural reform of banks; (vii) 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; (viii) the liability to which UBS may be exposed, or possible con-
straints or sanctions that regulatory authorities might impose on UBS, due to litigation, contractual claims and regulatory investigations; (ix) the effects on UBS’s
cross-border banking business of tax or regulatory developments and of possible changes in UBS’s policies and practices relating to this business; (x) 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 differences in compensation practices; (xi) changes in accounting or tax standards or policies, and determinations or interpretations affecting the
recognition of gain or loss, the valuation of goodwill, the recognition of deferred tax assets and other matters; (xii) limitations on the effectiveness of UBS’s inter-
nal processes for risk management, risk control, measurement and modeling, and of financial models generally; (xiii) whether UBS will be successful in keeping
pace with competitors in updating its technology, particularly in trading businesses; (xiv) the occurrence of operational failures, such as fraud, unauthorized trad-
ing and systems failures; and (xv) 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. The sequence in which the factors above are presented is not indicative of their likelihood of occurrence or the
potential magnitude of their consequences. Our business and financial performance could be affected by other factors identified in our past and future filings
and reports, including those filed with the SEC. More detailed information about those factors is set forth in documents furnished by UBS and filings made by
UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2013. 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.
Tables | Within tables, blank fields generally indicate that the field is not applicable or not meaningful, or that information is not available as of the relevant date
or for the relevant period. Zero values generally indicate that the respective figure is zero on an actual or rounded basis.
609
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com