UBS Reports Second Quarter Results

This quarter's results include two items that had a significant impact on performance.The first item is the CHF 1,926 million post-tax gain from the sale of the 20.7% stake in Julius Baer, a result of the disposal of Private Banks & GAM in 2005. As the stake was held as a financial investment available-for-sale in UBS's accounts, the gain from its sale is included in performance from continuing operations. It is, however, no longer part of the continuing business, and UBS believes that isolating its impact provides a clearer picture of performance. The second item is the charge of CHF 229 million after tax related to the closure of Dillon Read Capital Management (DRCM), recorded in Global Asset Management. Excluding these two items, attributable profit in UBS's core operational businesses (financial businesses' attributable profit from continuing operations) would have been CHF 3,455 million, up 14% from the same period a year earlier and 9% higher than the record first quarter 2007 performance.

"Again, net fee and commission income was at a record high of CHF 8,099 million. This was 26% higher than in the same quarter of 2006, and driven by improvements in practically all fee categories. What is particularly pleasing is that it now represents 52% of operating income," said Clive Standish, Chief Financial Officer.

The investment banking business saw a very strong rise in M&A and corporate finance fees and higher equity and debt underwriting fees. One measure of the strength of UBS's market position is global market share. According to Dealogic, this improved to 5.8% in first half 2007 from 4.9% a year earlier. UBS grew faster than the 21.3% rate of the overall fee pool and its rank rose to fourth from eighth. Market share gains were achieved in all regions and product lines. Invested asset levels rose to CHF 3.3 trillion, and, as a result, asset-based fees in the asset and wealth management businesses rose.

Reflecting mixed market developments, the second quarter 2007 result from the trading businesses saw significant swings in both directions. Overall, net income from the trading businesses was CHF 3,106 million, down 9% from second quarter 2006. Equities revenues rose from the same quarter a year earlier, supported by positive market conditions and strength in European and emerging markets.

The performance in fixed income, however, was not satisfactory. Continued difficulties in the US mortgage securities market led to lower revenues in the rates business and further losses on some of DRCM's former portfolios, which contributed net negative revenues of approximately CHF 230 million in second quarter 2007. These developments were partially offset by robust credit fixed income results, which rose on global credit trading and proprietary strategies.

Total operating expenses rose 21% to CHF 9,695 million in second quarter 2007 from the same quarter a year earlier. Approximately a fourth of the cost rise was attributable to the closure of DRCM. For the other parts of UBS, accruals for performance-related payments increased in line with revenues. Personnel expenses rose due to higher numbers of personnel, partially related to acquisitions, including Piper Jaffray and McDonald Investments. General and administrative expenses rose, with administration costs up partly due the inclusion of the acquisition of Banco Pactual. Professional fees rose due to the closure costs related to DRCM and higher legal fees. The expansion of UBS's businesses and the related increases in personnel drove travel and entertainment costs and expenses for office space higher. IT and other outsourcing costs rose on the increased business volume. The number of personnel in the financial businesses was 81,557 on 30 June 2007, up 920 compared with the end of first quarter 2007, with staff levels increasing across most business groups.

"We are working on a number of growth initiatives that are at various stages of implementation. Among them are the expansion of the European wealth management business, investment in the Investment Bank fixed income business and the growth of US wealth management. The underlying strategy of these initiatives remains unchanged. In implementing them, we need to balance revenue opportunities with operational and economic efficiency. Thus, while the direction and cornerstone of our strategy remain unchanged, the tactics involved in executing will continue to be adapted to varying market conditions," said Marcel Rohner, Chief Executive Officer. -UBS