6-K 1 y92053e6vk.htm FORM 6-K e6vk
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
Date: July 26, 2011
Commission File Number: 1-15060
UBS AG
(Registrant’s Name)
Bahnhofstrasse 45, Zurich, Switzerland, and
Aeschenvorstadt 1, Basel, Switzerland
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F þ          Form 40-F o
 
 

 


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This Form 6-K consists of the Second Quarter 2011 Report of UBS AG, which appears immediately following this page.

 


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(UBS LOGO)
   


Second Quarter 2011 Report

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Our financial results for
the second quarter of 2011.

 


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Second Quarter 2011 Report
Dear shareholders,
For the second quarter of 2011 we report a net profit attributable to UBS shareholders of CHF 1.0 billion. Diluted earnings per share for the second quarter were CHF 0.26 compared with CHF 0.47 in the first quarter. The quarter was characterized by lower client activity levels precipitated by ongoing concerns regarding the eurozone, the US budget deficit and the worsening global economic outlook. This had implications for many of our businesses, but in particular for the Investment Bank, which reported modest profits as lower client activity levels affected most businesses and widening credit spreads adversely affected trading businesses, particularly in fixed income. However, our wealth management businesses and our retail and corporate business delivered increased profitability in spite of these conditions. Net new money inflows for the Group were CHF 8.7 billion as our clients continued to entrust us with more of their assets, albeit at lower levels
than in the first quarter. Our Basel II tier 1 capital ratio stood at 18.1% at the end of the quarter.
Revenues for the Group were CHF 7.2 billion compared with CHF 8.3 billion in the first quarter. The result reflects, in particular, lower levels of client activity and weak trading performance in our Fixed Income, Currencies and Commodities (FICC) business. Operating expenses were down for the Group as a whole, partly as a result of currency movements and lower personnel-related expenses. Net profit attributable to UBS shareholders was affected by a CHF 263 million dividend payment on trust preferred securities. We recorded tax expenses of CHF 377 million this quarter. At the close of the quarter, our balance sheet stood at CHF 1,237 billion, a decrease of CHF 55 billion on the first quarter, mainly as a result of currency movements. Risk-weighted assets were CHF


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Second Quarter 2011 Report
206 billion on a Basel II basis, broadly in line with the level recorded at the end of the first quarter.
Wealth Management delivered an improved performance with a pre-tax profit of CHF 672 million, an increase of 4%. Operating income was down by 3%, mainly due to a decline in fees on a lower invested asset base that reflected the strengthening of the Swiss franc. The gross margin on invested assets was 97 basis points for the quarter. Costs were down 7%, reflecting in part a reduction in personnel-related costs. Net new money inflows were CHF 5.6 billion, primarily from our strategic growth areas of the Asia Pacific region and the emerging markets as well as from ultra high net worth clients, despite continued outflows from the cross-border business relating to neighboring countries of Switzerland.
In our Retail & Corporate business, performance was steady with an increased pre-tax profit of CHF 421 million resulting from higher operating income and a decrease in operating expenses. Operating income was up 1% compared with the first quarter. This mainly reflects the fact that we did not record credit loss expenses for the business this quarter as well as certain non-recurring revenues mainly related to our equity participations. These factors offset the continued effects of low interest rate margins. Costs for the business decreased by 2%.
Wealth Management Americas continued to improve its performance this quarter, executing successfully on our plan for the business. Pre-tax profit improved to CHF 140 million, a CHF 29 million increase on the first quarter. In US dollar terms revenues were up by 4% as a result of higher fee and interest income on higher invested assets. We achieved net new money inflows of CHF 2.6 billion this quarter, mainly as a result of our success in recruiting new financial advisors, a creditable result given the seasonal tax-related outflows.
Our Global Asset Management business recorded a pre-tax profit of CHF 108 million compared with CHF 124 million in the prior quarter. The strengthening of the Swiss franc was a major factor this quarter, adversely affecting our invested asset base and consequently net management fees. The result also reflects lower performance fees, particularly in our alternative and quantitative business, where investment performance was solid but not sufficiently strong to generate sizeable fees. Operating expenses for the business decreased by 10%, mainly as a result of lower personnel expenses. Net new money inflows were CHF 1.1 billion.
The Investment Bank recorded a pre-tax profit of CHF 376 million compared with CHF 835 million in the first quarter. This performance reflects the decline in client volumes in most of our business lines and in particular the widening of credit spreads, which adversely affected a number of our trading businesses in FICC. Operating expenses were 15% lower than in the first quarter, mostly resulting from lower performance-related personnel costs.
During the quarter, the Board of Directors and senior management reconfirmed our broad strategic direction. We are confident that we will create the most value for our clients and shareholders as an integrated bank with a client-focused business model. In order to ensure continued improvements in our profitability, we will develop our leading wealth management businesses, including further investing in our onshore businesses and the ultra high net worth client segment, while expanding our activities in the Asia-Pacific region and the emerging markets. The benefits of a globally competitive investment bank and a successful asset management business are also crucial to our future. In our home market, Switzerland, we aim to maintain our leading position.
Over the last four quarters, we have witnessed a decline in returns for the banking industry as a whole, reflecting deleveraging and


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actions being taken in advance of increased capital requirements. A weakening economic outlook and higher future capital requirements may extend or exacerbate these trends. Given these circumstances, we will continue to evaluate potential changes to our businesses, corporate structure and booking model. The fundamental shift in the global financial environment also has implications for our medium-term targets, which were set in 2009 and based on market and regulatory assumptions that are now outdated. While we continue to be optimistic that we will deliver higher profitability, we believe that our 2009 target for pre-tax profits is unlikely to be achieved in the time period originally envisaged.
Last year, we successfully achieved our goal of reducing fixed costs to below CHF 20 billion. However, in the current environment, we need to be ever more vigilant around our levels of expenditure. As a result, we will initiate further cost reductions to align our expense base to current market conditions. We will nevertheless continue investing in key growth areas that underpin our long-term success.
At the UBS Annual General Meeting in April, our shareholders approved the 2010 Annual Report and Group Financial Statements, elected Joseph Yam to the Board of Directors and re-elected the incumbent members of the Board.
On 1 July, we announced that Axel Weber, former President of the German Bundesbank, will be nominated for election to the UBS Board of Directors. Subject to his election, he will be appointed as non-independent Vice Chairman and is then expected to become Chairman of the Board in 2013. We are delighted to have someone of Axel Weber’s caliber as a future Board member and future Chairman. His outstanding reputation and extremely broad expertise in international finance and banking, as well as his strong leadership experience, will be an invaluable addition to the firm,
helping to ensure stability and a smooth leadership transition as we position the firm for future growth.
Outlook – Current economic uncertainty shows little sign of abating. We therefore do not envisage material improvements in market conditions in the third quarter of 2011, particularly given the seasonal decline in activity levels traditionally associated with the summer holiday season, and expect these conditions to continue to constrain our results. In the second half of 2011, we may recognize deferred tax assets that could reduce our full-year effective tax rate. The levy imposed by the United Kingdom on bank liabilities, formally introduced just after the end of the second quarter, is expected to reduce the Investment Bank’s performance before tax by approximately CHF 100 million before the end of 2011. As a result of our intention to initiate cost reduction measures, it is likely that we will book significant restructuring charges later this year. Going forward, our solid capital position and financial stability as well as our sharpened focus on cost discipline will enable us to build further on the progress we have already made.
Yours sincerely,
     
-s- Kaspar Villiger
  -s- Oswald J. Grübel
 
Kaspar Villiger
  Oswald J. Grübel
Chairman of the
  Group Chief Executive Officer
Board of Directors
   


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Second Quarter 2011 Report
UBS key figures
                                         
    As of or for the quarter ended   Year-to-date
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     30.6.11     30.6.10  
 
 
                                       
Group results
                                       
 
Operating income
    7,171       8,344       9,185       15,515       18,195  
 
Operating expenses
    5,516       6,110       6,571       11,626       12,772  
 
Operating profit from continuing operations before tax
    1,654       2,235       2,614       3,889       5,424  
 
Net profit attributable to UBS shareholders
    1,015       1,807       2,005       2,822       4,207  
 
Diluted earnings per share (CHF)1
    0.26       0.47       0.52       0.73       1.10  
 
 
                                       
Key performance indicators, balance sheet and capital management2
                                       
 
Performance
                                       
 
Return on equity (RoE) (%)
                            12.0       19.5  
 
Return on risk-weighted assets, gross (%)
                            15.3       17.5  
 
Return on assets, gross (%)
                            2.4       2.6  
 
Growth
                                       
 
Net profit growth (%)3
    (43.8 )     8.7       (8.9 )     (32.9 )     N/A  
 
Net new money (CHF billion)4
    8.7       22.3       (4.7 )     31.0       (22.7 )
 
Efficiency
                                       
 
Cost / income ratio (%)
    77.1       73.3       71.2       75.0       70.5  
 
 
    As of            
CHF million, except where indicated   30.6.11     31.3.11     31.12.10              
 
Capital strength
                                       
 
BIS tier 1 ratio (%)5
    18.1       17.9       17.8                  
 
FINMA leverage ratio (%)5
    4.8       4.6       4.4                  
 
Balance sheet and capital management
                                       
 
Total assets
    1,236,770       1,291,286       1,317,247                  
 
Equity attributable to UBS shareholders
    47,263       46,695       46,820                  
 
Total book value per share (CHF)5
    12.54       12.28       12.35                  
 
Tangible book value per share (CHF)5
    10.19       9.74       9.76                  
 
BIS total ratio (%)5
    19.5       19.4       20.4                  
 
BIS risk-weighted assets5
    206,224       203,361       198,875                  
 
BIS tier 1 capital5
    37,387       36,379       35,323                  
 
 
                                       
Additional information
                                       
 
Invested assets (CHF billion)
    2,069       2,198       2,152                  
 
Personnel (full-time equivalents)
    65,707       65,396       64,617                  
 
Market capitalization6
    58,745       63,144       58,803                  
 
1 Refer to “Note 8 Earnings per share (EPS) and shares outstanding” in the “Financial information” section of this report.   2 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section on page 33 of our Annual Report 2010.   3 Not meaningful if either the current period or the comparison period is a loss period.   4 Excludes interest and dividend income.   5 Refer to the “Capital management” section of this report.   6 Refer to the appendix “UBS registered shares” of this report.

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Corporate calendar
Publication of the third quarter of 2011 results
Tuesday, 25 October 2011
Publication of the fourth quarter of 2011 results
Tuesday, 7 February 2012
Publication of the first quarter of 2012 results
Monday, 30 April 2012
Annual General Meeting
Thursday, 3 May 2012
Contacts
Switchboards
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Fax Zurich +41-44-234 3415
UBS AG, Investor Relations
P.O. Box, CH-8098 Zurich, Switzerland
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UBS AG, Shareholder Services
P.O. Box, CH-8098 Zurich, Switzerland
sh-shareholder-services@ubs.com
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Calls from the US +866-541 9689
Calls outside the US +1-201-680 6578
Fax +1-201-680 4675
BNY Mellon Shareowner Services
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www.melloninvestor.com
Imprint
Publisher: UBS AG, Zurich and Basel, Switzerland | www.ubs.com
Language: English | SAP-No. 80834E-1102
© UBS 2011. The key symbol and UBS are among the registered
and unregistered trademarks of UBS. All rights reserved.
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Second Quarter 2011 Report
UBS and its businesses
We draw on our 150-year heritage to serve private, institutional and corporate clients worldwide, as well as retail clients in Switzerland. We combine our wealth management, investment banking and asset management businesses with our Swiss operations to deliver superior financial solutions. Headquartered in Zurich and Basel, Switzerland, we have offices in more than 50 countries, including all major financial centers, and employ approximately 65,000 people. Under Swiss company law, we are organized as an Aktiengesellschaft (AG), a corporation that has issued shares of common stock to investors. UBS AG is the parent company of the UBS Group (Group). The operational structure of the Group comprises the Corporate Center and four business divisions: Wealth Management & Swiss Bank, Wealth Management Americas, Global Asset Management and the Investment Bank.
Wealth Management & Swiss Bank
Wealth Management & Swiss Bank focuses on delivering comprehensive financial services to high net worth and ultra high net worth individuals around the world – except to those served by Wealth Management Americas – as well as private and corporate clients in Switzerland. Our Wealth Management business unit provides clients in over 40 countries, including Switzerland, with financial advice, products and tools to fit their individual needs. Our Retail & Corporate business unit provides individual and business clients with an array of banking services, such as deposits and lending, and maintains a leading position across its client segments in Switzerland.
Wealth Management Americas
Wealth Management Americas provides advice-based solutions through financial advisors who deliver a fully integrated set of products and services specifically designed to address the needs of ultra high net worth, high net worth and core affluent individuals and families. It includes the domestic United States business, the domestic Canadian business and international business booked in the United States.
Global Asset Management
Global Asset Management is a large-scale asset manager with businesses diversified across regions, capabilities and distribution channels. It offers investment capabilities and styles across all major traditional and alternative asset classes including equities, fixed income, currency, hedge fund, real estate and infrastructure that can also be combined into multi-asset strategies. The fund services unit provides professional services including legal fund set-up, accounting and reporting for traditional investment funds and alternative funds.
Investment Bank
The Investment Bank provides securities and other financial products and research in equities, fixed income, rates, foreign exchange and commodities. It also provides advisory services and access to the world’s capital markets for corporate and institutional clients, sovereign and governmental bodies, financial intermediaries, alternative asset managers and private investors.
Corporate Center
The Corporate Center provides treasury services, and manages support and control functions for the business divisions and the Group in such areas as risk control, finance, legal and compliance, funding, capital and balance sheet management, management of non-trading risk, communications and branding, human resources, information technology, real estate, procurement, corporate development and service centers. It allocates virtually all of the treasury income, operating expenses and personnel associated with these activities to the businesses based on capital and service consumption levels.


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UBS Group

Management report

 

 

 

 

 

 

 

 

 

 

 

 

 


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Group results
Group results
Net profit attributable to UBS shareholders was CHF 1,015 million compared with CHF 1,807 million in the first quarter of 2011. Lower revenues across most businesses, particularly in the trading income in the Investment Bank’s fixed income, currencies and commodities (FICC) business, partially caused by the strengthening of the Swiss franc, were only partially offset by lower Group personnel and general and administrative expenses. In addition, the second quarter result included substantial net profit attributable to non-controlling interests (dividends on preferred securities).
Income statement
                                                         
 
    For the quarter ended     % change from     Year-to-date  
CHF million   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
 
                                                       
Continuing operations
                                                       
 
Interest income
    4,880       4,578       4,864       7       0       9,457       9,661  
 
Interest expense
    (3,440 )     (2,796 )     (3,771 )     23       (9 )     (6,236 )     (6,751 )
 
Net interest income
    1,440       1,781       1,093       (19 )     32       3,221       2,911  
 
Credit loss (expense) / recovery
    16       3       (48 )     433               19       68  
 
Net interest income after credit loss expense
    1,456       1,784       1,045       (18 )     39       3,240       2,979  
 
Net fee and commission income
    3,879       4,240       4,366       (9 )     (11 )     8,119       8,738  
 
Net trading income
    1,724       2,203       3,450       (22 )     (50 )     3,928       5,818  
 
Other income
    112       117       324       (4 )     (65 )     228       660  
 
Total operating income
    7,171       8,344       9,185       (14 )     (22 )     15,515       18,195  
 
Personnel expenses
    3,925       4,407       4,645       (11 )     (16 )     8,332       9,166  
 
General and administrative expenses
    1,408       1,488       1,638       (5 )     (14 )     2,896       3,057  
 
Depreciation of property and equipment
    161       191       257       (16 )     (37 )     352       491  
 
Amortization of intangible assets
    22       24       31       (8 )     (29 )     46       58  
 
Total operating expenses
    5,516       6,110       6,571       (10 )     (16 )     11,626       12,772  
 
Operating profit from continuing operations before tax
    1,654       2,235       2,614       (26 )     (37 )     3,889       5,424  
 
Tax expense / (benefit)
    377       426       311       (12 )     21       803       914  
 
Net profit from continuing operations
    1,277       1,809       2,303       (29 )     (45 )     3,086       4,509  
 
 
                                                       
Discontinued operations
                                                       
 
Profit from discontinued operations before tax
    0       0       0                       0       2  
 
Tax expense
    0       0       0                       0       0  
 
Net profit from discontinued operations
    0       0       0                       0       2  
 
 
                                                       
Net profit
    1,278       1,809       2,303       (29 )     (45 )     3,087       4,511  
 
Net profit attributable to non-controlling interests
    263       2       298               (12 )     265       304  
 
from continuing operations
    262       2       298               (12 )     264       303  
 
from discontinued operations
    0       0       0                       0       1  
 
Net profit attributable to UBS shareholders
    1,015       1,807       2,005       (44 )     (49 )     2,822       4,207  
 
from continuing operations
    1,015       1,807       2,005       (44 )     (49 )     2,822       4,207  
 
from discontinued operations
    0       0       0                       0       1  
 
 
                                                       
Comprehensive income
                                                       
 
Total comprehensive income
    1,065       971       2,802       10       (62 )     2,036       5,371  
 
Total comprehensive income attributable to non-controlling interests
    380       106       101       258       276       486       21  
 
Total comprehensive income attributable to UBS shareholders
    685       865       2,701       (21 )     (75 )     1,551       5,350  
 

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UBS Group
Operating income: 2Q11 vs 1Q11
Total operating income was CHF 7,171 million compared with CHF 8,344 million in the prior quarter.
Operating income by reporting segment
Wealth Management’s total operating income decreased 3% to CHF 1,867 million from CHF 1,928 million in the prior quarter, mainly reflecting lower net fee and commission income.
Retail & Corporate’s total operating income was CHF 974 million, up 1% from the prior quarter, mainly due to lower credit loss expenses, income from a small divestment and higher dividends from participations.
Wealth Management Americas’ total operating income decreased 5% to CHF 1,284 million from CHF 1,347 million. In US dollar terms, operating income increased 4% due to improvements in fee and interest income, as well as higher realized gains on sales of securities held as available-for-sale.
Global Asset Management’s total operating income was CHF 444 million compared with CHF 496 million, mainly due to lower performance fees in alternative and quantitative investments and lower net management fees, resulting from a lower average invested asset base due to the further strengthening of the Swiss franc.
The Investment Bank’s total operating income was CHF 2,604 million in the second quarter of 2011 compared with CHF 3,445 million in the first quarter of 2011, reflecting lower revenues across all businesses, particularly FICC.
The Corporate Center’s operating income was negative CHF 2 million in the second quarter of 2011 compared with positive CHF 163 million in the prior quarter, mainly due to a lower revaluation gain of CHF 13 million on our option to acquire the SNB StabFund’s equity compared with a gain of CHF 192 million in the prior quarter.
Net interest and trading income
Net interest and trading income is analyzed below under the relevant business activities.
è   Refer to “Note 3 Net interest and trading income” in the “Financial information” section of this report for more information
Net income from trading businesses
Net income from trading businesses was CHF 1,835 million compared with CHF 2,478 million in the previous quarter.
Equities trading revenues were lower across most businesses. FICC trading revenues were lower, most notably in credit as flow trading declined in the context of widening credit spreads caused by increased market uncertainty.


Operating income by reporting segment
                                                         
 
    For the quarter ended     % change from     Year-to-date  
CHF million   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
Wealth Management
    1,867       1,928       1,891       (3 )     (1 )     3,795       3,795  
 
Retail & Corporate
    974       965       995       1       (2 )     1,939       1,973  
 
Wealth Management & Swiss Bank
    2,840       2,893       2,886       (2 )     (2 )     5,733       5,767  
 
Wealth Management Americas
    1,284       1,347       1,485       (5 )     (14 )     2,631       2,847  
 
Global Asset Management
    444       496       522       (10 )     (15 )     940       1,043  
 
Investment Bank
    2,604       3,445       4,101       (24 )     (37 )     6,050       7,990  
 
Corporate Center
    (2 )     163       191                       160       547  
 
Total operating income
    7,171       8,344       9,185       (14 )     (22 )     15,515       18,195  
 
Net interest and trading income
                                                         
 
    For the quarter ended     % change from     Year-to-date  
CHF million   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
 
                                                       
Net interest and trading income
                                                       
 
Net interest income
    1,440       1,781       1,093       (19 )     32       3,221       2,911  
 
Net trading income
    1,724       2,203       3,450       (22 )     (50 )     3,928       5,818  
 
Total net interest and trading income
    3,164       3,985       4,543       (21 )     (30 )     7,149       8,729  
 
 
                                                       
Breakdown by businesses
                                                       
 
Net income from trading businesses1
    1,835       2,478       3,008       (26 )     (39 )     4,313       5,708  
 
Net income from interest margin businesses
    1,191       1,209       1,166       (1 )     2       2,400       2,285  
 
Net income from treasury activities and other
    138       298       369       (54 )     (63 )     436       736  
 
Total net interest and trading income
    3,164       3,985       4,543       (21 )     (30 )     7,149       8,729  
 
1 Includes lending activities of the Investment Bank.

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Group results
An own credit charge on financial liabilities designated at fair value of CHF 25 million was recorded in the quarter, compared with a CHF 133 million charge in the first quarter. An own credit profit from the widening of our credit spreads during the quarter was more than offset by an own credit loss related to adjustments in the calculation methodology. Debit valuation adjustments recorded on derivatives in FICC other within the Investment Bank were positive CHF 78 million, compared with negative CHF 38 million in the previous quarter.
è   Refer to “Note 11b Fair value of financial instruments” in the “Financial information” section of this report for more information on own credit
Net income from interest margin businesses
Net income from interest margin businesses was CHF 1,191 million compared with CHF 1,209 million in the first quarter. This decrease is mainly due to lower interest margins influenced by competitive pressure and low interest rates.
Net income from treasury activities and other
Net income from treasury activities and other was CHF 138 million compared with CHF 298 million in the prior quarter.
The second quarter included a gain of CHF 13 million on the valuation of our option to acquire the SNB StabFund’s equity compared with a valuation gain of CHF 192 million in the previous quarter.
è   Refer to the “Risk management and control” section of this report for more information on the valuation of our option to acquire the SNB StabFund’s equity
Credit loss expense / recovery
We recorded a net credit loss recovery of CHF 16 million in the second quarter of 2011 compared with CHF 3 million in the first quarter of 2011.
The Investment Bank reported a net credit loss recovery of CHF 15 million compared with a net recovery of CHF 1 million in the first quarter. This was primarily due to credit loss provision releases on student loan auction rate securities.
Wealth Management & Swiss Bank reported a net credit loss recovery of CHF 2 million in the second quarter of 2011, unchanged from the prior quarter.
è   Refer to the “Risk management and control” section of this report for more information on credit risk
Net fee and commission income
Net fee and commission income was CHF 3,879 million compared with CHF 4,240 million in the previous quarter.
 
Underwriting fees were CHF 355 million, unchanged from the previous quarter.
 
 
Mergers and acquisitions and corporate finance fees were CHF 240 million, down from CHF 276 million, due to fewer large deals being completed in the quarter, compared with the prior quarter.
 
 
Net brokerage fees were CHF 772 million compared with CHF 1,011 million due to smaller transactional volumes resulting from low levels of client activity.
 
 
Investment fund fees were lower at CHF 927 million compared with CHF 966 million in the prior quarter, as both asset-based and sales-based income decreased over the quarter.
 
 
Portfolio management and advisory fees decreased to CHF 1,394 million from CHF 1,454 million, mainly due to lower performance fees in Global Asset Management, particularly in its alternative and quantitative investments business, and lower fees in Wealth Management & Swiss Bank on a lower average asset base.
è   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 112 million in the second quarter of 2011 compared with CHF 117 million in the first quarter.
The second quarter included gains of CHF 38 million from disposals of loans and receivables, including sales and issuer redemptions of auction rate securities, compared with CHF 43 million in the first quarter. Net gains from disposals of financial investments available-for-sale were CHF 54 million compared with CHF 26 million in the prior quarter, mainly due to higher gains on sales in Wealth Management Americas. Net losses from disposals of consolidated subsidiaries in the second quarter were CHF 23 million, and mainly comprised foreign currency translation losses which were reclassified from equity to the income statement upon deconsolidation.
è   Refer to “Note 5 Other income” in the “Financial information” section of this report for more information


Credit loss (expense) / recovery
                                                         
 
    For the quarter ended     % change from     Year-to-date  
CHF million   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
Wealth Management
    2       9       (1 )     (78 )             11       0  
 
Retail & Corporate
    0       (7 )     (7 )     (100 )     (100 )     (7 )     (5 )
 
Wealth Management & Swiss Bank
    2       2       (8 )     0               4       (4 )
 
Wealth Management Americas
    (1 )     1       (1 )             0       0       0  
 
Investment Bank
    15       1       (39 )                     15       73  
 
of which: related to reclassified securities1
    17       9       (56 )     89               26       (85 )
 
of which: related to acquired securities
    (4 )     (6 )     (12 )     (33 )     (67 )     (10 )     (12 )
 
Corporate Center
    0       (1 )     0       (100 )             (1 )     0  
 
Total
    16       3       (48 )     433               19       68  
 
1 Refer to “Note 12 Reclassification of financial assets” in the “Financial information” section of this report.

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UBS Group
 
How foreign exchange movements affect our reported results
In the second quarter, many investors flocked into the Swiss franc as a safe haven currency as continued market volatility, concerns about eurozone sovereign debt and ongoing geopolitical uncertainty invited risk averse behaviors. These factors were compounded by heightened worries about the US budget deficit and the worsening global economic situation. Consequently, the Swiss franc continued to strengthen markedly against other major currencies such as the US dollar, euro and British pound during the quarter. This adversely affected the results of many of our businesses, which report in Swiss francs but conduct the majority of their operations in other currencies. While foreign exchange movements had broadly negative effects on revenues, they also reduced expenses across the business divisions as many costs are incurred in foreign currencies but reported in Swiss francs. This partially mitigated the overall effect of the strengthening of the Swiss franc on our reported pre-tax performance for the second quarter of 2011.
In the second quarter, both the US dollar and British pound declined 8% against the Swiss franc, while the euro declined 6%. During the 12 months ending 30 June 2011, the US dollar, British pound and euro declined 22%, 16% and 7%, respectively, against the Swiss franc.
The effect of this sharp rise in the Swiss franc on our businesses was most apparent in the year-on-year comparative revenues of our Investment Bank, the vast majority of which are generated in foreign currencies in major financial centers outside Switzerland such as New York and London.
In Wealth Management, the strengthening of the Swiss franc affected invested
assets denominated in other currencies. As of 30 June 2011, 31% of Wealth Management invested assets were denominated in euros, 30% in US dollars and 5% in British pounds. The decline in these currencies versus the Swiss franc lowered the business’s invested asset base by approximately CHF 37 billion, resulting in a decline mainly in fee and commission income as well as net interest income.
Similarly, currency movements adversely affected Global Asset Management’s invested assets base and therefore net management fees, which were down moderately. On 30 June 2011, 45% of Global Asset Management’s invested assets were denominated in US dollars, 13% in euros and 6% in British pounds.
Wealth Management Americas’ revenues are generated mostly in US dollars. This resulted in a 5% reduction in revenues reported in Swiss francs, even as, in US dollar terms, revenues increased 4% on higher invested assets and higher interest income.
Wealth Management –
invested assets
(PIE CHART)
In the Corporate Center, approximately 60% of all costs before allocations to the business divisions occur in currencies other than the Swiss franc. The Swiss franc’s strengthening therefore reduced costs incurred by the Corporate Center in other currencies and then allocated to the business divisions.
The weakening of major currencies against the Swiss franc was the main reason for a CHF 55 billion decrease in our balance sheet. On 30 June 2011, 42% of our funded assets were denominated in US dollars, 15% in euros and 6% in British pounds. Our funded assets, which exclude positive replacement values, declined by CHF 31 billion to CHF 902 billion, but increased by CHF 20 billion when adjusted for currency movements. In addition, currency movements in the quarter affected risk-weighted assets and tier 1 capital, thereby influencing our reported tier 1 capital ratio for the end of the quarter.
è   Refer to the “Interest rate and currency management” section of the Annual Report 2010 for more information about our corporate currency management
Global Asset Management –
invested assets1
(PIE CHART)
1 Invested assets shown by the base currency of
each fund or client account.


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Group results
Operating expenses: 2Q11 vs 1Q11
Operating expenses were down 10% to CHF 5,516 million compared with CHF 6,110 million in the first quarter. The decrease was mainly due to lower accruals for variable compensation and lower non-personnel expenses, supported by the strengthening of the Swiss franc.
Operating expenses by reporting segment
Wealth Management’s operating expenses decreased 7% to CHF 1,194 million from CHF 1,283 million. Personnel expenses were reduced 7% to CHF 800 million, mainly due to lower accruals for variable compensation.
Retail & Corporate’s operating expenses decreased by CHF 10 million to CHF 552 million.
Wealth Management Americas’ total operating expenses decreased 7% to CHF 1,144 million from CHF 1,236 million. Excluding the effect of currency translation, operating expenses increased 1%.
Global Asset Management’s total operating expenses were CHF 337 million compared with CHF 373 million, with the strengthening of the Swiss franc contributing to a decrease across most expense lines. Personnel expenses decreased to CHF 236 million from CHF 259 million, mainly due to lower accruals for variable compensation.
The Investment Bank’s total operating expenses were CHF 2,229 million compared with CHF 2,610 in the first quarter. The decrease was mainly due to lower accruals for variable compensation and the strengthening of the Swiss franc.
Total operating expenses of the Corporate Center (after service cost allocation to the business divisions) were CHF 61 million compared with CHF 46 million.
Personnel expenses
Personnel expenses were CHF 3,925 million compared with CHF 4,407 million, primarily due to lower accruals for variable compensation of CHF 867 million, including a charge for amortization of prior years’ awards of CHF 413 million, compared with CHF
1,233 million in the prior quarter. This resulted in a corresponding decrease in social security expenses.
è   Refer to “Note 6 Personnel expenses” in the “Financial information” section of this report for more information
General and administrative expenses
General and administrative expenses were CHF 1,408 million in the second quarter, compared with CHF 1,488 million in the first quarter. The decrease in administration expenses was mainly due to the release of accruals for value added tax in the second quarter of 2011.
è   Refer to “Note 7 General and administrative expenses” in the “Financial information” section of this report for more information
Depreciation and amortization
Depreciation of property and equipment was CHF 161 million compared with CHF 191 million in the prior quarter, primarily due to a partial reversal of an impairment loss recognized in the fourth quarter of 2008. Amortization of intangible assets was CHF 22 million compared with CHF 24 million in the previous quarter.
Performance: 2Q11 vs 1Q11
Profit from continuing operations before tax was CHF 1,654 million in the second quarter of 2011, compared with CHF 2,235 million in the first quarter.
Performance by reporting segment
Wealth Management’s pre-tax profit was CHF 672 million, CHF 27 million higher than in the previous quarter. Lower income due to lower invested asset levels and reduced client activity was more than offset by reduced operating expenses.
Retail & Corporate’s pre-tax profit was CHF 421 million in the second quarter of 2011, up 4% from the previous quarter, mainly as a result of lower credit loss expenses and non-recurring revenue items.
Wealth Management Americas’ pre-tax profit was CHF 140 million in the second quarter of 2011 compared with CHF 111 million in the first quarter of 2011. This was mainly due to a 4% increase


Operating expenses by reporting segment
                                                         
 
    For the quarter ended     % change from     Year-to-date  
CHF million   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
Wealth Management
    1,194       1,283       1,232       (7 )     (3 )     2,477       2,440  
 
Retail & Corporate
    552       562       522       (2 )     6       1,114       1,034  
 
Wealth Management & Swiss Bank
    1,747       1,844       1,754       (5 )     0       3,591       3,475  
 
Wealth Management Americas
    1,144       1,236       1,552       (7 )     (26 )     2,380       2,899  
 
Global Asset Management
    337       373       405       (10 )     (17 )     709       789  
 
Investment Bank
    2,229       2,610       2,788       (15 )     (20 )     4,839       5,487  
 
Corporate Center
    61       46       72       33       (15 )     107       122  
 
Total operating expenses
    5,516       6,110       6,571       (10 )     (16 )     11,626       12,772  
 

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UBS Group
in operating income in US dollar terms which included realized gains on sales of financial investments held as available-for-sale.
Global Asset Management’s pre-tax profit was CHF 108 million in the second quarter, compared with CHF 124 million in the first quarter. Lower performance fees, mainly in alternative and quantitative investments, and the adverse effect of foreign exchange movements on net management fees were partly offset by lower personnel expenses.
The Investment Bank recorded a pre-tax profit of CHF 376 million in the second quarter of 2011 compared with CHF 835 million in the prior quarter. The pre-tax profit excluding own credit was CHF 401 million. Lower revenues across all businesses, in particular in fixed income, currencies and commodities were partially offset by lower operating expenses mainly stemming from lower accruals for variable compensation.
Profit from continuing operations before tax for the Corporate Center was a loss of CHF 63 million compared with a profit of CHF 116 million in the previous quarter, mainly due to a lower revaluation gain of CHF 13 million on our option to acquire the SNB StabFund’s equity compared with a gain of CHF 192 million in the prior quarter.
Tax: 2Q11 vs 1Q11
We recognized a net income tax expense of CHF 377 million for the second quarter of 2011. This included deferred tax expenses of CHF 337 million with respect to the amortization of deferred tax assets, previously recognized in relation to Swiss tax losses carried forward, to offset taxable profits for the quarter. It also included other tax expenses of CHF 95 million with respect to the taxable profits of Group entities. These expenses were partially offset by tax benefits of CHF 55 million, arising from the release of provisions upon the agreement of prior period positions with tax authorities in various locations.
For the first quarter of 2011, we recognized a net income tax expense of CHF 426 million. This included deferred tax expenses of CHF 448 million with respect to the amortization of deferred tax assets, previously recognized in relation to tax losses carried forward.
We expect to remeasure our deferred tax assets in the second half of 2011 after preparation of new business plan forecasts. This evaluation may give rise to an increase in deferred tax assets recognized in the US, which may in turn reduce the tax charge in the income statement for the second half of 2011 compared with the first half of the year. The effect of such a deferred tax asset increase could be expected to bring the full year effective tax rate for 2011 below 20%.
Net profit attributable to non-controlling interests: 2Q11 vs 1Q11
Net profit attributable to non-controlling interests was CHF 263 million in the second quarter of 2011 compared with CHF 2 million in the prior quarter. In the second quarter, dividends of CHF 186 million were paid for preferred securities, for which no accrual was required to be established earlier, and an additional accrual of CHF 77 million was made for future dividend payments for preferred securities, triggered by the call of a hybrid Tier 1 instrument. In the first quarter of 2011, no event triggering dividend obligations for preferred securities occurred and no preferred securities dividends not previously accrued were paid.
Comprehensive income attributable to UBS shareholders: 2Q11 vs 1Q11
Comprehensive income attributable to UBS shareholders was CHF 685 million, including net profit attributable to UBS shareholders of CHF 1,015 million which was partially offset by negative other comprehensive income (OCI) attributable to UBS shareholders of CHF 330 million (net of tax).
This negative OCI attributable to UBS shareholders included foreign currency translation losses of CHF 1,216 million which were partially offset by fair value gains on financial investments available-for-sale of CHF 482 million and fair value gains on interest rate swaps designated as cash flow hedges of CHF 404 million.
Approximately two-thirds of the foreign currency translation losses were related to the weakening of the US dollar against the


Performance by reporting segment
                                                         
 
    For the quarter ended   % change from   Year-to-date  
CHF million   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
Wealth Management
    672       645       658       4       2       1,318       1,354  
 
Retail & Corporate
    421       403       473       4       (11 )     824       938  
 
Wealth Management & Swiss Bank
    1,094       1,049       1,131       4       (3 )     2,142       2,293  
 
Wealth Management Americas
    140       111       (67 )     26               252       (52 )
 
Global Asset Management
    108       124       117       (13 )     (8 )     231       254  
 
Investment Bank
    376       835       1,314       (55 )     (71 )     1,211       2,504  
 
Corporate Center
    (63 )     116       119                       53       425  
 
Operating profit from continuing operations before tax
    1,654       2,235       2,614       (26 )     (37 )     3,889       5,424  
 

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Group results
Swiss franc, with additional significant losses related to the decline of the British pound and the euro against the Swiss franc.
Declining long-term US dollar, British pound and euro interest rates led to fair value gains on financial investments available-for-sale, including our holdings of long-term fixed-interest rate US and UK government bonds, and net-fix receiver interest rate swaps designated as cash flow hedges.
In the first quarter of 2011, comprehensive income attributable to UBS shareholders was a profit of CHF 865 million, as net profit of CHF 1,807 million was partially offset by negative OCI attributable to UBS shareholders of CHF 942 million (net of tax). OCI losses attributable to UBS shareholders in the first quarter were predominantly due to the upward shift of relevant long-term euro and US dollar yield curves that resulted in fair value losses on net fixed-receiver interest rate swaps designated to hedge forecast future cash flows.
è   Refer to the “Statement of comprehensive income” in the “Financial information” section of this report for more information
Results: 6M11 vs 6M10
Net profit attributable to UBS shareholders was CHF 2,822 million compared with CHF 4,207 million.
Operating income decreased to CHF 15,515 million from CHF 18,195 million. This was mainly due to lower net income from trading businesses in FICC, lower net fee and commission income, and lower other income.
Operating expenses were reduced to CHF 11,626 million compared with CHF 12,772 million, mainly due to decreased personnel expenses.
Invested assets development: 2Q11 vs 1Q11
Net new money
In Wealth Management, net new money inflows were CHF 5.6 billion compared with net inflows of CHF 11.1 billion in the previous quarter. International wealth management reported net inflows of CHF 5.5 billion compared with CHF 8.9 billion in the previous quarter, with continued net inflows in the Asia Pacific region and emerging markets, as well as globally from ultra high net worth clients. The European onshore business reported continued inflows, while the European cross-border business recorded outflows, mainly from the cross-border business related to neighboring countries of Switzerland.
Wealth Management Americas recorded net new money of CHF 2.6 billion in the second quarter compared with CHF 3.6 billion in the first quarter. Second quarter net new money was affected by annual client income tax payments. Net recruiting of financial advisors was the primary driver of net new money in the second quarter.
In Global Asset Management, net new money inflows were CHF 1.1 billion compared with net inflows of CHF 5.6 billion in the prior quarter. Net new money inflows from third parties were CHF 4.8 billion compared with CHF 5.8 billion. These were partly offset by net outflows of CHF 3.7 billion from clients of UBS’s wealth management businesses compared with net outflows of CHF 0.2 billion. Excluding money market flows, net new money inflows were CHF 3.5 billion compared with net inflows of CHF 7.2 billion.
è   Refer to the various discussions of net new money flows in the “UBS business divisions and Corporate Center” section of this report for more information
Invested assets
Invested assets were CHF 2,069 billion as of 30 June 2011, compared with CHF 2,198 billion as of 31 March 2011. This decline was primarily attributable to the strengthening of the Swiss franc and was partially offset by net new money inflows.
è   Refer to the various discussions of invested assets in the “UBS business divisions and Corporate Center” section of this report for more information
è   Refer to the “How foreign exchange movements affect our reported results” sidebar in the “UBS Group” section of this report for more information
Personnel: 2Q11 vs 1Q11
We employed 65,707 personnel as of 30 June 2011 compared with 65,396 personnel as of 31 March 2011.
In the first quarter of 2011, certain personnel were transferred from the Investment Bank to Wealth Management & Swiss Bank as part of the forming of the Investment Products & Services unit.
è   Refer to the various discussions of personnel in the “UBS business divisions and Corporate Center” section of this report for more information
è   Refer to the “Accounting and reporting structure changes” section of our first quarter 2011 financial report for more information on how the process of allocating Corporate Center personnel to the business divisions has been refined


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UBS Group
Net new money1
                                         
 
    For the quarter ended   Year-to-date
CHF billion   30.6.11     31.3.11     30.6.10     30.6.11     30.6.10  
 
Wealth Management
    5.6       11.1       (5.2 )     16.7       (13.1 )
 
Wealth Management Americas
    2.6       3.6       (2.6 )     6.2       (9.8 )
 
Traditional investments
    0.8       3.7       4.5       4.5       3.5  
 
Alternative and quantitative investments
    (0.9 )     1.7       (1.2 )     0.9       (3.6 )
 
Global real estate
    0.6       0.2       0.1       0.8       0.8  
 
Infrastructure
    0.5       0.0       0.0       0.5       0.1  
 
Global Asset Management
    1.1       5.6       3.4       6.7       0.8  
 
1 Excludes interest and dividend income.
Invested assets
                                         
 
    As of   % change from
CHF billion   30.6.11     31.3.11     30.6.10     31.3.11     30.6.10  
 
Wealth Management
    748       791       786       (5 )     (5 )
 
Retail & Corporate
    134       138       131       (3 )     2  
 
Wealth Management & Swiss Bank
    882       929       917       (5 )     (4 )
 
Wealth Management Americas
    650       700       693       (7 )     (6 )
 
Traditional investments
    466       495       494       (6 )     (6 )
 
Alternative and quantitative investments
    33       37       36       (11 )     (8 )
 
Global real estate
    36       36       38       0       (5 )
 
Infrastructure
    1       1       1       0       0  
 
Global Asset Management
    536       569       569       (6 )     (6 )
 
Total
    2,069       2,198       2,180       (6 )     (5 )
 
Personnel by region
                                         
 
    As of   % change from
Full-time equivalents   30.6.11     31.3.11     30.6.10     31.3.11     30.6.10  
 
Switzerland
    23,551       23,454       23,191       0       2  
 
UK
    6,819       6,843       6,318       0       8  
 
Rest of Europe
    4,228       4,154       4,100       2       3  
 
Middle East and Africa
    154       145       127       6       21  
 
US
    22,078       22,066       22,064       0       0  
 
Rest of the Americas
    1,192       1,171       1,132       2       5  
 
Asia Pacific
    7,684       7,563       6,944       2       11  
 
Total
    65,707       65,396       63,876       0       3  
 
Personnel by reporting segment
                                         
 
    As of   % change from
Full-time equivalents   30.6.11     31.3.11     30.6.10     31.3.11     30.6.10  
 
Wealth Management
    16,110       15,997       15,352       1       5  
 
Retail & Corporate
    11,586       11,545       11,989       0       (3 )
 
Wealth Management & Swiss Bank
    27,696       27,542       27,341       1       1  
 
Wealth Management Americas
    16,240       16,234       16,341       0       (1 )
 
Global Asset Management
    3,789       3,789       3,454       0       10  
 
Investment Bank
    17,776       17,628       16,552       1       7  
 
Corporate Center
    206       203       188       1       10  
 
Total
    65,707       65,396       63,876       0       3  
 
of which: Corporate Center personnel (before allocations)
    19,667       19,588       19,461       0       1  
 

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Table of Contents

UBS business divisions and Corporate Center

Management report

 

 


Table of Contents

Wealth Management & Swiss Bank
Wealth Management & Swiss Bank
                                                         
Business division reporting
    As of or for the quarter ended   % change from   Year-to-date
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
Net interest income
    1,059       1,083       1,042       (2 )     2       2,143       2,054  
 
Net fee and commission income
    1,476       1,538       1,601       (4 )     (8 )     3,014       3,212  
 
Net trading income
    287       260       238       10       21       547       469  
 
Other income
    16       9       13       78       23       25       36  
 
Income
    2,838       2,891       2,893       (2 )     (2 )     5,729       5,772  
 
Credit loss (expense) / recovery
    2       2       (8 )     0               4       (4 )
 
Total operating income
    2,840       2,893       2,886       (2 )     (2 )     5,733       5,767  
 
Personnel expenses
    1,217       1,285       1,201       (5 )     1       2,502       2,391  
 
General and administrative expenses
    492       518       483       (5 )     2       1,009       954  
 
Services (to) / from other business divisions
    (33 )     (35 )     (12 )     (6 )     175       (67 )     (36 )
 
Depreciation of property and equipment
    69       75       78       (8 )     (12 )     144       158  
 
Amortization of intangible assets
    2       2       5       0       (60 )     3       7  
 
Total operating expenses
    1,747       1,844       1,754       (5 )     0       3,591       3,475  
 
Business division performance before tax
    1,094       1,049       1,131       4       (3 )     2,142       2,293  
 
 
                                                       
Key performance indicators1
                                                       
 
Pre-tax profit growth (%)
    4.3       23.6       (2.6 )                     (6.6 )     14.1  
 
Cost / income ratio (%)
    61.6       63.8       60.6                       62.7       60.2  
 
Net new money (CHF billion)2
    5.0       13.1       (5.5 )                     18.1       (13.7 )
 
 
                                                       
Additional information
                                                       
 
Average attributed equity (CHF billion)3
    10.0       10.0       9.0       0       11                  
 
Return on attributed equity (RoaE) (%)
                                            42.8       51.0  
 
BIS risk-weighted assets (CHF billion)
    40.6       43.4       46.2       (6 )     (12 )                
 
Return on risk-weighted assets, gross (%)
                                            26.8       24.1  
 
Goodwill and intangible assets (CHF billion)
    1.3       1.5       1.6       (13 )     (19 )                
 
Invested assets (CHF billion)
    882       929       917       (5 )     (4 )                
 
Client assets (CHF billion)
    1,774       1,841       1,780       (4 )     0                  
 
Loans, gross (CHF billion)
    207.3       206.9       201.6       0       3                  
 
Due to customers (CHF billion)
    271.8       280.5       277.0       (3 )     (2 )                
 
Personnel (full-time equivalents)
    27,696       27,542       27,341       1       1                  
 
1 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section on page 33 of our Annual Report 2010.   2 Excludes interest and dividend income.   3 Refer to the “Capital management” section of this report for more information about the equity attribution framework.

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UBS business divisions and Corporate Center
Wealth Management
Pre-tax profit was CHF 672 million, up 4% from the previous quarter. Lower income due to lower invested asset levels and reduced client activity was more than offset by reduced operating expenses. The gross margin on invested assets was 97 basis points. At CHF 5.6 billion, net new money was positive for the fourth consecutive quarter.
                                                         
Business unit reporting
    As of or for the quarter ended     % change from     Year-to-date  
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
Net interest income
    485       493       433       (2 )     12       978       842  
 
Net fee and commission income
    1,175       1,243       1,294       (5 )     (9 )     2,419       2,608  
 
Net trading income
    209       182       178       15       17       390       348  
 
Other income
    (4 )     1       (14 )             (71 )     (3 )     (3 )
 
Income
    1,865       1,919       1,892       (3 )     (1 )     3,784       3,794  
 
Credit loss (expense) / recovery
    2       9       (1 )     (78 )             11       0  
 
Total operating income
    1,867       1,928       1,891       (3 )     (1 )     3,795       3,795  
 
Personnel expenses
    800       863       797       (7 )     0       1,663       1,578  
 
General and administrative expenses
    281       299       276       (6 )     2       580       551  
 
Services (to) / from other business divisions
    75       79       113       (5 )     (34 )     153       219  
 
Depreciation of property and equipment
    37       40       42       (8 )     (12 )     77       85  
 
Amortization of intangible assets
    2       2       5       0       (60 )     3       7  
 
Total operating expenses
    1,194       1,283       1,232       (7 )     (3 )     2,477       2,440  
 
Business unit performance before tax
    672       645       658       4       2       1,318       1,354  
 
 
                                                       
Key performance indicators1
                                                       
 
Pre-tax profit growth (%)
    4.2       39.6       (5.5 )                     (2.7 )     15.0  
 
Cost / income ratio (%)
    64.0       66.9       65.1                       65.5       64.3  
 
Net new money (CHF billion)2
    5.6       11.1       (5.2 )                     16.7       (13.1 )
 
Gross margin on invested assets (bps)3
    97       98       95       (1 )     2       98       94  
 
 
                                                       
Swiss wealth management
                                                       
 
Income
    384       401       396       (4 )     (3 )     785       784  
 
Net new money (CHF billion)2
    0.1       2.2       (1.3 )                     2.3       (2.4 )
 
Invested assets (CHF billion)
    132       136       134       (3 )     (1 )                
 
Gross margin on invested assets (bps)
    115       118       115       (3 )     0       116       112  
 
 
                                                       
International wealth management
                                                       
 
Income
    1,481       1,518       1,495       (2 )     (1 )     2,999       3,010  
 
Net new money (CHF billion)2
    5.5       8.9       (3.9 )                     14.3       (10.7 )
 
Invested assets (CHF billion)
    616       654       652       (6 )     (6 )                
 
Gross margin on invested assets (bps)3
    93       95       90       (2 )     3       94       90  
 
1 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section on page 33 of our Annual Report 2010.   2 Excludes interest and dividend income.   3 Excludes negative valuation adjustments on a property fund (2Q11: CHF 0 million, 1Q11: CHF 0 million, 2Q10: CHF 17 million).

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Wealth Management & Swiss Bank
                                                         
Business unit reporting (continued)
    As of or for the quarter ended     % change from     Year-to-date  
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
 
                                                       
Additional information
                                                       
 
Average attributed equity (CHF billion)1
    5.0       5.0       4.4       0       14                  
 
Return on attributed equity (RoaE) (%)
                                            52.7       61.5  
 
BIS risk-weighted assets (CHF billion)
    16.4       16.9       17.6       (3 )     (7 )                
 
Return on risk-weighted assets, gross (%)
                                            45.1       41.9  
 
Goodwill and intangible assets (CHF billion)
    1.3       1.5       1.6       (13 )     (19 )                
 
Invested assets (CHF billion)
    748       791       786       (5 )     (5 )                
 
Client assets (CHF billion)
    891       948       954       (6 )     (7 )                
 
Loans, gross (CHF billion)
    71.2       70.9       66.1       0       8                  
 
Due to customers (CHF billion)
    155.6       163.3       170.9       (5 )     (9 )                
 
Personnel (full-time equivalents)
    16,110       15,997       15,352       1       5                  
 
Client advisors (full-time equivalents)
    4,203       4,194       4,112       0       2                  
 
1 Refer to the “Capital management” section of this report for more information about the equity attribution framework.
Results: 2Q11 vs 1Q11
Operating income
Total operating income decreased 3% to CHF 1,867 million from CHF 1,928 million in the prior quarter, reflecting lower fee and net interest income.
Net interest income decreased 2% to CHF 485 million from CHF 493 million in the previous quarter. This decrease was partly due to the strengthening of the Swiss franc, which adversely affected loans and client deposit levels. Moreover, net interest income was affected by ongoing low market interest rates leading to a decline in the yield of our replication portfolio.
è   Refer to the “Interest rate and currency management” section of our Annual Report 2010 for more information on our replication portfolios
Net fee and commission income decreased by CHF 68 million, or 5%, due to a significant decline in invested asset levels related to the strengthening of the Swiss franc as well as reduced client activity levels. In Wealth Management, 31% of invested assets were denominated in euros and 30% in US dollars as of 30 June 2011.
è   Refer to the “How foreign exchange movements affect our reported results” sidebar in the “UBS Group” section of this report for more information
Net trading income increased by CHF 27 million, mainly reflecting additional revenues from treasury-related activities.
Other income remained virtually unchanged, while net credit loss recoveries decreased to CHF 2 million from CHF 9 million.
Operating expenses
Operating expenses decreased 7% to CHF 1,194 million from CHF 1,283 million.
Personnel expenses were reduced 7% to CHF 800 million, mainly due to lower accruals for variable compensation, which included the release related to an over accrual for variable compensation in the previous year. This more than compensated for salary increases effective from 1 March 2011 and a slight increase in the number of personnel. General and administrative expenses declined by CHF 18 million, or 6%, due to the partial reversal of an accrual.
Invested assets development: 2Q11 vs 1Q11
Net new money
Net new money was positive for the fourth consecutive quarter with net inflows of CHF 5.6 billion compared with net inflows of CHF 11.1 billion in the previous quarter.
International wealth management reported net inflows of CHF 5.5 billion compared with CHF 8.9 billion in the previous quarter, with continued net inflows in the Asia Pacific region and emerging markets, as well as globally from ultra high net worth clients. Our European onshore business reported continued net inflows, while our European cross-border business recorded net outflows mainly from the cross-border business related to neighboring countries of Switzerland.
Swiss wealth management reported net inflows of CHF 0.1 billion compared with CHF 2.2 billion in the previous quarter.


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UBS business divisions and Corporate Center
Invested assets
Invested assets were CHF 748 billion on 30 June 2011, a decrease of CHF 43 billion from 31 March 2011. This was mainly due to a significant decrease in the value of the US dollar and the euro against the Swiss franc.
Gross margin on invested assets
The gross margin on invested assets was 97 basis points compared with 98 basis points in the prior quarter, as revenues declined 3%, while average invested assets decreased 1%.
Personnel: 2Q11 vs 1Q11
Wealth Management employed 16,110 personnel on 30 June 2011, compared with 15,997 on 31 March 2011.
At the end of the second quarter, the number of client advisors was 4,203, slightly higher than in the previous quarter due to selective hiring in strategic growth regions.
Results: 6M11 vs 6M10
In the first half of 2011, pre-tax profit decreased 3% to CHF 1,318 million from CHF 1,354 million in the first half of 2010.
Total operating income was unchanged at CHF 3,795 million compared with the first half of 2010. Net interest income increased 16%, mainly reflecting higher treasury-related income and higher lending volumes. This was partially offset by the strengthening of the Swiss franc as well as lower margins resulting from low market interest rates.
Net fee and commission income declined 7% compared with the first half of 2010, mainly as a result of a CHF 41 billion lower average invested asset base, primarily due to the strengthening of the Swiss franc. Trading income was higher compared with the first half of 2010, partially due to additional revenues from treasury-related activities. Other income was flat, while net credit loss recoveries increased to CHF 11 million in the first half of 2011 from zero in the first half of 2010.
Operating expenses were up 2% compared with the first half of 2010, mainly due to higher personnel expenses, which increased 5% to CHF 1,663 million, reflecting an overall personnel increase of 5%. Non-personnel expenses were down 6% compared with the first half of 2010, primarily following higher charges to other businesses related to services provided by the Investment Products & Services unit.


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Wealth Management & Swiss Bank
Retail & Corporate
Pre-tax profit was CHF 421 million in the second quarter of 2011, up 4% from the previous quarter as operating income benefited from lower credit loss expenses and certain non-recurring revenue items. Additionally, operating expenses were reduced 2% compared with the first quarter.
                                                         
Business unit reporting
    As of or for the quarter ended     % change from     Year-to-date  
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
Net interest income
    575       590       609       (3 )     (6 )     1,165       1,213  
 
Net fee and commission income
    301       295       306       2       (2 )     596       605  
 
Net trading income
    78       79       60       (1 )     30       157       121  
 
Other income
    20       8       26       150       (23 )     28       39  
 
Income
    973       972       1,002       0       (3 )     1,945       1,977  
 
Credit loss (expense) / recovery
    0       (7 )     (7 )     (100 )     (100 )     (7 )     (5 )
 
Total operating income
    974       965       995       1       (2 )     1,939       1,973  
 
Personnel expenses
    417       422       404       (1 )     3       839       813  
 
General and administrative expenses
    211       219       207       (4 )     2       430       403  
 
Services (to) / from other business divisions
    (107 )     (113 )     (125 )     (5 )     (14 )     (221 )     (255 )
 
Depreciation of property and equipment
    32       34       36       (6 )     (11 )     66       74  
 
Amortization of intangible assets
    0       0       0                       0       0  
 
Total operating expenses
    552       562       522       (2 )     6       1,114       1,034  
 
Business unit performance before tax
    421       403       473       4       (11 )     824       938  
 
 
                                                       
Key performance indicators1
                                                       
 
Pre-tax profit growth (%)
    4.5       4.1       1.7                       (12.2 )     12.7  
 
Cost / income ratio (%)
    56.7       57.8       52.1                       57.3       52.3  
 
Impaired loan portfolio as a % of total loan portfolio, gross (%)2
    0.8       0.9       0.9                                  
 
 
                                                       
Additional information
                                                       
 
Average attributed equity (CHF billion)3
    5.0       5.0       4.6       0       9                  
 
Return on attributed equity (RoaE) (%)
                                            33.0       40.8  
 
BIS risk-weighted assets (CHF billion)
    24.2       26.6       28.6       (9 )     (15 )                
 
Return on risk-weighted assets, gross (%)
                                            15.0       13.2  
 
Goodwill and intangible assets (CHF billion)
    0.0       0.0       0.0                                  
 
Invested assets (CHF billion)
    134       138       131       (3 )     2                  
 
Client assets (CHF billion)
    883       894       826       (1 )     7                  
 
Loans, gross (CHF billion)
    136.1       136.0       135.5       0       0                  
 
Due to customers (CHF billion)
    116.2       117.2       106.0       (1 )     10                  
 
Personnel (full-time equivalents)
    11,586       11,545       11,989       0       (3 )                
 
1 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section on page 33 of our Annual Report 2010.   2 Refer to the “Risk management and control” section of this report for more information on impairment ratios.   3 Refer to the “Capital management” section of this report for more information about the equity attribution framework.

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UBS business divisions and Corporate Center
Results: 2Q11 vs 1Q11
Operating income
Total operating income was CHF 974 million, up 1% from the prior quarter, mainly reflecting lower credit loss expenses, income from a small divestment and higher dividends from participations.
Net interest income was CHF 575 million, down CHF 15 million from the prior quarter. Higher average loan and deposit volumes were offset by lower interest margins. This resulted from continued competitive pressure and ongoing low market interest rates, leading to a decline in the yield of our replication portfolio.
è   Refer to the “Interest rate and currency management” section of our Annual Report 2010 for more information on our replication portfolios
Net fee and commission income of CHF 301 million was 2% higher, mainly reflecting pricing adjustments on selected products. Net trading income was CHF 78 million, almost unchanged from the previous quarter. Other income increased to CHF 20 million from CHF 8 million due to the divestment of a small real estate company and dividends from participations, primarily in the SIX Swiss Exchange.
In the second quarter, credit losses declined to zero compared with a credit loss expense of CHF 7 million in the first quarter of 2011.
Operating expenses
Operating expenses decreased by CHF 10 million to CHF 552 million compared with the previous quarter.
Personnel expenses decreased CHF 5 million to CHF 417 million, as salary increases effective from March 2011 and costs of slightly higher headcount were offset by lower accruals for variable compensation. General and administrative expenses declined to CHF 211 million from CHF 219 million in the previous quarter. Depreciation was CHF 32 million, almost unchanged from the previous quarter.
Personnel: 2Q11 vs 1Q11
Retail & Corporate employed 11,586 personnel on 30 June 2011, compared with 11,545 on 31 March 2011. A small number of employees both in client facing and central services units were hired during the second quarter.
Results: 6M11 vs 6M10
In the first half of 2011, pre-tax profit was CHF 824 million compared with CHF 938 million in the first half of 2010.
Total operating income decreased to CHF 1,939 million from CHF 1,973 million. Net interest income fell 4% from the first half of 2010, mainly due to a decrease in deposit margins as a result of the adverse interest rate environment and ongoing competitive pressure. Net fee and commission income was CHF 596 million compared with CHF 605 million in the first half of 2010. Net trading income increased to CHF 157 million from CHF 121 million, partially reflecting higher treasury-related income. Other income was CHF 28 million compared with CHF 39 million in the first half of 2010.
Credit loss expenses were CHF 7 million in the first half of 2011 compared with CHF 5 million in the first half of 2010.
Operating expenses in the first half of 2011 were CHF 1,114 million compared with CHF 1,034 million in the first half of 2010. Personnel expenses increased to CHF 839 million from CHF 813 million, primarily due to higher pension fund costs and salary increases in 2011. Non-personnel expenses increased by CHF 54 million, mainly as a result of higher administrative costs and lower net charges to other businesses. Non-personnel expenses were affected by a refinement of cost allocation keys due to a review of service level agreements and allocations between Retail & Corporate, Wealth Management and other parts of the organization in the first half of 2011.


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Wealth Management Americas
Wealth Management Americas
Pre-tax profit improved to CHF 140 million in the second quarter of 2011 from CHF 111 million in the first quarter of 2011. The second quarter was marked by a 4% revenue growth in US dollar terms and included realized gains of CHF 25 million on sales of financial investments held as available-for-sale. Net new money of CHF 2.6 billion was recorded in the quarter and financial advisor recruiting and retention rates continued to improve.
                                                         
Business division reporting
    As of or for the quarter ended     % change from     Year-to-date  
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
Net interest income
    168       165       181       2       (7 )     333       346  
 
Net fee and commission income
    988       1,049       1,140       (6 )     (13 )     2,037       2,177  
 
Net trading income
    101       118       148       (14 )     (32 )     219       298  
 
Other income
    28       15       16       87       75       43       26  
 
Income
    1,285       1,346       1,486       (5 )     (14 )     2,631       2,847  
 
Credit loss (expense) / recovery
    (1 )     1       (1 )             0       0       0  
 
Total operating income
    1,284       1,347       1,485       (5 )     (14 )     2,631       2,847  
 
Personnel expenses
    928       1,005       1,123       (8 )     (17 )     1,933       2,192  
 
Financial advisor compensation1
    473       507       544       (7 )     (13 )     979       1,054  
 
Compensation commitments and advances related to recruited FAs2
    131       134       160       (2 )     (18 )     265       309  
 
Salaries and other personnel costs
    324       364       419       (11 )     (23 )     689       829  
 
General and administrative expenses
    188       194       339       (3 )     (45 )     382       560  
 
Services (to) / from other business divisions
    (4 )     0       (5 )             (20 )     (4 )     (7 )
 
Depreciation of property and equipment
    20       25       80       (20 )     (75 )     45       125  
 
Amortization of intangible assets
    12       12       15       0       (20 )     24       29  
 
Total operating expenses
    1,144       1,236       1,552       (7 )     (26 )     2,380       2,899  
 
Business division performance before tax
    140       111       (67 )     26               252       (52 )
 
 
                                                       
Key performance indicators3
                                                       
 
Pre-tax profit growth (%)4
    26.1       N/A       N/A                       N/A       N/A  
 
Cost / income ratio (%)
    89.0       91.8       104.4                       90.5       101.8  
 
Net new money (CHF billion)5
    2.6       3.6       (2.6 )                     6.2       (9.8 )
 
Net new money including interest and dividend income (CHF billion)6
    6.7       7.8       2.1                       14.5       (0.7 )
 
Gross margin on invested assets (bps)
    76       78       84       (3 )     (10 )     77       81  
 
1 Financial advisor compensation consists of grid-based compensation based directly on compensable revenues generated by financial advisors (FAs) and supplemental compensation calculated based on financial advisor productivity, firm tenure, assets and other variables.   2 Compensation commitments and advances related to recruited FAs represents costs related to compensation commitments and advances granted to financial advisors at the time of recruitment, which are subject to vesting requirements.   3 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section on page 33 of our Annual Report 2010.   4 Not meaningful if either the current period or the comparison period is a loss period.   5 Excludes interest and dividend income.   6 For purposes of comparison with US peers.

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UBS business divisions and Corporate Center
                                                         
Business division reporting (continued)
    As of or for the quarter ended     % change from     Year-to-date  
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
 
                                                       
Additional information
                                                       
 
Average attributed equity (CHF billion)1
    8.0       8.0       8.0       0       0                  
 
Return on attributed equity (RoaE) (%)
                                            6.3       (1.3 )
 
BIS risk-weighted assets (CHF billion)
    23.2       23.5       23.5       (1 )     (1 )                
 
Return on risk-weighted assets, gross (%)
                                            22.4       24.7  
 
Goodwill and intangible assets (CHF billion)
    3.3       3.6       4.3       (8 )     (23 )                
 
Invested assets (CHF billion)
    650       700       693       (7 )     (6 )                
 
Client assets (CHF billion)
    694       750       742       (7 )     (6 )                
 
Loans, gross (CHF billion)
    23.2       23.4       23.9       (1 )     (3 )                
 
Due to customers (CHF billion)
    32.0       35.0       38.8       (9 )     (18 )                
 
of which: deposit accounts (CHF billion)
    23.2       25.3       28.1       (8 )     (17 )                
 
Personnel (full-time equivalents)
    16,240       16,234       16,341       0       (1 )                
 
Financial advisors (full-time equivalents)
    6,862       6,811       6,760       1       2                  
 
 
                                                       
Business division reporting excluding PaineWebber acquisition costs2
                                         
 
Business division performance before tax
    161       134       (36 )     20               294       6  
 
Cost/income ratio (%)
    87.5       90.2       102.3                       88.9       99.8  
 
Average attributed equity (CHF billion)7
    5.1       5.0       4.5       2       13                  
 
1 Refer to the “Capital management” section of this report for more information about the equity attribution framework.   2 Acquisition costs represent goodwill and intangible assets funding costs and intangible asset amortization costs related to UBS’s 2000 acquisition of the PaineWebber retail brokerage business.
Results: 2Q11 vs 1Q11
Operating income
Total operating income decreased 5% to CHF 1,284 million from CHF 1,347 million. In US dollar terms, operating income increased 4% due to improvements in fee and interest income, as well as higher realized gains on sales of securities held as available-for-sale.
Net fee and commission income decreased 6%, but increased 3% in US dollar terms due to a 7% increase in recurring fees related to increased asset-based fees resulting from higher invested assets. This was partly offset by a 5% decrease in transaction-based revenues, mainly reflecting lower client activity in equities products. Net trading income decreased 14%, or 6% in US dollar terms, reflecting lower municipal and taxable fixed income trading results. Net interest income increased 2%, or 12% in US dollar terms, due to higher client balances in securities-based lending and mortgages, higher yields on lending products and lower US Federal Deposit Insurance Corporation insurance premiums. Other income increased by CHF 13 million, reflecting realized gains in the second quarter of CHF 25 million on sales of financial investments held in UBS Bank USA’s available-for-sale portfolio compared with CHF 7 million in the prior quarter. These gains resulted from rebalancing the investment portfolio for risk management purposes within the parameters of our investment policy. We will continue to manage the portfolio accordingly, which may result in realized gains or losses in the future.
Operating expenses
Total operating expenses decreased 7% to CHF 1,144 million from CHF 1,236 million. Excluding the effect of currency translation, operating expenses increased 1%.
Personnel expenses of CHF 928 million declined 8% compared with the first quarter, but in US dollar terms, personnel expenses increased 1%. Financial advisor compensation declined 7%, but increased 2% in US dollar terms due to higher revenue production. Expenses for compensation commitments and advances related to recruited financial advisors declined 2%, but increased 7% in US dollar terms. Salaries and other personnel expenses decreased 11%, or 3% in US dollar terms, due to lower accruals for variable compensation, partly offset by severance costs related to announced staff reductions in information technology as well as offshoring initiatives. Compensation advance balances decreased 8% to CHF 3,137 million at the end of the quarter, but were relatively flat in US dollar terms. Non-personnel expenses decreased 6% to CHF 216 million from CHF 231 million. In US dollar terms, non-personnel expenses increased 2%, reflecting 6% higher general and administrative expenses, mainly due to an increase in charges for litigation provisions to CHF 21 million from CHF 9 million in the prior quarter. Depreciation expenses decreased 20%, or 11% in US dollar terms, primarily due to the partial reversal of an impairment loss recorded in prior years on shared services property.


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Table of Contents

Wealth Management Americas
Invested assets development: 2Q11 vs 1Q11
Net new money
Second quarter net new money was CHF 2.6 billion compared with CHF 3.6 billion in the first quarter. Second quarter net new money was affected by annual client income tax payments, which contributed to a decline in net inflows among financial advisors employed with UBS for more than one year. Net recruiting of financial advisors was the primary driver of net new money in the second quarter.
Including interest and dividend income, net new money inflows were CHF 6.7 billion compared with inflows of CHF 7.8 billion in the prior quarter.
Invested assets
Invested assets decreased CHF 50 billion, or 7%, to CHF 650 billion on 30 June 2011, reflecting the effect of the Swiss franc strengthening significantly against the US dollar, though this was partly offset by positive market performance and net new money inflows. In US dollar terms, invested assets increased 2% from 31 March 2011. Managed account assets, which represent discretionary and non-discretionary investment advisory programs that earn recurring fees, declined to CHF 176 billion at the end of the second quarter from CHF 186 billion, but increased 4% in US dollar terms due to strong net new sales. Managed account assets comprised 27% of total invested assets on 30 June 2011, unchanged from 31 March 2011.
Gross margin on invested assets
The gross margin on invested assets in Swiss franc terms declined 2 basis points to 76 basis points, reflecting a 5% decrease in income compared with a 3% decline in average invested assets. In US dollar terms, the gross margin on invested assets increased 2 basis points to 79 basis points, as a 4% increase in income exceeded a 2% increase in average invested assets. The increase reflected higher fee and interest income, partly offset by lower transactional and trading income. Furthermore, the increase in realized gains on sales of financial investments held as available-for-sale contributed 1 basis point to the gross margin improvement.
Personnel: 2Q11 vs 1Q11
Wealth Management Americas employed 16,240 personnel as of 30 June 2011, up by 6 from 31 March 2011. The number of financial advisors has increased gradually over the past four quarters, reflecting new and experienced financial advisor hiring, and attrition rates that have improved to near record lows. At the end of the second quarter, Wealth Management Americas employed 6,862 financial advisors, up by 51 from the previous quarter. The number of non-financial-advisor employees decreased by 45 to 9,378 due to a lower allocation of Corporate Center shared services personnel.
Results: 6M11 vs 6M10
Wealth Management Americas’ performance improved significantly to a pre-tax profit of CHF 252 million in the first half of 2011 from a pre-tax loss of CHF 52 million in the first half of 2010, which included restructuring charges of CHF 167 million.
Operating income decreased 8% to CHF 2,631 million from CHF 2,847 million in the first half of 2010. In US dollar terms, operating income improved 12% due to higher asset-based fees, stronger transactional revenue and higher interest income resulting from increased lending volumes and increased yields. In addition, the first half of 2011 included realized gains of CHF 32 million on sales of financial investments held in UBS Bank USA’s available-for-sale portfolio.
Operating expenses decreased 18% to CHF 2,380 million from CHF 2,899 million in the first half of 2010. The first half of 2010 included restructuring charges of CHF 40 million related to personnel reductions and CHF 127 million related to real estate writedowns. Operating expenses in US dollar terms were virtually unchanged, as higher financial advisor compensation resulting from revenue growth, an increase in accruals for variable compensation and higher expenses for compensation commitments and advances related to the recruitment of financial advisors were mostly offset by lower non-financial advisor salary costs, litigation provisions, depreciation expenses and restructuring charges.


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Table of Contents

UBS business divisions and Corporate Center
Global Asset Management
Global Asset Management’s pre-tax profit in the second quarter of 2011 was CHF 108 million, compared with CHF 124 million in the prior quarter. There were two key drivers. First, lower performance fees, particularly in alternative and quantitative investments. Second, the strengthening of the Swiss franc which adversely affected the invested asset base and therefore net management fees. Declines in revenue were partly offset by lower personnel expenses.
                                                         
Business division reporting
    As of or for the quarter ended     % change from     Year-to-date  
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
Net management fees1
    428       443       514       (3 )     (17 )     871       986  
 
Performance fees
    16       53       8       (70 )     100       69       57  
 
Total operating income
    444       496       522       (10 )     (15 )     940       1,043  
 
Personnel expenses
    236       259       297       (9 )     (21 )     495       576  
 
General and administrative expenses
    92       102       99       (10 )     (7 )     194       193  
 
Services (to) / from other business divisions
    (1 )     0       (4 )             (75 )     (1 )     (5 )
 
Depreciation of property and equipment
    8       10       11       (20 )     (27 )     19       22  
 
Amortization of intangible assets
    2       2       2       0       0       3       4  
 
Total operating expenses
    337       373       405       (10 )     (17 )     709       789  
 
Business division performance before tax
    108       124       117       (13 )     (8 )     231       254  
 
 
                                                       
Key performance indicators2
                                                       
 
Pre-tax profit growth (%)
    (12.9 )     (16.2 )     (14.6 )                     (9.1 )     958.3  
 
Cost / income ratio (%)
    75.9       75.2       77.6                       75.4       75.6  
 
 
                                                       
Information by business line
                                                       
 
Income
                                                       
 
Traditional investments
    284       301       331       (6 )     (14 )     585       656  
 
Alternative and quantitative investments
    50       88       64       (43 )     (22 )     138       156  
 
Global real estate
    65       61       70       7       (7 )     126       118  
 
Infrastructure
    4       3       4       33       0       7       7  
 
Fund services
    41       43       54       (5 )     (24 )     84       107  
 
Total operating income
    444       496       522       (10 )     (15 )     940       1,043  
 
 
                                                       
Gross margin on invested assets (bps)
                                                       
 
Traditional investments
    24       25       26       (4 )     (8 )     24       26  
 
Alternative and quantitative investments
    57       99       69       (42 )     (17 )     78       82  
 
Global real estate
    72       68       74       6       (3 )     70       62  
 
Infrastructure
    160       120       160       33       0       140       140  
 
Total gross margin
    32       35       36       (9 )     (11 )     34       36  
 
 
                                                       
Net new money (CHF billion)3
                                                       
 
Traditional investments
    0.8       3.7       4.5                       4.5       3.5  
 
Alternative and quantitative investments
    (0.9 )     1.7       (1.2 )                     0.9       (3.6 )
 
Global real estate
    0.6       0.2       0.1                       0.8       0.8  
 
Infrastructure
    0.5       0.0       0.0                       0.5       0.1  
 
Total net new money
    1.1       5.6       3.4                       6.7       0.8  
 
1 Net management fees include transaction fees, fund administration revenues (including interest and trading income from lending business and foreign exchange hedging as part of the fund services offering), gains or losses from seed money and co-investments, funding costs and other items that are not performance fees.   2 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section on page 33 of our Annual Report 2010.   3 Excludes interest and dividend income.

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Global Asset Management
                                                         
Business division reporting (continued)
    As of or for the quarter ended     % change from     Year-to-date  
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
 
                                                       
Invested assets (CHF billion)
                                                       
 
Traditional investments
    466       495       494       (6 )     (6 )                
 
Alternative and quantitative investments
    33       37       36       (11 )     (8 )                
 
Global real estate
    36       36       38       0       (5 )                
 
Infrastructure
    1       1       1       0       0                  
 
Total invested assets
    536       569       569       (6 )     (6 )                
 
 
                                                       
Assets under administration by fund services
                                                       
 
Assets under administration (CHF billion)1
    383       403       399       (5 )     (4 )                
 
Net new assets under administration (CHF billion)2
    (0.1 )     8.3       (4.0 )                     8.2       (4.5 )
 
Gross margin on assets under administration (bps)
    4       4       5       0       (20 )     4       5  
 
 
                                                       
Additional information
                                                       
 
Average attributed equity (CHF billion)3
    2.5       2.5       2.5       0       0                  
 
Return on attributed equity (RoaE) (%)
                                            18.5       20.3  
 
BIS risk-weighted assets (CHF billion)
    3.5       3.5       3.3       0       6                  
 
Return on risk-weighted assets, gross (%)
                                            53.7       56.4  
 
Goodwill and intangible assets (CHF billion)
    1.4       1.5       1.7       (7 )     (18 )                
 
Personnel (full-time equivalents)
    3,789       3,789       3,454       0       10                  
 
1 This includes UBS and third-party fund assets, for which the fund services unit provides legal fund set-up and registration services, valuation, accounting and reporting and shareholder services.   2 Inflows of assets under administration from new and existing funds less outflows from existing funds or fund defection.   3 Refer to the “Capital management” section of this report for more information about the equity attribution framework.
Results: 2Q11 vs 1Q11
Operating income
Total operating income was CHF 444 million compared with CHF 496 million, mainly due to lower performance fees in alternative and quantitative investments and lower net management fees resulting from a lower average invested asset base due to the further strengthening of the Swiss franc. The decrease was marginally offset by higher transaction fees in global real estate.
è   Refer to the “How foreign exchange movements affect our reported results” sidebar in the “UBS Group” section of this report for more information
Operating expenses
Total operating expenses were CHF 337 million compared with CHF 373 million, with the strengthening of the Swiss franc contributing to a decrease across most expense lines. Personnel expenses decreased to CHF 236 million from CHF 259 million, mainly due to lower accruals for variable compensation. General and administrative expenses also decreased to CHF 92 million from CHF 102 million, mainly because of lower premises expenses.
Invested assets development: 2Q11 vs 1Q11
Net new money
Net new money inflows were CHF 1.1 billion compared with net inflows of CHF 5.6 billion. Excluding money market flows, net
new money inflows were CHF 3.5 billion compared with net inflows of CHF 7.2 billion.
Net new money inflows from third parties were CHF 4.8 billion compared with CHF 5.8 billion. These were partly offset by net outflows of CHF 3.7 billion from clients of UBS’s wealth management businesses compared with net outflows of CHF 0.2 billion. Net new money from clients of UBS’s wealth management businesses in the first quarter included CHF 1.8 billion related to the transfer of investment management responsibility for a multi-manager alternative fund from Wealth Management & Swiss Bank to Global Asset Management. Those assets are reported as invested assets in both business divisions, as Wealth Management & Swiss Bank continues to advise the clients invested in the fund.
Excluding money market flows, net inflows from third parties were CHF 5.7 billion, partly offset by net outflows from clients of UBS’s wealth management businesses of CHF 2.2 billion.
Invested assets
Invested assets were CHF 536 billion on 30 June 2011 compared with CHF 569 billion on 31 March 2011. The decrease was almost entirely the result of an adverse net currency effect. On 30 June 2011, CHF 84 billion, or 16%, of the invested assets were money market assets, in line with 31 March 2011. On a regional basis, 35% of invested assets related to clients serviced in Switzerland; 30% in the Americas; 19% in Europe, Middle East and Africa; and 16% in Asia Pacific.


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UBS business divisions and Corporate Center
Gross margin on invested assets
The gross margin was 32 basis points compared with 35 basis points in the prior quarter, as a result of lower performance fees.
Results by business line: 2Q11 vs 1Q11
Traditional investments
Revenues were CHF 284 million compared with CHF 301 million, mainly due to lower net management fees associated with the effect of the strengthening of the Swiss franc on the invested asset base. The gross margin was 24 basis points compared with 25 basis points in the prior quarter.
Net new money inflows were CHF 0.8 billion compared with net inflows of CHF 3.7 billion in the prior quarter. Excluding money market flows, net new money inflows were CHF 3.2 billion compared with net inflows of CHF 5.3 billion. Equities net inflows were CHF 0.7 billion, mainly into passive equities, compared with net inflows of CHF 5.9 billion in the first quarter. Fixed income net inflows increased to CHF 2.5 billion, mainly into global bonds and US fixed income, from CHF 0.8 billion. Multi-asset net new money was zero compared with net outflows of CHF 1.4 billion in the previous quarter.
Invested assets were CHF 466 billion on 30 June 2011 compared with CHF 495 billion on 31 March 2011, largely as a result of the strengthening of the Swiss franc. By mandate type, CHF 150 billion of invested assets related to equities, CHF 126 billion to fixed income, CHF 84 billion to money markets and CHF 106 billion to multi-asset mandates (including CHF 6 billion of alternative investments not managed by the alternative and quantitative investments, global real estate or infrastructure investment areas).
Alternative and quantitative investments
Revenues were CHF 50 million compared with CHF 88 million, mainly due to lower performance fees. Consequently, the gross margin decreased to 57 basis points from 99 basis points in the prior quarter.
Net new money outflows were CHF 0.9 billion, mainly from multi-manager funds, compared with net inflows of CHF 1.7 billion. The first quarter included a CHF 1.8 billion inflow related to the above mentioned transfer of investment management responsibility for a multi-manager alternative fund. Those assets are reported as invested assets in both business divisions, as Wealth Management & Swiss Bank continues to advise the clients of the fund.
Invested assets were CHF 33 billion on 30 June 2011 compared with CHF 37 billion on 31 March 2011, as a result of negative net currency effects and net new money outflows.
Global real estate
Revenues were CHF 65 million compared with CHF 61 million, mainly due to higher transaction fees. The gross margin was 72 basis points compared with 68 basis points.
Net new money inflows were CHF 0.6 billion, mostly into the main Swiss and US strategies, compared with CHF 0.2 billion.
Invested assets were CHF 36 billion on 30 June 2011, in line with 31 March 2011.
Infrastructure
Revenues were CHF 4 million, compared with CHF 3 million in the first quarter.
Net new money inflows were CHF 0.5 billion, mainly into international funds, compared with zero in the previous quarter.
Invested assets were CHF 1 billion on 30 June 2011, in line with 31 March 2011.
Fund services
Revenues were CHF 41 million compared with CHF 43 million, mainly due to lower administrative fees associated with lower average assets under administration. The gross margin on assets under administration was 4 basis points, unchanged from the prior period.
Net new assets under administration outflows were CHF 0.1 billion compared with inflows of CHF 8.3 billion in the prior quarter. The flows consisted of CHF 3.5 billion net outflows from UBS funds (compared with net inflows of CHF 2.5 billion in the prior quarter), largely offset by CHF 3.4 billion net inflows from third-party funds (down from CHF 5.8 billion in the prior quarter).
Total assets under administration were CHF 383 billion on 30 June 2011 compared with CHF 403 billion on 31 March 2011, resulting from an adverse net currency effect.
Personnel: 2Q11 vs 1Q11
The number of personnel on 30 June 2011 was 3,789, unchanged from 31 March 2011.
Results: 6M11 vs 6M10
Pre-tax profit was CHF 231 million in the first half of 2011 compared with CHF 254 million in the first half of 2010. Total operating income was CHF 940 million, a decrease from CHF 1,043 million, mainly due to lower net management fees, marginally offset by higher performance fees. The decrease in net management fees was mainly due to the strengthening of the Swiss franc. Traditional investments revenues were CHF 585 million compared with CHF 656 million, as management fees were adversely affected by the abovementioned currency effect. Alternative and quantitative investments revenues were CHF 138 million compared with CHF 156 million, as an increase in performance fees was more than offset by the abovementioned adverse currency effect. Global real estate revenues increased to CHF 126 million from CHF 118 million, mainly as a result of higher performance fees. Infrastructure revenues were CHF 7 million, in line with the first six months of 2010. Fund services revenues decreased to CHF 84 million from CHF 107 million, mainly due to the abovementioned currency effect.
Total operating expenses were lower at CHF 709 million in the first half of 2011 compared with CHF 789 million in the first half of 2010, with lower personnel expenses being the main factor.


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Global Asset Management

Investment performance
In the second quarter of 2011, the majority (five out of eight) of our key equities strategies performed ahead of their benchmarks. Meanwhile, the average return among the relevant peer group was below benchmark for seven out of the eight strategies shown in the table. Long-term performance records remained strong and, over three and five years, a clear majority of equity strategies outperformed their benchmarks. After a strong full year 2010 and first quarter of 2011, fixed income faced a more challenging quarter. Long risk positioning generally detracted in an environment of increased risk aversion due to ongoing concerns about the sover-
eign euro markets. While several key bond strategies lagged their benchmarks in the quarter, longer-term performance remained strong. Global investment solutions’ multi-asset strategies finished the quarter ahead of benchmark and strongly outperformed over one year. Market allocation contributed positively over these periods, while currency strategy was a detractor in the quarter, yet a positive contributor over the longer term.
Among alternative strategies (not shown in the table), real estate strategies generally continued to perform well and direct infrastructure returns were in line with target levels. Investment performance in alternative and quantitative investments was solid but not sufficiently strong to generate significant performance fees.


Investment performance – key composites
 
The table below shows investment performance for approximately 40% of Global Asset Management’s CHF 290 billion actively-managed invested assets in traditional investments on 30 June 2011. This figure excludes CHF 84 billion in actively-
managed money market funds, CHF 86 billion in passively-managed investments and CHF 76 billion in alternatives (including alternative and quantitative investments, global real estate and infrastructure).


                                 
                    Annualized
    3 months     1 year     3 years     5 years  
 
Equities
                               
 
Global Equity Composite vs. MSCI World Equity (Free) Index
                +       +  
 
US Large Cap Equity Composite vs. Russell 1000 Index
    +                    
 
Pan European Equity Composite vs. MSCI Europe Free Index
    +             +       +  
 
Swiss Equity Composite vs. SPI (Total Return) Index
                +       +  
 
Asian Equity Composite vs. MSCI All Country Asia ex Japan Index
    +             +       +  
 
Emerging Equity Composite vs. Emerging Markets Equity Index
    +       +       +       +  
 
Global Ex-US Growth Equity Composite vs. MSCI EAFE (Free) Index
                       
 
US Large Cap Select Growth Equity Composite vs. Russell 1000 Growth Index
    +       +       +       +  
 
Fixed income
                               
 
Global Bond Composite vs. Citigroup World Government Bond Index
          +       +        
 
US Bond Composite vs. Barclays Capital U.S. Aggregate Index
          +              
 
EUR Aggregate Bonds Composite vs. Barclays Capital Euro Aggregate 500mio+ Index
    +       +       +       +  
 
CHF Bonds Ausland Composite vs. Swiss Bond Foreign AAA-BBB (Total Return) Index
          +       +       +  
 
Australian Bond Composite vs. UBS Australian Composite Bond Index (0+ Yrs)
          +       +       +  
 
Emerging Bond Composite vs. Emerging Markets Debt Index1
    +       +              
 
Global investment solutions
                               
 
Global Securities Composite vs. Global Securities Markets Index1
    +       +              
 
1 Customized benchmark.
(+) above benchmark; (–) under benchmark; (=) equal to benchmark. All are before the deduction of investment management fees. Global composites are stated in US dollar terms; all others are in appropriate local currencies (unless otherwise stated). A composite is an aggregation of one or more portfolios in a single group that is representative of a particular strategy, style, or objective. The composite is the asset-weighted average of the performance results of all the portfolios it holds.

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UBS business divisions and Corporate Center
Investment Bank
Pre-tax profit was CHF 376 million in the second quarter of 2011 compared with CHF 1,314 million in the second quarter of 2010. The pre-tax profit excluding own credit was CHF 401 million compared with CHF 719 million, mainly reflecting lower revenues in all businesses.
                                                         
Business division reporting
    As of or for the quarter ended     % change from     Year-to-date  
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
Investment banking
    410       466       478       (12 )     (14 )     877       1,082  
 
Advisory revenues
    236       273       153       (14 )     54       509       361  
 
Capital market revenues
    371       388       400       (4 )     (7 )     759       875  
 
Equities
    159       176       208       (10 )     (24 )     335       469  
 
Fixed income, currencies and commodities
    212       212       193       0       10       423       406  
 
Other fee income and risk management
    (197 )     (194 )     (75 )     2       163       (391 )     (153 )
 
 
                                                       
Securities
    2,204       3,111       3,068       (29 )     (28 )     5,315       6,488  
 
Equities
    1,054       1,310       1,365       (20 )     (23 )     2,364       2,620  
 
Fixed income, currencies and commodities
    1,150       1,801       1,703       (36 )     (32 )     2,951       3,867  
 
Total income
    2,615       3,577       3,546       (27 )     (26 )     6,192       7,570  
 
Credit loss (expense) / recovery1
    15       1       (39 )                     15       73  
 
Total operating income excluding own credit
    2,630       3,578       3,506       (26 )     (25 )     6,207       7,643  
 
Own credit2
    (25 )     (133 )     595       (81 )             (158 )     348  
 
Total operating income as reported
    2,604       3,445       4,101       (24 )     (37 )     6,050       7,990  
 
Personnel expenses
    1,517       1,871       2,000       (19 )     (24 )     3,387       3,992  
 
General and administrative expenses
    620       635       691       (2 )     (10 )     1,254       1,291  
 
Services (to) / from other business divisions
    37       34       18       9       106       71       40  
 
Depreciation of property and equipment
    48       63       70       (24 )     (31 )     111       145  
 
Amortization of intangible assets
    7       8       9       (13 )     (22 )     15       18  
 
Total operating expenses
    2,229       2,610       2,788       (15 )     (20 )     4,839       5,487  
 
Business division performance before tax
    376       835       1,314       (55 )     (71 )     1,211       2,504  
 
Business division performance before tax excluding own credit
    401       967       719       (59 )     (44 )     1,368       2,156  
 
 
                                                       
Key performance indicators3
                                                       
 
Pre-tax profit growth (%)4
    (55.0 )     735.0       10.4                       (51.6 )     N/A  
 
Cost / income ratio (%)
    86.1       75.8       67.3                       80.2       69.3  
 
Return on attributed equity (RoaE) (%)
                                            7.9       20.9  
 
Return on assets, gross (%)
                                            1.3       1.6  
 
Average VaR (1-day, 95% confidence, 5 years of historical data)
    75       73       48       3       56                  
 
1 Includes credit loss (expense) / recovery on reclassified and acquired securities (2Q11: recovery of CHF 13 million; 1Q11: recovery of CHF 3 million; 2Q10 expense of CHF 68 million).   2 Represents own credit changes on financial liabilities designated at fair value through profit or loss. The cumulative own credit gain for such debt held on 30 June 2011 amounts to CHF 0.1 billion. This gain has reduced the fair value of financial liabilities designated at fair value through profit or loss recognized on our balance sheet. Refer to “Note 11b Fair value of financial instruments” in the “Financial information” section of this report for more information.   3 For the definitions of our key performance indicators, refer to the “Measurement and analysis of performance” section on page 33 of our Annual Report 2010.   4 Not meaningful if either the current period or the comparison period is a loss period.

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Investment Bank
                                                         
Business division reporting (continued)
    As of or for the quarter ended     % change from     Year-to-date  
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
 
                                                       
Additional information
                                                       
 
Total assets (CHF billion)1
    902.4       951.1       1,078.2       (5 )     (16 )                
 
Average attributed equity (CHF billion)2
    32.0       29.0       24.0       10       33                  
 
BIS risk-weighted assets (CHF billion)
    129.7       123.5       122.9       5       6                  
 
Return on risk-weighted assets, gross (%)
                                            9.7       12.8  
 
Goodwill and intangible assets (CHF billion)
    2.8       3.1       3.6       (10 )     (22 )                
 
Compensation ratio (%)
    58.6       54.3       48.3                       56.1       50.4  
 
Impaired loan portfolio as a % of total loan portfolio, gross (%)3
    6.3       7.1       7.9                                  
 
Personnel (full-time equivalents)
    17,776       17,628       16,552       1       7                  
 
1 Based on third-party view, i.e. without intercompany balances.   2 Refer to the “Capital management” section of this report for more information about the equity attribution framework.   3 Refer to the “Risk management and control” section of this report for more information on impairment ratios.
Results: 2Q11 vs 2Q10
Total operating income as reported
We recorded total operating income of CHF 2,604 million in the second quarter of 2011 compared with CHF 4,101 million in the second quarter of 2010.
Total income
Total income was CHF 2,615 million compared with CHF 3,546 million. Revenues across all business segments declined, particularly in the fixed income, currencies and commodities (FICC) and equities businesses.
Credit loss expense / recovery
Net credit loss recoveries were CHF 15 million compared with a net credit loss expense of CHF 39 million in the second quarter of 2010. The recovery in this quarter was primarily related to credit write-ups against student loan auction rate securities (SLARS), mostly due to improved terminal values and write-ups from sales. In the second quarter of 2010, SLARS were the main driver behind the credit loss expense.
è   Refer to the “Risk management and control” section of this report for more information on credit risk
Own credit
An own credit loss on financial liabilities designated at fair value of CHF 25 million was recorded in the second quarter of 2011.
During the quarter, the own credit calculation was corrected to capture the volume effect of foreign currency movements on life-to-date own credit since initial recognition. This correction contributed an own credit loss of CHF 77 million. A further change arose from certain collateralized liabilities that were identified as having become insensitive to changes in our credit spread. This contributed a volume-related own credit loss of CHF 37 million. These adjustments more than offset the own credit gain that arose from our credit spread widening during the quar-
ter. However, the CHF 114 million of adjustments did not affect the Investment Bank’s performance before tax, as corresponding and offsetting gains were recorded in Securities revenues, mostly in FICC. An own credit gain of CHF 595 million was recorded in the second quarter of 2010 due to a widening of our credit spreads.
è   Refer to “Note 11b Fair value of financial instruments” in the “Financial information” section of this report for more information on own credit
Operating income by business segment
In the first quarter of 2011, we implemented two structural changes in our reporting related to commodities and risk management premiums. Risk management premiums are charges incurred for making loan facilities available to clients, reflecting the cost of hedging the related exposure. The changes were not material and therefore did not necessitate restatement at a divisional level. However, where relevant, we have made reference to aid explanation of the business segment results.
è   Refer to the “Accounting and reporting structure changes” section of our first quarter 2011 report for more information
All three business segments were significantly affected by the strengthening Swiss franc, as outlined in the comments below.
è   Refer to the “How foreign exchange movements affect our reported results” sidebar in the “UBS Group” section of this report for more information
Investment banking
In the second quarter of 2011, total revenues were CHF 410 million compared with CHF 478 million, due to the abovementioned revised allocation of the risk management premiums which were higher compared with the second quarter of 2010, and the strengthening of the Swiss franc. The combined advisory and capital markets revenues increased 10%.


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UBS business divisions and Corporate Center
Advisory revenues increased 54% to CHF 236 million from CHF 153 million due to several large transactions that closed in the quarter.
Capital market revenues were CHF 371 million compared with CHF 400 million. Equities capital market revenues decreased to CHF 159 million from CHF 208 million, with the reduction most pronounced in the Americas. Fixed income capital market revenues increased 10% to CHF 212 million from CHF 193 million, due to the strength in the leveraged finance business.
Other fee income and risk management revenues were negative CHF 197 million compared with negative CHF 75 million. This decline was largely due to an increase in and revised allocation of risk management premiums as mentioned above, partially offset by the positive effect of methodology changes.
Securities
Securities revenues were CHF 2,204 million, down from CHF 3,068 million in the second quarter of 2010.
Equities
Equities revenues decreased to CHF 1,054 million from CHF 1,365 million, primarily due to the strengthening of the Swiss franc, which adversely affected all business lines.
Cash revenues were CHF 398 million, down from CHF 482 million, as commission income decreased due to lower trading volumes, partially offset by an improved trading performance.
Derivatives and equity-linked revenues were lower at CHF 348 million compared with CHF 497 million, reflecting more challenging trading conditions than in the second quarter of 2010.
In the prime services business, revenues decreased to CHF 283 million from CHF 296 million, as increased balances and improved trading performance were offset by spread compression. Global clearing and execution volumes were down compared with the second quarter of 2010.
Other equities revenues, at CHF 26 million, were CHF 64 million lower than the second quarter of 2010. This was mainly due to a gain of CHF 47 million related to the demutualization of the Chicago Board Options Exchange in the second quarter of 2010.
Fixed income, currencies and commodities
FICC revenues were CHF 1,150 million, down from CHF 1,703 million, largely due to a decrease of CHF 435 million in other FICC revenues and the strengthening of the Swiss franc. Market conditions were weak and volatile as the eurozone crisis eroded investor confidence, resulting in elevated risk aversion and reduced client activity. FICC revenues were positively affected by gains related to the aforementioned adjustments made to the determination of own credit.
Credit revenues declined to CHF 401 million from CHF 464 million, adversely affected by the strengthening of the Swiss franc. Strong results in structured credit were more than offset by a dedine in credit flow trading in Europe and lower corporate lending revenues caused by smaller loan balances and spread compression.
In macro, revenues decreased to CHF 541 million from CHF 664 million affected by the strengthening of the Swiss franc. The rates business benefited from higher revenues in non-linear rates, offset by declines in linear rates largely driven by reduced client activity. Revenues in the foreign exchange business were lower as the exceptional volatility seen in the second quarter of 2010 did not recur, reducing the opportunity to capture spreads.
Emerging markets revenues nearly doubled to CHF 141 million from CHF 73 million, with increases seen across all regions, particularly in Europe. This was due to an improved performance in foreign exchange.
Other FICC revenues were CHF 67 million compared with CHF 502 million. The second quarter of 2011 included CHF 78 million of debit valuation adjustments on our derivatives portfolio as well as positive contributions from our commodities business. In contrast, the second quarter of 2010 included CHF 0.3 billion of debit valuation adjustments on the derivatives portfolio resulting from the widening of our credit default swap spreads and CHF 0.2 billion from residual risk positions.
Operating expenses
Total operating expenses were CHF 2,229 million compared with CHF 2,788 million, partially due to the strengthening of the Swiss franc. Lower personnel expenses were due to reduced accruals for variable compensation. In addition, the second quarter of 2010 included a CHF 228 million charge for the UK bank payroll tax, which did not recur in the second quarter of 2011. General and administrative expenses decreased to CHF 620 million from CHF 691 million, due to a reduction across a number of cost categories and a one time UK value added tax release, partly offset by an increase in provisions.
Personnel: 2Q11 vs 2Q10
The Investment Bank employed 17,776 personnel on 30 June 2011, an increase of 1,224 from 16,552 on 30 June 2010. As of the first quarter of 2011, a revised allocation methodology for Corporate Center personnel was implemented resulting in 613 more personnel being allocated to the Investment Bank. Further, the personnel increase included new hires, partly offset by attrition and the transfer of approximately 280 personnel to Wealth Management & Swiss Bank, as part of forming the Investment Products & Services unit.
Results: 6M11 vs 6M10
In the first half of 2011, we recorded a pre-tax profit of CHF 1,211 million compared with CHF 2,504 million. The pre-tax profit excluding own credit was CHF 1,368 million compared with CHF 2,156 million. Total income was CHF 6,192 million compared with CHF 7,570 million. Net credit loss recovery was CHF 15 million compared with a recovery of CHF 73 million. An own credit loss on financial liabilities designated at fair value of CHF 158 million


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Investment Bank

was recorded, compared with an own credit gain of CHF 348 million in the first half of 2010.
Revenues in investment banking declined to CHF 877 million from CHF 1,082 million. Advisory revenues increased as a result of several large transactions closing in the first half of 2011. This was more than offset by a decrease in capital market revenues and other fee income and by higher risk management premiums.
Within securities, equities revenues decreased to CHF 2,364 million from CHF 2,620 million, as revenues continued to be adversely affected by lower market volumes and the strengthening of the Swiss franc. FICC business revenues declined to CHF 2,951
million from CHF 3,867 million, as increases in credit and emerging markets businesses were more than offset by reductions in macro and other FICC revenues and the negative currency effects.
Operating expenses were CHF 4,839 million compared with CHF 5,487 million, partially due to the strengthening of the Swiss franc. Personnel expenses were CHF 3,387 million compared with CHF 3,992 million, primarily due to a reduction in accruals for variable compensation, and the inclusion of the UK bank payroll tax charges in the first half of 2010. General and administrative expenses decreased to CHF 1,254 million from CHF 1,291 million in the first half 2010.


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UBS business divisions and Corporate Center
Corporate Center
The pre-tax result from continuing operations in the second quarter of 2011 was a loss of CHF 63 million. This compares with a profit of CHF 116 million in the previous quarter, which included valuation gains of CHF 192 million on our option to acquire the SNB StabFund’s equity.
                                                         
Corporate Center reporting
    As of or for the quarter ended     % change from     Year-to-date  
CHF million, except where indicated   30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
Income
    (2 )     163       191                       161       547  
 
Credit loss (expense) / recovery
    0       (1 )     0       (100 )             (1 )     0  
 
Total operating income
    (2 )     163       191                       160       547  
 
Personnel expenses
    28       (13 )     25               12       15       14  
 
General and administrative expenses
    16       41       27       (61 )     (41 )     57       59  
 
Services (to) / from other business divisions
    0       1       4       (100 )     (100 )     2       8  
 
Depreciation of property and equipment
    15       18       17       (17 )     (12 )     33       40  
 
Amortization of intangible assets
    0       0       0                       0       0  
 
Total operating expenses
    61       46       72       33       (15 )     107       122  
 
Performance from continuing operations before tax
    (63 )     116       119                       53       425  
 
Performance from discontinued operations before tax
    0       0       0                       0       2  
 
Performance before tax
    (63 )     116       119                       54       427  
 
 
                                                       
Additional information
                                                       
 
BIS risk-weighted assets (CHF billion)
    9.3       9.5       8.9       (2 )     4                  
 
Personnel before allocations (full-time equivalents)
    19,667       19,588       19,461       0       1                  
 
Allocations to business divisions (full-time equivalents)
    (19,460 )     (19,385 )     (19,273 )     0       1                  
 
Personnel after allocations (full-time equivalents)
    206       203       188       1       10                  
 
 
                                                       
Corporate Center expenses before service allocation to business divisions
                         
 
Personnel expenses
    953       969       1,010       (2 )     (6 )     1,922       1,991  
 
General and administrative expenses
    792       842       890       (6 )     (11 )     1,634       1,702  
 
Depreciation of property and equipment
    153       183       216       (16 )     (29 )     336       426  
 
Total operating expenses before service allocation to business divisions
    1,898       1,994       2,116       (5 )     (10 )     3,892       4,119  
 
Net allocations to business divisions
    (1,837 )     (1,948 )     (2,043 )     (6 )     (10 )     (3,785 )     (3,997 )
 
Total operating expenses
    61       46       72       33       (15 )     107       122  
 

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Corporate Center
Results: 2Q11 vs 1Q11
Operating income
The Corporate Center’s operating income was negative CHF 2 million in the second quarter of 2011 compared with positive CHF 163 million in the prior quarter. The revaluation of our option to acquire the SNB StabFund’s equity resulted in a gain of CHF 13 million in the second quarter of 2011 compared with a gain of CHF 192 million in the prior quarter.
è   Refer to the “Risk management and control” section in this report for more information on changes in the value of our option to acquire the SNB StabFund’s equity
Treasury income remaining in the Corporate Center after allocations to the business divisions amounted to a gain of CHF 12 million in the second quarter of 2011, compared with a loss of CHF 13 million in the prior quarter. This was mainly due to a net credit from changes to the hedge ineffectiveness measurement used in relation to cash flow hedges, partly offset by the allocation of additional revenues from treasury-related activities back to the business divisions, beginning with the second quarter.
Operating expenses
On a gross basis before service allocations to the business divisions, the Corporate Center reported operating expenses of CHF 1,898 million, down from CHF 1,994 million in the prior quarter. Personnel expenses were relatively flat at CHF 953 million in the second quarter of 2011, as lower accruals for variable compensation offset the full effect of annual salary increases effective from 1 March 2011 as well as costs related to personnel reductions in Group Technology. General and administrative expenses decreased 6% to CHF 792 million, reflecting provision releases in corporate real estate, partly offset by higher communication and branding expenses. Depreciation expenses were lower due to the reversal of an impairment loss.
In the Corporate Center, approximately 60% of all costs before allocations to the business divisions occur in currencies other than the Swiss franc.
è   Refer to the “How foreign exchange movements affect our reported results” sidebar in the “UBS Group” section of this report for more information
Business divisions were charged net CHF 1,837 million for shared services, a decrease of CHF 111 million from the prior quarter. Total operating expenses remaining after allocations to the business divisions were CHF 61 million compared with CHF 46 million. These expenses mainly relate to operating expenses for Group governance functions and other corporate items.
Personnel
At the end of the second quarter of 2011, the Corporate Center employed 19,667 personnel, of which 19,460 were allocated to the business divisions based on the services used. The remaining 206 personnel related to Group governance functions and other corporate items.
è   Refer to the “Accounting and reporting structure changes” section of our first quarter 2011 report for more information on how the process of allocating Corporate Center personnel to the business divisions has been refined
Results: 6M11 vs 6M10
The pre-tax result from continuing operations was CHF 53 million in the first half of 2011 compared with CHF 425 million in the first half of 2010.
Operating income decreased by CHF 387 million. Group Treasury income in the first half of 2011 was a loss of CHF 1 million compared with a gain of CHF 118 million in the first half of 2010. This was mainly due to redemptions of trust preferred securities and the allocation of foreign currency exposure hedging gains to the business divisions. Moreover, in the first half of 2010 there was a CHF 180 million gain from the sale of investments in associates owning office space in New York. The valuation gain on our option to acquire the SNB StabFund’s equity was CHF 205 million in the first half of 2011 compared with CHF 299 million in the first half of 2010.
Costs before allocations to the business divisions were reduced to CHF 3,892 million in the first half of 2011 from CHF 4,119 million in the first half of 2010.


36


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Risk and treasury
management
Management report

 


Table of Contents

Risk management and control
Risk management and control
Despite observed movements in some of our risk exposures in the course of the quarter, our overall risk profile at the end of the second quarter was not materially different from that at the end of the first quarter of 2011.
Our risk management and control framework is described in the “Risk and treasury management” section of our Annual Report 2010, including details on how we define, measure and manage credit, market and operational risks as well as risk concentrations.
Credit risk
The tables in this section provide an update on our credit risk exposures on 30 June 2011, including details of our allowances and provisions for credit losses and the composition and credit quality of our key banking products portfolios in Wealth Management & Swiss Bank, and of counterparty exposures booked within the Investment Bank from banking products and over-the-counter (OTC) derivative contracts.
  è   Refer to the “Group results” section of this report for more information on credit loss expense / recovery in the second quarter
Gross banking products and impairments
The credit risk exposures reported in the table “Allowances and provisions for credit losses” represent the International Financial Reporting Standards (IFRS) balance sheet view of our gross banking products portfolio. This comprises the balance sheet line items Balances with central banks, Due from banks and Loans as well as the off-balance sheet items Guarantees and Loan commitments. The table also shows the IFRS reported allowances and provisions for credit losses and impaired exposure.
Our gross loan exposure decreased slightly to CHF 266 billion on 30 June 2011, from CHF 268 billion on 31 March 2011. Our gross impaired loan portfolio, including reclassified and acquired securities, was CHF 3.5 billion at the end of the second quarter,
compared with CHF 4.0 billion at the end of the prior quarter. The ratio of the impaired loan portfolio to total gross loan portfolio improved to 1.3% on 30 June 2011 from 1.5% on 31 March 2011, mainly due to sales of impaired student loan auction rate securities. Excluding securities, the ratio decreased to 0.8% in the second quarter of 2011.
     The total gross loan portfolio in the Investment Bank was CHF 35 billion on 30 June 2011, down from CHF 38 billion on 31 March 2011. The Investment Bank held CHF 5.0 billion of assets at carrying value in its loan portfolio, on which protection was purchased from monoline insurers (CHF 5.3 billion on 31 March 2011), and CHF 0.2 billion at carrying value of US commercial real estate positions (CHF 0.4 billion on 31 March 2011). These assets were reclassified to Loans and receivables from Held for trading in the fourth quarter of 2008. The reduction in our exposures to these assets in the second quarter resulted from a combination of sales and foreign exchange movements.
  è   Refer to “Note 12 Reclassification of financial assets” in the “Financial information” section of this report for more information on reclassified securities
 
  è   Refer to the “Risk concentrations” section of this report for more information on our exposures to monoline insurers
The Investment Bank’s gross impaired loan portfolio excluding securities decreased to CHF 697 million on 30 June 2011 from CHF 832 million on 31 March 2011, mainly due to sales of impaired student loan auction rate securities.
In Wealth Management & Swiss Bank, the gross loan portfolio remained stable at CHF 207 billion on 30 June 2011. The gross impaired loan exposure decreased slightly to CHF 1.2 billion on 30 June 2011.


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Allowances and provisions for credit losses
                                                                                 
 
                                    Allowances and              
                                    provisions for credit     Estimated liquidation        
CHF million, except where indicated   IFRS exposure, gross   Impaired exposure1   losses2   proceeds of collateral   Impairment ratio (%)  
 
As of
  30.6.11     31.3.11     30.6.11     31.3.11     30.6.11     31.3.11     30.6.11     31.3.11     30.6.11     31.3.11  
 
 
                                                                               
Group
                                                                               
 
Balances with central banks
    11,674       25,075                                                       0.0       0.0  
 
Due from banks
    21,432       16,361       17       18       20       22                       0.1       0.1  
 
Loans
    265,521       268,406       3,451       4,015       945       1,046       1,810       2,233       1.3       1.5  
 
of which: related to reclassified securities3
    10,198       11,395       1,120       1,506       169       208       971       1,319       11.0       13.2  
 
of which: related to acquired securities
    8,164       9,229       387       373       56       57       349       334       4.7       4.0  
 
of which: related to other loans
    247,159       247,783       1,944       2,136       720       781       490       580       0.8       0.9  
 
Guarantees
    15,586       17,179       92       105       87       88       5       6       0.6       0.6  
 
Loan commitments
    57,892       61,386       124       123       10       22       7       8       0.2       0.2  
 
Banking products
    372,103       388,407       3,685       4,262       1,062       1,177       1,822       2,247       1.0       1.1  
 
 
Investment Bank
                                                                               
 
Balances with central banks
    9,849       23,226                                                       0.0       0.0  
 
Due from banks
    15,468       11,608                                                       0.0       0.0  
 
Loans
    34,926       38,043       2,204       2,711       288       341       1,491       1,891       6.3       7.1  
 
of which: related to reclassified securities3
    10,198       11,395       1,120       1,506       169       208       971       1,319       11.0       13.2  
 
of which: related to acquired securities
    8,164       9,229       387       373       56       57       349       334       4.7       4.0  
 
of which: related to other loans
    16,564       17,419       697       832       63       76       171       238       4.2       4.8  
 
Guarantees
    4,667       5,708       54       66       58       62                       1.2       1.2  
 
Loan commitments
    49,913       52,888       94       94       2       11                       0.2       0.2  
 
Banking products
    114,823       131,472       2,353       2,872       348       414       1,491       1,891       2.0       2.2  
 
 
Wealth Management & Swiss Bank
                                                                               
 
Balances with central banks
    542       566                                                       0.0       0.0  
 
Due from banks
    3,716       2,684       17       18       20       22                       0.5       0.7  
 
Loans
    207,292       206,869       1,246       1,303       657       704       319       342       0.6       0.6  
 
Guarantees
    10,435       10,975       38       39       25       22       5       6       0.4       0.4  
 
Loan commitments
    6,720       7,146       30       29       8       11       7       8       0.4       0.4  
 
Banking products
    228,706       228,240       1,331       1,389       710       758       330       357       0.6       0.6  
 
 
Wealth Management
                                                                               
 
Balances with central banks
    397       416                                                       0.0       0.0  
 
Due from banks
    465       572                                                       0.0       0.0  
 
Loans
    71,156       70,906       116       142       105       116       15       35       0.2       0.2  
 
Guarantees
    2,215       2,378                                                       0.0       0.0  
 
Loan commitments
    953       1,077                                                       0.0       0.0  
 
Banking products
    75,186       75,349       116       142       105       116       15       35       0.2       0.2  
 
 
Retail & Corporate
                                                                               
 
Balances with central banks
    145       151                                                       0.0       0.0  
 
Due from banks
    3,251       2,113       17       18       20       22                       0.5       0.9  
 
Loans
    136,136       135,962       1,130       1,161       551       588       304       307       0.8       0.9  
 
Guarantees
    8,220       8,597       38       39       25       22       5       6       0.5       0.5  
 
Loan commitments
    5,767       6,069       30       29       8       11       7       8       0.5       0.5  
 
Banking products
    153,520       152,892       1,215       1,247       604       643       316       321       0.8       0.8  
 
1 Excludes reclassified securities with adverse cash flow estimate revisions cumulatively below 5% of the carrying value at reclassification date, adjusted for redemptions.   2 Excludes CHF 54 million in collective loan loss allowances (31.3.11: CHF 47 million).   3 Refer to “Note 12 Reclassification of financial assets” in the “Financial information” section of this report.

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Risk management and control

Wealth Management & Swiss Bank – loan portfolio
The table “Wealth Management & Swiss Bank: composition of loan portfolio, gross” shows the composition of the loan portfolio for Wealth Management & Swiss Bank as shown in the “Allowances and provisions for credit losses” table.
The composition of Wealth Management & Swiss Bank’s loan portfolio remained stable over the quarter. On 30 June 2011, 92% of the portfolio was secured by collateral. Approximately 52% of the unsecured loan portfolio was rated investment grade based on our internal ratings, and 57% of the unsecured portfolio was related to cash flow-based lending to corporate counterparties. In addition, 30% of our unsecured loans related to lending to public authorities, mainly in Switzerland.
Investment Bank – banking products and OTC derivatives exposure
The tables on the next page show the composition and credit quality of the Investment Bank’s banking products portfolio based on the internal management view of credit risk.
The table “Investment Bank: banking products and OTC derivatives exposure” shows banking products (loans, guarantees and loan commitments) and OTC derivatives, gross and net of allowances, provisions, credit valuation adjustments (CVA) and credit hedges. The second table provides a breakdown of the internal rating and loss given default profile of the banking products exposure to corporates and other non-banks, with additional detail provided on the sub-investment grade component.
The net banking products exposure after credit hedges increased to CHF 46.1 billion at the end of the second quarter from CHF 44.8 billion on 31 March 2011. Approximately 53% of our net banking products exposures after the application of credit hedges are classified as investment grade, based on our internal ratings. The vast majority of sub-investment grade exposures have a loss given default of 0–50%.
Loss given default is determined based on our estimation of the likely recovery rate of any defaulted claims. Recovery rates are dependent upon the characteristics of the counterparty in addition to any credit mitigation such as collateral held.
Included in the Investment Bank’s total net banking products exposure to corporates and other non-banks is our loan to the RMBS Opportunities Master Fund, LP, a special purpose entity managed by BlackRock Financial Management, Inc. On 30 June 2011, the loan had an outstanding balance of USD 5.1 billion
(compared with USD 5.4 billion on 31 March 2011), taking into account amounts held in escrow. The aggregate notional balance of the residential mortgage-backed securities (RMBS) fund’s assets collateralizing the loan on 30 June 2011 was USD 12.4 billion. By notional balance, this portfolio was comprised primarily of Alt-A (53%) and sub-prime (33%) products. In terms of priority, the portfolio was dominated by senior positions (95%).
We closely monitor the RMBS fund and its performance, particularly to determine if deterioration of the underlying RMBS mortgage pools indicates that the equity investors in the fund no longer receive the majority of the risks and rewards, and also to assess whether the loan to the RMBS fund has been impaired. Developments during the second quarter have not altered our conclusion that the loan is not impaired.
  è   Refer to the “Risk and treasury management” section of our Annual Report 2010 for more information on our loan to the RMBS Opportunities Master Fund, LP
Exposures to sovereign of selected industrialized European countries rated AA and below
The table “Exposures to sovereign of selected industrialized European countries rated AA and below” shows selected gross exposures and the respective net amounts to the sovereign of those countries. Exposure values are based on our bank-internal risk view.
Gross exposures consist of loans and loans equivalent, derivatives and securities financing, after deduction of collateral/risk transfers and gross of credit hedges. Tradable assets are included at market value as the sum of net long positions per issuer.
Our exposures to the sovereign in those selected countries remained modest or in the case of Italy still commensurate with its rating and the size of its economy. The increases in gross exposures are mainly driven by higher positions in tradable assets that are marked-to-market.
The increase in net exposure to the Italian sovereign was driven by reductions in credit protection mostly through CDS expirations late in the second quarter of 2011 but also by exposure increases due to interest rate moves. Early in the third quarter half of our incremental exposure (above 31 December 2010 levels) was once again hedged through the purchase of additional credit protection.
  è   Refer to the “Country risk” section of our Annual Report 2010 for more information


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Risk and treasury management
Wealth Management & Swiss Bank: composition of loan portfolio, gross
                                 
 
CHF million, except where indicated   30.6.11   31.3.11
 
Secured by residential property
    123,706       59.7 %     123,371       59.6 %
 
Secured by commercial / industrial property
    21,400       10.3 %     20,981       10.1 %
 
Secured by securities
    46,584       22.5 %     46,811       22.6 %
 
Unsecured loans
    15,601       7.5 %     15,706       7.6 %
 
Total loans, gross
    207,292       100.0 %     206,869       100.0 %
 
Total loans, net of allowances and credit hedges
    206,524               205,810          
 
Investment Bank: banking products and OTC derivatives exposure1
                                 
 
CHF million   Banking products   OTC derivatives
 
    30.6.11       31.3.11       30.6.11       31.3.11  
 
Total exposure, before deduction of allowances and provisions, CVA and hedges
    71,049       73,507       35,176       37,774  
 
Less: allowances, provisions and CVA
    (89 )     (111 )     (1,728 )     (1,452 )
 
Less: credit protection bought (credit default swaps, notional)
    (24,887 )     (28,552 )     (3,828 )     (3,764 )
 
Net exposure after allowances and provisions, CVA and hedges
    46,073       44,844       29,620       32,558  
 
1 Banking products: risk view, excludes balances with central banks, due from banks, reclassified and acquired securities and internal risk adjustments; OTC derivatives: net replacement value includes the adverse effect of netting agreements (including cash collateral) in accordance with Swiss Federal Banking Law, based on the IFRS scope of consolidation.
Investment Bank: distribution of net banking products exposure to corporates and other non-banks, across UBS-internal rating and loss given default (LGD) buckets
                                                                                 
 
CHF million, except where indicated   30.6.11   31.3.11
                            LGD buckets   Weighted             Weighted  
    Moody’s Investor     Standard & Poor’s                                             average             Average  
UBS-internal rating   Services equivalent     equivalent     Exposure       0–25%       26–50%       51–75%       76–100%     LGD (%)     Exposure     LGD (%)  
 
Investment grade
  Aaa to Baa3     AAA to BBB–       24,549       6,969       12,529       2,596       2,455       41       27,771       40  
 
Sub-investment grade
                    21,524       7,072       12,284       1,748       420       36       17,073       35  
 
of which: 6–9
  Ba1 to Ba3     BB+ to BB–       11,722       2,594       8,057       922       150       39       7,033       37  
 
of which: 10–12
  B1 to B3     B+ to B–       9,018       3,980       4,078       753       206       32       8,999       34  
 
of which: 13 & defaulted
  Caa & lower     CCC & lower       784       499       149       72       64       31       1,041       29  
 
Net banking products exposure to corporates and
other non-banks, after application of credit hedges
    46,073       14,041       24,813       4,343       2,875       39       44,844       38  
 
Exposures to sovereign1 of selected industrialized European countries rated AA and below2
                                 
 
CHF million   Gross exposure   Net exposure
         
As of
    30.6.11       31.12.10       30.6.11       31.12.10  
 
Italy, Sovereign
    3,192       2,812       1,312       395  
 
Belgium, Sovereign
    684       473       645       473  
 
Spain, Sovereign
    205       12       205       1  
 
Greece, Sovereign
    116       38       116       31  
 
Portugal, Sovereign
    53       29       53       25  
 
Iceland, Sovereign
    43       123       43       123  
 
Ireland, Sovereign
    4       25       4       20  
 
1 Includes central government bodies, semi-government institutions and central banks (i.e. excludes regions and municipals).   2 Traded products exposures are measured on a net replacement value (RV) basis and hedges applied.

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Risk management and control
Market risk
Most of our market risk comes from the Investment Bank’s trading activities. Group Treasury assumes foreign exchange and interest rate risk in connection with its balance sheet, profit and loss and capital management responsibilities. Our wealth and asset management operations also take limited market risk in support of client business.
Trading portfolios
For the purposes of our disclosure, value-at-risk (VaR) is used to quantify market risk exposures in our trading portfolios.
Value-at-risk
VaR is a statistical measure of market risk, representing the market risk losses that could potentially be realized over a set time horizon at an established level of confidence. This assumes no change in the firm’s trading positions over the relevant time period.
Actual realized market risk losses may differ from those implied by our VaR for a variety of reasons. For example, the historical period used in creating our VaR measure may include fluctuations in market rates and prices that differ from those in the future; our VaR measure is calibrated to a specified level of confidence and may not indicate potential losses beyond this confidence level and the impact on revenue of a market move may differ from that assumed by our VaR model. All VaR measures are subject to limitations and must be interpreted accordingly.
As a complement to VaR, we run macro stress scenarios bring-
ing together various combinations of macro-economic and market moves to reflect the most common types of potential stress events, and more targeted stress tests for concentrated exposures and vulnerable portfolios.
The tables show our 1-day 95% management VaR for the Group and the Investment Bank. The Investment Bank’s average management VaR in the second quarter remained nearly unchanged at CHF 75 million compared with CHF 73 million in the first quarter of 2011, whereas period-end Investment Bank VaR was lower at CHF 61 million on 30 June 2011 compared with CHF 71 million on 31 March 2011. The difference in the second quarter between average and period-end Investment Bank management VaR is due to a decrease in credit spread risk towards the end of the second quarter. Credit spread risk continued to be the dominant component of our VaR.
VaR for the Group as a whole followed a similar pattern to Investment Bank VaR.
Backtesting
Backtesting compares 1-day 99% regulatory VaR calculated on positions at the close of each business day with the revenues generated by those positions on the following business day. Backtesting revenues exclude non-trading revenues, such as fees and commissions, and estimated revenues from intraday trading. A backtesting exception occurs when backtesting revenues are negative and the absolute value of those revenues is greater than the previous day’s VaR. We did not have any backtesting exceptions in the second quarter of 2011.


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Risk and treasury management
Group: value-at-risk (1-day, 95% confidence, 5 years of historical data)
                                                                 
    For the quarter ended 30.6.11     For the quarter ended 31.3.11  
CHF million   Min.     Max.     Average     30.6.11     Min.     Max.     Average     31.3.11  
 
Business divisions and Corporate Center
                                                               
 
Investment Bank
    58       98       75       61       64       89       73       71  
 
Wealth Management & Swiss Bank
    0       0       0       0       0       0       0       0  
 
Wealth Management Americas
    1       2       1       2       1       1       1       1  
 
Global Asset Management
    0       0       0       0       0       0       0       0  
 
Corporate Center
    4       11       7       6       4       9       6       5  
 
Diversification effect
    1       1       (8 )     (5 )     1       1       (6 )     (5 )
 
Total management VaR, Group2
    59       97       76       64       66       92       74       72  
 
Diversification effect (%)
                    (9 )     (8 )                     (8 )     (6 )
 
1  As the minimum and maximum occur on different days for different business divisions, it is not meaningful to calculate a portfolio diversification effect.    2 Includes all positions subject to internal management VaR limits.
Investment Bank: value-at-risk (1-day, 95% confidence, 5 years of historical data)
                                                                 
    For the quarter ended 30.6.11     For the quarter ended 31.3.11  
CHF million   Min.     Max.     Average     30.6.11     Min.     Max.     Average     31.3.11  
 
Risk type
                                                               
 
Equities
    12       17       15       15       13       21       17       15  
 
Interest rates
    17       31       24       21       21       31       25       26  
 
Credit spreads
    53       83       70       53       59       75       68       66  
 
Foreign exchange
    5       15       9       7       4       17       7       12  
 
Energy, metals and commodities
    2       7       3       4       3       10       5       6  
 
Diversification effect
    1       1       (46 )     (39 )     1       1       (49 )     (54 )
 
Total management VaR, Investment Bank2
    58       98       75       61       64       89       73       71  
 
Diversification effect (%)
                    (38 )     (39 )                     (40 )     (43 )
 
1  As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.   2 Includes all positions subject to internal management VaR limits.

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Risk management and control
Non-trading portfolios
For the purpose of our disclosure, the market risks associated with our non-trading portfolios are quantified using sensitivity analysis. This includes an aggregate measure of our exposures to interest rate risk in the banking book as disclosed in our Annual Report 2010, and specific sensitivity information disclosed below for certain significant instrument categories that are not included in our management VaR.
Non-trading portfolios – valuation and sensitivity information by instrument category
Credit valuation adjustments on monoline credit protection
We previously entered into negative basis trades with monolines, whereby they provided credit default swap protection against UBS-held underlyings, including residential and commercial mortgage-backed securities collateralized debt obligations (RMBS and CMBS CDO), transactions with collateralized loan obligations (CLO), and asset-backed securities collateralized debt obligations (ABS CDO). Since the start of the financial crisis, the credit valuation adjustments (CVA) relating to these monoline exposures have been a source of valuation uncertainty, given market illiquidity and the contractual terms of these exposures relative to other monoline-related instruments.
CVA amounts related to monoline credit protection are based on a methodology that uses credit default swap (CDS) spreads on the monolines as a key input in determining an implied level of expected loss. Where a monoline has no observable CDS spread, a judgment is made on the most comparable monoline or combination of monolines and the corresponding spreads are used instead. For RMBS CDO, CMBS CDO and CLO asset categories, cash flow projections are used in conjunction with current fair values of
the underlying assets to provide estimates of expected future exposure levels. For other asset categories, future exposure is derived from current exposure levels.
To assess the sensitivity of the monoline CVA calculation to alternative assumptions, the impact of a 10% increase in monoline credit default swap spreads (e.g. from 1,000 basis points to 1,100 basis points for a specific monoline) was considered. On 30 June 2011, such an increase would have resulted in an increase in the monoline CVA of USD 41 million (CHF 34 million; 31 March 2011: USD 40 million or CHF 37 million).
The sensitivity of the monoline CVA to a decrease of 1 percentage point in the monoline recovery rate assumptions (e.g. from 35% to 34% for a specific monoline, conditional on default occurring) is estimated to result in an increase of approximately USD 11 million (CHF 9 million; 31 March 2011: USD 9 million or CHF 8 million) in the CVA. The sensitivity to credit spreads and recovery rates is substantially linear.
US reference-linked notes (RLN)
The US RLN consist of a series of transactions whereby we purchased credit protection, predominantly in note form, on a notional portfolio of fixed income assets. The referenced assets are comprised of USD asset-backed securities (ABS). These are primarily commercial mortgage-backed securities and subprime residential mortgage-backed securities and/or corporate bonds and loans across all rating categories. While the assets in the portfolio are marked-to-market, the credit protection embodied in the RLN is fair valued using a market standard approach to the valuation of portfolio credit protection (Gaussian copula). This approach is intended to effectively simulate correlated defaults within the portfolio, where the expected losses and defaults of the individual assets are closely linked to the observed market prices (spread


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levels) of those assets. Key assumptions of the model include correlations and recovery rates. We apply fair value adjustments related to potential uncertainty in each of these parameters, which are only partly observable. In addition, we apply fair value adjustments for uncertainties associated with the use of observed spread levels as the primary inputs. These fair value adjustments are calculated by applying shocks to the relevant parameters and revaluing the credit protection. These shocks for correlation, recovery and spreads are set to various levels depending on the asset type and/or region and may vary over time depending on the best judgment of the relevant trading and control personnel. Correlation and recovery shocks are generally in the reasonably possible range of 5 to 15 percentage points. Spread shocks vary more widely and depend on whether the underlying protection is funded or unfunded to reflect cash or synthetic basis effects.
   There were further redemptions across the US RLN program in the second quarter of 2011. On 30 June 2011, the fair value of the US RLN credit protection was approximately USD 477 million (CHF 401 million; 31 March 2011: USD 521 million or CHF 477 million). This fair value includes fair value adjustments which were calculated by applying the shocks described above of approximately USD 26 million (CHF 22 million; 31 March 2011: USD 29 million or CHF 27 million). The fair value adjustments may also be considered a measurement of sensitivity.
Non-US reference-linked notes
The same valuation model and the same approach to calculation of fair value adjustments are applied to the non-US RLN credit protection and the US RLN credit protection as described above, except that the spread is shocked by 10% for European corporate names.
   On 30 June 2011, the fair value of the non-US RLN credit protection was approximately USD 556 million (CHF 467 million; 31 March
2011: USD 573 million or CHF 525 million). This fair value includes fair value adjustments which were calculated by applying the shocks described above of approximately USD 57 million (CHF 48 million; 31 March 2011: USD 62 million or CHF 57 million). This adjustment may also be considered a measurement of sensitivity.
Option to acquire equity of the SNB StabFund
Our option to purchase the SNB StabFund’s equity is recognized on the balance sheet as a derivative at fair value (positive replacement values) with changes to fair value recognized in profit or loss. On 30 June 2011, the fair value (after adjustments) of the call option held by UBS was approximately USD 2,125 million (CHF 1,786 million; 31 March 2011: USD 2,112 million or CHF 1,935 million).
   The model incorporates cash flow projections for all assets within the fund across various scenarios. It is calibrated to market levels by setting the spread above one-month LIBOR rates used to discount future cash flows such that the model-generated price of the underlying asset pool equals our assessed fair value of the asset pool. The model incorporates a model reserve (fair value adjustment) to address potential uncertainty in this calibration. On 30 June 2011, this adjustment was USD 184 million or CHF 155 million. This compares with USD 227 million or CHF 208 million on 31 March 2011, where the decline in the reserve amount reflects greater convergence of valuations across the scenarios, consistent with lesser dependence of the valuation on projections of future cash flows.
   On 30 June 2011, a 100-basis-point increase in the discount rate would have decreased the option value by approximately USD 172 million (CHF 145 million; 31 March 2011: USD 173 million or CHF 159 million), and a 100-basis-point decrease would have increased the option value by approximately USD 191 million (CHF 161 million; 31 March 2011: USD 192 million or CHF 176 million).


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Risk management and control
Risk concentrations
Based on our assessment of our portfolios and asset classes with potential for material loss in a stress scenario that we consider most relevant to the current environment, we believe that our exposures to monoline insurers and student loan ARS as shown below can be considered risk concentrations.
It is possible that material losses could occur on asset classes, positions and hedges other than those disclosed in this section of the report, particularly if the correlations that emerge in a stressed environment differ markedly from those we had anticipated. We are exposed to price risk, basis risk, credit spread risk, default risk, and other idiosyncratic and correlation risks on both equities and fixed income inventories. We are also exposed to price risk on our option to acquire the SNB StabFund’s equity.
è  
Refer to “Non-trading portfolios – valuation and sensitivity information by instrument category” for more information
In addition, we have lending, counterparty and country risk exposures that could sustain significant losses if economic conditions were to worsen.
è  
Refer to the discussion of market risk and credit risk as well as to the “Risk and treasury management” section of our Annual Report 2010 for more information on the risks to which we are exposed
Exposure to monoline insurers
The vast majority of our direct exposures with monoline insurers arise from OTC derivative contracts, mainly CDS purchased to hedge specific positions. The table “Exposure to monoline insurers, by rating” shows the CDS protection purchased from monoline insurers to hedge specific positions.
Exposure under CDS contracts to monoline insurers is calculated as the sum of the fair values of individual CDS after CVA. Changes in CVA result from changes in CDS fair value. This, in turn, arises from changes in the fair value of the instruments against which protection has been purchased, and also by movements in monoline credit spreads.
è  
Refer to “Non-trading portfolios – valuation and sensitivity information by instrument category” for more information
On 30 June 2011, based on fair values, approximately 73% of the assets included in the table “Exposure to monoline insurers, by rating” were CLO, 26% were collateralized commercial mortgage-backed securities and other asset-backed securities CDO, and only 2% were US RMBS CDO. The vast majority of the CLO positions were rated AA and above.
On 30 June 2011, the total fair value of CDS protection purchased from monoline insurers was USD 1.3 billion after cumulative CVA of USD 0.9 billion. The changes reported in the table “Exposure to monoline insurers, by rating” do not equal the profit or loss associated with this portfolio in the second quarter as a significant portion of the underlying assets are classified as Loans and receivables for accounting purposes.
In addition to credit protection purchased on the positions detailed in the table “Exposure to monoline insurers, by rating”, UBS held direct derivative exposure to monoline insurers of USD 265 million after CVA of USD 122 million on 30 June 2011.
Exposure to student loan auction rate securities
Our inventory of student loan ARS decreased slightly to USD 9.5 billion on 30 June 2011 from USD 9.7 billion on 31 March 2011, after factoring in sales and redemptions by issuers. In early July 2011, we completed the sale of a portfolio of student loan ARS, reducing our student loan ARS exposures by an additional USD 1.3 billion. This reduction will be reflected in our risk disclosures for the third quarter of 2011.
Approximately 77% of the collateral underlying our inventory of student loan ARS is currently backed by Federal Family Education Loan Program guaranteed collateral, which is reinsured by the US Department of Education for no less than 97% of principal and interest. All of our student loan ARS positions are held as Loans and receivables. Each position is subject to a quarterly impairment test that includes a review of performance reports for each issuing trust. Overall, we reported net recoveries of USD 8 million (CHF 7 million) in the second quarter due to write-ups from sales.
è  
Refer to the “Group results” section of this report for more information on credit loss expense / recovery in the second quarter


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Exposure to monoline insurers, by rating1
                                         
    30.6.11  
                    Fair value             Fair value  
                    of CDS prior             of CDS  
            Fair value of     to credit     Credit     after credit  
    Notional     underlying     valuation     valuation     valuation  
    amount3     assets     adjustment     adjustment     adjustment  
USD million   Column 1     Column 2     Column 3 (=1–2)     Column 4     Column 5 (=3–4)  
 
Credit protection on US sub-prime residential mortgage-backed securities (RMBS) CDO high grade, from monolines rated sub-investment grade (BB and below)2
    737       193       544       377       167  
 
Credit protection on other assets2
    11,309       9,634 4     1,675       493       1,182  
 
of which: from monolines rated investment grade (BBB and above)
    2,279       2,088       191       31       160  
 
of which: from monolines rated sub-investment grade (BB and below)
    9,030       7,546       1,484       462       1,022  
 
Total 30.6.11
    12,047       9,827       2,219       870       1,349  
 
Total 31.3.11
    12,020       9,772       2,248       948       1,300  
 
1 Excludes the benefit of credit protection purchased from unrelated third parties.    2 Categorization based on the lowest insurance financial strength rating assigned by external rating agencies.    
3 Represents gross notional amount of CDS purchased as credit protection.    4 Includes USD 6.3 billion (CHF 5.3 billion) at fair value/USD 5.9 billion (CHF 5.0 billion) at carrying value of assets that were reclassified to Loans and receivables from Held for trading in the fourth quarter of 2008. Refer to “Note 12 Reclassification of financial assets” in the “Financial information” section of this report for more information.
Student loan ARS inventory
                 
 
    Carrying value
USD million
    30.6.11       31.3.11  
 
US student loan ARS
    9,512 1      9,668  
 
1 Includes USD 4.4 billion (CHF 3.7 billion) at carrying value of student loan ARS that were reclassified to Loans and receivables from Held for trading in the fourth quarter of 2008. Refer to “Note 12 Reclassification of financial assets” in the “Financial information” section of this report for more information.

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Balance sheet

Balance sheet
On 30 June 2011, our balance sheet stood at CHF 1,237 billion, CHF 55 billion lower than on 31 March 2011, mainly due to the weakening of major currencies against the Swiss franc, as 42% of our funded assets were denominated in US dollars, 15% in euros and 6% in British pounds. Our funded assets, which exclude positive replacement values, declined by CHF 31 billion to CHF 902 billion, but increased by CHF 20 billion when adjusted for currency movements, mainly due to higher collateral trading assets.

Balance sheet positions disclosed in this section represent quarter-end positions. Intra-quarter balance sheet positions may be different.
  è  
Refer to the table “FINMA leverage ratio” in the “Capital management” section of this report for our average month-end balance sheet size for the quarter
Assets
Product category view
Trading assets decreased by CHF 14 billion to CHF 223 billion and lending assets decreased CHF 12 billion to CHF 308 billion, mainly due to currency effects. Our collateral trading portfolio decreased in Swiss franc terms by CHF 3 billion to CHF 217 billion, but grew by CHF 14 billion adjusted for currency effects due to higher levels of activity in the Investment Bank. Replacement values (RV) decreased by similar amounts on both sides of the balance sheet, as market and currency movements drove down positive replacement values by 7%, or CHF 23 billion.
Divisional view
Most of our total asset reduction originated in the Investment Bank, as the abovementioned decrease in positive replacement values contributed significantly to this business division’s balance sheet declining CHF 49 billion to CHF 902 billion. The balance sheet sizes of Retail & Corporate (CHF 145 billion), Wealth Management (CHF 94 billion), Wealth Management Americas (CHF 45 billion), the Corporate Center (CHF 36 billion), and Global Asset Management (CHF 14 billion) all remained relatively stable.
Second quarter of 2011 asset development
CHF billion
(BAR GRAPH)
       1 Including cash collateral receivables on derivative instruments.
Balance sheet development – assets
CHF billion
(BAR GRAPH)
       1 Total balance sheet excluding positive replacement values.
       2 Including cash collateral receivables on derivative instruments.


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Liabilities
The movement in currency exchange rates also reduced our liabilities: In unsecured borrowing, customer deposits fell by CHF 12 billion to CHF 323 billion, but increased by CHF 2 billion on a currency-adjusted basis, mainly due to higher balances within Wealth Management & Swiss Bank and the Investment Bank. Financial liabilities designated at fair value fell by CHF 11 billion to CHF 92 billion on lower currency effects and lower market valuations of equity-linked notes. The balance of debt issued declined by CHF 8 billion to CHF 123 billion but remained stable on a currency-adjusted basis. In the second quarter, we issued EUR 2.25 billion of public benchmark bonds, of which EUR 1.0 billion were in covered bonds, and we redeemed USD 1.6 billion of lower tier 2 subordinated bonds. These decreases were partially offset by higher secured funding, which rose by CHF 7 billion to CHF 111 billion, or CHF 16 billion on a currency-adjusted basis, related to business growth within the Investment Bank.
  è  
Refer to the “Liquidity and funding” section of this report for more information
Equity
Equity attributable to UBS shareholders rose by CHF 0.6 billion to CHF 47.3 billion, as the quarterly net profit of CHF 1.0 billion and positive effect of equity compensation plans on the share premium of CHF 0.4 billion were partially offset by higher treasury shares deductions of CHF 0.5 billion and net negative effects of CHF 0.3 billion recognized directly in equity (other comprehensive income (OCI)). OCI includes negative currency translation effects of CHF 1.2 billion, which were partially offset by fair value gains on financial investments available-for-sale of CHF 0.5 billion, and fair value gains on interest rate swaps designated as cash flow hedges of CHF 0.4 billion. Equity attributable to non-controlling interests was reduced by CHF 0.8 billion due to a redemption of preferred securities and foreign currency translations on preferred securities.
  è  
Refer to the “Statement of changes in equity” in the “Financial information” section, and to “Comprehensive income attributable to UBS shareholders: 2Q11 vs 1Q11” in the “Group results” section of this report for more information
Second quarter of 2011 liabilities and equity development
CHF billion
(BAR GRAPH)
         1 Including cash collateral receivables on derivative instruments.
Balance sheet development – liabilities and equity
CHF billion
(BAR GRAPH)
1 Total balance sheet excluding negative replacement values. 2 Percentages based on total balance sheet size excluding negative replacement values. 3 Including cash collateral payables on derivative instruments. 4 Including financial liabilities designated at fair value.


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Liquidity and funding
Liquidity and funding
We continued to maintain a sound liquidity position and a diversified portfolio of funding sources. Roughly CHF 16 billion of our CHF 20 billion currency-adjusted increase in funded assets were funded on a secured basis. Wealth management businesses continued to contribute 94% of total customer deposits.
Market liquidity overview: the second quarter of 2011
Funding markets showed signs of resilience and remained relatively stable during the quarter, despite a variety of market pressures such as continued concerns about eurozone sovereign debt, ongoing geopolitical tensions in the Middle East and North Africa, and worries surrounding the US budget deficit. Financial institutions continued to raise substantial volumes of new public unsecured long-term debt. Amid a general trend of widening credit-spreads across the banking sector, our credit default swap spreads ended the second quarter slightly higher compared with the end of the first quarter, while our secondary bond spreads were roughly flat to somewhat higher, depending on currency and tenor.
Liquidity
We continuously monitor our liquidity position and asset/liability profile. This involves modeling cash flow maturity profiles under both contractual and behavioral expectations and projecting our liquidity exposures under various stress scenarios. The results are
then factored into our overall contingency plans. The underlying assumptions in the analysis reflect the general characteristics of the recent financial crisis, including strong investor risk aversion, dislocation of the money markets and a substantial reduction of market liquidity for all but a few select asset classes. The severity of the assumptions underlying our current stress scenario analysis reflects – and in some cases exceeds – our experience during the recent financial crisis.
   We seek to preserve a prudent liquidity and funding profile, a balanced asset/liability profile and robust contingency planning processes at all times. We continue to maintain a substantial multi-currency portfolio of unencumbered, high-quality, short-term assets.
Funding
Our portfolio of secured and unsecured liabilities is broadly diversified by market, product and currency. We raise funds by issuing senior unsecured and structured notes via numerous short-, medium- and long-term funding programs. These programs allow institutional and private investors in Europe, the US and Asia


UBS asset funding
CHF billion, except where indicated
(GRAPH)
1 Including compound debt instruments – OTC.

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Pacific to customize their investments in UBS. Our wealth management businesses represent a significant, cost-efficient and reliable source of funding. Along with a large deposit base, we also generate funding by pledging a portion of our portfolio of Swiss residential mortgages as collateral for the Swiss Pfandbriefe and our own covered bond program. Collectively, these broad product offerings, and the global scope of our business activities, underpin our funding stability.
The diversification of our liability portfolio as a percentage of funding sources shifted slightly from long-term debt into repurchase agreements during the quarter (as shown in the “UBS: funding by product and currency” table). The percentage funding contribution of repurchase agreements rose from 12.1% to 13.6% as most of the CHF 20 billion currency adjusted increase in funded assets was funded on a secured basis via repurchase agreements. Our overall customer deposits declined by CHF 12 billion to CHF 323 billion but remained stable at 42% of our total funding sources during the second quarter. On a currency-adjusted basis, our overall customer deposits increased by CHF 2 billion, mainly due to growth in Wealth Management & Swiss Bank, which contributed CHF 272 billion of the CHF 323 billion total customer deposits (shown in the “UBS asset funding” graph). Compared with the prior quarter-end, wealth management client deposits continued to represent roughly 94% of our total customer deposits. Our interbank deposits declined by CHF 2 billion, compared with the prior quarter-end, and our out-
standing money market paper issuances remained fairly stable at CHF 55 billion.
Our outstanding long-term debt, including financial liabilities at fair value, decreased by CHF 19 billion during the quarter to CHF 160 billion, mainly due to currency movements (remaining more or less stable at 18% of our balance sheet liabilities and total equity, excluding negative replacement values, or 21% of our funding sources as shown in the “UBS: funding by product and currency” table). In the second quarter, we issued EUR 2.25 billion of public benchmark bonds, of which EUR 1.0 billion were in covered bonds, and in addition we raised funds through medium term note issuances and private placements. Senior unsecured public bonds totaling approximately CHF 3.2 billion equivalent matured in the second quarter, as did approximately CHF 1.0 billion of Swiss Pfandbriefe. During the second quarter, we also redeemed USD 1.6 billion of lower tier 2 subordinated bonds and USD 500 million of hybrid tier 1 securities (the latter being part of non-controlling interests).
As of 30 June 2011, our coverage ratio of customer deposits to our outstanding loan balance was 122%, compared with 125% as of 31 March 2011.
In terms of secured financing (i.e. repurchase agreements and securities lent against cash collateral received) at the close of the second quarter, we borrowed CHF 106 billion less cash on a collateralized basis than we lent, a decline of CHF 10 billion when compared with the first quarter end 2011 balance of CHF 116 billion.


UBS: funding by product and currency
                                                                                 
 
    All currencies   CHF   EUR   USD   Others  
In %1   30.6.11     31.3.11     30.6.11     31.3.11     30.6.11     31.3.11     30.6.11     31.3.11     30.6.11     31.3.11  
 
Securities lending
    0.8       0.9       0.0       0.0       0.2       0.2       0.5       0.5       0.1       0.2  
 
Repurchase agreements
    13.6       12.1       1.0       1.0       1.9       1.8       9.5       8.5       1.2       0.9  
 
Interbank
    4.2       4.3       0.8       1.0       0.5       0.5       0.7       0.7       2.1       2.1  
 
Money market paper
    7.1       6.9       0.2       0.2       0.5       0.5       5.9       5.6       0.5       0.6  
 
Retail savings / deposits
    13.6       13.3       9.8       9.3       0.8       0.8       3.0       3.2       0.0       0.0  
 
Demand deposits
    16.5       16.5       6.3       6.1       3.0       3.2       4.9       5.0       2.4       2.2  
 
Fiduciary
    3.6       3.9       0.2       0.2       1.1       1.1       1.8       2.1       0.5       0.5  
 
Time deposits
    8.2       8.3       0.5       0.5       1.3       1.1       3.7       3.8       2.7       2.9  
 
Long-term debt
    20.8       22.4       2.9       3.1       7.6       8.0       7.5       8.2       2.8       3.1  
 
Cash collateral payables on derivative instruments
    7.0       6.8       0.3       0.2       3.2       2.8       2.7       2.9       0.8       0.9  
 
Prime brokerage payables
    4.8       4.7       0.1       0.1       0.6       0.5       3.4       3.3       0.8       0.7  
 
Total
    100.0       100.0       22.0       21.6       20.6       20.5       43.5       43.8       13.8       14.1  
 
1 As a percent of total funding sources defined as the CHF 772 billion and the CHF 799 billion respectively on the balance sheet as of 30 June 2011 and 31 March 2011, comprising repurchase agreements, securities lending against cash collateral received, due to banks, money market paper issued, due to customers, long-term debt (including financial liabilities at fair value) and cash collateral on derivative transactions and prime brokerage payables.

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Capital management
Capital management
The increase in our regulatory capital more than compensated for the increase in risk-weighted assets, improving our BIS tier 1 capital ratio to 18.1% on 30 June 2011 from 17.9% at the end of the previous quarter.
Regulatory developments
Start of Swiss parliamentary process on “too-big-to-fail”
On 20 April 2011, the Swiss Federal Council sent its too-big-to-fail legislative proposal to the Swiss parliament. The total capital requirements are still set at 19% and evidence of the maintenance of systemically relevant functions still needs to be delivered, as proposed by the Commission of Experts. One notable change to the proposal, however, was that the 19% total capital requirement also applies at the Parent Bank level. The government has clarified that this should generally not have the effect of increasing the group total capital requirement above 19%. On 16 June 2011, the Council of States (the upper chamber of the Swiss parliament) agreed on the draft law but made a number of changes, including a so-called “review clause” to take into account international developments under which the Federal Council would be required at various times in the future, to assess the comparability and implementation of corresponding international standards, and report to the parliament any changes needed to adapt Swiss standards. The Council of States also stated that capital requirements must be reduced if the large banks reduce their systemic relevance, although it did not specify the percentage reduction.
   The Swiss political process continues and the abovementioned developments remain under discussion. The National Council (the lower chamber of the Swiss parliament) will discuss the too-big-to-fail draft law in its autumn session starting in September 2011.
International agreement on capital surcharge for global systemically important banks
On 25 June 2011, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, agreed on a consultative document setting out measures for global systemically important banks (G-SIB). These measures include the methodology for assessing systemic importance, the additional capital required and the arrangements for their phase-in.
   The assessment methodology for G-SIB uses an indicator-based approach and comprises five broad categories: size, interconnect-edness, lack of substitutability, global (cross-jurisdictional) activity and complexity.
   The additional loss absorbency requirements are to be met with a progressive common equity tier 1 capital requirement ranging from 1% to 2.5%, depending on a bank’s systemic importance. To provide a disincentive for banks facing the highest charge to in-
crease materially their global systemic importance in the future, an additional 1% surcharge would be applied in such circumstances.
   These higher loss absorbency requirements will be phased in concurrently with the Basel III capital conservation and countercyclical buffers, i.e. between 1 January 2016 and year-end 2018.
Capital ratios
On 30 June 2011, our BIS tier 1 capital ratio stood at 18.1% (compared with 17.9% on 31 March 2011), and our BIS core tier 1 capital ratio stood at 16.1% (up from 15.6% on 31 March 2011). Our BIS tier 1 capital increased by CHF 1.0 billion to CHF 37.4 billion, while RWA increased by CHF 2.9 billion to CHF 206.2 billion. Our BIS total capital ratio was 19.5% on 30 June 2011, up marginally from 19.4% on 31 March 2011.
Risk-weighted assets
To facilitate comparability, we publish RWA according to the Basel II Capital Framework (BIS guidelines). However, our RWA for supervisory purposes are based on Swiss Financial Market Supervisory Authority (FINMA) regulations, and are higher than under the BIS guidelines. The main difference relates to the FINMA implementation of the enhanced Basel II market risk framework as of 1 January 2011.
   The BIS RWA increase of CHF 2.9 billion in the second quarter was primarily related to a rise in market risk RWA of CHF 9.4 billion mainly related to increased credit spread risks, partially offset by currency movements. This increase was partially offset by a drop in credit-risk-related RWA of CHF 5.9 billion, predominantly in derivatives and drawn exposures. Despite an increase in credit risks, the strengthening of the Swiss franc reduced credit-risk-related RWA. Furthermore, operational risk RWA slightly decreased by CHF 0.4 billion and non-counterparty related risk RWA by CHF 0.3 billion.
Eligible capital
BIS tier 1 capital
The CHF 1.0 billion increase in BIS tier 1 capital reflects the CHF 1.0 billion second quarter net profit recognized under IFRS. Additionally, the recovery in fair value of financial investments available-for-sale of CHF 0.4 billion recorded directly in equity contributed to the increase in tier 1 capital. This was offset by a net reduction in tier 1 capital of CHF 0.4 billion mainly attributable to foreign currency fluctuations.


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BIS tier 2 capital
Our BIS tier 2 capital declined by a net CHF 0.4 billion to CHF 2.8 billion. This reduction is mainly due to currency movements.
Enhanced Basel II market risk framework
The revisions to the Basel II market risk framework (commonly referred to as Basel 2.5) primarily introduce new capital requirements to incorporate effects of “stressed markets”. These requirements lower our BIS tier 1 and total capital and lead to higher BIS risk-weighted assets (RWA). In line with the BIS transition requirement, the impact of the enhanced Basel II market risk framework will be included in the financial statement disclosures as of 31 December 2011.
   Based on 30 June 2011 exposures, our BIS RWA calculated under the enhanced Basel II framework were CHF 278.2 billion, CHF 72.0 billion higher than under the standard Basel II framework. The increased RWA is composed of a new incremental risk charge which accounts for default and rating migration risk of trading book positions (CHF 34.8 billion of RWA), an additional stressed value-at-risk (VaR) requirement taking into account a one year observation period relating to significant losses (CHF 33.2 billion of RWA), a comprehensive risk measure requirement (CHF 10.3 billion of RWA) and a revised requirement for securitization positions held for trading that will attract banking book capital charges as well as higher risk weights for re-securitization exposures (CHF 6.5 billion of RWA), to better reflect the inherent risk in these products. These increases were partially offset by a RWA relief in VaR of CHF 12.7 billion.
Capital ratios and RWA
CHF billion        Ratio in %
(BAR GRAPH)
     Furthermore, our BIS tier 1 capital calculated under the enhanced Basel II framework was CHF 0.7 billion lower than under the standard Basel II framework and our BIS total capital was lower by CHF 1.4 billion. As a result, our pro forma BIS tier 1 capital ratio including the effects of the enhanced Basel II market risk framework was 13.2%, our BIS core tier 1 capital ratio was 11.7% and our BIS total capital ratio stood at 13.9%.


                         
Capital adequacy
CHF million, except where indicated   30.6.11     31.3.11     31.12.10  
 
BIS core tier 1 capital
    33,135       31,818       30,420  
 
BIS tier 1 capital
    37,387       36,379       35,323  
 
BIS total capital
    40,163       39,542       40,542  
 
BIS core tier 1 capital ratio (%)
    16.1       15.6       15.3  
 
BIS tier 1 capital ratio (%)
    18.1       17.9       17.8  
 
BIS total capital ratio (%)
    19.5       19.4       20.4  
 
BIS risk-weighted assets
    206,224       203,361       198,875  
 
of which: credit risk1
    115,986       121,854       119,919  
 
of which: non-counterparty related risk
    5,862       6,153       6,195  
 
of which: market risk
    34,832       25,389       20,813  
 
of which: operational risk
    49,544       49,964       51,948  
 
1 Includes securitization exposures and equity exposures not part of the trading book and capital requirements for settlement risk (failed trades).

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Capital management
                         
Reconciliation IFRS equity to BIS capital
CHF million   30.6.11     31.3.11     31.12.10  
 
IFRS equity attributable to UBS shareholders
    47,263       46,695       46,820  
 
Treasury shares at cost / Equity classified as obligation to purchase own shares
    1,075       536       708  
 
Own credit, net of tax1
    (31 )     (90 )     (205 )
 
Unrealized gains from Financial investments available-for-sale1
    (193 )     (144 )     (181 )
 
Unrealized (gains) / losses from Cash flow hedges1
    (828 )     (424 )     (1,063 )
 
Other2
    53       59       286  
 
BIS core tier 1 capital prior to deductions
    47,338       46,631       46,365  
 
of which: paid-in share capital
    383       383       383  
 
of which: share premium, retained earnings, currency translation differences and other elements
    46,955       46,248       45,982  
 
Less: treasury shares / deduction for own shares3
    (1,916 )     (1,438 )     (2,993 )
 
Less: goodwill & intangible assets
    (8,857 )     (9,649 )     (9,822 )
 
Less: securitization exposures4
    (2,737 )     (2,922 )     (2,385 )
 
Less: other deduction items5
    (693 )     (803 )     (744 )
 
BIS core tier 1 capital
    33,135       31,818       30,420  
 
Hybrid tier 1 capital
    4,252       4,561       4,903  
 
of which: non-innovative capital instruments
    1,466       1,569       1,523  
 
of which: innovative capital instruments
    2,786       3,450       3,380  
 
of which: reserve for hybrid tier 1 instruments
    0       (458 )     0  
 
BIS tier 1 capital
    37,387       36,379       35,323  
 
Upper tier 2 capital
    110       85       110  
 
Lower tier 2 capital
    6,097       6,803       8,239  
 
Less: securitization exposures4
    (2,737 )     (2,922 )     (2,385 )
 
Less: other deduction items5
    (693 )     (803 )     (744 )
 
BIS total capital
    40,163       39,542       40,542  
 
1 IFRS equity components which are not recognized for capital purpose.    2 Consists of: i) qualifying non-controlling interests; ii) the netted impact of the change in scope of consolidation; and iii) other adjustments due to reclassifications and revaluations of participations and prudential valuation.    3 Consists of: i) net long position in own shares held for trading purposes; ii) own shares bought for unvested or upcoming share awards; and iii) accruals built for upcoming share awards.    4 Includes a 50% deduction of the fair value of our option to acquire the SNB StabFund’s equity (CHF 1,786 million on 30.6.11 and CHF 1,935 million on 31.3.11).    5 Positions to be deducted as 50% from tier 1 and 50% from total capital mainly consist of: i) net long position of non-consolidated participations in the finance sector; ii) expected loss on advanced internal ratings-based portfolio less general provisions (if difference is positive); and iii) expected loss for equities (simple risk weight method).
FINMA leverage ratio
FINMA requires a minimum leverage ratio of 3% at the Group level, with the expectation that the ratio will exceed this level during normal times. These targets are to be achieved by 1 January
2013 at the latest. The improvement in the second quarter ratio to 4.8% results from an increase in FINMA tier 1 capital and a decrease in total adjusted assets. The table below shows the calculation of our Group FINMA leverage ratio.


                         
FINMA leverage ratio
CHF billion, except where indicated   Average 2Q11     Average 1Q11     Average 4Q10  
 
Total balance sheet assets (IFRS)1
    1,288.2       1,302.1       1,398.5  
 
Less: netting of replacement values2
    (333.0 )     (334.9 )     (410.1 )
 
Less: loans to Swiss clients (excluding banks)3
    (163.4 )     (163.0 )     (161.6 )
 
Less: cash and balances with central banks
    (13.9 )     (18.2 )     (20.1 )
 
Less: other4
    (13.3 )     (13.8 )     (12.4 )
 
Total adjusted assets
    764.6       772.1       794.2  
 
FINMA tier 1 capital (at quarter end)5
    36.7       35.2       35.3  
 
FINMA leverage ratio (%)
    4.8       4.6       4.4  
 
1 Total assets are calculated as the average of the month-end values for the three months in the calculation period.    2 Includes the impact of netting agreements (including cash collateral) in accordance with Swiss Federal Banking Law, based on the IFRS scope of consolidation.    3 Includes mortgage loans to international clients for properties located in Switzerland.    4 Refer to the “Reconciliation IFRS equity to BIS capital” table for more information on deductions of assets from BIS tier 1 capital.    5 As of 30 June 2011, FINMA tier 1 capital was CHF 0.7 billion lower than BIS tier 1 capital due to the early adoption by FINMA as of 1 January 2011 of the enhanced Basel II market risk framework.

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Equity attribution
Our equity attribution framework aims to guide each business towards activities that appropriately balance profit potential, risk and capital usage. The design of the framework, which includes some forward-looking elements, enables us to calculate and assess return on attributed equity (RoaE) in each of our business divisions, and integrates Group-wide capital management activities with those at business division level.
  à  
Refer to the “Capital management” section of our Annual Report 2010 for further information
     The amount of equity attributed to the Investment Bank and the Corporate Center increased by CHF 3 billion and CHF 1 billion, respectively, compared with the first quarter of 2011. The increase in the Investment Bank was influenced by RWA increases related to the implementation of the enhanced Basel II market risk framework (the full impact of which is now reflected in this quarter). The increase in the Corporate Center is related to the trends in risk-based capital and RWA seen under
this segment. The “Average attributed equity” table indicates that a total of CHF 56.5 billion of average equity was attributed to our business divisions as well as the Corporate Center in the second quarter. Equity attributable to UBS shareholders averaged CHF 47.0 billion during the quarter, which resulted in a deficit of CHF 9.5 billion.
UBS shares
We hold our own shares primarily to hedge employee share and option participation plans. A smaller number are held by the Investment Bank in its capacity as a market-maker in UBS shares and related derivatives.
   Total UBS shares issued increased by 433,473 shares in the second quarter, due to the exercise of employee options. Treasury shares held by the bank significantly increased by 35,762,555 shares in the second quarter, mainly due to market purchases by Group Treasury in line with our targeted hedge ratio related to compensation plan share deliveries. Shares held by the Investment Bank remained stable.


                         
Average attributed equity
CHF billion   2Q11     1Q11     4Q10  
 
Wealth Management
    5.0       5.0       4.4  
 
Retail & Corporate
    5.0       5.0       4.6  
 
Wealth Management & Swiss Bank
    10.0       10.0       9.0  
 
Wealth Management Americas
    8.0       8.0       8.0  
 
Global Asset Management
    2.5       2.5       2.5  
 
Investment Bank
    32.0       29.0       27.0  
 
Corporate Center
    4.0       3.0       3.0  
 
Average equity attributed to the business divisions
    56.5       52.5       49.5  
 
Surplus / (deficit)
    (9.5 )     (5.7 )     (2.2 )
 
Average equity attributable to UBS shareholders
    47.0       46.8       47.3  
 
                         
UBS shares
    30.6.11     31.3.11     Change from
1Q11
 
 
 
Shares outstanding
                       
 
Ordinary shares issued
    3,832,003,459       3,831,569,986       433,473  
 
Employee share and share option plans
                    433,473  
 
Treasury shares
    64,152,608       28,390,053       35,762,555  
 
Shares outstanding
    3,767,850,851       3,803,179,933       (35,329,082 )
 
                         
Shareholders equity (CHF million)   % change from
1Q11
 
 
Equity attributable to UBS shareholders
    47,263       46,695       1  
 
Less: Goodwill and intangible assets
    8,857       9,649       (8 )
 
Tangible shareholders equity
    38,406       37,046       4  
 
 
                       
Book value per share (CHF)
                       
 
Total book value per share1
    12.54       12.28       2  
 
Tangible book value per share2
    10.19       9.74       5  
 
1 Equity attributable to UBS shareholders divided by shares outstanding at the end of the period. 2 Tangible shareholders equity divided by shares outstanding at the end of the period.

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Table of Contents

Financial
information

Unaudited



















Table of Contents

    Table of contents

         
    Financial statements (unaudited)
 
       
59   Income statement
60   Statement of comprehensive income
61   Balance sheet
62   Statement of changes in equity
64   Statement of cash flows
 
       
    Notes to the financial statements
 
       
  1   Basis of accounting
  2   Segment reporting
  3   Net interest and trading income
  4   Net fee and commission income
  5   Other income
  6   Personnel expenses
  7   General and administrative expenses
  8   Earnings per share (EPS) and shares outstanding
  9   Income taxes
  10   Trading portfolio
  11   Fair value of financial instruments
  12   Reclassification of financial assets
  13   Derivative instruments
  14   Other assets and liabilities
  15   Provisions and contingent liabilities
  16   Financial instruments not recognized on the balance sheet
  17   Currency translation rates
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       

 



 


Table of Contents

Financial information

Financial statements (unaudited)

 
                                                                 
Income statement                                    
 
        For the quarter ended   % change from   Year-to-date
CHF million, except per share data   Note     30.6.11     31.3.11     30.6.10     1Q11     2Q10     30.6.11     30.6.10  
 
 
Continuing operations
                                                               
 
Interest income
    3       4,880       4,578       4,864       7       0       9,457       9,661  
 
Interest expense
    3       (3,440 )     (2,796 )     (3,771 )     23       (9 )     (6,236 )     (6,751 )
 
Net interest income
    3       1,440       1,781       1,093       (19 )     32       3,221       2,911  
 
Credit loss (expense) / recovery
            16       3       (48 )     433               19       68  
 
Net interest income after credit loss expense
            1,456       1,784       1,045       (18 )     39       3,240       2,979  
 
Net fee and commission income
    4       3,879       4,240       4,366       (9 )     (11 )     8,119       8,738  
 
Net trading income
    3       1,724       2,203       3,450       (22 )     (50 )     3,928       5,818  
 
Other income
    5       112       117       324       (4 )     (65 )     228       660  
 
Total operating income
            7,171       8,344       9,185       (14 )     (22 )     15,515       18,195  
 
Personnel expenses
    6       3,925       4,407       4,645       (11 )     (16 )     8,332       9,166  
 
General and administrative expenses
    7       1,408       1,488       1,638       (5 )     (14 )     2,896       3,057  
 
Depreciation of property and equipment
            161       191       257       (16 )     (37 )     352       491  
 
Amortization of intangible assets
            22       24       31       (8 )     (29 )     46       58  
 
Total operating expenses
            5,516       6,110       6,571       (10 )     (16 )     11,626       12,772  
 
Operating profit from continuing operations before tax
            1,654       2,235       2,614       (26 )     (37 )     3,889       5,424  
 
Tax expense / (benefit)
    9       377       426       311       (12 )     21       803       914  
 
Net profit from continuing operations
            1,277       1,809       2,303       (29 )     (45 )     3,086       4,509  
 
 
Discontinued operations
                                                               
 
Profit from discontinued operations before tax
            0       0       0                       0       2  
 
Tax expense
            0       0       0                       0       0  
 
Net profit from discontinued operations
            0       0       0                       0       2  
 
 
Net profit
            1,278       1,809       2,303       (29 )     (45 )     3,087       4,511  
 
Net profit attributable to non-controlling interests
            263       2       298               (12 )     265       304  
 
from continuing operations
            262       2       298               (12 )     264       303  
 
from discontinued operations
            0       0       0                       0       1  
 
Net profit attributable to UBS shareholders
            1,015       1,807       2,005       (44 )     (49 )     2,822       4,207  
 
from continuing operations
            1,015       1,807       2,005       (44 )     (49 )     2,822       4,207  
 
from discontinued operations
            0       0       0                       0       1  
 
 
                                                               
Earnings per share (CHF)
                                                               
 
Basic earnings per share
    8       0.27       0.48       0.53       (44 )     (49 )     0.74       1.11  
 
from continuing operations
            0.27       0.48       0.53       (44 )     (49 )     0.74       1.11  
 
from discontinued operations
            0.00       0.00       0.00                       0.00       0.00  
 
Diluted earnings per share
    8       0.26       0.47       0.52       (45 )     (50 )     0.73       1.10  
 
from continuing operations
            0.26       0.47       0.52       (45 )     (50 )     0.73       1.10  
 
from discontinued operations
            0.00       0.00       0.00                       0.00       0.00  
 

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Financial statements
Statement of comprehensive income
 
    For the quarter ended     Year-to-date  
CHF million           30.6.11             31.3.11     30.6.10     30.6.11     30.6.10  
            UBS     Non-                          
            share-     controlling                          
    Total     holders     interests     Total     Total     Total     Total  
 
Net profit
    1,278       1,015       263       1,809       2,303       3,087       4,511  
 
 
                                                       
Other comprehensive income
                                                       
 
Foreign currency translation
                                                       
 
Foreign currency translation movements, before tax
    (1,127 )     (1,244 )     117       (76 )     (33 )     (1,203 )     8  
 
Foreign exchange amounts reclassified to the income statement from equity
    13       13               (2 )     (13 )     11       20  
 
Income tax relating to foreign currency translation movements
    15       15               0       (6 )     16       (8 )
 
Subtotal foreign currency translation movements, net of tax1
    (1,099 )     (1,216 )     117       (78 )     (52 )     (1,176 )     20  
 
Financial investments available-for-sale
                                                       
 
Net unrealized gains / (losses) on financial investments available-for-sale, before tax
    548       548               (118 )     72       430       61  
 
Impairment charges reclassified to the income statement from equity
    1       1               4       24       5       50  
 
Realized gains reclassified to the income statement from equity
    (56 )     (56 )             (44 )     (108 )     (100 )     (162 )
 
Realized losses reclassified to the income statement from equity
    2       2               18       70       20       76  
 
Income tax relating to net unrealized gains / (losses) on financial investments available-for-sale
    (13 )     (13 )             20       (8 )     7       (21 )
 
Subtotal net unrealized gains / (losses) on financial investments
available-for-sale, net of tax1
    482       482               (121 )     50       361       4  
 
Cash flow hedges
                                                       
 
Effective portion of changes in fair value of derivative instruments
designated as cash flow hedges, before tax
    1,035       1,035               (510 )     948       525       1,707  
 
Net realized (gains) / losses reclassified to the income statement from equity
    (519 )     (519 )             (297 )     (321 )     (816 )     (657 )
 
Income tax effects relating to cash flow hedges
    (112 )     (112 )             168       (126 )     57       (214 )
 
Subtotal changes in fair value of derivative instruments designated as cash flow hedges1
    404       404               (639 )     501       (235 )     836  
 
Total other comprehensive income
    (213 )     (330 )     117       (837 )     499       (1,050 )     860  
 
 
                                                       
Total comprehensive income
    1,065       685       380       971       2,802       2,036       5,371  
 
Total comprehensive income attributable to non-controlling interests
    380                       106       101       486       21  
 
Total comprehensive income attributable to UBS shareholders
    685                       865       2,701       1,551       5,350  
 
1 Other comprehensive income attributable to UBS shareholders related to foreign currency translations was negative CHF 182 million (first quarter 2011) and positive CHF 135 million (second quarter 2010). Other comprehensive income attributable to UBS shareholders related to financial investments available-for-sale was negative CHF 121 million (first quarter 2011) and positive CHF 60 million (second quarter 2010). For cash flow hedges, total other comprehensive income was in all periods identical with other comprehensive income attributable to UBS shareholders.

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Financial information
Balance sheet
                                                 
 
              % change from
CHF million   Note     30.6.11     31.3.11     31.12.10     31.3.11     31.12.10  
 
 
                                               
Assets
                                               
 
Cash and balances with central banks
            13,574       27,041       26,939       (50 )     (50 )
 
Due from banks
            21,412       16,340       17,133       31       25  
 
Cash collateral on securities borrowed
            60,661       61,453       62,454       (1 )     (3 )
 
Reverse repurchase agreements
            156,321       158,405       142,790       (1 )     9  
 
Trading portfolio assets
    10       159,926       180,327       167,463       (11 )     (5 )
 
Trading portfolio assets pledged as collateral
    10       62,652       55,761       61,352       12       2  
 
Positive replacement values
    13       335,169       358,643       401,146       (7 )     (16 )
 
Cash collateral receivables on derivative instruments
            34,520       34,453       38,071       0       (9 )
 
Financial assets designated at fair value
            8,119       8,539       8,504       (5 )     (5 )
 
Loans
            264,522       267,313       262,877       (1 )     1  
 
Financial investments available-for-sale
            71,604       71,079       74,768       1       (4 )
 
Accrued income and prepaid expenses
            5,851       6,278       5,466       (7 )     7  
 
Investments in associates
            732       778       790       (6 )     (7 )
 
Property and equipment
            5,322       5,442       5,467       (2 )     (3 )
 
Goodwill and intangible assets
            8,857       9,649       9,822       (8 )     (10 )
 
Deferred tax assets
            8,341       9,115       9,522       (8 )     (12 )
 
Other assets
    14       19,186       20,670       22,681       (7 )     (15 )
 
Total assets
            1,236,770       1,291,286       1,317,247       (4 )     (6 )
 
 
                                               
Liabilities
                                               
 
Due to banks
            32,361       34,159       41,490       (5 )     (22 )
 
Cash collateral on securities lent
            5,873       7,008       6,651       (16 )     (12 )
 
Repurchase agreements
            105,214       96,743       74,796       9       41  
 
Trading portfolio liabilities
    10       50,761       55,158       54,975       (8 )     (8 )
 
Negative replacement values
    13       329,431       349,563       393,762       (6 )     (16 )
 
Cash collateral payables on derivative instruments
            53,710       54,599       58,924       (2 )     (9 )
 
Financial liabilities designated at fair value
            92,251       103,073       100,756       (10 )     (8 )
 
Due to customers
            323,034       335,333       332,301       (4 )     (3 )
 
Accrued expenses and deferred income
            6,626       7,143       7,738       (7 )     (14 )
 
Debt issued
            122,765       130,878       130,271       (6 )     (6 )
 
Other liabilities
    14, 15       63,105       65,788       63,719       (4 )     (1 )
 
Total liabilities
            1,185,130       1,239,444       1,265,384       (4 )     (6 )
 
 
                                               
Equity
                                               
 
Share capital
            383       383       383       0       0  
 
Share premium
            33,652       33,231       34,393       1       (2 )