UBS Reports First Quarter Result of CHF 3,275 Million.* Net profit attributable to UBS UBS Union Bank of Switzerland UBS United Bible Societies UBS United Blood Services UBS United Buying Service UBS Used Bookstore UBS University Business Services UBS Universal Building Society (UK) UBS Ulaanbaatar Broadcasting System shareholders of CHF CHF In currencies, this is the abbreviation for the Swiss Franc. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 3,275 million, down CHF 229 million from the same period a year earlier (first quarter 2006 included a CHF 290 million after-tax gain from sale of Motor-Columbus) * Financial businesses attributable profit from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the of CHF 3,182 million, a new record and up 4% from both first and fourth quarter 2006 * Total UBS net new money was at an all-time high of CHF 52.8 billion, with CHF 44.8 billion inflow in·flow n. 1. The act or process of flowing in or into: an inflow of water; an inflow of information. 2. from wealth management businesses worldwide * Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. from continuing operations of CHF 1.62, up 9% from a year earlier, cost/income ratio of 68.1%, down 0.3 percentage points from first quarter 2006 * Return on equity of 28.7%, down from 29.6% a year earlier, still well above UBS's target of a 20% minimum over the cycle * All business groups reported record profits in first quarter ZURICH, Switzerland & BASEL, Switzerland -- UBS reports net profit attributable to shareholders of CHF 3,275 million in first quarter 2007. This figure comprises both continuing and discontinued operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. , resulting in a decline of CHF 229 million from first quarter 2006, when results included a CHF 290 million after-tax gain from the sale of Motor-Columbus. In UBS's core operational businesses (financial businesses attributable profit from continuing operations), profit was a record CHF 3,182 million in first quarter 2007, up 4% from both first and fourth quarter 2006. Performance was driven by revenue growth in all businesses, despite negative trading revenues from the Investment Bank's proprietary capital managed by DRCM DRCM Dynamic Resource Configuration Manager DRCM Direct Response Call Management of approximately CHF 150 million in the context of difficult market conditions in US mortgage securities. "Fee and commission income has reached its highest level since 2001, and represents more than half of our total income. Invested asset levels totalled CHF 3.1 trillion One thousand times one billion, which is 1, followed by 12 zeros, or 10 to the 12th power. See space/time. (mathematics) trillion - In Britain, France, and Germany, 10^18 or a million cubed. In the USA and Canada, 10^12. , up 4% from the beginning of the year, reflecting strong net new money inflows. This drove asset-based fees up in both the wealth and asset management businesses," said Clive Standish, UBS Chief Financial Officer. Compared with first quarter 2006, fee-based revenues in the Investment Bank grew substantially in all businesses. UBS gained market share in both equity and debt underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. , with the latter benefiting from a strong global syndicated finance performance. In corporate finance, UBS took advantage of the continued market momentum in mergers and acquisitions, improving the firm's competitive position in all regions. Higher fees from exchange-traded derivatives business bolstered bol·ster n. A long narrow pillow or cushion. tr.v. bol·stered, bol·ster·ing, bol·sters 1. To support or prop up with or as if with a long narrow pillow or cushion. 2. performance, reflecting the positive effect of last year's acquisition of ABN ABN Advance beneficiary notice, see there AMRO's global futures and options business. Net income from trading businesses rose in first quarter 2007, with equities, in particular, being positively impacted by favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. market conditions in Europe and Asia Pacific. The prime services business benefited from increased client balances and fixed income revenues improved compared with the same quarter last year on strong performances in the structured credit, global credit strategies and syndicated finance businesses. Foreign exchange and cash collateral trading was strong across the board, with high volumes more than offsetting the effect of global increases in interest rates. Emerging markets, base metals and structured products all had a very strong quarter marked by significant growth. The record first quarter 2007 performance shows the strength of the wealth management business, whose power remains unmatched across the industry. Wealthy clients around the globe entrusted UBS with a total of CHF 44.8 billion in net new money in first quarter, 85% of the total net new money inflow. Personnel expenses were up 10% compared with first quarter 2006. In first quarter 2007, the firm continued to hire personnel in key areas of its business. In the Investment Bank, UBS hired at a slower rate than a year earlier, and staff numbers rose by only 1% from the end of last year. Amortization of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. rose compared with first quarter 2006 due to the acquisitions made last year. General and administrative expenses were down, primarily reflecting the absence of the provision for the Sumitomo settlement recorded a year earlier. This was partly offset by increased costs resulting from higher business volumes and staff levels. Compared with fourth quarter, however, spending on marketing, travel and entertainment, professional fees and expenses for IT and outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. fell. The number of personnel in the financial businesses was 80,637 on 31 March 2007, up 2,497 from 78,140 on 31 December 2006, with staff levels increasing across most businesses. Excluding the additional personnel from the McDonald acquisition and Perot contractors converted into UBS employees, staff numbers worldwide would have been up by 1,158 people. Outlook While it is likely that the economic expansion in the US will slow down over the next few months, there is increasing evidence from global macroeconomic mac·ro·ec·o·nom·ics n. (used with a sing. verb) The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors. data - most notably from Europe and major emerging markets - that the rest of the world economy is in good shape. In particular, UBS does not expect the difficulties being experienced in the US mortgage market to have a negative long-term effect on a global scale. UBS is convinced that clients will increasingly seek its advice, with financial markets just as challenging as ever. The deal pipeline remains strong and its business model and balanced global presence provide it with many opportunities. "Over the course of 2007, we will concentrate on consolidating the investments we initiated last year. We will also continue to manage capital, risk and costs in disciplined fashion - and in line with market developments. The performance of our business - in common with the financial industry - tends to be stronger in the first quarter of the year than in the summer. In the past, we have repeatedly proven our strength in delivering strong returns throughout the business cycle, which makes us confident that 2007 will be another successful year of growth for UBS," said Clive Standish. Performance against targets UBS focuses on four key performance indicators Key Performance Indicators (KPI) are financial and non-financial metrics used to quantify objectives to reflect strategic performance of an organization. KPIs are used in Business Intelligence to assess the present state of the business and to prescribe a course of action. , designed to ensure the delivery of continuously improving returns to shareholders. All are calculated based on results from continuing operations. The first two, return on equity and diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of , are based on the results of the entire firm. The cost / income ratio and net new money indicators are limited to the financial businesses. On this basis, performance indicators in first quarter 2007 show: * annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. return on equity at 28.7%, down from 29.6% in the same quarter a year earlier but well above UBS's target of a 20% minimum over the cycle. Higher attributable net profit was offset by an increase in average equity following strong retained earnings Retained Earnings The percentage of net earnings not paid out in dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders equity on the balance sheet. . * diluted earnings per share at CHF 1.62, up 9% or CHF 0.14 from CHF 1.48 in the same quarter a year earlier, reflecting the increase in net profit and a 3% reduction in the average number of shares outstanding as UBS continued to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. shares. It was also just below its target of double digit Noun 1. double digit - a two-digit integer; from 10 to 99 integer, whole number - any of the natural numbers (positive or negative) or zero; "an integer is a number that is not a fraction" earnings growth. * a cost / income ratio in the financial businesses of 68.1%, slightly better than the 68.4% shown in the same quarter last year. The strong increase in operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. reflected higher revenues in all businesses. This was only partially offset by the increase in personnel expenses, which were driven by higher levels of staff and performance-related accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. . * net new money of CHF 52.8 billion, at its highest level ever, was up from CHF 48.0 billion a year earlier. The wealth management units recorded inflows of CHF 44.8 billion this quarter, up from CHF 33.6 billion in first quarter 2006. Inflows in the international and Swiss wealth management business rose by CHF 9.2 billion to CHF 33.9 billion, mainly driven by higher inflows from Asia and the Americas. Net new money in European wealth management was CHF 5.4 billion in first quarter 2007, down from CHF 6.5 billion in first quarter 2006, as higher inflows in Germany and Italy were more than offset by lower inflows in other European countries. Inflows into the domestic wealth management business in the US were CHF 10.9 billion in first quarter, up from CHF 8.9 billion a year earlier. This increase was driven by inflows from both existing and new clients. The asset management business saw inflows fall to CHF 5.3 billion, down from CHF 12.6 billion a year earlier. Institutional clients reported CHF 2.7 billion in new inflows, mainly driven by contributions from fixed income, multi-asset and alternative investments, partly offset by outflows in equity capabilities. The wholesale intermediary Intermediary See: Financial intermediary intermediary See financial intermediary. business saw an inflow of CHF 2.6 billion, down from CHF 5.5 billion in the same quarter a year earlier, mainly due to lower inflows in multi-asset and outflows in fixed income. Of the total, CHF 5.8 billion flowed out of money market funds, which tend to experience larger quarterly swings than other asset classes. The Swiss retail banking business recorded net new money inflows of CHF 2.7 billion in first quarter, primarily relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc increased inflows from existing clients. Invested assets Invested assets, benefiting from net new money and rising financial markets, totaled CHF 3,112 billion on 31 March 2007, up 4% from 31 December 2006. [TABLE OMITTED] [TABLE OMITTED] Results from the Financial Businesses Global Wealth Management & Business Banking Global Wealth Management & Business Banking's pre-tax profit was a record CHF 2,244 million in first quarter 2007, an increase of 3% from fourth quarter 2006. In the International and Swiss wealth management businesses, pre-tax profit rose 6% to a record CHF 1,501 million in first quarter 2007. Total operating income increased 9%, with recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. income buoyed by the higher asset base. Non-recurring income, up 19%, benefited from significantly higher client activity. Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. rose 12%, reflecting rising personnel expenses, which were up due to higher performance-related accruals, new staff hires and increased costs for the employee pension plan in Switzerland. General and administrative expenses fell slightly on the release of previously made provisions. In the US wealth management business, pre-tax profit was CHF 171 million in first quarter 2007, down 2% from CHF 174 million in fourth quarter 2006. In US dollar terms, pre-tax profit fell 3%. Total operating income rose slightly, reflecting a record level of recurring income due to rising managed account fees. This was partly offset by lower non-recurring revenue, which fell mainly on lower performance fees in first quarter 2007. In US dollar terms, operating income was 1% higher than in fourth quarter. In first quarter 2007, total operating expenses rose marginally. Personnel expenses rose 9%, a result of increased performance-related compensation, higher salary costs due to the integration of personnel from McDonald Investments, and the hiring of additional non-financial advisor staff for growth initiatives. Non-personnel expenses, which include general and administrative, depreciation and amortization expenses, decreased, mainly as a result of lower legal provisions. Business Banking Switzerland reported pre-tax profit falling 4% to CHF 572 million. The rise in total operating expenses more than offset the marginal increase in total operating income. Net interest income fell, partly reflecting the fewer number of days in first quarter compared with fourth quarter 2006. Non-interest income increased, mainly due to higher client activity levels. General and administrative expenses rose slightly, mainly due to the fourth quarter release of previously made provisions, which lowered that quarter's expenses correspondingly. Global Asset Management Pre-tax profit in first quarter 2007 was CHF 404 million, an increase of 1% compared with CHF 400 million in fourth quarter 2006. This largely reflected the increased average asset base, which led to higher management fees across the business. Total operating income rose 6%, with Institutional revenues rising on increased management fees across the business, higher performance fees from the Dillon Read Capital Management (DRCM) outside investor fund and the impact of a full quarter of fees earned by the Pactual asset management business. Wholesale intermediary revenues were up on increased management fees, reflecting the higher average asset base during the quarter, the inclusion of a full quarter of revenues from Pactual's asset management business and higher performance fees from equity funds. Total operating expenses rose 9%, mainly reflecting lower charges-out for investment management services to the Investment Bank. Personnel expenses were down, primarily due to lower incentive-based compensation. General and administrative expenses decreased, with the prior quarter including significant investments in business support areas and IT as well as costs related to the launch of DRCM's first outside investor fund. Investment Bank In first quarter 2007, pre-tax profit was at an all-time quarterly record of CHF 1,801 million, up 3% from the performance a year earlier. Total operating income in first quarter 2007 was a record CHF 6,260 million, up 5% from the same quarter a year earlier. The equities business posted record revenues of CHF 3,128 million in first quarter 2007, up 10% from first quarter 2006, when it benefited from gains on NYSE NYSE See: New York Stock Exchange membership seats. All businesses reported stronger revenues, but the most significant gains were in derivatives, proprietary trading Proprietary Trading When a firm trades for direct gain instead of commission dollars. Essentially, the firm has decided to profit from the market rather than commissions from processing trades. , and equity capital markets. Prime brokerage Prime Brokerage A special group of services that many brokerages give to special clients. The services provided under prime brokering are securities lending, leveraged trade executions, and cash management, among other things. revenues continued to grow as the number of clients increased and average balances rose, although this was partly offset by lower client spreads. Fixed income, rates and currencies revenues were CHF 2,265 million, down 7% from the same quarter a year ago. Difficult market conditions in the US mortgage securities market led the business activities managed by DRCM to record losses. Revenues from the other parts of the FIRC FIRC Flight Instructor Refresher Clinic (US FAA) FIRC Foreign Inward Remittance Certificate FIRC Flight Instructor Refresher Course (US FAA) FIRC Fixed Income Rates and Currencies FIRC Finite Impulse Response Channel business were up 19% from a year earlier. Credit fixed income saw significant growth across all aspects of the business. Emerging markets revenues also saw a strong increase. Performance in the rates business was down overall. A solid result in mortgage-backed securities Mortgage-backed securities (MSBs) Securities backed by a pool of mortgage loans. , which benefited from high market volumes in Europe and Japan, was not enough to offset results from derivatives and government bonds, both of which fell - largely due to a flat yield curve Flat Yield Curve A chart that shows that the yields of bonds with short maturities are equal to the yields of bonds with longer maturities. and lower volatility. Trading revenues in power and gas fell in first quarter 2007 from the same period a year earlier, while sales and trading in both commodities structured products and crude oil rose considerably. Performance in the foreign exchange and cash and collateral trading businesses was very strong across the board, as high volumes more than offset the continued pressure on spreads. Emerging markets, base metals, prime services and structured products all had a very strong quarter marked by significant growth. Investment banking revenues, at CHF 865 million, rose 30% from first quarter 2006. This is a record for a first quarter, reflecting revenue growth in all regions, particularly in the Americas and Asia. Revenues from the advisory business grew strongly in a buoyant Buoyant The term used to describe a commodities market where the prices generally rise with ease when there are considerable signals of strength. Notes: These types of markets can be very volatile as the prices are rapid to rise and fall with investor sentiment. environment in which market share improved in all regions. The capital markets business also saw significant growth, led by equity capital markets and leveraged finance. Total operating expenses in first quarter 2007 were up 6% from the same period last year. Personnel expenses rose as salary costs and contributions to retirement benefit plans increased to reflect higher personnel levels and annual pay increases. Share-based compensation decreased 6% from the prior-year quarter, mainly reflecting the transfer of DRCM staff to Global Asset Management. General and administrative expenses decreased by 4%, with the year-earlier quarter including a litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. provision for the settlement agreement with Sumitomo Corporation Sumitomo Corporation (住友商事, Sumitomo Shōji) TYO: 8053 is a highly built worldwide trading company (Sogo shosha), and is a diversified corporation based in Tokyo, Japan. It is a member company of the Sumitomo Group. of CHF 112 million. This was partially offset by increased expenditure on occupancy, IT and other outsourcing and telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. and travel, mainly driven by higher personnel levels. Market risk for the Investment Bank, measured by average VaR (10-day, 99% confidence, 5 years of historical data) increased to CHF 517 million in first quarter 2007 from CHF 391 million in fourth quarter 2006, while the range (the difference between maximum and minimum VaR) increased to CHF 258 million from CHF 162 million. As mentioned in fourth quarter 2006, the integration of Pactual from 1 December 2006 has resulted in an increase in average VaR for the Investment Bank. [TABLE OMITTED] Cautionary statement regarding forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This communication contains statements that constitute "forward-looking statements", including, but not limited to, statements relating to the implementation of strategic initiatives and other statements relating to our future business development and economic performance. While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, (1) general market and macro-economic trends, (2) legislative developments, governmental and regulatory trends, (3) movements in local and international securities markets, currency exchange rates and interest rates, (4) competitive pressures, (5) technological developments, (6) changes in the financial position or creditworthiness Creditworthiness The condition in which the risk of default on a debt obligation by that entity is deemed low. Creditworthiness Eligibility of an individual or firm to borrow money. of our customers, obligors and counterparties Counterparties The parties on either side of an interest rate swap or a currency, equity or commodity swap, or to an options or futures position. and developments in the markets in which they operate, (7) management changes and changes to our Business Group structure and (8) other key factors that we have indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document and in documents furnished fur·nish tr.v. fur·nished, fur·nish·ing, fur·nish·es 1. To equip with what is needed, especially to provide furniture for. 2. by UBS and filings made by UBS with the SEC, including UBS's Annual Report on Form 20-F for the year ended 31 December 2006. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise. [TABLE OMITTED] [TABLE OMITTED] |
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