Capital Management

We are committed to being one of the best-capitalized financial services firms in the world with sound capital ratios and strong debt ratings. Our strong capitalization allows us to invest in the growth of our businesses by making acquisitions or by growing organically. But in the absence of any such opportunities, we will continue to return any excess capital to our shareholders either through share buybacks or dividends, while maintaining our BIS Tier 1 ratio at its high level.

Risk-weighted assets dropped 3% to CHF 264.1 billion on 31 December 2004 from CHF 272.8 billion on 30 September 2004. The decline was driven by lower requirements for market risk, reflecting the enhancement of our VaR market risk model as well as the drop of the US dollar against the Swiss franc. BIS Tier 1 capital dropped to CHF 31.1 billion on 31 December 2004 from CHF 31.3 billion on 30 September 2004, as retained earnings were offset by share buybacks for cancellation and for employee compensation programs. Our BIS Tier 1 ratio therefore increased to 11.8% at the end of December from 11.5% at the end of September 2004.

Buyback program

In fourth quarter 2004, we purchased 4,320,000 shares under our sixth buyback program, bringing the total purchased to 39,935,094 shares. The average price we paid for these shares was CHF 88.72, representing a total cost of CHF 3,543 million. The program allows us to repurchase shares for cancellation of a maximum value of CHF 6 billion or approximately 5.4% of total share capital. These shares will be canceled following approval at this year’s Annual General Meeting.

We will launch our seventh consecutive share buyback program with a maximum buyback limit of CHF 5 billion on 8 March 2005. It will run until 7 March 2006.

Treasury shares

IFRS requires a company that holds its own shares for trading or non-trading purposes to record those shares as treasury shares and deduct them from shareholders’ equity.

Our holding of own shares increased to 103,524,971 or 9.2% of shares issued on 31 December 2004, from 92,251,458 or 8.2% of shares issued on 30 September 2004. The increase reflects the shares we bought back under our 2004 program and for employee share and option programs.

Of the currently held treasury shares, 39,935,094 were bought for cancellation whereas the other 63,589,877 mainly cover employee share and option programs, and, to a limited extent, market-making activities at the Investment Bank. The Investment Bank acts as a market- maker in UBS shares, as well as in derivatives related to those shares, and may hold UBS shares as a hedge for derivatives issued to retail and institutional investors. Changes in the trading approach can lead to fluctuations in the size of our direct holding of UBS shares.

Dividend

The Board of Directors will recommend at the Annual General Meeting on 21 April 2005 that UBS should pay a dividend of CHF 3.00 per share for the 2004 financial year, an increase of 15.4% or CHF 0.40 from the CHF 2.60 dividend paid for the 2003 financial year.

If the dividend is approved, the ex-dividend date will be 22 April 2005, with payment on 26 April 2005 for shareholders of record on 21 April 2005.

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