Results

In full-year 2004, Wealth Management USA reported a pre-tax gain of CHF 179 million compared to a loss of CHF 5 million in 2003. The 2003 results include a pre-tax gain of CHF 161 million from the sale of Correspondent Services Corporation (CSC) in second quarter 2003. After the exclusion of the CSC gain and before acquisition costs, operational performance showed a profit of CHF 762 million in 2004 and CHF 664 million in 2003. Because our business is almost entirely conducted in US dollars, comparisons of our results to prior periods are affected by the weakening of the US dollar against the Swiss franc. In US dollar terms, operational performance in 2004 was 24% higher than in 2003. This represents the best result since PaineWebber became part of UBS, reflecting record recurring fees and increased net interest revenue benefiting from the first full-year impact of UBS Bank USA. In municipal finance, revenues fell due to lower transaction and underwriting volumes and reduced derivative activity. Still, despite the difficult market conditions, according to Bloomberg we became the top ranked firm in lead-managed negotiated underwriting volume in 2004 by increasing our market share to 14.2%, up from last year’s 12.5%.

In fourth quarter 2004, Wealth Management USA reported a pre-tax profit of CHF 77 million, compared to a pre-tax profit of CHF 43 million in third quarter. Before acquisition costs, pre-tax profit increased 11% to CHF 187 million from CHF 169 million in third quarter 2004. On the same basis, but in US dollars, the operating result was 20% higher than third quarter 2004, the second- best quarterly result since PaineWebber became part of UBS.

Operating income

Total operating income in fourth quarter 2004 was CHF 1,246 million. Before acquisition costs, it stood at CHF 1,285 million, slightly up from the CHF 1,278 million reported in third quarter 2004. On the same basis and in US dollar terms, operating income was 9% higher than in third quarter. This reflected a record level of recurring fees driven by higher asset levels in managed account products. The growth of UBS Bank USA increased interest revenues in our lending business. During the quarter, investor activity continued to grow, with average daily trading volumes up 19% from third quarter. In December 2004, the UBS Index of Investor Optimism rose to 79, slightly higher than the September 2004 level. These positive developments were partially offset by lower municipal finance revenue (CHF 80 million in fourth quarter, down 25%), driven by a decrease in secondary trading performance as well as declining underwriting revenues.

Operating expenses

In fourth quarter 2004, total operating expenses were CHF 1,169 million, down 2% from third quarter 2004. In US dollar terms and before acquisition costs, operating expenses increased 8% from third quarter. Personnel expenses were CHF 820 million in fourth quarter 2004. In US dollar terms, they increased 10% from the previous quarter, reflecting higher performance-driven compensation. Non-personnel expenses, which include general and administrative, depreciation and amortization expenses, decreased 7% to CHF 349 million in fourth quarter 2004 from CHF 374 million in third quarter. In US dollar terms, fourth quarter non-personnel expenses were 1% higher than in third quarter 2004, reflecting higher consulting fees.

Headcount

Headcount was 17,388 on 31 December 2004, 178 higher than on 30 September 2004. This reflects an increase in the number of financial advisors. We continue to invest in and recruit highly productive and experienced financial advisors. Non-financial advisor headcount was 9,869 on 31 December 2004, compared to 9,867 on 30 September 2004 and 9,669 on 31 December 2003. The increase in non-financial advisor headcount in 2004 was due to hiring in support of key initiatives such as the expansion of our lending business. Since PaineWebber became part of UBS, non-financial advisor headcount has fallen by 20%.