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 growing organically or with bolt-on acquisitions. But absent any such opportunities, we will continue to return any excess capital to our shareholders through dividends or share buybacks, while maintaining our BIS Tier 1 ratio at its high level.

Risk-weighted assets rose 5% to CHF 316.6 billion on 30 September 2005 from CHF 300.6 billion on 30 June 2005. More than half of the increase was driven by off-balance sheet assets, mainly due to higher commitments to the Investment Bank’s corporate clients. Higher volumes in our derivatives business, and interest and exchange rate movements, also prompted the level of risk-weighted assets to rise. To a lesser extent, capital requirements increased because of the higher volumes in secured lending to private clients in Switzerland and the US.

BIS Tier 1 capital decreased to CHF 35.7 billion on 30 September 2005 from CHF 36.7 billion on 30 June 2005, reflecting our ongoing share buyback program, outweighing our strong third quarter 2005 result. Our BIS Tier 1 ratio declined 0.9 percentage points to 11.3% at the end of September 2005 because of the fall in Tier 1 capital combined with the increase in risk-weighted assets.

Buyback program

In third quarter 2005, we repurchased 21,020,000 shares at an average price of CHF 104.69, representing a total cost of CHF 2,201 million.

The current program, our seventh, runs until 7 March 2006 and allows us to repurchase up to CHF 5 billion in shares. As in past years, we will seek approval for the cancellation of shares bought back under the program at the Annual General Meeting in April 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 including treasury shares held in employee benefit trusts assigned to employees fell to 93,073,932 or 8.6% of shares issued on 30 September 2005, from 111,865,879, or 9.9% of shares issued, on 30 June 2005.

The decline in share holdings reflects the cancellation of 39,935,094 shares on 8 July 2005 purchased under our 2004 buyback program, partly offset by the shares we bought back in third quarter under the current program.

Of the currently held treasury shares, 27,070,000 were bought for cancellation whereas the other 66,003,932 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.