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 balance sheet 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 excess capital to our shareholders through dividends, par value reductions or share buybacks, while maintaining our BIS Tier 1 ratio at a high level.

The most important factor behind the significant increase of the Tier 1 ratio in fourth quarter was the sale of Private Banks & GAM. UBS’s risk-weighted assets fell because of the sale, while the disposal gain resulted in an increase in capital.

Risk-weighted assetsstoodatCHF310.4 billionon31December 2005, down from CHF 316.6 billion on 30 September 2005. Most of this is the net effect of the sale of Private Banks & GAM, although it also reflects additional counterparty netting in our derivatives business, and lower contingent liabilities due to the syndication of major client commitments. This was slightly offset by higher capital requirements for mortgages to private clients in Switzerland and higher commitments to the Investment Bank’s corporate clients.

BIS Tier 1 capital increased to CHF 39.9 billion on 31 December 2005 from CHF 35.7 billion on 30 September 2005, reflecting the extraordinary disposal gain, a strong operational profit in fourth quarter combined with positive currency translation effects. As a result, our BIS Tier 1 ratio increased by 1.6 percentage points to 12.9% at the end of 2005.

Buyback program

In fourth quarter 2005, we repurchased 6,815,000 shares at an average price of CHF 116.00, at a total cost of CHF 791 million. In full-year 2005, we bought a total of 33,885,000 shares under our current program for an average price of CHF 106.16, representing a total cost of CHF 3,597 million. The program runs until 7 March 2006 and allows us to repurchase shares with a value of up to CHF 5 billion. As in past years, we will seek approval for the cancellation of shares bought back under the program by the Annual General Meeting in April 2006.

We will launch our eighth consecutive share buyback program with a maximum buyback limit of CHF 5 billion on 8 March 2006. It will run until 7 March 2007.

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 equity attributable to UBS shareholders.

Our holding of own shares including treasury shares held in employee benefit trusts assigned to employees rose to 104,259,874 or 9.6% of shares issued on 31 December from 93,073,932 or 8.6% of shares issued on 30 September 2005.

The increase in share holdings reflects an increase in shares purchased for cancellation and for employee share and option plans, partially offset by a lower number of shares held for market-making activities at the Investment Bank.

Of the treasury shares currently held, 33,885,000 were bought for cancellation with the other 70,374,874 mainly covering 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.