Investment Bank

Last year was our most profitable since 2000. Pre-tax profit in 2005 was CHF 5,181 million, up 12% from 2004. Before goodwill, pre-tax profit was up 6%. The result was driven by strong revenues in investment banking (up 31%) and in equities (up 18%), reflecting our successful expansion in significant growth areas such as M&A, in particular in Asia Pacific, equity derivatives and prime brokerage. Results in the fixed income, rates and currencies business were slightly lower than last year’s all-time high. Lower revenues in structured credit – mainly driven by lower volumes and following the turmoil in the automotive sector in second quarter 2005 – were offset by an increase in the rates business. At the same time, costs increased as our businesses continued to expand.

In fourth quarter 2005, the Investment Bank posted a solid result, with pre-tax profit of CHF 1,372 million, up 8% from the same period last year. Before goodwill, pre-tax profit was up 2%. The investment banking business posted its best fourth quarter result ever in what is traditionally a strong quarter for this business. Personnel expenses increased, as well as costs for IT and travel. The fourth quarter 2005 results were further helped by the 13% strengthening of the average US dollar/Swiss franc rate compared to fourth quarter 2004. More than half of the revenues and approximately a third of the costs in the Investment Bank are denominated in US dollars.

Operating income

Total operating income in fourth quarter 2005 was CHF 4,590 million, up 15% from the same quarter a year ago.

The equities business reported revenues of CHF 1,916 million in fourth quarter 2005, up 20% from the same period in 2004. Revenues rose primarily in our areas of focus – the derivatives and prime brokerage areas. Revenues from the structured product business in Asia also rose strongly, and exchange- traded derivatives reported solid increases. Benefiting from higher market share and new clients, prime brokerage revenues saw a solid rise from the same period last year. Cash revenues decreased slightly and proprietary trading was down from 2004, reflecting losses in the challenging market conditions at the beginning of fourth quarter 2005, which were only partially offset by strong revenues when the market rebounded as the quarter closed. Compared to the robust performance in third quarter 2005, equities revenues were down 3%.

Fixed income, rates and currencies revenues were CHF 1,817 million in fourth quarter 2005, essentially flat on the same period a year earlier. Revenues in the rates business were up against the prior year as a result of rising revenues in energy trading and derivatives. Credit fixed income experienced a drop in revenues compared with the prior year, with declines seen in certain credit trading businesses. These declines were partially offset by stronger primary debt markets and leveraged finance revenues. Credit default swaps hedging loan exposures recorded gains of CHF 62 million, compared to losses of CHF 52 million a year earlier. In municipal securities, revenues fell compared to the prior year, primarily due to a drop in derivatives distribution revenues, which was partly offset by higher cash origination revenues. Principal finance experienced a decline in revenues, whereas commercial real estate saw a strong rise, driven mainly by securitizations. While the foreign exchange and cash and collateral business benefited from increased client volumes in most segments and improved conditions in foreign exchange spot markets, overall revenues were lower than a year earlier. Metals and commodities saw increased volumes and revenues as a result of rising client activity and our entry into the base metals product segment. Compared to third quarter 2005, fixed income, rates and currencies revenues were down 14%, mainly reflecting deteriorating market conditions in rates and credit fixed income.

Investment banking revenues, at CHF 850 million in fourth quarter 2005, rose 43% from fourth quarter 2004. This strong performance emphasizes the continued momentum of our franchise, with revenue growth seen in both Europe and Asia Pacific. Revenues from the advisory business were up on the prior year as clients took advantage of strategic opportunities. Similarly, both our debt and equity capital markets businesses saw significant increases on the prior year, driven by a strong market environment. Syndicated finance revenues were also up strongly, demonstrating our strengthened commitment to this part of the business. Compared to third quarter 2005, investment banking revenues were up 44%.

Operating expenses

Total operating expenses in fourth quarter 2005 were CHF 3,218 million, up 18% on the same period last year. Excluding the amortization of goodwill, expenses rose 21%.

Personnel expenses were CHF 2,314 million, up 23% from a year earlier, reflecting higher accruals for cash bonuses, which rose in line with revenues as well as increases in salaries and staff levels. Share-based compensation rose 18% from the prior year due to an increase in share-based awards and the higher UBS share price in 2005 compared to 2004.

General and administrative expenses increased slightly to CHF 671 million in fourth quarter 2005. The transfer of IT infrastructure functions into UBS’s central ITI unit was offset by higher costs for IT outsourcing. Litigation provisions decreased, but costs for travel and entertainment rose from fourth quarter last year.

Depreciation expense was CHF 40 million, down 30% on fourth quarter 2004 because of the transfer of further IT infrastructure.