Capital Management

We are committed to being one of the best-capitalized global financial services firms 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. After exploiting 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.

Risk-weighted assets stood at CHF 311.8 billion, up CHF 1.4 billion from 31 December 2005. Off-balance sheet positions rose, mainly due to credit risk facilities provided to Investment Bank clients and derivative contracts in cross-currency interest rate swaps, which were driven by higher transaction levels. This was offset by lower risk-weighted assets related to the assets on our balance sheet, mainly in our Investment Bank, reflecting the effect of netting opportunities and outpacing the growth in Global Wealth Management & Business Banking’s loan book. It also reflects the disposal of Motor-Columbus.

BIS Tier 1 capital was CHF 40.3 billion, up from CHF 39.9 billion at the end of 2005, driven by the strong quarterly profits, largely offset by dividend accruals, share repurchases, a reduction in the minority interest and differences between financial accounting and capital adequacy rules. As a result, the BIS Tier 1 ratio was 12.9% on 31 March 2006, unchanged from 31 December 2005.

Buyback program

We terminated our 2005 / 2006 share buyback program on 7 March 2006, after purchasing 3,215,000 shares for CHF 429 million this quarter. Under the same program, a total of 37,100,000 shares for an average price of CHF 108.53, representing a total cost of CHF 4,026 million, were repurchased this year and last. The shares will be canceled in July 2006 following shareholder approval at the Annual General Meeting in April.

We started a new 2006 / 2007 buyback program on 8 March 2006, which will again lead to a cancellation of repurchased shares. The program will allow us to repurchase up to CHF 5 billion in shares and will run until 7 March 2007. We will seek approval for the cancellation of shares bought back under this program at the Annual General Meeting in April 2007. As of 31 March 2005, we had not yet bought back any shares under the new program.

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 decreased to 90,058,071, or 8.3% of shares issued on 31 March 2006, from 104,259,874 or 9.6% of shares issued on 31 December 2005. The decrease reflects shares we delivered to employees in first quarter as part of employee share or option programs, outweighing the impact of treasury shares purchased.

Of the currently held treasury shares, 37,100,000 were bought for cancellation whereas the other 52,958,071 mainly cover employee share and option programs, and, to a limited extent, share delivery obligations related to the acquisition of remaining ownership interests in Canadian subsidiary UBS Bunting Limited, and market-making activities at the Investment Bank. The Investment Bank acts as a market-maker in UBS shares and derivatives on UBS shares. It issues derivatives to retail and institutional investors and may hold shares to hedge these products. Changes in the trading approach can lead to fluctuations in the size of our direct holding of UBS shares.

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