Risk Management and Control

UBS realized a net recovery of CHF 38 million in second quarter 2006, compared with net recoveries of CHF 83 million and CHF 69 million in first quarter 2006 and second quarter 2005. The continuing stable economic environment in a number of emerging markets has allowed the release of CHF 25 million in collective loan loss provisions for country risk. The quality of our credit portfolios, as shown by the continued downward trend in impaired exposures, along with the generally benign credit environment, has allowed us to report net credit loss recoveries for the last few quarters, albeit at a declining rate. While we continue to apply our proven and sound risk underwriting standards across all Business Groups, it would not be prudent to simply extrapolate a full-year result from the recovery in first half.

Global Wealth Management amp; Business Banking experienced a net recovery of CHF 37 million in second quarter 2006, after net recoveries of CHF 53 million in first quarter 2006 and CHF 26 million in second quarter 2005.

The Investment Bank did not experience any new impairments but posted a net recovery of CHF 1 million in second quarter 2006, compared to CHF 30 million in first quarter 2006 and CHF 43 million in second quarter 2005.

Our gross lending portfolio increased by CHF 22 billion to CHF 330 billion on 30 June 2006 from CHF 308 billion on 31 March 2006. In Global Wealth Management amp; Business Banking, gross lending rose to CHF 224 billion, up slightly from CHF 222 billion on 31 March 2006. The gross lending portfolio at the Investment Bank increased by CHF 19 billion to CHF 105 billion. The bulk of the increase reflects a rise in short-term interbank exposures, and the balance a reclassification of previously reported positions.

The ratio of impaired loans to total loans further improved to 0.9% from 1.0% in first quarter 2006. Impaired loans declined 6.4% to CHF 2,963 million from last quarter’s CHF 3,167 million. The decrease is largely attributable to the continued workout of recovery positions and the low level of new impairments in the Business Banking Switzerland unit.