Risk Management and Control

UBS realized a net recovery of CHF 14 million in third quarter 2006, compared with net recoveries of CHF 38 million in second quarter 2006 and CHF 37 million in third quarter 2005. 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 the first three quarters.

Global Wealth Management & Business Banking experienced a net recovery of CHF 8 million in third quarter 2006, after net recoveries of CHF 37 million in second quarter 2006 and CHF 16 million in third quarter 2005.

The Investment Bank did not suffer any new impairments and posted a net recovery of CHF 6 million in third quarter 2006, compared with CHF 1 million in second quarter 2006 and CHF 21 million in third quarter 2005.

Our gross lending portfolio increased by CHF 14 billion to CHF 344 billion on 30 September 2006 from CHF 330 billion on 30 June 2006. In Global Wealth Management & Business Banking, gross lending rose to CHF 227 billion, up slightly from CHF 224 billion on 30 June 2006. The gross lending portfolio at the Investment Bank increased by CHF 11 billion to CHF 116 billion. The increase was driven by short-term government exposures and growth in secured client financing.

The ratio of impaired loans to total loans further im- proved to 0.8% from 0.9% in second quarter 2006. Impaired loans declined 4.8% to CHF 2,821 million from last quarter’s CHF 2,963 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.