Investment Bank

Pre-tax profit in first quarter 2007 rose 3% from a year earlier to a record CHF 1,801 million.

Operating income

Total operating income in first quarter 2007 was a record CHF 6,260 million, up 5% from the same quarter a year ­earlier.

The equities business posted record revenues of CHF 3,128 million in first quarter 2007, up 10% from first quarter 2006, when it benefited from gains on NYSE membership seats. All businesses reported stronger revenues, but the most significant gains were in derivatives, proprietary trading, and equity capital markets. Cash equity revenues saw solid growth as strong global volumes drove higher commissions across all regions and cash trading increased, particularly in Europe. Derivatives had a record quarter, predominantly driven by growth in Europe and Asia. Equity capital markets and exchange-traded derivatives saw significant increases, the latter mainly boosted by the acquisition of ABN AMRO's global futures and options business. Prime brokerage revenues continued to grow as the number of clients increased and average balances rose, although this was partly offset by lower client spreads. Proprietary trading revenues were also higher than last year's first quarter, reflecting ­improved market conditions in Europe and Asia Pacific. Compared with fourth quarter 2006, equities revenues were up 23%, with increases in derivatives and cash equities partially offset by lower primary and proprietary revenues.

Fixed income, rates and currencies (FIRC) revenues were CHF 2,265 million, down 7% from the same quarter a year ago. Difficult market conditions in the US mortgage securities market led the business activities managed by DRCM to report losses. Revenues from the other parts of the FIRC business were up 19% from a year earlier. Credit fixed income saw significant growth across all aspects of the business driven by structured credit, global credit strategies and syndicated finance. Emerging markets revenues saw a strong increase, particularly in Latin America and Eastern Europe. Municipal securities revenues were basically flat compared with first quarter 2006. Securitized products saw significant increases from last year's levels when the business was in its start-up phase. Credit default swaps hedging loan exposures recorded gains of CHF 41 million, compared with losses of CHF 95 million a year ago. Performance in the rates business was down overall. A solid result in mortgage-backed securities, which benefited from high market volumes in Europe and Japan, was not enough to offset lower results from derivatives and government bonds, both of which fell, largely due to a flat yield curve and lower volatility. Trading revenues in power and gas fell in first quarter 2007 from the same period a year earlier, while sales and trading in both commodities structured products and crude oil rose considerably. Performance in our foreign exchange and cash and collateral trading businesses was very strong across the board, as high volumes more than offset the continued pressure on spreads. Emerging markets, base metals, prime services and structured products all had a very strong quarter marked by significant growth. Compared with fourth quarter 2006, fixed income, rates and currencies revenues were up 12%, with revenue increases in all businesses except municipal securities and DRCM.

Investment banking revenues, at CHF 865 million, rose 30% from first quarter 2006. This was a record for a first quarter, and it reflected revenue growth in all regions, particularly in the Americas and Asia. Revenues from our advisory business grew strongly in a buoyant environment in which we improved our market share in all regions. The capital markets business also saw significant growth, led by equity capital markets and leveraged finance. Compared with the all-time high achieved in fourth quarter 2006, investment banking revenues were down 15%. The new table above, which we will be publishing in our quarterly reports from now on, shows our gross capital market and corporate finance fees across UBS. It divides them into corporate finance fees, equity underwriting fees, debt underwriting fees and other capital market revenues. It also indicates the level of UBS capital market fees booked outside the Investment Bank, and how the investment banking department's fees are shared with equities and the fixed income, rates and currencies business.

Operating expenses

Total operating expenses in first quarter 2007 were CHF 4,459 million, up 6% from the same period last year.

Personnel expenses were CHF 3,389 million, also up 6% from a year earlier, as salary costs rose to reflect higher personnel levels and annual pay increases.

Share-based compensation in first quarter 2007 decreased 6% from the year-earlier quarter. This reflects the transfer of DRCM staff to Global Asset Management.

General and administrative expenses decreased by 4% to CHF 769 million, as the year-earlier quarter included a litigation provision for the settlement agreement with Sumitomo Corporation (CHF 112 million). This was partially offset by increased expenditure on occupancy, and telecommunications and travel, mainly driven by higher personnel levels. Spending on IT and outsourcing expenses rose on investments in infrastructure.

Charges from other business units increased by 10% to CHF 193 million, reflecting both charges from ITI related to higher staff levels as well as charges from Global Asset Management for managing the Investment Bank's funds invested in DRCM.

Depreciation expense was CHF 54 million, up 46% on first quarter 2006. This was due to an increase in occupancy costs and IT expenditures.

Amortization of intangible assets, at CHF 54 million, was up from CHF 15 million a year earlier, driven by the acquisitions of Banco Pactual and ABN AMRO's futures and options business.