Global Asset Management

Pre-tax profit in first quarter 2007 was CHF 404 million, an increase of 1% compared with CHF 400 million in fourth quarter 2006.

Operating income

Total operating income in first quarter 2007 was CHF 997 million, up 6% from CHF 943 million in the previous quarter. Institutional revenues were CHF 585 million in first quarter 2007, up from CHF 570 million in fourth quarter 2006, reflecting increased management fees across the business, higher performance fees from the Dillon Read Capital Management (DRCM) outside investor fund and the impact of a full quarter of fees earned by the Pactual asset management business. Performance fees in alternative and quantitative investments, while still robust, were lower than the very strong level of the prior quarter. Wholesale intermediary revenues were CHF 412 million in first quarter 2007, up from CHF 373 million in fourth quarter 2006. This was mainly a result of increased management fees, reflecting the higher average asset base during the quarter, the inclusion of a full quarter of revenues from Pactual's asset management business and higher performance fees from equity funds.

Operating expenses

Total operating expenses increased to CHF 593 million in first quarter 2007, up from CHF 543 million a quarter earlier, mainly reflecting lower charges-out for investment management services to the Investment Bank. Personnel expenses were CHF 423 million in first quarter 2007, down from CHF 484 million in fourth quarter, mostly due to lower ­incentive-based compensation. General and administrative expenses decreased to CHF 115 million in first quarter 2007 from CHF 133 million in fourth quarter 2006, as the prior quarter included significant investments in business support areas and IT as well as costs related to the launch of DRCM's first outside investor fund. Net charges-in from other business groups were CHF 43 million in first quarter 2007, compared with net charges-out to other business groups of CHF 87 million in last quarter. This was mainly a result of substantially lower charges to the Investment Bank for investment management services provided by DRCM, driven by a fall in trading revenues, as well as increased charges from ITI for IT services.

New initiatives need continued attention to ensure they deliver the best long-term value to our shareholders and clients. The development of Dillon Read Capital Management, including its return on UBS proprietary capital, interest from third-party investors and the initiative's operational complexity, has not met our original expectations. Our executive team conducted a review of its prospects. As a result, we are considering whether or not we should redeem the recently launched external fund of DRCM and explore alternatives for clients currently invested in the fund. We are also looking at DRCM's structure, and evaluating how UBS's proprietary capital would best be managed.