Risk Management and Control

In the context of turbulent markets during third quarter, the Investment Bank recorded a credit loss expense, as opposed to the recoveries recorded in previous quarters. This was, however, partially offset by credit loss recoveries in Global Wealth Management & Business Banking.

For UBS as a whole, the credit loss expense amounted to CHF 15 million in third quarter 2007, compared with net recoveries of CHF 14 million in both second quarter 2007 and third quarter 2006. Global Wealth Management & Business Banking reported a net recovery of CHF 11 million in third quarter 2007, after net recoveries of CHF 11 million in second quarter 2007 and CHF 8 million in third quarter 2006. The Investment Bank suffered a credit loss expense of CHF 26 million in third quarter 2007, after net recoveries of CHF 3 million in second quarter 2007 and CHF 6 million in third quarter 2006.

Our gross lending portfolio was CHF 403 billion on 30 September 2007, up from CHF 393 billion on 30 June 2007. In Global Wealth Management & Business Banking, the gross lending portfolio rose by CHF 6 billion to CHF 248 billion on 30 September 2007, mainly on higher secured lending by our international wealth management units. In the Investment Bank, the gross lending portfolio was CHF 154 billion, up from CHF 150 billion on 30 June 2007.

The ratio of the impaired lending portfolio to total gross lending portfolio remained unchanged at 0.6% in third quarter 2007. The level of the impaired lending portfolio was CHF 2,586 million in third quarter, up 11% from CHF 2,330 million last quarter, reversing the trend seen in previous quarters. The increase is principally attributable to one loan by the Investment Bank to a UK residential mortgage originator. The loan is secured on a pool of residential mortgages, which we assess to be of good quality. This is reflected in the increase in the estimated liquidation proceeds of collateral for impaired loans in the table below.