Risk Management and Control

UBS recorded a credit loss expense of CHF 238 million in fourth quarter 2007, compared with CHF 15 million in third quarter 2007 and a net recovery of CHF 21 million in fourth quarter 2006.

In fourth quarter 2007, the Investment Bank recorded a credit loss expense of CHF 223 million, of which CHF 131 million related to valuation adjustments taken in connection with the securitization of certain US commercial real estate assets. These adjustments were a reflection of the repricing of risk observed in the markets during the fourth quarter. Credit loss expense in third quarter 2007 was CHF 26 million, whereas in fourth quarter 2006 net recoveries of CHF 10 million were recorded.

Global Wealth Management & Business Banking reported a CHF 15 million credit loss expense in fourth quarter 2007. In comparison, net recoveries of CHF 11 million were booked in third quarter 2007 and fourth quarter 2006. The change is attributable to the continued reduction in the impaired lending portfolio and related provisions such that recoveries realized from work-outs continue to trend lower and no longer compensate for the ongoing need to establish new provisions.

For full-year 2007, credit loss expense was CHF 238 million, compared with a net recovery of CHF 156 million in full-year 2006.

UBS's gross lending portfolio was CHF 398 billion on 31 December 2007, down from CHF 403 billion on 30 September 2007. In Global Wealth Management & Business Banking, the gross lending portfolio increased only marginally by CHF 0.5 billion to CHF 249 billion on 31 December 2007. The gross lending portfolio in the Investment Bank was CHF 148 billion, down from CHF 154 billion on 30 September 2007. This decline was due to reductions of CHF 7 billion in loans as a consequence of declining levels in the prime brokerage area and securitizations that took place in the loan book during fourth quarter 2007.

The ratio of the impaired lending portfolio to total gross lending portfolio remained unchanged at 0.6% on 31 December 2007. The level of the gross impaired lending portfolio was CHF 2,392 million on 31 December 2007, down 8% from CHF 2,586 million on 30 September 2007. This decline was mainly due to the reduction in the portfolio of Global Wealth Management & Business Banking. The level of the gross impaired lending portfolio in the Investment Bank was essentially flat.