Capital Management

On 31 December 2007, UBS's total BIS capital ratio stood at 12.0% and its BIS Tier 1 ratio was 8.8%, down from levels of 13.6% and 10.6% respectively on 30 September 2007. In the same period, BIS risk-weighted assets were down CHF 18.0 billion to CHF 372.3 billion. These shifts were driven by declines in the Investment Bank, where deliberate balance sheet reductions led to lower lending, reverse repurchase exposures and the exit of certain US legacy positions which were built up by Dillon Read Capital Management. Fixed income related products (asset-backed lending and collateralized loan obligations) also declined during fourth quarter. Additionally, equities saw a decrease in securities lending and borrowing activities. Risk-weighted assets on derivative products decreased, mainly due to lower credit exposure on foreign exchange products. The purchase of additional hedges for undrawn off-balance sheet credit facilities resulted in lower capital usage.

Value at Risk increased following updates of the historical time series, which included the effects of the credit market dislocation. This led to a higher regulatory capital requirement for market risk, which in turn increased risk-weighted assets.

BIS Tier 1 capital on 31 December 2007 was CHF 32.8 billion, down CHF 8.7 billion from 30 September 2007. The decline in Tier 1 capital was a result of the quarterly net loss, expected requirements for share compensation plans and negative foreign exchange impacts. As announced on 10 December 2007, the UBS Board of Directors proposed replacing the 2007 dividend with a stock dividend. This had a positive impact on UBS's Tier 1 ratio as it led to a reversal of previously accrued dividends. UBS also rededicated shares previously intended for cancellation and this positively affected the firm's Tier 1 capital. On 31 December 2007, total BIS capital was CHF 44.5 billion, down from CHF 53.1 billion on 30 September 2007.

2007 / 2010 buyback program

The current three-year second-line repurchase program, in place since March 2007, has a maximum limit of 10% of shares issued, which corresponds to 210,527,328 shares. This program was suspended for an indefinite period on 10 December 2007, in line with the announced capital measures. The 36,400,000 shares purchased under the program (for a total cost of CHF 2,599 million), which were previously intended for cancellation, have been rededicated. It is not expected that the program will resume until UBS returns to sustained levels of profitability.

Treasury shares

UBS's holding of its own shares decreased slightly to 158,105,524, or 7.6% of shares issued, on 31 December 2007. This compares with 161,998,409, or 7.8% of shares issued, on 30 September 2007. The quarterly movement was driven by deliveries of shares from employee plans and a decrease in holdings for market-making activities in the Investment Bank. The Investment Bank acts as a market-maker in UBS shares and related derivatives. It issues derivatives to retail and institutional investors and may hold shares to hedge these products. International Financial Reporting Standards (IFRS) requires a company that holds its own shares for trading or non-trading purposes to record them as treasury shares and deduct them from shareholders' equity.