Results

In first quarter 2008, UBS recorded negative total operating income of CHF 3,952 million, down from positive CHF 13,486 million in first quarter 2007.

Net interest income and net trading income

Net interest income was positive CHF 1,679 million in first quarter 2008, in comparison with CHF 1,308 million in first quarter 2007.

Net trading income dropped to negative CHF 11,643 million in first quarter 2008, from positive CHF 4,667 million in first quarter 2007.

As well as income from interest margin-based activities (loans and deposits), net interest income includes income earned as a result of trading activities (for example, coupon and dividend income). The latter component of interest income is volatile from periodto period, depending on the composition of the trading portfolio. In order to provide a better explanation of the movements in net interest income and net trading income, UBS analyzes the total according to the business activities that giverise to the income, rather than by the type of income generated.

Net income from trading businesses
In first quarter 2008, net income from trading businesses dropped to negative CHF 15,761 million from positive CHF 4,274 million in first quarter 2007. Income in first quarter 2008 was impacted by losses on exposures to the US real estate market. UBS marked down its holdings in US student loan asset-backed securities and certain leveraged finance commitments. Further credit valuation adjustments were made on protection bought from monoline insurers. See Note 3 on page 81 and the discussion of FICC's revenues on page 53 for further detail.

As a result of observed market widening of UBS's credit spread in the first three months of 2008, the Investment Bank recorded gains on own credit of CHF 2,103 million in net trading income (structured liabilities for which the fair value option was elected). These gains would reverse if credit spreads tightened again.

Trading results in most fixed income, currencies and commodities (FICC) areas were very weak, except for rates where the strong first quarter result was driven by the European swaps and options business and record revenues in government bond trading. Credit recorded losses in proprietary strategies and in credit trading, driven by high market volatility and lack of liquidity. Structured products were down compared with first quarter 2007, which was positively impacted by strong revenues in the US and Europe. Commodities trading revenues were down as energy had a weak quarter in difficult markets with limited client flow.

Equities trading revenues in first quarter 2008 were down from the same quarter in 2007, mainly as a result of the considerable decline in proprietary trading revenues in all regions leading to an overall negative result. Derivatives revenues fell as lower European revenues were only partially offset by increases in the Americas and Asia Pacific. Cash equities trading revenues were down in Europe. Equity-linked products continued to suffer from difficult market conditions which resulted in reduced liquidity. Prime services (prime brokerage and exchange-traded derivatives) recorded higher revenues, especially in Europe.

Net income from interest margin businesses
At CHF 1,581 million in first quarter 2008, net income from interest margin businesses was up CHF 115 million, or 8%, from the same quarter a year earlier. The change was driven by an increase in collateralized lending to wealthy clients worldwide. It also reflects an increase in spreads, particularly for euro and Swiss franc deposits, and higher volumes of mortgages to Swiss clients.

Net income from treasury activities and other
Net income from treasury activities and other was CHF 4,216 million in first quarter 2008, up from CHF 235 million in first quarter 2007. This increase was primarily due to a one-time gain of CHF 3,860 million resulting from the accounting treatment of mandatory convertible notes (MCNs) issued on 5 March 2008 (please see Note 12 for further details). Further positive contributions came from the management of the currency risk at Group level, and from the mark-to-market gains on USD foreign exchange options. These positive effects were partially offset by lower returns achieved on the lower equity base.

Net fee and commission income

In first quarter 2008, net fee and commission income was CHF 6,215 million, down 14% from CHF 7,264 million in first quarter 2007. Income for most fee categories declined in first quarter 2008, in comparison with first quarter 2007, as outlined below:

- underwriting fees fell 54% to CHF 381 million, driven by a 59% decline in equity underwriting income with reduced market activities in all regions and a 46% decline in debt underwriting fees which were negatively affected by continuing market dislocation in the US;

- mergers and acquisitions and corporate finance fees fell 7% to CHF 417 million, in line with the industry trend of a decline in mandated deals;

- net brokerage fees fell 2% to CHF 1,846 million, with lower client transaction volumes in the wealth management businesses only partially offset by increased revenues in the Investment Bank's exchange-traded derivatives business;

- investment fund fees fell 9% to CHF 1,592 million due to lower sales-based fees and the reduced average asset base;

- portfolio and other management and advisory fees fell 12% to CHF 1,706 million mainly due to reduced management and performance fees from alternative and quantitative investments in Global Asset Management, as well as a lower asset base, and therefore lower related fees, in the wealth management businesses; and

- other commission expenses increased to CHF 586 million in first quarter 2008 from CHF 440 million in first quarter 2007, mainly due to expansion of the Asian-based equity derivatives business and the equity cash business.

Other income

Other income in first quarter 2008 was CHF 108 million, a decrease from CHF 246 million in first quarter 2007. First quarter 2007 included gains from the sale of positions from Industrial Holdings.

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