Corporate Center

Corporate Center, including Industrial Holdings with its private equity portfolio, recorded a pre-tax gain from continuing operations of CHF 3,947 million in first quarter 2008. The result is vastly higher than the CHF 37 million recorded in fourth quarter 2007 and primarily due to a one-time accounting gain of CHF 3,860 million related to the 5 March 2008 mandatory convertible notes (MCN) issue (please see Note 12 of this report for further details). Pre-tax gain from discontinued operations was CHF 120 million in first quarter 2008, compared with CHF 34 million the prior quarter, related to the sale of the last fully consolidated operating company in the private equity portfolio.

Operating income

Total operating income in first quarter 2008 was CHF 4,221 million, a huge increase from CHF 301 million the previous quarter. This increase was mainly driven by the accounting treatment of the MCN issued during the quarter. Further positive contributions came from higher foreign exchange gains, related to management of the currency risk at Group level, and to the mark-to-market gains on US dollar foreign exchange options. Increases were only partially offset by lower returns achieved on the lower equity base. Additionally, Corporate Center continues to transfer interest income earned from managing UBS's consolidated capital back to the business groups. In first quarter 2008, the new equity attribution framework led to an over-allocation of equity, resulting in a charge to Corporate Center exceeding the interest income earned (see page 65 of this report for details of the new equity attribution framework). Operating income was also negatively impacted by losses from certain interest rate swaps and cash flow hedges, compared with gains in fourth quarter 2007.

Operating expenses

Total operating expenses increased by CHF 10 million in first quarter 2008, totaling CHF 274 million against the previous quarter's CHF 264 million. Personnel costs increased compared with fourth quarter, as at year-end 2007 bonus accruals were significantly reduced. In first quarter 2008, a performance- related payment was also made to a third-party in relation to a successful sale in private equity. This was partially offset by lower general and administrative expenses which were down 16% to CHF 291 million compared with fourth quarter 2007. Declines in advertising and sponsoring expenditures were only partially offset by advisory fees paid in relation with the MCNs. Other businesses were charged CHF 484 million for services provided by Corporate Center in first quarter 2008, compared with CHF 538 million in the previous quarter, mainly reflecting reduced costs in IT Infrastructure (ITI) related to efficiency measures implemented across UBS. Moreover, a performance- related credit was booked to the Investment Bank to compensate it for efforts in helping to dispose of certain private equity investments. Depreciation decreased during the quarter due to lower costs related to corporate real estate and fewer purchases of workstations and equipment in ITI.