Investment Bank

2Q08 vs 2Q07:

Pre-tax results were negative CHF 5,233 million compared with a profit of CHF 1,659 million.

First half 2008 vs first half 2007:

Pre-tax results were negative CHF 23,462 million compared with a profit of CHF 3,198 million.

Operating income

2Q08 vs 2Q07:

Total operating income declined to negative CHF 2,302 million from positive CHF 6,224 million, mainly due to losses on exposures related to the US residential real estate market and other credit positions. In second quarter 2008, the Investment Bank recorded a loss of CHF 122 million due to the tightening of UBS's own credit spread over the period. Credit loss expense was CHF 10 million in comparison with a recovery of CHF 3 million.

First half 2008 vs first half 2007:

Total operating income declined to negative CHF 17,116 million from positive CHF 12,462 million. In the first six months of 2008, the Investment Bank recorded gains of CHF 1,981 million in net trading income attributable to the widening of UBS's own credit spread over the period. Credit loss expense was CHF 318 million - of which CHF 306 million comprised securities financing positions that have either been liquidated or are in the process of being liquidated - compared with CHF 17 million.

Operating income by segment

2Q08 vs 2Q07:

Investment banking

Revenues declined by 52% to CHF 1,008 million from a record CHF 2,079 million in second quarter 2007, with all contributing revenue streams negatively impacted by turbulent capital markets during second quarter 2008. Advisory revenues decreased by 37%, to CHF 437 million, in line with industry-wide declines in deal volumes as a result of the deteriorated credit environment. Capital markets revenues fell 49%, impacted by reduced market volumes across all geographical regions as debt and equity markets remained volatile. Equity capital markets revenues decreased by 50% and revenues from fixed income, currencies and commodities (FICC) capital markets were down by 48%. Other fee income and risk management revenue fell to negative CHF 179 million from negative CHF 90 million.

Sales and trading

Revenues declined to negative CHF 3,178 million from positive CHF 4,142 million, driven by negative revenues of CHF 4,720 million in FICC that were only partly offset by a positive revenue contribution of CHF 1,542 million from equities.

Equities

The equities business saw a 42% decline in revenues to CHF 1,542 million from CHF 2,673 million, with second quarter 2008 dominated by difficult trading conditions, concerns over interest rates and inflation and continued market volatility.

Cash equities continued to perform strongly, with revenues up from second quarter 2007. Derivatives and equity-linked revenues declined in response to a global deterioration in market conditions. Prime brokerage saw increased revenues from client financing and securities lending and posted a strong result for second quarter 2008. Exchange-traded derivatives revenues were flat as interest on larger client balances was offset by a fall in commissions due to lower volumes. Proprietary trading revenues increased from the same period last year.

Fixed income, currencies and commodities

FICC revenues fell to negative CHF 4,720 million from positive CHF 1,469 million.

Income was impacted by additional credit valuation adjustments on protection bought from monoline insurers. Most of the other losses relate to exposures to the US residential real estate market (sub-prime and Alt-A) and the US reference-linked note program.

During second quarter 2008, UBS significantly reduced its exposure to the US residential real estate market and other risk concentrations. The sale of US residential mortgage-backed securities (RMBSs) to a fund managed by BlackRock, as announced in May 2008, marked a significant step in this ongoing risk reduction exercise. UBS will continue to manage its remaining exposure to the US real estate market through a separate work-out portfolio unit. In view of the significant reductions in risk exposures in second quarter 2008, however, UBS may determine not to place a subset of this portfolio into a new, wholly-owned entity, as originally envisaged. Further information on writedowns, risk concentrations and asset disposals can be found in the "Risk management and control" section of this report.

Some of the losses and writedowns were borne by businesses outside of the work-out portfolio unit. As a consequence, adjusting the total FICC revenues by the disclosed losses and writedowns does not provide a revenue figure for the core FICC businesses.

The losses and writedowns described above were only partially offset by strong results in other areas. Foreign exchange and money market had a very strong quarter as all sectors benefited from volatile market conditions. Rates revenues increased as high volatility and market dislocations provided profitable trading opportunities in both customer and proprietary trading segments. Structured products reported an increase and structured rates benefited from its expanded product range. Credit revenues were impacted by positions in proprietary strategies and adverse market conditions.

First half 2008 vs first half 2007:

Investment banking

Revenues fell by 54% in first half 2008 to CHF 1,566 million from CHF 3,414 million in first half 2007, impacted by difficult capital markets. Revenues in second quarter 2008 were 81% higher than in first quarter 2008, mainly driven by the equity capital markets business.

Sales and trading

Revenues declined to negative CHF 20,343 million in first half 2008 from positive CHF 9,065 million in first half 2007. The negative result in 2008 was due to a loss of CHF 23,833 million in FICC which was only partly offset by revenue contributions of CHF 3,490 million from equities. A significant reduction in FICC losses meant that the overall sales and trading result in second quarter 2008 improved from the prior quarter.

Equities

The equities business saw revenues decline by 37% in first half 2008, to CHF 3,490 million, from the strong result achieved in the buoyant conditions of first half 2007 (positive CHF 5,541 million). Equities revenues decreased by 21% in second quarter 2008 compared with first quarter 2008, as good performances in prime brokerage and proprietary trading could not offset declines in the cash and derivatives business.

Fixed income, currencies and commodities

FICC revenues declined to negative CHF 23,833 million in first half 2008 from positive CHF 3,524 million in first half 2007. Losses in second quarter 2008 were significantly smaller than in first quarter 2008.

Operating expenses

2Q08 vs 2Q07:

Total operating expenses declined by 36%, falling to CHF 2,931 million from CHF 4,565 million.

A 56% decline in personnel expenses, to CHF 1,494 million, reflects lower accruals for performance-related compensation and an adjustment relating to changes to the forfeiture provisions of future equity ownership plan (EOP) awards. Further details regarding this adjustment can be found here. Salary costs also declined as personnel were reduced by 2,662 full-time equivalents.

General and administrative expense decreased by 17% to CHF 784 million, with reductions in a number of expense lines. The most notable reductions were in travel and entertainment, and IT and outsourcing, and are largely attributable to the ongoing cost reduction program.

Charges from other businesses increased by 65% to CHF 248 million. In second quarter 2007, the Investment Bank was awarded substantial credits for its role in disposing of private equity investments; these were negligible in second quarter 2008.

Second quarter 2008 includes an impairment charge of goodwill of CHF 341 million due to the exiting of the US municipal securities business by the Investment Bank. Refer to page 40 of this report for further details on the continued offering of municipal securities products to private clients by Wealth Management US.

First half 2008 vs first half 2007:

Total operating expenses dropped by 31% to CHF 6,347 million from CHF 9,264 million.

Lower accruals for performance-related compensation led to a 50% decline in personnel expenses, which dropped to CHF 3,527 million from CHF 7,011 million. Salary costs also fell as headcount was reduced.

General and administrative expense increased by 12% to CHF 1,900 million, mainly related to provisions for legal expenses. Professional fees also increased due to higher legal-related expenditures. These increases were only partially offset by reductions across other expense lines, particularly travel and entertainment and IT and other outsourcing.

Charges from other businesses increased by 22% to CHF 439 million.