Corporate Center

2Q08 vs 1Q08:

Corporate Center recorded a pre-tax loss from continuing operations of CHF 330 million, compared with a pre-tax profit of CHF 3,947 million. Excluding the CHF 3,860 million gain related to the accounting treatment of the issuance of mandatory convertible notes (MCN) on 5 March 2008, performance would have decreased by CHF 417 million. A factor contributing to this decline was a loss generated in Group Treasury related to the performance of currency hedges at Group level in second quarter.

First half 2008 vs first half 2007:

Pre-tax profit from continuing operations rose to CHF 3,617 million from CHF 1,976 million, though both results include one-off items which generated large revenues. The issuance of the MCN resulted in an accounting gain of CHF 3,860 million, while UBS's sale of its 20.7% stake in Julius Baer in second quarter 2007 generated a CHF 1,950 million gain. Excluding these items, Corporate Center would have recorded a pre-tax loss of CHF 243 million compared with a pre-tax profit of CHF 26 million, with the difference largely due to lower private equity income in first half 2008 as a consequence of the business being wound down.

Operating income

2Q08 vs 1Q08:

Total operating income declined to negative CHF 50 million from positive CHF 4,221 million. Excluding the gain related to the accounting treatment of the issuance of the MCN in first quarter 2008, operating income would have declined by CHF 411 million. Private Equity operating income declined from CHF 31 million to CHF 4 million due to the continuing wind-down of the business. While Group Treasury activities generated a loss related to the performance of currency hedges at Group level in second quarter 2008, gains were seen during first quarter 2008.

As a consequence of UBS's introduction of its new equity attribution framework, Corporate Center continues to transfer interest income earned from managing UBS's consolidated capital back to the business groups. In second quarter 2008, the charge to Corporate Center due to the over-allocation of equity in the new equity attribution framework increased, exceeding the interest income earned (refer to the sidebar "Equity attribution framework"). Another contributing factor to the lower operating income in Corporate Center was the interest expense on the bond part of the MCN.

First half 2008 vs first half 2007:

Total operating income rose to CHF 4,172 million from CHF 2,724 million. This increase resulted primarily from the MCN issuance in first quarter 2008 outmatching the gain from UBS's sale of its stake in Julius Baer in second quarter 2007, as referred to above. Excluding these one-off items, first half 2008 total operating income would have been CHF 312 million, down from CHF 774 million in first half 2007. On this basis, the decline is broadly due to decreased private equity income, which was CHF 36 million in first half 2008 compared with CHF 502 million in first half 2007.

The reported private equity income excludes profit and exit gains from fully consolidated private equity companies which are recognized in profit before tax from discontinued operations. The effect of this was CHF 136 million in first half 2008 and CHF 6 million in the same period a year earlier.

First half 2008 was also impacted by unconsolidated private equity investments, including those accounted for under the equity method, which generated total divestment gains of CHF 53 million against writedowns of CHF 9 million. These were partially offset by management fees paid to the Investment Bank in connection with the rights offering.

Operating expenses

2Q08 vs 1Q08:

Total operating expenses increased by 3%, or CHF 7 million, to CHF 281 million. Personnel expenses increased by 8% to CHF 328 million as a result of higher bonus accruals in second quarter 2008. General and administrative expenses were CHF 303 million, compared with CHF 291 million in the previous quarter.

Other businesses were charged CHF 510 million, an increase of CHF 26 million, or 5%, from first quarter when performance fees were paid to the Investment Bank for its role in the sale of private equity companies. Higher charges due to the centralization of all tax units into Corporate Center and for shared services were partly offset by decreased IT Infrastructure (ITI) allocations, which were in line with overall reductions in ITI costs.

First half 2008 vs first half 2007:

Total operating expenses declined by 26%, or CHF 193 million, to CHF 555 million. The largest contributing factor was lower personnel expenses, which declined by 15% to CHF 631 million from CHF 742 million, mainly due to significantly lower bonus accruals in Operational Corporate Center. Foreign exchange gains and efficiency improvements within ITI, in combination with lower advertising and sponsoring costs, led to general and administrative expenses being 8% lower. Furthermore, depreciation of property and equipment decreased by CHF 46 million, or 12%, to CHF 324 million.