Capital management

Eligible capital

In order to determine eligible tier 1 and total capital, specific adjustments must be made to equity attributable to UBS shareholders as defined by the International Financial Reporting Standards (IFRS). The most notable adjustment is the deduction of goodwill, intangible assets (excluding software) and investments in unconsolidated entities engaged in banking and financial activities. There is no difference in eligible capital between the BIS guidelines and Swiss Federal Banking Commission (SFBC) regulations.

Tier 1 capital: 2Q08 vs 1Q08

Tier 1 capital increased from CHF 22.9 billion on 31 March 2008 to CHF 37.5 billion on 30 June 2008. The increase is mainly related to the rights issue of CHF 15.6 billion and the issue of EUR 1.0 billion of perpetual preferred securities that took place in second quarter 2008, partially offset by losses incurred in the same period, deductions for treasury shares and other elements.

Tier 2 capital: 2Q08 vs 1Q08

Under Basel II, UBS can account for CHF 1.1 billion additional upper tier 2 capital, mainly from general provisions in excess of expected losses. Lower tier 2 capital consists of subordinated long-term debt issued in various currencies and with different maturities. Due to changes in foreign exchange rates, lower tier 2 capital was CHF 13.1 billion on 30 June 2008, up from CHF 12.8 billion on 31 March 2008.