Balance sheet

30.06.08 vs 31.12.07:

UBS's total assets were CHF 2,078 billion on 30 June 2008, dropping by CHF 153 billion from CHF 2,231 billion on 31 March 2008 and by CHF 195 billion from CHF 2,273 billion on 31 December 2007. In second quarter 2008, a strengthening of the US dollar, the euro and the British pound against the Swiss franc inflated the balance sheet by CHF 40 billion, resulting in an underlying reduction of effectively CHF 193 billion. Almost half of this reduction was achieved through the trading portfolio, which was down by CHF 91 billion on a currency-adjusted basis in second quarter 2008, as UBS continued with its deliberate balance sheet reductions in the Investment Bank. This was complemented by a similar drop in positive replacement values, which fell by CHF 91 billion on a currency-adjusted basis. The trading portfolio is the dominant factor for balance sheet reduction when compared with year-end 2007, dropping by CHF 239 billion, or by CHF 198 billion when adjusting for currency effects. While the Investment Bank has significantly reduced its balance sheet position, by CHF 158 billion in the second quarter and by CHF 190 billion since year-end 2007, the positions of Global Wealth Management & Business Banking (CHF 290 billion) and Global Asset Management (CHF 36 billion) remained virtually stable, compared with both 31 March 2008 and year-end 2007.

Lending and borrowing

Lending

Cash was CHF 16 billion on 30 June 2008, down by CHF 3 billion since 31 March 2008 and by CHF 2 billion since year-end 2007. Due from banks decreased by CHF 7 billion in second quarter and by CHF 4 billion since year-end 2007, largely due to the variability of interbank placements. Loans to customers increased to CHF 340 billion on 30 June 2008, a rise of CHF 17 billion since 31 March 2008 and up by CHF 4 billion since year-end 2007. This stemmed to a large extent from the collateralized term loan of approximately USD 11 billion provided in connection with the sale of USD 15 billion of US real estate-related assets to a fund managed by BlackRock that UBS completed during second quarter 2008.

Borrowing

Due to banks was down by CHF 21 billion since 31 March 2008 and by CHF 22 billion since year-end 2007 to stand at CHF 124 billion on 30 June 2008. The decrease was almost entirely driven by the bank's central funding entity, the Investment Bank's foreign exchange and money market desk, which saw reduced unsecured funding needs as the Investment Bank reduced its balance sheet assets. This was also reflected in total debt issued (including financial liabilities designated at fair value), which decreased to CHF 368 billion on 30 June 2008, a drop of CHF 26 billion since prior quarter-end and by CHF 45 billion from year-end 2007. In particular, money market paper issuance was reduced from second quarter by CHF 22 billion to CHF 128 billion. Long-term debt issued (including financial liabilities designated at fair value) stood at CHF 240 billion on 30 June 2008, a drop of CHF 4 billion from 31 March 2008 and CHF 21 billion down from year-end 2007. However, the reduction since year-end included a CHF 16 billion currency impact, while the second-quarter drop included a CHF 12 billion reduction due to the reclassification of the mandatory convertible notes (MCN) from long-term debt into shareholders' equity, which was triggered by the rights issue in June 2008. Excluding the MCN reclassification impact and adjusting for currency effects, the bank's long-term debt portfolio increased by CHF 4 billion during the second quarter. Due to customers was CHF 556 billion on 30 June 2008, a decrease of CHF 11 billion during the second quarter and down by CHF 86 billion from year-end 2007, of which CHF 35 billion of the reduction since year-end was due to currency movements.

Repurchase / reverse repurchase agreements and securities borrowing / lending

In terms of secured lending, the sum of cash collateral on securities borrowed and reverse repurchase agreements was stable during second quarter, down by CHF 1 billion to stand at CHF 569 billion on 30 June 2008, although it was CHF 15 billion lower than at year-end 2007 after the reductions during first quarter 2008. There were further reductions on the secured borrowing side, as repurchase agreements and securities lent against cash collateral declined by another CHF 34 billion during second quarter, standing at CHF 263 billion on 30 June 2008, which is a reduction of CHF 74 billion since year-end 2007. The decline in secured borrowing during second quarter 2008 was related to the Investment Bank's overall balance sheet reductions.

Trading portfolio

Significant reductions were again achieved in the trading portfolio, which fell by CHF 82 billion during second quarter 2008, or by CHF 91 billion on a currency-adjusted basis. At the end of second quarter, the trading portfolio stood at CHF 536 billion and was reduced by CHF 239 billion since the beginning of the year, or by CHF 198 billion when adjusted for currency impacts. A large part of the decrease was related to the Investment Bank's overall balance sheet reductions and occurred within the fixed income, currencies and commodities business area and stemmed to a large extent from US residential real estate-related securities (including the above-mentioned USD 15 billion disposal to a fund managed by BlackRock). As a result, most of the reduction occurred in debt instruments, which declined by CHF 68 billion during second quarter 2008, following a similar-sized decrease in first quarter 2008. Reductions occurred across all product types, with equity instruments falling by CHF 6 billion during second quarter 2008, traded loans by CHF 4 billion and precious metals by CHF 4 billion.

Replacement values

The positive and the negative replacement values (RVs) of derivatives instruments decreased by a similar extent during second quarter 2008, reversing part of the significant increases seen in first quarter 2008. Positive RVs dropped by CHF 77 billion to CHF 495 billion in second quarter 2008, largely driven by movements in interest rates, currencies and credit spreads. The decreases were slightly offset by an increase in the RVs of commodities-linked derivatives. During the same period, the negative RVs of derivative instruments also decreased - by CHF 69 billion to CHF 504 billion - driven by the same underlying factors as for the positive RVs. Despite the second-quarter decreases, positive and negative RVs of derivative instruments are still higher than they were at year-end, by CHF 67 billion and CHF 60 billion respectively - as the developments in interest rates, currencies and credit spreads in second quarter 2008 only partially reversed the trends seen during first quarter 2008.

Equity attributable to UBS shareholders

On 30 June 2008, equity attributable to UBS shareholders was CHF 44.3 billion, representing an increase of CHF 27.9 billion compared with 31 March 2008 and up by CHF 9.1 billion since year-end 2007.

The increase in second quarter reflects mainly the positive impact of CHF 15.6 billion from the rights issue in June 2008, and an increase in share premium of CHF 12.4 billion related to the reclassification of the MCN from liability instruments to equity instruments.

In first half 2008, equity attributable to UBS shareholders increased by CHF 9.1 billion. The positive impacts of CHF 28 billion from the rights issue and the reclassification of the MCN in second quarter (mentioned above) were reduced by net losses of CHF 11.9 billion and adverse foreign currency translation impacts of CHF 2.1 billion, and negative impacts of the MCN in first quarter 2008 of CHF 1.6 billion. The remaining movements are mainly attributable to treasury shares and share-based compensation, net of tax.