Balance sheet

30.9.08 vs 30.6.08 and 31.12.07:

UBS's total assets were CHF 1,997 billion on 30 September 2008, a drop of CHF 83 billion from CHF 2,080 billion on 30 June 2008 and CHF 278 billion from CHF 2,275 billion on 31 December 2007. In third quarter 2008, a strengthening of the US dollar and Japanese yen against the Swiss franc inflated the balance sheet by CHF 61 billion, implying an underlying reduction of effectively CHF 144 billion. This reduction was achieved through the decrease in the trading and the collateral trading portfolio, which were down on a combined level by CHF 176 billion, or CHF 224 billion on a currency-adjusted basis, compared with 30 June 2008, as UBS continued with its deliberate balance sheet reductions in the Investment Bank.

This was partly offset by an increase in positive replacement values, which grew by CHF 73 billion on a currency-adjusted basis. The trading portfolio is the main driver for balance sheet reduction when compared with year-end 2007, dropping by CHF 318 billion, or by CHF 309 billion when adjusted for currency effects. While the Investment Bank continued to significantly reduce its balance sheet assets by CHF 92 billion, in the third quarter, and by CHF 282 billion since year-end 2007, the positions of Global Wealth Management & Business Banking (CHF 299 billion) and Global Asset Management (CHF 35 billion) remained relatively stable, compared with both 30 June 2008 and year-end 2007.

Lending and borrowing

Lending

Cash remained unchanged compared with 30 June 2008 at CHF 16 billion on 30 September 2008 and is down CHF 3 billion since year-end 2007. Due from banks increased by CHF 14 billion in third quarter and by CHF 9 billion since year-end 2007, largely due to the market volatility, which increased the variation margin required to be deposited with the exchanges and brokers as well as the variability of interbank placements. Loans to customers increased to CHF 346 billion on 30 September 2008, a rise of CHF 6 billion since 30 June 2008 and up CHF 10 billion since year-end 2007. The third quarter increase stemmed mainly from currency movements.

Borrowing

The reduction of the Investment Bank's assets led to lower unsecured borrowing needs, while at the same time the ongoing financial market dislocation made it more difficult to issue new term debt and contributed to a reduction in client deposits.

Total debt issued (including financial liabilities designated at fair value) decreased to CHF 328 billion on 30 September 2008, a drop of CHF 41 billion since prior quarter end and CHF 86 billion from year-end 2007. Long-term debt issued (including financial liabilities designated at fair value) stood at CHF 217 billion on 30 September 2008, a drop of CHF 23 billion from 30 June 2008 and CHF 44 billion down from year-end 2007. In particular, equity-linked notes' mark-to-market value dropped as major stock indices fell, while our outstanding volume of senior straight bonds slightly increased. Money market paper issuance was CHF 111 billion, a reduction of CHF 18 billion from second quarter, as the US term commercial paper market became practically inaccessible for market participants during September, and Europe and Asia term issuances were constrained.

Customer deposits (due to customers) amounted to CHF 520 billion on 30 September 2008, a decrease of CHF 36 billion during third quarter and down CHF 122 billion from year-end 2007. While customer deposit withdrawals in the third quarter were larger than the CHF 11 billion drop seen in second quarter, the outflows were not as strong as the CHF 75 billion registered in first quarter 2008. The third quarter reduction was mostly seen in current accounts and short-term fiduciary deposits, with fixed-term deposits, which represent the largest proportion of UBS's customer deposits by account type, showing only a relatively small decline (see also the breakdown of UBS's funding sources by product type provided in the liquidity management section.) Due to banks was CHF 135 billion on 30 September 2008, up CHF 11 billion from 30 June 2008 and down CHF 11 billion from year-end 2007. The quarterly increase was driven by the firm's central funding entity - the Investment Bank's foreign exchange and money market desk - and by increased margin calls.

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 declined during third quarter, to stand at CHF 472 billion on 30 September 2008. This decline, of CHF 97 billion from second quarter 2008 and CHF 112 billion from year-end 2007, occurred almost entirely in the Investment Bank, where the matched book was reduced as part of the Investment Bank's overall balance sheet reduction (the matched book is a repurchase agreement portfolio comprised of assets and liabilities with equal maturities and equal value so that the market risks substantially cancel each other out). There were further reductions on the secured borrowing side, as repurchase agreements and securities lent against cash collateral declined by another CHF 42 billion during third quarter, standing at CHF 221 billion on 30 September 2008, which is a reduction of CHF 117 billion since year-end 2007. The decline in secured borrowing during third quarter 2008 was related to the Investment Bank's overall balance sheet reductions; in particular the reduced trading portfolio led to lower available repo collateral.

Trading portfolio

Significant reductions were again achieved in the trading portfolio, which fell by CHF 79 billion during third quarter 2008, or CHF 102 billion on a currency-adjusted basis. At the end of third quarter, the trading portfolio stood at CHF 457 billion and had been reduced by CHF 318 billion since the beginning of the year, or by CHF 309 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 (FICC) business area and the equities business area. In FICC, following the announcement of the new strategic focus, trading inventories in a number of areas, including real estate, securitization and commodities, were substantially reduced. The reduction in equities inventories was mainly a result of stock market declines. Reductions occurred across all trading products, with debt instruments declining CHF 39 billion during third quarter 2008, equity instruments falling by CHF 24 billion, traded loans by CHF 11 billion and precious metals by CHF 5 billion.

Replacement values

The positive and the negative replacement values (RVs) of derivative instruments developed in parallel, showing strong increases during third quarter 2008 and reversing the decreases seen in second quarter 2008. Positive RVs grew by CHF 69 billion to CHF 564 billion in third quarter 2008, whilst the negative RVs of derivative instruments increased by CHF 70 billion to CHF 574 billion. In both cases, the increases were largely driven by movements in currencies and credit spreads, slightly offset by a decrease in commodities-linked derivatives RVs. Considering the third-quarter increases, positive and negative RVs of derivative instruments are both substantially higher than they were at year end, by CHF 136 billion and CHF 131 billion respectively. These increases were driven by the developments in interest rates, currencies and credit spreads which have occurred during 2008.

Top