Letter to shareholders

Peter Kurer & Marcel Rohner

Dear shareholders,

UBS recorded a net loss attributable to shareholders of CHF 8.1 billion in fourth quarter 2008, bringing the full-year result to a loss of CHF 19.7 billion.

During the quarter, we took a number of steps to implement our established strategy to stabilize the finances of UBS and to focus on our core client businesses. These, and the turbulent financial and economic environment, resulted in a number of significant items that affected the pre-tax result by a total of CHF 6.9 billion. The specific items, and their effects on the fourth quarter result, were:

UBS reached an agreement with the Swiss National Bank (SNB) in October. This allows UBS to transfer a large quantity of illiquid and other positions to a fund owned and controlled by the SNB. In a related transaction, UBS placed mandatory convertible notes with the Swiss Confederation in order to raise new capital. These two transactions impacted fourth quarter 2008 results by a net charge of CHF 4.2 billion.

We recorded an own credit expense of CHF 1.6 billion, mainly due to redemptions of UBS debt during the quarter. Expenses of CHF 0.6 billion, related to the settlement agreement requiring the repurchase of auction rate securities from clients, affected the fourth quarter results. There was also a net gain on divestments of CHF 0.2 billion. Finally, the result was affected by a total CHF 0.7 billion of expenses associated with the restructuring of the Investment Bank.

Excluding these items, the adjusted pre-tax operating result was a loss of CHF 2.8 billion.

This result was achieved in the context of a further severe deterioration in the financial markets during the quarter. World stock markets, measured by the Dow Jones World Index, fell 23% between the beginning of October and the end of December. We now know that the US economy contracted at an annualized rate of 4.1% in nominal terms in the fourth quarter, the fastest rate of contraction since 1958, and that economic activity in most of the rest of the developed world weakened sharply as well. These trends reflect a tendency on the part of households and companies to cut spending, and sell financial assets, in an attempt to reduce their debts.

Fourth quarter 2008 saw net new money outflows of CHF 85.8 billion, compared with outflows of CHF 83.6 billion in the prior quarter. Overall net new money outflows were particularly heavy in October, but slowed down progressively in November and December. The improvement has continued into January, which saw net new money inflows in both our wealth management and asset management businesses.

Throughout the fourth quarter, our over-riding aim has been to stabilize UBS's valuable client businesses. A fundamental element of this is to make certain that UBS's financial position is stable and continues to improve. During the quarter, UBS's tier 1 ratio rose to 11.5%, up from 11.0% at the end of September. Risk-weighted assets declined to CHF 302 billion in fourth quarter, from CHF 332 billion in the third quarter, as our program to reduce risk continued.

We know that you, our shareholders, saw a decline in the value of your investment in UBS over the quarter. Management and employees are also affected by the financial crisis and UBS's performance. In view of the results of the firm and the general environment, UBS management set compensation at appropriate levels, and reduced discretionary variable compensation payments by 85% for 2008 as a whole compared with 2007. Total personnel expenses, which include fixed compensation (salaries) as well as variable compensation, fell 36%.

With the fourth quarter results, we are also announcing organizational changes and senior management appointments in Global Wealth Management & Business Banking and reaffirming our commitment to the Investment Bank as a core business.

Global Wealth Management & Business Banking will be divided into two new business divisions: Wealth Management & Swiss Bank, comprising all non-Americas wealth management businesses as well as the Swiss private and corporate client business; and the business division Wealth Management Americas. Wealth Management & Swiss Bank will be led by two new Group Executive Board members, Franco Morra, chief executive officer Switzerland, and Juerg Zeltner, chief executive officer Global Wealth Management. Wealth Management Americas will continue to be led by Marten Hoekstra. These measures will better align our leadership and organizational structure with the changing and diverse needs of our clients.

The Investment Bank will remain a core business of UBS. It will continue to focus on reducing risk and on turning around its profitability. This will involve it concentrating only on corporate and institutional client-related business in Equities and in Fixed Income in its key markets worldwide. It will also continue to grow its leading corporate finance and advisory businesses.

Outlook - UBS has had an encouraging start to the year, and net new money was positive in January. However, financial market conditions remain fragile, as company and household cash flows continue to deteriorate but governments take measures to ease fiscal and monetary conditions. Our near-term outlook therefore remains cautious, and UBS will continue its program to strengthen its financial position through reductions in risk positions, risk-weighted assets, total assets and operating costs. This will allow us to focus management and other resources on securing and building the firm's core client businesses.

10 February 2009

UBS