Our management reporting systems and policies determine
the revenues and expenses directly attributable to each business
unit. The presentation of the business segments reflects
UBS’s organizational structure and management responsibilities.
Internal charges and transfer pricing adjustments are
reflected in the performance of each business unit.
Inter-business unit revenues and expenses.
Revenue-sharing
agreements are used to allocate external customer
revenues to business units on a reasonable basis. Inter-business
unit charges are predominantly reported in the line
“Services (to) / from other business units” for both Business
units concerned. Transactions between Business units are
conducted at internally agreed transfer prices or at arm’s
length. Corporate Center expenses are allocated to the
operating
Business units to the extent appropriate.
Net interest income is allocated to the Business units
based on their balance sheet positions. Assets and liabilities
of the financial businesses are funded through and invested
with the central treasury departments, with the net margin
reflected in the results of each Business unit. To complete the
allocation, the financial businesses are credited with interest
income on their regulatory capital requirements adding
goodwill and excess intangible assets (see below).
Commissions are credited to the Business unit with the
corresponding customer relationship, with revenue-sharing
agreements for the allocation of customer revenues where
several business units are involved in value creation.
For internal management reporting purposes and in the
results discussion, we measure credit loss using an expected
loss concept. Expected credit loss reflects the average annual
costs that are expected to arise from positions in the current
portfolio that become impaired. The adjusted expected
credit
loss reported for each Business Group is the expected
credit loss on its portfolio plus the difference between credit
loss expense and expected credit loss, amortized over a
three-year period (shown as “deferral”). The difference between
the sum of these adjusted expected credit loss figures,
which are charged to the Business Groups or units, and
the credit loss expense recorded at Group level for financial
reporting purposes is reported in Corporate Center.
Regulatory capital requirements for the Business units are
defined as 10% of BIS risk-weighted assets. To measure
capital
consumption of the Business units, we adjust regulatory
capital for the goodwill and excess intangible assets
allocated.
Return on allocated regulatory capital is a key performance
indicator for the Investment Bank and the Business
Banking Switzerland unit.
The levels of personnel are expressed in terms of full-time
equivalents (FTE) and measured as a percentage of the
standard
hours normally worked by permanent full-time
staff. The FTE level cannot exceed 1.0 for any individual. The
term personnel comprises all staff and trainees other than
contractors.
