Note 3 Net Interest & Trading Income

Interactive Report

Net interest and trading income

Accounting standards require separate disclosure of net interest income and net trading income (see the second and the third table). This required disclosure, however, does not take into account that net interest and trading income are generated by a range of different business activities. In many cases, a particular business activity can generate both net interest and trading income. Fixed income trading activity, for example, generates both trading profits and coupon income. UBS management therefore analyzes net interest and trading income according to the business activity generating it. The first table below (labeled Net interest and trading income) provides information that corresponds to this management view. For example, net income from trading activities is further broken down into the four sub-components of Equities, Fixed income, Foreign exchange and Other. These activities generate both types of income (interest and trading revenue) and therefore this analysis is not comparable to the breakdown provided in the third table on the next page (Net trading income only).

	Quarter ended			% change from		Year to date

CHF million	30.6. 2004	31.3. 2004	30.6. 2003	1Q04	2Q03	30.6. 2004	30.6. 2003


Net interest income	3,056	3,218	3,026	(5)	1	6,274	5,935
Net trading income	1,177	1,785	1,318	(34)	(11)	2,962	2,539


Total net interest and trading income	4,233	5,003	4,344	(15)	(3)	9,236	8,474

Breakdown by business activity

	Quarter ended			% change from		Year to date

CHF million	30.6. 2004	31.3. 2004	30.6. 2003	1Q04	2Q03	30.6. 2004	30.6. 2003


Net income from interest margin products	1,290	1,265	1,292	2	0	2,555	2,577


Equities	696	946	703	(26)	(1)	1,642	1,022
Fixed income	1,619	2,151	1,782	(25)	(9)	3,770	3,742
Foreign exchange	422	414	413	2	2	836	770
Other	72	89	99	(19)	(27)	161	170


Net income from trading activities	2,809	3,600	2,997	(22)	(6)	6,409	5,704


Net income from treasury activities	373	310	340	20	10	683	738


Other¹	239)	(172)	(285)	(39)	16	(411)	(545)


Total net interest and trading income	4,233	5,003	4,344	(15)	(3)	9,236	8,474

Net interest income¹

	Quarter ended			% change from		Year to date

CHF million	30.6. 2004	31.3. 2004	30.6. 2003	1Q04	2Q03	30.6. 2004	30.6. 2003


Interest income
Interest earned on loans and advances	2,124	2,733	2,822	(22)	(25)	4,857	5,394
Interest earned on securities borrowed and reverse repurchase agreements	2,806	2,274	2,861	23	(2)	5,080	5,705
Interest and dividend income from financial investments	25	21	22	19	14	46	47
Interest and dividend income from trading portfolio	5,003	4,713	4,939	6	1	9,716	9,130


Total	9,958	9,741	10,644	2	(6)	19,699	20,276


Interest expense
Interest on amounts due to banks and customers	1,270	1,187	1,160	7	9	2,457	2,352
Interest on securities lent and repurchase agreements	2,641	2,141	2,631	23	0	4,782	5,113
Interest and dividend expense from trading portfolio	2,072	2,315	2,927	(10)	(29)	4,387	5,120
Interest on financial liabilities designated at fair value	432	275	167	57	159	707	304
Interest on debt issued	487	605	733	(20)	(34)	1,092	1,452


Total	6,902	6,523	7,618	6	(9)	13,425	14,341


Net interest income	3,056	3,218	3,026	(5)	1	6,274	5,935

Net trading income

	Quarter ended			% change from		Year to date

CHF million	30.6. 2004	31.3. 2004	30.6. 2003	1Q04	2Q03	30.6. 2004	30.6. 2003


Equities	585	701	635	(17)	(8)	1,286	821
Fixed income²	47	546	207	(91)	(77)	593	786
Foreign exchange and other	545	538	476	1	14	1,083	932


Net trading income	1,177	1,785	1,318	(34)	(11)	2,962	2,539

Included in the Net trading income table are fair value changes of CHF 288 million for the quarter ended 30 June 2004, CHF (385) million for the quarter ended 31 March 2004, and CHF (175) million for the quarter ended 30 June 2003 related to financial liabilities designated as held at fair value through profit and loss. For the six months ended 30 June 2004 and 2003, the respective amounts are CHF (97) million and CHF (63) million.

For the second quarter 2004, CHF 271 million of the total fair value change was attributable to changes in fair value of embedded derivatives, while CHF 17 million were attributable to changes in LIBOR. The exposure from embedded derivatives is economically hedged with derivatives whose change in fair value is also reported in Net trading income, offsetting the fair value changes related to financial liabilities designated as held at fair value.

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