Results

Average daily trading volumes fell 10% in second quarter from the relatively strong first quarter, as investor activity slowed. The UBS Index of Investor Optimism declined for the first two months of the quarter, recovering only in the final month as investors expressed greater confidence in the economy and their personal investments.

Because our business is almost entirely conducted in US dollars, comparisons of results to prior periods are affected by movements of the US dollar against the Swiss franc. In second quarter 2004, the average US dollar-Swiss franc exchange rate remained practically unchanged from first quarter 2004, and had a minimal impact on quarter-on-quarter comparisons.

In second quarter 2004, pre-tax profit stood at CHF 16 million compared to a pre-tax profit of CHF 43 million in first quarter 2004. Before acquisition costs, pre-tax profit fell 14% to CHF 188 million in second quarter 2004 from CHF 218 million in first quarter on a deterioration in operating performance as transactional revenues fell. Excluding the effect of currency fluctuations and before acquisition costs, pre-tax profit was also 14% lower than the record performance in USD achieved in first quarter 2004.

Operating income

Total operating income in second quarter 2004 was CHF 1,274 million. Before acquisition costs, it stood at CHF 1,321 million, 5% lower than in first quarter 2004. The decrease reflects weaker activity among private client investors, which was partially offset by increased lending revenues and a record volume of recurring fees. In addition, Municipal Finance income increased by 16% to CHF 100 million (USD 79 million) on improved secondary trading performance and new issue underwriting in a market where we retain our leading position.

Operating expenses

In second quarter 2004, total operating expenses were CHF 1,258 million, down 3% from first quarter 2004.

Personnel expenses fell 5% from first quarter 2004 to CHF 878 million in second quarter, reflecting lower performance-driven compensation and reduced retention payments. This is the last quarter for which retention expenses will be incurred.

Non-personnel expenses rose 2% to CHF 380 million in second quarter 2004. The increase reflects higher costs arising from strategic projects such as our ultra high net worth client initiative (see sidebar on page 42) and UBS Bank USA, as well as higher premises and legal expenditure.

Headcount

Headcount was 17,087 on 30 June 2004, 8 lower than on 31 March 2004. This is virtually unchanged from the end of first quarter 2004, as lower financial advisor headcount was offset by an increase in non-financial advisor staff.