Parent Bank Review

Income Statement

The Parent Bank UBS AG Net profit decreased by CHF 10,809 million from a profit of CHF 6,558 million to a loss of CHF 4,251 million.

Income from investments in associated companies increased to CHF 2,592 million in 2007 from CHF 1,910 million in 2006 mainly due to higher dividend distributions received. Losses resulting from the US residential mortgage market had a significant impact on the income statement lines Depreciation, Provisions and Net trading income:

– The increase of Depreciation from CHF 1,352 million in 2006 to CHF 8,660 million in 2007 mainly reflects write-downs of investments in associated US companies.

– Provisions of CHF 2,688 million were recognized in 2007 for commitments to capitalize subsidiaries that have a capital deficit.

– Net trading income decreased from CHF 9,467 million in 2006 to CHF 2,767 million in 2007, which mainly reflects losses in the fixed income business.

The increase in Extraordinary income and decrease in Extraordinary expenses are explained on page 129.

Balance Sheet

UBS's Parent Bank total assets stood at CHF 1,598 billion on 31 December 2007, up slightly from CHF 1,586 billion on 31 December 2006. The total asset rise of CHF 12 billion was caused by higher inter-bank lending (which includes loans and collateral trading) of CHF 88 billion and Liquid Assets of CHF 6 billion. These increases, however, were almost offset by decreases in customer and mortgage loans (down CHF 54 billion), in positive replacement values on derivative instruments (down CHF 14 billion), in money market paper (down CHF 13 billion) and a decline in investments in associated companies of CHF 6 billion due to write-downs of investments in US subsidiaries.

Interbank Lending

In due from banks, on demand volume rose by CHF 39 billion partially due to higher funding needs of our bank subsidiaries in the European Region, combined with an increase to non-UBS related banks in the same region and to a lesser extent in the Americas Region. During 2007, due from banks on time slightly declined by CHF 5 billion. In addition, Inter-bank collateral trading grew by CHF 54 billion due to trading with UBS subsidiaries, in particular in the two Regions Europe and Asia, and with third party clients.

Customer Lending

The customer loan drop of CHF 42 billion was due to lower funding needs of UBS subsidiaries, predominately related to the reintegration of positions held by Dillon Read Capital Management subsidiaries, which are no longer funded by the UBS Parent Bank. In addition, loans secured by mortgages declined (CHF 12 billion) driven by the downturn in the US mortgage market and the exit of certain US legacy positions which were built up by Dillon Read Capital Management.