UBS shares in 2007

UBS shares are listed on the Swiss stock exchange (SWX), where they are traded on virt-x (SWX Europe), and on the New York and Tokyo stock exchanges.

In 2007, despite continued deterioration in the US housing market, dollar weakness and oil price inflation, global equity markets posted modest gains for the first half of the year buoyed by the continued high corporate earnings and high levels of mergers and acquisitions activity, particularly in the leveraged finance space. Emerging markets outperformed on high commodity prices and strong economic activity. The S&P 500 and MSCI World indices were up 6% and 8% respectively.

The summer of 2007 brought the strong positive performance of world markets to an abrupt end. Evidence of a significant dislocation in the US sub-prime market led to concerns of contagion and a worldwide credit crunch. In response, many banks and financial institutions began to hoard liquidity, leading to an almost complete cessation of activity in the world's credit markets.

Despite an improvement in liquidity in the final quarter of the year, world markets continued to fall sharply with the financial and insurance sectors bearing the brunt of the declines. Increasing losses from US sub-prime investments, other real estate assets and leveraged lending placed a growing strain on the balance sheets of banks and subsequently financial guarantors.

Outside these sectors growing concerns over a US recession and possible worldwide slowdown tempered an otherwise positive performance in all major indices. The MSCI world index closed up 7% for the year, the Dow Jones Industrials Average closed the year up 6% and the S&P 500 closed up 4% for the year.

First quarter 2007

Equity markets got off to a positive start in 2007, but corrected downwards in later February and early March. After the US Federal Bank's decision to leave its interest rates unchanged, investor confidence stabilized and markets closed the quarter slightly higher than they began.

2007 started on a positive note for UBS with a strong deal pipeline, high levels of market activity. UBS reported a strong full-year performance reporting record revenues, profits and net new money figures across a number of business lines, leading the board to increase the total payout in 2006 by 16%, declaring a dividend CHF 2.20 per share. UBS shares declined by 2% compared with a flat performance in the DJ Stoxx Banks as the market favored businesses with greater fixed income and leveraged finance exposure.

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Second quarter 2007

During the quarter stock markets recovered from the lows reached in mid-March. However, credit conditions deteriorated sharply from the middle of June onwards. UBS reported its first quarter results which were strong and consistent with record profits in each business group and for the business as a whole. During the period UBS disposed of stake in Julius Baer, recording a post tax gain of CHF 1,926 million. UBS shares recovered by 2% in the quarter compared with a flat performance in the DJ Stoxx Banks Index.

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Third quarter 2007

Credit conditions deteriorated sharply from the middle of June onwards leading to extreme volatility in equity and credit markets over the course of the summer. Concerns over counterparty credit risk led banks to hoard liquidity leading to an almost complete cessation of credit market activity in late August.

UBS reported strong second quarter results in many of its business, but was dissatisfied with fixed income results in some areas due to continued difficulties US mortgage securities markets. Marcel Rohner, delivered the results for the first time in his role as CEO and noted the possibility of weaker results in the second half of 2007 if difficult markets conditions prevailed. UBS shares fell by 15% in the quarter compared with the broader banking sector (DJ Stoxx Banks Europe) which lost 10%.

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Fourth quarter 2007

Credit markets remained closed for large part of the quarter and only reopened after significant persistent injections of liquidity by many of the world's central banks. Losses in the US sub-prime sector mounted for the banks, financial institutions and financial guarantors, putting capital ratios under strain and prompting capital raising.

UBS reported a loss for the group for the third quarter mainly reflecting writedowns in US sub-prime residential mortgages and noted an expectation that market conditions would not be resolved in the short term. UBS shares declined by 16% in the quarter compared with DJ Stoxx Banks Europe down 8% in the quarter.

Emerging markets' economies and markets, which performed well throughout 2007, began to reverse some of the year's gain on growing concerns of a US recession and global slowdown. The MSCI World lost 9% in the fourth quarter.

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Share liquidity

During 2007, daily average volume in UBS shares on virt-x was 13.1 million shares. On the New York Stock Exchange (NYSE), it was 2.4 million shares.

Because of the greater volume on virt-x, trading of UBS shares there is expected to remain the main factor determining the movement in UBS's share price.

During the hours in which both virt-x and NYSE are simultaneously open for trading (currently 3:30 pm to 5.30 pm Central European Time), price differences are likely to be arbitraged away by professional market makers. The NYSE price will therefore typically be expected to depend on both the virt-x price and the prevailing US dollar / Swiss franc exchange rate. When virt-x is closed for trading, traded volumes will typically be lower. However, the specialist firm making a market in UBS shares on the NYSE, Van der Moolen, is required to facilitate sufficient liquidity and an orderly market in UBS shares.