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UBS reports third quarter net profit of CHF 1,671 million

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Net profit in third quarter of CHF 1,671 million, Financial Businesses contributed CHF 1,654 million - Net new money of CHF 20.5 billion in total, with strong CHF 16.7 billion from wealth management clients worldwide - Solid asset-based revenues, with record management fees, slowdown in trading returns - Annualized RoE at 24.5% (27.4% excluding goodwill), EPS up 5% from third quarter 2003 (up 7% excluding goodwill) - Cost/income ratio for Financial Businesses, down from previous year, remains near historically low levels.

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Key statements on UBS's third quarter results from Clive Standish, Chief Financial Officer.

UBS reports net profit of CHF 1,671 million in third quarter 2004. This includes the fully consolidated results of Motor-Columbus, an industrial holding of which UBS now owns a majority 55.6% stake*, and which contributed net profit of CHF 17 million. Excluding this participation, UBS's Financial Businesses net profit was CHF 1,654 million in third quarter, down 2% from third quarter 2003 and 16% lower than second quarter 2004.

Despite the anticipated slowdown in trading opportunities, UBS generated solid revenues in third quarter, thanks to the scale of its invested asset base - which totaled CHF 2.3 trillion on 30 September 2004. Operating income for the Financial Businesses was CHF 8,456 million, down slightly (1%) from the same quarter a year earlier. Revenues rose in the wealth and asset management businesses, reflecting strong inflows of net new money and higher market levels, prompting rising asset-based revenues and, in particular, record portfolio management fees. The private equity portfolio has now provided a positive contribution to Investment Bank results for four consecutive quarters.

These positive effects were offset by a drop in trading-related revenues, with equities and fixed income trading both experiencing declines of around 20%. "Being a major player in the world's securities markets means that our Investment Bank's revenues will reflect prevailing market opportunities," said Clive Standish, Chief Financial Officer. "All the more important, then, that we balance that volatility with strong fee and commission revenues - which represent more than half of our operating income."

In third quarter, net new money for UBS as a whole was CHF 20.5 billion. Wealthy individual clients worldwide contributed CHF 16.7 billion - which means that during the first nine months of this year, UBS's wealth management businesses have gathered a total of CHF 46.1 billion in new assets, corresponding to an annualized growth rate of 5%.

UBS experienced another excellent credit result, posting a net credit recovery of CHF 14 million in third quarter 2004, compared to a recovery of CHF 42 million a year earlier.

Total operating expenses for the Financial Businesses decreased 1% to CHF 6,265 million as personnel expenses were pushed down 6% by lower accruals for performance-related compensation, especially at the Investment Bank.

Headcount in UBS's Financial Businesses was 66,894 on 30 September 2004, up 965 from the beginning of the year. Increases were seen in the Investment Bank, which saw staffing growth across business and support functions, as well as in Wealth Management, reflecting continued hiring of client advisors.

Consolidation of Motor-Columbus
From this quarter onwards, UBS is fully consolidating the results of Motor-Columbus, a Swiss holding company whose most significant asset is a majority ownership interest in Swiss-based electricity provider Atel. Earlier this year, UBS increased its stake in Motor-Columbus to 55.6% in order to protect the value of its existing investment and, as a majority shareholder, divest it profitably in the future. Motor-Columbus results will be reported in a separate Industrial Holdings unit, helping UBS to preserve full continuity in the presentation of its core financial businesses.

The Industrial Holdings unit contributed CHF 17 million to UBS's net profit in third quarter (1% of net profit). It represented 16.7% of operating income, and 20.6% of operating expense in the quarter.

Brand campaign successful
One of the key elements in UBS's growth strategy is the firm's investment in building a strong brand. Earlier this year, UBS launched the "You & Us" global advertising campaign, showing how UBS delivers global financial resources through personal client relationships based on intimate understanding. A recent analysis of the first results of the campaign found that awareness of UBS is rising in all regions, and particularly in the US. UBS's target clients remember and appreciate the advertising - which represents an important step in the firm's long-term commitment to build a distinct profile in the highly competitive financial services industry.

Outlook
In the first nine months of 2004, market conditions for UBS's trading-related businesses have swung considerably - from an exceptionally favorable first quarter to the rather tough environment in third quarter. In that context, UBS's diversified business mix has paid off, helping the firm to capture the revenue opportunities in equity and fixed income markets when they were buoyant, with the wealth and asset management businesses providing a counterbalance when trading conditions normalized. While global economic fundamentals look rather positive, market participants are currently unsure about how long the current growth will last. "Despite the uncertainty that continues to weigh on financial markets and which may again dampen levels of investor activity, it looks as though 2004 will turn out to be one of UBS's best years," said Clive Standish.

UBS (including Motor-Columbus)

Quarter ended

% change from

Year to date

CHF million

30.09.2004

30.06.2004

30.09.2003

2Q04

3Q03

30.09.2004

30.09.2003

Operating income

10,148

9,484

8,503

29,927

25,252

Operating expenses

7,887

6,889

6,351

21,982

19,310

Net profit

1,671

1,974

1,685

6,068

4,431

Financial Businesses

Operating income

8,456

9,484

8,503

(11)

(1)

28,235

25,252

Operating expenses

6,265

6,889

6,351

(9)

(1)

20,360

19,310

Net profit

1,654

1,974

1,685

(16)

(2)

6,051

4,431

Financial ratios
Annualized return on equity for the first nine months of 2004 was 24.5%, compared to 16.6% a year earlier. Basic earnings per share were CHF 1.60 in third quarter 2004, compared to CHF 1.53 a year earlier. The cost/income ratio was 74.2%, compared to 75.1% a year earlier.

Performance against UBS financial targets
(pre-goodwill and adjusted for significant financial events)

UBS sets its financial targets and evaluates performance in terms of adjusted results, excluding significant financial events** and excluding the amortization of goodwill and other intangible assets.

UBS's performance against financial targets shows:

  • Annualized return on equity in the first nine months of 2004 was 27.4%, up from 19.2% a year earlier and well above the target range of 15 to 20%. The increase reflects higher net profit combined with a lower average equity resulting from continued buyback programs and increased dividend, outpacing retained earnings.

  • Basic earnings per share were CHF 1.86, up 7% from CHF 1.74 in the same quarter a year earlier, driven by a reduction in average number of shares outstanding through ongoing repurchase of shares.

  • The cost/income ratio for UBS's Financial Businesses was 71.5%, an improvement from 72.2% in the same period last year, and near historical lows. The decline was driven by performance-related compensation falling faster than revenues.

Year to date (annualized)

30.9.04

30.6.04

31.9.03

RoE (%)

as reported1

24.5

26.5

16.6

before goodwill and adjusted for significant financial events 2

27.4

29.2

19.2

For the quarter ended

Basic EPS (CHF)

as reported 3

1.60

1.85

1.53

before goodwill and adjusted for significant financial events 4

1.86

2.06

1.74

Cost / income ratio of the Financial Businesses (%)5

as reported 6

74.2

73.7

75.1

before goodwill and adjusted for significant financial events 7

71.5

71.2

72.2

Net new money, wealth management units (CHF billion)8

Wealth Management

11.4

8.2

9.4

Wealth Management USA

5.3

2.2

5.7

Total

16.7

10.4

15.1

1 Net profit year to date (annualized)/ average shareholders' equity less dividends. 2 Net profit year to date (annualized) less the amortization of goodwill and other intangible assets and significant financial events (after-tax) / average shareholders' equity less dividends. 3 Details of the EPS calculation can be found in Note 8 to the Financial Statements. 4 Net profit less the amortization of goodwill and other intangible assets and significant financial events (after-tax) / weighted average shares outstanding. 5 Excludes results from Industrial Holdings 6 Operating expenses / operating income less credit loss expense or recovery. 7 Operating expenses less the amortization of goodwill and other intangible assets and significant financial events / operating income less credit loss expense or recovery and significant financial events. 8 Excludes interest and dividend income.

* On 1 July, UBS acquired an additional 20% stake in Motor-Columbus. Details on page 2 of the press release.

** In second quarter 2003, UBS realized a gain of CHF 2 million (pre-tax CHF 161 million) from the sale of the Wealth Management USA business's Correspondent Services Corporation (CSC) clearing operation.

Cautionary statement regarding forward-looking statements

This communication contains statements that constitute "forward-looking statements", including, but not limited to, statements relating to the implementation of strategic initiatives, such as the European wealth management business, and other statements relating to our future business development and economic performance.
While these forward-looking statements represent our judgments and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations.
These factors include, but are not limited to, (1) general market, macro-economic, governmental and regulatory trends, (2) movements in local and international securities markets, currency exchange rates and interest rates, (3) competitive pressures, (4) technological developments, (5) changes in the financial position or creditworthiness of our customers, obligors and counterparties and developments in the markets in which they operate, (6) legislative developments, (7) management changes and changes to our Business Group structure and (8) other key factors that we have indicated could adversely affect our business and financial performance which are contained in other parts of this document and in our past and future filings and reports, including those filed with the SEC.
More detailed information about those factors is set forth elsewhere in this document and in documents furnished by UBS and filings made by UBS with the SEC, including UBS's Annual Report on Form 20-F for the year ended 31 December 2003. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.

Zurich/Basel, 2 November 2004
UBS