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UBS reports 2003 net profit of CHF 6,385 million and fourth quarter net profit of CHF 1,859 million

| Quarterly Results

With 2003 net profit of CHF 6,385 million, UBS reports its second most profitable year ever. Excluding goodwill amortization and significant financial events*, net profit rose 33% from 2002. UBS shareholders benefit from a combination of high return on equity, rapid earnings per share growth, a record dividend, and top-tier capitalization. Net new money inflows in the wealth management businesses totaled CHF 50.8 billion in 2003.

UBS reports 2003 net profit of CHF 6,385 million, up 81% from CHF 3,535 million in 2002. Results in both 2002 and 2003 were influenced by individual items that UBS terms significant financial events1. Excluding these effects, and before goodwill amortization, net profit in 2003 increased by 33% from 2002.

"2003 turned out to be a surprisingly good year for financial markets, and a terrific year for UBS. Our businesses have made sustainable competitive gains across the globe. Put that together with tight cost control and disciplined capital management and we've delivered rapid EPS growth, combined with a high return on equity, so that now we can reward our shareholders with a record dividend," said Peter Wuffli, Chief Executive Officer.

All businesses reported a stronger set of results in 2003 than in 2002, continuing to build market share as financial markets recovered. Private clients added net new assets of CHF 50.8 billion to their investments managed by UBS (CHF 36.2 billion in 2002). The Investment Bank also made significant competitive gains, and is firmly positioned in the industry's top bracket, ending the year as the fourth-ranked advisor for corporations globally, up from seventh place in 2002. In Switzerland, UBS kept its strong leadership in the domestic market and reported record annual profits.

Operating income in 2003 was practically unchanged from the previous year. At the beginning of 2003, asset-based revenues were impacted by low market levels and started to recover only in the second half of the year. This was partially offset by higher revenues from fixed income trading and much lower private equity writedowns.

At the same time, costs continued to be tightly managed. Operating expenses fell 13% from 2002. Excluding the effect of the PaineWebber brand writedown, operating expenses fell 10%, reflecting cost reductions in all categories.

Fourth quarter results
In fourth quarter 2003, UBS reported a net profit of CHF 1,859 million against a loss of CHF 101 million in the same period a year earlier. Excluding the effect of significant financial events in fourth quarter 2002 and before goodwill amortization, net profit increased 94%, making it the best quarterly result for more than three years. All Business Groups reported an increase in profitability compared to a year earlier. The Investment Banking & Securities unit reported an exceptionally robust result with equally strong fixed income and equities revenues and a record underwriting quarter. In addition, asset-based fees continued to benefit from rising markets. More frequent trading by individual investors drove up transaction revenues, while the private equity portfolio showed a positive quarterly result.

The cost/income ratio was 72.8% in fourth quarter 2003. Excluding goodwill and significant financial events, the cost/income ratio fell to 70.2%, its lowest level since PaineWebber became a part of UBS.

Credit losses stood at CHF 62 million, compared to a net recovery of CHF 11 million in fourth quarter 2002. Wealth Management & Business Banking experienced net credit losses of CHF 108 million in fourth quarter 2003, influenced by the impact of the sudden default of Erb Group, a privately held Swiss conglomerate. The Investment Bank realized net recoveries of CHF 46 million, reflecting the more positive international political and economic environment.

Dividend of CHF 2.60 per share and new buyback program
For the 2003 financial year, the Board of Directors will recommend a dividend of CHF 2.60 per share to the Annual General Meeting (AGM) on 15 April 2004. This is an increase of 30% from the 2002 dividend.

UBS's ongoing share buyback programs are another important tool in achieving attractive shareholder returns. Under the 2003 buyback program, UBS had bought back a total of
56,707,000 shares as of 31 December 2003 for a total value of CHF 4.3 billion. This program will run until 5 March 2004 and allows a maximum purchase value of CHF 5 billion in UBS shares. Subject to the approval of the AGM, all shares repurchased under this program will be canceled and cannot be reissued.

Given the strong capitalization of UBS, the Board of Directors has decided to launch a new buyback program with a maximum buyback limit of CHF 6 billion, which is to start on 8 March 2004 and will run until 7 March 2005.


* Significant Financial Events (SFEs):

SFEs are not indicative of future results or the underlying performance of UBS's businesses.

Events identified as SFEs in 2003:

-- in second quarter: gains of CHF 2 million after tax (CHF 161 million pre-tax) from the sale of Wealth Management USA's clearing business. Booked in Wealth Management USA as "Other income".

Events identified as SFEs in 2002:

-- in fourth quarter: non-cash writedown of CHF 953 million (CHF 1,234 million pre-tax) for the discontinuation of the PaineWebber brand name. Booked in Wealth Management USA as "Amortization of goodwill and other intangibles".

-- in fourth quarter: gains of CHF 60 million after tax (CHF 72 million pre-tax) from the sale of Klinik Hirslanden, a private hospital group. Booked in Corporate Center as "Other income".

-- in first quarter: gains of CHF 125 million after tax (CHF 155 million pre-tax) from the sale of private bank Hyposwiss. Booked in Corporate Center as "Other income".

Financial ratios as reported for full-year 2003
Return on equity for 2003 was 18.2%, compared to 8.9% a year earlier. Basic earnings per share were CHF 5.72, compared to CHF 2.92 in 2002. The 2003 cost/income ratio was 75.2%, compared to 86.2% a year earlier.

Performance against UBS financial targets in 2003
(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:

  • Return on equity for 2003 was 20.9%, up from 13.9% a year ago and above the target range of 15 to 20%. This was the best result since the very strong return of 24.3% achieved in the booming markets of 2000. The increase over last year reflects the significant growth in net profit combined with a lower average level of equity resulting from continued share buyback programs

  • Basic earnings per share were CHF 6.56, an increase of CHF 1.99 or 44% from 2002, driven by the same factors as affected return on equity.

  • The cost/income ratio was 72.7% in 2003, an improvement from 79.5% in 2002. It stands at its lowest level since PaineWebber became part of UBS due to ongoing cost management initiatives and the lowering of compensation ratios.


** Significant financial events:

Items recorded in the financial statements and identified as significant financial events in 2002 and 2003 are listed on page 1 of this media release.

Risk management
Taking risk is an integral part of UBS's business. Therefore, the firm's overriding goal is to achieve an appropriate balance between risk and return, not to minimize risk. We limit the scope for adverse variations in earnings through controlling exposure to major individual "stress" events.

With markets and investor sentiment starting to improve, and with UBS's growing corporate client and trading franchises continuing to build their market share, the firm's revenue opportunities are increasing. Therefore market and credit risk levels are likely to experience a gradual increase in coming quarters.

This does not represent a change to the approach that has served UBS so well in the past. The firm has no intention of changing its risk culture and will retain its overriding commitment to high-quality earnings through diversification and liquidity of risk. As one example, UBS continues to believe that the quality of advice will remain the principal driving factor in building its global investment banking franchise. This means that UBS will neither attempt to acquire new business through balance sheet strength alone nor substantially increase its appetite for purely proprietary trading.

With the growth in competitiveness of its trading businesses, UBS has already seen a gradual increase in its risk consumption, as measured by Value at Risk (VaR)*** . Given the successful growth of its franchise, combined with increasing market opportunities, UBS has decided to raise the VaR limit for its Investment Bank, which has remained unchanged since 1999. From 2004 onwards, the VaR limit for the Investment Bank will rise to CHF 600 million from CHF 450 million. Accordingly, the VaR limit for UBS as a whole will increase to CHF 750 million from CHF 600 million.

In its credit business, UBS will not change its strategy of focusing lending outside Switzerland on important advisory or underwriting clients, avoiding pure commercial lending. However, because of the strengthening of its franchise with exactly these corporate clients, UBS expects to selectively allocate moderately higher capital resources to support its business growth. Any increase in risk-weighted assets will be gradual and balanced across its lending business for core corporate clients, derivatives activity and loan underwriting.


*** Value at Risk (VaR)

In common with its peers, UBS measures and limits market risk using a VaR methodology.

VaR expresses the potential loss which could arise on the current portfolio from adverse market movements assuming a specified time horizon before positions can be adjusted ('holding period'), and measured to a specified level of confidence.

These estimates are based on historical simulation, i.e. assessing the impact of historical market movements on today's portfolio. UBS sets its VaR limit in terms of a 10-day holding period, measured to a 99% confidence level, and using five years of historical data.

VaR is a statistical measure of potential trading revenue volatility and an increase in the general level of VaR would normally be expected to lead to a corresponding increase in the volatility of daily trading revenues. However, the 10-day VaR measure takes no account of the mitigating action that could be taken in the event of adverse market moves, nor does it express the worst result that could occur as a result of extreme or unusual market conditions. The absolute level should not therefore be interpreted as the likely range of daily trading revenues.

Integration of IT infrastructure
A recent example of UBS's "one-firm" approach is the decision to integrate information technology infrastructure (ITI) functions. This year, UBS will create a central ITI unit with an entrepreneurial mandate to service all businesses in a client-focused and cost-efficient way. This new unit will employ 3,000 people and will cover almost all existing IT infrastructure functions across UBS - the management of data networks, telephone and other communications systems, IT security, distributed computing and servers, mainframes and data centers, market data services, user services and desktop computing.

Under the leadership of Scott Abbey, Chief Technology Officer - a newly created role, reporting to the CFO - the ITI unit will be mandated to provide an efficient, stable technology infrastructure that fully meets the needs of the businesses. The unit will look to streamline the IT infrastructure organization across UBS, leverage UBS's combined purchasing power, and create a consistent technical architecture over the long term.

Outlook
The last few years have been difficult for the financial services industry, with economic and geopolitical uncertainties weighing heavily on markets. Now, conditions appear to be improving and investors are increasingly optimistic. Having successfully navigated the turbulent down-markets with no unpredictable changes in profits, strategy, or staffing levels, UBS now enters what seem likely to be calmer waters.

"Our businesses are all performing extremely well and are positioned for growth. And while, of course, we cannot predict with certainty whether markets will continue in their friendly mood, we are committed to again securing for our investors the best possible returns in 2004," Peter Wuffli said.

Senior management compensation 2003
For 2003, senior management compensation (as defined by the SWX Swiss Exchange Directive on Corporate Governance) totaled CHF 158.4 million - compared to CHF 147.1 million in 2002.
These totals exclude merger-related retention payments for the two ex-PaineWebber executives of CHF 21.1 million (USD 17.0 million) in 2003 and CHF 20.6 million (USD 14.9 million) in 2002.

Membership and size of UBS's senior management was different in the two years, as detailed in the note to the table below. Average compensation per head increased by 21% between the two years.

Total compensation of the highest paid member of the Board of Directors, Chairman Marcel Ospel, was CHF 17.2 million for the financial year 2003 (CHF 11.3 million in 2002), including restricted UBS shares valued at CHF 7.5 million (CHF 4.6 million in 2002). In addition, he received 127,000 options valued at a total of CHF 1.6 million granted as a long-term incentive (CHF 1.2 million in 2002).

Executive members of the BoD and members of the GEB (CHF million)

2003

2002

Cash component (base salary, cash part of bonus)

79.2

89.5

Employer's contributions to retirement benefit plans

1.2

1.3

Benefits in kind, fringe benefits, at market value

1

1

Restricted UBS shares, at fair value

64.2

41

Restricted UBS stock options, at fair value (granted as a long-term incentive)

12.8

14.3

For the financial year 2003, total compensation includes:

  • the two executive members of the Board of Directors (BoD)

  • the ten members of the Group Executive Board (GEB) as of 31 December 2003

  • one former executive Vice Chairman of the Board (Johannes A. de Gier who stepped down as Vice Chairman in first quarter 2003, remaining a non-executive member of the Board of Directors)

For the financial year 2002, total compensation includes:

  • three executive members of the Board of Directors (BoD)

  • ten members of the Group Executive Board (GEB)

  • the two former members of the GEB who left UBS in 2002 (Luqman Arnold as of 31 January 2002 and Markus Granziol as of 31 August 2002)


UBS will disclose further information on executive and Board compensation according to the SWX Swiss Exchange "Directive on Information relating to Corporate Governance" in its annual financial reporting on 17 March 2004.

Results from the Business Groups

Wealth Management & Business Banking
Wealth Management's full-year 2003 pre-tax profit, at CHF 2,609 million, increased 4% from 2002, mainly due to the recovery in financial markets which resulted in higher recurring asset-based fees during the second half of the year. Net new money inflows for the year totaled CHF 29.7 billion, up 68% from the 2002 result, driven by particularly strong inflows into the European wealth management business and from Asian clients.

In fourth quarter 2003, profit before tax stood at CHF 705 million. This 1% decline from third quarter reflected a drop in fee income on seasonally low transaction volumes and the negative impact of the US dollar's fall against the Swiss franc. These factors were only partially offset by lower personnel expenses. The business unit's cost/income ratio increased by 1 percentage point to 60%.

Business Banking Switzerland reported a pre-tax profit of CHF 2,153 million for full-year 2003. This 9% increase on the 2002 result was achieved despite the difficult market conditions at the outset of the year. The improvement reflects both continued tight management of the cost base and the structural improvement in the domestic loan portfolio in recent years.

Fourth quarter pre-tax profit was CHF 547 million, up by 4% from third quarter, mainly due to lower expected credit loss expense and a drop in performance-related compensation following the determination of bonuses in fourth quarter.

Global Asset Management
Global Asset Management reported a pre-tax profit of CHF 332 million for full-year 2003, up 52% from the 2002 result. The equity market recovery in the second half of the year, coupled with strong inflows into alternative investments, equities and fixed income mandates, resulted in higher invested asset levels and, consequently, increased asset-based revenues. Performance-related fees, especially in the alternative and quantitative business, grew significantly over 2002. Ongoing cost control initiatives reduced operating expenses, further underpinning profitability.

For full-year 2003, net new money inflows in the institutional business stood at CHF 12.7 billion, improving significantly from the outflows of CHF 1.4 billion recorded in 2002. The wholesale intermediary fund business reported a net new money outflow of CHF 5.0 billion in 2003 (compared with an outflow of CHF 6.3 billion in 2002). The net outflow in 2003 was entirely attributable to outflows in money market funds related to the launch of UBS Bank USA. Before the bank's launch in third quarter 2003, private-client cash balances in the US were swept into money market funds. Now they are redirected automatically into FDIC-insured deposit accounts.

In fourth quarter 2003, Global Asset Management's pre-tax profit was CHF 112 million, up 29% from third quarter. A fall in performance-related fees was more than offset by lower incentive-based compensation and general administrative expenses.


Investment Bank
The Investment Banking & Securities business unit recorded a pre-tax profit of CHF 4,078 million in full-year 2003. This 30% increase from 2002 reflects strong performance in all our businesses. In particular, the Fixed Income, Rates and Currencies business posted a record result, reflecting the breadth of its capabilities and the expansion of its franchise. At the same time, costs remained under control. In full-year 2003, the compensation ratio fell to 51% from 55% in 2002. Annual performance-related payments are driven by the revenue mix across business areas and are managed in line with market levels.

Pre-tax profit in fourth quarter 2003 stood at CHF 1,153 million, up 122% from the same period last year and 19% higher than in third quarter 2003. This represented the best quarterly result since first quarter 2001. Revenues increased by 22% from fourth quarter 2002. Performance was strong in all business areas. Revenues from the Fixed Income, Rates and Currencies business were 32% higher than in fourth quarter 2002. In the Equities business, income increased 17% on strong primary revenues. At the same time, improved revenues from client trading commissions and equity finance more than offset adverse currency movements. In Investment Banking, revenues rose 15%, reflecting competitive gains that lifted global market share to 5.6% from 4.6%. Moreover, UBS advanced to fourth place in 2003 from seventh a year earlier in Freeman's investment banking fee rankings.

Operating expenses in fourth quarter 2003 remained largely unchanged from the same quarter a year earlier, as a revenue-driven increase in personnel expenses largely offset the impact of currency movements. The cost/income ratio was 66% in fourth quarter 2003. Excluding goodwill amortization, it fell to 64% from the 78% reported in fourth quarter 2002. This reflects the sharp downward correction of the compensation ratio reflecting the final determination of bonuses.

Private Equity recorded a pre-tax loss of CHF 189 million in full-year 2003. The marked improvement on the pre-tax loss of CHF 1,761 million in 2002 reflects much lower levels of writedowns and a number of successful exits in 2003.
For fourth quarter 2003, the unit reported a pre-tax profit of CHF 60 million, attributable to the realization of capital gains on successful exits.

Wealth Management USA
The Wealth Management USA business was well positioned to benefit from the improvement in investor sentiment and market conditions in 2003. Net new money inflows of CHF 21.1 billion over the year reflected the strong appeal of its advice and services. In US dollar terms, this represents a 14% increase over the net new money attracted in 2002.

Including acquisition costs (goodwill amortization, net goodwill funding and retention payments), the Business Group reported a pre-tax loss of CHF 5 million in full-year 2003 compared to a loss of CHF 1,800 million in 2002. Excluding significant financial events**** and before acquisition costs, operational performance showed a profit of CHF 664 million in 2003, compared to CHF 632 million in 2002.

In fourth quarter 2003, Wealth Management USA reported a pre-tax loss of CHF 10 million. Before acquisition costs, and excluding significant financial events, pre-tax profit increased 6% from third quarter to CHF 181 million. On the same basis, but in US dollars, the operating result was 12% higher than in third quarter, reflecting a record level of recurring fees and higher net interest and transactional revenues, as well as increased municipal securities revenues.

**** Significant financial events identified for Wealth Management USA


-- in second quarter 2003: pre-tax gain of CHF 161 million from the sale of Wealth Management USA's clearing business. Booked in Wealth Management USA as "Other income".


-- in fourth quarter 2002: non-cash writedown of CHF 1,234 million pre-tax for the discontinuation of the PaineWebber brand name. Booked in Wealth Management USA as "Amortization of goodwill and other intangibles".


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 implementation of the European wealth management strategy, expansion of our corporate finance presence in the US and worldwide, 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 credit-worthiness 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 in 2001, 2002 and 2003 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 2002. 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, 10 February 2004
UBS

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