UBS news


Pre-announcement of first quarter 2008 estimated net loss of approximately CHF 12 billion

Zurich / Basel | | Price Sensitive Information

Fully underwritten rights issue of approximately CHF 15 billion to strengthen Tier 1 capital Creation of separate unit to manage selected US real estate related positions Marcel Ospel not to seek re-election at Annual General Meeting, to be succeeded as Chairman by Peter Kurer (separate media release)

To maintain its position as one of the world's strongest and best capitalized banks, UBS announces a rights issue, fully underwritten by four leading international banks, to raise approximately CHF 15 billion. For the first quarter 2008 UBS expects to report a net loss attributable to UBS shareholders of approximately CHF 12 billion after losses and writedowns of approximately USD 19 billion on US real estate and related structured credit positions. In the first quarter, UBS substantially reduced its real estate related positions through both valuation adjustments and significant disposals. UBS also announces the formation of a new unit to hold certain currently illiquid US real estate assets. UBS is confident that these measures will deal effectively with the firm's real estate exposures and allow the bank to focus on strengthening its core operations. Marcel Ospel, Chairman of UBS, will not seek re-election at the Annual General Meeting on 23 April 2008. Peter Kurer, currently General Counsel of UBS, is proposed for election to the Board of Directors and is to succeed Marcel Ospel as Chairman (see separate media release).

Commenting on these moves, Marcel Rohner, Chief Executive Officer of UBS said: "We believe this capital increase and the creation of a vehicle to separate problem assets from the remainder of our businesses will allow us to return to sustainable value creation over time. These measures enable UBS to remain strongly capitalized and focused on client needs - just as our clients expect. During the quarter, profits from most of the businesses remained acceptable in challenging conditions. We have made further prompt writedowns and sales of our impaired US real estate-related positions. We have reduced risk weighted assets and implemented measures to control costs and strengthen the structure of the firm. However, the environment remains difficult, and while we are committed to further substantially reducing our exposures we do not want to undertake sales of positions at severely distressed levels. With these measures we have created the basis to weather one of the most difficult periods in the history of the industry."

Formation of a separate unit for work-out portfolio

For risk management purposes UBS has already segregated most of its assets related to US residential real estate into a portfolio work-out unit, separating these positions from its other, profitable, businesses. UBS today announces that it will form a new entity to hold substantial parts of the work-out portfolio, which will initially be wholly owned and financed by UBS. UBS's intention is to reduce its exposure in a way that reduces the effect of distressed market conditions on the core businesses while providing the greatest opportunity for shareholders to realize value over time.

Estimated results for first quarter

First quarter performance in most of UBS's businesses was acceptable considering the current market environment. Conditions for positions related to US residential mortgages have further deteriorated during the first quarter, particularly in the month of March. These developments have led to further writedowns and losses in the Investment Bank's Fixed Income, Currencies and Commodities (FICC) business. UBS has used all available relevant market parameters and indices to mark its positions.

Based on preliminary internal estimates for the first quarter 2008 UBS expects a net loss attributable to shareholders of approximately CHF 12 billion.

The first quarter 2008 figure includes pre-tax results of approximately CHF 2.1 billion from Global Wealth Management & Business Banking, consistent with its longer-term track record, and a weaker pre-tax performance of approximately CHF 0.3 billion in Global Asset Management. The Investment Bank is expected to record a pre-tax loss of approximately CHF 18 billion. This includes writedowns and losses of approximately USD 19 billion on US real estate and related structured credit positions. Equities and investment banking results were satisfactory, albeit down from both first quarter 2007 and fourth quarter 2007. Costs, however, also fell. Corporate Center's pre-tax result, minorities and tax expenses for the Group accounted for positive CHF 3.5 billion to CHF 4.0 billion.

The result also includes technical accounting effects of approximately CHF 6 billion, mostly recorded in Corporate Center.

Over the first quarter, UBS's exposure to US residential sub-prime mortgage related positions declined to approximately USD 15 billion from USD 27.6 billion on 31 December, and the exposure to Alt-A positions was reduced from USD 26.6 billion to approximately USD 16 billion. These developments are the result of asset disposals as well as the effects of further writedowns. Other risk positions were also reduced. Auction rate certificate positions increased from USD 5.9 billion on 31 December to approximately USD 11 billion.

For the first quarter 2008, Global Wealth Management & Business Banking expects to have achieved positive net new money. Global Asset Management expects to report net new money outflows.

After giving effect to the receipt of the proceeds of the rights issue, the total capital ratio on a pro-forma basis would have been approximately 14.0% and the Tier 1 ratio would have been approximately 10.6%.

UBS will publish full first quarter results including details on risk positions as planned on 6 May 2008.

Capital raising

The Board of Directors will propose to the Annual General Meeting of shareholders (the "AGM") that the Group strengthen its shareholders' equity by way of an ordinary capital increase with proceeds of approximately CHF 15 billion. If approved, the capital increase will be effected by issuing rights to UBS shareholders (the "Subscription Rights"), which will allow them to subscribe for new registered shares in UBS AG (the "Rights Offering") at a subscription price and subscription ratio to be announced.

The Board of Directors will ask shareholders to approve an increase in share capital from the current CHF 207,354,734.40 by a maximum amount of CHF 125,000,000 to a maximum of CHF 332,354,734.401 through the issuance of a maximum of 1,250,000,000 fully paid registered shares with a par value of CHF 0.10 each. The invitation to, and the relevant resolutions to be considered at, the AGM to be held on 23 April 2008, have today been sent to shareholders and published in the Swiss Official Gazette of Commerce. On 1 April 2008 the proposed capital increase with proceeds of approximately CHF 15 billion was fully underwritten by a syndicate of banks, led by JPMorgan, Morgan Stanley, BNP Paribas and Goldman Sachs. JP Morgan and Morgan Stanley together with UBS Investment Bank are also acting as Joint Global Coordinators.

The subscription price of the new shares, the final number of shares to be issued and the final subscription ratio will be determined by the Board of Directors and communicated before start of rights trading. In no event will the number of new shares to be issued exceed 1,250,000,000. Trading of Subscription Rights on SWX Europe and the New York Stock Exchange is expected to take place late May to early June 2008, with the rights exercise period expected to cover approximately the same period. The first trading day of the new shares and the following payment and settlement of the Rights Offering are expected to occur mid June 2008. The newly issued shares will rank pari passu in all respects with the existing registered shares immediately upon issue.

Shares created as part of the stock dividend will be entitled to participate in the Rights Offering. The Mandatory Convertible Notes issued in March 2008 are subject to anti-dilution provisions, which will result in downward adjustments of the applicable conversion price to reflect the theoretical value of the Subscription Rights.

Strategy

The Board of Directors of UBS, while reconfirming UBS's established strategy of operating as one client-focused firm, worldwide, with global business segments of wealth management, asset management and investment banking, emphasises that although UBS's objective is for its businesses to collaborate in the best interest of clients, this also requires each business to achieve results that compare well with those of its peers.

The Board of Directors requires UBS's risk monitoring function to be updated and further strengthened. It also recognizes the need to reduce the illiquid balance sheet and proprietary trading exposures which have been at the heart of the bank's recent losses. Measures are in place, and will continue to be developed and implemented over the next twelve months, that are aimed at securing the proper balance of risk and reward in the bank's business. These will ensure that capital and balance sheet capacity are allocated consistent with the inherent risk of each business. UBS seeks to maintain a Tier 1 ratio significantly higher than those of most international competitors.

Management will also continue to implement a program of structural change to strengthen the firm by focusing on client businesses throughout the Investment Bank, further reducing both risk-weighted assets and the overall balance sheet size, including through the new funding framework, and a further strengthening of risk control systems. The current risk capacity utilised outside the work-out portfolio is substantially lower than in the past. This reflects the emphasis on bringing the businesses in the Investment Bank more in line with the interests and capacity of the other parts of UBS.

The new leadership of the Investment Bank will further focus on resizing the business in accordance with the current market opportunities, including strategic reductions in all major cost categories. UBS will release more information on this in due course. Global Wealth Management & Business Banking and Global Asset Management will focus relentlessly on fulfilling the long-term needs of clients in order to grow market share, which remains a key objective of the bank.

The environment for the financial industry remains difficult. UBS management considers operational efficiencies and cost management throughout the firm to be the key performance targets in the coming quarters.

1 These numbers do not reflect the increase in share capital as a result of the stock dividend approved at the Extraordinary General Meeting of shareholders held on 27 February 2008. They will, therefore, be increased by the number of shares to be issued in connection with the stock dividend.

Cautionary Statement Regarding Forward-looking Statements

This document contains statements that constitute "forward-looking statements", including, but not limited to, expectations relating to UBS's estimated and future financial condition and performance, including, but not limited to, impairment charges, net result attributable to shareholders, results of UBS's business groups, revenue contribution of FICC, accounting effects under IFRS of fair value treatment of own liabilities and the MCNs, net new money in- and outflows for Global Wealth Management & Business Banking and Global Asset Management, total BIS capital ratio and Tier 1 ratio, statements relating to the capital raising measures described herein; the sufficiency of these measures as compared to current and anticipated impairment of assets and market developments; work-out measures related to impaired or illiquid assets, exit strategies and the effects of distressed market conditions; and global strategy pursued by UBS, structural changes and their effect on profit, operational efficiencies and cost management. While these forward-looking statements represent UBS's judgments and expectations concerning its estimated and future financial condition and performance and future development of its business, a number of risks, uncertainties and other important factors could cause actual results and developments to differ materially from its expectations. These factors include, but are not limited to, (1) the extent and nature of future developments in the credit markets, including the subprime market, and their impact on the financial industry in general and UBS in particular, (2) the occurrence of other market and macro-economic trends, whether as a result of follow-on market developments or due to other unanticipated market trends, (3) the impact of such future developments on UBS's positions, credit and market exposures and short-term and longer-term earnings; (4) successful consummation of the capital raising measures discussed above; (5) successful implementation of global strategy and structural changes; and (6) the impact of all these matters on UBS's capital position, future earnings, operational efficiencies and cost management. In addition, these results could depend on other factors that UBS has previously indicated could adversely affect its business and financial performance which are contained in its past and future filings and reports, including those filed with the Securities and Exchange Commission (the "SEC"). Further information is set forth in those filings and reports, including UBS's Annual Report on Form 20-F for the financial year ended 31 December 2007. UBS is not under any obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.

Notice to U.S. Persons

The issuer may file a registration statement (including a prospectus) with the SEC for any offering of securities pursuant to the capital raising measures described herein. Before you invest in any such securities, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and such offering. You may get these documents, once filed, for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, the company will arrange to send you the prospectus after filing if you request it by calling +41-44-236-6770 or, if you are calling from the United States of America, by calling toll-free +1-866-541-9689. Our investor relations department would be happy to address any questions you may have. You may reach them at +41-44-234-4100 or, if you are calling from the United States of America, at +1-212-882-5734.

No prospectus or solicitation

This publication constitutes neither an offer to sell nor a solicitation to buy securities. It does not constitute a prospectus within the meaning of Art. 652a of the Swiss Code of Obligations, the Listing Rules of the SWX Swiss Exchange or Art. 13 of the EC Directive 2003/71/EC of the European Parliament and Council dated November 4, 2003 (the "Prospectus Directive"). The offer will be made solely by means of, and on the basis of, a securities prospectus which is to be published. Any investment decision regarding the Subscription Rights or the shares of UBS should only be made on the basis of the prospectus which will be prepared in connection with the Rights Offering, and investors are advised to consult with their bank, broker or investment advisor before taking any such investment decision. The securities prospectus is expected to be published before starts of rights trading and will be available free of charge from UBS, Bahnhofstrasse 45, CH-8001 Zurich Switzerland, and Aeschenvorstadt 1, CH-4051 Basel, or on UBS's website, www.ubs.com.