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UBS third quarter net profit attributable to shareholders of CHF 1,664 million; diluted earnings per share of CHF 0.43

Zurich / Basel | | Quarterly Results

Revenues affected by unusually low levels of client activity; management responded by reducing costs                                                                                                                                             Results include a CHF 825 million net tax credit and an own credit charge of CHF 387 million; profit before tax of CHF 818 million

  • Third quarter net profit of CHF 1,664 million; Year-to-date net profit attributable to shareholders of CHF 5,871 million; annualized return on equity of 17.6% in the first nine months of 2010
  • The Investment Bank's results reflect reduced flows in equities, mainly in cash and derivatives. Fixed income, currencies and commodities revenues declined quarter on quarter mainly on below average client activity in foreign exchange and rates businesses
  • Global Asset Management profits stable despite lower management fees as a result of the strengthening of the Swiss franc, partly offset by reduced personnel expenses
  • Wealth Management revenues decreased on lower client activity and the strengthening of the Swiss franc against major currencies
  • Costs were tightly controlled and declined CHF 731 million compared with the second quarter, mostly reflecting reduced personnel expenses as well as currency effects

Invested asset base stable; Inflows of net new money

  • Invested assets were CHF 2,180 billion, unchanged from the prior quarter, as positive market performance was offset by currency movements
  • Inflows of CHF 0.9 billion net new money for Wealth Management & Swiss Bank compared with outflows of CHF 5.5 billion in the previous quarter
  • Net new money inflows of CHF 0.3 billion for Wealth Management Americas compared with outflows of CHF 2.6 billion in the second quarter


Further improvements to capital ratios; stable balance sheet and risk-weighted assets

  • Improved quarter-end BIS tier 1 capital ratio was 16.7% compared with 16.4% on 30 June 2010; core tier 1 capital ratio increased to 14.2% from 13.0% over the same time period
  • Balance sheet stable and risk-weighted assets broadly flat

Zurich / Basel, 26 October 2010 - Commenting on UBS's third quarter 2010 results, Group CEO Oswald J. Grübel said:"The third quarter was unusual in that there were very low levels of client activity as well as a strengthening of the Swiss franc against most major currencies. This had an impact across all of our businesses. However, we are optimistic that an uptick in the fourth quarter will benefit all of our business divisions. We remain confident about our future and believe that we are on track to achieve our medium-term goals".

Third quarter 2010 net profit of CHF 1,664 million
UBS reports a third quarter net profit attributable to UBS shareholders of CHF 1,664 million compared with CHF 2,005 million in the second quarter. Group results include a net tax credit of CHF 825 million.

Wealth Management's revenues declined 7% to CHF 1,759 million compared with CHF 1,891 million in the second quarter. Revenues were affected by unusually low client activity, a decline in fee income on a lower average invested asset base and the effects of adverse currency movements. Consequently, the gross margin on invested assets decreased 6 basis points to 89 basis points. Costs increased slightly mainly due to higher general and administrative expenses, including a lease termination provision as well as increased costs associated with sponsoring and branding campaigns related to the global re-launch of the UBS brand. The pre-tax profit was CHF 492 million compared with CHF 658 million in the second quarter.

Retail & Corporate's revenues declined slightly to CHF 966 million compared with CHF 995 million in the previous quarter, due to tighter interest rate margins and lower brokerage income. Costs continued to be tightly managed and were little changed from the prior quarter. Pre-tax profit was CHF 446 million compared with CHF 473 million in the second quarter.

Wealth Management Americas' revenues declined 10%, mainly due to currency effects as well as lower income resulting from lower managed account fees. Operating expenses decreased 11% to CHF 1,384 million. Pre-tax result was negative CHF 47 million compared with a loss of CHF 67 million in the second quarter. The third quarter result included a provision of CHF 78 million due to an unexpected result in an arbitration matter, while the second quarter included restructuring charges of CHF 146 million. Gross margin on invested assets decreased 7 basis points to 77 basis points due to the 10% decline in revenues, while average invested assets decreased 2%.

Global Asset Management's pre-tax profit was CHF 114 million compared with CHF 117 million in the second quarter. Revenues were CHF 473 million compared with CHF 522 million in the second quarter, as management fees declined due to lower average invested assets, as well as lower fees in global real estate. Expenses decreased 11%, partly due to the strengthening of the Swiss franc and lower personnel expenses.

The Investment Bank recorded a pre-tax loss of CHF 406 million compared with a pre-tax profit of CHF 1,314 million in the second quarter. Lower revenues, particularly in the securities businesses, reflect subdued client activity levels and low market volumes. The result also included an own credit loss on financial liabilities designated at fair value of CHF 387 million, compared with a gain of CHF 595 million in the prior quarter. Excluding the impact of own credit, revenues decreased 36%. Revenues in the fixed income, currencies and commodities business were CHF 869 million compared with CHF 1,703 million in the second quarter. The credit business delivered good results, reporting revenues of CHF 587 million, up 27% and reflecting a strong performance in new issues of structured products as well as increased trading volumes. This was more than offset by weaker results in our foreign exchange and rates businesses due to lower volumes. Emerging markets revenues increased to CHF 117 million from CHF 73 million with gains recorded across all regions, especially in Europe and Asia Pacific. Equities revenues were CHF 904 million compared with CHF 1,365 million in the second quarter, reflecting subdued investor demand, most notably in cash and derivatives. Costs were CHF 2,248 million, down 19% from the previous quarter, mostly due to lower personnel expenses. We remain confident that we are taking the right steps to deliver on our medium-term goals.

Treasury activities and other corporate items generated a pre-tax profit of CHF 219 million in the third quarter compared with CHF 119 million in the second quarter. The profit was driven by an increase in the valuation of our option to acquire the equity of the SNB StabFund.

Net loss attributable to minority interests was CHF 21 million compared with a profit of CHF 298 million in the second quarter. The third quarter includes a reversal of accrued dividends on called preferred securities, whereas the previous quarter included the recognition of a dividend obligation for preferred securities.

Business division performance 3Q10 vs 2Q10

Net new money and invested assets:
Wealth Management – Net new money inflows were CHF 1.0 billion, compared with outflows of CHF 5.2 billion in the prior quarter, with continued net inflows in the Asia Pacific region and from ultra high net worth clients globally. Retail & Corporate – Net new money was slightly negative at CHF 0.1 billion, compared with outflows of CHF 0.3 billion in the previous quarter.

Wealth Management Americas – Net new money inflows were CHF 0.3 billion compared with outflows of CHF 2.6 billion in the second quarter. Third quarter inflows included CHF 0.7 billion due to the inclusion of certain retirement plan assets.

Global Asset Management – In the third quarter, net new money inflows were zero compared with net inflows of CHF 3.4 billion in the prior quarter. Excluding money market flows, net new money inflows were CHF 3.9 billion compared with net inflows of CHF 6.2 billion in the second quarter. Third quarter net new money included CHF 2.5 billion from a transfer of investment management responsibility for a US fund of hedge funds from Wealth Management Americas.

Invested assets were CHF 2,180 billion on 30 September 2010, unchanged from 30 June 2010. Positive market performance was offset by currency movements. Third quarter invested assets included CHF 21 billion due to the abovementioned retirement plan assets. Of the invested assets, CHF 920 billion were attributable to Wealth Management & Swiss Bank (CHF 787 billion thereof attributable to Wealth Management and CHF 133 billion attributable to Retail & Corporate); CHF 693 billion were attributable to Wealth Management Americas; and CHF 567 billion were attributable to Global Asset Management.

Capital base and balance sheet:There was a continued improvement in our BIS tier 1 capital ratio which increased to 16.7% on 30 September 2010 compared with 16.4% at the end of the prior quarter, and our core tier 1 capital ratio increased to 14.2% from 13.0% over the same period. Our risk-weighted assets increased marginally, with increases in market and operational risk being offset by declines in credit risk, while our balance sheet remained fairly stable at CHF 1,461 billion.

US cross border matter: The US Department of Justice has moved to dismiss all of the previously filed charges that had been deferred under the Deferred Prosecution Agreement. Accordingly, and in recognition of the Swiss Government's commitment to a fixed delivery schedule for the remaining US accounts under its agreement with the United States, the US Internal Revenue Service has confirmed that it will withdraw with prejudice the remaining portion of the John Doe summons on 15 November 2010. These are the final steps to resolve this matter completely.

Outlook: Following the unusually low client activity levels seen in the third quarter, we are optimistic that an uptick in the fourth quarter will benefit all of our business divisions. We therefore expect some improvement in transaction-based revenue in our wealth management businesses and in the flow businesses of the Investment Bank. We also expect our wealth management units' return on invested assets to improve to some degree over the fourth quarter and expect our investment banking business to benefit from an increase in corporate transactions before year-end. We believe that we are on track to achieve our medium-term targets, and will provide an update on our progress at our Investor Day on 16 November 2010.

Media release available at www.ubs.com/media

Further information on UBS's quarterly results is available at www.ubs.com/investors:
• Third quarter 2010 financial report
• Third quarter 2010 results slide presentation
• Letter to shareholders (English, German, French and Italian)

Webcast: The results presentation, with John Cryan, Group Chief Financial Officer and Caroline Stewart, Global Head of Investor Relations, will be webcast live on
www.ubs.com/investors at the following times on 26 October 2010:
• 0900 CET
• 0800 BST
• 0300 US EST
Webcast playback will be available from 1400 CET on 26 October 2010.

Cautionary Statement Regarding Forward-Looking Statements
This release contains statements that constitute “forward-looking statements,” including but not limited to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters described, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations. Additional information about those factors is set forth in documents furnished and filings made by UBS with the US Securities and Exchange Commission, including UBS’s financial report for third quarter 2010 and UBS’s Annual Report on Form 20-F for the year ended 31 December 2009. UBS is not under any obligation to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.


Rounding
Numbers presented throughout this release may not add up precisely to the totals provided in the tables and text. Percentages and percent changes are calculated based on rounded figures displayed in the tables and text and may not precisely reflect the percentages and percent changes that would be derived based on figures that are not rounded.