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UBS results for second quarter 2000: Net profit after tax CHF 2,052 million.

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UBS reports a net profit after tax and minority interests of CHF 2,052 million for second quarter 2000. Once the effect of divestments and one-off provisions is stripped out, this represents outstanding growth of 138% over second quarter 1999. Also on an adjusted basis and pre-goodwill amortization, basic earnings per share was CHF 5.97 and annualized return on equity 31.9%. Group assets under management totalled CHF 1,711 billion at the end of June 2000.

UBS achieved an excellent result in second quarter 2000 with a net profit after tax and minority interests of CHF 2,052 million. Once the effect of divestments and one-off provisions is stripped out, this represents outstanding growth of 138% over second quarter 1999. Following its excellent first-quarter performance, UBS reports its best ever half-year results (+84% over first half 1999 on an adjusted basis).

Pre-goodwill amortization, and adjusted for divestments and one-off provisions, key metrics developed as follows:

  • Annualized return on equity increased from 18.1% to 31.9%.

  • Basic earnings per share rose from CHF 2.50 to CHF 5.97 (+139%).

  • The cost/income ratio was 69.2%, well below the 74.8% recorded in second quarter 1999.

The 3% decline in assets under management over the quarter was mainly driven by negative market trends and anticipated client losses in the institutional asset management business.

Strategic initiatives

As announced on 12 July 2000, UBS and PaineWebber have entered into a definitive merger agreement. PaineWebber will become an integral part of the UBS Warburg business group while retaining its powerful brand in the United States. PaineWebber's Private Client group will absorb the existing UBS Warburg Private Clients and e-services business units. Delivering UBS Warburg's premium content and global reach to PaineWebber's 2.7 million affluent clients in the US, and uniting the two highly complementary institutional franchises, will create a pre-eminent global investment services firm.

The integration of PaineWebber's affluent client franchise with UBS Warburg's global investment banking and securities platform provides major revenue-generating opportunities. UBS is convinced that the strengths of UBS and PaineWebber are highly complementary and mutually enhancing. "When we launched UBS's New York Stock Exchange listing in May 2000, our primary objective was to make it easier to expand in the US, focusing on opportunities where there was a strong cultural fit, powerful strategic logic and attractive financial returns. We believe that all these tests are met by this deal and that the merger is great news for the clients, employees and shareholders of both UBS and PaineWebber," stated Marcel Ospel, UBS Group CEO.

The merger transaction is due to be finalized in the fourth quarter of this year, subject to the required approvals. UBS shareholders will be invited to approve an increase in UBS's share capital necessary in connection with the transaction at an Extraordinary General Meeting to be held on 7 September. It is proposed to create 38 million new UBS shares in the form of authorized capital and 17 million new UBS shares in the form of conditional capital. Due to the inter-relationship between the two categories, the maximum total number of shares issued either as authorized or conditional capital will not exceed 46 million shares.

Share buyback programme: UBS successfully concluded its share buyback programme on 28 June 2000. In the five months since the programme began on 17 January 2000, UBS bought back a total of 18,421,783 shares over a second trading line on the SWX Swiss Exchange at an average price of CHF 217. This represents 4.3% of the share capital. These shares are earmarked for cancellation and cannot be used for other purposes.
At the 2001 Annual General Meeting, shareholders will be asked to approve the cancellation of the shares and the corresponding reduction in share capital. Despite the share buyback, the Bank's BIS Tier 1 capital ratio increased from 11.0% at the end of March to 12.1% at the end of June as a result of strong cash flow generation and disciplined balance sheet and risk management.

Outlook

UBS looks forward to completing the PaineWebber transaction and the resulting opportunities that the combination with UBS Warburg will bring. In matching the first quarter's excellent performance, UBS has confirmed the strength of its positioning. If market conditions remain consistent, the Group expects to maintain its strong performance relative to last year.

Results of the Business Groups

UBS Switzerland

UBS Switzerland had an excellent quarter, delivering a pre-tax profit CHF 1,411 million (+33% over second quarter 1999), although this performance fell short (-11%) of the exceptional first-quarter results achieved in a particularly attractive market environment.

UBS Switzerland's broad range of electronic services was consolidated during the quarter under a single "UBS e-banking" label. By the end of June, 506,000 clients had signed e-banking agreements. Over 18% of all payment orders and 11% of all stock-exchange transactions of UBS Switzerland are now routed through e-banking channels.
At the end of June, BlueSky Ratings TM, an independent provider of online broker ratings, ranked UBS as the best online broker in Switzerland. In mobile banking services, the Bank is leading its competitors with the recent launch of a pilot scheme allowing clients to access their bank accounts and trade shares from their WAP-enabled mobile phones. This offering is unique in Switzerland. Once the pilot phase has been completed in September, the service will be made available to all UBS e-banking clients with security-compatible WAP mobile phones.

Private & Corporate Clients
The Private & Corporate Clients business unit achieved a record result with a net profit before tax of CHF 526 million (+78% over second quarter 1999, +7% over first quarter 2000). Operating income of CHF 1,701 million was 1% higher than for first quarter 2000. Brokerage income fell comparatively to the first quarter, reflecting a less active market environment, but improvements in asset quality helped offset this by reducing expected credit loss expense. Total operating expenses were CHF 1,175 million or 2% lower than in the first quarter as a result of a continued focus on cost management. The pre-goodwill cost/income ratio before credit-loss expense increased marginally from 61% in first quarter 2000 to 62%. Assets under management decreased by just less than 1% to CHF 439 billion due to performance effects.

Private Banking
UBS Private Banking's second quarter pre-tax profit of CHF 885 million was 19% less than its exceptionally good first-quarter performance but 15% up on second quarter 1999.
Operating income was lower at CHF 1,634 million (-11%) as a result of a drop in brokerage fees, but was 18% up on second quarter 1999.
Total operating expenses of CHF 749 million were 2% higher than in first quarter 2000. The pre-goodwill cost/income ratio increased from 39% to 45%. Assets under management decreased by CHF 15 billion to CHF 683 billion during the second quarter, reflecting performance effects, foreign-exchange movements and disappointing net new money of CHF -3 billion. Private Banking believes that its continued focus on new added-value products and services for its existing clients will help it to maintain an attractive margin and profitability relative to 1999.

UBS Switzerland is establishing an Investment Centerwhich will combine the existing investment research activities of the Private Banking and Private & Corporate Clients business units. The Center's purpose is to develop specific investment strategies and to
guide the investment process by which the two business units manage private wealth and advise their clients. Rapid progress has been made and it is anticipated that the Center will be fully operational in fourth quarter 2000.

UBS Asset Management

UBS Asset Management reported a pre-tax profit of CHF 93 million, up by 1% on second quarter 1999 but 15% lower than in first quarter 2000.

Institutional Asset Management
Institutional Asset Management's second quarter 2000 net profit before tax was CHF
59 million (-25% compared to first quarter 2000, -28% compared to second quarter 1999). Operating income and operating expenses both increased over the first quarter due to the addition of the O'Connor business. In spite of improved market performance, total assets under management fell 6% to CHF 525 billion during the quarter due to currency movements and net client losses of CHF 20 billion.

With the launch of the new business area O'Connor on 1 June, UBS Asset Management has substantially strengthened its capabilities as a world leader in alternative investment strategies. The benefits of these strategies for clients lie in the provision of attractive risk-adjusted returns with a low correlation with traditional investments.
Institutional Asset Management expects client asset losses to moderate further in coming quarters and strategic initiatives such as the launch of O'Connor and the development of new investment capabilities to mitigate the impact of client attrition on revenue.

Investment Funds/GAM
The Investment Funds/GAM business unit achieved a pre-tax profit of CHF 34 million, with growth of 13% being driven by lower expenses. Operating income fell very slightly while operating expenses were lower compared to the first quarter. Despite an increase in headcount, personnel expenses declined CHF 8 million or 12%, due to GAM costs from December recognized in the first quarter.

Assets under management fell 3% to CHF 225 billion as a result of performance effects and currency movements. Net new money was CHF 1 billion.

Investment Funds continues its progress towards a multi-channel distribution architecture, integrating traditional and electronic distribution channels. It is currently developing an e-based investment fund distribution strategy targeting individual investors through emerging, non-traditional intermediaries.

UBS Warburg

Building on the strength of its client franchise, UBS Warburg once again achieved an outstanding result, delivering a pre-tax profit of CHF 1,213 million (+177% over second quarter 1999, -8% compared with its record first-quarter 2000 result).

Corporate & Institutional Clients
The Corporate & Institutional Clients business unit had an excellent quarter, reporting a pre-tax profit of CHF 1,420 million (+181% over second quarter 1999, adjusted for the divestment made in that period, -2% compared with the record first-quarter 2000 result). Equities business was extremely strong, producing its second highest ever quarterly result. Within the Fixed Income area, Derivatives and Principal Finance had a very strong quarter. Treasury Products revenues decreased in comparison to second quarter 1999 as a result of less positive trading conditions in foreign exchange. Corporate Finance more than doubled its revenue since second quarter 1999. UBS Warburg acted as advisor in several significant global transactions, notably the announced merger of Unilever and Bestfoods to create the pre-eminent global food and consumer goods company. In equity underwriting, UBS Warburg handled the IPO of Telia in Sweden, the largest such transaction of the year to date. Personnel costs at CHF 2,601 million increased 27% over second quarter 1999 due to higher performance-related compensation.

The pre-goodwill cost/income ratio improved from 82% in second quarter 1999 to 69%, after goodwill from 83% to 70%. Market risk utilization, as measured by Value-at-Risk (VaR), decreased from CHF 277 million at the end of March to CHF 231 million at the end of June. Corporate & Institutional Clients continues to manage its loan book closely, with overall loans of CHF 64.3 billion at the end of the second quarter 2000, 16% lower than at the end of the first quarter. 2.0% of gross outstandings were classed as non-performing, down from 2.4% at the end of March.

UBS Warburg's web-based Business-to-Business solution IBOL (Investment Banking OnLine) launched at the beginning of May already has almost 22,000 registered corporate and institutional client users. Approximately USD 24 billion of primary debt was raised through DebtWeb TM (+66% compared with first quarter 2000) while more than USD 10 billion of new equity issues, including the Telia IPO, were marketed via DealKey TM.
During the quarter UBS Warburg also launched its Fx2B service for clients of E*Trade Inc., the number two online broker in the US, providing live FX pricing and execution of FX transactions for E*Trade clients through UBS Warburg's global foreign exchange network.

UBS Capital
UBS Capital, which specializes in private equity investment, recorded a pre-tax loss of CHF 43 million. Operating income decreased CHF 143 million from CHF 147 million in first quarter 2000 to CHF 4 million in the second quarter. This reflects the realized gains from sales of investments in second quarter 2000, substantially offset by write-downs of the value of under-performing companies in the portfolio. The book value of the private equity investments has grown from CHF 3.0 billion at year-end 1999 to CHF 3.4 billion at the end of March and to CHF 3.8 billion at 30 June 2000. The market value has risen from CHF 4.2 billion (at year-end 1999) to CHF 5.2 billion. This equates to unrealized gains of CHF 1.4 billion (compared to CHF 1.2 billion at year-end 1999). The value creation during the half-year to the end of June 2000, including realized gains since 31 December 1999 and the increase in the portfolio's unrealized gains, is estimated to be approximately CHF 0.4 billion.

Private Clients
Rationalization within the Private Clients business unit reduced losses significantly compared with the first quarter to CHF 69 million. Assets under management fell 6.7% to CHF 37 billion during the second quarter as a result of negative market performance and currency effects. Net new money was CHF 1 billion. The integration of the Private Clients business into UBS Warburg continued as planned. All management teams are now in place, with an integrated structure established and headcount reorganization largely completed.
The merger with PaineWebber will have a significant impact on opportunities for the existing UBS Warburg Private Clients business as it becomes integrated into PaineWebber's management structure. The ability to leverage the technology, products and marketing experience of PaineWebber should allow this business to achieve accelerated growth in the medium term.

e-services
e-services continues to build towards a progressive launch in Germany this autumn. It will be offering a wide range of products and services through multiple access points, including the internet, customer service centers and investment centers.

General and administrative expenses, including depreciaton, increased to CHF 48 million, reflecting rising launch-related costs. Personnel costs were CHF 47 million, with headcount increasing by 95 to 226 at the end of June.
e-services will be integrated into the PaineWebber management structure on completion of the merger and can expect to benefit from PaineWebber's proven skills in the deployment of multi-channel services to affluent individuals.Building on the strength of its client franchise, UBS Warburg once again achieved an outstanding result, delivering a pre-tax profit of CHF 1,213 million (+177% over second quarter 1999, -8% compared with its record first-quarter 2000 result).

Corporate & Institutional Clients
The Corporate & Institutional Clients business unit had an excellent quarter, reporting a pre-tax profit of CHF 1,420 million (+181% over second quarter 1999, adjusted for the divestment made in that period, -2% compared with the record first-quarter 2000 result). Equities business was extremely strong, producing its second highest ever quarterly result. Within the Fixed Income area, Derivatives and Principal Finance had a very strong quarter. Treasury Products revenues decreased in comparison to second quarter 1999 as a result of less positive trading conditions in foreign exchange. Corporate Finance more than doubled its revenue since second quarter 1999. UBS Warburg acted as advisor in several significant global transactions, notably the announced merger of Unilever and Bestfoods to create the pre-eminent global food and consumer goods company. In equity underwriting, UBS Warburg handled the IPO of Telia in Sweden, the largest such transaction of the year to date. Personnel costs at CHF 2,601 million increased 27% over second quarter 1999 due to higher performance-related compensation.

The pre-goodwill cost/income ratio improved from 82% in second quarter 1999 to 69%, after goodwill from 83% to 70%. Market risk utilization, as measured by Value-at-Risk (VaR), decreased from CHF 277 million at the end of March to CHF 231 million at the end of June. Corporate & Institutional Clients continues to manage its loan book closely, with overall loans of CHF 64.3 billion at the end of the second quarter 2000, 16% lower than at the end of the first quarter. 2.0% of gross outstandings were classed as non-performing, down from 2.4% at the end of March.

UBS Warburg's web-based Business-to-Business solution IBOL (Investment Banking OnLine) launched at the beginning of May already has almost 22,000 registered corporate and institutional client users. Approximately USD 24 billion of primary debt was raised through DebtWeb TM (+66% compared with first quarter 2000) while more than USD 10 billion of new equity issues, including the Telia IPO, were marketed via DealKey TM.
During the quarter UBS Warburg also launched its Fx2B service for clients of E*Trade Inc., the number two online broker in the US, providing live FX pricing and execution of FX transactions for E*Trade clients through UBS Warburg's global foreign exchange network.

UBS Capital
UBS Capital, which specializes in private equity investment, recorded a pre-tax loss of CHF 43 million. Operating income decreased CHF 143 million from CHF 147 million in first quarter 2000 to CHF 4 million in the second quarter. This reflects the realized gains from sales of investments in second quarter 2000, substantially offset by write-downs of the value of under-performing companies in the portfolio. The book value of the private equity investments has grown from CHF 3.0 billion at year-end 1999 to CHF 3.4 billion at the end of March and to CHF 3.8 billion at 30 June 2000. The market value has risen from CHF 4.2 billion (at year-end 1999) to CHF 5.2 billion. This equates to unrealized gains of CHF 1.4 billion (compared to CHF 1.2 billion at year-end 1999). The value creation during the half-year to the end of June 2000, including realized gains since 31 December 1999 and the increase in the portfolio's unrealized gains, is estimated to be approximately CHF 0.4 billion.

Private Clients
Rationalization within the Private Clients business unit reduced losses significantly compared with the first quarter to CHF 69 million. Assets under management fell 6.7% to CHF 37 billion during the second quarter as a result of negative market performance and currency effects. Net new money was CHF 1 billion. The integration of the Private Clients business into UBS Warburg continued as planned. All management teams are now in place, with an integrated structure established and headcount reorganization largely completed.
The merger with PaineWebber will have a significant impact on opportunities for the existing UBS Warburg Private Clients business as it becomes integrated into PaineWebber's management structure. The ability to leverage the technology, products and marketing experience of PaineWebber should allow this business to achieve accelerated growth in the medium term.

e-services
e-services continues to build towards a progressive launch in Germany this autumn. It will be offering a wide range of products and services through multiple access points, including the internet, customer service centers and investment centers.

General and administrative expenses, including depreciaton, increased to CHF 48 million, reflecting rising launch-related costs. Personnel costs were CHF 47 million, with headcount increasing by 95 to 226 at the end of June.
e-services will be integrated into the PaineWebber management structure on completion of the merger and can expect to benefit from PaineWebber's proven skills in the deployment of multi-channel services to affluent individuals.

UBS Group Financial Highlights

Total operating income increased to CHF 9,200 million. Adjusted for divestments, this represents growth of 40% over second quarter 1999.

Net interest income after credit loss expense rose to CHF 2,237 million (+62% over second quarter 1999). This was mainly the result of higher trading volumes and increased income from the repo and securities lending businesses. The continued improvement in the Swiss economy enabled the Bank to realize a write-back of CHF 208 million in credit loss expenses. This was in contrast to credit loss expense of CHF 125 million for first quarter 2000 and CHF 325 million for second quarter 1999. The global economy also remained buoyant, positively influencing the quality of the overall loan portfolio. At the end of June 2000, the Bank had CHF 12.1 billion in non-performing loans, down from CHF 12.7 billion at the end of March.

Net fee and commission income was CHF 3,756 million, up 16% over second quarter 1999. With volumes in the main markets higher than a year ago, brokerage fees continued to perform strongly and were substantially higher compared to second quarter 1999. Underwriting and corporate finance fees had their best ever quarter, supported mainly by strong performance in mergers & acquisitions. Higher investment fund fees compared to second quarter 1999 were mainly the result of growth in assets under management and the inclusion of GAM.

Net trading income was CHF 2,691 million (+27% over second quarter 1999). This growth was mainly driven by higher equity revenues although these fell back somewhat from their exceptional first-quarter level.

Income from disposal of associates and subsidiaries increased CHF 19 million from first quarter 2000 to CHF 21 million, principally due to the pre-tax gain on the sale of the stake in National Versicherung. The second quarter 1999 result of CHF 1,507 million contained a pre-tax gain of CHF 1,490 million from the sale of a shareholding in Swiss Life/Rentenanstalt.

Other income decreased 16% from second quarter 1999 to CHF 287 million. The second-quarter 1999 result included the pre-tax gain of CHF 200 million from the sale of the international Global Trade Finance business.

Total operating expenses were just 2% higher than for first quarter 2000 but increased 25% over second quarter 1999 year to CHF 6,548 million. This principally reflects higher performance-related compensation in connection with the good results. Personnel expenses were CHF 4354 million, 24% higher than in second quarter 1999. Headcount within the Group fell by 413 during the quarter to 47,744, mainly due to merger-related job reductions in the Private & Corporate Clients business unit.

Status of the restructuring provision


Of the CHF 7,300 million merger-related restructuring provision, a total of CHF 6,062 million has been used since the beginning of 1998. CHF 73 million of this amount was drawn in second quarter 2000 primarily to cover severance costs and costs relating to premises. Whilst the rate of use of the provision has slowed in the last two quarters, it is anticipated to increase later this year. The provision is expected to be completely utilized by the end of 2002, as originally planned.

Zurich/Basel, 22 August 2000

UBS

Cautionary statement regarding forward-looking statements:
This press release contains statements that constitute "forward-looking statements", including, without limitation, statements relating to: (1) the implementation of strategic initiatives, (2) the development of revenues overall and within specific business areas, (3) the development of operating expenses, particularly personnel expenses, (4) the anticipated level of capital expenditures, (5) the expected impact of the risks that affect our business, including the risk of loss resulting from the default of an obligor or counterparty, (6) expected credit losses based upon our credit review and (7) 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, and (5) changes in the financial position or credit worthiness of our customers, obligors and counterparties.

Information concerning proxy materials:
This communication is not a solicitation of a proxy from any security holder of Paine Webber Group, Inc. UBS and PaineWebber will be filing with the Securities and Exchange Commission a proxy statement/prospectus to be mailed to PaineWebber security holders and other relevant documents concerning the planned merger of PaineWebbeer into a subsidiary of UBS. WE URGE INVESTORS IN PAINEWEBBER TO READ THE PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Investors will be able to obtain the documents free of charge at the SEC's website, www.sec.gov. In addition, documents filed with the SEC by UBS will be available free of charge from Investor Relations, UBS, Stockerstrasse 64, Zurich. Documents filed with the SEC by PaineWebber will be available free of charge from Geraldine Banyai, Assistant Secretary, 1285 Ave of the Americas, New York, New York 10019.

PaineWebber and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the security holders of PaineWebber in favor of the merger. The directors and executive officers of PaineWebber include the following: D. B. Marron; M. Alexander; S. P. Baum; E. G. Bewkes, Jr.; R. Braun; R. A. Dolan; F. P. Doyle; J. T. Fadden; J. J. Grano, Jr.; J. W. Kinnear; R. N. Kiyono; T. A. Levine; R. M. Loeffler; E. Randall, III; H. Rossovsky; K. Sekiguchi; R. H. Silver; M. B. Sutton; and J. R. Torell III. Collectively, as of February 4, 2000, the directors and executive officers of PaineWebber may be deemed to beneficially own approximately 4.8% of the outstanding shares of PaineWebber common stock. Security holders of PaineWebber may obtain additional information regarding the interests of such participants by reading the proxy statement/prospectus when it becomes available.