ab Annual Review 2003 Contents 02 Letter to Shareholders 05 Financial Highlights 06 The Year in Review 08 UBS – Our Credentials 16 Wealth Management Worldwide Business Banking in Switzerland 26 Global Asset Management 30 Investment Bank 36 Wealth Management in the US 41 2003 Financials 42 Corporate Governance 46 Financial Results in 2003 54 Business Group Results in 2003 57 Sources of Information about UBS 58 Contacts Dear Shareholders We could not have anticipated that 2003 would turn share growth of 44% represent first-class shareholder out to be so positive for the financial services industry. returns. Our businesses closely traced the strong It was also an excellent year for UBS – the second recovery in financial markets, gaining market share most profitable in our history and one in which we in the process. In addition, our results reflected a made significant strategic progress and important significant improvement in the performance of our competitive gains. private equity portfolio. Overall expenses remain under tight control across Our net profit for the year was CHF 6,385 million, UBS, with cost reductions in practically all categories. up from CHF 3,535 million in 2002 – and only 18% The cost / income ratio fell again and reached its lowest lower than the record result we achieved in the booming level since PaineWebber became part of UBS. Our plan markets of 2000. When conditions were difficult at to integrate IT infrastructure across UBS is the latest the outset of the year, our results were resilient. As the signal of our commitment to run this firm with maxi- year progressed, investor sentiment turned increasingly mum efficiency. Growth and efficiency improvements positive and activity levels picked up along with stock are different sides of the same coin. It is a company’s market valuations. Helped by this improving environ- responsibility to permanently rid itself of inefficient ment, we fully captured the resulting revenue opportu- structures in order to pre-empt the necessity of more nities. painful measures later as a result of market pressure. Results in both 2002 and 2003 were influenced by Large, international companies facing global competi- items we call significant financial events – items that tion will continue to grow in some areas of their indicate neither future performance nor our underlying business while continuing to strip out costs in others. operational result. In 2002, we realized total net gains of CHF 185 million from the sale of non-core The strength of our brand is an important contrib- businesses. At the end of that year, our decision to uting factor to our success. On 9 June 2003, we adopt a single brand required us to write down the adopted the single UBS brand for all our major busi- CHF 953 million net value of the PaineWebber brand. nesses around the world. This successful implemen- In 2003, we realized a net gain of CHF 2 million from tation, supported by wide-ranging internal communi- the sale of our US clearing business. Excluding these cations and a global advertising campaign, publicly effects, and before goodwill amortization, net profit illustrated the “one firm” philosophy that is integral increased 33% in 2003 from 2002. On the same basis, to UBS. A brand is not only a name or a logo. It return on equity of 20.9% and basic earnings per should represent how a company defines itself. For our clients, UBS stands for the relentless pursuit of their success, giving them access to the advice and resources of a global powerhouse. In the rest of this year’s Annual Review, we show you how our employees bring our brand values to life in their daily work – how they take the time to listen and understand our clients’ needs, helping them to feel confident that they have made the right financial decision with us at their side. A brand is the deciding factor when convincing new clients to use our services, making our brand strategy an important cornerstone in our drive to grow organically. 2 Letter to Shareholders In the US – where the change has been the most signifi- Because our business is set for growth, we see revenue cant – we have already raised the familiarity of our opportunities increasing along with market and brand. This year, we are continuing our major drive to investor sentiment. We therefore expect a gradual build a strong and positive image around the world. rise in our levels of market and credit risk – although we will maintain our risk culture that has protected Our future is one of growth. We will keep expanding our earnings throughout the business cycle. our business by growing organically. Our Investment Bank is firmly positioned in the top bracket of the Increasing our dividend by 30% demonstrates industry. Its equities business with institutional clients the confidence we have in the long-term sustainability continues to stretch its lead as the number one player of our performance. The Board of Directors will globally, while its fixed income business results are on recommend a dividend of CHF 2.60 per share to the par with the leaders in the industry. We ended the year Annual General Meeting on 15 April 2004, compared as the fourth-ranked investment bank worldwide for to CHF 2.00 paid out last year. advisory fees as well as share and bond underwriting, We continue to regard the efficient use of our capital up from seventh place in 2002. resources as an important discipline. UBS has managed In January this year, we were named the “Best Global to generate consistently strong cash flows over the Private Bank” by Euromoney, confirming our success past few years, exceeding the capital requirements of in serving our clients across Europe, Asia Pacific our business activities. While maintaining our strong and the US. Awards are gratifying recognition, but for capitalization, we have distributed this “excess capital”, us the most important endorsement of our business either by making direct distributions or by buying is the trust of our clients. And that was shown by the back shares for cancellation and making each share CHF 50.8 billion in new assets that wealth manage- more valuable as a result. This reflects the fact that ment clients placed with us last year. you, our shareholders, have different preferences for Although we are already the clear market leader in receiving these returns: some prefer cash dividends, Switzerland, we continue to look for growth opportuni- some prefer share buybacks. By pursuing both avenues, ties in the Swiss retail business. Last year, for instance, a we aim to attract and retain the widest, most diverse dedicated campaign specifically tailored to capture new and global shareholder base. In total, we have distrib- residential mortgage business in a low interest rate envi- uted CHF 25.5 billion to shareholders since the start ronment helped us cement our number one position. of 2000, representing an average total yield of approxi- We have also boosted our organic growth strategy mately 7% per annum. with bolt-on acquisitions that quickly and efficiently expand the presence of our core businesses. In Euro- Having successfully navigated the turbulent down- pean wealth management, for example, we acquired markets of the last few years with no unpredictable the French business of Lloyds TSB and the German changes in our profitability, our strategy, or our wealth management business of Merrill Lynch last staffing levels, we now enter what seem likely to be year. Early this year in the UK, we agreed to acquire calmer waters with, we believe, the full confidence the advisory firms Laing & Cruickshank and Scott of our clients, our employees, and you, our share- Goodman Harris, launching us into the top tier of holders. Our businesses are all performing extremely wealth managers in the UK. In the US, we acquired well. And while, of course, we cannot predict with ABN Amro’s prime brokerage business, immediately certainty whether markets will continue in their expanding our Investment Bank’s services to hedge friendly mood, we are committed to again securing fund clients. for our investors the best possible returns in 2004. Marcel Ospel Peter Wuffli Chairman Chief Executive Officer 17 March 2004 3 Register Earning someone’s confidence is difficult. It involves listening – For this year’s Annual Review, we have chosen pictorial themes building trust. Being fair, evenhanded, objective. Showing you that illustrate people working together, building the trust need- are interested. For their sake – not yours. At UBS, it is our job ed to reach for something unique. Architects and planners to give our clients confidence in the financial decisions they helping a couple build a dream. Designers and tailors painstak- make. For us, that means listening to them. As individuals. Tak- ingly creating a special dress. Craftsmen faithfully restoring a ing a thorough look at what they want and how they want to vintage yacht to its former splendor. We believe the stories achieve it. They need to know that we can commit the neces- reflect what we at UBS strive to do every day – around the sary resources – using our strength and reputation – for them. world. 4 UBS share performance The year 2003 Since 2001 UBS registered share DJ Stoxx Banks Europe Index 1.1.2003–31.12.2003 UBS registered share DJ Stoxx Banks Europe Index 1.1.2001–31.12.2003 130% 120% 110% 120% 100% 110% 90% 100% 80% 90% 70% 80% 60% 70% 50% January February March April May June July August September October November December 3.2001 6.2001 9.2001 12.2001 3.2002 6.2002 9.2002 12.2002 3.2003 6.2003