Caroline Stewart - Head, IR Oswald Grübel - CEO John Cryan - CFO

Jon Peace - Nomura Kian Abouhossein - JPMorgan Huw van Steenis - Morgan Stanley Fiona Swaffield - Execution Jernej Omahen - Goldman Sachs Kinner Lakhani - Citi Derek De Vries - Bank of America/Merill Lynch Teresa Nielsen - Vontobel Torsten Riecke - Germany’s Business Daily Handelsblatt

Good morning everyone and welcome to our second quarter results presentation. My name is Caroline Stewart and I'm the Head of Investor Relations here at UBS.

This morning our CEO, Ossie Grübel will present the highlights of the second quarter results and then John Cryan, our Chief Financial Officer will present the results to you in detail. After that, we would be very happy to take your questions and this morning we are going to take questions first from the telephone and then from the audience here in the room in Zurich.

After that we will have a short break, and we’ll resume for another session in German. Before handing over to Ossie, I’d like to draw your attention to this slide which contains our cautionary statement with regards to forward-looking statements and I’d ask you to read it in detail.

With that I’d like to hand over to Ossie.

Thank you, Caroline. Good morning ladies and gentlemen.

I know there are few here, but most of you are probably on the phone or on the internet. Because it’s a busy day, we are not the only bank publishing today, but we are very happy in showing you our second quarter.

And we think our employees did a very good job actually in the second quarter. Actually so good, that most of the analysts already asked if the results are mainly due to proprietary trading.

There I unfortunately have to disappoint you because we are not as good as that yet in proprietary trading. But if we look back in the first-half of this year, we had a pretax profit of $5.4 billion and revenues of $18.2 billion which is a major improvement and as we told you in the last couple of quarters, we are moving ahead with our plan and are on track actually to continue to improve the results of the banks in the future.

Now most of you keep asking also about net new assets clearly because that is still one of the weak points because we are not yet growing net new assets, we had some asset outflow as well. But much smaller and at least coming down to numbers which are smaller surrounding you can say in our case.

We need to tell you before that we believe that during the course of this year we hope and are pretty confident that we can stop any asset outflow, but also the asset reduction had something to do clearly with the resizing of our wealth management and of certain operations in there and also with our US situation as you know. And in the last quarter, one of the more important decisions in our favor happened in Berlin where the Swiss and the US government agreed on the agreement or ratified the agreements they made before and that should lead to the final settlement for us by the latest we think October this year in the US case.

And then we are happy if that finally is finished because then we can concentrate more again on our normal business. But back to the last quarter, the last quarter was quite remarkable and eventful scenario.

Not too long ago, everybody was forecasting the imminent demise of the euro. As usual, since then the euro has improved and in state of one-to-one dollar at once early this morning and probably most likely will go on improving during the course of the year I think.

Now where did we make our money and in that turbulent time we had especially made, it was actually in the flow business as we told you and as we said before, we want to increase our flow business and there we would use the best results in cash equity trading, in foreign exchange trading and so, not unfortunately in proprietary trading, we still have to work on that one. But therefore, we think the results, especially in comparison and relative to our peers, they look reasonably good and I think we are very happy about it.

In the investment banking, we made good progress across all our strategic initiatives and the rebuilding of our fixed income is nearly completed and the focus is now on execution and how can we increase revenue and client business. One strong focus remaining is the emerging markets.

You might have read that we are reentering Brazil and we bought small companies there mainly to get the licenses and now surely you’ve questions on why did we sell our Brazil operation in the first place, but I think we answered that question already last year. It was a time where we had asset priorities and had to act quickly and we also said that’s the time that we are not very happy about set transaction.

We do believe that emerging markets especially for our global business and focus where we will generate substantial revenues in the coming years. We also aligned our security business across equities and fixed income research and in prime services and what is altogether gratifying, it looks like we gained market share in equity in the second, third quarter.

In Wealth Management Americas, we are delivering on our strategies there. We improved profitability and are slowing FA attrition, but the focus there is really on maintaining and building a high quality financial advisor population and which is where we want to differentiate us from our competition.

In Wealth Management in Swiss banking, so we were in the last 12 months really occupied with improving substantially our compliance all around and resizing certain businesses as we said before. It looks like the numbers of client advisors have bottomed out in mid year and has potential to gradually grow again.

We did tell you long time ago that we do want to improve the profitability of our private banking and we have done that gradually. Now we are back to 95 basis points we said at the time.

We want to go at least to a 100 basis points and I think I see that more as a minimum and what we have to have and eventually we should be there above a 100 basis points. There is always, trade-off is probably is a wrong word, but you have to decide on how you would want your company and you have to get new assets for gross, but also have to manage these assets very well.

You have to deliver a good service to your clients and when you deliver a good service to your clients, then clearly your margin is improving. And so we have to balance these initiatives in two directions continuously and we have to do a lot of catch up to do actually in serving our clients better, in managing the assets of our clients better and therefore also with time increasing profitability.

What we also will do and we announced that we made some additional investments here in Switzerland mainly in our branch network and we give you the new code of [that] and a CHF 100 million or so to make it look smarter and to making people feel or make them aware whenever they walk in that, that is actually UBS, the biggest bank in Switzerland in case they have forgotten. In Global Asset Management, we had solid investment performance and that is continuing and has attracted as we’ll hear later from John some good third party client flows.

And that actually is a measurement on how well you are doing, so if you get third party money in substantial amounts as happened in the second quarter here finally. Then otherwise, it is for the time being relatively quiet on the regulatory front after a lot of discussions internationally on where to go and how to cooperate.

One thing is for sure we all will have more capital in the future, but one thing is also for sure I think that there is very little international cooperation. And from my point of view, I must say that I do think that we will go into the [era] of regulatory arbitrage coming up in the next few years.

Our world will be changing, but we are not afraid of change. On the contrary, we like change because change gives the opportunities and it is impossible to say at the moment how it will be changing, but I think it will be changing substantially.

And we’re looking forward to it because of the opportunities. Now John, you are ready for the numbers?

It’s my pleasure to take you through the details of our results for the second quarter of 2010. Here are the highlights of our financial performance.

We made a pretax profit of CHF 2.6 billion. This equates to a net profit attributable to our shareholders of just over CHF 2 billion equivalent to diluted earnings per share of CHF 0.52.

We further strengthened our capital base and reported Tier 1 ratio of 16.4% and the core Tier 1 ratio of 13%. Our annualized return on equity year-to-date has been 19.5%.

That’s at the top end of the range of the medium-term targets we set last year. So as we said, the net new money picture improved across all our asset gathering divisions.

In wealth management, we still have somewhat to do to turn the flows net positive across the board. Investment bank generated a good return on risk with revenues of CHF 4.1 billion and a pretax profit of CHF 1.3 billion.

Our equities and FX business recorded revenues higher than those in the first quarter with equities performing particularly well and increasing its market share. This slide shows the principal quarter-on-quarter changes and our net profit attributable to our shareholders.

The widening of our credit spreads over the quarter [JPY 10] credit losses in Q1 into gains of 595 million in the second quarter. In Q1, we reported credit loss recoveries, this quarter we recorded an expense of CHF 48 million.

Operating income, excluding own credit gains and credit losses fell quarter-on-quarter around CHF 0.5 billion. Principally as a consequence of the market turbulence, and the fall-off in client activity in the second half of the quarter.

Our expense base rose in the quarter, largely driven by the UK bank payroll tax and the restructuring charge we flagged, we were taking wealth management Americas. I’ll cover the income tax effects on the next slide.

This is our usual slide on the overall divisional performance. All of our divisions made a positive contribution on an operating basis.

At wealth management Americas, we took a restructuring charge of 146 million, mostly related to real estate rationalization in relation to that division’s strategy implementation. Excluding the charge profitable tax there improved to 79 million.

The group tax charge is 311 million, represents an effective tax rate of about 12%, and amortized our Swiss deferred tax assets, in an amount of 464 million. Against taxable profits arising in Switzerland of just short of CHF 2.3 billion, I iterated just over 20%.

Current tax payable, amounted to around 89 million, in line with the 100 million or so as we said we pay each quarter and so that is mainly in A-Pac region. These expenses were offset by an increase in deferred taxes for prior year losses.

Finally, we charged our net income line with CHF 296 million for dividends on our non-owner equity, distributions made on a hybrid tier 1 instruments. This slide demonstrates briefly the progress we’ve made over the past few quarters to return to profitability.

Last November, we set ourselves the target of making 15 billion of pretax profit per annum in the medium term, this equates to a quarterly run rate approximately CHF 1 billion higher, than the run rate we have achieved so far this year. Our fixed cost base, remains in line with the annual target of CHF 20 billion that we set ourselves for this year.

When we set that target, we excluded our normal variable compensation, but included direct financial advisor compensation in our retail brokerage in the USA. In our divisional report on Wealth Management Americas, we have for the first time separately itemized, compensation between good based compensation, the cost of advertising, employee forgivable loans and other recruitment costs and other personnel costs.

So far this year we have paid over CHF 1 billion of financial adviser variable compensation included in our definition of fixed costs. Also, included in other personnel expenses in our report is the charge for the UK bank payroll tax of 242 million.

The restructuring charge of 146 million of Wealth Management Americas was partly offset by a release of 25 million and provisions taken last year by the investment bank, against redundancy costs, which are now no longer required. We lowered the accrual for variable compensation quarter-over-quarter on lower operating revenues.

Now moving on to the divisions. Wealth Management’s and Swiss Bank’s revenues were broadly flat on the first quarter result.

A small improvement showed through in the net interest income line, but the underlying picture there remains challenging as the Swiss Franc yield curve in particular, remains low and flat. In Wealth Management, we noticed a change in our clients overall risk appetite with the trend to greater risk aversion as the quarter progressed.

This manifested itself in lower revenues from client activity, and a marginal shift in to less risky asset classes. The cost income ratio rose slightly on higher personnel costs, but this was mostly attributable to the impact of the UK bank payroll tax.

The gross margin in Wealth Management was two basis points higher than during the first quarter at 95 basis points per annum. And you recall our medium term target is to raise this to over 100 basis points.

The increase was partly technical given that the balance of invested assets fell in the quarter predominantly because of adverse market moves and Forex moves. You will recall that we by and large charged fees on the quarterly opening balance of invested assets, so this will apply technical pressure to the third quarter margin, if the markets in the Swiss Franc recover.

Having said that, we continue to improve pricing discipline and we saw higher levels of Lombard lending. Our mandate penetration slipped slightly over the quarter, as we continue to see attrition in our offshore business, where discretionary mandates are more prevalent.

After the flash crash in early May, we noticed a fall-off in client activity levels that impacted our brokerage fee levels. Overall net new money flows were obviously disappointing, though we continue to see positive contributions from Asia and from our ultra high net worth segment.

The bulk of attrition, continue to be in the cross border segment. The effect of advisor attrition on invested assets in Q2 was more [muted] benefit than in recent quarters.

The impact of our hiring and training initiatives for client advisors should be felt in the second half of the year, when we expect to show some increase in client advisor numbers. The retailing corporate segment turned in a steady performance in the second quarter.

Business volumes were marginally up, as were revenues. Despite continuing pressure on interest margins from the flat yield curve in Swiss francs.

The segment continued its excellent credit track record with minimal credit losses recorded in the quarter. [Joules] was slightly positive, generating a creditable cost to income ratio of just over 52%.

The driving factor in the steady performance of the retail and corporate segment is the quality of its credit post. Only 11% of its credit assets are unsecured.

The vast majority of its lending operations are in the mortgage segment. We continue to monitor performance to these markets in Switzerland.

There are emerging concerns about house price inflation in certain regions especially around the lakes of Geneva and Zurich, and we’ll monitor this development carefully. But the performance of R&C’s loan books on the whole remains highly satisfactory.

Revenues in wealth management Americas grew by 9% on the first quarter, while recurring income was up 12% on higher managed account fees and increased non-proprietary mutual fund fees. Net interest income, also improved as a consequence of changes we made to the investment portfolio in the Utah bank.

Recurring income, also increased as a proportion of total revenues and non-recurring income increased by 5% on higher transaction and brokerage fees. The gross margin increased by 6 basis points to 84 basis points per annum.

I said early we recognized the second installment of the overall charge for personal related restructuring, which is now largely complete. After having charged 21 million in Q1, we took a further 19 million charge in the second quarter.

We also expensed a 127 million in the quarter as the cost of our real estate, we had rationalization program. Also mentioned earlier for the first time this quarter we have broken down the personnel expenses for this division, so you can see the grid based compensation that is driven by financial advisor productivity.

I have also disclosed the balance of our forgivable loans and promissory notes and the rate of quarterly amortization of the balance. Financial advisor numbers decreased by 2% in the quarter, as voluntary departures were not completely offset by financial advisor recruitment.

Net new money outflow decreased to 2.6 billion from 7.2 billion in the prior quarter. The second quarter in succession we recorded positive same stone net new money.

In other words, our net outflows were driven by net advisor iteration. None of the convention used by the US pier group where interest in dividend income were included in net new money.

The division recorded positive net new money of over CHF 2 billion. In the quarterly report, we have reiterated the medium term targets management announced in May.

Revenues in global asset management were broadly flat on Q1 despite a significant decline in performance fees in A&Q. Expenses grew by 5% in part driven by a true-up related to compensation awarded in prior periods.

In the second quarter, we saw positive net new money of CHF 3.4 billion compared with net outflows of CHF 2.6 billion in the first quarter. Strong net inflows of almost 11 billion from third parties were party offset by 7.5 billion of outflows through our wealth management channels.

Despite the net inflows of new money invested assets fell by 21 billion to 569 billion on negative market movements and currency effects. I have included this slide as a reminder of the progress that’s recently been made in the investment bank.

The [IB] reported pretax profits of 1.3 billion in the second quarter. Increased revenues in equities and gains from own credit were partially offset by lower revenues in FICC and investment banking.

Net credit loss expense was 39 million, compared to the net recovery of a 112 million in the first quarter. Expenses were impacted by a 228 million charge for the UK bank payroll tax.

This was party offset by the release of restructuring provisions and lower accruals for variable compensation on weaker operating revenues. Equities had a good quarter with revenues up 9% overall and market share improved.

Commission income line held up in cash sales and trading despite volatile markets, derivatives and equity linked revenues were marginally up on Q1, despite lower trading volumes and FINMA liquidity, partly is a result of effective risk management. Prime brokerage so revenues lift on strong activity in the securities lending and total return stock markets, then exchange traded derivatives, we also saw increased activity levels.

The run rate of revenues in FICC as a whole fell after the onset of the euro zone debt crises and its attendant economic concerns in May. In credit, revenues of 464 million compared with 744 million in Q1.

We saw marked drop-off inflow volumes in all regions, but especially in the USA. Where liquidity suffered as the high yield market re-priced.

Structured credit posted solid results, as we executed a number of client driven restructuring transactions. In Marco, Forex revenues rose strongly on wider margins driven by high levels of volatility.

Our interest rate business however, had a relatively weak quarter on very low volumes as clients avoided risk taking. Emerging markets was also marked by wide spread risk aversion on the part of clients and revenues there felled to only 73 million, as all regions were negatively affected.

Other FICC revenues were 502 million, 280 million of which comprise positive DVAs and the remainder largely represented the net gain on exiting and risk managing our residual risk positions. Revenues in IBD and global capital markets were disappointing.

Advisory revenues were down 26% on the previous quarter. And equity capital markets, we held our market share, but saw revenues fall 21% quarter-on-quarter.

In debt capital markets, we saw a great reduction in revenues, reflecting FIN markets, but also our relatively weak presence in the global high yield markets. Overall in Q2, we conducted ourselves very cautiously in the markets.

Our average value at risk was down 8% and the first quarter is already at low levels. Our trading businesses operated well within their risk limits.

And risk weighted assets fell by further CHF4 billion. We made good progress in exiting our residual risk positions.

We completed several trade commutations with a credit impaired bond insurer. As a consequence, our remaining exposure to the monoline insurance sector, at the end of quarter was US $1.7 billion and the exposure to it in connection with negative bases trades on US sub-prime RMBS CDOs is now less than $200 million.

In the quarter we reduced our exposure to student loan auction rate certificates by approximately $5 billion through redemptions, resale’s and amortization. This continues to be an area of focus as the overall motional exposure to this asset class remains in excess of $12 billion.

Also in the quarter, we exited one of our residual, impaired leverage acquisition financings at no incremental costs to the firm, helping to achieve a 17% reduction in our impaired lending portfolio and I should reiterate for those of you who've missed it, that our net sovereign exposures to Greece to Ireland, Italy, Portugal, and Spain are insignificant both individually and in the aggregate. Our capital ratio has improved in the quarter, but we still have some way to go to achieve our desired level of capitalization and to meet future regulatory requirements.

Our tier 1 capital ratio was 16.4% at the end of June. This was after taking a reserve of CHF 1 billion out of tier 1 capital as a redemption reserve.

And we will seek regulatory approval to call $1.5 billion hybrid tier 1 instrument on it first call date on the first of October this year. With permission we would then intend to redeem it.

Our tier 1 capital ratio, 16.4% is therefore struck on the effective basis that CHF 1 billion frank of the issue has already been redeemed. Our core tier 1 ratio which has been impacted by the reserve but is not impacted by the planned redemption of the hybrid issue was 13% at the of June.

We continue to seek to improve our net stable funding position. Our liabilities remain well diversified.

Our deposits fund 43% of our balance sheet excluding our derivatives liabilities and our loan to deposit ratio remains at a healthy 72%. With the EUR 1.75 billion issue of notes earlier this month we’ve come close to meeting our replacement funding requirement for the year.

In addition to our access to the public bond markets we continue to enjoy good access to medium and long-term funds or our medium-term note program, Swiss Pfandbriefe, and Kassenobligationen. Our aim is to extend further than the maturity profile of our liabilities opportunistically through further debt issuance.

And with that we now have some time to take your questions. Thank you.

Okay, we will take questions from the phone first. Can we have the first question please?

Firstly, the perfect performance in equities, and I just wondered if you could break it down a little bit for as, why do you think you did so well in that business and what was a pretty tough quarter for almost all your competitors? And the second question is on the balance sheet.

Quite noticeable but you now have a stronger tier 1 and similar leverage ratio than your closest peer given some of the changes we are seeing in regulation including the slight thrusting of Basel III yesterday. Do you think we are getting any closer to a point where you might start paying dividend?

Thanks.

Let me speak briefly, before John goes into more detail there, we have to do a lot of catching up. So we had been better in the past, right John?

Yes, at a rate of confidence in division. Absolutely right the division did slip a little during the course of the crisis and this is it I think recovering.

The difference I suspect versus the results that had been reported by some of our competitors, so far, is probably in the derivatives arena. Our cash we've broken down as you know in the report some of our revenues, the cash business I think was relatively flat quarter-on-quarter.

The derivatives business was also essentially flat, as up a little bit. But we went into the quarter relatively well risk managed.

We didn't have particularly long or short positions in relation to volatility, and that probably differentiates us against some of our competitors. We were not convinced that the markets were going to remain as positive as they had been through the first quarter and into April.

So I think we probably just anticipated that spike in volatility that happened after the flash crash. And that essentially I think is the differentiating factor.

But as Ossie said there's still some way to go to recover the levels of revenues that we were enjoying pre-crisis which were CHF 1 billion higher per quarter. On the capital ratios I think we still adhere to what we said last November at the Investor Day.

There was a significant announcement last night as you may know from the supervisors. Where they've clarified the number of the rules for Basel III, and it's very early day it's difficult to work out what they mean in the context of reading it over the breakfast table this morning.

But it looks as though there's been some relaxation both in the intensity of the regulation that will be applied but also on the timing of the implementation and essentially most of the concessions that have been made would be generally positive for us. The biggest issue for me at least was the CVA and not to get too technical but that was quite a stringent calculation method for CVA including a five times multiplier.

The multiplier’s been eliminated and there have been a number of concessions which are not detailed on the calculations. So it maybe that the pressure on the capital under Basel III will be relaxed a little.

However, we appear to capital requirements that have been placed on us, predominantly by the FINMA and they have not changed. We also have a management view on how much capital we think we need and that hasn’t changed either and so, our intention is to continue to accumulate capital through retention of earnings for sometime to come and we don’t see a point during that period in unnecessarily paying dividends, we’d rather build up the capital base, we feel the business needs and from that basis then share the profits of the company with shareholders on a cash basis.

Three quick questions, first of all, equity tier 1 of 16, can you again clarify your position on this number that we’re hearing the FINMA is requiring and how you think about any loss absorbing capital or CoCos in that in that kind of calculation? Secondly is regarding FICC revenues, it looks like your 2 billion target looks un-ambitious especially now that you give the breakdown on macro which looks still very low.

Can you discuss a little bit how you think about this number especially in light of the cost, the fixed cost that comes with this business and with this business run rate should really be on an ongoing basis compare to some of the peers. And lastly, holding structure, I don't think your holding structure yet, I read from the regulators that you have to go in that direction, I was wondering what is the impact, and do you need to incorporate somewhere else in the investment bank?

And what would be outside of this, and what would be the impact? Thanks.

Do you want me to go first? Well, on the tier 1 capital, we still think we should target a core tier 1 ratio, core tier 1 ratio of 16%.

Now, we go back to the numbers that we gave at the time of the Investor Day. We think on a conservative basis, our risk-weighted assets might rise from just over 200 billion to call it 300 billion.

The impact of Basel II and a half we still think is 50, 60 billion. And then we do allow for some expansion in our business.

But if we took as a benchmark 300 billion of risk-weighted assets, then the 16% core tier 1 ratio equates to 48 billion of core equity. And at the moment, we are at about 20 billion short of that.

Now within that, Kian you asked about loss-absorbing capital, we would expect all of the capital to be loss absorbing because we'd expect all of it to be equity. If we have a 16% minimum core tier 1 ratio imposed on us then if we're at 16, we essentially have no capital, so if we loose any we have to replace it.

And so the loss-absorbing capital, the CoCos to the extent that we could agree terms of the CoCos, would not be tier 1 capital because its in the form of senior debt I think that points some times lost on some people would be senior debt that converts into a fixed amount of capital, fixed either in amount by reference to a formula in the event of a trigger event occurring, but that wouldn't enhance the ratio at the time and we'd expected never to because we'd expect to manage the business on the basis we never got into difficulties again. So the basis of the core tier 1 ratio would equity.

Okay. Is it non-Basel III just to clarify that even if Basel III comes into place?

Not, Basel III three yet. No, because we, although there has been a very helpful announcement as I said overnight it still doesn’t have enough detail for us to be able to provide you with much certainty on the impact of it.

We will try at our next Investor Day to give you more information on that, but we may still struggle if the rules are still vague. On the question of the ambitiousness of the FICC targets, I think should hand it over the gentlemen to my left, who has some views on that.

Yes, when we announced the 2 billion target, I think most of you doubted that we have reached that. It wasn't too long ago it was during the course of last year, but that was just the interim target.

And in the meantime, I think, I said publicly to your colleagues as well that we have to have much more revenues and fixed income, bank of how size I think should be near of 4 billion instead of 2 billion. But we won't mix in next quarter and we will try to get data from quarter-to-quarter there.

But it is clearly depending on markets and we do not have a fixed target as such. We know we have to be much more active in that market, and know we have to generate much more revenues there.

And as you said, at the same time we have to keep control on the costs because they easily, especially in that business cost can be bigger than revenues.

Holding company? On the question of the holding company, putting the holding company on top of the group doesn’t actually do anything.

The question is then what we do to the Bank and whether we divide up its business along regional lines or divisional lines into separate entities. And there is an emerging body of regulation that appears to want to move banks towards a more regional view of how they manage their affairs.

And there is definitely a move towards in-cooperating branches around the world as subsidiaries and capitalizing those subsidiaries locally and funding them locally. And we will obviously have to move with that flow, we keep an open mind.

We have a team that constantly monitors these developments. There may be some profit friction in doing that because there will be some additional costs to maintaining regional treasuries, as you may know we manage a global treasury book at the moment, as we have to sub-divide UBS AG into it’s component parts, whether it’d be regionally, locally, divisionally we will note some drag on our profit.

But it’s far too early to say even broadly the direction which it will be moving now. But I think the trend is fairly clear, lots more subsidiaries separately capitalized to local regulatory standards.

Morning. Two questions.

One, you alluded to the unleveled playing field to regulation at the beginning. Just wondering if you could share more perspectives and may as a specific other jurisdictions will be delaying the incremental risk charge to 2012, understanding that the Swiss regulatory had probably still puts us to an 2011.

Any clarity you can provide there will be useful? Number two, on the Wealth Management flows obviously, continuing improvement, I was wondering if you seen any particular inflection since the US settlement and whether you continue to have a hopes for positive flows by the end of the year?

Thank you.

As we said before, as we said that over the last year that we do think that during the course of this year we will stop outflows. But as I mentioned as well in my introduction, Wealth Management, you I think the first priority should be to serve your client and to manage the assets of your client better than the competition then you automatically will get more assets.

Unfortunately, in the last few years and probably started by UBS, clearly which had a huge influence there, people in Wealth Management especially Switzerland concentrated on chasing net new assets and sometimes forgot they also have these assets properly. And so I think it became, yeah, in a way too much a measurement on how well wealth management is doing on adjust the net new net asset number.

And if you look at the Swiss banks and compare them on the net new asset gains and the profitability and it probably won't be surprised to some to see that, yes, they have net new assets gains, but the profitability is declining. So that should tell you something, which is why clearly our first priority is to manage the existing clients much better than we have done so far and increase therefore the profitability for the clients and for the bank.

On the incremental risk charge here, I think where that one may end up is that the FINMA will apply it from the beginning of next year in the management of our capital position, but I think they will conceive that for comparability purposes. We can report the standard BIS ratio excluding it for the whole of 2011, and begin to report that BIS, the publicized ratio in 2012 in line with other banks.

Hi, on the wealth management gross margin on slide nine, I think in Q1 you mentioned potential one-off you won't show whether it would continue. So the real growth is 91 to 95.

I just wondered if you could be a bit more specific on the drivers. I think you say pricing discipline was the main driver.

If you could probably quantify and before things that you talk about there. And also I think you’re talking about 100 basis points being a minimum.

How far are we along the curve in terms of increasing pricing particularly? Thanks.

Is not so much about pricing and it is really about bringing better services, bringing busy client more (inaudible) on what to do with the investments. We did give small warning on the margin, because clearly in the market where there is barely a little turnover and are inclined to take very little risk then it will be more difficult to increase some margin, but also, what we’re suffering under over all over Europe is clearly the yield curve which is getting flatter and flatter and you have seen that our interest income is popping like a rock and only reserve banks.

So that has an impact. But in general, I think how we managed on these basis points, gives you good picture of the quality of our client advisors and of the quality of our Wealth Management going forward and since we are continuously trying to improve that I am confident that over the slightly longer-term, not necessarily quarter-to-quarter, but over the longer term, we will achieve pretty soon the 100 basis points.

I have essentially two questions. The first one actually refers to what Mr.

Cryan mentioned before. Now if I quote this correctly, you said something on the lines of UBS anticipated a spike in volatility post the flash crash and hence, I guess the result of volatility trading wasn’t as negative or perhaps was even positive when compared to other investment banks.

A, did I get this right? B, does the sentence refer that there was a proposition in volatility in fall.

So essentially being long haul, because I assume that similar to other investment banks you would have gone naturally short volatility this quarter otherwise. And third whether you tell us what the result was on this trade?

And then finally, I think the second question, very unexciting question, is just on your tangible book value per share which was up I think around 10% quarter-on-quarter. So it was up by [CHF 0.8], I think earnings is 10.5, can you just please give us a very simple explanation for what the residual is?

Thanks a lot.

On the volatility position, we sent a lot of options to our client and as a consequence we’re often as many investment banks are short volatility. And you have the option to risk manage that on a run.

If you let it run then you could take the view that that’s a proposition we’ve cover it. And we thought in May that we better cover it, so we covered it.

So it wasn't the trade that was intended to make money. It was a trade that was intended to avoid the risk that we lost money if there were short volatility and the value of it went up.

So it was just good risk management. On the tangible book value per share, there is also two ways of calculating this.

If you added the own credit to the book value, then you need to look in the details of the report, but you'll see that there have been some foreign exchange and other credits to the capital base that have gone direct to capital, as shown in the statement of the movement on the equity account. And as a consequence, and you add the $2 billion of earnings, all of which of course are retained because there is no dividend accrual.

You should have seen that the book value went up. A number of shares didn't, it's still stable at $3.8 billion or so.

And so you are right, there was a sizable increment in the book value per share. But it's largely explained by the whole of the $2 billion being added and then I think it was quite a sizable number of 1.7 or, it was quite a significant number that's credited to equity directly rather than through the P&L.

1.2.

1.2, is it?

Firstly, on the investment bank market shares, I am referring to the primary business, where you added 3.6% market share. Based on the logic data, there seems to be steadily eroding actually, and I am wondering kind of is this a function of business mix or is there a time lag before it stabilizes and improves.

Maybe if you could shed some light on that? Secondly on what you consider as the implications of a potential German double-tax treaty, especially in terms of your cross broader business in Europe?

And finally question if I may actually, if you had any kind of updated views on whether there was any scope to realize value on the late gains potentially in the (inaudible) Fund.

The first one I think you are alluding to slide 20?

Correct.

What I would advise there it's difficult to draw a trend from two quarters, where the volume measured by deal size of transactions particularly in the M&A market was very, very low and if you compare our share in Q1 versus Q2 all you end up doing is concluding that in Q2 there are a couple of very large deals and we happened to be involved in them to some extent, but we are on the losing side, whereas in Q1 we were involved in a couple of big deals and got to on the wining side.

I was actually comparing back to '07-'08-'09 as well. I am just using the same de-logic data.

Yes the trend is that we have slipped a little in market share, there's no doubt about that. But I wouldn't take the delta from Q1 to Q2 as indicative of anything that's happening at the moment.

On the German double taxation, double tax treaty that is in flow and I think both sides are trying to come to conclusions there. As we mentioned, I think at our Investor Day, we are relatively little impacted in relation to our overall assets if we should have asset outflows there and on Investor Day, we set something between $35 and $50 billion in the whole of Europe which might be at risk, but we think there will be eventually some kind of agreement within Europe.

And I think it will not only be a bilateral agreements and so there have to be agreements which are accepted by the main EU states and but in which direction they are going it is too early to say and we have to wait (inaudible) something from our government in that respect. Stab Fund?

On the Stab Fund, there is no new news at all in the past quarter. We still hold to our position in that.

Our number one objective is to avoid the Swiss National Bank incurring an ultimate loss, but how that’s achieved remains to be seen.

Valuation of the option.

The valuation of the option went up marginally in the quarter. It went up by about $68 million.

You’ll find that in detail, note 11 of the accounts.

I have two questions. One, I was just tying to get my head around some of the supply-demand dynamics in the private banker market.

You sort of suggest you’ve got net higher in the second half of this year and that could have a positive contribution on net new money. I think historically you've said when you go to the onshore markets you typically look outside of the traditional private banking ranks.

When you look at hire investment bankers and then view it from outside of the bit of financial industry. I was just wondering if you're suggesting there would be a change in that dynamic, if you’re expecting net new money already, and then also it seems to me that everyone is looking to hire experienced private bankers and they we're owning only hire experienced private bankers and they get really bad private bankers.

So, where are these private bankers coming from, if you could just give us some insights there, and maybe any knock-on impacts in terms of the cost we should be forecasting as we look out the 2011. Those are a lot of questions I guess to solve under one category.

And then shifting over the investment bank, it’s a great disclosure you guys have given us for two quarters now that help us to understand the drivers of the business and equity trading and fixed income trading. But of course, it does sort of wing around a lot.

And I am just wondering in credit, obviously Q2 was a period where credit markets were basically short and you’re marking down your book everyday. We’ve seen the recovery so far in Q3.

It’s kind of normal run rate somewhere between Q1 and Q2. Could Q3 benefit from a recovery of Q2, and just maybe some insights into what your thoughts on credit markets, I guess.

In wealth management, yes you have some interesting questions there and they are not so easy to answer. Obviously as you said everybody is trying to get with the (inaudible) private bankers, and hiring good private bankers.

It’s a sign of the times at the moment and not only in wealth management that is happening, in investment banking its happing. In all divisions because after markets as we had some in the last few years, so people rediscover the real value of actually of good people and what is going on wealth management as well.

Prices for a good people are the highest ever and there are very few good people around as usual and prices are going up in all markets, it doesn’t mellow if it is in Asia or if it is in Europe or in offsea emerging markets. Now I think, on the other hand, generally wealth management has lots of room for improving operational, for using modern technology, and so some of the costs clearly will be taking care of that way and what you also do get is with better people that generally that we do get more revenues and which will clearly justify to slightly higher costs, but that is the most important point in the wealth management and operation.

John?

Just a supplemental point there, we recognized the difficulty in hiring new people which is why we referred to our training untiring initiatives and you may recall that although we’ve had a training facility in Singapore for some time, we set up a thing we call UBS University here in Switzerland part of which is role is to train up client advisors, private banking coverage offices. So essentially making our own because there are so scarce in the market.

And to just to give you some indication of the kind of size and what kind of revenues we are spending on that, so in term of university we are spending something like $100 million plus a year. So it's not just a little thing, it is something substantial.

On the IB disclosure; thank you for the feedback on the disclosure. Inevitably in equities and fixed income you are looking at sales and trading operations and they are inherently volatile and you should expect some of the revenues to rant up and down from quarter-to-quarter.

In the context of giving the forecasts for the IB's revenues in medium term, I think we said the component of the fixed income revenues that were to comprise the credit business was roundabout $500 million per quarter. So it's a little bit higher than the 464 in Q2, and the 744 in Q1 even surprised us that it was relatively high now, whether we set higher ambition levels for that business given that we now have it up and running is a different question, but when set the medium term targets, we thought something of the order of CHF 2 billion, CHF 500 million per quarter was the expected revenue take from credit.

Now we will take questions from the room here. First in English please.

Teresa Nielsen from Vontobel. I have a question regarding the gross margin in wealth management and in the first quarter you guided towards about 90 basis points which was sustainable.

Would you guide towards 95 basis points now to be sustainable or is there a part of it which is not sustainable going forward? So is there a part sustainable or non-sustainable and how do you see it going into the third quarter?

Then there is a question regarding the profitability in Asia. Do you see a large squeeze and do you believe that it will be squeezed a lot to your profitability in Wealth Management in Asia due to the increasing relationship manager costs and increasing salaries here.

And then regarding Lombard lending, I’ve seen that the Lombard lending has been increasing, has that lead to certainly through a material positive effect on your net new money in Wealth Management, has that been a large impact to your Lombard lending? Thanks.

Wealth Management margin, we can’t say that there is minimum we want to hold since we want to get to 100 basis points first and from then when we have done that, I think we would regard probably 100 basis points as more or less what we should achieve as a minimum, but first we have to get that. These margins are affected quarter-by-quarter by interest rates, by market activity and lots of other things, as well as Lombard lending very clearly.

We increased our Lombard lending a little bit, but overall our Lombard lending compare to the assets as marginal best, and we have to do much more there because it is a relatively safe business, if you have the wide installations in place and the wide operations. In Asia there is so far, we can’t see any squeeze on margin.

Yes, service went up to about but like in any other markets and good people are enjoying the highest pay ever, but they are also producing more and although in Asia we want to increase actually our margin and have done so in the last few quarters.

Thank you. Torsten Riecke with German’s Business Daily Handelsblatt.

I just wonder whether you could give us a breakdown of the outflows in the wealth management side, how much was affected by European customers for example and the second question would be about the third quarter. Could you give us an outlook on the third quarter, given you said that you expected to see Euro to rise over the course of the year.

Are you confident that the market’s come down and that we see less volatility of the next couple of months? Thank you.

We haven’t and we don’t like to breakdown in too much detail where the outflows occur, but we did say that the bulk of the net outflows is still, the problem area is till the cross board of business and it’s a predominantly booking center in Switzerland, and it’s predominantly a European business’s, into more detail we generally don’t go. So that’s the key area of focus for us still on the lending money flows.

On the outlook, it’s July and the next month is august and half of our clients are probably on holidays. So, it’s very, very difficult to gauge from current activity levels, any particular new trend.

So I think the longer term trend is an improvement which you saw Q2 and Q1 and we would expect that to continue, it will inevitably not be as even as we might like it to be, but we still are confident we will turn the picture around and half net money inflows in wealth management hopefully by the end of the year.

I think generally in the second half of the [CC], you will move off to the next few weeks and see less volatility probably, and relatively good investor climate. But also, I expect is that this year more people will go on holidays than ever.

Mr. Grübel, how do you [charter] the results and especially the credibility of this banking, the bankers’ stress test in Europe.

Are you now willing to give any credit, let's say, to a Spanish bank that has passed this test?

We cannot answer specific questions like that, but I think what this stress test did, and even if it was mentioned in several media that it was not a real stress test and it wasn't as strict as the one I had expected. But it did bring some calm into the market and since on Friday.

The results we are announced was stronger and generally I think some calm came into the market so it did help quite a bit I would say.

(Inaudible) from Bloomberg News. Mr.

Grübel, UBS seems to be turning the corner in pretty much all its businesses, what is still giving you the biggest headache right now?

Thank you very much and I think I’ll you a call when I have a headache. But I think we have done a little bit more than turning the corner and I think we turned the corner already in the fourth quarter last year and we are going now in the normal operating mode, and as you can see, because take second quarter result and compare it because obviously you have a result you have to see in comparison.

And if you compare the result, yes, I think it looks very normal and relatively good too. Our employees did a great job in the second quarter and that’s how we want to go on going forward.

And at the moment I have, I never have any sleepless nights as such, certainly not about the bank since I think I know what we are doing. Can we have the next question please?

(Inaudible) just wanted to ask you a question on the US Wealth Management business. I mean it seems to have improved, but still a very costly operation that contributes little or nothing to this sort of overall profit at the company.

So I’m just wondering, what the strategic rationale of staying in this broker-dealer business in the long term for UBS?

No, I think it will be a very profitable business going forward, and I think we have mentioned before, that we have a long term target there to a billion a year, but like it was like there was any business. So, you first have to bring it in shape and that’s what we have done in the last few months and we have, so let me find our niche where we want to operate in, this niche business.

There are bigger competitors in that market, so we made sure that we want to be in the higher segment, in the higher client segment, and I think it is becoming very clear and we signs that we are recognized there and that strategy is working out. But yes, it should be a long time and but since, it both may come, they only the joined at the end of October last year.

So, these changes are now coming slowly smooth. All along, we think it is a good business to be in even if it has a high cost base, but it is very predictable, the costs are very predictable and if you run it properly and you have to run it properly, then it can generate quite some value.

Can we now take questions in German please? In Dutch?

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