16 October 2008

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Zurich/Basel, 16 October 2008 – The Swiss National Bank and UBS announce

today a comprehensive solution to materially de-risk and reduce UBS’s balance

sheet.

Peter Kurer, Chairman of UBS said, “In these turbulent times we want to ensure

that we do everything possible to safeguard the solidity of our bank. We are

taking practical steps to eliminate legacy risks. We thank the Swiss Government

and the Swiss National Bank for their willingness to develop a commercial solution

under economic terms that will support both the stability of the Swiss financial

system and UBS. Their efforts and decisiveness to act swiftly demonstrates the

professionalism of the Swiss financial centre, to which we are deeply committed”.

Marcel Rohner, Group CEO said, “This transaction gives comfort in UBS’s future.

The extremely difficult market environment led us to accelerate our risk reduction

with a definitive move. Our aim is to protect our clients from the impact of the

crisis to the fullest extent possible and to provide our shareholders an opportunity

to renew their confidence in the bank. Our shareholders have borne the losses

from this crisis. They now have the certainty that our risks related to these

distressed assets have been substantially removed while still participating in the

recovery of these assets”.

Based on an agreement with the SNB, UBS will transfer up to USD 60 billion of

assets to a newly created fund entity. UBS will capitalize the fund with equity of

up to USD 6 billion.

The SNB will finance the fund with a loan of up to USD 54 billion, secured on the

assets of the fund. At the time it grants the loan, the SNB will take over control

and ownership of the entity by purchasing the equity for a nominal price of USD

1. The loan will be non-recourse to UBS, assuming no change of control of UBS

and will be priced at LIBOR plus 250 basis points. It will mature in eight years, but

the maturity may be extended to 10 or 12 years.

The USD 6 billion equity will absorb any potential realized losses up to this

amount.

The purpose of the fund is to ensure an orderly financing and liquidation of

securities that are currently illiquid as well as other assets from UBS’s balance

sheet over the long-term.

The assets transferred into the fund include around USD 31 billion (as per

valuation at 30 September 2008) of primarily cash securities, previously disclosed

in these categories:

• US sub-prime

• US Alt-A

16 October 2008

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• US prime

• US commercial real estate and mortgage-backed securities

student loans

• US reference-linked note program (RLN) 1

be reduced to nearly zero (compared to USD 44.2 billion on 30 June 2008), with

residual long positions held by UBS in these asset classes hedged through existing

short positions, including credit protection embedded in the RLN programs.

UBS will also transfer additional, mainly non-US debt instruments with a total net

value of USD 18 billion to the fund – a wide range of securities backed by a variety

of asset classes. The inclusion of these positions follows UBS's decision to

downsize its securitization business and provides a better diversification of the

fund’s portfolio.

The transfer of the USD 49 billion of assets will take place over the coming

months, during fourth quarter 2008 or first quarter 2009, but will be priced at

valuations as of 30 September 2008. These prices will be verified by independent

third parties and potential differences will be recorded in the bank's income

statement.

UBS will have the right to transfer up to an additional USD 9 billion of assets into

the fund at a later stage. These include up to USD 5 billion of student loan auction

rate securities the bank may buy back from clients as part of the recent

settlements and up to USD 3.5 billion of positions which may become unhedged

in the event of commutation of the credit protection contracts with one or more

monoline insurers. 2

UBS will act as the investment manager of the fund, overseen by a board

controlled by the SNB. The oversight board will approve specified matters

including certain major transactions and changes in investment guidelines. It will

also be empowered to change the investment manager.

As part of this transaction, UBS has been granted the option to buy back the

equity of the entity, once the loan is fully repaid, by paying the SNB USD 1 billion

plus 50% of the amount by which the equity value at the time of exercise exceeds

that amount. Any remaining equity up to USD 1 billion will go to the SNB and UBS

will participate in 50% of the equity value exceeding USD 1 billion. The option will

be carried on UBS's balance sheet at its fair value.

If – over the life of the transaction – the fund equity declines in value, the SNB will

be able to participate in some manner in the appreciation of the UBS share price.

The arrangement will be based on no more than 100 million UBS shares and will

be further defined early next year.

1 The US reference-linked program will continue to be operated by UBS.

2 The difference between the maximum facility size of USD 60 billion and the total amount of securities described above resulted from asset sales and write-downs from mid September to the30 September valuation date. 

and its balance sheet total. The impact of the transaction and related capital

measures will be shown in the fourth quarter results separately from the operating

performance. On a preliminary basis, UBS estimates that the transaction will result

in a charge against earnings of approximately CHF 4 billion. These impacts would

produce a year-end Tier 1 ratio of approximately 11.5%, before any other fourth

quarter effects.

UBS will raise CHF 6 billion of new capital in the form of mandatory convertible

notes (MCN). This will allow the bank to retain a strong Tier 1 capital ratio, even

after providing the equity to the newly established entity. The MCN has been fully

placed with the Swiss Confederation. The Swiss Confederation reserves the right

to reduce part or all of its investment by transferring the MCN to third party

investors.

The MCN issue is subject to approval by UBS shareholders who will vote on the

creation of the required conditional capital underlying the MCN at an

extraordinary general meeting (EGM) to be held in late November 2008. The MCN

will count as Tier 1 capital for BIS capital adequacy purposes following EGM

approval. Issuance of the MCN is expected to take place five business days after

the EGM.

The MCN will pay a coupon of 12.5% until conversion into UBS registered shares,

which must take place no later than 30 months after issuance.

The MCN will have a minimum conversion price corresponding to the reference

price and a maximum conversion price set at 117% of the reference price.

The reference price of the MCN will be determined as the lower of:

- the volume-weighted average price (VWAP) of UBS shares on SWX Europe

on the trading day preceding this announcement (CHF 20.24 on 15

October 2008), and

- the average of the daily VWAP on each of the three trading days ending on

the day before the EGM.

However, in no case will the reference price be less than CHF 18.21, or 90% of

the VWAP of 15 October, 2008.

Upon conversion of the MCN, the Swiss Confederation will hold approximately

9.3% of UBS's share capital, on the basis of currently outstanding shares and

assuming conversion of the mandatory convertible notes issued in March 2008.

A summary of the terms and conditions of the MCN can be found at

proposed transactions together with the invitation to the EGM.

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In line with the pre-announcement on 2 October, UBS recorded a small net profit

attributable to its shareholders of CHF 296 million for third quarter 2008.

Estimated third quarter results by division are:

66% from second quarter 2008 to CHF 1,862 million. The previous

quarter, however, included a provision of CHF 919 million for the expected

costs of the repurchase of auction rate securities and related costs,

including fines.

from the previous quarter. This includes an extraordinary gain of

approximately CHF 168 million from the previously announced disposal of

Adams Street Partners.

compared to a loss of CHF 5,233 million in the second quarter. As credit

spreads widened in the third quarter, the Investment Bank recorded gains

of CHF 2,207 million on own credit (compared to CHF 122 million in

second quarter). Disclosed concentrated risk positions were significantly

reduced by USD 13.5 billion, mainly through the sale of assets. Writedowns

and losses on those disclosed positions totaled USD 4.4 billion (compared

to USD 5.1 billion in second quarter), recorded in the Investment Bank's

Fixed Income, Currencies and Commodities (FICC) business.

Revenues were down across businesses, in line with prevailing market

conditions.

Corporate Center recorded a pre-tax loss of CHF 7 million (CHF 330 million in

second quarter).

Group results in third quarter include a tax credit of CHF 912 million.

Costs were again reduced across the bank, with cuts in discretionary spending and

lower personnel expenses, reflecting lower staff levels and a decrease in bonus

accruals in line with business performance.

During third quarter, UBS reduced its balance sheet by around CHF 80 billion to

CHF 1,997 billion. UBS's total BIS capital ratio on 30 September was estimated at

14.8% and its Tier 1 ratio at approximately 10.8%, compared to 15.7% and

11.6% respectively at the end of June.

Wealth Management & Business Banking invested assets were CHF 1,932 billion.

The division recorded net new money of negative CHF 49.3 billion in the third

quarter, with a significant part of the outflow taking place in the last few weeks

of the quarter. Global Asset Management invested assets were CHF 708 billion

with net new money negative 34.4 billion.

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With today’s measures, in addition to its earlier steps, UBS is confident that it has

created the conditions necessary to reverse the outflow of client assets.

UBS’s concentrated risk positions were reduced substantially during the quarter.

The table below shows on a pro forma basis the impact of the announced

transaction on these positions.