Key financial market driver 1 - Eurozone crisis Key questions Purchasing managers indices point to e What do we expect from the economy and ECB policy? ongoing contraction in 3Q ° Can Spain and Italy continue to tap the primary market if they ask for a support program? ¢ How much more support will Greece receive and will it be able to stay in the Eurozone next year? 65 60 ClO View (Probability: 70%*) Austerity and weak growth 55 = ae ¢ We think the Eurozone economy troughed in 3Q. We expect flattish growth in 4Q 2012 and 1Q 2013 (in line with 30 WGA consensus). Beyond this, uncertainties regarding the debt crisis and continuing fiscal austerity efforts will likely keep i \Y i the pace of recovery subdued. The ECB is still in easing mode but after announcing a conditional bond purchasing 25 Y/ program, it would take a marked worsening of the debt crisis and/or a worsening of economic data to trigger any 30 further policy action. 25 ¢ There is political pressure on Spain to apply for official financial support (OMT by the ECB and direct support from 07 08 09 10 "1 12 the EFSF/ESM). However, the government may hesitate until market pressure rises and/or clear political benefits are on —= Manufacturing Services offer. We think that Italy will have to apply for an aid package similar to Spain’s. We see a high probability of Spain — Composite — No-change line being downgraded to junk by at least one rating agency. Source: Bloomberg, UBS, as of October 2012 * OMT bond purchases in the secondary market will focus on maturities of up to three years and countries will be expected to maintain their funding profiles by also issuing longer-dated bonds. Hence, longer yields should stay elevated as bondholders remain concerned about countries’ ability and willingness to implement necessary reforms, and about the de-facto subordination to ECB holdings and official loans. The central banking supervision at the ECB iS Vield of Spanish and Italian 10-year bonds unlikely to be ready by