UBS Group AG: 2022 Pillar 3 Report Summary
Business Context and Reporting Period
This Form 6-K filing contains the 31 December 2022 Pillar 3 Report for UBS Group AG and its significant regulated subsidiaries. The report details regulatory capital, risk-weighted assets (RWA), liquidity, and funding metrics in accordance with Basel III and Swiss Financial Market Supervisory Authority (FINMA) requirements. UBS is classified as a Swiss Systemically Relevant Bank (SRB) and a Global Systemically Important Bank (G-SIB).
Key Financial Metrics (as of 31 December 2022)
| Metric | Value (USD) | Ratio / % |
|---|---|---|
| Common Equity Tier 1 (CET1) Capital | $45.5 billion | 14.22% |
| Tier 1 Capital | $58.3 billion | 18.25% |
| Total Capital | $58.8 billion | 18.40% |
| Total Risk-Weighted Assets (RWA) | $319.6 billion | - |
| Total Loss-Absorbing Capacity (TLAC) | $105.3 billion | 32.95% of RWA |
| Leverage Ratio Exposure | $1,028.5 billion | 5.67% |
| Liquidity Coverage Ratio (LCR) | - | 163.7% (Q4 Average) |
| Net Stable Funding Ratio (NSFR) | - | 119.8% |
Material Changes vs. Prior Period
- Capital Ratios: CET1 and Tier 1 ratios decreased primarily due to an increase in RWA and the leverage ratio denominator. CET1 capital increased by $0.8 billion to $45.5 billion, driven by operating profit ($1.9 billion) and foreign currency translation ($1.0 billion), offset by share repurchases ($1.3 billion) and dividends ($0.4 billion).
- AT1 Capital: Tier 1 capital decreased by $1.0 billion due to a $1.8 billion drop in Additional Tier 1 (AT1) capital. This was caused by the announcement of a redemption for a $2.0 billion AT1 instrument, which ceased to be eligible as capital upon the call announcement.
- Risk-Weighted Assets: Total RWA increased by $9.0 billion to $319.6 billion. The increase was driven by credit risk (+$9.3 billion), market risk (+$0.9 billion), and operational risk (+$0.5 billion), partially offset by a decrease in counterparty credit risk (-$2.6 billion). Currency effects accounted for $8.1 billion of the RWA increase.
- Liquidity: The LCR increased to 163.7% due to lower net cash outflows, while the NSFR decreased slightly to 119.8% due to higher required stable funding from increased trading assets and loans.
Guidance, Outlook, and Risks
- Share Repurchases: UBS expects to repurchase more than $5 billion of shares in 2023. A new $6 billion repurchase program commenced in March 2022.
- Dividends: The Board proposed a dividend of $0.55 per share for 2022, subject to shareholder approval in April 2023.
- Regulatory Developments:
- Basel III Implementation: The final Basel III framework is expected to enter into force in Switzerland on 1 January 2025. UBS estimates this will lead to a net increase in RWA of approximately $12 billion before mitigating actions.
- US Inflation Reduction Act: The new Corporate Alternative Minimum Tax (CAMT) is expected to incur significant US current tax expenses, temporarily deferring CET1 capital accretion by approximately $250 million in 2022, though this is expected to be recaptured via CAMT credits.
- Liquidity Backstop: Switzerland is introducing a public liquidity backstop for systemically important banks, with parameters expected to be consulted on by mid-2023.
- Model Updates: Various model updates in 2022 (e.g., for structured margin loans, hedge funds, and mortgages) resulted in incremental RWA increases, with some phase-ins continuing into 2023.
Key Facts for Investor Verification
- AT1 Redemption Impact: Verify the impact of the $2.0 billion AT1 instrument redemption on future capital ratios and the eligibility of remaining AT1 instruments.
- Basel III RWA Impact: Monitor the estimated $12 billion RWA increase from the final Basel III implementation and UBS's mitigation strategies.
- US Tax Implications: Track the long-term impact of the US Corporate Alternative Minimum Tax on capital accretion and effective tax rates.
- Shareholder Returns: Confirm the execution of the proposed $0.55 dividend and the $5+ billion share repurchase program in 2023.
- Liquidity Resilience: Note that both LCR (163.7%) and NSFR (119.8%) remain well above FINMA prudential requirements, indicating strong liquidity buffers.