Business Context and Reporting Period
This Form 6-K filing by UBS Group AG and UBS AG, dated August 7, 2018, contains the Basel III Pillar 3 disclosures for the period ended June 30, 2018. The report details regulatory capital, risk-weighted assets (RWA), leverage, and liquidity metrics for UBS Group AG consolidated and its significant regulated subsidiaries (UBS AG, UBS Switzerland AG, UBS Limited, and UBS Americas Holding LLC). The disclosures are prepared in accordance with FINMA and BCBS requirements, reflecting the adoption of IFRS 9 effective January 1, 2018.
Key Financial Metrics
Capital and Risk-Weighted Assets (UBS Group AG Consolidated)
| Metric | Value (CHF million) | Ratio / % |
|---|
| Total Risk-Weighted Assets (RWA) | 252,373 | - |
| Common Equity Tier 1 (CET1) Capital | 33,817 | 13.4% |
| Tier 1 Capital | 44,956 | 17.8% |
| Total Capital | 51,991 | 20.6% |
| Leverage Ratio Denominator | 902,408 | - |
| Basel III Leverage Ratio (Fully Applied) | - | 5.0% |
Liquidity (UBS Group AG Consolidated)
| Metric | Value (CHF billion) | Ratio / % |
|---|
| High-Quality Liquid Assets (HQLA) | 181 | - |
| Net Cash Outflows | 126 | - |
| Liquidity Coverage Ratio (LCR) | - | 144% |
Significant Subsidiaries (Selected Metrics)
- UBS AG Standalone: CET1 Ratio 17.3%; LCR 137%.
- UBS Switzerland AG Standalone: CET1 Ratio 10.6%; LCR 128%.
- UBS Limited Standalone: CET1 Ratio 21.8%; LCR 473%.
- UBS Americas Holding LLC: CET1 Ratio 20.9%; Leverage Ratio 9.9%.
Material Changes vs. Prior Period
- RWA Movement: Total RWA decreased by CHF 1.4 billion to CHF 252.4 billion. This was primarily driven by a CHF 10.0 billion decrease in market risk RWA, partially offset by a CHF 7.7 billion increase in credit and counterparty credit risk RWA.
- Market Risk: Market risk RWA fell significantly due to lower average regulatory VaR and Stressed VaR levels in the Investment Bank, resulting from risk management actions.
- Credit Risk: Credit risk RWA under the Advanced Internal Ratings-Based (A-IRB) approach increased by CHF 7.0 billion. Drivers included asset size movements (CHF 3.6 billion) and model updates (CHF 2.4 billion), particularly related to Swiss residential mortgages and Lombard loan facilities.
- IFRS 9 Impact: The transition to IFRS 9 resulted in a reduction of CET1 capital by approximately CHF 0.3 billion and an increase in RWA by approximately CHF 0.7 billion as of January 1, 2018. Equity position RWA increased by CHF 1.3 billion due to reclassification of equity instruments.
- Liquidity: The Group LCR increased by 8 percentage points to 144%, driven by lower net cash outflows from secured financing transactions and deposits.
Guidance, Outlook, and Risks
- Regulatory Developments: UBS is subject to revised Basel III securitization frameworks and is monitoring the Fundamental Review of the Trading Book (FRTB), which is expected to increase market risk RWA upon implementation in 2022.
- CCAR Results: In June 2018, the Federal Reserve Board did not object to the capital plan of UBS Americas Holding LLC following the Comprehensive Capital Analysis and Review (CCAR).
- G-SIB Status: UBS remains a Global Systemically Important Bank (G-SIB) with a 1.0% capital buffer requirement. However, Swiss SRB requirements exceed these BCBS requirements.
- Backtesting: There was one new VaR negative backtesting exception in the first half of 2018, bringing the total to 2 within the 250-day window. The FINMA VaR multiplier remained at 3.0.
Key Facts for Investor Verification
- Capital Adequacy: Verify that CET1 (13.4%) and Total Capital (20.6%) ratios remain well above the required Swiss SRB minimums (CET1 requirement approx. 7.4% including buffers).
- Liquidity Buffer: Confirm the LCR of 144% provides a sufficient buffer above the 110% minimum requirement communicated by FINMA.
- RWA Composition: Note the shift in risk profile where a significant drop in market risk RWA was offset by increases in credit risk RWA due to model updates and asset growth.
- Subsidiary Strength: Review the standalone capital ratios of UBS AG and UBS Switzerland AG to ensure they meet local regulatory requirements, particularly regarding loss-absorbing capacity.
- Accounting Transition: Understand the impact of IFRS 9 on capital deductions and RWA calculations, specifically regarding equity instruments and expected credit losses.
