Business Context and Reporting Period
This Form 6-K filing by UBS Group AG and UBS AG, dated August 21, 2015, contains the Basel III Pillar 3 disclosure for the first half of 2015 (ending June 30, 2015). The report details regulatory capital, risk-weighted assets (RWA), and risk exposures in accordance with the Swiss Capital Adequacy Ordinance and Basel III framework. UBS is classified as a Systemically Relevant Bank (SRB) in Switzerland.
Key Financial Metrics
Exposures and Risk-Weighted Assets (RWA)
- Total Gross Exposure at Default (EAD): CHF 725.2 billion (decreased by CHF 19 billion from December 31, 2014).
- Total Net EAD: CHF 705.3 billion.
- Total Risk-Weighted Assets (RWA): CHF 212.1 billion.
- Total Capital Requirement: CHF 26.8 billion (based on a 12.6% total capital requirement ratio).
Capital Composition (as of June 30, 2015)
- Common Equity Tier 1 (CET1) Capital: CHF 38.7 billion.
- Additional Tier 1 (AT1) Capital: CHF 1.9 billion.
- Tier 1 Capital: CHF 40.6 billion.
- Tier 2 Capital: CHF 12.3 billion.
- Total Capital: CHF 52.9 billion.
Capital Ratios
- CET1 Ratio: 18.2%.
- Tier 1 Ratio: 19.1%.
- Total Capital Ratio: 25.0%.
- Required CET1 Ratio (including buffers): 7.5%.
Credit Risk and Impairments
- Total Impaired Assets: CHF 1.3 billion (down from CHF 1.4 billion at year-end 2014).
- Total Allowances and Provisions: CHF 646 million.
- Actual Credit Losses (H1 2015): Net gain of CHF 1 million (including recoveries).
Material Changes vs. Prior Period
- Exposure Reduction: Gross EAD decreased by CHF 19 billion, primarily driven by lower exposures to sovereigns and a reduction in non-counterparty-related risk (specifically defined benefit pension plans and deferred tax assets).
- Securitization RWA: RWA attributable to securitization positions decreased to CHF 2.2 billion from CHF 3.9 billion at year-end 2014. This decline was mainly due to a CHF 1.5 billion reduction in the Corporate Center Non-core and Legacy Portfolio.
- Derivatives: Gross positive replacement values for derivatives decreased to CHF 173.7 billion from CHF 257.0 billion at year-end 2014.
- Impaired Assets: Total impaired assets decreased by CHF 93 million compared to December 31, 2014.
Outlook, Risks, and Commentary
Management Commentary
UBS reported no significant changes to qualitative risk management information in the first half of 2015. The bank utilized the Advanced Internal Ratings-Based (A-IRB) approach for the majority of its credit risk exposures. The reduction in RWA for securitization was attributed to the sale of bond positions held as hedges and collateralized loan obligation bond positions.
Risks and Contingencies
- Market Risk Backtesting: There were no Group downside backtesting exceptions in the first six months of 2015. Two exceptions occurred in the 12 months preceding June 30, 2015, largely influenced by extreme market moves following the Swiss National Bank's decision to discontinue the minimum exchange rate for the Swiss franc.
- Securitization: The bank acts as an originator, sponsor, and investor in securitization transactions. Risks are managed through specific limits and hedging strategies, though basis risks may exist.
- Regulatory Capital: Capital requirements are calculated based on the Swiss SRB Basel III total capital requirement of 12.6% of RWA.
Key Facts for Investor Verification
- Verify the CET1 ratio of 18.2% against the required minimum of 7.5% to assess capital buffer adequacy.
- Confirm the CHF 19 billion reduction in Gross EAD and its impact on future revenue generation versus capital efficiency.
- Review the CHF 2.2 billion RWA for securitization to understand the remaining exposure in the Non-core and Legacy Portfolio.
- Monitor the CHF 1.3 billion in impaired assets and the adequacy of the CHF 646 million in allowances.
- Check the deferred tax assets (CHF 5.9 billion recognized for tax loss carry-forwards) as these are subject to regulatory deductions and phase-in rules.