UBS

UBS AG Form 6-K Summary: Pillar 3 Report (Q3 2024)

Business Context and Reporting Period

This Form 6-K, filed on November 8, 2024, contains the Pillar 3 Report for UBS Group AG and significant regulated subsidiaries for the period ended September 30, 2024. The report details regulatory capital, risk-weighted assets (RWA), leverage, liquidity, and funding metrics in accordance with Basel III and local regulatory requirements (FINMA, Federal Reserve, PRA). A key operational development is the completed merger of UBS Switzerland AG and Credit Suisse (Schweiz) AG on July 1, 2024, which significantly impacted the standalone metrics of UBS Switzerland AG.

Key Financial Metrics (UBS Group Consolidated)

Material Changes vs. Prior Period

• Capital Reduction: CET1 capital decreased by USD 1.9 billion. This was primarily driven by a voluntary acceleration of the amortization of transitional purchase price allocation (PPA) adjustments from the Credit Suisse acquisition, resulting in a USD 3.4 billion decrease in CET1 capital. This reduced the CET1 ratio by approximately 65 basis points.
• RWA Increase: Total RWA increased by USD 8.0 billion to USD 519.4 billion. Drivers included a USD 4.1 billion increase in credit risk RWA (partly due to currency effects) and a USD 2.4 billion increase in market risk RWA (driven by a new FINMA capital buffer for maturity mismatches).
• Liquidity Metrics: The quarterly average LCR decreased by 12.7 percentage points to 199.2%, remaining well above the prudential requirement. This was due to a USD 17.6 billion decrease in high-quality liquid assets (HQLA) driven by lower cash availability for funding trading assets and higher Swiss regulatory reserve requirements.
• TLAC: Available TLAC decreased by USD 2.8 billion to USD 194.9 billion, reflecting the decrease in Tier 1 capital and the call of USD 6.4 billion in TLAC-eligible senior unsecured debt instruments.

Outlook, Risks, and Management Commentary

• Basel III Implementation: UBS expects the adoption of final Basel III standards in Switzerland (effective January 1, 2025) to increase RWA and the leverage ratio denominator by low single-digit percentages. This is estimated to reduce the CET1 capital ratio by around 30 basis points and the CET1 leverage ratio by around 10 basis points.
• US Stress Capital Buffer: The Federal Reserve Board assigned UBS Americas Holding LLC a stress capital buffer (SCB) of 9.3% effective October 1, 2024 (up from 9.1%), resulting in a total CET1 requirement of 13.8%.
• Merger Integration: The merger of UBS Switzerland AG and Credit Suisse (Schweiz) AG resulted in a CHF 80.7 billion increase in RWA and a CHF 10.8 billion increase in CET1 capital for the standalone Swiss entity. Both LCR and NSFR for UBS Switzerland AG remained well above regulatory requirements post-merger.
• Capital Management: The Group continues to manage capital actively, including share repurchases (USD 0.5 billion in Q3) which did not impact CET1 capital due to offsetting reductions in the capital reserve.

Key Facts for Investor Verification

• Capital Impact of PPA Amortization: Verify the specific impact of the USD 3.4 billion voluntary acceleration of PPA amortization on future capital ratios and the timeline for the remaining transitional adjustments.
• Basel III Impact Quantification: Monitor the actual impact of the January 2025 Basel III implementation on RWA and capital ratios, as current estimates exclude the output floor phase-in.
• US Regulatory Requirements: Confirm the implications of the increased 9.3% stress capital buffer for UBS Americas Holding LLC on dividend capacity and capital planning.
• Liquidity Trends: Track the trend in HQLA and LCR, particularly given the decrease in cash availability due to trading asset funding and regulatory reserve requirements.
• TLAC Composition: Review the composition of TLAC-eligible debt following the call of USD 6.4 billion in instruments and the issuance of new USD 1.8 billion in eligible debt.