Business Context and Reporting Period
This Form 6-K filing by UBS Group AG, dated March 5, 2021, discloses the Pillar 3 report for the period ended December 31, 2020. The report details regulatory capital, risk-weighted assets (RWA), leverage, liquidity, and remuneration for UBS Group AG consolidated and significant regulated subsidiaries (UBS AG, UBS Switzerland AG, UBS Europe SE, and UBS Americas Holding LLC). The reporting period was heavily influenced by the COVID-19 pandemic, leading to temporary regulatory measures in Switzerland and other jurisdictions regarding capital buffers, leverage ratio calculations, and capital distributions.
Key Financial Metrics (UBS Group AG Consolidated)
| Metric | Value (USD Billion) | Change (Q4 2020) |
|---|---|---|
| Common Equity Tier 1 (CET1) Capital | 39.9 | +1.7 |
| Tier 1 Capital | 56.2 | +1.8 |
| Total Capital | 61.2 | +1.8 |
| Total Risk-Weighted Assets (RWA) | 289.1 | +6.0 |
| Leverage Ratio Exposure | 1,037.2 | +43.0 |
| Total Loss-Absorbing Capacity (TLAC) | 101.8 | +4.1 |
| High-Quality Liquid Assets (HQLA) | 214.3 (Avg) | +3.1 |
Capital Ratios (as of Dec 31, 2020):
- CET1 Ratio: 13.80%
- Tier 1 Ratio: 19.43%
- Total Capital Ratio: 21.18%
- Basel III Leverage Ratio: 5.42%
- Liquidity Coverage Ratio (LCR): 152%
- TLAC to RWA: 35.22%
Material Changes vs. Prior Period
- RWA Movements: Total RWA increased by $6 billion, driven by a $5.1 billion rise in credit risk RWA (due to higher loan volumes in Global Wealth Management and currency effects) and a $1.2 billion increase in market risk RWA. This was partially offset by a $1.8 billion reduction in operational risk RWA following an annual model recalibration.
- Leverage Ratio Exposure: Increased by $43 billion, primarily due to higher on-balance sheet exposures and currency effects, partially offset by decreases in securities financing transactions (SFTs) and derivatives.
- Regulatory Changes: UBS adopted the Standardized Approach for Counterparty Credit Risk (SA-CCR) and new capital requirements for fund investments in Q1 2020, resulting in a $2.4 billion net increase in RWA which was absorbed early in the year. The Swiss countercyclical buffer for residential real estate was deactivated, reducing CET1 requirements by 29 basis points.
- Capital Returns: The 2019 dividend was paid in November 2020. The Board proposed a 2020 ordinary dividend of $0.37 per share. A new three-year share repurchase program of up to CHF 4 billion was launched in February 2021.
Guidance, Outlook, and Risks
- Regulatory Outlook: The implementation of Basel III finalization rules has been deferred to January 1, 2023. The Net Stable Funding Ratio (NSFR) becomes effective in Switzerland and the US on July 1, 2021. UBS expects the overall effect of NSFR to be limited.
- COVID-19 Measures: Temporary exemptions granted by FINMA allowed the exclusion of central bank sight deposits from the leverage ratio denominator, reducing the denominator by $93 billion for going concern purposes. This measure expired on January 1, 2021. Regulators in the US and EU maintained restrictions on capital distributions and share repurchases through early 2021.
- Stress Testing: UBS Americas Holding LLC passed the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Tests (DFAST) under severely adverse scenarios, including a second round of stress tests in December 2020 modeling the economic effects of COVID-19.
- Risks: Key risks include credit risk in the Investment Bank and Global Wealth Management, market risk volatility, and operational risk. The bank noted an increase in backtesting exceptions for market risk models due to 2020 volatility, though the VaR multiplier remained unchanged at 3.0.
Investor Verification Checklist
- Capital Adequacy: Verify that CET1 and TLAC ratios remain well above the Swiss Systemically Relevant Bank (SRB) requirements (CET1 ~13.96% required vs. 13.80% reported; TLAC ~24.11% required vs. 35.19% reported).
- RWA Drivers: Confirm the sustainability of the $1.8 billion reduction in operational risk RWA and monitor the phase-in of RWA increases related to US mortgage portfolio model updates (estimated $0.5 billion quarterly increase through 2021).
- Liquidity Position: Review the LCR of 152% and the composition of HQLA, noting the increase in liquidity buffer securities to offset higher customer deposit outflows.
- Regulatory Compliance: Monitor the impact of the expiration of the temporary FINMA leverage ratio exemption (Jan 1, 2021) and the upcoming implementation of NSFR rules in July 2021.
- Dividend and Buybacks: Track the execution of the new CHF 4 billion share repurchase program and the approval of the proposed 2020 dividend at the April 2021 shareholder meeting.