UBS Group AG Form 6-K Summary: Basel III Pillar 3 Report
Business Context and Reporting Period
This Form 6-K, filed on April 25, 2019, contains the Basel III Pillar 3 disclosures for UBS Group AG and UBS AG for the period ended March 31, 2019. The report covers consolidated regulatory capital, risk-weighted assets (RWA), leverage ratios, and liquidity coverage ratios. It also includes data for significant regulated subsidiaries, including UBS AG standalone, UBS Switzerland AG standalone, UBS Europe SE consolidated (following a merger effective March 1, 2019), and UBS Americas Holding LLC consolidated.
Key Financial Metrics (UBS Group AG Consolidated)
| Metric | Value (USD) | Ratio / % |
|---|---|---|
| Common Equity Tier 1 (CET1) Capital | $34.7 billion | 12.95% (CET1 Ratio) |
| Tier 1 Capital | $49.4 billion | 18.48% (Tier 1 Ratio) |
| Total Capital | $56.1 billion | 20.99% (Total Capital Ratio) |
| Risk-Weighted Assets (RWA) | $267.6 billion | - |
| Leverage Ratio Exposure | $911.0 billion | 5.43% (Basel III Leverage Ratio) |
| Total Loss-Absorbing Capacity (TLAC) | $87.5 billion | 32.69% of RWA |
| Liquidity Coverage Ratio (LCR) | - | 153% (Average 1Q19) |
Material Changes vs. Prior Period
- Capital Growth: CET1 capital increased by $0.5 billion to $34.7 billion, driven by higher operating profit before tax, partially offset by shareholder returns. Tier 1 capital rose by $3.2 billion, aided by a $2.5 billion issuance of high-trigger additional tier 1 instruments.
- RWA Expansion: Total RWA increased by $3.8 billion to $267.6 billion. Increases were driven by credit risk (+$5.4B), operational risk (+$2.8B), and counterparty credit risk (+$2.5B). These were partially offset by a $7.0 billion decrease in market risk RWA due to lower volatility and reduced client activity.
- Liquidity Improvement: The LCR increased by 17 percentage points to 153%, exceeding the 110% minimum. This was driven by higher high-quality liquid assets (HQLA) from increased cash balances and lower net cash outflows.
- Structural Changes: UBS Europe SE is now reported as a significant regulated subsidiary following the merger of UBS Limited into UBS Europe SE on March 1, 2019.
Guidance, Outlook, and Risks
- Regulatory Developments: The report details the implementation of revised Swiss Capital Adequacy Ordinance (CAO) rules effective January 1, 2019, with no material immediate effect. It also notes a consultation on revised "gone concern" capital requirements in Switzerland, which could increase the gone concern leverage ratio requirement by approximately 100 basis points when fully phased in by 2024.
- Accounting Changes: The adoption of IFRS 16 (Leases) contributed to increases in credit risk RWA and leverage ratio exposure. IFRS 9 expected credit losses were recognized effective January 1, 2019.
- Operational Risk: Operational risk RWA increased partly due to model updates reflecting developments related to litigation on cross-border matters.
- Outlook: Management commentary is limited in this specific Pillar 3 filing; investors are referred to the separate First Quarter 2019 Report for detailed capital management and outlook discussions.
Key Facts for Investor Verification
- Capital Adequacy: Verify that the CET1 ratio of 12.95% and Total Capital ratio of 20.99% comfortably exceed the minimum regulatory requirements plus buffers (Total CET1 specific buffer requirements were 3.60%).
- TLAC Compliance: Confirm that Total Loss-Absorbing Capacity (TLAC) of $87.5 billion meets the resolution group requirements (32.69% of RWA).
- Liquidity Buffer: Note the strong liquidity position with an LCR of 153%, well above the 110% FINMA minimum.
- Subsidiary Impact: Review the new regulatory data for UBS Europe SE, which is now under direct ECB supervision, and the standalone metrics for UBS AG and UBS Switzerland AG.
- Future Regulatory Costs: Assess the potential impact of the proposed Swiss "gone concern" capital requirements, which may necessitate higher capital buffers starting in 2020 and fully phased in by 2024.