Business Context and Reporting Period
This Form 6-K filing contains the 31 December 2023 Pillar 3 Report for UBS Group AG and its significant regulated subsidiaries. The reporting period covers the fourth quarter of 2023, following the acquisition of Credit Suisse Group AG on 12 June 2023. The report details regulatory capital, risk-weighted assets (RWA), liquidity, and funding metrics in accordance with Basel III standards and Swiss Financial Market Supervisory Authority (FINMA) requirements. The filing notes that comparative periods from 30 June 2023 onward include the impact of the Credit Suisse acquisition.
Key Financial Metrics
| Metric | 31 Dec 2023 | 30 Sep 2023 | 31 Dec 2022 |
|---|---|---|---|
| Common Equity Tier 1 (CET1) Capital | USD 78.5 billion | USD 77.4 billion | USD 45.5 billion |
| Tier 1 Capital | USD 92.4 billion | USD 90.4 billion | USD 58.3 billion |
| Total Risk-Weighted Assets (RWA) | USD 546.5 billion | USD 546.5 billion | USD 319.6 billion |
| CET1 Ratio | 14.36% | 14.16% | 14.22% |
| Tier 1 Ratio | 16.90% | 16.54% | 18.25% |
| Leverage Ratio | 5.45% | 5.59% | 5.67% |
| Liquidity Coverage Ratio (LCR) (Avg Q4) | 215.7% | 196.5% | 163.7% |
| Net Stable Funding Ratio (NSFR) | 124.7% | 120.7% | 119.8% |
| Total Loss-Absorbing Capacity (TLAC) | USD 199.5 billion | USD 193.7 billion | USD 105.3 billion |
Material Changes vs. Prior Period
- Capital Increases: CET1 capital increased by USD 1.1 billion to USD 78.5 billion, driven by foreign currency translation (USD 1.6 billion) and an increase in eligible deferred tax assets (USD 1.5 billion), partially offset by operating losses and dividend accruals. Tier 1 capital rose by USD 2.0 billion due to AT1 issuances and hedging impacts.
- RWA Stability: Total RWA remained unchanged at USD 546.5 billion. Increases in amounts below deduction thresholds (USD 3.5 billion) and counterparty credit risk (USD 2.1 billion) were offset by decreases in market risk (USD 2.7 billion) and equity positions (USD 1.6 billion).
- Liquidity Improvement: The LCR increased by 19.1 percentage points to 215.7%, primarily due to a USD 48.1 billion increase in high-quality liquid assets (HQLA) driven by higher customer deposits and debt issuance proceeds.
- NSFR Growth: The NSFR increased by 3.9 percentage points to 124.7%, reflecting higher available stable funding from customer deposits and regulatory capital.
Guidance, Outlook, and Risks
- Integration and Mergers: UBS expects to complete the merger of UBS AG and Credit Suisse AG by the end of Q2 2024, and the merger of UBS Switzerland AG and Credit Suisse (Schweiz) AG in Q3 2024. These steps are prerequisites for unlocking cost, capital, and funding synergies expected in 2025 and 2026.
- Regulatory Capital Requirements: The Financial Stability Board (FSB) moved UBS from Bucket 1 to Bucket 2 for G-SIB status, increasing the CET1 capital surcharge requirement to 1.5% effective 1 January 2025. UBS estimates the revised Basel III framework will lead to a net increase in RWA of approximately USD 25 billion, though core business reductions and the run-down of Non-core and Legacy positions are expected to offset this.
- Capital Returns: The Board plans to propose a dividend of USD 0.70 per share for 2023. UBS intends to repurchase up to USD 1 billion of shares in 2024 following the completion of the UBS AG and Credit Suisse AG merger, with an ambition to exceed pre-acquisition repurchase levels by 2026.
- Risks: Key risks include the execution of the Credit Suisse integration, potential increases in RWA due to Basel III implementation, and market volatility affecting trading book RWA. The filing also notes the introduction of a public liquidity backstop in Switzerland, which may require an annual fee from systemically important banks.
Key Facts for Investor Verification
- Acquisition Impact: Verify the specific accounting adjustments related to the Credit Suisse acquisition, particularly the transitional treatment of purchase price allocation (PPA) adjustments which neutralized USD 5.0 billion (net of tax) in equity reductions for CET1 calculations.
- Non-Core and Legacy Run-off: Monitor the active unwinding of the Non-core and Legacy portfolio, which is a primary driver for RWA reduction and cost synergy realization.
- Regulatory Timeline: Confirm the implementation dates for the revised Basel III standards in Switzerland (expected 1 January 2025) and the impact on the output floor and RWA calculations.
- Capital Adequacy: Ensure that the increased G-SIB buffer (1.5%) and potential Basel III RWA increases are fully covered by the current capital buffers, which currently stand at 8.90% above minimum requirements.
- Liquidity Composition: Review the composition of HQLA, noting that the increase was driven by customer deposits and debt issuances, ensuring the quality and encumbrance status of these assets remains robust.