UBS Switzerland AG: 2020 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated March 5, 2021, presents the audited standalone financial statements for UBS Switzerland AG for the year ended December 31, 2020. UBS Switzerland AG is a wholly-owned subsidiary of UBS AG and operates as a systemically relevant bank (SRB) under Swiss banking law. The financial statements are prepared in accordance with Swiss GAAP (FINMA Accounting Ordinance).
Key Financial Metrics
| Metric (CHF million) | 2020 | 2019 |
|---|---|---|
| Total Operating Income | 7,185 | 7,688 |
| Net Profit | 1,271 | 1,039 |
| Total Assets | 316,829 | 285,014 |
| Total Equity | 12,634 | 12,673 |
| Common Equity Tier 1 (CET1) Capital | 12,234 | 10,895 |
| CET1 Ratio | 11.41% | 10.93% |
| Liquidity Coverage Ratio (LCR) | 148% | 130% |
Material Changes vs. Prior Period
- Profitability: Net profit increased by CHF 232 million (22.3%) to CHF 1,271 million, driven by lower amortization of goodwill and improved operating efficiency, despite a decline in total operating income.
- Income Statement: Total operating income decreased by CHF 503 million to CHF 7,185 million. Net interest income fell to CHF 2,597 million due to higher credit loss expenses (CHF 470 million vs. CHF 18 million in 2019), largely attributed to the early adoption of the Expected Credit Loss (ECL) model.
- Balance Sheet: Total assets grew by CHF 31.8 billion (11.2%) to CHF 316.8 billion. This increase was primarily driven by a rise in cash and balances at central banks (CHF 81.1 billion vs. CHF 59.0 billion) and mortgage loans.
- Goodwill: Goodwill was fully amortized in 2020, resulting in a net book value of zero, compared to CHF 263 million in 2019. This significantly reduced operating expenses.
- Capital & Liquidity: CET1 capital increased by CHF 1.3 billion. The LCR improved to 148%, well above the regulatory requirement, supported by higher average high-quality liquid assets.
Guidance, Outlook, and Risks
- Dividend Proposal: The Board of Directors proposes an ordinary dividend distribution of CHF 350 million to be approved at the Annual General Meeting on April 7, 2021.
- Accounting Policy Change: The entity early-adopted the Swiss GAAP ECL requirements as of December 31, 2020. This resulted in a one-time expense of CHF 348 million recognized in credit loss provisions.
- Joint Liability: UBS Switzerland AG retains joint and several liability for approximately CHF 9 billion of contractual obligations of UBS AG existing as of the 2015 asset transfer date. Management assesses the probability of an outflow under this liability as remote.
- Regulatory Status: As a Swiss SRB, the entity met all going concern and gone concern loss-absorbing capacity requirements. The total loss-absorbing capacity ratio stood at 26.3%.
- COVID-19 Impact: The entity utilized a temporary FINMA exemption regarding central bank sight deposits in the leverage ratio denominator, which improved the leverage ratio to 6.83% (excluding the exemption, it was 5.19%).
Investor Verification Checklist
- ECL Impact: Verify the sustainability of credit loss provisions following the one-time CHF 348 million charge for ECL adoption.
- Goodwill Amortization: Confirm that the reduction in amortization expenses (from CHF 1,050 million in 2019 to CHF 263 million in 2020) is a non-recurring benefit due to full amortization.
- Joint Liability Exposure: Review the specific terms of the CHF 9 billion joint liability with UBS AG and the conditions under which it could be triggered.
- Dividend Payout: Confirm the final approval of the CHF 350 million dividend at the AGM.
- Regulatory Capital: Monitor the CET1 ratio (11.41%) against the required minimums for Swiss SRBs, including buffer requirements.