UBS Group AG current report, Q1 FY2022

UBS Group AG Form 6-K Summary: Q1 2022 Pillar 3 Report

Business Context and Reporting Period

This Form 6-K, filed on April 26, 2022, contains the Pillar 3 Report for UBS Group AG and significant regulated subsidiaries for the period ended March 31, 2022. The report details regulatory capital, risk-weighted assets (RWA), leverage ratios, and liquidity metrics in accordance with Basel III and Swiss Financial Market Supervisory Authority (FINMA) requirements. UBS is classified as a systemically relevant bank (SRB) in Switzerland.

Key Financial Metrics (UBS Group AG Consolidated)

MetricValue (USD)Change vs. Q4 2021
Common Equity Tier 1 (CET1) Capital$44.6 billionDecreased $0.7 billion
Tier 1 Capital$60.1 billionDecreased $0.4 billion
Total Capital$61.4 billionDecreased $0.5 billion
Total Risk-Weighted Assets (RWA)$312.0 billionIncreased $9.8 billion
CET1 Ratio14.29%Decreased 0.69 percentage points
Tier 1 Ratio19.25%Decreased 0.77 percentage points
Total Capital Ratio19.68%Decreased 0.81 percentage points
Leverage Ratio Exposure$1,073.0 billionIncreased $4.1 billion
Basel III Leverage Ratio5.60%Decreased 0.06 percentage points
Total Loss-Absorbing Capacity (TLAC)$106.6 billionIncreased $1.8 billion
Liquidity Coverage Ratio (LCR)160% (Average)Increased 5 percentage points
Net Stable Funding Ratio (NSFR)122%Increased 3 percentage points

Material Changes vs. Prior Period

  • Capital Reduction: CET1 capital declined primarily due to share repurchases of $1.7 billion and dividend accruals of $0.4 billion, which offset operating profit before tax of $2.7 billion. Additional Tier 1 (AT1) capital increased by $0.3 billion due to new issuances.
  • RWA Expansion: Total RWA increased by $9.8 billion. Drivers included:
    • Market risk RWA: +$2.8 billion (heightened volatility in Global Markets).
    • Credit risk RWA: +$2.3 billion (higher loan volumes and model updates).
    • Operational risk RWA: +$2.1 billion (phased-in impact of the French cross-border tax fraud matter).
    • Counterparty credit risk RWA: +$1.7 billion (higher derivative exposures).
  • Liquidity Improvement: The LCR rose to 160% driven by a $24.9 billion increase in high-quality liquid assets (HQLA), despite higher net cash outflows from securities financing transactions.

Guidance, Outlook, Risks, and Unusual Items

  • Capital Returns: Shareholders approved a dividend of $0.50 per share. A new $6 billion share repurchase program was launched for 2022-2023, with an expectation to execute approximately $5 billion in 2022.
  • Regulatory Developments:
    • French Tax Matter: Following a French Court of Appeal ruling, UBS will reflect an additional $4.1 billion in operational risk RWA over two quarters ($2.1 billion in Q1, $2.0 billion in Q2 2022).
    • Swiss Liquidity Ordinance: Proposed revisions are expected to increase minimum liquidity requirements for SRBs, effective July 1, 2022. A public liquidity backstop is also being developed.
  • Asset Disposal: UBS signed an agreement to sell its investment in Mitsubishi Corp.-UBS Realty Inc. to KKR, expecting a gain of approximately $0.9 billion upon closing in Q2 2022.
  • Model Updates: Various model updates for structured margin loans and leveraged finance clients contributed to RWA increases in Q1.

Key Facts for Investor Verification

  • Capital Adequacy: Verify that the CET1 ratio of 14.29% remains comfortably above the total minimum requirement of 10.02% (including buffers) and the SRB gone concern requirements.
  • RWA Trajectory: Monitor the full phase-in of the $4.1 billion operational risk RWA related to the French tax matter in Q2 2022 and its impact on capital ratios.
  • Liquidity Resilience: Confirm the impact of the upcoming Swiss Liquidity Ordinance revisions (effective July 2022) on the LCR and NSFR, which are currently well above regulatory minimums.
  • Shareholder Returns: Track the execution of the new $6 billion share repurchase program against the stated $5 billion target for 2022.
  • Subsidiary Metrics: Review standalone metrics for UBS AG (CET1 15.80%) and UBS Switzerland AG (CET1 11.83%) to ensure local regulatory compliance.