UBS Group AG: Q2 2021 Basel III Pillar 3 Report Summary
Business Context and Reporting Period
This Form 6-K filing contains the Basel III Pillar 3 Report for UBS Group AG and its significant regulated subsidiaries for the period ended June 30, 2021. The report details regulatory capital, risk-weighted assets (RWA), leverage ratios, and liquidity coverage ratios in accordance with Swiss Financial Market Supervisory Authority (FINMA) and Basel Committee on Banking Supervision (BCBS) standards. UBS is classified as a Global Systemically Important Bank (G-SIB) and a Swiss Systemically Relevant Bank (SRB).
Key Financial Metrics (UBS Group AG Consolidated)
| Metric | Value (USD) | Ratio / % |
|---|---|---|
| Common Equity Tier 1 (CET1) Capital | $42.6 billion | 14.52% (CET1 Ratio) |
| Tier 1 Capital | $59.2 billion | 20.18% (Tier 1 Ratio) |
| Total Capital | $61.2 billion | 20.86% (Total Capital Ratio) |
| Risk-Weighted Assets (RWA) | $293.3 billion | - |
| Total Loss-Absorbing Capacity (TLAC) | $104.3 billion | 35.58% (of RWA) |
| Leverage Ratio Exposure | $1,040 billion | 5.69% (Basel III Leverage Ratio) |
| Liquidity Coverage Ratio (LCR) | - | 156% (Average HQLA: $232.0 billion) |
Material Changes vs. Prior Period
- Capital Growth: CET1 capital increased by $2.2 billion to $42.6 billion, driven primarily by operating profit before tax of $2.6 billion and a $0.4 billion reduction in goodwill deductions following the sale of the remaining investment in Clearstream Fund Centre.
- RWA Increase: Total RWA rose by $5.4 billion to $293.3 billion. This was mainly due to an $8.7 billion increase in credit risk RWA (driven by asset size and model updates), partially offset by decreases in market risk ($2.5 billion) and counterparty credit risk ($1.6 billion).
- Model Updates: Significant RWA increases occurred due to the phase-in of new models for structured margin loans, US mortgages, and Swiss mortgages, totaling approximately $2.5 billion in the quarter.
- Liquidity: Average High-Quality Liquid Assets (HQLA) increased by $10.7 billion to $232.0 billion, driven by higher cash balances and net deposit growth.
Guidance, Outlook, and Regulatory Developments
- Regulatory Stress Tests: UBS Americas Holding LLC exceeded minimum capital requirements under the Federal Reserve's 2021 Dodd-Frank Act Stress Test (DFAST). The Federal Reserve assigned a Stress Capital Buffer (SCB) of 7.1% effective October 1, 2021, up from 6.7%.
- Resolvability: FINMA approved an increase in the maximum rebate on Swiss SRB gone concern capital requirements from 47.5% to 55.0%, effective July 1, 2021, recognizing progress in UBS's global resolvability.
- Market Risk: Market risk RWA decreased due to lower average Value-at-Risk (VaR) levels. However, ongoing discussions with FINMA regarding the regulatory VaR model may lead to RWA increases in the second half of 2021.
- Dividend Restrictions: The Federal Reserve lifted temporary limitations on capital distributions for UBS Americas Holding LLC, permitting distributions as long as total capital requirements are met.
Key Facts for Investor Verification
- Capital Adequacy: Verify that the CET1 ratio of 14.52% comfortably exceeds the minimum requirement plus buffers (3.52%), leaving a surplus of 10.02%.
- RWA Drivers: Confirm the impact of the $2.5 billion RWA increase from model updates (US mortgages, Swiss mortgages, structured margin loans) on future capital planning.
- TLAC Compliance: Note that TLAC available ($104.3 billion) significantly exceeds the required amount, with a ratio of 35.58% against RWA.
- US Sub-Group: Monitor the UBS Americas Holding LLC SCB increase to 7.1% and its impact on capital distribution capacity.
- Liquidity Position: The LCR of 156% indicates a robust liquidity buffer well above the regulatory minimum, supported by a $10.7 billion increase in HQLA.