Business Context and Reporting Period
This Form 6-K filing by UBS Group AG and UBS AG, dated October 27, 2017, discloses the Basel III Pillar 3 report for the third quarter ended September 30, 2017. The report details regulatory capital, risk-weighted assets (RWA), leverage ratios, and liquidity coverage ratios for the consolidated group and significant regulated subsidiaries (UBS AG, UBS Switzerland AG, UBS Limited, and UBS Americas Holding LLC). UBS is classified as a Systemically Relevant Bank (SRB) under Swiss banking law.
Key Financial Metrics
Capital and Risk-Weighted Assets (Consolidated)
- Risk-Weighted Assets (RWA): CHF 239.2 billion (Phase-in), an increase of CHF 1.4 billion from the prior quarter.
- Common Equity Tier 1 (CET1) Capital: CHF 36.0 billion, representing a 15.1% ratio against RWA.
- Total Capital: CHF 53.0 billion, representing a 22.2% ratio against RWA.
- Loss-Absorbing Capacity: Total eligible loss-absorbing capacity stood at CHF 81.1 billion (33.93% of RWA).
Leverage and Liquidity (Consolidated)
- Leverage Ratio: 5.0% (Phase-in) and 4.7% (Fully Applied) as of September 30, 2017.
- Liquidity Coverage Ratio (LCR): Averaged 142% in Q3 2017, exceeding the 110% minimum requirement.
- High-Quality Liquid Assets (HQLA): Average weighted value of CHF 186 billion in Q3 2017.
Subsidiary Highlights
- UBS AG (Standalone): CET1 ratio of 17.5%; LCR averaged 134%.
- UBS Switzerland AG (Standalone): CET1 ratio of 10.6%; LCR averaged 140%.
- UBS Limited (Standalone): CET1 ratio of 19.0%; Leverage ratio of 6.2%.
- UBS Americas Holding LLC (Consolidated): CET1 ratio of 23.4%; Leverage ratio of 9.3%.
Material Changes vs. Prior Period
- RWA Movements: The increase in consolidated RWA was driven by a CHF 1.7 billion rise in credit risk (due to higher trading assets and lending) and a CHF 0.4 billion rise in market risk. These were partially offset by a CHF 0.7 billion decrease in counterparty credit risk.
- Liquidity Improvement: The LCR increased by 11 percentage points to 142% compared to Q2 2017. This was primarily due to lower net cash outflows from financial liabilities and unsecured wholesale funding, alongside new debt issuances.
- Regulatory Changes (UBS AG): A new FINMA decree effective July 1, 2017, altered the treatment of investments in subsidiaries, leading to a CHF 49 billion increase in UBS AG standalone RWA and a CHF 26.2 billion increase in going concern capital.
Guidance, Outlook, and Risks
The filing does not contain forward-looking financial guidance or management commentary on future earnings. However, it highlights the following regulatory and risk factors:
- Regulatory Framework: UBS is subject to enhanced Basel III Pillar 3 disclosure requirements issued by the Basel Committee on Banking Supervision (BCBS) in March 2017, with implementation staggered from 2017 to 2019.
- Capital Requirements: As a Swiss SRB, UBS must meet specific "going concern" and "gone concern" loss-absorbing capacity requirements. The fully applied requirements for 2020 are significantly higher than current phase-in levels.
- Scope Differences: There are material differences between the IFRS consolidation scope and the regulatory capital scope, primarily due to the exclusion of non-banking entities (e.g., insurance, real estate) from regulatory capital calculations.
Investor Verification Checklist
- Verify the impact of the new FINMA decree on UBS AG standalone capital requirements and RWA calculations.
- Confirm the composition of High-Quality Liquid Assets (HQLA) and the sustainability of the 142% LCR given market volatility.
- Review the breakdown of RWA increases, specifically the drivers within the Investment Bank's trading portfolio and lending.
- Assess the timeline and capital impact of the transition from phase-in to fully applied Basel III rules (targeting 2020).
- Examine the reconciliation between IFRS total assets (CHF 913.6 billion) and the regulatory leverage ratio denominator (CHF 887.0 billion).