Business Context and Reporting Period
This Form 6-K filing by UBS Group AG (and UBS AG) reports the 31 December 2021 Pillar 3 Report, detailing regulatory capital, liquidity, and risk-weighted assets (RWA) under the Basel III framework. The report covers the UBS Group consolidated level and significant regulated subsidiaries, including UBS AG, UBS Switzerland AG, UBS Europe SE, and UBS Americas Holding LLC. The filing was submitted on 7 March 2022.
Key Financial Metrics (Consolidated)
| Metric | 31 Dec 2021 | 30 Sep 2021 | 31 Dec 2020 |
|---|---|---|---|
| Common Equity Tier 1 (CET1) Capital | USD 45.3 billion | USD 45.0 billion | USD 39.9 billion |
| Tier 1 Capital | USD 60.5 billion | USD 60.4 billion | USD 56.2 billion |
| Total Capital | USD 61.9 billion | USD 61.9 billion | USD 61.2 billion |
| Risk-Weighted Assets (RWA) | USD 302.2 billion | USD 302.4 billion | USD 289.1 billion |
| CET1 Ratio | 14.98% | 14.89% | 13.80% |
| Tier 1 Ratio | 20.02% | 19.96% | 19.43% |
| Total Capital Ratio | 20.49% | 20.45% | 21.18% |
| Leverage Ratio | 5.66% | 5.78% | 5.42% |
| Liquidity Coverage Ratio (LCR) (Q4 Avg) | 155% | 157% | 152% |
| Net Stable Funding Ratio (NSFR) | 119% | 118% | N/A |
| Total Loss-Absorbing Capacity (TLAC) | USD 104.8 billion | USD 102.8 billion | USD 101.8 billion |
Material Changes vs. Prior Period
- Capital Growth: CET1 capital increased by USD 0.3 billion in Q4 2021, driven by operating profit before tax (USD 1.7 billion) and positive foreign currency translation, partially offset by dividend accruals (USD 0.7 billion) and share repurchases (USD 0.6 billion).
- RWA Movement: Total RWA decreased slightly by USD 0.2 billion to USD 302.2 billion. Decreases in market risk RWA (USD 3.0 billion) and counterparty credit risk RWA (USD 2.3 billion) were offset by increases in credit risk RWA (USD 4.8 billion) and operational risk RWA (USD 1.0 billion).
- Liquidity: The LCR decreased 2 percentage points to 155% due to a reduction in high-quality liquid assets (HQLA) of USD 3.0 billion, primarily from matured unsecured debt. The NSFR increased 1 percentage point to 119%.
- Shareholder Returns: The Board proposed a dividend of USD 0.50 per share. In 2021, UBS bought back USD 2.6 billion of shares and intends to commence a new repurchase program of up to USD 6 billion for 2022–2024.
Guidance, Outlook, Risks, and Unusual Items
- French Legal Proceedings: On 13 December 2021, the French Court of Appeal found UBS AG guilty of unlawful solicitation and aggravated laundering of tax fraud proceeds. The court ordered a fine of EUR 3.75 million, confiscation of EUR 1 billion, and civil damages of EUR 800 million. UBS has appealed to the French Supreme Court. Provisions of EUR 1.1 billion (USD 1.252 billion) were recorded as of 31 December 2021. Additional operational risk RWA (single-digit billion impact) is expected in Q1 2022.
- Acquisitions: UBS agreed to acquire Wealthfront for USD 1.4 billion (expected to close H2 2022), which is expected to decrease the CET1 ratio by approximately 0.4 percentage points upon closing due to goodwill deductions.
- Regulatory Changes:
- Swiss Countercyclical Buffer: Reactivated at a maximum of 2.5% for residential properties, effective 30 September 2022, expected to increase CET1 minimum requirements by ~30 basis points.
- Basel III Finalization: Implementation deferred to 1 January 2023. UBS expects Swiss regulations to come into force in 2024.
- Market Share Add-on: FINMA increased the market share add-on for UBS Group AG from 0.36% to 0.72% for RWA purposes effective Q3 2021.
- Model Updates: Significant RWA increases occurred due to model updates for US mortgages (USD 2.0 billion full year impact) and structured margin loans (USD 2.1 billion full year impact).
Key Facts for Investor Verification
- Capital Adequacy: Verify that the CET1 ratio of 14.98% comfortably exceeds the total minimum requirement of 10.02% (including buffers) and the G-SIB buffer of 1.0%.
- French Case Impact: Monitor the outcome of the appeal to the French Supreme Court and the potential for additional operational risk RWA charges in Q1 2022.
- Share Repurchases: Confirm the execution of the new USD 6 billion repurchase program and the cancellation of shares repurchased under previous programs.
- Regulatory Buffers: Track the impact of the reactivated Swiss countercyclical buffer (effective Sept 2022) on future capital requirements.
- TLAC Compliance: Verify that the TLAC ratio of 34.67% (vs RWA) and 9.80% (vs leverage exposure) remains well above the required minimums for a Global Systemically Important Bank (G-SIB).