UBS Group AG: Q2 2020 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, 2020. 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. The filing also addresses temporary regulatory measures implemented in response to the COVID-19 pandemic.
Key Financial Metrics (UBS Group AG Consolidated)
| Metric | Value (USD) | Ratio / % |
|---|---|---|
| Common Equity Tier 1 (CET1) Capital | $38.1 billion | 13.32% (CET1 Ratio) |
| Total Capital | $58.9 billion | 20.57% (Total Capital Ratio) |
| Risk-Weighted Assets (RWA) | $286.4 billion | - |
| Leverage Ratio Exposure | $974.3 billion | 5.49% (Basel III Leverage Ratio) |
| Total Loss-Absorbing Capacity (TLAC) | $93.7 billion | 32.70% (of RWA) |
| Liquidity Coverage Ratio (LCR) | - | 155% (Average Q2 2020) |
| High-Quality Liquid Assets (HQLA) | $206.7 billion | - |
Material Changes vs. Prior Period
- Capital Growth: CET1 capital increased by $1.5 billion to $38.1 billion, driven by operating profit before tax and foreign currency effects, partially offset by capital returns to shareholders.
- RWA Stability: Total RWA remained stable at $286.4 billion. An increase in credit risk RWA ($2.9 billion) was offset by reductions in counterparty credit risk ($1.6 billion) and market risk RWA ($0.9 billion).
- Liquidity Improvement: The LCR increased significantly to 155% (from 139% in Q1 2020). HQLA rose by $36 billion due to increased debt issuances and higher customer deposits in Global Wealth Management.
- Leverage Ratio Exposure: Increased by $18 billion to $974 billion, primarily due to higher on-balance sheet exposures ($37 billion), partially offset by lower derivative and securities financing transaction (SFT) exposures.
- Accounting Change (UBS AG Standalone): Effective June 30, 2020, UBS AG aligned its accounting for investments in associates with the "equity method," increasing CET1 capital, LRD, and RWA by approximately $0.9 billion, $0.9 billion, and $2.4 billion, respectively.
Guidance, Outlook, and Regulatory Developments
- COVID-19 Regulatory Relief: FINMA extended the temporary exemption allowing banks to exclude central bank sight deposits from the leverage ratio denominator until January 1, 2021. UBS Group AG did not benefit from the backtesting exception freeze in the first two quarters of 2020 as it had no exceptions prior to February 1, 2020.
- Stress Test Results: UBS Americas Holding LLC exceeded minimum capital requirements under the severely adverse scenario in the Federal Reserve's 2020 CCAR/DFAST. The Federal Reserve did not object to its capital plan.
- Market Risk Model Changes: UBS removed the temporary market risk RWA multiplier of 1.3 as of June 30, 2020, following demonstrated model performance. This contributed to a decrease in market risk RWA.
- Swiss Banking Act Revision: A proposed revision to the Swiss Banking Act, expected to take effect in 2022, aims to strengthen depositor protection and amend insolvency provisions. UBS expects moderate additional costs.
Investor Verification Checklist
- Capital Adequacy: Verify that the CET1 ratio of 13.32% comfortably exceeds the minimum requirement plus buffers (3.52% total buffer requirement).
- TLAC Compliance: Confirm that Total Loss-Absorbing Capacity of $93.7 billion meets the 32.70% RWA requirement and 9.61% leverage exposure requirement for Global Systemically Important Banks (G-SIBs).
- Liquidity Buffer: Review the composition of the $206.7 billion HQLA buffer to ensure it remains unencumbered and highly liquid.
- Accounting Impact: Assess the impact of the "equity method" accounting change on UBS AG standalone capital metrics, which increased RWA by $2.4 billion.
- Regulatory Exemptions: Monitor the expiration of the temporary leverage ratio exemption (January 1, 2021) and its potential impact on the leverage ratio denominator.