Business Context and Reporting Period
This Form 6-K filing, dated March 15, 2019, presents the audited standalone financial statements for UBS Group Funding (Switzerland) AG for the year ended December 31, 2018. The entity is a wholly-owned subsidiary of UBS Group AG, incorporated in November 2016, and serves as a funding vehicle to issue Basel III Additional Tier 1 (AT1) capital notes and Total Loss-Absorbing Capacity (TLAC)-eligible senior unsecured debt. Proceeds from these issuances are on-lent to UBS AG. Effective October 1, 2018, the company changed its functional and presentation currency from Swiss Francs (CHF) to US Dollars (USD).
Key Financial Metrics
| Metric (USD Million) | 2018 | 2017 |
|---|---|---|
| Financial Income | 1,525 | 508 |
| Financial Expenses | 1,517 | 504 |
| Net Profit | 6 | 3 |
| Total Assets | 42,950 | 28,925 |
| Total Liabilities | 42,933 | 28,912 |
| Long-term Interest-bearing Liabilities | 42,019 | 28,555 |
| Equity Attributable to Shareholders | 16 | 14 |
Liquidity and Cash Flow: The filing does not provide a standalone statement of cash flows due to dispensations granted under Swiss law for subsidiaries of IFRS-reporting parents. Liquid assets totaled USD 115 million as of December 31, 2018, primarily consisting of current accounts held at UBS AG.
Material Changes vs. Prior Period
- Balance Sheet Expansion: Total assets increased by approximately USD 14 billion (48%) from 2017 to 2018, driven by a significant increase in long-term interest-bearing liabilities (debt issuances) and corresponding financial assets (loans to UBS AG).
- Currency Conversion: Financial statements were restated from CHF to USD effective October 1, 2018. Comparative 2017 figures are translated at the closing rate as of December 31, 2017.
- Issuer Substitution: In May 2018, outstanding perpetual capital notes (AT1) issued by UBS Group AG were transferred to UBS Group Funding (Switzerland) AG with retrospective effect to January 1, 2018. Similarly, TLAC-eligible debt previously issued by a Jersey entity was transferred to this Swiss entity in 2017.
- Profitability: Net profit doubled from USD 3 million in 2017 to USD 6 million in 2018, reflecting the larger balance sheet and interest spread on the increased volume of debt instruments.
Guidance, Outlook, Risks, and Unusual Items
- Dividend Proposal: The Board proposes an ordinary dividend distribution of USD 6 million to be approved at the AGM on March 7, 2019. The total CHF dividend is capped at CHF 8 million; if the USD equivalent exceeds this cap due to exchange rates, the USD amount will be reduced pro-rata.
- Regulatory and Tax Risk: In December 2018, the Swiss Parliament approved changes to the tax treatment of "too big to fail" (TBTF) instruments. The new law aims to eliminate additional tax burdens on systemically important banks. Once effective (expected after the referendum period closes in April 2019), new instruments may be issued directly by UBS Group AG, and existing instruments issued by this subsidiary may be assumed by the parent to manage tax burdens.
- Related Party Concentration: The entity has no employees. Its primary assets are loans to UBS AG (USD 41.8 billion), and its primary liabilities are debt guaranteed by UBS Group AG. It is jointly and severally liable for the VAT of the UBS Swiss VAT group.
Investor Verification Checklist
- Currency Impact: Verify the impact of the functional currency change from CHF to USD on future reporting and the specific exchange rates used for translation.
- Debt Assumption Risk: Monitor the effective date of the new Swiss TBTF tax law and the potential transfer of outstanding debt instruments from this subsidiary to UBS Group AG.
- Dividend Cap Mechanism: Confirm the final dividend amount at the AGM, as it is subject to a CHF 8 million cap which may reduce the USD payout if the CHF strengthens.
- Related Party Exposure: Acknowledge that the entity's financial health is entirely dependent on UBS AG and UBS Group AG, with nearly all assets and liabilities being related-party transactions.