Business Context and Reporting Period
This Form 6-K filing, dated November 7, 2023, contains the Pillar 3 Report for UBS Group AG and significant regulated subsidiaries for the period ended September 30, 2023. The report covers the consolidated group, including the acquired Credit Suisse Group (acquired June 12, 2023), and provides regulatory capital, risk-weighted assets (RWA), leverage, and liquidity disclosures in accordance with Basel III and Swiss Financial Market Supervisory Authority (FINMA) requirements.
Key Financial Metrics (UBS Group Consolidated)
| Metric | Value (USD) | Ratio / % |
|---|---|---|
| Common Equity Tier 1 (CET1) Capital | 78.6 billion | 14.38% (CET1 Ratio) |
| Tier 1 Capital | 91.5 billion | 16.75% (Tier 1 Ratio) |
| Total Capital | 91.5 billion | 16.75% (Total Capital Ratio) |
| Risk-Weighted Assets (RWA) | 546.5 billion | - |
| Leverage Ratio Exposure | 1,615.8 billion | 5.67% (Basel III Leverage Ratio) |
| Total Loss-Absorbing Capacity (TLAC) | 194.9 billion | 35.66% (of RWA) |
| Liquidity Coverage Ratio (LCR) | - | 196.5% (Quarterly Average) |
| Net Stable Funding Ratio (NSFR) | - | 120.7% |
Material Changes vs. Prior Period
- Capital Decrease: CET1 capital decreased by USD 1.7 billion to USD 78.6 billion. This was primarily driven by an operating loss before tax of USD 0.3 billion, current tax expenses of USD 0.6 billion, negative foreign currency translation effects of USD 0.6 billion, dividend accruals of USD 0.5 billion, and amortization of transitional CET1 purchase price allocation (PPA) adjustments of USD 0.3 billion.
- RWA Reduction: Total RWA decreased by USD 10.1 billion to USD 546.5 billion. The decline was driven by decreases in credit risk RWA (USD 6.6 billion) and counterparty credit risk RWA (USD 2.3 billion), partially offset by an increase in market risk RWA (USD 0.4 billion).
- Leverage Ratio Improvement: The leverage ratio increased to 5.67% from 5.56%, reflecting a USD 62.1 billion decrease in the leverage ratio denominator (LRD) due to asset size movements and currency effects, which outweighed the decrease in CET1 capital.
- Liquidity Strength: The average LCR increased significantly by 21.3 percentage points to 196.5%, driven by a USD 110.4 billion increase in high-quality liquid assets (HQLA) following the full quarter inclusion of Credit Suisse assets. The NSFR increased by 3.1 percentage points to 120.7%.
Guidance, Outlook, and Risks
- Regulatory Developments: The Swiss Federal Council adopted draft legislation for a public liquidity backstop (PLB) for systemically important banks, expected to come into force by January 2025. FINMA communicated revised liquidity requirements effective January 1, 2024, which UBS expects to meet.
- Accounting Adjustments: UBS reclassified certain loans and off-balance sheet loan commitments in the Non-core and Legacy division to "measured at fair value through profit or loss." This resulted in a USD 14 billion decrease in the LRD from off-balance sheet items and a USD 2 billion increase from derivative exposures.
- Capital Redemption: UBS announced the redemption of an additional tier 1 (AT1) capital instrument (SGD 700 million nominal) on November 28, 2023, and TLAC-eligible senior unsecured debt (JPY 130 billion nominal) on November 8, 2023.
- Subsidiary Performance:
- Credit Suisse AG Consolidated: Reported a net loss of CHF 3.5 billion, reducing CET1 capital to CHF 42.8 billion. However, RWA decreased significantly to CHF 205.1 billion, maintaining a CET1 ratio of 20.9%.
- UBS AG Consolidated: CET1 capital increased slightly to USD 43.4 billion with a CET1 ratio of 13.5%.
Key Facts for Investor Verification
- Operating Loss Impact: Verify the specific components of the USD 0.3 billion operating loss before tax and its attribution to the Non-core and Legacy business versus core operations.
- PPA Amortization: Confirm the timeline and magnitude of the amortization of transitional CET1 PPA adjustments, which will reduce to nil by June 30, 2027.
- Integration Costs: Review the "Recent developments" section of the Q3 2023 report for details on integration costs and restructuring expenses related to the Credit Suisse acquisition.
- Regulatory Add-ons: Note the FINMA Pillar 2 capital add-on of USD 800 million related to the supply chain finance funds matter at Credit Suisse included in the capital requirements.
- Liquidity Composition: Assess the composition of the USD 367.5 billion in HQLA, noting that the increase is substantially attributable to the acquisition of Credit Suisse.