UBS Group AG Form 6-K Summary: Basel III Pillar 3 Report
Business Context and Reporting Period
This Form 6-K, filed on October 20, 2020, contains the Basel III Pillar 3 Report for UBS Group AG and its significant regulated subsidiaries for the period ended September 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) requirements. UBS is classified as a Systemically Relevant Bank (SRB) under Swiss law.
Key Financial Metrics (UBS Group Consolidated)
| Metric | Value (USD) | Ratio / % |
|---|---|---|
| Common Equity Tier 1 (CET1) Capital | $38.2 billion | 13.49% (CET1 Ratio) |
| Tier 1 Capital | $54.4 billion | 19.21% (Tier 1 Ratio) |
| Total Capital | $59.4 billion | 20.97% (Total Capital Ratio) |
| Total Risk-Weighted Assets (RWA) | $283.1 billion | |
| Leverage Ratio Exposure | $994.4 billion | 5.47% (Basel III Leverage Ratio) |
| Total Loss-Absorbing Capacity (TLAC) | $97.8 billion | 34.53% (of RWA) |
| High-Quality Liquid Assets (HQLA) | $211.2 billion | 154% (Liquidity Coverage Ratio) |
| Net Cash Outflows | $137.3 billion |
Material Changes vs. Prior Period (Q2 2020)
- Capital: CET1 capital increased by $0.1 billion, driven by operating profit and foreign currency effects, partially offset by taxes and capital return accruals. Tier 1 capital rose by $0.9 billion, primarily due to a $750 million Additional Tier 1 (AT1) issuance. Available TLAC increased by $4.1 billion.
- Risk-Weighted Assets: Total RWA decreased by $3.3 billion to $283.1 billion. This was mainly due to a $3.6 billion decrease in market risk RWA and a $1.2 billion decrease in credit valuation adjustment (CVA) RWA, partially offset by a $1.6 billion increase in credit risk RWA.
- Leverage Ratio: The exposure measure increased by $20 billion to $994 billion, reflecting higher on-balance sheet exposures and derivative exposures.
- Liquidity: HQLA increased by $4.5 billion due to higher liquidity buffer securities. Net cash outflows increased by $3.6 billion due to higher customer deposit outflows, resulting in a slight LCR decrease to 154%.
Guidance, Outlook, Risks, and Unusual Items
- COVID-19 Regulatory Measures: UBS utilized a temporary FINMA exemption allowing the exclusion of central bank sight deposits from the leverage ratio calculation. Under this exemption, the leverage ratio would be 6.00%. The bank processed over 24,000 applications for the Swiss government-backed SME lending program, with $1.7 billion drawn as of September 30, 2020.
- Accounting Restatement: In Q3 2020, UBS restated its balance sheet to correct a $43 million liability understatement related to a legacy deferred compensation plan, resulting in a $32 million decrease in equity attributable to shareholders.
- RWA Phase-in: The bank began phasing in RWA increases related to updated probability of default (PD) and loss given default (LGD) parameters for US mortgage portfolios. This is expected to increase RWA by approximately $0.4 billion per quarter over six quarters.
- Stress Testing: UBS Americas Holding LLC was assigned a stress capital buffer (SCB) of 6.7% following the completion of DFAST and CCAR.
- NSFR Implementation: The Net Stable Funding Ratio (NSFR) is expected to become effective in Switzerland on July 1, 2021. UBS is on schedule to operationalize it, with an expected limited overall effect.
Key Facts for Investor Verification
- Capital Adequacy: Verify that CET1 and TLAC ratios remain well above regulatory minimums and buffer requirements (CET1 available after buffers: 8.99%).
- RWA Drivers: Confirm the impact of the ongoing RWA phase-in for US mortgage models and the stability of market risk RWA following the Q2 volatility.
- Liquidity Position: Monitor the Liquidity Coverage Ratio (LCR) trend, which decreased slightly to 154% due to higher customer deposit outflows.
- Regulatory Exemptions: Note the temporary nature of the FINMA leverage ratio exemption (central bank sight deposits) which expires January 1, 2021, and its impact on the reported leverage ratio.
- Subsidiary Metrics: Review standalone metrics for UBS AG (CET1 Ratio 16.76%) and UBS Switzerland AG (CET1 Ratio 11.20%) to ensure local regulatory compliance.