Business Context and Reporting Period
This Form 6-K filing, dated March 15, 2019, presents the audited standalone financial statements for UBS Switzerland AG for the year ended December 31, 2018. UBS Switzerland AG is a wholly-owned subsidiary of UBS AG and operates as a systemically relevant bank (SRB) under Swiss banking law. The entity primarily houses the Personal & Corporate Banking and Wealth Management businesses booked in Switzerland. Financial statements are prepared in accordance with Swiss GAAP.
Key Financial Metrics
| Metric (CHF million) | 2018 | 2017 |
|---|---|---|
| Total Operating Income | 8,257 | 8,350 |
| Net Interest Income | 3,221 | 3,294 |
| Net Fee and Commission Income | 3,989 | 3,966 |
| Net Trading Income | 869 | 883 |
| Total Operating Expenses | 6,439 | 6,419 |
| Operating Profit | 1,818 | 1,931 |
| Net Profit for the Period | 1,401 | 1,513 |
| Total Assets | 293,034 | 290,310 |
| Total Equity | 13,834 | 14,785 |
| Common Equity Tier 1 (CET1) Capital | 10,225 | 10,160 |
| Liquidity Coverage Ratio (LCR) | 128% | 144% |
Material Changes vs. Prior Period
- Profitability Decline: Net profit decreased by CHF 112 million (7.4%) to CHF 1,401 million, driven by a CHF 113 million decrease in operating profit. Operating income fell slightly to CHF 8,257 million.
- Expense Increases: Total operating expenses rose to CHF 6,439 million. Notably, General and administrative expenses increased by CHF 63 million to CHF 3,360 million, largely due to higher hard cost transfers from Group entities. Personnel expenses decreased slightly to CHF 2,000 million.
- Asset Growth: Total assets increased by CHF 2.7 billion to CHF 293.0 billion. Mortgage loans grew by CHF 4.5 billion to CHF 150.2 billion, while financial investments decreased significantly by CHF 8.6 billion to CHF 13.1 billion.
- Capital Ratios: The CET1 ratio decreased to 10.69% from 10.94% in 2017, though it remained well above regulatory requirements. The Basel III leverage ratio improved to 4.72% from 4.34%.
- Joint Liability Reduction: The joint liability of UBS Switzerland AG for contractual obligations of UBS AG decreased significantly to CHF 26 billion from CHF 69 billion in 2017.
Guidance, Outlook, and Risks
- Dividend Proposal: The Board of Directors proposes an ordinary dividend distribution of CHF 2,200 million for the 2018 fiscal year. This includes the full net profit of CHF 1,401 million, plus CHF 515 million from the capital contribution reserve and CHF 284 million from the voluntary earnings reserve.
- Regulatory Compliance: As a Swiss SRB, the entity met all going concern and gone concern loss-absorbing capacity requirements. The total loss-absorbing capacity ratio stood at 26.6%.
- Contingent Liabilities: The entity holds net contingent liabilities of CHF 10.8 billion and irrevocable commitments of CHF 10.0 billion. It remains jointly and severally liable for VAT obligations of the UBS VAT group in Switzerland.
- Credit Risk Methodology: As of January 1, 2018, the entity refined its credit loss calculation for Swiss mortgage loans to include forward-looking macroeconomic information, resulting in an additional CHF 20 million credit loss expense in 2018.
Investor Verification Checklist
- Dividend Sustainability: Verify the impact of distributing CHF 2,200 million (exceeding net profit) on the entity's capital reserves and future liquidity.
- Intercompany Dependencies: Assess the reliance on UBS AG for funding (Due to banks includes CHF 15.2 billion in loss-absorbing capacity eligible instruments) and the implications of the joint liability arrangement.
- Asset Quality: Review the composition of the CHF 150.2 billion mortgage loan portfolio and the adequacy of allowances (CHF 460 million total) given the new forward-looking credit loss methodology.
- Regulatory Capital: Confirm the trajectory of the CET1 ratio (10.69%) against the increasing Swiss SRB requirements effective January 1, 2020.
- Off-Balance Sheet Exposure: Evaluate the risk associated with CHF 31.3 billion in fiduciary transactions and CHF 10.8 billion in net contingent liabilities.