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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM
6-K
REPORT OF FOREIGN PRIVATE
ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
Date: August 31, 2023
UBS Group AG
(Registrant's
Name)
Bahnhofstrasse 45, 8001 Zurich, Switzerland
(Address of principal executive office)
Commission File Number: 1-36764
UBS AG
(Registrant's
Name)
Bahnhofstrasse 45, 8001 Zurich, Switzerland
Aeschenvorstadt 1, 4051 Basel, Switzerland
(Address of principal executive offices)
Commission File Number: 1-15060
Credit Suisse AG
(Registrant's
Name)
Paradeplatz 8, 8001 Zurich, Switzerland
(Address of principal executive office)
Commission File Number: 1-33434
Indicate by check mark whether the registrants file or will file annual
reports under cover of Form 20-F or Form
40-
F.
Form 20-F
☒
Form 40-F
☐
This Form 6-K consists of (a) the Second Quarter 2023 Report of UBS Group AG and
(b) the updated Risk Factors
relating to UBS Group AG, which appears immediately following this
page.
UBS
Group
Second
quarter
2023
report
Corporate calendar UBS Group AG
Publication of the third quarter 2023 report:
Tuesday,
7 November 2023
Publication of the fourth quarter 2023
report:
Tuesday,
6 February 2024
Publication dates of future quarterly and annual reports
and results are made available as
part of the corporate calendar of UBS AG at ubs.com/investors.
Contacts
Switchboards
For all general inquiries
ubs.com/contact
Zurich +41-44-234 1111
London +44-207-567
8000
New York +1-212-821 3000
Hong Kong +852-2971 8888
Singapore +65-6495 8000
Investor Relations
UBS’s Investor Relations team manages
relationships with institutional investors,
research analysts and credit rating agencies.
ubs.com/investors
Zurich +41-44-234 4100
New York +1-212-882 5734
Media Relations
UBS’s Media Relations team manages
relationships with global media and
journalists.
ubs.com/media
Zurich +41-44-234 8500
mediarelations@ubs.com
London +44-20-7567 4714
ubs-media-relations@ubs.com
New York +1-212-882 5858
mediarelations@ubs.com
Hong Kong +852-2971 8200
sh-mediarelations-ap@ubs.com
Office of the Group Company Secretary
The Group Company Secretary handles
inquiries directed to the Chairman or to
other members of the Board of Directors.
UBS Group AG, Office of the Group
Company Secretary
P.O.
Box, CH-8098 Zurich, Switzerland
sh-company-secretary@ubs.com
Zurich +41-44-235 6652
Shareholder Services
UBS’s Shareholder Services team, a unit
of the Group Company Secretary’s office,
manages relationships with shareholders
and the registration of UBS Group AG
registered shares.
UBS Group AG, Shareholder Services
P.O.
Box, CH-8098 Zurich, Switzerland
sh-shareholder-services@ubs.com
Zurich +41-44-235 6652
US Transfer Agent
For global registered share-related
inquiries in the US.
Computershare Trust Company NA
P.O.
Box 505000
Louisville, KY 40233-5000, USA
Shareholder online inquiries:
www-us.computershare.com/
investor/contact
Shareholder website:
computershare.com/investor
Calls from the US
+1-866-305-9566
Calls from outside the US
+1-781-575-2623
TDD for hearing impaired
+1-800-231-5469
TDD for foreign shareholders
+1-201-680-6610
Imprint
Publisher: UBS Group AG, Zurich, Switzerland | ubs.com
Language: English
© UBS 2023. The key symbol and UBS are among
the registered and unregistered
trademarks of UBS. All rights reserved.
1.
UBS
Group
4
Acquisition of Credit Suisse
Group
7
Recent developments
10
Group performance
2.
UBS business divisions and Group
Functions, Credit Suisse business
divisions and Corporate Center
19
UBS business divisions and Group
Functions
19
Global Wealth Management
22
Personal & Corporate Banking
24
Asset Management
26
Investment Bank
28
Group Functions
29
Credit Suisse business divisions and
Corporate Center
30
Wealth Management (Credit Suisse)
31
Swiss Bank (Credit Suisse)
32
Asset Management (Credit Suisse)
33
Investment Bank (Credit Suisse)
33
Capital Release Unit (Credit Suisse)
34
Corporate Center (Credit Suisse)
34
Alignment of assets under management
to invested assets
3.
Risk, capital, liquidity and funding,
and balance sheet
36
Risk management and control
43
Capital management
53
Liquidity and funding management
55
Balance sheet and off-balance sheet
59
Share information and earnings per share
4.
Consolidated
financial statements
61
UBS Group AG interim consolidated
financial statements (unaudited)
5.
Significant regulated subsidiary and
sub-group information
111
Financial and regulatory key figures for
our significant regulated subsidiaries and
sub-groups
Appendix
114
Alternative performance measures
119
Abbreviations frequently used in
our financial reports
121
Information sources
122
Cautionary statement
Second quarter 2023 report
2
Our key figures
As of or for the quarter ended
As of or year-to-date
USD m, except where indicated
30.6.23
31.3.23
31.12.22
30.6.22
30.6.23
30.6.22
Group results
Total revenues
9,540
8,744
8,029
8,917
18,284
18,299
Negative goodwill
28,925
28,925
Credit loss expense / (release)
740
38
7
7
778
25
Operating expenses
8,486
7,210
6,085
6,295
15,696
12,929
Operating profit / (loss) before tax
29,239
1,495
1,937
2,615
30,735
5,344
Net profit / (loss) attributable to shareholders
28,875
1,029
1,653
2,108
29,904
4,244
Diluted earnings per share (USD)
1
8.99
0.32
0.50
0.61
9.30
1.22
Profitability and growth
2,3,4
Return on equity (%)
160.7
7.2
11.7
14.6
92.9
14.4
Return on equity (excluding negative goodwill, integration-related
expenses, and acquisition
costs) (%)
5
3.9
Return on tangible equity (%)
177.8
8.1
13.2
16.4
103.6
16.2
Return on tangible equity (excluding negative goodwill,
integration-related expenses, and
acquisition costs) (%)
5
4.3
Return on common equity tier 1 capital (%)
185.0
9.1
14.7
18.9
111.3
18.9
Return on common equity tier 1 capital (excluding negative goodwill,
integration-related
expenses, and acquisition costs) (%)
5
4.5
Return on leverage ratio denominator, gross (%)
2.8
3.4
3.2
3.4
3.1
3.5
Cost / income ratio (%)
6
88.9
82.5
75.8
70.6
85.8
70.7
Cost / income ratio (excluding integration-related expenses and acquisition
costs) (%)
5,6
80.3
Effective tax rate (%)
1.2
30.7
14.5
19.0
2.7
20.2
Net profit growth (%)
(51.8)
22.6
5.1
604.6
10.8
Net profit growth (excluding negative goodwill, integration-related
expenses, and
acquisition costs) (%)
5
(66.8)
Resources
2
Total assets
1,678,780
1,053,134
1,104,364
1,113,193
1,678,780
1,113,193
Equity attributable to shareholders
86,999
56,754
56,876
56,845
86,999
56,845
Common equity tier 1 capital
7
80,258
44,590
45,457
44,798
80,258
44,798
Risk-weighted assets
7
556,603
321,660
319,585
315,685
556,603
315,685
Common equity tier 1 capital ratio (%)
7
14.4
13.9
14.2
14.2
14.4
14.2
Going concern capital ratio (%)
7
16.8
17.9
18.2
19.0
16.8
19.0
Total loss-absorbing capacity ratio (%)
7
35.2
34.3
33.0
33.7
35.2
33.7
Leverage ratio denominator
7
1,677,877
1,014,446
1,028,461
1,025,422
1,677,877
1,025,422
Common equity tier 1 leverage ratio (%)
7
4.78
4.40
4.42
4.37
4.78
4.37
Liquidity coverage ratio (%)
8
175.2
161.9
163.7
160.8
175.2
160.8
Net stable funding ratio (%)
117.6
117.7
119.8
120.9
117.6
120.9
Other
Invested assets (USD bn)
3,9,10
5,530
4,184
3,981
3,933
5,530
3,933
Personnel (full-time equivalents)
119,100
73,814
72,597
71,294
119,100
71,294
Market capitalization
1,11
69,932
74,276
65,608
56,781
69,932
56,781
Total book value per share (USD)
1
26.95
18.59
18.30
17.45
26.95
17.45
Tangible book value per share (USD)
1
24.61
16.54
16.28
15.51
24.61
15.51
1 Refer to the
“Share information
and earnings
per share”
section of
this report
for more
information.
2 Refer to
the “Targets,
aspirations and
capital guidance”
section of
the Annual
Report 2022
for more
information about our performance targets.
3 Refer to “Alternative performance measures” in the appendix to this report for the definition
and calculation method.
4 Credit Suisse‘s second quarter results for the
one-month period ended 30 June 2023, as included in the Group’s second quarter results, have been annualized for the purpose of the calculation of return measures, by multiplying such
by four and two for quarterly
and semi-annual measures,
respectively.
5 Refer to the “Group
performance” section of this
report for a definition
of integration-related expenses and
for more information about negative
goodwill, integration-
related expenses,
and acquisition costs.
Refer also
to “Note 2
Accounting for the
acquisition of Credit
Suisse Group” in
the “Consolidated
financial statements” section
of this report
for more information
about
acquisition costs.
6 Negative goodwill is not used in the calculation as it is presented in a separate reporting line and is not part of total revenues.
7 Based on the Swiss systemically relevant bank framework as of
1 January 2020. Refer to the “Capital management” section of this report for
more information.
8 The disclosed ratios represent quarterly averages for the quarters presented and are calculated based
on an average
of 64 data points in the second quarter of 2023, 64 data points in the first quarter of 2023, 63 data points in the fourth quarter of 2022 and 64 data points in the second quarter of 2022.
Refer to the “Liquidity and
funding management” section of this report for more information.
9 Consists of invested assets for three UBS business divisions (Global Wealth Management, Asset Management
and Personal & Corporate Banking)
and, starting from the second
quarter of 2023, for
three Credit Suisse business
divisions (Wealth Management,
Swiss Bank and Asset
Management). Refer to “Note
31 Invested assets and
net new money” in
the
“Consolidated financial statements” section of the
Annual Report 2022 for more information.
10 Comparative figures have been
restated to include invested assets from
associates in the Asset Management
and
Asset Management (Credit Suisse) business divisions, to better reflect the business strategy.
11 The calculation of market capitalization has been amended
to reflect total shares issued multiplied by the share price
at the end of the period.
The calculation was previously based on total shares outstanding multiplied by
the share price at the end of
the period. Market capitalization has been increased by USD 10.0bn as of
31 March
2023, by USD 7.8bn as of 31 December 2022 and by USD 4.3bn as of 30 June 2022 as a result.
Alternative performance measures
An alternative performance measure (an APM) is a financial measure of historical or
future financial performance,
financial position
or cash
flows other
than a
financial measure
defined or
specified in
the applicable
recognized
accounting standards
or
in other
applicable regulations.
We
report
a
number of
APMs
in
the discussion
of
the
financial and operating performance of the Group, our business divisions and our Group Functions. We use APMs
to
provide
a
more
complete
picture
of
our
operating
performance
and
to
reflect
management’s
view
of
the
fundamental drivers
of our
business results.
A definition
of each
APM, the
method used
to calculate
it and
the
information content are presented under “Alternative performance measures” in the appendix to this report. Our
APMs may qualify
as non-GAAP measures
as defined by
US Securities and
Exchange Commission
(SEC) regulations.
Second quarter 2023 report
3
UBS Group
Management report
Terms used in this report, unless the context requires otherwise
“UBS,” “UBS Group,” “UBS Group
AG consolidated,” “Group,”
“the Group,” “we,” “us”
and “our”
UBS Group AG and its consolidated subsidiaries
“UBS AG” and “UBS
AG consolidated”
UBS AG and its consolidated subsidiaries
“Credit Suisse AG” and “Credit Suisse
AG consolidated”
Credit Suisse AG and its consolidated subsidiaries
“Credit Suisse Group“ and “Credit Suisse Group
AG consolidated”
Pre-acquisition Credit Suisse Group
”Credit Suisse”
Credit Suisse AG and its consolidated subsidiaries,
Credit Suisse
Services AG, and other small former Credit
Suisse Group entities
now directly held by UBS Group AG
“UBS Group AG” and “UBS
Group AG standalone”
UBS Group AG on a standalone basis
“Credit Suisse Group AG” and
“Credit Suisse Group AG standalone”
Credit Suisse Group AG on a standalone basis
“UBS AG standalone”
UBS AG on a standalone basis
“Credit Suisse AG standalone”
Credit Suisse AG on a standalone basis
“UBS Switzerland AG” and “UBS
Switzerland AG standalone”
UBS Switzerland AG on a standalone basis
“UBS Europe SE consolidated”
UBS Europe SE and its consolidated subsidiaries
“UBS Americas Holding LLC” and
“UBS Americas Holding LLC consolidated”
UBS Americas Holding LLC and its consolidated subsidiaries
“1m”
One million, i.e., 1,000,000
“1bn”
One billion, i.e., 1,000,000,000
“1trn”
One trillion, i.e., 1,000,000,000,000
In this report, unless the context requires otherwise,
references to any gender shall apply to all genders.
References to UBS Group’s business divisions in
this report
As
of
30 June
2023,
Credit
Suisse’s
business
is
organized
globally
into
five
reporting
segments
and
Corporate
Center, which
are referred
to as
Wealth Management
(Credit Suisse),
Swiss Bank
(Credit Suisse),
the Investment
Bank
(Credit Suisse),
Asset Management
(Credit
Suisse), the
Capital
Release Unit
(Credit
Suisse) and
Corporate
Center
(Credit
Suisse)
throughout
this
report.
References
to
the
pre-integration
UBS
business
divisions
are
unchanged from our previous reports.
Second quarter 2023 report
4
Acquisition of Credit Suisse Group
On 12 June
2023, UBS Group
AG acquired
Credit Suisse Group
AG, succeeding by
operation of Swiss
law to
all
assets and liabilities of Credit Suisse Group AG, and became
the direct or indirect shareholder of all of the former
direct and indirect subsidiaries of Credit Suisse
Group AG (the Transaction).
The acquisition followed a
request from the Swiss
Federal Department of Finance,
the Swiss National Bank
and the
Swiss Financial
Market Supervisory
Authority (FINMA)
to both
firms to
duly consider
the Transaction
in order
to
restore necessary
confidence
in the
stability of
the Swiss
economy and
banking system
and to
serve the
best interests
of the shareholders and
stakeholders of UBS and Credit
Suisse. As a result
of further negotiations and
supported
by
distinct
government guarantees
and
measures, the
firms
subsequently
entered into
a
merger
agreement on
19 March 2023
Upon the completion of the Transaction, each outstanding, registered Credit Suisse Group AG
share converted to
the right
to receive,
subject to
the payment
of certain
fees to
the Credit
Suisse Depositary
in the
case of
Credit
Suisse American depositary
shares (ADS), a
merger consideration consisting
of 1/22.48 UBS
Group AG shares.
In
aggregate, Credit Suisse Group
AG shareholders received 5.1%
of the outstanding UBS
Group AG shares on
the
acquisition date, with a purchase price of USD
3.7bn.
UBS has
accounted for the
acquisition as a
business combination under
IFRS 3,
Business Combinations, applying
the acquisition method of
accounting. Our consolidated financial statements for the
second quarter of 2023
and
the six months
ended 30 June 2023 include results
of operations of Credit
Suisse with effect from
31 May 2023,
as the
effect of transactions and
activities in the
period from 31 May
2023 to 12 June
2023 on the
consolidated
financial statements was not material.
As part
of the
acquisition method
of accounting,
the assets
and liabilities
of the
Credit Suisse
Group have
been
converted from US generally accepted
accounting principles (GAAP) to International
Financial Reporting Standards
(IFRS) and have been
remeasured at fair value
at the acquisition date.
The difference of
USD 29bn between the fair
value of
the assets
and liabilities
acquired and
the consideration
transferred has
been recognized
in the
income
statement
as
negative
goodwill.
As
agreed
with
the
Swiss
Financial
Market
Supervisory
Authority
(FINMA),
a
transitional
common
equity
tier 1
(CET1)
capital
treatment
has
been
applied
for
certain
of
these
fair
value
adjustments, given the substantially
temporary nature of the
IFRS-3-accounting-driven effects. As
such, IFRS equity
reductions of USD 5.9bn (pre-tax) and USD 5.0bn (net of tax) as of the
acquisition date have been neutralized for
CET1
capital
calculation
purposes,
of
which
USD 1.0bn
(net
of
tax)
relates
to
own-credit-related
fair
value
adjustments. The
transitional treatment
is subject to
linear amortization
and will reduce
to nil by
30 June 2027.
The
acquisition of
the Credit
Suisse
Group resulted
in
a
USD
237.7bn increase
in
RWA. As
agreed
with FINMA,
the
aggregation of the advanced measurement approach (AMA)
models considering diversification effects resulted in
a USD 10bn
reduction in
operational risk
RWA in
the second
quarter of
2023. In
addition, UBS
Group will
be subject
to higher
too-big-to-fail capital requirements
for market
share and
total exposure after
an appropriate
transition
period to be agreed with FINMA. The phase in of the increased capital requirements will commence from the end
of 2025 and will be completed by the beginning
of 2030 at the latest.
As of 30 June 2023, Credit Suisse
business divisions represented separate reportable segments in the UBS Group,
and are therefore
included in the
management discussion
and analysis in
this report
in addition to
the UBS business
divisions before integration.
›
Refer to “Note 2 Accounting for the acquisition of Credit Suisse Group” in the “Consolidated financial statements”
section of this report for more information
›
Refer to the “UBS business divisions and Group Functions, Credit Suisse business divisions and Corporate Center”
section in this report for further information
Termination of the Loss Protection Agreement
and Public Liquidity Backstop facilities
Based
on
the
emergency
ordinance
issued
by
the
Swiss
Federal
Council
on
16 March
2023,
as
amended
on
19 March 2023,
(the Emergency
Ordinance), UBS
Group AG
entered into
a loss
protection agreement
(the LPA)
with
the
Swiss
Confederation,
with
an
effective
date
of
12 June
2023.
As
part
of
this
agreement,
the
Swiss
Confederation would
have borne
up to
CHF 9bn losses,
if realized, on
a designated
portfolio of
Credit Suisse’s
non-
core assets after the first CHF 5bn of losses, which would
have been borne by UBS.
Second quarter 2023 report
5
In connection
with the
Transaction, as of
30 June 2023
the Swiss
National Bank (the
SNB) confirmed
continuing
access
to
its
existing
liquidity facilities
for
the
combined Group.
Under
the
Emergency Ordinance,
UBS
AG
and
Credit Suisse AG also had access to additional SNB liquidity up to CHF 100bn on a combined basis, with the
loans
under the
facility having
preferential rights
in bankruptcy
proceedings. Credit
Suisse Group
was also
allowed to
borrow
up
to
an
additional
CHF 100bn
from
the
SNB
backed
by
a
Swiss
federal
default
guarantee
(the
Public
Liquidity Backstop), with the loans also having
preferential rights in bankruptcy proceedings.
On
11 August
2023,
UBS
Group
AG
voluntarily
terminated
the
LPA
and
the
Public
Liquidity
Backstop.
After
reviewing all assets covered by the LPA since the closing of the Transaction in June and taking the appropriate fair
value adjustments,
UBS concluded
that the
LPA was
no longer
required. All
loans under
the Public
Liquidity Backstop
were fully
repaid by
the Credit
Suisse Group
as of
the end
of May
2023 and
Credit Suisse
AG fully
repaid outstanding
Emergency
Liquidity
Assistance
Plus
loans
on
10 August
2023.
Credit
Suisse
(Schweiz)
AG
has
outstanding
borrowing of CHF 38bn under the ELA facility,
which are fully collateralized by Swiss mortgages
.
Non-core
and legacy portfolio
We
have
created
a
Non-core and
Legacy (NCL)
business division,
which will
include Credit
Suisse positions
and
businesses not aligned with our
strategy and policies, such as
the assets and liabilities
of the Capital Release Unit
(Credit Suisse) and certain
assets and liabilities of
the Investment Bank
(Credit Suisse), Wealth Management
(Credit
Suisse) and Asset Management
(Credit Suisse),
as well as the
remaining assets and liabilities
of UBS’s Non-core and
Legacy Portfolio
and smaller
amounts of assets
and liabilities of
UBS business divisions
that we have
assessed as not
strategic in
light of
the acquisition
of the
Credit Suisse
Group.
As of
30 June 2023,
the positions
that will
be included
in NCL represented
approximately USD 55bn of risk-weighted assets
(RWA), excluding operational risk RWA,
and
USD 224bn of leverage
ratio denominator (LRD). About half
of these RWA
are expected to
run-off by the
end of
2026. We intend to actively reduce
the assets of the NCL business division in order
to reduce operating costs and
financial resource consumption, and to enable us to simplify
infrastructure.
Integration and cost reduction
We aim
to substantially
complete the
integration for
the Group
by the
end of
2026. We
further aim
to achieve
gross cost reductions of over USD 10bn by
that time. Cumulative integration-related expenses are expected to be
broadly offset
by accretion-to-par effects
of approximately USD 12bn related
to fair value
adjustments applied to
amortized-cost financial instruments. Approximately USD 4bn of the aforementioned fair value adjustments relate
to financial instruments that are expected to be
accounted for as fair value through profit
or loss in our Non-core
and Legacy business division.
We expect to revise
our initial estimates of cumulative integration-related expenses,
including their
expected timing
as we
progress the
integration, after
the conclusion
of our
strategic planning
process
and around the publication of our fourth quarter 2023
results.
As part of
the integration,
we plan to
simplify our
legal structure,
including the
merger of
UBS AG and
Credit Suisse
AG planned for 2024.
Based on these plans, and
excluding integration-related expenses and accretion-to-par effects, we aim
to achieve
an exit-rate cost
income ratio of
less than 70%
by end-2026 and
to progress towards a
2026 exit rate
return on
CET1 capital of
around 15%. We
expect the underlying profit
before tax for
the UBS Group for
the third quarter
of
2023 to be
at or around
break-even and to
deliver positive underlying profit
before tax in
the second half
of the
year, supported by various factors,
including revenue stabilization, cost savings and
lower funding costs.
Beginning
with
the
third
quarter
of
2023,
we
will
report
five
business
divisions,
Global
Wealth
Management,
Personal & Corporate
Banking, Asset Management,
the Investment Bank
and NCL, and
we will separately
report
Group Items.
Material weakness in the Credit Suisse
Group’s internal control over financial reporting
as of 31 December 2022
and 31 December 2021
As registrants with the
US Securities and
Exchange Commission
(the SEC), the
UBS Group and Credit
Suisse AG are
subject to requirements under the Sarbanes–Oxley
Act of 2002 with respect to financial
reporting. This requires us
to
perform
system
and
process
evaluation
and
testing
of
internal
controls
over
financial
reporting
to
enable
management to
assess the
effectiveness of
our internal
controls. A
material weakness
is a
deficiency or
combination
of deficiencies in internal control over financial reporting such that there
is a reasonable possibility that a material
misstatement of a registrant’s financial statements
will not be prevented or detected on a timely basis.
Second quarter 2023 report
6
In March 2023, i.e., prior to the Transaction,
the Credit Suisse Group disclosed that
its management had identified
certain material weaknesses
in its
internal controls over
financial reporting, as
a result of
which it had
concluded
that, as of 31 December 2022, the Credit
Suisse Group’s internal control over financial
reporting was not effective
and, for the same reasons,
had reached the same conclusion
regarding the situation as
of 31 December 2021. The
Credit Suisse Group subsequently started a
remediation program.
Since the
acquisition, management
has commenced
a review
of the
processes and
systems giving
rise to
the material
weaknesses
and
the
remediation
program
undertaken.
This
review
is
ongoing
and
we
expect
to
adopt
and
implement
further
controls
and
procedures
following
the
completion
of
the
review
and
discussions
with
our
regulators. In the
course of this
review management
may become aware
of facts that
cause it to
broaden the scope
of the
review. UBS
expects to
assess the
implementation and
operating effectiveness
of the
controls and
procedures
designed to remediate
these weaknesses
before reaching
a conclusion on
the effectiveness
of internal controls
over
financial reporting for the 2023 financial year.
Integration of Credit Suisse (Schweiz)
After a thorough evaluation, we have determined
to integrate Credit Suisse Schweiz AG with UBS
Switzerland AG
through a merger of the two
banks. We believe the combined bank
will be a stronger partner for
our clients, the
Swiss economy and communities
and will produce greater value
for shareholders. The combination
will allow us to
maintain our combined lending capacity in
Switzerland and our risk discipline and culture.
We plan to complete
the merger of
the banks in 2024
and target client
migration to a
combined platform in
2025.
Second quarter 2023 report |
UBS Group AG | Recent developments
7
Recent developments
Regulatory and legal developments
Introduction of a public liquidity backstop in
Switzerland
In May 2023, the Swiss Federal Council (the SFC) launched a consultation on the introduction
of a public liquidity
backstop (the
PLB) for systemically
important banks
(SIBs) which was
initially implemented
as part
of the emergency
ordinance issued in
connection with Credit
Suisse Group. The
proposed legislative changes
aim to establish
the PLB
instrument as part
of ordinary law
in order to enable
the Swiss government
and the Swiss
National Bank to
support
an SIB domiciled in Switzerland
with liquidity in the process
of resolution, in line with
other financial centers. The
introduction of
the PLB
is intended
to increase
the confidence
of market
participants in
the ability
of SIBs
to become
successfully recapitalized and remain solvent in a crisis.
In
addition
to
the
PLB,
the
proposed
legislative
changes
would
enact
into
ordinary
law
additional
provisions
contained in the emergency ordinance of March 2023, including mandated clawback of variable compensation in
the event that government support is provided
to an SIB.
The final
proposals are
expected to be
presented to
the Swiss
Parliament by the
SFC in
September 2023, and,
if
adopted, legislative changes are expected
to come into force by January 2025.
Further developments regarding the acquisition
of Credit Suisse Group by UBS
The Swiss
Federal Department
of Finance
(the FDF)
is undertaking
a review
of the
circumstances that
led to
the
acquisition of the Credit Suisse Group by
UBS. In May 2023, it convened
a group of experts on banking
stability to
work on strategic considerations regarding the role
of banks and the national framework
related to the stability of
the Swiss financial center. The group of experts
is expected to present its
findings to the FDF
in the third quarter of
2023. The
experts’ findings
will be
considered by
the SFC
in its
bi-annual too-big-to-fail
(TBTF)
review report
by
April 2024.
In June 2023, the Swiss Parliament formed a parliamentary inquiry committee that is
mandated to investigate the
legitimacy, expediency
and effectiveness
of the
management of
the competent
authorities and
bodies in
the context
of the Credit
Suisse Group
crisis. The committee
will report
to the Swiss
Parliament on
the results
of its investigation
and will propose measures to remedy any
identified deficiencies.
Both the
findings of
the group
of experts
and the
conclusions by
the inquiry
committee may
include potentially
significant recommendations, which could
result in more stringent regulation.
Swiss electorate votes in favor of a new
Climate and Innovation Act
In June
2023, the
Swiss electorate voted
in favor
of the
new Climate and
Innovation Act. The
act defines
a net-
zero-by-2050 target
for Switzerland,
including interim
targets for
selected sectors
of the
Swiss economy. In
addition,
each Switzerland-domiciled company is required to set a net-zero
target by 1 January 2025. The act also contains
provisions
for
public
funding
to
replace
aged
heating
systems
in
buildings
and
for
application
of
innovative
technologies within companies. Article 9 of the act requires
the financial sector to make an effective
contribution
to the
transition to net
zero and
sets the
general goal
of the
alignment of financial
resources to
climate-friendly
outcomes. Specific
measures to
achieve the
targets
will be
proposed in
the CO
2
Act, which
is currently
under revision
in Parliament.
Swiss electorate votes in favor of the implementation
of global minimum taxation in Switzerland
In June 2023, the Swiss
electorate voted in favor
of the introduction of a minimum
corporate tax rate as stipulated
by
the
Global
Anti-Base
Erosion
Model
Rules
(Pillar Two)
of
the
Organisation
for
Economic
Co-operation
and
Development. The
amendment will
be implemented
by way
of an
ordinance of the
SFC and
will provide a
minimum
tax rate of
15% as of
1 January 2024 for
Swiss companies with
global earnings above EUR 750m.
UBS does not
expect the implementation of global minimum
taxation in Switzerland to materially
impact its effective tax rate.
Second quarter 2023 report |
UBS Group AG | Recent developments
8
Sanctions related to the Russia–Ukraine war
In August
2023, the
SFC announced
that Switzerland
is implementing
further EU
sanctions against
Russia following
the EU
taking new
measures against
Russia as
part of
the EU’s
11th sanctions
package, which
was partially
adopted
by
Switzerland
in
June
2023
by
expanding
the
sanction
lists
concerning Russia.
As
part
of
the
11th
sanctions
package, the EU has created a specific
legal basis for an instrument to prevent
the evasion of sanctions. The
SFC is
determined to take
effective action against the
evasion of sanctions
and will examine
the implementation of this
instrument in the
event of its
actual application by
the EU. In
addition, Switzerland is
joining the EU
in imposing
sanctions at Moldova’s request.
UBS’s sanctions programs
are designed to
comply with sanctions
across multiple
jurisdictions, including those imposed by the United
Nations, Switzerland, the EU, the UK and the
US.
Recent events in the US banking market
In May
2023, the
Federal Reserve
Board (the
FRB) and
the Federal
Deposit Insurance
Corporation (the
FDIC) released
reports that covered the
circumstances leading to
the closing of
certain banking
organizations following
the events
in the
banking market in
March 2023.
The reports
noted shortcomings in
the supervisory agencies’
execution of
examination programs, including escalation of supervisory
issues and staffing. They also raised concerns related to
the regulatory framework, including the Federal Reserve’s
Tailoring
Rule and other topics, such as interest rate
risk
management.
UBS
expects
these
developments
to
impact
the
regulatory
environment
in
the
US,
where
UBS
maintains significant operations.
In
addition,
in
June
2023,
the
FDIC
issued
a
proposal
to
recover
certain
losses
sustained
in
the
resolution
of
uninsured deposits
held by
the now-closed
banks, as
required under
existing banking
regulations. The
proposal
would impose a special assessment on covered banks based on their respective levels of uninsured deposits above
a certain threshold and based on a proposed assessment rate. UBS Bank USA would be impacted by this proposal
once finalized.
US authorities consult on final Basel III implementation
In July 2023, US banking
regulators, including the FRB,
the FDIC and the Office
of the Comptroller of the
Currency
(the OCC), issued a
public consultation on a proposal that
would implement the final components of
the Basel III
capital standards for
US banking organizations and
foreign-owned intermediate holding companies,
such as UBS
Americas Holding LLC and
Credit Suisse Holdings (USA),
Inc. Among others, the
proposed rules would end the
use
of the internal model approach for credit risk by
the largest banking organizations and would introduce instead a
new
standardized
approach.
In
addition,
the
proposed
rules
for
operational
risks
would
replace
the
advanced
measurement approach with a standardized measure.
The proposal calls for a three-year
transition period, starting
on 1 July
2025, and
full implementation
by 1 July
2028. The
impact on
UBS will
depend on
new or
revised regulatory
interpretations, changes in business growth, market conditions
and other factors.
The International Sustainability Standards Board
issues global sustainability disclosure standards
In June
2023, the
International Sustainability Standards
Board (the
ISSB) finalized its
first set
of requirements
for
corporate disclosures
regarding
sustainability matters:
IFRS S1 and
IFRS S2. IFRS S1
addresses the
disclosure of
a
company’s
sustainability-related
risks
and
opportunities.
IFRS S2
addresses
the
disclosures
for
the
governance
processes,
controls
and
procedures
an
entity
uses
to
monitor,
manage
and
oversee
climate-related
risks
and
opportunities
and
the
entity’s
strategy
for
managing
risks
and
opportunities.
The
standards
incorporate
the
recommendations of the Task
Force on Climate-related Financial Disclosures (the TCFD). These ISSB
standards will
be available for use from January 2024. UBS’s implementation of the
standards will depend, among other factors,
on whether the standards are adopted in jurisdictions
in which UBS files financial reports.
European Commission presents a new retail investor
strategy
In May 2023, the European
Commission presented draft
legislative proposals aimed at
empowering retail investors
to make investment decisions
that are aligned with their needs and
preferences and ensuring that they are treated
fairly and duly
protected. The proposals
also aim to
encourage greater participation in
EU capital markets
and to
enable a
greater volume
of funds
to flow
more easily
into EU
capital markets.
The package
revises EU
capital markets
rules, which, once agreed and in
force, could have significant implications and require
significant implementation
efforts by UBS.
Second quarter 2023 report |
UBS Group AG | Recent developments
9
EU physical presence requirement for cross-border
banking services
In June 2023, legislators in
the EU reached a
provisional agreement on amendments to
the Capital Requirements
Regulation
and
the
Capital
Requirements
Directive.
The
provisional
agreement
includes,
alongside
measures
to
implement
the
remaining
elements
of
the
Basel III
standard,
a
framework
that
would
require
non-EU
firms
to
establish a
physical presence
within the
EU when
providing certain
banking services
to EU-domiciled
clients and
counterparties (including
deposit-taking and
commercial lending),
unless they
are
subject to
an
exemption. The
changes
will
affect
the
cross-border
provision
of
certain
banking
services
and
will
require
UBS
to
adapt
its
approaches to
providing such
services to
clients in
the EU.
The requirement
is expected
to become
effective in
2026,
with grandfathering provisions for contracts already in
existence at the date of introduction.
The revised Swiss Data Protection Act
The revised Swiss Federal Data Protection Act and the corresponding Federal Data Protection Ordinance will enter
into force on
1 September 2023. The revised
law represents a
fundamental reform that strengthens
the rights of
consumers regarding their data by
enhancing the transparency and accountability rules for
companies processing
data, among
other measures.
In addition,
it seeks
to align
Swiss data
protection law
with the
EU General
Data
Protection Regulation, in order to ensure continued cross-border transmission of
data with EU Member States.
US Executive compensation rules
In October 2022, the Securities
and Exchange Commission (the
SEC) adopted rules requiring US national
securities
exchanges, including the
New York Stock Exchange (the NYSE) and
Nasdaq, to adopt listing
standards that require
issuers to adopt and enforce a policy to recover from executive officers incentive compensation received based on
attainment
of
a
financial
reporting
measure
in
the
event
that
the
issuer
is
required
to
prepare
an
accounting
restatement of
financial statements
due to
material non-compliance
with financial
reporting requirements. The
SEC
approved
the
listing
standards
promulgated
by
the
NYSE
and
Nasdaq
in
June
2023
and
the
clawback
policy
requirement
comes into
effect
as of
1 December 2023.
Under
the listing
standards,
an
issuer must
recover
the
amount of incentive-based compensation that would not
have been received if
it had been determined based on
the restated financial information. UBS Group AG, UBS AG and Credit Suisse AG each have securities listed on US
national securities exchanges and intend to adopt
a policy to comply with the listing standards.
Other developments
Organizational changes
On 9 May 2023, Todd
Tuckner was appointed a member of the Group
Executive Board (the GEB) with immediate
effect,
and
announced
as
the
successor
to
Sarah
Youngwood
as
Group
Chief
Financial
Officer,
effective
from
12 June 2023.
Ulrich Körner, formerly
the Chief
Executive Officer
of Credit Suisse
AG, became
a member of
UBS’s GEB on
12 June
2023. He is responsible for
Credit Suisse’s operational continuity
and client focus, while supporting
the integration
process.
Beatriz Martin
Jimenez joined
the GEB
on 9 May
2023 and
was appointed
Head Non-core
and Legacy
and President
UBS EMEA effective from 12 June 2023. She
also remains UBS Chief Executive for
the UK.
Michelle Bereaux has been appointed
Group Integration Officer and Stefan
Seiler has been appointed Group
Head
Human Resources & Group Corporate
Services, effective 12 June 2023. Both
also became members of the GEB
on
9 May 2023.
To further
support the
successful integration
of Credit
Suisse, Michael
Dargan has
been appointed
Group Chief
Operations and Technology Officer and continues
as a member of the GEB.
Second quarter 2023 report |
UBS Group AG | Group performance
10
Group performance
Income statement
For the quarter ended
% change from
Year-to-date
USD m
30.6.23
31.3.23
30.6.22
1Q23
2Q22
30.6.23
30.6.22
Net interest income
1,713
1,388
1,665
23
3
3,101
3,436
Other net income from financial instruments measured
at fair value through profit or loss
2,463
2,681
1,619
(8)
52
5,143
3,845
Net fee and commission income
5,175
4,606
4,774
12
8
9,781
10,127
Other income
188
69
859
172
(78)
258
891
Total revenues
9,540
8,744
8,917
9
7
18,284
18,299
Negative goodwill
28,925
28,925
Credit loss expense / (release)
740
38
7
778
25
Personnel expenses
5,651
4,620
4,422
22
28
10,271
9,343
General and administrative expenses
1,968
2,065
1,370
(5)
44
4,033
2,578
Depreciation, amortization and impairment of non-financial
assets
866
525
503
65
72
1,391
1,009
Operating expenses
8,486
7,210
6,295
18
35
15,696
12,929
Operating profit / (loss) before tax
29,239
1,495
2,615
30,735
5,344
Tax expense / (benefit)
361
459
497
(21)
(27)
820
1,082
Net profit / (loss)
28,878
1,037
2,118
29,915
4,262
Net profit / (loss) attributable to non-controlling interests
3
8
10
(60)
(69)
11
18
Net profit / (loss) attributable to shareholders
28,875
1,029
2,108
29,904
4,244
Comprehensive income
Total comprehensive income
28,011
1,833
1,079
29,844
1,008
Total comprehensive income attributable to non-controlling interests
(2)
13
(17)
(91)
11
9
Total comprehensive income attributable to shareholders
28,013
1,820
1,097
29,833
999
Group performance as reported and excluding negative goodwill, integration-related expenses, and acquisition costs
For the quarter ended
USD m
30.6.23
Total revenues
9,540
Negative goodwill
28,925
Credit loss expense / (release)
740
Total operating expenses (as reported)
8,486
of which: integration-related expenses
724
of which: pre-acquisition UBS sub-group
350
of which: Credit Suisse
374
of which: acquisition costs
106
Total operating expenses (excluding integration-related expenses and acquisition costs)
7,656
Operating profit / (loss) before tax (as reported)
29,239
Operating profit / (loss) before tax (excluding negative goodwill, integration-related expenses, and acquisition
costs)
1,144
The acquisition of
Credit Suisse resulted
in substantial
negative goodwill, which
is the excess
of the fair
value of the
identifiable net assets acquired in the
transaction over the fair value of
the consideration transferred. Integration-
related expenses amounted
to USD 724m in the second
quarter of 2023, of which
USD 354m related to personnel
costs, USD 206m
to the
impairment of
in-progress software projects
resulting from
a reprioritization of
software
development activity and USD 89m to consulting,
legal and audit fees. Integration-related expenses
are defined as
expenses that
are temporary,
incremental and
directly related
to the
integration of
UBS and
Credit Suisse.
They
generally include costs
of internal staff
and contractors substantially
dedicated to integration
activities, redundancy
costs,
incremental
expenses
from
the
shortening
of
useful
lives
of
property,
equipment
and
software,
and
impairment charges
relating to these
assets. Classification
as integration-related
expense does not
affect the timing
of recognition
and measurement
of those
expenses or
the presentation
in the
income statement.
Integration-related
expenses
incurred
by
Credit
Suisse
in
the
second
quarter
of
2023
also
included
expenses
associated
with
restructuring programs that existed prior
to the acquisition.
Acquisition costs amounted to
USD 106m, of which USD 54m
related to consulting and
legal fees and
USD 45m
related to the loss protection agreement with the
Swiss government.
Second quarter 2023 report |
UBS Group AG | Group performance
11
Results: 2Q23 vs 2Q22
Operating profit before tax increased by USD 26,624m, to USD 29,239m, primarily
reflecting negative goodwill of
USD 28,925m
and
an
increase in
total
revenues, partly
offset
by
higher
operating
expenses and
net credit
loss
expenses of
USD 740m, compared
with net
credit loss
expense of
USD 7m in
the second
quarter of
2022. Total
revenues increased
by USD 623m,
or 7%,
to USD 9,540m,
largely due
to the
consolidation of
Credit Suisse
revenues
of USD 1,156m. Total combined net interest
income and other net income from financial
instruments measured at
fair value
through profit
or loss
increased by
USD 892m,
mainly attributable
to the
consolidation of
the Credit
Suisse
Group, which accounted for
USD 497m of
the increase, with the
remaining amount relating to
the UBS business
divisions driven by
the impact of
higher rates. In
addition,
net fee and commission
income increased by
USD 401m,
mainly attributable to a larger invested assets base, following the acquisition of the
Credit Suisse Group.
This was
partly offset
by a USD 671m
decrease in
other income,
largely due to
the prior-year
quarter including
an USD 848m
gain in Asset Management
on the sale of a joint venture. Operating expenses increased by USD 2,191m, or 35%,
to USD 8,486m, largely due to the consolidation of Credit Suisse expenses of USD 1,641m. The second quarter
of
2023
included
total
integration-related
expenses
of
USD 724m
and
acquisition
costs
of
USD 106m.
Personnel
expenses
increased
by
USD 1,229m,
mainly
reflecting
higher
expenses
for
salaries
and
variable
compensation.
General and
administrative expenses
increased by
USD 598m, across
most categories,
partly offset
by lower
net
expenses for litigation, regulatory and similar matters.
Depreciation, amortization and impairment of non-financial
assets increased by USD 363m, mainly driven
by software impairments.
›
Refer to “Note 2 Accounting for the acquisition of Credit Suisse Group” in the “Consolidated financial statements”
section of this report for more information about the negative goodwill recognized
Total revenues: 2Q23 vs 2Q22
Net interest income and other net income
from financial instruments measured at
fair value through profit or loss
Total combined net
interest income
and other
net income
from financial
instruments
measured at
fair value
through
profit or loss increased
by USD 892m to
USD 4,176m, mainly
driven by the
consolidation of
Credit Suisse revenues,
and
higher
revenues
in
Personal
&
Corporate
Banking,
and
Global
Wealth
Management,
partly
offset
by
the
Investment Bank.
Of the aforementioned increase,
USD 497m can be attributed to the consolidation
of Credit Suisse entities.
Personal &
Corporate Banking
increased by
USD 300m to
USD 941m, largely
due to
higher net
interest income,
mainly driven by higher deposit margins,
which resulted from rising interest
rates, and higher loan revenues,
partly
offset by
lower deposit fees.
The prior-year
quarter also included
a benefit from
the Swiss
National Bank deposit
exemption.
Global Wealth Management
increased by USD 173m
to USD 1,721m, largely reflecting
higher net interest income,
mainly driven by higher deposit margins, which resulted
from rising interest rates, more than offsetting the
effects
of
lower
average
deposit
volumes
and
lower
loan
revenues,
which
reflected
lower
average
loan
volumes
and
margins.
The Investment
Bank decreased by
USD 160m to
USD 1,210m. Derivatives &
Solutions decreased by
USD 255m,
driven by Equity Derivatives, Rates and Foreign Exchange, due
to lower levels of volatility and
client activity, partly
offset by
an increase
in Credit
revenues. This
was partly offset
by a
USD 65m increase
in Financing,
mainly from
higher
revenues
in
Equity
Financing,
primarily
reflecting
the
impact
of
higher
rates.
In
addition,
there
was
a
USD 25m increase in Global Banking, mainly reflecting
higher revenues from Leveraged Capital Markets.
›
Refer to “Note 4 Net interest income” in the “Consolidated financial statements” section of this report for more
information about net interest income
Second quarter 2023 report |
UBS Group AG | Group performance
12
Net interest income and other net income from financial instruments measured at fair value through profit or loss
For the quarter ended
% change from
Year-to-date
USD m
30.6.23
31.3.23
30.6.22
1Q23
2Q22
30.6.23
30.6.22
Net interest income from financial instruments measured
at amortized cost and fair value
through other comprehensive income
1,221
962
1,310
27
(7)
2,183
2,673
Net interest income from financial instruments measured
at fair value through profit or loss
and other
493
425
355
16
39
918
763
Other net income from financial instruments measured
at fair value through profit or loss
2,463
2,681
1,619
(8)
52
5,143
3,845
Total
4,176
4,069
3,284
3
27
8,245
7,281
Global Wealth Management
1,721
1,803
1,548
(5)
11
3,523
2,991
of which: net interest income
1,442
1,491
1,268
(3)
14
2,933
2,409
of which: transaction-based income from foreign exchange and other
intermediary
activity
1
278
312
281
(11)
(1)
590
582
Personal & Corporate Banking
941
834
641
13
47
1,775
1,306
of which: net interest income
812
705
522
15
56
1,517
1,057
of which: transaction-based income from foreign exchange and other
intermediary
activity
1
129
129
119
0
9
258
249
Asset Management
(9)
(6)
(10)
50
(9)
(15)
(11)
Investment Bank
2
1,210
1,660
1,370
(27)
(12)
2,870
3,373
Global Banking
56
73
31
(24)
80
128
146
Global Markets
1,154
1,588
1,339
(27)
(14)
2,742
3,227
Group Functions
(183)
(223)
(265)
(18)
(31)
(406)
(377)
Total UBS business divisions and Group Functions
3,680
4,069
3,284
(10)
12
7,748
7,281
Credit Suisse business divisions and Corporate Center
497
497
of which: net interest income
381
381
1 Mainly includes spread-related income
in connection with client-driven transactions,
foreign currency translation effects and
income and expenses from precious
metals, which are included
in the income statement
line Other net income from
financial instruments measured at
fair value through profit
or loss. The
amounts reported on this
line are one component
of Transaction-based
income in the management
discussion and
analysis in the
“Global Wealth Management”
and “Personal
& Corporate Banking”
sections of this
report.
2 Investment Bank information
is provided at
the business-line level
rather than by
financial statement
reporting line, in order to reflect the underlying business activities, which is consistent with
the structure of the management discussion and analysis in the “Investment Bank” section of this report.
Net fee and commission income
Net fee and commission income increased by USD 401m
to USD 5,175m.
Credit-related fees and
commission income increased
by USD 201m to
USD 296m, mainly due
to the consolidation
of USD 190m attributable to Credit Suisse revenues.
Fees for portfolio management
and related services
increased by USD 187m
to USD 2,485m, largely
attributable to
the
acquisition of
the Credit
Suisse Group,
which
contributed USD 231m
of
revenues and
drove
an
increase in
invested assets
across the
UBS Group,
partly offset
by USD 49m
lower revenues
in Global
Wealth Management,
mainly reflecting negative market performance.
Underwriting fee
income increased
by USD 42m
to USD 153m,
largely driven
by USD 18m
higher debt
underwriting
revenues from
public offerings in
the Investment
Bank and
due to
the consolidation
of USD 21m
attributable to
Credit Suisse revenues.
Net brokerage
fees increased
by USD 38m
to USD 856m,
mainly attributable
to the
consolidation of
USD 112m
attributable
to
Credit
Suisse
revenues,
partly
offset
by
a
USD 44m
decrease
in
Global
Wealth
Management,
reflecting lower levels
of client activity,
particularly in the
Americas and Asia
Pacific,
and a USD 30m
decrease in the
Investment Bank, mainly due to lower volumes
of cash equities in the Execution Services business.
Investment
fund
fees
decreased
by
USD 37m
to
USD 1,196m,
mainly
due
to
USD 31m
and
USD 23m
lower
revenues in
Global Wealth
Management and
Asset Management,
respectively, reflecting
the impact
of negative
market performance,
as well as pressure on margins from asset shifts in Asset Management.
This was partly offset
by an increase of USD 17m due to the consolidation
of Credit Suisse revenues.
›
Refer to “Note 5 Net fee and commission income” in the “Consolidated financial statements” section of this report
for more information
Other income
Other income was
USD 188m, compared with
USD 859m
in the prior-year quarter. The decrease
was largely
driven
by the prior-year quarter
including an
USD 848m gain
in Asset Management
related to the
sale of our
shareholding
in the Mitsubishi Corp.-UBS Realty Inc. joint
venture.
›
Refer to the “Recent developments” section of the UBS Group second quarter 2022 report for more information
about the sale of our shareholding in Mitsubishi Corp.-UBS Realty Inc.
Second quarter 2023 report |
UBS Group AG | Group performance
13
Credit loss expense / release: 2Q23 vs
2Q22
Total net credit loss expenses in the second
quarter of 2023 were USD 740m, reflecting USD 644m net credit loss
expenses related
to stage 1
and
2
positions, USD 77m
net credit
loss
expenses related
to stage 3
positions and
USD 19m related to purchased
credit-impaired positions. Net credit
loss expenses of USD 16m related
to UBS AG’s
business
divisions.
Net
credit
loss
expenses
for
Credit
Suisse
AG’s
business
divisions
of
USD 724m
were
largely
attributable to the initial recognition
of ECL allowances and provisions
of USD 654m for the purchased
non-credit-
impaired portfolios, with a
further USD 70m of credit
loss expenses
recognized for credit-impaired positions after
the acquisition date.
Recognition of expected
credit losses for
non-credit-impaired positions is
required by IFRS 9
as
a
subsequent
measurement
adjustment
after
recognizing
on
the
acquisition
date
the
respective
assets
and
commitments at fair value, as part of the
purchase price allocation under IFRS 3.
›
Refer to “Note 8 Expected credit loss measurement” in the “Consolidated financial statements” section of this
report for more information
Credit loss expense / (release)
USD m
Stages 1 and 2
Stage 3
Purchased credit-impaired
(PCI)
Total
For the quarter ended 30.6.23
Global Wealth Management
(4)
9
5
Personal & Corporate Banking
(11)
21
10
Asset Management
0
0
0
Investment Bank
5
(4)
1
Group Functions
0
0
0
Subtotal UBS
(10)
26
16
Wealth Management (Credit Suisse)
143
0
7
149
Swiss Bank (Credit Suisse)
217
7
0
224
Asset Management (Credit Suisse)
1
0
0
1
Investment Bank (Credit Suisse)
189
0
12
200
Capital Release Unit (Credit Suisse)
104
44
0
148
Corporate Center (Credit Suisse)
2
0
0
2
Subtotal Credit Suisse
654
51
19
724
Total
644
77
19
740
For the quarter ended 31.3.23
Global Wealth Management
15
0
15
Personal & Corporate Banking
15
0
16
Asset Management
0
0
0
Investment Bank
(5)
12
7
Group Functions
0
0
0
Total
26
12
38
For the quarter ended 30.6.22
Global Wealth Management
(8)
6
(3)
Personal & Corporate Banking
26
8
35
Asset Management
0
0
0
Investment Bank
(2)
(26)
(28)
Group Functions
0
2
2
Total
16
(9)
7
Operating expenses: 2Q23 vs 2Q22
Operating expenses
For the quarter ended
% change from
Year-to-date
USD m
30.6.23
31.3.23
30.6.22
1Q23
2Q22
30.6.23
30.6.22
Personnel expenses
5,651
4,620
4,422
22
28
10,271
9,343
of which: salaries and variable compensation
4,804
3,885
3,786
24
27
8,689
7,954
of which: variable compensation – financial advisors
1
1,110
1,111
1,122
0
(1)
2,222
2,342
General and administrative expenses
1,968
2,065
1,370
(5)
44
4,033
2,578
of which: net expenses for litigation, regulatory and similar
matters
69
721
221
(90)
(69)
790
278
of which: other general and administrative expenses
1,899
1,345
1,149
41
65
3,243
2,300
Depreciation, amortization and impairment of non-financial
assets
866
525
503
65
72
1,391
1,009
Total operating expenses
8,486
7,210
6,295
18
35
15,696
12,929
1 Consists of cash and deferred compensation awards and is based on
compensable revenues and firm tenure using a formulaic
approach. It also includes expenses related to compensation commitments
with financial
advisors entered into at the time of recruitment that are subject to vesting requirements.
Second quarter 2023 report |
UBS Group AG | Group performance
14
Personnel expenses
Personnel expenses
increased by
USD 1,229m to
USD 5,651m, largely
due to
the consolidation
of Credit
Suisse
expenses
of
USD 1,087m,
and
included
total
integration-related
expenses
of
USD 354m.
Salaries
and
variable
compensation
increased
by
USD 1,018m
due
to
the
acquisition
and
included
integration-related
expenses
of
USD 330m. Excluding these factors, salary
costs increased due
to annual salary adjustments
and foreign currency
effects, partly offset by lower variable compensation.
›
Refer to “Note 6 Personnel expenses” in the “Consolidated financial statements” section of this report for more
information
General and administrative
expenses
General and administrative expenses increased
by USD 598m to USD 1,968m, largely
due to the consolidation of
Credit Suisse expenses
of USD 451m,
and included
total integration-related
expenses of
USD 125m and
USD 106m
in acquisition costs. Total costs for litigation, regulatory and similar matters decreased by USD 152m.
We believe that the industry continues to operate in an environment in which expenses
associated with litigation,
regulatory and similar matters will remain elevated for the foreseeable future and we continue to be exposed to a
number
of
significant
claims
and
regulatory
matters.
The
outcome
of
many
of
these
matters,
the
timing
of
a
resolution, and the
potential effects
of resolutions on
our future business,
financial results
or financial condition
are
extremely difficult to predict.
›
Refer to “Note 7 General and administrative expenses” in the “Consolidated financial statements” section of this
report for more information
›
Refer to “Note 15 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this
report for more information about litigation, regulatory and similar matters
›
Refer to the “Regulatory and legal developments” of the Annual Report 2022 and the "Risk Factors" filed on Form
6-K, together with the 2Q2023 UBS Group AG report, on 31 August 2023 for more information
Depreciation, amortization and impairment of
non-financial assets
Depreciation, amortization and impairment
of non-financial assets
increased by USD 363m
to USD 866m, mainly
driven by USD 244m
of integration-related expenses,
largely due to
an impairment of
software projects in progress
of USD 206m resulting
from a
reprioritization of
software development activity
in the
context of the
acquisition.
Ongoing depreciation of internally developed
software also increased, reflecting a higher level of capitalized
cost.
Tax: 2Q23 vs 2Q22
Income tax expenses were USD 361m for the second quarter of 2023, representing an
effective tax rate of 1.2%,
compared with USD 497m
and an effective tax
rate of 19.0%
for the prior-year
quarter. Current tax
expenses were
USD 368m, compared with USD 367m, and relate
to the taxable profits of UBS Switzerland AG and
other entities.
There was a
net deferred tax
benefit of USD 7m,
compared with an
expense of USD
130m in the
prior-year quarter.
Negative goodwill recorded in the income statement
did not result in any tax expense.
The
effective tax
rate for
the second
half of
2023
may differ
materially from
the rate
of 23%
per the
previous
guidance
for
the
year
if
certain
entities
incur
operating
losses,
reflecting
integration-related
expenses
and
restructuring costs, for which
no DTAs are recognized. It
may also differ due to remeasurement
of DTAs connected
with business planning or resulting from
material changes to jurisdictional statutory
tax rates.
Total comprehensive income attributable
to shareholders
In
the
second
quarter
of
2023,
total
comprehensive
income
attributable
to
shareholders
was
USD 28,013m,
reflecting net
profit of
USD 28,875m,
which included
the recognition
of negative
goodwill on
the acquisition
of
the
Credit
Suisse
Group
of
USD 28,925m,
and
other
comprehensive
income
(OCI),
net
of
tax,
of
negative
USD 862m.
Second quarter 2023 report |
UBS Group AG | Group performance
15
OCI
related
to
cash
flow
hedges
was
negative
USD 775m, mainly
reflecting
net
unrealized
losses
on
US
dollar
hedging derivatives resulting from increases
in the relevant US dollar long-term interest
rates.
OCI related to own credit on financial
liabilities designated at fair value was negative USD 413m, primarily due
to
a tightening of our own credit spreads.
Defined benefit plan
OCI was negative
USD 53m, mainly reflecting
a tax expense
of USD 35m and
negative pre-tax
OCI in our UBS Swiss pension plan of USD 23m.
Foreign currency translation OCI was USD 368m, mainly resulting from a strengthening of the Swiss franc
against
the US dollar.
›
Refer to “Statement of comprehensive income” in the “Consolidated financial statements” section of this report for
more information
›
Refer to “Reconciliation of IFRS equity to Swiss SRB common equity tier 1 capital” in the “Capital management”
section of this report for more information about the effects of OCI on common equity tier 1 capital
›
Refer to “Note 20 Fair value measurement” in the “Consolidated financial statements” section of the Annual Report
2022 for more information about own credit on financial liabilities designated at fair value
Sensitivity to interest rate movements
As of 30 June
2023, it is
estimated that
a parallel shift
in yield curves
by +100
basis points could
lead to a
combined
increase in annual
net interest income
from our
banking book of
approximately USD 1.8bn in
the first year
after
such a shift. Of
this increase, approximately USD 1.1bn, USD 0.3bn
and USD 0.2bn would result from
changes in
Swiss franc, US dollar and
euro interest rates, respectively.
A parallel shift in yield
curves by –100 basis points
could
lead to a combined decrease in annual net interest income of approximately USD 1.9bn in the first year after such
a shift, showing similar currency contributions
as for the aforementioned increase in rates.
The net
interest income
sensitivity estimates
are based
on a
hypothetical scenario
of an
immediate change
in interest
rates, equal across
all currencies and
relative to implied
forward rates as
of 30 June 2023 applied to
our banking
book. These
estimates further
assume no change
to balance
sheet size and
product mix,
constant foreign
exchange
rates, and no specific management action. These estimates do not represent a forecast of our net interest income
variability.
›
Refer to the “Risk management and control” section of this report for information about interest rate risk in the
banking book
Key figures and personnel
Below is
an overview
of selected
key figures
of the
Group. For
further information
about key
figures related
to
capital management, refer to the “Capital management”
section of this report.
Cost / income ratio: 2Q23 vs 2Q22
The cost
/ income
ratio was 88.9%,
compared with
70.6%, mainly reflecting
an increase
in operating expenses,
partly offset by an increase in
total revenues. The operating
loss incurred by Credit Suisse entities
is reflected in the
overall increase of the ratio for the UBS Group.
Personnel: 2Q23 vs 1Q23
The
number
of
personnel
employed
as
of
30 June
2023
was
119,100
(full-time equivalents),
a
net
increase
of
45,286 compared with 31 March 2023, predominantly attributable to
the onboarding of Credit Suisse staff to the
UBS Group.
Second quarter 2023 report |
UBS Group AG | Group performance
16
Equity, CET1 capital and returns
As of or for the quarter ended
Year-to-date
USD m, except where indicated
30.6.23
31.3.23
30.6.22
30.6.23
30.6.22
Net profit
Net profit attributable to shareholders
28,875
1,029
2,108
29,904
4,244
Equity
Equity attributable to shareholders
86,999
56,754
56,845
86,999
56,845
Less: goodwill and intangible assets
7,569
6,272
6,312
7,569
6,312
Tangible equity attributable to shareholders
79,430
50,481
50,533
79,430
50,533
Less: other CET1 deductions
(827)
5,891
5,734
(827)
5,734
CET1 capital
80,258
44,590
44,798
80,258
44,798
Returns
Return on equity (%)
160.7
7.2
14.6
92.9
14.4
Return on equity (excluding negative goodwill, integration-related
expenses, and acquisition costs) (%)
3.9
Return on tangible equity (%)
177.8
8.1
16.4
103.6
16.2
Return on tangible equity (excluding negative goodwill,
integration-related expenses, and acquisition
costs) (%)
4.3
Return on CET1 capital (%)
185.0
9.1
18.9
111.3
18.9
Return on CET1 capital (excluding negative goodwill, integration-related
expenses, and acquisition costs)
(%)
4.5
Common equity tier 1 capital: 2Q23 vs 1Q23
During
the
second
quarter
of
2023,
our
common
equity
tier 1
(CET1)
capital
increased
by
USD 35.7bn
to
USD 80.3bn, predominantly
due to
the acquisition
of the
Credit
Suisse Group
,
which resulted
in an
increase of
USD 36.1bn as of the acquisition date.
Return on CET1 capital: 2Q23 vs 2Q22
The annualized
return on CET1
capital was 185.0%,
compared with 18.9%,
driven by
the negative goodwill,
partly
offset
by
an
increase
in
average
CET1
capital.
Excluding
the
impact
of
negative
goodwill,
integration-related
expenses, and acquisition costs, the return
on CET1 capital was 4.5%.
Risk-weighted assets: 2Q23 vs 1Q23
Risk-weighted assets (RWA)
increased by
USD 234.9bn to USD 556.6bn, predominantly
due to the
acquisition of
the
Credit
Suisse
Group,
which
resulted
in
a
USD 237.7bn
increase
in
RWA.
Excluding
that
acquisition,
RWA
decreased by USD 5.7bn
due to model updates,
partly offset by
increases of USD 1.5bn due
to asset size and
other
movements and USD 1.4bn due to currency effects
.
Common equity tier 1 capital ratio: 2Q23 vs 1Q23
Our CET1
capital ratio
increased to
14.4% from
13.9%, reflecting
the aforementioned
increase in
CET1 capital,
partly offset by the increase in RWA.
Leverage ratio denominator: 2Q23 vs 1Q23
During
the
second
quarter
of
2023,
the
Group’s
leverage
ratio
denominator
(the
LRD)
was
USD 1,677.9bn.
Compared with the first
quarter of 2023,
the LRD increased
by USD 663.4bn, predominantly
due to the
acquisition
of
the
Credit
Suisse
Group,
which
resulted
in
an
increase
of
USD 644.4bn. Excluding
that
acquisition,
the
LRD
increased by USD 13.4bn due to asset size and other
movements, as well as USD 5.6bn due to currency effects.
Common equity tier 1 leverage ratio: 2Q23
vs 1Q23
Our CET1
leverage ratio
increased to
4.78% from
4.40%, due
to the
aforementioned increase
in CET1
capital,
partly offset by the increase in the LRD.
Going concern leverage ratio: 2Q23 vs 1Q23
Our going concern leverage ratio decreased to 5.6% from 5.7%, due to
the aforementioned increase in the LRD,
largely offset by the increase in CET1 capital.
Results 6M23 vs 6M22
Operating profit before tax increased by USD 25,391m, to USD 30,735m,
primarily reflecting negative goodwill of
USD 28,925m.
Total revenues decreased
by USD 15m
to USD 18,284m, including
the consolidation of
Credit Suisse revenues
of
USD 1,156m.
Second quarter 2023 report |
UBS Group AG | Group performance
17
Other income decreased by USD 633m, largely attributable to an USD 848m gain
in Asset Management from the
sale of a joint venture in the prior-year period, partly offset
by gains recognized on repurchases of UBS’s own debt
instruments.
Net fee and commission income decreased by USD 346m, largely due to lower
investment fund fees and portfolio
management and
related services
fees in
Global Wealth Management
and Asset Management,
mainly reflecting
negative
market
performance,
partly
offset
by
the
consolidation
of
Credit
Suisse
revenues.
Net
brokerage
fees
decreased, due to lower levels of
client activity in the Investment Bank and
in Global Wealth Management, partly
offset by
the
consolidation of
Credit
Suisse revenues.
M&A
and corporate
finance fees
decreased due
to lower
related
revenues
in
the
Global
Banking
business
of
the
Investment
Bank,
partly
offset
by
the
consolidation
of
revenues in Credit Suisse. This was partly offset by higher credit-related fees and commissions, largely attributable
to Credit Suisse.
These
decreases
were
partly
offset
by
total
combined net
interest
income
and
other
net
income
from
financial
instruments measured at fair
value through profit or loss
increasing by USD 964m, mainly
due to the consolidation
of Credit
Suisse revenues and
increases in
Global Wealth Management
and Personal &
Corporate Banking, both
primarily
reflecting
the
impact
of
higher
interest
rates
on
revenues
from
deposits
and
loans,
partly
offset
by
a
decrease in the
Investment Bank,
due to lower
levels of client
activity and volatility,
predominantly in the
Derivatives
& Solutions business.
This decrease was partly offset by
an increase in Financing, largely driven
by higher revenue
in Prime Brokerage, a recovery, and higher revenues
in Equities Financing and Clearing.
Expected credit loss expenses were USD 778m,
compared with expenses of USD 25m in the prior-year
period.
Operating expenses
increased by
USD 2,767m, or
21%, to
USD 15,696m, largely
due to
the consolidation
of Credit
Suisse expenses
of USD 1,641m. The
first half
of 2023
included total
integration-related expenses of
USD 724m
and acquisition costs of USD 176m.
Personnel expenses increased by USD 928m
due to the acquisition and included USD 354m of integration-related
expenses. Excluding
these factors,
personnel expenses
decreased,
due to lower
variable compensation,
partly offset
by higher salary costs due to annual salary
adjustments.
General and administrative
expenses increased by USD
1,455m, driven by the acquisition,
and included USD 176m
in acquisition costs and USD 125m
of integration-related expenses. In addition, expenses for litigation,
regulatory
and similar matters
increased, driven
by the USD
665m increase
in provisions
recognized in
the first
quarter of
2023
related to the US residential mortgage-backed
securities litigation matter.
Depreciation, amortization
and impairment
of non-financial
assets increased
by USD 382m,
primarily relating
to the
aforementioned impairment
of software.
Ongoing depreciation
of internally
developed software
also increased,
reflecting a higher level of capitalized cost.
Outlook
Amid relatively
robust economic
growth data,
and despite
signs of
abating inflation
and decreasing
wage pressures,
central banks have continued to raise interest rates. Although
improving, the outlook for economic growth, asset
valuations and market volatility remains
highly uncertain, and the
effects of central
bank tightening may have
an
impact on market liquidity.
The implications of current
geopolitical tensions and the
ongoing Russia–Ukraine war
add
uncertainty
to
the
macroeconomic
outlook.
Against
this
backdrop,
in
the
second
quarter
of
2023
clients
continued to diversify cash holdings by investing their deposits into higher yielding products, although at a slower
pace. Client sentiment and activity levels remained muted,
especially in the Americas and Asia Pacific.
The macroeconomic
situation remains
uncertain, as
economic risk
in China’s
economy and
continuing concerns
about
inflation
cloud
growth
in
the
US
and
developed
financial
markets.
Although
there
are
still
geopolitical
tensions, particularly stemming from US–China relations and the Russia–Ukraine war, we see improving sentiment
and
activity
levels
among
our
private
clients.
We
expect
positive
net
new
asset
flows
in
our
asset–gathering
businesses and
some improvement
in
transaction volumes.
Higher
asset
valuations are
also
expected to
have
a
positive impact on our recurring net fee income year on year. We also expect net
interest income will remain near
to present levels in the current interest rate
environment.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Global Wealth Management
18
UBS business divisions and
Group Functions, Credit Suisse
business divisions and Corporate
Center
Management report
As
of
30
June
2023,
the
Credit
Suisse
business
divisions
represented
separate reportable
segments
in
the
UBS
Group, which are managed and reported on a pre-tax basis. Credit Suisse’s business is organized globally into
five
business divisions
(Wealth
Management (Credit
Suisse), Swiss
Bank (Credit
Suisse), the
Investment Bank
(Credit
Suisse),
Asset
Management
(Credit
Suisse)
and
the
Capital
Release
Unit
(Credit
Suisse))
and
Corporate
Center
(Credit Suisse). References to the pre-integration UBS business divisions
are unchanged.
The
first
part
of
this
section
provides
information
about
the
pre-integration
UBS
business
divisions
and
Group
Functions, and the second part provides
information about the pre-integration
Credit Suisse business divisions and
Corporate
Center.
The
information for
the pre-integration
UBS business
divisions and
Group
Functions is
provided on
the basis
of
International Financial Reporting Standards (IFRS)
as of or for the three-month period ended 30
June 2023.
The information
for the
pre-integration Credit Suisse
business divisions and
Corporate Center is
provided on the
basis of
US generally
accepted accounting principles
(US GAAP).
With the
acquisition date
of 12
June 2023,
for
convenience, Credit
Suisse business
divisions and
Corporate Center
were consolidated
with effect
from 31
May
2023,
as
the
effect
of
transactions
and
activities
in
the
period
from
31
May
2023
to
12
June
2023
on
the
consolidated financial statements
was not material. As
a consequence, the financial
statements of UBS Group,
and
the Credit Suisse business divisions and
Corporate Center disclosures for the second
quarter 2023, include Credit
Suisse information for the one month period
ended 30 June 2023.
The table below
provides a reconciliation
of aggregated
segment results of
UBS and Credit
Suisse to the
UBS Group
result.
Reconciliation of aggregated segment results for UBS and Credit Suisse to UBS Group result – for the three-month
period ended 30 June 2023
USD m
UBS business divisions
and Group Functions
(IFRS)
Credit Suisse business divisions
and Corporate Center
(US GAAP,
adjusted)
1
Credit Suisse business divisions
and Corporate Center –
Reconciliation from
US GAAP to IFRS
Negative goodwill from
the acquisition of Credit
Suisse (IFRS)
UBS Group (IFRS)
Period
1 April 2023 – 30 June 2023
1 June 2023 – 30 June 2023
1 June 2023 – 30 June 2023
Acquisition date
For the quarter
ended 30 June
2023
Total revenues
8,384
743
413
9,540
Negative goodwill
28,925
28,925
Credit loss expense / (release)
16
101
623
740
Operating expenses
6,845
1,807
(166)
8,486
Operating profit / (loss) before tax
1,523
(1,165)
(44)
28,925
29,239
Tax expense / (benefit)
361
Net profit / (loss)
28,878
1 Represents the Credit
Suisse business division result
for June 2023 as
presented to the Chief Operating
Decision Maker (the UBS
Group Executive Board).
The US GAAP information
for the Credit Suisse
business
divisions and Corporate Center has been adjusted to remove effects that overlap with amounts already accounted for as part of the acquisition, e.g., aligning fair value methodologies, changes in litigation provisions,
software and goodwill impairment.
Beginning
with
the
third
quarter
of
2023,
we
will
report
five
business
divisions,
Global
Wealth
Management,
Personal &
Corporate Banking,
Asset Management,
the Investment
Bank and
Non-core and
Legacy,
and we
will
separately report Group Items.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Global Wealth Management
19
UBS business divisions and Group Functions
Global Wealth Management
Global Wealth Management
1
As of or for the quarter ended
% change from
Year-to-date
USD m, except where indicated
30.6.23
31.3.23
30.6.22
1Q23
2Q22
30.6.23
30.6.22
Results
Net interest income
1,442
1,491
1,268
(3)
14
2,933
2,409
Recurring net fee income
2
2,535
2,454
2,614
3
(3)
4,989
5,419
Transaction-based income
2
749
843
793
(11)
(6)
1,592
1,747
Other income
10
4
2
173
388
14
5
Total revenues
4,736
4,792
4,677
(1)
1
9,528
9,581
Credit loss expense / (release)
5
15
(3)
(69)
20
(10)
Operating expenses
3,621
3,561
3,523
2
3
7,182
7,124
Business division operating profit / (loss) before tax
1,110
1,215
1,157
(9)
(4)
2,325
2,467
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
(4.0)
(7.2)
(10.6)
(5.7)
(8.8)
Cost / income ratio (%)
2
76.5
74.3
75.3
75.4
74.4
Financial advisor compensation
3
1,110
1,111
1,122
0
(1)
2,222
2,342
Net new fee-generating assets (USD bn)
2
12.6
19.7
0.4
32.3
19.8
Fee-generating assets (USD bn)
2
1,380
1,335
1,244
3
11
1,380
1,244
Fee-generating asset margin (bps)
2
76.7
78.1
79.6
77.4
80.6
Net new money (USD bn)
2
16.2
27.7
(17.6)
43.9
18.4
Invested assets (USD bn)
2
3,037
2,962
2,811
3
8
3,037
2,811
Loans, gross (USD bn)
4
220.4
223.8
227.1
(2)
(3)
220.4
227.1
Customer deposits (USD bn)
4
336.1
330.3
349.3
2
(4)
336.1
349.3
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,5
0.3
0.3
0.3
0.3
0.3
Advisors (full-time equivalents)
8,992
9,117
9,224
(1)
(3)
8,992
9,224
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period.
2 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method. Since the second quarter of 2022, assets related to our Global Financial
Intermediaries business have been
excluded from fee-generating assets, given
that fee-generating investment management products, such
as mandates, are not central
to this business. Furthermore, client commitments
into closed-ended private-market investment funds are included as fee-generating
assets once recurring fees are charged, rather than when commitments are funded. These
changes have been applied prospectively.
3 Relates to licensed professionals with the ability to provide investment advice to clients in the Americas.
Consists of cash and deferred compensation awards and is based on compensable revenues
and firm tenure
using a formulaic approach. It also includes expenses related to compensation commitments
with financial advisors entered into at the time of recruitment that are subject to
vesting requirements. Recruitment loans
to financial advisors were USD 1,751m
as of 30 June 2023.
4 Loans and Customer deposits in this
table include customer brokerage receivables and payables, respectively, which are presented in a separate
reporting
line on the balance sheet.
5 Refer to the “Risk management and control” section of this report for more information about (credit-)impaired exposures.
Excludes loans to financial advisors.
Results: 2Q23 vs 2Q22
Profit before
tax decreased
by USD 47m,
or 4%,
to USD 1,110m,
mainly driven
by higher
operating expenses,
partly
offset by higher total revenues.
Total revenues
Total
revenues increased by USD 59m, or 1%, to USD 4,736m, mainly
reflecting higher net interest income, partly
offset by lower recurring net fee and transaction-based
income.
Net interest
income increased by
USD 174m, or
14%, to
USD 1,442m, mainly driven
by higher
deposit margins,
which resulted
from rising
interest rates,
more than
offsetting the
effects of
lower average
deposit volumes and
lower loan revenues, which reflected lower average
loan volumes and margins.
Recurring
net
fee
income
decreased
by
USD 79m,
or
3%,
to
USD 2,535m,
mainly
reflecting
negative
market
performance,
slightly
offset
by
the
impact
from
net
new
fee-generating
assets
over
the
past
year,
which
were
primarily in lower-margin products.
Transaction-based income
decreased by
USD 44m, or
6%, to
USD 749m, mainly
driven by
lower levels
of client
activity, particularly in the Americas and Asia Pacific.
Credit loss expense / release
Net credit
loss expenses
were USD 5m,
primarily related
to stage 3
positions, compared
with net
releases of
USD 3m
in the second quarter of 2022.
Operating expenses
Operating expenses increased by
USD 98m, or 3%, to
USD 3,621m, mainly driven
by unfavorable foreign currency
effects, increases
in technology
expenses and
personnel expenses,
and integration-related
expenses associated
with
the acquisition
of the
Credit Suisse
Group. These
were partly
offset by
lower provisions
for litigation,
regulatory
and similar matters.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Global Wealth Management
20
Invested assets: 2Q23 vs 1Q23
Invested assets increased by USD 75bn, or 3%, to USD 3,037bn, mainly driven by positive market performance of
USD 57bn, net new money inflows of USD 16bn
and positive foreign currency effects
of USD 5bn.
Fee-generating assets: 2Q23 vs 1Q23
Fee-generating assets increased by
USD 45bn, or 3%, to USD 1,380bn,
driven by net positive market
performance
and foreign currency
effects, as well
as net
new fee-generating asset
inflows of USD 12.6bn,
with positive flows
across all regions.
Loans: 2Q23 vs 1Q23
Loans
decreased by
USD 3.4bn to
USD 220.4bn, mainly
driven by
negative net
new loans
of USD
4.3bn, partly
offset by positive foreign currency effects.
Customer deposits: 2Q23 vs 1Q23
Customer
deposits
increased
by
USD 5.8bn
to
USD 336.1bn,
mainly
driven
by
net
inflows
into
fixed-term
and
savings deposit products,
partly offset by continued
shifts into money market
funds and US-government securities.
Results: 6M23 vs 6M22
Profit before
tax decreased
by USD 142m,
or 6%,
to USD 2,325m,
mainly reflecting
higher operating
expenses,
lower total revenues and net credit loss expenses
compared with net credit loss releases
in the first half of 2022.
Total revenues decreased by USD 53m
to USD 9,528m, with decreases in
recurring net fee and
transaction-based
income partly offset by increases in net interest
income.
Net interest
income increased by
USD 524m, or
22%, to
USD 2,933m, mainly driven
by higher
deposit margins,
which resulted
from rising
interest rates,
more than
offsetting the
effects of
lower average
deposit volumes and
lower loan revenues, which reflected lower average
volumes and margins.
Recurring net
fee income
decreased by
USD 430m, or
8%, to
USD 4,989m, primarily
driven by
negative market
performance.
Transaction-based income decreased by
USD 155m, or 9%, to USD 1,592m, mainly
driven by lower levels of client
activity, particularly in Asia Pacific and the
Americas.
Net credit loss expenses were USD 20m, compared
with net releases of USD 10m in the first
half of 2022.
Operating
expenses
increased
by
USD 58m
to
USD 7,182m,
mostly
driven
by
higher
technology
expenses,
unfavorable
foreign
currency
effects,
integration-related expenses
associated
with
the
acquisition
of
the
Credit
Suisse
Group,
as
well
as
increased
redundancy,
travel
and
entertainment,
tax
and
regulatory
expenses,
and
outsourcing expenses. These were partly offset
by lower provisions for litigation, regulatory
and similar matters.
Regional breakdown of performance measures
As of or for the quarter ended 30.6.23
USD bn, except where indicated
Americas
1
Switzerland
EMEA
2
Asia Pacific
Global Wealth
Management
3
Total revenues (USD m)
2,541
529
994
672
4,736
Operating profit / (loss) before tax (USD m)
300
237
359
218
1,110
Cost / income ratio (%)
4
87.8
56.1
63.9
67.6
76.5
Loans, gross
98.0
5
45.8
42.9
32.9
220.4
Net new loans
(1.9)
(0.5)
(1.1)
(0.9)
(4.3)
Fee-generating assets
4
841
135
280
122
1,380
Net new fee-generating assets
4
5.5
1.7
4.0
1.4
12.6
Net new fee-generating asset growth rate (%)
4
2.7
5.2
5.9
4.7
3.8
Net new money
4
(3.4)
15.3
2.5
1.8
16.2
Net new money growth rate (%)
4
(0.8)
22.2
1.7
1.5
2.2
Invested assets
4
1,720
296
577
441
3,037
Advisors (full-time equivalents)
6,071
678
1,351
826
8,992
1 Including the following business units:
United States and Canada; and
Latin America.
2 Including the following business units:
Europe; and Middle East and
Africa.
3 Including minor functions,
which are not
included in the four regions individually
presented in this table,
with USD 1m of total revenues,
USD 3m of operating loss before
tax, USD 0.7bn of loans,
USD 0.1bn of net new loans,
USD 0.8bn of fee-generating
assets, USD 0.0bn of
net new fee-generating asset inflows,
USD 0.0bn of net new
money inflows, USD 3bn of
invested assets and 66
advisors in the second quarter of
2023.
4 Refer to “Alternative
performance
measures” in the appendix to this report for the definition and calculation method.
5 Loans include customer brokerage receivables,
which are presented in a separate reporting line on the balance sheet.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Global Wealth Management
21
Regional comments 2Q23 vs 2Q22, except where
indicated
Americas
Profit
before
tax
decreased
by
USD 97m
to
USD 300m.
Total
revenues
decreased
by
USD 98m,
or
4%,
to
USD 2,541m, driven by
decreases across
net interest,
transaction-based and recurring
net fee income.
The cost /
income ratio increased
to 87.8% from
85.0%. Loans decreased
2% compared with
the first quarter
of 2023,
to
USD 98.0bn, reflecting
USD 1.9bn of
negative net
new loans. Net
new money
outflows were USD
3.4bn, impacted
by seasonal tax outflows in the US. Net new fee-generating
assets were USD 5.5bn.
Switzerland
Profit
before
tax
increased
by
USD 19m
to
USD 237m.
Total
revenues
increased
by
USD 55m,
or
12%,
to
USD 529m, mainly driven by higher net interest income. The cost / income ratio increased to 56.1% from 54.1%.
Loans were stable
at USD 45.8bn compared
with the first
quarter of 2023,
as USD 0.5bn
of negative net
new loans
were offset by
positive foreign
currency effects. Net
new money
inflows were USD
15.3bn. Net
new fee-generating
assets were USD 1.7bn.
EMEA
Profit before tax
increased by
USD 46m to
USD 359m. Total revenues increased
by USD 69m,
or 7%,
to USD 994m,
driven by
higher net
interest income
that was
partly offset
by a
decrease in
recurring net
fee income.
The cost
/
income ratio decreased to 63.9%
from 66.3%. Loans decreased
1% compared with the first
quarter of 2023, to
USD 42.9bn, reflecting USD 1.1bn of negative net
new loans. Net new
money inflows were USD 2.5bn. Net new
fee-generating assets were USD 4.0bn.
Asia Pacific
Profit before
tax decreased by
USD 21m to USD 218m.
Total
revenues slightly increased
by USD 31m, or
5%, to
USD 672m, mainly
as decreases
in transaction-based and
recurring net
fee income were
offset by
an increase
in
net interest income. The cost
/ income ratio increased
to 67.6% from 62.7%. Loans
decreased 3% compared with
the first quarter of 2023, to USD
32.9bn, reflecting USD 0.9bn of negative
net new loans. Net new money
inflows
were USD 1.8bn. Net new fee-generating assets were USD 1.4bn.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Personal & Corporate Banking
22
Personal & Corporate Banking
Personal & Corporate Banking – in Swiss francs
1
As of or for the quarter ended
% change from
Year-to-date
CHF m, except where indicated
30.6.23
31.3.23
30.6.22
1Q23
2Q22
30.6.23
30.6.22
Results
Net interest income
731
651
502
12
45
1,382
996
Recurring net fee income
2
213
210
202
2
5
423
412
Transaction-based income
2
305
309
300
(1)
2
615
600
Other income
13
10
13
38
1
23
13
Total revenues
1,263
1,180
1,018
7
24
2,442
2,020
Credit loss expense / (release)
9
14
33
(37)
(73)
23
54
Operating expenses
641
613
587
5
9
1,254
1,173
Business division operating profit / (loss) before tax
612
553
398
11
54
1,165
793
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
54.0
40.0
(12.8)
47.0
(2.6)
Cost / income ratio (%)
2
50.8
51.9
57.7
51.3
58.1
Net interest margin (bps)
2
202
181
142
192
141
Fee and trading income for Corporate & Institutional Clients
2
228
231
213
(1)
7
459
434
Investment products for Personal Banking (CHF bn)
2
23.6
22.7
21.4
4
10
23.6
21.4
Net new investment products for Personal Banking (CHF bn)
2
0.55
0.86
0.46
1.41
1.43
Active Digital Banking clients in Personal Banking (%)
2,3
77.5
77.2
73.6
77.4
73.4
Active Mobile Banking clients in Personal Banking (%)
2
64.3
63.1
54.9
63.7
53.5
Active Digital Banking clients in Corporate & Institutional
Clients (%)
2
81.0
81.3
79.6
81.2
79.9
Loans, gross (CHF bn)
145.6
144.3
141.5
1
3
145.6
141.5
Customer deposits (CHF bn)
164.5
165.3
160.3
0
3
164.5
160.3
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,4
0.8
0.8
0.9
0.8
0.9
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period.
2 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method.
3 In the second quarter of 2023, 88.5% of clients of Personal Banking
were “activated users” of Digital Banking (i.e., clients who had
logged into Digital Banking at least once in the course of their relationship
with UBS).
4 Refer to the “Risk management and control” section of this
report for more information about (credit-)impaired exposures.
Results
:
2Q23 vs 2Q22
Profit before tax increased
by CHF 214m, or 54%,
to CHF 612m, with higher
total revenues and lower
net credit
loss expenses partly offset by higher operating
expenses.
Total revenues
Total
revenues
increased
by
CHF 245m,
or
24%,
to
CHF 1,263m,
reflecting
increases
in
all
income
lines,
predominantly in net interest income.
Net interest income
increased by CHF 229m
to CHF 731m,
mainly driven by
higher deposit margins,
which resulted
from rising interest
rates, and higher
loan revenues, partly
offset by lower
deposit fees. The
second quarter of
2022
included a benefit from the Swiss National Bank
deposit exemption.
Recurring net fee
income increased
by CHF 11m to
CHF 213m, partly
reflecting higher
revenues from account
fees.
Transaction-based income increased by CHF
5m to CHF 305m, mainly driven by higher
corporate client fees.
Other income was stable at CHF 13m.
Credit loss expense / release
Net
credit
loss
expenses
were
CHF 9m,
primarily
related
to
stage 3
positions,
compared
with
net
expenses
of
CHF 33m in the second quarter of 2022.
Operating expenses
Operating expenses increased
by CHF 54m,
or 9%,
to CHF 641m,
mainly driven by
higher technology expenses,
accruals for variable compensation, and integration-related expenses associated with the acquisition of the Credit
Suisse Group.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Personal & Corporate Banking
23
Results: 6M23 vs 6M22
Profit before tax increased
by CHF 372m, or 47%, to
CHF 1,165m, with higher total
revenues and lower net
credit
loss expenses partly offset by higher operating
expenses.
Total
revenues
increased
by
CHF 422m,
or
21%,
to
CHF 2,442m,
reflecting
increases
in
all
income
lines,
predominantly in net interest income.
Net
interest
income
increased
by
CHF 386m
to
CHF 1,382m,
mainly
driven
by
higher
deposit
margins,
which
resulted from
rising interest rates,
and higher
loan revenues,
partly offset
by lower
deposit fees.
The first
half of
2022 included a benefit from the Swiss National
Bank deposit exemption.
Recurring net
fee income
increased by
CHF 11m to
CHF 423m, mainly
reflecting higher
revenues from
account
fees.
Transaction-based income
increased by CHF 15m
to CHF 615m, mainly
driven by higher corporate
client and credit
card fees.
Other income
increased by
CHF 10m to
CHF 23m, mainly
reflecting our
share of
the net
profit from
our equity
ownership of SIX Group.
Net
credit
loss
expenses
were
CHF 23m,
mainly
related
to
stage 3
positions,
compared
with
net
expenses
of
CHF 54m in the first half of 2022.
Total
operating
expenses
increased
by
CHF 81m,
or
7%,
to
CHF 1,254m,
mainly
driven
by
higher
technology
expenses and accruals for variable compensation.
Personal & Corporate Banking – in US dollars
1
As of or for the quarter ended
% change from
Year-to-date
USD m, except where indicated
30.6.23
31.3.23
30.6.22
1Q23
2Q22
30.6.23
30.6.22
Results
Net interest income
812
705
522
15
56
1,517
1,057
Recurring net fee income
2
237
227
210
4
13
464
438
Transaction-based income
2
339
335
312
1
9
675
637
Other income
15
10
14
42
8
25
13
Total revenues
1,403
1,278
1,058
10
33
2,681
2,144
Credit loss expense / (release)
10
16
35
(36)
(71)
26
57
Operating expenses
712
663
610
7
17
1,376
1,246
Business division operating profit / (loss) before tax
681
599
413
14
65
1,279
841
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
64.8
39.8
(17.1)
52.1
(5.2)
Cost / income ratio (%)
2
50.8
51.9
57.7
51.3
58.1
Net interest margin (bps)
2
203
181
139
192
139
Fee and trading income for Corporate & Institutional Clients
2
254
250
221
1
15
504
461
Investment products for Personal Banking (USD bn)
2
26.4
24.8
22.4
6
18
26.4
22.4
Net new investment products for Personal Banking (USD bn)
2
0.61
0.94
0.48
1.54
1.53
Active Digital Banking clients in Personal Banking (%)
2,3
77.5
77.2
73.6
77.4
73.4
Active Mobile Banking clients in Personal Banking (%)
2
64.3
63.1
54.9
63.7
53.5
Active Digital Banking clients in Corporate & Institutional
Clients (%)
2
81.0
81.3
79.6
81.2
79.9
Loans, gross (USD bn)
162.5
157.6
148.2
3
10
162.5
148.2
Customer deposits (USD bn)
183.7
180.5
167.8
2
9
183.7
167.8
Impaired loan portfolio as a percentage of total loan portfolio, gross (%)
2,4
0.8
0.8
0.9
0.8
0.9
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period.
2 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method.
3 In the second quarter of 2023, 88.5% of clients of Personal Banking
were “activated users” of Digital Banking (i.e., clients who had
logged into Digital Banking at least once in the course of their relationship
with UBS).
4 Refer to the “Risk management and control” section of this
report for more information about (credit-)impaired exposures.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Asset Management
24
Asset Management
Asset Management
1
As of or for the quarter ended
% change from
Year-to-date
USD m, except where indicated
30.6.23
31.3.23
30.6.22
1Q23
2Q22
30.6.23
30.6.22
Results
Net management fees
2
492
479
515
3
(5)
971
1,076
Performance fees
7
23
9
(69)
(23)
31
26
Net gain from disposal of a joint venture
848
848
Total revenues
499
502
1,372
(1)
(64)
1,001
1,950
Credit loss expense / (release)
0
0
0
0
0
Operating expenses
409
408
413
0
(1)
818
817
Business division operating profit / (loss) before tax
90
94
959
(5)
(91)
184
1,133
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
3
(90.7)
(45.8)
275.7
(83.8)
135.0
Cost / income ratio (%)
3
82.1
81.2
30.1
81.6
41.9
Gross margin on invested assets (bps)
3,4
17
18
49
18
34
Information by business line / asset
class
Net new money (USD bn)
3
Equities
13.8
(4.1)
(10.4)
9.7
(12.8)
Fixed Income
(0.7)
19.2
(0.3)
18.5
3.8
of which: money market
(2.4)
18.0
0.5
15.6
(6.0)
Multi-asset & Solutions
0.9
1.3
1.4
2.3
5.4
Hedge Fund Businesses
0.0
(0.9)
(1.6)
(0.8)
0.0
Real Estate & Private Markets
3.0
(1.2)
(0.7)
1.8
(0.4)
Total net new money excluding associates
17.0
14.4
(11.7)
31.4
(3.9)
of which: net new money excluding money market
19.5
(3.6)
(12.1)
15.9
2.0
Associates
5
0.1
(0.3)
2.5
(0.1)
3.4
Total net new money
4
17.2
14.1
(9.2)
31.3
(0.5)
Invested assets (USD bn)
3
Equities
519
481
449
8
16
519
449
Fixed Income
321
320
262
0
22
321
262
of which: money market
136
138
85
(1)
60
136
85
Multi-asset & Solutions
168
161
163
4
3
168
163
Hedge Fund Businesses
55
55
53
1
4
55
53
Real Estate & Private Markets
102
100
99
3
4
102
99
Total invested assets excluding associates
1,165
1,117
1,026
4
14
1,165
1,026
of which: passive strategies
508
468
440
9
15
508
440
Associates
5
23
24
21
(5)
9
23
21
Total invested assets
4
1,188
1,140
1,047
4
13
1,188
1,047
Information by region
Invested assets (USD bn)
3
Americas
328
321
261
2
26
328
261
Asia Pacific
4
173
177
174
(2)
(1)
173
174
Europe, Middle East and Africa (excluding Switzerland)
303
274
263
11
15
303
263
Switzerland
384
369
349
4
10
384
349
Total invested assets
4
1,188
1,140
1,047
4
13
1,188
1,047
Information by channel
Invested assets (USD bn)
3
Third-party institutional
656
626
593
5
10
656
593
Third-party wholesale
124
123
119
0
4
124
119
UBS’s wealth management businesses
386
368
314
5
23
386
314
Associates
5
23
24
21
(5)
9
23
21
Total invested assets
4
1,188
1,140
1,047
4
13
1,188
1,047
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period.
2 Net management fees include transaction
fees, fund administration
revenues (including net interest and
trading income from lending activities
and foreign exchange hedging as
part of the
fund services offering), distribution fees, incremental fund-related expenses, gains or losses from seed money and co-investments, funding costs, the negative pass-through impact of third-party performance fees, and
other items that are not Asset Management’s performance fees.
3 Refer to “Alternative performance measures” in the appendix to this report for the definition and calculation method.
4 Comparative figures have
been restated to
include net new
money and invested
assets from associates,
to better reflect
the business strategy.
5 The
invested assets and
net new money
amounts reported for
associates are prepared
in
accordance with their local regulatory requirements and practices.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Asset Management
25
Results: 2Q23 vs 2Q22
Profit
before
tax
decreased by
USD 869m,
or
91%,
to
USD 90m,
primarily
due
to
the
second
quarter
of
2022
including
a
gain
of
USD 848m
from
the
sale
of
our
shareholding
in
the
Mitsubishi
Corp.-UBS
Realty
Inc.
joint
venture.
Excluding
that
gain,
profit
before
tax
decreased
by
USD 22m,
or
19%,
primarily
reflecting
lower
net
management and performance fees.
›
Refer to the “Recent developments” section of the UBS Group second quarter 2022 report for more information
about the sale of our shareholding in Mitsubishi Corp.-UBS Realty Inc.
Total revenues
Total
revenues decreased
by USD 873m,
or 64%,
to USD 499m.
The decrease
was primarily
due to
the second
quarter of 2022
including the aforementioned
gain of USD 848m.
Excluding that
gain, total revenues
decreased by
USD 25m, or 5%.
Net
management
fees
decreased
by
USD 23m,
or
5%,
to
USD 492m,
mainly
reflecting
negative
market
performance and pressure on margins from asset
shifts.
Performance fees decreased by USD 2m to USD
7m, mainly in Hedge Fund Businesses and
Equities.
Operating expenses
Operating expenses
decreased by
USD 4m, or
1%, to
USD 409m, mainly
reflecting lower
personnel expenses,
partly
offset by
foreign currency
effects and
increases in
technology,
control functions
and general
and administrative
expenses.
Invested assets: 2Q23 vs 1Q23
Invested assets increased by USD 48bn to USD 1,188bn, reflecting positive market performance of USD 25bn, net
new money generation of USD 17bn
and foreign currency effects of USD 6bn.
Excluding money market flows, net
new money generation (excluding associates) was USD 19bn. The second quarter of 2023 included a USD 19.6bn
inflow from a European institutional client
into indexed equities.
Results: 6M23 vs 6M22
Profit before tax decreased by USD 949m, or 84%, to USD 184m, primarily due to the first half of 2022 including
the aforementioned gain
of USD 848m. Excluding
that gain, profit
before tax decreased
by USD 102m, or
36%,
mainly reflecting lower net management fees.
Total revenues decreased by USD 949m, or 49%, to USD 1,001m. The decrease was primarily due to the
first half
of
2022
including
the
aforementioned
gain
of
USD 848m.
Excluding
that
gain,
total
revenues
decreased
by
USD 101m, or 9%.
Net
management
fees
decreased
by
USD 105m,
or
10%,
to
USD 971m,
mainly
reflecting
negative
market
performance and foreign currency effects,
as well as pressure on margins from asset
shifts.
Performance fees increased by USD 5m to
USD 31m.
Operating
expenses
were
broadly
stable
at
USD 818m,
mainly
reflecting
lower
personnel
expenses,
offset
by
increases in technology expenses, general and
administrative expenses, and control functions
expenses.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Investment Bank
26
Investment Bank
Investment Bank
1
As of or for the quarter ended
% change from
Year-to-date
USD m, except where indicated
30.6.23
31.3.23
30.6.22
1Q23
2Q22
30.6.23
30.6.22
Results
Advisory
160
171
209
(6)
(23)
331
425
Capital Markets
210
212
168
(1)
25
422
502
Global Banking
371
383
377
(3)
(2)
753
927
Execution Services
358
422
399
(15)
(10)
780
895
Derivatives & Solutions
631
1,007
839
(37)
(25)
1,638
2,257
Financing
533
537
479
(1)
11
1,070
924
Global Markets
1,521
1,967
1,718
(23)
(11)
3,488
4,076
of which: Equities
1,134
1,308
1,274
(13)
(11)
2,442
2,979
of which: Foreign Exchange, Rates and Credit
387
658
444
(41)
(13)
1,046
1,097
Total revenues
1,892
2,349
2,094
(19)
(10)
4,241
5,003
Credit loss expense / (release)
1
7
(28)
(86)
8
(24)
Operating expenses
1,753
1,866
1,712
(6)
2
3,618
3,688
Business division operating profit / (loss) before tax
139
477
410
(71)
(66)
615
1,339
Performance measures and other information
Pre-tax profit growth (year-on-year, %)
2
(66.2)
(48.7)
(38.7)
(54.0)
23.9
Cost / income ratio (%)
2
92.6
79.4
81.8
85.3
73.7
Average VaR (1-day, 95% confidence, 5 years of historical data)
12
12
11
1
8
12
11
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period.
2 Refer to “Alternative performance measures” in the appendix
to this report for the definition and calculation method.
Results: 2Q23 vs 2Q22
Profit before tax decreased by USD 271m, or
66%, to USD 139m, mainly driven by
lower total revenues.
Total revenues
Total revenues decreased by USD 202m, or 10%,
to USD 1,892m, reflecting
lower revenues in Global
Markets and
Global Banking.
Global Banking
Global Banking revenues
decreased by USD 6m,
or 2%, to
USD 371m, driven by
lower Advisory revenues,
partly
offset by
increased Capital
Markets revenues.
Fee-pool-comparable revenues
1
decreased 17%,
compared with
a
19% decrease in the overall global fee pool.
2
Advisory revenues
decreased by
USD 49m, or 23%,
to USD 160m, due
to lower merger
and acquisition transaction
revenues, which decreased by USD 48m,
or 26%, compared with a 41% decrease
in the relevant global fee pool.
2
Capital Markets revenues increased by USD 42m, or
25%, to USD 210m, mainly due
to higher Leveraged Capital
Markets
revenues, which
increased by
USD 39m,
or 269%.
This
was
primarily due
to
a
mark-to-market loss
of
USD 59m in the
second quarter
of 2022. Capital
Markets fee-pool-comparable
revenues
1
decreased by USD
7m, or
5%, compared with a 1% increase in the relevant
global fee pool.
2
Global Markets
Global Markets revenues decreased by USD
197m, or 11%, to USD 1,521m, primarily driven
by lower Derivatives
& Solutions and Execution Services revenues, partly
offset by higher Financing revenues.
Execution Services
revenues decreased
by USD 41m,
or 10%,
to USD 358m,
driven by
lower Cash
Equities revenues,
due to lower exchange-traded volumes.
Derivatives &
Solutions revenues
decreased by
USD 208m, or
25%, to
USD 631m, driven
by decreasing
volatility
during
the
second
quarter
of
2023,
and
lower
client
activity
levels.
The
decreases
were
primarily
in
Equity
Derivatives, Rates and Foreign Exchange
revenues, partly offset by Credit revenues.
Financing revenues increased
by USD 54m, or 11%, to
USD 533m, with increases
across all products, led by
Equity
Financing.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Investment Bank
27
Equities
Global
Markets
Equities
revenues
decreased
by
USD 140m,
or
11%,
to
USD 1,134m,
mainly
driven
by
Equity
Derivatives revenues.
Foreign Exchange, Rates and Credit
Global
Markets
Foreign
Exchange,
Rates
and
Credit
revenues
decreased
by
USD 57m,
or
13%,
to
USD 387m,
primarily driven by lower Rates and Foreign Exchange
revenues, partly offset by Credit revenues.
Credit loss expense / release
Net credit loss expenses were USD 1m, compared with
net releases of USD 28m in the second quarter of 2022.
Operating expenses
Operating expenses increased by USD 41m, or 2%, to USD 1,753m, mainly driven by higher technology expenses
and increases across a
number of other
expense lines, partly
offset by lower provisions
for litigation, regulatory
and
similar matters.
Results: 6M23 vs 6M22
Profit before
tax decreased
by USD 724m,
or 54%,
to USD 615m,
mainly reflecting
lower total
revenues, partly
offset by lower operating expenses.
Total revenues decreased by
USD 762m, or 15%, to USD 4,241m,
reflecting lower revenues in
Global Markets and
Global Banking.
Global Banking revenues
decreased by USD 174m,
or 19%,
to USD 753m,
reflecting lower Advisory
and Capital
Markets
revenues. Our
fee-pool-comparable revenues
1
decreased
27%,
compared
with
a
26%
decrease
in
the
overall global fee pool.
2
Advisory revenues
decreased by
USD 94m, or 22%,
to USD 331m, due
to lower merger
and acquisition transaction
revenues, which decreased by USD 88m,
or 23%, compared with a 37% decrease
in the relevant global fee pool.
2
Capital Markets revenues decreased
by USD 80m, or 16%,
to USD 422m, mainly reflecting
a USD 37m, or 25%,
decrease in Equity Capital Markets
revenues, compared with an 11%
increase in the relevant global fee
pool,
2
and
a
USD 14m,
or
12%,
decrease
in
Debt
Capital
Markets
fee-pool-comparable
revenues,
1
compared
with
a
9%
decrease in the relevant global fee pool.
2
Global Markets
revenues decreased
by USD 588m,
or 14%,
to USD 3,488m,
driven by
lower Derivatives
& Solutions
and Execution Services revenues, partly offset
by higher Financing revenues.
Execution
Services
revenues
decreased
by
USD 115m,
or
13%,
to
USD 780m,
mainly
driven
by
Cash
Equities
revenues, due to lower exchange-traded volumes.
Derivatives
&
Solutions
revenues
decreased
by
USD 619m,
or
27%,
to
USD 1,638m,
mainly
driven
by
Equity
Derivatives revenues.
Financing revenues increased by USD 146m,
or 16%, to USD 1,070m, with increases
across all products.
Global
Markets
Equities
revenues
decreased
by
USD 537m,
or
18%,
to
USD 2,442m,
mainly
driven
by
Equity
Derivatives revenues.
Global Markets Foreign Exchange, Rates and Credit
revenues decreased by USD 51m, or 5%, to
USD 1,046m.
Net credit loss expenses were USD 8m, compared
with net releases of USD 24m in the first
half of 2022.
Operating expenses
decreased by
USD 70m, or
2%, to
USD 3,618m, mainly
driven by
lower variable
compensation,
partly offset by higher technology expenses.
1 UBS fee-pool-comparable revenues consist of revenues
from: merger-and-acquisition-related transactions; Equity Capital Markets,
excluding derivatives; Leveraged Capital Markets,
excluding the impact of mark-to-
market movements on loan portfolios; and Debt Capital Markets,
excluding revenues related to debt underwriting of UBS instruments.
2 Source: Dealogic, as of 30 June 2023.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Group Functions
28
Group Functions
Group Functions
1
As of or for the quarter ended
% change from
Year-to-date
USD m
30.6.23
31.3.23
30.6.22
1Q23
2Q22
30.6.23
30.6.22
Results
Total revenues
(146)
(177)
(284)
(18)
(49)
(323)
(379)
Credit loss expense / (release)
0
0
2
0
2
Operating expenses
349
712
37
(51)
850
1,062
54
Operating profit / (loss) before tax
(495)
(890)
(324)
(44)
53
(1,385)
(436)
of which: Group Treasury
15
(62)
(239)
(47)
(400)
of which: Non-core and Legacy Portfolio
8
(676)
1
446
(668)
46
of which: Group Services
(518)
(153)
(86)
239
500
(671)
(82)
1 Comparatives may differ as a result of adjustments following organizational changes, restatements due to the retrospective adoption of new accounting standards or changes in accounting policies, and events after
the reporting period.
Results: 2Q23 vs 2Q22
Group Functions recorded a loss before tax of
USD 495m, compared with a loss of USD 324m.
Group Treasury
The Group
Treasury
result was
positive USD 15m,
compared with
negative USD 239m.
Income from
accounting
asymmetries, including hedge accounting ineffectiveness, was net positive USD 17m, compared with net negative
income of USD
214m. The impacts
in the
prior-year
quarter were
driven by
mark-to-market effects on
portfolio-
level economic hedges due
to rising interest rates and
cross-currency-basis widening. Income related to
centralized
Group Treasury
risk management was negative USD
4m, compared with negative USD 19m.
Non-core and Legacy Portfolio
The Non-core and Legacy Portfolio result was positive USD
8m, compared with positive USD 1m.
Group Services
The Group Services result was negative USD 518m, compared with negative USD 86m, mainly due to integration-
related
expenses
of
USD 288m
and
acquisition
costs
of
USD 106m
associated
with
the
acquisition
of
the
Credit Suisse Group,
as well as an USD 86m increase
in funding costs related to deferred
tax assets (DTAs),
partly
offset by remeasurement losses of USD 46m on properties held for sale
in the second quarter of 2022.
Results: 6M23 vs 6M22
Group Functions recorded a loss before tax
of USD 1,385m, compared with a loss
of USD 436m.
The Group Treasury result was negative USD
47m, compared with negative USD
400m. This included income from
accounting asymmetries,
including hedge
accounting ineffectiveness,
of net
negative USD 51m,
compared with
net
negative
income
of
USD 352m.
Income
related
to
centralized
Group
Treasury
risk
management
was
positive
USD 8m, compared with negative USD 36m
in the first half of 2022.
The
Non-core and
Legacy Portfolio
result
was
negative USD 668m,
compared with
positive USD 46m.
This
was
mainly
due
to
an
increase
in
provisions
of
USD 665m
related
to
the
US
residential
mortgage-backed
securities
litigation matter.
The Group Services result was negative USD 671m, compared with negative USD 82m, mainly due to integration-
related
expenses
of
USD 288m
and
acquisition
costs
of
USD 176m
associated
with
the
acquisition
of
the
Credit Suisse
Group,
as
well
as
a
USD 180m
increase
in
funding
costs
related
to
DTAs,
partly
offset
by
remeasurement losses of USD 46m on properties
held for sale in the first half of 2022.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Credit Suisse business divisions and Corporate
Center
29
Credit Suisse business divisions and Corporate Center
The information
in this
section is
provided for
the Credit
Suisse business
divisions and
Corporate Center
on
the
basis of US generally accepted accounting principles (US GAAP) as of or for the one-month period ended 30 June
2023. With the acquisition date
of 12 June 2023, for
convenience Credit Suisse business divisions and
Corporate
Center were consolidated with effect from
31 May 2023, as the effect
of transactions and activities in
the period
from 31 May 2023 to 12 June 2023 on the consolidated
financial statements was not material.
When
acquisition accounting
was performed
under IFRS
3,
Business Combinations
, upon
the acquisition
of the
Credit Suisse Group by UBS,
certain effects resulted in a consequential
impact for the US GAAP
reporting of Credit
Suisse. For the
purpose of the business
division reporting in this
section, the US GAAP
information for the Credit
Suisse business
divisions and
Corporate Center
has been
adjusted to
remove effects
that overlap
with amounts
already
accounted
for
as
part
of
the
acquisition,
e.g.,
aligning
fair
value
methodologies,
changes
in
litigation
provisions, software and goodwill impairment.
›
Refer to “Note 3 Segment reporting” in the “Consolidated financial statements” section of this report for a
reconciliation from segment results to UBS Group result for the six month period ended 30 June 2023
The
Wealth Management
(Credit Suisse)
business division
offers wealth management
and investment
solutions,
as well as tailored
financing and advisory services, to ultra
high and high net worth
individuals and external asset
managers.
The
Swiss Bank
(Credit Suisse)
business division offers
advice and
financial solutions to
private, corporate and
institutional clients primarily domiciled in Switzerland.
The
Asset
Management (Credit
Suisse)
business
division
offers investment
solutions
and
services to
pension
funds, governments, foundations and endowments, corporations, and individuals, with an emphasis on the Swiss
market.
The
Investment Bank (Credit
Suisse)
business division offers
financial products and
services focused on
client-
driven businesses and also supports the Wealth
Management business division and its
clients.
The
Capital
Release
Unit
(Credit
Suisse)
was
established
as
a
separate
business
division
to
accelerate
the
reduction of
assets, release
capital, reduce
risk and
target cost
reductions in
businesses that
are not
strategy-aligned
and to manage the residual positions of
the securitized product group business.
Corporate Center (Credit
Suisse)
includes operations
such as bank
financing, expenses
for projects sponsored
by
the bank and certain expenses and revenues
that have not been allocated to the business
divisions.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Wealth Management (Credit Suisse)
30
Wealth Management (Credit Suisse)
Wealth Management (Credit Suisse) (US GAAP,
adjusted)
1
As of or for the month ended
USD m, except where indicated
30.6.23
Statements of operations
Net interest income
2
120
Recurring commissions and fees
3
122
Transaction-
and performance-based revenues
4
81
Other revenues
0
Net revenues
323
Provision for credit losses
7
Total operating expenses
427
Income / (loss) before taxes
(111)
Statement of operations metrics
Cost / income ratio (%)
132.3
Balance sheet statistics
Loans, gross (USD bn)
5
80.8
Customer deposits (USD bn)
83.2
Number of relationship managers
1,547
Assets under management
Assets under management (USD bn)
530
Net new assets / (net asset outflows) (USD bn)
0.8
1 The US GAAP information for the Credit Suisse business divisions and Corporate Center has been adjusted to remove effects that overlap with amounts already accounted for as part of
the acquisition, e.g., aligning
fair value methodologies,
changes in litigation
provisions, software
and goodwill impairment.
2 Net interest
income includes a
term spread credit
on stable deposit
funding and a
term spread charge
on loans.
3 Calculated as the total of recurring
commissions and fees for services,
such as investment product management, discretionary
mandate and other asset management-related fees,
fees from lending activities, fees
for general banking products and services,
and revenues from wealth structuring solutions.
4 Calculated as the total of transaction-
and performance-based revenues, primarily arising from
brokerage and product
issuing fees, fees
from foreign exchange client
transactions, trading
and sales income,
equity participations income,
and other transaction-
and performance-based income.
5 Divisional metrics reflect
where the
loans are recorded and managed from a risk management view and do not reflect any revenue sharing arrangements that exist between divisions.
Results
Wealth Management
(Credit Suisse)
reported a
loss before
taxes of
USD 111m. Net
revenues were
USD 323m. Total
operating expenses
were USD 427m,
mainly reflecting
expenses for
compensation and
benefits.
Integration-related
expenses were USD 46m.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Swiss Bank (Credit Suisse)
31
Swiss Bank (Credit Suisse)
Swiss Bank (Credit Suisse) – in Swiss francs (US GAAP,
adjusted)
1
As of or for the month ended
CHF m, except where indicated
30.6.23
Statements of operations
Net interest income
2
164
Recurring commissions and fees
3
98
Transaction-based revenues
4
45
Other revenues
(3)
Net revenues
304
Provision for credit losses
60
Total operating expenses
237
Income / (loss) before taxes
7
Statement of operations metrics
Cost / income ratio (%)
77.9
Balance sheet statistics
Customer deposits (CHF bn)
96.7
Loans, gross (CHF bn)
5
154.1
Assets under management
Assets under management (CHF bn)
524
Net new assets / (net asset outflows) (CHF bn)
(2.6)
1 The US GAAP information for the Credit Suisse business divisions and Corporate Center has been adjusted to remove effects that overlap with amounts already accounted for as part of the acquisition, e.g., aligning
fair value methodologies,
changes in litigation
provisions, software
and goodwill impairment.
2 Net interest
income includes a
term spread credit
on stable deposit
funding and a
term spread charge
on loans.
3 Calculated as the total of recurring
commissions and fees for services,
such as investment product management,
discretionary mandate and other asset
management-related fees, fees from
lending activities, fees
for general banking products and services, and revenues from wealth structuring solutions.
4 Calculated as the total of transaction-based revenues, arising primarily from brokerage fees,
fees from foreign exchange
client transactions, corporate advisory fees,
revenues from our Swiss investment banking business,
equity participations income and other transaction-based
income.
5 Divisional metrics reflect where the loans are
recorded and managed from a risk management view and do not reflect any revenue sharing arrangements that exist between divisions.
Results
Swiss
Bank
(Credit
Suisse)
reported
an
income
before
taxes
of
CHF 7m.
Net
revenues
were
CHF 304m.
Total
operating expenses
were CHF 237m, mainly
reflecting expenses
for compensation
and benefits.
Integration-related
expenses were CHF 15m.
Swiss Bank (Credit Suisse) – in US dollars (US GAAP,
adjusted)
1
As of or for the month ended
USD m, except where indicated
30.6.23
Statements of operations
Net interest income
2
183
Recurring commissions and fees
3
109
Transaction-based revenues
4
51
Other revenues
(4)
Net revenues
339
Provision for credit losses
67
Total operating expenses
264
Income / (loss) before taxes
8
Statement of operations metrics
Cost / income ratio (%)
77.9
Balance sheet statistics
Customer deposits (USD bn)
107.9
Loans, gross (USD bn)
5
172.0
Assets under management
Assets under management (USD bn)
585
Net new assets / (net asset outflows) (USD bn)
(2.9)
1 The US GAAP information for the Credit Suisse business divisions and Corporate Center has been adjusted to remove effects that overlap with amounts already accounted for as part of the acquisition, e.g., aligning
fair value methodologies,
changes in litigation
provisions, software
and goodwill impairment.
2 Net interest
income includes a
term spread credit
on stable deposit
funding and a
term spread charge
on loans.
3 Calculated as the total of recurring
commissions and fees for services,
such as investment product management,
discretionary mandate and other asset
management-related fees, fees from
lending activities, fees
for general banking products and services, and revenues from wealth structuring solutions.
4 Calculated as the total of transaction-based revenues, arising primarily from brokerage fees,
fees from foreign exchange
client transactions, corporate advisory fees,
revenues from our Swiss investment banking business,
equity participations income and other transaction-based
income.
5 Divisional metrics reflect where the loans are
recorded and managed from a risk management view and do not reflect any revenue sharing arrangements that exist between divisions.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Asset Management (Credit Suisse)
32
Asset Management (Credit Suisse)
Asset Management (Credit Suisse) (US GAAP,
adjusted)
1
As of or for the month ended
USD m, except where indicated
30.6.23
Statements of operations
Management fees
2
77
Performance and transaction revenues
3
7
Investment and partnership income
4
7
Net revenues
91
Provision for credit losses
2
Total operating expenses
103
Income / (loss) before taxes
(14)
Statement of operations metrics
Cost / income ratio (%)
113.7
1 The US GAAP information for the Credit Suisse business divisions and Corporate Center has been adjusted to remove effects that overlap with amounts already accounted for as part of the acquisition, e.g., aligning
fair value methodologies,
changes in litigation provisions,
software and goodwill impairment.
2 Management fees include
fees on assets under
management and asset administration
revenues.
3 Performance
revenues relate to the performance or return of the funds being managed and include investment-related gains and losses from proprietary funds. Transaction fees relate to the acquisition and disposal of investments
in the funds being managed.
4 Investment and partnership income includes equity participation income from seed capital returns and from minority investments in third-party asset managers, income from
strategic
partnerships and distribution agreements, and other revenues.
Assets under management
As of or for the month ended
USD bn
30.6.23
Traditional investments
264
Alternative investments
123
Investments and partnerships
49
Assets under management
436
Movements in assets under management
Net new assets / (net asset outflows)
(2.2)
Other effects
7.5
of which: market movements
4.3
of which: foreign exchange
3.2
of which: other
0.0
Increase / (decrease) in assets under management
5.3
Results
Asset Management
(Credit Suisse)
reported a
loss before
taxes of
USD 14m. Net
revenues were
USD 91m. Total
operating expenses
were USD 103m,
mainly reflecting
expenses for
compensation and
benefits. Integration-related
expenses were USD 11m.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Investment Bank (Credit Suisse)
33
Investment Bank (Credit Suisse)
Investment Bank (Credit Suisse) (US GAAP,
adjusted)
1
As of or for the month ended
USD m, except where indicated
30.6.23
Statements of operations
Fixed-income sales and trading
37
Equity sales and trading
10
Capital markets
37
Advisory and other fees
27
Other revenues
2
(9)
Net revenues
102
Provision for credit losses
(3)
Total operating expenses
715
Income / (loss) before taxes
(610)
Statement of operations metrics
Cost / income ratio (%)
699.2
1 The US GAAP information for the Credit Suisse business divisions and Corporate Center has been adjusted to remove effects that overlap with amounts already accounted for as part of the acquisition, e.g., aligning
fair value methodologies, changes in litigation provisions, software
and goodwill impairment.
2 Other revenues includes treasury funding costs and changes in the carrying value of certain investments.
Results
Investment Bank
(Credit Suisse)
reported a
loss before
taxes of
USD 610m. Net
revenues were
USD 102m. Total
operating expenses
were USD 715m,
mainly reflecting
expenses for
compensation and
benefits. Integration-related
expenses were USD 222m.
Capital Release Unit (Credit Suisse)
Capital Release Unit (Credit Suisse) (US GAAP,
adjusted)
1
As of or for the month ended
USD m, except where indicated
30.6.23
Statements of operations
Net revenues
28
Provision for credit losses
28
Total operating expenses
198
Income / (loss) before taxes
(198)
Balance sheet statistics
Loans, gross (USD bn)
19.8
1 The US GAAP information for the Credit Suisse business divisions and Corporate Center has been adjusted to remove effects that overlap with amounts already accounted for as part of
the acquisition, e.g., aligning
fair value methodologies, changes in litigation provisions, software
and goodwill impairment.
Results
The Capital Release
Unit (Credit Suisse)
reported a loss
before taxes of
USD 198m. Net revenues were
USD 28m.
Total
operating
expenses
were
USD 198m,
mainly
reflecting
general
and
administrative
expenses,
and
compensation and benefits.
Integration-related expenses were USD 24m.
Second quarter 2023 report |
UBS business divisions and Group Functions
| Corporate Center (Credit Suisse)
34
Corporate Center (Credit Suisse)
Corporate Center (Credit Suisse) (US GAAP,
adjusted)
1
As of or for the month ended
USD m
30.6.23
Statements of operations
Net revenues
(140)
Provision for credit losses
0
Total operating expenses
100
Income / (loss) before taxes
(240)
of which: Treasury results
(163)
of which: Other
(77)
1 The US GAAP information for the Credit Suisse business divisions and Corporate Center has been adjusted to remove effects that overlap with amounts already accounted for as part of the acquisition, e.g., aligning
fair value methodologies, changes in litigation provisions, software
and goodwill impairment.
Results
Corporate Center
(Credit Suisse)
reported a
loss before
taxes of
USD 240m, reflecting
negative net
revenues of
USD 140m and total operating expenses of USD
100m.
Integration-related expenses were USD 55m.
Alignment of assets under management to invested assets
The
below
provides
a
reconciliation
of
Credit
Suisse assets
under
management and
net
new
assets to
invested
assets and net new money,
respectively,
based on UBS Group’s policies
that allow for the recognition as
invested
assets of all client
assets managed by
or deposited with
UBS for investment
purposes and exclude
only those assets
held
for
purely
transactional
purposes
and
custody-only
assets,
including
corporate
client
assets
held
for
cash
management and transactional purposes, as the Group only administers such assets and does not
offer advice on
how they should
be invested. UBS
records a
double counting within
its total invested
assets and net
new money
only when two
business divisions are
each independently providing
a service to
their respective clients,
and both
add value and generate revenue.
Credit Suisse business divisions – since acquisition date
UBS business
divisions
1
UBS Group
Total
USD bn
Wealth
Management
Swiss Bank
Asset
Management
Assets managed
across businesses
Total
as of 30 June 2023
Assets under management
2
530
585
436
(194)
1,357
Adjustments to UBS policy
149
(466)
(15)
194
(137)
Invested assets
2,3
680
119
421
0
1,220
4,310
5,530
for the three-month period ended 30 June 2023
Net new assets
2
0.8
(2.9)
(2.2)
1.0
(3.4)
Adjustments to UBS policy
(3.4)
1.8
0.3
(1.0)
(2.3)
Net new money
2,3
(2.6)
(1.1)
(2.0)
0.0
(5.7)
34.3
28.6
1 Consists of invested assets
and net new money
for Global Wealth Management,
Asset Management and Personal
& Corporate Banking.
2 Refer to “Alternative
performance measures” in the
appendix to this
report for the definition and calculation method.
3 Includes invested assets and net new money from associates in Asset Management and Asset Management (Credit Suisse). Refer to the “Asset Management” and
“Asset Management (Credit Suisse)” sections of this report for more information.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet
35
Risk, capital, liquidity and
funding, and balance sheet
Management report
Table of contents
36
Risk management and control
36
Credit risk
38
Market risk
40
Country risk
41
Non-financial risk
43
Capital management
44
Total loss-absorbing capacity
48
Risk-weighted assets
51
Leverage ratio denominator
53
Liquidity and funding management
53
Strategy, objectives and governance
53
Liquidity coverage ratio
54
Net stable funding ratio
55
Balance sheet and off-balance sheet
55
Balance sheet assets
56
Balance sheet liabilities
57
Equity
58
Off-balance sheet
59
Share information and earnings per share
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Risk management and control
36
Risk management and control
The risk
profile of
UBS has
changed with
the acquisition
of the
Credit Suisse
Group. Upon
legal close,
we have
applied existing UBS prudent
risk management practices and
escalation protocols to material
risks of Credit Suisse.
Work is
ongoing to
align the
financial risk
policies of
Credit Suisse
to those
of UBS.
Credit Suisse
positions and
businesses not aligned
with the
core strategy
and policies
of UBS
will be
ringfenced in
the Non-core and
Legacy
(NCL) business division,
with the aim of a timely and orderly wind-down.
This
section
provides
information
about
key
developments
during
the
reporting
period
and
should
be
read
in
conjunction with the “Risk management and
control” section of the Annual Report
2022.
›
Refer to the “Acquisition of Credit Suisse Group” section of this report for more information
Credit risk
Overall banking products exposure
Overall banking
products exposure
increased by
USD 505bn to
USD 1,166bn as
of 30 June
2023, driven
by the
acquisition of the Credit Suisse Group.
Credit-impaired stage 3
gross exposure
increased by
USD 319m
to USD 2,816m.
Total net
credit loss expenses
were
USD 740m, reflecting USD 644m net
credit loss expenses
related to
stage 1 and 2
positions, USD 77m net
credit
loss expenses related to stage 3 positions and
USD 19m of purchased credit-impaired (PCI)
positions.
In aggregate, exposure related to traded products increased by USD 24bn to
USD 66bn during the second quarter
of 2023, driven by the acquisition of the Credit
Suisse Group.
›
Refer to the “Balance sheet and off-balance sheet” section of this report for more information about balance sheet
movements
›
Refer to the “Group performance” section and “Note 8 Expected credit loss measurement” in the “Consolidated
financial statements” section of this report for more information about credit loss expense / release
Loan underwriting
In
the
Investment
Bank
and
the
Investment
Bank
(Credit
Suisse)
pre-integration,
mandated
loan
underwriting
commitments on
a notional
basis increased by
USD 2.8bn to
USD 5.8bn as
of 30 June 2023.
This was mainly
driven
by an increase of USD 3.9bn from the acquisition
of the Credit Suisse Group,
offset by a decrease of USD 1.1bn in
the Investment Bank, mainly due
to expired commitments, as
well as distribution and
syndication activities.
As of
30 June 2023, USD 3.3bn of commitments had
not yet been distributed as originally planned.
Loan underwriting exposures are classified as
held for trading, with fair
values reflecting the market conditions at
the end of the quarter. Credit hedges are
in place to help protect against fair value movements
in the portfolio.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Risk management and control
37
Banking and traded products exposure in our business divisions, Group Functions and Corporate Center (Credit Suisse)
30.6.23
UBS business divisions and Group Functions
USD m
Global
Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
Banking products
1
Gross exposure
339,117
250,641
1,417
69,074
18,614
of which: loans and advances to customers (on-balance sheet)
214,887
162,534
(1)
12,750
433
of which: guarantees and loan commitments (off-balance sheet)
13,861
27,262
0
13,361
9,025
Traded products
2,3
Gross exposure
8,668
345
0
33,041
of which: over-the-counter derivatives
6,666
330
0
9,061
of which: securities financing transactions
0
0
0
16,536
of which: exchange-traded derivatives
2,002
15
0
7,444
Other credit lines, gross
4
12,813
25,002
0
5,357
115
Total credit-impaired exposure, gross
781
1,549
0
324
6
of which: stage 3
781
1,549
0
324
6
of which: PCI
0
0
0
0
0
Total allowances and provisions for expected credit losses (stages 1 to 3)
225
734
0
170
8
of which: stage 1
86
163
0
53
5
of which: stage 2
51
145
0
48
0
of which: stage 3
88
426
0
69
3
of which: PCI
0
0
0
0
0
Credit Suisse business divisions and Corporate Center
USD m
Wealth
Management
Swiss Bank
Asset
Management
Investment
Bank
Capital
Release Unit
Corporate
Center
UBS Group
Total
Banking products
1
Gross exposure
89,985
199,348
591
56,763
31,651
108,528
1,165,729
of which: loans and advances to customers (on-balance sheet)
76,288
161,687
0
6,179
18,364
17
653,138
of which: guarantees and loan commitments (off-balance sheet)
10,903
30,387
212
46,978
9,674
1,046
162,709
Traded products
2,5,6
Gross exposure
3,563
4,650
0
5,217
2,969
7,835
66,288
of which: over-the-counter derivatives
2,083
4,096
0
2,341
1,565
14
26,157
of which: securities financing transactions
361
22
0
856
222
7,802
25,800
of which: exchange-traded derivatives
1,118
532
0
2,020
1,182
19
14,331
Other credit lines, gross
4
62,049
63,218
0
0
2
0
168,558
Total credit-impaired exposure, gross
1,543
549
0
324
873
84
6,033
of which: stage 3
3
80
0
0
72
1
2,816
of which: PCI
1,539
468
0
324
802
83
3,216
Total allowances and provisions for expected credit losses (stages 1 to 3)
157
220
1
202
149
2
1,868
of which: stage 1
143
216
1
190
97
2
955
of which: stage 2
0
0
0
0
0
0
244
of which: stage 3
0
7
0
0
44
0
637
of which: PCI
14
(3)
0
13
8
0
32
31.3.23
USD m
Global
Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Group
Functions
UBS Group
Total
Banking products
1
Gross exposure
320,390
236,562
1,456
70,695
32,064
661,167
of which: loans and advances to customers (on-balance sheet)
218,213
157,616
(1)
13,834
1,272
390,935
of which: guarantees and loan commitments (off-balance sheet)
11,998
27,995
0
13,475
8,976
62,445
Traded products
2,3
Gross exposure
8,816
300
0
32,785
41,902
of which: over-the-counter derivatives
6,902
282
0
8,450
15,634
of which: securities financing transactions
0
0
0
17,193
17,193
of which: exchange-traded derivatives
1,914
19
0
7,142
9,075
Other credit lines, gross
4
12,296
24,006
0
4,658
111
41,071
Total credit-impaired exposure, gross (stage 3)
763
1,409
0
319
6
2,497
Total allowances and provisions for expected credit losses (stages 1 to 3)
226
714
0
173
8
1,121
of which: stage 1
88
146
0
45
5
284
of which: stage 2
52
166
0
52
0
271
of which: stage 3
86
402
0
76
3
567
of which: PCI
1 IFRS 9 gross exposure including other financial assets at amortized cost, but excluding cash, receivables from securities financing transactions, cash collateral receivables on derivative instruments, financial assets at
fair value
through other
comprehensive income,
irrevocable committed
prolongation of
existing loans
and unconditionally
revocable committed
credit lines,
and forward
starting reverse
repurchase and
securities
borrowing agreements.
2 Internal management view of credit risk, which differs in certain respects from IFRS.
3 As counterparty risk for traded products is managed at counterparty level,
no further split between
exposures in the Investment Bank and Group Functions is provided.
4 Unconditionally revocable committed credit lines.
5 Corporate Center (Credit Suisse) includes Corporate Functions exposure.
6 Credit Suisse
traded products are presented before reflection of the impact of the purchase price allocation performed under IFRS 3, Business Combinations,
following the acquisition of Credit Suisse Group by UBS. The acquisition
date adjustment is less than USD 1bn, and if applied would lead to a reduction in our reported traded products exposure.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Risk management and control
38
Collateralization of Loans and advances to customers
UBS business divisions
1
Credit Suisse business divisions
2
Global Wealth Management
Personal & Corporate Banking
Wealth Management
Swiss Bank
USD m, except where indicated
30.6.23
31.3.23
30.6.23
31.3.23
30.6.23
30.6.23
Secured by collateral
212,280
215,803
145,372
141,509
68,805
135,780
Residential real estate
64,178
63,237
116,429
112,769
12,400
107,310
Commercial / industrial real estate
4,990
4,974
21,291
20,416
3,529
21,891
Cash
25,884
27,278
3,043
2,989
11,406
1,313
Securities
101,435
103,480
2,191
2,177
29,708
2,687
Other collateral
15,792
16,834
2,418
3,157
11,761
2,580
Subject to guarantees
103
112
2,669
2,697
3,041
4,914
Uncollateralized and not subject to guarantees
2,504
2,297
14,492
13,410
4,443
20,993
Total loans and advances to customers, gross
214,887
218,213
162,534
157,616
76,288
161,687
Allowances
(154)
(154)
(601)
(557)
(142)
(145)
Total loans and advances to customers, net of allowances
214,733
218,059
161,933
157,059
76,146
161,543
Collateralized loans and advances to customers in % of total
loans and advances of customers, gross (%)
98.8
98.9
89.4
89.8
90.2
84.0
1 Collateral arrangements generally incorporate
a range of collateral, including
cash, securities, real estate and
other collateral. UBS applies a risk-based
approach that generally prioritizes collateral
according to its
liquidity profile. In the
case of loan facilities with
funded and unfunded elements,
the collateral is first allocated
to the funded element.
2 Credit Suisse applies a risk-based
approach that generally prioritizes
real
estate collateral and prioritizes other collateral according to its liquidity profile. In the case of
loan facilities with funded and unfunded elements, the collateral is proportionately allocated.
Market risk
The UBS
Group excluding
Credit Suisse
continued to
maintain generally
low levels
of management
value-at-risk
(VaR).
Average management
VaR
(1-day,
95% confidence
level) was
unchanged, at
USD 13m at
the end
of the
second quarter of 2023. There
were no new VaR
negative backtesting exceptions in the second
quarter of 2023.
The number of
negative backtesting
exceptions within
the most recent
250-business-day window
remained at one.
The Swiss Financial
Market Supervisory Authority
(FINMA) VaR
multiplier derived from
backtesting exceptions for
market risk risk-weighted assets was unchanged
compared with the prior quarter, at 3.0.
Credit Suisse’s
average management
VaR (1-day,
98% confidence
level) stood
at USD 32m
at the
end of
the second
quarter of
2023. There
was one
new VaR
negative backtesting exception
in the
second quarter
of 2023,
due to
purchase price
allocation adjustments, and
the total
number of
negative backtesting exceptions
within the most
recent 250-business-day window was at three.
The FINMA VaR multiplier derived from backtesting exceptions for
market risk risk-weighted assets was
unchanged compared with the prior quarter,
at 3.0.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Risk management and control
39
Management value-at-risk (1-day, 95% confidence, 5 years of historical data) of UBS Group business divisions and
Group Functions excluding Credit Suisse by general market risk type
1
Average by risk type
USD m
Min.
Max.
Period end
Average
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Global Wealth Management
1
2
1
1
0
1
2
0
0
Personal & Corporate Banking
0
0
0
0
0
0
0
0
0
Asset Management
0
0
0
0
0
0
0
0
0
Investment Bank
5
18
16
12
8
10
4
2
3
Group Functions
3
6
5
5
1
4
3
0
0
Diversification effect
2,3
(5)
(5)
(1)
(4)
(4)
(1)
0
Total as of 30.6.23
7
20
18
13
8
11
6
2
3
Total as of 31.3.23
7
24
16
13
7
12
6
2
3
Management value-at-risk (1-day, 98% confidence, 2 years of historical data) of Credit Suisse business divisions and
Corporate Center by general market risk type
1,4
Average by risk type
USD m
Min.
Max.
Period end
Average
Equity
Interest
rates
Credit
spreads
Foreign
exchange
Commodities
Wealth Management (Credit Suisse)
12
14
12
13
1
1
13
0
0
Swiss Bank (Credit Suisse)
0
1
1
0
0
0
0
0
0
Asset Management (Credit Suisse)
0
0
0
0
0
0
0
0
0
Investment Bank (Credit Suisse)
15
29
16
19
14
10
7
2
2
Capital Release Unit (Credit Suisse)
16
21
16
18
3
9
14
1
0
Corporate Center (Credit Suisse)
3
3
3
3
0
2
3
0
0
Diversification effect
2,3
(19)
(21)
(4)
(3)
(15)
(1)
0
Total as of 30.6.23
28
37
29
32
14
20
21
2
2
1 Statistics at individual levels may not be summed
to deduce the corresponding aggregate figures. The
minima and maxima for each level may occur
on different days, and, likewise,
the value-at-risk (VaR) for each
business line or risk type, being driven
by the extreme loss tail of the corresponding
distribution of simulated profits and losses for
that business line or risk type,
may well be driven by different days in
the historical
time series, rendering invalid
the simple summation of figures
to arrive at the aggregate
total.
2 The difference between
the sum of the standalone
VaR for the business
divisions, Group Functions
and Corporate
Center (Credit Suisse) and the total VaR.
3 As the minima and maxima for different business divisions, Group Functions and Corporate Center (Credit Suisse) occur on different days,
it is not meaningful to calculate
a portfolio diversification
effect.
4 In the
second quarter of
2023, Credit Suisse
AG consolidated introduced
an enhanced approach
to measure management
value-at-risk for individual
risk types.
The enhanced
approach is applied to each
risk type using a
collection of risk factors
included within the respective
risk type only,
ignoring the cross-risk effects.
This change in
the measurement approach for
individual risk types
affected particularly standalone management VaR for equity risk and foreign exchange risk, with no impact
on the total management VaR.
Economic value of equity and net interest income
sensitivity
The economic value of equity
(EVE) sensitivity in the UBS Group
banking book to a parallel shift
in yield curves of
+1 basis point was negative USD 28.7m as of 30 June 2023, compared with
negative USD 25.5m as of 31 March
2023.
This
excludes
the
sensitivity of
USD 2.8m from
additional
tier 1
(AT1)
capital instruments
(as
per
specific
FINMA
requirements)
in
contrast
to
general
Basel
Committee
on
Banking
Supervision
(BCBS)
guidance.
The
exposure in the banking book of the UBS Group increased during the quarter
due to the inclusion of Credit Suisse
but was lower for
UBS AG, due
to a shorter modeled
duration assigned to own
equity and tighter credit
spreads
on debt issuances.
The majority of
our interest rate
risk in
the banking
book is
a reflection of
the net asset
duration that
we run
to
offset our modeled sensitivity of net USD 23m (31 March 2023: USD 19.6m) assigned to our equity, goodwill and
real estate, with the aim of generating a stable net interest income contribution. Of this, USD 17m and USD 5.1m
are
attributable
to
the
US
dollar
and
the
Swiss
franc
portfolios,
respectively,
(31 March
2022:
USD 13.9m
and
USD 4.9m, respectively).
In
addition
to
the
sensitivity mentioned
above,
we
calculate
the
six
interest
rate
shock
scenarios
prescribed
by
FINMA. The “Parallel up”
scenario, assuming all positions
were fair valued,
was the most
severe and would have
resulted
in
a
change
in
EVE
of
negative
USD 5.4bn,
or
5.8%,
of
our
tier 1
capital
(31 March
2023:
negative
USD 4.8bn, or
8.3%), which
is well below
the 15%
threshold as
per the
BCBS supervisory
outlier test
for high
levels
of interest rate risk in the banking book.
The immediate
effect on
our tier 1
capital in
the “Parallel
up” scenario
as of
30 June 2023
would have
been a
decrease of approximately
USD 0.6bn, or 0.7% (31 March 2023: USD
0.4bn,
or 0.6%), reflecting the fact that the
vast majority of our banking book is accrual accounted
or subject to hedge accounting. The “Parallel up” scenario
would subsequently have a positive effect on
net interest income, assuming a constant
balance sheet.
›
Refer to “Interest rate risk in the banking book” in the “Market risk” section of the Annual Report 2022 for more
information about the management of interest rate risk in the banking book
›
Refer to “Sensitivity to interest rate movements” in the “Group performance” section of this report for more
information about the effects of increases in interest rates on the net interest income of our banking book
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Risk management and control
40
Interest rate risk – banking book
30.6.23
USD m
Effect on EVE
1
– FINMA
Effect on EVE
1
– BCBS
Scenarios
CHF
EUR
GBP
USD
Other
Total
Additional
tier 1 (AT1)
capital
instruments
Total
of which:
Credit Suisse
+1 bp
(4.3)
(0.9)
(0.1)
(23.5)
0.1
(28.7)
2.8
(25.9)
(5.0)
Parallel up
2
(639.8)
(165.0)
(32.5)
(4,549.6)
2.5
(5,384.4)
535.1
(4,849.2)
(970.8)
Parallel down
2
646.6
204.1
24.7
4,687.9
(1.1)
5,562.2
(574.6)
4,987.6
1,037.1
Steepener
3
(125.4)
(24.7)
15.8
(905.9)
(31.7)
(1,071.9)
(55.5)
(1,127.3)
131.5
Flattener
4
3.8
(2.2)
(22.0)
(148.9)
30.2
(139.0)
173.3
34.3
(333.3)
Short-term up
5
(213.7)
(54.4)
(30.1)
(2,006.1)
25.8
(2,278.6)
376.5
(1,902.1)
(710.4)
Short-term down
6
209.8
57.5
29.2
2,139.0
(24.8)
2,410.9
(390.4)
2,020.5
714.4
31.3.23
USD m
Effect on EVE
1
– FINMA
Effect on EVE
1
– BCBS
Scenarios
CHF
EUR
GBP
USD
Other
Total
Additional
tier 1 (AT1)
capital
instruments
Total
+1 bp
(4.4)
(0.9)
(0.1)
(20.2)
0.0
(25.5)
3.1
(22.4)
Parallel up
2
(624.4)
(157.2)
(16.7)
(3,961.2)
(17.3)
(4,776.8)
595.6
(4,181.3)
Parallel down
2
696.2
186.5
7.2
3,907.3
8.8
4,806.0
(640.7)
4,165.3
Steepener
3
(269.9)
(48.0)
(1.1)
(966.9)
(2.9)
(1,288.8)
(50.5)
(1,339.2)
Flattener
4
148.8
22.1
(2.9)
30.3
(1.1)
197.2
181.7
378.9
Short-term up
5
(97.3)
(27.2)
(6.9)
(1,554.6)
(9.7)
(1,695.7)
409.1
(1,286.6)
Short-term down
6
101.6
28.7
7.4
1,724.7
7.6
1,870.0
(424.5)
1,445.5
1 Economic value
of equity.
2 Rates across
all tenors move
by ±150 bps
for Swiss franc,
±200 bps for
euro and US
dollar, and
±250 bps for
pound sterling.
3 Short-term rates
decrease and long-term
rates
increase.
4 Short-term rates increase and long-term rates decrease.
5 Short-term rates increase more than long-term rates.
6 Short-term rates decrease more than long-term rates.
Country risk
We remain
watchful of
a range
of geopolitical
developments and
political changes
in a
number of
countries, as
well
as
international
tensions
arising
from
the
Russia–Ukraine
war,
and
US–China
trade
relations.
Our
direct
exposure to
Russia, Belarus
and Ukraine
is limited,
and we
continue to
monitor potential
second-order impacts,
such
as
European energy
security.
We
do
have
significant country
risk
exposure to
major
European economies,
including France, Germany and the UK.
In the context
of high inflation,
central banks in
most major economies
have responded
with interest rate
hikes and
tapering or reversing
quantitative easing, which increases
the chances of
recessions in those
economies. Banking
sector volatility has
eased, but there
is still residual
uncertainty about the trajectory
of monetary policy.
There are
also concerns about
energy and food
security, global supply
chain stresses and
tight labor markets
that are creating
negative pressure on growth. Following the relaxation of COVID-19 restrictions, the Chinese economy rebounded
for a time but now appears to be experiencing
slower growth.
We continue to monitor
potential trade policy
disputes, as well as
economic and political
developments in addition
to those
mentioned above.
In 2023,
several emerging
markets have
faced economic,
political and
market pressures,
particularly in light
of interest rate
hikes and
a stronger
US dollar.
Our exposure to
emerging market countries
is
less than 10% of our total country exposure and
is mainly in Asia.
›
Refer to the “Risk management and control” section of the Annual Report 2022 for more information
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Risk management and control
41
Non-financial risk
UBS
is
actively managing
the inherent
intensification of
non-financial
risk
emerging from
the acquisition
of the
Credit Suisse Group, the current operation of dual corporate structures,
and the scale, pace and complexity of the
required integration
activities.
We are
cooperating with
regulators to
submit and
execute implementation
plans
under increased
regulatory requirements,
including regulatory
remediation requirements
applicable to
the Credit
Suisse
Group.
We
are
also
assessing
and
addressing
internal
controls
over
financial
reporting
to
remediate
the
weaknesses the Credit Suisse Group identified in its controls. A Group Integration
Officer has been appointed and
a dedicated function
and integration program
set up to oversee
the organizational changes.
In addition, the
Group
is closely monitoring
operational risk indicators, including
attrition, to detect
any potential for
adverse impact on
the
control
environment.
We
also
focus
on
managing
key
subject
matter
experts
and
ensuring
resources
are
sufficient to manage key controls.
There is an increased potential risk of
operational disruption to business activities
at our locations and / or those of
third
parties
due
to
the
complexity
of
operating
an
enlarged
group
of
entities, combined
with
the
increasingly
dynamic threat
environment, which
is intensified
by current
geopolitical factors
and evidenced
by the
increased
volume and
sophistication of
cyberattacks. In
addition, the
Group faces
multiple related
regulatory deadlines
to
enhance operational resilience between 2023 and
2026. To that end, we have developed a global framework
that
is being
implemented across all
business divisions and
jurisdictions, as well
as provided to
third parties, including
third-party vendors, that are of critical
importance to us. The framework will mature
over time and is designed to
drive enhancements in operational resilience.
A post-incident review
following a ransomware
attack on ION
XTP in the first
quarter of 2023
has been completed,
and improvements to
our frameworks for
managing third parties
that support our
important business services
have
been
identified. We
intend
to
take
actions
to
enhance
our
cyber-risk
assessments and
controls
over
third-party
vendors.
Although we are continuing
our efforts regarding innovation and
digitalization, to ensure there
is the right
focus
during this initial period of integration we
have reprioritized some UBS changes.
The increasing interest
in data-driven
advisory processes,
and use of
artificial intelligence
(AI) and machine
learning,
is opening up new questions
related to the fairness of
AI algorithms, data life cycle
management, data ethics,
data
privacy and
security, and
records management.
We seek
to enhance
our frameworks
to implement
controls for
these risks
and to
meet regulatory expectations.
In addition,
new risks
continue to emerge,
such as
those which
result from the demand from our clients for distributed
ledger tech, blockchain-based assets and cryptocurrencies;
although
we
currently
have
limited
exposure
to
such
risks
and
relevant
control
frameworks
for
them
are
implemented and reviewed on a regular basis
as they evolve.
Competition to
find new
business opportunities
across the
financial services
sector, both
for firms
and for
customers,
is increasing.
Thus, suitability
risk, product
selection, cross-divisional service
offerings, quality
of advice
and price
transparency also remain areas of heightened
focus for UBS and for the industry as
a whole.
Sustainable investing,
market volatility
and major
legislation, such
as the
Swiss Financial
Services Act
(FIDLEG) in
Switzerland, Regulation
Best Interest
(Reg BI)
in the
US and
the Markets
in Financial
Instruments Directive
II (MiFID II)
in the
EU, all
significantly affect
the industry
and have
required adjustments
to control
processes on
a geographically
aligned basis.
Achieving
fair
outcomes
for
our
clients,
upholding
market
integrity
and
cultivating
the
highest
standards
of
employee conduct
are of critical
importance to
us. We
place additional
focus on risk
culture through
our Three
Keys
program, as well as our conduct risk framework across our activities, which is designed
to align our standards and
conduct with these objectives and to retain
momentum on fostering a strong culture.
Cross-border risk
remains an
area of
regulatory attention for
global financial
institutions, with
a strong
focus on
fiscal transparency, as well as market
access, particularly third-country market access into the
European Economic
Area.
Remote
communication
and
implementation
of
digital
solutions
also
require
that
these
evolving
client
channels remain compliant. There is also an ongoing
high level of attention regarding the risk
that tax authorities
may,
on
the
basis
of
new
interpretations
of
existing
law,
seek
to
impose
taxation
based
on
the
existence
of
a
permanent establishment. We maintain a series
of controls designed to address these risks.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Risk management and control
42
Financial crime, including
money laundering, terrorist
financing, sanctions violations,
fraud, bribery and corruption,
continues
to
present
a
major
risk,
as
technological
innovation
and
geopolitical
developments
increase
the
complexity of
doing business
and heightened
regulatory attention
continues. An
effective financial
crime prevention
program
therefore
remains
essential
for
UBS.
Money
laundering
and
financial
fraud
techniques
are
becoming
increasingly sophisticated,
and geopolitical volatility
makes the sanctions
landscape more complex,
as new or novel
sanctions may be imposed
that require complex implementation in
a short time frame,
such as the extensive
and
continuously evolving sanctions arising
from the Russia–Ukraine war.
In the US, the
Office of the Comptroller of
the Currency (the OCC) issued
a Cease and Desist Order
against us in
May
2018
relating
to
our
US
branch
anti-money-laundering
(AML)
and
know-your-client
(KYC)
programs.
In
response, we
initiated an
extensive program
for the
purpose of
ensuring sustainable
remediation of
US-relevant
Bank Secrecy Act / AML issues across all our
US legal entities. We have introduced significant
improvements to the
framework beginning in 2019 and continue
to evolve it in response to new and
emerging risks.
We continue to focus on strategic enhancements to our global AML / KYC and
sanctions programs, including the
exploration of new technologies
and sophisticated monitoring
and analytical capabilities,
as well as the application
of risk appetite statements for markets.
In
September
2022,
the
Securities
and
Exchange
Commission
(the
SEC)
and
the
Commodity
Futures
Trading
Commission
(the
CFTC)
issued
settlement
orders
with
UBS AG
relating
to
communications
recordkeeping
requirements in our US broker-dealers and our registered
swap dealer. In response, we have initiated a program
to
remediate identified shortcomings.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Capital management
43
Capital management
The
disclosures
in
this
section
are
provided
for
UBS Group AG
on
a
consolidated
basis
and
focus
on
key
developments during
the reporting
period and
information in
accordance with
the Basel III
framework, as
applicable
to Swiss systemically relevant banks (SRBs).
They should be read in conjunction
with “Capital management” in the
“Capital,
liquidity
and
funding,
and
balance
sheet”
section
of
the
Annual
Report
2022,
which
provides
more
information about our capital management objectives, planning and activities, as
well as the Swiss SRB
total loss-
absorbing capacity (TLAC) framework.
UBS Group AG is a
holding company and
conducts substantially all
of its
operations through UBS AG
and Credit
Suisse AG, and subsidiaries
thereof. UBS Group AG, UBS AG
and Credit Suisse AG
have contributed a
significant
portion of
their respective
capital to
and provide
substantial liquidity
to such
subsidiaries. Many
of these
subsidiaries
are subject to regulations requiring compliance
with minimum capital, liquidity and similar
requirements.
›
Refer to the 30 June 2023 Pillar 3 Report, available under “Pillar 3 disclosures” at
ubs.com/investors
, for more
information relating to additional regulatory disclosures for UBS Group AG on a consolidated basis, as well as our
significant regulated subsidiaries and sub-groups
›
Refer to the
UBS AG second
quarter 2023
report, available
under “Quarterly
reporting” at
ubs.com/investors
, and to
the Credit
Suisse AG second
quarter 2023
report, which
will be available
in September
2023 under
“Reports
and
Research”
at
credit-suisse.com
, for more information
about capital
and other regulatory
information
for UBS AG
consolidated
and Credit Suisse
AG consolidated,
respectively, in accordance
with the Basel
III framework,
as applicable
to Swiss
SRBs
Swiss SRB going and gone concern requirements and information
As of 30.6.23
RWA
LRD
USD m, except where indicated
in %
in %
Required going concern capital
Total going concern capital
14.90
1,2
82,922
5.06
1,2
84,894
Common equity tier 1 capital
10.60
58,988
3.56
3
59,726
of which: minimum capital
4.50
25,047
1.50
25,168
of which: buffer capital
5.50
30,613
2.00
33,558
of which: countercyclical buffer
0.42
2,328
Maximum additional tier 1 capital
4.30
23,934
1.50
25,168
of which: additional tier 1 capital
3.50
19,481
1.50
25,168
of which: additional tier 1 buffer capital
0.80
4,453
Eligible going concern capital
Total going concern capital
16.76
93,287
5.56
93,287
Common equity tier 1 capital
14.42
80,258
4.78
80,258
Total loss-absorbing additional tier 1 capital
4
2.34
13,030
0.78
13,030
of which: high-trigger loss-absorbing additional tier 1 capital
2.13
11,839
0.71
11,839
of which: low-trigger loss-absorbing additional tier 1 capital
0.21
1,190
0.07
1,190
Required gone concern capital
Total gone concern loss-absorbing capacity
5,6,7
10.73
59,696
3.75
62,920
of which: base requirement including add-ons for market share and LRD
10.73
8
59,696
3.75
8
62,920
of which: base requirement
9.65
53,684
3.38
56,628
of which: additional requirement for market share and LRD
1.08
6,011
0.38
6,292
Eligible gone concern capital
Total gone concern loss-absorbing capacity
18.46
102,753
6.12
102,753
Total tier 2 capital
0.10
539
0.03
539
of which: non-Basel III-compliant tier 2 capital
0.10
539
0.03
539
TLAC-eligible senior unsecured debt
18.36
102,214
6.09
102,214
Total loss-absorbing capacity
Required total loss-absorbing capacity
25.62
142,618
8.81
147,814
Eligible total loss-absorbing capacity
35.22
196,040
11.68
196,040
Risk-weighted assets / leverage ratio denominator
Risk-weighted assets
556,603
Leverage ratio denominator
1,677,877
1 Includes applicable add-ons
of 1.44% for risk-weighted
assets (RWA) and 0.50%
for leverage ratio
denominator (LRD).
2 Total going
concern capital requirements include
the FINMA Pillar
2 capital add-on of
USD 1,000m related to
the supply chain
finance funds matter
at Credit Suisse.
This Pillar 2
capital add-on results
in additional CET1
capital ratio requirement
of 18 basis
points and additional
CET1 leverage ratio
requirement of 6 basis points
as of 30 June 2023.
3 Our minimum CET1 leverage
ratio requirement of
3.56% consists of a 1.5%
base requirement, a 1.5%
base buffer capital requirement, a
0.25% LRD add-on
requirement, a 0.25% market share add-on requirement based on our Swiss credit business and a 0.06% Pillar 2 capital add-on related to the supply chain funds matter at Credit Suisse.
4 Includes outstanding low-
trigger loss-absorbing additional tier 1 capital instruments,
which are available under the Swiss systemically
relevant bank framework to meet
the going concern requirements until their first call
date. As of their first
call date, these instruments are eligible to meet the gone concern requirements.
5 A maximum of 25% of the gone concern requirements can be met with instruments that have a remaining maturity of between one
and two years. Once at least
75% of the minimum gone concern requirement has been met with
instruments that have a remaining maturity of greater
than two years, all instruments that have a
remaining maturity
of between one and two years remain eligible to be included in the total gone concern capital.
6 From 1 January 2023, the resolvability discount on the
gone concern capital requirements for systemically important
banks (SIBs) has been replaced with
reduced base gone concern capital requirements
equivalent to 75% of the
total going concern requirements (excluding
countercyclical buffer requirements).
7 As of July 2024,
the Swiss Financial
Market Supervisory
Authority (FINMA)
will have the
authority to impose
a surcharge of
up to 25%
of the total
going concern capital
requirements should obstacles
to an SIB’s
resolvability be
identified in future resolvability assessments.
8 Includes applicable add-ons of 1.08% for RWA and 0.38% for LRD.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Capital management
44
We are subject to
the going and gone
concern requirements of
the Swiss Capital Adequacy
Ordinance that include
the too-big-to-fail
provisions applicable
to Swiss
SRBs. The table
above provides
the risk-weighted
asset (RWA)-
and
leverage ratio denominator (LRD)-based requirements
and information as of 30 June 2023.
In November
2022, the
Swiss Federal
Council adopted
amendments to
the Banking
Act and
the Banking
Ordinance,
which entered into
force as of
1 January 2023. The
amendments replaced the resolvability
discount on the
gone
concern
capital
requirements
for
systemically
important
banks
(SIBs),
including
UBS,
with
reduced
base
gone
concern capital requirements
equivalent to 75%
of the total
going concern
requirements (excluding
countercyclical
buffer requirements).
In addition,
as of
July 2024,
the Swiss
Financial Market
Supervisory Authority
(FINMA) will
have the authority
to impose
a surcharge of
up to 25%
of the total
going concern
requirements based
on obstacles
to an SIB’s
resolvability identified
in future
resolvability assessments.
Our total
gone concern
requirements remained
substantially unchanged in the second quarter
of 2023 as a result of these changes.
Transitional purchase price allocation
adjustments for regulatory capital
As
part
of
the
acquisition
of
the
Credit
Suisse
Group,
the
assets
acquired
and
liabilities
assumed,
including
contingent liabilities, were
recognized at fair
value as
of the
acquisition date in
accordance with IFRS 3,
Business
Combinations
. The purchase
price allocation (PPA) fair
value adjustments required under
IFRS 3 are recognized as
part of
negative goodwill
and
include effects
on
financial instruments
measured at
amortized cost,
such as
fair
value impacts
from interest
rates and
own credit,
that are
expected to
accrete back
to par
through the
income
statement as the instruments are held to maturity. Similar own-credit-related effects have also been recognized as
part of
the PPA
adjustments on
financial liabilities
measured at
fair value.
As
agreed with
FINMA, a
transitional
common equity tier 1 (CET1) capital treatment has
been applied for certain of these
fair value adjustments, given
the
substantially
temporary
nature
of
the
IFRS-3-accounting-driven
effects.
As
such,
IFRS
equity
reductions
of
USD 5.9bn (pre-tax) and USD 5.0bn
(net of tax)
as of the
acquisition date have been neutralized
for CET1 capital
calculation
purposes,
of
which
USD 1.0bn
(net
of
tax)
relates
to
own-credit-related fair
value
adjustments. The
transitional treatment is subject to linear
amortization and will reduce to nil by 30
June 2027.
Total loss-absorbing capacity
The table below provides Swiss SRB going and gone concern information based on the Swiss SRB
framework and
requirements that are discussed under “Capital management” in the “Capital, liquidity and
funding, and balance
sheet”
section
of
the
Annual
Report
2022.
Changes
to
the
Swiss
SRB
framework
and
requirements
after
the
publication of the Annual Report 2022 are described above.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Capital management
45
Swiss SRB going and gone concern information
USD m, except where indicated
30.6.23
31.3.23
31.12.22
Eligible going concern capital
Total going concern capital
93,287
57,694
58,321
Total tier 1 capital
93,287
57,694
58,321
Common equity tier 1 capital
80,258
44,590
45,457
Total loss-absorbing additional tier 1 capital
13,030
13,104
12,864
of which: high-trigger loss-absorbing additional tier 1 capital
11,839
11,905
11,675
of which: low-trigger loss-absorbing additional tier 1 capital
1,190
1,198
1,189
Eligible gone concern capital
Total gone concern loss-absorbing capacity
102,753
52,624
46,991
Total tier 2 capital
539
2,975
2,958
of which: low-trigger loss-absorbing tier 2 capital
0
2,438
2,422
of which: non-Basel III-compliant tier 2 capital
539
538
536
TLAC-eligible senior unsecured debt
102,214
49,649
44,033
Total loss-absorbing capacity
Total loss-absorbing capacity
196,040
110,318
105,312
Risk-weighted assets / leverage ratio denominator
Risk-weighted assets
556,603
321,660
319,585
Leverage ratio denominator
1,677,877
1,014,446
1,028,461
Capital and loss-absorbing capacity ratios (%)
Going concern capital ratio
16.8
17.9
18.2
of which: common equity tier 1 capital ratio
14.4
13.9
14.2
Gone concern loss-absorbing capacity ratio
18.5
16.4
14.7
Total loss-absorbing capacity ratio
35.2
34.3
33.0
Leverage ratios (%)
Going concern leverage ratio
5.6
5.7
5.7
of which: common equity tier 1 leverage ratio
4.78
4.40
4.42
Gone concern leverage ratio
6.1
5.2
4.6
Total loss-absorbing capacity leverage ratio
11.7
10.9
10.2
Total loss-absorbing capacity and movement
Our total loss-absorbing capacity (TLAC) increased
by USD 85.7bn to USD 196.0bn in the second
quarter of 2023.
Going concern capital and movement
Our
going
concern
capital
increased
by
USD 35.6bn
to
USD 93.3bn.
Our
common
equity
tier 1
(CET1)
capital
increased by USD 35.7bn to USD 80.3bn, predominantly due to the acquisition of the Credit
Suisse Group, which
resulted
in
an
increase
of
USD 36.1bn
as
of
the
acquisition
date
(including
transitional
CET1
purchase
price
allocation adjustments of USD 5.0bn).
Our additional
tier 1 (AT1)
capital decreased
by USD 0.1bn
to USD 13.0bn,
mainly reflecting
interest rate
risk hedge,
foreign-currency translation and other effects.
Gone concern loss-absorbing capacity and movement
Our
total
gone
concern
loss-absorbing
capacity
increased
by
USD 50.1bn
to
USD 102.8bn,
mainly
due
to
the
acquisition of the Credit Suisse Group, as 48
TLAC-eligible senior unsecured debt instruments denominated in US
dollars, euro,
pounds sterling
and yen
amounting to
USD 53.5bn equivalent
that were
originally issued
by the
Credit
Suisse Group
were assumed
as gone
concern capital
by the
UBS Group.
In addition,
there was
a USD 2.2bn
increase
in gone
concern
capital as
the nominal
amounts of
two TLAC-eligible
senior unsecured
debt instruments
not bought
back under a tender offer were eligible again as gone concern
capital in the second quarter of 2023 following
the
expiration of the tender offer on 4 April 2023. These effects were partly offset by a low-trigger loss-absorbing tier
2 capital instrument
of USD 2.4bn that
ceased to be
eligible as it
had less than
one year to
maturity,
the calls of
three
TLAC-eligible
unsecured
debt
instruments
denominated
in
US
dollars
and
Swiss
francs
amounting
to
USD 2.4bn equivalent, and interest
rate risk hedge, foreign-currency translation and
other effects. On 6 July 2023,
UBS
announced
that
it
would
redeem
TLAC-eligible
senior
unsecured
debt
on
30 July
2023
(ISINs
144A:
US902613AB45
/
Reg
S:
USH42097BS52
with
a
nominal
amount
of
USD 1.3bn,
issued
on
30 July
2020).
This
instrument remained eligible as gone concern
capital as of 30 June 2023.
›
Refer to “Bondholder information” at
ubs.com/investors
for more information about the eligibility of capital and
senior unsecured debt instruments and about key features and terms and conditions of capital instruments
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Capital management
46
Loss-absorbing capacity and leverage ratios
Our CET1
capital ratio
increased to
14.4% from
13.9%, reflecting
an increase
in CET1
capital of
USD 35.7bn, partly
offset by a USD 234.9bn increase in RWA.
Our CET1
leverage ratio
increased to
4.78% from
4.40%, reflecting
an increase
in CET1
capital of
USD 35.7bn,
partly offset by a USD 663.4bn increase in the
LRD.
Our
gone
concern
loss-absorbing
capacity
ratio
increased
to
18.5%
from
16.4%,
due
to
an
increase
in
gone
concern loss-absorbing capacity of USD 50.1bn,
partly offset by the aforementioned increase
in RWA.
Our gone concern leverage
ratio increased to 6.1%
from 5.2%, due to
an increase in gone
concern loss-absorbing
capacity of USD 50.1bn, partly offset by the
aforementioned increase in the LRD.
Swiss SRB total loss-absorbing capacity movement
USD m
Going concern capital
Swiss SRB
Common equity tier 1 capital as of 31.3.23
44,590
Operating profit before tax excluding negative goodwill
314
Current tax (expense) / benefit
(368)
Foreign currency translation effects, before tax
371
CET1 capital acquired from Credit Suisse Group as of
the acquisition date
31,051
Transitional CET1 purchase price allocation adjustments as of the acquisition date
5,005
Amortization of transitional CET1 purchase price allocation adjustments
(108)
Other
1
(598)
Common equity tier 1 capital as of 30.6.23
80,258
Loss-absorbing additional tier 1 capital as of 31.3.23
13,104
Interest rate risk hedge, foreign currency translation and other effects
(74)
Loss-absorbing additional tier 1 capital as of 30.6.23
13,030
Total going concern capital as of 31.3.23
57,694
Total going concern capital as of 30.6.23
93,287
Gone concern loss-absorbing capacity
Tier 2 capital as of 31.3.23
2,975
Debt no longer eligible as gone concern loss-absorbing capacity
due to residual tenor falling to below one year
(2,437)
Interest rate risk hedge, foreign currency translation and other effects
1
Tier 2 capital as of 30.6.23
539
TLAC-eligible senior unsecured debt as of 31.3.23
49,649
TLAC-eligible senior unsecured debt acquired from Credit Suisse
53,466
Issuance of TLAC-eligible senior unsecured debt
82
Call of TLAC-eligible senior unsecured debt
(2,435)
Instruments eligible following the expiration of the tender offer
2,175
Interest rate risk hedge, foreign currency translation and other effects
(724)
TLAC-eligible senior unsecured debt as of 30.6.23
102,214
Total gone concern loss-absorbing capacity as of 31.3.23
52,624
Total gone concern loss-absorbing capacity as of 30.6.23
102,753
Total loss-absorbing capacity
Total loss-absorbing capacity as of 31.3.23
110,318
Total loss-absorbing capacity as of 30.6.23
196,040
1 Includes dividend accruals for the current year (negative USD 0.5bn) and movements related to other items.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Capital management
47
Reconciliation of IFRS equity to Swiss SRB common equity tier 1 capital
USD m
30.6.23
31.3.23
31.12.22
Total IFRS equity
87,635
57,106
57,218
Equity attributable to non-controlling interests
(636)
(352)
(342)
Defined benefit plans, net of tax
(987)
(361)
(311)
Deferred tax assets recognized for tax loss carry-forwards
(3,917)
(4,019)
(4,077)
Deferred tax assets for unused tax credits
(117)
(122)
Deferred tax assets on temporary differences, excess over threshold
(139)
(64)
Goodwill, net of tax
1
(5,761)
(5,758)
(5,754)
Intangible assets, net of tax
(894)
(148)
(150)
Compensation-related components (not recognized in net profit)
(2,013)
(1,711)
(2,287)
Expected losses on advanced internal ratings-based portfolio less provisions
(674)
(439)
(471)
Unrealized (gains) / losses from cash flow hedges, net of tax
4,451
3,652
4,234
Own credit related to (gains) / losses on financial liabilities
measured at fair value that existed at the balance sheet date, net of tax
(130)
(582)
(523)
Own credit related to (gains) / losses on derivative financial instruments
that existed at the balance sheet date
(142)
(125)
(105)
Prudential valuation adjustments
(488)
(228)
(201)
Accruals for dividends to shareholders for 2022
(1,683)
(1,683)
Transitional CET1 purchase price allocation adjustments
4,897
Other
2
(966)
(499)
(29)
Total common equity tier 1 capital
80,258
44,590
45,457
1 Includes goodwill related to significant investments in financial institutions of USD 19m as of 30 June 2023 (USD 20m as of 31 March 2023; USD 20m as of 31 December 2022) presented on the balance sheet line
Investments in associates.
2 Includes dividend accruals for the current year and other items.
Additional information
Sensitivity to currency movements
Risk-weighted assets
We estimate that a 10% depreciation of the US dollar against other currencies would have increased our RWA by
USD 23bn and
our CET1
capital by
USD 3.0bn as
of 30 June
2023 (31 March
2023: USD 14bn
and USD 1.4bn,
respectively) and decreased our CET1 capital
ratio by 6 basis points (31 March 2023: 13 basis points). Conversely,
a 10%
appreciation of
the US dollar
against other currencies
would have decreased
our RWA
by USD 21bn and
our CET1 capital by USD 2.7bn
(31 March 2023: USD 12bn and USD 1.3bn, respectively)
and increased our CET1
capital ratio by 6 basis points (31 March 2023: 13 basis
points).
Leverage ratio denominator
We estimate that a
10% depreciation of the
US dollar against other
currencies would have increased
our LRD by
USD 109bn as of
30 June 2023
(31 March
2023:
USD 62bn)
and decreased
our CET1 leverage
ratio by 12 basis
points (31 March 2023:
12 basis points). Conversely,
a 10% appreciation of the
US dollar against other
currencies
would have decreased our LRD
by USD 99bn (31 March
2023:
USD 56bn)
and increased our CET1 leverage ratio
by 13 basis points (31 March 2023:
12 basis points)
.
The aforementioned
sensitivities
do not
consider foreign-currency
translation effects
related to
defined benefit
plans
other than those related to the currency
translation of the net equity of foreign operations.
›
Refer to “Active management of sensitivity to currency movements” under “Capital management” in the “Capital,
liquidity and funding, and balance sheet” section of the Annual Report 2022 for more information
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Capital management
48
Estimated effect on capital from litigation,
regulatory and similar matters subject to
provisions and contingent
liabilities
We have estimated the
loss in capital that
we could incur
as a result of
the risks associated
with the matters
related
to
UBS AG
and
subsidiaries
described
in
“Note 15
Provisions
and
contingent
liabilities”
in
the
“Consolidated
financial
statements”
section
of
this
report.
We
have
employed
for
this
purpose
the
advanced
measurement
approach (AMA) methodology
that we use
when determining
the capital requirements
associated with
operational
risks, based on a
99.9% confidence level
over a 12-month horizon.
The methodology takes
into consideration UBS
and industry experience for the AMA
operational risk categories to which
those matters correspond, as well
as the
external environment affecting risks of these types, in
isolation from other areas. On this basis, with respect to the
litigation,
regulatory
and
similar
matters
related
to
UBS AG and
subsidiaries,
we estimate
the
maximum loss
in
capital that we
could incur over
a 12-month period
as a result
of our risks
associated with these
operational risk
categories at
USD 4.0bn as
of 30 June
2023. This
estimate is
not related
to and
does not
take into
account any
provisions
recognized
for
any
of
these
matters
and
does
not
constitute
a
subjective
assessment
of
our
actual
exposure in any of these matters.
›
Refer to “Non-financial risk” in the “Risk management and control” section of the Annual Report 2022 for more
information
›
Refer to “Note 15 Provisions and contingent liabilities” in the “Consolidated financial statements” section of this
report for more information
Risk-weighted assets
During the
second quarter of
2023, RWA
increased by USD 234.9bn
to USD 556.6bn, predominantly due
to the
acquisition of
the Credit
Suisse Group,
which resulted
in a
USD 237.7bn increase
in RWA.
Excluding that
acquisition,
RWA decreased by USD 5.7bn
due to model updates,
partly offset by increases of
USD 1.5bn due to asset size
and
other movements and USD 1.4bn due to currency
effects.
Movement in risk-weighted assets by key driver
UBS Group AG consolidated excluding Credit Suisse
Acquisition
of the Credit
Suisse Group
RWA as of
30.6.23
USD bn
RWA as of
31.3.23
Currency
effects
Methodology
and policy
changes
Model
updates /
changes
Regulatory
add-ons
Asset size
and other
1
Credit and counterparty credit risk
2
201.0
1.3
(0.5)
2.2
152.4
356.4
Non-counterparty-related risk
3
24.2
0.1
0.1
6.7
31.1
Market risk
15.1
(0.2)
(0.8)
9.5
23.6
Operational risk
81.4
(5.0)
4
69.0
4
145.4
Total
321.7
1.4
(5.7)
1.5
237.7
556.6
1 Includes the Pillar 3
categories “Asset size,” “Credit quality of counterparties” and “Other.” For more information, refer to the 30 June 2023 Pillar
3 report, available under “Pillar 3 disclosures”
at ubs.com/investors.
2 Includes settlement
risk, credit
valuation adjustments,
equity exposures
in the banking
book, investments
in funds and
securitization exposures
in the
banking book.
3 Non-counterparty-related risk
includes
deferred tax assets
recognized for temporary
differences, property,
equipment, software and
other items.
4 Including diversification
effects of USD
5bn. The
diversification effects were
allocated equally to
Group
Functions and Corporate Center (Credit Suisse).
Credit and counterparty credit risk
Credit
and
counterparty credit
risk
RWA were
USD 356.4bn as
of
30 June 2023.
The
increase of
USD
155.4bn
included an RWA increase of USD 152.4bn related
to the acquisition of the Credit Suisse Group.
Excluding
the
impact
of
that
acquisition, credit
and
counterparty
credit
risk
RWA
increased by
USD 3.0bn.
The
increase included currency
effects of USD 1.3bn. Asset
size and other movements
resulted in a USD 2.2bn increase
in RWA:
–
Global
Wealth
Management RWA
increased
by
USD 1.2bn,
mainly
due
to
higher
RWA
from
loans
and
loan
commitments.
–
Personal & Corporate Banking RWA increased
by USD 1.1bn, primarily driven by higher
RWA from loans.
–
Investment Bank
RWA increased
by USD 0.1bn,
mainly reflecting
an increase
in RWA
on derivatives
that was
almost entirely offset by lower RWA from loans.
–
Asset Management RWA decreased by USD 0.2bn.
–
Group Functions RWA decreased by USD 0.1bn.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Capital management
49
Model updates
resulted in
a RWA
decrease of
USD 0.5bn,
primarily driven
by an
RWA decrease
of USD 1.6bn
related
to the recalibration of certain multipliers as a result of our improvements to models,
as well as a decrease in RWA
of USD 0.7bn related to updates
to the internal model method for
derivatives. These decreases were partly offset
by an
increase of USD 0.6bn
related to
the quarterly phase-in
impact for updates
to the
loss-given-default (LGD)
model for private equity and
hedge fund financing trades, an
increase of USD 0.6bn related to
a model update for
hedge funds,
and an increase of USD 0.6bn related to a
model update for income-producing real estate.
›
Refer to the “Acquisition of Credit Suisse Group” section and the “Risk management and control” section of this
report for more information
›
Refer to the 30 June 2023 Pillar 3 report, available under “Pillar 3 disclosures” at
ubs.com/investors
, for more
information
›
Refer to “Credit risk models” in the “Risk management and control” section of the Annual Report 2022 for more
information
Outlook
We expect
that regulatory-driven
updates to
credit and
counterparty credit
risk models
will result
in an
RWA increase
of around USD 5bn
in the second half
of 2023. The extent
and timing of RWA
changes may vary as
model updates
are completed and receive regulatory approval,
along with changes in the composition
of the relevant portfolios.
›
Refer to the “Acquisition of Credit Suisse Group” section of this report for more information
Market risk
Market risk RWA increased
by USD 8.5bn to
USD 23.6bn in the second
quarter of 2023, primarily
as a result of
the
acquisition of the Credit
Suisse Group,
which resulted in a
USD 9.5bn increase in RWA.
Market risk RWA excluding
that acquisition decreased by
USD 1.0bn, driven by a decrease
of USD 0.8bn from asset
size and other movements
in
the
Investment
Bank’s
Global
Markets
business
and
a
decrease
of
USD 0.2bn
related
to
ongoing
parameter
updates of the value-at-risk (VaR) model. UBS
is in discussions with FINMA regarding the
integration of time decay
into the regulatory VaR, which would replace the
current add-on
.
›
Refer to the “Acquisition of Credit Suisse Group” section and the “Risk management and control” section of this
report for more information
›
Refer to the 30 June 2023 Pillar 3 report, available under “Pillar 3 disclosures” at
ubs.com/investors,
for more
information
›
Refer to ”Market risk” in the “Risk management and control” section of the Annual Report 2022 for more
information
Operational risk
Operational risk RWA increased by USD 64.0bn to USD 145.4bn, as a result of the acquisition of the Credit Suisse
Group. The aggregation of the advanced measurement
approach (AMA) models considering diversification effects
resulted in a USD 10bn reduction in RWA in the second quarter of 2023. The diversification effects were allocated
equally to Group Functions
and Corporate Center (Credit
Suisse) for the second quarter
of 2023 reporting and will
be allocated to the business
divisions and Group Items
based on the updated
Group allocation methodology
in the
third quarter of 2023.
›
Refer to the “Acquisition of Credit Suisse Group” section and “Note 15 Provisions and contingent liabilities” in the
“Consolidated financial statements” section of this report for more information
›
Refer to “Non-financial risk” in the “Risk management and control” section of the Annual Report 2022 for
information about the advanced measurement approach model
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Capital management
50
Risk-weighted assets by business divisions, Group Functions and Corporate Center (Credit Suisse)
30.6.23
UBS business divisions and Group Functions
USD bn
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
Group
Functions
Credit and counterparty credit risk
1
70.1
69.5
2.8
56.0
5.6
Non-counterparty-related risk
2
5.7
1.9
0.6
3.8
12.4
Market risk
1.7
0.0
10.4
2.0
Operational risk
37.6
9.1
3.2
21.3
5.1
3
Total
115.1
80.6
6.5
91.5
25.2
Credit Suisse business divisions and Corporate Center
USD bn
Wealth
Management
Swiss Bank
Asset
Management
Investment Bank
Capital Release
Unit
Corporate
Center
UBS Group Total
Credit and counterparty credit risk
1
30.5
65.6
4.8
20.9
23.8
6.7
356.4
Non-counterparty-related risk
2
1.4
1.9
0.2
1.7
0.9
0.6
31.1
Market risk
0.2
0.1
0.0
4.5
3.8
0.9
23.6
Operational risk
15.7
8.0
2.1
12.4
8.1
22.8
3
145.4
Total
47.8
75.7
7.1
39.5
36.6
31.0
556.6
1 Includes
settlement risk, credit
valuation adjustments,
equity exposures in
the banking book,
investments in
funds and securitization
exposures in the
banking book.
2 Non-counterparty-related
risk includes
deferred tax assets recognized for temporary differences
(30 June 2023: USD 12.4bn; 31 March 2023: USD 11.3bn),
as well as property, equipment, software
and other items (30 June 2023: USD 18.7bn; 31 March
2023: USD 12.8bn).
3 Including diversification effects of USD 5bn. The diversification effects were allocated equally to Group Functions and Corporate
Center (Credit Suisse).
The below tables cover the prior period of the
UBS business divisions preceding the acquisition.
31.3.23
USD bn
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
Group
Functions
UBS Group Total
Credit and counterparty credit risk
1
68.4
66.9
3.0
57.0
5.7
201.0
Non-counterparty-related risk
2
5.8
1.9
0.6
3.8
12.1
24.2
Market risk
1.8
0.0
11.5
1.8
15.1
Operational risk
37.6
9.1
3.2
21.3
10.1
81.4
Total
113.6
77.9
6.7
93.7
29.7
321.7
30.6.23 vs 31.3.23
USD bn
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
Group
Functions
UBS Group Total
Credit and counterparty credit risk
1
1.7
2.7
(0.2)
(1.0)
(0.1)
155.4
Non-counterparty-related risk
2
(0.1)
0.0
0.0
0.0
0.4
7.0
Market risk
(0.1)
0.0
(1.1)
0.3
8.5
Operational risk
(5.0)
3
64.0
Total
1.5
2.6
(0.2)
(2.2)
(4.5)
234.9
1 Includes settlement
risk, credit valuation
adjustments, equity
exposures in the
banking book, investments
in funds and
securitization exposures
in the
banking book.
2 Non-counterparty-related
risk includes
deferred tax assets recognized for temporary differences (30
June 2023: USD 12.4bn; 31 March 2023: USD 11.3bn), as
well as property, equipment, software and
other items (30 June 2023: USD 18.7bn; 31 March
2023: USD 12.8bn).
3 Including diversification effects of USD 5bn. The diversification effects were allocated equally to Group Functions and
Corporate Center (Credit Suisse).
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Capital management
51
Leverage ratio denominator
During the second quarter of 2023,
the LRD increased by USD 663.4bn to
USD 1,677.9bn, predominantly due to
the
acquisition
of
the
Credit
Suisse
Group,
which
resulted
in
an
LRD
increase
of
USD 644.4bn.
Excluding
that
acquisition, the LRD
increased
by USD 13.4bn due
to asset size and
other movements,
as well as USD 5.6bn
due to
currency effects.
Movement in leverage ratio denominator by key driver
UBS Group AG consolidated excluding Credit Suisse
Acquisition of the
Credit Suisse
Group
LRD as of
30.6.23
USD bn
LRD as of
31.3.23
Currency
effects
Asset size and
other
On-balance sheet exposures (excluding derivatives and securities
financing transactions)
804.0
6.0
8.9
464.2
1,283.1
Derivatives
91.6
(0.2)
1.3
48.8
141.4
Securities financing transactions
96.9
(0.4)
1.9
63.5
161.8
Off-balance sheet items
32.9
0.2
1.2
64.6
98.9
Deduction items
(10.9)
0.0
0.1
3.4
1
(7.4)
Total
1,014.4
5.6
13.4
644.4
1,677.9
1 Includes transitional CET1 purchase price allocation adjustments
The LRD movements described below exclude
currency effects and the impact of the acquisition.
On-balance sheet exposures
(excluding derivatives and
securities financing transactions)
increased by USD 8.9bn,
primarily due to higher central bank balances
and trading portfolio assets, partly
offset by lower lending balances.
Derivative exposures increased
by USD 1.3bn, mainly due
to an increase in trading
volumes driven by equity
option
contracts
in
Global
Wealth
Management
and
market-driven
movements
on
foreign-currency
and
interest-rate
contracts in the Investment Bank.
Securities financing transactions increased by
USD 1.9bn, mainly due to collateral sourcing
activities.
Off-balance
sheet
items
increased
by
USD 1.2bn,
largely
due
to
an
increase
in
credit
risk
guarantees
in
Global
Wealth Management.
›
Refer to the “Balance sheet and off-balance sheet” section of this report for more information about balance sheet
movements
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Capital management
52
Leverage ratio denominator by business divisions, Group Functions and Corporate Center (Credit Suisse)
30.6.23
UBS business divisions and Group Functions
USD bn
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Group Functions
On-balance sheet exposures
347.3
227.1
3.9
183.0
57.7
Derivatives
6.1
1.3
0.0
82.9
2.4
Securities financing transactions
24.5
13.4
0.1
41.8
18.6
Off-balance sheet items
9.6
16.9
7.2
0.7
Items deducted from Swiss SRB tier 1 capital
(5.2)
(0.2)
(1.2)
(0.4)
(3.7)
Total
382.3
258.5
2.8
314.4
75.6
Credit Suisse business divisions and Corporate Center
USD bn
Wealth
Management
Swiss Bank
Asset
Management
Investment Bank
Capital Release
Unit
Corporate
Center
UBS Group
Total
On-balance sheet exposures
100.5
209.8
1.7
82.8
67.3
2.1
1,283.1
Derivatives
2.3
1.4
0.0
30.1
12.6
2.3
141.4
Securities financing transactions
0.9
5.7
4.8
52.1
161.8
Off-balance sheet items
12.2
21.5
0.2
23.4
6.5
0.8
98.9
Items deducted from Swiss SRB tier 1 capital
1
5.3
0.6
0.0
(0.4)
(0.3)
(1.8)
(7.4)
Total
121.2
233.4
1.9
141.6
90.9
55.5
1,677.9
1 Includes transitional CET1 purchase price allocation adjustments
The below tables cover the prior period of the UBS
business divisions preceding the acquisition.
31.3.23
USD bn
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Group Functions
UBS Group
Total
On-balance sheet exposures
350.7
224.1
4.1
192.3
32.9
804.0
Derivatives
5.3
1.1
0.0
82.5
2.6
91.6
Securities financing transactions
23.1
13.0
0.1
43.9
16.7
96.9
Off-balance sheet items
8.3
16.8
7.0
0.7
32.9
Items deducted from Swiss SRB tier 1 capital
(5.2)
(0.1)
(1.2)
(0.4)
(3.9)
(10.9)
Total
382.2
254.9
3.0
325.4
49.0
1,014.4
30.6.23 vs 31.3.23
USD bn
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Group Functions
UBS Group
Total
On-balance sheet exposures
(3.4)
3.0
(0.2)
(9.3)
24.8
479.1
Derivatives
0.8
0.2
0.0
0.4
(0.2)
49.9
Securities financing transactions
1.4
0.4
0.0
(2.1)
1.8
65.0
Off-balance sheet items
1.3
0.1
0.1
0.0
66.0
Items deducted from Swiss SRB tier 1 capital
0.0
0.0
0.0
0.0
0.2
3.5
Total
0.0
3.6
(0.2)
(10.9)
26.6
663.4
1 Includes transitional CET1 purchase price allocation adjustments
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Liquidity and funding management
53
Liquidity and funding management
Strategy, objectives and governance
This
section
provides
liquidity
and
funding
management
information
and
should
be
read
in
conjunction
with
“Liquidity and
funding management”
in
the “Capital,
liquidity and
funding, and
balance sheet”
section of
the
Annual Report 2022, which
provides more information about
the Group’s strategy, objectives
and governance in
connection with liquidity and funding management.
Liquidity coverage ratio
The
quarterly
average liquidity
coverage
ratio
(the
LCR)
of
the
UBS
Group
increased
13.3 percentage
points
to
175.2%, remaining
above the
prudential requirement
communicated by
the Swiss
Financial Market
Supervisory
Authority (FINMA). This average was calculated
based on a simple average of 64 data
points in the second quarter
of 2023, which includes
Credit Suisse’s business
activity from the
acquisition date to
30 June, i.e., 15
business days
from 12 June 2023. The post-acquisition, 15-day
average LCR of the UBS Group was 199.5%.
›
Refer to the “Acquisition of Credit Suisse Group” section of this report for more information
The
movement
in
the
average
LCR
was
primarily
driven
by
an
increase
in
high-quality
liquid
assets
(HQLA)
of
USD 26.9bn to USD 257.1bn.
This increase was substantially
related to the Credit
Suisse HQLA, which were
mainly
made up of cash
and government bonds. The
15-day average HQLA
of the UBS Group following
the acquisition of
the Credit Suisse Group was USD 372.1bn.
The
increase
in
HQLA
was
partly
offset
by
a
USD 2.8bn
increase
in
net
cash
outflows
to
USD 145.0bn,
predominantly attributable to Credit Suisse’s net cash
outflows related to customer deposits, credit
commitments
and derivatives. These outflows were partly offset by
inflows from loans in Credit Suisse, as well as lower
outflows
from deposits and
prime brokerage transactions
of the UBS Group
excluding Credit Suisse.
The 15-day average
net
cash outflows of the UBS Group following
the acquisition of the Credit Suisse Group was
USD 186.5bn.
›
Refer to the
30 June 2023 Pillar 3 report, available under “Pillar 3 disclosures” at
ubs.com/investors
for more
information about the LCR
Liquidity coverage ratio
USD bn, except where indicated
Average 2Q23
1
Average 1Q23
1
High-quality liquid assets
257.1
230.2
Net cash outflows
2
145.0
142.2
Liquidity coverage ratio (%)
3
175.2
161.9
1 Calculated based on an average of 64
data points in the second quarter of 2023 and 64 data
points in the first quarter of 2023.
2 Represents the net cash outflows expected over a stress
period of 30 calendar
days.
3 Calculated after the application of haircuts and inflow and outflow rates, as well as,
where applicable, caps on Level 2 assets and cash inflows.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Liquidity and funding management
54
Net stable funding ratio
As of 30 June 2023, the net stable funding ratio (the NSFR) of the UBS Group decreased by 0.1 percentage
points
to
117.6%,
remaining
above
the
prudential
requirement
communicated
by
FINMA.
The
NSFR
for
UBS
Group
excluding Credit Suisse
improved compared with
31 March 2023 and
this effect was
offset by
the acquisition of
the Credit Suisse Group.
Available stable
funding increased
by USD 316.8bn
to USD 873.1bn,
predominantly driven
by the acquisition
of the
Credit Suisse
Group, mainly reflecting
deposit balances, debt
securities issued,
regulatory capital
and, to
a lesser
extent, securities financing transactions.
The increase in the UBS Group
excluding Credit Suisse was predominantly
driven by higher customer deposits and debt
securities issued.
Required stable funding increased by USD 269.4bn to USD 742.1bn, substantially reflecting the acquisition of the
Credit Suisse Group. This
balance predominantly includes
lending assets and, to
a lesser extent, derivative
balances
and trading portfolio assets. Required stable
funding in the UBS
Group excluding Credit Suisse decreased slightly,
mainly driven by lower trading assets.
›
Refer to the 30 June 2023 Pillar 3 report, available under “Pillar 3 disclosures” at
ubs.com/investors
for more
information about the NSFR
Net stable funding ratio
USD bn, except where indicated
30.6.23
31.3.23
Available stable funding
873.1
556.3
Required stable funding
742.1
472.7
Net stable funding ratio (%)
117.6
117.7
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Balance sheet and off-balance sheet
55
Balance sheet and off-balance sheet
This
section
provides
balance
sheet
and
off-balance sheet
information
and
should
be
read
in
conjunction
with
“Balance sheet
and off-balance
sheet” in
the “Capital,
liquidity and
funding, and
balance sheet”
section of
the
Annual Report 2022,
which provides more
information about the
balance sheet and
off-balance sheet positions.
For more
information about
the balance
sheet effects
of the
acquisition of
the Credit
Suisse Group,
refer to
“Note 2
Accounting for the acquisition of Credit Suisse
Group”
in the “Consolidated financial statements” section.
Balances disclosed in this
report represent quarter-end
positions, unless indicated
otherwise. Intra-quarter balances
fluctuate in the ordinary course of business
and may differ from quarter-end positions.
Balance sheet assets (30 June 2023 vs
31 March 2023)
Total assets
were USD 1,678.8bn
as of
30 June 2023.
The increase
of USD 625.7bn
was primarily
related to
the
acquisition of the Credit Suisse Group.
Cash and balances
at central
banks increased
by USD 117.4bn
to USD 261.6bn.
The acquisition
of the Credit
Suisse
Group contributed
USD 102.2bn, including
balances mainly
with the Swiss
National Bank
(the SNB)
and the Federal
Reserve. Excluding the effect of that acquisition, balances with central banks increased by USD 15.2bn during the
quarter, driven
by net
issuances of
short-term debt
and increases
in customer
deposits, mainly
in Global
Wealth
Management, as
well as
new issuances
of Debt
issued designated
at fair
value in
the Investment
Bank. These
inflows
were partly offset by higher margin requirements.
Lending assets increased by
USD 271.2bn to USD 676.2bn, predominantly reflecting the
acquisition of the Credit
Suisse Group,
contributing USD 272.7bn. The
acquired balances consisted
of USD 10.7bn of
Amounts due
from
banks, as
well as
USD 262.0bn of
Loans and
advances to
customers, with
the most
significant effects
in Private
clients with mortgages of USD 91.8bn, Lombard
loans of USD 44.2bn and Real estate financing
of USD 42.8bn.
Securities financing transactions at amortized
cost increased by USD 26.5bn to USD
86.5bn, of which USD 24.6bn
related to
the acquisition
of the
Credit Suisse
Group. Trading
assets increased
by USD 33.3bn,
including USD
31.9bn
related to the acquisition,
primarily held to hedge client positions and
facilitate client trading activity.
Derivatives and cash collateral receivables
on derivative instruments increased by USD
93.3bn. The increase related
to the acquisition of
the Credit Suisse Group
was USD 82.5bn, including
USD 19.3bn of cash collateral
receivables.
Excluding the effects of that
acquisition,
balances increased by USD 10.8bn, mainly in
the Derivatives & Solutions
business,
primarily
reflecting
market-driven
movements
on
foreign-currency
and
interest-rate
contracts
amid
volatility in exchange rates and increases
in interest rates, respectively.
Other financial assets measured at amortized cost
increased by USD 15.7bn to USD 64.9bn, mostly related to
the
acquisition of
the Credit
Suisse Group,
reflecting finance
lease receivables,
as well
as cash collateral
provided mainly
to exchanges and clearing
houses to secure securities
trading activity through those
counterparties. Other financial
assets
measured
at
fair
value
increased
by
USD 51.7bn
to
USD 120.8bn,
predominantly
reflecting
securities
financing transactions measured
at fair
value obtained through
the acquisition.
Non-financial assets increased
by
USD 15.9bn to USD 55.8bn. The positions acquired from
the Credit Suisse Group of
USD 16.8bn mainly included
leased and owned properties and equipment, investments in associates, and prepaid expenses, as well as
physical
holdings of precious metals.
Assets
As of
% change from
USD bn
30.6.23
31.3.23
31.3.23
Cash and balances at central banks
261.6
144.2
81
Lending
1
676.2
405.0
67
Securities financing transactions at amortized cost
86.5
60.0
44
Trading assets
151.1
117.8
28
Derivatives and cash collateral receivables on derivative instruments
240.3
147.0
63
Brokerage receivables
21.5
21.0
2
Other financial assets measured at amortized cost
64.9
49.2
32
Other financial assets measured at fair value
2
120.8
69.1
75
Non-financial assets
55.8
39.9
40
Total assets
1,678.8
1,053.1
59
of which: Credit Suisse
3
598.3
1 Consists of loans and advances to customers and banks.
2 Consists of financial assets at fair value not held for trading
and financial assets measured at fair value through other comprehensive income.
3 Refer
to "Note 2 Accounting for the acquisition of Credit Suisse Group" in the "Consolidated financial statements" section of this report for more information.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Balance sheet and off-balance sheet
56
Balance sheet liabilities (30 June 2023
vs 31 March 2023)
Total
liabilities
were
USD 1,591.1bn as
of
30 June
2023.
The
increase
of
USD 595.1bn was
primarily
related to
balances acquired as part of the transaction with
the Credit Suisse Group.
Short-term borrowings
increased by
USD 98.7bn, of
which USD 87.8bn
reflected the
acquisition of
the Credit
Suisse
Group, including USD 70.6bn
of funding
from the
SNB. Subsequent
to 30 June 2023
and up
to the
date of
this
report, UBS repaid a further
USD 28bn to the SNB. Excluding
the effects of that acquisition,
short-term borrowings
increased by
USD 10.9bn, mainly driven
by net
new issuances of
commercial paper and
certificates of deposit
in
UBS
Group
Treasury, as
well as
higher
amounts due
to
banks,
mainly related
to funding
obtained from
the US
Federal Home Loan Banks. Securities financing
transactions at amortized cost increased by
USD 12.4bn, of which
USD 10.0bn related to the acquisition.
Customer
deposits
increased
by
USD 206.9bn
to
USD 712.5bn.
The
acquisition
of
the
Credit
Suisse
Group
contributed USD 198.0bn to the increase. Excluding the effects
of that acquisition, the increase of USD 9.0bn was
mainly in Global
Wealth Management,
driven by net
inflows into fixed-term
and savings deposit
products, partly
offset by continued shifts into money market funds
and US-government securities. Excluding the effects from the
acquisition,
customer
time
deposits
increased
by
USD 22.0bn,
reflecting
inflows
and
continued
shifts
from
on-
demand customer deposits as interest rates increased
during the quarter.
Debt
issued
designated
at
fair
value
and
long-term
debt
issued
measured
at
amortized
cost
increased
by
USD 149.3bn to
USD 315.4bn. The
increase mainly
relates to
the acquisition
of the
Credit Suisse
Group, which
contributed
USD 147.7bn,
including USD 52.9bn of debt
instruments that had been
transferred from Credit
Suisse
Group AG to UBS Group AG.
Trading liabilities increased
by USD 6.0bn,
of which
USD 5.1bn resulted
from the
acquisition of
the Credit Suisse
Group. Derivatives
and cash
collateral payables
on derivative
instruments increased
by USD 86.2bn
to USD 234.6bn,
including USD 76.7bn
related to
that acquisition,
of which USD
10.0bn was
cash collateral
payables. The
remaining
increase of
USD 9.5bn, mainly
in the
Derivatives &
Solutions business,
primarily reflected
market-driven movements,
broadly in line with the asset side.
Other financial liabilities measured at
amortized cost increased by
USD 9.1bn to USD 19.4bn, with
an increase of
USD 7.4bn
related
to
the
acquisition,
mainly
including
accrued
expenses
and
lease
liabilities.
Other
financial
liabilities measured
at fair
value increased
by USD 10.3bn
to USD 36.1bn,
including balances
of USD 7.0bn
acquired
from
the
Credit
Suisse
Group,
mainly
related
to
fully
funded
derivatives,
and
securities
financing
transactions
measured
at
fair
value.
Non-financial
liabilities
increased
by
USD 16.2bn
to
USD 26.9bn,
including
USD 15.5bn
related to liabilities
acquired from the
Credit Suisse Group,
mainly representing
provisions and contingent
liabilities,
compensation-related liabilities and deferred
tax liabilities.
The “Liabilities
by product
and currency”
table
in this
section provides
more information
about our
funding sources.
›
Refer to “Bondholder information” at
ubs.com/investors
for more information about capital and senior debt
instruments
›
Refer to the “Consolidated financial statements” section of this report for more information
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Balance sheet and off-balance sheet
57
Liabilities and equity
As of
% change from
USD bn
30.6.23
31.3.23
31.3.23
Short-term borrowings
1,2
139.7
41.0
241
Securities financing transactions at amortized cost
22.3
9.9
126
Customer deposits
712.5
505.6
41
Debt issued designated at fair value and long-term debt issued measured
at amortized cost
2
315.4
166.1
90
Trading liabilities
40.4
34.4
17
Derivatives and cash collateral payables on derivative instruments
234.6
148.4
58
Brokerage payables
43.9
43.9
0
Other financial liabilities measured at amortized cost
19.4
10.3
89
Other financial liabilities designated at fair value
36.1
25.8
40
Non-financial liabilities
26.9
10.7
150
Total liabilities
1,591.1
996.0
60
of which: Credit Suisse
3
502.7
Share capital
0.3
0.3
14
Share premium
12.5
13.0
(3)
Treasury shares
(4.2)
(8.2)
(49)
Retained earnings
78.2
51.1
53
Other comprehensive income
4
0.2
0.6
(72)
Total equity attributable to shareholders
87.0
56.8
53
Equity attributable to non-controlling interests
0.6
0.4
80
Total equity
87.6
57.1
53
Total liabilities and equity
1,678.8
1,053.1
59
1 Consists of short-term debt issued measured at amortized cost and amounts due to banks, which includes amounts due to central banks.
2 The classification of debt issued measured at amortized cost into short-
term and long-term is based
on original contractual
maturity and therefore long-term
debt also includes debt
with a remaining time
to maturity of less
than one year.
This classification does
not consider any early
redemption features.
3 Excludes USD 52.9bn
of debt instruments
previously issued by
Credit Suisse Group
AG and transferred
to UBS Group
AG as part
of the acquisition.
Refer to "Note
2 Accounting for
the
acquisition of Credit Suisse Group" in the
"Consolidated financial statements" section of this
report for more information.
4 Excludes other comprehensive income related to
defined benefit plans and own credit,
which is recorded directly in Retained earnings.
Equity (30 June 2023 vs 31 March 2023)
Equity attributable to shareholders increased
by USD 30,245m to USD 86,999m as of
30 June 2023.
The increase
of USD 30,245m
was mainly
driven by
total comprehensive
income attributable
to shareholders
of
USD 28,013m, reflecting net profit of
USD 28,875m,
which included
the recognition of negative goodwill
on the
acquisition
of
the
Credit
Suisse
Group
of
USD 28,925m,
and
negative
other
comprehensive
income
(OCI)
of
USD 862m. OCI mainly included negative cash flow
hedge OCI of USD 775m, negative OCI
related to own credit
on financial
liabilities designated
at fair
value of
USD 413m, negative defined
benefit plan
OCI of
USD 53m
and
OCI related to foreign
currency translation of
USD 368m. In addition,
net treasury share
activity increased equity
by
USD 3,542m. This was predominantly due to the
consideration used to acquire the Credit Suisse
Group.
These increases were partly
offset by distributions to
shareholders of USD 1,679m, reflecting a
dividend payment
of USD 0.55 per share.
In
the
second
quarter
of
2023,
we
canceled
62,548,000
shares
purchased
under
our
2021
share
repurchase
program, as approved by shareholders at the 2023
Annual General Meeting (the 2023 AGM). The cancellation of
shares
resulted
in
reclassifications
within
equity
but
had
no
net
effect
on
our
total
equity
attributable
to
shareholders.
At the 2023 AGM,
shareholders also approved
the change of
the share capital
currency of UBS
Group AG from
the
Swiss franc
to the
US dollar.
As a
result, the
nominal value
per share
has changed
from CHF 0.10
to USD 0.10,
resulting in a reclassification
between share capital and
capital contribution reserve
(presented as share premium
in
the consolidated financial statements).
Total equity reported was not affected by
this change.
›
Refer to the “Share information and earnings per share” section of this report for more information about our
share repurchase programs
›
Refer to the “Group performance” and “Consolidated financial statements” sections of this report for more
information
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Balance sheet and off-balance sheet
58
Liabilities by product and currency
USD Equivalent
All currencies
of which: USD
of which: CHF
of which: EUR
USD bn
30.6.23
31.3.23
30.6.23
31.3.23
30.6.23
31.3.23
30.6.23
31.3.23
Short-term borrowings
139.7
41.0
49.7
24.1
69.6
4.6
9.3
3.8
of which: amounts due to banks
99.2
13.6
20.3
6.1
69.5
4.5
3.8
0.7
of which: short-term debt issued
1,2
40.5
27.4
29.4
18.0
0.1
0.2
5.5
3.2
Securities financing transactions at amortized cost
22.3
9.9
15.4
9.1
2.2
0.0
2.8
0.2
Customer deposits
712.5
505.6
280.9
211.5
296.0
198.3
72.3
50.8
of which: demand deposits
250.1
165.9
66.2
43.6
109.2
66.7
42.7
31.8
of which: retail savings / deposits
189.0
149.5
31.0
24.3
153.0
119.8
4.9
5.3
of which: sweep deposits
45.5
53.4
45.5
53.4
0.0
0.0
0.0
0.0
of which: time deposits
227.9
136.9
138.2
90.2
33.8
11.7
24.7
13.8
Debt issued designated at fair value and long-term debt issued measured
at
amortized cost
2
315.4
166.1
176.3
103.0
40.1
17.2
70.1
33.1
Trading liabilities
40.4
34.4
13.3
13.0
1.6
0.9
13.0
8.7
Derivatives and cash collateral payables on derivative instruments
234.6
148.4
182.1
123.7
5.5
3.0
27.8
12.8
Brokerage payables
43.9
43.9
32.7
32.2
0.7
0.5
2.6
2.9
Other financial liabilities measured at amortized cost
19.4
10.3
7.7
4.7
4.9
2.2
2.3
1.1
Other financial liabilities designated at fair value
36.1
25.8
9.5
5.5
0.1
0.1
4.8
4.3
Non-financial liabilities
26.9
10.7
16.5
5.0
3.0
1.7
3.3
1.8
Total liabilities
1,591.1
996.0
784.0
531.7
423.8
228.5
208.2
119.5
of which: Credit Suisse
3
502.7
197.8
189.8
67.3
1 Short-term debt issued consists of certificates
of deposit, commercial paper,
acceptances and promissory notes,
and other money market
paper.
2 The classification of debt
issued measured at amortized cost into
short-term and long-term is based on original contractual maturity and therefore long-term debt also includes debt with a remaining time to maturity of less than one year. This
classification does not consider any early
redemption features.
3 Refer to "Note 2 Accounting for the acquisition of Credit Suisse Group" in the "Consolidated financial statements" section
of this report for more information.
Off-balance sheet (30 June 2023 vs 31
March 2023)
Guarantees increased by
USD 15.5bn, of which USD 14.7bn
reflected the acquisition of
the Credit Suisse
Group;
excluding
the
effects
of
that
acquisition,
guarantees
increased
by
USD 0.8bn,
mainly
in
Global
Wealth
Management. Loan commitments
increased by USD 80.5bn,
of which USD 80.3bn
resulted from the acquisition
of
the
Credit
Suisse Group.
Committed unconditionally
revocable
credit lines
increased by
USD 127.5bn, of
which
USD 125.3bn resulted
from the
acquisition of
the Credit
Suisse Group;
excluding the
effects of
that acquisition,
there was
an increase
of USD 2.2bn,
driven by currency
effects. Forward
starting reverse
repurchase agreements
were broadly unchanged as of 30 June 2023 compared with 31 March 2023.
Off-balance sheet
As of
% change from
USD bn
30.6.23
31.3.23
31.3.23
Guarantees
1,2
36.7
21.2
73
Loan commitments
1
120.3
39.8
203
Committed unconditionally revocable credit lines
168.6
41.1
310
Forward starting reverse repurchase agreements
5.0
4.7
5
1 Guarantees and loan commitments are shown net of sub-participations.
2 Includes guarantees measured at fair value through profit or loss.
Second quarter 2023 report |
Risk, capital, liquidity and funding, and balance
sheet | Share information and earnings per
share
59
Share information and earnings per share
UBS Group AG
shares
are
listed
on
the
SIX
Swiss
Exchange
(SIX).
They
are
also
listed
on
the
New
York
Stock
Exchange (the NYSE) as global registered
shares. Each share has a
nominal value of USD 0.10 following a change
of the share
capital currency
of UBS Group AG
from the Swiss
franc to the
US dollar in
the second quarter
of 2023.
Shares
issued
decreased
in
the
second
quarter
of
2023,
as
62,548,000
shares
acquired
under
our
2021
share
repurchase
program
were
canceled
by
means
of
a
capital
reduction,
as
approved
by
shareholders
at
the
2023
Annual General
Meeting (the
2023 AGM).
We also intend
to cancel
the shares purchased
under the 2022
program,
subject to shareholder approval.
We
held
234m
shares
as
of
30 June
2023,
of
which
121m
shares
had
been
acquired
under
our
2022
share
repurchase program for cancellation purposes. A
total of 178m shares repurchased under
the 2022 program and
originally intended for
cancellation purposes were
repurposed for the
acquisition of the
Credit Suisse Group
and
176m shares were
transferred to Credit
Suisse Group shareholders in
an exchange of
shares as consideration
for
the acquisition
of the
Credit Suisse
Group.
The remaining
114m shares
are primarily
held to
hedge our
share delivery
obligations related to employee share-based
compensation and participation plans.
Treasury shares
held decreased
by
238m
shares in
the second
quarter of
2023. This
mainly reflected
the
176m
shares transferred to Credit Suisse Group shareholders
and the aforementioned cancellation of 62.5m
shares.
Shares
acquired
under
our
2022
program
totaled
121m
as
of
30 June
2023
for
a
total
acquisition
cost
of
USD 2,277m
(CHF 2,138m).
A
new,
two-year
share
repurchase
program
of
up
to
USD 6bn
was
approved
by
shareholders at the 2023 AGM.
However, we have temporarily
suspended repurchases under
the share repurchase
programs due to the acquisition of the Credit
Suisse Group.
›
Refer to the “Acquisition of Credit Suisse Group”
section of this report for more information about that acquisition
›
Refer to the “Equity, CET1 capital and returns” table in the “Group performance” section of this report
for more
information about equity attributable to shareholders and tangible equity attributable to shareholders
As of or for the quarter ended
As of or year-to-date
30.6.23
31.3.23
30.6.22
30.6.23
30.6.22
Basic and diluted earnings (USD m)
Net profit / (loss) attributable to shareholders for basic
EPS
28,875
1,029
2,108
29,904
4,244
Less: (profit) / loss on own equity derivative contracts
(4)
0
(5)
(4)
(3)
Net profit / (loss) attributable to shareholders for diluted
EPS
28,871
1,029
2,103
29,900
4,241
Weighted average shares outstanding
Weighted average shares outstanding for basic EPS
1
3,082,139,901
3,072,799,315
3,304,598,259
3,077,469,608
3,342,426,249
Effect of dilutive potential shares resulting from notional
employee shares, in-the-money
options and warrants outstanding
2
130,190,947
140,868,722
128,725,327
136,069,754
138,710,134
Weighted average shares outstanding for diluted EPS
3,212,330,848
3,213,668,037
3,433,323,586
3,213,539,362
3,481,136,383
Earnings per share (USD)
Basic
9.37
0.33
0.64
9.72
1.27
Diluted
8.99
0.32
0.61
9.30
1.22
Shares outstanding and potentially dilutive instruments
Shares issued
3,462,087,722
3,524,635,722
3,524,635,722
3,462,087,722
3,524,635,722
Treasury shares
3
234,314,998
472,352,835
267,270,042
234,314,998
267,270,042
of which: related to the 2021 share repurchase program
62,548,000
62,548,000
62,548,000
of which: related to the 2022 share repurchase program
120,506,008
298,537,950
92,749,500
120,506,008
92,749,500
Shares outstanding
3,227,772,724
3,052,282,887
3,257,365,680
3,227,772,724
3,257,365,680
Potentially dilutive instruments
4
7,790,755
4,859,813
5,366,916
8,105,259
5,404,012
Other key figures
Total book value per share (USD)
26.95
18.59
17.45
26.95
17.45
Tangible book value per share (USD)
24.61
16.54
15.51
24.61
15.51
Share price (USD)
5
20.20
21.07
16.11
20.20
16.11
Market capitalization (USD m)
6
69,932
74,276
56,781
69,932
56,781
1 The weighted average shares outstanding for basic earnings per
share are calculated by taking the number of shares at the beginning of
the period, adjusted by the number of shares acquired or issued during
the
period, multiplied by a time-weighted factor
for the period outstanding. As a result,
balances are affected by the timing
of acquisitions and issuances during the
period.
2 The weighted average
number of shares
for notional employee awards with performance conditions
reflects all potentially dilutive shares that are expected
to vest under the terms of the awards.
3 Based on a settlement date view.
4 Reflects potential
shares that could dilute basic earnings
per share in the future,
but were not dilutive for any
of the periods presented. It mainly
includes equity-based awards subject to
absolute and relative performance conditions
and equity derivative contracts.
5 Represents the share price
as listed on the SIX
Swiss Exchange, translated to
US dollars using the
closing exchange rate as of
the respective date.
6 The calculation of
market
capitalization has been amended to reflect total shares
issued multiplied by the share price at the end
of the period. The calculation was
previously based on total shares outstanding multiplied by
the share price at
the end of the period. Market capitalization has been increased by USD 10.0bn as of 31 March 2023 and
by USD 4.3bn as of 30 June 2022 as a result.
Ticker symbols UBS Group AG
Security identification codes
Trading exchange
SIX / NYSE
Bloomberg
Reuters
ISIN
CH0244767585
SIX Swiss Exchange
UBSG
UBSG SW
UBSG.S
Valoren
24 476 758
New York Stock Exchange
UBS
UBS UN
UBS.N
CUSIP
CINS H42097 10 7
Second quarter 2023 report |
Consolidated financial statements
60
Consolidated financial
statements
Unaudited
Table of contents
UBS Group AG interim consolidated financial
statements (unaudited)
61
Income statement
62
Statement of comprehensive income
63
Balance sheet
64
Statement of changes in equity
65
Statement of cash flows
66
1
Basis of accounting
69
2
Accounting for the acquisition of Credit Suisse Group
73
3
Segment reporting
75
4
Net interest income
75
5
Net fee and commission income
75
6
Personnel expenses
76
7
General and administrative expenses
76
8
Expected credit loss measurement
84
9
Fair value measurement
91
10
Derivative instruments
92
11
Other assets and liabilities
93
12
Debt issued designated at fair value
93
13
Debt issued measured at amortized cost
94
14
Interest rate benchmark reform
94
15
Provisions and contingent liabilities
Second quarter 2023 report |
Consolidated financial statements | UBS Group
AG interim consolidated financial statements
(unaudited)
61
UBS Group AG interim consolidated financial
statements (unaudited)
Income statement
For the quarter ended
Year-to-date
USD m
Note
30.6.23
31.3.23
30.6.22
30.6.23
30.6.22
Interest income from financial instruments measured
at amortized cost and fair value through
other comprehensive income
4
7,101
4,777
2,380
11,878
4,525
Interest expense from financial instruments measured at
amortized cost
4
(5,880)
(3,814)
(1,070)
(9,695)
(1,852)
Net interest income from financial instruments measured
at fair value through profit or loss
and other
4
493
425
355
918
763
Net interest income
4
1,713
1,388
1,665
3,101
3,436
Other net income from financial instruments measured
at fair value through profit or loss
2,463
2,681
1,619
5,143
3,845
Fee and commission income
5
5,682
5,053
5,224
10,735
11,061
Fee and commission expense
5
(507)
(447)
(450)
(954)
(934)
Net fee and commission income
5
5,175
4,606
4,774
9,781
10,127
Other income
188
69
859
258
891
Total revenues
9,540
8,744
8,917
18,284
18,299
Negative goodwill
2
28,925
28,925
Credit loss expense / (release)
8
740
38
7
778
25
Personnel expenses
6
5,651
4,620
4,422
10,271
9,343
General and administrative expenses
7
1,968
2,065
1,370
4,033
2,578
Depreciation, amortization and impairment of non-financial
assets
866
525
503
1,391
1,009
Operating expenses
8,486
7,210
6,295
15,696
12,929
Operating profit / (loss) before tax
29,239
1,495
2,615
30,735
5,344
Tax expense / (benefit)
361
459
497
820
1,082
Net profit / (loss)
28,878
1,037
2,118
29,915
4,262
Net profit / (loss) attributable to non-controlling interests
3
8
10
11
18
Net profit / (loss) attributable to shareholders
28,875
1,029
2,108
29,904
4,244
Earnings per share (USD)
Basic
9.37
0.33
0.64
9.72
1.27
Diluted
8.99
0.32
0.61
9.30
1.22
Second quarter 2023 report |
Consolidated financial statements | UBS Group
AG interim consolidated financial statements
(unaudited)
62
Statement of comprehensive income
For the quarter ended
Year-to-date
USD m
30.6.23
31.3.23
30.6.22
30.6.23
30.6.22
Comprehensive income attributable to shareholders
1
Net profit / (loss)
28,875
1,029
2,108
29,904
4,244
Other comprehensive income that may be reclassified to the income
statement
Foreign currency translation
Foreign currency translation movements related to net assets of foreign operations, before tax
754
236
(1,030)
991
(1,512)
Effective portion of changes in fair value of hedging instruments
designated as net investment hedges, before tax
(379)
(127)
443
(506)
660
Foreign currency translation differences on foreign operations reclassified to the
income statement
(3)
(1)
8
(3)
8
Effective portion of changes in fair value of hedging instruments
designated as net investment hedges reclassified
to
the income statement
(1)
(1)
(4)
(2)
(4)
Income tax relating to foreign currency translations, including the effect of
net investment hedges
(4)
(2)
5
(5)
8
Subtotal foreign currency translation, net of tax
368
106
(577)
474
(840)
Financial assets measured at fair value through other comprehensive income
Net unrealized gains / (losses), before tax
0
2
(3)
2
(442)
Net realized (gains) / losses reclassified to the income statement
from equity
0
0
0
0
0
Reclassification of financial assets to Other financial assets measured
at amortized cost
2
449
449
Income tax relating to net unrealized gains / (losses)
0
0
(116)
0
(3)
Subtotal financial assets measured at fair value through other comprehensive
income, net of tax
0
2
330
2
3
Cash flow hedges of interest rate risk
Effective portion of changes in fair value of derivative instruments designated
as cash flow hedges, before tax
(1,314)
387
(1,298)
(928)
(3,763)
Net (gains) / losses reclassified to the income statement from
equity
410
349
(149)
759
(386)
Income tax relating to cash flow hedges
130
(130)
276
0
794
Subtotal cash flow hedges, net of tax
(775)
606
(1,171)
(169)
(3,355)
Cost of hedging
Cost of hedging, before tax
11
(5)
21
6
98
Income tax relating to cost of hedging
0
0
0
0
0
Subtotal cost of hedging, net of tax
11
(5)
21
6
98
Total other comprehensive income that may be reclassified to the income statement, net
of tax
(397)
709
(1,396)
312
(4,093)
Other comprehensive income that will not be reclassified to the income
statement
Defined benefit plans
Gains / (losses) on defined benefit plans, before tax
(17)
25
122
8
163
Income tax relating to defined benefit plans
(35)
6
(7)
(29)
(8)
Subtotal defined benefit plans, net of tax
(53)
31
115
(21)
155
Own credit on financial liabilities designated at fair value
Gains / (losses) from own credit on financial liabilities designated
at fair value, before tax
(473)
69
296
(404)
719
Income tax relating to own credit on financial liabilities designated
at fair value
60
(17)
(26)
43
(26)
Subtotal own credit on financial liabilities designated at
fair value, net of tax
(413)
51
271
(362)
693
Total other comprehensive income that will not be reclassified to the income statement,
net of tax
(466)
83
385
(383)
848
Total other comprehensive income
(862)
791
(1,011)
(71)
(3,245)
Total comprehensive income attributable to shareholders
28,013
1,820
1,097
29,833
999
Comprehensive income attributable to non-controlling
interests
Net profit / (loss)
3
8
10
11
18
Total other comprehensive income that will not be reclassified to the income statement,
net of tax
(5)
5
(28)
0
(10)
Total comprehensive income attributable to non-controlling interests
(2)
13
(17)
11
9
Total comprehensive income
Net profit / (loss)
28,878
1,037
2,118
29,915
4,262
Other comprehensive income
(867)
796
(1,039)
(71)
(3,255)
of which: other comprehensive income that may be reclassified
to the income statement
(397)
709
(1,396)
312
(4,093)
of which: other comprehensive income that will not be reclassified
to the income statement
(470)
87
357
(383)
839
Total comprehensive income
28,011
1,833
1,079
29,844
1,008
1 Refer
to the
“Group performance”
section of
this report
for more
information.
2 Effective
1 April 2022,
a portfolio
of assets
previously classified
as Financial
assets measured
at fair
value through
other
comprehensive income was reclassified to Other financial assets measured at amortized cost. As a result, the related cumulative fair value losses of USD
449
m pre-tax and USD
333
m post-tax, previously recognized
in Other comprehensive income, have been removed from equity and adjusted against the value of the
assets at the reclassification date.
Second quarter 2023 report |
Consolidated financial statements | UBS Group
AG interim consolidated financial statements
(unaudited)
63
Balance sheet
USD m
Note
30.6.23
31.3.23
31.12.22
Assets
Cash and balances at central banks
261,587
144,183
169,445
Amounts due from banks
24,392
14,901
14,792
Receivables from securities financing transactions measured at amortized
cost
86,538
60,010
67,814
Cash collateral receivables on derivative instruments
10
54,314
32,726
35,032
Loans and advances to customers
8
651,770
390,130
387,220
Other financial assets measured at amortized cost
11
64,928
49,179
53,264
Total financial assets measured at amortized cost
1,143,528
691,130
727,568
Financial assets at fair value held for trading
9
151,098
117,757
107,866
of which: assets pledged as collateral that may be sold or repledged
by counterparties
54,165
37,569
36,742
Derivative financial instruments
9, 10
185,949
114,251
150,108
Brokerage receivables
9
21,537
21,025
17,576
Financial assets at fair value not held for trading
9
118,605
66,826
59,796
Total financial assets measured at fair value through profit or loss
477,188
319,859
335,347
Financial assets measured at fair value through other comprehensive income
9
2,217
2,241
2,239
Investments in associates
2,691
1,114
1,101
Property, equipment and software
18,325
12,249
12,288
Goodwill and intangible assets
7,569
6,272
6,267
Deferred tax assets
10,342
9,310
9,389
Other non-financial assets
11
16,919
10,958
10,166
Total assets
1,678,780
1,053,134
1,104,364
of which: Credit Suisse
2
598,304
Liabilities
Amounts due to banks
99,167
13,595
11,596
Payables from securities financing transactions measured at amortized cost
22,297
9,870
4,202
Cash collateral payables on derivative instruments
10
41,416
32,238
36,436
Customer deposits
712,546
505,581
525,051
Debt issued measured at amortized cost
13
230,857
116,312
114,621
Other financial liabilities measured at amortized cost
11
19,403
10,292
9,575
Total financial liabilities measured at amortized cost
1,125,687
687,889
701,481
Financial liabilities at fair value held for trading
9
40,364
34,374
29,515
Derivative financial instruments
9, 10
193,147
116,113
154,906
Brokerage payables designated at fair value
9
43,852
43,911
45,085
Debt issued designated at fair value
9, 12
125,050
77,233
73,638
Other financial liabilities designated at fair value
9, 11
36,122
25,758
30,237
Total financial liabilities measured at fair value through profit or loss
438,534
297,390
333,381
Provisions and contingent liabilities
15
14,929
3,937
3,243
Other non-financial liabilities
11
11,994
6,811
9,040
Total liabilities
1,591,145
996,028
1,047,146
of which: Credit Suisse
1
2
502,743
Equity
Share capital
346
304
304
Share premium
12,521
12,971
13,546
Treasury shares
(4,208)
(8,242)
(6,874)
Retained earnings
78,180
51,140
50,004
Other comprehensive income recognized directly in equity, net of tax
161
581
(103)
Equity attributable to shareholders
86,999
56,754
56,876
Equity attributable to non-controlling interests
636
352
342
Total equity
87,635
57,106
57,218
Total liabilities and equity
1,678,780
1,053,134
1,104,364
1 Excludes USD
52.9
bn of debt instruments previously issued by Credit Suisse Group AG and transferred to UBS Group AG
as part of the acquisition.
Second quarter 2023 report |
Consolidated financial statements | UBS Group
AG interim consolidated financial statements
(unaudited)
64
Statement of changes in equity
USD m
Share
capital and
share
premium
Treasury
shares
Retained
earnings
OCI recognized
directly in
equity,
net of tax
1
of which:
foreign
currency
translation
of which:
cash flow
hedges
Total equity
attributable to
shareholders
Balance as of 1 January 2023
2
13,850
(6,874)
50,004
(103)
4,128
(4,234)
56,876
Purchase price consideration, before consideration of share-based compensation
awards
3
619
2,928
3,547
Impact of share-based compensation awards
3
162
162
Impact of the settlement of pre-existing relationships
3
(61)
(61)
Acquisition of treasury shares
(2,318)
4
(2,318)
Delivery of treasury shares under share-based compensation
plans
(798)
876
78
Other disposal of treasury shares
(1)
126
4
125
Cancellation of treasury shares related to the 2021
share repurchase program
5
(561)
1,115
(554)
0
Share-based compensation expensed in the income statement
445
445
Tax (expense) / benefit
5
5
Dividends
(839)
6
(839)
6
(1,679)
Equity classified as obligation to purchase own shares
(19)
(19)
Translation effects recognized directly in retained earnings
48
(48)
(48)
0
New consolidations / (deconsolidations) and other increases
/ (decreases)
2
2
Total comprehensive income for the period
29,521
312
474
(169)
29,833
of which: net profit / (loss)
29,904
29,904
of which: OCI, net of tax
(383)
312
474
(169)
(71)
Balance as of 30 June 2023
2
12,867
(4,208)
78,180
161
4,602
(4,451)
86,999
Non-controlling interests as of 30 June 2023
636
7
Total equity as of 30 June 2023
87,635
Balance as of 1 January 2022
2
16,250
(4,675)
43,851
5,236
4,653
628
60,662
Acquisition of treasury shares
(3,684)
4
(3,684)
Delivery of treasury shares under share-based compensation
plans
(742)
815
74
Other disposal of treasury shares
(3)
111
4
107
Cancellation of treasury shares related to the 2021
share repurchase program
(1,520)
3,022
(1,502)
0
Share-based compensation expensed in the income statement
384
384
Tax (expense) / benefit
7
7
Dividends
(834)
6
(834)
6
(1,668)
Equity classified as obligation to purchase own shares
(40)
(40)
Translation effects recognized directly in retained earnings
(13)
13
13
0
Share of changes in retained earnings of associates and
joint ventures
0
0
New consolidations / (deconsolidations) and other increases
/ (decreases)
4
3
(3)
4
Total comprehensive income for the period
5,092
(4,093)
(840)
(3,355)
999
of which: net profit / (loss)
4,244
4,244
of which: OCI, net of tax
848
(4,093)
(840)
(3,355)
(3,245)
Balance as of 30 June 2022
2
13,506
(4,412)
46,598
1,152
3,813
(2,713)
56,845
Non-controlling interests as of 30 June 2022
339
Total equity as of 30 June 2022
57,184
1 Excludes other comprehensive income related to defined benefit plans and own credit that
is recorded directly in Retained earnings.
2 Excludes non-controlling interests.
3 Refer to Note 2 for more information.
4 Includes treasury shares acquired and disposed of by the Investment
Bank in its capacity as a market maker with regard to UBS shares and
related derivatives, and to hedge certain issued structured debt instruments.
These acquisitions and disposals are reported based on the sum of the net monthly movements.
5 Reflects the cancellation of
62,548,000
shares purchased under UBS’s 2021 share repurchase program as approved
by shareholders at the 2023 Annual General
Meeting. Swiss tax law requires Switzerland-domiciled
companies with shares listed on a Swiss stock exchange
to reduce capital contribution reserves by at least
50
% of
the total capital reduction amount
exceeding the nominal value
upon cancellation of the
shares.
6 Reflects the payment of
an ordinary cash dividend
of USD
0.55
per dividend-bearing share in
April 2023 (2022:
USD
0.50
per dividend-bearing share
paid in April 2022).
Swiss tax law
requires Switzerland-domiciled companies
with shares listed on
a Swiss stock
exchange to pay
no more than
50
% of dividends from
capital
contribution reserves, with the remainder required to be paid from retained earnings.
7 Includes an increase of USD
285
m in the second quarter of 2023 due to the acquisition of the Credit Suisse Group.
Second quarter 2023 report |
Consolidated financial statements | UBS Group
AG interim consolidated financial statements
(unaudited)
65
Statement of cash flows
Year-to-date
USD m
30.6.23
30.6.22
Cash flow from / (used in) operating activities
Net profit / (loss)
29,915
4,262
Non-cash items included in net profit and other adjustments:
Depreciation, amortization and impairment of non-financial
assets
1,391
1,009
Credit loss expense / (release)
778
25
Share of net (profit) / loss of associates and joint ventures
and impairment related to associates
(36)
(12)
Deferred tax expense / (benefit)
(35)
350
Net loss / (gain) from investing activities
(84)
(732)
Net loss / (gain) from financing activities
4,843
(14,379)
Negative goodwill
1
(28,925)
Other net adjustments
(1,559)
9,399
Net change in operating assets and liabilities:
2
Amounts due from banks and amounts due to banks
6,017
3,000
Securities financing transactions measured at amortized cost
13,428
10,833
Cash collateral on derivative instruments
(3,409)
(4,699)
Loans and advances to customers and customer deposits
1,772
(13,203)
Financial assets and liabilities at fair value held for trading and derivative financial
instruments
(7,278)
13,104
Brokerage receivables and payables
(5,141)
8,239
Financial assets at fair value not held for trading and other financial assets
and liabilities
6,015
1,706
Provisions and other non-financial assets and liabilities
898
125
Income taxes paid, net of refunds
(925)
(878)
Net cash flow from / (used in) operating activities
17,665
18,150
Cash flow from / (used in) investing activities
Cash and cash equivalents acquired on acquisition of Credit Suisse
1
108,510
Purchase of subsidiaries, associates and intangible assets
1
Disposal of subsidiaries, associates and intangible assets
45
911
Purchase of property, equipment and software
(830)
(761)
Disposal of property, equipment and software
1
3
Purchase of financial assets measured at fair value through other
comprehensive income
(2,444)
(2,821)
Disposal and redemption of financial assets measured at
fair value through other comprehensive income
2,468
2,291
Purchase of debt securities measured at amortized cost
(7,541)
(8,167)
Disposal and redemption of debt securities measured at amortized
cost
4,659
3,914
Net cash flow from / (used in) investing activities
104,869
(4,630)
Cash flow from / (used in) financing activities
Repayment of Swiss National Bank funding
(27,813)
Net issuance (repayment) of short-term debt measured at amortized
cost
5,203
(10,440)
Net movements in treasury shares and own equity derivative
activity
(2,136)
(3,521)
Distributions paid on UBS shares
(1,679)
(1,668)
Issuance of debt designated at fair value and long-term debt measured
at amortized cost
51,420
48,460
Repayment of debt designated at fair value and long-term debt measured
at amortized cost
(49,777)
(36,309)
Net cash flows from other financing activities
(274)
(352)
Net cash flow from / (used in) financing activities
(25,056)
(3,830)
Total cash flow
Cash and cash equivalents at the beginning of the period
195,321
207,875
Net cash flow from / (used in) operating, investing and financing
activities
97,478
9,690
Effects of exchange rate differences on cash and cash equivalents
2,960
(9,656)
Cash and cash equivalents at the end of the period
3
295,759
207,909
of which: cash and balances at central banks
4
261,504
190,244
of which: amounts due from banks
21,996
15,786
of which: money market paper
5
12,259
1,880
Additional information
Net cash flow from / (used in) operating activities includes:
Interest received in cash
17,243
6,088
Interest paid in cash
11,604
2,675
Dividends on equity investments, investment funds and associates
received in cash
6
1,314
1,059
1 Refer to Note 2 for more information about
the acquisition of the Credit Suisse Group.
2 Movements in this section exclude foreign
currency translation and foreign exchange effects,
which are presented within
the Other net adjustments line.
3 USD
5,892
m and USD
4,434
m of cash and cash equivalents (mainly reflected in Amounts due from banks) were restricted as of 30 June 2023 and 30 June 2022, respectively. Refer
to “Note 22 Restricted and transferred financial
assets” in the “Consolidated financial statements” section of the
Annual Report 2022 for more information. Cash
and cash equivalents at the end of the
period includes
114,649
m related to Credit Suisse.
4 Includes only balances with an original maturity of
three months or less.
5 Money market paper is included in
the balance sheet under Financial assets at fair value
not held
for trading (30 June 2023: USD
9,270
m; 30 June 2022: USD
1,516
m), Other financial assets measured at amortized cost (30 June 2023: USD
603
m; 30 June 2022: USD
127
m), Financial assets at fair value held for
trading (30 June 2023:
USD
2,386
m; 30 June 2022: USD
58
m), and Financial assets measured
at fair value through
other comprehensive income (30
June 2023: USD
0
m; 30 June 2022:
USD
180
m).
6 Includes
dividends received from associates reported within Net cash flow from / (used in) investing activities.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
66
Notes to the UBS Group AG interim consolidated
financial statements (unaudited)
Note 1
Basis of accounting
Basis of preparation
The consolidated
financial statements
(the financial
statements) of
UBS Group AG and
its subsidiaries
(together,
UBS or the Group) are prepared in accordance with International
Financial Reporting Standards (IFRS), as issued by
the International Accounting Standards
Board (the IASB),
and are presented
in US dollars.
These interim financial
statements are prepared in accordance with
IAS 34,
Interim Financial Reporting
.
In preparing
these interim financial
statements, the same
accounting policies and
methods of
computation have
been applied as in the
UBS Group AG consolidated annual
financial statements for
the period ended 31 December
2022, except
for the
changes described
in this
Note. Note
2 sets
out the
accounting for
the acquisition
of the
Credit
Suisse
Group.
These
interim
financial
statements
are
unaudited
and
should
be
read
in
conjunction
with
UBS Group AG’s
audited
consolidated
financial
statements
in
the
Annual
Report
2022
and
the
“Management
report” sections of this report, including the disclosures in the “Acquisition
of Credit Suisse Group” section of this
report. In
the opinion
of management,
all necessary
adjustments have
been made
for a
fair presentation
of the
Group’s financial position, results of operations
and cash flows.
Preparation of these interim financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, income, expenses and disclosures of contingent assets and
liabilities. These estimates and assumptions are based on the best available information. Actual results in the future
could differ from such estimates and differences may be material to the financial statements. Revisions to estimates,
based on regular reviews, are recognized in the period in which they occur. For more information about areas of
estimation uncertainty that are considered to require critical judgment, refer to this Note and Note 2, as well as
“Note 1a Material accounting policies” in the “Consolidated financial statements” section of the Annual Report
2022.
IFRS 17,
Insurance Contracts
Effective
from
1 January
2023,
UBS
has
adopted
IFRS
17,
Insurance
Contracts
,
which
sets
out
the
accounting
requirements
for
contractual
rights
and
obligations
that
arise
from
insurance
contracts
issued
and
reinsurance
contracts held. The adoption has had no material
effect on the Group’s financial statements.
Amendments to IAS 12
, Income Taxes
In May
2023, the
IASB issued
amendments to
IAS 12
Income Taxes
, whereby,
under an
exception, deferred
tax
assets (DTAs)
and deferred
tax liabilities
(DTLs) will
not be
recognized in
respect of
top-up tax
on income
under
Global Anti-Base Erosion
Rules that is
imposed under tax
law that is enacted
or substantively enacted
to implement
the
Pillar
Two
model
rules
published
by
the
Organisation
for
Economic
Co-operation
and
Development.
This
exception applies
immediately upon
the issuance
of the
amendments and
it is,
therefore, potentially
relevant to
these financial statements and subsequent financial statements. Although countries are starting to implement the
rules, the Group did not have any
DTAs or DTLs on 30 June 2023
that had not been recognized as a result of
the
application of
this exception.
The exception
is expected
to be
removed by
the IASB
in due
course, although
the
timing of that has not been specified.
The amendments also introduced new
disclosure requirements in relation to
top-up tax, which will first apply to the Group’s
financial statements for the year ended 31 December
2023.
Other amendments to IFRS
Effective
from
1 January
2023,
UBS
has
adopted
a
number
of
minor
amendments to
IFRS,
which
have
had
no
significant effect on the Group.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
67
Note 1
Basis of accounting (continued)
Incremental accounting policies related to
the transactions and activities associated
with the
acquisition of the Credit Suisse Group
Business combinations
UBS has determined that
the acquisition of the
Credit Suisse Group constitutes
a business combination
under IFRS.
As per
“Note 1a
Material accounting policies,
item 1
Consolidation” in
the “Consolidated financial
statements”
section of the Annual Report 2022, business
combinations are accounted for using the acquisition method.
Under
this method, any excess of the acquisition-date amounts of the identifiable
net assets acquired over the fair value
of the consideration
transferred results in
a negative goodwill
that is recognized
in the income
statement on the
date of the acquisition, with transaction costs
expensed as incurred.
Allowances and provisions for expected credit
losses
The Group’s material accounting policies in respect of allowances and provisions for expected credit losses are set
out in “Note 1a Material accounting policies, item 2g Allowances
and provisions for expected credit losses” in the
“Consolidated financial statements”
section of the Annual
Report 2022. Financial
instruments, acquired through a
business combination
that are
not classified
by the
Group at
fair value
through profit
or loss,
are subject
to the
IFRS 9 expected credit loss (ECL)
requirements. At the date of acquisition,
financial instruments within
the scope of
the ECL requirements that are determined to be credit impaired are treated as purchased credit-impaired
financial
instruments,
with all
other financial
instruments that
are not
credit impaired
treated as
stage 1 financial
instruments
on
the basis
that there
has not
been
a
significant increase
in cre
dit risk
(an SICR)
since their
initial recognition.
Consistent with the requirements
of IFRS 3 and IFRS
9, immediately after the
application of the
acquisition method
to the
business combination,
financial instruments that
are not
credit impaired
are classified
as stage 1
financial
instruments and a maximum 12-month ECL
is recognized, resulting in
a carrying amount below their
acquisition-
date fair value.
Significant increase in credit risk
For the
purposes of the
30-days-past-due backstop applied for
the determination of
an SICR for
loans that were
not 30 days past due on
the date of acquisition,
days past due are determined by
counting the number of
days for
which the contractual payments have not
been received since the acquisition date.
Default and credit impairment
For the purposes of
the 90-days-past-due backstop
applied for the determination
of whether default has
occurred,
days past
due are
determined by
counting the
number of
days since
the earliest
elapsed due
date in
respect of
which material payments
of interest,
principal or
fees have not
been received,
even if
that date
was prior
to the
acquisition date.
Goodwill and other separately identifiable
intangible assets
The Group’s material accounting policies in respect of the accounting
of goodwill are set out in “Note 1a Material
accounting policies,
item
8
Goodwill” in
the “Consolidated
financial statements”
section
of the
Annual Report
2022.
Separately from
goodwill, UBS
recognizes identifiable
intangible assets
acquired in
a
business
combination that
were not previously recognized in the financial statements
of the acquiree. Amortization of these intangible assets
is recognized on a straight-line basis over their estimated useful life. These assets are tested for impairment at the
appropriate cash-generating unit level.
Negative
goodwill,
generally
determined
based
on
the
difference
between
the
provisional
fair
values
for
the
identifiable
assets
acquired
and
liabilities
assumed
and
consideration
transferred,
is
recognized
in
the
income
statement on the acquisition date.
›
Refer to Note 2 for more information
Contingent liabilities recognized in a business
combination
Contingent liabilities recognized in a
business combination are initially measured at
fair value. Subsequently,
they
are
measured
at
the
higher
of
(i) the
initially
recognized
fair
value
less
(when
appropriate)
amortization
in
accordance with
the principles
of IFRS
15 and
(ii) the amount
that would
be recognized
in accordance
with the
requirements for provisions as set out in IAS 37.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
68
Note 1
Basis of accounting (continued)
Currency translation rates
The
table
below
shows
the
rates
of
the
main
currencies
used
to
translate
the
financial
information
of
UBS’s
operations with a functional currency other
than the US dollar into US dollars.
Closing exchange rate
Average rate
1
As of
For the quarter ended
Year-to-date
30.6.23
31.3.23
31.12.22
30.6.22
30.6.23
31.3.23
30.6.22
30.6.23
30.6.22
1 CHF
1.12
1.09
1.08
1.05
1.11
1.08
1.04
1.11
1.06
1 EUR
1.09
1.08
1.07
1.05
1.09
1.08
1.06
1.09
1.09
1 GBP
1.27
1.23
1.21
1.22
1.27
1.22
1.25
1.24
1.29
100 JPY
0.69
0.75
0.76
0.74
0.71
0.75
0.76
0.73
0.80
1 Monthly income statement items of operations with a functional currency other than
the US dollar are translated into US dollars using month-end rates.
Disclosed average rates for a quarter represent an average of
three month-end rates, weighted according to the income and expense volumes of all operations of the Group with the same functional currency for each month. Accordingly, the weighted average rates for the second
quarter of 2023 and year-to-date June 2023 consider income and
expenses from Credit Suisse’s operations generated
since its acquisition by UBS. Weighted average
rates for individual business divisions may deviate
from the weighted average rates for the Group.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
69
Note 2
Accounting for the acquisition of Credit
Suisse Group
Acquisition of the Credit Suisse Group
For information about
the acquisition of
the Credit Suisse
Group refer to
the “Management
report” sections
of this
report,
including the
disclosures in
the
“Acquisition of
Credit
Suisse
Group”
section.
As
set
out
in
Note 1,
the
acquisition
of
the
Credit
Suisse
Group
constitutes
a
business
combination
under
IFRS
3
and
is
required
to
be
accounted for by applying the acquisition method
of accounting.
As part
of the
acquisition method
of accounting,
the assets
and liabilities
of the
Credit Suisse
Group have
been
converted from US GAAP to IFRS. The most material conversion impact arose from the different derivative netting
rules, resulting in an increase in Total
assets of USD
70
bn, with no impact on Equity.
Other conversion adjustments
arose from the
removal of the Swiss
pension surplus and the
different methods used to
calculate expected credit
losses.
›
Refer to Note 3 for more information
›
Refer to Note 8 for more information about the expected credit losses recognized as an additional measurement
adjustment following the acquisition date
In addition, the financial assets
and liabilities of the Credit
Suisse Group have been remeasured to
fair value as of
the
acquisition
date,
resulting
in
the
provisional
fair
values
disclosed
on
the
following
page,
with
fair
value
adjustments of USD
2.3
bn recognized on
financial instruments that
are classified at fair
value through profit
or loss
and fair value
adjustments of USD
12.4
bn recognized on
financial instruments at amortized
cost and off-balance
sheet commitments and
guarantees. In particular,
material fair value
adjustments have been
made regarding the
Credit Suisse
Group lending
portfolio, including
mortgages
and corporate
lending, to
bring the
financial
instruments
from amortized cost
to fair
value. The
fair value
adjustments applied to
amortized-cost financial instruments
will
generally accrete to
par over their
expected lives through
Total revenues
in the income
statement if the
instruments
are continued to be held.
›
Refer to Note 9 for more information
Adjustments have also been made to
other asset and liability categories with
new intangible assets of USD
0.9
bn
and
USD
4.5
bn
of
additional
litigation
provisions
and
contingent
liabilities
recognized
as
detailed
below.
Furthermore, Credit Suisse Group goodwill has been derecognized, the fair value of internally generated software
has been marked down considering
how other market participants would value
acquired software, and real estate
held and leased has been revalued.
Intangible assets
Included in
Intangible assets
is a
fair value
of USD
0.9
bn for
core deposits and
customer relationship intangibles,
which
were
recognized as
part
of
the
acquisition
of the
Credit
Suisse
Group.
These
assets
were
not
previously
recognized in
the financial
statements of
the Credit
Suisse Group.
The core
deposit intangible
asset was
valued
using
the
after-tax
cost
savings
method
under
the
income
approach.
After-tax
cost
savings
were
estimated
by
comparing
the
cost
of
the
existing
deposits
(including
the
cost
of
maintaining
them)
to
the
cost
of
obtaining
alternative funds
from a
mix of
diversified funding
sources available
to market
participants. The
intangible asset
represents the present value of
the after-tax cost savings expected
to be realized over the
remaining useful life of
the deposits. The customer
relationship intangible asset
was valued using the
multi-period excess earnings
method
(an
income-based
valuation
methodology),
by
discounting
estimated
after-tax
excess
earnings
attributable
to
existing
customer
relationships
over
their
remaining
useful
lives.
Both
intangible
asset
valuations
include
assumptions consistent
with how
a market
participant would
estimate fair
values, such
as growth
and attrition
rates
and projected
fee and
interest income,
as well
as related
costs to
service the
relationships
and deposits,
and discount
rates.
Also included in
Intangible assets
are mortgage servicing rights (MSRs) of USD
0.4
bn, which represent the right to
perform specified
mortgage servicing
activities on
behalf of third
parties, generating
income through
servicing fees.
The MSRs were valued using a discounted cash
flow model.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
70
Note 2
Accounting for the acquisition of Credit
Suisse Group (continued)
Additional provisions and contingent liabilities
Included
in
Provisions
and
contingent
liabilities
is
USD
4.5
bn
for
additional
litigation
provisions
and
contingent
liabilities,
which
includes
USD
1.5
bn
for
litigation
provisions,
in
addition
to
the
existing
USD
1.3
bn
provision
previously recorded by the Credit Suisse Group, and USD
3
bn contingent liabilities for certain potential obligations
in respect
of litigation,
regulatory and
similar matters
identified in
the purchase
price allocation.
The timing
and
actual
amount
of
outflows
associated
with
litigation
matters
are
uncertain.
UBS
continues
to
assess
the
development
of
these
obligations
and
the
amount
and
timing
of
potential
outflows.
In
addition,
UBS
has
also
recognized USD
4.5
bn for fair value adjustments
on acquired loan commitments
and guarantees recognized
under
IFRS as a
consequence of
the acquisition,
of which USD
4.3
bn is included
in
Provisions and
contingent liabilities
and
USD
0.2
bn is included as fair value loan commitments
within
Derivative financial instruments
liabilities.
›
Refer to Note 15 for more information
The following table summarizes the determination
of the purchase price consideration.
Measure
The Credit Suisse Group ordinary shares outstanding, 12 June 2023
Number of shares (m)
3,949
Exchange ratio (1 to 22.48)
Ratio
0.04
UBS ordinary shares
Number of shares (m)
176
UBS ordinary share price
CHF
18.35
Purchase price consideration, before consideration of share-based compensation
awards
CHF m
3,223
Purchase price consideration, before consideration of share-based compensation awards
using exchange rate of 1.10
1
USD m
3,547
Impact of share-based compensation awards
2
USD m
162
Purchase price consideration, after consideration of share-based compensation awards
USD m
3,710
Settlement of pre-existing relationships
USD m
135
Provisional purchase price consideration, after consideration of pre-existing relationships
USD m
3,845
Net cash and cash equivalents acquired with the Credit Suisse
Group (included in cash flows from investing activities)
USD m
108,510
of which: cash and balances at central banks
USD m
93,012
of which: amounts due from banks
USD m
12,601
of which: money market paper
USD m
2,897
1 The purchase
price consideration is
reflected as a
reduction to treasury
shares of the
Group at their
weighted average cost,
with the difference
between the fair
value of UBS
shares on the
closing date and the
weighted average cost
of treasury shares
in the UBS
Group balance sheet
on closing date
taken as
an adjustment to
share premium. As
of 12 June
2023, this resulted
in a total
purchase price of
approximately
USD
3.7
bn, based on the UBS
Group AG share price on 12
June 2023.
2 Represents the value of
share-based compensation awards outstanding to Credit
Suisse employees attributable to the service
period completed
on the date of acquisition.
The
acquisition
of
the
Credit
Suisse
Group
on
12 June
2023
resulted
in
provisional
negative
goodwill
of
USD
28.9
bn. The
negative goodwill
represents
the difference
between the
fair values
for the
identifiable assets
acquired
and liabilities
assumed, except
for amounts
related
to leases
and employee
benefits,
which have
been
determined by
applying the
requirements in
IFRS 16 and
IAS 19, respectively,
and consideration
transferred. The
negative
goodwill
has
been
recognized
as
of
the
acquisition
date
in
the
income
statement
on
a
separate
line,
Negative
goodwill
,
following
the
requirements
in
IFRS 3,
Business
Combinations
.
The
pre-tax
gain
arising
from
negative goodwill on the acquisition of the Credit Suisse
Group did not result in any tax expense.
The provisional
fair value
measurement of
identifiable assets
acquired and
liabilities assumed,
as well
as, among
other
things,
the
IFRS
9
classifications
of
the
acquired
assets
and
liabilities,
may
be
adjusted
following
management’s finalization of its acquisition date fair value estimates,
as allowed by IFRS 3 for
a maximum of one
year from the acquisition date.
The fair values are
considered provisional,
given the short period
of time available
since the acquisition
closed on 12 June
2023 and may
change if new
information about facts and
circumstances
existing on the date of the acquisition is obtained within the measurement period
and if material, will be reported
retrospectively.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
71
Note 2
Accounting for the acquisition of Credit
Suisse Group (continued)
USD m
Acquisition date value
Purchase price consideration, after consideration of share-based compensation awards
3,710
The Credit Suisse Group net assets at fair value
Assets
Cash and balances at central banks
93,012
Amounts due from banks
13,590
Receivables from securities financing transactions
26,194
Cash collateral receivables on derivative instruments
20,878
Loans and advances to customers
261,839
Other financial assets measured at amortized cost
13,440
Total financial assets measured at amortized cost
1
428,954
Financial assets at fair value held for trading
35,046
Derivative financial instruments
62,162
Brokerage receivables
366
Financial assets at fair value not held for trading
61,305
Total financial assets measured at fair value through profit or loss
158,879
Financial assets measured at fair value through other comprehensive income
1
0
Investments in associates
1,657
Property, equipment and software
6,055
Intangible assets
1,287
Deferred tax assets
942
Other non-financial assets
6,892
Total assets
604,667
Liabilities
Amounts due to banks
107,617
Payables from securities financing transactions
11,911
Cash collateral payables on derivative instruments
10,939
Customer deposits
183,119
Debt issued measured at amortized cost
110,491
Other financial liabilities measured at amortized cost
7,992
Total financial liabilities measured at amortized cost
432,070
Financial liabilities at fair value held for trading
5,711
Derivative financial instruments
66,091
Brokerage payables designated at fair value
316
Debt issued designated at fair value
44,909
Other financial liabilities designated at fair value
7,574
Total financial liabilities measured at fair value through profit or loss
124,601
Provisions and contingent liabilities
11,052
Other non-financial liabilities
3,888
Total liabilities
571,611
Non-controlling interests
(285)
Fair value of net assets acquired
32,771
Settlement of pre-existing relationships
135
Provisional negative goodwill resulting from the acquisition
28,925
1 Refer to Note 8 for information about credit quality of financial assets, including purchased credit-impaired
(PCI) positions.
With the acquisition date of 12 June 2023, for convenience the Credit
Suisse Group was consolidated with effect
from 31 May 2023, as
the effect of transactions
and activities in the
period from 31 May 2023
to 12 June 2023 on
the consolidated financial statements was
not material.
UBS incurred certain
acquisition-related costs
to effect the acquisition.
These consist primarily
of advisory, legal
and
consulting fees.
These costs
were expensed
as incurred. A
total of
USD
0.2
bn has
been included
in
General and
administrative expenses
in the income statement in the first
six months of 2023.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
72
Note 2
Accounting for the acquisition of Credit
Suisse Group (continued)
From the date
of acquisition until 30 June
2023, the Credit Suisse
Group contributed USD
1.2
bn of net
revenues
and an overall
net loss of
USD
1.2
bn to the
net profit of the
UBS Group. For
illustration purposes, the pro
forma
net
revenues
and
net
loss
for
UBS
Group
if
the
business
combination
had
taken
place
on
1 January
2023
are
estimated as USD
24.0
bn and USD
0.9
bn, respectively, in
the first half
of 2023. This
pro forma information
is based
on the actual
six-month result of the
consolidated UBS Group, as
reported (including one month of
Credit Suisse
results),
plus the Credit Suisse US
GAAP result for the first
five months of 2023, adjusted for
the estimated effect
of conversion to
IFRS and
reflection of effects
from purchase price
allocation adjustments under
IFRS 3,
Business
Combinations
. The
pro forma
net revenues
and net
loss additionally
exclude the
impact from
negative goodwill
recognized from
the acquisition
of the
Credit Suisse
Group of
USD
28.9
bn, and
certain items
recognized by
the
Credit Suisse Group in
2023 prior to the acquisition
date, including a gain from
the write-down of additional
tier 1
capital notes of
USD
16.4
bn, a goodwill
impairment charge, mostly
related to Wealth
Management (Credit
Suisse),
of USD
1.4
bn and a gain from the reversal
of contingent compensation award accrual of USD
0.4
bn. These items
are considered non-recurring
and therefore not representative
of the normal course
of business. The pro forma
net
revenues and net
loss do
not purport to
represent what UBS’s
actual results of
operations would have
been had
the transaction occurred
on the date
indicated, nor are
they necessarily indicative of
future results of
operations.
The pro forma net
revenues and net loss
also do not consider
any potential impacts of current
market conditions
on
revenues,
assets
or
liabilities.
Nor
do
they
reflect
expense
efficiencies,
asset
dispositions
or
business
reorganizations that
are
or
may
be
contemplated, or
any
cost
or
revenue
synergies, including
further
potential
restructuring actions, associated with combining
UBS and Credit Suisse.
Segment reporting
An overview
of how
UBS’s businesses
are organized
globally into
business divisions
and Group
Functions is
provided
in “Note
2a Segment reporting”
in the
“Consolidated financial statements” section
of the
Annual Report 2022.
Credit
Suisse’s business
is organized
globally into
five reporting
segments (Wealth
Management (Credit
Suisse),
Swiss Bank (Credit Suisse), Asset Management (Credit Suisse), the Investment Bank (Credit Suisse)
and the Capital
Release Unit
(Credit Suisse))
and Corporate
Center (Credit
Suisse). The
Group continues
to assess
to which
segments
certain
products,
portfolios
and
services
associated
with
the
acquisition
of
the
Credit
Suisse
Group
should
be
allocated. Consequently, classifications
and segment
allocations may
change in
the future,
during the
measurement
period as defined in IFRS 3.
›
Refer to the “Credit Suisse business divisions and Corporate Center” section of this report for more information
about the Credit Suisse business divisions and Corporate Center
Pre-existing relationships
As of 12 June 2023, UBS had the following pre-existing
relationships with the Credit Suisse Group.
USD m
Cash collateral receivables on derivative instruments
7
Derivative financial instruments
1,476
Debt instruments issued by the Credit Suisse Group and held
by UBS
98
Total assets
1,581
Cash collateral payables on derivative instruments
572
Derivative financial instruments
813
Total liabilities
1,385
Treasury shares
(61)
Total equity
(61)
Total net pre-existing relationships
135
Such balances are eliminated in the consolidated
financial statements.
Retention awards of
approximately USD
0.5
bn were offered
to selected employees
of the Credit Suisse
Group prior
to
the
acquisition
date
to
support
the
completion of
the
transaction
and
the
early
phase
of
integration. These
awards were contingent on
the completion of the acquisition
and are delivered
50
% in cash (in general vesting
60
days from the completion of the
acquisition) and
50
% in shares (in general
vesting on the first anniversary of
the
completion of
the acquisition).
Vesting
periods are
longer for
certain
regulated employees.
Expenses associated
with
these
awards
are
recognized
between
the
date
of
acquisition
and
the
applicable
vesting
dates
and
were
USD
84
m in the second quarter of 2023.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
73
Note 3
Segment reporting
As
of
30 June
2023,
the
Credit
Suisse
business
divisions
represented
separate
reportable
segments
in
the
UBS
Group, which are managed and reported on a pre-tax basis. Credit Suisse’s business is organized globally into five
reporting segments
(Wealth Management
(Credit Suisse),
Swiss Bank
(Credit Suisse),
Asset Management
(Credit
Suisse),
the Investment
Bank
(Credit
Suisse) and
the Capital
Release Unit
(Credit
Suisse))
and
Corporate Center
(Credit
Suisse).
Beginning
with
the
third
quarter
of
2023,
we
will
report
five
business
divisions,
Global
Wealth
Management, Personal & Corporate Banking,
Asset Management,
the Investment Bank and Non-core and
Legacy,
and we will separately report Group Items.
›
Refer to the “Consolidated financial statements” section of the Annual Report 2022 for more information about
UBS’s business divisions and Group Functions
The information provided
for the Credit
Suisse business divisions
and Corporate Center
in the
tables below is
on
the
basis
of
US
generally accepted
accounting
principles
(US
GAAP)
as
of
or
for
the
one-month
period
ended
30 June
2023.
When
acquisition
accounting
was
performed
under
IFRS
3,
Business
Combinations
,
upon
the
acquisition of the Credit Suisse Group by UBS, certain effects
resulted in a consequential impact for the US GAAP
reporting of
Credit Suisse.
For the
purpose of
the segment
reporting below,
the US
GAAP information
for the
Credit
Suisse business
divisions and
Corporate Center
has been
adjusted to
remove effects
that overlap
with amounts
already
accounted
for
as
part
of
the
acquisition,
e.g.,
aligning
fair
value
methodologies,
changes
in
litigation
provisions, software and goodwill impairment. A
reconciliation from US GAAP to
international financial reporting
standards (IFRS) for the Credit Suisse business
divisions and Corporate Center has been provided
within this note.
Information for the UBS business divisions
and Group Functions is provided on
an IFRS basis.
Income statement
Reconciliation of aggregated segment results for UBS and Credit Suisse to UBS Group result – for the six month period
ended 30 June 2023
USD m
UBS business divisions
and Group Functions
(IFRS)
Credit Suisse business
divisions
and Corporate Center
(US GAAP,
adjusted)
1
Reconciliation from
US GAAP to IFRS for
Credit Suisse business
divisions
and Corporate Center
Negative goodwill from
the acquisition of Credit
Suisse (IFRS)
UBS Group (IFRS)
For the six months ended 30 June 2023
Total revenues
17,128
743
413
18,284
Negative goodwill
28,925
28,925
Credit loss expense / (release)
54
101
623
778
Operating expenses
14,055
1,807
(166)
15,696
Operating profit / (loss) before tax
3,019
(1,165)
(44)
28,925
30,735
Tax expense / (benefit)
820
Net profit / (loss)
29,915
1 Represents the Credit Suisse
business division result for
June 2023 as presented
to the Chief Operating
Decision Maker (the
UBS Group Executive Board).
The US GAAP information
for the Credit Suisse
business
divisions and Corporate Center has been adjusted to remove effects that overlap with amounts already accounted for as part of the acquisition, e.g., aligning fair value methodologies, changes in litigation provisions,
software and goodwill impairment.
UBS business divisions and Group Functions (IFRS) – For the six month period ended 30 June 2023
USD m
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment
Bank
Group Functions
Total
For the six months ended 30 June 2023
Total revenues
9,528
2,681
1,001
4,241
(323)
17,128
Credit loss expense / (release)
20
26
0
8
0
54
Operating expenses
7,182
1,376
818
3,618
1,062
14,055
Operating profit / (loss) before tax
2,325
1,279
184
615
(1,385)
3,019
Tax expense / (benefit)
807
Net profit / (loss)
2,212
Credit Suisse business divisions and Corporate Center (US GAAP,
adjusted) – For the month ended 30 June 2023
1
USD m
Wealth
Management
Swiss Bank
Asset
Management
Investment
Bank
Capital Release
Unit
Corporate
Center
Total
For the month ended 30 June 2023
Total revenues
323
339
91
102
28
(140)
743
Credit loss expense / (release)
7
67
2
(3)
28
0
101
Operating expenses
427
264
103
715
198
100
1,807
Operating profit / (loss) before tax
(111)
8
(14)
(610)
(198)
(240)
(1,165)
1 Represents the Credit Suisse
business division result for
June 2023 as presented
to the Chief Operating
Decision Maker (the
UBS Group Executive Board).
The US GAAP information
for the Credit Suisse
business
divisions and Corporate Center has been adjusted to remove effects that overlap with amounts already accounted for as part of the acquisition, e.g., aligning fair value methodologies, changes in litigation provisions,
software and goodwill impairment.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
74
Note 3
Segment reporting (continued)
Breakdown of reconciling items from US GAAP to IFRS for Credit Suisse business divisions and Corporate Center – For
the month ended 30 June 2023
USD m
Conversion from
US GAAP to IFRS
(excluding PPA
accretion)
of which: ECL
adjustment
of which: Share-
based
compensation
of which:
other
Accretion of
Purchase Price
Allocation (PPA)
adjustments
Total
For the month ended 30 June 2023
Total revenues
44
44
369
413
Credit loss expense / (release)
623
623
0
623
Operating expenses
(166)
(130)
(36)
0
(166)
Operating profit / (loss) before tax
(413)
(623)
130
80
369
(44)
Reconciliation from segment results to UBS Group result – For the six month period ended 30 June 2022
USD m
Global Wealth
Management
Personal &
Corporate
Banking
Asset
Management
Investment Bank
Group Functions
UBS
For the six months ended 30 June 2022
1
Total revenues
9,581
2,144
1,950
5,003
(379)
18,299
Credit loss expense / (release)
(10)
57
0
(24)
2
25
Operating expenses
7,124
1,246
817
3,688
54
12,929
Operating profit / (loss) before tax
2,467
841
1,133
1,339
(436)
5,344
Tax expense / (benefit)
1,082
Net profit / (loss)
4,262
1 Refer to “Note 2 Segment reporting” in the “Consolidated financial statements” section of the Annual Report 2022 for more information about
the Group's reporting segments.
Total assets
Reconciliation of segment assets to UBS Group total assets – As at 30 June 2023 and as at 31 December 2022
USD m
30.6.23
31.12.22
UBS business divisions and Group Functions (IFRS)
1,142,419
1,104,364
Global Wealth Management
375,118
388,530
Personal & Corporate Banking
241,539
235,226
Asset Management
19,083
17,348
Investment Bank
363,004
391,320
Group Functions
143,676
71,940
Credit Suisse business divisions and Corporate Center (US GAAP)
1
544,367
Wealth Management
106,729
Swiss Bank
211,218
Asset Management
1,716
Investment Bank
96,575
Capital Release Unit
74,843
Corporate Center
53,286
Reconciliation from US GAAP to IFRS for Credit Suisse business divisions
and Corporate Center
56,125
of which: conversion from US GAAP to IFRS for derivative netting
69,705
of which: IFRS 3 PPA fair value adjustments on financial assets measured at amortized
cost
2
(8,428)
of which: IFRS 3 PPA adjustments to other assets
2
1,972
UBS vs Credit Suisse eliminations
(64,132)
UBS Group total assets (IFRS)
1,678,780
1,104,364
1 Represents
the Credit
Suisse business
division as
of 30
June 2023
as presented
to the
Chief Operating
Decision Maker
(the UBS
Group Executive
Board).
2 Refer
to Note
2 for
more information
about the
components of the IFRS 3 purchase price allocation adjustments.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
75
Note 4
Net interest income
For the quarter ended
Year-to-date
USD m
30.6.23
31.3.23
30.6.22
30.6.23
30.6.22
Interest income from loans and deposits
1
6,247
4,106
1,886
10,353
3,546
Interest income from securities financing transactions measured
at amortized cost
2
1,004
766
209
1,769
327
Interest income from other financial instruments measured
at amortized cost
282
259
118
540
191
Interest income from debt instruments measured at fair
value through other comprehensive income
26
23
6
48
47
Interest income from derivative instruments designated as cash
flow hedges
(457)
(376)
160
(833)
413
Total interest income from financial instruments measured at amortized cost and fair
value through other comprehensive
income
7,101
4,777
2,380
11,878
4,525
Interest expense on loans and deposits
3
3,024
1,994
262
5,018
401
Interest expense on securities financing transactions measured
at amortized cost
4
616
365
288
981
512
Interest expense on debt issued
2,205
1,429
498
3,635
893
Interest expense on lease liabilities
35
26
22
61
45
Total interest expense from financial instruments measured at amortized cost
5,880
3,814
1,070
9,695
1,852
Total net interest income from financial instruments measured at amortized cost and fair
value through other comprehensive
income
1,221
962
1,310
2,183
2,673
Net interest income from financial instruments measured at fair value through profit
or loss and other
493
425
355
918
763
Total net interest income
1,713
1,388
1,665
3,101
3,436
1 Consists of interest income from cash and balances at central banks,
loans and advances to banks and customers, and cash
collateral receivables on derivative instruments,
as well as negative interest on amounts
due to banks,
customer deposits, and
cash collateral payables
on derivative instruments.
2 Includes interest income
on receivables from
securities financing transactions
and negative interest,
including fees,
on
payables from securities financing transactions.
3 Consists of interest expense
on amounts due to banks,
cash collateral payables on
derivative instruments, and
customer deposits, as well
as negative interest on
cash and balances at central banks, loans and
advances
to banks, and cash collateral receivables on derivative instruments.
4 Includes interest expense on payables from securities financing
transactions and negative
interest, including fees, on receivables from securities financing transactions.
Note 5
Net fee and commission income
For the quarter ended
Year-to-date
USD m
30.6.23
31.3.23
30.6.22
30.6.23
30.6.22
Underwriting fees
153
127
111
280
283
M&A and corporate finance fees
199
178
220
378
456
Brokerage fees
930
880
869
1,809
1,946
Investment fund fees
1,196
1,178
1,233
2,374
2,620
Portfolio management and related services
2,485
2,210
2,298
4,695
4,761
Other
719
479
492
1,199
993
Total fee and commission income
1
5,682
5,053
5,224
10,735
11,061
of which: recurring
3,808
3,413
3,593
7,221
7,453
of which: transaction-based
1,864
1,616
1,621
3,480
3,579
of which: performance-based
10
24
10
34
29
Fee and commission expense
507
447
450
954
934
Net fee and commission income
5,175
4,606
4,774
9,781
10,127
1 Reflects third-party fee and commission income
for the second quarter of 2023 of
USD
3,134
m for Global Wealth Management (first quarter of
2023: USD
3,145
m; second quarter of 2022: USD
3,281
m), USD
465
m
for Personal & Corporate Banking
(first quarter of 2023: USD
449
m; second quarter of 2022: USD
421
m), USD
673
m for Asset Management (first quarter
of 2023: USD
687
m; second quarter of 2022: USD
720
m),
USD
731
m for the Investment Bank (first
quarter of 2023: USD
770
m; second quarter of 2022:
USD
801
m) and USD
4
m for Group Functions (first
quarter of 2023: USD
3
m; second quarter of 2022: USD
1
m). Also
includes third-party fee and commission income for the second quarter of 2023 from Credit Suisse of USD
675
m.
Note 6
Personnel expenses
For the quarter ended
Year-to-date
USD m
30.6.23
31.3.23
30.6.22
30.6.23
30.6.22
Salaries and variable compensation
1
4,804
3,885
3,786
8,689
7,954
of which: variable compensation – financial advisors
2
1,110
1,111
1,122
2,222
2,342
Contractors
77
70
80
147
163
Social security
294
279
218
572
503
Post-employment benefit plans
261
236
199
497
448
Other personnel expenses
215
151
139
366
274
Total personnel expenses
5,651
4,620
4,422
10,271
9,343
1 Includes role-based
allowances.
2 Consists of
cash and deferred compensation
awards and is
based on compensable
revenues and firm tenure
using a formulaic approach.
It also includes
expenses related to
compensation commitments with financial advisors entered into at the time of recruitment that are subject to vesting requirements.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
76
Note 7
General and administrative expenses
For the quarter ended
Year-to-date
USD m
30.6.23
31.3.23
30.6.22
30.6.23
30.6.22
Outsourcing costs
311
248
227
559
454
Technology costs
414
322
286
735
576
Consulting, legal and audit fees
351
181
144
532
272
Real estate and logistics costs
207
142
152
349
298
Market data services
151
113
101
264
207
Marketing and communication
89
52
61
140
101
Travel and entertainment
73
54
46
126
67
Litigation, regulatory and similar matters
1
69
721
221
790
278
Other
304
232
133
536
325
Total general and administrative expenses
1,968
2,065
1,370
4,033
2,578
1 Reflects the net increase in provisions for litigation, regulatory and similar matters recognized in the income statement. Refer to Note 15b for more information.
Note 8
Expected credit loss measurement
a) Credit loss expense / release
Total net credit loss expenses in the second
quarter of 2023 were USD
740
m, reflecting USD
644
m net credit loss
expenses related
to stage 1
and
2
positions, USD
77
m net
credit loss
expenses related
to stage 3
positions and
USD
19
m related to purchased credit-impaired (PCI)
positions.
Stage 1 and 2
net expenses
included: scenario-related
net releases
of USD
42
m for
UBS AG’s business
divisions; net
expenses of
USD
27
m from
model changes
for UBS AG’s
business divisions,
mainly in
Personal &
Corporate Banking
and
the
Investment Bank;
and
additional net
expenses of
USD
5
m
from
book
quality
and
size
changes, mainly
across
the
corporate
and
real
estate
lending
portfolios
of
Personal
&
Corporate
Banking
and
Global
Wealth
Management. In addition, USD
654
m net expenses
were recognized for
the initial recognition of
ECL allowances
and provisions for
purchased non-credit-impaired
Credit Suisse AG portfolios.
Recognition of expected
credit losses
is
required
by
IFRS
9
as
a
subsequent
measurement
adjustment
after
recognizing
on
the
acquisition
date
the
respective assets
and commitments
at fair
value, as
part of
the purchase
price allocation
under IFRS
3. The
purchased
non-credit-impaired Credit Suisse AG positions are classified
as stage 1 at initial recognition. Stage 2 positions
and
UBS
Group
ECL
will
increase,
ceteris
paribus,
as
and
when
credit
risk
of
transactions
significantly
deteriorates
compared to the acquisition
date of Credit Suisse
on 12 June
2023, at which date
respective exposures were fair
valued as part of the purchase price allocation.
Stage 3
net
credit
loss
expenses
were
USD
77
m,
driven
by
net
expenses
of
USD
21
m
in
Personal
&
Corporate
Banking, which were primarily due to a single commodity trade finance client (USD
11
m), as well as net expenses
on
various
corporate
lending
positions.
Credit
Suisse AG
contributed
USD
51
m
net
expenses,
related
to
counterparties that
defaulted after
the acquisition
date,
mainly driven
by one
real-estate-related client
in the
Capital
Release Unit
of
USD
44
m, as
well
as USD
19
m on
PCI positions
due
to remeasurements
of
positions that
were
already defaulted at the acquisition date.
›
Refer to Note 2 for more information about accounting under IFRS 3,
Business Combinations
›
Refer to Note 1 for more information
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
77
Note 8
Expected credit loss measurement (continued)
Credit loss expense / (release)
USD m
Stages 1 and 2
Stage 3
Purchased
credit-impaired
(PCI)
Total
For the quarter ended 30.6.23
Global Wealth Management
(4)
9
5
Personal & Corporate Banking
(11)
21
10
Asset Management
0
0
0
Investment Bank
5
(4)
1
Group Functions
0
0
0
Subtotal UBS
(10)
26
16
Wealth Management (Credit Suisse)
143
0
7
149
Swiss Bank (Credit Suisse)
217
7
0
224
Asset Management (Credit Suisse)
1
0
0
1
Investment Bank (Credit Suisse)
189
0
12
200
Capital Release Unit (Credit Suisse)
104
44
0
148
Corporate Center (Credit Suisse)
2
0
0
2
Subtotal Credit Suisse
654
51
19
724
1
Total
644
77
19
740
For the quarter ended 31.3.23
Global Wealth Management
15
0
15
Personal & Corporate Banking
15
0
16
Asset Management
0
0
0
Investment Bank
(5)
12
7
Group Functions
0
0
0
Total
26
12
38
For the quarter ended 30.6.22
Global Wealth Management
(8)
6
(3)
Personal & Corporate Banking
26
8
35
Asset Management
0
0
0
Investment Bank
(2)
(26)
(28)
Group Functions
0
2
2
Total
16
(9)
7
1 Includes credit loss expense of USD
101
m included into the segment reporting for Credit Suisse business divisions and Corporate Center (US GAAP,
adjusted), and USD
623
m credit loss expense to reconcile Credit
Suisse business divisions and Corporate Center to IFRS. Please refer also to Note 3.
b) Changes to ECL models, scenarios, scenario
weights and post-model adjustments
Scenarios and scenario weights
The expected
credit loss
(ECL) scenarios,
along with
their related
macroeconomic factors and
market data,
were
reviewed in light of
the economic and
political conditions prevailing
in the second
quarter of 2023 through
a series
of governance meetings, with input and feedback from
UBS Risk and Finance experts across the business divisions
and regions. ECLs
for Credit Suisse
AG positions were
calculated based
on Credit Suisse
AG’s models, including
the
same scenario and scenario weight inputs as
for UBS’s existing business activity.
The baseline scenario was updated with the latest macroeconomic forecasts as of 30 June 2023. The assumptions
on
a
calendar-year basis
are included
in
the table
below and
imply a
broadly unchanged
economic outlook
for
2023, in the
Eurozone and Switzerland, and
more optimistic projections for
the US. Compared
with the baseline
used in the
first quarter
of 2023, the
house price forecasts
for the US
and the Eurozone
in 2023 are
less pessimistic,
although the baseline is slightly more pessimistic
for Switzerland.
At the beginning of the second
quarter of 2023, UBS replaced the global crisis scenario applied
at year-end 2022
and at the
end of the
first quarter of
2023 with the
mild debt crisis
scenario. Recent
economic, market and
political
developments suggest
that the scenario
suite should
be rebalanced by
reintroducing a mild
downside scenario.
The
mild debt
crisis scenario
covers similar
risks, but
the assumptions
are milder
than the
global crisis
scenario. Therefore,
the scenario is
less severe.
It assumes
that political,
solvency and
liquidity concerns
cause a sell-off
of sovereign
debt
in
emerging
markets
and
the
peripheral
Eurozone.
The
global
economy
and
financial
markets
are
negatively
affected, and central banks are assumed to ease
their monetary policy.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
78
Note 8
Expected credit loss measurement (continued)
The stagflationary
geopolitical crisis
scenario and
the asset
price inflation
scenario were
updated based
on the
latest
market
data,
but
the
assumptions
remain
broadly
unchanged.
Refer
to
the
table
below
for
the
scenarios
and
weights applied.
UBS kept scenario weights in
line with those applied in
the first quarter of
2023, with a
15
% weight assigned to
the mild debt crisis scenario instead of the
global crisis scenario, which it replaced.
UBS applied the same scenarios and scenario
weights for the acquired Credit Suisse
Group portfolios.
Post-model adjustments
Total
stage 1 and 2
allowances and provisions
amounted to USD
1,199
m as of
30 June 2023 and
included post-
model adjustments
for UBS
AG’s business
divisions of
USD
131
m (31 March
2023: USD
128
m), as
uncertainty levels
remained
high,
including
the
geopolitical
situation.
Allowances
and
provisions
related
to
the
Credit
Suisse AG
portfolio include post-model adjustments
of USD
102
m, mostly related to the further calibration of model
outputs
in certain segments with UBS’s model outputs.
Comparison of shock factors
Baseline
Key parameters
2022
2023
2024
Real GDP growth (annual percentage change)
US
2.1
1.4
0.1
Eurozone
3.5
0.8
1.0
Switzerland
2.1
0.9
1.3
Unemployment rate (%, annual average)
US
3.6
3.7
5.1
Eurozone
6.7
6.7
6.9
Switzerland
2.2
2.2
2.5
Fixed income: 10-year government bonds (%, Q4)
USD
3.9
3.7
3.6
EUR
2.6
2.3
2.2
CHF
1.6
1.0
0.9
Real estate (annual percentage change, Q4)
US
7.4
(1.9)
2.1
Eurozone
2.8
(1.2)
1.8
Switzerland
3.9
(0.5)
(1.0)
Economic scenarios and weights applied
Assigned weights in %
ECL scenario
30.6.23
31.3.23
30.6.22
Asset price inflation
0.0
0.0
0.0
Baseline
60.0
60.0
55.0
Severe Russia–Ukraine conflict scenario
–
–
25.0
Mild debt crisis
15.0
–
–
Stagflationary geopolitical crisis
25.0
25.0
–
Global crisis
–
15.0
20.0
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
79
Note 8
Expected credit loss measurement (continued)
c) ECL-relevant balance sheet and off-balance
sheet positions including ECL allowances
and provisions
The following tables
provide information
about financial
instruments and
certain non-financial
instruments that
are
subject
to
ECL
requirements.
For
amortized-cost
instruments,
the
carrying
amount
represents
the
maximum
exposure to credit risk, taking
into account the allowance for
credit losses. Financial assets measured at
fair value
through other comprehensive
income (FVOCI) are
also subject to ECL;
however, unlike amortized-cost
instruments,
the allowance
for credit
losses for
FVOCI instruments
does not
reduce the
carrying amount
of these financial
assets.
Instead, the
carrying amount
of financial
assets measured
at FVOCI
represents the
maximum exposure
to credit
risk.
In addition to recognized financial assets, certain off-balance sheet financial instruments and other credit lines are
also subject to ECL.
The maximum exposure to
credit risk for off-balance
sheet financial instruments is calculated
based on the maximum contractual amounts.
USD m
30.6.23
Carrying amount
1
ECL allowances
Financial instruments measured at amortized cost
Total
Stage 1
Stage 2
Stage 3
PCI
Total
Stage 1
Stage 2
Stage 3
PCI
Cash and balances at central banks
261,587
261,475
32
0
79
(10)
0
(10)
0
0
Loans and advances to banks
24,392
24,208
157
0
27
(11)
(10)
(1)
0
0
Receivables from securities financing transactions measured at
amortized cost
86,538
86,538
0
0
0
(1)
(1)
0
0
0
Cash collateral receivables on derivative instruments
54,314
54,314
0
0
0
0
0
0
0
0
Loans and advances to customers
651,770
630,086
17,204
1,850
2,630
(1,369)
(613)
(173)
(556)
(28)
of which: Private clients with mortgages
255,322
244,894
9,358
783
287
(173)
(61)
(87)
(23)
(2)
of which: Real estate financing
92,890
88,669
4,088
10
122
(63)
(41)
(23)
0
0
of which: Large corporate clients
32,162
28,883
1,292
387
1,601
(417)
(207)
(29)
(157)
(24)
of which: SME clients
29,595
27,649
1,293
436
218
(314)
(91)
(21)
(203)
0
of which: Lombard
168,713
168,596
0
42
75
(32)
(15)
0
(17)
0
of which: Credit cards
1,939
1,502
403
34
0
(39)
(8)
(11)
(21)
0
of which: Commodity trade finance
4,950
4,917
0
15
19
(124)
(20)
0
(104)
0
of which: Ship / aircraft financing
9,478
9,234
166
22
56
(69)
(67)
(2)
0
0
of which: Consumer financing
3,140
3,056
0
0
84
(30)
(30)
0
0
0
Other financial assets measured at amortized cost
64,928
64,364
377
153
35
(109)
(37)
(7)
(62)
(3)
of which: Loans to financial advisors
2,588
2,287
174
126
0
(55)
(6)
(2)
(47)
0
Total financial assets measured at amortized cost
1,143,528
1,120,985
17,770
2,003
2,770
(1,501)
(662)
(190)
(618)
(31)
Financial assets measured at fair value through other comprehensive
income
2,217
2,217
0
0
0
0
0
0
0
0
Total on-balance sheet financial assets in scope of ECL requirements
1,145,746
1,123,203
17,770
2,003
2,770
(1,501)
(662)
(190)
(618)
(31)
of which: Credit Suisse
2
431,559
428,684
0
104
2,770
(540)
(457)
0
(52)
(31)
Total exposure
ECL provisions
Off-balance sheet (in scope of ECL)
Total
Stage 1
Stage 2
Stage 3
PCI
Total
Stage 1
Stage 2
Stage 3
PCI
Guarantees
38,463
37,345
921
118
79
(66)
(40)
(7)
(17)
(1)
of which: Large corporate clients
8,358
7,553
690
79
36
(19)
(16)
(2)
0
0
of which: SME clients
4,170
3,928
167
38
37
(20)
(10)
(1)
(9)
2
of which: Financial intermediaries and hedge funds
12,874
12,859
15
0
0
(11)
(8)
(3)
0
0
of which: Lombard
4,752
4,752
0
1
0
(1)
0
0
(1)
0
of which: Commodity trade finance
2,200
2,200
0
0
0
(1)
(1)
0
0
0
Irrevocable loan commitments
124,281
121,789
2,076
78
338
(225)
(186)
(38)
(2)
0
of which: Large corporate clients
77,160
75,044
1,731
52
333
(198)
(165)
(31)
(2)
0
Forward starting reverse repurchase and securities borrowing
agreements
4,972
4,972
0
0
0
0
0
0
0
0
Unconditionally revocable loan commitments
168,556
166,754
1,739
63
0
(74)
(65)
(9)
0
0
of which: Real estate financing
17,107
16,850
258
0
0
(12)
(12)
0
0
0
of which: Large corporate clients
4,790
4,624
158
7
0
(6)
(3)
(3)
0
0
of which: SME clients
24,601
24,381
179
40
0
(42)
(39)
(3)
0
0
of which: Lombard
82,491
82,491
0
1
0
0
0
0
0
0
of which: Credit cards
9,762
9,274
484
4
0
(7)
(6)
(2)
0
0
Irrevocable committed prolongation of existing loans
4,362
4,353
7
2
0
(3)
(2)
0
0
0
Total off-balance sheet financial instruments and other credit lines
340,634
335,213
4,743
261
417
(367)
(293)
(54)
(19)
(1)
Total allowances and provisions
(1,868)
(955)
(244)
(637)
(32)
of which: Credit Suisse
2
225,021
224,604
0
0
417
(731)
(648)
0
(52)
(32)
1 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective ECL
allowances.
2
Refer to Note 2 for more information about the acquisition of
Credit Suisse Group.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
80
Note 8
Expected credit loss measurement (continued)
Loans and advances to customers of USD
651,770
m include USD
262,025
m from Credit Suisse AG.
Breakout: Loans and advances to customers
of Credit Suisse AG
USD m
30.6.23
Carrying amount
1
ECL allowances
Loans and advances to customers
Total
Stage 1
Stage 2
Stage 3
PCI
Total
Stage 1
Stage 2
Stage 3
PCI
Loans and advances to customers
262,025
259,291
0
104
2,630
(511)
(431)
0
(52)
(28)
of which: Private clients with mortgages
91,763
91,450
0
25
287
(18)
(17)
0
0
(2)
of which: Real estate financing
42,835
42,710
0
4
122
(20)
(20)
0
0
0
of which: Large corporate clients
18,718
17,090
0
27
1,601
(239)
(170)
0
(44)
(24)
of which: SME clients
17,114
16,873
0
23
218
(59)
(59)
0
0
0
of which: Lombard
44,202
44,127
0
0
75
(6)
(6)
0
0
0
of which: Commodity trade finance
2,757
2,738
0
0
19
(14)
(14)
0
0
0
of which: Financial intermediaries and hedge funds
18,910
18,904
0
5
2
(34)
(34)
0
0
0
of which: Sovereigns and public non-profit organizations
1,153
1,152
0
0
1
(4)
(4)
0
0
0
of which: Ship / aircraft financing
8,033
7,977
0
0
56
(64)
(64)
0
0
0
of which: Consumer financing
3,140
3,056
0
0
84
(30)
(30)
0
0
0
1 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective
ECL allowances.
Credit
Suisse AG
had
allowances and
provisions
for defaulted
positions
of
USD
1.1
bn
immediately prior
to
the
acquisition date. UBS
recognized these purchased
credit-impaired (PCI) positions
on its balance
sheet with their
fair
value as at
the acquisition date,
and as required by
IFRS, no additional
expected credit loss
allowances or provisions
were recognized for them on that date.
›
Refer to Note 2 for more information about accounting under IFRS 3,
Business Combinations
USD m
31.3.23
Carrying amount
1
ECL allowances
Financial instruments measured at amortized cost
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Cash and balances at central banks
144,183
144,144
39
0
(12)
0
(12)
0
Loans and advances to banks
14,901
14,857
45
0
(6)
(5)
0
0
Receivables from securities financing transactions
60,010
60,010
0
0
(2)
(2)
0
0
Cash collateral receivables on derivative instruments
32,726
32,726
0
0
0
0
0
0
Loans and advances to customers
390,130
371,966
16,573
1,591
(804)
(152)
(180)
(472)
of which: Private clients with mortgages
159,409
149,701
8,999
709
(171)
(43)
(103)
(25)
of which: Real estate financing
48,672
45,159
3,504
8
(42)
(18)
(24)
0
of which: Large corporate clients
12,943
11,216
1,408
320
(139)
(20)
(16)
(102)
of which: SME clients
13,610
11,781
1,437
392
(243)
(29)
(25)
(189)
of which: Lombard
128,960
128,903
0
57
(26)
(9)
0
(17)
of which: Credit cards
1,831
1,418
381
32
(37)
(8)
(10)
(20)
of which: Commodity trade finance
3,053
3,022
20
10
(96)
(5)
0
(91)
Other financial assets measured at amortized cost
49,179
48,661
372
146
(84)
(17)
(6)
(61)
of which: Loans to financial advisors
2,571
2,323
121
127
(54)
(6)
(2)
(46)
Total financial assets measured at amortized cost
691,130
672,365
17,028
1,737
(908)
(176)
(198)
(534)
Financial assets measured at fair value through other comprehensive income
2,241
2,241
0
0
0
0
0
0
Total on-balance sheet financial assets in scope of ECL requirements
693,370
674,606
17,028
1,737
(908)
(176)
(198)
(534)
Total exposure
ECL provisions
Off-balance sheet (in scope of ECL)
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Guarantees
22,670
21,670
887
113
(54)
(13)
(8)
(33)
of which: Large corporate clients
3,476
2,733
668
75
(19)
(2)
(3)
(14)
of which: SME clients
1,368
1,197
133
38
(11)
(1)
(1)
(9)
of which: Financial intermediaries and hedge funds
13,076
13,037
38
0
(11)
(8)
(4)
0
of which: Lombard
2,171
2,170
0
1
(1)
0
0
(1)
of which: Commodity trade finance
1,815
1,815
0
0
(1)
(1)
0
0
Irrevocable loan commitments
39,775
37,261
2,400
114
(113)
(57)
(56)
0
of which: Large corporate clients
23,294
21,263
1,948
83
(95)
(47)
(49)
0
Forward starting reverse repurchase and securities borrowing agreements
4,748
4,748
0
0
0
0
0
0
Unconditionally revocable loan commitments
41,071
39,307
1,724
40
(44)
(36)
(8)
0
of which: Real estate financing
8,226
8,037
188
0
(6)
(6)
0
0
of which: Large corporate clients
4,496
4,284
205
7
(5)
(3)
(2)
0
of which: SME clients
4,898
4,656
214
28
(21)
(18)
(3)
0
of which: Lombard
8,166
8,165
0
1
0
0
0
0
of which: Credit cards
9,567
9,078
486
3
(7)
(5)
(2)
0
of which: Commodity trade finance
370
370
0
0
0
0
0
0
Irrevocable committed prolongation of existing loans
4,161
4,126
33
2
(3)
(3)
0
0
Total off-balance sheet financial instruments and other credit lines
112,425
107,112
5,044
269
(214)
(108)
(72)
(33)
Total allowances and provisions
(1,121)
(284)
(271)
(567)
1 The carrying amount of financial assets measured at amortized cost represents the total gross exposure net of the respective
ECL allowances.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
81
Note 8
Expected credit loss measurement (continued)
USD m
31.12.22
Carrying amount
1
ECL allowances
Financial instruments measured at amortized cost
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Cash and balances at central banks
169,445
169,402
44
0
(12)
0
(12)
0
Loans and advances to banks
14,792
14,792
1
0
(6)
(5)
(1)
0
Receivables from securities financing transactions
67,814
67,814
0
0
(2)
(2)
0
0
Cash collateral receivables on derivative instruments
35,032
35,032
0
0
0
0
0
0
Loans and advances to customers
387,220
370,095
15,587
1,538
(783)
(129)
(180)
(474)
of which: Private clients with mortgages
156,930
147,651
8,579
699
(161)
(27)
(107)
(28)
of which: Real estate financing
46,470
43,112
3,349
9
(41)
(17)
(23)
0
of which: Large corporate clients
12,226
10,733
1,189
303
(130)
(24)
(14)
(92)
of which: SME clients
13,903
12,211
1,342
351
(251)
(26)
(22)
(203)
of which: Lombard
132,287
132,196
0
91
(26)
(9)
0
(17)
of which: Credit cards
1,834
1,420
382
31
(36)
(7)
(10)
(19)
of which: Commodity trade finance
3,272
3,261
0
11
(96)
(6)
0
(90)
Other financial assets measured at amortized cost
2
53,264
52,704
413
147
(86)
(17)
(6)
(63)
of which: Loans to financial advisors
2,611
2,357
128
126
(59)
(7)
(2)
(51)
Total financial assets measured at amortized cost
727,568
709,839
16,044
1,685
(889)
(154)
(199)
(537)
Financial assets measured at fair value through other comprehensive income
2
2,239
2,239
0
0
0
0
0
0
Total on-balance sheet financial assets in scope of ECL requirements
729,807
712,078
16,044
1,685
(889)
(154)
(199)
(537)
Total exposure
ECL provisions
Off-balance sheet (in scope of ECL)
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 3
Guarantees
22,167
19,805
2,254
108
(48)
(13)
(9)
(26)
of which: Large corporate clients
3,663
2,883
721
58
(26)
(2)
(3)
(21)
of which: SME clients
1,337
1,124
164
49
(5)
(1)
(1)
(3)
of which: Financial intermediaries and hedge funds
11,833
10,513
1,320
0
(12)
(8)
(4)
0
of which: Lombard
2,376
2,376
0
1
(1)
0
0
(1)
of which: Commodity trade finance
2,121
2,121
0
0
(1)
(1)
0
0
Irrevocable loan commitments
39,996
37,531
2,341
124
(111)
(59)
(52)
0
of which: Large corporate clients
23,611
21,488
2,024
99
(93)
(49)
(45)
0
Forward starting reverse repurchase and securities borrowing agreements
3,801
3,801
0
0
0
0
0
0
Unconditionally revocable loan commitments
41,390
39,521
1,833
36
(40)
(32)
(8)
0
of which: Real estate financing
8,711
8,528
183
0
(6)
(6)
0
0
of which: Large corporate clients
4,578
4,304
268
5
(4)
(1)
(2)
0
of which: SME clients
4,723
4,442
256
26
(19)
(16)
(3)
0
of which: Lombard
7,855
7,854
0
1
0
0
0
0
of which: Credit cards
9,390
8,900
487
3
(7)
(5)
(2)
0
of which: Commodity trade finance
327
327
0
0
0
0
0
0
Irrevocable committed prolongation of existing loans
4,696
4,600
94
2
(2)
(2)
0
0
Total off-balance sheet financial instruments and other credit lines
112,050
105,258
6,522
270
(201)
(106)
(69)
(26)
Total allowances and provisions
(1,091)
(259)
(267)
(564)
1 The carrying amount of financial assets
measured at amortized cost represents the total gross exposure
net of the respective ECL allowances.
2 Effective 1 April 2022, a portfolio of assets previously
classified as
Financial assets measured at fair value through other comprehensive income was reclassified to Other financial assets measured
at amortized cost. Refer to Note 10a for more information.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
82
Note 8
Expected credit loss measurement (continued)
The table below
provides information about
the ECL gross
exposure and the ECL
coverage ratio for
UBS’s core loan
portfolios (i.e.,
Loans and
advances to
customers
and
Loans to
financial advisors
) and
relevant off-balance
sheet
exposures.
Cash and balances at
central banks
,
Loans and advances
to banks
,
Receivables from securities
financing
transactions
,
Cash
collateral
receivables
on
derivative
instruments
and
Financial
assets
measured
at
fair
value
through other comprehensive income
are not included in the table below, due to their lower sensitivity to
ECL.
ECL coverage ratios are calculated by dividing ECL
allowances and provisions by the gross carrying amount of the
related exposures.
Coverage ratios for core loan portfolio
30.6.23
Gross carrying amount (USD m)
ECL coverage (bps)
On-balance sheet
Total
Stage 1
Stage 2
Stage 3
PCI
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
PCI
Private clients with mortgages
255,495
244,955
9,445
806
289
7
2
92
6
291
53
Real estate financing
92,953
88,710
4,111
11
122
7
5
55
7
71
0
Total real estate lending
348,448
333,665
13,556
817
410
7
3
80
6
288
36
Large corporate clients
32,579
29,090
1,320
544
1,625
128
71
217
78
2,894
148
SME clients
29,909
27,740
1,313
639
217
105
33
157
38
3,180
0
Total corporate lending
62,488
56,830
2,634
1,183
1,841
117
52
187
58
3,049
126
Lombard
168,745
168,611
0
59
75
2
1
0
1
2,872
24
Credit cards
1,978
1,510
413
55
0
199
53
255
97
3,821
0
Commodity trade finance
5,074
4,937
0
118
19
244
41
351
41
8,769
5
Ship / aircraft financing
9,542
9,298
166
22
56
72
72
111
73
0
1
Consumer financing
3,170
3,086
0
0
84
96
98
0
98
222
32
Other loans and advances to customers
55,139
54,019
773
174
173
21
14
47
15
1,740
156
Loans to financial advisors
2,643
2,293
177
173
0
208
24
140
33
2,707
0
Total other lending
246,291
243,754
1,529
602
406
19
9
121
10
3,636
78
Total
1
657,227
634,249
17,719
2,602
2,658
22
10
99
12
2,318
105
Gross exposure (USD m)
ECL coverage (bps)
Off-balance sheet
Total
Stage 1
Stage 2
Stage 3
PCI
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
PCI
Private clients with mortgages
9,284
8,950
324
11
0
4
3
22
4
60
0
Real estate financing
18,031
17,751
280
0
0
7
7
0
7
0
0
Total real estate lending
27,315
26,701
603
11
0
6
6
0
6
60
0
Large corporate clients
90,393
87,307
2,580
138
369
25
21
141
25
132
5
SME clients
32,494
31,955
400
95
43
23
18
257
21
994
0
Total corporate lending
122,887
119,262
2,980
233
412
24
20
156
24
482
0
Lombard
91,235
91,234
0
1
0
0
0
0
0
6,718
0
Credit cards
9,763
9,274
484
4
0
7
6
37
8
0
0
Commodity trade finance
5,833
5,833
0
0
0
6
6
0
6
0
0
Ship / aircraft financing
1,731
1,731
0
0
0
4
3
0
4
0
0
Consumer financing
301
301
0
0
0
34
34
0
34
0
0
Financial intermediaries and hedge funds
46,786
46,406
380
0
0
3
3
90
3
0
0
Other off-balance sheet commitments
29,854
29,541
296
11
6
8
4
95
5
6,408
4,244
Total other lending
185,502
184,320
1,160
17
6
3
2
71
2
4,774
4,215
Total
2
335,704
330,283
4,743
261
417
11
9
114
10
737
22
Total on- and off-balance sheet
3
992,931
964,532
22,462
2,862
3,075
18
9
103
12
2,173
94
1 Includes Loans and advances to customers and Loans to financial advisors which are presented on the balance sheet line Other
financial assets measured at amortized cost.
2 Excludes Forward starting reverse
repurchase and securities borrowing agreements.
3 Includes on-balance-sheet exposure, gross and off-balance-sheet exposure (notional) and the related
ECL coverage ratio (bps).
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
83
Note 8
Expected credit loss measurement (continued)
Coverage ratios for core loan portfolio
31.3.23
Gross carrying amount (USD m)
ECL coverage (bps)
On-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
159,580
149,744
9,102
734
11
3
113
9
344
Real estate financing
48,714
45,177
3,529
8
9
4
69
9
22
Total real estate lending
208,294
194,921
12,631
742
10
3
101
9
341
Large corporate clients
13,082
11,236
1,424
422
106
18
115
29
2,424
SME clients
13,853
11,811
1,461
581
175
25
168
41
3,253
Total corporate lending
26,936
23,047
2,886
1,003
142
22
142
35
2,904
Lombard
128,985
128,912
0
74
2
1
0
1
2,286
Credit cards
1,868
1,426
391
52
201
56
255
99
3,793
Commodity trade finance
3,149
3,028
20
101
305
18
11
17
9,001
Other loans and advances to customers
21,702
20,785
825
92
23
9
24
10
3,117
Loans to financial advisors
2,626
2,329
123
174
206
26
145
32
2,659
Total other lending
158,330
156,479
1,360
492
17
3
101
4
4,109
Total
1
393,560
374,447
16,876
2,237
22
4
108
9
2,319
Gross exposure (USD m)
ECL coverage (bps)
Off-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
6,377
6,163
212
3
6
5
28
6
340
Real estate financing
9,298
9,101
197
0
7
8
0
7
0
Total real estate lending
15,675
15,263
409
3
6
7
0
6
340
Large corporate clients
31,375
28,390
2,821
165
38
18
190
34
830
SME clients
7,674
7,124
470
80
55
30
245
44
1,114
Total corporate lending
39,049
35,514
3,290
245
41
21
198
36
923
Lombard
12,456
12,455
0
1
1
1
0
1
0
Credit cards
9,567
9,078
486
3
8
6
36
8
0
Commodity trade finance
2,187
2,187
0
0
4
4
0
4
0
Financial intermediaries and hedge funds
17,260
16,781
479
0
8
5
80
8
0
Other off-balance sheet commitments
11,483
11,086
380
17
18
7
66
9
0
Total other lending
52,953
51,587
1,345
22
8
5
60
6
0
Total
2
107,677
102,364
5,044
269
20
11
143
17
1,232
Total on- and off-balance sheet
3
501,237
476,811
21,920
2,506
21
6
116
10
2,202
1 Includes Loans and advances
to customers and Loans
to financial advisors which
are presented on the
balance sheet line Other
financial assets measured at
amortized cost.
2 Excludes Forward
starting reverse
repurchase and securities borrowing agreements.
3 Includes on-balance-sheet exposure, gross and off-balance-sheet exposure (notional) and the related
ECL coverage ratio (bps).
Coverage ratios for core loan portfolio
31.12.22
Gross carrying amount (USD m)
ECL coverage (bps)
On-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
157,091
147,678
8,686
727
10
2
123
9
381
Real estate financing
46,511
43,129
3,372
9
9
4
70
9
232
Total real estate lending
203,602
190,807
12,059
736
10
2
108
9
379
Large corporate clients
12,356
10,757
1,204
395
105
22
120
32
2,325
SME clients
14,154
12,237
1,364
553
177
22
161
36
3,664
Total corporate lending
26,510
22,994
2,567
949
144
22
142
34
3,106
Lombard
132,313
132,205
0
108
2
1
0
1
1,580
Credit cards
1,869
1,427
393
50
190
46
256
91
3,779
Commodity trade finance
3,367
3,266
0
101
285
18
0
18
8,901
Other loans and advances to customers
20,342
19,525
748
68
21
7
38
8
3,769
Loans to financial advisors
2,670
2,364
130
176
221
28
124
33
2,870
Total other lending
160,561
158,787
1,270
503
16
3
114
4
4,016
Total
1
390,672
372,588
15,896
2,188
22
4
114
8
2,398
Gross exposure (USD m)
ECL coverage (bps)
Off-balance sheet
Total
Stage 1
Stage 2
Stage 3
Total
Stage 1
Stage 2
Stage 1&2
Stage 3
Private clients with mortgages
6,535
6,296
236
3
5
4
18
4
1,183
Real estate financing
10,054
9,779
275
0
6
7
0
6
0
Total real estate lending
16,589
16,075
511
3
6
6
2
6
1,288
Large corporate clients
32,126
28,950
3,013
163
38
18
165
32
1,263
SME clients
7,122
6,525
499
98
47
30
214
43
304
Total corporate lending
39,247
35,475
3,513
260
40
20
172
34
903
Lombard
12,919
12,918
0
1
2
1
0
1
0
Credit cards
9,390
8,900
487
3
7
5
36
7
0
Commodity trade finance
2,459
2,459
0
0
3
3
0
3
0
Financial intermediaries and hedge funds
15,841
14,177
1,664
0
9
7
25
9
0
Other off-balance sheet commitments
11,803
11,454
346
3
11
8
68
9
0
Total other lending
52,412
49,907
2,498
7
7
5
33
6
0
Total
2
108,249
101,457
6,522
270
19
10
106
16
980
Total on- and off-balance sheet
3
498,921
474,045
22,418
2,458
21
5
112
10
2,242
1 Includes Loans and advances
to customers and Loans to
financial advisors, which are
presented on the balance sheet
line Other financial assets
measured at amortized cost.
2 Excludes Forward starting
reverse
repurchase and securities borrowing agreements.
3 Includes on-balance-sheet exposure, gross and off-balance-sheet exposure (notional) and the related
ECL coverage ratio (bps).
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
84
Note 9
Fair value measurement
a) Fair value hierarchy
The fair
value hierarchy
classification of
financial and
non-financial assets
and liabilities
measured at
fair value
is
summarized in the table below.
During the first six months of 2023,
and for Credit Suisse for the period
between the acquisition date and
30 June
2023, assets and liabilities that were transferred from Level 2 to Level 1, or from Level 1 to Level 2, and were held
for the entire reporting period were not material.
Determination of fair values from quoted market
prices or valuation techniques
1
30.6.23
31.3.23
31.12.22
USD m
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial assets measured at fair value on a recurring basis
Financial assets at fair value held for trading
117,863
30,122
3,113
151,098
104,793
11,865
1,099
117,757
96,241
10,138
1,488
107,866
of which: Equity instruments
96,546
1,330
454
98,329
87,723
295
177
88,194
83,074
789
126
83,988
of which: Government bills / bonds
13,586
11,865
67
25,518
8,902
1,534
23
10,460
5,496
950
18
6,464
of which: Investment fund units
6,123
773
146
7,043
7,187
536
10
7,733
6,673
596
61
7,330
of which: Corporate and municipal bonds
1,592
11,310
995
13,897
977
7,449
442
8,867
976
6,363
541
7,880
of which: Loans
0
2,854
1,045
3,899
0
1,812
329
2,141
0
1,179
628
1,807
of which: Asset-backed securities
15
1,970
406
2,391
4
239
118
360
22
261
114
397
Derivative financial instruments
1,072
181,900
2,978
185,949
879
112,064
1,309
114,251
769
147,875
1,464
150,108
of which: Foreign exchange
576
73,686
425
74,686
515
51,731
3
52,249
575
84,881
2
85,458
of which: Interest rate
0
62,950
761
63,711
0
36,339
398
36,737
0
39,345
460
39,805
of which: Equity / index
1
38,544
1,108
39,652
1
21,180
578
21,759
1
21,542
653
22,195
of which: Credit
0
4,802
580
5,382
0
944
309
1,253
0
719
318
1,038
of which: Commodities
7
1,686
28
1,720
0
1,780
20
1,800
0
1,334
30
1,365
Brokerage receivables
0
21,537
0
21,537
0
21,025
0
21,025
0
17,576
0
17,576
Financial assets at fair value not held for trading
31,358
71,889
15,358
118,605
32,279
30,713
3,834
66,826
26,572
29,498
3,725
59,796
of which: Financial assets for unit-linked
investment contracts
14,802
171
0
14,973
14,004
97
0
14,101
13,071
1
0
13,072
of which: Corporate and municipal bonds
61
12,673
359
13,093
86
13,601
241
13,928
35
14,101
230
14,366
of which: Government bills / bonds
16,144
3,976
0
20,120
17,824
3,140
0
20,965
13,103
3,638
0
16,741
of which: Loans
0
10,395
7,861
18,256
0
3,706
810
4,516
0
3,602
736
4,337
of which: Securities financing transactions
0
43,798
109
43,907
0
9,670
108
9,779
0
7,590
114
7,704
of which: Auction rate securities
0
0
1,321
1,321
0
0
1,321
1,321
0
0
1,326
1,326
of which: Investment fund units
321
516
683
1,519
295
498
288
1,081
307
566
190
1,063
of which: Equity instruments
29
227
3,092
3,348
70
0
879
949
57
0
792
849
Financial assets measured at fair value through other comprehensive income on
a recurring basis
Financial assets measured at fair value through
other comprehensive income
65
2,152
0
2,217
60
2,181
0
2,241
57
2,182
0
2,239
of which: Commercial paper and certificates
of deposit
0
1,926
0
1,926
0
1,921
0
1,921
0
1,878
0
1,878
of which: Corporate and municipal bonds
65
217
0
282
60
233
0
293
57
278
0
335
Non-financial assets measured at fair value on a recurring basis
Precious metals and other physical commodities
5,794
0
0
5,794
4,506
0
0
4,506
4,471
0
0
4,471
Non-financial assets measured at fair value on a non-recurring basis
Other non-financial assets
2
0
1
89
90
0
0
109
109
0
0
110
110
Total assets measured at fair value
156,152
307,601
21,538
485,291
142,516
177,847
6,351
326,714
128,110
207,269
6,788
342,166
of which: Credit Suisse
3
15,168
121,363
14,769
151,301
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
85
Note 9
Fair value measurement (continued)
Determination of fair values from quoted market
prices or valuation techniques (continued)
1
30.6.23
31.3.23
31.12.22
USD m
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial liabilities measured at fair value on a recurring basis
Financial liabilities at fair value held for trading
33,231
6,983
150
40,364
28,332
5,941
101
34,374
23,578
5,823
114
29,515
of which: Equity instruments
22,984
311
83
23,378
19,411
370
58
19,839
16,521
352
78
16,951
of which: Corporate and municipal bonds
32
5,639
61
5,731
33
4,610
38
4,681
36
4,643
27
4,707
of which: Government bills / bonds
9,159
957
0
10,115
7,919
728
0
8,647
5,880
706
1
6,587
of which: Investment fund units
1,057
46
3
1,106
969
204
3
1,176
1,141
84
3
1,229
Derivative financial instruments
1,007
186,797
5,343
193,147
967
113,051
2,095
116,113
640
152,582
1,684
154,906
of which: Foreign exchange
591
75,856
132
76,580
529
52,706
33
53,267
587
87,897
24
88,508
of which: Interest rate
0
61,690
355
62,045
0
34,317
360
34,677
0
37,429
116
37,545
of which: Equity / index
0
41,569
3,714
45,284
1
23,207
1,365
24,573
0
24,963
1,184
26,148
of which: Credit
2
5,629
605
6,235
0
1,057
286
1,343
0
920
279
1,199
of which: Commodities
6
1,685
37
1,728
0
1,592
33
1,625
0
1,309
52
1,361
Financial liabilities designated at fair value on a recurring basis
Brokerage payables designated at fair value
0
43,852
0
43,852
0
43,911
0
43,911
0
45,085
0
45,085
Debt issued designated at fair value
0
105,951
19,099
125,050
0
66,748
10,485
77,233
0
63,111
10,527
73,638
Other financial liabilities designated at fair value
0
33,097
3,025
36,122
0
25,180
579
25,758
0
29,547
691
30,237
of which: Financial liabilities related to unit-
linked investment contracts
0
15,124
0
15,124
0
14,243
0
14,243
0
13,221
0
13,221
of which: Securities financing transactions
0
13,295
0
13,295
0
9,707
0
9,707
0
15,333
0
15,333
of which: Over-the-counter debt instruments
and others
0
4,678
3,025
7,703
0
1,230
579
1,809
0
993
691
1,684
Total liabilities measured at fair value
34,238
376,680
27,616
438,534
29,299
254,831
13,260
297,390
24,219
296,148
13,015
333,381
of which: Credit Suisse
3
4,442
103,921
13,284
121,646
1 Bifurcated embedded derivatives are presented on the same balance sheet lines
as their host contracts and are not included in this table. The fair value of these derivatives was not
material for the periods presented.
2 Other non-financial assets primarily consist of properties and other
non-current assets held for sale, which are
measured at the lower of their net carrying amount or
fair value less costs to sell.
3 Refer to Note 2
for more information about the acquisition of the Credit Suisse Group.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
86
Note 9
Fair value measurement (continued)
b) Valuation adjustments
The table below summarizes the changes
in deferred day-1 profit or loss reserves during the
relevant period.
Deferred day-1 profit or loss is generally released into
Other net income from financial instruments measured
at fair
value
through
profit
or
loss
when
the
pricing
of
equivalent
products
or
the
underlying
parameters
become
observable or
when the
transaction is
closed out.
In accordance
with IFRS,
no day-1
profit or
loss reserves
were
recognized on
positions acquired with
the Credit
Suisse Group
and no
significant new positions
were originated
between the acquisition date and 30 June
2023.
Deferred day-1 profit or loss reserves
For the quarter ended
Year-to-date
USD m
30.6.23
31.3.23
30.6.22
30.6.23
30.6.22
Reserve balance at the beginning of the period
399
422
425
422
418
Profit / (loss) deferred on new transactions
78
91
86
169
161
(Profit) / loss recognized in the income statement
(75)
(113)
(58)
(188)
(127)
Foreign currency translation
(1)
0
(1)
(1)
(1)
Reserve balance at the end of the period
402
399
451
402
451
The table below summarizes other valuation
adjustment reserves recognized on the
balance sheet.
Other valuation adjustment reserves on the
balance sheet
As of
USD m
30.6.23
31.3.23
31.12.22
Own credit adjustments on financial liabilities designated at fair value
1
142
624
556
of which: debt issued designated at fair value
46
495
453
of which: other financial liabilities designated at fair value
96
129
103
Credit valuation adjustments
2
(151)
(33)
(33)
Funding / Debit valuation adjustments
3
(172)
(101)
(46)
Other valuation adjustments
(2,911)
(801)
(839)
of which: liquidity
(1,905)
(299)
(311)
of which: model uncertainty
(1,005)
(502)
(529)
1 Own credit adjustments on financial liabilities designated at fair value includes amounts for TLAC notes
2 Amount does not include reserves against defaulted counterparties.
3 Amount includes debit valuation
adjustments.
Own
credit
adjustments on
financial
liabilities designated
at
fair
value includes
a
life-to-date
loss
of USD
221
m
attributable
to
Credit
Suisse.
Credit
valuation
adjustments
includes
USD
117
m
from
Credit
Suisse
Group
and
Funding / Debit valuation
adjustments includes
USD
73
m from
Credit Suisse
Group. Liquidity
and model
uncertainty
adjustments in Credit Suisse amount to USD
1,630
m and USD
555
m respectively.
c) Level 3 instruments: valuation techniques
and inputs
The
table
below
presents material
Level 3
assets
and
liabilities,
together
with
the
valuation
techniques
used
to
measure fair value,
as well as
the inputs used
in a given
valuation technique that are
considered significant as of
30 June 2023
and unobservable, and a range of values
for those unobservable inputs.
The range of values
represents the highest- and
lowest-level inputs used in the valuation
techniques. Therefore, the
range does not reflect the level of uncertainty regarding a particular input or an assessment of the reasonableness of
the Group’s estimates and assumptions, but rather the different underlying characteristics of the relevant
assets and
liabilities held by the Group.
The significant unobservable
inputs disclosed in
the table below
are consistent with
those included in
“Note 20 Fair
value measurement” in the “Consolidated financial
statements” section of the Annual
Report 2022.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
87
Note 9
Fair value measurement (continued)
Valuation techniques and inputs
used in the fair value measurement of Level
3 assets and liabilities
Fair value
Significant unobservable
input(s)
1
Range of inputs
Assets
Liabilities
Valuation technique(s)
30.6.23
31.12.22
USD bn
30.6.23
31.12.22
30.6.23
31.12.22
low
high
weighted
average
2
low
high
weighted
average
2
unit
1
Financial assets and liabilities at fair value held for
trading and Financial assets at fair value not held
for trading
Corporate and municipal
bonds
1.4
0.8
0.1
0.0
Relative value to
market comparable
Bond price equivalent
4
101
94
14
112
85
points
Discounted expected
cash flows
Discount margin
200
391
376
412
412
basis
points
Traded loans,
loans
measured at fair value,
loan commitments and
guarantees
9.2
1.7
0.0
0.0
Relative value to
market comparable
Loan price equivalent
0
140
87
30
100
97
points
Discounted expected
cash flows
Credit spread
60
3,263
347
200
200
200
basis
points
Market comparable
and securitization
model
Credit spread
165
1,544
349
145
1,350
322
basis
points
Option model
Gap risk
5
0
2
0
%
Auction rate securities
1.3
1.3
Discounted expected
cash flows
Credit spread
115
209
156
115
196
144
basis
points
Investment fund units
3
0.8
0.3
0.0
0.0
Relative value to
market comparable
Net asset value
Equity instruments
3
3.5
0.9
0.1
0.1
Relative value to
market comparable
Price
Debt issued designated at
fair value
4
19.1
10.5
Other financial liabilities
designated at fair value
3.0
0.7
Discounted expected
cash flows
Funding spread
25
175
23
175
basis
points
Derivative financial instruments
Interest rate
0.8
0.5
0.3
0.1
Option model
Volatility of interest rates
55
161
75
143
basis
points
Volatility of inflation
0
6
%
IR-to-IR correlation
(1)
100
%
Credit
0.6
0.3
0.7
0.3
Discounted expected
cash flows
Credit spreads
5
538
9
565
basis
points
Bond price equivalent
3
281
3
277
points
Recovery rates
6
1
100
%
Option model
Credit spreads
17
707
basis
points
Equity / index
1.1
0.7
3.8
1.2
Option model
Equity dividend yields
0
10
0
20
%
Volatility of equity stocks,
equity and other indices
4
138
4
120
%
Equity-to-FX correlation
(40)
84
(29)
84
%
Equity-to-equity correlation
(25)
100
(25)
100
%
1 The ranges of significant unobservable inputs are represented in points, percentages and basis points.
Points are a percentage of par (e.g., 100 points would be 100% of par).
2 Weighted averages are provided for
most non-derivative financial instruments and were calculated
by weighting inputs based on the
fair values of the respective instruments. Weighted averages are
not provided for inputs related
to Other financial liabilities
designated at fair value
and Derivative financial instruments,
as this would not
be meaningful.
3 The range
of inputs is not
disclosed, as there is
a dispersion of
values given the diverse
nature of the investments.
4 Debt issued designated at fair value primarily consists of UBS structured notes, which include variable maturity notes with various equity and foreign exchange underlying risks, as well as rates-linked and credit-linked
notes, all of
which have embedded
derivative parameters
that are considered
to be unobservable.
The
equivalent derivative instrument
parameters for debt
issued or embedded
derivatives for over-the-counter
debt
instruments are presented in
the respective derivative
financial instruments lines in
this table.
5 Gap risk is
risk of unexpected large
declines in the underlying
values occurring between
collateral settlement dates.
6 Recovery rate reflects the estimated recovery that will be realized given expected defaults, they may vary
significantly depending upon the specific assets and terms of each transaction.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
88
Note 9
Fair value measurement (continued)
d) Level 3 instruments: sensitivity to changes
in unobservable input assumptions
The table below summarizes those financial assets and liabilities classified as Level 3 for
which a change in one or
more of
the unobservable
inputs to
reflect reasonably
possible alternative
assumptions would
change fair
value
significantly, and the estimated effect thereof.
The
sensitivity data
shown below
presents an
estimation of
valuation
uncertainty based
on
reasonably possible
alternative values for Level 3
inputs at the balance sheet
date and does not represent
the estimated effect of stress
scenarios. Typically,
these financial
assets and
liabilities are
sensitive to
a combination
of inputs
from Levels 1–3.
Although well-defined interdependencies may exist
between Level 1 / 2 parameters and
Level 3 parameters (e.g.,
between interest rates,
which are generally
Level 1 or Level 2,
and prepayments,
which are generally
Level 3), these
have not been incorporated
in the table. Furthermore,
direct interrelationships between
the Level 3 parameters
are
not a significant element of the valuation uncertainty.
Sensitivity of fair value measurements to changes
in unobservable input assumptions
1
30.6.23
31.3.23
31.12.22
USD m
Favorable
changes
Unfavorable
changes
Favorable
changes
Unfavorable
changes
Favorable
changes
Unfavorable
changes
Traded loans, loans measured at fair value, loan commitments and guarantees
325
(234)
12
(13)
19
(12)
Securities financing transactions
37
(37)
27
(29)
33
(37)
Auction rate securities
44
(44)
45
(45)
46
(46)
Asset-backed securities
48
(47)
29
(27)
27
(27)
Equity instruments
483
(397)
188
(164)
183
(161)
Investment fund units
127
(129)
29
(30)
19
(21)
Interest rate derivatives, net
221
(111)
20
(13)
18
(12)
Credit derivatives, net
75
(67)
3
(5)
3
(4)
Foreign exchange derivatives, net
6
(6)
4
(5)
10
(5)
Equity / index derivatives, net
646
(614)
371
(338)
361
(330)
Other
296
(292)
63
(74)
20
(41)
Total
2,308
(1,978)
791
(744)
738
(696)
of which: Credit Suisse
2
1,578
(1,312)
1 Sensitivity of issued and over-the-counter debt instruments is reported with the equivalent derivative
or Other.
2 Refer to Note 2 for more information about the acquisition of the Credit Suisse Group.
e) Level 3 instruments: movements during
the period
The table below presents additional information about material Level 3 assets and liabilities measured at fair value
on a recurring basis. Level 3 assets and liabilities
may be hedged with instruments
classified as Level 1 or Level 2 in
the fair
value hierarchy
and, as
a
result,
realized and
unrealized gains
and losses
included in
the table
may not
include the effect of related hedging
activity. Furthermore, the realized and unrealized gains and
losses presented
in the table are not
limited solely to those
arising from Level 3 inputs,
as valuations are generally
derived from both
observable and unobservable parameters.
Assets
and
liabilities
transferred
into
or
out
of
Level 3
are
presented
as
if
those
assets
or
liabilities
had
been
transferred at the beginning of the year.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
89
Note 9
Fair value measurement (continued)
Movements of Level 3 instruments
USD bn
Balance
at the
beginning
of the
period
Credit
Suisse
Level 3
assets and
liabilities
acquired
Net gains /
losses
included in
compre-
hensive
income
1
of which:
related to
instruments
held at the
end of the
period
Purchases
Sales
Issuances
Settlements
Transfers
into
Level 3
Transfers
out of
Level 3
Foreign
currency
translation
Balance
at the
end
of the
period
For the six months ended 30 June 2023
2
Financial assets at fair value held for
trading
1.5
2.2
(0.5)
(0.5)
0.5
(1.1)
0.7
0.0
0.1
(0.3)
0.0
3.1
of which: Investment fund units
0.1
0.1
(0.0)
(0.0)
0.0
(0.0)
0.0
0.0
0.0
(0.0)
(0.0)
0.1
of which: Corporate and municipal
bonds
0.5
1.1
(0.4)
(0.4)
0.3
(0.6)
0.0
0.0
0.0
(0.0)
0.0
1.0
of which: Loans
0.6
0.2
0.0
0.0
0.0
(0.3)
0.7
0.0
0.0
(0.2)
0.0
1.0
Derivative financial instruments –
assets
1.5
1.4
(0.1)
(0.1)
0.0
(0.0)
0.5
(0.3)
0.1
(0.2)
0.0
3.0
of which: Interest rate
0.5
0.2
0.1
0.1
0.0
0.0
0.1
(0.0)
0.0
(0.0)
(0.0)
0.8
of which: Equity / index
0.7
0.5
(0.1)
(0.1)
0.0
(0.0)
0.3
(0.2)
0.0
(0.2)
(0.0)
1.1
of which: Credit
0.3
0.2
(0.0)
(0.0)
0.0
(0.0)
0.1
(0.0)
0.0
(0.0)
0.0
0.6
Financial assets at fair value not held
for trading
3.7
11.6
(0.1)
(0.2)
0.7
(0.5)
0.0
(0.0)
0.1
(0.1)
0.0
15.4
of which: Loans
0.7
7.1
(0.1)
(0.1)
0.4
(0.1)
0.0
(0.0)
0.0
(0.1)
(0.0)
7.9
of which: Auction rate securities
1.3
0.0
0.0
0.0
0.0
(0.0)
0.0
0.0
0.0
0.0
0.0
1.3
of which: Equity instruments
0.8
2.1
(0.0)
(0.0)
0.2
(0.1)
0.0
0.0
0.0
0.0
0.0
3.1
Derivative financial instruments –
liabilities
1.7
2.8
0.6
0.5
0.0
(0.0)
0.8
(0.4)
0.1
(0.3)
0.0
5.3
of which: Interest rate
0.1
0.2
0.0
0.0
0.0
0.0
0.1
(0.1)
0.0
0.0
0.0
0.4
of which: Equity / index
1.2
1.7
0.5
0.5
0.0
(0.0)
0.6
(0.3)
0.0
(0.1)
0.0
3.7
of which: Credit
0.3
0.3
0.0
0.0
0.0
(0.0)
0.1
(0.0)
0.1
(0.2)
(0.0)
0.6
Debt issued designated at fair value
10.5
8.5
0.4
0.4
0.0
0.0
2.4
(2.5)
0.6
(0.8)
(0.0)
19.1
Other financial liabilities designated at
fair value
0.7
2.1
0.0
0.0
0.0
0.0
0.2
(0.1)
0.0
(0.0)
(0.0)
3.0
For the six months ended 30 June 2022
Financial assets at fair value held for
trading
2.3
(0.1)
(0.2)
0.3
(1.3)
1.0
0.0
0.1
(0.3)
(0.0)
1.9
of which: Investment fund units
0.0
(0.0)
(0.0)
0.0
(0.0)
0.0
0.0
0.0
(0.0)
(0.0)
0.0
of which: Corporate and municipal
bonds
0.6
(0.0)
(0.0)
0.2
(0.1)
0.0
0.0
0.0
(0.0)
(0.0)
0.7
of which: Loans
1.4
(0.1)
(0.1)
0.0
(1.2)
1.0
0.0
0.0
(0.2)
(0.0)
1.0
Derivative financial instruments –
assets
1.1
0.5
0.6
0.0
0.0
0.5
(0.4)
0.2
(0.2)
(0.0)
1.8
of which: Interest rate
0.5
0.1
0.1
0.0
0.0
0.0
(0.1)
0.1
(0.1)
(0.0)
0.4
of which: Equity / index
0.4
0.3
0.3
0.0
0.0
0.2
(0.2)
0.0
(0.0)
(0.0)
0.7
of which: Credit
0.2
0.1
0.1
0.0
0.0
0.2
(0.0)
0.1
0.0
0.0
0.6
Financial assets at fair value not held
for trading
4.2
0.1
0.1
0.6
(0.6)
0.0
(0.0)
0.0
(0.1)
(0.1)
4.2
of which: Loans
0.9
(0.0)
(0.0)
0.5
(0.2)
0.0
0.0
0.0
(0.1)
(0.0)
1.0
of which: Auction rate securities
1.6
0.1
0.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.6
of which: Equity instruments
0.7
0.0
0.0
0.0
(0.1)
0.0
0.0
0.0
0.0
(0.0)
0.7
Derivative financial instruments –
liabilities
2.2
(0.6)
(0.6)
0.0
0.0
0.9
(0.8)
0.1
(0.1)
(0.1)
1.7
of which: Interest rate
0.3
(0.2)
(0.2)
0.0
0.0
0.1
(0.0)
0.0
0.0
(0.0)
0.1
of which: Equity / index
1.5
(0.3)
(0.3)
0.0
0.0
0.6
(0.7)
0.0
(0.1)
(0.0)
1.1
of which: Credit
0.3
(0.1)
(0.1)
0.0
0.0
0.1
0.0
0.1
(0.0)
(0.0)
0.4
Debt issued designated at fair value
14.2
(2.5)
(2.3)
0.0
0.0
4.2
(2.7)
0.7
(1.5)
(0.4)
12.0
Other financial liabilities designated at
fair value
0.8
(0.0)
(0.0)
0.0
0.0
0.2
(0.1)
0.0
(0.0)
(0.0)
0.9
1 Net gains / losses included in comprehensive income are recognized in Net interest income and Other net income from financial instruments measured at fair value through profit or loss in the Income statement, and
also in Gains / (losses) from own credit on financial liabilities designated at fair
value, before tax in the Statement of comprehensive income.
2 Total Level 3 assets as of 30 June 2023 were USD
21.5
bn (31 December
2022: USD
6.8
bn). Total Level 3 liabilities as of 30 June 2023 were USD
27.6
bn (31 December 2022: USD
13.0
bn).
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
90
Note 9
Fair value measurement (continued)
f) Financial instruments not measured
at fair value
The table
below reflects
the estimated
fair values
of financial
instruments not
measured at
fair value.
Valuation
principles applied
when determining fair
value estimates for
financial instruments not
measured at
fair value
are
consistent with those described in “Note 20 Fair Value measurement” in the “Consolidated financial statements”
section of the Annual Report 2022.
Financial instruments not measured at fair value
30.6.23
31.3.23
31.12.22
USD bn
Carrying
amount
Fair value
Carrying
amount
Fair value
Carrying
amount
Fair value
Assets
Cash and balances at central banks
261.6
261.6
144.2
144.2
169.4
169.4
Amounts due from banks
24.4
24.3
14.9
15.0
14.8
14.8
Receivables from securities financing transactions measured at amortized
cost
86.5
86.6
60.0
60.0
67.8
67.8
Cash collateral receivables on derivative instruments
54.3
54.3
32.7
32.6
35.0
35.0
Loans and advances to customers
651.8
639.3
390.1
378.5
387.2
374.9
Other financial assets measured at amortized cost
64.9
62.5
49.2
47.2
53.3
50.8
Liabilities
Amounts due to banks
99.2
99.2
13.6
13.6
11.6
11.6
Payables from securities financing transactions measured at amortized cost
22.3
22.3
9.9
9.9
4.2
4.2
Cash collateral payables on derivative instruments
41.4
41.4
32.2
32.2
36.4
36.4
Customer deposits
712.5
712.3
505.6
504.9
525.1
524.8
Debt issued measured at amortized cost
230.9
229.9
116.3
113.7
114.6
113.5
Other financial liabilities measured at amortized cost
1
13.6
13.7
7.0
7.0
6.2
6.2
1 Excludes lease liabilities.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
91
Note 10
Derivative instruments
a) Derivative instruments
As of 30.6.23, USD bn
Derivative
financial
assets
Derivative
financial
liabilities
Notional values
related to derivative
financial assets and
liabilities
1
Other
notional
values
2
Derivative financial instruments
Interest rate
63.7
62.0
3,788
3
25,438
Credit derivatives
5.4
6.2
379
Foreign exchange
74.7
76.6
7,350
82
Equity / index
39.7
45.3
1,192
497
Commodities
1.7
1.7
159
23
Other
4
0.8
1.3
140
Total derivative financial instruments, based on IFRS netting
5
185.9
193.1
13,010
26,040
of which: Credit Suisse
6
63.2
66.7
2,804
10,689
Further netting potential not recognized on the balance
sheet
7
(170.0)
(174.9)
of which: netting of recognized financial liabilities / assets
(140.0)
(140.0)
of which: netting with collateral received / pledged
(30.0)
(34.9)
Total derivative financial instruments, after consideration of further netting potential
15.9
18.2
As of 31.3.23, USD bn
Derivative financial instruments
Interest rate
36.7
34.7
2,345
13,842
Credit derivatives
1.3
1.3
86
Foreign exchange
52.2
53.3
6,610
56
Equity / index
21.8
24.6
932
76
Commodities
1.8
1.6
146
19
Other
4
0.4
0.6
106
Total derivative financial instruments, based on IFRS netting
5
114.3
116.1
10,224
13,993
Further netting potential not recognized on the balance
sheet
7
(105.4)
(104.3)
of which: netting of recognized financial liabilities / assets
(84.9)
(84.9)
of which: netting with collateral received / pledged
(20.5)
(19.4)
Total derivative financial instruments, after consideration of further netting potential
8.8
11.8
As of 31.12.22, USD bn
Derivative financial instruments
Interest rate
39.8
37.5
2,080
11,255
Credit derivatives
1.0
1.2
74
Foreign exchange
85.5
88.5
6,080
40
Equity / index
22.2
26.1
886
63
Commodities
1.4
1.4
132
18
Other
4
0.2
0.1
50
Total derivative financial instruments, based on IFRS netting
5
150.1
154.9
9,302
11,376
Further netting potential not recognized on the balance
sheet
7
(139.4)
(137.1)
of which: netting of recognized financial liabilities / assets
(110.9)
(110.9)
of which: netting with collateral received / pledged
(28.5)
(26.2)
Total derivative financial instruments, after consideration of further netting potential
10.7
17.8
1 In cases where derivative
financial instruments are presented
on a net basis
on the balance sheet,
the respective notional values
of the netted derivative
financial instruments are still
presented on a gross
basis.
Notional amounts of client-cleared ETD and OTC transactions
through central clearing counterparties are not disclosed, as they
have a significantly different risk profile.
2 Other notional values relate to derivatives
that are cleared through either
a central counterparty or an
exchange and settled on a
daily basis (except for
OTC derivatives settled through collateralized-to-market arrangements, which are presented under
Derivative
financial assets and Derivative financial liabilities). The fair value of these derivatives is presented on the balance sheet net of the corresponding cash margin under Cash collateral receivables on derivative instruments
and Cash collateral
payables on
derivative instruments
and was
not material for
all periods
presented.
3 Includes USD
225
bn related to
OTC derivatives
settled through collateralized-to-market
arrangements.
4 Includes mainly Loan commitments measured
at FVTPL, as well as
unsettled purchases and sales of
non-derivative financial instruments for which
the changes in the fair
value between trade date
and settlement
date are recognized as
derivative financial instruments.
5 Financial assets and liabilities
are presented net on
the balance sheet if UBS
has the unconditional and
legally enforceable right to
offset the recognized
amounts, both in the normal course of business and in the event of default, bankruptcy or insolvency of UBS or its
counterparties, and intends either to settle on a net basis or to realize the asset and settle the liability
simultaneously.
6 Refer to Note 2 for more information
about the acquisition of the Credit Suisse Group.
7 Reflects the netting potential in accordance
with enforceable master netting and similar arrangements
where not all criteria for a net presentation on the balance sheet have been met. Refer to “Note 21 Offsetting financial assets and financial liabilities” in the “Consolidated financial statements” section of the Annual
Report 2022 for more information.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
92
Note 10
Derivative instruments (continued)
b) Cash collateral on derivative instruments
USD bn
Receivables
30.6.23
Payables
30.6.23
Receivables
31.3.23
Payables
31.3.23
Receivables
31.12.22
Payables
31.12.22
Cash collateral on derivative instruments, based on IFRS netting
1
54.3
41.4
32.7
32.2
35.0
36.4
of which: Credit Suisse
2
19.3
10.0
Further netting potential not recognized on the balance
sheet
3
(34.1)
(26.7)
(18.6)
(17.3)
(22.9)
(21.9)
of which: netting of recognized financial liabilities / assets
(30.4)
(22.9)
(15.6)
(14.3)
(20.9)
(20.0)
of which: netting with collateral received / pledged
(3.8)
(3.8)
(3.0)
(3.0)
(1.9)
(1.9)
Cash collateral on derivative instruments, after consideration of further netting potential
20.2
14.7
14.1
14.9
12.1
14.5
1 Financial assets and liabilities are presented
net on the balance sheet if UBS
has the unconditional and legally enforceable right
to offset the recognized amounts,
both in the normal course of business
and in the
event of default, bankruptcy or insolvency of UBS or its counterparties, and intends either to settle on a net basis or to realize the asset
and settle the liability simultaneously.
2 Refer to Note 2 for more information
about the acquisition of the Credit Suisse Group.
3 Reflects the netting potential in accordance with enforceable master netting and similar arrangements where not all criteria for
a net presentation on the balance
sheet have been met. Refer to “Note 21 Offsetting financial assets and financial liabilities” in the “Consolidated financial statements” section of
the Annual Report 2022 for more information.
Note
11
Other assets and liabilities
a) Other financial assets measured at
amortized cost
USD m
30.6.23
31.3.23
31.12.22
Debt securities
43,664
40,646
44,594
Loans to financial advisors
2,588
2,571
2,611
Fee- and commission-related receivables
2,774
1,927
1,812
Finance lease receivables
5,868
1,345
1,315
Settlement and clearing accounts
811
542
1,175
Accrued interest income
2,746
1,300
1,259
Other
6,477
847
499
Total other financial assets measured at amortized cost
64,928
49,179
53,264
of which: Credit Suisse
1
12,841
1 Refer to Note 2 for more information about the acquisition of the Credit Suisse Group.
b) Other non-financial assets
USD m
30.6.23
31.3.23
31.12.22
Precious metals and other physical commodities
5,794
4,506
4,471
Deposits and collateral provided in connection with litigation,
regulatory and similar matters
1
3,006
2,235
2,205
Prepaid expenses
3,138
1,265
1,076
Current tax assets
1,331
167
182
VAT,
withholding tax and other tax receivables
1,279
1,733
1,286
Properties and other non-current assets held for sale
485
370
369
Other
1,885
681
578
Total other non-financial assets
16,919
10,958
10,166
of which: Credit Suisse
2
6,971
1 Refer to Note 15 for more information.
2 Refer to Note 2 for more information about the acquisition of the Credit Suisse Group.
c) Other financial liabilities measured at
amortized cost
USD m
30.6.23
31.3.23
31.12.22
Other accrued expenses
3,653
1,895
1,760
Accrued interest expenses
4,639
1,920
1,949
Settlement and clearing accounts
1,931
1,548
1,075
Lease liabilities
5,810
3,294
3,334
Other
3,370
1,634
1,457
Total other financial liabilities measured at amortized cost
19,403
10,292
9,575
of which: Credit Suisse
1
7,415
1 Refer to Note 2 for more information about the acquisition of the Credit Suisse Group.
d) Other financial liabilities designated at
fair value
USD m
30.6.23
31.3.23
31.12.22
Financial liabilities related to unit-linked investment contracts
15,124
14,243
13,221
Securities financing transactions
13,295
9,707
15,333
Over-the-counter debt instruments and other
7,703
1,809
1,684
Total other financial liabilities designated at fair value
36,122
25,758
30,237
of which: Credit Suisse
1
6,996
1 Refer to Note 2 for more information about the acquisition of the Credit Suisse Group.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
93
Note 11
Other assets and liabilities (continued)
e) Other non-financial liabilities
USD m
30.6.23
31.3.23
31.12.22
Compensation-related liabilities
7,310
4,550
6,822
of which: net defined benefit liability
777
485
469
Current tax liabilities
1,630
968
1,071
Deferred tax liabilities
434
266
236
VAT,
withholding tax and other tax payables
822
676
592
Deferred income
828
290
235
Other
970
62
84
Total other non-financial liabilities
11,994
6,811
9,040
of which: Credit Suisse
1
4,383
1 Refer to Note 2 for more information about the acquisition of the Credit Suisse Group.
Note
12
Debt issued designated at fair value
USD m
30.6.23
31.3.23
31.12.22
Issued debt instruments
Equity-linked
1
64,446
44,721
41,901
Rates-linked and fixed-rate
42,676
22,470
22,814
Credit-linked
7,655
2,815
2,170
Commodity-linked
4,234
4,311
4,294
Other
6,039
2,916
2,459
of which: debt that contributes to total loss-absorbing capacity
4,287
2,477
1,959
Total debt issued designated at fair value
2
125,050
77,233
73,638
of which: issued by UBS AG standalone with original maturity greater
than one year
3
64,047
60,268
57,750
of which: issued by Credit Suisse AG standalone with original maturity
greater than one year
3
34,814
of which: issued by Credit Suisse International standalone
with original maturity greater than one year
3
1,561
1 Includes investment fund unit-linked instruments issued.
2 Of which Credit Suisse: USD 42.4bn as of 30 June
2023.
3 Based on original contractual maturity without considering any
early redemption features.
As of 30 June 2023,
100
% of the balance was unsecured (31 March 2023:
100
%; 31 December 2022:
100
%).
Note
13
Debt issued measured at amortized cost
USD m
30.6.23
31.3.23
31.12.22
Short-term debt
1
40,522
27,412
29,676
of which: Credit Suisse
4,932
Senior unsecured debt that contributes to total loss-absorbing
capacity (TLAC)
97,927
47,172
42,073
Senior unsecured debt other than TLAC
43,508
18,680
17,892
of which: issued by UBS AG standalone with original maturity greater
than one year
14,918
15,472
17,892
of which: issued by Credit Suisse AG standalone with original maturity
greater than one year
26,346
Covered bonds
3,934
Subordinated debt
16,832
14,175
16,017
of which: eligible as high-trigger loss-absorbing additional
tier 1 capital instruments
9,928
10,002
9,882
of which: eligible as low-trigger loss-absorbing additional
tier 1 capital instruments
1,190
1,198
1,189
of which: eligible as low-trigger loss-absorbing tier 2 capital
instruments
0
2,438
2,422
of which: eligible as non-Basel III-compliant tier 2 capital
instruments
539
538
536
Debt issued through the Swiss central mortgage institutions
24,862
8,873
8,962
Other long-term debt
3,273
Long-term debt
2
190,336
88,900
84,945
of which: Credit Suisse
3
52,406
Total debt issued measured at amortized cost
4
230,857
116,312
114,621
1 Debt with an original contractual maturity
of less than one year,
includes mainly certificates of deposit and
commercial paper.
2 Debt with an original contractual
maturity greater than or equal to one
year. The
classification of debt
issued into short-term
and long-term does
not consider any
early redemption features.
3 Refer to Note
2 for more
information about the
acquisition of the
Credit Suisse Group.
4 Net of
bifurcated embedded derivatives, the fair value of which was not material for
the periods presented.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
94
Note 14
Interest rate benchmark reform
During 2023, the Group
has largely completed the
transition of the remaining
USD London Interbank
Offered Rate
(LIBOR) contracts.
The transition
of the
largest remaining
non-derivative exposure,
the US
mortgage portfolio
of
approximately USD
9
bn as
of 31 December
2022 (excluding
an insignificant
amount related
to Credit
Suisse US
mortgages), had been substantially
completed as of 30 June
2023, with these
contracts automatically converting
to term Secured Overnight Financing
Rate (SOFR) from their next interest
rate reset date following the
cessation of
the
respective
USD
LIBOR
rates,
i.e.,
30 June
2023.
Corporate
loans
granted
by
the
Investment
Bank
and
the
Investment Bank (Credit Suisse),
as well as Wealth Management (Credit
Suisse), have now either been transitioned
to
alternative
rates
or
are
temporarily
utilizing
the
last
available
USD
LIBOR
fixing
to
complete
transition,
with
approximately USD
2
bn
(predominantly attributable
to
positions
acquired
through
the
acquisition
of
the
Credit
Suisse Group) relying on synthetic
LIBOR rates. The Group will
continue to focus on the
transition of the remaining
synthetic LIBOR rate exposures to alternative
rates throughout the remainder of 2023.
In August 2022,
to facilitate the
transition of derivatives
linked to the USD
LIBOR Swap Rate,
the Group adhered
to
the June 2022 Benchmark
Module of the ISDA 2021
Fallbacks Protocol on the
USD LIBOR Swap Rate. The
majority
of
these
contracts
had
transitioned
as
of
30 June
2023,
with
a
small
number
of
contracts
transitioned
in
July
2023.The
transition
of
USD
LIBOR-cleared
derivatives
has
been
effected
through
industry-wide
central
clearing
counterparty conversion events that occurred primarily in April and May 2023.
As of 30 June 2023, the transition
of these USD LIBOR-linked derivatives has been materially
accomplished.
The Group
has approximately
USD
6
bn equivalent
of yen-,
pounds sterling-
and US
dollar-denominated publicly
issued benchmark bonds (including approximately USD
3
bn of benchmark notes assumed
by UBS Group AG
as a
result
of
the
acquisition
of
the
Credit
Suisse
Group)
that,
per
current
contractual
terms,
if
not
called
on
their
respective call dates, would
reset based directly on
JPY LIBOR, GBP LIBOR,
and USD LIBOR, respectively.
In addition,
certain benchmark bonds publicly
issued by the Group
reference rates indirectly derived
from IBORs, if they
are not
called on
their respective call
dates. These
bonds have robust
fallback language and
the confirmation of
interest
rate calculation mechanics will be communicated
in advance of any rate resets.
Note 15
Provisions and contingent liabilities
a) Provisions and contingent liabilities
The table below presents an overview of total provisions
and contingent liabilities.
USD m
30.6.23
31.3.23
31.12.22
Provisions related to expected credit losses (IFRS 9,
Financial instruments
)
1
367
214
201
Provisions related to Credit Suisse loan commitments (IFRS
3,
Business Combinations
)
2
4,400
Provisions related to litigation, regulatory and similar matters
(IAS 37 Provisions, Contingent Liabilities and Contingent Assets)
6,126
3,306
2,586
Acquisition-related contingent liabilities (IFRS 3,
Business Combinations
)
2
2,992
Other provisions
1,044
416
456
Total provisions and contingent liabilities
14,929
3,937
3,243
of which: Credit Suisse
2
11,071
1 Refer to Note 8c for more information.
2 Refer to Note 2 for more information about the acquisition of the Credit Suisse Group.
The following
table presents
additional information
for Provisions
related to
litigation, regulatory
and similar
matters
and other provisions.
USD m
Litigation,
regulatory and
similar matters
1
Other
2
Total
Balance as of 31 December 2022
2,586
456
3,042
Balance as of 31 March 2023
3,306
416
3,723
Provisions recognized upon acquisition of Credit Suisse
2,838
707
3,545
Increase in provisions recognized in the income statement
70
41
111
Release of provisions recognized in the income statement
(1)
(8)
(9)
Provisions used in conformity with designated purpose
(90)
(126)
(216)
Foreign currency translation and other movements
3
2
14
16
Balance as of 30 June 2023
6,126
1,044
7,170
of which: Credit Suisse
4
2,837
649
3,487
1 Consists of provisions
for losses resulting
from legal, liability
and compliance risks.
2 Mainly includes
provisions related to
onerous contracts,
real estate and
employee benefits.
3 Other movements include
capitalized reinstatement costs and unwinding of discount.
4 Refer to Note 2 for more information about the acquisition of the Credit Suisse Group.
Information about provisions and
contingent liabilities in respect of
litigation, regulatory and similar matters,
as a
class,
is
included
in
Note
15b.
There
are
no
material
contingent
liabilities
associated
with
the
other
classes
of
provisions.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
95
Note 15
Provisions and contingent liabilities
(continued)
b) Litigation, regulatory and similar matters
The Group operates in
a legal and regulatory
environment that exposes it to
significant litigation and similar risks
arising from
disputes and regulatory
proceedings. As a
result, UBS (which
for purposes of
this Note
may refer to
UBS
Group
AG
and/or
one
or
more
of
its
subsidiaries,
as
applicable)
is
involved
in
various
disputes
and
legal
proceedings, including litigation, arbitration,
and regulatory and criminal investigations.
Such matters are subject
to many uncertainties,
and the outcome and the
timing of resolution are
often difficult to
predict,
particularly in
the
earlier
stages
of
a
case.
There
are
also
situations
where
the Group
may
enter into
a
settlement
agreement.
This
may
occur
in
order
to
avoid
the
expense,
management
distraction
or
reputational
implications of
continuing to
contest liability,
even
for those
matters for
which
the Group
believes it
should be
exonerated. The uncertainties inherent in all such matters affect the amount and timing of any potential outflows
for both matters
with respect to
which provisions have
been established and
other contingent liabilities.
The Group
makes
provisions
for
such
matters
brought
against
it
when,
in
the
opinion
of
management
after
seeking legal
advice, it
is more
likely than
not that
the Group
has a
present legal
or constructive obligation
as a
result of
past
events, it
is probable
that an
outflow of
resources will
be required,
and the
amount can
be reliably
estimated. Where
these factors
are
otherwise satisfied,
a
provision may
be
established for
claims that
have
not
yet been
asserted
against the
Group, but
are nevertheless
expected to
be, based
on
the Group’s
experience with
similar
asserted
claims.
If
any
of
those
conditions
is
not
met,
such
matters
result
in
contingent
liabilities.
If
the
amount
of
an
obligation cannot
be reliably
estimated, a
liability exists
that is
not recognized
even if
an outflow
of resources
is
probable. Accordingly, no
provision is
established even if
the potential
outflow of resources
with respect
to such
matters could be significant. Developments relating to a matter that occur after the relevant reporting period, but
prior
to
the
issuance
of
financial
statements, which
affect
management’s assessment
of
the
provision
for
such
matter
(because,
for
example,
the
developments provide
evidence of
conditions that
existed
at
the
end
of
the
reporting
period),
are
adjusting
events
after
the
reporting period
under
IAS
10
and
must
be
recognized in
the
financial statements for the reporting period.
Specific litigation, regulatory and other matters are
described below, including all such matters that
management
considers to be material and others that management believes to be of significance to the Group due to potential
financial,
reputational
and
other
effects.
The
amount
of
damages
claimed,
the
size
of
a
transaction
or
other
information is
provided where
available and
appropriate in order
to assist
users in
considering the
magnitude of
potential exposures.
In the case of certain matters below, we state that we have established a provision, and for the other matters, we
make no such statement. When we
make this statement and we expect
disclosure of the amount of a provision
to
prejudice seriously our
position with other
parties in the
matter because it
would reveal what
UBS believes to
be
the
probable
and
reliably estimable
outflow, we
do
not
disclose
that amount.
In
some
cases we
are
subject to
confidentiality obligations
that preclude
such disclosure.
With respect
to the
matters for
which we
do not
state
whether we have
established a provision,
either: (a) we
have not established
a provision; or
(b) we have
established
a provision
but expect
disclosure of
that fact
to prejudice
seriously our
position with
other parties
in the
matter
because it would reveal the fact that
UBS believes an outflow of resources to be probable
and reliably estimable.
With respect to certain litigation, regulatory
and similar matters for which we
have established provisions, we are
able to
estimate the expected
timing of outflows.
However, the aggregate
amount of the
expected outflows for
those matters for which we
are able to estimate expected
timing is immaterial relative to
our current and expected
levels of liquidity over the relevant time periods.
The
aggregate
amount
provisioned
for
litigation,
regulatory
and
similar
matters
as
a
class
is
disclosed
in
the
“Provisions”
table
in
Note
15a
above. It
is
not
practicable
to
provide
an
aggregate
estimate
of
liability
for
our
litigation, regulatory
and similar
matters as
a class
of contingent
liabilities beyond
what has
been identified
as a
consequence of
the acquisition
of Credit
Suisse as
set out
below. Doing
so would
require UBS
to provide
speculative
legal assessments as to claims and proceedings that involve unique fact patterns or novel legal theories, that have
not yet
been initiated
or are
at early
stages of
adjudication,
or as
to which
alleged damages
have not
been quantified
by the claimants. Although
UBS therefore cannot provide a
numerical estimate of the
future losses that could arise
from litigation,
regulatory and
similar matters,
UBS believes
that the
aggregate amount
of possible
future losses
from this class that are more than remote substantially
exceeds the level of current provisions.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
96
Note 15
Provisions and contingent liabilities
(continued)
Litigation, regulatory
and similar
matters may
also result
in non-monetary
penalties and
consequences. A
guilty plea
to, or conviction of, a crime could have material consequences for UBS. Resolution of regulatory proceedings may
require UBS to obtain waivers of regulatory disqualifications to maintain certain operations, may entitle regulatory
authorities to limit, suspend or terminate
licenses and regulatory authorizations, and may
permit financial market
utilities to
limit, suspend
or terminate
UBS’s participation
in such
utilities. Failure
to obtain
such waivers,
or any
limitation, suspension
or termination
of licenses,
authorizations or
participations, could
have material
consequences
for UBS.
The
risk
of
loss
associated with
litigation, regulatory
and
similar matters
is
a
component of
operational risk
for
purposes of determining
capital requirements.
Information concerning
our capital requirements
and the calculation
of operational risk for this purpose is included
in the “Capital management” section
of this report.
Matters related
to Credit
Suisse entities
are separately
described herein
and in
the breakdown
of provisions
and
contingent liabilities
for litigation
regulatory and
similar matters
below. The
amounts shown
in
the table
below
reflect the provisions
recorded by the relevant
Credit Suisse entities
under IFRS accounting principles.
In connection
with the acquisition
of Credit
Suisse, UBS
Group AG additionally
has reflected
in its purchase
accounting under
IFRS
3 a further valuation adjustment of USD
3
bn reflecting an estimate of outflows relating
to contingent liabilities for
all present obligations included in the scope of the acquisition at fair value upon closing,
even if it is not probable
that
they
will
result
in
an
outflow
of
resources,
significantly
increasing
the
recognition
threshold
for
litigation
liabilities beyond those that generally apply
under IFRS and US GAAP.
Provisions for litigation, regulatory and similar matters
by business division, in Group Functions
and in Credit Suisse
1
USD m
Global Wealth
Manage-
ment
Personal &
Corporate
Banking
Asset
Manage-
ment
Investment
Bank
Group
Functions
Credit
Suisse
Total
Balance as of 31 December 2022
1,182
159
8
308
928
2,586
Balance as of 31 March 2023
1,193
161
8
351
1,594
3,306
Provisions recognized upon acquisition of Credit Suisse
2,838
2,838
Increase in provisions recognized in the income statement
35
0
1
20
0
14
70
Release of provisions recognized in the income statement
(1)
0
0
0
0
0
(1)
Provisions used in conformity with designated purpose
(37)
0
(1)
(45)
0
(7)
(90)
Foreign currency translation / unwind of discount
7
1
0
1
1
(8)
2
Balance as of 30 June 2023
1,196
162
8
327
1,595
2,837
6,126
1 Provisions, if any, for the matters described in item 3 of this Note are recorded in Global Wealth Management, and provisions,
if any, for the matters described in item 2 are recorded in Group Functions. Provisions,
if any, for
the matters described
in items 1 and
5 of this Note
are allocated between Global
Wealth Management and
Personal & Corporate
Banking; and provisions,
if any, for
the matters described in item
4 are
allocated between the Investment Bank and Group Functions.
Litigation, regulatory and similar matters
involving UBS AG and subsidiaries
1. Inquiries regarding cross-border wealth management
businesses
Tax
and regulatory
authorities in
a number
of countries
have made
inquiries, served
requests for
information or
examined
employees
located
in
their
respective
jurisdictions
relating
to
the
cross-border
wealth
management
services provided by UBS and other financial institutions.
Since 2013, UBS
(France) S.A., UBS AG
and certain former employees
have been under investigation in
France in
relation to UBS’s cross-border business with French
clients. In connection with this investigation, the investigating
judges ordered UBS AG to provide bail (“
caution
”) of EUR
1.1
bn.
In 2019,
the court
of first
instance returned a
verdict finding UBS
AG guilty
of unlawful solicitation
of clients on
French territory and aggravated
laundering of the proceeds
of tax fraud, and UBS
(France) S.A. guilty of aiding
and
abetting unlawful
solicitation and of
laundering the
proceeds of
tax fraud.
The court
imposed fines
aggregating
EUR
3.7
bn on UBS AG and UBS (France) S.A. and awarded EUR
800
m of civil damages to the French state. A trial
in the French Court of Appeal took
place in March 2021. In December 2021, the
Court of Appeal found UBS AG
guilty of unlawful solicitation and aggravated laundering of the proceeds of tax fraud. The court ordered a fine of
EUR
3.75
m, the confiscation
of EUR
1
bn, and awarded
civil damages to
the French state
of EUR
800
m. UBS AG
has filed an appeal with the French Supreme Court. A hearing in the
Supreme Court is currently scheduled for 27
September 2023. The fine
and confiscation imposed by
the Court of Appeal are
suspended during the
appeal. The
civil damages award has been paid to the French
state (EUR
99
m of which was deducted from the bail),
subject to
the result of UBS’s appeal.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
97
Note 15
Provisions and contingent liabilities
(continued)
Our balance sheet
at 30 June
2023 reflected
provisions with
respect to
this matter
in an amount
of EUR
1.1
bn (USD
1.2
bn). The
wide range of
possible outcomes in
this case
contributes to a
high degree of
estimation uncertainty
and the
provision reflects
our best
estimate of
possible financial
implications, although
actual penalties
and civil
damages could exceed (or may be less than)
the provision amount.
2. Claims related to sales of residential mortgage-backed
securities and mortgages
From 2002
through 2007,
prior to
the crisis
in the
US residential
loan market,
UBS was
a substantial
issuer and
underwriter of US residential mortgage-backed securities (RMBS) and was a
purchaser and seller of US residential
mortgages.
In 2018,
the DOJ
filed a
civil complaint
in the
District Court
for the
Eastern District
of New
York. The
complaint
seeks unspecified civil monetary
penalties under the
Financial Institutions Reform, Recovery and
Enforcement Act
of 1989 related to UBS’s issuance, underwriting and sale of 40 RMBS transactions in 2006
and 2007. UBS moved
to dismiss the
civil complaint in 2019.
Later in 2019, the
district court denied UBS’s
motion to dismiss. In
August
2023, UBS reached a settlement
with the DOJ, under
which UBS paid USD
1.435
bn to resolve all civil
claims by the
DOJ.
Our
balance sheet
at 30
June
2023 reflected
a
provision with
respect to
matters described
in
this
item 2
in
an
amount that UBS believed to be appropriate
under the applicable accounting standard.
3. Madoff
In relation to
the Bernard
L. Madoff Investment
Securities LLC
(BMIS) investment
fraud, UBS
AG, UBS (Luxembourg)
S.A. (now UBS
Europe SE, Luxembourg
branch) and certain
other UBS subsidiaries have
been subject to
inquiries
by a
number of
regulators, including
the Swiss
Financial Market
Supervisory Authority
(FINMA) and
the Luxembourg
Commission
de
Surveillance
du
Secteur
Financier.
Those
inquiries
concerned
two
third-party
funds
established
under Luxembourg
law,
substantially all
assets of
which were
with BMIS,
as well
as certain
funds established
in
offshore
jurisdictions
with
either
direct
or
indirect
exposure
to
BMIS.
These
funds
faced
severe
losses,
and
the
Luxembourg funds are in liquidation. The documentation establishing both funds identifies UBS entities in various
roles,
including custodian,
administrator,
manager,
distributor and
promoter,
and indicates
that UBS
employees
serve as board members.
In 2009 and 2010, the liquidators
of the two Luxembourg funds
filed claims against UBS entities,
non-UBS entities
and certain individuals, including
current and former UBS employees,
seeking amounts totaling approximately
EUR
2.1
bn, which
includes amounts
that the
funds may
be held
liable to
pay the
trustee for
the liquidation
of BMIS
(BMIS Trustee).
A large number of alleged beneficiaries have filed claims against
UBS entities (and non-UBS entities) for purported
losses relating to
the Madoff fraud.
The majority of
these cases have
been filed in
Luxembourg, where decisions
that the claims in eight test cases were inadmissible have been affirmed by the Luxembourg Court of Appeal, and
the Luxembourg Supreme Court has dismissed
a further appeal in one of the test
cases.
In the
US, the
BMIS Trustee
filed claims
against UBS
entities, among
others, in
relation to
the two
Luxembourg
funds and one of
the offshore funds. The
total amount claimed against
all defendants in
these actions was
not less
than USD
2
bn. In
2014, the
US Supreme
Court rejected
the BMIS
Trustee’s motion for
leave to
appeal decisions
dismissing all
claims except
those for
the recovery
of approximately
USD
125
m of
payments alleged
to be
fraudulent
conveyances
and
preference
payments.
In
2016,
the
bankruptcy
court
dismissed
these
claims
against
the
UBS
entities. In 2019,
the Court of Appeals
reversed the dismissal of
the BMIS Trustee’s remaining
claims, and the US
Supreme Court
subsequently denied
a petition seeking
review of the
Court of Appeals’
decision. The case
has been
remanded to the Bankruptcy Court for further
proceedings.
4. Foreign exchange, LIBOR and benchmark rates,
and other trading practices
Foreign exchange-related regulatory matters:
Beginning in 2013, numerous authorities commenced investigations
concerning possible
manipulation of
foreign
exchange markets
and
precious
metals prices.
As
a
result
of these
investigations,
UBS
entered
into
resolutions
with
Swiss,
US
and
United
Kingdom
regulators
and
the
European
Commission. UBS
was granted
conditional immunity
by the Antitrust
Division of
the DOJ
and by
authorities in
other
jurisdictions
in
connection
with
potential
competition
law
violations
relating
to
foreign
exchange
and
precious
metals businesses.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
98
Note 15
Provisions and contingent liabilities
(continued)
Foreign exchange-related civil litigation:
Putative class actions have been filed since 2013 in US federal
courts and
in other jurisdictions against
UBS and other banks on
behalf of putative classes of
persons who engaged in foreign
currency transactions with any of the defendant banks. UBS has resolved US federal court class actions relating to
foreign currency transactions with
the defendant banks
and persons who
transacted in foreign
exchange futures
contracts and options on such futures
under a settlement agreement that
provides for UBS to pay an aggregate
of
USD
141
m and
provide cooperation
to the
settlement classes.
Certain class
members have
excluded themselves
from that
settlement
and have
filed individual
actions in
US and
English courts
against
UBS and
other banks,
alleging
violations of
US and
European competition laws
and unjust
enrichment. UBS
and the
other banks
have resolved
those individual matters.
In
2015, a
putative
class action
was filed
in
federal court
against UBS
and numerous
other banks
on
behalf of
persons and
businesses in
the US
who directly
purchased foreign
currency from
the defendants
and alleged
co-
conspirators for
their own
end use.
In 2022,
the court
denied plaintiffs’
motion for
class certification.
In March
2023, the court granted defendants’ summary
judgment motion, dismissing the case. Plaintiffs
have appealed.
LIBOR and other benchmark-related regulatory
matters:
Numerous government agencies conducted investigations
regarding potential improper attempts by UBS, among others, to manipulate LIBOR and other benchmark rates at
certain times. UBS reached settlements or otherwise concluded investigations relating to benchmark interest rates
with the investigating authorities. UBS
was granted conditional leniency or
conditional immunity from authorities
in certain jurisdictions,
including the Antitrust
Division of the DOJ
and the Swiss Competition
Commission (WEKO),
in connection with potential antitrust or competition law violations related to certain rates. However, UBS has not
reached a final settlement with WEKO, as the
Secretariat of WEKO has asserted that UBS does
not qualify for full
immunity.
LIBOR and
other benchmark-related
civil litigation:
A number
of putative
class actions
and other
actions are
pending
in the federal
courts in New
York against UBS
and numerous other
banks on behalf
of parties who
transacted in
certain interest rate benchmark-based derivatives. Also
pending in the US
and in other jurisdictions are
a number
of other
actions asserting losses
related to
various products whose
interest rates were
linked to
LIBOR and other
benchmarks, including
adjustable rate
mortgages, preferred
and debt securities,
bonds pledged
as collateral, loans,
depository
accounts,
investments
and
other
interest-bearing
instruments.
The
complaints
allege
manipulation,
through
various
means,
of
certain
benchmark
interest
rates,
including
USD LIBOR,
Euroyen
TIBOR,
Yen
LIBOR,
EURIBOR,
CHF LIBOR,
GBP
LIBOR
and
seek
unspecified
compensatory
and
other
damages
under
varying
legal
theories.
USD LIBOR class
and individual
actions in
the US:
In 2013
and 2015,
the district
court in
the USD LIBOR
actions
dismissed, in whole or in
part, certain plaintiffs’ antitrust
claims, federal racketeering claims,
Commodity Exchange
Act claims, and state common law
claims, and again dismissed the
antitrust claims in 2016 following
an appeal. In
2021, the
Second Circuit affirmed
the district court’s
dismissal in part
and reversed in
part and remanded
to the
district
court
for
further
proceedings.
The
Second
Circuit,
among
other
things,
held
that
there
was
personal
jurisdiction over
UBS and
other foreign
defendants.
Separately, in
2018, the
Second Circuit
reversed in
part the
district court’s
2015 decision
dismissing certain
individual plaintiffs’
claims and
certain of
these actions
are now
proceeding. In 2018, the district court
denied plaintiffs’ motions for class certification in
the USD class actions for
claims pending
against UBS,
and plaintiffs
sought permission
to appeal
that ruling
to the
Second Circuit.
The Second
Circuit denied the petition
to appeal. In
2020, an individual action
was filed in
the Northern District of
California
against UBS and numerous other banks alleging that the
defendants conspired to fix the interest rate used as
the
basis for
loans to
consumers by jointly
setting the USD LIBOR
rate and
monopolized the market
for LIBOR-based
consumer
loans
and
credit
cards.
In
September
2022,
the
court
granted
defendants’
motion
to
dismiss
the
complaint in its
entirety, while allowing plaintiffs
the opportunity to file
an amended complaint. Plaintiffs
filed an
amended complaint in October 2022, and defendants
have moved to dismiss the amended complaint.
Other benchmark class actions in the US:
Yen
LIBOR / Euroyen TIBOR
– In 2017, the court dismissed one Yen LIBOR / Euroyen TIBOR action in its entirety on
standing grounds. In
2020, the appeals
court reversed the
dismissal and, subsequently, plaintiffs
in that action
filed
an amended complaint
focused on Yen
LIBOR. In 2022,
the court granted
UBS’s motion for
reconsideration and
dismissed the case against UBS. The dismissal of the case against UBS could be appealed following
the disposition
of the case against the remaining defendant in the
district court.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
99
Note 15
Provisions and contingent liabilities
(continued)
CHF LIBOR
– In 2017, the court
dismissed the CHF LIBOR action on standing
grounds and failure to state a
claim.
Plaintiffs
filed
an
amended
complaint,
and
the
court
granted
a
renewed
motion
to
dismiss
in
2019.
Plaintiffs
appealed. In
2021, the
Second Circuit
granted the
parties’ joint
motion to
vacate the
dismissal and
remand the
case
for further
proceedings. Plaintiffs
filed a
third amended
complaint in
November 2022
and defendants
moved to
dismiss the amended complaint in January
2023.
EURIBOR
–
In
2017,
the
court
in
the
EURIBOR
lawsuit
dismissed
the
case
as
to
UBS
and
certain
other
foreign
defendants for lack of personal jurisdiction.
Plaintiffs have appealed.
GBP LIBOR
– The court dismissed the GBP LIBOR action
in 2019. Plaintiffs have appealed.
Government bonds:
Putative class actions
have been filed
since 2015 in
US federal courts
against UBS and
other
banks
on
behalf
of
persons
who
participated
in
markets
for
US
Treasury
securities
since
2007.
A
consolidated
complaint was filed in 2017 in the US District Court
for the Southern District of New York alleging that the banks
colluded with
respect to,
and manipulated
prices of,
US Treasury
securities sold
at auction
and in
the secondary
market and
asserting claims under
the antitrust
laws and
for unjust
enrichment. Defendants’ motions
to dismiss
the consolidated complaint
were granted in 2021.
Plaintiffs filed an amended
complaint, which defendants
moved
to dismiss later in 2021. In March 2022, the court granted
defendants’ motion to dismiss that complaint.
Plaintiffs
have
appealed the
dismissal. Similar
class
actions have
been
filed concerning
European government
bonds and
other government bonds.
In
2021,
the
European Commission
issued
a
decision finding
that
UBS
and
six
other
banks
breached European
Union antitrust rules in 2007–2011
relating to European government
bonds. The European Commission
fined UBS
EUR
172
m. UBS is appealing the amount of the fine.
With respect
to additional
matters and
jurisdictions not
encompassed by
the settlements
and orders
referred to
above, our balance sheet at 30 June 2023
reflected a provision in an amount that UBS
believes to be appropriate
under the
applicable accounting
standard. As
in the case
of other
matters for
which we
have established
provisions,
the future outflow of resources in respect of such matters
cannot be determined with certainty based on currently
available information
and accordingly
may ultimately
prove to
be substantially
greater (or
may be
less) than
the
provision that we have recognized.
5. Swiss retrocessions
The Federal Supreme Court of Switzerland ruled in 2012, in
a test case against UBS, that distribution fees paid
to
a firm for distributing third-party
and intra-group investment funds
and structured products must be disclosed
and
surrendered
to
clients
who have
entered
into
a
discretionary
mandate agreement
with
the
firm,
absent a
valid
waiver. FINMA issued a
supervisory note
to all Swiss
banks in response
to the Supreme
Court decision.
UBS has
met
the FINMA requirements and has notified all potentially
affected clients.
The Supreme
Court decision
has resulted, and
continues to
result, in a
number of
client requests
for UBS to
disclose
and potentially surrender retrocessions. Client requests are assessed on a case-by-case basis. Considerations taken
into account
when assessing
these cases
include, among
other things,
the existence
of a discretionary
mandate and
whether or not the client documentation contained
a valid waiver with respect to distribution
fees.
Our
balance sheet
at 30
June
2023 reflected
a
provision with
respect to
matters described
in
this
item 5
in
an
amount that UBS believes to be appropriate under the applicable accounting standard. The ultimate exposure will
depend on client
requests and the resolution
thereof, factors that are
difficult to predict
and assess. Hence, as
in
the case of
other matters for which
we have established provisions,
the future outflow
of resources in
respect of
such matters
cannot be
determined with certainty
based on
currently available information
and accordingly may
ultimately prove to be substantially greater (or
may be less) than the provision that we
have recognized.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
100
Note 15
Provisions and contingent liabilities
(continued)
Litigation regulatory and similar matters
involving Credit Suisse entities
1. Mortgage-related matters
Government and regulatory related matters
DOJ RMBS
settlement
: On
January 18,
2017, Credit
Suisse Securities
(USA) LLC
(CSS LLC)
and its
current and
former
US subsidiaries and US affiliates reached a settlement
with the US Department of Justice (DOJ)
related to its legacy
Residential
Mortgage-Backed
Securities
(RMBS)
business,
a
business
conducted
through
2007.
The
settlement
resolved potential civil
claims by the
DOJ related
to certain of
those Credit Suisse
entities’ packaging, marketing,
structuring, arrangement, underwriting, issuance
and sale of RMBS. Pursuant to the terms
of the settlement a civil
monetary penalty was paid to
the DOJ in
January 2017. The settlement also
required the Credit
Suisse entities to
provide certain
levels of
consumer relief
measures, including
affordable housing
payments and
loan forgiveness,
and the DOJ and
Credit Suisse agreed
to the appointment of an
independent monitor to oversee the
completion
of the
consumer relief
requirements
of the
settlement. Credit
Suisse continues
to evaluate
its
approach toward
satisfying its
remaining consumer
relief obligations,
and Credit
Suisse currently
anticipates that
it will
take much
longer
than
the
five-year
period
provided
in
the
settlement
to
satisfy
in
full
its
obligations
in
respect
of
these
consumer relief
measures, subject
to risk
appetite and
market conditions.
Credit Suisse
expects to
incur costs
in
relation to
satisfying those
obligations. The
amount of
consumer relief
Credit Suisse
must provide
also increases
after
2021
pursuant
to
the
original
settlement
by
5
%
per
annum
of
the
outstanding
amount
due
until
these
obligations are settled. The monitor publishes reports periodically
on these consumer relief matters.
Civil litigation
: CSS LLC and/or certain of its affiliates have also been named as defendants in various civil litigation
matters related to their roles as issuer, sponsor, depositor, underwriter and/or servicer
of RMBS transactions. These
cases
currently
include
repurchase
actions
by
RMBS
trusts
and/or
trustees,
in
which
plaintiffs
generally
allege
breached representations
and warranties
in respect
of mortgage
loans and
failure to
repurchase such
mortgage
loans
as required
under the
applicable agreements.
The
amounts disclosed
below do
not
reflect
actual
realized
plaintiff losses to date or anticipated future litigation exposure. Unless
otherwise stated, these amounts reflect the
original unpaid principal balance amounts
as alleged in these actions and do not
include any reduction in principal
amounts since issuance.
DLJ Mortgage Capital, Inc. (DLJ) is a defendant in New York state court in: (i)
one action brought by Asset Backed
Securities Corporation
Home Equity
Loan Trust,
Series 2006-HE7,
in which plaintiff
alleges damages
of not
less than
USD
374
m in an
amended complaint
filed on August
19, 2019; on
January 13, 2020,
DLJ filed a
motion to dismiss;
(ii) one
action brought by
Home Equity
Asset Trust,
Series 2006-8,
in which
plaintiff alleges
damages of
not less
than USD
436
m; (iii) one action brought by Home Equity Asset Trust 2007-1,
in which plaintiff alleges damages of
not less than USD
420
m; on December 27, 2018, the court denied DLJ’s motion for
partial summary judgment in
this action, which was affirmed on appeal; on March 17, 2022, the New
York State Court of Appeals reversed the
decision and ordered
that DLJ’s motion
for partial summary
judgment be granted;
a non-jury trial in the
action was
held between January 23 and
February 3, 2023, and a
decision is pending; (iv) one
action brought by Home Equity
Asset Trust 2007-2, in which
plaintiff alleges damages of not less
than USD
495
m; and (v) one
action brought by
CSMC
Asset-Backed
Trust
2007-NC1,
in
which
no
damages
amount
is
alleged.
These
actions
are
at
various
procedural stages.
DLJ is also a defendant in one
action brought by Home Equity Asset Trust Series 2007-3, in
which plaintiff alleges
damages of not
less than USD
206
m. On March
5, 2022, DLJ
and the plaintiffs
executed an agreement
to settle
this action.
The settlement
remains subject
to approval
through a
trust instruction
proceeding brought
in Minnesota
state court by the trustee of the plaintiff
trust.
DLJ and its affiliate, Select Portfolio Servicing, Inc. (SPS), were defendants
in two consolidated actions in New York
state court: one action brought
by Home Equity Mortgage
Trust Series 2006-1, Home
Equity Mortgage Trust
Series
2006-3 and Home
Equity Mortgage Trust
Series 2006-4, in
which plaintiffs allege
damages of not
less than USD
730
m; and one action brought
by Home Equity Mortgage Trust
Series 2006-5, in which plaintiff alleges
damages
of not less
than USD
500
m. On April
19, 2021, DLJ,
SPS and the
plaintiffs executed an
agreement to settle both
actions for the aggregate amount of USD
500
m, for which Credit Suisse was fully
reserved. On May 2, 2023, the
Minnesota state
court approved the
settlement through a
trust instruction proceeding
brought by
the trustee
of
the plaintiff trusts. The New York state court
dismissed the underlying actions with
prejudice on July 10, 2023.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
101
Note 15
Provisions and contingent liabilities
(continued)
2. Tax and securities law matters
On May 19,
2014, Credit Suisse
AG entered
into settlement agreements
with several US
regulators regarding
its
US
cross-border
matters.
As
part
of
the
agreements,
Credit
Suisse
AG,
among
other
things,
engaged
an
independent corporate monitor
that reports to the
New York State Department of Financial Services.
As of July 31,
2018,
the monitor
concluded both
his review
and his
assignment. Credit
Suisse AG
continues to
report to
and
cooperate with US authorities in accordance
with Credit Suisse AG’s obligations under
the agreements, including
by conducting
a review
of cross-border
services provided
by Credit
Suisse’s Switzerland-based
Israel Desk.
Most
recently,
Credit Suisse
AG has
provided information to
US authorities regarding
potentially undeclared US
assets
held by
clients at
Credit
Suisse AG
since the
May 2014
plea. Credit
Suisse AG
continues to
cooperate with
the
authorities. In March 2023, the US Senate Finance Committee issued a report criticizing Credit Suisse AG’s history
regarding US tax
compliance. The report called on
the DOJ to investigate Credit
Suisse AG’s compliance with the
2014 plea.
In February 2021,
a qui tam
complaint was filed
in the Eastern
District of Virginia, alleging
that Credit Suisse AG
had violated the
False Claims Act
by failing to
disclose all US
accounts at the
time of the
2014 plea, which
allegedly
allowed Credit Suisse AG to pay a criminal fine in 2014 that was purportedly lower than it should have been. The
DOJ moved to
dismiss the case, and
the Court summarily dismissed
the suit. The
case is now
on appeal with the
US Federal Court of Appeals for the Fourth
Circuit.
3. Rates-related matters
Regulatory matters
: Regulatory authorities in a number of jurisdictions, including the US, UK, EU and Switzerland,
have for an extended period of time been conducting investigations into the setting of LIBOR and other reference
rates with
respect to
a number
of currencies,
as well
as the
pricing of
certain related
derivatives. These
ongoing
investigations have included
information requests from regulators
regarding LIBOR-setting practices
and reviews of
the activities
of various
financial institutions,
including Credit
Suisse Group
AG, which
was a
member of
three LIBOR
rate-setting panels
(US Dollar
LIBOR, Swiss
Franc LIBOR
and Euro
LIBOR). Credit
Suisse is
cooperating fully
with
these investigations.
Regulatory authorities in a number of jurisdictions, including WEKO,
the European Commission (Commission), the
South
African
Competition
Commission
and
the
Brazilian
Competition
Authority
have
been
conducting
investigations into
the
trading activities,
information sharing
and
the
setting of
benchmark
rates in
the
foreign
exchange (including electronic trading) markets.
On
March
31,
2014,
WEKO
announced
its
formal
investigation
of
numerous
Swiss
and
international
financial
institutions, including
Credit
Suisse Group
AG,
in
relation
to the
setting of
exchange rates
in
foreign exchange
trading. Credit Suisse continues to cooperate
with this ongoing investigation.
Credit Suisse
Group AG,
Credit Suisse
AG and
Credit Suisse
Securities (Europe)
Limited (CSSEL)
received a
Statement
of Objections and a Supplemental Statement of Objections from the Commission
on July 26, 2018 and March 19,
2021, respectively, alleging
that Credit Suisse entities
engaged in anticompetitive
practices in connection with
their
foreign exchange
trading business.
On December
6, 2021,
the Commission
issued a
formal decision
imposing a
fine of EUR
83.3
m. On February 15, 2022, Credit Suisse
appealed this decision to the EU General Court.
The
reference
rates
investigations
have
also
included
information
requests
from
regulators
concerning
supranational, sub-sovereign
and agency
(SSA) bonds
and commodities
markets. Credit
Suisse Group
AG and
CSSEL
received a
Statement of
Objections from
the Commission
on December
20, 2018,
alleging that
Credit Suisse
entities
engaged in anticompetitive practices in connection with their SSA bonds trading business. On April 28, 2021, the
Commission issued a formal decision
imposing a fine of EUR
11.9
m. On July 8,
2021, Credit Suisse appealed this
decision to the EU General Court.
Civil litigation:
USD LIBOR litigation
–
Beginning in 2011, certain
Credit Suisse entities
were named in
various putative class and
individual lawsuits
filed in
the US,
alleging banks
on the
US dollar
LIBOR panel
manipulated US
dollar LIBOR
to
benefit their reputation
and increase
profits. All
remaining matters have
been consolidated for
pre-trial purposes
into a multi-district litigation in the US District
Court for the Southern District of
New York (SDNY).
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
102
Note 15
Provisions and contingent liabilities
(continued)
In a series of rulings between 2013 and 2019 on motions
to dismiss, the SDNY (i) narrowed the claims against
the
Credit
Suisse
entities
and
the
other
defendants
(dismissing
antitrust,
Racketeer
Influenced
and
Corrupt
Organizations Act (RICO), Commodity Exchange Act, and
state law claims), (ii) narrowed
the set of plaintiffs who
may bring claims, and
(iii) narrowed the set
of defendants in the
LIBOR actions (including the
dismissal of several
Credit Suisse entities from
various cases on personal jurisdiction
and statute of limitation grounds).
After a number
of putative class and individual plaintiffs appealed the dismissal of their antitrust
claims to the United States Court
of Appeals for the Second
Circuit (Second Circuit), on
December 30, 2021, the
Second Circuit affirmed in part
and
reversed in part the district court’s decision
and remanded the case to the SDNY.
On September 21, 2021, in the putative class action brought in the multi-district litigation in the SDNY by holders
of bonds
tied to
LIBOR, Credit
Suisse entered
into an
agreement to
settle all
claims. On
November 7,
2022 and
March 28, 2023, respectively,
the court entered orders
granting preliminary and final
approval to the agreement
to
settle all claims.
Separately, on May 4, 2017, the plaintiffs in three putative class actions moved for class certification. On February
28, 2018, the SDNY
denied certification in two
of the actions and
granted certification over
a single antitrust
claim
in an action brought by over-the-counter purchasers
of LIBOR-linked derivatives.
USD ICE
LIBOR litigation
– On August
18, 2020, members
of the
ICE LIBOR panel,
including Credit Suisse
Group
AG and
certain of
its affiliates,
were named
in a
civil action
in the
US District
Court for
the Northern
District of
California, alleging that panel banks manipulated ICE LIBOR to profit from variable interest loans and credit cards.
On December
23, 2021,
the court
denied plaintiffs’
motion for
preliminary and
permanent injunctions
to enjoin
panel
banks
from
continuing
to
set
LIBOR
or
automatically
setting
the
benchmark
to
zero
each
day,
and
on
September 13,
2022, the
court granted
defendants’ motions
to dismiss.
On October
4, 2022,
plaintiffs filed
an
amended complaint. On November 4, 2022,
defendants filed a motion to dismiss
the amended complaint.
CHF LIBOR litigation
– In February 2015,
various banks that
served on the Swiss
franc LIBOR panel,
including Credit
Suisse Group
AG, were
named in
a civil
putative class
action lawsuit
filed in
the SDNY,
alleging manipulation of
Swiss franc LIBOR to benefit defendants’ trading positions. After defendants’ motion to dismiss for lack of subject
matter jurisdiction was
granted and plaintiffs
successfully appealed,
on July 13, 2022,
Credit Suisse entered
into an
agreement to settle all claims. On February 15, 2023, the
court entered an order granting preliminary approval to
the agreement to settle all claims. The settlement
remains subject to final court approval.
Foreign exchange litigation –
Credit Suisse Group AG and affiliates
as well as other financial institutions
have been
named in civil lawsuits relating to the alleged
manipulation of foreign exchange
rates.
The first
matter is
a consolidated
class action,
in which
a jury
trial was
held in
October 2022
on the
issues of
whether
a
conspiracy
existed
to
manipulate
bid-ask
spreads
in
the
FX
market
and
whether
Credit
Suisse
knowingly
participated in
any such
conspiracy. On October
20, 2022,
a verdict
was issued
in favor
of Credit
Suisse, finding
that Credit Suisse did not knowingly participate
in any such conspiracy, and on March 28,
2023, the court entered
final judgment
against plaintiffs
and in favor
of Credit
Suisse on all
remaining claims.
Plaintiffs did not
file an appeal
by the April 27, 2023 deadline.
Credit Suisse AG, together with other financial institutions,
was also named in a consolidated putative class action
in Israel,
which made allegations
similar to the
consolidated class action. On
April 4, 2022,
Credit Suisse entered
into an agreement to settle all claims. The
settlement remains subject to court approval.
Treasury markets
litigation
– CSS
LLC, along
with over
20 other
primary dealers
of US
treasury securities,
was named
in a number of
putative civil class
action complaints
in the US relating
to the US
treasury markets. These
complaints
generally alleged
that the
defendants colluded
to manipulate
US treasury
auctions, as
well as
the pricing
of US
treasury securities in the
when-issued market, with impacts upon
related futures and options, and
that certain of
the defendants
participated in
a group
boycott to
prevent the
emergence of
anonymous all-to-all
trading in
the
secondary market
for treasury
securities. On March
31, 2022,
the SDNY granted
defendants’ motion
to dismiss and
dismissed with prejudice all claims against
the defendants. On April 28, 2022, plaintiffs
filed a notice of appeal.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
103
Note 15
Provisions and contingent liabilities
(continued)
SSA bonds litigation
– Credit Suisse
Group AG and
certain of its affiliates,
together with other
financial institutions,
were named in
two Canadian
putative class actions,
which allege that
defendants conspired
to fix the
prices of SSA
bonds
sold
to
and
purchased from
investors
in
the
secondary
market. One
putative
class
action
was
dismissed
against Credit Suisse on February 19, 2020.
On October 18, 2022, in the second action,
Credit Suisse entered into
an agreement to settle all claims. The settlement
remains subject to court approval.
Credit default swap auction litigation –
On June 30, 2021, Credit Suisse Group AG and affiliates, along
with other
banks and entities, were named in a putative class action
complaint filed in the US District Court for
the District of
New Mexico alleging manipulation of credit default swap (CDS) final auction prices. On April 5, 2022, defendants
filed a
motion to
dismiss. On
June 5,
2023, the
court granted
in part
and denied
in part
defendants’ motion
to
dismiss.
4. OTC trading cases
Interest rate
swaps litigation:
Credit
Suisse Group
AG and
affiliates, along
with other
financial institutions,
have
been
named
in
a
consolidated
putative
civil
class
action
complaint
and
complaints
filed
by
individual
plaintiffs
relating
to interest
rate swaps,
alleging that
dealer defendants
conspired
with trading
platforms to
prevent
the
development of interest rate swap exchanges. The individual lawsuits were brought by TeraExchange
LLC, a swap
execution facility, and affiliates; Javelin Capital Markets LLC, a swap execution facility,
and an affiliate; and trueEX
LLC, a
swap execution
facility, which claim
to have
suffered lost
profits as
a result
of defendants’
alleged conspiracy.
All interest rate swap actions have been consolidated
in a multi-district litigation in the SDNY.
Defendants moved to dismiss the
putative class and individual actions,
and the SDNY granted
in part and denied
in part these motions.
On February
20, 2019,
class plaintiffs
in the
consolidated multi-district
litigation filed
a motion
for class
certification.
On March
20, 2019,
class plaintiffs
filed a
fourth amended
consolidated class
action complaint.
On January
21,
2022, Credit Suisse
entered into an
agreement to settle all
class action claims. The
settlement remains subject to
court approval. The individual lawsuits are
stayed pending a decision on plaintiffs’
motion for class certification.
Credit default swaps litigation
: On June 8, 2017, Credit Suisse Group AG and
affiliates, along with other financial
institutions, were named in a
civil action filed in
the SDNY by Tera
Group, Inc. and related
entities (Tera), alleging
violations of antitrust
law in
connection with the
allegation that CDS
dealers conspired to
block Tera’s electronic
CDS trading
platform from
successfully entering
the market.
On July
30, 2019,
the SDNY
granted in
part and
denied
in part
defendants’ motion
to dismiss.
On January
30, 2020,
plaintiffs filed
an amended
complaint. On
April 3,
2020, defendants filed a motion to dismiss.
Stock loan litigation
: Credit Suisse
Group AG and certain
of its affiliates,
as well as
other financial institutions,
were
originally named in
a number of
civil lawsuits in
the SDNY, certain
of which
are brought by
class action plaintiffs
alleging that the
defendants conspired to
keep stock-loan
trading in
an over-the-counter market
and collectively
boycotted certain trading platforms that sought to enter the market, and certain of
which are brought by trading
platforms that
sought to
enter the
market alleging
that the
defendants collectively
boycotted the
platforms. On
January 20, 2022, Credit Suisse entered into an agreement to settle all class action claims. On
February 25, 2022,
the court
entered an
order granting
preliminary approval
to the
agreement to
settle all
class action
claims. The
settlement remains subject to final court
approval.
On October
1, 2021,
in
a consolidated
civil litigation
brought in
the SDNY
by entities
that developed
a
trading
platform for stock
loans that sought
to enter the
market, alleging that
the defendants collectively
boycotted the
platform, the court
granted defendants’
motion to dismiss.
On October 25,
2021, plaintiffs filed
a notice of
appeal.
On March 24, 2023, the Second Circuit affirmed
the decision granting defendants’ motion
to dismiss.
Odd-lot corporate
bond litigation:
On April
21, 2020,
CSS LLC
and other
financial institutions
were named
in a
putative class action complaint filed in the SDNY, alleging a conspiracy among the financial institutions to boycott
electronic trading platforms
and fix
prices in
the secondary
market for odd-lot
corporate bonds. On
October 25,
2021, the SDNY granted defendants’ motion to
dismiss. On November 23, 2021, plaintiffs filed a notice
of appeal
to the Second Circuit.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
104
Note 15
Provisions and contingent liabilities
(continued)
5. ATA litigation
Since November 2014, a series of lawsuits have been filed
against a number of banks, including Credit Suisse AG
and, in two instances, Credit Suisse AG, New York
Branch, in the US District Court for the Eastern District of New
York (EDNY) and the
SDNY alleging
claims under
the United
States Anti-Terrorism Act (ATA) and the
Justice Against
Sponsors of Terrorism Act. The plaintiffs in each of these
lawsuits are, or are relatives of, victims
of various terrorist
attacks in Iraq
and allege a
conspiracy and/or aiding
and abetting based
on allegations that
various international
financial institutions, including
the defendants, agreed
to alter, falsify or omit information from
payment messages
that
involved
Iranian
parties
for
the
express
purpose
of
concealing
the
Iranian
parties’
financial
activities
and
transactions from detection by US
authorities. The lawsuits allege
that this conduct has made
it possible for Iran to
transfer funds
to Hezbollah
and other terrorist
organizations actively
engaged in
harming US
military personnel
and
civilians. On January 5, 2023, the United States Court of Appeals for the Second Circuit affirmed a September
16,
2019 ruling by the EDNY granting defendants’ motion to dismiss the first filed lawsuit. On May 8, 2023, plaintiffs
filed a petition for
a writ of certiorari
in the United States
Supreme Court. Of the
other seven cases,
four are stayed
pending the outcome of
the petition for
a writ of
certiorari, including one that
was dismissed as
to Credit Suisse
and most of the bank defendants prior to entry of the stay,
and in three the court has set a schedule for plaintiffs
to file amended complaints,
including two that
were dismissed prior to
the court setting a
schedule for plaintiffs
to
replead.
6. Customer account matters
Several
clients
have
claimed
that
a
former
relationship
manager
in
Switzerland
had
exceeded
his
investment
authority
in
the
management of
their
portfolios, resulting
in
excessive concentrations
of
certain
exposures
and
investment losses.
Credit
Suisse AG
is investigating
the claims,
as well
as transactions
among the
clients. Credit
Suisse AG filed a criminal complaint against the former relationship manager with the Geneva Prosecutor’s Office
upon which the
prosecutor initiated
a criminal investigation.
Several clients of
the former relationship
manager also
filed
criminal
complaints
with
the
Geneva
Prosecutor’s
Office.
On
February
9,
2018,
the
former
relationship
manager
was
sentenced
to
five
years
in
prison
by
the
Geneva
criminal
court
for
fraud,
forgery
and
criminal
mismanagement and
ordered to pay
damages of
approximately USD
130
m. Several
parties appealed
the judgment.
On June 26,
2019, the
Criminal Court
of Appeals
of Geneva
ruled in the
appeal of
the judgment
against the
former
relationship
manager,
upholding
the
main
findings
of
the
Geneva
criminal
court.
Several
parties
appealed
the
decision to the Swiss
Federal Supreme Court.
On February 19, 2020,
the Swiss Federal Supreme
Court rendered its
judgment on the appeals, substantially confirming
the findings of the Criminal Court of Appeals
of Geneva.
Civil lawsuits have been initiated against
Credit Suisse AG and/or certain
affiliates in various jurisdictions, based
on
the findings established in the criminal proceedings
against the former relationship manager.
In Singapore, in
the civil lawsuit
brought against
Credit Suisse Trust
Limited, a Credit
Suisse AG affiliate,
on May 26,
2023, the Singapore International Commercial Court issued a first instance judgment
finding for the plaintiffs and
directing the parties’ experts to agree on the
amount of the damages award according to the calculation method
and
parameters
adopted
by
the
court.
Further,
the
court
determined
that
(i)
damages
shall
be
reduced
by
compensation already paid to the plaintiffs
and (ii) there shall be
no double recovery between this award and
the
award in
the Bermuda
proceedings against
Credit Suisse
Life (Bermuda)
Ltd. Based
on the
calculations by
the parties’
experts,
Credit
Suisse
expects
the
damages
amount
to
be
no
more
than
USD
750
m,
excluding
post-judgment
interest. This figure
does not exclude
potential overlap with
the Bermuda proceedings, which
are currently being
appealed.
As
the
parties’
experts
have
been
unable
to
agree
on
the
amount
of
the
damages,
following
court
directions, the parties have filed their proposed draft orders with supporting documents on August 25, 2023. It is
expected that the court will issue
a final order determining all
matters of the suit in September
2023. Credit Suisse
Trust Limited intends to appeal the judgment
and has applied for a stay of execution
pending that appeal.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
105
Note 15
Provisions and contingent liabilities
(continued)
In Bermuda, in the civil lawsuit brought against
Credit Suisse Life (Bermuda) Ltd., a Credit Suisse
AG affiliate, trial
took place in the Supreme Court
of Bermuda in November and December 2021. The
Supreme Court of Bermuda
issued a first instance judgment on March 29, 2022, finding
for the plaintiff. On May 6, 2022, the Supreme Court
of Bermuda
issued an order
awarding damages of
USD
607.35
m to
the plaintiff. On
May 9,
2022, Credit
Suisse
Life (Bermuda) Ltd. appealed the decision to the Bermuda Court of Appeal. On July 25, 2022, the Supreme Court
of Bermuda granted a stay
of execution of its
judgment pending appeal on the condition
that damages awarded
were paid into an escrow account within
42
days, which condition was satisfied. On June 23, 2023, the Bermuda
Court of Appeal
issued its
judgment confirming
the award
issued by the
Supreme Court
of Bermuda
and upholding
the Supreme Court
of Bermuda’s finding
that Credit Suisse
Life (Bermuda) Ltd.
had breached its
contractual and
fiduciary duties,
but overturning
the Supreme
Court of
Bermuda’s finding
that Credit
Suisse Life
(Bermuda) Ltd.
had made
fraudulent misrepresentations.
On July
7, 2023,
Credit Suisse
Life (Bermuda)
Ltd. filed
its notice
of motion
for leave to
appeal to the
Judicial Committee of the
Privy Council. On July
14, 2023 Credit
Suisse Life (Bermuda)
Ltd. applied
for a
stay of
execution of
the Bermuda
Court of
Appeal’s judgment
pending the
outcome of
the appeal
to the
Judicial Committee
of the
Privy Council
on the
condition that
the damages
awarded remain
within the
escrow
account and that interest be added to the escrow
account calculated at the Bermuda statutory
rate of
3.5
%.
In Switzerland, civil
lawsuits have commenced
against Credit Suisse
AG in
the Court of
First Instance
of Geneva,
with statements of claim served on March 6
and 31, 2023.
7. FIFA-related matters
In connection with investigations
by US government authorities
into the involvement of financial
institutions in the
alleged
bribery
and
corruption
surrounding
the
Fédération
Internationale
de
Football
Association
(FIFA),
Credit
Suisse
received inquiries
regarding
its
banking relationships
with certain
individuals and
entities associated
with
FIFA,
including
but
not
limited
to
certain
persons
and
entities
named
and/or
described
in
the
May
20,
2015
indictment
and
the
November
25,
2015
superseding
indictment
filed
by
the
EDNY
US
Attorney’s
Office.
The
investigations
encompassed
whether
multiple
financial
institutions,
including
Credit
Suisse,
permitted
the
processing of suspicious or otherwise improper
transactions, or failed to observe anti-money laundering laws and
regulations,
with
respect
to
the
accounts
of
certain
persons
and
entities
associated
with
FIFA.
Credit
Suisse
continues to cooperate
with US authorities
on this matter. The Swiss
Financial Market
Supervisory Authority
FINMA
(FINMA) announced the conclusion of its related investigation
in 2018.
8. Mozambique matter
Credit Suisse has
been subject
to investigations by
regulatory and enforcement
authorities, as
well as civil
litigation,
regarding certain Credit
Suisse entities’
arrangement of
loan financing
to Mozambique
state enterprises,
Proindicus
S.A. and Empresa Mocambiacana de Atum S.A. (EMATUM), a distribution to
private investors of loan participation
notes (LPN) related
to the EMATUM
financing in September
2013, and certain
Credit Suisse
entities’ subsequent
role in arranging the exchange
of those LPNs for
Eurobonds issued by the
Republic of Mozambique.
In 2019, three
former Credit Suisse employees pleaded guilty in the EDNY to accepting improper personal benefits in connection
with financing transactions carried out with
two Mozambique state enterprises.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
106
Note 15
Provisions and contingent liabilities
(continued)
On October
19, 2021,
Credit Suisse
reached settlements
with the
DOJ, the
US Securities
Exchange Commission
(SEC), the
UK Financial
Conduct Authority (FCA)
and FINMA
to resolve
inquiries by these
agencies. Credit Suisse
Group AG entered
into a three-year
Deferred Prosecution Agreement (DPA)
with the DOJ
in connection with
the
criminal information charging Credit Suisse Group
AG with conspiracy to commit wire fraud and consented
to the
entry of a Cease
and Desist Order by the SEC.
Under the terms of the
DPA, Credit Suisse Group AG
will continue
its
compliance
enhancement
and
remediation
efforts,
report
to
the
DOJ
on
those
efforts
for
three
years
and
undertake additional measures as
outlined in the DPA. Credit Suisse
also agreed to pay a net
penalty to the DOJ of
approximately
USD
175.5
m.
If
Credit
Suisse
Group
AG
adheres
to
the
DPA’s
conditions,
the
charges
will
be
dismissed at the end of the DPA’s three-year term. In addition, CSSEL entered into a Plea Agreement and pleaded
guilty to
one count
of conspiracy
to violate
the US
federal wire
fraud statute.
CSSEL will
be bound
by the
same
compliance, remediation and reporting obligations as Credit Suisse Group AG under the DPA.
Under the terms of
the SEC
Cease and
Desist Order,
Credit
Suisse paid
a
civil
penalty of
USD
65
m and
approximately USD
34
m in
disgorgement and pre-judgment interest in connection with violations of antifraud
provisions of the US Securities
Exchange Act
of 1934
(Exchange Act)
and the
US Securities
Act of
1933 (Securities
Act) (Exchange
Act Section
10(b) and
Rule 10b-5
thereunder and
Securities Act
Sections 17(a)(1), (2)
and (3))
as well
as internal
accounting
controls
and
books
and
records
provisions of
the
Exchange
Act
(Sections 13(b)(2)(A)
and
13(b)(2)(B)). The
total
monetary sanctions paid
to the
DOJ and
SEC, taking into
account various credits
and offsets, was
approximately
USD
275
m. Under the
terms of the
resolution with the
DOJ, Credit Suisse
was required to
pay restitution to
any
eligible investors in
the 2016 Eurobonds
issued by the
Republic of Mozambique. At
a July
22, 2022 hearing,
the
EDNY approved
the joint
restitution proposal
of the
DOJ and
Credit Suisse,
under which
Credit Suisse
paid USD
22.6
m in restitution
to eligible investors.
At the
hearing Credit Suisse
was also ordered
to pay, and
subsequently
paid, the USD
175.6
m net penalty set out in the DPA and
Plea Agreement described above.
In the
resolution with
the FCA,
CSSEL, Credit
Suisse International
(CSI) and
Credit Suisse
AG, London
Branch agreed
that, in respect of these transactions
with Mozambique, its UK operations
had failed to conduct business with
due
skill, care and
diligence and to take
reasonable care to organize
and control its affairs
responsibly and effectively,
with adequate
risk management systems.
Credit Suisse paid
a penalty
of approximately
USD
200
m and
has also
agreed with the FCA to forgive USD
200
m of debt owed to Credit Suisse by Mozambique.
FINMA also entered a decree announcing the conclusion of its enforcement proceeding, finding that Credit Suisse
AG and Credit Suisse
(Schweiz) AG violated the
duty to file a
suspicious activity report in
Switzerland, and Credit
Suisse
Group
AG
did
not
adequately manage
and
address
the
risks arising
from specific
sovereign lending
and
related securities
transactions, and ordering
the bank
to remediate
certain deficiencies. FINMA
also arranged
for
certain existing
transactions to
be reviewed
by the same
independent third
party on
the basis
of specific risk
criteria,
and
required
enhanced
disclosure
of
certain
sovereign
transactions
until
all
remedial
measures
have
been
satisfactorily implemented.
Credit Suisse
has completed
implementation of
the measures
required under
the FINMA
decree. An
independent third
party appointed
by FINMA
is reviewing
the implementation
and effectiveness
of these
measures.
On February 27,
2019, certain Credit
Suisse entities, the
same three former
employees, and several
other unrelated
entities were
sued in
the English
High Court
by the
Republic of
Mozambique. On
January 21,
2020, the
Credit
Suisse entities filed
their defense. On
June 26, 2020, the
Credit Suisse entities
filed third-party claims against
the
project contractor and several Mozambique officials. The Republic
of Mozambique filed an updated Particulars of
Claim on
October 27,
2020, and
the Credit
Suisse entities
filed their
amended defense
and counterclaim
on January
15, 2021. Following
the announcement
of the global
regulatory resolution
on October 19,
2021, Credit Suisse
filed
a re-amended defense
on December 24,
2021. The Republic
of Mozambique seeks
a declaration that
the sovereign
guarantee issued
in
connection with
the
ProIndicus loan
syndication arranged
and
funded, in
part,
by
a
Credit
Suisse subsidiary
is void
and also
seeks damages
alleged to
have arisen
in connection
with the
transactions involving
ProIndicus and
EMATUM, and
a transaction
in which
Credit Suisse
had no
involvement with
Mozambique Asset
Management S.A.
Also on
January 15,
2021, the
project contractor
filed a
cross claim
against the
Credit Suisse
entities (as
well as
the three
former Credit
Suisse employees
and various
Mozambican
officials) seeking
an indemnity
and/or contribution in the event that the contractor is found liable to the Republic of
Mozambique. On August 4,
2022, the Republic of Mozambique filed an updated Particulars of Claim addressing Credit Suisse’s October 2021
resolutions with various regulatory and enforcement
authorities, and framing its claim for consequential
damages.
On
September
23,
2022,
Credit
Suisse
filed
its
Re-Amended
Defense
in
response.
The
English
High
Court
has
scheduled trial to begin in October 2023.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
107
Note 15
Provisions and contingent liabilities
(continued)
On April
27, 2020, Banco
Internacional de Moçambique
(BIM), a member
of the ProIndicus
syndicate, brought a
claim
against
certain
Credit
Suisse
entities
seeking,
contingent
on
the
Republic
of
Mozambique’s
claim,
a
declaration that Credit Suisse
is liable to compensate
it for alleged losses suffered
as a result of any
invalidity of the
sovereign guarantee. The Credit Suisse entities filed their defense to this claim on August 28, 2020, to which BIM
replied on
October 16,
2020. Credit
Suisse filed
an amended
defense on
December 15,
2021, and
BIM filed
its
amended reply on January 5, 2022.
On December
17, 2020,
two members
of the
ProIndicus syndicate,
Beauregarde Holdings
LLP and
Orobica Holdings
LLC
(B&O), filed
a
claim against
certain Credit
Suisse entities
in
respect of
their interests
in
the ProIndicus
loan,
seeking unspecified
damages stemming
from the
alleged loss
suffered due
to their
reliance on
representations
made
by Credit Suisse
to the syndicate lenders.
Credit Suisse filed their
defense to this claim
on February 24, 2021.
On
February 4, 2022,
B&O filed an
amended claim, and
Credit Suisse filed
an amended defense
on February 18,
2022.
On June 3, 2021,
United Bank for Africa
PLC (UBA), a member
of the ProIndicus syndicate,
brought a claim against
certain Credit Suisse entities
seeking, contingent on the Republic
of Mozambique’s claim, a
declaration that Credit
Suisse is liable to compensate it for alleged losses suffered as a result of
any invalidity of the sovereign guarantee.
The
Credit
Suisse
entities
filed
their
defense
to
this
claim
on
July
1,
2021
and
filed
an
amended
defense
on
December 15, 2021, and UBA filed its amended
reply on January 5, 2022.
On March 16, 2023, Moza
Banco S.A., a syndicate member
of the ProIndicus loan, filed
a claim against CSI, Credit
Suisse AG
and CSSEL
in the
English High
Court, making
allegations similar
to those
in litigations
filed by
other
ProIndicus syndicate members. This claim has been stayed until the determination of the October 2023 trial in the
English High Court in the litigation brought
by the Republic of Mozambique.
On February
23, 2022,
Privinvest Holding
SAL (Privinvest), the
parent company
of certain
entities involved in
the
Mozambique transactions, and
its owner
Iskandar Safa
brought a
defamation claim
in a
Lebanese court
against
CSSEL and
Credit Suisse
Group AG.
The lawsuit
alleges
damage to
the claimants’
professional reputation
in Lebanon
due to
statements that
were allegedly
made by
Credit Suisse
in documents
relating to
the October
2021 settlements
with global regulators. On August 18,
2022, the parties agreed to
a stay of the
proceedings until the date of
the
final judicial
determination of the
English High
Court litigation,
including any
appeals, and
on August
23, 2022,
the parties filed an application for a stay
with the Lebanese Court.
On November 2,
2022, Jean Boustani,
a Privinvest employee
who was the
lead negotiator on
behalf of Privinvest
in
relation to
the Mozambique
transactions, brought
a defamation
claim in
a Lebanese
court against
Credit Suisse
Group AG
and CSSEL.
The lawsuit
makes substantially
the same
allegations as
the claim
described immediately
above.
9. Cross-border private banking matters
Credit
Suisse
offices
in
various
locations,
including
the
UK,
the
Netherlands,
France
and
Belgium,
have
been
contacted
by
regulatory
and
law
enforcement
authorities
that
are
seeking
records
and
information
concerning
investigations into Credit Suisse’s historical private banking services
on a cross-border basis and in part through its
local branches
and banks.
Credit Suisse has
conducted a
review of these
issues, the
UK and
French aspects
of which
have been closed, and is continuing to cooperate
with the authorities.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
108
Note 15
Provisions and contingent liabilities
(continued)
10. ETN-related litigation
XIV litigation:
Since March 14, 2018, three class
action complaints were filed in the SDNY on
behalf of a putative
class of
purchasers of
VelocityShares Daily
Inverse VIX Short
Term
Exchange Traded
Notes linked to
the S&P
500
VIX Short-Term Futures Index
due December
4, 2030
(XIV ETNs).
On August
20, 2018,
plaintiffs filed
a consolidated
amended class
action complaint,
naming Credit
Suisse Group
AG and
certain affiliates
and executives,
which asserts
claims for violations of Sections 9(a)(4), 9(f),
10(b) and 20(a) of the Exchange Act
and Rule 10b-5 thereunder and
Sections 11 and 15 of
the US Securities Act of
1933 and alleges that the defendants are
responsible for losses to
investors
following
a
decline
in
the
value
of
XIV
ETNs
on
February
5,
2018.
Defendants
moved
to
dismiss
the
amended complaint
on November
2, 2018.
On September
25, 2019,
the SDNY
granted defendants’
motion to
dismiss and
dismissed with
prejudice all
claims against
the defendants.
On October
18, 2019,
plaintiffs filed
a notice
of appeal. On April 27, 2021, the Second Circuit issued an order affirming in part
and vacating in part the SDNY’s
September 25,
2019 decision
granting defendants’
motion to
dismiss with
prejudice. On
July 1,
2022, plaintiffs
filed a motion for class certification. On March 16, 2023, the court denied plaintiffs’
motion to certify two of their
three
alleged
classes
and
granted
plaintiffs’
motion
to
certify
their
third
alleged
class.
On
March
30,
2023,
defendants moved
for reconsideration
and filed
a petition
for permission
to appeal
the court’s
March 16,
2023
class certification
decision to
the Second
Circuit. On April
28, 2023,
plaintiffs filed
a motion seeking
leave to
amend
their complaint. On May 15, 2023, plaintiffs filed
a renewed motion for class certification.
DGAZ litigation:
On January
6, 2022,
Credit Suisse AG
was named
in a
class action
complaint filed in
the SDNY
brought on
behalf of
a
putative
class
of short
sellers of
VelocityShares 3x
Inverse Natural
Gas
Exchange Traded
Notes linked
to the
S&P GSCI
Natural Gas
Index ER
due February
9, 2032
(DGAZ ETNs).
The complaint
asserts claims
for violations
of Section
10(b) of
the Exchange
Act and
Rule 10b-5
thereunder and
alleges that
Credit Suisse
is
responsible for losses
suffered by short
sellers following a
June 2020 announcement
that Credit Suisse would
delist
and suspend further issuances
of the DGAZ ETNs.
On July 11, 2022, Credit
Suisse AG filed a motion
to dismiss. On
March 31, 2023,
the court granted
Credit Suisse AG’s
motion to dismiss.
On May 2,
2023, the court
entered an
order dismissing the case with prejudice.
On June 1, 2023, plaintiff filed a notice
of appeal.
11. Bulgarian former clients matter
Credit
Suisse
AG
has
been responding
to an
investigation by
the
Swiss Office
of
the
Attorney General
(SOAG)
concerning the
diligence and
controls
applied
to a
historical relationship
with Bulgarian
former clients
who are
alleged to have laundered funds
through Credit Suisse AG
accounts. On December 17, 2020, the
SOAG brought
charges against Credit
Suisse AG and
other parties. Credit
Suisse AG believes
its diligence and
controls complied
with applicable legal
requirements and
intends to defend
itself vigorously.
The trial
in the
Swiss Federal Criminal
Court took
place in
the first
quarter of
2022. On
June 27,
2022, Credit
Suisse AG
was convicted
in the
Swiss Federal
Criminal Court
of certain
historical organizational
inadequacies
in its
anti-money laundering
framework and
ordered
to pay a fine of CHF
2
m.
In
addition, the
court seized
certain
client assets
in
the amount
of approximately
CHF
12
m and
ordered Credit
Suisse AG to pay a
compensatory claim in the amount of approximately CHF
19
m. On July 5, 2022,
Credit Suisse
AG appealed the decision to the Swiss Federal
Court of Appeals.
12. SCFF
Credit
Suisse
has
received
requests
for
documents and
information in
connection with
inquiries, investigations,
enforcement and
other actions
relating to
the supply chain
finance funds
(SCFF) matter by
FINMA, the
FCA and
other regulatory and governmental agencies. The Luxembourg
Commission de Surveillance du Secteur Financier is
reviewing the matter through a third party. Credit Suisse is cooperating with these authorities.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
109
Note 15
Provisions and contingent liabilities
(continued)
On February 28, 2023,
FINMA announced the conclusion of
its enforcement proceedings against Credit
Suisse in
connection with the SCFF matter. In its order, FINMA reported
that Credit Suisse had seriously breached applicable
Swiss supervisory
laws in
this context
with regard
to risk
management and
appropriate operational
structures. While
FINMA
recognized
that
Credit
Suisse
has
already
taken
extensive
organizational
measures
based
on
its
own
investigation into the
SCFF matter, particularly
to strengthen its
governance and control
processes, and FINMA
is
supportive
of
these
measures,
the
regulator
has
ordered
certain
additional
remedial
measures.
These
include
a
requirement that the most
important (approximately
500
) business relationships must
be reviewed periodically and
holistically at
the Executive
Board level,
in particular
for counterparty
risks, and
that Credit
Suisse must
set up
a
document defining the responsibilities of
approximately
600
of its highest-ranking managers. FINMA
will appoint
an audit officer to assess compliance with these
supervisory measures. Separate from the
enforcement proceeding
regarding
Credit
Suisse,
FINMA
has
opened
four
enforcement
proceedings
against
former
managers
of
Credit
Suisse.
Certain civil actions have
been filed by fund investors
and other parties against
Credit Suisse and/or certain
officers
and directors in various
jurisdictions, which make allegations including mis-selling and
breaches of duties of care,
diligence and other fiduciary duties. Certain investors and other private
parties have also filed criminal complaints
against Credit Suisse and other parties in
connection with this matter.
13. Archegos
Credit
Suisse
has
received
requests
for
documents
and
information
in
connection
with
inquiries,
investigations
and/or actions
relating
to Credit
Suisse’s relationship
with Archegos
Capital Management
(Archegos), including
from
FINMA (assisted
by
a third
party appointed
by
FINMA), the
DOJ,
the SEC,
the US
Federal Reserve,
the US
Commodity
Futures
Trading
Commission (CFTC),
the US
Senate
Banking Committee,
the
Prudential
Regulation
Authority
(PRA),
the
FCA,
COMCO,
the
Hong
Kong
Competition
Commission
and
other
regulatory
and
governmental agencies. Credit Suisse is cooperating
with the authorities in these matters.
On
July
24,
2023,
the
US
Federal
Reserve
and
the
PRA
announced resolutions
of
their
investigations
of
Credit
Suisse’s relationship with Archegos.
UBS Group
AG, Credit
Suisse AG,
Credit Suisse
Holdings (USA)
Inc., and
Credit Suisse
AG, New
York Branch
entered
into an Order to Cease and Desist with the Board of Governors of the Federal Reserve System. Under the terms
of
the
order,
Credit
Suisse
agreed
to
pay
a
civil
money
penalty
of
USD
269
m
and
to
undertake
certain
remedial
measures
relating
to
counterparty
credit
risk
management,
liquidity
risk
management
and
non-financial
risk
management, as well as enhancements to
board oversight and governance.
CSI
and
CSSEL
entered
into
a
settlement
agreement
with
the
PRA
providing
for
the
resolution
of
the
PRA’s
investigation, following which
the PRA
published a Final
Notice imposing a
financial penalty of
GBP
87
m on
CSI
and CSSEL for breaches of various of the PRA’s
Fundamental Rules.
FINMA also
entered a
decree dated
July 14,
2023 announcing
the conclusion
of its
enforcement proceeding,
finding
that
Credit
Suisse
had
seriously
violated
financial
market
law
in
connection
with
its
business
relationship
with
Archegos and ordering remedial measures directed at Credit Suisse AG and UBS Group AG, as the legal successor
to
Credit
Suisse
Group
AG.
These
include
a
requirement
that
UBS
Group
AG
apply
its
restrictions
on
its
own
positions relating to individual clients throughout the financial group, as well as adjustments to the compensation
system of
the entire
financial group
to provide
for bonus
allocation criteria
that take
into account
risk appetite.
FINMA
also
announced
it
has
opened
enforcement
proceedings
against
a
former
Credit
Suisse
manager
in
connection with this matter.
On April
16, 2021, Credit
Suisse Group AG
and certain current
and former executives
were named in
a putative
class action complaint
filed in the SDNY
by a holder of
Credit Suisse American
Depositary Receipts,
asserting claims
for violations of Sections
10(b) and 20(a) of
the Exchange Act and
Rule 10b-5 thereunder,
alleging that defendants
violated
US
securities
laws
by
making
material
misrepresentations
and
omissions
regarding
Credit
Suisse’s
risk
management practices,
including with
respect to
the Archegos
matter. On
September 16,
2022, the
parties reached
an agreement
to settle
all claims.
On December
23, 2022
and May
11, 2023,
respectively, the
court entered
an
order granting preliminary and final approval
to the parties’ agreement to settle
all claims.
Additional civil actions relating
to Credit Suisse’s relationship with
Archegos have been filed
against Credit Suisse
and/or certain officers and directors, including
claims for breaches of fiduciary duties.
Second quarter 2023 report |
Consolidated financial statements | Notes to
the UBS Group AG interim consolidated
financial statements (unaudited)
110
Note 15
Provisions and contingent liabilities
(continued)
14. Credit Suisse financial disclosures
Three
putative securities
class action
complaints have
been filed
in the
US District
Court for
the District
of New
Jersey (DNJ)
against Credit
Suisse Group
AG and
current and
former directors,
officers, and
executives, alleging
that
defendants made
misleading statements
regarding
customer outflows
in late
2022. Two
of the
complaints also
include allegations relating
to financial
reporting controls
and Credit
Suisse Group
AG’s merger with
UBS Group
AG. On July 7, 2023, the DNJ transferred the cases to
the SDNY.
Credit Suisse has received requests for documents and information from regulatory and governmental agencies in
connection with inquiries,
investigations and/or actions
relating to
these matters, as
well as
for other statements
regarding
Credit
Suisse’s
financial
condition,
including
from
the
SEC,
the
DOJ
and
FINMA.
Credit
Suisse
is
cooperating with the authorities in these matters.
15. Merger-related litigation
On May
28, 2023
and June
7, 2023,
certain Credit
Suisse AG
affiliates, as
well as
current and
former directors,
officers, and executives
were named in
two putative class action
complaints in the SDNY
alleging that a series
of
scandals and misconduct led to a loss of shareholder value and, eventually, Credit Suisse Group AG’s merger with
UBS Group
AG. KPMG
and KPMG
employees are
also named
as defendants.
The complaints
allege breaches
of
fiduciary duty under Swiss law, and civil RICO claims under United States
federal law.
On June
20, 2023,
a putative
class action
complaint was
filed in
the EDNY
against various
former Credit
Suisse
directors, officers, and executives on
behalf of a purported
class of those who
held Credit Suisse additional tier
1
capital notes between January
12, 2023 and March 19,
2023. The complaint asserts direct
claims under Swiss law.
Second quarter 2023 report |
Significant regulated subsidiary and sub-group
information
111
Significant regulated subsidiary
and sub-group information
Unaudited
Financial and regulatory key figures for our significant regulated
subsidiaries and sub-groups
UBS AG
(consolidated)
UBS AG
(standalone)
UBS Switzerland AG
(standalone)
UBS Europe SE
(consolidated)
UBS Americas Holding
LLC
(consolidated)
All values in million, except where indicated
USD
USD
CHF
EUR
USD
Financial and regulatory requirements
IFRS
Swiss SRB rules
Swiss GAAP
Swiss SRB rules
(phase-in)
Swiss GAAP
Swiss SRB rules
IFRS
EU regulatory rules
US GAAP
US Basel III rules
As of or for the quarter ended
30.6.23
31.3.23
30.6.23
31.3.23
30.6.23
31.3.23
30.6.23
31.3.23
1
30.6.23
31.3.23
Financial information
2
Income statement
Total operating income
3
8,453
8,806
7,118
2,690
2,524
2,436
264
301
3,136
3,279
Total operating expenses
6,997
7,350
5,664
1,961
1,434
1,338
189
224
3,287
3,117
Operating profit / (loss) before tax
1,456
1,456
1,454
729
1,090
1,098
75
77
(151)
162
Net profit / (loss)
1,124
1,012
1,270
726
891
893
58
58
(174)
77
Balance sheet
Total assets
1,096,318
1,056,758
530,893
513,593
313,565
313,512
49,389
49,348
195,827
197,394
Total liabilities
1,043,044
998,021
477,536
455,505
298,987
297,125
45,892
45,672
171,539
172,729
Total equity
53,274
58,738
53,357
58,088
14,578
16,387
3,497
3,675
24,288
24,665
Capital
4
Common equity tier 1 capital
43,300
42,801
53,904
53,476
12,354
12,356
2,438
2,435
10,275
10,579
Additional tier 1 capital
11,718
12,315
11,718
12,315
5,381
5,389
600
600
5,085
5,094
Total going concern capital / Tier 1 capital
55,017
55,116
65,622
65,791
17,735
17,745
3,038
3,035
15,361
15,673
Tier 2 capital
539
2,975
533
2,968
220
217
Total capital
3,038
3,035
15,581
15,889
Total gone concern loss-absorbing capacity
51,572
52,624
51,566
52,617
11,235
11,257
2,525
5
2,127
5
7,400
7
7,400
7
Total loss-absorbing capacity
106,589
107,741
117,187
118,408
28,971
29,001
5,563
5,162
22,761
7
23,073
7
Risk-weighted assets and leverage ratio
denominator
4
Risk-weighted assets
323,406
321,224
343,374
348,235
107,203
108,077
11,118
10,561
70,135
71,901
Leverage ratio denominator
1,048,313
1,018,023
606,158
589,317
330,318
330,362
49,351
47,909
186,340
188,330
Supplementary leverage ratio denominator
207,357
209,465
Capital and leverage ratios (%)
4
Common equity tier 1 capital ratio
13.4
13.3
15.7
15.4
11.5
11.4
21.9
23.1
14.7
14.7
Going concern capital ratio / Tier 1 capital ratio
17.0
17.2
19.1
18.9
16.5
16.4
27.3
28.7
21.9
21.8
Total capital ratio
27.3
28.7
22.2
22.1
Total loss-absorbing capacity ratio
33.0
33.5
27.0
26.8
50.0
48.9
32.5
32.1
Tier 1 leverage ratio
6.2
6.3
8.2
8.3
Supplementary tier 1 leverage ratio
7.4
7.5
Going concern leverage ratio
5.2
5.4
10.8
11.2
5.4
5.4
Total loss-absorbing capacity leverage ratio
10.2
10.6
8.8
8.8
11.3
10.8
12.2
12.3
Gone concern capital coverage ratio
111.7
120.6
Liquidity coverage ratio
4,8
High-quality liquid assets (bn)
224.8
97.7
98.8
77.6
85.3
20.0
20.3
29.2
30.5
6
Net cash outflows (bn)
131.5
47.1
52.4
54.5
60.2
13.2
13.2
19.5
21.0
6
Liquidity coverage ratio (%)
170.9
208.0
9
189.1
142.4
10
141.9
152.4
155.0
150.0
144.9
6
Net stable funding ratio
4,8,11
Total available stable funding (bn)
564.5
253.9
255.0
219.7
220.8
13.1
13.2
100.7
100.9
Total required stable funding (bn)
477.6
283.9
289.0
163.0
165.2
9.1
8.6
79.6
80.0
Net stable funding ratio (%)
118.2
89.4
12
88.2
134.8
12
133.7
144.9
153.8
126.5
126.1
Other
Joint and several liability between UBS AG and UBS
Switzerland AG (bn)
13
3
3
1 Comparative figures have
been restated to align
with the regulatory reports as
submitted to the European
Central Bank (the ECB).
2 The financial information disclosed
does not represent financial
statements
under the respective GAAP / IFRS.
3 The total operating income includes credit loss expense or release.
4 Refer to the 30 June 2023 Pillar 3 Report, available under “Pillar 3 disclosures” at ubs.com/investors,
for
more information.
5 Consists of positions that
meet the conditions laid
down in Art. 72a–b of
the Capital Requirements Regulation
(CRR) II with regard to
contractual, structural or legal subordination.
6 Comparative
information for 31 March 2023 has been restated
for revisions to HQLA and net cash outflows.
7 Consists of eligible long-term debt that meets the
conditions specified in 12 CFR 252.162 of the final
TLAC rules.
Total loss-absorbing capacity is the sum of tier 1
capital and eligible long-term debt.
8 Following the acquisition of Credit Suisse and
the corresponding additional disclosure requirements according to FINMA Circular
2016/1 “Disclosure – banks”, we disclose the UBS AG consolidated liquidity coverage ratio and net stable funding ratio
for the first time in this section.
9 In the second quarter of 2023, the liquidity coverage ratio
(the LCR) of UBS AG was 208.0%,
remaining above the prudential requirements communicated
by FINMA.
10 In the second quarter of 2023,
the LCR of UBS Switzerland AG,
which is a Swiss SRB, was
142.4%,
remaining above the prudential requirement communicated
by FINMA in connection with the
Swiss Emergency Plan.
11 For UBS Americas Holding
LLC consolidated, the NSFR requirement
became effective as of
1 July 2021 and related disclosures came into effect in the second quarter of 2023.
12 In accordance with Art. 17h para. 3 and 4 of the Liquidity
Ordinance, UBS AG standalone is required to maintain a minimum
NSFR of at least 80% without taking into account excess funding
of UBS Switzerland AG and 100% after taking into account such excess funding.
13 Refer to the “Capital, liquidity and funding, and balance sheet”
section of this report for more information about the joint and several liability.
Under certain circumstances, the Swiss Banking Act and
FINMA’s Banking Insolvency
Ordinance authorize FINMA to modify, extinguish
or convert to common equity liabilities of a bank in connection with a resolution or insolvency of such bank.
Second quarter 2023 report |
Significant regulated subsidiary and sub-group
information
112
Credit Suisse AG
(consolidated)
Credit Suisse AG
(standalone)
Credit Suisse
(Schweiz) AG
(consolidated)
Credit Suisse
(Schweiz) AG
(standalone)
Credit Suisse
International
(standalone)
Credit Suisse
Holdings (USA), Inc.
(consolidated)
All values in million, except where
indicated
CHF
CHF
CHF
CHF
USD
USD
Financial and regulatory requirements
US GAAP
Swiss SRB rules
Swiss GAAP
Swiss SRB rules
(phase-in)
1
US GAAP
Swiss SRB rules
Swiss GAAP
Swiss SRB rules
1
IFRS
UK regulatory rules
US GAAP
US Basel III
regulatory rules
As of or for the quarter ended
30.6.23
31.3.23
30.6.23
31.3.23
30.6.23
31.3.23
30.6.23
31.3.23
30.6.23
31.3.23
30.6.23
31.3.23
Capital
2
Common equity tier 1 capital
45,542
54,244
28,394
34,206
12,958
12,602
11,884
11,841
14,589
14,951
10,759
12,491
Additional tier 1 capital
463
0
463
0
3,100
3,100
3,100
3,100
1,200
1,200
523
522
Total going concern capital / Tier 1 capital
46,004
54,244
28,856
34,206
16,058
15,702
14,984
14,941
15,789
16,151
11,282
13,013
Tier 2 capital
3
3
66
67
Total capital
46,004
54,244
28,856
34,206
16,058
15,702
14,984
14,941
15,792
16,154
11,348
13,080
Total gone concern loss-absorbing
capacity
39,375
42,227
39,325
42,362
9,300
9,300
9,300
9,300
4,586
4,586
3,000
3,500
Total loss-absorbing capacity
85,379
96,471
68,182
76,568
25,358
25,002
24,284
24,241
20,378
20,740
14,282
16,513
Risk-weighted assets and
leverage ratio denominator
2
Risk-weighted assets
217,102
242,919
199,504
230,782
88,130
90,129
87,414
90,414
48,633
49,042
21,313
31,762
Leverage ratio denominator
585,681
655,439
362,074
442,168
256,015
251,086
253,987
249,268
98,366
112,642
42,798
55,789
Supplementary leverage ratio denominator
51,448
66,825
Capital and leverage ratios (%)
2
Common equity tier 1 capital ratio
21.0
22.3
14.2
14.8
14.7
14.0
13.6
13.1
30.0
30.5
50.5
39.3
Going concern capital ratio / Tier 1 capital
ratio
21.2
22.3
14.5
14.8
18.2
17.4
17.1
16.5
32.5
32.9
52.9
41.0
Total capital ratio
21.2
22.3
14.5
14.8
18.2
17.4
17.1
16.5
32.5
32.9
53.2
41.2
Total loss-absorbing capacity ratio
39.3
39.7
28.8
27.7
27.8
26.8
41.9
42.3
67.0
52.0
Tier 1 leverage ratio
7.8
8.3
7.8
7.7
5.1
5.0
4.7
4.8
16.1
14.3
26.4
23.3
Supplementary tier 1 leverage ratio
16.1
14.3
21.9
19.5
Going concern leverage ratio
7.9
8.3
8.0
7.7
6.3
6.3
5.9
6.0
16.1
14.3
Total loss-absorbing capacity leverage
ratio
14.6
14.7
9.9
10.0
9.6
9.7
20.7
18.4
33.4
29.6
Gone concern capital coverage ratio
178.1
170.7
134.5
130.7
125.3
122.5
126.4
122.2
523.8
528.6
Liquidity coverage ratio
2
High-quality liquid assets (bn)
131.7
118.1
63.2
51.4
42.9
36.8
42.9
36.8
20.1
23.9
17.0
16.7
Net cash outflows (bn)
51.3
64.6
16.2
30.5
30.6
25.6
31.0
26.0
11.5
14.9
6.3
12.2
Liquidity coverage ratio (%)
256.7
3
182.9
390.9
4
168.6
140.2
5
143.5
138.2
6
141.4
197.0
162.8
293.0
139.4
Net stable funding ratio
2, 8
Total available stable funding (bn)
295.7
295.4
168.3
170.7
135.1
133.9
133.5
132.0
39.8
44.3
25.0
27.5
Total required stable funding (bn)
246.2
271.4
168.1
190.9
123.9
127.6
121.7
124.6
31.1
34.7
11.4
14.5
Net stable funding ratio (%)
120.1
108.9
100.1
7
89.4
7
109.0
104.9
109.7
7
106.0
7
128.1
127.5
219.6
189.8
Other
Joint and several liability between Credit
Suisse AG standalone and Credit Suisse
(Schweiz) AG standalone (bn)
0.6
0.6
1 Swiss GAAP statutory accounting
rules for banks allow the
use of certain US GAAP
accounting rules, such as
current expected credit loss
(the CECL) requirements.
2 Refer to the 30
June 2023 Pillar 3
Report,
available under “Pillar 3
disclosures” at ubs.com/investors,
for more information.
3 In the second quarter of
2023, the liquidity coverage
ratio (the LCR) of Credit
Suisse AG consolidated was
256.7%, remaining
above the prudential requirements communicated by FINMA.
4 In the second quarter of 2023, the LCR of Credit Suisse AG standalone was 390.9%, remaining above the prudential requirements communicated by
FINMA.
5 In the second quarter of 2023, the LCR of
Credit Suisse (Schweiz) AG consolidated was 140.2%, remaining above the prudential requirements communicated by FINMA.
6 In the second quarter of 2023,
the LCR of Credit Suisse (Schweiz) AG standalone was 138.2%, remaining above the prudential requirements
communicated by FINMA.
7 Based on the Liquidity Ordinance, Credit Suisse AG standalone is
allowed
to fulfill the minimum NSFR
of 100% by taking
into consideration any excess funding
of Credit Suisse (Schweiz) AG
standalone, and Credit
Suisse AG standalone has
an NSFR requirement of at
least 80% without
taking into consideration any such excess
funding. Credit Suisse (Schweiz) AG
must always fulfill the NSFR
of at least 100% on a
standalone basis.
8 For Credit Suisse Holdings
(USA), Inc., the NSFR requirement
became effective as of 1 July 2021 and related disclosures came into effect in the second quarter of 2023.
Second quarter 2023 report |
Significant regulated subsidiary and sub-group
information
113
UBS Group AG is
a holding company
and conducts substantially
all of its operations
through UBS AG, Credit
Suisse
AG and subsidiaries thereof. UBS Group AG, UBS AG and Credit
Suisse AG have contributed a significant portion
of their respective capital to,
and provide substantial liquidity to,
such subsidiaries. Many of these
subsidiaries are
subject to regulations requiring compliance with minimum capital,
liquidity and similar requirements. The tables in
this section summarize
the regulatory capital
components and
capital ratios of
our significant
regulated subsidiaries
and sub-groups determined
under the regulatory framework
of each subsidiary’s
or sub-group’s home jurisdiction.
Supervisory authorities generally have discretion to impose higher requirements or
to otherwise limit the activities
of subsidiaries. Supervisory
authorities also may
require entities to
measure capital
and leverage ratios
on a stressed
basis and may limit
the ability of
an entity to engage
in new activities or
take capital actions
based on the results
of
those tests.
In June 2023, the Federal Reserve Board released
the results of its 2023 Dodd–Frank Act
Stress Test (DFAST). UBS’s
US
intermediate holding
company, UBS
Americas Holding
LLC, and
Credit
Suisse’s intermediate
holding, Credit
Suisse
Holdings
(USA),
Inc.,
exceeded
the
minimum
capital
requirements
under
the
severely
adverse
scenario.
Following the completion of the
annual DFAST and the Comprehensive Capital
Analysis and Review (CCAR), UBS
Americas Holding LLC was assigned a stress capital buffer (an SCB) of 9.1% (previously 4.8%) under the SCB rule
as of 1 October 2023, resulting
in a total common equity
tier 1 (CET1) capital requirement
of 13.6%. Credit Suisse
Holdings (USA), Inc. was assigned an SCB of 7.2% (previously 9.0%),
resulting in a total CET1 capital requirement
of 11.7%.
Additional information
on the
above entities
is provided
in the
30 June 2023
Pillar 3 report,
which is
available under
“Pillar 3 disclosures” at
ubs.com/investors
.
Second quarter 2023 report |
Appendix
114
Appendix
Alternative performance measures
Alternative performance measures
An alternative performance measure (an APM) is a financial measure of historical or
future financial performance,
financial position
or cash
flows other
than a
financial measure
defined or
specified in
the applicable
recognized
accounting standards or in
other applicable regulations. A
number of APMs
are reported in
the discussion of
the
financial and operating performance of
the external reports (annual, quarterly
and other reports). APMs
are used
to provide
a more
complete
picture of
operating
performance
and to
reflect management’s
view of
the fundamental
drivers
of
the
business
results. A
definition
of
each
APM,
the
method
used
to
calculate
it
and
the
information
content are presented in alphabetical order
in the table below. These APMs may
qualify as non-GAAP measures as
defined by US Securities and Exchange Commission
(SEC) regulations.
Credit Suisse‘s assets and liabilities
as of 30 June
2023 are reflected in
the Group balance sheet measures.
Credit
Suisse‘s second quarter results for the one-month period
ended 30 June 2023, as included in the
Group’s second
quarter results, have been
annualized for the purpose
of the calculation of
return measures, by multiplying
such by
four and two for quarterly and semi-annual measures,
respectively.
APM label
Calculation
Information content
Active Digital Banking clients in
Corporate & Institutional Clients (%)
– Personal & Corporate Banking
Calculated as the average number of active
clients for
each month in the relevant period divided by the
average number of total clients. “Clients” refers
to the
number of unique business relationships or legal
entities operated by Corporate & Institutional
Clients,
excluding clients that do not have an account,
mono-
product clients and clients that have defaulted on
loans
or credit facilities. At the end of each month, any client
that has logged on at least once in that
month is
determined to be “active” (a log-in time stamp
is
allocated to all business relationship numbers or
per
legal entity in a digital banking contract).
This measure provides information about the
proportion of active Digital Banking clients in the total
number of UBS clients (within the aforementioned
meaning) which are serviced by Corporate &
Institutional Clients.
Active Digital Banking clients in
Personal Banking (%)
– Personal & Corporate Banking
Calculated as the average number of active
clients for
each month in the relevant period divided by the
average number of total clients. “Clients” refers
to the
number of unique business relationships operated
by
Personal Banking, excluding persons under the
age of
15, clients who do not have a private account,
clients
domiciled outside Switzerland and clients who have
defaulted on loans or credit facilities. At the
end of
each month, any client that has logged on
at least once
in that month is determined to be “active”
(a log-in
time stamp is allocated to all business relationship
numbers in a digital banking contract).
This measure provides information about the
proportion of active Digital Banking clients in the total
number of UBS clients (within the aforementioned
meaning) who are serviced by Personal Banking.
Active Mobile Banking clients in
Personal Banking (%)
– Personal & Corporate Banking
Calculated as the average number of active
clients for
each month in the relevant period divided by the
average number of total clients. “Clients” refers
to the
number of unique business relationships operated
by
Personal Banking, excluding persons under the
age of
15, clients who do not have a private account,
clients
domiciled outside Switzerland and clients who have
defaulted on loans or credit facilities. At the
end of
each month, any client that has logged on
via the
mobile app at least once in that month is determined
to be “active” (a log-in time stamp is allocated
to all
business relationship numbers in a digital banking
contract).
This measure provides information about the
proportion of active Mobile Banking clients in the
total number of UBS clients (within the
aforementioned meaning) who are serviced by
Personal Banking.
Second quarter 2023 report |
Appendix
115
APM label
Calculation
Information content
Assets under management (USD)
– Wealth Management (Credit Suisse),
Swiss Bank (Credit Suisse),
Asset Management (Credit Suisse)
Calculated as the sum of assets for which
investment
advisory or discretionary asset management services
are provided, investment fund assets and assets
invested in other investment fund-like pooled
investment vehicles. In order to be classified as assets
under management, a service is expected to
be
provided currently or in the foreseeable future where
the involvement of banking or investment expertise
(e.g., as asset manager or investment advisor)
is not
purely executional or custodial in nature.
This measure provides information about the volume
of assets for which investment advisory or
discretionary asset management services are provided.
Cost / income ratio (%)
Calculated as operating expenses divided by
total
revenues.
This measure provides information about the
efficiency of the business by comparing operating
expenses with gross income.
Cost / income ratio (excluding
integration-related expenses and
acquisition costs) (%)
Calculated as operating expenses, excluding
integration-related expenses and acquisition costs
associated with the acquisition of the Credit Suisse
Group, divided by total revenues.
This measure provides information about the
efficiency of the business by comparing operating
expenses, excluding integration-related expenses
and
acquisition costs associated with the acquisition
of the
Credit Suisse Group, with gross income.
Cost / income ratio (%)
– Wealth Management (Credit Suisse),
Swiss Bank (Credit Suisse),
Asset Management (Credit Suisse),
the Investment Bank (Credit Suisse)
Calculated as total operating expenses divided
by net
revenues.
This measure provides information about the
efficiency of the business by comparing total
operating expenses with net revenues.
Fee and trading income for Corporate
&
Institutional Clients (USD and CHF)
– Personal & Corporate Banking
Calculated as the total of recurring net fee and
transaction-based income for Corporate &
Institutional Clients.
This measure provides information about the amount
of fee and trading income for Corporate
&
Institutional Clients.
Fee-generating assets (USD)
– Global Wealth Management
Calculated as the sum of discretionary and
nondiscretionary wealth management portfolios
(mandate volume) and assets where generated
revenues are predominantly of a recurring nature, i.e.,
mainly investment, mutual, hedge and private-market
funds where the firm has a distribution agreement,
including client commitments into closed-ended
private-market funds from the date that recurring
fees are charged. Assets related to the Global
Financial Intermediaries business are excluded, as
are
assets of sanctioned clients.
This measure provides information about the volume
of invested assets that create a revenue stream,
whether as a result of the nature of the contractual
relationship with clients or through the fee structure
of the asset. An increase in the level of fee-generating
assets results in an increase in the associated revenue
stream. Assets of sanctioned clients are excluded from
fee-generating assets.
Fee-generating asset margin (bps)
– Global Wealth Management
Calculated as revenues from fee-generating assets
(a
portion of which is included in recurring fee income
and a portion of which is included in transaction-
based income, annualized as applicable) divided
by
average fee-generating assets for the
relevant
mandate fee billing period. For the US, fees have
been billed on daily balances since the fourth
quarter
of 2020 and average fee-generating assets
are
calculated as the average of the monthly
average
balances. Prior to the fourth quarter of 2020,
billing
was based on prior quarter-end balances,
and the
average fee-generating assets were thus the
prior
quarter-end balance. For balances outside of
the US,
billing is based on prior month-end balances
and
average fee-generating assets are thus the
average of
the prior month-end balances.
This measure provides information about the revenues
from fee-generating assets in relation to their average
volume during the relevant mandate fee billing
period.
Fee-pool-comparable revenues (USD)
– the Investment Bank
Calculated as the total of revenues from: merger-and-
acquisition-related transactions; Equity Capital
Markets,
excluding derivatives; Leveraged Capital
Markets, excluding the impact of mark-to-market
movements on loan portfolios; and Debt
Capital
Markets, excluding revenues related to debt
underwriting of UBS instruments.
This measure provides information about the amount
of revenues in the Investment Bank that are
comparable with the relevant global fee pools.
Gross margin on invested assets (bps)
– Asset Management
Calculated as total revenues (annualized as applicable)
divided by average invested assets.
This measure provides information about the total
revenues of the business in relation to invested assets.
Impaired loan portfolio as a percentage
of total loan portfolio, gross (%)
– Global Wealth Management,
Personal & Corporate Banking
Calculated as impaired loan portfolio divided by
total
gross loan portfolio.
This measure provides information about the
proportion of impaired loan portfolio in the total gross
loan portfolio.
Invested assets (USD and CHF)
– Global Wealth Management,
Personal & Corporate Banking,
Asset Management
Calculated as the sum of managed fund
assets,
managed institutional assets, discretionary and
advisory wealth management portfolios, fiduciary
deposits, time deposits, savings accounts,
and wealth
management securities or brokerage accounts.
This measure provides information about the volume
of client assets managed by or deposited with
UBS for
investment purposes.
Second quarter 2023 report |
Appendix
116
APM label
Calculation
Information content
Investment products for Personal
Banking (USD and CHF)
– Personal & Corporate Banking
Calculated as the sum of investment funds
(including
UBS Vitainvest third-pillar pension funds, as
well as
money market funds), mandates and third-party
life
insurance operated in Personal Banking.
This measure provides information about the volume
of investment funds (including UBS Vitainvest
third-
pillar pension funds,
as well as money market funds),
mandates and third-party life insurance operated in
Personal Banking.
Net interest margin (bps)
– Personal & Corporate Banking
Calculated as net interest income (annualized
as
applicable) divided by average loans.
This measure provides information about the
profitability of the business by calculating the
difference between the price charged for lending and
the cost of funding, relative to loan value.
Net new assets (USD)
– Wealth Management (Credit Suisse),
Swiss Bank (Credit Suisse),
Asset Management (Credit Suisse)
Calculated as the net amount of new asset inflows
and asset outflows. The calculation is based
on the
direct method, taking into account individual cash
payments, security deliveries and cash flows
resulting
from loan increases or repayments. Excluded from the
calculation are interest and dividend income credited
to clients and commissions, interest, and fees charged
for banking
services,
as well as changes in assets
under management due to currency and market
volatility. Similarly,
other effects mainly relate to asset
inflows and outflows due to acquisition or divestiture,
exit from businesses or markets or exits due to new
regulatory requirements are excluded from the
calculation.
This measure provides information about the degree
of success in acquiring assets under management
or
changes in assets under management through
warranted reclassifications during a specific period.
Net new fee-generating assets (USD)
– Global Wealth Management
Calculated as the net amount of fee-generating
asset
inflows and outflows, including dividend
and interest
inflows into mandates and outflows from mandate
fees paid by clients during a specific period.
Excluded
from the calculation are the effects on fee-generating
assets of strategic decisions by UBS to exit
markets or
services.
This measure provides information about the
development of fee-generating assets during
a
specific period as a result of net flows, excluding
movements due to market performance and
foreign
exchange translation, as well as the effects on fee-
generating assets of strategic decisions by UBS
to exit
markets
or services.
Net new fee-generating asset
growth rate (%)
– Global Wealth Management
Calculated as the net amount of fee-generating
asset
inflows and outflows recorded during a specific
period (annualized as applicable) divided by
total fee-
generating assets at the beginning of the period.
This measure provides information about the growth
of fee-generating assets during a specific
period as a
result of net new fee-generating asset flows.
Net new investment products for
Personal Banking (USD and CHF)
– Personal & Corporate Banking
Calculated as the net amount of inflows and
outflows
of investment products during a specific period.
This measure provides information about the
development of investment products during a specific
period as a result of net new investment product
flows.
Net new money (USD)
– Global Wealth Management,
Asset Management
Calculated as the net amount of inflows and
outflows
of invested assets (as defined in UBS policy) recorded
during a specific period. Excluded from the calculation
are movements due to market performance, foreign
exchange translation, dividends, interest and fees,
as
well as the effects on invested assets of strategic
decisions by UBS to exit markets
or services. Net new
money is not measured for Personal & Corporate
Banking.
This measure provides information about the
development of invested assets during a
specific
period as a result of net new money flows.
Net profit growth (%)
Calculated as the change in net profit attributable
to
shareholders from continuing operations between
current and comparison periods divided by net profit
attributable to shareholders from continuing
operations of the comparison period.
This measure provides information about profit
growth since the comparison period.
Net profit growth (excluding negative
goodwill, integration-related expenses,
and acquisition costs) (%)
Calculated as the change in net profit attributable
to
shareholders from continuing operations between
current and comparison periods divided by net profit
attributable to shareholders from continuing
operations of the comparison period.
Net profit
attributable to shareholders excludes negative
goodwill,
integration-related expenses and acquisition
costs associated with the acquisition of the Credit
Suisse Group, and related tax impacts.
This measure provides information about profit
growth since the comparison period, while excluding
negative goodwill,
integration-related expenses and
acquisition costs associated with the acquisition
of the
Credit Suisse Group, and related tax impacts.
Operating profit / (loss) before tax
(excluding negative goodwill,
integration-related expenses, and
acquisition costs) (USD)
Calculated as total revenues less negative goodwill,
less operating expenses, which exclude integration-
related expenses and acquisition costs associated with
the acquisition of the Credit Suisse Group, less the
impact of credit loss expense or release.
This measure provides information about financial
performance, excluding negative goodwill,
integration-related expenses and acquisition costs
associated with the acquisition of the Credit Suisse
Group.
Pre-tax profit growth (%)
– Global Wealth Management,
Personal & Corporate Banking,
Asset Management,
the Investment Bank
Calculated as the change in net profit before tax
attributable to shareholders from continuing
operations between current and comparison periods
divided by net profit before tax attributable to
shareholders from continuing operations of the
comparison period.
This measure provides information about pre-tax
profit growth since the comparison period.
Second quarter 2023 report |
Appendix
117
APM label
Calculation
Information content
Recurring commissions and fees (USD)
– Wealth Management (Credit Suisse),
Swiss Bank (Credit Suisse)
Calculated as the total of recurring commissions
and
fees for services, such as investment product
management, discretionary mandate and other
asset
management-related fees, fees from lending
activities, fees for general banking products and
services and revenues from wealth structuring
solutions.
This measure provides information about the amount
of recurring commissions and fees.
Recurring net fee income
(USD and CHF)
– Global Wealth Management,
Personal & Corporate Banking
Calculated as the total of fees for services provided
on
an ongoing basis, such as portfolio management
fees,
asset-based investment fund fees and custody
fees,
which are generated on client assets, and
administrative fees for accounts.
This measure provides information about the amount
of recurring net fee income.
Return on common equity tier 1
capital (%)
Calculated as annualized net profit attributable to
shareholders divided by average common equity
tier 1
capital.
This measure provides information about the
profitability of the business in relation to common
equity tier 1 capital.
Return on common equity tier 1
capital (excluding
negative goodwill,
integration-related expenses, and
acquisition costs)
(%)
Calculated as annualized net profit attributable to
shareholders divided by average common equity
tier 1
capital. Net profit attributable to shareholders and
common equity tier 1 capital exclude negative
goodwill,
integration-related expenses and acquisition
costs associated with the acquisition of the Credit
Suisse Group, and related tax impacts.
This measure provides information about the
profitability of the business in relation to common
equity tier 1 capital, while excluding negative
goodwill,
integration-related expenses and acquisition
costs associated with the acquisition of the Credit
Suisse Group, and related tax impacts.
Return on equity (%)
Calculated as annualized net profit attributable to
shareholders divided by average equity attributable
to
shareholders.
This measure provides information about the
profitability of the business in relation to equity.
Return on equity (excluding negative
goodwill, integration-related expenses,
and acquisition costs) (%)
Calculated as annualized net profit attributable to
shareholders divided by average equity attributable
to
shareholders. Net profit attributable to shareholders
and equity attributable to shareholders exclude
negative goodwill,
integration-related expenses and
acquisition costs associated with the acquisition
of the
Credit Suisse Group, and related tax impacts.
This measure provides information about the
profitability of the business in relation to equity, while
excluding negative
goodwill,
integration-related
expenses and acquisition costs associated with
the
acquisition of the Credit Suisse Group, and related tax
impacts.
Return on leverage ratio denominator,
gross (%)
Calculated as annualized total revenues divided by
average leverage ratio denominator.
This measure provides information about the revenues
of the business in relation to the leverage ratio
denominator.
Return on tangible equity (%)
Calculated as annualized net profit attributable to
shareholders divided by average equity attributable
to
shareholders less average goodwill and intangible
assets.
This measure provides information about the
profitability of the business in relation to tangible
equity.
Return on tangible equity (excluding
negative goodwill, integration-related
expenses, and acquisition costs) (%)
Calculated as annualized net profit attributable to
shareholders divided by average equity attributable
to
shareholders less average goodwill and intangible
assets. Net profit attributable to shareholders and
equity attributable to shareholders exclude negative
goodwill,
integration-related expenses and acquisition
costs associated with the acquisition of the Credit
Suisse Group, and related tax impacts.
This measure provides information about the
profitability of the business in relation to tangible
equity, while excluding negative goodwill,
integration-
related expenses and acquisition costs associated with
the acquisition of the Credit Suisse Group, and related
tax impacts.
Tangible book value per share
(USD)
Calculated as equity attributable to shareholders less
goodwill and intangible assets divided by the
number
of shares outstanding.
This measure provides information about tangible net
assets on a per-share basis.
Total book value per share
(USD)
Calculated as equity attributable to shareholders
divided by the number of shares outstanding.
This measure provides information about net assets
on a per-share basis.
Total operating expenses (excluding
integration-related expenses and
acquisition costs)
(USD)
Calculated as total operating expenses less
integration-related expenses and acquisition costs
associated with the acquisition of the Credit Suisse
Group.
This measure provides information about the amount
of total operating expenses excluding integration-
related expenses and acquisition costs associated with
the acquisition of the Credit Suisse Group.
Second quarter 2023 report |
Appendix
118
APM label
Calculation
Information content
Transaction-
and performance-based
revenues (USD)
– Wealth Management (Credit Suisse)
Calculated as the total of transaction-
and
performance-based revenues, primarily arising
from
brokerage and product-issuing fees, fees from
foreign-exchange client transactions, trading and
sales income, equity participations income,
and
other transaction-
and performance-based income.
This measure provides information about the amount
of transaction-
and performance-based revenues.
Transaction-based income
(USD and CHF)
– Global Wealth Management,
Personal & Corporate Banking
Calculated as the total of the non-recurring portion
of
net fee and commission income, mainly composed
of
brokerage and transaction-based investment fund
fees, and credit card fees, as well as fees for payment
and foreign-exchange transactions, together with
other net income from financial instruments
measured at fair value through profit or loss.
This measure provides information about the amount
of the non-recurring portion of net fee and
commission income, together with other net
income
from financial instruments measured at fair value
through profit or loss.
Transaction-based revenues (USD)
– Swiss Bank (Credit Suisse)
Calculated as the total of transaction-based revenues,
arising primarily from brokerage fees, fees from
foreign exchange client transactions, corporate
advisory fees, revenues from our Swiss investment
banking business, equity participations income
and
other transaction-based income.
This measure provides information about the amount
of transaction-based revenues.
Second quarter 2023 report |
Appendix
119
Abbreviations frequently used in our financial reports
A
ABS
asset-backed securities
AG
Aktiengesellschaft
AGM
Annual General Meeting of
shareholders
A-IRB
advanced internal ratings-
based
AIV
alternative investment
vehicle
ALCO
Asset and Liability
Committee
AMA
advanced measurement
approach
AML
anti-money laundering
AoA
Articles of Association
APM
alternative performance
measure
ARR
alternative reference rate
ARS
auction rate securities
ASF
available stable funding
AT1
additional tier 1
AuM
assets under management
B
BCBS
Basel Committee on
Banking Supervision
BIS
Bank for International
Settlements
BoD
Board of Directors
C
CAO
Capital Adequacy
Ordinance
CCAR
Comprehensive Capital
Analysis and Review
CCF
credit conversion factor
CCP
central counterparty
CCR
counterparty credit risk
CCRC
Corporate Culture and
Responsibility Committee
CDS
credit default swap
CEA
Commodity Exchange Act
CEO
Chief Executive Officer
CET1
common equity tier 1
CFO
Chief Financial Officer
CGU
cash-generating unit
CHF
Swiss franc
CIO
Chief Investment Office
C&ORC
Compliance & Operational
Risk Control
CRM
credit risk mitigation (credit
risk) or comprehensive risk
measure (market risk)
CST
combined stress test
CUSIP
Committee on Uniform
Security Identification
Procedures
CVA
credit valuation adjustment
D
DBO
defined benefit obligation
DCCP
Deferred Contingent
Capital Plan
DE&I
diversity, equity and
inclusion
DFAST
Dodd–Frank Act Stress Test
DM
discount margin
DOJ
US Department of Justice
DTA
deferred tax asset
DVA
debit valuation adjustment
E
EAD
exposure at default
EB
Executive Board
EC
European Commission
ECB
European Central Bank
ECL
expected credit loss
EGM
Extraordinary General
Meeting of shareholders
EIR
effective interest rate
EL
expected loss
EMEA
Europe, Middle East and
Africa
EOP
Equity Ownership Plan
EPS
earnings per share
ESG
environmental, social and
governance
ESR
environmental and social
risk
ETD
exchange-traded derivatives
ETF
exchange-traded fund
EU
European Union
EUR
euro
EURIBOR
Euro Interbank Offered Rate
EVE
economic value of equity
EY
Ernst & Young Ltd
F
FA
financial advisor
FCA
UK Financial Conduct
Authority
FDIC
Federal Deposit Insurance
Corporation
FINMA
Swiss Financial Market
Supervisory Authority
FMIA
Swiss Financial Market
Infrastructure Act
FSB
Financial Stability Board
FTA
Swiss Federal Tax
Administration
FVA
funding valuation
adjustment
FVOCI
fair value through other
comprehensive income
FVTPL
fair value through profit or
loss
FX
foreign exchange
G
GAAP
generally accepted
accounting principles
GBP
pound sterling
GCRG
Group Compliance,
Regulatory & Governance
GDP
gross domestic product
GEB
Group Executive Board
GHG
greenhouse gas
GIA
Group Internal Audit
GRI
Global Reporting Initiative
G-SIB
global systemically
important bank
H
HQLA
high-quality liquid assets
I
IAS
International Accounting
Standards
IASB
International Accounting
Standards Board
IBOR
interbank offered rate
IFRIC
International Financial
Reporting Interpretations
Committee
IFRS
International Financial
Reporting Standards
IRB
internal ratings-based
IRRBB
interest rate risk in the
banking book
ISDA
International Swaps and
Derivatives Association
ISIN
International Securities
Identification Number
Second quarter 2023 report |
Appendix
120
Abbreviations frequently used in our financial reports (continued)
K
KRT
Key Risk Taker
L
LAS
liquidity-adjusted stress
LCR
liquidity coverage ratio
LGD
loss given default
LIBOR
London Interbank Offered
Rate
LLC
limited liability company
LoD
lines of defense
LRD
leverage ratio denominator
LTIP
Long-Term
Incentive Plan
LTV
loan-to-value
M
M&A
mergers and acquisitions
MRT
Material Risk Taker
N
NII
net interest income
NSFR
net stable funding ratio
NYSE
New York Stock Exchange
O
OCA
own credit adjustment
OCI
other comprehensive
income
OECD
Organisation for Economic
Co-operation and
Development
OTC
over-the-counter
P
PCI
purchased credit-impaired
PD
probability of default
PIT
point in time
P&L
profit or loss
Q
QCCP
Qualifying central
counterparty
R
RBC
risk-based capital
RbM
risk-based monitoring
REIT
real estate investment trust
RMBS
residential mortgage-
backed securities
RniV
risks not in VaR
RoCET1
return on CET1 capital
RoU
right-of-use
rTSR
relative total shareholder
return
RWA
risk-weighted assets
S
SA
standardized approach or
société anonyme
SA-CCR
standardized approach for
counterparty credit risk
SAR
Special Administrative
Region of the People’s
Republic of China
SDG
Sustainable Development
Goal
SEC
US Securities and Exchange
Commission
SFC
Swiss Federal Council
SFT
securities financing
transaction
SI
sustainable investing or
sustainable investment
SIBOR
Singapore Interbank
Offered Rate
SICR
significant increase in credit
risk
SIX
SIX Swiss Exchange
SME
small and medium-sized
entities
SMF
Senior Management
Function
SNB
Swiss National Bank
SOR
Singapore Swap Offer Rate
SPPI
solely payments of principal
and interest
SRB
systemically relevant bank
SRM
specific risk measure
SVaR
stressed value-at-risk
T
TBTF
too big to fail
TCFD
Task
Force on Climate-
related Financial Disclosures
TIBOR
Tokyo
Interbank Offered
Rate
TLAC
total loss-absorbing capacity
TTC
through the cycle
U
USD
US dollar
V
VaR
value-at-risk
VAT
value added tax
This is a
general list
of the
abbreviations frequently
used in
our financial
reporting. Not
all of the
listed abbreviations
may appear in this particular report.
Second quarter 2023 report |
Appendix
121
Information sources
Reporting publications
Annual publications
Annual
Report
:
Published
in
English,
this
single-volume report
provides descriptions
of:
the
Group
strategy and
performance; the
strategy and
performance of
the business
divisions and
Group Functions;
risk, treasury
and capital
management;
corporate
governance,
corporate
responsibility
and
the
compensation
framework,
including
information about compensation
for the Board
of Directors and
the Group Executive
Board members; and
financial
information, including the financial statements.
“Auszug aus
dem Geschäftsbericht
”: This
publication provides
a German
translation of
selected sections
of
the
Annual Report.
Compensation
Report
:
This
report
discusses
the
compensation
framework
and
provides
information
about
compensation for
the Board
of Directors
and the
Group Executive
Board members.
It is
available in
English and
German (
“Vergütungsbericht
”) and represents a component of the Annual
Report.
Sustainability Report
: Published
in English,
the Sustainability Report
provides disclosures on
environmental, social
and governance topics related to the UBS Group.
Diversity, Equity and Inclusion
Report
: This report details
UBS’s diversity, equity
and inclusion priority areas
of focus,
strategic goals and approach to achieving them.
Quarterly publications
Quarterly financial report
: This report provides an
update on performance and strategy (where
applicable) for the
respective quarter. It is available in English.
The annual
and quarterly
publications
are available
in .pdf
and online
formats
at
ubs.com/investors
, under
“Financial
information.” Starting
with the
Annual Report
2022, printed
copies,
in any
language, of
the aforementioned
annual
publications are no longer provided.
Other information
Website
The “Investor
Relations” website
at
ubs.com/investors
provides the
following information
about
UBS: results-related
news
releases;
financial
information,
including
results-related
filings
with
the
US
Securities
and
Exchange
Commission (the SEC);
information for shareholders,
including UBS share price
charts, as well as
data and dividend
information, and
for bondholders;
the corporate
calendar; and
presentations by
management for
investors and
financial analysts. Information is available
online in English, with some information
also available in German.
Results presentations
Quarterly
results
presentations
are
webcast
live.
Recordings
of
most
presentations
can
be
downloaded
from
ubs.com/presentations
.
Messaging service
Email
alerts
to
news
about
UBS
can
be
subscribed
for
under
“UBS
News
Alert”
at
ubs.com/global/en/investor-
relations/contact/investor-services.html
. Messages are sent in English, German, French or Italian, with an option to
select theme preferences for such alerts.
Form 20-F and other submissions to the US
Securities and Exchange Commission
UBS files periodic
reports with
and submits
other information
to the
SEC. Principal
among these
filings is the
annual
report on Form 20-F,
filed pursuant to
the US Securities
Exchange Act of 1934.
The filing of
Form 20-F is structured
as a
wraparound document.
Most sections
of the
filing can
be satisfied
by referring
to the
combined UBS Group
AG
and UBS AG Annual
Report. However, there is
a small amount
of additional information
in Form 20-F
that is not
presented
elsewhere
and
is
particularly
targeted
at
readers
in
the
US.
Readers
are
encouraged
to
refer
to
this
additional disclosure.
Any document
that filed
with the
SEC is
available on
the SEC’s
website:
sec.gov
. Refer
to
ubs.com/investors
for more information.
Second quarter 2023 report |
Appendix
122
Cautionary Statement Regarding Forward-Looking Statements |
This report contains statements that constitute “forward-looking statements,” including
but not limited to management’s outlook for
UBS’s financial performance, statements relating to the anticipated effect
of transactions and strategic initiatives
on UBS’s
business and future
development and goals
or intentions to
achieve climate, sustainability
and other social
objectives. While these
forward-looking
statements represent
UBS’s judgments,
expectations and
objectives concerning the
matters described,
a number
of risks,
uncertainties and
other important
factors could cause
actual developments and
results to differ
materially from UBS’s
expectations. The Russia–Ukraine war
continues to affect
global markets,
exacerbate global inflation, and slow global
growth. In addition, the
war has caused significant population
displacement, and shortages of vital commodities,
including energy shortages and food insecurity,
and has increased the risk
of recession in OECD economies.
The coordinated sanctions on Russia and
Belarus,
and Russian and Belarusian entities and nationals, and the uncertainty as to whether the war will widen
and intensify, may continue to have significant adverse
effects on the market
and macroeconomic conditions, including in ways
that cannot be anticipated. UBS’s acquisition
of Credit Suisse has
materially changed
our outlook and strategic direction
and introduced new operational challenges.
The integration of the Credit
Suisse entities into the UBS
structure is expected to
take between three to five years and
presents significant risks, including the risks that UBS
Group AG may be unable to
achieve the cost reductions and other
benefits contemplated
by the
transaction. This
creates significantly
greater uncertainty
about forward-looking
statements. Other
factors that
may affect
our
performance and ability to achieve our
plans, outlook and other objectives also include, but are
not limited to: (i) the degree to
which UBS is successful in the
execution of its strategic
plans, including its
cost reduction and efficiency
initiatives and its
ability to manage its
levels of risk-weighted
assets (RWA) and leverage
ratio denominator (LRD),
liquidity coverage ratio
and other financial
resources, including changes
in RWA assets and
liabilities arising from
higher market volatility
and the size of
the combined bank; (ii) the degree
to which UBS is
successful in implementing changes to
its businesses to meet changing market,
regulatory
and other conditions,
including as a
result of the acquisition
of Credit Suisse;
(iii) increased inflation and
interest rate volatility
in major markets;
(iv) developments
in the macroeconomic climate and in
the markets in which UBS
operates or to which it
is exposed, including movements in securities prices
or liquidity,
credit
spreads, currency exchange rates, deterioration or
slow recovery in residential and commercial real estate
markets, the effects of economic conditions,
including
increasing inflationary
pressures, market
developments, increasing
geopolitical tensions,
and changes
to national
trade policies
on the
financial position
or
creditworthiness of UBS’s clients and
counterparties, as well as on
client sentiment and levels of
activity, including
the COVID-19 pandemic and the measures
taken to manage it, which
have had and may also
continue to have a significant
adverse effect on global and
regional economic activity, including disruptions to
global supply chains and labor
market displacements; (v) changes
in the availability of capital
and funding, including any
adverse changes in UBS’s credit
spreads
and credit ratings
of UBS, Credit
Suisse, sovereign issuers, structured
credit products or
credit-related exposures, as
well as availability and
cost of funding to
meet requirements for debt eligible for total loss-absorbing capacity (TLAC), in particular in light of the acquisition of Credit Suisse; (vi) changes in central bank
policies or the implementation of financial legislation and regulation in
Switzerland, the US, the UK, the European
Union and other financial centers that have
imposed, or resulted in, or may do so in the future, more stringent or entity-specific capital, TLAC, leverage ratio, net stable funding
ratio, liquidity and funding
requirements, heightened operational resilience requirements, incremental tax requirements, additional levies, limitations on permitted activities, constraints on
remuneration, constraints on transfers of capital and liquidity and sharing of operational costs across the Group or other measures, and the effect these will or
would have on UBS’s business activities; (vii) UBS’s ability to successfully implement resolvability and
related regulatory requirements and the potential need to
make further changes to the legal structure or booking model of UBS in response to legal and regulatory requirements and any additional requirements due to
its acquisition of
Credit Suisse, or
other developments;
(viii) UBS’s ability to
maintain and improve
its systems and
controls for complying
with sanctions in
a timely
manner and for
the detection
and prevention
of money laundering
to meet
evolving regulatory
requirements and
expectations, in
particular in current
geopolitical
turmoil; (ix) the uncertainty arising from domestic stresses in certain major economies; (x) changes in UBS’s competitive position, including whether differences
in regulatory capital and other requirements among the
major financial centers adversely affect UBS’s
ability to compete in certain lines of business;
(xi) changes
in the standards of conduct applicable to our businesses that
may result from new regulations or new enforcement of existing standards, including
measures to
impose new and enhanced duties when interacting with customers and
in the execution and handling of customer transactions; (xii) the
liability to which UBS
may be
exposed, or
possible constraints
or sanctions
that regulatory
authorities might
impose on
UBS, due
to litigation,
contractual claims
and regulatory
investigations, including the
potential for disqualification
from certain businesses,
potentially large fines
or monetary penalties,
or the loss of
licenses or privileges
as
a
result
of
regulatory or
other governmental
sanctions, as
well as
the effect
that litigation,
regulatory and
similar matters
have on
the operational
risk
component of our RWA,
including as a result
of its acquisition of
Credit Suisse, as
well as the
amount of capital available
for return to shareholders;
(xiii) the
effects on UBS’s
business, in particular
cross-border banking, of
sanctions, tax or
regulatory developments
and of possible
changes in UBS’s
policies and practices;
(xiv) UBS’s ability to retain and attract the employees
necessary to generate revenues and to manage,
support and control its businesses, which may be affected
by competitive factors;
(xv) changes in accounting
or tax standards or policies,
and determinations or interpretations
affecting the recognition of gain
or loss, the
valuation of goodwill,
the recognition of
deferred tax assets
and other matters;
(xvi) UBS’s ability to
implement new
technologies and
business methods,
including
digital services and technologies,
and ability to successfully compete
with both existing and new
financial service providers, some
of which may not be regulated
to the
same extent;
(xvii) limitations on
the effectiveness
of UBS’s
internal processes
for risk
management, risk
control, measurement
and modeling,
and of
financial models
generally; (xviii) the
occurrence of
operational failures,
such as
fraud, misconduct,
unauthorized trading,
financial crime,
cyberattacks, data
leakage and
systems failures,
the risk
of which
is increased
with cyberattack
threats from
both nation
states and
non-nation-state actors
targeting financial
institutions; (xix) restrictions on the ability of UBS Group
AG to make payments or distributions, including due to restrictions
on the ability of its subsidiaries to
make loans or distributions, directly
or indirectly,
or, in
the case of financial difficulties,
due to the exercise
by FINMA or the
regulators of UBS’s operations in
other countries of their broad statutory powers in
relation to protective measures, restructuring and liquidation proceedings; (xx) the degree
to which changes
in regulation, capital or
legal structure, financial results or
other factors may affect UBS’s ability
to maintain its stated capital
return objective; (xxi) uncertainty
over the scope of actions that may be required by UBS, governments and others for UBS to achieve goals relating to climate, environmental and social matters,
as well as the
evolving nature of
underlying science
and industry and
the possibility of
conflict between
different governmental standards
and regulatory regimes;
(xxii) the ability of
UBS to access capital
markets; (xxiii) the ability of
UBS to successfully recover from
a disaster or other
business continuity problem due to
a
hurricane, flood,
earthquake, terrorist
attack, war, conflict
(e.g., the
Russia–Ukraine
war), pandemic,
security breach,
cyberattack, power
loss, telecommunications
failure or other
natural or man-made
event, including the
ability to function
remotely during long-term
disruptions such
as the COVID-19
(coronavirus) pandemic;
(xxiv) the level
of success in
the absorption
of Credit Suisse,
in the integration
of the two
groups and their
businesses, and in
the execution
of the planned
strategy
regarding cost reduction
and divestment
of any non-core
assets, the
existing assets
and liabilities
currently existing
in the
Credit Suisse
Group, the level
of resulting
impairments and
write-downs, the
effect of
the consummation
of the
integration on
the operational
results, share
price and
credit rating
of UBS
– delays,
difficulties,
or
failure
in
closing
the
transaction
may
cause
market
disruption
and
challenges
for
UBS
to
maintain
business,
contractual
and
operational
relationships; and (xxv) the effect that these or other
factors or unanticipated events, including
media reports and speculations, may have
on our reputation and
the additional consequences that this may
have on our business and
performance. The sequence in which the
factors above are presented
is not indicative of
their likelihood
of occurrence
or the
potential magnitude of
their consequences. Our
business and
financial performance could
be affected
by other
factors
identified in our past and future filings and reports, including
those filed with the US Securities and Exchange Commission
(the SEC). More detailed information
about those factors is set
forth in documents furnished by UBS and
filings made by UBS with the
SEC, including the Annual Report on
Form 20-F for the year
ended 31 December 2022.
UBS is not under
any obligation to (and
expressly disclaims any obligation
to) update or alter
its forward-looking statements,
whether
as a result of new information, future events, or otherwise.
Rounding |
Numbers presented throughout this report may not add up
precisely to the totals provided in the tables and text.
Percentages and percent changes
disclosed in text and tables are
calculated on the basis of unrounded
figures. Absolute changes between reporting periods disclosed
in the text, which can be
derived from numbers presented in related tables, are calculated
on a rounded basis.
Tables |
Within tables, blank fields generally indicate non-applicability or that presentation of any content would not be meaningful, or that information is not
available as of the relevant date or for the relevant period. Zero values generally indicate that the respective figure is zero on an actual or rounded basis.
Values
that are zero on a rounded basis can be either negative
or positive on an actual basis.
UBS Group AG
P.O. Box
CH-8098 Zurich
ubs.com
UBS Group AG
Risks relating to UBS
Certain risks,
including those
described below,
may affect
UBS’s
ability to
execute its
strategy or
its business
activities,
financial condition, results
of operations and prospects.
UBS is inherently exposed
to multiple risks,
many of which may
become apparent
only with
the benefit
of hindsight. As
a result,
risks that
UBS does
not consider
to be
material, or
of
which it is not currently aware, could also adversely affect
UBS. Within each category,
the risks that UBS considers to be
most material are presented first.
Strategy, management and operational risks
UBS’s acquisition of Credit Suisse Group AG exposes UBS to heightened litigation risk
and regulatory scrutiny
and entails significant additional costs, liabilities and
business integration risks
UBS acquired
the Credit
Suisse Group
under exceptional
circumstances of
volatile financial
markets and
the continued
outflows and deteriorating overall financial
position of Credit Suisse, in
order to avert a failure
of Credit Suisse and thus
damage to the Swiss
financial center and
to global financial
stability.
The acquisition was
effected through
a merger of
Credit Suisse
Group AG
with and
into UBS Group
AG, with UBS
Group AG
succeeding to all
assets and
all liabilities
of
Credit Suisse Group
AG, becoming the direct
or indirect shareholder
of the former Credit
Suisse Group AG's
direct and
indirect subsidiaries (the
"Credit Suisse Group").
Therefore, on a
consolidated basis, all assets,
risks and liabilities
of the
Credit Suisse Group became a part of UBS. This includes
all ongoing and future litigation, regulatory and similar
matters
arising
out
of
the
business
of
Credit
Suisse
Group,
thereby
materially
increasing
UBS's
exposure
to
litigation
and
investigation risks, as described in further detail below.
UBS has
incurred
substantial
transaction
fees
and costs
in connection
with the
transaction
and
will continue
to
incur
substantial integration and restructurings
costs. In addition, UBS may
not realize all of
the expected cost reductions and
other benefits
of the
transaction. UBS
may not
be able
to successfully
execute its
strategic plans
or to
achieve the expected
benefits of the acquisition of Credit Suisse Group. The success of the transaction, including anticipated benefits and cost
savings, will depend,
in part, on the
ability to successfully
integrate the operations
of both firms rapidly
and effectively,
while maintaining stability of operations and high levels of
service to customers of the combined franchise.
UBS’s ability to successfully integrate
Credit Suisse will depend on a number
of factors, some of which are
outside of its
control, including UBS’s ability to:
●
Combine the operations of
the two firms in
a manner that preserves
client service, simplifies infrastructure
and
results in operating cost savings.
●
Reverse outflows of deposits and client invested assets at Credit
Suisse, particularly in its Wealth Management
and Switzerland and to attract additional deposits and other
client assets to the combined firm.
●
Achieve cost reductions at the levels and in the
timeframe it plans.
●
Enhance, integrate, and, where necessary,
remediate risk management and financial control
and other systems
and frameworks, including to remediate the material
weaknesses in Credit Suisse’s internal controls
over
financial reporting.
●
Simplify the legal structure of the combined firm
in an expedited manner,
including through mergers of UBS
Switzerland AG and Credit Suisse Schweiz AG and the
planned merger of UBS AG and Credit Suisse
AG, as
well as other mergers and asset dispositions, including obtaining
regulatory approvals and licenses required
to
implement such changes.
●
Retain staff and to reverse attrition of staff
in certain of Credit Suisse’s business areas
.
●
Successfully execute the wind-down of the assets and
liabilities in its Non-core and legacy unit and release
capital and resources for other purposes.
●
Resolve outstanding litigation, regulatory and similar
matters, including matters relating to Credit
Suisse, on
terms that are not significantly adverse to UBS Group,
as well as to successfully remediate outstanding
regulatory and supervisory matters and meet
other regulatory commitments.
Further investigation and planning for integration is taking place,
and risks that UBS does not currently consider
to
be material, or of which it is not currently aware,
could also adversely affect UBS.
The level
of success
in the
absorption of
the Credit
Suisse Group, in
the integration
of the
two groups
and their
businesses,
particularly in the area of
the Swiss domestic bank, as well as domestic
and international wealth management business,
and in the
execution of
the planned
strategy regarding
cost reduction
and divestment
of any
non-core assets,
and the
level of resulting impairments and write-downs, may impact the operational results, share price and credit rating of UBS.
The past financial performance of each of
UBS Group AG and Credit Suisse may
not be indicative of their future financial
performance.
The
combined
group
will
be
required
to
devote
significant
management
attention
and
resources
to
integrating
its
business
practices
and
support
functions.
The
diversion
of
management’s
attention
and
any
delays
or
difficulties encountered in connection with the transaction and the coordination of the two
companies’ operations could
have an
adverse effect
on the
business, financial
results,
financial condition
or the
share
price of
the combined
group
following the transaction. The coordination process
may also result in additional and unforeseen
expenses.
UBS’s reputation is critical to its success
UBS’s reputation
is critical to
the success of
its strategic plans,
business and prospects.
Reputational damage
is difficult
to reverse, and improvements tend to be slow
and difficult to measure. In the past, UBS’s
reputation has been adversely
affected
by
its
losses
during
the
financial
crisis,
investigations
into
its
cross-border
private
banking
services,
criminal
resolutions
of
LIBOR-related
and
foreign
exchange
matters,
as
well
as
other
matters.
UBS
believes
that
reputational
damage as a result of
these events was an important factor
in its loss of
clients and client assets across its
asset-gathering
businesses.
Credit
Suisse has
more
recently
been subject
significant litigation
and regulatory
matters
and to
financial
losses that adversely affected its reputation and the confidence of clients, which played a significant role in the failure of
Credit Suisse in March.
These events, or new events
that cause reputational damage could
have a material adverse
effect
on its results of operation and financial condition,
as well as its ability to achieve its strategic goals and
financial targets.
Operational risks affect UBS’s business
UBS’s businesses
depend on
its ability
to process
a
large number
of transactions,
many of
which
are
complex,
across
multiple and diverse markets in different currencies,
to comply with requirements of many different
legal and regulatory
regimes
to
which
it
is
subject
and
to
prevent,
or
promptly
detect
and
stop,
unauthorised,
fictitious
or
fraudulent
transactions.
UBS
also
relies
on
access
to,
and
on
the
functioning
of,
systems
maintained
by
third
parties,
including
clearing systems, exchanges,
information processors and
central counterparties. Any
failure of its
or third-party systems
could have an adverse effect on UBS. These
risks may be greater as UBS deploys newer technologies, such
as blockchain,
or
processes,
platforms
or
products
that
rely
on
these
technologies.
UBS’s
operational
risk
management
and
control
systems and
processes are
designed to
help ensure
that the
risks associated
with its
activities –
including those
arising
from
process
error,
failed
execution,
misconduct,
unauthorised
trading,
fraud,
system
failures,
financial
crime,
cyberattacks,
breaches
of
information
security,
inadequate
or
ineffective
access
controls
and
failure
of
security
and
physical protection
–
are
appropriately
controlled.
If
UBS’s
internal controls
fail or
prove
ineffective
in identifying
and
remedying these risks, it could suffer
operational failures that might result
in material losses, such as the substantial
loss
it incurred
from the
unauthorised trading
incident announced
in September
2011. The
acquisition of
the Credit
Suisse
Group may elevate
these risks, particularly
during the first
phases of integration,
as the firms
have historically operated
under different procedures,
IT systems, risk policies and structures of governance.
As a significant proportion
of its staff have
been and will continue working
from outside the office,
UBS has faced, and
will
continue
to
face,
new
challenges
and
operational
risks,
including
maintenance
of
supervisory
and
surveillance
controls, as
well as increased
fraud and
data security
risks. While
UBS has taken
measures to
manage these
risks, such
measures have never been tested on the scale
or duration that UBS is currently experiencing, and
there is risk that these
measures will prove not to have
been effective in the current unprecedented
operating environment.
UBS uses automation as part
of its efforts to improve efficiency, reduce the risk of error and improve
its client experience.
UBS intends to
expand the use
of robotic
processing, machine
learning and artificial
intelligence to further
these goals.
Use of these
tools presents
their own
risks, including
the need
for effective
design and
testing; the
quality of
the data
used
for
development
and
operation
of
machine
learning
and
artificial
intelligence
tools
may
adversely
affect
their
functioning and result in errors and other
operational risks.
Financial services
firms have
increasingly been
subject to
breaches of
security and
to cyber-
and other
forms of
attack,
some of
which are
sophisticated
and targeted
attacks intended
to gain
access to
confidential information
or systems,
disrupt service
or steal
or destroy
data, which
may result
in business disruption
or the
corruption or loss
of data
at our
locations or those of
third parties. Cyberattacks by hackers, terrorists,
criminal organizations, nation states and extremists
have also increased
in frequency and
sophistication. Current geopolitical tensions
have led to
increased risk of
cyberattack
from foreign state
actors. In particular,
the Russia–Ukraine
war and the
imposition of
significant sanctions
on Russia by
Switzerland,
the
US,
the
EU,
the
UK
and
others
has
resulted
and
may
continue
to
result
in
an
increase
in
the
risk of
cyberattacks.
Such
attacks
may
occur
on
UBS’s
own
systems
or
on
the
systems
that
are
operated
by
external
service
providers, may be attempted
through the introduction of
ransomware, viruses or malware,
phishing and other forms of
social engineering,
distributed
denial of
service attacks
and other
means. These
attempts
may occur
directly,
or using
equipment or security passwords
of UBS employees,
third-party service providers
or other users. Cybersecurity
risks also
have
increased
due
to
the
widespread
use
of
digital
technologies,
cloud
computing
and
mobile
devices
to
conduct
financial business and
transactions. During the
first quarter of
2023, a third-party
vendor, ION XTP,
suffered a ransomware
attack, which resulted in some
disruption to our exchange-traded derivatives clearing
activities, although we restored our
services within 36 hours, using an available alternative solution. In addition to external attacks, UBS has experienced loss
of client data from failure by employees and others to follow internal policies and
procedures and from misappropriation
of UBS’s data by employees and others.
UBS may not be
able to anticipate,
detect or recognise threats
to its systems or
data and its preventative
measures may
not
be
effective
to
prevent
an
attack
or
a
security
breach.
In
the
event
of
a
security
breach,
notwithstanding
its
preventative measures,
UBS may
not immediately
detect a
particular breach
or attack.
The acquisition
of Credit
Suisse
may
elevate
and intensify
these
risks
as would
-be
attackers
have
a
larger
potential
target
in
the
combined
bank
and
differences
in
systems,
policies,
and
platforms
could
make
threat
detection
more
difficult.
Once
a
particular
attack
is
detected, time
may be
required to
investigate and
assess the
nature and
extent of
the attack,
and to
restore and
test
systems
and
data.
If
a
successful
attack
occurs
at
a
service
provider,
as
UBS
has
recently
experienced,
UBS
may
be
dependent on the service provider’s ability to detect the attack, investigate and assess the attack and successfully restore
the relevant systems
and data. A
successful breach or
circumvention of
security of UBS’s
or a service
provider’s systems
or data could have significant negative consequences for UBS, including disruption of its operations, misappropriation of
confidential
information
concerning
UBS
or
its
clients,
damage
to
its
systems,
financial
losses
for
UBS
or
its
clients,
violations
of
data
privacy
and
similar
laws,
litigation
exposure
and
damage
to
its
reputation.
UBS
may
be
subject
to
enforcement actions as regulatory
focus on cybersecurity increases and
regulators have announced new rules,
guidance
and initiatives on ransomware and other cybersecurity-related
issues.
UBS is subject to complex and frequently changing laws and regulations
governing the protection of client and personal
data, such
as the EU
General Data Protection
Regulation. Ensuring that
UBS complies with
applicable laws and
regulations
when it collects, uses and transfers personal information requires substantial resources and may affect the ways in which
UBS conducts
its business.
In the
event that
UBS fails
to comply
with applicable
laws, it
may be
exposed to
regulatory
fines and penalties and other sanctions. It may also incur such penalties if its vendors or other service providers or clients
or counterparties fail to comply with these laws or to maintain appropriate controls over protected data. In addition, any
loss or exposure of client or other data may adversely
damage UBS’s reputation and adversely affect
its business.
A major focus of US and other countries’ governmental policies
relating to financial institutions in recent
years has been
on
fighting
money
laundering
and
terrorist
financing.
UBS
is
required
to
maintain
effective
policies,
procedures
and
controls to
detect, prevent
and report
money laundering
and terrorist
financing, and
to verify
the identity
of its
clients
under the laws of many of the countries in which it operates.
It is also subject to laws and regulations related
to corrupt
and illegal payments to government officials
by others, such as the US Foreign
Corrupt Practices Act and the
UK Bribery
Act. UBS
has implemented
policies, procedures
and internal
controls that
are
designed to
comply with
such laws
and
regulations.
Notwithstanding
this,
US
regulators
have
found
deficiencies
in
the
design
and
operation
of
anti-money
laundering
programs
in
UBS’s
US
operations.
UBS
has
undertaken
a
significant
program
to
address
these
regulatory
findings with the objective
of fully meeting regulatory
expectations for its programs.
Failure to maintain and
implement
adequate programs to combat money laundering, terrorist financing or
corruption, or any failure of its programs in
these
areas,
could
have
serious
consequences
both
from
legal
enforcement
action
and
from
damage
to
UBS’s
reputation.
Frequent changes in
sanctions imposed and
increasingly complex sanctions
imposed on countries,
entities and individuals,
as exemplified by the breadth
and scope of the sanctions
imposed in relation to
the war in Ukraine, increase
UBS’s cost
of monitoring and complying with
sanctions requirements and increase the risk that
it will not identify
in a timely manner
client activity that is subject to a sanction.
As a result
of new and
changed regulatory requirements and the
changes UBS has
made in its
legal structure, the
volume,
frequency and complexity of its regulatory
and other reporting has remained
elevated. Regulators have also significantly
increased expectations regarding
UBS’s internal reporting and data aggregation,
as well as management reporting.
UBS
has incurred, and continues to incur,
significant costs to implement infrastructure to meet these requirements. Failure
to
meet external
reporting
requirements
accurately
and in
a timely
manner or
failure
to meet
regulatory
expectations of
internal reporting,
data
aggregation
and
management
reporting
could
result
in
enforcement
action
or
other
adverse
consequences for UBS.
In addition, despite the contingency plans that UBS has in
place, its ability to conduct business may be adversely affected
by
a
disruption
in
the
infrastructure
that
supports
its
businesses
and
the
communities
in
which
it
operates.
This
may
include
a
disruption
due
to
natural
disasters,
pandemics,
civil
unrest,
war
or
terrorism
and
involve
electrical,
communications, transportation or
other services that
UBS uses or
that are used
by third parties
with whom UBS
conducts
business.
UBS depends on its risk management and control processes
to avoid or limit potential losses in its
businesses
Controlled risk-taking
is a
major part
of the
business of
a financial
services firm.
Some losses
from risk-taking
activities
are inevitable, but
to be
successful over time,
UBS must
balance the risks
it takes
against the returns
generated. Therefore,
UBS must diligently
identify,
assess, manage and control
its risks, not only
in normal market
conditions but also as
they
might develop under more extreme,
stressed conditions, when concentrations of exposures
can lead to severe losses.
UBS has
not always
been able
to prevent
serious losses
arising from
risk management
failures and
extreme
or sudden
market
events.
It
recorded
substantial
losses
on
fixed-income
trading
positions
in
the
2008
financial
crisis,
in
the
unauthorised trading incident in
2011 and, more
recently,
positions resulting from
the default of a
US prime brokerage
client. In
the recent
past, Credit
Suisse has
suffered
very significant
losses from
the default
of the
US prime
brokerage
client, the losses in supply-chain finance funds managed by it, as well as other matters. As a result of these Credit Suisse
is subject
to significant
regulatory
remediation
obligations to
address
deficiencies in
its risk
management and
controls
systems, that will continue following the merger.
UBS
regularly
revises
and
strengthens
its
risk
management
and
control
frameworks
to
seek
to
address
identified
shortcomings. Nonetheless, it could suffer further
losses in the future if, for example:
UBS does not fully identify the risks in its portfolio, in particular
risk concentrations and correlated risks;
●
its
assessment
of
the
risks
identified,
or
its
response
to
negative
trends,
proves
to
be
untimely,
inadequate,
insufficient or incorrect;
●
its risk models prove insufficient to predict the scale of financial
risks the bank faces;
●
markets move in ways that UBS does not expect –
in terms of their speed, direction, severity or correlation – and
its ability to manage risks in the resulting environment
is, therefore, affected;
●
third parties to whom UBS has credit exposure or
whose securities UBS holds are severely affected by events and
UBS suffers defaults and impairments beyond the level implied
by its risk assessment; or
●
collateral or other security provided by its counterparties and clients proves
inadequate to cover their obligations
at the time of default.
UBS
also
holds
legacy
risk
positions,
primarily
in
its
Non-core
and
legacy,
that,
in
many
cases,
are
illiquid
and
may
deteriorate in value.
The acquisition of the Credit Suisse Group will increase,
materially, the portfolio of business that are
outside of UBS’s risk appetite and subject to exit that will
be managed in the Non-core and legacy segment.
UBS
also
manages
risk
on
behalf
of
its
clients.
The
performance
of
assets
UBS
holds
for
its
clients
may
be
adversely
affected by the
same aforementioned factors.
If clients suffer losses
or the performance
of their assets held
with UBS is
not in line
with relevant
benchmarks against which
clients assess investment
performance, UBS may
suffer reduced fee
income and a decline in assets under management, or withdrawal
of mandates.
Investment positions, such
as equity investments
made as part
of strategic initiatives
and seed investments
made at the
inception of funds that UBS manages,
may also be affected by market risk
factors. These investments are often not liquid
and generally
are intended
or required
to be
held beyond
a normal
trading horizon.
Deteriorations in
the fair
value of
these positions would have a negative effect on UBS’s earnings.
UBS may be unable to identify or capture revenue
or competitive opportunities, or retain and attract
qualified employees
The financial
services industry
is characterised
by intense
competition, continuous
innovation, restrictive,
detailed, and
sometimes fragmented
regulation and
ongoing consolidation.
UBS faces
competition at
the level
of local
markets and
individual business
lines, and from
global financial institutions
that are
comparable to UBS
in their size
and breadth,
as
well
as
competition
from
new
technology-based
market
entrants,
which
may
not
be
subject
to
the
same
level
of
regulation. Barriers
to entry
in individual
markets and
pricing levels
are being
eroded by
new technology.
UBS expects
these trends to
continue and competition
to increase. UBS’s
competitive strength
and market position
could be eroded
if it is
unable to identify market
trends and developments, does
not respond to such
trends and developments by devising
and
implementing
adequate
business
strategies,
does
not
adequately
develop
or
update
its
technology,
including
its
digital channels and tools, or is unable to attract or retain
the qualified people needed.
The
amount
and
structure
of
UBS’s
employee
compensation
is
affected
not
only
by
its
business
results,
but
also
by
competitive factors and regulatory considerations.
In response
to the
demands of
various stakeholders,
including regulatory
authorities and
shareholders, and
in order
to
better
align the
interests
of UBS’s
staff
with other
stakeholders,
UBS has
increased
average
deferral periods
for
stock
awards, expanded forfeiture provisions and, to a more limited extent, introduced
clawback provisions for certain awards
linked to
business performance.
UBS has
also introduced
individual caps
on the
proportion of
fixed to
variable pay
for
the Group Executive Board (“
GEB
”) members, as well as certain other employees. UBS will also be required to introduce
and
enforce
provisions
requiring
UBS
to
recover
from
GEB
members
and
certain
other
executives
a
portion
of
performance-based incentive compensation in
the event that UBS Group
or another entity with securities
listed on a US
national securities exchange, is required
to restate its financial statements as a result
of a material error.
Constraints on the
amount or structure of
employee compensation, higher levels
of deferral, performance conditions
and
other circumstances triggering
the forfeiture of
unvested awards may
adversely affect UBS’s
ability to retain
and attract
key employees,
particularly where
UBS competes
with companies
that are
not subject
to these
constraints. The
loss of
key staff
and the inability
to attract
qualified replacements
could seriously compromise
its ability to
execute its strategy
and to successfully improve its operating and control environment, and could affect its business performance. This risk is
intensified by
elevated levels
of attrition
among Credit
Suisse employees.
Swiss law
requires that
shareholders approve
the compensation of the
Board of Directors
(the “
BoD
”) and the
GEB each year.
If the shareholders
fail to approve
the
compensation for the GEB
or the BoD, this could
have an adverse
effect on UBS’s ability
to retain experienced
directors
and its senior management.
As UBS Group AG is a holding company, its operating
results, financial condition and ability to pay
dividends and other distributions and / or to pay its
obligations in the future depend on funding, dividends
and other distributions received directly or indirectly from
its subsidiaries, which may be subject to
restrictions
UBS Group
AG’s ability to
pay dividends and
other distributions
and to pay
its obligations in
the future
will depend
on
the
level
of
funding,
dividends
and
other
distributions,
if
any,
received
from
UBS
AG,
Credit
Suisse
AG
and
other
subsidiaries. The
ability of
such subsidiaries
to make
loans or distributions,
directly or
indirectly,
to UBS
Group AG
may
be
restricted
as
a
result
of
several
factors,
including
restrictions
in
financing
agreements
and
the
requirements
of
applicable law and
regulatory,
fiscal or other
restrictions. In
particular,
UBS Group
AG’s direct
and indirect
subsidiaries,
including UBS AG, Credit Suisse AG UBS Switzerland AG, Credit Suisse Schweiz AG, UBS Americas Holding LLC and UBS
Europe SE, are subject
to laws and
regulations that require the entities
to maintain minimum
levels of capital
and liquidity,
restrict dividend
payments, authorise
regulatory bodies
to block or
reduce the
flow of funds
from those
subsidiaries to
UBS Group AG, or
could affect their
ability to repay any
loans made to, or other
investments in, such subsidiary
by UBS
Group AG or another member of the
Group. For example, in the early stages
of the COVID-19 pandemic, the European
Central Bank
ordered all
banks under
its supervision
to cease
dividend distributions
and the
Federal Reserve
Board has
limited capital distributions by bank holding companies and intermediate holding companies. Restrictions and regulatory
actions of this
kind could impede
access to funds
that UBS Group
AG may need
to meet its
obligations or to
pay dividends
to shareholders. In addition, UBS Group AG’s
right to participate in a
distribution of assets upon a subsidiary’s
liquidation
or reorganisation is subject to all prior claims of the
subsidiary’s creditors.
UBS’s
capital
instruments
may
contractually
prevent
UBS
Group
AG
from
proposing
the
distribution
of
dividends
to
shareholders, other than in the form of shares, and from engaging in repurchases of shares,
if UBS does not pay interest
on these instruments.
Furthermore, UBS Group AG may guarantee some of
the payment obligations of certain of the Group’s subsidiaries from
time to time. These guarantees
may require UBS Group AG to provide
substantial funds or assets to subsidiaries
or their
creditors or counterparties at a time when UBS Group
AG is in need of liquidity to fund its own obligations.
The credit ratings of UBS
Group AG or its subsidiaries
used for funding purposes could
be lower than the ratings
of the
Group’s operating
subsidiaries,
which may
adversely affect
the market
value of
the securities
and other
obligations of
UBS Group AG or those subsidiaries on a standalone basis.
Market, credit and macroeconomic risks
Performance in the financial services industry is affected
by market conditions and the macroeconomic
climate
UBS’s
businesses
are
materially
affected
by
market
and
macroeconomic
conditions.
A
market
downturn
and
weak
macroeconomic conditions can be
precipitated by a
number of
factors, including geopolitical
events, such as
international
armed conflicts,
war,
or acts
of terrorism,
the imposition
of sanctions,
global trade
or global
supply chain
disruptions,
including
energy
shortages
and
food
insecurity,
changes
in
monetary
or
fiscal
policy,
changes
in
trade
policies
or
international trade
disputes, significant
inflationary or
deflationary price
changes, disruptions in
one or
more concentrated
economic
sectors,
natural
disasters,
pandemics
or
local
and
regional
civil
unrest.
Such
developments
can
have
unpredictable and destabilizing effects.
Adverse changes in interest rates,
credit spreads, securities prices, market
volatility and liquidity, foreign exchange
rates,
commodity prices, and other market fluctuations,
as well as changes in
investor sentiment, can affect UBS’s
earnings and
ultimately its financial and capital positions. As financial markets are global and highly interconnected, local and regional
events
can
have
widespread
effects
well
beyond
the
countries
in
which
they
occur.
Any
of
these
developments
may
adversely affect UBS’s business or financial results.
As a result of
significant volatility in the
market, UBS’s businesses
may experience a
decrease in client activity
levels and
market
volumes,
which
would
adversely
affect
its
ability
to
generate
transaction
fees,
commissions
and
margins,
particularly in Global Wealth Management and
the Investment Bank. A market downturn
would likely reduce the volume
and
valuation
of
assets
that
UBS
manages
on
behalf
of
its
clients,
which
would
reduce
recurring
fee
income
that
is
charged based on
invested assets, primarily
in Global Wealth
Management and
Asset Management,
and performance-
based fees in Asset Management. Such a
downturn could also cause a decline in the
value of assets that UBS owns and
accounts
for
as
investments
or
trading
positions.
In
addition,
reduced
market
liquidity
or
volatility
may
limit
trading
opportunities and may therefore reduce transaction-based income
and may also impede UBS’s ability to manage risks.
Geopolitical events:
For example,
the Russia–Ukraine
war has
led to
one of
the largest
humanitarian crises
in decades,
with
millions
of
people
displaced,
a
mass
exodus
of
businesses
from
Russia,
and
heightened
volatility
across
global
markets. In addition, as
a result of the
war, several jurisdictions, including the
US, the EU, the
UK, Switzerland and others,
have imposed extensive sanctions on
Russia and Belarus and certain Russian
and Belarusian entities and nationals, as
well
as the Russian Central Bank. Among others, the financial sanctions include
barring certain Russian banks from using the
Society for
Worldwide
Interbank Financial
Telecommunication
(SWIFT) messaging
system, asset
freezes
for sanctioned
individuals and
corporations, limits
on financial
transactions
with sanctioned
entities and
individuals, and
limitation of
deposits in the
EU and Switzerland
from Russian
persons not entitled
to residency
in the European
Economic Area
(the
“
EEA
”) or Switzerland. The scale of the conflict and the speed and extent of sanctions may produce many of the effects
described in the paragraph above, including in ways that
cannot now be anticipated.
If individual
countries impose
restrictions on
cross-border
payments or
trade, or
other exchange
or capital
controls, or
change their currency (for
example, if one or more
countries should leave
the Eurozone, as a
result of the imposition of
sanctions on
individuals, entities
or countries,
or escalation
of trade
restrictions and
other actions
between the
US, or
other
countries,
and
China),
UBS
could
suffer
adverse
effects
on
its
business,
losses
from
enforced
default
by
counterparties, be unable to access its own assets or be
unable to effectively manage its risks.
UBS could
be materially
affected if
a crisis
develops, regionally
or globally,
as a
result of
disruptions in
markets due
to
macroeconomic or political
developments, trade restrictions,
or the failure
of a major
market participant. Over
time, UBS’s
strategic plans have become more heavily dependent
on its ability to generate growth and
revenue in emerging markets,
including China, causing UBS to be more exposed to the
risks associated with such markets.
Global Wealth Management derives revenues from all the principal regions, but has a greater concentration in Asia than
many peers and
a substantial presence
in the US, unlike
many European peers.
The Investment Bank’s
business is more
heavily weighted to Europe
and Asia than its peers,
while its derivatives business
is more heavily weighted to
structured
products
for
wealth
management
clients, in
particular
with European
and Asian
underlyings.
UBS’s performance
may
therefore be more affected
by political, economic and
market developments in these
regions and businesses than
some
other financial service providers.
COVID-19 pandemic:
The COVID-19 pandemic, the
governmental measures taken to
manage it, and
related effects, such
as labor market displacements, supply
chain disruptions, and inflationary pressures, have adversely affected, and
may still
adversely
affect,
global and
regional
economic
conditions,
resulting
in contraction
in
the
global economy,
substantial
volatility
in the
financial
markets,
crises in
markets
for goods
and services,
as well
as significant
disruptions
in
certain
regional real estate
markets, increased unemployment,
increased credit and
counterparty risk,
and operational
challenges.
While in
most jurisdictions
the pandemic
-related
governmental measures
were
reversed, resurgence
of the
pandemic,
ineffectiveness
of vaccines
and continuance
or imposition
of new
pandemic control
measures
may result
in additional
adverse effects
on the
global economy
negatively affecting
UBS’s results
of operations
and financial
condition. Should
inflationary
pressures
or
other
adverse
global
market
conditions
persist,
or
should
the
pandemic
lead
to
additional
economic or
market disruptions,
UBS may
experience reduced
levels of
client activity
and demand
for its
products and
services, increased
utilisation of
lending commitments,
significantly increased
client defaults,
continued and
increasing
credit and valuation losses in
its loan portfolios, loan commitments and
other assets, and impairments of other
financial
assets. A
fall in
equity markets
and a
consequent decline
in invested
assets would
also reduce
recurring fee
income in
UBS’s
Global
Wealth
Management
and
Asset
Management
businesses,
as
was
experienced
in
the
second
quarter
of
2022. These factors and other consequences of the COVID-19 pandemic may
negatively affect UBS’s financial condition,
including possible constraints on capital
and liquidity,
as well as a higher cost
of capital, and possible downgrades
to its
credit ratings.
The
extent
to
which
the
pandemic,
the
ongoing
Russia–Ukraine
war,
and
current
inflationary
pressures
and
related
adverse economic
conditions affect UBS’s
businesses, results of
operations and
financial condition, as
well as
its regulatory
capital and
liquidity ratios,
will depend
on future
developments,
including the
effects
of the
current
conditions
on its
clients, counterparties, employees and third-party
service providers.
UBS’s credit risk exposure to clients, trading counterparties
and other financial institutions would increase
under adverse or other economic conditions
Credit risk is
an integral part
of many
of UBS’s activities,
including lending, underwriting
and derivatives activities.
Adverse
economic or market conditions, or the imposition of sanctions or other
restrictions on clients, counterparties or financial
institutions, may lead
to impairments and
defaults on these
credit exposures.
Losses may be
exacerbated by declines
in
the
value
of collateral
securing loans
and other
exposures.
In UBS’s
prime
brokerage,
securities finance
and Lombard
lending businesses,
it extends
substantial amounts
of credit
against securities
collateral, the
value or
liquidity of
which
may
decline rapidly.
Market
closures
and the
imposition
of exchange
controls,
sanctions
or other
measures
may
limit
UBS’s
ability
to
settle
existing
transactions
or
to
realise
on
collateral,
which
may
result
in
unexpected
increases
in
exposures. UBS’s
Swiss mortgage
and corporate
lending portfolios
are a
large part
of its
overall lending.
It is therefore
exposed
to
the
risk
of
adverse
economic
developments
in
Switzerland,
including
property
valuations
in
the
housing
market, the
strength of
the Swiss
franc and
its effect
on Swiss exports,
return to
negative interest
rates applied
by the
Swiss National Bank, economic conditions
within the Eurozone or
the European Union (the
"
EU
"), and the evolution of
agreements
between
Switzerland
and
the
EU
or
EEA,
which
represent
Switzerland’s
largest
export
market.
UBS
has
exposures related to real
estate in various
countries, including a
substantial Swiss mortgage portfolio.
Although it believes
this portfolio is
prudently managed, UBS could
nevertheless be exposed to
losses if a
substantial deterioration in the
Swiss
real estate market were to occur.
As UBS
experienced
in 2020,
under the
IFRS 9 expected
credit loss
(“
ECL
”) regime,
credit loss
expenses
may increase
rapidly at the onset
of an economic downturn
as a result of
higher levels of credit
impairments (stage 3), as well as
higher
ECL from
stages 1
and 2.
Substantial
increases in
ECL could
exceed
expected
loss for
regulatory capital
purposes
and
adversely affect UBS’s common equity tier 1 (“
CET1
”) capital and regulatory capital ratios.
Interest rate trends and changes could negatively affect UBS’s
financial results
UBS’s businesses
are sensitive
to changes
in interest
rate trends.
A prolonged
period of
low or
negative interest
rates,
particularly in Switzerland
and the Eurozone,
adversely affected
the net interest
income generated by
UBS’s Personal &
Corporate Banking and Global Wealth Management businesses prior to 2022. Actions that UBS
took to mitigate adverse
effects on income, such as
the introduction of
selective deposit fees or minimum
lending rates, contributed to
outflows
of customer
deposits (a
key source
of funding
for
UBS), net
new money
outflows and
a declining
market
share
in its
Swiss lending business.
During 2022, interest
rates increased sharply in
the US and most
other markets, including a
shift from negative
to positive
central bank policy rates in the Eurozone and Switzerland, as central
banks responded to higher inflation. Higher interest
rates
generally
benefit
UBS’s
net
interest
income.
However,
as returns
on
alternatives
to deposits
increase
with
rising
interest rates, such as returns on money market funds, UBS has experienced
outflows from customer deposits and shifts
of deposits from
lower-interest account
types to accounts
bearing higher interest
rates, such as
savings and certificates
of deposit,
particularly
in the
US, where
rates
have
rapidly increased.
Customer
deposit
outflows
may
require
UBS
to
obtain alternative funding, which would likely be more costly than
customer deposits.
The equity and capital of UBS’s shareholders are also affected
by changes in interest rates.
Currency fluctuation may have an adverse effect on
UBS’s profits, balance
sheet and regulatory capital
UBS is subject to currency fluctuation risks. Although
the change from the Swiss franc to the
US dollar as its presentation
currency in
2018 reduces UBS’s
exposure to
currency fluctuation risks
with respect to
the Swiss
franc, a substantial
portion
of UBS’s assets
and liabilities are
denominated in currencies
other than the
US dollar. Additionally,
in order to
hedge its
CET1
capital
ratio,
UBS’s
CET1
capital
must
have
foreign
currency
exposure,
which
leads
to
currency
sensitivity.
As
a
consequence, it is
not possible to
simultaneously fully hedge
both the
amount of capital
and the capital
ratio. Accordingly,
changes in foreign
exchange rates
may adversely
affect UBS’s profits,
balance sheet,
and capital,
leverage and
liquidity
coverage ratios.
Regulatory and legal risks
Material legal and regulatory risks arise in the conduct of UBS’s
businesses
As a
global financial
services firm
operating in
more than
50 countries,
UBS is
subject to
many different
legal, tax
and
regulatory regimes, including extensive regulatory oversight, and is exposed to significant liability risk. UBS is subject to a
large number of claims, disputes, legal
proceedings and government investigations and expects that its
ongoing business
activities will continue to
give rise to such matters
in the future. The extent
of UBS’s financial exposure to
these and other
matters is material and could substantially exceed the level of
provisions that it has established. UBS is not able to
predict
the financial and non-financial consequences these matters
may have when resolved.
UBS may be subject to adverse
preliminary determinations or court decisions that may negatively affect public
perception
and its
reputation, result
in prudential
actions from
regulators, and
cause UBS
to record
additional provisions
for such
matters even when it believes
it has substantial defences
and expects to ultimately achieve
a more favourable outcome.
This risk
is illustrated
by the
award of
aggregate penalties
and damages
of EUR 4.5bn
by the
court of
first instance
in
France. This
award was
reduced to
an aggregate
of EUR 1.8bn
by the
Court of
Appeal, and
UBS has
further appealed
this judgment.
Guilty pleas and DPA
Litigation,
regulatory
and
similar
matters
may
also
result
in
non-monetary
penalties
and consequences.
Among
other
things,
a
guilty
plea
to,
or
conviction
of,
a
crime
(including
as
a
result
of
termination
of
the
Deferred
Prosecution
Agreement Credit Suisse
entered into with
the United States
Department of Justice
in 2021 to
resolve its Mozambique
matter) could have material consequences for us.
Resolution of regulatory proceedings may require us to
obtain waivers
of
regulatory
disqualifications
to
maintain
certain
operations,
may
entitle
regulatory
authorities
to
limit,
suspend
or
terminate licenses and regulatory
authorizations and may permit
financial market utilities to
limit, suspend or terminate
our participation in such utilities.
Failure to obtain such waivers,
or any limitation, suspension or termination
of licenses,
authorizations or participations, could have material consequences
for us.
Resolution of regulatory proceedings
may require UBS to
obtain waivers of
regulatory disqualifications to maintain certain
operations, may entitle
regulatory authorities
to limit, suspend
or terminate
licenses and regulatory
authorisations, and
may permit
financial market
utilities to
limit, suspend
or terminate
UBS’s participation
in them.
Failure to
obtain such
waivers,
or
any
limitation,
suspension
or
termination
of
licenses,
authorisations
or
participations,
could
have
material
adverse consequences for UBS.
UBS’s settlements with governmental
authorities in connection
with foreign exchange,
London Interbank Offered
Rates
(“
LIBOR
”)
and
other
benchmark
interest
rates
starkly
illustrate
the
significantly
increased
level
of
financial
and
reputational risk now associated
with regulatory matters in
major jurisdictions. In connection
with investigations related
to LIBOR
and other
benchmark
rates and
to foreign
exchange and
precious metals,
very large
fines and
disgorgement
amounts
were
assessed
against
UBS,
and
it
was
required
to
enter
guilty
pleas
despite
its
full
cooperation
with
the
authorities in
the investigations,
and despite
its receipt
of conditional
leniency or
conditional immunity
from anti-trust
authorities in a number of jurisdictions, including the US and
Switzerland.
For a
number
of years, UBS
has been, and
continues to be, subject
to a very
high level of
regulatory scrutiny and to
certain
regulatory
measures
that
constrain
its
strategic
flexibility.
UBS
believes
it
has
remediated
the
deficiencies
that
led
to
significant losses in the past and made substantial changes in its controls and it conducts risk frameworks to address the
issues
highlighted
by
the
LIBOR-related,
foreign
exchange
and
precious
metals
regulatory
resolutions.
UBS
has
also
undertaken extensive efforts to implement new regulatory
requirements and meet heightened expectations.
Credit
Suisse
and
or
UBS
have
become
the
target
of
lawsuits,
and
may
become
the
target
of
further
litigation,
in
connection with the transaction and/or
the regulatory and other
actions taken in connection with
the transaction, all of
which could result in substantial
costs. As of June 5, 2023,
Credit Suisse had incurred
a net charge of USD 7.4
billion in
respect of its
supply chain finance
funds (SCFF) matter, and the
ultimate cost of
resolving the SCFF matter
may be material
to the
operating results
of the
combined group.
Since the
close of
the acquisition,
various litigation
claims have
been
lodged against
UBS under Swiss
merger law alleging
that Credit
Suisse shareholders
received disadvantaged
treatment
in the acquisition. In
addition, numerous cases
have been lodged against
FINMA in respect
of the write down
of Credit
Suisse’s AT1
bonds ordered
by FINMA. UBS Group
AG, as the successor
to Credit Suisse,
is participating in proceedings
as an aggrieved party. The cumulative effects of the litigations to which UBS has succeeded and the claims related to the
acquisition and the circumstances surrounding
it, may have material adverse consequences for the combined group.
Credit
Suisse
delayed
its
reporting
for
the
year
ending
2022
stating
that
it
had
identified
material
weaknesses
in
its
internal
controls
over
financial
reporting
as
a
result
of
which
Credit
Suisse
management
had
concluded
that,
as
of
December 31, 2022, its internal controls over financial
reporting were not effective, and for the same reasons, it reached
the same conclusion regarding December 31, 2021. Since the acquisition, UBS has undertaken a review of the processes
and systems giving rise to
the material weaknesses and the remediation program undertaken. This review is ongoing
and
UBS
expects
to
adopt
and
implement
further
controls
and
procedures
following
the
completion
of
such
review
and
discussions with its regulators. In the course of this review,
UBS may become aware of facts that cause it to broaden the
scope of the findings.
UBS continues to be
in active dialogue with
regulators concerning the
actions it is taking
to improve its operational
risk
management, risk control,
anti-money laundering, data management
and other frameworks,
and otherwise seek
to meet
supervisory expectations,
but there
can be
no assurance
that its
efforts will
have the
desired effects.
As a
result of
this
history, UBS’s level of risk with respect to regulatory enforcement
may be greater than that of some of its peers.
Substantial changes in regulation may adversely affect UBS’s
businesses and its ability to execute its
strategic plans
Since the
financial crisis
of 2008,
UBS has
been subject
to significant
regulatory
requirements,
including recovery
and
resolution planning,
changes in
capital and
prudential standards,
changes in
taxation regimes
as a
result of
changes in
governmental administrations,
new and
revised market
standards and
fiduciary duties,
as well
as new
and developing
environmental, social and governance
standards and requirements. Notwithstanding attempts by regulators
to align their
efforts,
the
measures
adopted
or
proposed
for
banking
regulation
differ
significantly
across
the
major
jurisdictions,
making it increasingly difficult
to manage a global institution.
In addition, Swiss regulatory
changes with regard
to such
matters
as
capital
and
liquidity
have
often
proceeded
more
quickly
than
those
in
other
major
jurisdictions,
and
Switzerland’s requirements for major
international banks are among
the strictest of
the major financial
centres. This could
put Swiss banks, such as UBS, at a disadvantage when competing with peer financial institutions subject to more lenient
regulation or with unregulated non-bank
competitors.
UBS’s
implementation
of
additional
regulatory
requirements
and
changes
in
supervisory
standards,
as
well
as
its
compliance with
existing
laws and
regulations,
continues to
receive
heightened scrutiny
from
supervisors. If
UBS does
not meet
supervisory expectations
in relation
to these
or other
matters, or
if additional supervisory
or regulatory
issues
arise, it would likely be subject to further regulatory
scrutiny,
as well as measures that may further
constrain its strategic
flexibility.
Resolvability and
resolution
and recovery
planning:
UBS has
moved significant
operations into
subsidiaries
to
improve
resolvability and meet other regulatory requirements, and this
has resulted in substantial implementation costs, increased
its capital and funding costs and reduced operational flexibility. For example, UBS has transferred all of its US
subsidiaries
under a US
intermediate holding company
to meet US
regulatory requirements and
has transferred substantially
all the
operations of Personal & Corporate Banking and Global Wealth Management booked in Switzerland to UBS Switzerland
AG to improve resolvability.
These changes
create
operational, capital,
liquidity, funding
and tax
inefficiencies.
UBS’s operations
in subsidiaries
are
subject
to
local
capital,
liquidity,
stable
funding,
capital
planning
and
stress
testing
requirements.
These
requirements
have
resulted
in
increased
capital
and
liquidity
requirements
in
affected
subsidiaries,
which
limit
UBS’s
operational
flexibility and negatively
affect its ability
to benefit from
synergies between
business units and
to distribute
earnings to
the Group.
Under the Swiss too-big-to-fail
(“
TBTF
”) framework, UBS is
required to put in place
viable emergency plans to
preserve
the operation of
systemically important
functions in
the event
of a failure.
Moreover, under
this framework
and similar
regulations
in the
US, the
UK, the
EU and
other jurisdictions
in which
it operates,
UBS is
required to
prepare credible
recovery and resolution
plans detailing the
measures that would
be taken to recover
in a significant adverse
event or in
the event of winding down the Group or the operations
in a host country through resolution or insolvency
proceedings.
If a
recovery or resolution
plan that UBS
produces is determined
by the
relevant authority to
be inadequate or
not credible,
relevant regulation may
permit the authority to
place limitations on the
scope or size
of UBS’s business
in that jurisdiction,
or oblige UBS to hold higher amounts
of capital or liquidity or to
change its legal structure or business in
order to remove
the relevant impediments to resolution.
Capital and prudential standards:
As an internationally active Swiss systemically relevant bank (an “
SRB
”), UBS is subject
to
capital
and
total
loss-absorbing
capacity
(“
TLAC
”)
requirements
that
are
among
the
most
stringent
in
the
world.
Moreover, many
of UBS’s
subsidiaries must
comply with
minimum capital,
liquidity and
similar requirements
and, as
a
result, UBS Group AG and UBS AG have contributed a significant portion of their capital and provide substantial liquidity
to
these
subsidiaries.
These
funds
are
available
to
meet
funding
and
collateral
needs
in
the
relevant
entities,
but
are
generally not readily available for use by the Group as a
whole.
UBS expects
its risk-weighted
assets (“
RWA
”) to
further increase
as the
effective date
for additional
capital standards
promulgated
by
the
Basel
Committee
on
Banking
Supervision
(the
“
BCBS
”)
draws
nearer.
In
connection
with
the
acquisition of Credit Suisse, FINMA has
permitted Credit Suisse entities to
continue to apply certain prior interpretations
and has
provided supervisory
rulings on
the treatment
of certain
items for
RWA or
capital purposes.
In general,
these
interpretations require that UBS phase out
the treatment over the next several
years.
In addition, FINMA has agreed that
additional
capital
requirement
applicable
to
Swiss
systemically
relevant
banks,
which
is
based
on
market
share
in
Switzerland and LRD, will not increase
as a result of acquisition of Credit
Suisse before the end of
2025.
The phase-out
or
end
of
these
periods
will
likely
increase
the
overall
capital
requirements
of
UBS
Group,
which
increase
may
be
substantial.
Increases in capital
and liquidity standards
could significantly curtail
UBS’s ability to
pursue strategic opportunities
or to
return capital to shareholders.
Market regulation and
fiduciary standards:
UBS’s wealth and
asset management
businesses operate
in an environment
of increasing
regulatory scrutiny
and changing
standards with
respect to
fiduciary and
other standards
of care
and the
focus
on
mitigating
or
eliminating
conflicts
of
interest
between
a
manager
or
advisor
and
the
client,
which
require
effective implementation across
the global
systems and
processes of
investment managers
and other
industry participants.
For example, UBS has made material
changes to its business processes, policies
and the terms on which it
interacts with
these clients in order to comply with SEC Regulation Best Interest, which is intended to enhance and clarify the duties of
brokers and investment advisers to
retail customers, the Volcker Rule,
which limits UBS’s ability to engage
in proprietary
trading, as
well as
changes in
European
and Swiss
market
conduct regulation.
Future changes
in the
regulation
of its
duties to customers may require UBS to
make further changes to its businesses, which would result
in additional expense
and may adversely affect its business. UBS may also become subject
to other similar regulations substantively limiting the
types of activities in which it may engage or the way it conducts
its operations.
In many instances, UBS provides services on
a cross-border basis, and it is therefore sensitive to
barriers restricting market
access for
third-country firms.
In particular,
efforts in
the EU
to harmonise
the regime
for third-country
firms to
access
the European market may have the effect of creating new barriers that adversely affect UBS’s ability to conduct business
in
these
jurisdictions
from
Switzerland.
In
addition,
a
number
of
jurisdictions
are
increasingly
regulating
cross-border
activities based on
determinations of equivalence of
home country regulation,
substituted compliance or
similar principles
of comity.
A negative
determination with
respect to
Swiss equivalence
could limit
UBS’s access
to the
market in
those
jurisdictions and
may negatively
influence its
ability to
act as
a global
firm. For
example, the
EU declined
to extend
its
equivalence determination for Swiss exchanges, which lapsed as
of 30 June 2019.
UBS experienced
cross-border outflows
over a
number of
years as
a result
of heightened
focus by
fiscal authorities
on
cross-border investment and fiscal amnesty programs, in anticipation of the
implementation in Switzerland of the global
automatic
exchange
of
tax
information,
and
as
a
result
of
the
measures
UBS
has
implemented
in
response
to
these
changes. Further changes in local tax laws or regulations
and their enforcement, additional cross-border tax information
exchange regimes, national tax amnesty or enforcement
programs or similar actions may affect the
ability or willingness
of its clients to do business with UBS and could result
in additional cross-border outflows.
If UBS experiences financial difficulties, FINMA has
the power to open restructuring or liquidation
proceedings or impose protective measures in relation
to UBS Group AG, UBS AG or UBS Switzerland AG,
and such proceedings or measures may have a material
adverse effect on UBS’s shareholders and creditors
Under the
Swiss Banking
Act, FINMA
is able
to exercise
broad statutory
powers with
respect to
Swiss banks
and Swiss
parent companies of financial groups,
such as UBS Group
AG, UBS AG, Credit
Suisse AG, UBS Switzerland AG and Credit
Suisse Schweiz
AG, if
there is
justified concern
that the
entity is
over-indebted,
has serious
liquidity problems
or,
after
the expiration
of any
relevant
deadline, no
longer fulfils
capital adequacy
requirements.
Such powers
include ordering
protective
measures,
instituting
restructuring
proceedings
(and
exercising
any
Swiss
resolution
powers
in
connection
therewith), and instituting liquidation
proceedings, all of which
may have a material adverse
effect on shareholders and
creditors or may prevent these entities from
paying dividends or making payments on debt obligations.
UBS would
have limited
ability
to challenge
any such
protective
measures,
and creditors
and shareholders
would
also
have limited ability under Swiss
law or in Swiss courts
to reject them, seek their suspension,
or challenge their imposition,
including measures that require
or result in the deferment of payments.
If restructuring proceedings are
opened with respect to UBS Group
AG, UBS AG, Credit Suisse AG,
UBS Switzerland AG
or Credit Suisse Schweiz AG,
the resolution powers that FINMA may
exercise include the power to: (i) transfer all
or some
of the assets, debt and other liabilities, and contracts of the entity subject to proceedings
to another entity; (ii) stay for a
maximum of two business
days (a) the termination
of, or the exercise
of rights to terminate,
netting rights, (b) rights
to
enforce
or
dispose
of
certain
types
of
collateral
or
(c)
rights
to
transfer
claims,
liabilities
or
certain
collateral,
under
contracts to which the entity subject to proceedings is a party; and / or (iii) partially or fully write down the equity capital
and regulatory capital instruments and, if such regulatory capital is fully written down, write down or convert into equity
the other debt instruments of
the entity subject to
proceedings. Shareholders and creditors would have no
right to reject,
or to seek the suspension of, any restructuring plan pursuant to which such resolution powers are exercised. They would
have only
limited rights
to challenge
any decision
to exercise
resolution powers
or to
have that
decision reviewed
by a
judicial or administrative process or otherwise.
Upon full
or partial
write-down
of the
equity and
regulatory
capital
instruments
of the
entity
subject to
restructuring
proceedings, the relevant shareholders
and creditors would receive
no payment in respect of the equity
and debt that is
written
down,
the
write-down
would
be
permanent,
and
the
investors
would
likely
not,
at
such
time
or
at
any
time
thereafter,
receive any
shares or other
participation rights,
or be entitled
to any write-up
or any other
compensation in
the event of a potential subsequent
recovery of the debtor.
If FINMA orders the conversion
of debt of the entity subject
to restructuring proceedings
into equity,
the securities received by
the investors may be worth significantly
less than the
original debt and may have a
significantly different risk profile. In addition, creditors receiving equity would be effectively
subordinated to all creditors of the restructured entity in the event
of a subsequent winding up, liquidation
or dissolution
of the restructured entity,
which would increase the risk that investors would
lose all or some of their investment.
FINMA has significant discretion in the exercise of its powers in connection with restructuring proceedings. Furthermore,
certain categories of debt obligations, such as certain types of
deposits, are subject to preferential treatment. As a result,
holders of obligations
of an entity
subject to a
Swiss restructuring
proceeding may
have their obligations
written down
or converted
into equity even
though obligations ranking
on par
with such obligations
are not written
down or
converted.
Developments in sustainability, climate, environmental and
social standards and regulations may affect
UBS’s business and impact its ability to fully realise
its goals
UBS has set ambitious
goals for environmental, social and
governance (“
ESG
”) matters. These goals include
its ambitions
for environmental
sustainability in its
operations, including
carbon emissions,
in the business
it does with
clients and
in
products that it
offers. They also
include goals or
ambitions for diversity in
UBS’s workforce and
supply chain, and support
for the
United Nations
Sustainable Development
Goals. There
is substantial
uncertainty as
to the
scope of
actions that
may be required of UBS, governments
and others to achieve the goals it
has set, and many of such goals and
objectives
are
only
achievable
with
a
combination
of
government
and
private
action.
National
and
international
standards
and
expectations,
industry
and
scientific
practices,
and
regulatory
taxonomies
and
disclosure
obligations
addressing
these
matters are
relatively immature and
are rapidly evolving.
In many cases,
goals and standards
are defined at
a high level
and can
be subject
to different interpretations.
In addition,
there are significant
limitations in
the data available
to measure
UBS’s climate and other
goals. Although UBS has
defined and disclosed its
goals based on the
standards existing at
the
time of disclosure, there can be no assurance (i) that the various ESG regulatory and disclosure regimes under which UBS
operates will
not come
into conflict
with one
another, (ii) that
the current
standards will
not be
interpreted differently
than UBS’s understanding
or change in
a manner that
substantially increases the
cost or effort
for UBS to
achieve such
goals or (iii)
that additional data or
methods, whether voluntary or
required by regulation, may
substantially change UBS’s
calculation of its goals and
aspirations. It is possible that
such goals may prove to
be considerably more difficult
or even
impossible
to
achieve.
The
evolving
standards
may
also
require
UBS
to
substantially
change
the
stated
goals
and
ambitions. If UBS is not able to achieve
the goals it has set, or can only do
so at significant expense to its business, it may
fail to
meet regulatory
expectations,
incur damage
to its
reputation or
be exposed
to an
increased risk
of litigation
or
other adverse action.
While ESG regulatory regimes and
international standards are being developed, including
to require consideration of ESG
risks in investment decisions,
some jurisdictions, notably in
the US, have developed
rules restricting the consideration
of
ESG factors in
investment and business decisions.
Under these anti-ESG rules,
companies that are perceived
as boycotting
or
discriminating
against
certain
industries
may
be
restricted
from
doing
business
with
certain
governmental
entities.
UBS’s businesses may
be adversely affected
if the firm
is considered as
discriminating against companies
based on ESG
considerations, or if further anti-ESG rules are developed
or broadened.
UBS’s financial results may be negatively affected by changes
to assumptions and valuations, as well as
changes to accounting standards
UBS
prepares
its
consolidated
financial
statements
in
accordance
with
International
Financial
Reporting
Standards
(“
IFRS
”).
The
application
of
these
accounting
standards
requires
the
use
of
judgment
based
on
estimates
and
assumptions that may involve
significant uncertainty at the
time they are made.
This is the
case, for example,
with respect
to the
measurement of fair
value of
financial instruments, the
recognition of deferred
tax assets
(“
DTAs
”), the
assessment
of the
impairment of
goodwill, expected
credit losses
and estimation
of provisions
for litigation,
regulatory and
similar
matters. Such
judgments, including the
underlying estimates
and assumptions, which
encompass historical
experience,
expectations of
the future
and other
factors, are
regularly evaluated
to determine
their continuing
relevance based
on
current conditions.
Using different
assumptions could
cause the
reported results
to differ.
Changes in
assumptions, or
failure to make the changes
necessary to reflect evolving market conditions,
may have a significant
effect on the financial
statements
in
the
periods
when
changes
occur.
Estimates
of
provisions
may
be
subject
to
a
wide
range
of
potential
outcomes and significant uncertainty.
For example, the broad range of potential outcomes in UBS’s legal
proceedings in
France
and
in
a
number
of
Credit
Suisse’s
legal
proceedings
increase
the
uncertainty
associated
with
assessing
the
appropriate provision. If the
estimates and assumptions
in future periods
deviate from the
current outlook, UBS’s financial
results may also be negatively affected.
Changes to IFRS or interpretations thereof may cause future reported results and financial position to differ from current
expectations, or
historical results
to differ
from those
previously reported
due to the
adoption of
accounting standards
on a retrospective basis. Such changes may also
affect UBS’s regulatory capital and ratios. For
example, the introduction
of the ECL
regime under
IFRS 9 in
2018 fundamentally
changed how
credit risk arising
from loans,
loan commitments,
guarantees
and
certain
revocable
facilities
is accounted
for.
Under
the
ECL
regime,
credit
loss
expenses
may
increase
rapidly at the onset
of an economic downturn
as a result of
higher levels of credit
impairments (stage 3), as well as
higher
ECL from stages 1 and 2, only gradually
diminishing once the economic outlook improves. As UBS
observed in 2020, this
effect
may
be more
pronounced
in
a
deteriorating
economic
environment.
Substantial
increases
in
ECL
could
exceed
expected loss for regulatory capital purposes and adversely
affect UBS’s CET1 capital and regulatory capital ratios.
UBS may be unable to maintain its capital strength
Capital strength enables
UBS to grow
its businesses and
absorb increases in
regulatory and
capital requirements.
UBS’s
ability to maintain its capital ratios is subject to numerous risks, including the financial results of its businesses, the effect
of changes to capital standards, methodologies and interpretations that may
adversely affect the calculation of its capital
ratios, the
imposition
of risk
add-ons
or capital
buffers,
and the
application
of additional
capital,
liquidity and
similar
requirements to
subsidiaries. UBS’s capital
and leverage
ratios are
driven primarily by
RWA, the
leverage ratio
denominator
and eligible capital, all of
which may fluctuate based on a
number of factors, some of
which are outside of UBS’s
control.
The results
of UBS’s
businesses may
be adversely
affected by
events arising
from other
risk factors
described herein.
In
some cases, such as litigation and
regulatory risk and operational risk events, losses
may be sudden and large. These
risks
could reduce
the
amount of
capital
available
for
return
to shareholders
and hinder
UBS’s ability
to achieve
its
capital
returns target of a progressive cash dividend coupled with a
share repurchase program.
UBS’s
eligible
capital
may
be
reduced
by
losses
recognised
within
net
profit
or
other
comprehensive
income.
Eligible
capital
may
also
be
reduced
for
other
reasons,
including
acquisitions
that
change
the
level
of
goodwill,
changes
in
temporary
differences
related
to
DTAs
included
in
capital,
adverse
currency
movements
affecting
the
value
of
equity,
prudential adjustments that may be
required due to the valuation uncertainty
associated with certain types of positions,
changes in
regulatory interpretations
on the
inclusion or
exclusion of
items contributing
to UBS’s
shareholder equity
in
regulatory capital, and changes in the value of certain pension fund
assets and liabilities or in the interest rate and other
assumptions used
to calculate
the changes
in UBS’s
net defined
benefit obligation
recognised in
other comprehensive
income.
RWA
are
driven
by
UBS’s
business
activities,
by
changes
in
the
risk
profile
of
its
exposures,
by
changes
in
its
foreign
currency exposures and foreign exchange rates, and by regulation.
For instance, substantial market volatility, a widening
of credit spreads, adverse
currency movements, increased
counterparty risk, deterioration
in the economic
environment
or increased
operational risk
could result
in an
increase in
RWA. Changes
in the
calculation of
RWA, the
imposition of
additional
supplemental RWA
charges or
multipliers applied
to certain
exposures and
other methodology
changes,
as
well as the
finalisation of the Basel
III framework and
Fundamental Review of the
Trading Book promulgated by
the BCBS,
which are expected to increase UBS’s RWA.
The
leverage
ratio
is
a
balance
sheet-driven
measure
and
therefore
limits
balance
sheet-intensive
activities,
such
as
lending, more than
activities that are less
balance sheet intensive,
and it may
constrain UBS’s business even
if UBS satisfies
other risk-based
capital requirements.
UBS’s leverage
ratio denominator
is driven
by, among
other things,
the level
of
client activity, including
deposits and loans,
foreign exchange rates, interest
rates and other
market factors. Many
of these
factors are wholly or partly outside of UBS’s control.
The effect of taxes on UBS’s financial results is significantly
influenced by tax law changes and
reassessments of its deferred tax assets
UBS’s
effective
tax
rate
is
highly
sensitive
to
its
performance,
its
expectation
of
future
profitability
and
any
potential
increases
or
decreases
in
statutory
tax
rates,
such
as
any
potential
increase
in
the
US
federal
corporate
tax
rate.
Furthermore, based
on prior years’
tax losses, UBS
has recognised
DTAs
reflecting the
probable recoverable
level based
on future taxable profit
as informed by
its business plans. If
UBS’s performance is expected
to produce diminished taxable
profit in future years, particularly in the US, it may
be required to write down all or a
portion of the currently recognised
DTAs through the income statement in excess of anticipated amortisation.
This would have the effect of
increasing UBS’s
effective tax rate in the year in which any write-downs are
taken. Conversely,
if UBS expects the performance of entities
in
which
it
has
unrecognised
tax
losses to
improve,
particularly
in
the
US
or
the
UK,
UBS
could
potentially
recognise
additional DTAs.
The effect
of doing
so would
be to
reduce its
effective tax
rate in
years in
which additional
DTAs
are
recognised
and to
increase
its effective
tax
rate
in future
years. UBS’s
effective
tax
rate
is also
sensitive
to any
future
reductions in
statutory tax
rates, particularly
in the
US, which
would cause
the expected
future tax
benefit from
items
such as tax loss carry-forwards
in the affected locations
to diminish in value. This,
in turn, would cause a write-down
of
the associated DTAs. Conversely,
an increase in US corporate tax rates
would result in an increase in the Group’s
DTAs.
UBS generally revalues its DTAs
in the fourth quarter of the financial year based on a reassessment
of future profitability
taking
into
account
its
updated
business
plans.
UBS considers
the
performance
of
its businesses
and
the
accuracy
of
historical forecasts,
tax rates
and other
factors in
evaluating the
recoverability
of its
DTAs,
including the
remaining tax
loss carry-forward
period and
its assessment
of expected
future taxable
profits over
the life
of DTAs.
Estimating future
profitability is
inherently subjective
and is particularly
sensitive to future
economic, market
and other conditions,
which
are difficult to predict.
UBS’s results in past years
have demonstrated that changes in the
recognition of DTAs
can have a very significant effect
on its reported results. Any future
change in the manner in which UBS remeasures
DTAs could affect
UBS’s effective tax
rate, particularly in the year in which the change is made.
UBS’s
full-year
effective
tax
rate
could
change
if
aggregate
tax
expenses
in
respect
of
profits
from
branches
and
subsidiaries without
loss coverage
differ from what
is expected, or
if branches and
subsidiaries generate
tax losses that
UBS cannot benefit from through
the income statement. In particular, losses at
entities or branches that cannot offset for
tax purposes taxable profits in other Group entities, and which do not result in additional
DTA recognition, may increase
UBS’s effective tax rate. In addition, tax laws or
the tax authorities in countries where UBS has undertaken legal structure
changes may
cause entities
to be
subject to
taxation as
permanent
establishments
or may
prevent the
transfer of
tax
losses incurred
in one
legal entity
to newly
organised or
reorganised subsidiaries
or affiliates
or may
impose limitations
on
the
utilisation
of
tax
losses
that
relate
to
businesses
formerly
conducted
by
the
transferor.
Were
this
to
occur
in
situations where there were also limited planning opportunities to utilise the tax losses in the originating entity, the DTAs
associated with such tax losses may be required to be written
down through the income statement.
Changes
in
tax
law
may
materially
affect
UBS’s
effective
tax
rate,
and,
in
some
cases,
may
substantially
affect
the
profitability of
certain activities.
In addition,
statutory and
regulatory changes,
as well
as changes
to the
way in
which
courts and tax
authorities interpret
tax laws, including
assertions that
UBS is required
to pay
taxes in
a jurisdiction
as a
result of activities
connected to that
jurisdiction constituting
a permanent
establishment or
similar theory,
and changes
in UBS’s
assessment
of uncertain
tax positions,
could cause
the amount
of taxes
it ultimately
pays to
materially
differ
from the amount accrued.
UBS Group AG and Credit Suisse may incur substantial
tax liabilities in connection with the transaction.
In the past, Credit Suisse
has made significant impairments of the
tax value of its participations in
subsidiaries below their
tax acquisition
costs. As
a result
of the
transaction, tax
acquisition costs
of participations
held by
Credit Suisse
may be
transferred to UBS Group
AG. Additionally, UBS may
further impair its participations
in former Credit Suisse subsidiaries
after the
closing of
the transaction.
UBS Group
AG may
become subject
to additional
Swiss tax
on future
reversals of
such impairments for Swiss tax purposes. Reversals of prior impairments may occur to the extent that the net asset value
of the previously impaired subsidiary increases, e.g., as a result of an increase in retained earnings. Although it is difficult
to quantify
this additional
tax exposure,
as various
potential mitigants
(e.g., transfers
of assets
and liabilities,
business
activities, subsidiary
investments, as
well as
other restructuring
measures within
the Combined
Group in
the course
of
the integration) exist, such additional tax exposure may be
material.
Liquidity and funding risk
Liquidity and funding management are critical to UBS’s
ongoing performance
The viability
of UBS’s
business depends
on the
availability of
funding sources,
and its
success depends
on its
ability to
obtain funding at times,
in amounts, for tenors
and at rates that
enable it to efficiently support
its asset base in
all market
conditions. UBS’s funding
sources have generally
been stable, but
could change in
the future
because of, among
other
things,
general
market
disruptions
or
widening
credit
spreads,
which
could
also
influence
the
cost
of
funding.
A
substantial
part
of
UBS’s
liquidity
and
funding
requirements
are
met
using
short-term
unsecured
funding
sources,
including retail and wholesale
deposits and the regular issuance of
money market securities. A change in the
availability
of short-term funding could occur quickly.
The addition
of loss-absorbing
debt as
a component
of capital
requirements,
the regulatory
requirements
to maintain
minimum TLAC
at UBS’s
holding company
and at
subsidiaries, as
well as
the power
of resolution
authorities to
bail in
TLAC instruments and other debt obligations, and uncertainty as to how such powers will be exercised, caused and may
still cause further increase of UBS’s cost of funding, and could potentially increase the total amount of funding required,
in the absence of other changes in its business.
Reductions
in
UBS’s
credit
ratings
may
adversely
affect
the
market
value
of
the
securities
and
other
obligations
and
increase its funding
costs, in
particular with regard
to funding from
wholesale unsecured
sources, and
could affect
the
availability of certain kinds of
funding. In addition, as experienced
in connection with Moody’s
downgrade of UBS AG’s
long-term debt rating in June
2012, rating downgrades can require
UBS to post additional collateral
or make additional
cash payments
under trading
agreements.
UBS’s credit
ratings, together
with its
capital strength
and reputation,
also
contribute to maintaining
client and counterparty
confidence, and it
is possible that
rating changes could
influence the
performance of some
of UBS’s businesses.
The acquisition
of the Credit
Suisse Group
has elevated these
risks and may
cause these
risks to
intensify.
One day
after
the announcement
of the
planned acquisition
of Credit
Suisse
in March
2023, Standard & Poor's
placed both UBS
Group AG’s Long-Term Counterparty Credit Rating and High-trigger additional
Tier 1 instruments on Negative watch.
Upon the close the acquisition in June, Fitch Ratings downgraded the Long-Term
Issuer Default Ratings (IDRs)
of UBS Group
AG to 'A' from
'A+' and of UBS
AG to 'A+' from
'AA-'. Fitch also
upgraded
Credit Suisse AG's Long-Term
IDR to 'A+' from 'BBB+'.
The requirement
to maintain a
liquidity coverage ratio
of high-quality liquid
assets to estimated
stressed short-term
net
cash outflows, and
other similar liquidity
and funding requirements, oblige UBS
to maintain high
levels of overall liquidity,
limit its ability
to optimise interest income
and expense, make certain
lines of business
less attractive and
reduce its overall
ability
to
generate
profits.
In
particular,
UBS AG
is
subjected
to
increased
liquidity
coverage
requirements
under
the
direction of
FINMA. The
liquidity coverage
ratio and
net stable
funding ratio
requirements
are intended
to ensure
that
UBS is not overly
reliant on short-term funding and that
it has sufficient long-term funding
for illiquid assets. The relevant
calculations make assumptions about the relative likelihood and amount of outflows of funding and available sources of
additional funding in market-wide
and firm-specific stress situations. In
an actual stress situation,
however, UBS’s funding
outflows could exceed the assumed amounts.
This
Form
6-K
is
hereby
incorporated
by
reference
into
(1)
each
of
the
registration
statements
on
Form
F-3
(Registration Numbers
333-263376, 333-272539
and 333-272452),
and on
Form S-8
(Registration Numbers
333-
200634; 333-200635;
333-200641; 333-200665; 333-215254;
333-215255; 333-228653; 333-230312;
333-249143
and 333-272975), and
into each
prospectus outstanding under
any of the
foregoing registration statements, (2)
any
outstanding
offering
circular
or
similar
document
issued
or
authorized
by
UBS
AG
and
Credit
Suisse
AG
that
incorporates by reference any Forms 6-K of UBS AG
and Credit Suisse AG (respectively) that are incorporated
into
its registration
statements filed
with the
SEC, and
(3) the
base prospectus
of Corporate
Asset Backed
Corporation
(“CABCO”) dated June 23,
2004 (Registration Number 333-111572), the Form 8-K
of CABCO filed and dated
June
23, 2004 (SEC
File Number 001-13444), and
the Prospectus Supplements relating to
the CABCO Series 2004-101
Trust dated May 10, 2004 and May 17, 2004 (Registration Number 033-91744 and 033-91744-05).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this
report to be signed on their behalf by the undersigned, thereunto duly
authorized.
UBS Group AG
By:
/s/
Sergio Ermotti
___
Name:
Sergio Ermotti
Title:
Group Chief Executive Officer
By:
/s/ Todd Tuckner
_
Name:
Todd Tuckner
Title:
Group Chief Financial Officer
By:
/s/ Steffen Henrich
____________
Name:
Steffen Henrich
Title:
Group Controller
UBS AG
By:
/s/
Sergio Ermotti
_
Name:
Sergio Ermotti
Title:
President of the Executive Board
By:
/s/ Todd Tuckner
_
Name:
Todd Tuckner
Title:
Chief Financial Officer
By:
/s/ Steffen Henrich
_____________
Name:
Steffen Henrich
Title:
Controller
Credit Suisse AG
By:
/s/
Ulrich Körner
______________
Name:
Ulrich Körner
Title:
Chief Executive Officer
By:
/s/
Simon Grimwood
_
Name:
Simon Grimwood
Title:
Chief Financial Officer
Date:
August 31, 2023